[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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    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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