[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]




        DEVELOPMENTS IN THE PRESCRIPTION DRUG MARKET: OVERSIGHT

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

                                HEARING

                               BEFORE THE

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 4, 2016

                               __________

                           Serial No. 114-132

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                     JASON CHAFFETZ, Utah, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, Jr., Tennessee       CAROLYN B. MALONEY, New York
JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of 
TIM WALBERG, Michigan                    Columbia
JUSTIN AMASH, Michigan               WM. LACY CLAY, Missouri
PAUL A. GOSAR, Arizona               STEPHEN F. LYNCH, Massachusetts
SCOTT DesJARLAIS, Tennessee          JIM COOPER, Tennessee
TREY GOWDY, South Carolina           GERALD E. CONNOLLY, Virginia
BLAKE FARENTHOLD, Texas              MATT CARTWRIGHT, Pennsylvania
CYNTHIA M. LUMMIS, Wyoming           TAMMY DUCKWORTH, Illinois
THOMAS MASSIE, Kentucky              ROBIN L. KELLY, Illinois
MARK MEADOWS, North Carolina         BRENDA L. LAWRENCE, Michigan
RON DeSANTIS, Florida                TED LIEU, California
MICK MULVANEY, South Carolina        BONNIE WATSON COLEMAN, New Jersey
KEN BUCK, Colorado                   STACEY E. PLASKETT, Virgin Islands
MARK WALKER, North Carolina          MARK DeSAULNIER, California
ROD BLUM, Iowa                       BRENDAN F. BOYLE, Pennsylvania
JODY B. HICE, Georgia                PETER WELCH, Vermont
STEVE RUSSELL, Oklahoma              MICHELLE LUJAN GRISHAM, New Mexico
EARL L. ``BUDDY'' CARTER, Georgia
GLENN GROTHMAN, Wisconsin
WILL HURD, Texas
GARY J. PALMER, Alabama

                   Jennifer Hemingway, Staff Director
Sean Hayes, Healthcare, Benefits and Administrative Rules Subcommittee 
                             Staff Director
                    Sharon Casey, Deputy Chief Clerk
                 David Rapallo, Minority Staff Director
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 4, 2016.................................     1

                               WITNESSES

Mr. Mark Merritt, President and Chief Executive Officer, 
  Pharmaceutical Care Management Association
    Oral Statement...............................................     6
    Written Statement............................................     9
Janet Woodcock, M.D., Director, Center for Drug Evaluation and 
  Research, U.S. Food and Drug Administration, Accompanied by 
  Keith Flanagan, Director, Office of Generic Drug Policy, U.S 
  Food and Drug Administration
    Oral Statement...............................................    17
    Written Statement............................................    19
Mr. Howard B. Schiller, Interim Chief Executive Officer, Valeant 
  Pharmaceuticals International, Inc.
    Oral Statement...............................................    37
    Written Statement............................................    39
Ms. Nancy Retzlaff, Chief Commercial Officer, Turing 
  Pharmaceuticals LLC
    Oral Statement...............................................    50
    Written Statement............................................    52
Mr. Martin Shkreli, Former Chief Executive Officer, Turing 
  Pharmaceuticals LLC
    Oral Statement...............................................    64

                                APPENDIX

1. Representative Earl L. ``Buddy'' Carter Statement for the 
  Record.........................................................   128
2. Representative Doug Collins Statement for the Record..........   132
3. Balto to Chaffetz and Cummings, submitted by Mr. Collins......   135
4. 2015-12-15 Macklem to Duncan - Prescription Drugs.............   140
5. 2016-02-04 NCPA Statement for the Record......................   142
6. Letters submitted by Mr. Cummings
2011-04-21 Frese-UMD to Cummings.................................   147
2015-10-22 152 Orgs to Open Appeal to Turing Pharmaceuticals.....   148
2016-01-21 Bakken-IDSA to Chaffetz and Cummings..................   151
2016-01-22 FairPricingCoalition to Chaffetz and Cummings.........   157
2016-01-25 Kosnett Durrani-CA PoisonControl to Cummings..........   160
2016-01-25 Stacy-HumanRights to Chaffetz and Cummings............   163
2016-01-26 Talente-MS to Chaffetz and Cummings...................   165
2016-01-29 Weingarten-AFT to Chaffetz and Cummings...............   168
2016-02-02 Schauben Kaminski-AAPCC to Chaffetz and Cummings......   171
2016-02-03 Coukell-Pew to Chaffetz and Cummings..................   173
2016-02-03 Del Rio-HIVMA to Chaffetz and Cummings................   175
2016-02-03 Penner-NASTAD to Chaffetz and Cummings................   184
2016-02-04 Burack-ConsumersUnion to Chaffetz and Cummings........   211

 
        DEVELOPMENTS IN THE PRESCRIPTION DRUG MARKET: OVERSIGHT

                              ----------                              


                       Thursday, February 4, 2016

                  House of Representatives,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 9:02 a.m., in Room 
2154, Rayburn House Office Building, Hon. Jason Chaffetz 
[chairman of the committee] presiding.
    Present: Representatives Chaffetz, Mica, Duncan, Jordan, 
Walberg, Amash, Gosar, DesJarlais, Gowdy, Farenthold, Lummis, 
Massie, Meadows, DeSantis, Mulvaney, Buck, Walker, Hice, 
Carter, Grothman, Hurd, Palmer, Cummings, Maloney, Norton, 
Lynch, Connolly, Cartwright, Duckworth, Kelly, Lawrence, Lieu, 
Watson Coleman, DeSaulnier, Boyle, Welch, and Lujan Grisham.
    Chairman Chaffetz. Welcome, everybody. The Committee on 
Oversight and Government Reform will come to order.
    Without objection, the chair is authorized to declare a 
recess at any time. The chairman is responsible, under the 
rules of the House and the rules of the committee, to maintain 
order and preserve decorum in the committee room, and I will do 
that.
    We have an important hearing today. We have had an 
important week. We have had a number of hearings that have been 
very important.
    Today, we are talking about the cost of health care in our 
country, because it is growing at an unsustainable rate. The 
Congressional Budget Office reported the Federal Government 
will spend $1 trillion--trillion--on Medicare and Medicaid and 
other health care programs. The CBO also reported that, in 10 
years' time, that cost will double to roughly $2 trillion.
    The cost for prescription drugs are a substantial portion 
of the Federal health care expenditures. In 2014, the Federal 
Government paid out just over $77 billion in Medicare Part D 
prescription drug benefits. Clearly, it is very difficult to 
sustain this.
    One way that affects the cost of prescription drugs is to 
increase access to generic drugs and drugs that have been on 
the market for some time.
    Our committee is very fortunate to have one pharmacist. I 
think there is one pharmacist in the United States Congress. He 
happens to sit on our panel. I would like to yield a minute to 
Mr. Buddy Carter from Georgia.
    Mr. Carter. Thank you, Mr. Chairman.
    I am disgusted that we are here today to talk about drug 
price increases. As a pharmacist for over 30 years, I have 
owned and operated numerous pharmacies in Southeast Georgia. As 
the only pharmacist in Congress, I know free-market principles 
are the best way to provide quality, affordable health care to 
the American people. But what was done here is different.
    Perverse business practices were employed to exploit a 
patient group trying to do nothing more than to extend their 
lives. None of the witnesses here today have had to look into 
the eyes of someone who is trying to make a decision between 
buying groceries and buying medication. No one here today has 
seen the look on a mother's face when she realizes that she 
can't afford to buy her child's medication. I have.
    But as a health care professional, I have worked with these 
people in order to make sure that they can get their 
medications, and to make sure that my business and my employees 
stay afloat. So some here today may hide behind their 
shareholders or their corporate boards and say that this is 
just free-market principles. But I, for one, don't agree with 
that. I will tell you that you can meet your shareholders' 
needs, that you can meet your board's needs, and still take 
care of the American public.
    But then again, I am not sure that those who are hiding 
behind their shareholders and their boards really care about 
that.
    Mr. Chairman, I yield back.
    Chairman Chaffetz. I thank the gentleman.
    The FDA, the Food and Drug Administration, is responsible 
for approving applications to manufacture generic drugs, but it 
is drowning in a backlog of applications. In an attempt to deal 
with the backlog, Congress passed unanimously out of the House 
by voice vote, and with only one dissenting vote in the Senate, 
as I recall, the Generic Drug User Fee Act in 2012. The act 
promised shorter wait times but required applicants to pay $1.5 
billion in user fees over a 5-year period.
    Despite these fees and their promises, the FDA still has a 
backlog of more than 3,700 generic drug applications.
    The basic premise here I think is one of basic economics. 
If you have somebody who rapidly increases or dramatically 
increases the price of a prescription drug, that is going to 
invite more competition. But if that competition can't get the 
approval from the FDA, then there is no competition, and the 
price will be inelastic, and it will continue to rise.
    So most of my questions today are actually for the FDA and 
what they are doing to accelerate that process. I believe that 
the FDA has failed to meet its statutory responsibility and is 
dramatically behind in its processing.
    A good example of how valuable a shortened FDA review 
process has become is the program that offers priority review 
vouchers. Because the FDA review process can be so time-
consuming, drug companies have been paying outrageous sums for 
these vouchers.
    Last year, one of these vouchers sold for $350 million, but 
these vouchers only speed up the process by roughly 4 months. 
That means at least one applicant was willing to pay $2 million 
a day just for an additional 120 days.
    Given these facts, it is pretty obvious our current review 
process for generic drug applications is too slow.
    Along with the FDA, we have representatives from two drug 
manufacturers. Turing Pharmaceuticals purchased the 
prescription drug Daraprim and raised the price per pill from 
$13.50 to $750. Valeant Pharmaceuticals' CEO is also here to 
explain how his company bought heart drugs Nitropress and 
Isuprel, and raised their prices 525 percent and 212 percent, 
respectively.
    All three of these drugs lacked any generic competition, 
even though the patent had expired and they are available for 
generic versions.
    I look forward to hearing from all witnesses today.
    I also want to thank Ranking Member Cummings, who has been 
very passionate on this issue and very insistent that we have 
this hearing. And I think I am glad that we did this together.
    I now yield the time and recognize Mr. Cummings for 5 
minutes.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    From the depths of my heart, I thank you again and again 
for holding this hearing.
    The issue has been my number one--number one--investigative 
priority for several years. I am so grateful that we are 
holding this hearing today and that drug companies, the FDA, 
and other stakeholders have been called here.
    Thank you also for sending joint document requests to these 
companies, Turing and Valeant. They both refused my previous 
requests and obstructed our ability to investigate their 
actions. The fact is we would not have the documents we have 
today without your action, and I thank you again for that.
    We have now obtained more than 300,000 pages of internal 
documents from these companies after they stonewalled. They 
include emails, analysis on revenues and profits, 
communications with hospitals and other providers, and public 
relations strategy documents.
    Earlier this week, I circulated two memos summarizing these 
documents. I now ask unanimous consent that they be made part 
of the official hearing record.
    Chairman Chaffetz. Without objection, so ordered.
    Mr. Cummings. These new documents provide an insider's view 
into how drug company executives are lining their pockets at 
the expense of some of the most vulnerable families in our 
Nation. Their basic strategy has been to buy drugs that are 
already on the market and then raise the prices astronomically 
for a temporary period of time before other competitors enter 
the market.
    These companies did not invest funds to research or 
developed these drugs. They bought them; jacked up the prices; 
took as much money as they could out of the pockets of 
patients, hospitals, and others; and put those funds into their 
own coffers. I call this money blood money.
    How much money are we talking about? Valeant reported gross 
revenues of more than $547 million on Nitropress and Isuprel, 
just two drugs. That is more than a half billion dollars in 1 
year coming out of the pockets of hardworking Americans. The 
company reported profits of $351 million on just these two 
drugs in 2015 alone.
    These stunning returns by Valeant CEO J. Michael Pearson, 
on the Forbes list of billionaires, according to press reports, 
these massive profits allowed Mr. Schiller, who is here today 
on behalf of Valeant, to collect a salary of $400,000 per 
month--per month--out of the pockets of our constituents.
    For Turing, the company reported $98 million in revenue for 
Daraprim in 2015 with manufacturing costs of only $1 million. 
Yet, Turing actually tried to claim that it took a $44 million 
loss last year.
    The company reported that it spent $22 million on research 
and development. This money apparently went to donations to 
unnamed entities, ``contributions to foundations,'' and vague 
``other research and development costs.''
    But the documents we have obtained indicate that these 
expenditures were just as much about PR as R&D. Like a Ponzi 
scheme, it appears that Turing may be using revenues from 
Daraprim to research and identify the next drug it will acquire 
and then impose similarly massive price increases on future 
victims.
    It is not funny, Mr. Shkreli. People are dying, and they 
are getting sicker and sicker.
    Based on the documents obtained by the committee, we know 
exactly what these companies will say as part of their public 
relations strategy. They will try to distract from their 
massive price increases by talking about their R&D. They will 
downplay their massive profits by claiming that they help 
patients who can't afford their exorbitant prices.
    The testimony from the drug companies today will be the 
same. But the difference now is that we have been behind their 
smokescreen.
    These tactics are not limited to a few bad apples. They are 
prominent throughout the entire industry. Lannett, Pfizer, 
Horizon, Teva, Amphastar, Allergan, Endo, all of these 
companies have taken significant price increases on their 
drugs.
    The reason I care so much about this issue is because it 
directly--directly--affects my constituents and the 
constituents of every member of this committee, every Member of 
this Congress.
    The people in my district are not on the Forbes billionaire 
list. They do not buy Wu-Tang Clan albums for $2 million. They 
can't liquidate assets to free up millions of dollars. They 
work hard. They get the early bus. And many take home decent 
salaries. But like many Americans, they struggle every single 
month to support their families and to pay for the increasing 
costs of housing, education, and health care. They live from 
paycheck to paycheck, and sometimes from no check to no check.
    Hardworking American families should not be forced to pay 
increases of 10 percent, 100 percent, or 1,000 percent, just to 
subsidize the lavish lifestyles of hedge fund managers and 
corporate executives.
    As I conclude, I hope we can also talk about solutions 
today.
    For example, Secretary of State Hillary Clinton has sent 
letters to the FDA and FTC proposing stronger regulatory action 
to crack down on companies that engage in price gouging. I 
think this is an interesting approach that could be significant 
in bipartisan support.
    On the legislative side, I have introduced the Prescription 
Drug Affordability Act with Senator Bernie Sanders. One 
provision in this bill would allow HHS to negotiate drug prices 
for Medicare. This is something that even Donald Trump 
supports.
    There is significant bipartisan agreement on the need to 
address this crisis. According to the nonpartisan Kaiser Family 
Foundation, rising prescription prices are the top health care 
concern for all Americans, including Democrats, Republicans, 
and independents.
    I hope today's hearing is the beginning of a sustained 
effort to address this issue in a bipartisan way. It should be 
addressed in a bipartisan way that brings much-needed relief to 
American families.
    Again, Mr. Chairman, I truly and sincerely thank you for 
this hearing.
    Mr. Chairman, may I ask unanimous consent to take care of 
some business before we continue?
    Chairman Chaffetz. Yes.
    Mr. Cummings. Mr. Chairman, since I started this 
investigation several years ago, I have literally been 
inundated with letters from families, hospitals, and patient 
groups begging--not asking, begging--for relief from these 
astronomical price increases.
    I have 12 letters here that I would like to include in the 
official record of today's hearing, and they have been signed 
by more than 100 different organizations. Obviously, I won't go 
through all of them, but some of them include the American 
Association of Poison Control Centers, the American Federation 
of Teachers, the California Poison Control System, Consumers 
Union, Fair Pricing Coalition, HIV Medicine Association, 
Infectious Diseases Society of America, Human Rights Campaign, 
National Alliance of State and Territorial AIDS Directors, 
National Multiple Sclerosis Society.
    Finally, Mr. Chairman, there is one more letter I would 
like to submit, and it is one of the first letters I received 
on this issue way back in 2011 when I started this journey. 
This is a heartfelt letter I received from Brenda Frese, the 
coach of the women's basketball team at the University of 
Maryland. Coach Frese's son was diagnosed with leukemia and 
treated with a drug called cytarabine.
    Now, the interesting thing is what the coach wrote: ``My 
son, Tyler, would not be alive today if we did not have access 
to the drugs that rid his body of cancer. Every family should 
have access to these drugs, and it is a shame that they are 
either not available or only available to the highest bidder.''
    I kept that letter with me for the past 5 years, and it has 
motivated me every day on this journey.
    So I ask unanimous consent that all of these letters be 
included in the record.
    Chairman Chaffetz. Without objection, so ordered.
    [The information follows:]
    Mr. Cummings. With that, I yield back.
    Chairman Chaffetz. I thank the gentleman.
    I will hold the record open for 5 legislative days for any 
members who would like to submit a written statement.
    [The information follows:]
    Chairman Chaffetz. We will now recognize our witnesses. We 
are now pleased to welcome our panel.
    Mr. Mark Merritt is the president and chief executive 
officer of the Pharmaceutical Care Management Association.
    Dr. Janet Woodcock is the director of the Center for Drug 
Evaluation and Research of the United States Food and Drug 
Administration. Ms. Woodcock is accompanied by Mr. Keith 
Flanagan, director of the Office of Generic Drug Policy at the 
United States Food and Drug Administration, whose expertise 
might be needed during questioning.
    By prior arrangement, we are going to release and excuse 
Dr. Woodcock at roughly 10:30 a.m., as she is testifying at 
another committee. In order to accommodate this, we are 
squeezing it in.
    We appreciate your participation in both hearings, but you 
will be excused at 10:30, as we previously had agreed upon.
    She will be replaced by Mr. Keith Flanagan, and we will 
swear him in at the same time.
    Mr. Howard Schiller as the interim chief executive officer 
of Valeant Pharmaceuticals International.
    I appreciate you being here.
    Ms. Nancy Retzlaff is the chief commercial officer at 
Turing Pharmaceuticals.
    And we have Mr. Martin Shkreli, former chief executive 
officer of Turing Pharmaceuticals.
    We appreciate you being here. Pursuant to committee rules, 
all witnesses are to be sworn before they testify. We will also 
be swearing in Mr. Flanagan.
    If you would please all rise and raise your right hand?
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth?
    Thank you. Please be seated.
    Let the record reflect that the witnesses all answered in 
the affirmative.
    In order to allow time for discussion, we would appreciate 
you limiting your oral statements to 5 minutes.
    Mr. Merritt, you are now recognized for 5 minutes.

                       WITNESS STATEMENTS

                   STATEMENT OF MARK MERRITT

    Mr. Merritt. Thank you, Mr. Chairman, Ranking Member 
Cummings, and other members of the committee.
    I am Mark Merritt, president and CEO of the Pharmaceutical 
Care Management Association, the group representing America's 
pharmacy benefit managers, or PBMs. PBMs administer drug 
benefits for more than 260 million Americans with health 
coverage through employers, unions, Medicare Part D, FEHBP, 
State Government plans, and other sources.
    Over the next decade, PBMs are projected to save $654 
billion, or up to 30 percent, on drug costs, while still 
offering consumers broad choice and access.
    PBMs reduce drug costs in several ways. They negotiate 
price concessions from drug manufacturers, negotiate discounts 
from drugstores. They offer more affordable pharmacy options, 
including home delivery. They encourage the use of generics and 
more affordable brand medications. They manage high-cost 
specialty medications. And they improve accountability up and 
down the pharmacy supply chain.
    PBMs are perhaps most notable for their role in 
administering Medicare Part D plans. Since its launch, Part D 
has come in under CBO projections year after year, delivering 
countless choices to patients, and been perhaps the most 
popular health program in America. As the GAO reports, one way 
Medicare Part D plans reduce costs is through their ability to 
negotiate prices with drug manufacturers and pharmacies.
    PBMs do that by pitting competing drugs and drugstores 
against one another and using differential copays and other 
tools to encourage patients to choose the more affordable 
options.
    Competition is the key, as you can see from a recent high-
profile example of high-priced drugs that treat hepatitis C. 
According to news reports, the price of these drugs has been 
cut nearly in half over the past year as new brand competitors 
have entered the marketplace. PBMs will demand even greater 
discounts as other competitors enter the space.
    The pricing tactics we are here to discuss today are just 
one piece of a much larger puzzle, and that is important to 
note. They highlight how you can't separate drug company 
pricing strategies from marketing strategies to promote those 
drugs. Many drug companies use marketing strategies to reduce 
awareness and resistance to higher prices, the higher prices 
that ultimately increase the cost of care.
    One of the most prevalent of these tactics is the use of 
bait-and-switch copay assistance programs to encourage patients 
to ignore generics and start on the most expensive brand 
instead. Unlike programs for the poor and uninsured, copay 
assistance programs specifically target patients with drug 
benefits and encourage them to bypass less expensive drugs for 
higher cost branded drugs.
    Copay coupons are different than normal coupons for 
groceries and other products where consumers pay 100 percent of 
the cost and get 100 percent of the benefit because copay 
coupons pay only the cost of the copay, say $25 or $50, in 
order to make the third-party payers that offer coverage--the 
employers, unions, and others--to pay hundreds or thousands 
more for the most expensive brands on the formulary.
    Such practices are considered illegal kickbacks in Federal 
programs and have long been under scrutiny by the HHS Office of 
the Inspector General. However, copay marketing programs are 
widespread in the commercial marketplace, and they play a key 
role in increasing costs there.
    Now that I have outlined the problem, what can policymakers 
do about it? Well, there are a few solutions.
    First, we do need to accelerate FDA approvals of me-too 
brands against competitors that face no competition.
    Second, we need to accelerate FDA approvals of generics to 
compete with off-patent brands that face no competition. Of 
course, I defer to Dr. Woodcock on how to do this. She is, 
certainly, the expert on this, and I know it is not an easy 
task.
    Third, Congress should create a government watch list of 
all the off-patent brands that don't face competition, so 
potential acquirers are aware that policymakers are monitoring 
these situations.
    Finally, copay coupons should be considered illegal 
kickbacks in any Federal program or program that receives 
Federal subsidies.
    Thank you very much, and I look forward to any questions 
you might have.
    [Prepared statement of Mr. Merritt follows:]
    
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    Chairman Chaffetz. Thank you.
    Dr. Woodcock, you are now recognized for 5 minutes.

                  STATEMENT OF JANET WOODCOCK

    Dr. Woodcock. Thank you. Good morning, Mr. Chairman, 
ranking member, and members of the committee. I am Janet 
Woodcock. I am head of the drug center at the FDA. We regulate 
generic drugs as well as brand drugs.
    The Hatch-Waxman legislation that established the generic 
drug program has been extraordinarily successful. Today, about 
88 percent of prescriptions that are given out or dispensed in 
the United States are generic drugs, saving the public an 
estimated almost $1.7 trillion recently.
    In the last decade, the generic drug industry grew very 
rapidly and globalized its operations. FDA's generic drug 
review program did not grow significantly and fell behind both 
in our review and our inspection capacity. And a large backlog 
accrued.
    To resolve this, in 2012, Congress enacted the Generic Drug 
User Fee Act, reflecting a negotiated agreement between the 
generic drug industry and the FDA. This was a 5-year program 
during which industry would pay $300 million per year in fees 
and FDA would attempt to meet a progressively more difficult 
series of performance measures over that time.
    In the 3 years since that was enacted, FDA has met or 
exceeded all GDUFA performance goals. This has been a 
formidable task. In these 3 years, we have been managing over 
6,000 generic applications, 2,500 that were piled up at the 
start of the program and almost 3,000 that have been submitted 
in the 3 years since the program started.
    But the good news is over 90 percent of these applications 
have received review at the FDA or review communications, and 
over 1,700 have been approved or tentatively approved. 
Tentative approval means they are waiting for their patent 
exclusivity to expire. Over 1,000 have been sent back to 
industry because they had deficiencies.
    This means there are only about 600 applications out of the 
6,200 that are awaiting review, and many of these have been 
submitted recently.
    The generic drug backlog was a big problem. It was caused 
by rapid growth in industry submissions not matched by 
corresponding investment in the FDA generic review program. 
This was ultimately fixed by the user fee act that was passed 
by Congress, but it takes some time for us to dig out of this 
hole. And it will take a bit more time before we are fully 
caught up.
    Nevertheless, applications that have been submitted in the 
past 2 years, 2014 and fiscal year 2015, have a 15-month review 
clock that we expect to make. And by this October, we will have 
a 10-month review clock. So an application submitted this 
October or beyond, we would expect to completely finish the 
review and get back to the sponsor in 10 months.
    It is the older applications that we need to clean up, and 
we are working very hard and very successfully at doing that.
    The purpose of Hatch-Waxman was to introduce high-quality, 
FDA-approved competition into the market to improve access for 
patients. Sixty-five percent of drugs have generic competition 
right now, and another 24 percent are still protected by 
patents or exclusivity, so they are not yet eligible for 
generic competition. Ten percent have no protection, either 
patent or exclusivity, but lack generic competition and lack 
applications submitted to the FDA. Two percent have 
applications with the FDA awaiting approval. Those are all 
expedited. We expedite all first generics, and those are all 
moving through the process and getting review and so forth.
    Under the GDUFA system, we have the potential to get on the 
market very fast, because these first generics are prioritized 
and all applications will have a 10-month review clock.
    Now I am, as you said, scheduled to testify at a second 
hearing this morning beginning at 10:30, and I may need to 
depart before all committee questions have been answered, so 
Mr. Keith Flanagan, who is director of the Office of Generic 
Policy, will be able to answer any technical questions about 
the generic program after I leave.
    So I thank you very much for your attention, and I look 
forward to answering your questions.
    [Prepared statement of Dr. Woodcock follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
      
    Chairman Chaffetz. Thank you.
    Mr. Schiller, you are now recognized for 5 minutes.

                STATEMENT OF HOWARD B. SCHILLER

    Mr. Schiller. Chairman Chaffetz, Congressman Cummings, 
members of the committee, thank you for the opportunity to 
testify. I have been with Valeant since 2011, first as CFO, 
then on the board, and now as interim CEO.
    Over this time, Valeant has grown substantially. Today, we 
are a large, innovative pharmaceutical company that employs 
22,000 people around the world, including 6,000 in the United 
States. We have about 1,800 products, including 200 
prescription drugs in the U.S. We are a leading dermatology, 
gastroenterology, ophthalmology, and consumer health care 
company.
    Our flagship brands, like Bausch + Lomb, Jublia, and 
CeraVe, are known to many Americans. We have a large U.S. 
presence, including 16 manufacturing sites, and we are making 
significant investments in the United States.
    In Rochester, New York, alone, we have invested more than a 
quarter of $1 billion to upgrade the plant and added nearly 200 
jobs. And we expect to invest $500 million more over the coming 
years and add 630 jobs.
    We have heard very clearly Congress' and the public's 
concerns about drug prices and the industry generally, and 
Valeant's increases in prices, including for two of our drugs, 
Nitropress and Isuprel, and we are responding to those 
concerns. We created a volume-based rebate program providing up 
to a 30 percent discount for Nitropress and Isuprel. And we 
just launched a 20-year partnership with Walgreens that will 
provide a 10 percent average price reduction for branded 
dermatology and ophthalmology products, and a price reduction 
for up to 95 percent on branded drugs where there is a generic.
    These steps are in addition to the existing patient-
assistance programs, which help ensure that out-of-pocket 
expenses don't prevent eligible patients from receiving the 
medicines they need. We expect to spend more than $1 billion in 
2016 on patient assistance.
    I would like to specifically address the pricing of 
Nitropress and Isuprel, which are cardiac drugs used in 
hospital procedures, which there is a fixed rate of 
reimbursement by payers.
    These are not drugs purchased by patients in a pharmacy. 
When we acquired them, we commissioned an outside pricing 
consultant to review the market. They concluded that Nitropress 
and Isuprel were clinically very valuable to hospitals and 
patients, and that the fixed reimbursement rates allowed for 
significant price increases without eliminating a hospital's 
profits. Based on these findings, we implemented significant 
price increases.
    Since then, we have experienced about a 30 percent 
reduction in volume as hospitals moved to alternative drugs. 
The volume discounts we implemented will help address the needs 
of those hospitals that are large users of these drugs.
    Now let me say a word about commitment to research and 
development. Valeant's R&D results make us a leader in the 
industry. Our productivity drugs approved for R&D dollars spent 
is 7 times higher than the average of the 15 companies with the 
most new drug approvals. In just the last 2 years, Valeant has 
launched 76 new prescription drugs, generic drugs, medical 
devices, and other products in the United States. And there is 
more to come from our robust U.S. pipeline, which has more than 
200 active programs. We expect approvals this year of a 
significant novel treatment for glaucoma and a biologic for the 
treatment of moderate to severe plaque psoriasis.
    We believe that R&D should focus on outputs and should not 
be judged by spending alone. Nonetheless, our R&D spending is 
significant, expected to exceed $400 million in 2016. We have 
43 R&D facilities with 1,000 R&D employees worldwide.
    In addition to internal development, we have followed the 
successful model of the technology industry by acquiring 
valuable R&D assets.
    Mr. Chairman, where we have made mistakes, we are listening 
and we are changing. Our Walgreens partnership is a key step 
forward, but we have more to do.
    Through internal development and acquisitions, we developed 
a portfolio of world-class franchises. Like other 
pharmaceutical companies, we will sometimes adjust our prices 
but our price increases in the future will be well within 
industry norms and much more modest than the ones that drew 
your legitimate concerns.
    Mr. Chairman, thank you for the opportunity to appear 
today, and I look forward to answering your questions.
    [Prepared statement of Mr. Schiller follows:]
    
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    Chairman Chaffetz. Thank you.
    Ms. Retzlaff, you are now recognized for 5 minutes.

                  STATEMENT OF NANCY RETZLAFF

    Ms. Retzlaff. Thank you, Chairman Chaffetz, Ranking Member 
Cummings, and distinguished members of the committee. I 
appreciate the opportunity to provide Turing's perspective on 
the issues before this committee today.
    Turing is a small research-focused pharmaceutical company 
founded just 1 year ago. We invest in developing and 
commercializing important drug treatments for patients who 
suffer from serious and often neglected diseases.
    Daraprim is our principal current product. It is a 
prescription drug used to treat a serious parasitic infection 
called toxoplasmosis, which most often affects patients with 
compromised immune systems.
    Daraprim was on the market for more than 60 years before 
Turing acquired it last August. In the preceding 5 decades, 
there was no significant pharmaceutical innovation in the 
treatment of toxoplasmosis, and Daraprim remains the only FDA-
approved treatment for this disease. Perhaps that is not 
surprising, since only about 3,000 patients are prescribed 
Daraprim each year.
    Daraprim presented an investment opportunity for Turing 
because it was priced far below its market value in comparison 
to other similar drug treatments for rare and serious diseases. 
After considering the pricing of comparable drugs, the value 
Daraprim provides in the treatment of a potentially life-
threatening disease, a small patient population for Daraprim, 
and the mandatory discounts and rebates that applied to many 
who receive the drug, Turing made the decision to raise the 
wholesale list price, or WAC, for Daraprim to $750 per pill.
    As Turing's chief commercial officer, I was comfortable 
with that decision, first, because of our company's commitment 
to ensure access to Daraprim for every single patient who needs 
the drug, regardless of ability to pay; and, second, because of 
our commitment to invest a large portion of net revenues 
generated from Daraprim in R&D for new and improved drug 
treatments.
    Let me address patient access. Most fundamentally, in terms 
of cost, it is important to realize that the wholesale list 
price of a drug is not the same as the price paid by patients, 
hospitals, health plans, or government programs. To our 
knowledge, no patient needs to pay $750 per pill for Daraprim. 
In fact, about two-thirds of patients get the drug through 
government programs that receive a discounted price of one 
penny per pill.
    Beyond the discounts available through government programs, 
Turing has taken several additional steps to ensure affordable 
access to Daraprim. We fund a patient assistance program that 
offers Daraprim free of charge to qualified uninsured patients 
with incomes at or below 500 percent of the Federal poverty 
level, well above industry standard for patient assistance 
eligibility. We provide copay support to help insured patients 
meet their copay obligations. And we fund a bridge program to 
give those with commercial insurance a supply of Daraprim at no 
charge, if there are delays in coverage.
    In response to concerns about cost, and after consulting 
with key stakeholders, Turing announced in November that we 
would discount the price of Daraprim to hospitals by up to 50 
percent. That is especially important because hospitals are the 
first to treat 80 percent of patients with the most common form 
of toxoplasmosis. We have also begun offering Daraprim to 
hospitals in a smaller, 30-pill bottle, which can help to 
ensure availability and lower the cost burden for hospitals.
    There have been challenges with patient access, 
particularly in the first weeks after Turing acquired the drug. 
To the best of our knowledge, most of those challenges involved 
deficiencies in distribution that were unrelated to our pricing 
of Daraprim. Since then, we have worked hard to improve and 
expand the distribution system, including through the 
engagement of a new specialty distributor providing streamlined 
access to more than 90 percent of hospitals.
    Of course, Turing expects to generate profits from 
Daraprim, but our net income is not simply passed on to 
shareholders. Turing is committed to bringing innovation to the 
treatment of neglected diseases. We invest nearly 60 percent of 
net revenue into R&D, a percentage far higher than most other 
companies. Thirty-six of our 139 employees are dedicated to 
R&D. And our pipeline of research includes candidates for 
innovation.
    We are proud of our investment in innovation, just as we 
are as proud of our commitment to patient access. I believe the 
decisions made by the company have been appropriate and strike 
the right balance between patient access, innovation, and 
shareholder value. Thank you.
    [Prepared statement of Ms. Retzlaff follows:]
    
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    Chairman Chaffetz. Thank you.
    Mr. Shkreli, you did not provide the committee any written 
testimony. Do you wish to make an opening statement?
    Mr. Shkreli. On the advice of counsel, I will not be giving 
an opening statement.
    Chairman Chaffetz. I want to ask you a few questions.
    What do you say to that single, pregnant woman who might 
have AIDS, no income, and she needs Daraprim in order to 
survive? What do you say to her when she has to make that 
choice? Would do you say to her?
    Mr. Shkreli. On the advice of counsel, I invoke my Fifth 
Amendment privilege against self-incrimination and respectfully 
decline to answer your question.
    Chairman Chaffetz. You were quoted as saying, on Fox 5 in 
New York, you were quoted as saying, ``If you raise prices, and 
you don't take that cash and put it back into research, I think 
it is despicable. I think you should not be in the drug 
business. We take all of our cash, all of our extra profit, and 
spend it on research for these patients and other patients who 
have terrible, life-threatening, life-ending illnesses.''
    Did you say that?
    Mr. Shkreli. On the advice of counsel, I invoke my Fifth 
Amendment privilege against self-incrimination and respectfully 
decline to answer your question.
    Chairman Chaffetz. Do you think you have done anything 
wrong?
    Mr. Shkreli. On the advice of counsel, I invoke my Fifth 
Amendment privilege against self-incrimination and respectfully 
decline to answer your question.
    Chairman Chaffetz. I would like to yield time to 
Congressman Gowdy of South Carolina.
    Mr. Gowdy. Thank you, Mr. Chairman.
    Is it pronounced ``Shkreli''?
    Mr. Shkreli. Yes, sir.
    Mr. Gowdy. See there, you can answer some questions. That 
one didn't incriminate you. I just want to make sure you 
understand that you are welcome to answer questions and not all 
of your answers are going to subject you to incrimination. You 
understand that, don't you?
    Mr. Shkreli. I intend to follow the advice of my counsel, 
not yours.
    Mr. Gowdy. I just want to make sure you are getting the 
right advice. You do know that not every disclosure can be 
subject to the Fifth Amendment assertion, only those that you 
reasonably believe could be used in a criminal prosecution or 
could lead to other evidence.
    Mr. Shkreli. I intend--I intend to use the advice of my 
counsel, not yours.
    Mr. Gowdy. Do you also understand that you can waive your 
Fifth Amendment right? You gave an interview to a television 
station in New York where, if I understood you correctly, you 
couldn't wait to come educate the Members of Congress on drug 
pricing. And this would be a great opportunity to do it. So do 
you understand you can waive your Fifth Amendment right?
    Mr. Shkreli. On the advice of counsel, I invoke my Fifth 
Amendment privilege against self-incrimination and respectfully 
decline to answer your question.
    Mr. Gowdy. Well, Mr. Chairman, I am vexed. He has been 
willing to answer at least one question this morning. That one 
did not subject him to incrimination. I don't think he is under 
indictment for the subject matter of his hearing.
    So the Fifth Amendment actually doesn't apply to answers 
that are not reasonably calculated to expose you to 
incrimination. And even if it did apply, he is welcome to waive 
it.
    And I listened to his interview, and he didn't have to be 
prodded to talk during that interview. He doesn't have to be 
prodded to tweet a whole lot, or to show us his life on that 
little Web cam he's got.
    So this is a great opportunity, if you want to educate the 
Members of Congress about drug pricing or what you call the 
fictitious case against you.
    Or we can even talk about the purchase of--is it Wu-Tang 
Clan? Is that the name of the album? The name of the group?
    Mr. Shkreli. On the advice of counsel, I invoke my Fifth 
Amendment privilege against self-incrimination and respectfully 
decline to answer your question.
    Mr. Gowdy. Mr. Chairman, I am stunned that a conversation 
about an album he purchased could possibly subject him to 
incrimination.
    Chairman Chaffetz. The gentleman is correct. I understand 
that Mr. Shkreli is under indictment, but it is not the 
intention to ask him questions about that topic.
    Mr. Gowdy. So if I understand it correctly, we are not 
going to ask him questions that are going to be on the subject 
matter of his current pending criminal charges. And if we were 
to get close to one or in a gray area, he is welcome to assert 
his Fifth Amendment privilege there. And if we stay away from 
the subject matter of this indictment, some could argue he has 
a legal obligation to answer, under Kastigar v. United States. 
But he, certainly, has the right to do so, as he did in the 
television interview and as he does quite frequently on social 
media.
    Chairman Chaffetz. Correct.
    Mr. Brafman. Mr. Chairman, may I be recognized for a 
moment?
    Chairman Chaffetz. No. No, you are not allowed to. Under 
the House rules, you have not been sworn in.
    Mr. Brafman. I understand, but he is making ----
    Chairman Chaffetz. You are not recognized. You are not 
recognized, and you will be seated.
    The gentleman from South Carolina is correct. We were 
trying to provide an opportunity to have a candid discussion 
about issues related to drug pricing.
    We now recognize Mr. Cummings for any questions he may 
have.
    Mr. Cummings. Thank you very much. Mr. Chairman, let me say 
for the record that I completely support your decision to bring 
Mr. Shkreli to make sure that he asserted his Fifth Amendment 
right before this committee.
    Normally, Democrats on our committee have accepted the 
assertions of a witness's attorney that his or her client is 
going to take the Fifth. But in this case, Mr. Shkreli made a 
number of public comments himself, raising legitimate questions 
about his intentions.
    Honestly, I did not know whether he was even going to show 
up today, so it is nice to see you.
    But now that he has invoked his constitutional rights, of 
course, I will respect his decision.
    To Mr. Shkreli, since I have you in front of me, after 
trying to get you in front of this committee for so long, let 
me say this. I want to ask you to--no, I want to plead with you 
to use any remaining influence you have over your former 
company to press them to lower the price of these drugs.
    You can look away if you like, but I wish you could see the 
faces of people, no matter what Ms. Retzlaff says, who cannot 
get the drugs that they need.
    By the way, it is the taxpayer--somebody is paying for 
these drugs. Somebody is paying. It is the taxpayers who end up 
paying for some of them. And those are our constituents.
    People's lives are at stake, because of the price increases 
you imposed and the access problems that have been created.
    You are in a unique position. You really are, sir. Rightly 
or wrongly, you have been viewed as the so-called ``bad boy of 
pharma.'' You have a spotlight, and you have a platform. You 
could use that attention to come clean, to right your wrongs, 
and to become one of the most effective patient advocates in 
the country, and one who can make a big difference in so many 
people's lives.
    I know you are smiling, but I am very serious, sir.
    The way I see it, you can go down in history as the poster 
boy for greedy drug company executives, or you can change the 
system. Yes, you.
    You have detailed knowledge about drug companies and the 
system we have today, and I truly believe--I truly believe--are 
you listening?
    Mr. Shkreli. Yes.
    Mr. Cummings. Thank you.
    I truly believe you could become a force of tremendous 
good. Of course, you can ignore this, if you like. But all I 
ask is that you reflect on it.
    No, I don't ask, Mr. Shkreli. I beg that you reflect on it. 
There are so many people that could use your help. May God 
bless you.
    Thank you. I yield back.
    Chairman Chaffetz. The gentleman yields back.
    Mr. Shkreli, it is your intention to decline all answers to 
the questions and invoke your Fifth Amendment right?
    Mr. Shkreli. Yes.
    Chairman Chaffetz. Given that the witness has indicated 
that he does not intend to answer any questions, and out of 
respect for his constitutional rights, I ask now that the 
committee excuse the witness from the table.
    Without objection, so ordered.
    We will pause for a moment as Mr. Shkreli is escorted out.
    We will continue and now recognize the gentleman from 
Florida, Mr. Mica, for 5 minutes.
    Mr. Mica. Thank you, Mr. Chairman.
    Mr. Chairman, Mr. Cummings has been around this committee 
for a long time. I don't think I have ever seen the committee 
treated with such contempt. In fact, Mr. Chairman, I would like 
to know if, based on his response today and his actions, if he 
could be held in contempt.
    Chairman Chaffetz. It is not my intention to hold him in 
contempt. We had heard multiple statements from Mr. Shkreli 
prior to this hearing, everything from I can't wait to school 
Congress to I will invoke my Fifth Amendment rights.
    It is important for us to have a person like that come 
explain that and answer those questions in person. I wish he 
would have answered those questions. We had no intention of 
asking him things for which he was under indictment.
    But I will entertain any suggestions that there might be. 
But at this point, no.
    Mr. Mica. Well, at some appropriate time, I may move to 
hold the gentleman in contempt.
    It is very sad, you know? Mr. Cummings said he may be the 
poster child for greed and unfair pricing. It is a very serious 
matter.
    While he is the focus of attention, and he is the villain, 
we have a lot of blame to go around.
    The pricing for drugs from all of these companies has 
skyrocketed. Some of the information I have is that prices have 
more than doubled for 60 drugs in the past year. And a survey 
of about 3,000 brand-name prescription drugs found that prices 
have more than doubled for 60 and at least quadrupled for 20 
since 2014.
    Is that correct, Dr. Woodcock?
    Dr. Woodcock. Congress has not really invested any 
authority for FDA on pricing.
    Mr. Mica. On pricing. Yes, we know that.
    Dr. Woodcock. We do not follow that.
    Mr. Mica. And you said about 88 percent of the drugs that 
are consumed out there are generic today?
    Dr. Woodcock. That are dispensed by pharmacists are 
generics, that is correct.
    Mr. Mica. And the situation with their pricing, has that 
increased or decreased? What did you testify to?
    Dr. Woodcock. The HHS recently released a report that 
showed for Medicare about two-thirds of the drugs over the last 
several years, the generic drugs, decreased, the prices had 
decreased. But there are a few where prices have increased. So 
there is a group that has increased. And this may have to do 
with the amount of competition for those drugs.
    Mr. Mica. One of the problems is the approval process, and 
you spoke of getting drugs out there. When you have 
competition, the price can come down. You have made some 
progress you cited today.
    Ms. Retzlaff, is the company you work for owned by Mr. 
Shkreli?
    Ms. Retzlaff. He is a shareholder, yes--a shareholder.
    Mr. Mica. Does he own what share? Do you know?
    Ms. Retzlaff. I'm not sure what share he owns of the 
company, but I can check that out.
    Mr. Mica. Well, you described a little bit different 
scenario on what has been publicized as Daraprim's cost.
    Ms. Retzlaff. Yes.
    Mr. Mica. It is pretty sad that your shareholder would take 
that attitude. At least you did explain to the committee some 
of the pricing.
    But again, there are other companies and drugs. Alcortin A, 
a 1,860 percent increase. Is that correct? Does anyone know? 
That is not your drug, is it?
    So it is another manufacturer who is just as guilty. Maybe 
not as arrogant, but just as guilty.
    But millions of Americans depend on medication. I brought 
mine, and I am pretty fortunate. I have coverage. But a lot of 
people's lives depend on it. Mine is not that situation.
    But what we have seen here is an unprecedented arrogance, 
and what we see is a situation where people who need these 
drugs are denied these drugs because of pricing and lack of 
competition. And I think we are going to see more of this, 
because people take advantage of the system.
    I yield back.
    Chairman Chaffetz. I thank the gentleman.
    I now recognize the gentlewoman from New York, Ms. Maloney, 
for 5 minutes.
    Ms. Maloney. When you read the emails between Valeant and 
Turing, after you finish, you would not describe your business 
as a business, but as an exploitation machine.
    Your basic business model was to buy a company, fire people 
to save money, and then jack up prices to reach revenue goals. 
You set a revenue goal, and then you jacked up the price.
    Now, Ms. Retzlaff, when you talk about discounts, it is 
really disingenuous when you raise the prices 5,000 percent.
    So my first question to Mr. Schiller is, when you were 
jacking these prices and sending your emails back and forth, 
did you ever think about the impact on patients, on hospitals, 
on public health payers? Did you ever think about it?
    And how can you justify raising prices by thousands of 
percent on lifesaving orphan drugs for which there are no 
competing manufacturers, no generic, no manufacturers. People 
are going to die if they can't get the drug. Did you ever think 
about how hiking the price on Daraprim, which is important in 
treating life-threatening infections and AIDS, did you ever 
think about the people who would not be able to afford it? Did 
you ever think about it? Or the impact on the hospitals and the 
payers?
    Your memos just show, the internal memos, you just said 
this is the price we need to make, this is the goal and the 
profits we need to make.
    Mr. Schiller. I can't comment on Daraprim. It is not our 
drug. But I will ----
    Ms. Maloney. Well, then let me ask you another question, 
since you mentioned that it is from someone else. How is 
Valeant's conduct any different than the conduct of Mr. 
Shkreli's company? Is the conduct of your company and your 
business model any different?
    Mr. Schiller. Well, I'm not that familiar with their 
company, other than reading newspaper articles. But as far as 
Valeant is concerned, Valeant is a global company. We operate 
in 100 countries. We have over 1,800 products.
    Ms. Maloney. We are not looking at the company. We are 
looking at you strategy, which from your own memos, that I 
would like to place into the record, show the business model 
was to set a goal, a revenue goal, the profit you would make, 
and that was all you did.
    Now yesterday, in response to questions that were put 
forward by this committee and memos about Valeant's price 
increases, your company said Mr. Pearson made an inaccurate 
statement during Valeant's first quarter of 2015 earnings 
conference call where they were clearly setting the goal, and 
let's raise the price to that goal.
    In light of this, why should this committee have confidence 
in the accuracy of your testimony today?
    Mr. Schiller. Well, the statement you are referring to I 
think related to an email that I sent to Mr. Pearson, which was 
100 percent correct. Our SEC filings were 100 percent correct. 
I can't tell you what Mr. Pearson's intent was, what question 
he thought he was answering. But as a company, yesterday, we 
chose to clarify, make sure it was clear, and we put out that 
press release.
    Ms. Maloney. Well, he talked about increasing prices on 
Isuprel in July 2015 to meet goals of revenue.
    Well, did you increase the price of Isuprel on July 2015?
    Mr. Schiller. I believe yes.
    Ms. Maloney. You did increase the price. So on May 21, 
2015, you wrote an email to him stating, Pearson, and I quote, 
``Last night, one of the investors asked about price versus 
volume for Q1. Excluding Marathon, price represented about 60 
percent of our growth. If you include Marathon, price 
represents about 80 percent.''
    So, Mr. Schiller, price increases represented 80 percent of 
your company's growth for the first quarter of 2015. Is that 
correct?
    Mr. Schiller. That is correct.
    Ms. Maloney. And most of your growth is attributed to one 
strategy, and that is increasing the price of your drugs. In 
all of your memos, the only strategy I saw was: Let's increase 
the price of the drugs to increase revenue.
    That was your strategy, correct?
    Mr. Schiller. No, in the past, there were examples where we 
blocked older drugs.
    Ms. Maloney. Okay, I would like you to place that in the 
record, any strategy that was different from just increasing 
prices.
    Chairman Chaffetz. I thank the gentlewoman for her time. 
Her time is now expired.
    Ms. Maloney. I just would like to say, Mr. Chairman, 
increasing revenue and profits was their strategy, regardless 
of cost and impact. It is a terrible example of American 
business, and, I would say, the American people are tired of 
paying the price for it.
    Chairman Chaffetz. I thank the gentlewoman.
    Ms. Maloney. Thank you for this hearing, Mr. Chairman.
    Chairman Chaffetz. Thank you.
    We will now recognize the gentleman from Tennessee, Mr. 
Duncan, for 5 minutes.
    Mr. Duncan. Thank you, Mr. Chairman.
    Dr. Woodcock, I have a report here from Tufts University, 
their Center for the Study of Drug Development. It is dated 
November 2014. It says cost to develop and win marketing 
approval for a new drug is $2.6 billion and average out-of-
pocket cost is $1.395 million.
    What do you say about that, $2.6 billion? And it says it 
takes an average of 10 years to get a drug to market? What do 
you have to say about that? Is that anyplace close to being 
accurate?
    Dr. Woodcock. Well, the economics community has various 
estimates of these costs, so those costs are in dispute. But it 
is agreed that it costs a great deal of money, and it takes a 
long time to get an innovative drug to the market.
    Some of the recent advances in science are shortening this 
time frame for targeted therapies and breakthrough therapies. 
However, in general, that time frame is accurate, and it does 
take a large investment to first find and then develop a new 
drug.
    Mr. Duncan. Don't you see that if a small company or an 
individual comes up with some miraculous drug, that they would 
be forced to sell out to some big drug giant to get a drug to 
market with those kinds of costs? That is what many people 
think has led to this overconsolidation of the drug business, 
how it has ended up in the hands of a few big giants.
    Dr. Woodcock. Well, the industry is changing rapidly 
because of the new science. Last year, we approved--a large 
proportion of our new drugs were orphans and a number of them 
came from small companies, so it is doable.
    And the drug development paradigm is in flux, because of 
the new scientific findings.
    Mr. Duncan. Mr. Merritt, what do you say about that?
    Mr. Merritt. Well, as Dr. Woodcock says, the market has 
been changing toward more specialized drugs that are developed 
differently and marketed differently than drugs traditionally 
have been.
    I know, from our perspective, we know the best way to get 
costs down is through competition. So the more products we can 
get on the market, the faster we can get them on the market, 
whether they are competing me-too brands or generic 
competitors, the better it is for consumers and the employer 
unions and government programs that we serve.
    Mr. Duncan. We all believe that there should be some 
testing to make sure that drugs are safe, but you can go 
ridiculously overboard on anything. And it seems to me that 
when it is taking 10 or 12 years to get a drug to market, and 
it is costing $2.6 billion as the Tufts study says, that that 
is going a little bit overboard.
    Mr. Schiller, I have a very detailed letter from one of my 
constituents that I would like to place in the record. But she 
sends to me her costs of a drug that your company put out, 
Aplenzin. And her costs, for 30 pills in December 2013, a total 
annual cost of $13,566. The cost per pill was $37. Less than 2 
years later, the cost for the same pills had gone to the 
$106.74, a 224 percent increase in 2 years' time.
    And also, I have a letter from another individual, a state 
representative in Tennessee, who says that the average 
pharmaceutical company averages spending over 20 percent on 
research and development, but that your company averages less 
than 3 percent.
    What do you say about this 224 percent increase in less 
than 2 years' time, and the 3 percent on research and 
development?
    Mr. Schiller. Sure. When we price our drugs, we try to take 
into account the clinical value, the alternative therapies, 
patient access, among other factors. It is not an exact 
science.
    In a number of cases, we have been too aggressive. We are 
also trying to manage a bottom line to be able to invest in our 
research and development pipeline, and make investments in 
expanding our manufacturing. I mentioned Rochester, New York, 
where we are going to put another half billion dollars to 
increase the capacity in that facility as well, as patient 
access. And patient ----
    Mr. Duncan. My time is running out. Let me just add that I 
think you need to do much more to hold down these costs.
    But I would also like to say that, in all my time in 
Congress--I have served on four committees, been here 28 years. 
I have seen hundreds of witnesses and some very heated 
confrontations. I have never seen an individual act with such 
arrogance as Mr. Shkreli a while ago, with such childish, 
smart-alecky smirks, even turning away from Ranking Member 
Cummings to pose for pictures while the ranking member was 
speaking. I think it was just totally ridiculous.
    I can tell you this, his lawyer better advise him a little 
bit, because a jury would love to convict somebody if he acts 
that same way while he is on trial.
    Thank you, Mr. Chairman.
    Chairman Chaffetz. I thank the gentleman.
    We will now recognize Ms. Norton for 5 minutes.
    Ms. Norton. Thank you very much, Mr. Chairman. It may have 
been Mr. Shkreli's antics that drew the kind of attention that 
gets us this very important hearing today.
    And I understand your testimony, Mr. Merritt, about 
competition and encouraging patients to go to less expensive 
drugs. I also appreciate what you said about more specialized 
drugs.
    And let me say this about pharmaceuticals. I think 
pharmaceuticals, the work of our companies, is most 
extraordinary. It has not only saved lives, kept people out of 
the hospital, so I want you to know that I think there is great 
appreciation for the industry here, even for what is often 
given as the reason for the price of drugs. We do understand 
R&D. We do understand that more of the R&D is done here than 
done abroad. And then, of course, it costs less abroad, all of 
that.
    And I think Dr. Woodstock's last testimony in response to a 
question made it clear that the government understands it.
    That understood, let us go to a kind of paradigm here, 
Daraprim. This is a lifesaving drug that is used for parasitic 
or, indeed, what could be fatal parasitic infection. It is 
known, Ms. Retzlaff, who took over from Mr. Shkreli, it is 
known as toxoplasmosis. It is used by cancer patients, by 
patients with HIV. It has a relatively small patient market.
    Now, Ms. Retzlaff, Turing purchased this drug. I just said 
that I give all credit to the industry for R&D, but it is true, 
Ms. Retzlaff, is it not, that you did not do the R&D for 
Daraprim? You purchased Daraprim?
    Ms. Retzlaff. It is true, yes, we purchased Daraprim. Now, 
Daraprim was on the market for 60 years, and even after 60 
years, it is still the only FDA-approved treatment for 
toxoplasmosis.
    Ms. Norton. Now, isn't it interesting that for 60 years 
somehow, a company had been able to manufacture this drug for 
$13.50 per tablet, but when you purchased it, the tablet 
overnight went to $750 per tablet. To do the math, Ms. 
Retzlaff, that is a 5,000 percent increase.
    Is there any conceivable justification for a company that 
had nothing to do with the R&D, taking over a company, and then 
overnight raising the price so that it is, let's be fair, out 
of reach for patients and even some hospitals? What is your 
justification for that?
    Ms. Retzlaff. My justification is that there has been no 
new innovation, no new treatments, which we believe are 
critically needed. And we are reinvesting much of the revenue 
----
    Ms. Norton. How much are you ----
    Ms. Retzlaff.--60 percent.
    Ms. Norton. So you bought it. You immediately began to 
reinvest. And the reinvestment was so large that you had to 
increase for those who are now using--not talking about future 
users--who are now using the drug, you needed to increase it 
5,000 percent?
    Ms. Retzlaff. And we are also investing in other serious 
and neglected diseases.
    Ms. Norton. Now, in spite of--yes, you are putting it all 
on this one lifesaving drug?
    Ms. Retzlaff. It is not uncustomary for pharmaceutical 
companies to use revenues from one product to fund multiple 
programs.
    Ms. Norton. Well, it certainly isn't. But why is it when 
the committee--I drew some of the testimony from the committee. 
The documents obtained by the committee indicated that, in 
response to this very widespread concern about this huge 
increase, Turing employed a public relations strategy to try to 
divert attention to patient assistance programs and research 
and development efforts.
    In other words, instead of keeping the price so that it 
could be purchased by patients in hospitals, you went to what I 
think even some of your testimony was about, and that is to 
patient assistance programs to try to obscure the price.
    Is that your strategy for raising prices and then 
essentially trying to obscure those raises by telling people 
that is all right, we will give you a 50 percent increase--
sorry, discount. But to the rest of you, we are using this 
money ourselves for R&D? Is that your strategy?
    Ms. Retzlaff. No, it is not. Our intent behind our public 
relations strategy was to correct any miscommunication.
    Again, as I said in my testimony, two-thirds of patients, 
the most vulnerable toxoplasmosis patients, can access our 
product for a penny a pill. That is two-thirds.
    Twenty-three percent are covered by commercial insurance. 
For those patients, we capped their copays at $10.
    We are absolutely committed, and always have been, to 
ensuring every single patient who needs Daraprim gets it.
    Chairman Chaffetz. That ain't true, but we will talk some 
more about that.
    We will now recognize the gentleman from Michigan, Mr. 
Walberg, for 5 minutes.
    Mr. Walberg. Thank you, Mr. Chairman, and thank you for 
having this hearing.
    I think we can all agree on the importance to pursue 
lifesaving treatments and cures to illnesses like cancer, et 
cetera, that affect our communities, our neighbors, our 
families, our friends. We can also agree that we want 
individuals to have access to these treatments at an affordable 
price.
    The question, of course, today is, how do we do that? 
Unfortunately, under the President's health care law, we have 
seen drug costs spike. We have all heard that back in our 
districts. Congress needs to push back. It needs to create an 
environment that promotes innovation, increases competition, 
which will bring down costs and increase access to prescription 
drugs. We have our fault in the process.
    But so far, we have acted to approve more than $2 billion 
in additional funding for NIH--a good thing--the first big 
raise in over 12 years to boost medical research.
    Additionally, the House, we the House, have acted 
responsibly and passed 21st Century Cures Act, which reforms 
the FDA approval process. It would accelerate the discovery and 
development of treatments and cures. The Senate has not allowed 
that to go through yet or the President to push for it.
    So, Dr. Woodcock, it is my understanding, and I guess I 
just want to delve a little more deeply into your responses so 
far, it is my understanding that the FDA currently has a 
backlog of over 4,000 new drug applications, at a median 
process rate of over 42 months.
    Can you explain to our committee why your agency is so far 
behind?
    Dr. Woodcock. We were far behind when we started the 
Generic Drug User Fee program. At this point, the number of 
applications where the manufacturer hasn't heard from us, where 
we haven't picked them up, is 600. We have approved and ----
    Mr. Walberg. Let me understand. They haven't heard from 
you, but I guess we are talking approvals.
    Dr. Woodcock. Well, in the past generic program, before we 
reformed it, generic drugs went through four cycles of review 
and back to the company and review. This is a very inefficient 
process. We are trying to streamline that process, so we can 
get it right the first time. The company sends in an 
application, it is an approvable application.
    Under that scenario, as I said, this year, 15 months. 
Starting in October, 10 months.
    We still have to deal with the backlog, which we are 
cranking out approvals of the backlog. But they started in 
2012. When the program starts, they are already 40 months old. 
They are not going to get any younger.
    So for the backlog applications, when we approve them, 
their time to approval will be more than 40 months. But these 
newer ones, we have approved drugs in 10 months, under the new 
program, generic drugs.
    Mr. Walberg. Well, I wish you well on that, and that is the 
direction we want to see going, because we very clearly have 
seen here--we have seen efforts in the pharmaceuticals as well 
to try to get away from that perception. But we have also seen 
that they have used this backlog to really capitalize on a 
system that allows them to pillage the market.
    Dr. Woodcock. The drugs under discussion have been on the 
market for decades, times when there were no backlogs and there 
was still no generic competition to them. There are other 
reasons that, for a very small segment of generic drugs, the 88 
percent is out there, but for a small segment of generic drugs, 
there is no generic competition.
    When we, at the end of the first GDUFA program, will have 
eliminated this backlog and be in a steady-state type of 
activity, there will still be problems with drugs that don't 
have generic competition, because there are other reasons for 
that.
    Mr. Walberg. Probably expediting that will ultimately help 
have more competition as well.
    Let me ask you about biosimilars. Do you think that 
biosimilars can play a part in addressing affordability and 
patient access to the drugs they need?
    Dr. Woodcock. Absolutely. And that is what they are 
intended to do, and we are very vigorously enacting that 
program. We've had a very vigorous response to the legislation 
that Congress passed.
    Mr. Walberg. So it is bumping up there. Do you believe that 
patient and health care professional confidence in biosimilars 
is essential for savings from biosimilars to occur?
    Dr. Woodcock. I believe that is the number one issue. We 
just recently completed with generics some studies of seizure 
drugs, because, after all these years, the neurologists still 
didn't believe that the generics were equivalent. Those studies 
showed no difference between the generics and brand name 
seizure drugs.
    Mr. Walberg. Well, your efforts in moving that forward will 
assist that, I am sure, so thank you.
    Dr. Woodcock. Thank you.
    Chairman Chaffetz. I thank the gentleman.
    We will now recognize the gentleman from Massachusetts, Mr. 
Lynch, for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    I do want to follow up on the gentleman from Tennessee's 
line of questioning. I thought it was very good.
    The costs are prohibitive in terms of trying to develop 
some of these drugs. In Massachusetts and in the Boston area, 
we have been blessed. We have had 29 IPOs, small pharmaceutical 
companies, come to market in the last 2 years. So we do have 
some growth in the industry. And so those few big players are 
not dominating like they were before, so that is good for 
change.
    But in the case of Turing here, they just bought the drug, 
didn't do a lick of research. Bought the drug, and as the 
gentlelady from the District of Columbia pointed out, the next 
day went from $13.50 a pill to $750 a pill overnight. And that 
is disgraceful. There is not a lot of shame at the table today, 
but this is disgraceful. It was well known that the impact 
would be great harm on the public.
    So, Ms. Retzlaff, after you in August increased the price 
of the drug by 5,000 percent for people who had no alternative, 
on August 18, Tina Ghorban, a Turing employee, sent an email 
that you were CCed on regarding the increase in the price. And 
she wrote, and I quote, ``There are patients waiting now for 
product who have a $6,000 copay.''
    Now, you just said, and you are under oath--you are under 
oath. You are subject to perjury charges, if you don't answer 
correctly. She is saying that these patients had a $6,000 
copay, and you are saying they never had to pay more than a 
penny for a pill.
    Ms. Retzlaff. So allow me to provide some context. Yes, she 
did say there was a $6,000 copay. However, we paid the majority 
of the copay. The patient did not pay ----
    Mr. Lynch. Everything but a penny?
    Ms. Retzlaff. We paid the copay up to $10.
    Mr. Lynch. Okay. I am glad to get you on the record on 
that.
    Ms. Retzlaff. I can show you the data.
    Mr. Lynch. This email also shows that you were aware that 
your Daraprim price increase was resulting in incredibly high 
copays. Isn't that correct?
    Ms. Retzlaff. It's correct, which is why we introduced a 
very generous copay program to ensure the price increase did 
not hurt patients.
    Mr. Lynch. So this is another email from Ms. Ghorban. She 
sent another email to you and the director of special pharmacy 
development at Walgreens asking whether Turing would, and I 
quote, ``grant an exception for those patients with a copay 
over the approved amount of $10,000.''
    Ms. Retzlaff. Our policy was to ensure that the price 
increase did not impair access for patients. So, yes, we 
subsidized that copay.
    Mr. Lynch. You didn't want to impair access so you raised 
the price to $750 a pill.
    Ms. Retzlaff. The access issues with Daraprim had nothing 
to do with the price. To our knowledge, they were based on gaps 
in the distribution network, which, by the way, we inherited 
from the previous manufacturer.
    Mr. Lynch. I reclaim my time. She asked the question 
because there was patient in North Carolina who had a copay of 
$16,830.
    Ms. Retzlaff. Yes.
    Mr. Lynch. That is what the patient was being asked for.
    Ms. Retzlaff. Yes, and we paid that down for the patient.
    Mr. Lynch. Four days later, on August 24, the same 
outrageous copay was reflected in an internal Turing 
presentation on patient access, and this is your presentation: 
Patients with commercial private insurance experience increased 
copays and delays in claims approval and rejections. One has a 
50 percent coinsurance resulting in a copay of $16,830.
    That is your own company and your own presentation on what 
the patient is being charged.
    Ms. Retzlaff. Yes. Again, we put that in the presentation 
to inform leadership that that--those were the subsidies that 
we were offering patients.
    Mr. Lynch. So I think we have a solution here. I think we 
have a solution. Congress has the power. I would suggest in our 
pharmaceutical regulatory procedure, our regulations, that we 
adopt a poison pill amendment that when anybody acts like 
Turing is acting in increasing the price from $13.50 to $750 a 
pill, Congress can suspend the exclusivity period for you to 
produce that drug. We can eliminate it the next day and 
contract with DARPA, our government research labs, to produce 
your drugs at no cost to the consumer. That is what we can do.
    The problem is that it will impact the good companies that 
are actually doing research, not the hedge funds that come in 
and buy a company and pump up the prices.
    Ms. Retzlaff. If I may, we are ----
    Mr. Lynch. I didn't ask you a question. I didn't ask you a 
question. I am telling you what we can do. If Congress has the 
willpower, we can do that.
    Unfortunately, it will hurt a lot of good companies. And 
you are trashing--you are trashing--the pharmaceutical industry 
that is doing a great job on a lot of different drugs, from 
organ transplants to cystic fibrosis. Good researchers who are 
out there doing great work, you are trashing that industry. And 
you are going to cause us to have to put heavy, heavy 
regulations on good companies. And you are probably going to 
choke off other drugs that will come into the pipeline.
    So look at the impact you are having.
    Ms. Retzlaff. May I speak?
    Chairman Chaffetz. I thank the gentleman.
    Mr. Lynch. Thank you for your indulgence.
    Chairman Chaffetz. Thank you.
    We are going to excuse Dr. Woodcock, per our previous 
arrangement. We will allow her to hopefully make her next 
hearing without any hesitation. As we change this nameplate, we 
will now have Mr. Flanagan join us, also from the FDA, as was 
previously introduced and was also sworn in. So he, too, is 
under oath.
    We have Dr. DesJarlais, who is now recognized for 5 
minutes.
    Mr. DesJarlais. Thank you, Mr. Chairman.
    Good morning, panel.
    Mr. Schiller, could you explain to us a little further how 
you determined the new price for Isuprel and Nitropress?
    Mr. Schiller. Sure. After we signed the contract to 
purchase the assets, we reengaged a pricing consultant that had 
been engaged previously by the prior owners. They made a 
presentation to the head of our neurology division where this 
product was going to sit. The conclusion was that, given the 
reimbursements for the procedures where Isuprel was used, which 
were as high as $12,000 or $14,000, in some cases, that there 
was significant opportunity to increase the price of Isuprel 
without impacting--without making it unprofitable for the 
hospitals.
    Mr. DesJarlais. Excuse me. Why were cardiology drugs put 
with neurology?
    Mr. Schiller. It's--I apologize. It's our neurology and 
other division. So it is our neurology and we have another a 
number of other smaller therapeutic categories that are 
underneath that.
    Mr. DesJarlais. Both of these drugs are generic, right? 
They have lost their patents?
    Mr. Schiller. They have lost their patents, but there is 
not generic competition.
    Mr. DesJarlais. Okay. So this isn't a drug that a patient 
can go to their doctor and say, ``Hey, Doc, I need some 
Nitropress. I need some Isuprel.'' Is that correct?
    Mr. Schiller. It's in a hospital setting, part of a 
procedure, or in a clinic.
    Mr. DesJarlais. Right. So it is not the patient that is 
getting out their wallet and paying for this drug. They are 
actually in a hospital and either their blood pressure is going 
through the roof and the doctor has really no other choice but 
to use your drug.
    In several cases, this comes in a vial, right? And you 
raised the price of Nitropress 252 percent, is that right? $257 
for a 2 mL vial to $805?
    Mr. Schiller. Correct.
    Mr. DesJarlais. So if you are laying there in the ICU, and 
your blood pressure is going sky-high, the doctor doesn't ask 
you if you want to pay for this drug. He just has to use it. 
And whatever you charge the hospital for, they have to pay it, 
right?
    Mr. Schiller. That is correct. It is used in emergency 
situations.
    Mr. DesJarlais. And Isuprel, the same way? It is not a 
pill. This is a vial. And you raised the price 525 percent from 
$215 to $1,346 a vial?
    Mr. Schiller. That is correct.
    Mr. DesJarlais. And you don't asked the doctor, ``Hey, I 
need some Isuprel.'' You have an arrhythmia in your heart and 
things are circling the drain in a hurry, the doctor doesn't 
have a choice. He is kind of over a barrel, because there is no 
other competition here, so he has to get that drug. He doesn't 
have another choice.
    Mr. Schiller. Well, there are substitutes, and the volumes 
have gone over down over 30 percent since we acquired those 
drugs.
    Mr. DesJarlais. So you are saying that you raised one 212 
percent and one 525 percent, but you have been so gracious as 
to drop the price 30 percent?
    Mr. Schiller. Well, we have gone to the hospitals that have 
the largest users, they have large cardiac departments, who 
would be the most impacted, to make sure that they have a 
significant discount. I think also, when you look at our 
overall portfolio, we have tried to address the issue of price 
by reducing the prices on our dermatology and ophthalmology 
products by 10 percent, and by dramatically increasing the 
amount of patient ----
    Mr. DesJarlais. Well, that is probably falling on deaf 
ears. I did pick up on something in your opening statement when 
you said the patient doesn't really pay this, so they don't 
really feel the sting. But I don't think anyone who has been a 
patient comes up from the hospital--they know they get a really 
big bill. And somewhere in that bill is Isuprel or Nitropress, 
if it was used. So the patient does end up paying for that drug 
in the end, correct?
    Mr. Schiller. It is paid as part of the procedure, so 
somebody at the end pays it. I would add, though, that these 
types of transactions, Isuprel and Nitropress, in the past, we 
have purchased some drugs like this, where there was no generic 
competition. We raised the price, as you mentioned. We were too 
aggressive and we are not ----
    Mr. DesJarlais. Maybe way too aggressive.
    Mr. Schiller. We are not going to be looking for those 
kinds of acquisitions going forward.
    Mr. Schiller. Yes.
    Ms. Retzlaff, you also kind of did the same thing with your 
drug. It is a unique drug and people don't have much of a 
choice.
    In your opening statement, it sounded like maybe you were 
doing people a favor. You were giving it to them for a penny, 
or they were getting it free. You are making a lot of money. I 
mean Mr. Shkreli wouldn't even answer a question, he was so 
ashamed of himself.
    And you are basically saying that you are doing these 
people a favor, you are knocking off their $10 copays and all 
that. But the bottom line is that your company made a heck of a 
lot of money on this drug, and there is only a handful of 
patients who need it. Don't you think that maybe you can do a 
little better?
    Ms. Retzlaff. We didn't make a lot of money on the drug, 
actually.
    Mr. DesJarlais. Okay.
    Ms. Retzlaff. I believe the committee has our financial 
statements. I don't want to share that information, because it 
is confidential. But you will see that Turing is operating at a 
loss.
    Mr. DesJarlais. I would just say that people are really 
hurting right now. They are seeing increased premiums. They are 
seeing increased deductibles. And this type of thing doesn't 
help.
    It is like if one gas station has gas and all the other 
ones run out, that gas station can jack the price and people 
have to pay it. But they are not going to think much of that 
gas station. I think you guys are at risk of the same thing.
    Ms. Retzlaff. Yes, I ----
    Mr. DesJarlais. I yield back.
    Chairman Chaffetz. I thank the gentlemen.
    We will now recognize the gentleman from Vermont, Mr. 
Welch, for 5 minutes.
    Mr. Welch. Thank you, Mr. Chairman. Thanks for calling this 
hearing to go over this astonishing and unsustainable situation 
with the price of prescription drugs.
    A couple things. One, Ms. Retzlaff, if Springfield Hospital 
in Vermont wanted to buy Daraprim, what would they have to pay 
you?
    Ms. Retzlaff. So we have introduced a hospital discount 
program.
    Mr. Welch. Yes. Give me a number. What would they have to 
pay?
    Ms. Retzlaff. So for a 100-count bottle, it would be 
roughly $35,000. For a 30 count-bottle, it would be roughly 
$11,000.
    Mr. Welch. So how much does that come to a pill? So $1,100 
a bill?
    Ms. Retzlaff. So $750 is the list price. We are offering 
discounts up to 50 percent for hospitals.
    Mr. Welch. $1,100 is the discount?
    Ms. Retzlaff. No, no, no. $1,100 is not the discount. It is 
50 percent off of $750.
    Mr. Welch. Okay, so if Springfield Hospital ----
    Ms. Retzlaff. It is $375.
    Mr. Welch. So if Springfield Hospital wanted to buy a pill, 
it would be $350?
    Ms. Retzlaff. Correct.
    Mr. Welch. All right. What about if I had Blue Cross Blue 
Shield and it was covered? What would Blue Cross Blue Shield 
pay?
    Ms. Retzlaff. So that would depend on what the copayment 
and coinsurance was. About 25 percent of patients on Daraprim 
have commercial insurance. So in the examples that were 
mentioned above, the patient would be asked to pay a copay of 
say $5,000, in which case we would pay down that copay, so they 
didn't have to pay any more than $10 out-of-pocket.
    Mr. Welch. So your financial statement, you are saying, if 
I had to buy that, and I had a $5,000 copay, you would pay all 
of it except a penny?
    Ms. Retzlaff. Except $10.
    Mr. Welch. Except $10. And we can confirm that?
    Ms. Retzlaff. Yes, you can.
    Mr. Welch. All right. What if they had--what if they were 
on Obamacare? What would be the cost for that pill?
    Ms. Retzlaff. On Obamacare, so, well, if they are a 
Medicaid patient, for instance ----
    Mr. Welch. Well, Medicaid, tell me Medicaid and tell me 
Medicare.
    Ms. Retzlaff. Medicaid patients, so for Medicaid patients, 
as well as patients that are treated through the 340B programs, 
they can get the medicine for one penny per pill, and that 
actually represents two-thirds of Daraprim's business.
    Mr. Welch. And so who pays the rest of that, if the patient 
gets it for one penny?
    Ms. Retzlaff. That is the price. Nobody pays.
    Mr. Welch. All right. Why isn't it possible to just have a 
price where anybody who wants to know what that price is can go 
to a Web site and see? Do you do that? Do you provide that?
    Ms. Retzlaff. We provide, as you know, a list price, but 
the list price does not reflect the price that patients pay, 
that hospitals pay, that other government programs pay.
    Mr. Welch. Let me ----
    Ms. Retzlaff. From a government program perspective, there 
are often mandatory, statutory rebates, which is why it costs a 
penny.
    Mr. Welch. Reclaiming my time, the list price is just a 
starting point.
    Ms. Retzlaff. Yes. That is correct.
    Mr. Welch. So most people have no idea what the actual 
price will be after you go through the gymnastics that you just 
described.
    Ms. Retzlaff. That is correct. That is the way 
pharmaceutical pricing works in the industry.
    Mr. Welch. That is a mess in the industry. We have had a 
lot of outrage at the outrageous conduct here, and none--we 
can't underdo it.
    But the bottom line here is, we have a broken market. And 
there is a real challenge for us, as members who represent the 
public who are getting hammered with this, to deal with that 
broken market.
    I think Mr. Duncan has a really good idea. Anything we can 
do with the FDA to streamline, we should do that.
    But on the other hand, you have market power without 
competition, and it is resulting in ripoffs, most glaringly 
represented by Mr. Shkreli.
    I hope, Mr. Chairman, Mr. Ranking Member, we can have an 
action plan to include what Mr. Duncan is talking about. It 
would streamline getting the drugs to the market. It would deal 
with these ripoff approaches where the companies are oftentimes 
extending the life of the patent to prevent generic 
competition, doing me-too evergreening to imitate a drug that 
is on the market with slight changes that don't really increase 
the efficacy but increase the cost. Work on Mr. Stivers' bill 
to get generics to markets faster.
    And, actually, let's have some transparency in pricing. 
There is all this talk about how much cost goes into research, 
and that is a legitimate cost. We all support it. Incidentally, 
taxpayers, $30 billion to NIH, we mutually support. That is our 
contribution.
    But the bottom line here is that we know prescription drugs 
are life-extending and pain-relieving. They are good. But we 
are getting killed with the price.
    Mr. Cummings. Will the gentleman yield?
    Mr. Welch. I do yield.
    Mr. Cummings. Five seconds. Hospitals are getting killed, 
too, big time.
    Mr. Welch. And employers trying to do the right thing.
    So I guess my time is up, but I think we have a lot more 
work to do. And I thank the ranking member and the chairman of 
the committee for setting up this hearing.
    Chairman Chaffetz. I thank the gentleman.
    Mr. Welch. I just have one item to submit for the record, 
if I can, Mr. Chairman.
    Chairman Chaffetz. Without objection. I'm not sure what it 
is.
    Mr. Welch. It concerns regarding the pharmacy benefit 
management industry, a paper by Applied Policy. Thank you.
    Chairman Chaffetz. Without objection, so ordered.
    [The information follows:]
    Chairman Chaffetz. We will now recognize the gentleman from 
Florida, Mr. DeSantis, for 5 minutes.
    Mr. DeSantis. I will yield back my time.
    Chairman Chaffetz. Mr. Walker. Let's recognize Mr. Walker 
for 5 minutes.
    Mr. Walker. Thank you, Mr. Chairman. I appreciate the time 
today.
    I thank you folks are being here and testifying on this 
panel.
    I want to go back a little bit, Ms. Retzlaff, and talk a 
little bit about what you said about shareholders.
    Ms. Retzlaff. Yes.
    Mr. Walker. As far as Mr. Shkreli, you said that he is a 
shareholder, but you were unaware as far as how much he owned 
in the shares?
    Ms. Retzlaff. Yes, I can't remember off the top my head. 
That's correct.
    Mr. Walker. Okay, according to our information, he is your 
largest shareholder of Turing.
    Would you dispute that? You are just not aware of that? You 
don't know?
    Ms. Retzlaff. I knew he was a major shareholder. I wasn't 
aware that he was the largest shareholder.
    Mr. Walker. Okay, as far as code of conduct, you know, most 
organizations--I recently remember the LA Clippers with Donald 
Sterling got set down because of the way he behaved. I was a 
minister for 20 years. There are codes of conduct that we have 
to follow.
    Is that ever part of the discussion, as far as the 
outrageous conduct that he is representing your company? Do you 
have anything in your bylaws or constitution, if you will, that 
would prevent somebody from being so outlandish in his 
behavior?
    Ms. Retzlaff. Thank you for the question. So, first, as you 
know, Mr. Shkreli is no longer the CEO of the company. And, 
subsequently, our chief commercial--or our chief compliance 
officer just published a code of conduct for the organization, 
which, again, is customary for pharmaceutical companies.
    Mr. Walker. But you just said he just published it. When 
was the date that he just published it?
    Ms. Retzlaff. She published it a few weeks ago. I can't 
remember the exact date.
    Mr. Walker. And was that code of conduct published to push 
back a little bit on Mr. Shkreli's behavior?
    Ms. Retzlaff. Again, Mr. Shkreli is no longer a party to 
the organization. The code of conduct was put in place to 
ensure that, you know, our current employees behaved in a 
manner that reflected our values.
    Mr. Walker. Would you find it--I mean, I don't know. For 
me, I just find it odd that all of a sudden you have a code of 
conduct. But you say, as far as you know, there is no link with 
her institution of this code of conduct with the behavior of 
Mr. Shkreli?
    Ms. Retzlaff. Turing is a very young company. We are just a 
year old. We brought on our chief compliance officer not long 
ago. We are still in the process of putting together all of our 
policies and procedures, and we just happened to get the code 
of conduct out a few weeks ago.
    Mr. Walker. A mere 5 days after acquiring Daraprim, Mr. 
Shkreli was sending emails about the timing of the price 
increase. In emails dated August 12, Mr. Shkreli asked when the 
price of Daraprim will be updated in Red Book, which is a 
compendium of drug pricing used by health care, as we all know.
    Ms. Retzlaff. Right.
    Mr. Walker. He said: I need an answer ASAP. It took 3 days 
too long the last time I did it--what he is referring to. When 
he says the last time I did this, was he referring to the 2,000 
percent price hike of Thiola that he implemented at his former 
company, Retrophin?
    Ms. Retzlaff. I'm not sure, but I'd be happy to check that 
out.
    Mr. Walker. So when could you get that information back?
    Ms. Retzlaff. Yes, I can get that information back to you.
    Mr. Walker. By the end of the week, next week?
    Ms. Retzlaff. Sure, absolutely.
    Mr. Walker. I appreciate that.
    I do want to come back and make sure I am clear with 
something with the FDA, Mr. Flanagan, if I could. Earlier Dr. 
Woodstock said there were 600 manufacturers waiting to hear 
back from the FDA on approval. My question is, is that 600 
manufacturers part of the backlog? Are those all new? There is 
40 months' backlog that you are waiting to get to, and you are 
trying to reduce it from 15 months to 10 months.
    Can you explain what number and what column? Who are the 
new manufacturers versus the old ones? Can you use the 
microphone, too, please?
    Mr. Flanagan. So, Representative, let me see if this 
answers most of the question. There is basically two big 
buckets of work. An incoming submission, something that comes 
in right now, that is going to get a 15-month goal state. 
Beginning in October, it will have a 10-month goal. Then there 
is a big pot of much older submissions. A lot of those had been 
at FDA before the user fee agreement started.
    Mr. Walker. Sure. When we say ``big pot,'' can you give me 
a number value of what a big pot is?
    Mr. Flanagan. Yes, sir. It was 2,866 Abbreviated New Drug 
Applications in October 2012.
    Mr. Walker. And those rank back as far as 40 months or 
nearly 3.5 years?
    Mr. Flanagan. So those were like 40 months after October 
2012. And many of those had been very long pending at FDA 
before the user fee agreement even started, like 2011, 2010, 
2009. So now, when we clear out the backlog, the way that 
everyone wants, any time we approve one of those old ones that 
has been sitting around, the approval time is very high.
    Mr. Walker. Sure. And what makes you think you are going to 
go from 15 months to 10 months?
    My time has expired, but if you can answer that?
    And I will yield back. Thank you.
    Mr. Flanagan. We made very substantial improvements to the 
program, like rebuilt the factory, and it is described in Dr. 
Woodcock's written testimony.
    Chairman Chaffetz. I thank the gentleman.
    We now recognize the gentleman from Virginia, Mr. Connolly, 
for 5 minutes.
    Mr. Connolly. Thank you, Mr. Chairman.
    Well, Lord Almighty.
    Mr. Flanagan, just to try to understand how 
pharmacological, pharmaceutical research works, basic research, 
a lot of it is done by the government, isn't it?
    Mr. Flanagan. Yes. Representative, I am here ----
    Mr. Connolly. I understand. But, I mean, your understanding 
of where research is done as a precursor to the development of 
approved drugs, it is usually done by the government, is it 
not?
    Mr. Flanagan. I'm really a technical expert just concerning 
the Generic Drug User Fee Act. I'm sorry, I'm just not the 
right person to answer that kind of question.
    Mr. Connolly. Ms. Retzlaff--have I got that name right?
    Ms. Retzlaff. You have.
    Mr. Connolly. Thank you.
    You, in testimony, in response to Ms. Norton's question, 
about how could you go from $13.73, whatever it was, per pill, 
to $750 in your new company--and you have had a hell of a first 
year as a company. It is a model for everyone. You said, well, 
we need to use it, that revenue, to help finance research on 
other life-threatening conditions, for drugs that address other 
kinds of diseases and life-threatening conditions. That was 
your testimony.
    Ms. Retzlaff. Other conditions as well as toxoplasmosis, 
yes.
    Mr. Connolly. Is it your testimony that the company you 
bought this drug from was not doing that?
    Ms. Retzlaff. The company we bought the drug from was not 
doing any research, pharmaceutical innovation research, for 
toxoplasmosis.
    Mr. Connolly. Are you doing basic research?
    Ms. Retzlaff. Yes. We are doing early research right now on 
toxoplasmosis.
    Mr. Connolly. Well, but you said other conditions as well.
    Ms. Retzlaff. Yes. Yes, we have a ----
    Mr. Connolly. So can you provide the committee with a list 
of these basic research efforts that this revenue is financing?
    Ms. Retzlaff. I believe we can. I'm not involved in the 
day-to-day operations of research and development, but I can, 
certainly, check with our president of research and 
development.
    Mr. Connolly. But it is your testimony on behalf of your 
company, that that is what you are doing with this revenue.
    Ms. Retzlaff. That is correct.
    Mr. Connolly. And that was the rationale, or part of the 
rationale, for jumping the price up 5,000 percent.
    Ms. Retzlaff. Yes, I believe we've provided the committee 
with our research and development spend. Is that correct?
    Mr. Connolly. Well, I am being a little bit more specific.
    Ms. Retzlaff. Okay.
    Mr. Connolly. In answer to Ms. Norton's question, I would 
like to see that correlation. I would like to see where that 
revenue is, in fact, going from this increase.
    Ms. Retzlaff. Yes.
    Mr. Connolly. Because that was your testimony, that it is 
funding other good things.
    Ms. Retzlaff. That is correct.
    Mr. Connolly. And the only way, presumably, we can do that 
is this $5,000 price increase.
    Let me ask you a question, a corny question. In your 
company, in Turing, did the public interest ever come up in 
terms of, by jacking up the price, we really could affect 
access, we could have unintended consequence on people's 
health, especially since the sacred trust we have is a drug no 
one else produces? It is only drug for this condition that 
exists on the planet, and we just bought it, we control it, and 
we just increased the price by 5,000 percent.
    Was there any discussion at the corporate level about the 
morality, the ethics, of that, in terms of impact on people's 
health and lives?
    Ms. Retzlaff. So as I said in my testimony, I was 
comfortable with that price increase, first, because of the 
company's commitment to invest generously in patient access 
programs. Those are important. We didn't want the price 
increase to disadvantaged patients in any way. And second, the 
company's commitment to reinvest into research and development. 
And I will just say that we believe that there is a need for a 
new and better treatment for toxoplasmosis.
    Mr. Connolly. Would you agree, whatever your motivation and 
your altruistic instincts, that from a public relations point 
of view, it didn't work out so well?
    Ms. Retzlaff. We had challenges from a public relations 
point of view, and I believe it is because there was a lot of 
misinformation, and there continues to be a lot of 
misinformation out there.
    Mr. Connolly. Well, I would suggest to you, and I know he 
is no longer your CEO, but when you have an individual behave 
the way Mr. Shkreli did when he was CEO, and in a public 
appearance today, and in his tweets, he has put a pretty ugly 
face in front of the public in terms of the industry, its 
motivation, its profit motivation, its concern for patients, 
any sense of ethical responsibility.
    And I would echo what Mr. Lynch said. It has unfairly 
damaged a whole industry, because of the practice of one CEO at 
one company.
    I just think--I would hope--it would cause a very profound 
re-examination about the practice of jacking up prices the way 
Turing did with this one.
    I yield back.
    Chairman Chaffetz. I thank the gentleman.
    We will now recognize the gentleman from Georgia, Mr. 
Carter, for 5 minutes.
    Mr. Carter. Thank you, Mr. Chairman.
    Mr. Merritt, isn't it true that your organization, PBMs, 
pharmacy benefit managers, isn't it true that three of your 
member companies control over 75 percent of the PBM market?
    Mr. Merritt. I don't have exact numbers, but there are ----
    Mr. Carter. I have it. It is 78 percent, to be exact.
    Mr. Merritt. Yes.
    Mr. Carter. Seventy-eight percent are controlled by three 
different companies.
    Mr. Merritt. Yes, and they get discounts for their 
customers, too.
    Mr. Carter. Mr. Merritt, are you aware of the term MAC, 
maximum allowable cost?
    Mr. Merritt. Yes.
    Mr. Carter. You are aware that. And you understand that 
that is a PBM-generated list of drugs that determines the 
maximum amount that an insurance sponsor will pay for a 
medication. In other words, they tell the pharmacy what you are 
going to pay.
    Mr. Merritt. Yes, it was actually created ----
    Mr. Carter. That is what MAC is.
    Mr. Merritt. It was created by Medicare, not PBMs.
    Mr. Carter. And there are no two MAC lists that are the 
same. Each PBM generates their own separate list, correct?
    Mr. Merritt. Right, kind of like PSAOs have their own list 
for how much they ----
    Mr. Carter. They choose the products they want on it, and 
they are the ones who dictate that.
    So, on the other side, PBMs also have a MAC list on how 
much they will charge the insurance company, and that is a 
different MAC list. Is that correct?
    Mr. Merritt. Sometimes. All the different companies are 
different.
    Mr. Carter. All the different companies are different, but 
they have one list here that they are going to reimburse the 
dispenser at. They have another list here that they are going 
to charge the insurance company that they are representing. So 
you have two different lists here.
    Don't you find that somewhat awkward? And don't you find 
that to be a situation where a PBM could distort the market 
greatly?
    Mr. Merritt. No, because that is a decision negotiated in a 
contract between a client and a PBM, and there are a million 
different kinds of contracts, including those. And if the 
client thinks it is in their interest to have that ----
    Mr. Carter. But the point is, Mr. Merritt, that you are 
deciding what you are going to reimburse the dispenser for it, 
and you are deciding what you are going to charge the insurance 
company for it. Therein lies the difference.
    Are you familiar with the term spread pricing?
    Mr. Merritt. Yes.
    Mr. Carter. You are familiar with that?
    Mr. Merritt. I am.
    Mr. Carter. And you understand what spread pricing is?
    Mr. Merritt. Yes.
    Mr. Carter. That is when the price of the drug goes up. It 
costs the pharmacy more to buy it, but yet, you are still 
reimbursing at the lower rate.
    For instance, in Turing, when Daraprim was $13.50 a pill, 
if you had it on the MAC at $13.50, if you didn't increase that 
MAC and she went up to $750 a pill, you would still be 
reimbursing that dispenser $13.50, yet you would be charging 
the insurance company $750.
    Mr. Merritt. No.
    Mr. Carter. That is spread pricing. That is what is 
happening, because you are not increasing--you are not 
updating--the PBMs are not updating their MAC lists.
    Mr. Merritt. That is inaccurate. MAC lists are updated ----
    Mr. Carter. That is accurate. If that is inaccurate, the 
let me ask you, Mr. Merritt, why is it that just recently--and 
let me quote here.
    At a recent hearing of the Judiciary Committee, one of your 
largest member companies, who I notice aren't here today, and I 
am very disappointed by that. I am sorry that you have to 
represent them.
    We invited them, I believe, Mr. Chairman. They decided not 
to come.
    Anyway, at the Judiciary Committee, one of your largest 
member companies testified in December that they have teams of 
people who constantly update MAC lists. Is that correct?
    Mr. Merritt. I don't know about that specific company, but 
industrywide, PBMs update MAC lists regularly.
    Mr. Carter. They update them regularly, and that was the 
testimony in the Judiciary Committee.
    If that is true, don't you find it somewhat odd that CMS 
found it necessary to mandate, to require, that these MAC lists 
be updated every 7 days and that 26 States have passed laws 
requiring PBMs to update their MAC lists? Don't you find that 
somewhat odd, if you have teams of companies doing this?
    Mr. Merritt. You just don't know why that happened. 
Drugstores want higher payments, and they lobbied for those 
changes and got them.
    Mr. Carter. Drugstores just want to get paid what they are 
paying for it. When companies go up from $13.50 to $750, that 
is a problem, when we are only getting reimbursed--when they 
are only getting reimbursed $13.50. That is where the spread 
pricing comes in.
    I noticed that the profits of the PBMs have increased 
enormously over the past few years, in fact, almost doubled. I 
find that very disturbing, particularly when you are talking 
about spread pricing.
    Mr. Merritt. Going back to Turing ----
    Mr. Carter. Let me ask you something, Mr. Merritt, and I 
want to switch gears here real quick, okay? Just let me ask you 
something.
    As you know, I formerly owned three independent retail 
pharmacies. I had a family member who got a prescription filled 
at my pharmacy. She got it filled at my pharmacy. Later on that 
night, she got a call at home from the insurance company, 
encouraging her to use mail-order pharmacy, a mail-order 
pharmacy that is owned by the PBM.
    Now don't you find that a conflict of interest, when a PBM 
not only owns the pharmacy, but they are reimbursing here, they 
are setting the reimbursement? Is that not a conflict of 
interest? How can it not be a conflict of interest?
    Mr. Merritt. The Federal Trade Commission looked into that 
and said there are no conflicts and these benefit patients.
    Mr. Carter. Mr. Merritt, that is a conflict of interest. I 
have actually had experiences where I have adjudicated a 
claim--for those of you who do not know, adjudicate means my 
computer calls his computer. It tells me what they are going to 
pay me. I have adjudicated a claim, and it told me they weren't 
going to pay for it. They weren't going to cover it. While this 
patient was still in my lobby, they got a call from the PBM 
saying, hey, you can use our mail-order pharmacy.
    That is a conflict of interest.
    Thank you, Mr. Chairman.
    Chairman Chaffetz. I thank the gentlemen.
    We will now recognize the gentleman from Pennsylvania, Mr. 
Cartwright, for 5 minutes.
    Mr. Cartwright. Thank you, Mr. Chairman. And I thank you 
for calling this hearing.
    I am obviously concerned about these price increases on a 
number of levels, but one of the levels is as a former hospital 
director myself.
    Mr. Schiller, because Isuprel and Nitropress are hospital-
administered drugs, hospitals, it is hospitals that are bearing 
the biggest burden of your price increases. Am I correct in 
that?
    Mr. Schiller. That is correct.
    Mr. Cartwright. So last year, the Cleveland Clinic reported 
that price increases for Isuprel and Nitropress added $8.6 
million to its budget.
    And Isuprel and Nitropress are both heart medications. Am I 
correct in that?
    Mr. Schiller. Correct.
    Mr. Cartwright. Given the choice between paying higher 
prices and risking the lives of their patients, most hospitals 
choose to knuckle under and pay the price. Am I correct in 
that?
    Mr. Schiller. I assume that is correct, yes.
    Mr. Cartwright. So by raising the price of these 
medications exponentially, you are forcing hospitals to make 
that decision between their budgets and, essentially, their 
patient's life and well-being, almost like holding the 
hospitals own patients as hostages against them.
    Of course, Valeant was not the first company to raise 
prices. Valeant actually bought Isuprel and Nitropress from a 
company called Marathon Pharmaceuticals, correct?
    Mr. Schiller. Correct.
    Mr. Cartwright. And Marathon Pharmaceuticals acquired the 
drugs in 2013 from another manufacturer. Marathon also raised 
prices in the 2 years it owned Isuprel and Nitropress by about 
400 percent each. Marathon's price, its increase, had a net 
impact to the Cleveland Clinic at that time of $2.8 million.
    And the Cleveland Clinic is not alone in bearing the burden 
of rising prescription drug prices. Johns Hopkins Hospital up 
in Baltimore sustained an impact of $20 million last year, of 
which $4 million was attributed to price increases for 
injectable drugs like Isuprel and Nitropress.
    These price increases hurt hospitals in ways that reach far 
beyond the immediate care of patients. They also divert much 
needed funding from research and other programs and 
technologies that improve care.
    Look, the truth is hospitals are struggling in this 
country. We have to keep hospitals alive.
    There is no greater impact to your health care than when 
your local community hospital has to close. I have seen this. 
They trim their budgets. They trim their budgets. They absorb 
these price increases. They absorb the cost of uninsured care. 
And they absorb it, and they absorb it, and they absorb it 
until they can't absorb it anymore, and they can't cut back 
nursing and staff anymore, and patients lives become 
endangered, and they have to close.
    There is no greater impact to you than when your local 
hospital closes. So when you are having a heart attack, it is 
not a 10- or 15-minute drive to the hospital. It is a 40- or 
50-minute drive to the hospital. And that can be the difference 
between life and death.
    So, Mr. Schiller, I understand from information your 
company has provided to this committee that Valeant has spent a 
``nominal amount of money on research and development for 
Isuprel and Nitropress.'' Am I correct in that?
    Mr. Schiller. That is correct.
    Mr. Cartwright. Well, that is the usual vindication of 
these exponential drug price increases, that we need to do this 
because it is funding research. But you have admitted there is 
a nominal amount of money on research and development for 
Isuprel and Nitropress, the very drugs that are experiencing 
this exponential price increase.
    Let me ask you this, Mr. Schiller. Isn't it also true that 
one of the ``key elements'' of your company's operating 
philosophy is, and I quote, ``Do not bet on science. Bet on 
management.'' Have I quoted that correctly?
    Mr. Schiller. That is a quote from Mike Pearson. I don't 
know what the date is on that. But I would say that this 
company has changed quite a bit.
    Mr. Cartwright. Mike Pearson is at your company?
    Mr. Schiller. Yes, he is.
    Mr. Cartwright. And you have turned over a new leaf since 
him? Is that it?
    Mr. Schiller. No. I think if Mike were here, if you look at 
his quotes over the last year or 2, he has changed the way he 
has described the company, and our focus and emphasis on 
research and development.
    I would also add, in the pharmaceutical industry, it is 
very rare to trace a dollar of revenue to a dollar of R&D. It 
is almost ----
    Mr. Cartwright. Mr. Schiller, I understand that shareholder 
return is your primary concern and objective, but I say it is 
unconscionable to deprive hospitals of the resources they need 
to fulfill their primary objectives --caring for patients and 
developing new and better treatments for the future.
    Again, Mr. Chairman, I appreciate you bringing this hearing 
and calling all of this information to light, and I yield back.
    Chairman Chaffetz. I thank the gentleman.
    We will now recognize the gentleman from Texas, Mr. 
Farenthold, for 5 minutes.
    Mr. Farenthold. Thank you, Mr. Chairman.
    Ms. Retzlaff, you testified that your $750 drug, nobody 
pays that. Some people get it for a penny. Some people get it 
for $20. How much am I paying for that? Because the rest of 
that is either coming from the Federal Government in Medicare, 
Medicaid; State Governments; or it is coming from an insurance 
company that is being funded by the premiums that I pay, and 
hopefully will never need that drug.
    So I mean, you make it sound like nobody is getting hurt by 
this, but everybody in this room is actually getting hurt by 
these prices, are they not?
    Ms. Retzlaff. So there are only 3,000 patients in the 
United States that are treated with Daraprim. Twenty-five 
percent of them are covered by commercial insurance.
    Mr. Farenthold. Right. So that is my insurance rates, which 
have gone greatly up under Obamacare.
    Ms. Retzlaff. So the overall impact, in terms of the budget 
for any health care plan, is very, very small. It is in the 
pennies.
    Mr. Farenthold. All right, but you guys are potentially 
setting another trend in the industry. Buy these orphan drugs 
and jack up the price, or go and buy a generic manufacturer 
that is the only manufacturer of a generic drug, which brings 
me to the FDA.
    You are saying you are getting down to 10 and 15 months, 
but you have basically created a 10- and 15-month monopoly for 
anybody who is a single source of a generic drug to do that 
kind of price increase and name their price for that drug. Is 
that not correct, Mr. Flanagan?
    Mr. Flanagan. Can you ask the question a different way? Can 
you clarify, please?
    Mr. Farenthold. All right. So the amount of time it takes 
the FDA to approve a generic drug manufacturer, if there is 
only one manufacturer in the generic market, they basically 
have the 15 months it takes--and I am going to argue that 
number with you. They have an exclusive ability to sell that 
drug for 15 months at $1 million a pill, if they choose to do 
that.
    Mr. Flanagan. Right.
    Mr. Farenthold. So what takes so long to do this? I am not 
an expert in what is involved in approving a place to 
manufacture drugs. I assume if you can manufacture XYZ drug in 
a place, you have a clean facility, there are no roaches on the 
assembly line. If you want to add another product, why should 
it take 15 months to get that approved? I assume you can test 
whatever drug they make and see if it is what they say.
    What else is involved there? And if they do screw up making 
it, 1-800-BAD-DRUG is going to bankrupt the company.
    Mr. Flanagan. So, basically, to review a generic drug, 
there is the scientific and technical review, bioequivalence, 
chemistry, and manufacturing controls, stuff like that.
    Mr. Farenthold. How much of this is really necessary and 
how much of it is regulations that are what color is the toilet 
paper?
    Mr. Flanagan. So the reason we have 88 percent prescription 
penetration in the United States is because when you or your 
family go to the pharmacy to get a generic drug, that you can 
be confident that it is the same as the brand. A review ----
    Mr. Farenthold. Why does it have to take 15 months? How 
difficult is it to get their output, analyze it, and see what 
it is? I can't believe that takes 15 months. The TSA can, in a 
matter of seconds, tell whether or not I have an explosive in 
my bag by just swiping something on it. I mean, isn't there 
technology there that will make it faster and better? Why 
aren't we using it?
    Every day you delay getting a competitor on the market is a 
day companies can screw the consumer.
    All right, so let me ask you one other question on your 
numbers. Before at a time when Dr. Woodcock was testifying, my 
B.S. detector went off when she said, oh, we have our number of 
applications way down. But she also mentioned that a great many 
of them were, and I think her words were returned due to 
technical defect.
    So are you artificially decreasing your numbers and wait 
time as a result of somebody turning something in without a t 
crossed or i dotted?
    Mr. Flanagan. No.
    Mr. Farenthold. All right, so give me an example of what 
one of those technical defects is going to be.
    I see it with the VA all the time in the casework I do. 
``Well, you don't have this piece of paper, or you don't have 
that. You go to the back of the line.''
    My fear is that we have a bureaucracy at work here that is 
costing the taxpayers money, and the amount we have to 
reimburse Medicare and Medicaid for. And it is costing the 
insured money based on higher rates they have to pay for their 
premiums. And the taxpayers are having to pay premium 
supplements under Obamacare.
    Mr. Flanagan. Mr. Chairman, do I have time ----
    Mr. Farenthold. Yes, you have the time to answer. I am done 
after this question.
    Chairman Chaffetz. Please, answer the question.
    Mr. Flanagan. So you asked for two examples. One example 
would be if the application doesn't show that the generic drug 
would be bioequivalent to the brand. So we want to make sure it 
is going to work the same as the brand.
    Another example would be that if the facility it is 
manufactured in is substandard and can't produce a safe, 
quality drug.
    Mr. Farenthold. Again, the amount of time this takes is, I 
think, criminal. And add to that we have a tort system with 
plenty of attorneys willing to go after any company that screws 
up even the slightest. This has to be fixed.
    Thank you. I yield back.
    Chairman Chaffetz. The gentleman makes a good point, and I 
plan to ask some further questions on this.
    But we will now recognize the ranking member, Mr. Cummings, 
for 5 minutes.
    Mr. Cummings. Ms. Retzlaff, when Turing--and I am going to 
remind you that you are under oath, by the way--when Turing 
increased the price of Daraprim by more than 5,000 percent on 
August 11, 2015, you were hoping to avoid attracting attention 
from the media and the public. Is that right?
    Ms. Retzlaff. Yes, of course.
    Mr. Cummings. Yes, you were. Despite your best efforts, the 
price increase soon became a major news story. On October 8, an 
outside consultant sent an email to a member of Turing's board 
of directors laying out a PR strategy--I am sure you paid a lot 
for PR here--for Turing to respond to this unwanted attention.
    The consultant suggested that the board remove Mr. Shkreli 
as CEO and, and I quote, ``as early as next week.'' The 
consultant also suggested that Turing reduce the price of 
Daraprim. Is that correct? Come on, talk to me.
    Ms. Retzlaff. I believe that is correct, yes.
    Mr. Cummings. You don't know? You have these memos in 
regard--do you have an answer for me?
    Ms. Retzlaff. Yes, that is correct.
    Mr. Cummings. All right, so, okay. So he wrote, and I 
quote, ``The price drop has to be significant and tied to 
something. ...This cannot be seen as something that appears to 
be as arbitrary as the price hike in the first place.''
    Do you remember that?
    Ms. Retzlaff. Yes, I do.
    Mr. Cummings. All right. The consultant recommended that 
Turing issue a press release announcing ``a package of 
assistance programs for patients.'' Do you remember that?
    Ms. Retzlaff. Yes, I do.
    Mr. Cummings. Did you follow those instructions?
    Ms. Retzlaff. Not all of them.
    Mr. Cummings. All right. We are going to talk about that.
    The consultant also recommended that Turing ``specifically 
tie profits from Daraprim to the research and development of a 
new and more effective treatment for Daraprim patients.'' Do 
you remember that?
    Ms. Retzlaff. Yes, I do.
    Mr. Cummings. And that is exactly what you are doing today. 
And the consultant also suggested a long-term strategy of 
``forcing a focus on Turing as a research and development 
company, not a pharma-hedge fund hybrid.'' Do you remember 
that?
    Ms. Retzlaff. Yes, I do.
    Mr. Cummings. Now, Ms. Retzlaff, this email was forwarded 
to you by a board member. Do you recall receiving it?
    Ms. Retzlaff. I believe I did, yes.
    Mr. Cummings. Okay. It seems that Turing followed most of 
the consultant's advice with one glaring exception. You never 
lowered the price of Daraprim.
    Let me read another email you received from a Turing 
marketing executive on October 2, 2015, since you are so 
concerned about patients and discounts. She wrote, and I quote, 
``The cause of the inpatient hospital issue is pretty clear 
now--it's price.''
    She continued to quote, and this is what she said, ``We all 
realize that we need a solution ASAP, but we also don't want to 
commit to something beyond the smaller pack that will 
potentially debilitate the business and risk future revenues.''
    Do you remember that?
    Ms. Retzlaff. Yes, I do.
    Mr. Cummings. Now, Ms. Retzlaff, this email indicates that 
Turing was aware that its price increase had created issues for 
inpatient hospitals, as Mr. Cartwright was just saying. It also 
indicates that Turing was unwilling to do anything to risk 
future revenues, including actually lowering the price for 
everyone.
    Is that fair? Is that a fair reading?
    Ms. Retzlaff. No, it is not a fair reading.
    Mr. Cummings. Well, give me what is a fair reading.
    Ms. Retzlaff. So, yes, we did learn that price seemed to be 
an issue with hospitals. So then, in November, we actually 
announced a discounting program for hospitals of up to 50 
percent. And then, based on feedback from hospitals, we also 
introduced a smaller count bottle, to alleviate their financial 
burden.
    Mr. Cummings. I am glad you said that. Now let's move on.
    Let me read an excerpt from an email that Ed Painter, 
Turing's head of investor relations, said to Patrick Crutcher, 
the director of business development, on September 26, 2015. 
Mr. Painter asked if there was a lower price Turing could 
announce that would discourage generics from entering the 
market and generate positive PR. Mr. Crutcher replied, and I 
quote, ``It's best we don't PR something like that unless it's 
something we're willing to commit to doing.'' He added, ``Only 
thing to PR is the PAP and R&D.''
    Mr. Painter replied jokingly, and this is the quote--and 
maybe you can interpret this for me. Maybe it is millennial 
talk, I don't know. But it says, ``My Rs bangen D and my PAP 
can't rap.''
    Ms. Retzlaff, do you know what that meant, what he was 
saying?
    Ms. Retzlaff. I'm sorry, I do not.
    Mr. Cummings. But this was sent to you. You didn't read it? 
You didn't ask him?
    Ms. Retzlaff. I read it, but I don't what that last 
sentence means.
    Mr. Cummings. Okay. There are very real issues for people 
with compromised immune systems. And this email indicates that, 
despite the promises of lowering the price internally, Turing 
has no desire to actually fix what it has broken.
    And the thing that really gets to me, Mr. Shkreli, who just 
sat there, your former CEO--is that right?
    Ms. Retzlaff. That is right.
    Mr. Cummings. He walked out of this hearing a few minutes 
ago, and before he probably got out of the door, he sends a 
tweet calling everybody on this committee imbeciles. Did you 
know that?
    Ms. Retzlaff. I was not aware of that.
    Mr. Cummings. So instead, you all spent all of your time 
strategizing about how to hide your price increase behind 
positive PR and coming up with stupid jokes--no, no, no--while 
other people were sitting there trying to figure out how they 
were going to survive.
    Ms. Retzlaff. No, that is not true.
    Mr. Cummings. I have said it before. This is about--a lot 
of this is about blood money.
    And, Mr. Schiller, one question for you. You said, and I 
quote, a few minutes ago, you said, ``In some cases, we have 
been too aggressive in increasing prices.'' Do you remember 
saying that?
    Mr. Schiller. Yes, I did.
    Mr. Cummings. Now, just so that we can be effective and 
efficient in what we do, are you all going to be reducing 
prices?
    Mr. Schiller. We have looked across our portfolio, and we 
have reduced prices.
    Mr. Cummings. Are you going to continue to reduce prices?
    Mr. Schiller. We're ----
    Mr. Cummings. You said that you are learning your lesson. 
You said that Pearson apparently now has a new attitude. I want 
people watching this to know that they are not being ripped 
off.
    Mr. Schiller. We looked across our portfolio. We took a 10 
percent reduction in two of our largest business units, our 
dermatology division and our ophthalmology division. We reduced 
by 10--up to 30 percent, Nitropress and Isuprel. We increased 
our patient assistance programs. We're going to continue to 
look at ways to improve access at affordable prices. At the 
same time, manage our business so we can invest in R&D, and 
manufacturing in places like Rochester and Greenville, South 
Carolina.
    We have made mistakes. We grew very quickly. We are 
acknowledging those mistakes. We are going to change. We are 
going to be a responsible corporate citizen and part of the 
health care community. And we have made changes.
    Mr. Cummings. So you are going to continue to make those 
changes? You will continue to make changes?
    Mr. Schiller. We are always going to look to do the right 
thing, but we have made significant changes.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Chairman Chaffetz. Thank you.
    I now recognize myself.
    Ms. Retzlaff?
    Ms. Retzlaff. Yes.
    Chairman Chaffetz. The proper role of Congress is not to 
micromanage a private company. It is not my role. And I do 
believe in the right to profit. I think profit is a motivator 
that does a lot of good.
    But I also do believe that it is imperative that people 
tell the truth, that they are ethical, that they not mislead 
the public, that they properly represent the truth.
    Would you disagree with that or agree with that?
    Ms. Retzlaff. I agree with that.
    Chairman Chaffetz. All right, let me show you video. This 
is just a couple weeks ago. This is, I believe, on channel 5. 
This is Mr. Shkreli.
    [Video shown.]
    Chairman Chaffetz. Is that true?
    Ms. Retzlaff. We invest 60 percent of our net revenues into 
research and development.
    Chairman Chaffetz. That is not all of it, is it?
    Ms. Retzlaff. He may have meant profits. He may have 
misquoted, but we ----
    Chairman Chaffetz. No. He said, ``We take all of our cash, 
all of our extra profit.''What is ``extra profit''?
    Ms. Retzlaff. I'm not sure what he meant by extra profit. 
What he could--what he could've meant is that once we deal with 
expenses, just operational, administrative expenses, then we 
take that money and we reinvest in R&D.
    Chairman Chaffetz. Are you really testifying that you are 
losing money?
    Ms. Retzlaff. Yes. I think you have seen our financial 
statements.
    Chairman Chaffetz. Yes. You are not losing money. You are 
raking it in hand over fist as fast as you can.
    Let me ask you about some of that.
    Ms. Retzlaff. Sure.
    Chairman Chaffetz. And first, let me ask you, are you 
planning another price increase?
    Ms. Retzlaff. No, I am not.
    Chairman Chaffetz. That is not what the documents show. We 
will release them to the media, and you can fight that one in 
the public.
    But based on this--do we know who Adam Stone is?
    Ms. Retzlaff. He's an investor.
    Chairman Chaffetz. Yes. And he wrote to Mr. Martin Shkreli. 
He wanted the public relations to calm down. He wanted the 
politicians to slow down a little bit.
    Mr. Shkreli said, ``We can wait a few months for sure.''
    That sounds like a planned price increase to me.
    Ms. Retzlaff. What was the timing of that email?
    Chairman Chaffetz. December.
    Ms. Retzlaff. December. Well, subsequent to that, Mr. 
Shkreli is no longer the CEO. So I will have final call on 
those business decisions.
    Chairman Chaffetz. And we will see what happens with that.
    The company has been in business how long?
    Ms. Retzlaff. We started operations in February of last 
year.
    Chairman Chaffetz. So about a year.
    Ms. Retzlaff. Yes, close to a year.
    Chairman Chaffetz. And within the first year, you have 
given out raises?
    Ms. Retzlaff. Yes, we have.
    Chairman Chaffetz. Given out bonuses?
    Ms. Retzlaff. I don't believe we've given out bonuses as of 
yet.
    Chairman Chaffetz. Your spreadsheet says 30 percent across-
the-board, everybody gets a bonus.
    Ms. Retzlaff. But we haven't paid out any bonuses.
    Chairman Chaffetz. We have this document from the agenda of 
October 14, 2015. One person had a pay increase of $250,000 to 
$600,000, correct?
    Ms. Retzlaff. Correct.
    Chairman Chaffetz. Another person had a pay increase of 
$275,000 to $600,000, correct?
    Ms. Retzlaff. Correct.
    Chairman Chaffetz. Another person had a pay increase of 
$160,000 to an annual salary of $800,000, correct?
    Ms. Retzlaff. I'm sorry, what was that one?
    Chairman Chaffetz. It went from an additional $160,000 to 
$800,000.
    Ms. Retzlaff. I'm not aware of that one.
    Chairman Chaffetz. We will release it. You can look at it. 
It is from your agenda in October.
    Now, again, people can make a profit. They can pay 
exorbitant salaries. But don't come before the American people 
and cry and shed a tear and say, ``Well, we are not making any 
money.'' And don't have the person who is the major investor 
into the company come and say we invest all of our cash into 
research and development.
    We have emails here that show they are not even sure if 
they are going to invest in research and development. A person 
wanted to check off and make sure that was even part of the 
plan. And it sounds like a contrived PR plan in order to do 
that.
    Do you know who Metro Yacht Charters is?
    Ms. Retzlaff. Yes, I do.
    Chairman Chaffetz. Why would you know them?
    Ms. Retzlaff. I believe we rented Metro Yacht Charters for 
a sales force meeting.
    Chairman Chaffetz. Yes, for party, $23,000.
    Did you spend money on fireworks?
    Ms. Retzlaff. Yes.
    Chairman Chaffetz. Did you spend money on a cigar roller 
for the yacht night, 800 bucks?
    Ms. Retzlaff. Yes, we did.
    Chairman Chaffetz. Okay, so don't tell me that you are 
losing money. Don't try to pretend and tell us that this $750 
is justified when you have a woman who has AIDS and what is she 
supposed to do? Is she supposed to tweet Martin and try to get 
that for a penny? Is that how that works?
    Ms. Retzlaff. No, that doesn't work--that is not how it 
works.
    Chairman Chaffetz. It doesn't work, I get it.
    Ms. Retzlaff. That is not how it works.
    Chairman Chaffetz. So who pays the $750?
    Ms. Retzlaff. You know, $750 is paid primarily by 
commercial insurers. That represents the minority of patients, 
about 25 percent. Again, that is a very small number of 
patients. There are only 3,000 patients.
    Chairman Chaffetz. But it generates a lot of revenue, 
doesn't it?
    And who pays those insurers? Are they just the big, bad 
insurance companies that are raking in all these profits? Who 
are these insurers? Who pays them their money who then have to 
pay you?
    Ms. Retzlaff. I suppose it is big companies that are 
insuring their employees, for the most part.
    Chairman Chaffetz. No, it is people.
    Ms. Retzlaff. And, again, because there are so few patients 
treated with Daraprim, the impact on their budgets, the budget 
impact, is very, very small. It is in the pennies.
    Chairman Chaffetz. What is your first year revenue?
    Ms. Retzlaff. This year's revenue? Our gross sales were 
$98. Our net sales were $20.
    Chairman Chaffetz. They were what? $20 million, right?
    Ms. Retzlaff. $20 million, yes.
    Chairman Chaffetz. Yes. And this is one drug that just 
services about 3,000 people.
    Ms. Retzlaff. Yes.
    Chairman Chaffetz. And then you wonder why the average 
person who is trying and scraping by, and they see their 
insurance rates go up double digits, screaming high, it is 
because of people like you. That is why they are going up. It 
is one of the key reasons.
    Ms. Retzlaff. I will add, and I think I need to be clear 
here, that Turing is a specialty pharmaceutical company. We are 
139 employees, 36 of which are dedicated to R&D. We are 
absolutely committed to taking that revenue that we generate 
from Daraprim and investing it in next-generation treatments, 
as well as other neglected diseases. That is a fact.
    Chairman Chaffetz. I think that is legitimately part of 
what you are doing, but what Mr. Shkreli is saying publicly, 
what you are putting out to the public, to say that you are 
losing money, it is not true. And if you are going to continue 
to lie to the American people, the Congress is going to 
continue to probe. I can investigate under the House rules, the 
House of Representatives, the Oversight Committee can 
investigate anything at any time.
    Ms. Retzlaff. Right. I am being truthful. I am looking at 
our income statement right now and our operating profit for 
2015.
    Chairman Chaffetz. I have additional questions. I have gone 
far past my time.
    Let's recognize the gentlewoman from Michigan, Ms. 
Lawrence, for 5 minutes.
    Ms. Lawrence. Thank you, Mr. Chairman.
    I just wanted to, before I start my questions, just state 
that heart disease and stroke kill one in three women, more 
than all the cancers combined. I personally experience the 
miracle of medicine and the need when my husband had a heart 
attack.
    So I really want to talk about R&D. In the 2014 proxy 
statement filed with the SEC, Valeant reported that one of the 
key elements of the company's operating philosophy is, and I 
quote, ``Do not bet on science. Bet on management.''
    And it has been reported, financial reports, that Valeant 
R&D was equal to only 3 percent of sales between 2014 and 2015.
    Mr. Schiller, is this correct? Three percent of sales is 
R&D?
    Mr. Schiller. This past year, it would have been about 4 
percent of total sales, but a big chunk of our portfolio are 
consumer products or generics, which don't require R&D. If you 
look at our branded pharmaceuticals, the number is 8 percent. 
And then last year, if you look at what we spent to acquire 
late-stage projects, which we later commercialized, it was over 
$1 billion.
    So we have a significant commitment. We have over 200 
active programs in R&D. We expect this year to get approval for 
a significant new glaucoma drug and a new biologic for the 
treatment of moderate to severe plaque psoriasis. And we have 
projects in phase 1, 2, and 3, which we hope would bring fruit 
and new products in the future.
    There is tons of risk associated with it, but that comes 
with the territory. And we will continue to invest in that 
portfolio.
    Ms. Lawrence. Three percent for R&D. You said it was $1 
billion? What is 3 percent?
    Mr. Schiller. If you look at our total revenue, we spent 
around 4 percent of revenue. But again, we have a very 
significant percentage of our revenue which is consumer 
products or generics, where there is no R&D required. So it is 
about 8 percent on our branded pharmaceutical business, which 
does require R&D. And then in addition, we spent $1 billion on 
acquiring late-stage products last year, over $1 billion.
    Ms. Lawrence. Committee staff received an email from Dr. 
Benjamin Levine, who is conducting NIH-funded research on 
exercise intolerance and heart failure. Isuprel--Isuprel, am I 
saying that correct?
    Mr. Schiller. Isuprel.
    Ms. Lawrence. Isuprel is a drug that stimulates the beta 
receptors of the heart, natural pacemakers, and causes the 
heart rate to go up using the same biological pathways.
    Now, Dr. Levine uses this drug to conduct his research and 
has been impeded in meeting his commitments to NIH because of 
the increase of cost of this drug. He has attempted to reach 
out directly to your company to no avail.
    Here we have a doctor who is focused on doing real research 
for people's lives. Mr. Schiller, what should Dr. Levine do so 
that he can use this drug in his research to fulfill the 
requirements, to perhaps extend the lives of individuals? What 
do you recommend?
    Mr. Schiller. I'm not aware of that, but now that you have 
made me aware of it, if you would give me his number, I will 
call him tomorrow and make sure that we help him wherever we 
can, make sure that it is in a compliant fashion.
    Ms. Lawrence. Because, sir, you have to know the 
connection, your research that you are funding. But also, if 
you are increasing the drugs that are being used in research, 
you must recognize the impact you are having.
    Mr. Schiller. Well, of course, we do. And if there is ever 
a situation where we need to do something about access, that is 
something we are going to do. So I am happy to talk to him 
tomorrow and see if we can rectify that situation. I am 
assuming it is all compliant. I am assuming we can take care of 
that tomorrow.
    Ms. Lawrence. I just want to say this, before my time runs 
out. In America, while we are a leader in the world of R&D and 
medical research in some areas, we have turned the focus from 
medicine being a part of healing of people to a profit-making 
industry. Every business should make a profit, but it has 
turned from profit to greed.
    And this is why this is so important to me. I know there 
are senior citizens who are making decisions between food and 
drugs, the medicine that they need to live. And then there is 
someone in your industry that is buying a yacht. And I want you 
to be able to be part of the American economy and pay salaries 
that will allow a basic and even an advanced, based on 
education, quality-of-life. But we are at the point where greed 
is not acceptable in America, and I am very concerned about 
that.
    Chairman Chaffetz. Thank you. The gentlewoman's time has 
expired.
    We now recognize the gentleman from North Carolina, Mr. 
Meadows, for 5 minutes.
    Mr. Meadows. Thank you, Mr. Chairman.
    Thank you for holding this hearing, and, further, thanking 
the staff for bringing this to the attention of the American 
people. It was obviously the work of this committee, both 
majority and the minority, where we have highlighted this 
issue.
    But it is truly an issue that must be addressed. And the 
best way to address it is to put companies that do the kind of, 
to use a tweeted-out word, imbecile pricing strategy, is to put 
you out of business.
    So the barrier to putting you out of the business, 
obviously, Mr. Flanagan, the FDA plays a role in that. And let 
me tell you why I am concerned, because I hear from a number of 
stakeholders that they are afraid to even give me the details 
for fear of retribution from FDA, in terms of the potential 
approval process that we go through.
    And the reason why companies like this can compete is 
because there is no one to compete against them. They are small 
little drugs, orphan drugs. They are things that for the 
average company don't pay. For the big pharmaceutical company, 
it doesn't pay. But there are a thousand--I mean, to have $20 
million sales, $90-some million sales that was just testified, 
lots of companies that would be willing to take that on, 
smaller companies.
    So Dr. Woodcock gave her testimony. Did you agree with all 
of her testimony, Mr. Flanagan?
    Mr. Flanagan. Yes, sir.
    Mr. Meadows. Okay. So you agreed with her. She testified 
also in the Senate just a few days ago. Are you familiar with 
her testimony there?
    Mr. Flanagan. Yes, sir.
    Mr. Meadows. So I guess the question, with that Senate 
testimony, we are talking about all the progress we are making 
and how we are 90 percent, and we made great progress. But I 
look at her testimony, and it looks like you have only approved 
25 percent of the applications over a 3-year period. Do you 
call that a winning percentage?
    Mr. Flanagan. So right now, it usually ----
    Mr. Meadows. Yes or no, a winning percentage? Twenty-five 
percent over 3 years, is that a good track record?
    Mr. Flanagan. I can't answer the question yes or no. It 
usually takes, on average, four review cycles to approve a 
generic drug submission. So it is not that way for the brand 
side. On the brand side, there is about a 90 percent ----
    Mr. Meadows. I am talking about generics. So let's look at 
this. If you would put up the first slide for me, one of the 
concerns I have is with the ambiguity, and we have this 
particular letter, which actually is a letter from Dr. 
Woodcock. It says that, in terms of the application process, 
that with certain types, that they will go ahead and allow that 
application to be filled out with less than 12 months of 
stability data. It says, generally, we will allow it to happen 
with 6 months. And on ANDA drugs, we will actually allow the 
application process to be started with 3 months of stability. 
Would you agree with that?
    Mr. Flanagan. I'm actually not the expert on stability. 
That is out of the Office of Pharmaceutical ----
    Mr. Meadows. So you are an expert on ----
    Mr. Flanagan. It is a different office than me.
    Mr. Meadows. All right. I thought you were the technical 
expert, is what you just said a few minutes ago.
    Mr. Flanagan. Unhappily, just in my little space.
    Mr. Meadows. Okay. So would you agree that this is 
typically the way the FDA does business, that they give faster 
approval for generics in the application process?
    Mr. Flanagan. I don't think that our approval ----
    Mr. Meadows. Okay, let me cut to the chase. I have 1 minute 
left.
    Put up the other slide, which actually--go on to the case 2 
slide, if you would?
    Here is my concern. I have a number of stakeholders 
throughout North Carolina and across the country who are 
willing to compete with these two companies, and they are 
willing to provide the drug to compete with them. And they have 
been told by the FDA, ``Well, we have to get a little bit more 
information. We have to wait for 12 months of stability data,'' 
instead of going with their own internal data. If you look, it 
says a company initially submitted 3-month-long term, 
accelerated process for three batches.
    Can you do that consistently for all of these that want to 
compete with these kinds of companies?
    Mr. Flanagan. So I understand your question, it is the same 
issue. The stability issues are out of the Office of 
Pharmaceutical Quality, which is just a different office.
    Mr. Meadows. All right. So let me close with this, is there 
anything the FDA can do to make sure that we can speed up the 
process, so we can compete with companies who are willing to 
price gouge on a regular basis? Can you speed up your process, 
Mr. Flanagan?
    Mr. Flanagan. Mr. Chairman, can I answer? I don't know how 
the rules work.
    Chairman Chaffetz. Please, yes.
    Mr. Flanagan. So two things. First is if a submission comes 
in the door and it is for a product for which there isn't 
generic competition or for which there is a drug shortage, we 
consider those to be priorities, and we expedite their review, 
like a ----
    Mr. Meadows. Well, that is interesting, because I have a 
letter that basically is from Dr. Woodcock that would just that 
shortage is not part of your decision-making process. So you 
are saying her letter is wrong?
    Mr. Flanagan. Well, I would need to see the letter. We for 
sure consider drugs ----
    Mr. Meadows. We will follow up on a number of other 
questions. I am way beyond my time.
    Chairman Chaffetz. The gentleman's time is expired.
    We do expect votes on the floor soon, so we will now 
recognize the gentlewoman from New Mexico, Ms. Lujan Grisham, 
for 5 minutes.
    Ms. Lujan Grisham. Thank you, Mr. Chairman. I really 
appreciate you holding this hearing, and, quite frankly, I 
share my colleagues' outrage. I think outrage is actually too 
soft a word, given what we have heard today, what we knew 
before today, what we still don't know after today, about what 
is really going on to make sure that there is fair pricing, 
protected access from the patient's perspective to lifesaving 
drugs and treatments.
    I want to talk a little bit in my statement and get to my 
question about FDA approval and making sure that we do 
everything we can here to give the right opportunity so that we 
are focused on the right thing here, which are patients. That 
is the right thing to focus on here.
    But in all the emails that you have had members read to 
you--and I have the email of my own, if I have time, that I am 
going to read--that make it very clear, particularly from 
Turing, that FDA approval and that R&D, that none of those 
issues were issues that caused the price gouging that we are 
talking about today.
    So as we sort of figure out what we can do better, I am 
really interested in what we ought to be doing to make sure 
that there is real accountability into an entire industry that 
has made it their practice to put profits and not small 
profits, outrageous profits, before the patient.
    And, actually, Ms. Retzlaff, you, certainly, indicated that 
really it is not patients who pay. It is hospitals and 
insurance companies. There are a lot of people that don't love 
insurance companies and hospitals, so we will just shift, try 
to shift the focus.
    Where do you suppose the majority of their reimbursements 
come from, Ms. Retzlaff?
    Ms. Retzlaff. Again, as I said, there are so few patients 
treated with Daraprim, and only about--very few that are 
covered by commercial insurance. The overall ----
    Ms. Lujan Grisham. When you are dying ----
    Ms. Retzlaff. The overall impact is very, very small. And 
to our knowledge, no commercial insurers ----
    Ms. Lujan Grisham. I am going to interrupt you. So when 
3,000 people have their HIV/AIDS drugs shifted someplace else, 
and my copays go up, and my out-of-pocket costs go up, my 
hospital access goes up, and this country is under-bedded in 
the hospitals--and do you know who is paying them? Medicare and 
Medicaid and veterans and TRICARE. And guess who pays for 
those? I do. Every member in this audience does. Every member 
of this committee does.
    I cannot believe that your indication here is that the cost 
really, in terms of the number of people who are impacted, is 
so small that that is really not the issue. It is the issue.
    Let's talk about a couple other drugs. Let's talk about 
another company. Let's talk about Gilead. Let's talk about 
hepatitis C drugs, Sovaldi and Harvoni, which retail at $84,000 
and $94,000, respectively, for a 12-week course.
    So we can treat with this drug. We can cure hepatitis C. 
But because of profit, we are not going to cure it. Instead, we 
are going to create an environment where people are going to 
have to have liver transplants.
    So I see a pattern here that is incredibly frightening for 
the overall aspect of getting a handle on health care costs and 
clearly is a shift from protecting patients in this design.
    And it is not a result of R&D. We have many emails from 
your company that would indicate that directly.
    We just passed 21st Century Cures, which is another 
indication that Congress is very interested in making sure that 
innovation and research and development, and that the FDA 
approval without minimizing patient safety, is as streamlined 
as we can.
    And yet, that is not an indication, at least not as a 
result of this hearing, that that is really an issue about how 
we determine what drug costs are. Greed is how we determine 
what drug costs are.
    So here is my question. Given what you have stated today, 
and given the questions and emails that we have provided during 
this hearing about Turing, would you say that the practices at 
Turing are the same practices for all pharmaceutical companies? 
Or is this just really an issue for your company?
    Ms. Retzlaff. Turing Pharmaceuticals is a research-based 
pharmaceutical company that invests, is committed to developing 
and commercializing treatments for rare and neglected diseases. 
As I said in my testimony ----
    Ms. Lujan Grisham. So this is not the practice of everyone 
else. This is just your practice.
    Ms. Retzlaff. I cannot speak on behalf of other companies. 
But what I can tell you is that we are an ethical 
pharmaceutical company. As I said in my testimony, I was 
comfortable with the price increase of Daraprim provided the 
company was willing, and it was, to invest in ----
    Ms. Lujan Grisham. I am going to reclaim my ----
    Ms. Retzlaff.--generously in patient assistance programs--
if I may finish ----
    Ms. Lujan Grisham. This is how this works in this hearing. 
I get to reclaim my time.
    Ms. Retzlaff.--and research.
    Ms. Lujan Grisham. The issue is that I think it is clear 
today that that is not your intent or your motive. We have 
provided plenty of information here that would not just suggest 
but clearly identify the opposite of that.
    Ms. Retzlaff. I disagree with you ----
    Ms. Lujan Grisham. Mr. Chairman, thanks for exposing these 
issues.
    Ms. Retzlaff.--respectfully.
    Chairman Chaffetz. I now recognize the gentleman from 
Georgia, Mr. Hice, for 5 minutes.
    Mr. Hice. Thank you, Mr. Chairman.
    I want to go realquickly to you, Mr. Flanagan, regarding 
the generic backlog and what Mr. Meadows was talking about. Can 
you provide a little bit more clarity as to how the FDA is 
prioritizing applications to expedite the review process?
    Mr. Flanagan. Yes, sir. So there's a policy that's 
available online. You can find it on the Web site. Basically, 
certain categories of submissions, like first generics that 
could potentially open the market to competition, drugs that 
can mitigate shortage, PEPFAR or HIV drugs, and a couple other 
specific categories ----
    Mr. Hice. So it is based on the disease, the prioritizing, 
is that what you are saying?
    Mr. Flanagan. The PEPFAR ones are based on the disease. The 
shortage is just based on whether--kind of whether there's a 
shortage out there in providers. And first generics depends on 
whether the market has already been, you know, opened up to 
generics.
    Mr. Hice. So there is no real standard policy.
    Mr. Flanagan. There is a standard policy.
    Mr. Hice. All right. How long is four review cycles?
    Mr. Flanagan. It is hard to answer that question, because 
it depends on how long it takes the applicant to respond back 
to us.
    Mr. Hice. Okay. The targeted action dates, they are 
assigned, and yet they are aspirational, noncommittal. What is 
the point of having a targeted action date, if it basically 
means nothing?
    Mr. Flanagan. Well, industry very strongly requested them 
for the following reason. So we have this new user fee program. 
Beginning in year three of it, you get a goal date that tells 
you when we are going to act on your submission. But for 
everything prior to year three, there were no goal dates. 
Industry needed some kind of information so they could plan 
product launches and conduct other types of business planning, 
and they strongly requested that we disclose to them what are 
aspirational ----
    Mr. Hice. But is it true that these dates really are 
virtually meaningless, because there is no commitment there?
    Mr. Flanagan. No.
    Mr. Hice. All right. Well, according to what you said, they 
are aspirational. They are noncommittal. And it appears we have 
months and months and months, 15 months-plus before we ever get 
these prioritized and get something going, so the targeted 
action dates basically are meaningless.
    Mr. Flanagan. Well, again, Congressman, industry strongly 
requested that we do this ----
    Mr. Hice. We are all requesting something be done. That is 
the problem. You have these targeted dates, but the backlog is 
not getting any better. It is getting worse.
    Mr. Flanagan. No. The target action dates say when we are 
going to take action on each of the submissions in the backlog. 
It is a way of organizing the backlog and disclosing to all the 
companies who have submissions in there, here is when we think 
we are going to move on your submission.
    Mr. Hice. Okay, Mr. Chairman, I would like--I have other 
questions, but I would like to yield the remainder of my time 
to my colleague from Georgia, Mr. Carter.
    Mr. Carter. I thank the gentleman from Georgia.
    Ms. Retzlaff, when Turing bought Daraprim, was it a 
specialty medication then? No, it was not.
    Ms. Retzlaff. It depends on how you define a specialty 
medication.
    Mr. Carter. No. I define a specialty medication as one that 
is available only through specialty pharmacies. You said 
yourself that access to Daraprim was a problem when the price 
went up.
    Ms. Retzlaff. When we--when we ----
    Mr. Carter. I reclaim my time.
    When the price went up, it became distributed only through 
specialty pharmacies. I cannot, at my pharmacy ----
    Ms. Retzlaff. That is not true.
    Mr. Carter. It did. You created a specialty medication, and 
you did it intentionally, because you had a limited market of 
only 3,000 patients, and you knew you weren't going to be able 
to make a profit unless you went up on that drug, and it became 
a specialty medication. You abused the system, is what you did. 
A PBM owns a specialty pharmacy, and now you are using it only 
through specialty pharmacies.
    Ms. Retzlaff. May I correct ----
    Mr. Carter. Ms. Retzlaff, Mr. Schiller, let me tell you, I 
have been practicing pharmacy for many years. I have spent my 
adult life dispensing medications to help people get well. I 
find it repulsive what you have done.
    I have seen advances in medicine that have been amazing to 
me. Since I started practicing, we have had advances that are 
just amazing, and I have always been amazed at the 
pharmaceutical companies. And when you come in and you rape the 
public, and you give this a black eye, I find it repulsive.
    Mr. Chairman, I want to thank you and your staff for 
bringing this hearing here, and for all those involved. You 
have been most cooperative, and I thank you for this.
    Ms. Retzlaff. May I correct a statement?
    Chairman Chaffetz. Sure. Go ahead.
    Ms. Retzlaff. So when we purchased Daraprim, it was already 
in a closed distribution model, so we inherited that model from 
the previous manufacturer. And subsequent ----
    Mr. Carter. Then why did you say that access to Daraprim 
was a problem when the price went up? You said that yourself.
    Ms. Retzlaff. Access to Daraprim was a problem because of 
the distribution model that we inherited from the previous 
manufacturer. That is what I said. And subsequent to that, we 
have made--we have taken action. We have added ----
    Mr. Carter. You said, when the price went up, it became a 
problem.
    Ms. Retzlaff. I don't believe that price was the driver of 
the access problem.
    Mr. Carter. That is not what you said earlier.
    Mr. Chairman, earlier ----
    Chairman Chaffetz. I thank the gentleman.
    We will now recognize the gentlewoman from New Jersey, Ms. 
Watson Coleman.
    Ms. Watson Coleman. Thank you, Mr. Chairman.
    I think I want to follow up on Mr. Carter's line of 
questioning, because I think I don't quite understand now.
    Before you acquired the drug ----
    Ms. Retzlaff. Yes.
    Ms. Watson Coleman.--was there a problem with access to it?
    Ms. Retzlaff. Yes, there was.
    Ms. Watson Coleman. So your desire to acquire this drug, 
for which there was supposedly a problem with access, does that 
mean that those people who were suffering from--what is it?--
infections associated with HIV and AIDS did not have access to 
it the way they needed it?
    Ms. Retzlaff. So in June, that was 3 months before we 
acquired the asset, the previous manufacturer did what they--
they went to a specialty distribution model. They closed 
distribution.
    Ms. Watson Coleman. That was 3 months before you purchased 
it.
    Ms. Retzlaff. Three months before we purchased it. After --
--
    Ms. Watson Coleman. What was going on before those 3 
months? Was it still that closed distribution?
    Ms. Retzlaff. No, it wasn't. It was broader distribution.
    Ms. Watson Coleman. So was that as a result of perhaps 
conversations with your company in anticipation of your company 
buying the drug?
    Ms. Retzlaff. Absolutely not. Absolutely not.
    Ms. Watson Coleman. How are we to believe that?
    Ms. Retzlaff. Absolutely not. There is plenty of proof that 
arrangement with the specialty pharmacy originated, in fact, 
not with the previous manufacture but the manufacturer before 
that.
    Ms. Watson Coleman. Walgreens, which is the closed 
distribution, right?
    Ms. Retzlaff. Yes.
    Ms. Watson Coleman. Walgreens informed you all they were 
concerned about access, this drug's access to other patients, 
to other pharmacies, et cetera. Is that correct?
    Ms. Retzlaff. Yes.
    Ms. Watson Coleman. What did you all do in response to 
that?
    Ms. Retzlaff. So we have added a specialty distributor that 
addresses--that eliminates a lot of the red tape and 
distributes the product to roughly 90 percent of hospitals. We 
are in the process of adding additional specialty pharmacies to 
the network. We have worked with the different State ADAPs to 
make sure that all the processes are in place, so they can 
access Daraprim seamlessly. These are the most vulnerable 
patients, by the way, who are covered by ADAP.
    Ms. Watson Coleman. So once you acquired this drug and you 
increased the costs associated with this drug--which still 
eludes me why this was done other than to make somebody very, 
very, very wealthy--you all anticipated that there was going to 
be push back from human rights organizations, from advocacy 
organizations. So from what I have read, and I believe some of 
this is obviously from internal memos, it didn't seem that your 
company was at all concerned about ensuring that people who 
needed this drug could have access to it. It was about managing 
the message for your company.
    Ms. Retzlaff. No, that is not true. In fact, the actions--
the actions we took reflect differently. We put in place 
multiple patient access programs ----
    Ms. Watson Coleman. Yes. It seems that you all ----
    Ms. Retzlaff.--to ensure that they had access.
    Ms. Watson Coleman. Thank you very much. It seems to me 
that you all responded to a whole bunch of pressure. And you 
have your serious issues that you have to contend with now. 
Your company has a very bad physical, public image right now, 
if you care to know that.
    I come from a State, New Jersey. We have large 
pharmaceutical companies. We have large universities. We do a 
lot of R&D. And the people that engage in research and 
development, they are not trying to make somebody a 
billionaire. They are trying to cure people.
    That is not even the issue here, because you all weren't 
trying to do R&D. You were manipulating access to a medicine 
that already showed the benefits of treating a very dangerous 
disease.
    And with that, I yield my time back to you, sir.
    Chairman Chaffetz. Thank you.
    We now recognize the gentlewoman from Illinois, Ms. 
Duckworth, for 5 minutes.
    Ms. Duckworth. Thanks, Mr. Chairman.
    I want to thank both you and the ranking member for your 
collaborative efforts to raise this issue today.
    I want to start off by talking about a couple in my 
district. They are 73 and 74 years old, respectively, and they 
are stretched every single month to cover their expenses. The 
wife is diabetic, and she has a number of medical conditions, 
and for 2016, will probably lead to an out-of-pocket 
prescription price tag of around $4,600. Her husband's out-of-
pocket expenses for prescriptions are going to be about $1,900 
a year.
    Now, since they retired, they are seriously anxious about 
their finances, how they are going to continue to afford to pay 
for their health care. And get this, the wife feels endlessly 
guilty because her medications are the most expensive. And even 
with some coverage, they, together, face overwhelming pressure 
of having to manage the family's budget, which after medical 
expenses is only about $20,000 a year. This is to pay their 
home loan, property taxes, as well as food and utilities. This 
is a crisis that is far too common across the country.
    And when I hear about stories like this from my 
constituents in the Eighth Congressional District, and then I 
hear about $200,000 bonuses for executives at a pharmaceutical 
company that purposely shut down distribution of a lifesaving 
drug so that they could make that money, it disgusts me. It is 
absolutely disgusting.
    The Valeant and Turing witnesses who have testified today 
have used many different tactics to downplay the harmful 
effects of their price increases. They want to shift the blame, 
and they want to shift the attention and say that, ``Oh, the 
patient population is so small that the price increases don't 
affect the larger health care system. And individuals that pay 
on the more mainstream drugs, you're not being affected. It is 
just those 3,000 people, because there are only a few of them. 
And it is actually the large insurance companies, not 
individual patients, that bear this burden.''
    But let me tell you, every one of us pay those insurance 
companies. My entire office is in Obamacare. We pay those 
insurance companies.
    So this hearing has really shown that this is hardly the 
case.
    And, Ms. Retzlaff, isn't it true that Turing's price 
increase led to astronomically higher copays for many of your 
privately insured patients?
    Ms. Retzlaff. Yes, it did. But through our copay program, 
we capped them at $10.
    Ms. Duckworth. Really.
    Ms. Retzlaff. Yes, that's true.
    Ms. Duckworth. Well, you know, your internal memo 
identified that one patient had an insurance copay raised, up 
to a 50 percent increase, to $16,000. And others have copays 
ranging from $1,000 to $6,000.
    Ms. Retzlaff. Correct.
    Ms. Duckworth. Ms. Retzlaff, is it true that some doctors 
treating patients in hospital settings were forced to switch to 
secondary alternative therapies because they could not access 
Daraprim?
    Ms. Retzlaff. I suppose that's true, but in response to 
that, we have discounted Daraprim by 50 percent and introduced 
a smaller bottle to better meet their needs. That seems to have 
resolved the issue.
    Ms. Duckworth. Well, you know, doctors are saying that they 
had to switch, and it was not their preference for what they 
would treat their patients.
    Ms. Retzlaff. Again, in the hospital setting, we are 
offering discounts now so that Daraprim can be available for 
those patients.
    Ms. Duckworth. Can you confirm that before Turing owned 
Daraprim, it was widely available, covered by most insurance, 
and affordable, before you owned it?
    Ms. Retzlaff. Yes, it was covered by most insurance. I 
don't know what you mean by widely available.
    Ms. Duckworth. Okay.
    Mr. Schiller, isn't it true that your price increases and 
on Isuprel and Nitropress have cut into hospital budgets?
    Mr. Schiller. Yes, it, certainly, would have hit--cut into 
their budgets. The price increases were meant to stay 
underneath the reimbursements for the bundled rates, but it 
would've, certainly, hit their budgets.
    Ms. Duckworth. Yes, it absolutely did. In fact, at Johns 
Hopkins Hospital, their chief pharmacy officer in Baltimore 
said these expenses deplete important savings and result in 
less funding for research programs and technologies that 
improve care. This is Daniel Ashby. And he further says that 
the high cost threatens patient access to critical treatments 
and creates financial burdens on low- and middle-income 
patients.
    Mr. Schiller, these are only two of the many drugs your 
company owns and has increased the price on. Is that correct?
    Mr. Schiller. That is correct.
    Ms. Duckworth. How many other drugs have you increased the 
price of?
    Mr. Schiller. I don't know offhand.
    Ms. Duckworth. So you have so many that you don't even know 
how many other drugs you have jacked up the prices on, 
everyday, hardworking Americans who are suffering from 
diseases. I mean, that boggles the mind.
    You are coming to testify before Congress, and you don't 
even know how badly you have socked it to the American public.
    Mr. Schiller. We have 1,800 products around the world.
    Ms. Duckworth. Okay.
    Mr. Schiller. We, certainly, raised the price on some, and 
the number that you all have mentioned. We have acknowledge 
mistakes. We have also acknowledged that, going forward, we 
would no longer be looking for those opportunities to purchase 
these older drugs.
    When I took over at the beginning of this year, we froze 
all price increases.
    Ms. Duckworth. Have you returned the price increases back 
to where they before where you raised them? That is the 
important question.
    I yield back, Mr. Chairman.
    Chairman Chaffetz. The time is expired.
    There is a vote on the floor. The committee is going to go 
into recess with the intention of coming back no sooner than 
12:15.
    The committee stands in recess until that time.
    [Recess.]
    Chairman Chaffetz. The committee will come to order.
    We will resume now. Thank you for your patience and 
understanding. Votes happen, and I appreciate your 
understanding that.
    Dr. Woodcock has rejoined us. We appreciate you being here. 
We know you were testifying with us, testified in another 
hearing, and now you are back. I appreciate you toggling back 
and forth.
    In consultation with the minority, we are going to go ahead 
and start. We are now going to recognize the gentleman from 
Texas, Mr. Will Hurd, for 5 minutes.
    Mr. Hurd. Thank you, Mr. Chairman.
    My first question, Ms. Retzlaff, when you all made the 
decision to go from $13.50 to $750 a pill, who made that 
decision?
    Ms. Retzlaff. The final decision was made by the former 
CEO.
    Mr. Hurd. All by himself?
    Ms. Retzlaff. Yes, he made the final call.
    Mr. Hurd. There was no conversation? You didn't know in 
advance? You all found out after the fact? He made the decision 
and told you all?
    Ms. Retzlaff. No, there were, certainly, conversations 
about it.
    Mr. Hurd. Who was involved in those conversations?
    Ms. Retzlaff. The senior leadership team.
    Mr. Hurd. Which would be?
    Ms. Retzlaff. Myself, our president of R&D ----
    Mr. Hurd. And that person's name?
    Ms. Retzlaff. Dr. Eliseo Salinas.
    Mr. Hurd. Okay.
    Ms. Retzlaff. Our chief people officer, which would have 
been Peter Myall. Let's see, I'm not recalling all ----
    Mr. Hurd. Can you furnish us a list of the people who were 
involved in that conversation?
    Ms. Retzlaff. Yes, yes. I will, certainly, do that.
    Mr. Hurd. Because, to be frank, I don't think you should be 
the only one enjoying the fun up here answering these 
conversations.
    Did anyone raise their hand and say, ``Y'all, this may not 
be a good idea''?
    Ms. Retzlaff. So I think the conversations we had were 
around ensuring that if the price went up, that we would have 
the appropriate programs in place to ensure that no patients 
were left behind.
    Mr. Hurd. So nobody thought an increase of 5,000 percent 
was a bad idea?
    Ms. Retzlaff. And--and we provided that we had the 
mechanisms in place to ensure patients did not suffer from the 
price increase; and second, that we were absolutely committed 
to investing in R&D for next-generation toxoplasmosis 
treatment, which we are doing currently.
    Mr. Hurd. So help other people on the backs of those folks 
who had a 5,000 percent increase. Interesting.
    Mr. Schiller, my question for you, when you all made the 
decision to go from $215 to $1,356, a 525 percent increase, on 
the drug Isuprel, who made the decision?
    Mr. Schiller. Our neurology and other division, where these 
products sat, initially did the review.
    Mr. Hurd. The review of the price?
    Mr. Schiller. The review of the pricing, the market for 
that drug.
    Mr. Hurd. And who are those people? Give me some names.
    Mr. Schiller. Well, Steve Sembler is the gentleman who ran 
that division at that time.
    Mr. Hurd. So he made the decision by himself?
    Mr. Schiller. No, he brought--he organized a meeting for 
senior management, which Mike Pearson and myself were included 
in that meeting, where it was discussed and the price was 
decided.
    Mr. Hurd. Did anybody raise their hand and say, ``Y'all, an 
increase of 525 percent may not be a good idea''?
    Mr. Schiller. There is always discussions and dissent, but 
the bottom line is that the decision was made and ----
    Mr. Hurd. So was the decision made at an actual meeting? 
Was there everybody vote, all those in favor, say aye, opposed, 
nay?
    Mr. Schiller. It definitely was not a meeting where there 
was a vote. I can't recall how the final decision was made. But 
as I have mentioned, we acknowledge that it was too aggressive 
and ----
    Mr. Hurd. So can you send us a list by next week of all the 
people that were involved in making the decision?
    Mr. Schiller. I can try. If that list exists, I can get it 
to you.
    Mr. Hurd. Best effort.
    And, Ms. Retzlaff, again, in the next week, it would be 
great to have a list of people involved in that.
    Also, Mr. Schiller, for Nitropress, going from $257 to 
$800, a 212 percent increase, were the same individuals 
involved in making that decision?
    Mr. Schiller. It was the same meeting.
    Mr. Hurd. Excellent.
    I yield the balance of my time to the chairman.
    Chairman Chaffetz. Thank you.
    I actually would like now to recognize the gentleman from 
Alabama, Mr. Palmer, for 5 minutes.
    Mr. Palmer. Mr. Schiller, how large is Valeant's work 
force?
    Mr. Schiller. Twenty-two thousand people, plus or minus.
    Mr. Palmer. How many do you have engaged in R&D?
    Mr. Schiller. There are roughly 1,000 people.
    Mr. Palmer. How much do you spend on your own in-house R&D?
    Mr. Schiller. This year, we will spend in excess of $400 
million.
    Mr. Palmer. How many products are in Valeant's development 
pipeline?
    Mr. Schiller. We have over 200 active programs, 100 of 
which we would consider significant. And we expect and hope to 
get an approval for a novel glaucoma drug and a biologic for 
the treatment of moderate to severe psoriasis ----
    Mr. Palmer. I don't need a list. I just want to get an idea 
of how much you are investing in R&D versus what you are doing 
in terms of buying other branded drugs. There is some 
suggestion that you operate your models more along the lines of 
a hedge fund in that regard. How would you respond to that?
    Mr. Schiller. I would disagree with that characterization. 
We have, as I mentioned, 22,000 people. We operate in 100 
countries. We have 1,800 products. We have a vibrant R&D 
effort. We have 16 manufacturing facilities in the United 
States that we are investing heavily in. And we have launched 
76 products in the last 2 years, and invest heavily in patient 
assistance programs. So I think we are just like any other 
pharmaceutical company.
    Mr. Palmer. I want to raise some questions to Dr. Woodcock.
    Where there is no competition, prices are high. I think we 
all understand that. Do you agree that you have all these 
generic drugs in the pipeline, that if we can get those 4,000 
generic drugs into the marketplace, it would have an impact on 
pricing?
    Dr. Woodcock. Yes.
    Mr. Palmer. Well, let me ask you this. Does the FDA 
prioritize reviews for first generic drugs? There is an issue 
that the FDA blames sloppy applications for the current 
backlog. Have you considered compiling a preferred providers 
list of generics to try to move some of these drugs up and get 
them approved quicker?
    Dr. Woodcock. We fast track all first generics, so we give 
them special attention. We move them through. We recognize the 
consequences.
    In the last several years, a first generic, there might be 
14 applicants who would be the potential first generic. We 
don't know who is going to get over the finish line first, so 
we expedite that class of filings, that set of applications.
    Mr. Palmer. Well, 10 years ago, the median approval time 
for a generic drug was about 16 months. And now it is 42 
months. It is almost four times as long. Can you explain why 
that takes so long, if these are generic drugs are coming from 
a brand drug that has already been approved?
    Dr. Woodcock. Yes. As I said in my oral testimony, we were 
a victim of our own success. Eighty-eight percent of dispensed 
prescriptions are generics, so there are thousands of generics 
on the market, and they have been very successful.
    But the industry grew as a response to that, just like a 
factory that had a great product. And we got many, many more 
applications, but our resources against that workload did not 
grow and we built up a backlog. As a result, we were able to 
negotiate the user fee program with the industry to provide the 
resources to get it done.
    But we had that backlog. And that 42 months is a reaction 
to that, because we had 2,500 applications waiting when we 
started the user fee program, and that was 40 months ago. They 
are not going to get any younger when we approve them. They are 
at least 40 months.
    The new ones have a much shorter clock.
    Mr. Palmer. You are talking about the first generic drugs 
or the new applications?
    Dr. Woodcock. The new applications. The first generics in 
that 2,500 are very few, and we are expediting those.
    Mr. Palmer. Okay.
    Of the current backlog, can you tell me what percentage of 
those are first generics?
    Dr. Woodcock. Very, very, very--it depends on how you 
define the backlog. If you're talking about the 2,500 that were 
there when we started the user fee program, it is a very small 
percentage.
    Mr. Palmer. Well, you had 1,400 submissions in fiscal year 
2014, but only approved 409 of those, so you are adding to 
that.
    Dr. Woodcock. Under the agreement, that has a 15-month 
clock for getting back to the sponsor. So we are planning to 
meet those goals and get back to the sponsor and complete the 
review in 15 months. Now, because generics typically have 
multiple cycles of review, the time to approval may be longer.
    In my testimony, I think you see that in the prescription 
drug world, the new drug world, we are up to 95 percent last 
year, first cycle approval. But that took a lot of work and 
effort to get it right the first time. That is what we need. We 
need a ``right the first time'' application. Then starting in 
October, when we get those, we will approve them in 10 months.
    Mr. Palmer. And you expect to do that in what time frame? 
When do you expect to be at 10 months approval?
    Dr. Woodcock. The applications submitted October 1, 2016, 
and beyond, if they are right the first time, they will get 
approved in 10 months. If they are deficient, they will get an 
answer in 10 months to tell them what they have to do. We get 
some where we go out and we find that the bioequivalence data 
has been falsified or some of the manufacturing has been 
falsified. So we have to have time to make sure that these meet 
the standards for the U.S., because people are going to be 
forced to take these, if we approve them. They have to be 
right.
    Mr. Palmer. My time has expired, but I have one last quick 
question. Is the FDA catching up or falling further behind?
    Dr. Woodcock. We are definitely catching up. We are doing a 
great job.
    Mr. Palmer. My time has expired.
    Thank you, Mr. Chairman.
    Chairman Chaffetz. Thank you.
    I have some unanimous consent requests.
    The first one is a statement from Congressman Doug Collins 
of Georgia. Without objection, I will enter this into the 
record. So ordered.
    [The information follows:]
    Chairman Chaffetz. I also have Congressman Duncan who has a 
letter of December 15, 2015, that he had received from a Joy 
Macklin. I ask unanimous consent to enter that in the record.
    Without objection, so ordered.
    [The information follows:]
    Chairman Chaffetz. Congressman Blum also has a statement 
for the record.
    Without objection, we will enter his as well. So ordered on 
that.
    Chairman Chaffetz. I have a few questions as we start the 
second round here.
    Dr. Woodcock, again, thank you for joining us.
    Since the passage of the Generic Drug User Fee Act of 2012 
has passed, the intention here was to generate roughly $1.5 
billion. This is user fee money coming out.
    In the Office of Generics, the people working on this, tell 
me what has happened to the staffing level since 2012.
    Dr. Woodcock. Well, across the program, we have hired over 
1,000 people.
    Chairman Chaffetz. Working specifically on the approval 
process for generics?
    Dr. Woodcock. That is correct.
    Chairman Chaffetz. Okay, can you give us the very specific 
number. I would really like to see that line. Not right here in 
this hearing, as a follow-up. I just really want to be able to 
see that.
    Dr. Woodcock. I need to understand your question. I don't 
understand your question.
    Chairman Chaffetz. I want to see which offices they are 
actually working in and what they are doing, if you could break 
that down. I don't expect you to do it verbally of the top your 
head. What I am suggesting is, as a follow-up to this hearing, 
can you provide the committee that information?
    Dr. Woodcock. Yes.
    Chairman Chaffetz. Okay, perfect.
    I want to get into these priority review vouchers. These 
were intended to incentivize treatment for rare pediatric and 
tropical diseases. The vouchers were supposed to shorten the 
FDA review time by roughly 4 months. But companies have figured 
out how valuable these are. I think it demonstrates the 
frustration with the FDA and the timing.
    Recently, there was one voucher in August that was sold for 
$350 million. That means, roughly, they were willing to pay--
they thought it was a good business transaction to pay roughly 
$2 million a day just to get in line a little bit quicker. I am 
concerned that not everybody can buy their way to the front of 
the line. But this does demonstrate how backlogged and how 
problematic the demand is at the FDA.
    Does FDA have the necessary authority to prevent the 
alleged abuse of the PRV system? Do you think there is any 
abuse of the PRV system? Should they be sold the way they are 
being sold?
    Dr. Woodcock. Again, this is an economic issue. It was 
intended to incentivize development. These recent vouchers 
applied to products that were already being in development 
because it's early.
    Chairman Chaffetz. But they don't have to actually sell 
those drugs. They don't have to actually market those drugs. 
Correct?
    Dr. Woodcock. Correct. They need to be approved.
    Chairman Chaffetz. Again, so they could be used for a 
variety of different things. They don't necessarily--because if 
you develop one, you are going to get this priority review 
voucher, but you can use the priority review voucher for 
something other than that category, correct?
    Dr. Woodcock. Yes. And that is what has been done. And I do 
have to comment on what you said.
    The priority review vouchers are applied to novel drugs. 
They have nothing to do with the generic drug review process. 
That program is completely on time.
    And the reason people use priority review vouchers is to 
move in front of competitors and reach the marker faster than a 
competitor who may be developing a drug in the same space, 
because for a new drug, a novel drug, being first on the 
market--and I know nothing about this--but apparently, it must 
have a great deal of value.
    So it does not apply to generic drugs or the generic drug 
process.
    Chairman Chaffetz. But you can see how this could be 
manipulated. Do you see any evidence of manipulation here?
    Dr. Woodcock. I don't know--it depends on how you define 
manipulation.
    Chairman Chaffetz. Well, are they eating these up in order 
to get the voucher with no real intention of actually 
marketing, producing, or investing in the smaller drug?
    Dr. Woodcock. The companies that we have awarded vouchers 
to have fulfilled the requirements of the statute for being 
eligible to be awarded a priority review voucher.
    Chairman Chaffetz. The worry is that the statute is 
inadequate. It has provided the market a way that people can 
get in line sooner. They are willing to pay hundreds of 
millions of dollars in order to do so. We are concerned about 
spurring innovation and actual drug development.
    Dr. Woodcock. It was supposed to--the existence of the PRV 
was supposed to spur those developers of tropical diseases or 
rare pediatric diseases to enter that space because they would 
get this reward at the end for ----
    Chairman Chaffetz. I think that is one our questions. Are 
they actually spurring innovations? Should there be limitation 
on the resale of those vouchers?
    Again, when you have a difficult disease that affects such 
a small population, it is difficult--not everybody can just act 
altruistically. There has to be some degree of profit 
motivation.
    But this rise has gone from tens of millions dollars to 
hundreds of millions of dollars just to get that 4-month edge. 
When I see $350 million transactions for a 4-month edge, that 
catches a lot of people's attention.
    I am just asking the FDA if they see it fulfilling its 
original mission? And are you seeing any abuse?
    Dr. Woodcock. All right. Well, there are two sides to this. 
Is it stimulating development in rare pediatric diseases or 
tropical diseases? I think it is too early to say, because it 
takes a long time to develop one of these products.
    Chairman Chaffetz. So let me read a quote here real quick. 
I am sorry to cut you off, but I have gone past my time.
    John Jenkins, the director of FDA's Office of New Drugs, 
has publicly criticized the PRV program as diverting ``time and 
resources away from other important public health work, such as 
reviewing other applications for potentially much more serious 
conditions or drafting of guidance documents on issues related 
to drug development.''
    Is he, in your opinion, right or wrong?
    Dr. Woodcock. Yes, that is true. But we have to implement--
this program is established by Congress, and we will implement 
it.
    Chairman Chaffetz. Okay. I appreciate that.
    We are going to continue to have this discussion, because I 
do think it is not going to solve all problems, but it is an 
interesting thing.
    My basic concern here is Turing or Valeant or any other 
company has the right, I believe, to come in and enter the 
marketplace. But when you have a rapid rise in pricing, a 
dramatic rise in pricing, natural economics would suggest that 
that would create opportunity for others to come in and create 
more of a balance to the true market pricing, if there was 
competition. But if they can't get through the process with the 
FDA in order to enter the marketplace and compete with somebody 
who was rapidly rising the price of goods, then the market 
factors are out of balance.
    And I think it is incumbent upon us to accelerate the 
process, so that if somebody is taking advantage of price 
elasticity, the only way to make it more elastic is to provide 
some competition.
    What I don't want to do is have government controls or 
government price controlling, but it is difficult when you see 
patients who are suffering and they don't have access and they 
don't know how to go through the convoluted process. They look 
at that equation and say, you know, ``Do I buy food for my kids 
or do I just suffer myself?'' So that is why it is so 
pertinent.
    I have gone well beyond my time.
    We will now recognize Mr. DeSaulnier for 5 minutes.
    Sorry, I was thinking DesJarlais over here. We have a 
DesJarlais and a DeSaulnier, so I apologize.
    Mr. DeSaulnier. That is all right. As long as you said from 
California, I am fine.
    Chairman Chaffetz. The gentleman from California.
    Mr. DeSaulnier. Thank you, both to the chair and the 
ranking member, for having this hearing.
    I just want to say, just as an observer and as somebody who 
is not young, the history of this industry, I think it is 
fascinating. And, certainly, the gentleman to my left, given 
his professional experience, Mr. Carter understands this better 
than I do. But as an observer, 30, 40 years ago, people 
invested in pharmaceutical companies because it was a 
relatively low rate of return, but it was a different culture.
    I, certainly, don't think that the addition of more capital 
into this industry is necessarily a bad thing, and meeting with 
people in the public sector in my district in the Bay Area and 
the private sector, particularly at UCSF, and hearing all the 
amazing things we are on the verge of doing, whether it is 
cancer or cardiovascular disease, because of some of these 
investments, but also because of the public investment.
    But the concern I have is that although your companies and 
an individual are getting a lot of press in an extreme example, 
that in a transition of the pharmaceutical industry, although 
there has been benefit to increased capital into the 
marketplace, that this is more a symptom of an overall culture 
problem.
    And if I was a free marketeer, which to some degree I can 
be, you would be a symbol of what is wrong with my philosophy, 
because as Madison once said, if people were angels, there 
would be no need for government. And this is an example of, 
certainly, less than angelic behavior.
    So, Ms. Retzlaff, I would just ask you to sort of comment 
on, we have examples of the quotes. For instance, a Reuters 
headline, ``Pfizer hikes U.S. prices over 100 drugs''; the 
Washington Post, ``Prescription drug prices jumped more than 10 
percent in 2015"; from Bloomberg, ``Everyone is hiking drug 
prices,'' is a quote from your former CEO.
    So you have PR that the ranking member has talked about, 
that you have emails on. There are emails from your former CEO, 
who refused to speak on the record here.
    It is my impression that you are doing what companies to 
do, in terms of controlling what was a bad episode in your 
company. But it seems like you are on a track to maybe 
repeating the same mistake because of market pressures, but 
that is also indicative to the whole industry.
    So tell me that you have learned your lesson and that there 
is a place where shareholders can be satisfied, but that 
consumers can be fairly full of confidence that this isn't 
going to repeat itself. Because it, certainly, seems like, 
following some of the comments by the ranking member, that you 
may retire, but we are set up for failure again here again, 
that this is just a symptom of a larger problem.
    Ms. Retzlaff. Right, so you weren't here, but Turing is a 
research-based pharmaceutical company. We have 139 employees. 
Thirty-six are dedicated to research and development. The 
increased revenues from Daraprim, 60 percent of them, actually, 
are reinvested into research and development, which is critical 
for a pharma company, and I believe essential.
    And then we also invest very aggressively and generously in 
patient access programs. So our goal with patients is to ensure 
that they don't incur any incremental, out-of-pocket costs, 
because of our price increase.
    Another thing I will note is that almost two-thirds of 
patients who are on Daraprim benefit from government program 
pricing, which is one penny per pill. Those are your most 
vulnerable patient populations.
    What I will say is I am proud of the work that we are doing 
for toxoplasmosis. It is the second-leading cause of death in 
the United States due to foodborne illness. Seven hundred and 
fifty patients still die each year. Not all patients respond to 
Daraprim. Some of them don't tolerate it. Daraprim is not 
active on the--or doesn't behave on the parasite when it is in 
its dormant phase. You know, many people go blind ----
    Mr. DeSaulnier. Can I ask you to wrap up, because I don't 
want to use on my time?
    Ms. Retzlaff. Yes. So, you know, I don't believe my company 
has done anything wrong. I believe that the decisions we made 
struck the right balance between the need to ensure patient 
access, innovation, as well as shareholder value.
    Mr. DeSaulnier. I don't think you answered my question 
partially.
    So, Mr. Schiller, I will try with you.
    There are a lot of people in your industry that do practice 
what I would describe as responsible consumer practices, 
historically. Yours, I would not include in that group. But 
they have market pressures that, if you have a higher return on 
investment, because of these practices that would skirt what I 
think is in the best interest of the consumers, they are forced 
to come down to a level in the marketplace.
    So tell me how your company is never going to be in this 
situation again, absent, as best you can, from a public 
relations response. Personally, how are you going to look back 
and tell your grandkids that you were part of a solution?
    Mr. Schiller. So we grew very, very quickly. We did a lot 
of good things. We made a lot of mistakes.
    In the past, we have looked for situations with older 
drugs, where there wasn't generic competition, where we could 
increase revenue by increasing price. You should not expect 
that those are opportunities that we will be looking for in the 
future.
    We have taken aggressive steps in terms of our partnership 
with Walgreens where we are reducing our prices by 10 percent 
on average in two of our largest franchises, dermatology and 
ophthalmology prescription drugs.
    We went to a 30 percent volume-based discount structure on 
Isuprel and Nitropress.
    We significantly increased our patient assistance program.
    Going forward, as it has been in the past, our focus is 
going to be on developing our franchises around dermatology, 
gastrointestinal diseases, ophthalmology, women's health, and 
some of our other smaller franchises. We will continue to 
invest in R&D, and bring innovative products to the market, and 
continue to invest in expanding our manufacturing.
    Mr. DeSaulnier. Thank you.
    Thank you, Mr. Chairman.
    I appreciate those responses. I would say that although I 
understand why you respond that way, it does suggest to me that 
the cultural changes I think we need within your company, your 
industry, I hesitate to have confidence that you have actually 
learned the necessary lessons that I think you need to learn 
for the chairman's question about avoiding more government 
regulation.
    So with that, I will return to you.
    Chairman Chaffetz. Thank you. Thank you.
    We will now recognize the gentleman, again, from Georgia, 
Mr. Carter, for 5 minutes.
    Mr. Carter. Thank you, Mr. Chairman.
    I would like to follow up on a couple questions from 
colleagues earlier.
    Dr. Woodcock, you weren't here, but one of my colleagues, 
Representative Meadows from North Carolina, was asking about 
the process of drug approval in the FDA. And I would like to 
ask you something, or like for you to clarify something.
    It is my understanding that FDA can expedite a new drug 
application, abbreviate a new drug application, to help with 
the drug shortage problems, if there is such a thing. But I 
understand, right now, that you are putting more emphasis on 
the approval and the quality standards, which we all applaud. 
But you can, in fact, approve a drug if, indeed, there is a 
drug shortage there, and that has been done before. There has 
been precedent with that.
    Now, let me ask you, you could address an issue of drug 
shortage with compounding, could you not? Yes or no?
    Dr. Woodcock. We wouldn't overtly do that but the 
compounders could potentially may offer ----
    Mr. Carter. Dr. Woodcock, you ----
    Dr. Woodcock. Yes.
    Mr. Carter. You control the list of ingredients that they 
are allowed to compound, correct?
    Dr. Woodcock. Yes.
    Mr. Carter. So you could add one to that, if there was a 
drug shortage. In fact, you have done that before in the past. 
You set precedent with that, correct?
    Dr. Woodcock. I don't know about ----
    Mr. Carter. If you will, in 2012, the FDA waived its 
authority of an enforcement action against a compounded version 
of a hormone cream--yes, I see your staff nodding here--that is 
prescribed to lower the risk to women of premature birth, when 
the approved version became too expensive.
    This could have helped us in this situation. This could 
have helped the American public in this situation.
    Dr. Woodcock. The situation you refer to was enforcement 
discretion. Usually when a new drug is approved, then other 
versions are not supposed to be marketed and ----
    Mr. Carter. But through compounding, we could have 
addressed this issue of the drug shortage because of a 
significant price increase. And that has been done before. 
There is precedent there.
    Dr. Woodcock, just one other thing, through the omnibus 
that was recently passed by Congress, we instituted a rule on 
office use compounding. I know that there was language in the 
bill that directed the FDA to issue guidance on that. Can you 
give me an idea, are you still working on that? Do you have any 
idea when that will be?
    Dr. Woodcock. We are working on a set of guidances to 
implement the recent statutory changes, and I would hope that 
they would come out within this year in draft.
    Mr. Carter. Okay, thank you for that.
    Another question that was asked by one of my colleagues 
from New Mexico, Ms. Retzlaff--and in fact, she just repeated 
again. She asked you a question, and you stated that Turing is 
a research pharmaceutical company.
    How many drugs has Turing taken from research to 
development? How many drugs have you--microphone.
    Ms. Retzlaff. We have 13 products in development right now. 
We are a new company. We are ----
    Mr. Carter. You are new company, so have had none, but you 
are calling yourself a research pharmaceutical company. I think 
it is a stretch to even call you a pharmaceutical company, 
because I think it is a shell of a company.
    And I will tell you that when a company that calls 
themselves a research pharmaceutical company only puts in 5 
percent of their profits back into research and development, I 
think that that proves the point that they are, indeed, not 
one.
    And I know what you have said, that no, 60 percent. Yes, 
when things went south, you increased it to 60 percent, to 
increase your public relations. But before that, it was only 5 
percent. So I beg to differ with you on that.
    Now, you said that your drug Daraprim was being distributed 
through specialty pharmacies. Any of those special pharmacies 
owned by PBMs?
    Ms. Retzlaff. I think Walgreens.
    Mr. Carter. The answer is yes.
    Ms. Retzlaff. Yes.
    Mr. Carter. Yes, they are, which brings us to the PBM 
problem, which is a great problem that we have in our country, 
particularly in the medical field.
    Mr. Merritt, I want to ask you, over the past week or so, 
there has been much in the press about a problem between one of 
the largest health insurers and one of the largest PBMs in our 
country, that they cannot reach negotiations. They are trying 
to negotiate. They cannot reach a deal in a $3 billion 
settlement.
    If that is the case with one of the largest PBMs and one of 
the largest insurance companies, how do you expect a small 
pharmacy, a small, independent pharmacy, to stand a chance 
against a giant PBM when one of the largest insurance companies 
in the world can't even negotiate with you?
    Mr. Merritt. Well, on that particular issue, that is a 
dispute, a contract dispute, between two companies. But I do 
know that pharmacies, independent pharmacies ----
    Mr. Carter. Can you imagine a contract dispute between a 
company that is one of the smallest in the United States and 
one of the giant PBMs?
    Mr. Merritt. That is true, but drugstores, independent 
drugstores, typically work with PSAOs that are a part of giant 
companies, and they negotiate with PBMs on behalf of 
independent drugstores.
    Mr. Carter. Mr. Merritt, I am really concerned about the 
current marketplace, because I believe it creates perverse 
incentives for PBMs to shut out independent pharmacies at the 
expense of the American public.
    And I say that because, as competition decreases, price is 
going to increase. That is what we are finding now. That is one 
of the worst things about the Affordable Care Act. Look at how 
many health insurance companies we have left. Only three or 
four. That is what is going to lead us to destroy what I 
believe is the greatest health care system in the world.
    Now, Mr. Merritt, I know that you are not specifically the 
problem. I know that you represent an association. But I can 
tell you, we have to have transparency in the PBM world.
    Now, Representative Collins just introduced a letter for 
the record, and I can tell you he has a bill that deals with 
transparency.
    Mr. Chairman, I hope that this is something that we will 
continue to deal with in this committee. It is vitally 
important that we do.
    And, again, Mr. Chairman, I want to thank you, the ranking 
member, and all your staff, for this hearing today.
    Chairman Chaffetz. I thank the gentleman.
    We will now recognize the ranking member.
    Mr. Cummings. Thank you, Mr. Chairman.
    I want the witnesses to know that I fully support Mr. 
Carter in his efforts, because I have a lot of people in my 
district that are very, very concerned about that issue.
    And, Mr. Carter, I plan to join you in your efforts, 
because you are absolutely right.
    Not going on, Mr. Schiller, I have been interested in 
Isuprel and Nitropress since Marathon Pharmaceuticals, the 
company that owned these drugs before you, dramatically 
increased their prices by roughly 400 percent each.
    The Johns Hopkins Hospital--by the way, which is smack dab 
in the middle of my district, 5 minutes from where I live--
their hospital budget was significantly impacted by Marathon's 
price increases. That is why I wrote a letter to Marathon 
asking about the drugs in October 2014.
    Then in February 2015, your company came along and jacked 
up the prices of these critical medicines even more, 525 
percent and 212 percent. Your price increase stretched the 
Hopkins pharmacy budget even further.
    You have testified today that Valeant is offering a 30 
percent discount to some hospitals that use these products.
    From what we have heard, it is unclear whether hospitals 
are actually able to access this discount. But even if they 
are, a 30 percent discount on a 500 percent price increase 
hardly makes a dent.
    You are a businessman, Mr. Schiller. Does that sound like a 
good deal to you?
    Mr. Schiller. What we try to do is address the issue from a 
portfolio point of view.
    Mr. Cummings. Do you realize how much that hurts Hopkins? I 
don't know whether you heard the testimony, the questions of 
Mr. Cartwright a little bit earlier. These hospitals are 
suffering big time. And that means for some of them, they are 
not like Johns Hopkins, one of the best in the world. But they 
are suffering big.
    My father, who only had a third grade education, a former 
sharecropper, used to say, and I didn't understand it then, but 
I understand it now. He said, ``Somebody is going to pay. 
Somebody has got to pay.'' And hospitals are paying big time.
    Now going back to you, Ms. Retzlaff, I am very concerned 
about the documents the committee has obtained showing that 
your company was more concerned about managing the PR backlash 
of your price increase then ensuring patients had access to 
Daraprim.
    An internal Turing presentation--and again, these are not 
my documents; these are your documents--from 2015, stated, and 
I quote--listen to this; this is incredible to me. ``HIV 
patient advocacy may react to price increase. ...HIV community 
is highly organized, sensitive, and action-oriented.''
    ``Significant price increases that disproportionately 
affect this community could result in backlash from patient 
advocacy groups, particularly if payers increase cost sharing 
with patients.''
    I am concerned about this because in the district that I 
live in, the ZIP Code has one of the worst HIV situations in 
the world--in the world. And so that is why you are going to 
hear me talk about this. It would be legislative malpractice 
for me not to.
    It appears Turing was aware this price increase was going 
to adversely affect the HIV/AIDS community, yet the company 
still chose to increase the price by 5,000 percent.
    You can sit here now until forever and tell me about all 
your little discounts, $1, and all this. You are raising the 
price, all right?
    So, Ms. Retzlaff, did anyone at Turing stop and think about 
the effect this price increase would have on such a vulnerable 
population, beyond the anticipated bad PR?
    Ms. Retzlaff. Yes, we did, and we took action on it. So 
that is why, again, and it's important, that we participate in 
Medicaid 340B. We offer Daraprim to the most vulnerable 
patients at one penny per pill.
    Mr. Cummings. You were worried about the AIDS community, 
weren't you?
    Ms. Retzlaff. Absolutely.
    Mr. Cummings. Oh, yes. You were really worried. You were 
worried about the PR, not the patients, the PR.
    Ms. Retzlaff. We were worried that there would be 
misinformation in the public domain, and that is exactly what 
happened.
    So our efforts from a PR perspective were intended to 
correct the misinformation and make sure that patients 
understood that we have these programs in place that they could 
access Daraprim at a very affordable price.
    Mr. Cummings. Well, one thing, there was a memo from 
October 12, 2015, and this should give advocacy groups like the 
Human Rights Campaign--I am sure it is going to invigorate them 
to continue to fight for the people that they represent. But 
this is a quote, it says, the Human Rights Campaign ``has been 
vocal and in the media about the pricing issue and is 
potentially the most vocal organization able to garner media 
coverage. While their motivation is primarily political given 
their actions we feel it would be important to get a meeting 
with CEO Chad Griffin in an attempt to slow their aggressive 
stance and work with them to better understand the company.''
    So you thought it was political that they were trying to 
make sure that people suffering from AIDS get the proper 
medication that they need. So it is a political problem?
    Ms. Retzlaff. No. We thought we needed to engage all 
important stakeholders to make sure they were aware that the 
most vulnerable patients suffering from toxoplasmosis, over 
two-thirds of Daraprim's use, can access that product at a 
penny per pill.
    Mr. Cummings. Now, Mr. Schiller, I just have a--I just have 
a few more questions, Mr. Chairman. I know you are trying to 
close this down.
    It has been reported that in 2014 Valeant led the industry 
in price hikes, raising prices on 62--so you acted like it was 
just a few drugs you raised prices on--62 of its drugs by an 
average of 50 percent. In 2015, Valeant continued that pattern 
with the highest average increase in the industry, 65 percent 
across 50 drugs.
    According to CMS data compiled by CQ Roll Call, five of the 
10 brand name drugs that had the largest price increases 
between April 2013 and July 2015 are Valeant drugs. Of those 
five drugs, two increased by more than 500 percent. One 
increased by over 600 percent, and one by 800 percent. And one 
skyrocketed over 1,000 percent in just 15 months.
    One drug, in particular, Glumetza, a drug used to treat 
patients with type 2 diabetes, increased by a whopping 800 
percent over a mere 6-week period.
    Is that true, Mr. Schiller?
    Mr. Schiller. I'm not familiar with all those numbers, but 
directionally, that is true.
    Mr. Cummings. The massive price jump was so preposterous 
that it caused pharmacy benefit manager Express Scripts to 
announce on January 29, 2016, that it intended to remove 
Glumetza from its formulary.
    And this is what they said. They said, ``To protect clients 
and patients from wasteful, unnecessary drug spending, Express 
Scripts will exclude Glumetza from our 2016 national preferred 
formulary pending FDA approval of a generic equivalent.''
    I asked you a little bit earlier--and you danced around it 
very nicely, you did a great dance--what were you going to do--
you admitted under oath that you all had gone too far.
    I am asking you, are you going to tell the public, which is 
watching this, by the way, what you are going to do further. 
You talked about what you have done. What are you going to do, 
because as far as I am concerned, we still have problems?
    Mr. Schiller. First of all, you are right. We made some 
mistakes. I acknowledge ----
    Mr. Cummings. You said that before. I got that.
    Mr. Schiller. I knowledge that.
    We have frozen all price increases other than for our 
gastrointestinal drugs this year, and it's been ----
    Mr. Cummings. Whoa, whoa, whoa. How long will that price 
freeze last? Until what? The end of the year?
    Mr. Schiller. I can't commit. I mean, we raised it at the 
board level, and at the board level, we decided to freeze any 
price increases that had been proposed for 2016.
    We also rolled out our Walgreens program where we took a 10 
percent average price discount off of ophthalmology and 
dermatology drugs. The 30 percent volume discount on Isuprel 
and Nitropress has been rolled out. And any of the significant 
users of that will be availing themselves of the 30 percent 
price increase--price decrease.
    Going forward, we are not going to be looking for those 
opportunities, such as Isuprel and Nitropress. Our focus is 
going to be on our core franchises, as it always has been, 
around dermatology, ophthalmology, gastro, women's health, 
consumer health care. And that is where our focus is going to 
be, on our pipeline, on our manufacturing, and delivering 
innovative drugs.
    We have to do a better job of getting the balance right, 
between being shareholder-friendly, being a good corporate 
citizen, and being a good partner in the health care system. 
And we will work very hard to get that balance right.
    Mr. Cummings. Take you very much, Mr. Chairman. I really 
appreciate--Mr. Chairman, I have to say this. I really cannot 
tell you how much I appreciate this hearing.
    Chairman Chaffetz. Thank you.
    Mr. Cummings. Thank you.
    Chairman Chaffetz. We now recognize the gentlewoman from 
New York, Ms. Maloney.
    Ms. Maloney. Thank you. I join the ranking member in 
thanking you for this hearing. It is an important one.
    Mr. Schiller, how much compensation have you received since 
joining Valeant, including salary, bonuses, stock-based 
compensation? Is it more than $20 million, including your 
current stock holdings?
    Mr. Schiller. It is.
    Ms. Maloney. So basically, how much is it?
    Mr. Schiller. I have not added it up. In 2014, it was $27 
million. I am incredibly fortunate and well compensated.
    Ms. Maloney. Well, if you could get it back to us in 
writing, we would appreciate it.
    Mr. Schiller. We will do so.
    Ms. Maloney. Now, throughout this hearing, everyone is 
citing consultants as the cover, I would say, of increasing 
prices. Would you please identify those consultants, Mr. 
Schiller?
    Mr. Schiller. First of all, while we mentioned consultants, 
we do not want to cast blame on anyone. We accept 
responsibility for our own actions. The consultants we referred 
to for Nitropress and Isuprel I believe was a firm called MME.
    Ms. Maloney. Could you get back to us in writing the 
consultants that you used in all of these price hikes in your 
business?
    Also, Ms. Retzlaff, what consultants did you use for these 
price hikes?
    Ms. Retzlaff. We didn't use any consultants.
    Ms. Maloney. Okay. I was stunned by the internal documents 
that actually the majority secured. In particular, an exchange 
with Mr. Pearson, where he shows in three different graphs that 
the increase in earnings for your company, Mr. Schiller, was 
almost completely and totally price increases. And I refer to 
the Q15. He cites everything except the U.S. grew a total of 
$26 million. So these other firms overseas didn't grow your 
growth, according to his graph. The remaining $305 million in 
growth came totally from the United States.
    He goes on further. He says, out of this, he says, $61 
million of that growth came from volume, where as the remaining 
$244 million of growth came from price increases.
    My question is, how do you justify these price increases, 
particularly on drugs that are the sole source of treatment, 
there is no other manufacturer? How do you justify these price 
increases? And did you ever think about the impact on patients, 
on hospitals, on other providers, on the government, on the 
taxpayers?
    You say, very blithely, that this is going to be covered by 
health care or Medicaid or Medicare or whatever. That comes 
from the American taxpayer. And the copayments, many people 
tell me their copayments have gone to thousands of dollars, 
which they cannot afford.
    How do you justify that? How does your company justify 
that?
    Mr. Schiller. When we have decided on prices for drugs in 
the past, we have taken in a number of factors, including 
clinical value, alternative therapies, and patient access, 
which is obviously critical.
    Ms. Maloney. May I add that in our memos that we got from 
you, that patient access was decreased after these price 
increases, that major hospitals, like Mass General in Boston, a 
major hospital, couldn't even get access to these drugs. They 
weren't covered by any other form. People could not get 
treatment.
    Mr. Schiller. I am not aware that people weren't able to 
get access to Isuprel and Nitropress, if that is what you're 
referring to.
    Ms. Maloney. I will send you the memos that we read. I 
started reading them last night, and I couldn't go to sleep.
    I tell you, I don't even think this is a hearing. This is a 
scandal, an absolute abuse of power, abuse of the 
pharmaceutical industry. And it is a scandal.
    I would like the permission to put into the record 
additional questions in writing for you to answer for us, both 
of you.
    And I yield back the balance of my time.
    Chairman Chaffetz. Thank you.
    As we wrap up here, Mr. Schiller, tell me again the factors 
that you take into consideration when pricing a drug.
    Mr. Schiller. It is a number of factors, including clinical 
value, alternative therapies, patient access, and, obviously, 
it is quite subjective. In some of these situations that we 
have talked about, we have clearly gotten it wrong.
    Chairman Chaffetz. Anything else? I'm just trying to make a 
little checklist. Anything else on that list?
    Mr. Schiller. That ----
    Chairman Chaffetz. Ms. Retzlaff--I'm sorry if I'm not 
pronouncing your name properly--but what considerations does 
Turing take in place when considering the pricing of the drug?
    Ms. Retzlaff. So, I think, first, you take into account the 
value of the medicine, or the clinical value of the medicine. 
We took into--we take into account the size of the patient 
population, other products in the category, the need to invest 
in innovation, the assessment of whether or not there are 
mandatory rebates and things like that associated with the 
product. And then I think I mentioned innovation, and the need 
to fund patient access programs.
    Chairman Chaffetz. Can I just tell you candidly--again, I 
am a conservative guy.
    Ms. Retzlaff. Yes.
    Chairman Chaffetz. I want people to make a profit. But you 
know why I feel like you are both lying to us? You didn't write 
in there--you didn't say profit. And if you don't include that 
as a factor in how you price a drug, you are lying. You are not 
telling the full and complete truth.
    You can tell me about access and all the other things, but 
profit is a motivator. I happen to not think it is an evil 
thing, but I think you are purposely avoiding it. I don't think 
you are telling the full and complete truth.
    We want people to make money. You can't be in business and 
not make money.
    Ms. Retzlaff. May I make a comment?
    Chairman Chaffetz. Sure.
    Ms. Retzlaff. Of course, we expect to make a profit.
    Chairman Chaffetz. Then when you price a drug, is that part 
of the consideration?
    Ms. Retzlaff. It is part of the ----
    Chairman Chaffetz. Then why didn't you list it out?
    Ms. Retzlaff. Again, we expect to make a profit. I think 
what is critical, and I did mention it in the form of the need 
for innovation, because in a research-based pharmaceutical 
company ----
    Chairman Chaffetz. And I don't believe you.
    Ms. Retzlaff.--we reinvest that into research.
    Chairman Chaffetz. That is not the history of Turing. You 
have ----
    Ms. Retzlaff. Turing is a brand-new company.
    Chairman Chaffetz. Exactly. And it is a better model to 
understand, because Valeant has literally over 1,000 different 
items. They have a long history here.
    Ms. Retzlaff. Right.
    Chairman Chaffetz. And we can be fairly critical of certain 
things, but when you have a drug that is acquired that has been 
on the market since I believe 1953 or so ----
    Ms. Retzlaff. Something like that.
    Chairman Chaffetz.--then you start to understand what 
happened here.
    And, again, when it gets abused and it goes too far and you 
are taking advantage of and you lie to the public, you go on 
television--and I am not saying you personally, but I am saying 
that the person who owns the plurality of the company here 
lies, it appears as if you are cheating the American people.
    And I think you are both being disingenuous and incomplete 
in your answer, and I want you to reconsider in the future. 
Profit is, of course, a motivator. It is, of course, part of 
your calculation. You don't have CFOs that sit in there and 
don't calculate out the profit line. You don't go out and rent 
yachts and fireworks and all that kind of stuff unless you are 
able to jack up the price.
    And what I am worried about is you are out there marketing 
a drug that is now $750 and you are telling me, ``Oh, well, the 
majority of the people, they can just discount that down to a 
dollar.'' Who is paying the 750 bucks? Suckers. And you know 
the suckers are? The American public, because we all pay our 
insurance premiums, we do the right things, we go to the 
hospitals, we pay our bills, and your--your--extravagance is 
something we all have to pay for.
    Ms. Retzlaff. It's pennies.
    Chairman Chaffetz. Pennies.
    Ms. Retzlaff. Pennies.
    Chairman Chaffetz. Pennies.
    Ms. Retzlaff. It's pennies, and I actually think ----
    Chairman Chaffetz. And that is why it makes us sick.
    Ms. Retzlaff. And I actually think ----
    Chairman Chaffetz. Don't tell me that it is pennies, 
because you are right, you have a drug that affects less than 
3,000 people out of 330 million people. But you multiply what 
you are doing out over the long course of everybody else, and 
you are taking advantage of the system.
    And that is why, again, the pressure comes back to the 
government and the FDA to increase the competition, so that 
there is a proper balance here. You can find the right amount 
of profit, not have Congress dictate or set up price controls. 
And that is why we will continue to do this.
    This has been a very fruitful and enlightening hearing. I 
appreciate it.
    Did the ranking member want to--yes?
    Mr. Cummings. A few questions.
    Ms. Retzlaff, you have a research department?
    Ms. Retzlaff. A research department?
    Mr. Cummings. Yes. You said you are spending all this money 
on research.
    Ms. Retzlaff. Yes, yes. We have an R&D department.
    Mr. Cummings. All right--no, no, no. Research.
    Ms. Retzlaff. Research.
    Mr. Cummings. Okay, I am going to get to development in a 
minute.
    Ms. Retzlaff. Yes.
    Mr. Cummings. Research. How many people, how many 
scientists do you have in the research department?
    Ms. Retzlaff. We have 36 people in our research department 
of the 139 employees.
    Mr. Cummings. You have 36 ----
    Ms. Retzlaff. Thirty-six ----
    Mr. Cummings. Whoa, whoa, whoa. You have 36 scientist 
types?
    Ms. Retzlaff. Thirty-six people in research and 
development. Generally having a science background is a 
requirement to work in R&D.
    Mr. Cummings. So you have 36 science-type folk doing 
research.
    Ms. Retzlaff. Yes, we do.
    Mr. Cummings. So of the money that you are spending on R&D, 
how much of that, what percentage of that is development? 
Again, we have separated it. I am putting development to the 
side and putting research over here.
    Ms. Retzlaff. Yes. I don't know--I don't know if I have 
that exact number, but I think I can go back to our president 
of R&D and get you that information.
    Mr. Cummings. How soon can I get that?
    Ms. Retzlaff. As soon as possible. I can call him when we 
are finished here.
    Mr. Cummings. All right, we will get it by--Mr. Schiller, 
just one question for you.
    Do you all ever meet with the hospital associations, 
because there are a lot of hospitals, probably almost every 
hospital in this country, that need those drugs that we were 
talking about, that you have gone up on so much, that are 
suffering. Do you all meet with hospitals?
    It probably affects everybody. I know it affects Hopkins. 
So you know if it affects Hopkins, it is affecting a lot of 
other hospitals. Do you meet with them? Do you at all?
    Mr. Schiller. We--I have not personally. The head of the 
division where those drugs sit has reached out to all the major 
users of Nitropress and Isuprel, and had discussions. We have 
also reached agreement with the large group purchasing 
organizations that buy for the hospitals to make sure that 
those who need the discount are getting the discount.
    Mr. Cummings. When you say those who need the discount, you 
mean to tell me that there are some people who come up and say, 
``Hey, we can spend those millions extra. It is no big problem. 
We don't need the discount.'' Is that what you are trying to 
tell me?
    Mr. Schiller. No. That was a poor choice of words.
    Mr. Cummings. Well, why don't you tell me what you mean?
    Mr. Schiller. We wanted to make sure that the heavy users 
of Isuprel and Nitropress did not have a big burden from the 
price increase. That is why we tiered it toward heavy volume 
users, so the largest users will get a 30 percent discount. 
Lighter users would get a smaller discount.
    Mr. Cummings. Well, if you have a hospital that is a small 
hospital but needs those drugs desperately, then they don't get 
as much of a discount. Maybe some small town in South Carolina 
or wherever, as opposed to a Hopkins, right?
    Mr. Schiller. They--we ----
    Mr. Cummings. So in other words, it might hurt them even 
more.
    Hopkins is a big, international hospital, and they are 
complaining big time. So they would qualify, I guess, for the 
big hospital discount, right? Come on, man.
    Mr. Schiller. I don't know off--I would assume so, but I 
can't tell you specifically.
    Mr. Cummings. So my point is that you know--and then I am 
finished with this, Mr. Chairman.
    But Mr. Cartwright I think made some good points about 
these hospitals. Our community hospitals, hospitals doing the 
best they can with what they have, and this is all cutting into 
their bottom line.
    But the chairman is absolutely right. You know, I 
absolutely have no problem with folk making money. But when it 
gets to a point where basically it is about greed, so that--
what did you make? $26 million? What was it, 26, Mr. Schiller?
    Mr. Schiller. It was 27.
    Mr. Cummings. And what about you, Ms. Retzlaff?
    Ms. Retzlaff. I'm sorry?
    Mr. Cummings. How much money do you make? That is what I 
asked you.
    Ms. Retzlaff. I'm with a private company. I don't know that 
I have to disclose that.
    Mr. Cummings. Okay. All right. Well, I am sure you are 
making a nice sum.
    Ms. Retzlaff. Not as much as Mr. Schiller.
    Mr. Cummings. Yes, I am sure.
    Well, guess what, the people in my district are making like 
$30,000 a year, $40,000 a year. Probably the money that you 
spend in a day or a week, they make in a year. Yet and still 
they have to get drugs to stay alive.
    So are you in contact with Mr. Shkreli?
    Ms. Retzlaff. On occasion, yes.
    Mr. Cummings. Okay.
    Again, I want to thank you all for being here. Bye-bye.
    Chairman Chaffetz. Thank you. It has been very 
illuminating.
    The committee stands adjourned. Thank you.
    [Whereupon, at 1:22 p.m., the committee was adjourned.]


                                APPENDIX

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