[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


            ANTITRUST CONCERNS AND THE FDA APPROVAL PROCESS

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                           REGULATORY REFORM,
                      COMMERCIAL AND ANTITRUST LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 27, 2017

                               __________

                           Serial No. 115-27

                               __________

         Printed for the use of the Committee on the Judiciary
         
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                          COMMITTEE MEMBERSHIP
                     One Hundred Fifteenth Congress
                       
                       COMMITTEE ON THE JUDICIARY

 BOB GOODLATTE, Virginia, Chairman

JOHN CONYERS, Jr., Michigan          F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York             Wisconsin
ZOE LOFGREN, California              LAMAR SMITH, Texas
SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
STEVE COHEN, Tennessee               DARRELL E. ISSA, California
HENRY C. ``HANK'' JOHNSON, Jr., GeorgiaEVE KING, Iowa
THEODORE E. DEUTCH, Florida          TRENT FRANKS, Arizona
LUIS V. GUTIERREZ, Illinois          LOUIE GOHMERT, Texas
KAREN BASS, California               JIM JORDAN, Ohio
CEDRIC L. RICHMOND, Louisiana        TED POE, Texas
HAKEEM S. JEFFRIES, New York         JASON CHAFFETZ, Utah
DAVID CICILLINE, Rhode Island        TOM MARINO, Pennsylvania
ERIC SWALWELL, California            TREY GOWDY, South Carolina
TED LIEU, California                 RAUL LABRADOR, Idaho
JAMIE RASKIN, Maryland               BLAKE FARENTHOLD, Texas
PRAMILA JAYAPAL, Washington          DOUG COLLINS, Georgia
BRAD SCHNEIDER, Illinois             RON DeSANTIS, Florida
                                     KEN BUCK, Colorado
                                     JOHN RATCLIFFE, Texas
                                     MARTHA ROBY, Alabama
                                     MATT GAETZ, Florida
                                     MIKE JOHNSON, Louisiana
                                     ANDY BIGGS, Arizona

 Shelley Husband, Chief of Staff 
        and General Counsel
  Perry Apelbaum, Minority Staff 
    Director and Chief Counsel

    Subcommittee on Regulatory Reform, Commercial and Antitrust Law

TOM MARINO, Pennsylvania, Chairman
  BLAKE FARENTHOLD, Texas, Vice-
             Chairman

DAVID CICILLINE, Rhode Island        DARRELL E. ISSA, California
HENRY C. ``HANK'' JOHNSON, Jr., GeorgiaUG COLLINS, Georgia
ERIC SWALWELL, California            KEN BUCK, Colorado
PRAMILA JAYAPAL, Washington          JOHN RATCLIFFE, Texas
BRAD SCHNEIDER, Illinois             MATT GAETZ, Florida
                           
                           C O N T E N T S

                              ----------                              

                             JULY 27, 2017

                           OPENING STATEMENTS

                                                                   Page
The Honorable Bob Goodlatte, Virginia, Chairman, Committee on the 
  Judiciary......................................................     5
The Honorable John Conyers, Jr., Michigan, Ranking Member, 
  Committee on the Judiciary.....................................     4
The Honorable Tom Marino, Pennsylvania, Chairman, Subcommittee on 
  Regulatory Reform, Commercial and Antitrust Law, Committee on 
  the Judiciary..................................................     1
The Honorable David Cicilline, Rhode Island, Ranking Member, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust 
  Law, Committee on the Judiciary................................     3

                               WITNESSES

Hon. Scott Gottlieb, M.D., Commissioner, Food & Drug 
  Administration
  Oral Statement.................................................     8
Mr. Markus H. Meier, Acting Director, Bureau of Competition and 
  Assistant Director, Health Care Division, Federal Trade 
  Commission
  Oral Statement.................................................    10
Prof. David S. Olson, Esq., Associate Professor of Law, Boston 
  College Law School
  Oral Statement.................................................    27
Prof. Erika Lietzan, Esq., Associate Professor of Law, University 
  of Missouri School of Law
  Oral Statement.................................................    29
Mr. Alden Abbott, Esq., Deputy Director and Senior Legal Fellow, 
  The Heritage Foundation
  Oral Statement.................................................    31
Prof. Aaron S. Kesselheim, M.D., M.P.H., Associate Professor of 
  Medicine, Harvard Medical School
  Oral Statement.................................................    32

              ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Responses to Questions for the Record from the Hon. Scott Gottlieb, 
    M.D., Commissioner, Food & Drug Administration
Statement and letters submitted by the Honorable Tom Marino, 
    Pennsylvania, Chairman, Subcommittee on Regulatory Reform, 
    Commercial and Antitrust Law, Committee on the Judiciary. This 
    material is available at the Committee and can be accessed on the 
    Committee Repository at:

    https://docs.house.gov/meetings/JU/JU05/20170727/106333/HHRG-115-
JU05-20170727-SD002.pdf

Article submitted by the Honorable David Cicilline, Rhode Island, 
    Ranking Member, Subcommittee on Regulatory Reform, Commercial and 
    Antitrust Law, Committee on the Judiciary. These materials are 
    available at the Committee and can be accessed on the Committee 
    Repository at:

    https://docs.house.gov/meetings/JU/JU05/20170727/106333/HHRG-115-
JU05-20170727-SD003.pdf

Statement submitted by the Honorable Bob Goodlatte, Virginia, Chairman, 
    Committee on the Judiciary. These materials are available at the 
    Committee and can be accessed on the Committee Repository at:

    https://docs.house.gov/meetings/JU/JU05/20170727/106333/HHRG-115-
JU05-20170727-SD005.pdf

 
            ANTITRUST CONCERNS AND THE FDA APPROVAL PROCESS

                              ----------                              


                        THURSDAY, JULY 27, 2017

                        House of Representatives

                   Subcommittee on Regulatory Reform

                      Commercial and Antitrust Law

                       Committee on the Judiciary

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 1:00 p.m., in 
room 2141, Rayburn House Office Building, Hon. Tom Marino 
(Chairman of the Subcommittee) presiding.
    Present: Representatives Marino, Goodlatte, Gaetz, 
Cicilline, Conyers, Johnson, Swalwell, and Schneider.
    Staff Present: Ryan Dattilo, Counsel; Andrea Woodard, 
Clerk; and Slade Bond, Minority Counsel.
    Mr. Marino. Good morning. The Subcommittee on Regulatory 
Reform, Commercial and Antitrust Law will come to order.
    We are going to vote in anywhere from 20 to 30 minutes. I 
may be speaking a little faster than I normally do because I 
would like to get our opening statements in and our 
distinguished witnesses' opening statements in.
    So let's begin.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    We welcome everyone to today's hearing on antitrust 
concerns and the FDA approval process. And I now recognize 
myself for an opening statement.
    The Committee has a robust history of examining competition 
in the healthcare marketplace to ensure patients receive the 
highest quality treatment at the lowest cost. In the past few 
years, the Subcommittee has held four hearings in this area, 
covering the topics of market consolidation, the impact of the 
Patient Protection and Affordable Care Act on competition, 
opioid addiction, and trends in pharmacy benefit management. We 
continue that tradition today, focusing on the pharmaceutical 
industry and antitrust concerns surrounding the FDA drug 
approval process.
    Competition in the pharmaceutical market involves a 
delicate balance. On one hand, we want to encourage 
pharmaceutical manufacturers to invest in needed, but often 
expensive research and development in order to bring innovative 
and life-saving drugs to the market. On the other hand, we want 
to encourage sufficient competition to ensure that there is an 
appropriate check on consumer prices.
    Innovation is one of the hallmarks of our pharmaceutical 
industry and should be celebrated. However, there have been 
allegations that some companies may be abusing their roles as 
innovators to engage in the manipulation of regulations to 
preclude generic manufacturers from bringing competing products 
to the market. Such conduct is anticompetitive and should be 
put to a stop.
    Since its enactment, the Hatch-Waxman Act has provided 
opportunities for manufacturers to make lower-cost generic 
versions of previously approved drugs available to the people 
of the United States in a timely manner, thereby lowering 
overall prescription drug costs for patients and taxpayers by 
billions of dollars each year.
    An essential piece of this framework is the ability of 
generic drug manufacturers to obtain sufficient samples of 
branded drugs to conduct the testing necessary to support an 
application for FDA approval of the drugs' generic version. 
Concerns have been raised that generic manufacturers have been 
prevented from obtaining such samples, in some instances based 
on the position that the drugs in question are subject to a 
risk evaluation and mitigation strategy with elements to assure 
safe use under Section 505-1, the Federal Food, Drug, and 
Cosmetic Act. This is more commonly referred to as the REMS 
program.
    While the enforcement of existing antitrust laws could 
address the refusal by some branded manufacturers to provide 
samples to a generic drug manufacturer, a more tailored legal 
pathway would help to ensure timely resolution of disputes over 
sample testing, provide clear guidelines, and facilitate 
healthy competition in the marketplace, benefiting all 
consumers.
    For these reasons, Ranking Member Cicilline and I 
introduced the Creating and Restoring Equal Access to 
Equivalent Samples, more commonly known as the CREATES Act. 
This legislation will deter pharmaceutical companies from 
manipulating sample availability to block cheaper generic 
alternatives from entering the marketplace.
    The CREATES Act will lead to lower costs for patients by 
ensuring that they have access to safe and effective FDA-
approved generic medicines. It will also ensure consumer safety 
by maintaining safeguard features of the REMS program while 
closing regulatory loopholes that are used to keep prices 
artificially high.
    The Congressional Budget Office has estimated that the bill 
would result in a $3.3 billion--that's with a B--billion dollar 
net decrease in the Federal deficit. Savings to consumers and 
private insurers likely would be far greater.
    I look forward to hearing our witnesses' views on the 
CREATES Act as well as on other areas of the FDA approval 
process which may be subject to anticompetitive measures.
    And just to get a piece of work out of the way, if there 
are no objections, I would like to enter into the record that I 
have several letters in support of the CREATES Act and our 
efforts with this hearing.
    So without objection, I would like to enter this, and I'll 
read off who sent us letters and statements: FreedomWorks, 
America's Health Insurance Plans, West-Ward Pharmaceuticals, 
International Center for Law and Economics, Coalition to Reduce 
Spending, the Academy of Managed Care Pharmacy, Association for 
Accessible Medicines, the American Society of Health-System 
Pharmacists, Pharmaceutical Care Management Association, 
Consumers Union, Premier Healthcare Alliance, Campaign for 
Sustainable Rx Pricing, Blue Cross Blue Shield, CVS Health, and 
Express Scripts.
    This Material is available at the Committee or on the 
Committee Repository at:

        https://docs.house.gov/meetings/JU/JU05/20170727/
106333/HHRG-115-JU05-20170727-SD002.pdf
    The Chair now recognizes the Ranking Member of the 
Subcommittee on Regulatory Reform, Commercial and Antitrust 
Law, Mr. Cicilline of Rhode Island, for his opening statement.
    Mr. Cicilline. Thank you, Mr. Chairman, for your leadership 
and for holding today's hearing.
    Every year hardworking Americans pay too much for 
prescription drugs. The cost of prescription drugs has 
increased by over 200 percent over the past decade. These 
soaring prices are life threatening. Kaiser Health reports that 
a quarter of Americans cannot afford their prescription 
medicines, while many are skipping or reducing their dosages.
    This heartbreaking epidemic is particularly harmful for the 
hundreds of thousands of cancer patients who are forced to skip 
or delay their treatments because of the immense financial 
burden of prescription cancer drugs, which can cost more than 
$159,000 a year. Leading oncologists report that these 
skyrocketing costs are causing deaths and harming patients on a 
daily basis.
    And beyond the human toll of this epidemic, spiking drug 
prices have a direct impact on Federal spending because most 
cancer patients are older than 65 and are enrolled in Medicare. 
And there is no upper limit on out-of-pocket costs for these 
patients, so they can pay as much as $57,000 in lifetime 
expenses, or about 11 percent of their income, even if they're 
insured.
    We must find lasting policy solutions to save lives by 
lowering the cost of prescription drugs. Earlier this week 
Democrats announced A Better Deal for Americans to stop 
outrageous prescription drug price increases.
    The American people deserve a government that is in their 
corner fighting for them to take on drug profiteering and price 
hikes. And that's why I'm extremely proud of my work with 
Chairman Marino and our introduction of H.R. 2122, the CREATES 
Act, a targeted solution to reduce drugs prices by increasing 
generic competition.
    The Federal Trade Commission reports that generic drugs can 
reduce the price of branded drugs by more than 85 percent, 
while the presence of just one generic competitor can decrease 
prescription drug prices by 20 to 30 percent.
    But over the past decade some branded drug companies have 
abused safety protocols at the Food and Drug Administration in 
order to keep affordable drugs out of the market at the expense 
of hardworking Americans.
    Congress never intended these safety programs, called risk 
evaluation and mitigation strategies, to allow a branded drug 
company to block or delay generic competitors from receiving 
FDA approval and enter the market.
    And yet, some drug companies have exploited these safety 
programs to delay generic competition, if only by days and 
months, to prolong high drug prices.
    That's because months of delay could be worth hundreds of 
millions of dollars in additional monopoly revenues as the 
generic sits on the sideline, as Professor Robin Feldman has 
noted.
    While this abusive behavior often violates the antitrust 
laws, as the Federal Trade Commission will testify today, these 
cases are often two-timing to provide effective relief. The 
CREATES Act addresses these delay tactics by creating a 
tailored path for generic drug manufacturers to obtain the 
samples that are necessary to bring low cost drugs to market.
    The Congressional Budget Office estimates, as the Chairman 
has said, that the bill would result in a $3.3 billion net 
decrease in the Federal deficit, while the estimate of the 
total cost of this delay for consumers is $5.4 billion.
    This bill is supported by numerous physicians, hospitals, 
health insurers, and patient groups, along with public interest 
organizations, such as Consumer Union and Public Citizen. CVS 
Health, which is located in my district strongly supports this 
bill because, ``it is vitally important in end practices that 
delay competition and ultimately lead to higher drug prices.''
    I again thank the Chairman for calling today's hearing, 
along with our esteemed witnesses for their appearances here 
today. And I look forward to working with my colleagues to 
ensure an end to profiteering and price gouging by prescription 
drug companies.
    And with that, I yield back.
    Mr. Marino. Thank you, David.
    The Chair now recognizes the Ranking Member of the full 
Judiciary Committee, Congressman Conyers of Michigan, for his 
opening statement.
    Mr. Conyers. Thank you, Chairman Marino.
    What we're doing today is examining the process for the 
Food and Drug Administration's method of approval for branded 
and generic drugs and its effect on competition and drug 
prices. And it sure is timely.
    Just this past month, my colleagues in the House, Leader 
Pelosi and Senator Schumer, Mr. Cicilline, and others, have 
released an excellent white paper called ``A Better Deal: 
Lowering Prescription Drug Costs.'' And it calls for rewriting 
rules to stop prescription drug price increases, lowering drug 
prices for Medicare, and requiring drug manufacturers to 
publicly release data justifying any significant price 
increases.
    I support the idea of making prescription drugs affordable 
and accessible for all Americans, for everybody. Additionally, 
the ability of lower-priced generic drugs to compete against 
branded drugs is a pretty important consideration that I hope 
we will get into this afternoon.
    With this overarching goal in mind, I'd like our 
distinguished witnesses present to consider the following: What 
extent to which the Food and Drug Administration's use of risk 
evaluation and mitigation strategies make it harder for lower-
price generic drugs to enter the market in competition with, of 
course, the branded drugs.
    These regulatory requirements are an important safeguard to 
ensure that drugs with potentially dangerous characteristics 
and side effects are safely and carefully distributed. The 
process, however, may also serve to stifle competition and keep 
drug prices high, artificially high at that.
    For instance, these requirements may make it difficult for 
generic drug manufacturers to obtain samples in order to 
conduct the bioequivalence testing necessary to gain regulatory 
approval of a lower-priced generic equivalent to a branded 
drug. Indeed, some have alleged that branded drug companies 
deliberately cite these restrictions as a way of refusing to 
provide such samples to potential generic competitors.
    In addition, we should of course remain vigilant about pay-
for-delay schemes, whereby branded drug manufacturers pay 
generic manufacturers to delay the entry of a version of 
branded drugs as the patent on the branded drug expires.
    These arrangements are cause for some concern--and in some 
areas a lot of concern--because the Supreme Court has already 
held in Federal Trade Commission v. Actavis they may violate 
the antitrust laws. They may contravene longstanding Federal 
policy encouraging the rapid entry of generic drugs into the 
marketplace in order to dramatically reduce drug prices.
    So to what extent should we be concerned about potential 
abuse of the citizen petition process at the Food and Drug 
Administration? That agency allows any concerned citizen to 
solicit changes to agency regulations and other administrative 
actions. While in principle this is admirably democratic 
procedure, branded drug manufacturers may manipulate it to 
stifle entry of generic drug competition, for example, by 
challenging generic drug approvals using this process.
    Because the agency must review every citizen petition it 
receives, generic drug manufacturers allege that branded 
manufacturers use the petition process to stop or delay agency 
approval of competing generic drugs with multiple and 
unwarranted petitions. And despite amendments made in 2007 to 
address such potential abuse, the agency reports that it 
remains concerned that many nonmeritorious citizen petitions 
are being filed primarily to delay the entry of generic drugs 
into the marketplace.
    Wouldn't it be nice if we could solve this this afternoon, 
at this hearing?
    I thank Chairman Marino and my Ranking Member Cicilline for 
their work on this important matter. And a word of welcome to 
our witnesses being here today. Thank you so much, Mr. 
Chairman.
    Mr. Marino. Thank you, John.
    The Chair now recognizes the Chairman of the full Judiciary 
Committee, Congressman Goodlatte of Virginia, for his opening 
statement.
    Chairman Goodlatte. Thank you very much, Mr. Chairman.
    And welcome to our witnesses.
    The United States has been and continues to be a champion 
of free and open markets. An open marketplace cultivates 
competition among sellers and is the very foundation of 
maintaining lower prices, higher quality, both in products and 
services, and superior innovation.
    The antitrust laws established in this country serve a 
valuable role in promoting competition, and the Judiciary 
Committee routinely exercises its oversight authority to ensure 
that these laws are applied in a manner that is transparent, 
fair, predictable, and reasonably stable over time.
    One area of essential antitrust oversight is the healthcare 
industry. Healthcare and its related markets have long been 
subject to extensive antitrust scrutiny and have been a focal 
point of the Committee for the past several years.
    This hearing marks the fifth in our series focused on 
competition in the healthcare marketplace and continues the 
Committee's history of vigilant oversight into this important 
industry that touches nearly every American.
    Today the Committee turns its attention to antitrust 
concerns surrounding the Food and Drug Administration drug 
approval process and its impacts on competition between branded 
and generic drug manufacturers. As with approval processes for 
any industry subject to government regulations, the drug 
approval process can provide a fertile environment to secure 
and abuse market power.
    Although Congress has passed laws aimed at facilitating 
competition from lower-priced generic drug manufacturers, while 
maintaining incentives for branded drug manufacturers to invest 
in developing new and innovative drugs, the Hatch-Waxman Act 
and the surrounding regulatory environment create unique issues 
that are only present in the pharmaceutical marketplace.
    For example, a generic drug manufacturer must rely on its 
competitor's product in order to test bioequivalence so that 
FDA approval may be sought.
    One of the most common antitrust concerns in pharmaceutical 
conduct cases occurs when companies engage in activity aimed at 
delaying the entry of generic drugs, thus leading to higher 
prices for consumers.
    Of particular concern today is the potential abuse of 
certain Food and Drug Administration approval processes 
intended to ensure safety. Although the FDA has no authority to 
regulate the cost of a drug, certain FDA policies and practices 
have substantial ramifications throughout the drug pricing 
market.
    Today, the United States has the largest pharmaceutical 
market in the world, accounting for roughly 40 percent of the 
global market. U.S. firms conduct the majority of the world's 
pharmaceutical research and development and currently hold the 
intellectual property rights pertaining to most new medicines.
    While it is imperative that the U.S. continue to remain the 
world leader and innovator in the pharmaceutical market, it is 
important that these antitrust concerns be given significant 
deliberation. The benefits from such leadership and innovation 
are undermined if our consumers unfairly bear the brunt of 
anticompetitive conduct through above-market prices.
    I look forward to hearing the witnesses' views on these 
issues and whether our existing antitrust laws are equipped to 
address these antitrust concerns in the FDA approval process.
    I'd like to again thank Chairman Marino for holding today's 
hearing. And today's testimony will help the Committee gain a 
better understanding of the seriousness of these issues and how 
they might be addressed.
    Thank you, Mr. Chairman.
    Mr. Marino. Thank you, Bob.
    Without objection, other members' opening statements will 
be made part of the record. We'll begin by swearing in our 
witnesses before introducing them.
    Would you please stand and raise your right arm?
    Do you swear or affirm that the testimony you are about the 
give before this Committee is the truth, the whole truth, and 
nothing but the truth, so help you God?
    Please be seated.
    Let the record reflect that the witnesses have responded in 
the affirmative.
    Dr. Scott Gottlieb was sworn in as the 23rd Commissioner of 
Food and Drug on May 11, 2017. Mr. Gottlieb is a physician, 
medical policy expert, and public health advocate who 
previously served as the FDA's Deputy Commissioner for Medical 
and Scientific Affairs, and before that, as a senior adviser to 
the FDA Commissioner. Mr. Gottlieb has also served as a senior 
policy adviser at the Centers for Medicare and Medicaid 
Services.
    Mr. Gottlieb was previously a resident fellow at the 
American Enterprise Institute and a clinical assistant 
professor at the New York University School of Medicine in 
Manhattan where he also practiced medicine as a physician.
    Having authored over 300 articles appearing in leading 
medical journals and other well-respected periodicals, Mr. 
Gottlieb's career has included working as a staff writer for 
the British Medical Journal, serving as a senior editor to the 
Pulse, Journal of the American Medical Association, and serving 
on multiple editorial boards, including Food and Drug Law 
Institute's Policy Forum, Value-Based Cancer Care, and Cancer 
Commons. He is also a member of the Leukemia and Lymphoma 
Society, the Public Policy Committee of the Society of 
Hospitalist Medicine, and a member of the board for Keystone 
Center.
    Mr. Gottlieb received his BA in economics from the Wesleyan 
University and his MD from Mount Sinai School of Medicine in 
New York University, where he completed his residency in 
internal medicine.
    Welcome, Doctor.
    Mr. Meier is the Assistant Director in charge of the 
Federal Trade Commission's Healthcare Division in Washington, 
D.C. He leads an office of 35 lawyers--that's got to be a tough 
job--and other professionals who investigate and litigate 
alleged violations of antitrust law by pharmaceutical 
companies, physicians, and other healthcare providers.
    Since November 2015, Mr. Meier has also been serving as the 
Acting Deputy Director, and more recently as the Acting 
Director of the FTC's Bureau of Competition, where he oversees 
more than 280 lawyers and other professionals investigating and 
litigating merger and nonmerger cases.
    Mr. Meier joined the FTC in 1990 and became head of the 
Healthcare Division in 2006. In addition to his work at the 
FTC, Mr. Meier has worked in private practice, where he focused 
on antitrust litigation and represented clients before the FTC 
and the Department of Justice. He has served as a Special 
Assistant United States Attorney--we have a little fraternity 
going here now--prosecuting criminal cases in the Eastern 
District of Virginia.
    He was also a resident adviser to the Indonesian 
Competition Commission in Jakarta in 2001. Before joining the 
FTC, Mr. Meier served as an officer in the United States Army.
    Thank you for your service.
    He is a graduate of the George Mason School of Law, has a 
master's degree in public administration from Old Dominion 
University and a bachelor's degree from the University of 
Virginia.
    Welcome, sir.
    Each of the witnesses' written statements will be entered 
into the record in its entirety. I will ask that each of you 
summarize your testimony in 5 minutes or less.
    And to help you with that, you have some lights in front of 
you. The light will switch from green to yellow when you have a 
minute left, and then when it switches to red, the time's out. 
I've been in your position and I don't pay attention to the 
lights. So what I'm going to do is very politely and 
diplomatically pick up the gavel and hopefully that will give 
you an incentive to wrap up.
    Dr. Gottlieb, the floor is yours.

  TESTIMONY OF MR. SCOTT GOTTLIEB, M.D., COMMISSIONER, FOOD & 
DRUG ADMINISTRATION; AND MR. MARKUS H. MEIER, ACTING DIRECTOR, 
    BUREAU OF COMPETITION, ASSISTANT DIRECTOR, HEALTH CARE 
               DIVISION, FEDERAL TRADE COMMISSION

                  TESTIMONY OF SCOTT GOTTLIEB

    Dr. Gottlieb. Thanks a lot, Mr. Chairman and Ranking 
Member. Thank you for the opportunity to testimony before the 
Committee. My name is Scott Gottlieb. I'm a physician and 
Commissioner of the Food and Drug Administration.
    At FDA we've undertaken a broad initiative to promote 
prescription drug competition with the aim of lowering drug 
costs to consumers. FDA doesn't oversee any aspect of drug 
pricing as part of our regulatory mandate, but our policies can 
have a significant impact on the cost of medicines, and 
ensuring American patients have access to affordable medicines 
is a top priority for FDA and for the administration.
    In particular, our policies related to generic drugs can 
promote competition, which lowers drug costs. Similarly, our 
regulatory policies related to the clinical development of new 
drugs ultimately impact the cost of these endeavors. Our 
requirements and their impact on the risks and costs of new 
drug development can affect the way that entrepreneurs price 
their finished products in order to justify their investments.
    In each case, we're closely examining the impacts of our 
policies. We want to strike the right balance between access 
and innovation while we hold steadfast to our core consumer 
protection mandate to make sure the drugs we approve are safe 
and effective.
    Today, I'd like to briefly review with your policies we're 
considering and steps we're taking to promote generic drug 
competition.
    First, we're improving the efficiency of the generic review 
and approval process to help new generic drugs reach consumers 
more quickly, but without sacrificing the assurance of safety 
and effectiveness.
    Historically, the average generic drug application 
undergoes four cycles of review by FDA. Through new policies 
we're implementing, we believe we can sharply reduce this 
number and reduce total development times.
    Our average total time to approval for legacy applications 
has averaged 42 months. We're significantly bringing down that 
time. Beginning this October, if we get a high quality 
submission, we'll be able to review and approve it in 8 to 10 
months, depending on the type of application, and I'll report 
on our progress the following fall.
    A second major part of our efforts is to improve our 
policies and scientific approach to the approval of generic 
competitors to complex or difficult-to-duplicate brand name 
drugs.
    Collectively, this represents a sizable category of 
medicines that in many cases could be subject to generic 
competition, but are not. We're looking at how to change that, 
such as developing clear principles for approving generic 
versions of these products and issuing those principles well in 
advance of the time of the first patent expiry.
    The third part of our plan relates most directly to the 
topics we're here to discuss today. I want to make sure that 
companies aren't gaming our own rules to extend their 
monopolies on brand drugs and maintain their monopoly pricing 
by forestalling competition that Congress intended for when it 
crafted the Hatch-Waxman amendment.
    One example of this relates to risk management programs 
we've put in place in order to assure the safe use of drugs but 
where brand manufacturers have then denied generic drug 
manufacturers access, even at fair market value and despite 
assurances from FDA, to the doses they need in order to run the 
bioequivalent studies required for applications.
    This is clearly not what Congress intended. While at least 
some of these restrictions on access may fall outside our 
direct purview, we're exploring potential measures we could 
take, including actions we might take in concert with our 
colleagues at CMS and the FTC, to prevent this sort of 
activity.
    We're also looking at steps we can take to reduce the 
potential for brand companies to block generic entry by 
extending the negotiations they're obligated to have over the 
application of a single shared REMS program.
    These are cases where they have a REMS program in place to 
help manage the safe use of a product and the generic entrant 
is seeking to share the REMS program with the brand sponsor.
    Here is the bottom line, in my view. We have a market-based 
system for pricing medicines that functions in part as a way to 
make sure entrepreneurs have appropriate rewards for their risk 
taking. This system has unlocked unprecedented drug innovation 
that's saving lives and quite literally curing disease.
    But we need to balance access with innovation. We need to 
make sure that when the patent and exclusivity periods have 
lapsed, the point at which Congress intended for vigorous 
competition to be possible, consumers are able to benefit from 
the savings that come from generic drug entry and the choice it 
enables.
    That's our goal, to do all that we can to make sure markets 
are efficient and close loopholes that are letting a handful of 
market participants game the rules in ways that hurt consumers.
    Thank you, Mr. Chairman.
    Hon. Gottlieb's written statement is available at the 
Committee or on the Committee Repository at:

    https://docs.house.gov/meetings/JU/JU05/20170727/106333/
HHRG-115-JU05-Wstate-GottliebS-20170727.pdf
    Mr. Marino. Thank you, Doctor.
    Attorney Meier.

                   TESTIMONY OF MARKUS MEIER

    Mr. Meier. Chairman Marino, Ranking Member Cicilline, and 
members of the Subcommittee, thank you for the opportunity to 
address the hearing today. It's a very important subject. And 
I'm pleased to testify about one of the FTC's top priorities: 
stopping anticompetitive conduct in the pharmaceutical 
industry. Such conduct harms American consumers through higher 
drug prices.
    I'm also pleased to be here sitting next to FDA 
Commissioner Dr. Gottlieb. The FTC and the FDA have had a long 
history of working closely together on these issues and many 
others as well, and the FTC looks forward to continuing to 
build on our relationship with the FDA in the months and years 
to come.
    Unlike the FDA, however, the FTC is not a sector regulator. 
Instead, we are primarily a law enforcement agency, and the 
laws we're charged with enforcing are intended to promote 
competition for the benefit of consumers, and they apply across 
wide ranges of industries in the United States, not just the 
pharmaceutical industry.
    The way we do our job is we do it by challenging three 
broad categories of business practices known to harm 
competition. First, we challenge agreements among competitors 
that unreasonably restrain trade. Second, we challenge acts of 
monopolization. And third, we challenge mergers that may 
substantially lessen competition. The FTC has a long history of 
applying these laws in the pharmaceutical industry.
    With respect to the three topics of today's hearing, the 
FTC has brought cases and filed amicus briefs addressing 
antitrust problems with abuse of the FDA processes in each of 
the three areas.
    First are the abuses that occur when brands use FDA-
mandated REMS or when they use voluntary distribution systems, 
either to prevent a generic company from gaining access to the 
samples it needs to go through the FDA-approval process, or 
secondly, by refusing to negotiate a single shared REMS 
distribution system.
    To date, the FTC's actions in this area have been to file 
amicus briefs in private litigation, because private parties 
can also bring antitrust cases, not just the FTC, and to 
explain to courts how the REMS abuse can in fact violate the 
antitrust laws.
    Second are the abuses arising from so-called pay-for-delay 
agreements. Pay-for-delay agreements occur in the context in 
which a brand and a generic company are in patent litigation, 
the generic is trying to gain entry into the marketplace. It 
says to the brand company, your patent is not valid or I do not 
infringe your patent. They're fighting out a patent case. And 
at some point they settle the litigation, in which the brand, 
one, offers money to the generic, and two, the generic agrees 
to stay out for some period of time. And we've had a lot of 
cases in this area and currently have cases, a case called 
Actavis, AbbVie, Allergan, Watson and Impax.
    Third are abuses that can occur with the citizen petition 
process. Brands may use the FDA's citizen petition process to 
delay generic approval by raising scientific or legal issues 
that the FDA must respond to before approving a generic. 
Studies have shown that while these petitions often lack merit, 
they delay entry of lower-cost generics. FTC actions to date 
include a recent lawsuit that we filed in the case of 
ViroPharma in the District of Delaware.
    Despite our many efforts, however, there are limits on 
antitrust law enforcement. First, and possibly most 
importantly, it's not a violation of Federal law simply to 
charge high prices. Secondly, litigation, which is what I do 
and what we do at the FTC, can be slow, it's expensive, and 
it's uncertain. I personally have been working to stop pay-for-
delay agreements for more than 17 years, as have a handful of 
my colleagues who have been there from the very beginning, and 
we're still years away from court resolutions of some of those 
cases.
    These limitations are the reason why the Commission 
supports the goals of the CREATES Act, and if enacted, the FTC 
believes that the CREATES Act would reduce the incentive for 
brands to use REMS to impede competition from lower-cost 
generics.
    In closing, I look forward to addressing your questions, 
and again, thank you for inviting me here today.
    Mr. Meier's written statement is available at the Committee 
or on the Committee Repository at:

    https://docs.house.gov/meetings/JU/JU05/20170727/106333/
HHRG-115-JU05-Wstate-MeierM-20170727.pdf
    Mr. Marino. Thank you, Attorney Meier.
    We will now begin the Congress members' 5 minutes of 
questioning. And I will recognize myself for 5 minutes of 
questioning.
    Dr. Gottlieb, I want to commend you, first of all, for 
shining the light on the issues that we're addressing here 
today. It's critically important. These competition problems 
have been around for a long time, so I want to better 
understand FDA's current authorities in this area.
    One of the principal objects of the CREATES Act is to allow 
a generic company to seek an injunction from the court to 
require the sale of a brand's product. To be clear, a court can 
only order a sale once the generic has received FDA 
authorization to handle the product.
    When Congress established REMS authority in 2007, Congress 
included a provision that said a REMS should not be used to 
delay competition. It is my understanding that the FDA has 
authority to level civil monetary penalties when they determine 
a brand company is delaying competition using the REMS program. 
Is that correct?
    Dr. Gottlieb. There is a provision in the law, Congressman.
    Mr. Marino. I also understand the FDA has never used that 
authority. Are you aware of that?
    Dr. Gottlieb. I know it's a complex authority to exercise, 
Congressman.
    Mr. Marino. If they did use that authority, it would 
require the development of a lengthy record, be time-consuming, 
and use resources. Would you agree with me?
    Dr. Gottlieb. I know it's highly complex to develop the 
administrative record to exercise the authority, so it would 
take time--it would take a lot of time.
    Mr. Marino. In a determination by the FDA that the brand's 
actions were taken to block or delay the generic application, 
would you agree with me concerning that?
    Dr. Gottlieb. I'm sorry, I missed the question.
    Mr. Marino. The brand's actions, if taken, would delay the 
generic application.
    Dr. Gottlieb. There are a lot of brand actions that delay 
generic entry, yes.
    Mr. Marino. And once all these steps have happened, you 
have to work with DOJ to level penalties, correct?
    Dr. Gottlieb. If we were to exercise that authority, yes. 
And penalties, I believe, are relatively modest.
    Mr. Marino. This seems, as a prosecutor, as a former U.S. 
Attorney, these are pretty intense and time-consuming 
processes, and the FDA only has the authority for drugs that 
are behind a REMS, not for voluntary manufacturer's schemes. 
That's correct also?
    Dr. Gottlieb. It's a good point that a lot of the 
restrictions on the ability of the generic companies to get 
access to the doses are commercially driven as well through 
contracting.
    Mr. Marino. It would seem to me that we could resolve these 
issues and these disputes quicker if competitors had limited 
resources in the courts to require the sale of some samples 
when the FDA has found it can safely handle those samples. 
That's not a question, but could you please share with us some 
of your insight on how we streamline this?
    Dr. Gottlieb. Well, Congressman, you've raised a lot of 
concerns that are our concerns. The fact that generic companies 
literally can't get access to the doses they need, the units 
they need, to run the bioequivalent studies to go through the 
regulatory approval process, that is clearly not what Congress 
prescribed under Hatch-Waxman.
    Some of these fall within the scope of gaming regulations 
that exist within FDA's purview, and the REMS is an example. 
Some of them fall within the scope of things branded companies 
do in the context of commercial contracts to deny the ability 
of generic companies to get the drugs from either specialty 
pharmacy companies or other intermediaries like wholesalers.
    But it requires between 1,500 and 5,000 physical doses in 
order to run the bioequivalent studies, and quite literally, 
there are situations, and we see them, where the generics can't 
get access to those doses in a timely fashion.
    Mr. Marino. Attorney Meier, while the FTC has expressed 
concerns about anticompetitive abuse of the REMS process, and I 
think you filed two amicus briefs in disputes between 
manufacturers, it doesn't appear to have brought any 
enforcement suits. Can you explain why enforcement suits 
haven't been brought and what would we do to better improve the 
system?
    Mr. Meier. This is an area where we've spent a lot of time 
looking into it. We've chased down a lot of leads and taken, 
heard a lot of different complaints. In fact, the FDA sent us a 
list of approximately 150 inquiries it's received, and we've 
reviewed those very carefully to look for a good test case to 
bring.
    But in addition to the activities of the FTC, there are 
private litigations. Private companies can bring antitrust 
cases, too, and they have. And as I said before, we filed 
amicus briefs in a number of those cases to try to assist the 
court in understanding how the antitrust laws can apply to 
those behaviors.
    Mr. Marino. Thank you.
    My time has expired, and I do now recognize the Ranking 
Member of the Committee, Congressman Cicilline, for his 
questions.
    Mr. Cicilline. Thank you, Mr. Chairman.
    And thank you again to our witnesses.
    Mr. Meier, you explained in your written testimony that 
delaying generic competition through REMS abuse results in 
about $5.4 billion dollars in annual costs to consumers.
    Could you please explain how delaying competition through 
REMS abuses increases costs to consumers? You know, sort of 
explain a little bit, when does the FTC require the REMS safety 
protocol for a drug and how does it result in that kind of an 
impact on consumers?
    Mr. Meier. So, first of all, with respect to the testimony 
and the $5.4 billion figure in the testimony, I do want to 
point out that that was a study done by the generic 
pharmaceutical industry, as we indicated in the report. So we 
haven't independently verified that number. But it does suggest 
that this is a problem.
    With respect to your question about what exactly the FDA 
has to do when it does a review process, that's really a 
question I think that might be better addressed to the FDA.
    But having said that, in a number of instances where we 
have done investigations I've come to learn some about the 
standards that the FDA uses. And obviously what they want to do 
and what they have to do is make sure that the drug supply is 
safe and effective, and I think they do a very good job of 
doing that. And there are certain drugs that, when certain 
patient populations are exposed to it, can be dangerous for 
those patients and can be dangerous for other people.
    The classic example that often comes up is the Thalidomide 
example, which obviously results in horrible, horrible 
potential birth defects if a pregnant woman is exposed to that, 
and that is in fact subject to a REMS program.
    So it's those types of drugs that I understand are subject 
to REMS programs with what are known as ETASU or elements to 
assure safe use. But, again, I think it might be a question 
that the FDA can better address than I can.
    Mr. Cicilline. Dr. Gottlieb.
    Dr. Gottlieb. Congressman, these are drugs that have 
certain what we call elements to assure safe use, certain 
provisions that are put in place at the time of approval to 
help ensure their safe prescribing by providers. So typically 
they'll have certain side effects or risks associated with them 
that we feel in order to strike the right risk-benefit balance 
we have to have certain measures in place, like provider 
education, or requirements that providers take certain 
measures, to subject patients to certain tests, to look for the 
manifestation of certain side effects.
    Just as a general matter, and you asked the question about 
how would it save consumers money, by and large, the majority 
of the drugs for which we have risk management plans in place 
tend to be specialty drugs, and they tend to be higher priced 
drugs.
    And to the extent that manipulation of the REMS to 
forestall the ability of the generic companies to get access to 
the samples they need to do the bioequivalent studies would 
then delay the generic from filing the application and getting 
onto the market, that's going to disadvantage consumers, 
because it's just a delay in getting competition where patents 
might have lapsed that would be lower cost. So, you know, just 
month by month, every month, to your point, could add up to a 
lot of money.
    Mr. Cicilline. Thank you.
    Mr. Meier, you made reference in your testimony, obviously, 
to one of the ways that brand drug companies realize profits is 
to prevent--refuse to provide samples that are necessary for 
the development of the generic, which the CREATES Act attempts 
to address. I think you've already said that you consider that 
anticompetitive behavior.
    I guess the question I have is, should we consider simply a 
prohibition against that, an outright prohibition against these 
pay-for-delay or refusal to provide? I know they're two 
different issues, but----
    Mr. Meier. So you're right, they're two different issues. 
But with respect to the samples, I do want to be careful that 
it's not just merely the refusal to provide a sample that 
causes an antitrust problem. When we do an antitrust case, the 
type of case that you would have to bring in this instance 
would be a charge of monopolization. That's basically a single 
company acting unilaterally, saying, I'm not going to turn over 
the samples.
    One of the elements you'd have to show is exclusionary 
conduct, but an additional element in that case you'd have to 
show is that the company actually has a monopoly and is 
maintaining or holding on to that monopoly as a result.
    So the challenge is not just to say refusing to provide a 
sample is an antitrust problem, but it's the combination of the 
refusal to provide it by a monopolist under certain 
circumstances can violate the law.
    Mr. Cicilline. And what about with respect to pay-for-
delay? What would be-- wouldn't it be sensible public policy 
simply to prohibit those outright, that you couldn't contract 
with another entity to prevent the introduction into the 
marketplace. I mean, that seems pretty, obviously, on its face 
anticompetitive.
    Mr. Meier. Well, that have been a number of different bills 
that have been floated over the years that would come close to 
doing what you're describing, both on the House side and the 
Senate side, and there have been various times when the FTC has 
been asked to look at that and comment on that, and we have. 
And should somebody put together such a bill again in the 
future, we'd be happy to provide whatever technical assistance 
we could on that.
    Mr. Cicilline. Thank you.
    Thank you, Mr. Chairman. I yield back.
    Mr. Marino. The Chair recognizes the Chairman of the full 
Judiciary Committee, Congressman Goodlatte.
    Chairman Goodlatte. Thank you, Mr. Chairman.
    Thank you, gentlemen, for your testimony. Let me start with 
Dr. Gottlieb.
    I have received several inquiries over the years from 
constituents regarding escalating prices for specific drugs, 
some of them 100 years old, that have been on the market in 
every instance for long periods of time, decades. I understand 
that some of this may be the result of the FDA's Unapproved 
Drug Initiative.
    Can you explain what the goal of that program is and 
whether you think it's been effective?
    Dr. Gottlieb. Congressman, there's a large category of 
drugs that were effectively grandfathered in when the modern 
statute to require the demonstration of safety and 
effectiveness was put in place in the 1960s. We refer to them 
as the DESI drugs. And they never went through a traditional 
approval process. They never had to demonstrate safety and 
efficacy through the traditional clinical trial requirements.
    We have a program in place to both take these drugs off the 
market when we feel that there are certain concerns relative to 
their safety and effectiveness or the way they're being 
manufactured. We've taken over a thousand unapproved drugs off 
the market.
    And also to try to move certain drugs into the approved 
space, especially for critical medicines where it might have a 
narrow therapeutic window and you want to make sure it's being 
manufactured in an appropriate fashion. We've moved these drugs 
into the market through the approval process.
    Now, it is the case that when that happens, in some 
instances, and in a lot of instances, when a drug that's 
previously unapproved becomes an approved drugs and we clear 
the market of the other formulations that might be on the 
market, they will have some exclusivity. They might have 3 
years of exclusivity under Hatch-Waxman for doing clinical 
studies. They might have 5 years of exclusivity in rare cases 
where there is a new molecular entity. So they will have a 
period of exclusivity.
    I will say that the juxtaposition here is that you now have 
a formal reference listed drug for which you can then bring 
generics onto the market when that exclusivity period lapses.
    And the final point I would make is----
    Chairman Goodlatte. Why did they get a period of 
exclusivity for a drug that's not new?
    Dr. Gottlieb. If they do clinical studies to demonstrate 
safety and effectiveness as part of the FDA approval process, 
they get a short period of exclusivity.
    Chairman Goodlatte. How long is a short about?
    Dr. Gottlieb. That's 3 years, is what's prescribed under 
Hatch-Waxman.
    I will say, I've been around FDA for about 15 years now and 
I've gone through different cycles where at various points in 
time we've been criticized for not moving aggressively enough 
on the unapproved drugs. So it's a real public health 
challenge.
    Chairman Goodlatte. Well, let me ask you about that. 
Because when you take them off the market, is it based on 
safety? Is it based on efficacy? What is your standard? And 
what kind of research do you do, or does somebody else do that 
research for you, and might it be one of the competitors that 
does the research for you? What do you rely upon to take the 
drug off the market in the first place?
    Dr. Gottlieb. We're careful in how we take the drug off the 
market in these instances to make sure that the new entrant can 
actually supply the market.
    Chairman Goodlatte. You say you've done a thousand or more?
    Dr. Gottlieb. Those aren't situations where we've 
necessarily cleared the market of all the drugs in a category. 
Those are situations where there might have been one drug on 
the market that had certain problems associated with it. 
There's only 23 cases where we've had one approved drug come 
onto the market and made an attempt to clear the market of the 
competitors. And I think those are the situations that you're 
referencing. I believe it's 23.
    You know, it is the case that in order to--and this is a 
balance, and Congress can speak to this because we went through 
the last time I was at the agency and worked very closely with 
Congress on this.
    But you want to provide--if you want these unapproved drugs 
to come through a regulatory process and develop the data to 
demonstrate safety and effectiveness and go through the 
manufacturing requirements, you have to provide an incentive. 
And the incentive is that if they go through that process and 
spend the money to do it, they're going to get a short period 
of exclusivity, and the FDA is going to make an attempt to 
clear the market of potential competitors.
    Chairman Goodlatte. They're going to clear the market of 
people who haven't done that, even though they don't want to 
spend the money and they may have exactly the same result if 
they were to do it for their drug, because they may be 
identical drugs.
    Dr. Gottlieb. I understand the concern you're raising, and 
I would say----
    Chairman Goodlatte. I've seen drugs that have cost 50 
times, after they get this exclusivity, what it costs on the--
you're talking about some things that cost $2, $3 for a 
prescription, and suddenly they become several hundred dollars 
or even a thousand dollars for a little tube of some kind of a 
skin ointment or a gout drug.
    Dr. Gottlieb. Right. I would simply say, if we want to go 
down the path of unwinding FDA's current policy, we need to 
accept that the unapproved drugs will stay unapproved in 
perpetuity. And if Congress is comfortable with that, we can 
contemplate that. But I will tell you, I have been at the FDA 
when we've been vigorously criticized for not bringing the 
unapproved drugs through the approval process.
    Chairman Goodlatte. Surely, there must be other sources of 
information about the lack of safety. If the issue is, well, 
the drug doesn't really work, you know, obviously, if it's been 
around for 100 years and people still want to buy it, I'm not 
sure we should be too concerned about it.
    Safety, that's a different concern. But if the mechanism is 
to let somebody buy into exclusivity as opposed to doing some 
independent research through universities or something to find 
out that the drug truly is harmful, or based upon medical 
testimony or medical history with the use of the drug, that's a 
different situation to me.
    Dr. Gottlieb. We focus in situations where there are safety 
questions, and that's where we tend to focus our resources. The 
one that I remember was, I believe, pancreatic enzymes, which 
are used by patients with cystic fibrosis, there was a lot of 
variability in how those drugs were being formulated that had 
clinical implications, and the CF community wanted FDA to exert 
more oversight over the safety and efficacy of those products.
    There are situations where these unapproved drugs on the 
market do present certain questions of safety and 
effectiveness, and that's where FDA has tended to focus its 
attention.
    Chairman Goodlatte. Let me ask one more question, if I may. 
I know I'm over the time.
    But if the company that comes in and does these tests for 
you and gets the exclusivity, if there's no difference between 
their drug and the drugs that you're taking off the market 
based upon the formulation of it, why, what would be in the 
best interest to do that? Just to get the work done to prove 
the safety and the efficacy of the one?
    Because to me, if that's the case, there ought to be some 
limitation, some control. And is this authority based upon the 
law or is the authority based upon FDA regulations.
    Dr. Gottlieb. The application of this authority is based on 
what we have been told to do by Congress in the past. Congress 
has raised questions around the----
    Chairman Goodlatte. With the statutory language.
    Dr. Gottlieb. Well, the way Hatch-Waxman is written, this 
is how the statute should be exercised. Congress has told us 
they have concerns around the DESI drugs, the unapproved drugs. 
And I realize when we then take action to move these drugs into 
the approved column and prices go up in certain anecdotal 
cases, that raises concerns as well. So I'm sympathetic to it.
    Chairman Goodlatte. Look, I would expect they would go up 
something so that the company can recover the cost of doing 
that.
    Dr. Gottlieb. Exactly.
    Chairman Goodlatte. But a hundred times?
    Dr. Gottlieb. Well, that's a separate question, whether 
it's being priced to value.
    Chairman Goodlatte. Yeah, but it all comes together, right? 
I mean, if you're the consumer who has been relying upon a drug 
that your doctor has told you that you should take, and then it 
suddenly costs a hundred times as much money----
    Dr. Gottlieb. I fully understand your concerns, 
Congressman. Fully understand them.
    Chairman Goodlatte. Thank you, Mr. Chairman.
    Mr. Marino. The Chair now recognizes the Ranking Member of 
the full Committee, the full Judiciary Committee, Mr. Conyers.
    Mr. Conyers. Thank you, Mr. Chairman.
    This is a tremendously important subject. Let me ask 
Director Meier of the bureau about Professor Lietzan's 
testimony, which characterizes requiring access to drug samples 
as ``a duty to deal,'' which ``may undermine incentives for 
investment and innovation.'' What do you think of that 
characterization of providing drug samples as a duty to deal, 
sir?
    Mr. Meier. So the antitrust issue is not whether a brand 
has a duty to deal. Actually, the antitrust issue is the 
conditions under which a brand's refusal to deal--it's refusal 
to deal--results in the creation or maintenance of monopoly 
power.
    And this is a longstanding concept in the law. It goes all 
the way back to a 1919 case involving Colgate in which the 
Supreme Court said, yeah, parties do not have an obligation to 
deal with each other, but there may be certain circumstances in 
which that refusal to deal creates the purpose--has the purpose 
or the action of creating or maintaining a monopoly, and that's 
illegal.
    And that case law has continued to develop all the way 
through the present with a case that is often cited actually by 
the defense bar in these issues, the Trinko case, where Justice 
Scalia said under certain circumstances a refusal to cooperate 
with rivals can constitute anticompetitive conduct and violate 
Section 2.
    As this Committee knows, when you have--take an action 
where you provide no samples to the generic, it means there's 
going to be no generic filings with the FDA, there's going to 
be no generics, and there's going to be no competition, and 
that could go on literally forever. Even when all the patents 
have expired, a company could continue to refuse to provide 
samples and there could still be a monopoly that simply wasn't 
what Congress intended.
    Mr. Conyers. How prevalent a problem is this?
    Mr. Meier. Well, there are different views, and the 
difficulty is, I don't have any means to get perfect insight 
into it. On the one hand, you have the generic pharmaceutical 
industry and the study that was done by Matrix economics 
company, by a person, an economist named Alex Brill, that says 
it costs consumers $5.4 billion a year. On the other hand, you 
have Professor Lietzan suggesting that perhaps it really only 
involves 20, 22 drugs, something like that.
    My suspicion or my intuition is that it's probably 
somewhere in between those numbers. But I think some of these 
drugs are very significant and these prices compete very, very 
significant. And even if it's only a few drugs, it could be a 
very, very significant problem.
    Moreover, if companies understand that they can get away 
with this, the expectation is not just what the problem is 
today, but what might the problem be tomorrow and further into 
the future as companies recognize that they can adopt this same 
strategy and apply it to drug products that currently aren't 
even subject to these restricted distribution systems.
    Mr. Conyers. What can we up here approach--how do we 
approach this in a sensible way?
    Mr. Meier. So as we put forward in our testimony, we 
believe that the CREATES Act--that the FTC supports the goals 
of the CREATES Act and that the CREATES Act goes a very far way 
to readjust the incentives to address this problem.
    Mr. Conyers. You do? What does that mean?
    Mr. Meier. Well, one of the problems right now is if a 
brand company refuses to provide the samples, it basically can 
just sit back and run out the clock and let it just continue.
    What the CREATES Act does, as I understand it, is it 
readjusts those incentives so that it provides greater 
incentives for the branded company to actually engage in a 
negotiation and engage in bargaining with the generic to 
ultimately provide them with samples. And if the bargain 
doesn't work, it gives the generic companies additional rights 
to pursue--that they could possibly pursue through litigation.
    Mr. Conyers. So when you combine CREATES with the antitrust 
laws, you may get an effective strategy. Do you think that's 
right?
    Mr. Meier. I think that's a fair statement.
    Mr. Conyers. Now, I think you've noted that there are 
several ways that branded firms can use programs strategically 
to delay generic entry. And at least some of these methods will 
be difficult to reach effectively under antitrust laws. Is that 
a fair assessment?
    Mr. Meier. That's a fair statement also. Antitrust law 
doesn't necessarily break down every possible barrier to entry 
and barrier to competition. We are limited, as I said during 
the prepared remarks, to bringing cases that fit within one of 
these three broad categories of antitrust violation.
    Mr. Conyers. So what ought we do?
    Mr. Meier. I think, as I've said before, I think the 
CREATES Act goes a long way to trying to resolve some of these 
issues.
    Mr. Conyers. Now, last question, about vertical agreements. 
Could this be a violation of the Sherman Act?
    Mr. Meier. Yes. It can be under certain circumstances.
    Mr. Conyers. So how do we approach that?
    Mr. Meier. As the Congress or as an antitrust enforcer?
    Mr. Conyers. Well, we're not antitrust enforcers, although 
we oversee that because it's the law. But, you know, in our 
congressional capacity here with our Chairman and the rest of 
my colleagues, how do we deal with this Sherman Act challenge?
    Mr. Meier. So if you are talking about the specific 
challenge of how do you deal with vertical agreements under the 
antitrust laws, it is my view, and speaking for myself, that we 
have adequate means under the antitrust laws as currently 
written to address ourselves to vertical agreements. That might 
be anticompetitive.
    Mr. Conyers. Okay. This is a good start.
    Thank you, sir, very much.
    Mr. Meier. Thank you.
    Mr. Conyers. Thank you, Mr. Chairman.
    Mr. Marino. If you want to continue when we come back, you 
are very welcome to do that. They have called votes. We have 
about 20 minutes or 25 minutes we are going to be delayed. But 
we stand in recess, and we will return as quickly as possible.
    [Recess.]
    Mr. Marino. The hearing will begin. Sorry for the delay. 
The Chair now recognizes the gentleman from Georgia, Mr. Hank 
Johnson.
    Mr. Johnson. Thank you, Mr. Chairman, and thank the 
witnesses for their appearance today.
    I have heard reports that a significant portion of the 
patients either skip, delay, or reduce doses of prescription 
medication because of high drug prices. What is the FDA doing 
to address soaring drug prices? And do you believe that the FDA 
has adequate statutory authority to meaningfully address drug 
price increases, Dr. Gottlieb.
    Dr. Gottlieb. Thanks for the question. I share your 
concerns when patients forego necessary doses because they 
can't afford their drugs. That is a concern of ours. It falls 
squarely on our public health mandate to worry about issues of 
access to needed medications.
    With respect to your question about do we have adequate 
authority, I would answer by saying I think we have untapped 
authority. I think there are things we could do within the 
scope of our current authorities to try to provide for more 
competition in the marketplace consistent with what Congress 
intended when it passed Hatch-Waxman. So, for example, we are 
looking at places we can make our generic drug approval process 
more efficient without sacrificing on the safety and 
effectiveness that people depend on. With respect to that, the 
standard that we maintain the markets so that people can't come 
into the market, buy--for example, buy off low-volume generics 
that might be used infrequently, raise the price substantially 
knowing that it might take us an average of 42 months, which 
was the old standard, to get a subsequent generic drug approved 
in that category.
    So they are taking advantage of what I have called a 
regulatory arbitrage knowing that they could raise prices. And 
even if competition comes into the market, it is going to take 
us a long time to approve that. So we have committed to 
reviewing generic applications in eight to ten months for high-
quality applications going forward.
    I think there is a number of places like this where we 
could address issues of access which would give people more 
low-cost options. Clearly, another one is the topic of today's 
hearing, which is places where the generic companies can't get 
access to the samples they need where the branded companies 
might be gaining certain rules to deny them the access that the 
bio--the sample they need to do their bioequivalent studies.
    Mr. Johnson. Well, with the authority that can be expanded 
that would enable drug pricing to be more competitive, do you 
believe that the FDA needs additional resources to address that 
challenge, or are the resources that you are getting now and 
what is projected for you to get according to the Trump budget 
plan----
    Dr. Gottlieb. Well, we could always do more with more, 
Congressman. And the generic drug approval group that offers 
generic drugs in particular has a very heavy burden and a very 
heavy workload. And we are not at the point we are at steady 
state with respect to generic applications where we will--we 
will always have a certain cohort in-house that are being 
worked. But we are continuing to build that number. So we are 
not--we are not getting out generic applications at the same 
pace we are getting them in. We will get there shortly, I 
believe. But it is a very--it is a challenging dynamic, because 
the market is continuing to expand, we are getting more 
applications. And so that group works very hard.
    I wouldn't say that we--there is not an opportunity to look 
at new authorities that could address some----
    Mr. Johnson. No. No. I am speaking of resources.
    Dr. Gottlieb. Resources.
    No. I was--when I was addressing resources, we also 
researched about authorities. But we can always do more with 
more, Congressman. There is no question that there----
    Mr. Johnson. Do you need more to do your job more 
effectively?
    Dr. Gottlieb. I feel confident that we are going to meet 
our goals with the resources we have if the user fees are 
passed in a timely fashion by the deadline.
    Mr. Johnson. I understand. You don't really want to delve 
into that issue----
    Dr. Gottlieb. Fair enough.
    Mr. Johnson [continuing]. Forthrightly. But let me turn to 
Mr. Meier.
    And--some have suggested that there is no need for 
legislation to address reverse settlements, also known as pay-
for-delay agreements, in light of the Supreme Court's holding 
in FTC versus Actavis, that these agreements, ``have 
significant adverse effects on competition.''
    Do you agree?
    Mr. Meier. What I would say is we have made a great deal of 
progress, and it is not just the FTC. There are private cases. 
There are cases brought by States' attorneys general. And I 
have lost the exact count, but there may be more than 20 cases 
going on right now across the country. And I do think, based on 
evidence we have seen, that pharmaceutical companies have 
pulled back on how frequently they are doing these and to what 
degree and how long the delay is.
    You know, the Commission itself hasn't taken a position on 
any specific legislation. But, again, I think if there -- if 
somebody's got a legislative proposal and thinks that they can 
address the problem more rapidly and better than what we are 
able to do through law enforcement, I am sure that we would be 
happy to help in any way that we can to provide any technical 
assistance that we could.
    Mr. Johnson. Thank you.
    I yield back.
    Mr. Marino. The Chair recognizes the Congressman from 
Florida, Mr. Gaetz.
    Mr. Gaetz. I thank for the Chairman, and I am grateful for 
the hearing.
    Currently, the Federal Government maintains a patent on 
Cannabis. And for those that may find that surprising, it is 
Patent No. 6,630,507. And I also believe that the Federal 
Government, through its various appendages, has engaged in 
anticompetitive practices as it relates to Cannabis. And so I 
am grateful for the Chairman calling a hearing, having the FDA 
here.
    Dr. Gottlieb, marijuana is a schedule 1 drug, right?
    Dr. Gottlieb. Yes, that is right, Congressman.
    Mr. Gaetz. And for those watching, a schedule 1 drug means 
that the Federal Government has taken the position that 
marijuana has no medical use. Is that right?
    Dr. Gottlieb. It has not demonstrated to be safe and 
effective for clinical use. That is right, Congressman.
    Mr. Gaetz. And so as we look schedule 1 in some context 
with the schedules of other drugs, hydrocodone is a schedule 2, 
right?
    Dr. Gottlieb. I believe so, Congressman.
    Mr. Gaetz. And raw opium is a schedule 2, right?
    Dr. Gottlieb. I believe it has certain clinical 
applications. That is right.
    Mr. Gaetz. And powdered opium is a schedule 2, right?
    Dr. Gottlieb. You probably have a list.
    I believe that is correct, yes.
    Mr. Gaetz. And fentanyl is a schedule 2, right?
    Dr. Gottlieb. That is correct.
    Mr. Gaetz. And methamphetamine is a schedule 2, right?
    Dr. Gottlieb. That is correct.
    Mr. Gaetz. And even cocaine is a schedule 2, right?
    Dr. Gottlieb. It has certain clinical uses. Yes, 
Congressman.
    Mr. Gaetz. And so when assessing whether or not it has--a 
drug has these acceptable medical uses, there is a five-part 
test that assesses the merits. Is one of the elements of that 
test that there must be adequate safety studies demonstrating 
appropriate medical use?
    Dr. Gottlieb. I believe so. I am not intimately familiar 
with the five-part test. I know what you are referring to. I 
believe it is.
    Mr. Gaetz. And so in order to meet that test and 
demonstrate potential medical use, one would presumably need to 
do research, right?
    Dr. Gottlieb. You would need to do clinical studies.
    Mr. Gaetz. And how does one do a clinic study on a schedule 
1 drug, currently?
    Dr. Gottlieb. It is currently the ability to study 
marijuana. And there is a number of INDs. There is probably a 
few dozen INDs in-house right now studying either the 
ingredient itself or an extract from it. And there is an--there 
is some approved therapies based on the extract from 
medicinal--from marijuana.
    Mr. Gaetz. If the University of Florida in my State wanted 
to engage in studies regarding the medical use of Cannabis, 
would that be more or less difficult than if they wanted to 
study the medical use of cocaine?
    Dr. Gottlieb. I don't know, Congressman. I would have to 
get back to you on that and ask the experts at the--my drug 
center.
    Mr. Gaetz. Well, I would very much like to hear that. If 
anyone in the Federal Government and anyone who works at the 
FDA is taking the position that it is not more difficult to 
study medical application of a schedule 2 drug, like cocaine, 
than a schedule 1 drug, like marijuana, I would be very eager 
to see what the basis for that was.
    Right now, I have been told by universities in my State 
that, were they to engage in research on the medical 
application of marijuana, they could potentially impair over 
$100 million dollars in other Federal grants that they receive. 
Is that something that you are familiar with?
    Dr. Gottlieb. Congressman, it probably wouldn't fall within 
our purview if there are issues with getting access to it. It 
falls outside the scope of our jurisdiction. A lot of that 
falls within the jurisdiction of DEA.
    Mr. Gaetz. Well, as a physician yourself, as an FDA 
commissioner, do you have an opinion on whether or not 
marijuana ought to be listed as a schedule 1 drug?
    Dr. Gottlieb. I haven't reviewed the literature, 
Congressman. There is no--there is no clinically demonstrated 
use for marijuana right now. There is no approved use for 
smoked marijuana. It has not gone through clinical studies to 
prove safety and effectiveness for any indication.
    Mr. Gaetz. Does it seem like a logical tautology that we 
say we cannot declassify marijuana as a schedule 1 drug because 
we don't have the clinical studies and its status as a schedule 
1 drug impairs further clinical studies?
    Dr. Gottlieb. Well, look. Congress has the authority to 
take this up. And I think it has been taken up in some forms in 
the past and contemplated by Congress.
    The clinical studies, as I understand it, and I made the 
point that there is a number of INDs in-house, some of that is, 
I believe, for the raw ingredient, which I think is the subject 
of your question. Some of it is for the extracts of marijuana. 
So there are clinical studies going on in people who are 
studying the safety and effectiveness in rigorous trials that 
could potentially lead to an approved indication if they are 
successful.
    Mr. Gaetz. Yeah. And I know that right now--I believe it is 
the University of Mississippi that is the only place where they 
can grow the product in order to do the studies. Are you 
familiar with that dynamic?
    Dr. Gottlieb. The issues around access and growing--growing 
and then access to product to do clinical studies for 
regulatory purposes falls outside of our direct jurisdiction, 
Congressman.
    Mr. Gaetz. Well, I want to take my remaining few moments to 
thank Chairman Goodlatte for the public commitment that he made 
at a recent Judiciary Committee meeting that we are going to 
study this question of research. I also want to thank the 
Ranking Member of this Subcommittee for his desire to work on 
research applications for medical Cannabis. It seems entirely 
unacceptable to me that we block research that could 
potentially show us the medical use that would then justify 
delisting Cannabis.
    And I yield back.
    Mr. Marino. The Chair now recognizes the Congressman from 
California, Congressman Swalwell.
    Mr. Swalwell. Thank you, Chair. And, Chair, the beauty of 
our democracy is that I sat here for hours yesterday, and I 
think I disagreed with 100 percent of the things that Mr. Gaetz 
said yesterday. But today I sit here, and I agree 100 percent 
with what he just said. So I am glad that he and I, and Mr. 
Cicilline, and others can work together on what I agree is an 
important issue.
    But I do thank the Chair and the Ranking Member for calling 
us here to talk about how we can lower drug prices and increase 
the therapeutic drugs--the therapies and drugs that can get to 
the market to help people.
    I did have some questions. Dr. Gottlieb and Mr. Meier, 
thank you both for appearing. With respect to REMS, Risk 
Evaluation and Mitigation Strategies, what is the percentage of 
REMs on the market with respect to total number of drugs on the 
market?
    Dr. Gottlieb. I don't know what--I couldn't tell you what 
the total is right now. In 2016, there were 115 new drugs or 
new biologics approved, and nine were approved with REMS. So 
that gives you sense of the proportion by year. And it has been 
fairly steady with respect to the number of drugs that are 
getting approved with REMs. So it is not something that is 
spiking up.
    Mr. Swalwell. Do you believe that all REMs are created 
equally? And what I mean is, for example, certain controlled 
substances like opioids, and fentanyl, and sodium oxybate, 
which is, you know, commonly referred to as the date rape drug, 
they are regulated under REMs, but they seem to be quite unique 
in that they are, to me, at least, in the category of those 
that you especially want to control and protect. Would you 
agree with that?
    Dr. Gottlieb. Yeah, there are some common situations where 
you see REMS apply drugs that have abuse potential. It can be 
diverted. Drugs, for example, that have risk of teratogenicity 
associated with them where you might want to implement certain 
testing before the application of drugs. So there are some 
standard categories. If you look to all the drugs that have 
REMs, you will see some patterns appearance for sure.
    Mr. Swalwell. And, Commissioner, you wrote, on July 6, 
2017, in a JAMAnetwork.com article entitled ``Marshaling FDA 
Benefit-Risk Expertise to Address the Current Opioid Abuse 
Epidemic'' that the FDA limits prescribing of sodium oxybate to 
certified prescribers. In addition, the drug may be dispensed 
only to enrolled patients by a certified pharmacy and only by a 
certified pharmacy that shifts drugs directly to patients. 
Sodium oxybate is not available in retail pharmacies. Then you 
actually laid out, I think, a good case as to why opioids 
should also, you know, be controlled and regulated, you know, 
in that same manner in talking about the opioid crisis.
    Do you foresee, as we look at making sure that drugs can 
get to the market and that, you know, we are not allowing 
anticompetitive practices to take place, that there is a 
special category, though, for those types of drugs that have, 
as I just mentioned, those certain characteristics that you 
really want to make sure controls are in place?
    Dr. Gottlieb. That is absolutely true, Congressman. It has 
been the case that, for certain drugs, historically, certain 
controls have been put in place when there are special 
circumstances where there are very unique risks associated with 
them.
    The thrust of that article was related to an imperative by 
the FDA to consider the risks associated with the potential 
illicit use of the drugs and how it looks at risk-benefit 
balance both pre and post-market as well as the risks 
associated with the labeled use of the drugs. And we were 
laying out the basis for why we believe we need to look at the 
illicit risk as well.
    But it is the case, to your underlying point, that there 
are certain risks associated with drugs where, historically, we 
have applied REMS, and historic--and we will likely apply them 
going forward. And a lot of them are well-defined.
    Mr. Swalwell. Right. It sounds like a challenge for us, Mr. 
Meier. I would be interested in your thoughts, as lawmakers, to 
make sure that we don't have anticompetitive practices but that 
we are still doing everything we can to protect the public 
from, you know, God forbid, a date rape drug being, you know, 
widely accessible without any reigns or controls.
    Mr. Meier. Well, I think that is precisely right is finding 
that balance.
    Mr. Swalwell. Thank you, Mr. Chairman.
    I yield back.
    Mr. Marino. Thank you. Seeing no other Congress Members on 
the dais for questioning, this concludes our first panel. I 
want to thank Dr. Gottlieb. I want to thank Attorney Meier for 
being here. You were very helpful, and you are excused.
    Now we call the second panel to come up and--to the table.
    Now that you-all are comfortably seated, I would ask you to 
stand and raise your right hand to be sworn in.
    Do you swear or affirm that the testimony you are about to 
give before this Committee is the whole truth, nothing but 
truth, so help you God?
    Please be seated.
    Let the record reflect that the witnesses have responded in 
the affirmative.
    I am going to read each of your bios, and then we will 
begin with you then making your 5 minute statements. But I will 
go through all four bios first.
    David Olson is an associate professor at Boston College Law 
School teaching patents, intellectual property, and antitrust 
law. Prior to joining Boston College, he worked at Stanford Law 
School's Center for Internet and Society where he researched in 
patent law and litigated copyright fair use impact cases.
    Before entering academia, Professor Olson practiced as a 
patent litigator at the law of the Kirkland & Ellis, LLP, and 
clerked for Judge Jerry Smith of the U.S. Court of Appeals for 
the Fifth Circuit. He earned his bachelor's degree from the 
University of Kansas and his JD from Harvard Law School.
    Welcome, Professor.
    Professor Erika Lietzan is an associate professor of law at 
the University of Missouri School of Law. Professor Lietzan 
researches, writes, and teaches primarily in the areas of drug 
and device regulations, intellectual property, and 
administrative law. She recently completed a historical and 
empirical examination of the new drug research and development 
paradigm in the United States and the relationship between the 
length of that process and incentives to innovate.
    Prior to teaching, she was in private practice, including 
eight years as a partner at Covington & Burlington in 
Washington, D.C. Professor Lietzan was involved in every major 
amendment to the Federal Food Drug and Cosmetic Act between 
1997 and 2014 working as outside counsel and sometimes lobbyist 
for various individual companies as well as the trade 
association PhRMA.
    She serves in the leadership of the Food and Drug Law 
Institute and served for many years in the leadership of the 
Science and Technology section of the American Bar Association. 
The professor received a bachelor's degree in history from the 
University of North Carolina where she graduated with honors, 
her master's degree in history from UCLA, and a law degree with 
high honors from Duke Law School. Professor, welcome.
    Alden Abbott is the Rumpel Senior Legal Fellow and Deputy 
Director of the Meese Center for legal and judicial studies at 
the Heritage Foundation. Prior to joining the Heritage 
Foundation, he served as director of Patent and Antitrust 
Strategy for BlackBerry and in a variety of senior Government 
positions, including director of antitrust policy for the 
Federal Trade Commission, acting general counsel of the 
Commerce Department, chief counsel for the National 
Telecommunications and Information Administration, and senior 
counsel in the Justice Department.
    Mr. Abbott is an adjunct professor at the Antonin Scalia 
Law School at George Mason University and was a visiting fellow 
at All Souls College, Oxford University, and a Wasserstein 
Fellow at Harvard Law School. He is also a member of the 
Leadership of the American Bar Association's Antitrust Section 
and a Non-Governmental Advisor to the International Competition 
Network.
    Attorney Abbott received his bachelor's degree from the 
University of Virginia, his master's degree in economics from 
Georgetown University, and his JD from Harvard Law School. 
Welcome.
    Aaron Kesselheim is an associate professor of medicine at 
Harvard Medical School and a faculty member in the Division of 
pharmacoepidemiology and Pharmacoeconomics in the Department of 
Medicine at Brigham and Women's Hospital. His research focuses 
on the effects of intellectual property law and regular 
policies on pharmaceutical development, the drug approval 
process, and the cost, availability, and use of prescription 
drugs both domestically and in resource-poor settings, Jen 
Center for primary care at Brigham and Women's Hospital.
    He is a member of the New York State Bar and is a patent 
attorney. And within the Division, Dr. Kesselheim leads the 
program on regulation, therapeutics and law, an 
interdisciplinary research core focuses on intersections among 
prescription drugs and medical devices, patent health outcomes, 
and regulatory practices and the law. And modernizing clinical 
trials and served as a consultant for the NIH, FDA, Institute 
of Medicine, USPTO, and numerous state government offices.
    He has been a visiting scholar at the Yale School of 
Medicine and School of Management and the visiting associate 
professor of law at Yale Law School.
    Dr. Kesselheim earned his bachelor's degree from Harvard 
College, his JD from the University of Pennsylvania Law School, 
his MD from the University of Pennsylvania School of Medicine, 
and his MBH from Harvard School of Public Health. Doctor, 
welcome.
    Each of the witness's written statements will be entered 
into the record in its entirety. I ask that each of you 
summarize your statements in 5 minutes or less. And to help 
you, you have lights in front of you. When that light switches 
from the green to yellow, you have a minute left, and from 
yellow to red means your time's expired. But as I told the last 
group, when I sit there, I never look at the lights. So I will 
diplomatically pick up the gavel, and maybe that will give you 
an indication to wrap it up.
    Now we are going to hear from our distinguished panel. And, 
Professor, the floor is yours.

   TESTIMONY OF PROFESSOR DAVID S. OLSON, ESQUIRE, ASSOCIATE 
 PROFESSOR OF LAW, BOSTON COLLEGE LAW SCHOOL; PROFESSOR ERIKA 
  LIETZAN, ESQUIRE, ASSOCIATE PROFESSOR OF LAW, UNIVERSITY OF 
MISSOURI SCHOOL OF LAW; ALDEN ABBOTT, ESQUIRE, DEPUTY DIRECTOR 
AND SENIOR FELLOW, THE HERITAGE FOUNDATION; AND PROFESSOR AARON 
  KESSELHEIM, M.D., M.P.H., ASSOCIATE PROFESSOR OF MEDICINE, 
                     HARVARD MEDICAL SCHOOL

             TESTIMONY OF PROFESSOR DAVID S. OLSON

    Mr. Olson. Thank you, Chairman Marino, Ranking Member 
Cicilline, and members of the Subcommittee. I appreciate the 
opportunity to testify today. A more detailed version of my 
remarks is available in the written testimony, as you said.
    Let me state from the outset my firm belief that patents 
are necessary to give adequate incentive to develop new drugs. 
After patent expiration, however, market competition from 
generics is the best way to provide patients with lifesaving 
drugs that they need at the best prices. I believe that the 
CREATES Act, which is one of the things being considered at 
this hearing, can be an important step in addressing abuse of 
FDA regulations.
    Forcing brand companies to share samples with generics is 
necessary, will not undermine incentives to invest in inventing 
new drugs, and does not violate patent or antitrust policy. 
Moreover, the narrowly tailored approach of the CREATES Act is 
superior to antitrust litigation.
    I would be pleased to discuss these issues more with the 
Subcommittee. But I want to focus my oral remarks on the 
problem abuse of REMs patents and the FDA approval process. In 
addition to performing bioequivalent studies to support an 
ANDA, FDAAA--the FDAAA Act requires that generic and brand 
manufacturers use a single shared REMS system for risk 
mitigation unless the brand manufacturer's system is either, 
one, too burdensome or, two, is protected by a patent or a 
trade secret that the brand company will not license.
    The problem that has arisen is that some brand companies 
have patented their REMs systems, or their REMs, with Elements 
to Assure Safe Use, ETASU, and then have refused to license 
generics. This means the generics cannot use that system. But 
more problematically, in some cases, the brand companies have 
then gone on to file citizen petitions arguing that a generic 
may not use another or comparable version of a REMs with ETASU 
program that the generic comes up with on its own because no 
other system would be as safe or effective as the patented 
ETASU. What this effectively does is keep generics off the 
market for the entirety of the period of the REMS with ETASU 
patent if successful.
    This has been done--asserted more than once. For example, 
Celgene took this approach in arguing that generic versions of 
Thalomid could not be sold. Besides this, brand companies also 
list REMs patents in the Orange Book notwithstanding the fact 
that a REMS patent is for a method of--is not for a method of 
use but, rather, a method of distribution. This could result in 
extension of the monopoly over a drug for almost 20 more years 
depending on the data filing of the REMS patent.
    It is worth noting that the parameters for a REMS with 
ETASU system are set forth in the FDAAA of 2007, and specific 
requirements for ETASU are given in the act. For instance, the 
FDAA sets out the requirements for ETASU including very simple 
and straightforward things like only--like educating doctors 
and hospitals, only allowing doctors and hospitals that have 
been educated and certified to prescribe the drug, having 
restricted distribution of the drug, patient testing and 
information, counseling patients, monitoring patients to make 
sure the drug is administered safely, and maintaining the 
database to coordinate all this information. This is set out in 
the statute.
    If you look at REMs with ETASU patents, which I have spent 
some time doing, what you note is that they track very closely 
to the statute. For example, claim 1 from Merck's REMS patent 
for Entereg contains the following steps: Identifying relevant 
hospitals; providing such hospitals with literature about the 
drug, wherein the drug is Entereg or a generic; identifying a 
subpopulation of hospitals which have measures in place to 
limit use of the drug wherein said measures comprise order 
sets, protocols, or guidelines; then registering the 
subpopulation using a computer-readable storage medium, 
authorizing them to dispense the drug, and monitoring the 
patients. Very closely track the statute and yet this is being 
patented.
    The problem with this is that not only might this be 
obvious, but if generics may not use the patented system, they 
may not be able to safely distribute the drugs and may be kept 
off the market. There is no solution to this problem under the 
status quo.
    The CREATES Act does provide a narrowly tailored and 
appropriate solution. By requiring branded and generic drugs 
to--companies to enter into a shared single REMS system within 
120 days of a request, this forces them to share unless a 
comparable system can be approved by the Secretary. The beauty 
of this is that what it will do--this approach will do is it 
will stop REMS companies from abusing REMS patents if they 
argue that there is no ability to distribute the drug except 
through the REMS process. Then what the statute does force them 
to do is to share their process.
    And I would just wrap up by saying that that forced sharing 
is neither a violation of patent policy nor of antitrust law. 
And I would be happy to speak more to that in the question and 
answer. Thank you.
    Mr. Olson's written statement is available at the Committee 
or on the Committee Repository at:

    https://docs.house.gov/meetings/JU/JU05/20170727/106333/
HHRG-115-JU05-Wstate-OlsonD-20170727.pdf
    Mr. Marino. Thank you, Professor. Professor Lietzan.

         TESTIMONY OF PROFESSOR ERIKA LIETZAN, ESQUIRE

    Ms. Lietzan. Chairman Marino, Ranking Member Cicilline, and 
members of the Subcommittee, thank you for this opportunity to 
speak with you today.
    I was asked to talk about three aspects of the FDA 
framework that are the focus of complaints that brand companies 
are acting improperly and may be violating antitrust law.
    The first is FDA's citizen petition process which furthers 
the open Government principles of transparency, public access, 
and accountability. Anyone may petition FDA to take any 
administrative action, and the petition and any comments on it 
are public documents. Petitions play an important role in our 
political system. The public has a strong interest in ensuring 
that executive branch agencies work within the constraints of 
the laws that Congress writes, and a robust petitioning 
practice adds a layer of surveillance to complement the 
oversight function of the legislative branch and the review 
function of the judicial branch.
    You have been told that brand companies file frivolous 
petitions that delay generic drug approval. These claims rest 
on anecdotes and a rhetoric, not evidence. Congress passed a 
law in 2007 stating that FDA may not delay approval of a 
generic drug due to a petition, unless necessary, to protect 
the public health. Since then, FDA reports only five generic 
drugs have been delayed without public health justification out 
of more than 4,000 copies approved.
    A high denial rate is not proof that petitions are 
frivolous. Drug approval decisions can require difficult 
judgment calls about appropriate regulatory policy in the face 
of scientific uncertainty and about the flexibility of the law 
to accommodate new facts. Differences in opinion and 
perspective are natural. A valid petition may simply lack 
persuasiveness at the end of the day.
    Congress has also been told that innovative companies use 
REMS restrictions to block generic drug approval. To the best 
of my knowledge, though, innovators refuse to provide samples 
primarily because they have concerns that requesting companies 
lack adequate safeguards to address the risks presented by 
these drugs. And these concerns are reasonable.
    Access restrictions are usually imposed to mitigate severe 
side effects, like birth defects or irreversible organ damage. 
And even minor lapses in safety protocols by any party at any 
point can have horrific consequences.
    If Congress wants to encourage innovators to provide 
samples, it should protect them from liability arising out of 
the actions of the third party once a restricted drug has left 
the innovator's special access system. We should not force 
innovators to provide their products to generic companies. If a 
drug is under patent, this would require the company to 
practice its patent for the benefit of a competitor. It is a 
bedrock principle of U.S. law that a patent owner has no duty 
to practice its patent at all.
    We lack evidence of a systemic problem that would justify 
such a fundamental change to the intellectual property system. 
Only 22 brand drugs have access restrictions and no generic 
application. And more than half of those are so new that FDA 
statute doesn't allow approval of a generic or by a similar 
anyway. It is not clear how many, if any, lack generic 
competition because an innovator didn't share its drug.
    Finally, there are concerns when the price jumps on a drug 
that has been inexpensive for years. Sometimes this results 
from FDA's unapproved drugs initiatives. And it is important to 
understand why this happens. Several thousand drug products are 
marketed without the required FDA approval.
    Many have been used for half a century or longer, and some 
are even covered by insurance. Some are not safe. Others are 
not effective, which is a problem because it keeps patients 
from drugs that do work.
    FDA focuses its enforcement efforts on the companies that 
sell these drugs which present a public health concern. FDA 
can't force the other companies to file applications. They 
would have to threaten enforcement action. And enforcement 
action threats are effective only if backed up. This would 
require resources that FDA doesn't have. It would also take 
medicines away from patients.
    So after approving an application, FDA removes the 
competing products from the market. This ensures that patients 
receive the specific product that was studied, and it preserves 
the integrity of the approval system. It also encourages 
applications.
    Usually generics can be approved three years later. But in 
the meantime, the company that submitted the application can 
recover its costs. This company hasn't done anything wrong. In 
fact, it is the one company that chose to comply with the law 
to bring an illegally marked product into the FDA system, but 
the system has taken away a cheap medicine from patients. 
Clearly we need a better solution that maintains the integrity 
of the drug-approval scheme but doesn't deprive patients of 
drugs they rely on.
    In sum, regulated industries, consumers, and other 
stakeholders share responsibility with FDA for the public 
health mission enshrined in the statute. When the rhetoric and 
anecdote are laid aside, the evidence suggests that regulated 
entities generally operate in good faith within this framework. 
And when companies protect their property rights, participate 
in open Government, or protect themselves from unfair liability 
exposure, it would be a mistake to take action against them. 
Instead we should look for ways to support FDA in its public 
health mission and to encourage private choices that we prefer 
as a public policy matter. Thank you.
    Ms. Lietzan's written statement is available at the 
Committee or on the Committee Repository at:

    https://docs.house.gov/meetings/JU/JU05/20170727/106333/
HHRG-115-JU05-Wstate-LietzanE-20170727.pdf 
    Mr. Marino. Thank you, Professor. Attorney Abbott.

               TESTIMONY OF ALDEN ABBOTT, ESQUIRE

    Mr. Abbott. Chairman Marino, Ranking Member Cicilline, and 
distinguished members of the Subcommittee, I applaud you for 
convening this hearing on a very important public policy 
matter.
    The views I express today are my own and should not 
necessarily be construed as representing any official position 
of the Heritage Foundation.
    Today I will briefly note the interplay between regulation 
of the competitive process before commenting specifically on 
the potential abuse of FDA citizen petitions. And I will 
summarize my views on a CREATES Act of 2017.
    Extensive economic research demonstrates that regulated 
entities may manipulate regulatory process to undermine 
competition. Such regulatory manipulation is harmful to the 
American economy. It often defers entry into a market and thus 
precludes competition on the merits thereby raising prices 
above competitive levels, reducing product quality spawning 
economic inefficiency and deterring innovation which is a key 
driver of economic growth.
    As a general matter, in order to maximize economic welfare, 
Federal regulators should seek to devise rules that are as 
procompetitive and adds little subject to an anticompetitive 
manipulation by private parties as possible consistent with 
statutorily set goals.
    And I am not commenting specifically on FDA rules, but I 
think the FDA certainly should and probably will go about doing 
that. There are principles of guidance provided by 
organizations such as the OECD/International Competition 
Network in which I am involved. And there is also general 
guidance available from competition economists, for example, at 
the Federal Trade Commission and Justice Department, who 
actually, in the past, in the 1970s, provided a very important 
role in promoting regulatory reform and transportation, in 
aviation.
    Now, one particular sort of regulatory manipulation that 
undermines competition is a taking of actions by an incumbent 
firm to forestall entry into the market by a potential 
competitor. References have been made to potential abuse of FDA 
citizen petitions to delay entry from producers of generic 
versions of branded drugs. Our current regulations require the 
FDA review and respond to every citizen petition receives 
creating the potential of delay.
    Now, claims have been made that citizen petitions have been 
filed to undermine competitive generic entry into certain 
pharmaceutical matters. Those concerns have been noted by the 
FDA, for example, in a 2015 report. And most recently, in 
February 2017, the Federal Trade Commission filed a complaint 
in Federal District Court alleging that Shire ViroPharma, a 
branded pharmaceutical company, engaged in a series of 
meritless filings, including 24 FDA citizen petitions to delay 
generic entry into a particular market.
    Now, clearly, baseless FDA filings made by brand name 
Pharma firms lacking any plausible efficiency justification 
used solely to forestall competition undermine the competitive 
process. FDA and Congress certainly should consider what, if 
any, additional legislative or regulatory steps may be 
appropriate to curb such abusive filings including, but not 
necessarily limited to, reform of citizen petition process.
    Now, the Federal Trade Commission's suit against Shire 
ViroPharma appears to advance sound policy. I would note, 
however, a slight bit of caution. Although antitrust actions 
occurred clearly pretextual petitioning, at a potential to 
reduce harmful regulatory delays, such cases need to be 
selected with great care by public officials. I believe the 
Federal Trade Commission certainly appears to have done that in 
this case. But certainly, you want to be careful. And the 
Supreme Court in its case law is sort of cavil to bringing 
suits of that kind.
    Now, the CREATES Act of 2007 is a modified, and I believe, 
an improved version of its 2016 CREATES Act on which I 
testified favorably before Senate Judiciary. Now, the 2017 act 
gives the FDA more discretion than 2016 act to approve 
alternative safety protocols for high-risk drugs rather than 
require parties to develop shared safety protocols, and it does 
away with a concern of alleged free riding on safety protocols 
developed by the branded company.
    Now, that 2017 act also creates a statutory gap. I explain 
in my testimony, as I did my testimony last year, there are 
real limitations in the application of the antitrust laws to 
cases of regulatory violations and refusals to supply. Not that 
it is necessarily impossible, but these cases are very hard to 
bring. And because of that, I think the CREATES Act is 
appropriate and narrowly tailored to fill a niche that 
antitrust may not really be able to address appropriately.
    Thank you once again. I look forward to your questions.
    Mr. Marino. Thank you, Attorney Abbott. Dr. Kesselheim.
    Mr. Abbott's written statement is available at the 
Committee or on the Committee Repository at:

    https://docs.house.gov/meetings/JU/JU05/20170727/106333/
HHRG-115-JU05-Wstate-AbbottA-20170727.pdf
    Dr. Kesselheim. Chairman Marino, Ranking Member Cicilline, 
and other members of the Subcommittee, thank you for this 
opportunity to join you today.
    The reason today's hearing is so important is that low-cost 
generics and biosimilars improve patient adherence and clinical 
outcomes. And generics have led to trillion dollars in 
healthcare system savings over the last decade. However, too 
often branding manufactures work to delay the availability of 
generics using different business strategies. I am going to 
mention, briefly, five.
    First, most drugs have patents covering their active 
ingredients, but manufacturers will seek secondary patents on 
peripheral features such as the drug's metabolite or method of 
administration. Generic manufacturers then have to design 
around these patents or challenge their validity in court. One 
classic example with the anti-ulcer medication, Prilosec, which 
was protected for additional years by a patent on the pill's 
coating.
    In one study I led, we found that Medicaid alone could have 
saved $600 million on this single drug had a low-cost generic 
been available before this delay. In another study of two HIV 
drugs, we found nearly 200 such secondary patent claims 
threatening to delay generic availability for 12 years.
    Another strategy aided by these secondary patents is 
product hopping in which manufacturers switch to different 
products, sometimes trivially different, pulling their old 
generic--their old product off the market to stay one step 
ahead of generic manufacturers. For one antibiotic drug, the 
manufacturer switched first from a capsule to a tablet, then to 
a slightly different dose, then to a tablet with a single 
score, and finally to be tablet with two scores.
    Problematic patents may be challenged in court. But a third 
delaying strategy is for branding manufacturers to make 
substantial payments to generics to end these cases in so-
called pay-for-delay settlements.
    The FTC estimated in 2010 that such settlements would cost 
Americans $3.5 billion annually extra over the subsequent 
decade. An analysis revealed that, when these cases were 
litigated to completion, two-thirds of the cases related to 
secondary patents. And in those cases, generics were 
victorious. Pay-for-delay settlements are naturally much more 
likely to cover challenges over secondary patents.
    A fourth strategy involves preventing generic manufacturers 
from getting samples or other key information that they need 
for FDA approval. And we have talked about that a lot today 
already. To help the HIV drug Daraprim sustain its 5000 percent 
price increase, the manufacturer restricted the distribution 
through a single specialty pharmacy in part so the generics 
couldn't get it.
    The FDA has received about 150 inquiries from generic 
manufacturers regarding inability to secure samples. For drugs 
protected by special REMS-prescribing restrictions, generic 
manufacturers need to be able to use the same system for their 
interchangeable drugs. But branding manufacturers have delayed 
generic entry by refusing to share information about their REMS 
or getting secondary patents covering their REMS processes.
    Finally, as Mr. Abbott explained, manufacturers use citizen 
petition requests to the FDA to delay generic drug entry. One 
review of 5 years of petitions found that 87 percent of these 
petitions were filed by manufacturers of brand-name drugs, and 
92 percent were ultimately denied.
    Relying on FDC antitrust enforcement is not sufficient to 
stop these tactics. Patients need Congress to step in. A first 
step would be to pass the CREATES Act which provides a process 
for requiring manufacturers to provide key drug samples and to 
prevent some REMS abuses. But this Committee should also 
consider other potential reforms. I am going to mention four, 
and I have other suggestions in my written comments.
    First, to prevent improper secondary patents from delaying 
generic entry, Congress should require formal patent review 
when these patents are listed with the FDA. Many secondary 
patents would not pass such scrutiny and could be weeded out 
before lengthy litigation is required.
    Second, the Committee should consider additional mechanism 
to address problematic pay-for-delay settlements that continue 
to this day even after the FTC versus Actavis case. Including 
preventing settlements with transfers of value for delayed 
entry over the cost of the litigation or increasing the 
penalties for settlements found to be anticompetitive, such as 
full disclosure of profits or treble damages.
    Third, all terms of REMS should be public information, and 
REMS patents should not be able to be listed with the FDA. 
Ultimately, I believe we should move to a system in which it is 
the FDA with sufficient resources that controls and manages the 
REMS as a public good, because it will increase efficiency for 
patients if brand names and their interchangeable generics are 
all part of the same REMs.
    To address the misuse of citizen petitions, the Committee 
could also expand the opportunities for the FDA to summarily 
reject petitions without requiring an in-depth review.
    Manufacturers of brand-name drugs use many strategies to 
delay generic entry, of which I have only highlighted some of 
them today. That is bad for patients, bad for the economy, and 
it reduces innovation. One study found that it was the ending 
of market exclusivity periods in contrast to their indefinite 
extension that was most associated with the introduction of new 
branding products.
    The CREATES Act is a laudable first step in helping address 
some of these strategies, but other policy reforms are also 
needed. I appreciate the Committee's commitment to solving 
these issues and would be happy to continue to be involved in 
the deliberative process.
    Mr. Kesselheim's written statement is available at the 
Committee and on the Committee Repository at:

    https://docs.house.gov/meetings/JU/JU05/20170727/106333/
HHRG-115-JU05-Wstate-KesselheimA-20170727.pdf
    Mr. Marino. Thank you, Doctor. We will now begin with 
questioning. There will be other members that may come in and 
out.
    I am going to start off with a question for each, you if 
you care to answer it. I will start with Professor Olson and 
work our way down to Dr. Kesselheim, and then I have another 
question that I would like each of you to respond to, if you 
care to. Then I would start with Dr. Kesselheim. Okay.
    Concerns have been raised that the approval of a generic 
alternative REMS distribution system will inevitably lead to 
patent infringement systems. Given the likely overlap with the 
branded manufacturers original distribution system, do you 
anticipate this being a problem? And I have been a critic of 
bringing--wanting to so much bring the Patent and Copyright 
Office into the 21st Century.
    So Professor Olson.
    Mr. Olson. Yes, Mr. Chairman. I do think that the way that 
patents are written, the fact that they have to track the 
statute very closely, means that it will be very easy to bring 
infringement suits. Even if the patent is found invalid or the 
suit is not successful, this listing them in the Orange Book 
and the litigation can significantly delay generic entrance.
    Furthermore, there is no additional incentive that is given 
by granting REMS patents that is needed, because there is 
already an incentive to create the REMS in ETASU systems 
because you don't get to market your drug unless you create it. 
They are a tiny fraction of a cost of drug development. And so 
by forcing sharing, or at stopping companies from arguing that 
if generics don't share they may not market the drug, we are 
not going to be losing anything. We are not going to lose any 
benefit.
    Mr. Marino. Professor.
    Ms. Lietzan. Well, first of all, I disagree with Professor 
Olson that there isn't much difference between the statutory 
language and the REMS patents the statute describes in very 
general terms the type of access restrictions that are 
permitted. And anyone who has ever worked on designing a risk 
management plan or negotiating a REMS with FDA can tell you 
that there are many ways to mitigate a risk. And the REMS 
themselves are very detailed, and there are a lot of decision 
points along the way.
    I think the question that matters is whether it is possible 
to mitigate a particular risk more than one way. And that is a 
clinical question and a regulatory question. It has to be 
answered case-by-case. But having worked on REMS issues for 
companies, my instinct is, yes, there is--there is absolutely 
more than one way to design a system.
    Mr. Marino. Thank you.
    Attorney Abbott, do you care to comment?
    Mr. Abbott. Well, it is certainly possible, Mr. Chairman, 
as I mentioned, the possibility of designing around a patent. 
That may be tricky. There is certainly a possibility of 
infringement lawsuits. It could also, perhaps, be dealt with 
legislative. And if Congress wanted to, could make it clear 
that any actions taken to develop sort of a REMS system by 
potential entrant, is not going to constitute patent 
infringement, I am just not saying good it is a good idea or 
not, but there may be ways to have very, very narrow 
modifications to try and forestall the problem of opportunistic 
patent litigation here. You have to be very careful, you know, 
and maintain appropriate incentives to innovate.
    But I think, as Professor Olson mentioned, they probably 
already are given the need to meet FDA regulatory requirements 
to develop these systems. But I am not an expert in this area, 
but that is just my initial reaction.
    Mr. Marino. Doctor.
    Dr. Kesselheim. I think that here we should be thinking 
about what is best for the patient. And to me the best thing 
for our patients is to have a single REMS system, because, 
again, these are otherwise interchangeable drugs. It doesn't 
make any sense if you are a clinician or a patient to be 
enrolling people in different REMS for otherwise 
interchangeable drugs based on a manufacturer that you may not 
know.
    And so I think that ultimately we should be trying to 
develop a system where shared REMS are able to be done and are 
able to be established in an efficient way. And I think that we 
can do that by, for example, creating royalty free licenses for 
patented REMS so that generic manufacturers can use them or 
other mechanisms to try to encourage the development of shared 
REMS for patients' benefits.
    Mr. Marino. I am going to play a little devil's advocate 
with myself here, and I would like to hear what you folks have 
to say about it. And we will start with you, Dr. Kesselheim.
    I am very familiar with, because I have a very dear friend 
who is now retired from his 90s, who was a researcher, Ph.D., 
and come working in with drug companies, which I won't mention. 
And I saw, and he has explained to me over the years, the time, 
the labor, the expense that goes into developing a drug.
    How do we--or should be even think about that concept of 
the profit or not meeting the profit to make sure that 
companies still are in the research aspect of creating life-
saving drugs.
    Do you understand my question?
    Dr. Kesselheim. Sure. So, I mean, I--obviously I think it 
is very important for there to be a period of time when 
companies can make back the investment that they had in their 
product and make a profit on that. But at some point that 
period has to end. And currently, manufacturers on average get 
about 12 to 16 years of market exclusivity.
    How much longer--how much more market exclusively is 
necessary? I mean, you know, manufacturers--pharmaceutical 
manufacturers currently make about 22 percent profit margins as 
compared to 7 percent profit margins for the rest of the 
Fortune 500, you know.
    And so--I mean, I think that it is--it is important both 
for there to be a fair return on investment but then at some 
point for that to end and for a competitive market to be in so 
that patients can get the benefit of lower-cost generic 
products.
    And I don't think what we are talking about here has any, 
necessarily, bearing on the questions of innovation. We are 
talking about getting timely access to generic products after 
an extended period of market exclusivity that already exists.
    Mr. Marino. Thank you.
    Attorney Abbott.
    Mr. Abbott. I think, yes, one may agree or disagree about 
the appropriate length of exclusivity. I think once the 
exclusivity period is over, whatever decision you make, you 
want to get the competitive products to the market as quickly 
as possible.
    I will just note very briefly. It is beyond the scope of 
this hearing, but it is very important. One issue that American 
pharma firms face that is very serious is a single purchaser. 
Many foreign countries are sort of monopsony purchasers of 
American pharmaceuticals. And they say if you want to enter our 
market, you know, we are going to dictate these price terms.
    So, unfortunately, the American consumer has sort of been 
losing because of that. In the cross subsidization, American 
consumers and the American economy has paid more for drugs than 
foreign countries. But often that is an artifact of the foreign 
systems. And I don't know if you can talk about international 
agreements or something to deal with it. But it is part of the 
bigger again that is beyond the scope of this hearing.
    Mr. Marino. Thank you.
    Professor Lietzan.
    Ms. Lietzan. Yes. Thank you. This is actually an area in 
which I have done a fair amount of research recently.
    You are right about the cost. In addition, there is a high 
degree of risk. There are a lot of products that are--compounds 
that look promising at the beginning and fail through the long 
process. It is expensive and risky. And a company that does 
this research has to recover not only the cost of researching 
the drug that actually got approved but the cost of starting to 
research, starting the process with the drugs that failed.
    So I have serious concerns about the adequacy of our 
incentives right now. And I am particularly concerned about the 
products that take a really long time--products, for example, 
that might prevent Alzheimer's, things that--things for which 
we may need to do trials that exceed 10 or 15a years.
    Dr. Kesselheim is right about the average market 
exclusivity data. But I think recent economic data suggests 
suggestion the break-even point for new molecular entities is 
somewhere in that 12- to 16-year range. And innovators and 
other industries benefit from 17 to 20 years of patent life. 
And if you compare that with 12 to 14 for the drugs that we 
desperately need, that leaves me concerned.
    Thank you.
    Mr. Marino. Thank you.
    Professor Olson.
    Mr. Olson. I echo the comments of Dr. Kesselheim. And just 
to add one thing to that. Professor Lietzan's right, of course, 
that the risk is very high. But the profit margin overall tells 
you that you are getting high risk and a pretty high reward. 
That takes into account all the failures.
    The other thing I would just add is that in my proud city 
of Boston, we have many biological biotech companies. Some of 
them are taking 20 or 30 years to get a pathway to a drug. And 
yet we have this amazing ecosystem that supports that.
    The system has worked without needing extension. When we 
grant extensions of exclusivity or if we can end the granting 
of some of these extensions of exclusivity, the drug companies 
will also stop focusing on trying to extend and move back to 
focus on R&D. And that is where we want them to focus once 
their drug has been patented.
    Mr. Marino. Thank you.
    The Chair now recognizes Congressman Johnson.
    Mr. Johnson. Thank you, Mr. Chairman.
    Professor Lietzan, in your written testimony you state that 
requiring branded drug companies to provide drug samples to 
generic drug competitors is a duty to deal that will undermine 
innovation.
    How would requiring samples to all patent drugs or drugs 
nearing the ending of their patent exclusivity harm innovation?
    Ms. Lietzan. So I do believe that requiring the sale of a 
product ultimately requires--if it is a patented product, it 
requires the company to manufacture enough of the product to 
satisfy all of the generic applicants, all the biosimilar 
applicants that wanted that. And if a product is under patent, 
that requires the company to practice its patent for the 
benefit of one of its competitors. That is contrary to bedrock 
principles of U.S. patent law right now and in and of itself 
will devalue the patent, which, to me, is concerning because 
decades of research show that robust patent protection is 
essential for pharmaceutical innovation.
    Mr. Johnson. All right.
    And, Mr. Abbott, do you agree with Professor Lietzan's 
characterization that providing drug samples is a duty to deal? 
Do you agree with that?
    Mr. Abbott. Well, Congressman, I think one has to look at 
this duty as a general matter, non-regulated contacts. There 
isn't normally a duty to deal here. The problem is that, in 
order to enter the market, you need to get hold of these 
samples.
    So, yes, you are, in some sense, constraining potentially 
intellectual property right. But it may be near the end of the 
patent life, and it is sort of necessary to be able to entry--
to enter. And if it is necessary to be able to enter, that is, 
you know, one of the tradeoffs.
    I think that--so I--that would be my response.
    Mr. Johnson. Dr. Kesselheim, as a practicing doctor, are 
you concerned that requiring access to branded drug samples 
would undermine----
    Dr. Kesselheim. No, I'm not. I mean, I feel like the 
statute is well constructed to try to prevent any risk of 
patient safety.
    But, again, these samples are not being collected to then 
be distributed to patients. They are being collected to be put 
into laboratory and other clinical testing that is necessary to 
demonstrate to the FDA that the drug is bioequivalent and 
therefore the generic drug and be approved.
    I don't really see the risk that, for example, a drug that 
is used in elderly patients with a type of cancer called 
multiple myeloma, but also, unfortunately, has a birth defect 
risk, because it's being transmitted to a generic for the 
purpose of conducting clinical testing so that the generic can 
get on the market, would somehow end up in the hands of 
patients for whom it would cause risk.
    I don't see that as a reasonable safety risk. And I do 
think that to the extent that there are weird ways that we 
could think of that that might exist, the statute does a good 
job of trying to prevent that from happening by forcing the 
company to develop a plan and register that with the FDA.
    Mr. Johnson. Professor Lietzan, I feel compelled to offer 
you the opportunity to respond.
    Ms. Lietzan. Yes. So these drugs are--they present very 
serious risks to patients, and some of them are toxic. And many 
times the generic companies that request samples have no 
experience with drugs of this sort. Some of sophisticated, but 
some do not.
    And I think that the concern has always been that if 
anybody in the process of conducting, especially when you get 
to the clinical trials, if there's any sort of lapse by 
anybody, the contract--the clinical research organization, not 
the generic company, the group that they contracted with to do 
the bioequivalent study, if there's any sort of lapse, the 
consequences can be horrific.
    And my own view is that the concerns that the companies 
have are valid, and I know that many of the companies that have 
been the focus of attention, because they have demanded 
assurances about safety protocols, have in fact sold their 
products to generic companies that have adequate safety 
protocols. And to me that is very strong evidence of good 
faith.
    Mr. Johnson. Mr. Abbott, would you care to respond?
    Mr. Abbott. Well, I don't know if you're asking about the 
questions of safety and risk. I mean, perhaps Dr. Kesselheim 
might be best.
    I do know that most generic companies, they have to meet 
very rigorous--generic companies, some of the largest 
pharmaceutical companies in the United States, they have to 
meet, in general, very rigorous safety controls. They are 
subject to potential liability of various sorts.
    But perhaps Dr. Kesselheim might want to have some 
additional comments.
    Mr. Johnson. Doctor.
    Dr. Kesselheim. Sure. I mean, I think I said--I mean, I 
said what I said before. But I think you also have to take into 
account the risk of not allowing this kind of normal business 
practice to happen, which is that very expensive drugs do not 
get timely generic competition, which keeps the price high, 
reduces access to important drugs for patients who are unable 
to afford access.
    And I think you also have to take into account that whole 
risk of not having a system in which businesses can exchange 
the product that they need in order to do the various basic FDA 
testing as well.
    Mr. Johnson. Thank you. And I yield back.
    Mr. Marino. The Chair now recognizes the Ranking Member, 
Congressman Cicilline.
    Mr. Cicilline. Thank you, Mr. Chairman.
    I'd like to begin, if I may, with you, Professor Lietzan. I 
wonder if you're familiar with the Harvard Law--Harvard Journal 
on Legislation written by Robin Feldman that spoke specifically 
about this pay-for-delay problem. And in her writing, she gives 
an example, In Re: Flonase Antitrust Litigation.
    At its peak, Flonase, a steroid nasal spray for allergy 
treatment, received $1.3 billion a year in sales. Through a 
complicated series of citizen petitions, GlaxoSmithKline was 
able to stave off generic entry for 23 months. Thus, the delay 
achieved through citizen petitions was worth approximately $2.5 
billion, assuming it maintained the peak $1.3 billion in sales 
per year.
    They ended up settling that case for $185 million. So even 
with that large settlement, the delay may have been worth $2.3 
billion.
    That's just a single example. So I just wonder how you 
square that with the suggestion in your testimony that this 
doesn't continue to be a problem and that citizen petitions 
aren't used by brand companies for the specific purpose of 
delaying entry into the market and causing them to realize 
significant financial gains.
    Ms. Lietzan. Sure. I appreciate the question.
    I'm not familiar with that particular article that 
Professor Feldman wrote, and I haven't looked at this 
particular example. And I don't know the date on it, if it 
might be prior to the change in the law that Congress enacted 
in 2007.
    Mr. Cicilline. I think it was written last year.
    Ms. Lietzan. No, no, I'm sorry, the actual Flonase example.
    Because I do know that FDA itself has told Congress that 
there have only been five generic drug approvals delayed that 
didn't have a public health justification since that law was 
enacted. So it's possible, I'm not familiar with that 
particular example, it's possible that predates the current 
situation.
    Mr. Cicilline. Thank you very much.
    Dr. Kesselheim, am I pronouncing that correctly.
    Dr. Kesselheim. Yes.
    Mr. Cicilline. Thank you again for your testimony.
    I'm wondering whether you could speak a little bit about 
whether or not the Supreme Court's decision in FTC v. Actavis 
has affected the use for pay-for-delay settlements. Do you 
assess that this continues to be a problem? Even if it's not a 
lot of instances, these instances can impose significant costs 
on the consumer and significantly enrich the brand companies.
    Dr. Kesselheim. Sure. I mean, I do think that the FTC v. 
Actavis case has caused some shifts in--you know, the FTC v. 
Actavis case was really about the FTC being able to review pay-
for-delay settlements that included extremely large monetary 
transfers like handing over of suitcases full of cash.
    But since then, pay-for-delay settlements have continued. 
Many of them also still involve monetary settlements. But many 
of them also now involve more complex co-marketing arrangements 
or other kinds of business deals, some of which may not 
necessarily be at the sort of fair value that they might have 
otherwise been, and these kinds of agreements persist.
    And I think the problem is that allowing FTC to review them 
is great, but it takes a really long time and a lot of 
resources to get through this. The Actavis case itself, which 
was the subject of the Supreme Court case, was started back in 
2006, and we still haven't had really a full trial of it.
    So I do think that congressional action is needed to try to 
prevent settlements that are--that go beyond mere exchanges of 
litigation costs.
    Mr. Cicilline. And do you think we ought to consider as 
well enactment of a prohibition, a statutory prohibition of 
pay-for-delay, like completely prohibit that activity as a 
matter of law?
    Dr. Kesselheim. Well, I do think that the FTC in the past 
has said that it would prefer kind of a per se rule where these 
kinds of agreements are presumed not to be legitimate unless 
there is a sort of compelling justification that is provided 
for them.
    Mr. Cicilline. Other than the enrichment of the brand drug 
company.
    Dr. Kesselheim. Right, a compelling public health 
justification, not a compelling personal or market profit 
justification. And I do think that that might be a good model 
to consider.
    Mr. Cicilline. Professor Olson, would you--I'd like your 
thoughts on that as well.
    Mr. Olson. Yes, I agree. I think that there is a case to be 
made for per se treatment. The Supreme Court did not do that in 
Actavis. But I think the Court eventually is getting to the 
right answer, but it will take many, many years. And it's hard 
to come up with much significant harm that would come from 
simply prohibiting transfers of value to the generic company 
for basically delaying.
    Mr. Cicilline. And I'm wondering whether any of the members 
of the panel, it's my last question, have any suggestions of 
improvements that we might make to the CREATES Act or consider.
    I expect that, Professor Olson, you were nice enough to 
describe the CREATES Act as an elegant narrowly tailored fix. 
Nobody has ever called our legislation elegant, so we like 
that. But I'm just curious to know whether or not you think 
there are ways that we could improve the legislation that 
you've reviewed.
    Mr. Olson. Yes, sir.
    So I, you know, I do think that it's narrowly tailored, and 
I'll stick by the word ``elegant.'' I think there could be some 
leeway on the period of, you know, is it 30 days or 45 days. I 
wouldn't go, you know, is 120 or 150 days, but I wouldn't go 
much farther.
    And I would point out that coming up with an ETASU in the 
first place, the company is only given 120 days. So I think the 
timeframes you've chosen are very good.
    And I think there are other ways to address the issues 
you're getting at that would go beyond the CREATES Act, but for 
what the CREATES Act is specifically getting at, I think it 
does a very good job.
    Mr. Cicilline. Thank you.
    Doctor.
    Dr. Kesselheim. I guess I would just go back to my point 
that I think that--if you want to focus on just the issues that 
the CREATES Act covers, which is the REMS and the products, I 
mean, I think that you could add provisions that would again 
require REMS information to be public so there is no 
proprietary information about REMS, so that everybody knows 
what's in REMS and generic manufacturers can create their own 
REMS without having to haggle with the manufacturer for 
proprietary information. And I think you could include 
provisions that do not allow REMS patents to be listed with the 
FDA so that they don't block entry of generic drugs as 
secondary patents.
    Mr. Cicilline. Great.
    Mr. Abbott. I'll just briefly say, it's interesting, this 
notion of REMS as sort of a regulated public utility model. And 
it's certainly possible, there are to the extent--and again, I 
don't know enough about the science--but to the extent you have 
do have one sort of optimal set of safety protocols, there are 
some issues.
    I think in that situation, though, if you wanted access to 
this, you would not necessarily--the brand name drug company 
might say, wait a second, okay, I can see that argument, but we 
shouldn't have to bear all the costs and the risks of 
developing it. There should be some way of having the FDA or 
getting some compensation, making sure that everyone has sort 
of access to this efficient public facility. You have to also 
take that potential cost to the brand companies as well.
    Dr. Kesselheim. I just want to echo that. And I agree. And 
I think that managing the REMS through the FDA instead of 
making it be--making them be managed through the companies 
would be helpful, again, with the proper resources, because, as 
I said before, it is optimal for patients who are otherwise--
who don't know who their generic manufacturer is.
    Because generic drugs are interchangeable with each other, 
to have to go to different REMS based on whoever the generic 
manufacturer is, is inefficient and would be frustrating for me 
as a clinician to try to figure out, well, who should I be 
calling, which registry should I be calling.
    It should all be centralized. And maybe the optimal way to 
do that would be to have the REMS authority be within the FDA 
and the FDA to be properly resource to run the single central 
REMS and then none of these issues would exist.
    Mr. Cicilline. Great. I know my time. I thank the Chairman 
for indulging me. Thank you very much. I yield back.
    Mr. Marino. Would each of you, if you care to respond to my 
question, give an explanation for the general public, because 
we're throwing around a lot of language here in testing and 
retesting, what an originator of a drug has to go through to 
get that drug to the market? And what difference is there, if 
any, for the generic company to get that drug to the market?
    So, please.
    Dr. Kesselheim. I'll start. So, you know, a brand name 
manufacturer usually has to go through a period of preclinical 
testing that leads ultimately to an investigational new drug 
application, and then a period of clinical trials that takes on 
average about 6 to 7 years, and then files a new drug 
application with the FDA that then is reviewed in, on average, 
about 8 months.
    Brand name manufacturers--that's brand name manufacturers--
generic manufacturers have to prove that their drug is 
bioequivalent, which is to say, you know, based on preclinical 
and very limited clinical trials, show that the bioavailability 
of the drug and the blood levels of the drug for their version 
is the same as the brand name version, which is why, of course, 
the samples of brand name version are so critical, and then go 
through sort of, again, a more limited FDA review process only 
because there's less data that the generic manufacturer is 
submitting to the FDA. And then the generic manufacturer's drug 
may be evaluated with the FDA as being interchangeable and be 
able to go on the market.
    Mr. Marino. Could you give an estimate of some time? 
Because you did bring out estimates for the original company of 
7 to 8 years of just one segment of testing.
    Dr. Kesselheim. Right. I think that that pre--the 
bioequivalence testing can take far less than that. It probably 
takes, you know, in the sort of months to small number of 
years, rather than, on average, about 6 to 7 years.
    And the generic review period by the FDA, as of 5 years 
ago, was actually much longer than the brand name review period 
because of far less resources that are dedicated to the Office 
of Generic Drugs. That's changed in the last few years and now 
the generic drug review process is faster, although still, I 
think, averages more like 12 to 18 months, rather than on 
average about 8 months for brand name drugs.
    Mr. Marino. Anyone else?
    Ms. Lietzan. No. I think, actually, Dr. Kesselheim's 
description of the approval--the two different approval 
pathways is entirely right. The only thing I would add is that 
I believe the Federal Trade Commission wrote a few years ago 
that the process for developing and getting a generic drug 
approved was 3 to 5 years. I don't know if that remains true, 
but that's what they said in, I think, 2009.
    Mr. Marino. Professor Olson.
    Mr. Olson. Yes. I just wanted to--I agree with that 
process. I want to add on, though, it's a little bit different 
for large molecule biologics.
    So for large molecule biologics, the testing for a generic 
takes longer and it's much more complex because it's a more 
complex molecule and because the cell lines can change over 
time. So it's key that these generics are provided samples not 
just once, but several times over a period of could be a year 
or so.
    And that actually make the CREATES Act or some approach 
like it very important, because a brand name could basically 
disrupt and ruin the testing of someone trying to do a 
biosimilar simply by not providing samples in the middle of a 
testing procedure.
    Ms. Lietzan. Congressman, could I just make one comment on 
that?
    Mr. Marino. Sure.
    Ms. Lietzan. FDA has actually said that a biosimilar 
company can use a foreign-sourced version of the reference 
product for much, probably not all, but much of that 
application. I just wanted to make sure you were aware of that.
    Mr. Marino. Obviously, there's no other--Congressman 
Cicilline has something.
    Mr. Cicilline. Yeah. Mr. Chairman, I would just ask 
unanimous consent to make a part of the record this article, 
``Drug Wars: A New Generation of Generic Pharmaceutical 
Delay,'' by Robin Feldman and Evan Frondorf, as a part of the 
record.
    Mr. Marino. Without objection.
    This material is available at the Committee or on the 
Committee Repository at:

    https://docs.house.gov/meetings/JU/JU05/20170727/106333/
HHRG-115-JU05-20170727-SD003.pdf
    Mr. Marino. This concludes today's hearing. I want to thank 
you very much. We could sit here for another 24 hours and I got 
a million questions in my head. But, as always, if you have 
anything to offer us. Mr. Cicilline has what we usually say, 
either one of us, is, what do you think of our legislation? 
That's important to us. You're the experts. We're the 
legislators and we need your assistance as well.
    So, again, thank each and every one of you for being here. 
I'm sure we'll see each other in the future at some time.
    So without objection, all members will have 5 legislative 
days to submit additional written questions for the witnesses 
or additional materials for the record.
    This hearing is adjourned. And we're going to go vote again 
shortly.
    [Whereupon, at 3:48 p.m., the Subcommittee was adjourned.]
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