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

        EMERGING HEALTH CARE ISSUES: FOLLOW-ON BIOLOGIC DRUG COMPETITION

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

                                    HEARING

                                   BEFORE THE

                             SUBCOMMITTEE ON HEALTH

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 11, 2009

                                   __________

                               Serial No. 111-46

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

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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
    JANICE D. SCHAKOWSKY, Illinois       SUE WILKINS MYRICK, North Carolina
    CHARLES A. GONZALEZ, Texas           JOHN SULLIVAN, Oklahoma
    JAY INSLEE, Washington               TIM MURPHY, Pennsylvania
    TAMMY BALDWIN, Wisconsin             MICHAEL C. BURGESS, Texas
    MIKE ROSS, Arkansas                  MARSHA BLACKBURN, Tennessee
    ANTHONY D. WEINER, New York          PHIL GINGREY, Georgia
    JIM MATHESON, Utah                   STEVE SCALISE, Louisiana
    G.K. BUTTERFIELD, North Carolina
    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 S. MURPHY, Connecticut
    ZACHARY T. SPACE, Ohio
    JERRY McNERNEY, California
    BETTY SUTTON, Ohio
    BRUCE BRALEY, Iowa
    PETER WELCH, Vermont

                                      (ii)
                             Subcommittee on Health

                    FRANK PALLONE, Jr., New Jersey, Chairman
    JOHN D. DINGELL, Michigan            NATHAN DEAL, Georgia,
    BART GORDON, Tennessee                   Ranking Member
    ANNA G. ESHOO, California            RALPH M. HALL, Texas
    ELIOT L. ENGEL, New York             BARBARA CUBIN, Wyoming
    GENE GREEN, Texas                    HEATHER WILSON, New Mexico
    DIANA DeGETTE, Colorado              JOHN B. SHADEGG, Arizona
    LOIS CAPPS, California               STEVE BUYER, Indiana
    JAN SCHAKOWSKY, Illinois             JOSEPH R. PITTS, Pennsylvania
    TAMMY BALDWIN, Wisconsin             MARY BONO MACK, California
    MIKE ROSS, Arkansas                  MIKE FERGUSON, New Jersey
    ANTHONY D. WEINER, New York          MIKE ROGERS, Michigan
    JIM MATHESON, Utah                   SUE WILKINS MYRICK, North Carolina
    JANE HARMAN, California              JOHN SULLIVAN, Oklahoma
    CHARLES A. GONZALEZ, Texas           TIM MURPHY, Pennsylvania
    JOHN BARROW, Georgia                 MICHAEL C. BURGESS, Texas
    DONNA M. CHRISTENSEN, Virgin
        Islands
    KATHY CASTOR, Florida
    JOHN P. SARBANES, Maryland
    CHRISTOPHER S. MURPHY, Connecticut
    ZACHARY T. SPACE, Ohio
    BETTY SUTTON, Ohio
    BRUCE L. BRALEY, Iowa

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Frank Pallone, Jr., a Representative in Congress from the
      State of New Jersey, opening statement.........................     1
    Hon. Nathan Deal, a Representative in Congress from the State of
      Georgia, opening statement.....................................     3
    Hon. Henry A. Waxman, a Representative in Congress from the State
      of California, opening statement...............................     4
        Prepared statement...........................................     7
    Hon. Ed Whitfield, a Representative in Congress from the
      Commonwealth of Kentucky, opening statement....................    12
    Hon. Anna G. Eshoo, a Representative in Congress from the State
      of California, opening statement...............................    12
    Hon. Michael C. Burgess, a Representative in Congress from the
      State of Texas, opening statement..............................    14
    Hon. John D. Dingell, a Representative in Congress from the State
      of Michigan, opening statement.................................    15
    Hon. Marsha Blackburn, a Representative in Congress from the
      State of Tennessee, opening statement..........................    17
    Hon. Jim Matheson, a Representative in Congress from the State of
      Utah, opening statement........................................    18
    Hon. Phil Gingrey, a Representative in Congress from the State of
      Georgia, opening statement.....................................    19
    Hon. Jane Harman, a Representative in Congress from the State of
      California, opening statement..................................    20
    Hon. Joseph R. Pitts, a Representative in Congress from the
      Commonwealth of Pennsylvania, opening statement................    20
    Hon. Donna M. Christensen, a Representative in Congress from the
      State of Virgin Islands, opening statement.....................    21
    Hon. Steve Buyer, a Representative in Congress from the State of
      Indiana, opening statement.....................................    22
    Hon. Gene Green, a Representative in Congress from the State of
      Texas, opening statement.......................................    23
    Hon. John Shimkus, a Representative in Congress from the State of
      Illinois, opening statement....................................    24
    Hon. Tammy Baldwin, a Representative in Congress from the State
      of Wisconsin, opening statement................................    24
    Hon. Tim Murphy, a Representative in Congress from the
      Commonwealth of Pennsylvania, opening statement................    25
    Hon. Zachary T. Space, a Representative in Congress from the
      State of Ohio, opening statement...............................    26
    Hon. Betty Sutton, a Representative in Congress from the State of
      Ohio, opening statement........................................    26
    Hon. Bruce L. Braley, a Representative in Congress from the State
      of Iowa, opening statement.....................................    27
    Hon. Janice D. Schakowsky, a Representative in Congress from the
      State of Illinois, opening statement...........................    28

                                   Witnesses

    Pamela Jones Harbour, Commissioner, Federal Trade Commission; and
      Michael Wroblewski, Deputy Director of the FTC's Office of
      Policy Planning................................................    29
        Prepared statement...........................................    33
        Answers to submitted questions \1\

                               Submitted Material

    Federal Trade Commission report of June 2009.....................    40
    Working paper by Duke University Department of Economics on Data
      Exclusivity, dated December 22, 2008, submitted by Mr. Buyer...   184
    HHS responses to subcommittee, dated September 18, 2008,
      submitted by Ms. Eshoo.........................................   234
    Reported entitled, ``Proper Duration of Data Exclusivity for
      Generic Biologics,'' by Alex M. Brill, submitted by Mr. Deal...   250
    Report entitled, ``Stimulating Innovation in the Biologics
      Industry: A Balanced Approach to Marketing Exclusivity,'' by
      Laurence J. Kotlikoff, submitted by Mr. Deal...................   262
    Report entitled, ``Biologics in Perspective: The Case for Generic
      Biologic Drugs,'' by AARP Public Policy Institute, submitted by
      Mr. Deal.......................................................   282

    ----------
    \1\ Ms. Harbour did not respond to submitted questions for the
      record.

        EMERGING HEALTH CARE ISSUES: FOLLOW-ON BIOLOGIC DRUG COMPETITION

                                  ----------

                            THURSDAY, JUNE 11, 2009

                      House of Representatives,
                                Subcommittee on Health,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The Subcommittee met, pursuant to call, at 10:08 a.m., in
    Room 2123 of the Rayburn House Office Building, Hon. Frank
    Pallone, Jr. [chairman of the subcommittee] presiding.
        Present: Representatives Pallone, Dingell, Gordon, Eshoo,
    Green, DeGette, Capps, Schakowsky, Baldwin, Matheson, Harman,
    Barrow, Christensen, Castor, Sarbanes, Murphy of Connecticut,
    Space, Sutton, Braley, Waxman (ex officio), Deal, Whitfield,
    Shimkus, Buyer, Pitts, Myrick, Murphy of Pennsylvania, Burgess,
    Blackburn, and Gingrey.
        Also present: Representative Inslee.

    OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE
                IN CONGRESS FROM THE STATE OF NEW JERSEY

        Mr. Pallone. The meeting of the subcommittee is called to
    order, and I will recognize myself initially. Today, the
    subcommittee is meeting to discuss the Federal Trade Commission
    report entitled Emerging Health Care Issues: Follow-on Biologic
    Drug Competition. This is an extremely timely report and goes
    to the very heart of our President and this Congress'
    commitment to ensuring affordable and quality health care for
    every American. Creating a statutory pathway for the approval
    of follow-on biologics presents us with an opportunity to
    improve millions of lives at a more affordable cost. Currently,
    brand biologics account for approximately 15 percent of total
    U.S. prescription drug sales, and the industry is growing at a
    rate of around 20 percent annually. In a couple years, we could
    be spending over $100 billion just on biologic drugs.
        According to data from the Centers for Medicare and
    Medicaid Services, CMS, just 4 biologics account for 30 percent
    of all Medicare Part B spending. Obviously, these drugs are
    costing the health care system a lot of money, and it is not
    just the health system that is being burdened by these high
    costs. For American families biologics can cost in the tens of
    thousands of dollars for the most popular drugs. In some cases
    the life-saving biologic can cost a patient over $300,000 a
    year. There is no doubt that these innovative drugs provide
    Americans access to ground breaking treatments for devastating
    illnesses, including cancer, arthritis, and multiple sclerosis.
        But I have heard too many stories from my home district in
    New Jersey and from all around the country of hard-working
    people who just can't afford the tremendous cost of these life-
    saving and life-improving drugs. In a country of the best and
    the brightest, which we are, I have to believe that we can do
    better. We must continue to innovate and push the envelope to
    discover more effective treatments and cures for the scourges
    of our time. In the same vein, we must also ensure that these
    innovative products are available to patients at an affordable
    price. We are faced with a delicate balance moving forward
    between ensuring reasonable drug prices and expenditures,
    increasing access for more Americans, and supporting
    innovation. And I know that we have different bills on this
    subject and we have significant disagreements, but I also think
    that we all believe that we need to move forward with a pathway
    for these follow-on biologics, and this hearing today is the
    beginning of that process.
        There are some principles, the same principles that
    essentially guided us with chemical substances I think can
    guide us in the creation of legislation today. We all know
    about the Hatch-Waxman Act. Mr. Waxman isn't here, but I am
    sure he will be.
        Mr. Waxman. I am.
        Mr. Pallone. Oh, you are. I am sorry.
        Mr. Waxman. It is Waxman-Hatch.
        Mr. Pallone. Yes, I know. I was going to say that. I see in
    the document it says Hatch-Waxman. I said it is Waxman-Hatch,
    not Hatch-Waxman. But we know that Waxman-Hatch has been a
    great success since its passage or since it went into effect in
    1984. And since its passage more generic drug manufacturers
    have entered the market driving down costs to the consumer.
    Also, pioneer drug companies have given protections that have
    spurred innovation leading to advancements that are helping us
    to live longer and healthier lives. In addition to driving
    innovation, Waxman-Hatch was also able to effectively and
    without any market interference drive down the cost of drugs.
    In fact, the U.S. health care system has saved over $700
    billion in the past 10 years through the use of generic
    pharmaceuticals. In a time when we are facing an economic
    crisis partly brought on by skyrocketing health care costs,
    this is a staggering figure.
        If biologics are the future, then we should do everything
    we can now to control costs while aiding innovation just like
    Waxman-Hatch did. So today we are hearing testimony on the
    newly-released Federal Trade Commission report looking
    specifically at the issues of innovation, cost, and
    competition. The FTC has decades of expertise in this area and
    I value their objective and comprehensive analysis. I am
    anxious to hear from the FTC about what factors we must
    consider when moving forward with legislation and how follow-on
    biologics are likely to behave in the market setting as
    compared to generics. I am especially curious to hear about
    what incentives and protections will be necessary in a biologic
    and follow-on biologic world that are similar or different than
    the current brand and generic arena.
        And I want to welcome FTC Commissioner Harbour to the
    committee today. She comes from the State of New Jersey. Thank
    you for coming to testify before us. I would also like to
    welcome the author of the FTC report, Michael Wroblewski, who
    has been invited along with the Commission to answer more
    technical questions about the report. So thank you both for
    being here. I now recognize Mr. Deal for 5 minutes.

      OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF GEORGIA

        Mr. Deal. Thank you, Chairman Pallone, for holding this
    hearing today on the issue of surrounding the establishment of
    an approval pathway and of patent protection concerns on
    follow-on biologics at the Food and Drug Administration and the
    resulting impact that this may have on competition and
    innovation in the biologic drug marketplace. I also want to
    thank Commissioner Harbour for joining us today to discuss the
    results of the Commission's very recently completed report. I
    look forward to that testimony and to the questions and answers
    that will follow regarding that report, and we hope she will be
    able to provide us some definition to the debate that currently
    surrounds this issue. As this subcommittee prepares to consider
    fundamental health reform this summer, I believe a critical
    component of such reform must include the establishment of
    appropriately abbreviated approval processes for follow-on
    biologic drugs, a priority upon which innovators engineers, and
    manufacturers both agree.
        In 2007, global sales of biologic drugs reached $75 billon,
    and current estimates suggest that over half of all drugs, both
    chemical and biologic in nature, will be bio-pharmaceutical
    products next year. Biologic drugs have provided some of the
    most promising benefits for a wide range of diseases, including
    anemia, hemophilia, cancer, diabetes, HIV, rheumatoid
    arthritis, and other debilitating medical conditions that
    affect millions of Americans every day. Access to lower cost
    biologics represents a critical step forward in reducing the
    overall high cost of health care and will provide greater
    access to patients in need of these critical life-saving
    therapies. In doing so, Congress must be certain a balanced
    approach is established, which encourages new innovation in new
    bio-pharmaceuticals while providing more affordable options for
    the American people.
        At the center of this issue, the period of marked
    exclusivity given to innovator products, as well as patent
    dispute resolution procedures, and the flexibility which
    Congress will give to FDA to approve bio-similars will direct
    our nation's ability to expound upon the advancements in the
    biologic arena and to serve a growing number of patients in
    dire need of these drugs. In the report under consideration
    today produced by the Federal Trade Commission, a number of
    arguments are made which support the robustness of our current
    patent system as it applies to biologics and highlights the
    question how long of a period of market exclusivity must an
    innovator of biologic products be afforded in order to yield
    net profit results, notably with respect to the significant
    outlays expended in bringing the product to market and how the
    current intellectual property rights translate into the field
    of bio-pharmaceuticals.
        I recognize the critical need for innovators to earn a
    profit on innovative and cutting edge therapies, but also
    recognize the importance of ensuring access to the American
    people who simply cannot gain access to these critical
    therapies solely based upon their significant cost. Therefore,
    a delicate balancing act must be played as we pursue
    congressional establishment of an appropriate approval pathway
    and patent resolution processes under FDA for these unique
    drugs. Among the report's findings, I am particularly
    interested in the stated dynamic of competition which follow-
    ons are likely to face upon an appropriate approval mechanism
    once it is in place. According to the report, pioneer
    manufacturers, potential follow-on biologic manufacturers, and
    payors were virtually unanimous in their predictions that
    competition from follow-on biologic drug entry is likely to
    resemble brand to brand competition rather than brand to
    generic drug competition.
        And unlike chemical generic drug entry, follow-on biologic
    entry would not result in steep price discounting or rapid
    acquisition of market share by follow-on biologic
    manufacturers. Therefore, although the introduction of a bio-
    similar may result in a 10 to 30 percent reduction in innovator
    price and an introduction of a competing product into the
    marketplace innovator companies are still capable of securing
    adequate positive returns on investment for years to come and
    maintain significant market share. And it is important to note
    the exorbitant cost of many of these therapies which thousands
    of Americans across the country are forced to accept. For
    example, taking a conservative 15 percent reduction in cost of
    a hypothetical follow-on bio-pharmaceutical which would cost
    $40,000 per year. Allowing bio-similars into the marketplace
    could potentially save this individual $6,000 per year, which
    is a dramatic step toward reigning in the cost of these drugs
    while encouraging innovation.
        There are a lot of questions which remain. I remain
    committed to working on this issue, an issue which I do believe
    cannot wait any longer to be addressed. I appreciate the
    cooperation of my colleagues on this committee. I look forward
    to the testimony. I look forward to working together
    cooperatively as we move this issue forward. Thank you, Mr.
    Chairman.
        Mr. Pallone. Thank you, Mr. Deal, and thank you for
    prioritizing this issue. And now the chairman, Mr. Waxman.

    OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. Waxman. Thank you very much, Mr. Chairman. Today, we
    are going to hear from the Federal Trade Commission on an issue
    of paramount importance to the debate on a pathway for approval
    of follow-on biologics, how long a period of exclusive
    marketing must we give to biotech drugs to sustain innovation.
    As was true when Congress passed the Hatch-Waxman Act 25 years
    ago, an effective follow-on biologics bill must maintain a
    balance between increasing consumer access to affordable
    medicines on the one hand and providing adequate incentives for
    innovation on the other. Life-saving drugs are useless if no
    one can afford them, yet making today's drugs affordable does
    us little good if we cut off the supply of future
    breakthroughs. We have made great progress in the last 3 years
    toward a consensus on how to ensure that follow-on biologics
    are safe and effective. Just 2 years ago the drug industry
    argued that it was impossible to make follow-on biologics. Now
    there is agreement that it can be done.
        But we remain divided on what incentives are needed for
    innovation. It is no longer a matter of whether patients will
    get generic versions of these life-saving medicines but when.
    In assessing how much exclusive marketing is needed to sustain
    innovation, I began with a basic premise. The balance we struck
    in the Hatch-Waxman Act has worked well for 25 years. It has
    given us access to affordable drugs and it has not damaged
    innovation. Pharmaceutical R&D expenditures have not just been
    maintained, but have steadily risen throughout these 25 years.
    Under Waxman-Hatch innovative drugs get 5 years of exclusivity.
    The drug industry has been engaged in a massive and expensive
    lobbying campaign to convince the members of this committee
    that the supply of life-saving drugs will dry up if they don't
    get triple the monopoly protection available to all other
    drugs. The drug industry is demanding 12 or even 14 years of
    exclusivity for biotech drugs.
        To support this extraordinary request, the industry makes 2
    main arguments. First, that their patents are much weaker than
    drug patents and won't block competition from follow-ons.
    Second, that it takes 12 to 16 years for biotech drugs to break
    even so that is the period of exclusivity they need. Though I
    have seen little or no persuasive evidence to support these
    arguments, the industry has blanketed Capitol Hill with them.
    The outcome of this debate is too important for our nation's
    health to let lobbying cloud decisions. The cost of reaching
    the wrong decision is simply too high. Instead, the appropriate
    length of exclusivity must be decided on the basis of evidence
    and analysis by objective experts, experts who are not being
    paid by one side or the other. That is why I am so pleased that
    the Federal Trade Commission has undertaken an in-depth review
    of all the evidence and arguments on both sides of this debate.
    The FTC employs economists, patent lawyers, and experts in the
    pharmaceutical marketplace. Their job is to assess the impact
    of laws, regulations, and marketing practices on both
    competition and innovation in the prescription drug
    marketplace.
        The FTC has overseen this marketplace for decades and has
    produced highly respected reports on generic drug competition
    and anti-competitive practices in the drug marketplace. For
    example, in 2002 the FTC produced a report on abuses of Hatch-
    Waxman that inappropriately delayed consumer access to generic
    drugs. The report resulted in important amendments to our law
    enacted the following year. Today, the FTC will tell us whether
    the methods we have used to sustain innovation in the drug
    industry, patents, and the market-based pricing with perhaps a
    short period of exclusivity are adequate to sustain innovation
    for biotech drugs, and they will tell us whether the argument
    is in favor of 12 to 14 years of exclusive marketing hold up to
    scrutiny. Objective evidence-based answers to these questions
    from the expert agency charged with overseeing competition and
    innovation of the drug marketplace will provide critical
    information to the committee as we move forward. I look forward
    to exploring the FDC's analysis and conclusions on these
    questions. Thank you very much, Mr. Chairman.
        [The prepared statement of Mr. Waxman follows:]

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        [GRAPHIC] [TIFF OMITTED] T3747A.002

        [GRAPHIC] [TIFF OMITTED] T3747A.003

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        [GRAPHIC] [TIFF OMITTED] T3747A.005

        Mr. Pallone. Thank you, Chairman Waxman. Next is the
    gentleman from Kentucky, Mr. Whitfield.

      OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
               CONGRESS FROM THE COMMONWEALTH OF KENTUCKY

        Mr. Whitfield. Mr. Chairman, thank you very much for this
    important hearing today on an important subject matter. All of
    us are in total agreement that some type of generic pathway for
    biological drugs must be created. I think it demonstrates by
    the different bills that we have that there are some
    significant differences in how we create that pathway. We all
    understand yesterday that the Federal Trade Commission's report
    was submitted and it leaves many of us with some serious
    concerns with their findings, specifically the claim that data
    exclusivity is essentially unnecessary in a generic pathway.
    The scenario outlined by the FTC would, I believe, unfairly
    tilt competition in favor of bio-similars by allowing them to
    capitalize on innovators substantial research and development
    efforts at any time. This would create even more uncertainty, I
    believe, for innovators when they make their R&D decisions.
        I might also say that Professor Dr. Henry Grabowski at Duke
    University, and you all can correct me if I am wrong on this,
    but I believe he has the only peer-reviewed document on this,
    and he summarized the findings of his study that concludes that
    without a data exclusivity period of between 13 and 16 years
    the future introduction of important new medicines could be
    delayed significantly or deterred altogether and that a strong
    innovative industry is necessary for an industry to thrive over
    the long term. So we find ourselves today trying to balance the
    need for new drugs providing low cost medicines for our senior
    citizens, and so this hearing is vitally important, and I
    certainly look forward to hearing from the Federal Trade
    Commission today and learning more about their report and how
    it compares with Dr. Grabowski's report. And thank you very
    much.
        Mr. Pallone. Thank you. Next is the gentlewoman from
    California, Ms. Eshoo, and I want to thank her also for all her
    work on this issue.

     OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Ms. Eshoo. Thank you, Mr. Chairman, and good morning to
    everyone that is here. I am pleased to be here to discuss
    competition in the biotechnology industry, but I have to say
    that I am puzzled and somewhat disappointed by the
    subcommittee's approach to this critical issue. Everyone
    understands that this is not only critical, it is extremely
    complex. In May of 2007, over 2 years ago, the Health
    Subcommittee had a hearing on bio-similars. In October of 2007
    subcommittee members met to discuss bio-similar, and the result
    of that meeting, as members might recall, was a series of
    questions that the members provided to stakeholders and the FDA
    several months later in April of 2008. We received thoughtful,
    thorough responses from a large number of interested
    organizations and experts.
        Now today this is the first committee action on bio-
    similars in more than 2 years and a hearing on an FTC report we
    received less than 24 hours ago. When we were informed that
    there was going to be this hearing, we immediately called the
    FTC to ask for a copy of the report. They said that we could
    not have it, that it would be available the morning of the
    hearing. I then, Mr. Chairman, approached you and asked if
    members could at least see this the day before. Why have a
    hearing if you can't read the report that you are having the
    hearing on? So we did receive it. I don't know how many members
    have read this report, and I don't think that this process
    really reflects well on I think the most distinguished full
    committee and subcommittee in the House.
        Now I assume that the FTC has devoted significant efforts
    and resources in putting this report together, but I am not
    convinced that the FTC Commission is--and what they have in
    this report are exactly what we have been waiting for 2 years
    to hear about. I have met with many scientists, doctors,
    patients, who have much to contribute to the subcommittee's
    deliberations, but we only have the FTC here today, and I guess
    it was the decision of the chairman not to have anyone else.
    This is a report that has not even had been subjected to the
    scrutiny of the public. I think that we can do better than
    that. Now what does the FTC report, as I read it as quickly as
    I could, what does it conclude? It says that increased
    competition in the biotechnology industry would result in lower
    prices for biologics. It is exactly why I introduced along with
    Mr. Inslee, Mr. Barton, the Pathway for Bio-Similars Act.
        This is the Kennedy legislation in the House. Now
    competition is always healthy. Anyone that has known me over
    the 16-1/2 years I have been in the Congress knows that I
    believe that it benefits consumers whether it is in
    biotechnology, whether it is in telecommunications, whether it
    is in energy, whether it is health care, or whether it is
    baseball. I am a staunch advocate of fair competition and open
    markets, and I believe that my legislation will provide new
    competition while promoting sound science, and above all else
    protect patients. Any new pathway for bio-similars must provide
    effective safeguards for patients and sufficient incentives for
    the development of new treatments for the most deadly diseases
    that affect humankind today.
        I am pleased that my bill enjoys the support of just shy of
    100 members, bipartisan members, of the House, and it has
    received the endorsements of over 70 patient, physician,
    industry, and academic groups, as well as governors of 4
    states. So I think that we need to be respectful of both
    efforts. And I am very proud of this because this is a
    complicated issue, and the amount of time spent with members,
    as well as members of the public and others, has been
    considerable. The establishment of a new regulatory pathway for
    approval of bio-similars is a critical matter for this
    subcommittee and the Congress to consider. I am eager to get to
    work on this, and I encourage you, Mr. Chairman, to hold more
    thorough and more inclusive hearings in the near future. I am
    glad that the FTC is here today. My understanding of the FTC is
    that most of its work deals with anti-trust. In my questions, I
    would like to know where the scientific data and the basis for
    the report has come from, but I nonetheless welcome the FTC
    here. You are an important agency. And I thank you, Mr.
    Chairman, and I hope that when I ask you why we were doing it
    this way, your response was it is the only time we have before
    the August recess.
        I think it could have been broader. I think the
    subcommittee deserves that. I think the full committee deserves
    that. I think the House of Representatives deserves that on
    this issue which is so critical, so critical, to the well-being
    of patients and a process by which we can reduce the cost of
    biologics for people in our country. So, thank you, and I yield
    back.
        Mr. Pallone. Thank you. And let me assure the gentlewoman,
    as I said, that we will have additional hearings on this very
    important issue.
        Ms. Eshoo. When do you plan to do that?
        Mr. Pallone. Well, as I mentioned, we are going into the
    health care debate, so I can't say when, but I promise you we
    will because this is a very important issue for the members.
    Let me turn to the gentleman from Texas, Mr. Burgess.

    OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE
                  IN CONGRESS FROM THE STATE OF TEXAS

        Mr. Burgess. Thank you, Mr. Chairman. Mark me down as
    leaning ambivalent on this issue. Now just like everyone who
    sits on this committee, I know we have all spent months looking
    at the legislative proposals dealing with follow-on biologics.
    I know I personally have been in meeting after meeting with
    interested parties, and I have become convinced that this
    committee needs to hold more hearings. We lack sufficient
    information, primarily safety information, to render an
    informed opinion. We do have 2 bills championed by leaders on
    this committee, and we obviously need to explore those
    divergent points of view involved. Certainly, like
    Congresswoman Eshoo, I welcome Commissioner Harbour here. There
    are lots of things that I would like to discuss with the
    Federal Trade Commission. I am terribly interested in the lack
    of the ability of our physician community to be able to
    negotiate with our insurance community, but we don't get to do
    that today.
        So my excitement with this hearing was tempered when I
    realized we really are only going to be focusing on a very
    narrow aspect of the bio-similars discussion, and that very
    narrow aspect will not include patient safety. Market
    exclusivity and patent integrity are important elements of any
    legislation authorizing a pathway for follow-on biologics. I
    was unaware that this committee had already achieved consensus
    on issues of safety, science, and the Food and Drug
    Administration. Assuming this committee has not reached such a
    consensus, then it is just downright frustrating that the Food
    and Drug Administration is not here in this room at this
    hearing. Now assuming that we didn't want to hold a series of
    hearings on points of disagreement and wanted our first focus
    to be on market forces, as we will today, then a second panel
    representing concurring or dissenting opinions from industry
    would be appropriate in my opinion.
        And then maybe we could even hear from the scientists and
    the doctors. Mr. Chairman, I referenced last week I took a
    field trip out to the Food and Drug Administration last week. I
    had some wonderful interactions with some of the scientists who
    are working on some of these very issues, the issues of bio-
    similars as they relate to monoclonal antibodies. This is the
    type of research that may unlock a lot of secrets that have
    been kept from our physician community for years, and it is
    just such terribly important information that I cannot believe
    we are going to be asked to make a decision without access to
    that information. I will be interested to what extent the
    Commissioner will be able to testify on the issue of
    interchangeability. Interchangeability is one of the foremost
    at issue of science, but it is importantly one of patient
    safety and that should have a physician and patient at the
    heart of the discussion.
        I would not typically associate the Federal Trade
    Commission with such discussion. Mr. Chairman, I am fascinated
    by the prospect of a reliable, bio-similar pathway. Texas is
    becoming a focal point for bio-technology development. Not only
    does this mean new therapies for previously untreatable
    diseases with just the chance of projection that 50 percent of
    the drugs by 2020 will be biologics so this is a huge economic
    issue for Texas as well. Just as scientists and doctors have
    just scratched the surface of potential biologics for the next
    generation of cures and treatments, this committee has plenty
    of work to do to find a compromise bill that solidifies our
    ambitions and meets or exceeds our expectations. No artificial
    deadline, and this goes to the health reform debate as well, no
    artificial deadline should compel us to ride rough shod over
    the deliberative nature of this body in regular order. To do so
    not only tarnishes this great committee but could literally
    mean life or death for our constituents. Thank you, Mr.
    Chairman. I will yield back the balance of my time.
        Mr. Pallone. Thank you. The chairman emeritus, Mr. Dingell.

    OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF MICHIGAN

        Mr. Dingell. Mr. Chairman, thank you, and I commend you for
    holding this hearing, which is very important. We are here to
    discuss the findings of the Federal Trade Commission with
    respect to its study on how competition between pioneer
    biologics and follow-on biologics is likely to develop. This is
    a series of hearings, which I hope will take place, which is
    wrought with many, many questions of great importance and many
    fewer answers of any relevance or importance. We have a
    tremendous opportunity here to develop a follow-on biologics
    policy that will bring the competition needed to provide
    greater access on life-saving biological drugs. However, we
    also have a responsibility to ensure that the innovation that
    develops the current biologic products continues in a way that
    will breed new effective therapies or a new group of
    conditions.
        One thing the FTC report makes abundantly clear is that
    biologic products are different from small molecule chemical
    drugs. They are enormously complex, much longer, and they are
    also either products of or sometimes living organisms. The
    science is clearly different. The safety considerations between
    the 2 categories of drugs are different. And as the FTC report
    concludes, the competition between pioneer products and generic
    competitors is different. It must be noted that we will find
    that the traditional questions that FDA has had to address will
    be somewhat different either in form or in total. And the
    question of whether it is safe, biologically equivalent, what
    are the side effects, contraindications, and whether it is
    effective are going to be interesting and different questions
    that have to be addressed.
        It also is going to be a major question before us as to how
    we address the question of biological equivalency and whether
    or not one drug is an honest, safe substitute for another which
    could properly be prescribed with expectation of helping rather
    than hurting the patient. In 1984, Congress granted the FDA
    authority to approve generic drugs, and we all commend Chairman
    Waxman for his leadership in that effort. We did not foresee
    the need for a similar pathway for generic biologics. The
    science has exploded under our feet since then and in certain
    instances biotechnology provides clear technical advantages
    over other traditional therapies. We also need to examine if
    exclusivity limitations that we create is reflective of true
    costs in time and resources.
        We also need to know how this is going to affect the cost
    of medicine and how it is going to impact on our efforts to
    reduce the tremendous skyrocketing now going on in health care
    costs. We also want consumers to make sure that there is
    affordable access to these life enhancing and sustaining
    therapies. What is the path forward on exclusivity? Is it 5
    years, 12 years or 14 years, more or less? Eleven years the
    European has set forth. We need to create a framework that
    balances good science and the public health. We can also focus
    on patient safety and at the same time ensure that incentives
    remain for private innovation.
        The FTC report does a good job of laying out the economic
    and competitive effects of a follow-on biologics policy.
    However, we should be reminded that safety should be our number
    1 priority, and protection of the American consuming public
    should be of the highest priority. Policies that protects the
    safety of the patient is paramount as we forge ahead in the new
    area of follow-on biologics. We should be thoughtful as we move
    forward but not allow fear to restrict us, but above all else
    we have got to move forward to get the answers to the question.
    Here are a few questions that I find troublesome. What
    standards will ensure that follow-on biologics are as safe as
    the original products, and that we provide the necessary
    knowledge to medical practitioners in the use of these
    products.
        As we study potential competition models, should we be
    guided by a one size fits all approach or should we allow
    different approaches, and, if so, when, how, and what
    discretion should we give FDA to use those, or should there be
    a variation from one product to another? What study should
    support follow-on biological applications? Can a generic
    biologic product be created that is genuinely or sufficiently
    interchangeable? People tell us yes, people tell us no. But in
    this area of enormous complexity, I am not convinced that we
    can give a decent answer to that question. I am convinced that
    all these questions could be answered and that there is a way
    forward in developing sound follow-on biologic policy that
    provides greater access to current products and supports
    innovation in developing new ones.
        I look forward to contributing to that discussion, and I
    know that this committee is fully up to the task for which we
    were created, and that is dealing with questions of this kind.
    I am pleased this hearing is being held. I look forward to the
    testimony, and I anticipate much needed feedback from our
    members. And I thank you, Mr. Chairman.
        Mr. Pallone. Thank you, Chairman Dingell. The gentlewoman
    from Tennessee, Ms. Blackburn.

    OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF TENNESSEE

        Ms. Blackburn. Thank you, Mr. Chairman, and I want to say
    welcome to our witnesses today. Members on this committee have
    heard me talk a little bit about serving in the State Senate in
    Tennessee, and one of the things that I worked very diligently
    on while I was there was starting our Tennessee Biotech
    Association. And now that has 130 members across our state, and
    they really have become the recognized authority on biotech
    research in our state. Right now we have got about 300
    companies that are life science companies that are working in
    Tennessee that are innovating every day, and they are working
    with pharmaceutical companies and bio-science companies large
    and small to create new products and therapies and protocols.
    And we are very pleased with the work that they are doing.
        We are also pleased with the work that is being done by
    many of our universities in Tennessee, which have taken a lead
    in this. And they received $580 million in external funding for
    biotech related research in our universities in the past year,
    and the University of Tennessee Health Science Center has
    Memphis Bioworks. We have complimentary work that is being done
    at St. Jude's. We have the life sciences center where
    Vanderbilt has a partnership and that is in the mid state area
    East Tennessee State University of Tennessee and Oak Ridge over
    on the east side of our state, and in the past 6 years along
    with the funding that has gone to the universities you have
    seen just under $1 billion in venture capital go into
    innovations.
        So I am pleased to be able to praise that innovative
    industry in our state but I will tell you I am very concerned
    about protecting the intellectual property of the industry in
    that state, and, quite honestly, as I read through your report,
    it was something that was of concern to me. And I am going to
    have some questions for you today as we move forward with this
    hearing. One of the things that I felt as I read your report,
    if you followed the scenario, the patient scenario that you lay
    forth, then it appears that bio-similars could be brought to
    market while they are still infringing on valid patents. And as
    my colleagues know, last week when we debated the energy bill,
    I sought to bring intellectual property protection for those
    innovators that are working in the energy sector. Yesterday on
    the floor, Congressman Larson, Congressman Kirk and I had an
    amendment that went in to provide protection for this
    innovation.
        So this raises some red flags with me of how infringement
    could be allowed and product brought to market. It raises red
    flags to me that it is uncertainty that would be placed on our
    innovators. And I see that as a hamper to R&D which we badly
    need. I know I am over my time, and we are going to have votes.
    I will yield back, and I do look forward to the questions.
    Thank you, Mr. Chairman.
        Mr. Pallone. Thank you. The gentleman from Utah, Mr.
    Matheson.

      OPENING STATEMENT OF HON. JIM MATHESON, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF UTAH

        Mr. Matheson. Thank you, Mr. Chairman. I think we all know
    as we go into the 21st century and we look at the U.S. economy
    innovation is such a key factor in how our economy is going to
    succeed. I think it is very important to remember that in the
    context of today's hearing because within the innovation
    economy few industries have more promise and more uncertainty
    and risk than the biotechnology industry. The biotech industry
    supports more than 3.2 million jobs in the United States, and
    we all know many of these are high wage jobs, but we should
    also acknowledge that this is an industry where the U.S. is
    still the leader in the world. This is one of those centers of
    excellence that is in the United States when you look at the
    global economy.
        Yet with all that good news more than 80 percent of the
    biotech companies in our country remain unprofitable, and a
    third of the companies had less than 6 months cash on hand. And
    this is with no competition from follow-on products. The
    companies that make up the majority of this industry are small.
    They have no source of revenue and they are operating solely on
    the hope that they will achieve a major breakthrough in
    medicine. So one of the main issues up for discussion today is
    the issue of date of exclusivity, how much time should an
    innovative biotechnology product have on the market to try to
    recoup investment in research and development before a follow-
    on biologic is approved. The average cost of developing a
    biologic is about $1.2 billion.
        Clearly, that is an expensive investment, particularly when
    you have no revenues coming in the door. I think we all can
    agree that competition in the market for medicines is a good
    thing. It brings down costs for individuals and for the health
    care system as a whole, and I fully support establishing a
    pathway for approval of follow-on biologics. However, I believe
    we need to be sure we are creating appropriate incentives for
    biotechnology companies to take the risks involved in bringing
    these medicines to patients. Now I understand that the FTC
    believes that 5 years is a sufficient period for data
    exclusivity for innovative biotechnology products. I disagree.
        As I said earlier, this is one of America's strengths, but
    we got to look at the context of global competition. The
    exclusivity period in Europe is longer than 5 years. This is an
    industry that can move offshore in a moment, and as members of
    Congress, we need to take that in consideration when we set
    this type of policy. A recent report from Duke University shows
    that the break even point for most biologics is somewhere
    between 12 and 16 years. With an appropriate incentive, the
    researchers at Duke believe a few companies or venture
    capitalists will invest the necessary capital to research and
    develop a biotech product.
        These products are going to be developed in this country,
    not necessarily with taxpayer dollars. That last statement I
    just made about this is an industry that is financed through
    venture capital and other private capital markets, and the
    public policy platform we wet will establish proper incentives,
    I hope, to allow that private investment to happen. These are
    the issues we ought to be talking about today. It is our job to
    take these steps to make sure this innovation agenda has an
    opportunity to succeed in this country. And I would hope, Mr.
    Chairman, as others have voiced that this subcommittee can
    bring in other witnesses besides just the one panel today to
    bring in other points of view as we examine this very important
    issue. I look forward to working with the committee on that,
    and I will yield back the balance of my time.
        Mr. Pallone. Thank you. The gentleman from Georgia, Mr.
    Gingrey.

      OPENING STATEMENT OF HON. PHIL GINGREY, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF GEORGIA

        Mr. Gingrey. Mr. Chairman, thank you very much. I would
    tend to agree with Ms. Eshoo that getting the report from the
    FTC at 2:00 yesterday afternoon really allows very little time
    to go through the 120 pages. I have to admit that I haven't had
    an opportunity to go through any of it, so I certainly do look
    forward to the witness that we are going to hear from shortly.
    This is a hugely important issue, this issue of follow-on
    biologics, and as we all know there are 2 bills introduced on
    the one hand by leadership on the majority side combined with
    some leadership from the minority side, and also a bill on the
    minority side co-authored by Ranking Member Barton. I looked at
    these bills. I have studied them. I have tried to understand on
    the one hand 16 years, I guess, of exclusivity and on the other
    hand 8 years. The issue of interchangeability, once these
    generic biologics, follow-on biologics, are actually approved
    by the FDA, I think is a very important issue.
        And it is tough. It is a tough thing to decide on, and we
    just need, as my colleagues have said, as much information as
    we can possibly get, particularly in regard to patient safety
    because as the chairman emeritus said these are not single
    molecules or small molecules as we dealt with back in 1984
    under Hatch-Waxman. These are different. These are living
    cells, and every manufacturing process for these drugs are
    different, and there is no way to make them completely the
    same, so it is going to be a tough thing. I would hope that
    maybe there is room for compromise, quite honestly. As we
    listen to the debate and study further the 2 particular bills
    because there are great members that are trying to do the right
    thing and trying to make sure that we get cost effective, I
    don't want to say cheap, but cost effective, the very expensive
    medications to the public as soon as possible, but also that we
    have to always keep in mind safety. So I look forward, Mr.
    Chairman, to the hearing and getting more information on this
    hugely important issue. And yield back.
        Mr. Pallone. Thank you. The gentlewoman from California,
    Ms. Harman.

      OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Ms. Harman. Thank you, Mr. Chairman. I am a new member to
    this subcommittee, and I surely agree with Ms. Eshoo that this
    subject is complex, and I am persuaded that I don't know enough
    about it to have a final opinion. That is why I am happy we are
    having this hearing, and that we will have a series of hearings
    in the fall. I have not co-sponsored either of the pending
    bills because I feel I need to learn more. But surely I know
    enough to believe that we should be getting reports more than
    18 hours in advance of hearings, and I hope that in the future
    that will happen so that all of us can be as knowledgeable as
    possible. I just want to say a couple things about the general
    subject.
        First of all, although new to the committee, I am not new
    to this earth and I am not new to Congress, and I remember 1984
    when Henry Waxman did something very impressive, and that was
    to strike an agreement with his political opposite Orin Hatch
    on a bill that the drug industry strongly opposed and that has
    led to considerable progress, so I really think these things
    can happen and be done right, and that is a history in our
    committee, and hopefully we will follow it again. But this
    time, I think this subject is more complicated and I think the
    implications, as Mr. Matheson said, for the future of the U.S.
    industry are grave. I don't know much about this subject, but I
    do know what we did to the U.S. commercial satellite industry
    when in my opinion we got it wrong in the late 1990's, and we
    basically took away the market edge for our U.S. satellite
    makers.
        Now we are trying to get it back. Hopefully we will, but we
    lost 10 years, and so I just want to make sure we get this
    right, and I want to be sure that I make the best contribution
    I can as a hopefully thoughtful member of this committee. So I
    thank you for holding this hearing, and I look forward to
    learning a lot more about this subject. I yield back.
        Mr. Pallone. Thank you. The gentleman from Pennsylvania,
    Mr. Pitts.

    OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN
             CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

        Mr. Pitts. Thank you, Mr. Chairman. I would like to thank
    you for convening this hearing on the Federal Trade
    Commission's report, Emerging Health Care Issues: Follow-on
    Biologic Drug Competition. I think all of us realize the
    potential of follow-on biologics, and I believe we all agree on
    the need to set up a pathway sooner rather than later. I must
    say also that it would have been more helpful to give the
    members a little more time until we had a time to read and
    analyze this 120-page report, which was released just yesterday
    before having the hearing. I am quite concerned by the report's
    assertion that no period of data exclusivity is necessary for
    pioneer or brand biologics because patents and market pricing
    should provide sufficient protection and incentive. This logic
    has worked well for small molecule drugs governed by Hatch-
    Waxman but as this report points out multiple times there are
    significant differences between small molecule drugs and
    biologics.
        As the report acknowledges, a generic small molecule drug
    is identical to its brand counterpart. A follow-on can only be
    similar to the brand biologic. It is this space between
    identical and similar that opens the door for a follow-on to
    circumvent or skirt one or more of the brand biologic's
    patents. With this uncertainly over whether a patent will
    actually protect the brand biologics investment biotech
    companies and the venture capitalists that fund them may
    reassess the cost and risk involved in the development of new
    biologics and opt not to go forward with new drug development.
    Stifling innovation and potentially impeding patients' access
    to the most promising, cutting edge biologics is surely not the
    goal of anyone on this subcommittee.
        Data exclusivity provides the certainty brand biologics
    need to spend hundreds of millions of dollars and years
    investing in the research, development, and approval of new
    drugs, and the assurance that this investment can be recouped.
    I would ask our witnesses to carefully explain why they believe
    that patent circumvention by bio-similar companies is not a
    valid scenario. Thank you, and I yield back the balance of my
    time.
        Mr. Pallone. Thank you, Mr. Pitts. The gentlewoman from the
    Virgin Islands, Mrs. Christensen.

           OPENING STATEMENT OF HON. DONNA M. CHRISTENSEN, A
           REPRESENTATIVE IN CONGRESS FROM THE VIRGIN ISLANDS

        Mrs. Christensen. Thank you, Mr. Chairman, and thank you
    for beginning this discussion on this very important and
    complex issue at this hearing. As I understand it, the report
    was requested basically to determine if follow-on biologics
    would result in reductions in cost of these complex but very
    important therapeutic drugs, and anyone who knows me would know
    that one of my concerns is that life improving or saving
    medication be accessible to everyone, and, yes, cost is an
    important barrier to that. But as a physician, safety trumps
    everything. I have seen substandard meds marketed in the
    Caribbean, and in small molecular drugs that may not be a
    dangerous difference. The situation with bio-similars or
    follow-up biologics is totally different. I only had a chance
    to read the executive summary and some of the first pages of
    the report, but what I have taken away so far is a clear
    understanding that biologics are very complex, large molecules
    produced under very sensitive conditions that are not easy to
    reproduce exactly, that significant investment is made in their
    production and that if reduction of cost is what has generated
    the request for this report FOBs are not likely to result in
    much of a price decrease.
        If the latter is true then why sacrifice safety? And some
    questions remain unanswered. Why accept a similar rather than
    the same in the case of such a complex medication when a tiny
    difference could make a difference in its action and its
    immunogenicity. I am puzzled by the assertion also that a
    shortened patent life will not stifle innovation. If it takes
    12 to 14 years to recoup investment as demonstrated by a peer
    review article by Duke Professor Grabowski, and that is likely
    after may trials have failed at that company and they have
    experienced financial losses, why should these complex
    molecules not have a longer time? Very importantly, the report
    states that technology is not yet, and I am quoting here,
    ``technology is not yet robust enough to determine whether an
    FOP product is interchangeable with the pioneer product.''
        That statement, plus the fact that not a single country in
    the EU has authorized interchangeability, and several have
    outlawed it, should slow down any rush to allow products that
    are only similar to the pioneer, and to require more of any
    follow-on manufacturer to prove safety. It seems to me that
    sufficient uncertainty exists so that the FTC didn't even make
    a specific recommendation for a period of exclusivity. I would
    like to see these important drugs reach everyone, and that
    means exploring ways to ensure that that happens, including
    having the pharmaceuticals look after a period of time perhaps
    reducing the costs, but I am convinced that shortening the time
    of patent and data exclusivity would adversely impact needed
    innovation, and it seems to me that based on the complexity of
    the large molecules and the lack of information on several
    factors, we should err on the side of safety and make sure that
    we do no harm. So I welcome Commissioner Harbour and look
    forward to your testimony. Thank you, Mr. Chairman.
        Mr. Pallone. Thank you. The gentleman from Indiana, Mr.
    Buyer.

      OPENING STATEMENT OF HON. STEVE BUYER, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF INDIANA

        Mr. Buyer. I have come here today, I also like my
    colleague, Jane Harman, I have not co-sponsored either of these
    2 bills yet, and I find myself in a curious position why we are
    even seeking the counsel of the Federal Trade Commission on an
    issue whereby we are most concerned with regard to the drug
    safety and efficacy. When I look at the commissioners from the
    Federal Trade Commission, none of them have any experience in
    public health whatsoever. We got lawyers. Well, I am a lawyer
    too, so what I need is not the advice or counsel of another
    lawyer. I need advice and counsel from public health, from
    scientists. So we have a conversation today lawyer to lawyer.
    You can give me your opinion on what you think the marketplace
    is and what it is like, and I guess if you are going to tell me
    about trying to promote competition in the drug industry, big
    versus small, and how we protect innovation as part of your
    core mission of the FTC, I guess we may as well ask you to
    report on NASA.
        Gee, let us talk about what big company it out there and
    how we can promote innovation to do exploration in space. Hey,
    the last frontier isn't even space, it is marine. So maybe we
    should ask for a report from the FTC about the exploration on
    the ocean floor. You can give me an opinion on that. Maybe I
    should ask for--I will just make it up. So I am sitting here
    today as a curious member of Congress that I have come here to
    listen to lawyers tell us what they think about drug efficacy
    and safety. Now I haven't had a chance to read this. I am more
    than anxious to look at it. I am also curious as to who
    initiated this. Did anyone from Congress ask you to do this? I
    don't know. So I am interested for you to let us know why you
    initiated this, why this group of lawyers think that your
    opinion is so important with regard to efficacy and the safety
    of drugs.
        Now what bothers me the most is that what I have learned
    over the years in dealing with the drug industry and biologics
    is that we do everything we can to promote this innovation, yet
    we try to find science in narrow populations, and it is very
    challenging because when you go into the marketplace, how do
    you raise that at risk capital, and if we don't give these
    companies an opportunity to recoup their cost and make a
    profit, they won't go into narrow spectrums, and if they won't
    go into narrow spectrums then people then turn to government
    and say that government, you have to do it. And if it is all
    about innovation, safety, and efficacy, I want to hear from the
    experts, Mr. Chairman. So what I am hopeful is that if you are
    going to do this today, please bring us a panel of experts, the
    FDA, bring in the scientists so that we can have equal quality
    here with regard to substantive testimony. That is what I am
    looking for. That would be my request of you, Mr. Chairman. I
    yield back.
        Mr. Pallone. The gentleman from Texas, Mr. Green.

       OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF TEXAS

        Mr. Green. Thank you, Mr. Chairman, and like my colleagues,
    I have concerns about this hearing on the FTC's report that we
    received yesterday on follow-on biologics competition. We have
    heard this will be the only hearing on the issue of follow-on
    biologics because the schedule will not accommodate additional
    hearings on the topic. If we are going to have a fair debate on
    follow-on biologics and the issues surrounding H.R. 1548, the
    Eshoo-Barton-Inslee Pathway to Bio-Similars Act, which I am a
    co-sponsor, and H.R. 1427, the Waxman-Pallone-Deal Promoting
    Innovation and Access to Life-Saving Medicine Act, the arena
    for those should not be centered around a hearing with one
    witness from the FTC.
        Follow-on biologics are extremely complex issues and
    members of this committee are divided between the 2 bills
    pending before us. One hearing with one witness who isn't from
    the FDA, an innovator company, a generic drug company, or even
    a patient who has used biologics is not a true hearing on the
    difficult issues surrounding follow-on biologics. We believe we
    need to have a hearing with at least the FDA before this
    committee moves forward with any legislation on follow-on
    biologics. I think we can all agree that there needs to be a
    regulatory path in this country to follow-on biologics, and
    however we resolve the differences between the 2 bills, we need
    to consider the implications for employers, innovators, the
    generic industry, and, most importantly, the patients who
    depend on these life improving and life-saving therapies.
        Biologics offer tremendous promise in the treatment of
    disease but there is no question we have to get it right. The
    undeniable fact is biologics are different from the small
    molecule drugs and present unique concerns about their safety
    and effectiveness. Holding one hearing that doesn't allow us to
    explore the questions such as what effect does a small change
    in immunoacid sequence produce, is that effect large enough and
    concerning enough to warrant additional clinical trials before
    the follow-on biologics is available to the public, can we in
    good conscience consider the follow-on product safe if they are
    never even tested on the human population?
        I share the goal of lowering patients' costs to follow-on
    pathway but not at the expense of the same patients' safety.
    Any action by the committee must balance the desire for the
    lower cost of biologics with the need to preserve the
    incentives for innovation and patient safety so that more
    Americans can benefit from the therapeutic promise of
    biologics. And again I thank you and yield back my time.
        Mr. Pallone. Thank you. The gentleman from Illinois, Mr.
    Shimkus.

      OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF ILLINOIS

        Mr. Shimkus. I knew I could be here when the gavel dropped
    and go to the next meeting and still make it, so I apologize to
    the Commissioner. I would just read from the report here on the
    executive summary. Current technology does not yet allow the
    creation of an exact replica of a pioneer biological drug
    product according to the FDA. In addition, technology is not
    yet robust enough to determine whether the follow-on biologic
    product is interchangeable with the pioneer products such that
    a patient would be able to switch between the 2 products
    without risk of an adverse effect. Follow-on biologics are not
    chemical compounds. We need more hearings on this, Mr.
    Chairman, and we need to have science brought in. And with all
    respect to the FTC, they are not the ones. They are not the
    ones to give us the direction on the safety and efficacy on
    follow-on biologics, so I look forward to that, and I hope we
    can follow up with more hearings. I yield back.
        Mr. Pallone. Thank you. The gentlewoman from Wisconsin, Ms.
    Baldwin.

     OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF WISCONSIN

        Ms. Baldwin. Thank you, Mr. Chairman. And thank you,
    Commissioner Harbour, for joining us today. I have really been
    interested in the issue of follow-on biologics for a number of
    years. I happen to represent a district that is rich in
    intellectual capital in this area. The University of Wisconsin-
    Madison has produced some of the world's leading research in
    biologic drugs. We also have an unique entity in my district
    called the Wisconsin Alumni Research Foundation. We call it
    WARF. And what they do is they work with business and industry
    to transform university research into real products benefitting
    society at large. It was founded in 1925 to manage the
    University of Wisconsin-Madison discovery that eventually
    eliminated the childhood disease rickets, and today WARF holds
    nearly 100 patients related specifically to biologics.
        I am certainly supportive of the creation of a pathway for
    the approval of bio-similars, and we will hear from the FTC
    this morning that when we do create this pathway current patent
    protections coupled with market-based pricing are sufficient to
    continue to spur innovation in the biologic drug market. And
    yet on the ground I hear often times the opposite is true. Even
    if with current patent protections and without a pathway for
    bio-similars, WARF is having trouble finding companies to buy
    and license those 100 plus biologic patents that I referred to
    and that they currently hold. Developing biologic drugs is a
    billion dollar enterprise with an extraordinarily high failure
    rate. To take that on knowing that another company could invest
    a fraction of that amount and take even a small portion of your
    market share may be enough to rethink the enterprise
    altogether.
        I am extraordinarily proud of the companies in my district
    who have taken on this risk in hopes of saving lives and
    improving health. Just one example is the example of Flugen
    located in Madison. They are working on developing influenza
    vaccines, and we know that this is a timely and critically
    important enterprise. Flugen, like the vast majority of biotech
    industry colleagues, is a very small company. It does not have
    the profit margins of 50 and 60 percent, yet these are the
    profit margins that are used to conduct these economic analyses
    that conclude that only minimal data exclusivity is necessary.
    Without sufficient data exclusivity protection Flugen faces the
    risk that a company will really come in and take a free ride
    off of their clinical data and design around their patent
    forcing them out of the market entirely.
        One final point, Mr. Chairman. The FTC report seems to
    conclude that a long period of data exclusivity would hamper
    innovation. Currently, with no pathway biologics enjoy infinite
    data exclusivity and yet we have had an astounding innovation
    in this arena. So you really only need to look to the second
    congressional district in Wisconsin to see the best proof of
    that. Thank you, Mr. Chairman, and I yield back my balance of
    time.
        Mr. Pallone. Thank you. The gentlewoman from North
    Carolina, Ms. Myrick.
        Ms. Myrick. Thank you, Mr. Chairman, but I will waive.
        Mr. Pallone. The gentleman from Pennsylvania, Mr. Murphy.

       OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN
             CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

        Mr. Murphy of Pennsylvania. Thank you, Mr. Chairman. Part
    of what we have to do here with Solomon's sword is to
    understand that drugs that are not affordable offer little
    consolation, and a drug that is not invented offers little
    cure. A couple years ago when we had a hearing on this issue of
    follow-on biologics, I talked about a constituent of mine who
    had pancreatic cancer, and he at that time was taking
    experimental biologic drug which actually shrank his tumors
    down considerably, but unfortunately ended up with some kidney
    failure and he died in the process. It was exciting to watch
    how his cancer was going away and otherwise would be a lethal
    problem for him. It was troubling to see how he had to jump
    through a lot of hoops to get the treatments.
        But, moreover, I want to make sure that we are continuing
    to do everything we can to encourage companies to make the
    investments to come up with these cures. I know that part of
    what we are facing here is a way that once we come up with
    these cures, how do we make sure that people can afford these
    drugs, and that is what I hope we have a lot of discussions on,
    a lot of hearings to really work out some mechanism whereby
    these become affordable. But again I say that if the drug is
    not invented, there is no cure, and, therefore, no hope. And I
    hope that as we proceed with this, we will both hear from
    witnesses with some ideas along these lines, but also continue
    to deliberate among ourselves in using all that is possible to
    make sure that we do not stop either end of this. And with
    that, I yield back.
        Mr. Pallone. Thank you. The gentleman from Ohio, Mr. Space.

    OPENING STATEMENT OF HON. ZACHARY T. SPACE, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF OHIO

        Mr. Space. Thank you, Mr. Chairman, for the opportunity to
    provide my perspective on what is clearly a very difficult and
    somewhat controversial issue. In listening to the opening
    statements of my colleagues on both sides of the aisle, it is
    clear that we are arriving at a consensus, and as very
    eloquently stated by Mr. Murphy from Pennsylvania, the need to
    innovate is directly conflicting right now with the need to
    provide affordable biologic medication. We have seen a
    tremendous boom in the manufacture of biotechnology and
    industry. Generally, the United States has been a leader, and
    it is something that we can be very proud of. I am sincerely
    torn right now on this issue because I have a child who suffers
    from a disease who is alive today because of biologics, and I
    understand the need to foster innovation to create an
    environment in which those biotech companies that are
    flourishing in this country right now are able to take the
    risks necessary to innovate and create new treatments and
    cures.
        At the same time, I come from a district where many people
    don't have quality health care. Many people do not have the
    ability to pay considerable sums for these sophisticated
    medicines. And I do take hope in listening to the opening
    statements of my colleagues on both sides of the aisle that
    this committee will face this challenge in a way that it should
    with a sincere and passionate desire to do the right thing. I
    look forward to working with you, Mr. Chairman. I appreciate
    the hard work that you have devoted to this issue. And I do
    look forward to hearing the testimony today, and I yield back.
    Thank you.
        Mr. Pallone. Thank you. The gentleman from Georgia, Mr.
    Barrow.
        Mr. Barrow. I waive.
        Mr. Pallone. The gentlewoman from Ohio, Ms. Sutton.

      OPENING STATEMENT OF HON. BETTY SUTTON, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF OHIO

        Ms. Sutton. Thank you, Mr. Chairman for holding this
    extremely important hearing, and I look forward to hearing what
    the panelists have to say. In the United States, competition
    has always been an engine for innovation, and that has been
    true in the health care and the industry that supports it. And
    while national unemployment numbers continue to be a source of
    concern the Bureau of Labor Statistics reported that in May of
    this year health care employment increased by 24,000. This
    increase is in line with the average monthly job growth so far
    in 2009. Clearly, when it comes to the need for health care,
    demand far outweighs supply and it is important to nurture the
    technology and advancement that leads to medical breakthroughs.
    However, in doing so, we must also consider that those who use
    our health care system, we have to be accountable to them as
    well.
        Patient access to life-saving technology and drugs is
    critically important with the cost of health care bankrupting
    American families. We must consider how we can make things work
    for our citizens. It is important that we have a pathway for
    options such as biologics, but it is equally important that
    this pathway be safe. Our experience in the field of generics
    has taught us that multiple entrants into a pharmaceutical
    field or category can drastically drive down price and increase
    accessibility of drugs for patients.
        And I am eager to hear from our panelists about how the FTC
    envisions the market for follow-on biologics that will allow
    innovation to flourish, and also serve to better our health
    care system and protect the health and the wallet of Americans.
    I yield back.
        Mr. Pallone. Thank you. The gentleman from Iowa, Mr.
    Braley.

    OPENING STATEMENT OF HON. BRUCE L. BRALEY, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF IOWA

        Mr. Braley. Thank you, Mr. Chairman. If you have been
    paying attention to what my colleagues have been saying this
    morning, you will appreciate this is a tough job. This is a
    tough job that we have. I have friends on both sides of this
    issue. You hear great arguments on the strengths and weaknesses
    of these various proposals, and I think the thing that unites
    us all is a strong desire to make something happen that is
    going to benefit the people who are going to realize whatever
    potential medical gains there are to be realized from the
    research and development of biologics, and that is what brings
    us here and motivates us. I want to thank the chairman for
    holding this important hearing. And we all know that
    establishing a fair pathway for follow-on biologics is
    extremely important, and we stand to see tremendous health care
    improvements as biologics continue to come to the market.
        And when you look at the challenges we are facing with the
    broader health care reform debate these are questions that have
    enormous implications going forward, and that is why we are all
    so focused on this issue. We know that biologics have improved
    the treatment of many Americans and save countless lives, and
    these innovations will only see more and more use in coming
    years. The proteins that form the bases of biologics are
    extremely complex, and I must say the policy questions
    surrounding the creation of a pathway to the market are almost
    just as complex. Any pathway for follow-on biologics must
    ensure fair competition without discouraging innovation in the
    industry.
        We owe many of our biggest medical achievements to those
    who have spent significant time and resources researching and
    experimenting with drugs, and biologics is no different. We
    need to continue innovating and we must make sure that every
    American who needs them can access life-saving drugs and
    biologics that are a result of that innovation. I have been
    studying this issue closely since joining this committee and
    hearing from parties on all sides of the issue. I am glad to
    see that we are gearing up to address the issue today, and I am
    confident at the end of the day we will have a proposal that
    both encourages innovation and ensures affordable access to
    those life-saving biologics.
        I look forward to continuing in these negotiations to make
    sure that Iowans that I represent continue to benefit from
    innovative, affordable medications. The FTC has a great deal of
    expertise and a long record of ensuring fair competition in the
    marketplace, but that record is sometimes not always perfect.
    They have thoroughly examined Waxman-Hatch in the past, and I
    always take their findings very seriously. That is why I look
    forward to today's testimony, to the follow-up hearings we are
    going to have, and I want to thank the chairman for convening
    the hearing.
        Mr. Pallone. Thank you, Mr. Braley. The gentleman from
    Maryland, Mr. Sarbanes.
        Mr. Sarbanes. Thank you, Mr. Chairman. I don't have much to
    add to what has been said. Obviously, we have on one end of the
    equation the need for research and development to proceed in a
    way that is meaningful and leads us to new discoveries that can
    benefit consumers. On the other hand of the equation, we have
    got the interest of affordability and access for the consumer.
    And we are struggling, or we are not struggling yet, we are
    working hard to figure out where the right balance is going to
    be. The testimony today is obviously going to be helpful in
    that process. I just hope that when we reach the balance, we
    come to it principally through the perspective of what makes
    sense for the consumer. And so I look forward to the testimony,
    and I yield back my time.
        Mr. Pallone. Thank you. The gentlewoman from Illinois, Ms.
    Schakowsky.

           OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A
         REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

        Ms. Schakowsky. Thank you, Mr. Chairman. As we continue
    moving forward on health reform legislation, it is important
    that we take a long, hard look at prescription drugs and how we
    can work together to reduce drug prices and increase patient
    access to life-saving drug therapies. I am a co-sponsor of H.R.
    1427, and I thank Chairman Waxman and Chairman Pallone for
    sponsoring this legislation because I believe this bill
    effectively safeguards against unsafe drugs entering the market
    while allowing patients to access lower cost generic drugs. I
    recognize the importance of encouraging innovation in the
    pharmaceutical industry. As the report authored by the FTC
    shows, innovation will not be hampered by allowing biologic
    generics into the market.
        First, the research shows that it will most likely take 8
    to 10 years to develop the manufacturing capacity to make a
    similar and interchangeable generic for a brand name biologic.
    More importantly, the amount of money required to produce the
    generic between $100 million and $200 million will limit the
    number of generic manufacturers. In other words, assuring that
    generic manufacturers can enter the market after a 5-year
    exclusivity period will pose little threat to the brand name
    industry but it would have enormous pay backs for consumers. I
    strongly believe that encouraging competition particularly in
    the health care industry not only promotes creativity and
    energizes researchers to discover better and more effective
    products but it reduces costs.
        I think it is important that we give this complex issue
    some context. Like many of the states represented on this
    committee, Illinois is facing a budget crisis, a deficit that
    is approaching $11 billion. As a result, many of the programs
    currently in place to help our citizens are facing drastic
    cuts. Among those programs headed for a cut includes the
    Illinois Cares RX program, a program that provides prescription
    drug assistance to 172,000 seniors with high drug costs. Many
    of these drugs cost patients tens of thousands of dollars each
    year. Some can be over $100,000, and out-of-pocket co-payments
    could run $10,000 to $20,000 a year. We obviously have to do
    all we can to bring down drug costs for patients.
        I believe that H.R. 1427 will help us do that. Mr.
    Chairman, I look forward to working with you and further the
    health and well-being of our constituents and bring drugs to
    the market in a safe and timely and affordable way. I yield
    back.
        Mr. Pallone. Thank you. The gentlewoman from Colorado, Ms.
    DeGette.
        Ms. DeGette. Mr. Chairman, I will submit my statement for
    the record. Let me just say an issue that none of us knew one
    thing about, we now are quite conversant, and I think we need
    to move forward and talk about how we are going to resolve it.
    I am very much eager to hear the testimony of Commissioner
    Harbour today. I think that will lend some light onto this very
    tough decision we have to make. And with that, I will yield
    back.
        Mr. Pallone. Thank you. I think we have heard all the
    opening statements. I just want to make sure that is true. Yes.
    OK. We will now turn to our witness, and thank you for being
    here. First, let me say our witness, actually we only have one
    witness, is the Honorable Pamela Jones Harbour, who is the
    commissioner from the Federal Trade Commission. However, my
    understanding is she has been joined by Mr. Wroblewski, who is
    the prime author of the report. And he is not going to testify,
    but will be available for questions is the way I understand it.
    And we know we have 5-minute opening statements, and then we
    may get back to you later with additional written questions as
    well, but we will have questions from all the panelists, from
    all the members of the subcommittee today. So if you would
    begin, thank you.

    STATEMENT OF PAMELA JONES HARBOUR, COMMISSIONER, FEDERAL TRADE
                               COMMISSION

        Ms. Harbour. Thank you, Chairman Pallone, Ranking Member
    Deal, and members of the subcommittee. I am Pamela Jones
    Harbour, a Commissioner of the Federal Trade Commission. I am
    joined by Michael Wroblewski, Deputy Director of the FTC's
    Office of Policy Planning. Thank you for inviting us to testify
    here today. I appreciate this opportunity to provide an
    overview of the Commission's recently released report called
    Emerging Health Care Issues: Follow-On Biologic Drug
    Competition. A primary goal of our report is to examine how
    competition is likely to evolve in biologics market in
    particular between pioneer biologics and follow-on biologics or
    FOBs. The report sets forth our findings regarding the
    competitive dynamics of FOBs, and we hope that our
    recommendations will inform the legislative debate.
        I note that the report does not address any specific bills.
    The Commission recognizes that legislators are balancing many
    different objectives, as they seek to craft a solution that
    best protects the public interest. The Commission has limited
    its recommendations to competition issues, which are our core
    area of expertise. We believe, of course, that this competition
    perspective is of critical importance in the FOB debate, which
    is why we are grateful to have been given, literally, a seat at
    the table today.
        If Congress can create a balanced pathway for FOBs, and
    also pass legislation to eliminate pay-for-delay patent
    settlements between branded and generic companies in small
    molecule markets, then Congress will have taken substantial
    steps to ensure that all Americans have access to affordable
    life-saving medicines. On behalf of Chairman Leibowitz, I
    commend the Commerce Committee for moving legislation to ban
    these patent settlements through the Consumer Protection
    Subcommittee last week. The report's basic premise is that
    competition between pioneer biologics and FOBs is likely to
    look much more like current competition between 2 or more
    branded drugs that treat the same medical condition, for
    example, Enbrel and Remicade, which both treat rheumatoid
    arthritis. It will look less like current competition between
    branded and generic versions of a drug and I will explain why
    the Commission reached this conclusion, and I will also
    identify some implications for legislation seeking to create an
    abbreviated regulatory approval pathway for FOBs.
        But first, I will begin by highlighting some important
    characteristics of the biologics marketplace. As you know, the
    emergence of biologic drugs has dramatically improved the lives
    of thousands of Americans over the past few decades. For
    example, the biologic Herceptin is used to treat breast cancer,
    and an annual course of treatment costs about $48,000 a year.
    One way to reduce the costs of biologics would be to authorize
    the Food and Drug Administration to permit follow-on biologics
    to enter the market once a biologic drug's patents expire.
    However, there is no statutory or regulatory pathway to allow
    abbreviated FOB entry without the FOB applicant having to
    duplicate existing knowledge about safety and efficacy. This
    duplication represents an inefficient use of limited R&D
    resources. Also, as the FDA has explained, repeating all of the
    clinical trials raises ethical concerns associated with
    unnecessary human testing.
        Elements of the Hatch-Waxman Act provide a model for
    reducing FOB entry costs and addressing ethical concerns.
    Hatch-Waxman does not require generic applicants to duplicate
    the clinical testing of branded drugs that have already been
    proven safe and effective. Hatch-Waxman has successfully
    reduced drug prices, has broadened access, and has hastened the
    pace of innovation. And if pay-for-delay settlements are
    prohibited, these benefits of Hatch-Waxman will be preserved.
    But as the report describes, according to the FDA, there are
    key scientific differences between biologic and small molecule
    drug products. Most notably, under Hatch-Waxman, the generic
    applicant must show that the product is bio equivalent to the
    branded drug product. This is important because it means that
    the product is identical.
        In stark contrast, according to the FDA, biologic products
    cannot be perfectly duplicated, at least not based on current
    science. Technology is not yet robust enough to determine
    whether an FOB product is interchangeable with the pioneer
    product. Current FOB legislative proposals reflects the
    complexities of biologics. They would permit FDA approval of an
    FOB drug that is similar to, but not an exact replica of the
    pioneer biologic product. Under these proposals, the FDA could
    rely on its previous findings regarding the pioneer biologic
    drug's safety and efficacy to the extent those findings would
    also be relevant to the FOB. An FOB manufacturer likely would
    save on some clinical testing expenses, which would reduce
    entry costs.
        So with that background in mind, let me turn to the
    Commission's report. The purpose of our study was to evaluate
    how FOB competition is likely to develop and evolve, paying
    particularly close attention to the differences between small
    molecule and biologic drugs. The study was coordinated by an
    interdisciplinary FTC team, headed by Mr. Wroblewski, that
    included not only pharmaceutical industry experts, but also
    patent lawyers and economists. As part of its inquiry, the
    Commission solicited 2 rounds of public comments which
    attracted submissions from approximately 30 industry
    participants and other stakeholders.
        In November 2008, the Commission conducted a public
    roundtable discussion that included over 30 panelists. The
    Commission also has examined European markets where FOB entry
    has occurred. In the interest of time, let me briefly summarize
    the 4 major reasons why FOB competition is not likely to be
    like generic brand competition. First, it is the extraordinary
    cost and time necessary to develop an FOB, which will sharply
    limit the number of competitors who can afford to enter, and
    also will limit the discounts the FOB can offer in relation to
    the pioneer price. Second, follow-on entry will not radically
    erode the pioneer's market share. Third, the specialty
    pharmaceutical characteristics of FOBs are likely to further
    constrain the FOB entrant's ability to gain market share. And
    the fourth reason is because biologics are provided in clinic-
    type settings as part of medical treatments. They are not
    purchased and reimbursed in the same manner as small molecule
    drugs.
        As a result of all of these factors, the Commission's
    report predicts that FOB markets are likely to develop with the
    following characteristics. First, that FOB entry is likely to
    occur in biologic drug markets with more than $250 million in
    annual sales. Only 2 or 3 FOB manufacturers are likely to
    attempt entry in competition with a particular pioneer drug
    product. These FOB entrants likely will not offer price
    discounts larger than 10 percent to 30 percent of the pioneer
    product's price. Although this discount is not as steep as with
    small molecule generic drugs, it does represent millions of
    dollars in consumer savings for these very expensive products.
        Pioneer manufacturers are expected to respond by offering
    competitive discounts to maintain their market share. This
    price competition likely will increase consumer access and
    further expand the market. Without automatic substitution, FOB
    market share acquisition will be slowed. Pioneer manufacturers
    likely will retain 70 percent to 90 percent of their market
    share. This means that a pioneer firm will continue to reap
    substantial profits for years, even after entry by an FOP. FOB
    market dynamics will contrast sharply with the market dynamics
    of generic drug competition, where lower-cost generic entry
    plus automatic substitution lead to rapid erosion of the
    branded drug's market share. When the first generic drug enters
    the market, it generally offers a 25 percent discount off the
    branded drug's price. As additional generic firms enter, and
    often there are 8 or more of them, the price discounts reach as
    high as 80 percent.
        Given these likely dynamics of FOB markets, the Commission
    next asked whether any additional----
        Mr. Pallone. Commissioner, I am sorry, but you are like
    twice the time so far so----
        Ms. Harbour. OK. Then I will stop.
        Mr. Pallone. No, no. Just wrap up. I don't want to stop you
    completely. Just try to summarize the rest, if you could.
        Ms. Harbour. I would say that the findings have several
    implications for the design of an abbreviated approval system.
    I think first pioneer manufacturers are unlikely to need
    additional incentives to continue to innovate in the face of
    FOB entry beyond the existing patent protection and market-
    based pricing. I would be ready to answer questions now. We can
    engage in a Q and A, and I know that the committee is very
    interested to hear what we have to say, so thank you.
        [The prepared statement of Ms. Harbour follows:]

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        Mr. Pallone. Thank you very much. I always hate to stop
    anyone but we have time constraints. We are going to have a
    series of questions. I am going to start, and then we will go
    back and forth between Democrats and Republicans, as you know.
    First of all, I want to thank you for the report. As the expert
    agency charged with overseeing competition, as you mentioned,
    in the drug marketplace, the FTC's conclusions on how much
    exclusivity is needed to sustain innovation, I think is crucial
    to any resolution of many of the questions that have been
    raised on this issue. And I have to be honest to say that I, of
    course, hear mostly from people who have a financial stake in
    this, and I think it is essential that we have an objective
    assessment with regard to exclusivity, and that is one of the
    reasons why I think it is really crucial that you are here
    today and that this report came out.
        Now members of the biotech industry argue that their
    patents are not as strong as those on traditional drugs, and
    are not strong enough to protect them from competition from
    follow-on biologics. If I understand you correctly, the FTC has
    reviewed all the evidence provided by the industry, as well as
    relevant patent law, and has concluded that the industry's
    claim is unsupported by the evidence. And this is an extremely
    important point because members of the biotech industry have
    premised their argument for a 12 to 14-year exclusivity period
    on the claim that their patents cannot fulfill the role they
    are supposed to. And it is important, I mean this is important
    enough that I want to be sure I understand your conclusions,
    and that there is no doubt about it.
        So let me ask 3 questions. First, are patents on biotech
    drugs too narrow or too weak to protect them from competition
    from follow-on biologics? And, Mr. Wroblewski, obviously can
    answer as well.
        Ms. Harbour. Yes. Mr. Wroblewski is the expert here, but I
    would say that our research has shown that the patents are
    strong in this area. In fact, as we look at the sector, the
    biotech sector, they have been very strong. The stocks in that
    area actually has been very strong and the general sector stock
    prices have gone down 30 percent, but in the biotech sector
    they have only gone down 15 percent. So we have not seen as
    much erosion in that area, and I do believe that the patents
    are strong in that area.
        Mr. Pallone. Maybe I will just go to the second question.
    The second question is will biotech patents provide less
    protection from follow-on biologics than the protection against
    generic competition offered by patents on traditional drugs?
        Mr. Wroblewski. The patent questions are really central to
    this entire debate. What we did was we examined--currently
    there is branded competition between competitors, and so what
    we did is we looked to see--we looked at all of those cases,
    which the industry gave us, and the ones that we found--all the
    cases that are out there doing our own research, and we broke
    them into 2 groups. The first group was the patents have been
    very strong. Both the drug molecule patents and the process
    patents have been very strong to keep other branded competitors
    off the market. When we looked at those cases in which the
    branded competitor or the pioneer had lost, the cases really
    turned on a factual determination that was central to that
    patent or how those claims were drafted. It wasn't because the
    law prohibited them to draft their claims in a broader way.
        And there are PTOs written, description guidelines, that
    say this is how you can--the legal requirements to get a broad
    patent to protect against those types of claims that FOBs are
    likely to make. The written guidelines allow the claims to be
    drafted broadly enough to protect against those types of
    patents. The one last thing we did is there was a great study
    that came out about a year ago that surveyed all of the patent
    cases in terms of has the law changed so that it is very
    difficult to get a broad scope on your patient to kind of guard
    against the potential threat of an FOB, and it found that the
    law had not changed and that the patent holders have the
    ability to draft their claims, to draft their patents to
    provide a potent shield against FOB competitors.
        Mr. Pallone. All right. Let me just ask my third question
    quickly. Is there any defect in the protection offered by
    biotech drug patents that justifies a longer exclusivity period
    than the period available to traditional drugs?
        Mr. Wroblewski. We found that there are no defects. There
    is an argument that there may be drugs that have been
    discovered but somehow are unpatentable because they are not
    novel any longer, and the requirement to get a patent is that a
    drug has to be novel. If that is the case, and we haven't seen
    any evidence that that is the case, then an exclusivity period
    similar to the way Hatch-Waxman had a 5-year exclusivity period
    for a new chemical entity that didn't have patent protection.
    Hatch-Waxman also gives 3 years for a new indication because
    that indication couldn't get patent. If there is something new
    that is being delivered that the patents won't incentivize,
    then it may be very appropriate to have an exclusivity period
    to encourage the companies to engage in the expensive R&D to
    test those drugs.
        Ms. Harbour. Such as in the drugs for children population
    and the diseases that affect very small populations. That would
    be an example where one would offer an exclusivity period.
        Mr. Pallone. And not otherwise? But not otherwise?
        Ms. Harbour. Unless there was an unpatentable drug as Mr.
    Wroblewski indicated.
        Mr. Pallone. OK. Thank you very much. Mr. Deal.
        Mr. Deal. First of all, let me make sure that I understand
    since there has been criticism about the scope of this hearing
    today, what I understand you to say is that your study and your
    testimony today is to deal with this question of competition
    and how it will evolve in a follow-on biologic marketplace, and
    questions like safety, interchangeability, those are issues
    that best address themselves to the Food and Drug
    Administration and not to you, am I correct?
        Ms. Harbour. That is precisely correct.
        Mr. Deal. I didn't want you to be criticized for something
    you were not undertaking to do here today, and I think that is
    important because we all are concerned about safety. We are all
    concerned about the things that are within the province of the
    FDA. Let me focus in on what you have testified to, and what
    your report identifies. Most of us have heard from the lobbying
    community about how long should the period of exclusivity be.
    Now what I hear and what I see at least in the summary that I
    have read of your report is that you don't even feel that there
    is even a need for any exclusivity period, and specifically I
    think your statement says the drug had already been
    incentivized through patent protections and market-based
    pricing, so you are saying that there are 2 protections that
    the pioneer drugs enjoy that is somewhat different from the
    chemical-based arena in these areas, one being that patents are
    strong enough.
        And let me ask you specifically about that. As I understand
    you to say, the reason you think patents are stronger than we
    might be led to believe is that in this arena there are more
    and varied patents in the follow-on biologic arena than in the
    chemical arena, specifically including patients on
    manufacturing and the technology platforms on which they are
    based, is that correct?
        Ms. Harbour. That is correct, and there is another
    component too that competition resembles brand to brand
    competition and in brand to brand competition the patents
    protect the innovation. In the follow-on context, you have the
    method of treatment patents. You have the product by process
    patents, the manufacturing process including the cell lines,
    so, yes, the report concludes that patents have been shown to
    be strong in this area.
        Mr. Deal. And the second component that gives protection
    that is more unique to this follow-on arena than chemicals is
    what you refer to as market-based pricing, and I think you have
    already told us that you do not expect the drastic reduction in
    pricing to occur on the pioneer product just because a follow-
    on comes on to the market.
        Ms. Harbour. That is right.
        Mr. Deal. And that is an additional protection that the
    pioneer enjoys in this arena that they do not necessarily enjoy
    in the chemical arena?
        Ms. Harbour. And the characteristics of this market is a
    follow-on, there would only be 2 to 3 follow-ons that would
    enter the market, and those follow-ons would only take 10
    percent to 30 percent of the market share away, so the branded
    pioneer manufacturer would still enjoy 70 percent of its market
    share, and so there would be enough incentive and competition
    and pricing to satisfy the entrants contrasted with the generic
    market where after the first generic comes in taking 25 percent
    of the branded firm, then you would have 8 to 10 generics come
    in and then they would all cannibalize that 80 percent. So it
    is a very different competitive situation with the follow-on.
        Mr. Deal. Plus, also am I correct that the follow-on
    biologic will take a longer period of time for approval even
    with the exclusivity period even non-existent, it would still
    take longer to get a follow-on on the market than a traditional
    chemical-based generic would take?
        Ms. Harbour. I am not sure about that. I am going to turn
    to Mr. Wroblewski. I think not, but I will let Mr. Wroblewski
    answer that.
        Mr. Wroblewski. The time to bring a follow-on to the
    market, the evidence shows would be about 8 to 10 years. The
    time it takes to bring a generic drug to the market is 3 to 5
    years. The one thing about market-based pricing, the point that
    we were--to compliment what Commissioner Harbour just talked
    about was that when you have a patent that allows you to
    charge, and you are the only one on the market and you have
    developed innovation, that allows you to charge a price, any
    price, a monopoly price, so if the period of time in which you
    enjoyed that monopoly is shortened the ability to raise the
    price, that is what marked-based pricing is all about to make
    up for that.
        Ms. Harbour. Mr. Deal, I misunderstood what you had said. I
    thought you meant FDA approval, whether that would take longer,
    and my answer was, no, it would not. But, as Mr. Wroblewski
    said, yes, FOB drugs would take about 8 to 10 years to develop,
    and they would likely cost between $100 million to $250 million
    as compared to small molecule generic drugs, which would take 3
    to 5 years to develop, and would cost roughly between $1
    million to $5 million.
        Mr. Deal. Thank you.
        Mr. Pallone. Thank you, Mr. Deal. Chairman Waxman.
        Mr. Waxman. Thank you very much, Mr. Chairman. Could you
    just repeat that last point? For biologic drugs it takes 8 to
    10 years?
        Ms. Harbour. Yes. Biologic drugs would take 8 to 10 years.
    Follow-on biologic drugs would take 8 to 10 years to develop,
    and it would likely cost between $100 million to $250 million,
    contrasted with the small molecule generic drugs where product
    development would take approximately 3 to 5 years to develop
    and would cost between $1 million and $5 million.
        Mr. Waxman. So it costs more money.
        Ms. Harbour. Yes.
        Mr. Waxman. And it takes more time to develop these
    biologic drugs.
        Ms. Harbour. Yes.
        Mr. Waxman. And, therefore, they want to know they are
    going to have their full protection. Mr. Wroblewski.
        Mr. Wroblewski. I just want to make sure that we are
    talking about the follow-on and not the pioneer.
        Mr. Waxman. Oh, I see. You are talking about the follow-on.
        Mr. Wroblewski. I just want to make sure.
        Mr. Waxman. So if you got a new biologic drug, you got a
    patent and you think the patents are good, that is enough
    protection, we could give an exclusivity for that period of
    time. Patents, by the way, are for 20 years, isn't that right?
        Mr. Wroblewski. Correct.
        Mr. Waxman. When we did the Hatch-Waxman Act, the patents
    were 17 years. We moved the patent period all the way to 20
    now. And the Hatch-Waxman Act was a trade off. We said that we
    would allow generics to be approved through an abbreviated
    process in exchange for giving the brand name company
    additional time lost at FDA for the approval time. And that is
    called the patent term restoration. Well, we didn't know about
    biologic drugs in the mid-1980s, but these drugs get that
    patent term restoration, don't they?
        Mr. Wroblewski. Yes, they do.
        Mr. Waxman. So they now have a longer patent time and they
    get the restoration period for the time spent at FDA. Your
    conclusion is pretty surprising because what you are saying is
    that if somebody says they need 12 to 14 years of exclusivity,
    you don't think they need it because patents, and they have
    market-based pricing available under the current law, which you
    believe provides sufficient incentives for innovation.
        Mr. Wroblewski. It is not only that we believe it, it is
    what the industry has said for years that patents have been so
    essential to their development.
        Mr. Waxman. Now you also concluded, and Mr. Deal pointed to
    this, so let us say we say at some period of time there is
    going to be an approval process for a generic follow-on, and
    that may take 8 to 10 years, so that is a long period of time
    once they even start to get the generic follow-on to come into
    competition. But once it is approved, it is not the same as a
    small molecule drug where people know it is the exact same drug
    and it could be substituted. A generic follow-on drug, which is
    going to take longer to get on the market, and they can't even
    be considered until the patent period is up or the exclusivity
    period is up, won't be substitutable. It is going to be like
    another brand name drug competing with a different brand name
    drug. What will that mean in terms of the loss of market to the
    generic competitor?
        Mr. Wroblewski. One of the aspects of branded drug
    competition is the substantial first mover advantage that the
    pioneer has, and so what is going to have to happen is when
    that follow-on comes on it is going to have to develop its own
    marketing and sales force to show that its product is actually
    more safe or more effective or somehow improves safety,
    convenience, efficacy for treatment of that drug to gain any
    market share. And that is actually a huge benefit for
    competition. Competition brings not only price competition, but
    it also brings improvements to the products which are very,
    very important, so you have to look at both of them.
        Mr. Waxman. But the competition doesn't start immediately
    to drop that price because they have to convince the doctors
    and others that this is a follow-on that can serve the same
    purposes of the original drug.
        Mr. Wroblewski. That is correct, and when we have looked at
    market experience in Europe in which they have a bio-similar
    pathway in the 2 markets that we have looked at there are 2
    drug markets. Both of them, after 3 to 4 years where the bio-
    similars have already been on the market only had about a 15
    percent combined market total, so that means the pioneers still
    retain 85 percent of the market share which is totally
    different from the generic drug model.
        Mr. Waxman. Will follow-ons provide--going to make high
    price biotech drugs more affordable and will these follow-ons
    provide other benefits to consumers?
        Mr. Wroblewski. I think the evidence that we have seen
    shows that they will come in at a 10 to 30 percent discount and
    a 10 to 30 percent discount on a drug that for a course of
    treatment annual is $50,000 is a substantial savings, and it
    will then prompt the pioneer to then move forward to further
    refine and develop and improve its drugs which benefit
    consumers.
        Mr. Waxman. So having an end point and then having
    competition even if it is not as strong as generics are for
    small molecule drugs does spur innovation?
        Mr. Wroblewski. Of course it does. Of course it does.
        Mr. Waxman. Thank you. Thank you, Mr. Chairman.
        Mr. Pallone. Thank you, Mr. Chairman. Next, we have the
    gentlewoman from North Carolina, Ms. Myrick.
        Ms. Myrick. Thank you, Mr. Chairman. A couple of questions.
    This is just kind of a regional question relative to North
    Carolina. The biotech sector you know is very important in
    North Carolina and in how it plays into our economy. We see a
    total employment impact of over 200,000 jobs because of our
    rich biotech sector. No doubt a well-designed FOBs pathway
    could also generate additional economic growth. If the pathway
    were designed as the FTC describes, do you foresee any negative
    economic impact when it comes to profitability of innovative
    biotech companies?
        Ms. Harbour. I don't believe that the report identifies
    any, and as I had said earlier the biotech sector is doing
    better than a lot of other sectors in today's economy looking
    at our stock industry.
        Ms. Myrick. Right. I heard you say that, so you just don't
    think that there is any--the other thing I wanted to ask was
    about the European Union. You know their system is different
    than ours is, and when you look at the policies that we have
    and they have, do you think that their policies generally
    translate to the United States because we have such a glut of
    biotech companies here and our existing patent system the way
    it is set up?
        Mr. Wroblewski. The 2 things that we look at in terms of
    the European market, they do things a little bit differently in
    terms of their patent coverage, and they do things differently
    in determining at the European level, they decide what is safe
    and effective for a bio-similar and they are leaving to the
    states, the members states and the countries, to decide what
    would be interchangeable. That is a slightly different
    structure than we have here in the United States. But the
    commercial aspects in terms of what these large multi-national
    companies are doing can provide some insight--in Europe can
    provide some insights into what they are likely to do here in
    the U.S.
        Ms. Myrick. One more question. When you talk about the
    delay in the time it takes for the price differential between
    the FOBs and the innovative biologics, it becomes significant
    because the point of entry for these products is different than
    traditional generic drugs. The study says that the price
    differential would be 10 to 30 percent of the original
    therapy's price. Do you think that that would put pressure on
    the insurers in large companies, pressure on providers to make
    the time period shorter?
        Mr. Wroblewski. To make the time period shorter?
        Ms. Myrick. Yes, of bringing them to market. You don't
    think there is a possibility that can even happen from what you
    said basically?
        Mr. Wroblewski. Right.
        Ms. Myrick. I think that is all at this point, Mr.
    Chairman. Thank you.
        Mr. Pallone. Thank you. Let me mention to everyone that we
    will have 2 votes. One has already been called, but I would
    like to get at least 2 more of our members to ask questions
    before we go. So next is the gentlewoman from Wisconsin, Ms.
    Baldwin.
        Ms. Baldwin. Thank you. Commissioner, the FTC report claims
    that the development time for small molecule and biological
    drugs are roughly equivalent, and I would like to highlight the
    example of Flugen, which is a company that I talked about
    during my opening remarks. They are currently working on an
    adjuvant to the standard flu vaccine which would allow 10 times
    as many doses from the same stock of vaccine, so basically
    allows what would be usually 1 dose to be used for more
    vaccines. This adjuvant was patented from the University of
    Wisconsin-Madison research lab in the year 2001, but will
    likely not make it to clinical trials until the year 2011, and
    then it is predicted to be another 7 years to get to market,
    which leaves only 3 years of patent protection. And so I am
    wondering how do companies like this factor into your analysis?
    Do you think the patent protections are sufficient in an
    instance like this?
        Ms. Harbour. Could I just clarify the first part of your
    question? I believe you said something was equivalent. Would
    you just go back to that, please?
        Ms. Baldwin. Absolutely. My understanding is that the FTC
    report claims that the development time for small molecule and
    biologic drugs are roughly equivalent.
        Ms. Harbour. They are not.
        Ms. Baldwin. OK. Maybe you could shine some light on----
        Mr. Wroblewski. There are 2 things that we are talking
    about. One is if you are looking at a pioneer drug, the first
    in class, the innovator, if you look at a biologic drug or a
    chemical drug, they roughly cost the same amount to develop and
    it takes the same amount of time. If you then look at the
    follow-ons or the generics, the generic is much quicker to come
    to the market than a follow-on. Does that make sense? So the
    pioneers are equivalent. The second in the class, so to speak,
    take a little bit longer for follow-ons.
        Your question is whether the patent restoration that--the
    example that you gave is basically they are only going to have
    3 years left or 4 years left on their patent. They get patent
    restoration now so they would be able to add back that time
    that was lost in FDA approval. That applies to them now. And if
    that isn't sufficient because of the long period of--the longer
    period, so to speak, of testing for FDA approval then the fix
    would be to fix the restoration of the patent, not to then add
    an additional layer somewhere else, but to fix the underlying
    problem, which is what the patent isn't providing the length of
    time that was caught up in the FDA approval process.
        Ms. Baldwin. Let me also ask you a little bit about changes
    in technology that take place over these periods of time. Over
    the lifetime of a patent for biologics manufacturing technology
    will surely improve making it much easier for companies
    delivering bio-similars to enter the market. These companies
    will gain really at the innovators significant expense. And
    isn't that an argument for some period of exclusivity to be
    sure that innovators will still be willing to take the up front
    risks to develop these incredible medicines?
        Mr. Wroblewski. You know, those technologies that they are
    going to be developing actually would be applicable to the
    pioneer as well, so the pioneer actually can benefit from the
    increase in technological advancement. For example, if a
    follow-on develops a better manufacturing process, that
    manufacturing process can be then imported or be used by the
    pioneer as well, and so that competition to improve innovation
    benefits not only follow-on but can benefit the pioneer as
    well.
        Mr. Pallone. OK. Mr. Murphy. I am sorry. Mr. Buyer.
        Mr. Buyer. Thank you very much.
        Mr. Pallone. Before you start, let me just mention he will
    be the last speaker before we break for the votes, and then we
    will come back right after.
        Mr. Buyer. I would like to know who asked you to do this
    report. Who asked you to do this report?
        Ms. Harbour. Thank you for that question. Before I answer
    that, there is a lot of commonality in this room although it
    may not----
        Mr. Buyer. That is not answering my question. Answer my
    question.
        Ms. Harbour. I did.
        Mr. Buyer. Were you contacted or encouraged by any member
    of the House and Senate or staff----
        Ms. Harbour. May I answer your question, sir?
        Mr. Buyer. Yes.
        Ms. Harbour. In 2003, I read the Commission's IP report. I
    was a new commissioner. I read it, and there was a footnote
    that talked about generic biologics they called it then and how
    there was a great debate and a lot of controversy about this
    issue and how it was keeping potentially life-saving drug
    products from the American consumer. So as a commissioner, I
    went to my staff and I said this is an issue that is very
    important to the American people. And I know that my staff is
    very expert in these areas. I said can we take a look at this
    and see if we can add to the debate. That is how this issue
    came to the fore.
        Mr. Buyer. So you did this on your own?
        Ms. Harbour. No. It was with the approval of the other
    commissioners, but I did see this issue back in 2004.
        Mr. Buyer. Do you see yourself as an expert in promoting
    competition in U.S. markets?
        Ms. Harbour. No, I do not. No. I see myself as an expert on
    the American consumer and trying to be a champion of the
    American consumer much as most of Congress is.
        Mr. Buyer. Since you are eager to sit at the table and
    discuss health, would you be equally as eager to turn to your
    commissioners and ask that the FTC consider studying the
    effects of the proposed public health plan options on
    competition in the health insurance market?
        Ms. Harbour. First of all, I was summoned to the table. I
    am not eager to sit here, but I am happy to sit here.
        Mr. Buyer. I am going to just ask you to answer the
    question that I have asked.
        Ms. Harbour. Would you repeat it, please?
        Mr. Buyer. Would the FTC consider studying the effects of
    the proposed public health plan options on the competition in
    our health insurance market?
        Ms. Harbour. If we are directed to study anything by
    Congress----
        Mr. Buyer. Well, you weren't directed to do this study and
    give it to us. You did this on your initiative you said with
    pride.
        Ms. Harbour. Yes, and we do a lot of things on our own
    initiative at the Federal Trade Commission.
        Mr. Buyer. Would you on your own initiative consider the
    public option plan discussed by the President and its impact on
    competition in the insurance market?
        Ms. Harbour. If we were asked to do so we----
        Mr. Buyer. You are asked to do so. All right? I ask you to
    do so.
        Ms. Harbour. But we would have to vote on that and it would
    have to be decided by a majority of the Commission.
        Mr. Buyer. Right. OK. Oh, wonderful. I will even put it in
    writing to you. I will ask you to do that, and then you can
    consider with the other commissioners. Would that be OK?
        Ms. Harbour. Sir, you may do whatever you like and we
    will----
        Mr. Buyer. Well, you have just done whatever you like,
    right, on your own initiative. Let me just do this. If you are
    willing to--now you are willing to consider the public plan
    options in the insurance markets impact on competition because
    you are so concerned about the consumer. Number 2, I am going
    to ask you for another report. Here in the House, we just
    passed a tobacco bill. The Senate is about to pass a tobacco
    bill that locks down the tobacco market, as a matter of fact,
    almost eliminates competition because we don't even have harm
    reduction anymore, and so I am going to ask for a second report
    for you also to consider, the impact of tobacco legislation and
    competition in the marketplace. I am going to ask you for 2
    reports, OK?
        Now the other question I have is I noted in a footnote that
    you had sent a letter to Chairman Pallone outlining preliminary
    views on the likely effects of the regulatory approval pathway.
    That is great. That wasn't shared with any of us. If this had
    been done back in May of 2008, this is a hearing, Mr. Chairman,
    that should have happened some time ago, so I appeal to you
    that this not be our only hearing that we have----
        Ms. Harbour. Sir, I believe that letter is on the public--
    --
        Mr. Buyer. Ma'am, I am not asking any question of you.
        Ms. Harbour. It is in the public record.
        Mr. Buyer. Ma'am, I am not asking any question of you.
        Mr. Pallone. If you are asking me the question----
        Ms. Harbour. The letter is on the public record.
        Mr. Pallone. Let me just cover it. Is the gentleman
    yielding to me?
        Mr. Buyer. My point is, this is my personal opinion, this
    is a hearing that we should have had later--at an earlier time,
    not now, and so my appeal to you is, Mr. Chairman, that we
    bring the FDA in so we can look at----
        Ms. Harbour. And CC'ed.
        Mr. Buyer. Pardon?
        Mr. Pallone. Wait a minute. Let us please----
        Mr. Buyer. Ma'am, I am not asking you any question.
        Mr. Pallone. Mr. Buyer, look, it is a little unclear who
    you are asking the question of. It may not be obvious to you
    but it is increasingly to the 2 of us that we are not sure. The
    question is to me at this point?
        Mr. Buyer. All right. My appeal is that you bring the FDA
    in so we can get into the efficacy and safety issues. That is
    my appeal to you.
        Mr. Pallone. OK.
        Mr. Buyer. So I am not asking any questions of this
    witness.
        Mr. Pallone. Let me just--if you would yield. Well, we are
    out of time anyway. But let me answer the question. First of
    all, the letter you mentioned, it is my understanding that that
    letter was posted on the web site for the committee and
    circulated almost a year ago, the one that you mentioned that
    was sent to me. And as far as the second question, I have
    already stated that we are going to have additional hearings
    and this is just the first one so I just want to make that
    clear again.
        Mr. Buyer. All right. I have a unanimous consent request.
        Mr. Pallone. You have a unanimous consent request?
        Mr. Buyer. Yes.
        Mr. Pallone. Go ahead.
        Mr. Buyer. I have a letter from the Association of American
    Universities, which includes the leading research universities,
    not only researchers in Indiana and Purdue, but over 60 in the
    country, and I would ask unanimous consent that the Association
    of American Universities letter be inserted into the record.
    Obviously, they are seeking providing 12 years of data
    exclusivity, and I don't believe it is very clear from the FTC
    report that they include the nation's leading academic
    researchers and what their opinions are.
        Mr. Pallone. Without objection, so ordered.
        [The information appears at the conclusion of the hearing.]
        Mr. Pallone. And the committee is going to now recess until
    we have the conclusion of these 2 votes and then we will come
    right back. Thank you.
        [Recess.]
        Mr. Pallone. The subcommittee will reconvene. Thank you for
    still being here. And we go to the gentlewoman from the Virgin
    Islands, Mrs. Christensen.
        Mrs. Christensen. Thank you, Mr. Chairman, and again thank
    you for holding this hearing and welcome to the commissioner,
    Commissioner Harbour. The report makes several statements to
    support its conclusion that a 12 to 14 data exclusivity period
    is unnecessary. One statement is that there is no evidence that
    patents claiming a biologic drug product have been designed
    around more frequently than those claiming small molecules. And
    the other is that because there is no evidence about the lack
    of patentability of new biologic products nor that market
    forces have been insufficient to incentivize development the
    Commission has not recommended a specific length for
    exclusivity period. If there are no bio-similar pathways that
    exist, how could there be any evidence as to how patents could
    be worked around? Isn't the whole point that in a bio-similar
    world patentability changes because the approval standard has
    been reduced from sameness to similarity?
        Ms. Harbour. Let me just say that in this market we know
    that the follow-on biologic will resemble brand to brand
    competition. And we know that the patents are strong on
    biologic drugs. Now your question was rather long, so I didn't
    get all of it but I am going to let Mr. Wroblewski answer what
    he heard, and then I will come back.
        Mr. Wroblewski. OK. Sure. Your question was to the extent
    that if there is no follow-on biologic how can there be--if
    there is no pathway yet how can there be any evidence. What we
    looked at is the existing brand competition because these
    markets are very large, and so there is plenty of opportunity
    for another branded competitor to come into the market,
    duplicate all the clinical and safety efficacy data, get a full
    new drug, and then compete, but we found that the patents have
    been so strong in so many of these markets that it has even
    kept out a branded competitor from doing just that.
        Mrs. Christensen. So from creating a similar product that
    comes through a different pathway?
        Mr. Wroblewski. If you create the similar product what you
    are doing is you are saying to the FOB you don't have to do as
    much clinical testing but you are still going to have to do
    some in order to be approved and you can rely on the FDA's
    previous findings about the innovator drug that it is safe and
    effective and you won't have to do as much. But if the patents
    have been strong to keep out the branded competitors they are
    going to be equally as strong to keep out the follow-on
    competitors who have to be similar.
        Mrs. Christensen. I guess you don't really make a
    recommendation as to what the period of exclusivity is, but
    just given the trends and the complexity of the drugs, and all
    of the other factors, the length of time that the very specific
    processes that have to take place that may not be able to be
    duplicated, the amount of investment that has to be made, can
    you just explain to me again why we would not provide for a
    longer period. It just seems, I mean as a physician I know that
    I would have a lot of difficulty. I would have to adjust myself
    to generics period to begin with because my patients, some of
    them wouldn't accept them even if I did. But because there may
    be immune differences in how a person reacts immunologically
    and the medication, why wouldn't you give these complex
    molecules with all the other factors a longer period of
    exclusivity?
        Ms. Harbour. Let me take a stab at that. We feel that the
    patent protection and market-based pricing is enough. Why?
    First of all, the rationale for 12 to 14-year branded
    exclusivity period basically would be to compensate for any
    perceived failures of the patent system to reward and protect
    and to incentivize biologic drug innovation, but our report has
    not found any perceived failure. Therefore, we found that
    branded exclusivity was not necessary because the branded
    biologic manufacturers are likely to enter the market and earn
    substantial revenues even after follow-on entry.
        And the follow-on biologics are unlikely when they do enter
    the market against the pioneer manufacturers, they are unlikely
    to price discount more than 10 to 30 percent. That means that
    the branded pioneer manufacturers are likely to maintain their
    advantage. They will still retain 70 to 90 percent of their
    market share after the follow-on biologic enters. They are
    still making very excellent profits and the biologic product
    has already, as I said, been incentivized through patent
    protection and market-based pricing.
        Mrs. Christensen. Well, my time is up. If there is another
    round, I may come back.
        Mr. Pallone. Just to know, we are not going to have another
    round but thank you. Mr. Murphy.
        Mr. Murphy of Pennsylvania. Thank you, Mr. Chairman. Some
    quick questions here. The comment that you just made about 70
    to 90 percent, they will maintain 70 to 90 percent of their
    market share, and they will likely continue to reap substantial
    profits. What is the basis of that statement? Likely, what does
    likely mean?
        Mr. Wroblewski. The basis of the statement is the
    experience that we have seen so far in Europe in terms of how
    they have priced and then with the limited experience that we
    have seen with the one example with Humatrope here in the U.S.
    It is a biologic drug but happens to be approved under the
    Federal Food, Drug, and Cosmetic Act so it is an exception. So
    when we looked at those, but then it is also based on the
    Commission conducted a workshop in which we had the biotech
    industry. We had the potential FOB competitors. We had the
    payors, the PBMs, and the----
        Mr. Murphy of Pennsylvania. Did you have the companies that
    actually do the research and development in the room? Did you
    have the companies that actually developed the new drugs in the
    room?
        Mr. Wroblewski. Oh, yes. Oh, yes.
        Mr. Murphy of Pennsylvania. And did they say that they
    thought it was maintaining at 70 percent----
        Mr. Wroblewski. Yes.
        Mr. Murphy of Pennsylvania. Did they say maintaining 70
    percent market share they could continue to----
        Mr. Pallone. I couldn't even hear some of the comments you
    made. I don't know if the reporter could. Maybe don't repeat it
    now but just stay close to that mike.
        Mr. Wroblewski. OK. I am almost swallowing it.
        Mr. Murphy of Pennsylvania. I understand that nearly 90
    percent of biotech companies have remained unprofitable. In
    2008, a third of them had less than 6 months cash on hand. They
    have to go out and get venture capital for these things, and if
    we say to the venture capitalists who are investing that we are
    going to reduce that by several years of return on investment
    here that to have someone come through--I wasn't in this room
    when everybody met. Let us take out the payors. Let us take out
    the FOBs who is going to benefit from this. Just the companies,
    they said, yes, it is fine with us, cut us down to 5 years and
    we can make do with this?
        Mr. Wroblewski. No. No.
        Mr. Murphy of Pennsylvania. OK. What did they agree to?
        Mr. Wroblewski. They agreed to what the market effect would
    be of FOB entry.
        Mr. Murphy of Pennsylvania. They are fine with it?
        Mr. Wroblewski. It was their research that----
        Mr. Murphy of Pennsylvania. Down to what level, down to how
    many years exclusivity?
        Mr. Wroblewski. Say that again.
        Mr. Murphy of Pennsylvania. Down to how many years of
    exclusivity are they fine with?
        Mr. Wroblewski. What we were trying to do was analyze how
    competition was likely to develop.
        Mr. Murphy of Pennsylvania. But down to how many years
    exclusivity, did they comment on that?
        Mr. Wroblewski. They have strenuously advocated for a 12 to
    14-year period of exclusivity.
        Mr. Murphy of Pennsylvania. So they are OK if it stays 12
    to 14 years and to have competition into the market there, is
    that what they said, they can still----
        Mr. Wroblewski. Say the last piece again. And the----
        Mr. Murphy of Pennsylvania. The 70 to 90 percent of their
    market share but it is at 70 to 90 percent of their market
    share so let FOBs come in, but would that also still maintain
    some exclusivity for that 12 to 14 years?
        Mr. Wroblewski. What we had tried to do was to see how the
    competition was likely to develop to determine whether----
        Mr. Murphy of Pennsylvania. I only have 2 minutes left. I
    just need an answer. Does that--are they agreeing, yes, we are
    OK with competition if we can keep the 12 to 14-year
    exclusivity, and that allows us to raise enough money in an
    unprofitable time to do research on new drugs?
        Mr. Wroblewski. I don't think they ever agreed that they
    would be able to keep 70 to 90 percent. It is just what the
    experience has shown that they would----
        Mr. Murphy of Pennsylvania. Well, I am confused because I
    thought you said that they all met together and they told you
    they were supportive.
        Mr. Wroblewski. Everybody predicts that the effect of a
    follow-on biologic will be--that they will come in at a 10 to
    30 percent discount, and if they do that the brand or the
    pioneer is likely to retain 70 to 90 percent of its market
    share.
        Mr. Murphy of Pennsylvania. OK, but I thought you said----
        Mr. Wroblewski. We looked at what that implication was.
        Mr. Murphy of Pennsylvania. I need an answer here. I am
    really not trying to be funny, but I don't want to dance around
    this because I want to make sure we have plenty of money to
    continue to develop life-saving drugs. That is what I want.
    Cheap drugs that don't cure anything are worthless. Expensive
    drugs that no one can afford are worthless. So I need to know.
    You talked about some people sat around and they agreed to
    something. What the heck did they agree to, and if they didn't,
    don't tell me they did. Are they saying that this 12 to 14-year
    exclusivity remains, are they saying they are OK with
    competition, are they saying they are OK with making it 5-year
    exclusivity? What specifically did they say in 3 words or less?
    I just need an answer quickly.
        Mr. Wroblewski. They agreed that competition would be like
    a branded competitor and we have ways to deal with branded
    competitors now.
        Mr. Murphy of Pennsylvania. Did they comment at all on the
    years of exclusivity or is your report not touching on today?
        Mr. Wroblewski. No. It describes completely that they have
    put forth a model that shows that they need 12 to 14 years.
        Mr. Murphy of Pennsylvania. OK. One other thing I want to
    ask real quick. The issue of similarity so a molecule may
    change its large molecule. A molecule may change. We are not
    going to require the FDA to do testing on those?
        Mr. Wroblewski. We took it as a given that the FDA would
    approve a safe and effective product, whatever that required.
        Mr. Murphy of Pennsylvania. So the FDA may still require
    additional testing of some of these drugs?
        Mr. Wroblewski. And that is the reason why it is going to
    be so expensive to bring in an FOB.
        Mr. Murphy of Pennsylvania. OK. So just changing a molecule
    on something, I mean you could change one molecule in an H20
    formula and make something that is toxic versus something that
    is necessary so I hope that that is an important part of this
    whole report. If that is something we have discussed more
    perhaps you can elaborate on this for me because it is
    something you made reference to in writing and also in your
    testimony here. I really would like to know what that means
    because that is going to be very important to understand how we
    can have a competitive marketplace and also make sure there is
    sufficient funding in here that we can keep moving forward in
    developing these new drugs. I would be grateful for that. The
    procedure will be to let the chairman know and we will go on
    from there. Thank you so much.
        Mr. Pallone. Let me mention to you and to the members, and
    obviously as always you will be able to pose questions in
    writing that we would ask you to respond to after the hearing.
    The gentlewoman from California, Ms. Eshoo.
        Ms. Eshoo. Thank you, Mr. Chairman. The first thing I would
    like to start out with is to ask for unanimous consent to place
    in the record the comprehensive responses to every question
    raised by the subcommittee from the chief scientist of the FDA,
    Dr. Frank Torti, which was peer reviewed, and, second, the
    exhaustive economic analysis of data exclusivity of biologics
    by Henry Grabowski, whose name has been mentioned several times
    by several members on both sides of the aisle today. He is the
    director of the Program of Pharmaceuticals and Health Economics
    at Duke University. So I would ask that these be placed in the
    record.
        Mr. Pallone. Let me just ask, these are the comments by the
    FDA under the Bush Administration, is that what they are?
        Ms. Eshoo. Well, the FDA is the FDA regardless of what
    Administration it is under.
        Mr. Pallone. No, no, I just want to make sure because I
    know we have asked--I am only asking because I know that we
    have asked the FDA, the current FDA, too, but these are the
    ones from the previous, right? Let me see them.
        Ms. Eshoo. You know what, Mr. Chairman, I think you know
    what I asked. I am just asking for unanimous consent to place
    this in the record. If people want to read it, they will have
    access to it. If they think it is garbage, they can throw it
    out. It doesn't force anyone. It is a very simple request.
        Mr. Pallone. No, no, I agree. I am just trying to verify
    what it is.
        Ms. Eshoo. Read it and then you will see. Is there
    unanimous consent to it?
        Mr. Pallone. Well, normally I like to know what it is
    before I agree.
        Ms. Eshoo. I just read it into the record.
        Mr. Pallone. Tell me again. It is the FDA----
        Ms. Eshoo. These are the comprehensive responses to the
    questions that the members of the subcommittee almost 2 years
    ago before we had the meeting----
        Mr. Pallone. Right, but we have also asked them--these are
    the ones from the previous Administration. We have asked them
    again in the current Administration.
        Ms. Eshoo. You don't agree with what the FDA responded, but
    I still would like that in the record.
        Mr. Pallone. No, I just want to make sure that they are the
    ones from the previous Administration. That is what we are
    talking about, right?
        Ms. Eshoo. What is the date on it? It is September 18,
    2008.
        Mr. Pallone. OK.
        Ms. Eshoo. So it is just before my candidate for President
    won.
        Mr. Pallone. All right. So ordered.
        [The information appears at the conclusion of the hearing.]
        Ms. Eshoo. In trying to read the report, digest it, and
    then analyze it in the unfair time frame that was established
    either by the FTC or by the committee, I don't know which it
    is, there is something that stood out to me, and that is
    throughout the report, throughout your report you base the--you
    talk about obviously the generics that are the result of Hatch-
    Waxman, which we all celebrate, and this new attempt to use
    that framework, very broad framework, and apply it to
    biologics. But what you, I think, fail to state and then
    develop in the report is that under Hatch-Waxman the compounds,
    the pharmaceuticals must be identical. That is by law.
    Biologics, bio-similars, think of the 2 parts of that word,
    will be similar. They cannot be identical. I don't know what
    scientists you brought in to instruct you on this, but I have
    to say that to base your report, as I read it, I think it is
    deeply flawed because you base your outcome and your analysis
    of bio-similars on the previous regimen and the previous law,
    which is very different.
        I don't see where you have taken into consideration the
    differences between the two which is what makes this case very
    complex. We have a regulatory framework today in which any new
    biologic will receive, and I want to move on, because I want to
    ask my questions but that is an observation, any new biologic
    would receive 20 years of patent protection and no potential
    for bio-similar competition. Innovators and investors are
    assured that as long as their patents are in force, there is no
    possibility of a competitor going to the FDA using the
    innovator's safety and efficacy record and taking a shortcut to
    the market to compete against them.
        Now we are proposing to move to a policy in which patents
    will remain in force but competitors will be able to come to
    market to compete against an innovative product without going
    through a full-blown FDA review. As you point out in the
    report, this will cost a bio-similar manufacturer about a tenth
    of the cost for an innovator or a non bio-similar competitor to
    bring a product to market. Now how can this not possibly
    change? How can this--because you say in your report that
    investment incentives won't change. How can this not possibly
    change the investment incentives in bio-technology? If a
    venture capitalist or a drug company is contemplating a new
    product for development, won't this fundamentally alter their
    rise/reward calculation? This has to have an examination. I
    don't know where you leap frog to. It is almost as if this
    doesn't exist or that if we don't talk about, we don't have to
    deal with it, therefore, it doesn't exist.
        So I think you need to answer that. And I want to bring out
    my next question as well. Your report states that a 12 to 14-
    year exclusivity period, this is quote, ``is unnecessary to
    promote innovation by pioneer biologic manufacturers.'' This
    position is based on your assumptions that patent workarounds
    will be no easier to accomplish for biologics than they have
    been for small molecule generic drugs. You also state that data
    exclusivity is only justified for products that are
    unpatentable, but I see no substantiation at all for these
    positions in your report. That is why I question whether past
    or present information about small molecule generics is a
    reliable predictor for biologics, and that is why I question
    the basis for your assumptions.
        We have absolutely no experience, and I want to repeat
    that. We have absolutely no experience with the similarity
    standard that will be used for biologics for the approval of
    bio-similars, so how can you be sure that a new and untested
    standard would not facilitate a path for patent workarounds for
    biologics? How can you be sure that the different nature of
    biologic patents in conjunction with the similarity standard
    would not facilitate patent workarounds? How can you be sure?
    And, you know what, guessing in this is not going to be good
    enough. I would challenge you to ingest what comes out without
    the kind of scrutiny of the FDA and comparing one with the
    other as if they are the same as if it is apples and pears. It
    is not. How can you be sure that today's science and the
    scientific advances in the future would not make it easier for
    bio-similar companies to work around biologic patent claims?
        I think that this is a real chink in the armor of the
    report or just in the report, which I have to tell you at
    quarter to 1:00 this morning, I thought really suggested a lot
    of guesswork on the part of the FTC. And let me hold something
    up, and I don't know if you had anyone come in and show you
    this. This is a regular drug, small molecule compound. This is
    tamoxifen. Look at it. It is all the same. This is herceptin.
    This is herceptin. This is herceptin. If this picture doesn't
    speak a thousand words where you use the model throughout your
    report based on the generics of the small molecules and apply
    it to this, I want to tell you something, patients are going to
    be in big trouble in this country. Patients are going to be in
    big trouble in this country.
        And if efficacy of this movement is not taken into
    consideration, God help us. Now there is something else that
    has gone around in the committee for those that are opposed to
    my viewpoint, and they have every right to oppose it. But I
    want to--and there are other members that have touched on this.
    We cannot take for granted those that innovate to pursue the
    cure of these deadly diseases. The FDA is not going to do it,
    the Energy and Commerce Committee is not going to do it. We
    have a private sector that does it. Yes, there need to be new
    rules of the road because we want lower costs and safe
    products. But that role cannot be diminished, and, I don't
    know, I looked at the back of your report. Did you have any
    people that do the investing in this come and be part of your
    round table? If they were law firms, I didn't recognize them.
        Mr. Pallone. Let me just--we are like twice the time so I
    am just going to ask you to--I know you can't respond to
    everything but----
        Ms. Eshoo. Well, there was an assertion, Mr. Chairman.
        Mr. Pallone. But if you could just respond as quickly as
    you can because we need to move on.
        Ms. Harbour. I will. There were just a number of
    assumptions. First of all, let me just apologize to you for the
    lack of time you had to read the report.
        Ms. Eshoo. Well, why did that happen to begin with? Were
    you told--how long have you been working on this?
        Ms. Harbour. The commissioners received the report at 4:00
    on Tuesday evening.
        Ms. Eshoo. No, no. How long has the FTC been working on
    this report?
        Mr. Wroblewski. We announced our workshop because we had a
    public hearing in August of last year.
        Ms. Eshoo. How long have you been working on it?
        Mr. Wroblewski. Ten months.
        Ms. Eshoo. Ten months.
        Ms. Harbour. And it was finished on Tuesday.
        Ms. Eshoo. And you notified the committee that it was
    complete when?
        Mr. Wroblewski. I notified the--the beginning of last week
    that it would be ready.
        Ms. Harbour. And it was ready Tuesday at 4:00.
        Ms. Eshoo. And did the FTC--was it the FTC that refused to
    put the report out to members and only after cajoling that we
    finally got it and that some of us took it home to read last
    night?
        Ms. Harbour. Let me be really clear. The report was
    finished Tuesday at 4:00 p.m. The commissioners of the Federal
    Trade Commission voted this Tuesday, this week, at 4:00 p.m. on
    the report. There were embargoed copies that went probably
    before we even voted on it, but it went to the full committee
    the very next day.
        Ms. Eshoo. You know what, let us get to the----
        Mr. Pallone. All right, but we have to move on.
        Ms. Eshoo. I would like you to answer the questions that I
    posed.
        Ms. Harbour. OK. There was an assumption that was made, you
    said that the report applied the Hatch-Waxman framework in this
    context. It doesn't----
        Ms. Eshoo. Similarities. I am sorry. The identical standard
    and use it and apply it to the similar standard.
        Ms. Harbour. The report actually did not say that. In fact,
    the approval pathway for biologics will be very different than
    the Hatch-Waxman approval process, and that is why I started by
    apologizing that you didn't get a chance to read the full
    report because it doesn't say that the approval process is
    similar. It is not. In fact, we are advocating that a Hatch-
    Waxman approval process would not be appropriate in the case of
    follow-on biologics. And the reason we say that is because it
    mimics brand-to-brand competition.
        Ms. Eshoo. I am not talking about the approval process. I
    am talking about the investment incentive. You all are the ones
    that are in charge of competition. That is why, I guess, you
    got involved in this whole issue and that is why I think----
        Mr. Pallone. If you would just answer that, and then we
    have to move on. I am just going to have to move to the next
    person.
        Mr. Wroblewski. What we did is we looked at--we did look at
    the investment incentives for the biologics and compared them
    to the investment incentives for a small molecule drug, the
    Hatch-Waxman type drug, and the research that we have that is
    out there, and I provided to your staff earlier, was that the
    actual time and the cost to develop a pioneer biologic drug
    versus a pioneer small molecule drug are the same.
        Mr. Pallone. All right. I have to go. Mrs. Capps is the
    next for questions.
        Mrs. Capps. Thank you. Thank you, Honorable Commissioner,
    for being here for this long. One of the reasons, I have 3
    different questions to ask, one of the reasons that has been
    given for a 12 to 14-year exclusivity period is that without
    such a lengthy period start-up biotech companies will not be
    able to interest venture capitalists in investing in their
    companies, and without venture capital these companies cannot
    survive. Some believe that this specific number of years is
    very difficult to evaluate. Before Congress makes a
    determination on exclusivity periods, this hearing is because
    we feel a duty to determine whether there is adequate evidence
    to support arguments in its favor. First question, did the
    evidence gathered by the FTC in the course of its investigation
    support the claims that venture capitalists will no longer
    invest in start-up biotech companies without this 12 to 14
    years of exclusivity?
        Mr. Wroblewski. We believe that patent protection will
    still provide those incentives. Patent protection plus market-
    based pricing will still provide those incentives for venture
    capitalists to invest in start-up biotech ventures.
        Mrs. Capps. I know you have mentioned this already. I just
    wanted to get it clearer from my perspective as well. Next
    question, is there evidence that start-up biotech companies
    will still be able to recruit venture capital in during like a
    5-year period comparable to what the traditional drugs have or
    the small molecule drugs have?
        Mr. Wroblewski. Yes, because patent rights are still going
    to be strong.
        Mrs. Capps. Do you have evidence that this is the case?
        Ms. Harbour. Well, we have seen if you take a look at the
    stock market in the biotech market the stock prices only went
    down 15 percent compared with the general market indices went
    down 30 percent.
        Mrs. Capps. But you are using that as one method of your
    valuation?
        Ms. Harbour. There are probably more as well, but that is
    what comes to mind.
        Mrs. Capps. Are there others?
        Mr. Wroblewski. The only thing I was going to add was the
    venture capital that has come into the biotech industry in the
    past quarter has actually been very robust.
        Mrs. Capps. And right now there is no 12 to 14-year
    exclusivity because that is what we are debating, so right now
    they have nothing--pardon?
        Mr. Wroblewski. That is true, there is no 12 to 14-year
    exclusivity.
        Mrs. Capps. There is the same as small molecule. Finally,
    another kind of tact, the FTC report concludes, as you just
    mentioned, that 12 to 14 years of exclusivity is unnecessary
    because patents and market-based pricing available under
    current law provides sufficient incentives for innovation. I am
    particularly interested in one of your conclusions that given
    an excessive period of exclusivity may in itself have negative
    consequences, and that may actually harm patients. This is a
    piece that I would like you to spell out. What are some of
    these negative consequences, particularly how the length of
    exclusivity might decrease the number of medical breakthroughs
    but also the particular--I know many people hang on to the hope
    that something is going to be available to them for their own
    life-saving needs, and so these 2 aspects. Additional
    breakthroughs, follow-on behind some new discovery, often times
    they do, and then the part that relates to the patient's own
    survivability.
        Ms. Harbour. I would say that the 12 to 14-year exclusivity
    period could in fact slow the pace of innovation so new----
        Mrs. Capps. So other companies will know they just can't
    even do anything for that long a time so they won't try?
        Ms. Harbour. That is right, and ultimately that is not good
    for the American consumer because you are not getting new drug
    products in the market as quickly.
        Mrs. Capps. Right. I know especially because there are
    different criteria in other countries that sometimes people see
    availabilities in other places that they can't make available
    to themselves here, which creates quite a possible tragic
    situation at least from their points of view although to be
    sure we want to make sure that our standards are ones that we
    set ourselves. Is there any evidence on the previous--since I
    have just a few seconds left, that a long length of time of
    exclusivity would have this sort of chilling effect on
    additional innovations to that particular so upgrading it or
    making it better or doing something different along the side of
    it, sometimes different outcomes based on something that is set
    up in a particular--and they are very complex and they will
    spin off into some other kind of breakthrough?
        Mr. Wroblewski. We have seen in other areas that whenever
    the exclusivity ends that that is when the innovation occurs,
    and so to the extent that the follow-on pathway that you are
    establishing still keeps intact those very robust incentives of
    patent protection and market-based pricing then you will have
    the threat of competition coming from behind acting it is
    almost like carrots and sticks. With the carrot you have the
    ability to price at market whatever the market will bear for
    that period of time for your patent. And then you have the
    competition can come on and hasten the development. That is
    win-win for the consumers.
        Ms. Harbour. And one thing I want to add. The exclusivity
    is really additional protection over and above what the patent
    system provides and the original rationale for the 12 to 14-
    year branded exclusivity period under Hatch-Waxman was to
    compensate for a perceived failure of the patent system. We
    haven't perceived that failure here with biologics and follow-
    ons.
        Mrs. Capps. Thank you. I yield back.
        Mr. Pallone. Thank you. The gentleman from Utah, Mr.
    Matheson.
        Mr. Matheson. Thank you, Mr. Chairman. In my opening
    statement, I mentioned that 80 percent of the biotech industry
    right now remain unprofitable. Is that consistent with what you
    have heard as well?
        Mr. Wroblewski. We have seen the same statistics.
        Mr. Matheson. In the previous round of questions, you were
    asked for evidence about ability to attract capital. You
    mentioned recent stock performance and quarterly investment
    from venture funds. Do you think that short-term window of the
    last few months is really the best evidence you got for telling
    us that the investment incentives are right because I got to
    tell you that doesn't sell me.
        Mr. Wroblewski. Sure. We can certainly provide you all the
    evidence. We would be more than happy to give you the evidence.
        Mr. Matheson. Mr. Chairman, I think it would be real
    helpful again at future hearings, let us get some folks in the
    venture capital industry and let us get some other folks in
    here so we can have a broad discussion about what is really
    going on here because I do think we want to make sure when we
    are setting policy that we do set an environment that
    encourages that private sector investment in these areas. I
    think that would be a useful tool. I want to ask a question.
    Right now in Europe, you have heard, and a number of people
    said this in their opening statements, that it is 10 to 11
    years of data exclusivity. Have you in your analysis thought
    about how an exclusivity period in the United States would be
    lower than the European model, how that would affect U.S.
    competitiveness in this industry?
        Mr. Wroblewski. The European model is very different for 2
    reasons that we mentioned earlier. One was that the scope of
    the patent system is different in that they have regulated
    prices in Europe, so with a 10-year period of exclusivity and
    only the ability to charge a regulated price as opposed to a
    price that the market would bear, and if they have developed a
    monopoly, it is a monopoly price, that that market necessarily
    isn't--that model isn't necessarily as translatable here to the
    U.S.
        Mr. Matheson. Have you in your analysis, have you seen
    where a biotech industry is moving away from Europe and coming
    to the United States in previous years?
        Mr. Wroblewski. I think what we saw throughout the entire
    analysis was that biotech in many ways is a global industry,
    but that here in the United States it is locally centered, so
    because of the strong collaborative efforts between
    universities, between start-ups that have talent to manage
    projects that you have a collaboration, and so that is why you
    have in Wisconsin, you have a biotech industry----
        Mr. Matheson. Let me ask you, in your analysis did you look
    at why--in terms of looking why the Europeans set this data
    exclusivity at 10 to 11 years, you have mentioned your issue
    about market pricing, did you analyze other reasons why they
    set that exclusivity period where they did, and in fact was not
    one of the reasons because industries were leaving Europe and
    coming to this country?
        Mr. Wroblewski. When we spoke with the European regulators
    they explained that their system was kind of a different system
    because they were incorporating not only biologics but small
    molecule drugs too in that whole system and that it was a
    different dynamic than what I think we are facing here.
        Mr. Matheson. Let me ask you this question. Obviously, the
    committee is looking at different bills that look at data
    exclusivity. What are the factors you think we ought to be
    taking into consideration as a committee in terms of how we
    determine an appropriate length of exclusivity?
        Mr. Wroblewski. I think there are a couple of things that
    we should look at, one, to see if there is a failing in the
    patent system because drugs are unpatentable, that is a serious
    flaw for all drug development, and there should be some type of
    mechanism to recoup and to encourage people or firms to engage
    in that clinical testing.
        Mr. Matheson. So are you suggesting it is more of a patent
    reform issue and not data exclusivity, is that what you are
    saying?
        Mr. Wroblewski. Yes.
        Mr. Murphy. And you are saying that the fact the biologic
    industry maybe faces a different set of dynamics than
    conventional prescription drug industry that this exclusivity
    issue is not an appropriate tool for us to acknowledge the
    challenges in the biotech industry?
        Mr. Wroblewski. We didn't see that the tools that we
    currently used to incentivize innovation, basically patents and
    the fact that you can price up the market somehow would fail
    and with a bio-similar that wouldn't have nearly the dramatic
    market impact that a small molecule generic drug would have.
        Mr. Matheson. If you think that the intent is that we want
    to set up an appropriate opportunity for the private sector to
    recoup its R&D cost to develop one of these, are you telling me
    data exclusivity is not an appropriate tool for us to be
    looking at?
        Mr. Wroblewski. I think it is an appropriate tool to look
    at if the other 2 tools which have been wildly successful are
    broken.
        Mr. Matheson. And you are suggesting they are broken?
        Mr. Wroblewski. Quite the opposite. I am suggesting that
    they seem very strong.
        Mr. Matheson. I see my time has expired, Mr. Chairman, but
    I guess I will reiterate what a number of folks have said. I
    think it would be helpful to bring some other folks in before
    this committee to get some other points of view, and I will
    yield back my time.
        Mr. Pallone. Thank you. Before I ask Mr. Inslee, I know
    that my colleague from Georgia has a request.
        Mr. Deal. Yes, Mr. Chairman. I have a unanimous consent
    request that a report from Alex M. Brill, who is a fellow at
    the American Enterprise Institute, and a report from Lawrence
    L. Kotlikoff, Professor of Economics at Boston University, and
    a report from the ARP Public Policy Institute on biologics,
    that they be included in the record.
        Mr. Pallone. Without objection, so ordered.
        [The information appears at the conclusion of the record.]
        Mr. Pallone. Mr. Inslee.
        Mr. Inslee. Thank you, Mr. Chairman. Thanks for allowing me
    to participate in this very important hearing, and I hope there
    are others on this line. This is a complex area, but there is
    one conclusion of this report that is so, in my view,
    fantastically unrelated to the realities of the marketplace. I
    really got to question it. On page 7 of your executive report,
    I will read you what it says. It says, ``Central to each of
    these exclusivities is a public policy trade-off, a restriction
    on competition is provided in return for the development of a
    new drug product or new use of an existing product. A 12 or 14-
    year exclusivity period departs sharply from this trade-off
    because it does not spur the creation of a new biologic drug or
    indication. The drug has already been incentivized through
    patent protection and market-based pricing.''
        Now that statement is so fantastically unrelated to reality
    suggesting that the removal of the exclusivity period will help
    incentivize further investment in new drugs to cure new
    diseases. Right now if a drug company wants to go out there and
    develop a new drug that will cure leukemia, they have an
    incentive to investment in part because of data exclusivity,
    and yet you have turned that upside down and suggest by
    removing that data exclusivity somehow you will create an
    additional incentive for investment of a new drug. Now a
    biologically similar drug is not going to cure a disease that
    hasn't already been dealt with by the original product, and I
    just cannot fathom how you make this argument that removing
    data protection is going to create greater incentive for
    investors to put money into products that will truly respond to
    this condition in a new way. I just think you have turned
    reality on its head in that regard. So I will give you a chance
    to respond to that. I can't imagine what it would be but take a
    shot.
        Ms. Harbour. Let me take a shot first. Your question seems
    to presume that the patent system is not strong enough to
    protect patents. Basically, exclusivity is additional
    protection above and beyond what the patent system provides.
        Mr. Inslee. But let me just ask you this. Don't you agree
    that data exclusivity is one of the things that investors take
    into consideration when they decide to plunk down several
    million dollars on something that may take a decade, that may
    or may not work? Don't you think that is an incentive for
    investment in truly new drugs that truly treat conditions in a
    new way, which is the original patent that we are talking about
    here? Don't you agree with that?
        Ms. Harbour. No, only if there is truly a perceived failure
    with the patent system.
        Mr. Inslee. Well, then you do not have any, and with all
    due respect, any recognition of the investment climate in the
    United States if you do not recognize this as critical to
    inspiring investment in these truly new drugs. So let me ask
    you about that. Did your study of valuing the impact on the
    investment in new products, truly new products, what will
    approach these conditions in a new way, did you evaluate how
    that would affect investment in these new products, and I mean
    new. That is not follow-on biologics. Did you?
        Mr. Wroblewski. We did not evaluate that in particular, and
    I will tell you why. It is because patent protection has been
    very, very strong. We have suggested though in the executive
    summary that one way to----
        Mr. Inslee. I have got limited time. I think if you would
    answer my question, I would appreciate it, but the point I want
    to make is you assumed for purposes of this study that there is
    no impact. That is an assumption we can't make because if you
    make that assumption and it is wrong, which I believe it is
    wholeheartedly wrong, you will cut off the development of new
    drugs because investments will not be made in them. So let me
    ask you a further question. Madam Commissioner, you told us you
    consider yourself an expert on consumers. I will give you a
    hypothetical consumer. Let us take parents of a 10-year old kid
    with leukemia, and we are now evaluating risks when we consider
    this legislation. One of the risks is that we would continue
    data exclusivity and the parents might have a 10 to 30 percent
    increased cost of a drug that might cure leukemia. Let us
    assume that there is one right now. The other risk is that a
    drug would never be created to cure leukemia because by
    removing data exclusivity the investment never gets made to
    provide that life-saving drug. As an expert in consumer
    behavior, what do you think is more important in the bigger
    risk to those parents of that kid?
        Ms. Harbour. First of all, if I said I was an expert on
    consumers, I misspoke but let me----
        Mr. Inslee. I think that was the direct quote I could find.
        Ms. Harbour. I am an expert on protecting the American----
        Mr. Inslee. OK. As an expert in protecting the consumer,
    what do you think would be a greater risk in the minds of the
    parents of that child, the risk that they would have a 10 to 30
    percent higher cost for the drug or the risk that this drug
    that could cure their child would never be created?
        Ms. Harbour. You are assuming that data exclusivity is the
    only way that one would invest in a drug, and that is what I am
    pushing back against. I don't think that assumption is correct.
    There are exceptions though where if you have a small patient
    population or if you are bringing drugs on the Orphan Drug Act
    where exclusivity would be necessary because there is a
    perceived market value, in that circumstance exclusivity would
    be absolutely appropriate.
        Mr. Inslee. And the unfortunate limitation of your study,
    according to what was just testified----
        Mr. Pallone. I just have to ask the gentleman----
        Mr. Inslee. Thank you, Mr. Chair. I appreciate your
    cooperation.
        Mr. Pallone. OK. The gentleman from Texas, Mr. Burgess.
        Mr. Burgess. Thank you, Mr. Chairman. Let me just follow
    along that discussion that you were just having. Now within the
    Federal Trade Commission, have you constructed a matrix that
    will give you a cost benefit analysis, some of the newer
    compounds, for example, that inhibit some small blood vessel
    growth that may be used in treating more advanced cancers? Do
    you look at the number of hospital days that might be saved by
    using one of these advanced biologics and considering the cost?
    Yes, they are expensive but the disease that they are treating
    also has expensive consequences associated with it, so that if
    we avoid a surgery, if we avoid a week in the hospital, there
    are additional savings, not just the base line of the drug but
    there are other things to consider. So is there a matrix or a
    simulation or program that you use to help make those
    evaluations or is this simply data that is derived from the
    price tag on the bottle or box that the drug comes in?
        Ms. Harbour. Those sort of questions sound like they are
    within the expertise of the FDA. We are looking at the----
        Mr. Burgess. I am so glad you brought that up because Mr.
    Chairman, we should be having this discussion with the FDA.
        Ms. Harbour. And perhaps you will. We are your beginning
    act here, and we are talking about the competitive consequences
    of this sort of follow on. I believe there will be more
    hearings and discussions on these issues.
        Mr. Burgess. Now you and the FDA, are you aligned on your
    definition of things like bio-similar and bio-generic? Do you
    mean the same thing when you say those terms?
        Mr. Wroblewski. Yes.
        Mr. Burgess. It seems like the FDA has hinted that it might
    be otherwise, but you feel that currently there is a scientific
    basis for determining interchangeability of biologics from
    different and unrelated manufacturers?
        Mr. Wroblewski. What we tried to do was to say if there is
    an abbreviated pathway where the follow-on does not have to
    duplicate findings of safety and effectiveness because it can
    rely on the FDA's approval of the pioneer drug if that is
    allowed.
        Mr. Burgess. That is such a crucial question because the
    safety question can be very, very difficult to answer. And
    again just as an aside a week ago I was visiting the FDA and
    Dr. Hamberg and getting a tour with her through the new
    facility that they are occupying out there. One of the
    researchers just passing in the halls said what a difficult
    time they were having because of the viruses that might infect
    the cell cultures that are going to create these monoclonal
    antibodies that might be useful in the treatment of prevention
    of Alzheimer's in the future. Well, that is a pretty important
    arm or branch of that research. I don't know that he knows or
    would be interested if he could tell us that is this something
    that is so standard and so settled that you could do this in
    Dallas as well as Denver as well as Bejing and get the same
    result.
        Ms. Harbour. That is very important, and that certainly
    would be for the FDA, not the FTC, to determine the safety and
    efficacy of these follow-on biologics.
        Mr. Burgess. Again, we are hitting on a recurrent theme,
    Mr. Chairman. We need to have a hearing that involves the FDA
    and many of us have been asking for that for some time. Again,
    I will just emphasize that I have not aligned myself with
    either of the 2 bills that are out there. I am really in an
    information gathering mode and safety had to be paramount for a
    doctor that picks up the pen and writes the prescription and
    rips it off and puts it in the patient's hand and counsels them
    as to the risks and benefits. We have got to be able to provide
    them the best data. And it isn't always just the price tag on
    the box or the bottle that the medication is going to be
    delivered in.
        What about, because this would come up all the time when I
    was a doctor, and I was in practice for years. There were some
    classes of medicines, and these were not biologics, these were
    just regular things, but there was some class of medicines
    there you just really didn't want to make a change and you
    didn't want a generic to be substituted and some of those
    things might be some of the cardiac drugs, certainly some of
    the diuretics that treat congestive heart disease, and in my
    practice estrogens from different manufacturers actually seemed
    to have a different biologic behavior. And I don't know whether
    it was the bio availability or the vehicle or what it was, but
    how are we going to address that? A doctor has got a patient
    who is on a very stable regimen, a patient with a serious and
    significant disease, and now a new bio-similar becomes
    available, how are we going to govern that because in the
    generic world it became harder and harder for me to control
    that, and often times I would have to pick up the phone and
    call 1-800 California and stay on hold for a long time to get
    my point across.
        Mr. Wroblewski. We couldn't agree with you more that those
    types of switching are going to be very difficult to do in the
    bio-similar environment, and that is one of the foundations
    that drew our conclusions that when a follow-on comes on to the
    market that its market impact is going to be substantially
    different than a generic drug, the market impact that a generic
    drug has.
        Mr. Burgess. Under the Waxman-Hatch, whatever it was, we
    lost the ability to--the provider, the doctor, lost the ability
    to control that, and again you had to really intervene on your
    patient's behalf if you didn't want to have a substitution.
        Mr. Wroblewski. And there is no similar type mechanism in--
    --
        Mr. Burgess. Well, I think we heard that discussed this
    morning that there would have to be ways of directing this
    behavior because you couldn't always trust doctors to do the
    right thing, imagine that. Just one last point I will make. We
    heard the heparin tragedy a year ago in this very hearing room.
    The fact that often times the act of pharmaceutical ingredient,
    we only manufacture the compounds in this country but actually
    the active pharmaceutical ingredient may come from overseas,
    and the ability of the FDA to monitor those manufacturing
    facilities that are overseas, and again we saw a tragedy with
    heparin which is not a complex molecule. It is a little bit
    more complex than aspirin but it would not fall into this
    category. And we saw what happened with the intrusion of a
    foreign substance into that active pharmaceutical ingredient.
    It just seems to me that this manufacturing process which is
    fraught with much more peril, you got to be much more precise.
    You don't just line up the amino acids and say, there, I have
    made the protein. It is the folding, the unfolding, the
    sulphide bonza, hydrogen bonza, all those things are going to
    be critical to the biologic action of that product, and, again,
    all of which can be affected by the humidity, the atmospheric
    pressure, and goodness knows what else.
        We have an obligation to protect--you say you are the
    advocate for the consumer. I think our first obligation has to
    be for the safety of that consumer, which is both the physician
    and the patient in that scenario.
        Ms. Harbour. And as an advocate for consumers, I think it
    is a good thing to discuss all of these issues. We are here
    discussing the competitive implications. Obviously, the safety
    implications are paramount. You can't pass go if there aren't
    safety implications. There needs to be a hearing on this
    potentially as well, but here we can't opine on those. We don't
    have the expertise to opine on the safety. The FDA would have
    to do that.
        Mr. Burgess. Thank you for your testimony. Mr. Chairman,
    did you get that, we need to have a hearing with the FDA?
        Mr. Pallone. I have repeatedly said that we are having more
    hearings so no one is disagreeing with that notion, and I think
    it is pretty obvious that we have a lot of disagreements here
    and we need further hearings. Let me just thank both of you for
    being here. This has not been easy for you, but I appreciate
    your bearing with us. And, as I mentioned before, we will
    undoubtedly have members asking in writing for you to respond
    to questions. Normally that is about 10 days, and the clerk
    will notify you within the next 10 days of any written
    questions that the members would have. But I cannot stress
    enough that I think that this report was really informative for
    me and the other members, and appreciate your bearing with us
    today. Thank you very much. And without further adieu, this
    subcommittee hearing is adjourned.
        [Whereupon, at 1:45 p.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

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