    [House Hearing, 116 Congress]
    [From the U.S. Government Publishing Office]

                        PROFITS OVER CONSUMERS: EXPOSING
                        HOW PHARMACEUTICAL COMPANIES GAME
                                  THE SYSTEM

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

                                    HEARING

                                   BEFORE THE

                SUBCOMMITTEE ON CONSUMER PROTECTION AND COMMERCE

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               SEPTEMBER 19, 2019

                                   __________

                               Serial No. 116-63

          Printed for the use of the Committee on Energy and Commerce

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                       govinfo.gov/committee/house-energy
                            energycommerce.house.gov

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    45-263 PDF                 WASHINGTON : 2022

    -----------------------------------------------------------------------------------

                        COMMITTEE ON ENERGY AND COMMERCE

                         FRANK PALLONE, Jr., New Jersey
                                     Chairman
    BOBBY L. RUSH, Illinois              GREG WALDEN, Oregon
    ANNA G. ESHOO, California              Ranking Member
    ELIOT L. ENGEL, New York             FRED UPTON, Michigan
    DIANA DeGETTE, Colorado              JOHN SHIMKUS, Illinois
    MIKE DOYLE, Pennsylvania             MICHAEL C. BURGESS, Texas
    JAN SCHAKOWSKY, Illinois             STEVE SCALISE, Louisiana
    G. K. BUTTERFIELD, North Carolina    ROBERT E. LATTA, Ohio
    DORIS O. MATSUI, California          CATHY McMORRIS RODGERS, Washington
    KATHY CASTOR, Florida                BRETT GUTHRIE, Kentucky
    JOHN P. SARBANES, Maryland           PETE OLSON, Texas
    JERRY McNERNEY, California           DAVID B. McKINLEY, West Virginia
    PETER WELCH, Vermont                 ADAM KINZINGER, Illinois
    BEN RAY LUJAN, New Mexico            H. MORGAN GRIFFITH, Virginia
    PAUL TONKO, New York                 GUS M. BILIRAKIS, Florida
    YVETTE D. CLARKE, New York, Vice     BILL JOHNSON, Ohio
        Chair                            BILLY LONG, Missouri
    DAVID LOEBSACK, Iowa                 LARRY BUCSHON, Indiana
    KURT SCHRADER, Oregon                BILL FLORES, Texas
    JOSEPH P. KENNEDY III,               SUSAN W. BROOKS, Indiana
        Massachusetts                    MARKWAYNE MULLIN, Oklahoma
    TONY CARDENAS, California            RICHARD HUDSON, North Carolina
    RAUL RUIZ, California                TIM WALBERG, Michigan
    SCOTT H. PETERS, California          EARL L. ``BUDDY'' CARTER, Georgia
    DEBBIE DINGELL, Michigan             JEFF DUNCAN, South Carolina
    MARC A. VEASEY, Texas                GREG GIANFORTE, Montana
    ANN M. KUSTER, New Hampshire
    ROBIN L. KELLY, Illinois
    NANETTE DIAZ BARRAGAN, California
    A. DONALD McEACHIN, Virginia
    LISA BLUNT ROCHESTER, Delaware
    DARREN SOTO, Florida
    TOM O'HALLERAN, Arizona
                                     ------

                               Professional Staff

                       JEFFREY C. CARROLL, Staff Director
                    TIFFANY GUARASCIO, Deputy Staff Director
                    MIKE BLOOMQUIST, Minority Staff Director
                Subcommittee on Consumer Protection and Commerce

                            JAN SCHAKOWSKY, Illinois
                                    Chairwoman
    KATHY CASTOR, Florida                CATHY McMORRIS RODGERS, Washington
    MARC A. VEASEY, Texas                  Ranking Member
    ROBIN L. KELLY, Illinois             FRED UPTON, Michigan
    TOM O'HALLERAN, Arizona              MICHAEL C. BURGESS, Texas
    BEN RAY LUJAN, New Mexico            ROBERT E. LATTA, Ohio
    TONY CARDENAS, California, Vice      BRETT GUTHRIE, Kentucky
        Chair                            LARRY BUCSHON, Indiana
    LISA BLUNT ROCHESTER, Delaware       RICHARD HUDSON, North Carolina
    DARREN SOTO, Florida                 EARL L. ``BUDDY'' CARTER, Georgia
    BOBBY L. RUSH, Illinois              GREG GIANFORTE, Montana
    DORIS O. MATSUI, California          GREG WALDEN, Oregon (ex officio)
    JERRY McNERNEY, California
    DEBBIE DINGELL, Michigan
    FRANK PALLONE, Jr.,  New Jersey (ex
        officio)

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Jan Schakowsky, a Representative in Congress from the State
      of Illinois, opening statement.................................     1
        Prepared statement...........................................     3
    Hon. Cathy McMorris Rodgers, a Representative in Congress from
      the State of Washington, opening statement.....................     3
        Prepared statement...........................................     5
    Hon. Debbie Dingell, a Representative in Congress from the State
      of Michigan, opening statement.................................     6
        Prepared statement...........................................     7
    Hon. Greg Walden, a Representative in Congress from the State of
      Oregon, opening statement......................................     8
        Prepared statement...........................................    10

                                   Witnesses

    Michael A. Carrier, Distinguished Professor, Rutgers Law School,
      CO-Director, Rutgers Institute for Information Policy and Law..    11
    Prepared statement...............................................    14
        Answers to submitted questions...............................    88
    David E. Mitchell, Founder, Patients for Affordable Drugs,
      Patients for Affordable Drugs..................................    17
    Prepared statement...............................................    19
    Joanna M. Shepherd, Professor of Law at Emory University School
      of Law.........................................................    31
    Prepared statement...............................................    34
        Answers to submitted questions...............................    90
    Jeffrey K. Francer, Senior Vice President and General Counsel,
      Association for Accessible Medicines...........................    47
    Prepared statement...............................................    49
        Answers to submitted questions...............................    99

                               Submitted Material

    Research of Generic Drugs, Used Textbooks, and the Limits of
      Liability for Product Improvements, by Timothy J. Muris and
      Jonathan E. Nuechterlein, George Mason University, submitted by
      Ms. Schakowsky \1\
    Article of December 2018, ``May your drug price be evergreen'',
      by Robin Feldman, published in the Journal of Law and the
      Biosciences, submitted by Ms. Schakowsky \2\
    Article ``Product Hopping: A New Framework'', by Michael A.
      Carrier and Steve D. Shadown, submitted by Ms. Schakosky \3\

    ----------
    \1\ Research paper by Timothy J. Muris, George Mason University
      is available at https://docs.house.gov/meetings/IF/IF17/
      20190919/109970/HHRG-116-IF17-20190919-SD003.pdf.

    \2\ Article on ``May your drug price be evergreen'' is available
      at https://docs.house.gov/meetings/IF/IF17/20190919/109970/
      HHRG-116-IF17-20190919-SD004.pdf.

    \3\ Article on ``Product Hopping: A New Framework'' is available
      at https://docs.house.gov/meetings/IF/IF17/20190919/109970/
      HHRG-116-IF17-20190919-SD005.pdf.

    PROFITS OVER CONSUMERS: EXPOSING HOW PHARMACEUTICAL COMPANIES GAME THE
                                     SYSTEM

                                  ----------

                          THURSDAY, SEPTEMBER 19, 2019

                      House of Representatives,
      Subcommittee on Consumer Protection and Commerce,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:30 a.m., in
    room 2322 Rayburn House Office Building, Hon. Jan Schakowsky
    (chairwoman of the subcommittee) presiding.
        Members present: Representatives Schakowsky, Castor,
    Veasey, Kelly, O'Halleran, Blunt Rochester, Soto, Rush, Matsui,
    McNerney, Dingell, Rodgers (subcommittee ranking member),
    Upton, Burgess, Latta, Guthrie, Bucshon, Hudson, Carter,
    Gianforte, and Walden (ex officio).
        Also present: Representative. Sarbanes
        Staff present: Jeffrey C. Carroll, Staff Director; Evan
    Gilbert, Press Secretary; Lisa Goldman, Senior Counsel; Alex
    Hoehn-Saric, Chief Counsel, Communications and Protection;
    Megan Howard, FDA Detailee; Jerry Leverich, Senior Counsel; Dan
    Miller, Senior Policy Analyst; Alivia Roberts, Press Assistant;
    Tim Robinson, Chief Counsel; Chloe Rodriguez, Policy Analyst;
    Benjamin Tabor, Staff Assistant; Mike Bloomquist, Minority
    Staff Director; Bijan Koohmaraie, Minority Counsel, Consumer
    Protection and Commerce; Tim Kurth, Minority Deputy Chief
    Counsel, Communications and Technology; James Paluskiewicz,
    Minority Chief Counsel, Health; Brannon Rains, Minority Staff
    Assistant; and Kristen Seum, Minority Counsel, Health.
        Ms. Schakowsky. The Subcommittee on Consumer Protection and
    Commerce will now come to order.
        The Chair now recognizes herself for 5 minutes for an
    opening statement.

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

        Throughout today's hearing, you will hear many different
    terms used to describe the problem that we are trying to
    address today--product hopping, hard switching, soft switching,
    and evergreening. But whatever the word is or the phrase, the
    bottom line is this: drug manufacturers are gaming the system
    to make more money at consumers' expense, and that has to stop.
        Big Pharma says that high-priced and high prices and
    exclusivity are essential to innovation. But competition is
    actually more central to innovation, and the opposite of what
    Big Pharma wants. Experts suggest that about 78 percent of the
    drugs that get new patents are not new drugs. They are new
    patents for existing drugs.
        Instead of truly innovating, drug manufacturers are taking
    advantage of the anticompetitive environment we have created by
    recycling old medicines into new formulas--into new formations.
        The problem goes beyond several bad actors, and you will
    hear about over--that you will hear about over and over again
    today--Humira, Revlimid, Suboxone, just to name a few.
        The 100 best-selling drugs on the market, about 70 percent
    have their protective--had their protection extended at least
    once, and about 50 percent have had their protections extended
    more than once. Many companies are actually withdrawing new--
    withholding new and beneficial discoveries about their drugs
    from consumers until they can use the innovation to block
    competition.
        Mr. Carrier's testimony provides a series of alarming
    examples. One manufacturer's main reason for not seeking FDA
    approval for off-label uses of their drug was that it ``wanted
    to reserve them for a promotional campaign for its reformulated
    product.''
        Another manufacturer obtained FDA approval for a once-daily
    version of their Alzheimer's treatment but waited three years
    until generic competition for their twice-daily drug was
    imminent before they released it. Big Pharma actually blocked
    the innovation that they claimed to treasure--innovation that
    could have helped patients until the time was most profitable.
        I am proud to preside over this hearing in the Consumer
    Protection Subcommittee because Congress must take direct
    action to protect American consumers from the deceptive
    commercial actions that the drug manufacturers take to gouge
    consumers.
        FDA is responsible for protecting public health by ensuring
    the safety, efficacy, and security of drugs. FDA does not
    adjudicate patient claims, and I agree with the agency's
    conclusion that they should not be tasked with doing so. And
    though the FTC has brought some cases for anticompetitive
    practices, it does not have explicit authority to challenge
    anti-competitive hard and soft switches.
        Americans should not have to hope that the FTC can stop
    Pharma's gaming of the prescription drug market. They should be
    able to count on it. And Americans should not have to wait
    years for costly lawsuits to play out and find that the generic
    has decided to settle with the brand name company for a hefty
    sum to keep their drug off the market, also known as pay-for-
    delay.
        So I look forward to learning from our witnesses today as I
    craft a bill to protect consumers from Big Pharma's gaming
    tactics. This legislation will encourage the courts to view
    these gaming practices as anti-competitive and discourage
    manufacturers from engaging in these types of practices to
    begin with.
        So we owe it to the American people, and I will be doing
    everything I can in my power to do so. So I yield back my time.
        [The prepared statement of Ms. Schakowsky follows:]

                   Prepared Statement of Hon. Jan Schakowsky

        Throughout today's hearing, you will hear many different
    terms used to describe the problem we are trying to address:
    ``product hopping,'' ``hard switches,'' ``soft switches,'' and
    ``evergreening
        But whatever the word or phrase, the bottom line is: drug
    manufacturers are gaming the system to make more money at
    consumers' expense.
        Big Pharma says that high prices and exclusivity are
    essential to innovation.
        But competition is actually most central to innovation--and
    the opposite of what Big Pharma wants.
        Experts suggest that about 78% of the drugs that get new
    patents are NOT new drugs.
        They are new patents for existing drugs.
        Instead of truly innovating, drug manufacturers are taking
    advantage of the anticompetitive environment by recycling old
    medicines into new forms.
        The problem goes beyond several bad actors you will hear
    about over and over again today-Humira, Revlimid, Suboxone,
    Namenda, Prilosec.
        Of the 100 best-selling drugs, about 70% had their
    protection extended at least once, and 50% have had their
    protections extended more than once.
        Many companies are actually withholding new and beneficial
    discoveries about their drugs from the consumers until they can
    use this innovation to block competition.
        Mr. Carrier's testimony provided a series of alarming
    examples:
        One manufacturer's main reason for not seeking FDA approval
    for off-label uses of their drug was that it ``wanted to
    reserve them for a . . . promotional campaign for its
    reformulated product.''
        Another manufacturer obtained FDA approval for a once-daily
    version of their Alzheimer's treatment, but waited three years,
    until generic competition for their twice-daily drug was
    imminent, before releasing it.
        Big Pharma actually blocked the innovation they claim to
    treasure--innovation that could have helped patients--until it
    was most profitable.
        I am proud to preside over this hearing in the Consumer
    Protection subcommittee because Congress must take direct
    action to protect American consumers from the deceptive actions
    that drug manufactures take in their commercial practices.
        FDA is responsible for protecting public health by ensuring
    the safety, efficacy, and security of biological products,
    including drugs.
        FDA does not construe patent claims, and I agree with the
    agency's conclusion that they should not be tasked with doing
    so.
        And though the FTC has brought some cases for anti-
    competitive product hopping, it does not have explicit
    authority to challenge anticompetitive hard and soft switches.
        Americans should not have to hope the FTC can stop Pharma's
    gaming of the prescription drug market--they should be able to
    count on it.
        And Americans should not have to wait years for costly
    lawsuits to play out--or find that the generic has decided to
    settle with the brand company for a hefty Pay-for-Delay sum.
        I look forward to learning from our witnesses today, as I
    craft legislation to protect consumers from Big Pharma's
    evergreening tactics.
        Such legislation will set a precedent that I hope will

         force courts to recognize the consumer harms in
    evergreening,
         and discourage manufactures from engaging in their
    anticompetitive practices to begin with.

        We owe it to the American people to stop these practices,
    and I will do everything in my power to do so.

        The Chair now recognizes Mrs. Rodgers, our ranking member
    for the Subcommittee on Consumer Protection and Commerce, for 5
    minutes for her opening statement.

          OPENING STATEMENT OF HON. CATHY McMORRIS RODGERS, A
        REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON

        Mrs. Rodgers. Thank you, Madam Chair. Good morning and
    welcome to everyone to the Consumer Protection and Commerce
    Subcommittee. I am proud that America has led the world in
    research, cutting edge therapies, cures, saving lives, and
    improving the quality of lives for countless here in America
    and around the world.
        I am also proud of the work of this committee in passing
    21st Century Cures, bipartisan legislation that will continue
    to keep us at the forefront. This really is an exciting time,
    but there are so many possibilities for every disease, every
    condition, and patients should always be put ahead of corporate
    profits.
        So we need to make sure certain companies are not gaming
    the system to increase profits at the cost of patients.
    Patients should also be put ahead of government actions that
    limit access to lifesaving treatment.
         Product hooping occurs when a drug company attempts to
    switch patients from an older version of a drug to a newer
    version. Sometimes they withdraw the old drug and replace it
    with a new modified drug. Or they keep the old drug on the
    market and shift the market towards a new drug with a new
    marketing strategy.
        The concern here is when bad actors use this tactic to game
    the system and limit consumer choices with unaffordable costs.
    We should be focusing on addressing those instances without
    harming innovation. So bad actors who are intentionally acting
    to monopolize the market and limit patient choice are held
    accountable.
        But not all product withdrawals or modifications are anti-
    competitive. Bringing improved drugs to the market to compete
    with older products is often what we need. It gives patients
    access to more medications and treatments, and oftentimes in a
    safer, more effective way to heal.
        For instance, there is a drug treatment for degenerative
    muscular disease that has required a delivery of the needle
    through the eye. The company later developed a method for doing
    it in the arm. Now I don't know about any of you, but I think I
    would prefer to have it in my arm. Yet under some current
    proposals, bringing the safer and preferred delivery could be
    labeled ``anti-competitive.'' If a shot in the arm sounds
    better to you, too bad. Government regulations say no. That is
    not how it should be.
        Increasing access to affordable treatments and prescription
    drugs usually is a bipartisan issue. The Energy and Commerce
    Committee unanimously passed several bills this year tackling
    drug prices. Unfortunately, they were packaged with another
    group of bills related to the Affordable Care Act that made it
    partisan when it came to the floor.
        But I am proud that this administration has done more to
    lead in reducing the cost of prescription drugs than, well,
    any--probably at any time. In fact, prescription drug costs are
    coming down in America, and this administration has led to
    breaking records for the amount of generic drug approvals at
    the FDA, bringing down costs.
        This year, for the first time in a long time, prescription
    drugs overall have decreased. And to build on this process,
    Energy and Commerce, through the Health Subcommittee, should be
    encouraging our medical companies to invest in R&D that will
    save lives.
        Product hopping fixes that are broad or ambiguous will
    discourage this. So as we move forward, I encourage this
    committee to be precise. If we are not, the government will
    hinder innovation, America will fall behind, and patients--
    patients--will be left waiting for the cures that they long
    for.
        Nearly two-thirds of new drug approvals are for incremental
    innovations. They should be welcomed and protected, not
    demonized. On average, each new drug saves more than 11,000
    lives each year. If we stop innovating, we risk dire
    consequences. Improvements from each new drug can also
    eliminate almost 20 billion in lost wages by preventing lost
    work due to illness. For every incremental dollar spent on new
    drugs, total medical spending decreases by more than $7.
        Americans benefit from innovation, and our healthcare
    system saves money because of it. Again, the U.S. is leading
    the world in medical innovation, developing more lifesaving
    treatments and cures than any other nation in the world. Our
    committee has a history of working in a bipartisan cooperation.
    Any proposal hopefully considered under regular order must
    encourage innovation and go after the clearly anti-competitive
    practices.
        Thank you, and I yield back.
        [The prepared statement of Mrs. Rodgers follow:]

               Prepared Statement of Hon. Cathy McMorris Rodgers

        Good morning and welcome to the Consumer Protection and
    Commerce Subcommittee where today we focus on a healthcare
    competition issue: product hopping.
        Patients should always be put ahead of corporate profits,
    so we need to make sure certain companies are not gaming the
    system to increase profits at the cost of patients.
        Patients should also be put ahead of government actions
    that limit access to their life-saving treatments.
        Product hopping occurs when a drug company attempts to
    switch patients from their older version of a drug to a newer
    version.
        Sometimes they withdraw the old drug and replace it with a
    new, modified drug, or they keep the old drug on the market and
    shift the market towards the new drug with a new marketing
    strategy.
        The concern here is when bad actors use this tactic to game
    the system and limit consumer choices with unaffordable costs.
        We should be focused on addressing those instances without
    harming innovation--so bad actors who are intentionally acting
    to monopolize the market and limit patient choice are held
    accountable.
        But not all product withdrawals or modifications are anti-
    competitive.
        Bringing improved drugs to the market to compete with older
    products is exactly what we want.
        It gives patients access to more medications and
    treatments, and often times a safer and more effective way to
    heal.
        For instance, there's a treatment for a degenerative
    muscular disease that required delivery through a needle into
    the eye.
        The company later developed a method for the arm.
        I don't know anyone who would prefer a shot in their eye.
        Yet--under some current proposals--bringing the safer and
    preferred delivery could be labeled anti-competitive.
        If a shot in the arm sounds better to you, too bad.
        Government regulations say ``no.''
        That's not how it should be.
        Increasing access to affordable treatments and prescription
    drugs usually is a bipartisan issue.
        Energy and Commerce unanimously passed several bills this
    year tackling drug pricing only to have them packaged into a
    partisan messaging bill on the floor.
        Fortunately, the Trump Administration has led on this front
    and is breaking records for the amount of generic drug
    approvals at the FDA.
        This year, for the first time in a long time, prescription
    drug prices have decreased overall.
        To build on this progress, Energy and Commerce, through the
    Health subcommittee, should be encouraging our medical
    companies to invest in R&D that will save lives.
        Product hopping fixes that are broad or ambiguous will
    discourage this.
        We must be precise.
        If we aren't, the government will hinder innovation,
    America will fall behind world-wide, and patients will be
    waiting for the cures they need.
        Nearly two-thirds of new drug approvals are for incremental
    innovations.
        They should be welcomed and protected, not demonized.
        On average each new drug saves more than 11,000 lives each
    year.
        If we stop innovating, we risk dire consequences.
        Improvements from each new drug can also eliminate almost
    $20 billion in lost wages by preventing lost work due to
    illness.
        Plus, for every incremental dollar spent on new drugs,
    total medical spending decreases by more than seven dollars.
        Americans benefit from innovation and our healthcare system
    saves money because of it.
        Again, the U.S. has led the world in medical innovation,
    developing more life-saving treatments and cures than any other
    nation.
        Our Committee has a history of bipartisan cooperation in
    building America as the global leader and no one here wants to
    reverse progress we've made because of the 21st Century Cures
    Act.
        Any proposal--hopefully considered under regular order in
    our Health subcommittee--must encourage this innovation and go
    after clearly anticompetitive practices.
        Thank you and I yield back.

        Ms. Schakowsky. The gentlelady yields back.
        And in lieu of the full committee chairman, Mr. Pallone,
    the Chair now recognizes Mrs. Dingell for 5 minutes for an
    opening statement.

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

        Mrs. Dingell. Thank you, Madam Chair. Today we are
    examining an often-overlooked issue in the drug pricing debate
    known as product hopping or evergreening. As the Energy and
    Commerce Committee works together, that is important. That is
    what we should all be proud of, that we have, in many cases, to
    provide relief to Americans from the high cost of prescription
    drugs. We can't leave any stone unturned in examining ways to
    address this issue.
        All of us have heard from constituents who are forced to
    cut pills in half, choose between paying for medication and
    rent, or avoiding taking needed medicines entirely due to cost.
        And we can't stop innovating and researching, but we need
    to make sure--I continue to be horrified for these young
    children. And we talk about insulin, which is one of the ones
    we have to talk about, but the inhaler that now costs $700, the
    EpiPen. People that can least afford it and don't have
    insurance are many times the ones that need these medicines
    more than anybody.
        And part of the reason these costs remain so high is due to
    the loopholes and tactics that some pharmaceutical companies
    use to delay competition from generic drug manufacturers.
    Competition is crucial to lowering prescription drug prices and
    improving America's access to lifesaving medication.
        When generic drugs enter the market in the United States,
    prescription drug prices fall dramatically--try, up to 90
    percent. And this is how a market should work, by rewarding the
    innovation and promoting competition, and then the American
    people benefit.
        Unfortunately, we have been seeing increasing examples in
    recent years of pharmaceutical companies exploiting the current
    structure of our Nation's regulatory and patent system to block
    competition and keep drug prices high through practices like
    product hopping.
        Product hopping or evergreening is the reformulation of a
    drug by a brand-name manufacturer to delay competition and
    protect protection for profit. This often just includes minor
    changes, like reformulating a capsule to a tablet, small
    changes in the dosing, the strength of a branded drug, other
    changes that have little effect or therapeutic value.
        Timed correctly, and combined with tactics like removing
    the older version of the drug from the market or aggressively
    marketing the new version of the product, pharmaceutical
    companies can and do successfully block competing generic
    products from the market. And the reason that this happens is
    simple: a blockbuster drug can bring in hundreds of millions of
    dollars each year in sales while under patent protection.
        In fact, a 2016 study found that these sorts of tactics to
    delay the generic competition cost Americans at least $5.4
    billion annually. Currently, there is little recourse against
    this when it happens. The FTC's authority to address product
    copying is limited and unclear. And as a result, product
    copying and similar practices have proliferated in recent
    years.
        It is my hope that today's witnesses will help us all learn
    more about product hopping, yet their expertise and knowledge
    will point us toward a solution that addresses this problem. I
    want to thank them all for being here.
        Inaction on this issue is not an option. High healthcare
    and prescription drug costs affect all of us, regardless of our
    background or party. I know just from having to buy more than
    20 different prescriptions for John per month--and I had two
    insurances and Medicare--what that cost is. Think of the mother
    working two jobs with a child that has asthma and has to buy a
    $700 inhaler.
        This is an issue where bipartisan action is necessary and
    needed. I know my colleagues share my concern, and it is my
    sincere hope that this hearing forms the basis for future
    actions and reforms.
        Thank you for being here, and I yield back.
        [The prepared statement of Ms. Dingell follow:]

                   Prepared Statement of Hon. Debbie Dingell

        Today, we are examining an often-overlooked issue in the
    drug pricing debate known as product hopping or evergreening.
        As the Energy and Commerce Committee works to provide
    relief to Americans from the high cost of prescription drugs,
    we must leave no stone unturned in examining ways to address
    this issue.
        All of us have heard from constituents who are forced to
    cut pills in half, choose between paying for medication and
    rent, or avoiding taking needed medicines entirely due to cost.
        Part of the reason these costs remain so high is due to the
    loopholes and tactics that some pharmaceutical companies use to
    delay competition from generic drug manufacturers.
        Competition is crucial to lowering prescription drug prices
    and improving Americans' access to lifesaving medication. When
    generic drugs enter the market in the United States,
    prescription drug prices fall dramatically, by up to 90
    percent.
        This is how a market should work--by rewarding innovation
    and promoting competition, the American people benefit.
        Unfortunately, we have seen increasing examples in recent
    years of pharmaceutical companies exploiting the current
    structure of our nation's regulatory and patent system to block
    competition and keep drug prices high through practices like
    product hopping.
        Product hopping, or evergreening, is the reformulation of a
    drug by a brand-name manufacturer to delay competition and
    protection their profits.
        This often includes minor changes, like reformulating a
    capsule to a tablet, small changes in the dosing or strength of
    a branded drug, or other changes that have little effect or
    therapeutic value.
        Timed correctly, and combined with tactics like removing
    the older version of the drug from market or aggressively
    marketing the new version of the product, pharmaceutical
    companies can--and do--successfully block competing generic
    products from the market.
        The reason that this happens is simple--a blockbuster drug
    can bring in hundreds of millions of dollars each year in sales
    while under patent protection.
        In fact, a 2016 study found that these sorts of tactics to
    delay generic competition cost Americans at least $5.4 billion
    annually.
        Currently, there is little recourse against these types of
    abuses. The FTC's authority to address product hopping is
    limited and unclear. As a result, product hopping and similar
    practices have proliferated in recent years.
        It is my hope that today's witnesses help us all learn more
    about product hopping, and that their expertise and knowledge
    will point us toward a solution that addresses this problem. I
    would like to thank them all for being here.
        Inaction on this issue is not an option. High healthcare
    and prescription drug costs affect all of us, regardless of
    background or party. This is an issue where bipartisan action
    is necessary and needed.
        I know my colleagues share my concern, and it is my sincere
    hope that this hearing forms the basis for future action and
    reforms.

        Ms. Schakowsky. The gentlelady yields back, and now I
    recognize Mr. Walden, ranking member of the full committee, for
    5 minutes for his opening statement.

       OPENING STATEMENT OF HON. GREG WALDEN A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF OREGON

        Mr. Walden. Good morning, Madam Chair.
        Ms. Schakowsky. Good morning.
        Mr. Walden. Thank you for having this hearing. It is really
    important. We do look forward to the testimony from the
    witnesses. Obviously, this committee has a long history of
    going after these issues and stopping bad behaviors where we
    have led on surprise medical billing, having a discussion about
    that; we passed that out of here unanimously.
        We rewrote the full FDA user fee agreements trying to get
    generics to market sooner. We did that in a bipartisan
    unanimous way--I think it passed. They were able to put 971
    generics into market last year, record number in a single year,
    so we believe in bringing competition to the market.
        We have jointly worked together on Cures, 21st Century
    Cures. And, you know, there is more work to be done there going
    forward, but I think that was pretty much almost unanimous.
    There were a couple of holdouts, I think, in the House. But
    because investing in medical research and all that leads to
    drugs and new treatments and precision medicine--as, my friend
    from Michigan said, these diseases, these problems, hit us
    regardless of background or party.
        We were together in this committee on CREATES, stop bad
    behavior. Unfortunately, after I left our good committee of
    Energy and Commerce, it got wrapped up in partisan politics and
    the poison pills were added on the floor. Otherwise, it would
    have passed unanimously. The same on pay to delay and fixing
    that. It got wrapped up and made poison on the House floor.
        And I guess as we deal with this issue and get into these
    individual problems, what troubles me this morning is we have
    now been told we are going to have a hearing in the committee
    next week, Wednesday, on legislation to completely rewrite how
    we get our drugs and what we pay for them and how the
    government operates.
        And tragically, Republicans have been completely excluded
    from any of those discussions. Completely. It has been done out
    of the Speaker's office behind closed doors. And I don't know
    if you have a copy of the bill, Mrs. Dingell, Ms. Schakowsky,
    or anybody else. I don't. We have seen a summary. But it tells
    me, unfortunately, this has gotten shifted over to be a
    partisan political issue, not a solution for pharmaceutical
    costs gone wild.
        And I would hope that before we notice hearings, and I
    would hope before we take this up next Wednesday, that we would
    have a chance to read through the bill. I am deeply
    disappointed we were not asked to be part of any discussions
    leading up to it, and I know in some of the press clippings I
    have seen already, some of you are not happy, and some of you
    maybe haven't seen the bill either. But that is no way to deal
    with both helping our consumers and making sure we don't trash
    innovation.
        We have proven our ability on this committee. This great
    Energy and Commerce Committee is coming together on these
    issues and letting the committee process work. But I think we
    have all seen in our parties over time, when things get crafted
    outside of our environs, they don't always get it right.
        And then we are going to get jammed with a bill that we are
    going to have very little time to review, and then come back,
    and I am told mark up and vote on. And I just beg you and plead
    with you; it doesn't have to be this way. It doesn't have to be
    this way.
        To your point, Mrs. Dingell, these diseases, they affect us
    all. What you went through with John, what I went through with
    my parents and my wife's mother, who had severe rheumatoid
    arthritis. The poor thing passed away years ago, and she had to
    deal with this her entire life. And we have all been hit by it.
        My wife used to carry EpiPens, and then they became so
    expensive her doc said, ``Well, you can probably get away with
    a little Benadryl.'' Our son, as a youth, had an inhaler
    because he had youthful asthma. Fortunately, he outgrew it.
        We all went after EpiPen. We all went after these things.
    We can all go after really good public policy in this sector,
    too. But, please, let us be part of it. Let us be part of these
    discussions.
        We have really bright, capable people, as you know, on this
    side, as you do on your side. Don't exclude us from the
    legislative process. Don't spring a hearing for next Wednesday
    and not even give us the legislative text, just somebody's
    document on what it may be or not be.
        That is not in the great traditions of this committee, and
    it is not in the best interests of public health and solving
    this problem we have. You have a President that is fully
    committed. I have never--you can like or dislike Donald Trump;
    I have never seen a President more engaged on this issue about
    bringing down pharmaceutical drugs.
        There is an opportunity to be had here to achieve great
    results that will benefit our consumers, maintain innovation,
    and keep America in the lead. And I hope that partisan politics
    do not snuff that out. And with that, I yield back.
        [The prepared statement of Mr. Walden follow:]

                     Prepared Statement of Hon. Greg Walden

        Good morning, Today's hearing is focused on the
    pharmaceutical industry and the practice known as product
    hopping.
        There's no question that Americans pay too much for their
    healthcare, including the cost of prescription drugs. Over the
    past few years, we have made significant efforts to lower the
    cost of prescription drugs for consumers by advancing key
    priorities that are now law, including the 21st Century Cures
    Act, and a reauthorization of the generic drug user fee program
    in the FDA Reauthorization Act. And it is already working--last
    year FDA approved a record number of generic drugs, driving
    competition and giving consumers more choices. Republicans will
    continue to push for legislation that promotes competition,
    lowers the out-of-pocket cost for consumers, and establishes
    transparency and accountability in drug pricing.
        But we should also acknowledge the investment required by
    the industry to remain the global leader in developing
    innovative and essential treatments and the effort and
    ingenuity necessary to counter evolutions occurring in the
    diseases themselves.
        On average, it costs companies more than $2.5 billion to
    bring a new drug to market, but only about 20 percent of the
    marketed drugs ever earn enough to recoup those costs. And once
    the patent exclusivity period is over, brand companies face the
    likely loss of roughly 80-90 percent of their sales to generic
    versions of their drug.
        In large part, this is due to state substitution laws.
    Every state has a substitution law that requires or allows
    pharmacists to offer a generic drug when a patient presents a
    prescription for a brand drug. However, if the brand drug and
    generic drug are not the same, such substitution laws do not
    apply.
        For example, if a drug is not bioequivalent--meaning it is
    able to be absorbed into the body at the same rate or
    therapeutically equivalent--meaning it has the same active
    ingredient, form, dosage, strength, and safety profile, then
    state substitution laws do not apply. Some argue that brand
    drug makers engage in product hopping to usurp these state
    substitution laws and ensure patients use their brand drug.
        Product hopping occurs when brand pharmaceutical companies
    attempt to switch customers from an older version of a drug to
    a newer version. Typically, the newer drug has a longer patent
    exclusivity life which helps pharmaceutical companies maintain
    their market position and ultimately recoup the cost of
    developing new drugs.
        There are two types of product hopping: a hard switch and a
    soft switch. In a hard switch, a brand company completely
    withdraws their product from the market to enter a new product.
    A soft switch occurs when a brand company keeps their older
    product on the market but shifts marketing efforts to the new
    drug.
        Courts have been clear that a product withdrawal or
    improvement alone is not anticompetitive. Rather whether
    product hopping is anticompetitive or not relies heavily on the
    specific facts and circumstances of any given incident and
    requires some additional wrongful conduct.
        To be clear, innovating and replacing older drugs is part
    of the normal competitive process that companies engage in
    routinely. We must be cautious about disincentivizing
    innovation. We know that brand drug companies incrementally
    improve their drugs all the time and that we see great societal
    benefits from such improvements. Most innovation by drug makers
    involves the development of next generation improvements, which
    may include new products that expand therapeutic classes, or
    increase available dosing options, or remedy physiological
    interactions of known medicines, or improve other properties of
    existing medications. These are good things. We benefit from
    them. In fact, according to the World Health Organization, more
    than 60 percent of all drugs deemed necessary for combatting
    prevalent diseases are the result of incremental innovation.
        Today's discussion is important, and I am thankful to the
    panel and to those that traveled to be here with us today.
        Before I yield, I would like to say there is a form of
    product hopping I do support--and that is a product hop to a
    legislative hearing on autonomous vehicles or a hearing on
    privacy, so I'll just say I associate myself with Mrs. Rodgers'
    remarks in that regard. We know there is bipartisan support for
    those two initiatives, and I know the subcommittee members are
    eager to work on them.
        I look forward to hearing more from you all. Thank you. I
    yield back.

        Ms. Schakowsky. The gentleman yields back.
        The Chair would like to remind Members that, pursuant to
    committee rules, all Members' written opening statements shall
    be made part of the record.
        And now I would like to introduce our witnesses for today's
    hearing. Mr. Michael A. Carrier, distinguished professor at
    Rutgers Law School, and co-director of the Rutgers institute
    for Information Policy and Law.
        We have Mr. David Mitchell, founder of Patients for
    Affordable Drugs and Patients for Affordable Drugs NOW.
         We have Ms. Joanna Shepherd, professor of law at Emory
    University School of Law.
        And Mr. Jeffrey Francis, senior vice president and general
    counsel of the Association for Accessible Medicines.
        We want to thank our witnesses for joining us today. We
    look forward to hearing your testimony. And at this time, the
    Chair will recognize each witness for 5 minutes to provide
    their opening statements.
        Before we begin, I just want to explain or remind people
    about the lighting system. In front of you is a series of
    lights. That light will initially be green at the start of your
    opening statement. The light will turn yellow when you have 1-
    minute remaining. Please begin to wrap up your testimony at
    that point. And the light will turn red when your time expires.
        So, Mr. Carrier, you may begin, and you are recognized for
    5 minutes.

      STATEMENTS OF MICHAEL A. CARRIER, DISTINGUISHED PROFESSOR,
        RUTGERS LAW SCHOOL, CO-DIRECTOR, RUTGERS INSTITUTE FOR
        INFORMATION POLICY AND LAW; DAVID E. MITCHELL, FOUNDER,
     PATIENTS FOR AFFORDABLE DRUGS, PATIENTS FOR AFFORDABLE DRUGS
      NOW; JOANNA M. SHEPHERD, PROFESSOR OF LAW, EMORY UNIVERSITY
     SCHOOL OF LAW; AND JEFFREY K. FRANCER, SENIOR VICE PRESIDENT
        AND GENERAL COUNSEL, ASSOCIATION FOR ACCESSIBLE MEDICINE

                    STATEMENT OF MICHAEL A. CARRIER

        Mr. Carrier. Thank you, Chairwoman Schakowsky, and Ranking
    Member Rodgers. Thank you for holding this hearing. Drug
    companies play games to increase profits, and one of those
    games is product hopping. The product hopping that I am talking
    about today, if we deal with it, it is not going to touch
    innovation at all, but it will bring lifesaving medications
    into the hands of consumers.
        My name is Michael Carrier. I am a distinguished professor
    at Rutgers Law School. I study this area. I have written 115
    articles, 60 on pharmaceutical antitrust law. I am quoted in
    media and courts all the time.
        The first point here is that generic competition is
    crucial. When a generic enters the market, the price can fall
    90 percent overnight. And so, that is a central part of the
    Hatch-Waxman Act. The Hatch-Waxman Act says that the generic
    can rely on the brand firm's clinical studies because we want
    to have generics on the market. That does really good.
        That is also why we have state substitution laws. Every
    state in the country has a substitution law that says you can
    automatically substitute a generic for a brand version, and
    that is crucial as well.
        And the reason we need all of this is something called the
    price disconnect. There is no other industry where you don't
    have one party that makes the price-quality determination. You
    have the doctor that decides what drug to prescribe, and you
    have the patient or insurance company that pays for it. And
    with that disconnect, there is a lot of room for anti-
    competitive games.
        Now, it is not the case that every single reformulation is
    a problem. And Ranking Member Rodgers, I completely agree with
    you that we cannot go after serious innovations. If you have
    something that initially is in the eye, and then you do it in
    the arm, that is a really good innovation. That won't be
    touched by any of the cases in the court system by any
    legitimate legislation that your committee considers. That is a
    real change.
        And in fact, 80 percent of the changes take place at a time
    that we don't expect a generic to be on the market because drug
    companies make changes all the time, and most of the changes
    are good. It is just those few bad apples, the few one or two
    percent--and that is all it has been in the cases, one percent
    of the cases. There is not going to be that much brought.
        But in those cases, there is nothing new at all. There is
    no new customer. There is no competition with another brand
    firm. All that happens is that the change is made to keep the
    generic off the market. And so the legislation that is
    considered here really can be reasonable.
        One of the concerns here is that every time that a brand
    company switches from one version of a drug to another, from a
    capsule to a tablet, or a 150-milligram dose to a 140-milligram
    dose. The generic has to go back to the drawing board,
    reformulate the drug, get FDA approval, and be subject to
    patent litigation, so every single time, it is kept off the
    market for years. And this has significant effects on
    consumers.
        And so one study found that $28 billion worth of drugs were
    subject to product hopping. In my testimony, I mention several
    of them--overpaying $1.7 billion for Namenda, and hundreds of
    millions of dollars for other drugs. I talk about prices that
    are so high. Adasuve is $4,500. Put together the component
    parts yourself; it is $45. It really hurts consumers when they
    have to pay a lot more than they should be paying.
        I mentioned the five cases that have gone on in the court
    system. Let me just mention one--Suboxone. Suboxone deals with
    opioid dependency. It is a very important drug. Reckitt, the
    brand manufacturer, switched from one version, the tablet, to
    another version, the film. The tablet was a better version.
    Consumers liked it better. It didn't have safety concerns. In
    the film a kid, puts it in their mouth, and it dissolves
    instantly.
        Nonetheless, the drug company said the old version is the
    unsafe one. Let's pull it off the market, even though it is
    actually safer. They jacked up the price for the old one, even
    though it was cheaper to make than the new one, and they knew
    that they would give up profits, but they just did this to keep
    the generic off the market.
        And so there are some really concerning examples of what is
    going on here. Of course, we have to worry about innovation,
    but it is not the case that taking away antitrust liability
    would help innovation in a lot of these cases. As we have
    heard, the brand company withholds the innovation for years
    until the generic is about to enter the market, and then it
    springs it on the market.
        There are reasonable solutions here. The Senate Judiciary
    Committee passed a product hopping bill 22 to nothing,
    completely bipartisan, deals with hard switches in which the
    old drug is removed from the market, soft switches in which the
    old drug stays on the market, gives the drug companies every
    defense that they could want in terms of showing that it makes
    some sense at all for what they are doing. So there is
    reasonable bipartisan legislation to be had here.
        So at the end of the day, drug companies call this life-
    cycle management. It is not. It is really just keeping the
    gravy train of trivial tweaks flowing. What this committee can
    do, can really not touch innovation at all while making
    consumers' lives better.
        Thank you.
        [The prepared statement of Mr. Carrier follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Ms. Schakowsky. Thank you very much, Mr. Carrier.
        And now, Mr. Mitchell, you are recognized for 5 minutes.

                     STATEMENT OF DAVID E. MITCHELL

        Mr. Mitchell. Chair Schakowsky, Ranking Member Rodgers,
    members of the committee, I am honored to be here.
        I am David Mitchell. I am founder of Patients for
    Affordable Drugs. More importantly, I have an incurable blood
    cancer called multiple myeloma, and prescription drugs are
    keeping me alive. Every two weeks, I spend half a day at a
    clinic getting an infusion of drugs that, unfortunately, are
    slowly failing.
        So last night, I started taking a new oral chemo drug.
    Together, my drugs carry an annual list price of $875,000 a
    year. I have relapsed twice. Eventually, I am going to run out
    of options. So the importance of innovation is not theoretical
    to me. It is literally life and death.
        But my experience has taught me one irrefutable fact, and
    that is drugs don't work if people can't afford them. That is
    why today's hearing is so important.
        Take AbbVie and the cholesterol drug TriCor, Catherine of
    Minneapolis told us, ``My price for TriCor went up hundreds of
    dollars per month. The pharmacist whispered to me that if the
    doctor had changed the order to 160-milligram tabs and I broke
    it in half for the 80-milligram dose, it would only have cost
    me 40 bucks.'' Catherine didn't know it, but she was describing
    a classic case of product hopping.
        But to address the problem of out-of-control prices, we
    really have to come to grips with some larger facts. Despite
    what drug companies tell us, sky-high prices are not about
    innovation. Multiple studies show there is no correlation
    between the costs of R&D and the price that is assigned to a
    drug. And taxpayers' foot a huge portion of the bill for basic
    science that leads to new drugs.
        Every single drug approved by the FDA from 2010 to 2016 was
    based on science funded by taxpayers through the NIH.
    Meanwhile, independent analyses show that nine of ten drug
    companies spend more on advertising and marketing than they do
    on R&D.
        Why do drug companies charge so much? Because they can.
    Yes. As drug companies should make a profit when they develop
    innovative drugs, but we are way out of balance, and it is
    costing us all in our family finances, our health outcomes, and
    our lives.
        So I want to suggest three things we could do to rebalance
    the actual risk of innovation with a fair price for patients.
    Reform patent law, including provisions to stop product
    hopping; end the days of monopoly pricing power without
    taxpayer negotiation; force transparency from drug middlemen.
        Let's start with patent law. Brand drug companies are
    abusing our system to extend their government-granted
    monopolies and block competition. There is a whole array of
    tactics. Product hopping is just one.
        The classic version has been described by Professor
    Carrier, so I won't go into that.
        When faced with patent expiration and generic competition
    on its blockbuster drug Suboxone, the maker changed from a
    tablet to a film that dissolved under the tongue. Professor
    Carrier described it.
        We heard from a California woman named Janice. She was
    supporting her son recovering from opioid use disorder. During
    this time, she paid over $250 a month for Suboxone. She was
    forced to take out a loan and depleted all of her savings to
    pay for this medication.
        Now, there are bills in Congress this year that offer
    solutions. I would be glad to discuss them in the Q&A. Yes. In
    all that we do, we have to address--in all that we do to
    address product hopping; we have to ensure that we reward
    genuine innovation and stop anti-competitive practices.
        Next, we need direct Medicare price negotiations. We pay
    two to three times what other countries pay for the exact same
    drugs. One big reason is that they negotiate; we should, too.
        And, finally, we need more transparency around PBMs. These
    huge companies cut deals that determine how much patients pay,
    but it is all secret.
        Right now, there is a fundamental question that drug
    companies want us to ask about drug prices. What are we willing
    to pay to save a life? And I can tell you, that is easy. When
    it is your child on the gurney who can't breathe, when it is
    your cancer, the answer is: anything.
        But that is the wrong question. The right question is: what
    is the amount of money that drug companies should be making on
    these drugs?
        With hundreds of clinical trials underway for exciting new
    cell and gene therapies that are coming to market at a half a
    million dollars or as much as $2.1 million, we cannot afford to
    pay just any price that drug companies demand. Neither American
    families nor our healthcare system can afford that.
        I feel incredibly grateful to be here today, alive and
    representing patients from all across the country. I believe
    the moment is at hand that we can address this problem, and
    with bipartisan support, we will.
        Thank you for having me.
        [The prepared statement of Mr. Mitchell follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Ms. Schakowsky. We are glad you are here and alive as well.
    Thank you for your testimony.
        And now I want to recognize Ms. Shepherd for her 5-minute
    statement. Thank you.

                    STATEMENT OF JOANNA M. SHEPHERD

        Ms. Shepherd. Thank you. Chairwoman Schakowsky, Ranking
    Member Rodgers, and distinguished members of the subcommittee,
    thank you for the opportunity to testify today about product
    hopping and the pharmaceutical industry.
        My name is Joanna Shepherd. I am a professor of law at
    Emory University, and I hold a Ph.D. in economics. My research
    focuses on various topics in law and economics, including
    competition and the healthcare industry.
        Replacing older drugs for newer drugs is generally part of
    the normal competitive process. According to the World Health
    Organization, over 60 percent of drugs deemed necessary for
    fighting common diseases are the result of incremental
    innovations.
        Most of this activity is pro-competitive. Consumers have
    access to more products, and newer products are likely to be
    safer and more effective. We should encourage drug companies
    both to invest in improving their products and to bring those
    drugs to market when they are available.
        However, when certain conditions are met, some product hops
    may be anti-competitive, coercing consumers to switch drugs and
    depriving them of choice. It sounds like this committee is very
    interested in finding that balance where we are preventing
    these anti-competitive measures but also protecting innovation
    that is so vital to the consumers--American and around-the-
    world consumers of pharmaceutical drugs.
        In this testimony, I am going to focus on how to achieve
    that balance. My testimony is based on both court decisions and
    rulings in past cases, and also existing competition law. I
    will explain that a hard switch that eliminates consumer choice
    with no offsetting consumer benefit is likely an anti-
    competitive product hop.
        Similarly, a soft switch that significantly interferes with
    consumer choice, to the point that it effectively eliminates
    it, with no offsetting consumer benefit, is likely anti-
    competitive as well.
        So when, in a hard switch, is consumer choice eliminated?
    This happens when consumers are coerced into switching to the
    new product because there are no available alternatives to the
    original product. This would occur, for example, if an older
    drug is pulled from the market right before its patent expires
    so that the generics waiting to enter the market could not use
    automatic substitution laws to penetrate the market of the
    older drug. In this situation, consumers would effectively have
    no choice but to switch to the new drug.
        In contrast, a hard switch would not eliminate consumer
    choice, if it occurred after generics had already penetrated
    the market. In this situation, patients would already be
    accustomed to taking the generic versions of the drug, so
    replacing the older drug would not coerce them into switching
    from the generic they had already been taking.
        In fact, in this case, the product switch would be pro-
    competitive because it would give consumers more choice. They
    would still have the generic version of the old drug, plus
    newer drugs available.
        A hard switch would also not eliminate consumer choice if
    brand companies replaced a drug that had plenty of patent life
    remaining and no generics anywhere on the horizon. This switch
    would also not reduce consumer choice because consumers would
    have had one drug to choose from before and one drug to choose
    from after.
        These examples suggest there is a very specific window
    during which a hard switch can be presumed to be anti-
    competitive. For conventional small molecule drugs, this window
    likely starts around the time a generic file an acceptable ANDA
    containing a paragraph four challenge. The window ends
    approximately three or so months after generic entry because
    research shows that within three months of generic entry,
    generics have captured about 70 percent of the brand drug's
    market share. So maybe you want to, you know, flex that a
    little bit, but it is around that time.
        Outside of this window, however, a hard switch would
    generally not eliminate consumer choice.
        Moving on to a soft switch, when is consumer choice
    significantly interfered with to the point that it is
    effectively eliminated? This happens when consumers have no
    practical alternative but to switch to the new product.
        For example, if brand drug companies communicate fabricated
    safety concerns about an older product to doctors, as they did
    in the Suboxone case, then patients effectively would have no
    choice but to switch to the new drug.
        Similarly, if a brand company destroys inventory of the
    older drug, the consumers would effectively have no choice.
    However, a soft switch would not significantly interfere with
    consumer choice, if the brand company engages in standard
    business practices that typically accompany the introduction of
    new products. These include reallocating marketing efforts,
    offering price discounts or samples, so patients will try the
    new product, or encouraging doctors in a legal way to direct
    patients to these new products.
        While these practices may shift market share, they do
    nothing to eliminate the availability of the older drug or to
    coerce patients into switching. Moreover, because the older
    drug remains freely available for doctors to prescribe,
    generics can continue to take advantage of automatic
    substitution laws.
        So in a soft switch, the degree of interference to
    effectively eliminate consumer choice will typically require
    some other wrongful conduct that unfairly disadvantages the
    original product. If it does not unfairly disadvantage the
    original product, then patients and their doctors can choose
    which drug they prefer.
        Finally, I will end with a word of caution. Legislation to
    define what activity constitutes anti-competitive product
    hopping could potentially reduce healthcare spending and spur
    innovation by clearing up current ambiguity in the case law.
        However, if the legislation is too broad, in that it covers
    too many standard business practices or too vague, and that
    drug companies can't predict what behavior will lead to
    significant litigation, then the legislation will end up
    reducing innovation. This can have long-term negative effects
    on consumer health and healthcare spending.
        Thank you.
        [The prepared statement of Ms. Shepherd follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Ms. Schakowsky. Thank you very much.
        And now let me welcome Mr. Francer. I pronounced your name
    wrong before, and I want to get it right. And you are
    recognized for 5 minutes.

                    STATEMENT OF JEFFREY K. FRANCER

        Mr. Francer. Thank you, Chairwoman Schakowsky, Ranking
    Member Rodgers, members of the subcommittee. Thank you for
    holding this important hearing today and for the committee's
    sustained efforts to bring down prescription drug pricing.
        As stated before, my name is Jeff Francer. I am the general
    counsel of the Association for Accessible Medicines. We are the
    Nation's leading trade association for manufacturers of FDA-
    approved generic and biosimilar medicines.
        Competition through the introduction of generic and
    biosimilar methods is a proven solution to lowering the cost of
    prescription drugs for patients. However, the continued
    availability of generic medicines is in jeopardy. Current
    market realities, combined with anti-competitive tactics,
    threaten the long-term stability of generic and biosimilar
    manufacturers.
        Increasingly, brand-name drug companies are building patent
    thickets around their drugs, not just for the original
    innovation but for smaller changes that may not be deserving of
    decades-long monopolies. To cite just one example, Lantus, an
    insulin treatment for diabetes, is protected by 49 patents; 95
    percent of them were filed after the drug was approved. While
    Lantus was approved in the year 2000, it has patent protection
    out now to 2031.
        This problem significantly impairs competition and, not
    surprisingly, increases drug costs for patients. One anti-
    competitive tactic that we are discussing today is called
    product hopping. As discussed previously, product hopping
    occurs when a brand drug company seeks to switch patients to a
    new version of its drug just before the original one becomes
    subject to competition.
        In many cases, the switch is forced on patients because the
    brand-name drug companies stop selling the original medicine,
    and this is called the hard switch. The main goal of such
    switches is not to protect our health. Instead, these switches
    are designed to extend the brand-name drug company's monopoly
    pricing and to delay competition.
        Several cases illustrate the potential anti-competitive
    effects of product hopping. Namenda is a treatment for
    Alzheimer's. Ahead of competition, the brand-name drug company
    attempted to withdraw its immediate release formulation from
    the market. The company then tried to switch patients to its
    new extended release formula.
        The drug company did so knowing that physicians would be
    highly reluctant to switch patients back to the earlier
    formulation if lower-cost generics were later approved, and the
    brand-name company's own documents confirm this.
        One of the drug company's employees stated, and I quote,
    ``If we do the hard switch, convert patients and caregivers to
    once-a-day therapy versus twice a day; it is very difficult for
    generics to then reverse commute back.''
        Another troubling example that we have discussed is
    Suboxone. In the middle of one of our worst public health
    epidemics, the brand-name drug company delayed patient access
    to a more affordable version of this opioid treatment. Put
    simply, product hopping tactics employed by some brand-name
    companies delay generic and biosimilar competition, and this
    keeps drug prices in the United States the highest in the
    world.
        Here is why. First, product hopping impairs automatic
    substitution. Under many state laws, a generic can
    automatically be substituted for the brand-name drug at the
    pharmacy counter if it is therapeutically equivalent to the
    brand.
        By changing the dosage form or the strength of the brand
    drug, pharmaceutical companies ensure that generic companies
    will not be therapeutically equivalent and, therefore, not
    substitutable.
        Second, brand-name drug companies are able to delay patient
    access to lower-cost medicine by patenting minor modifications.
    To address these anti-competitive tactics, AAM supports
    legislative changes to strengthen competition. Any legislation
    should be carefully calibrated and not overly broad, as we just
    discussed.
        AAM is supportive of innovation, and we recognize that many
    changes to existing medicines result in meaningful health
    benefits.
        In closing, AAM encourages the committee to consider
    several options, including ensuring a date certain for generic
    and biosimilar competition, accelerating the biosimilar patent
    dance in the BPCIA, harmonizing Hatch-Waxman with the America
    Invents Act, requiring more timely FDA action on biosimilar
    labeling carve-outs, and ensuring that generics and biosimilars
    are fully available to patients.
        I describe each of these solutions in more detail in my
    written testimony, and AAM would be glad to work with the
    committee on each of them.
        In closing, I thank you for the opportunity to testify, and
    I also just learned this morning that today is Mr. Mitchell's
    20th wedding anniversary. And I wanted to say for the record,
    Happy Anniversary.
        [Applause.]
        Mr. Mitchell. Thank you.
        [The prepared statement of Mr. Francer follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Ms. Schakowsky. Thanks for updating us about that.
    Congratulations.
        So we have concluded witness opening statements, and at
    this time we will move to member questions. Each member will
    have 5 minutes to ask questions of the witnesses, and I will
    start by recognizing myself for 5 minutes.
        It is clear from the testimony that we have heard today
    that Congress has an opportunity to act to combat the gaming
    tactics of Big Pharma. And I just wanted to say that I do
    appreciate what seems to be the unanimity of carefully crafting
    legislation, and that is what I am currently trying to do to
    prohibit the actions that will soon be considered by the--these
    actions considered by the subcommittee.
        The legislation has a two-fold purpose. First, it will
    provide the Federal Trade Commission with authority to take
    action against a manufacturer engaged in product hopping; two,
    to seek remedies for these tactics, like the collection of
    unjust profits that a drug manufacturer gained as a result of
    inappropriate product hopping.
        And second, my bill will allow for greater transparency in
    drug pricing. The bill will let's see--well, the goal of this
    list is to provide the American taxpayers with the transparency
    that they deserve and to provide physicians with a public
    database to research drug information because--before decisions
    to prescribe them to their patients over generics.
        So, Mr. Carrier, does the FDA currently maintain a list of
    products that are substantially similar, other than a minor
    change in formulation?
        Mr. Carrier. No, it does not.
        Ms. Schakowsky. Is there currently a straightforward online
    resource that physicians can rely on to corroborate the things
    that Pharma sales representatives are telling them about the
    drugs?
        Mr. Carrier. No. I am not aware of anything like that.
        Ms. Schakowsky. Is there a common resource that patients
    could use to confirm whether they need a reformulated brand
    drug over a generic?
        Mr. Carrier. No, there is not.
        Ms. Schakowsky. Thank you.
        Again, Mr. Mitchell, I want to thank you so much for coming
    and sharing both your personal story and the story of so many
    others. You said that you started on a new chemo drug just last
    night. How much does that drug cost, and what is your out-of-
    pocket cost?
        Mr. Mitchell. This drug is called Pomalyst. Twenty-one
    capsules in this bottle that I take 21 days off, and then seven
    days--21 days and then seven days off, about $17,200 list. My
    out-of-pocket under Part D is going to be north of $13,000 a
    year for this drug. That is one drug that I take.
        Ms. Schakowsky. My goodness. Can you tell us why
    transparency around product hopping and reformulations would be
    helpful for you as a patient and for your physicians?
        Mr. Mitchell. When a company does what has been described
    here by the experts on both of my sides, it can result in a
    product that does not deliver any improvement for me,
    clinically or therapeutically, may not reduce side effects, and
    may do nothing to help me.
        So having that database that you have described available
    from my physician, or from myself, to be able to go online and
    find out, is this the same drug? Did it really change? Does it
    deliver any incremental benefit? It would be very helpful in
    sizing up choice-making and my ability to have a conversation
    with my physician about whether that is the right drug for me.
        Ms. Schakowsky. I wonder if you wanted to add anything, why
    you believe evergreening is among the most critical of the
    issues for patients.
        Mr. Mitchell. As I said in my opening statement, innovation
    is critical important to me. It is not a theoretical matter. I
    need them to invent new drugs, or I am going to die sooner than
    I hope to.
        So when drug companies can evergreen, extend life
    inappropriately on an existing product, or build a patent
    thicket around their product, so we can't get a new drug, a
    generic drug to market, when they can extend the life and
    profitability of old drugs, they do not spend their money to
    invest in new drugs.
        So, for me, having them have to compete and having them
    have their period of time under Hatch-Waxman or under the ACA
    or under the Orphan Drug Act run out; in terms of their patent
    and exclusivity, so that they need to invest in new drugs,
    helps me.
        Ms. Schakowsky. Thank you so much.
        I now want to recognize Mrs. Rodgers, subcommittee ranking
    member, for 5 minutes to ask questions.
        Mrs. Rodgers. Thank you, Madam Chair. And to our panel, I
    want to say thank you. I completely agree that we should be
    holding companies accountable for anti-competitive behavior. I
    believe that this Congress should pass legislation to increase
    transparency and accountability of PBMs, the middlemen within
    this whole system.
        I also want to associate myself with Representative Greg
    Walden's opening statement. The fact that next week we are
    having a hearing on a major bill to address the cost of
    prescription drugs in America that we haven't even seen yet, I
    believe, is making a point, not solving a problem.
        This committee has a rich history of working together to
    solve problems. And to my colleagues, Republicans, and
    Democrats, I really ask us all to dig deep. It seems like we
    are becoming very good at playing partisan politics.
    Republicans blame the Democrats, and the Democrats blame the
    Republicans. I am personally weary of it. And in the meantime,
    people despair.
        You know, I am giving a lot of thought to the increased
    suicides we are seeing in America. People are despairing. And
    as we fail to act on behalf of the people that elected us, we
    are failing the people of this country. We should be giving
    people hope. Hope for so many who are sick, who are combating
    diseases, or live with a disability, the hope comes through
    research, and it comes through breakthroughs. It is not going
    to come through a bill that is passed by one party that goes
    nowhere.
        So this committee worked in recent years to advance--well,
    bipartisan--to advance the FDA Reauthorization Act, which
    provided FDA with new tools and pathways to bring generic
    brands to market.
        And we heard today how important this is. This
    administration has proved--has successfully approved 781
    generic drugs in 2018, which was a 90 percent increase from
    just four years prior.
        So, Mr. Francer, I wanted to ask just--would you address
    what you think this--how much of an impact this is having as
    far as increasing the competition. That is important to holding
    these companies accountable.
        Mr. Francer. Yes. Thank you very much for the question.
    Generics and biosimilars can bring enormous savings to patients
    like David Mitchell and all of us. They brought about $300
    billion in savings through the whole health system last year
    when you compare the brand price versus the generic price.
        The turnover in competition is critical to allow that, and
    of course, the innovative drug has to have the ability to have
    a return on its investment. That said, I wanted to call your
    attention to an increasing problem whereby Medicare Part D
    plans increasingly aren't even covering the generics when they
    are launched, and that is something that we have to make sure
    that when there is this turnover to competition, patients and
    taxpayers can get the savings there.
        Mrs. Rodgers. Absolutely. Thank you. Thank you for that.
    That is helpful.
        Dr. Shepherd, understanding that we have seen and know how
    important competition is, how can we balance the important need
    for innovation and drug improvements with ensuring generics can
    continue to compete?
        Ms. Shepherd. I think that balance is very important. I
    think it would involve, you know, obviously, defining what is
    anti-competitive conduct, and that being the activity that the
    legislation addresses, and that potential remedies would
    address, but also being extremely clear about what that is and
    what would not be considered anti-competitive, so that any
    legislation is not too broad that it covers standard business
    practices or is not so vague that pharmaceutical companies who
    are often making investment decisions and R&D 10 or so years
    before they would ever have a ruling on whether or not their
    activity is anti-competitive, they can actually predict what
    they are doing and if it makes sense to invest hundreds of
    millions of dollars in a new drug because they can reliably
    predict that it will not be considered anti-competitive under
    legislation.
        Mrs. Rodgers. We understand that replacing older drugs with
    newer, better products is not, alone, anti-competitive, but may
    deter competition in the future. When do such actions become
    anti-competitive?
        Ms. Shepherd. I think for a hard switch, I think that the
    window is very important. So are there generics imminently
    about to enter or have they just recently entered but they
    haven't gained hold yet? I think that is important.
        And the soft switch, I think what is really important is,
    is there other wrongful conduct like falsely disparaging the
    old product in the Suboxone case, or some other sort of
    wrongful conduct? It can't just be that introducing a new
    product and leaving the old product on the market is anti-
    competitive. It has to be more.
        Mrs. Rodgers. Thank you. Thank you very much.
        I yield back.
        Ms. Schakowsky. Let me just say to our ranking member, I
    feel that on this subcommittee where we have a very broad
    jurisdiction, we have been able to pass some important bills,
    like we did last week. And I hope going forward, as with this
    piece of legislation, that we can work together on that. I
    think there is a lot of unanimity among our witnesses today,
    and I think that can be true of us as well.
        So I am hoping to maintain an atmosphere on all of the
    bills--of bipartisanship on all of the bills that we deal with.
        So the Chair now recognizes Congresswoman Castor for 5
    minutes.
        Ms. Castor. Well, thank you, Chairwoman Schakowsky. Thank
    you for organizing this hearing on how drug companies are
    gaming the system. Consumers know this. I hear it all the time
    from the families who I represent back home in Florida. They
    are paying astronomical amounts of money for their prescription
    drugs, and it is unconscionable in America that drug prices are
    so high that it is driving some families into bankruptcy and
    into debt.
        In many cases, these drug prices are artificially high.
    Drug companies are gaming the system, and as our witnesses have
    illuminated--and I want to thank you all for your illuminating
    testimony--brand- name drug companies engage in this outrageous
    monopolistic practice known as product hopping. Product hopping
    occurs when one pharmaceutical company's drug is about to lose
    its government guaranteed exclusivity, so the company
    introduces a slightly different drug with the purpose of
    keeping much cheaper drugs--generic drugs--out of the market.
        And this practice has gotten so harmful that the Federal
    Trade Commission and the courts have stepped in to stop it, and
    now we need to develop some legislative remedies as well.
        Manufacturers are doing this in order to delay or
    altogether frustrate competition against their products, and
    consumers are paying the price.
        Let's talk about a real-world example, the drug Namenda
    that was used to treat--that is used to treat dementia
    associated with Alzheimer's. A recent court found that Forest
    Laboratories, the manufacturer, had engaged in both a soft
    switch and a hard switch to thwart generic competition.
        The case revealed that Forest acknowledged that it would
    convert patients and caregivers to a once-a-day therapy versus
    a twice-a-day therapy if it made a hard switch, and most
    troublingly, that they knew this. It is very difficult, then,
    when a generic is introduced to get the patients to convert
    back.
        So the market analysis uncovered that in the Namenda
    proceedings Forest Labs' own data showed that a soft switch in
    their case would switch only 30 percent of patients to the
    newer, more expensive product, but the hard switch would move
    80 to 100 percent of patients.
        Forest Labs, in this case, actively and brazenly sought to
    undermine generic uptake. In reality, this meant that Forest
    Labs unfairly profited off of Alzheimer's patients. This is
    what is going on, and this is unconscionable.
        So I want to ask our witnesses for their help. Mr. Carrier,
    could you please describe the kind of behavior that constitutes
    a hard switch again and maybe give us another example?
        Mr. Carrier. Sure. So a hard switch is when the drug
    company removes the old version from the market, and so there
    are several cases that involve--it is the Doryx case, the acne
    drug in the Third Circuit, involved the brand company pulling
    the old version off the market. The hard switch, the old one is
    gone. The soft switch, the old one technically remains on the
    market.
        Ms. Castor. So, Dr. Shepherd, you had--in your testimony to
    us, you highlighted a possible remedy, possible fix for this.
    Is there a downside for consumers if a hard switch approval is
    delayed until after the generic is introduced on the market?
        Ms. Shepherd. No. There is not a downside for--if it is
    just after the window and generics have been able to come in,
    there shouldn't be much of a downside for consumers.
        Ms. Castor. And there is nothing in the law that regulates
    that now.
        Ms. Shepherd. No.
        Ms. Castor. Is that right?
        Ms. Shepherd. Yes.
        Ms. Castor. So, Chair Schakowsky, I would recommend that
    for your bill as you develop it. That seems to be one answer.
        Mr. Carrier, do you agree?
        Mr. Carrier. So I have offered in my scholarship a generic
    window that is very important, because if the brand company
    makes a change at a time that you don't expect the generic to
    be on the market, I say it should be automatically legal. And
    so my window is a bit different than Professor Shepherd's, but
    I do want to give the brand every benefit of the doubt when
    there is no generic about to enter the market.
        Ms. Castor. Thank you very much. I yield back.
        Ms. Schakowsky. The Chair now recognizes Mr. Latta for 5
    minutes.
        Mr. Latta. Well, thank you, Madam Chair. And thanks very
    much for holding today's hearing, and thanks very much to our
    witnesses for being with us today. And no one can deny that one
    of the greatest concerns that the American public out there has
    is the price of prescription drugs. I have long believed that
    this Congress must take action and work in a bipartisan fashion
    to address the rising cost of prescription drugs.
        At the same time, we should be supporting, not hampering,
    efforts that seek to improve the treatment of diseases and
    health issues.
        If I could start my questions with you, Dr. Shepherd. In
    your testimony, you go into great detail about explaining the
    difference between the hard switching and soft switching of
    products. And on the hard switches, you mention an exception
    for when a new product is safer or significantly more
    effective.
        Would you go in more detail about this exception or give
    any examples of when companies have developed a new product and
    compelled consumers to seek it out by pulling the old product?
        Ms. Shepherd. Sure. So I would include, you know, either a
    product that is clearly safer or significantly more effective
    as allowing a switch that would otherwise be within this window
    that we all seem to agree, you know, should be important. And,
    you know, there is numerous examples of products that have been
    pulled and new ones put on, whether or not there is some sort
    of FDA finding that some small component is not as safe as was
    originally believed, and so the new drug is made with new
    compositions that are found to be safer.
        And there is even other kinds of examples where things that
    we may originally think of as very small formulaic tweaks that
    shouldn't matter end up mattering a lot. So, for example,
    current antimalarial drugs, the tweaks that were made to it
    included combining two drugs, so patients take one drug instead
    of two, extending the shelf life, and making a new pill that is
    dissolvable in water.
        And each of those sound so simple, and like clearly
    somebody is trying to take advantage of something, but they end
    up mattering so much. I mean, shelf life matters in tropical
    climates. When a drug can be dissolved in water, that means
    infants can take it, who are most vulnerable to malaria. And
    combining two drugs into one is really important to reaching
    people where there is an issue of cost and availability of
    drugs.
        And so we just need to be careful about what we define as
    improvement in efficacy because in different situations some
    things can matter a lot, but they wouldn't in others.
        Mr. Latta. Let me follow up with another question for you.
    You also stated that there are dangers with introducing
    legislation to regulate this issue because it could reduce the
    innovation and increase spending.
        Do you see a benefit in allowing the courts to continue to
    interpret the statutes that are already on the books, or in
    determining anti-competitive behavior and practices instead of
    adopting any new legislation?
        Ms. Shepherd. I think new legislation could certainly make
    things a little bit more clear. I mean, there is a lot of
    similarity between the only two Circuit Court decisions we have
    on this issue, but there is also some disagreement, and I think
    there is uncertainty in the industry. So I think that
    legislation that minimizes this uncertainty would definitely be
    helpful to both innovation and to consumers.
        Mr. Latta. And, again, what are some of those unintended
    consequences that are out there that can arise if Congress,
    instead of the courts, might be the ones trying to regulate the
    soft switching of the products?
        Ms. Shepherd. Well, unintended consequences, I think if the
    legislation was too broad, and so by its language caught up
    behavior that could lead to true product improvement and not
    just these kind of sham innovations that we seem to all agree,
    you know, is an issue. So I think overly broad legislation
    would be a problem.
        And also, if it I guess codifies ambiguity, that would be a
    problem as well, because that actually could even increase the
    vagueness in the current law from what we have today if the
    legislation is too kind of vague about what is anti-competitive
    and what isn't.
        Mr. Latta. Well, thank you.
        Madam Chair, I know the clock hadn't started when I started
    my questioning, and so I am going to yield back the balance of
    whatever time is remaining.
        Ms. Schakowsky. I am now recognizing Mr. Van Hollen--
    O'Halleran, sorry--I will get these names right--for 5 minutes.
    Sorry.
        Mr. O'Halleran. Thank you, Madam Chairwoman, and Ranking
    Member McMorris Rodgers, for holding this hearing on this
    incredibly important topic, one that I hear a lot about from
    individuals, from families in the 1st Congressional District of
    Arizona.
        I have attended 24 town halls this year alone, and the
    exorbitant cost of healthcare, particularly prescription drugs,
    is the number one issue I hear about from constituents. I am
    pleased that Chairman Pallone and Chairwoman Schakowsky are
    committed to advancing legislation that would address this
    serious issue.
        As we consider proposals this month that aim to lower the
    cost of prescription drugs, I believe it is important that we
    adopt an approach that encourages innovation and competition
    while ensuring that the cost savings are appropriately passed
    down to the consumers.
        After hearing your testimony today, I have a number of
    questions here. But you basically have helped confuse the
    issue, not because of you but because of the seriousness of
    this issue and how the system is put together. I think this
    would be a great time for about an 8-hour session with all four
    of you, but we can't do that today.
        So what I would like to do is go down the table. I am
    concerned about the case law and how we could affect it or not
    affect it if we don't do it. I am concerned about the direction
    we are going in. It is obvious just negotiating drug prices is
    not the bottom line of what we have to accomplish here in
    Congress, that we have to identify how the system cannot be
    worked and manipulated to counter any price changes.
        And so if I can get your opinions and ideas and concepts, I
    would like to start out with Mr. Carrier.
        Mr. Carrier. This is one of the most important drug issues
    that you all can address. I have no faith that courts are going
    to get it right when they keep focusing their analysis on
    choice and coercion and saying, oh, consumers have a choice
    because there are two products on the market. That is what the
    courts have done.
        In the Walgreens case, in the Asacol case, they said
    consumers have a choice because there are two products on the
    market. This is not about consumer choice when you have a price
    disconnect. There is one party that selects the drug. There is
    another party that pays for it. So by making clear that a soft
    switch can present anti-competitive harm, that is a real
    benefit that this committee can do.
        Mr. O'Halleran. Mr. Mitchell?
        Mr. Mitchell. Thank you. I think that Congress passed
    Hatch-Waxman to balance the need for innovation and allowing
    markets and competition to lower the price after a period of
    exclusivity. When drug companies try and bend or abuse that
    framework, then we are not getting the benefits of the Hatch-
    Waxman framework.
        So when a practice by a brand drug company that is
    essentially bringing a drug to market with no clinical or
    therapeutic improvement for patients, when they bring that to
    market, in order to defeat generic competition, and especially
    to defeat state substitution laws, which were put in place to
    make Hatch-Waxman have more of an engine, then that would be a
    time when the courts should be told this is a clear case of
    abuse.
        Mr. O'Halleran. Ms. Shepherd?
        Ms. Shepherd. Yes. I would make two points. I think that
    the window is very important. We all seem to agree that, you
    know, the circumvention of the automatic substitution laws is a
    big part of the problem, and so there is a window in which that
    is important. And so limiting any sort of kind of presumption
    of anti-competitive behavior to that window I think would
    eliminate a lot of the problems that we are concerned with.
        And then, second, on the soft switch, I think that is where
    there is the real risk of catching too many behaviors that we
    would just consider normal business behaviors. And so I think
    defining what needs to be present in a soft switch, what kind
    of wrongful conduct are we considering as presumptively anti-
    competitive. I think that would be very important as well.
        Mr. O'Halleran. Mr. Francer?
        Mr. Francer. Yes. As the whole committee is looking for
    solutions, I would also look towards, how do we make the patent
    system more effective and less of a blockade? This committee
    passed the BPCIA, which was the Biosimilars Pathway, and we are
    seeing that dozens and dozens of patents are really blocking
    the availability of these drugs, which are essentially the
    generic versions of these very expensive biotech drugs.
        I would try to accelerate the patent dance that occurs and
    try to deal with the costly litigation, which is slowing down
    these approvals and their ability to get on the market.
        Mr. O'Halleran. Thank you.
        And thank you, Madam Chair. I yield.
        Mr. Soto [presiding]. The gentleman yields back.
        The Chair now recognizes Mr. Bucshon.
        Mr. Bucshon. Thank you. I appreciate that. I was a surgeon
    before I was in Congress, so this is kind of very--I have a
    very strong interest in this. First, I want to say I associate
    myself with Ranking Member Walden's statement, and I would
    implore us to bring bipartisan bills passed unanimously out of
    this committee to bring down drug prices to the floor for a
    vote.
        And we see today we have an introduction of a very partisan
    big government bill as it relates to drug pricing, so it may be
    clear--it is kind of clear to me, at least at the leadership
    level on the majority side, that there may not be much interest
    in actually getting something signed into law but to play
    politics primarily against the President.
        That said, you know, I am interested in bipartisan
    solutions, and I think everyone on this subcommittee and the
    Health Subcommittee are. I am very proud of this committee and
    the fact that we have worked in a bipartisan way for many, many
    years on very tough issues and found common ground, and I think
    we can on drug pricing issues also.
        As has been mentioned by both sides, this is a front burner
    issue for everyone that I represent. When I talk to people out
    there, healthcare costs, specifically drug prices, is one of
    their top issues for an American family sitting around the
    kitchen table looking at their budget.
        And so I am hopeful and optimistic that we can address it.
    And I appreciate all of your testimony today. I found a lot of
    harmony in the testimony across everyone. I think there are
    nuanced differences in the approach to maybe address the
    problem, but they are not that far apart, which I think gives
    us a great opportunity in this subcommittee to really find
    common ground to address it.
        A couple of things. Dr. Shepherd, minor changes--``minor
    changes'' to existing drugs that can't be justified by
    innovation and drives up cost to consumers, do you think that--
    you know, first of all, do you agree that that is happening a
    lot?
        And also, who is best positioned to determine what
    constitutes a minor change? Because everything here and what we
    do, and in your legal profession, the language matters, right?
    So who is best positioned to assess what minor changes might be
    and what the benefit or detriment to the consumer is?
        Ms. Shepherd. Sure, sure. Well, I guess I will answer your
    last question first. I mean, I would say it is absolutely the
    market. You know, there is a lot of drugs we can look at. I
    will--two examples I might say would be NSAIDs and
    antidepressants--that there is a lot of different drugs on the
    market. They are often just slightly tweaked versions of each
    other, but what we find, what doctors find, is that different
    patients, for whatever body chemistry, you know, reasons, react
    very differently to different drugs.
        And we may--you know, I could imagine if there is a court
    ruling early on, they may think, oh no, this is just a minor
    tweak; it is not worth it. Therefore, you know, we could
    presume that there is anti-competitive behavior associated with
    it.
        But it oftentimes time for the market to realize that
    different people do react very differently to whether it is
    these important drugs or it is contraceptives or things like
    that. Different things have different effects, and the markets
    and the doctors and the consumers are in the best position to
    judge that.
        Mr. Bucshon. I mean, statin agents as an example.
        Ms. Shepherd. Yes.
        Mr. Bucshon. I take a statin agent. I have tried every one
    of them except the one that I am on, and couldn't take the
    others.
        Ms. Shepherd. Right.
        Mr. Bucshon. And many of them are very similar.
        Ms. Shepherd. Yes.
        Mr. Bucshon. But slightly different.
        Ms. Shepherd. Right.
        Mr. Bucshon. Mr. Carrier, do you want to comment on that?
        Mr. Carrier. Sure. So I don't think courts should be in the
    business of determining if a change is minor or not.
        Mr. Bucshon. OK.
        Mr. Carrier. And I don't think anyone believes that. On the
    other hand, you can see, if the change is about the same--so
    think Suboxone. They switch from a tablet to a film, and when
    they go to the FDA and say, ``Please approve my film,'' they
    never did any studies for film. They said, ``Oh, rely on the
    tablet studies, and they are basically the same.''
        So sometimes it is part of an overall effort where you
    badmouth your own product, you jack up the price, you do
    everything else; that comes to the fore. But I don't think a
    court, in any of this legislation, has to decide if it is a
    minor change or not.
        Mr. Bucshon. Yes. I mean, that change specifically could be
    that if you take an oral version, your gastrointestinal tract
    doesn't tolerate it well versus if you take a mucosal membrane
    absorption product, that you can tolerate it. But what you are
    saying is they should be able to show that, and then that is a
    justifiable substantial improvement in the product, and that is
    what you are kind of saying.
        Mr. Carrier. Absolutely. Yes.
        Mr. Bucshon. OK. I yield back. Thank you.
        Mr. Soto. The gentleman yields back.
        The Chair now recognizes Ms. Blunt Rochester.
        Ms. Blunt Rochester. Thank you, Mr. Chairman. And thank you
    to Chairwoman Schakowsky and Ranking Member Rodgers for holding
    this hearing and thank you to the witnesses for a very
    important hearing.
        You know, we have this theme about gaming the system, and
    throughout Energy and Commerce has really been looking at this
    whole issue of drug pricing and trying to figure out why these
    prices are so high.
        And I think one of the things that you said, Mr. Mitchell,
    for me stuck out as a thing that I am holding in the back of my
    mind throughout this hearing, and that is you said, ``Drugs
    don't work if people can't afford them.'' I mean, that is the
    bottom line, and that is what I hear from my constituents. If
    you can't afford them, what is the point?
        And so we thank you for your testimony. We thank you for
    sharing your story. You represent a lot of people in our
    country that are grappling every day.
        I would like to start my questions with Mr. Carrier. You
    talked about the price-disconnect and the fact that the drug
    marketplace is different than other marketplaces. It is not
    like automobile, you know, marketing or anything like that. And
    that this difference makes it especially susceptible to clever
    advertising manipulations.
        What about this marketplace makes it susceptible to the
    manipulations and other anti-competitive practices?
        Mr. Carrier. Thank you for the question. The problem here
    is that there is no other industry where you don't have a
    single party making the determination of price and quality. So
    in any other market--let's say the paperclip market--a new
    paperclip comes on the market, and it is ten percent better
    than the old paperclip.
        Is it worth the increase in price? Let's say it is 25
    percent more price. When you walk into the store, you can make
    that decision? Well, it has improved, but it costs this much
    more. So, therefore, I will or will not buy it. You don't have
    that in the pharmaceutical industry because the doctors are the
    ones subject to all of the advertising and the doctors don't
    have to think about cost when they prescribe it.
        It is the patient or the insurer that has to do it. And so
    that is why doctors are subject to all of this advertising. It
    really makes a difference. There are empirical studies out
    there that show that when doctors are subject to all of this
    advertising, they are more likely to prescribe the drug, and
    that is why it is a real problem here. It is not really about
    coercion or choice. It is about a really price-disconnected
    market.
        Ms. Blunt Rochester. And to follow up on the chairwoman's
    question on transparency, would greater transparency for
    reformulations improve innovation? And how?
        Mr. Carrier. I think so. So let's say that you have the FDA
    that has to list all of the reformulations. So you are drug
    company. You change your product. You list it on the FDA's Web
    site. You show what is different about it. You show that you
    engaged in really interesting clinical trials that come up with
    a whole bunch of improvements. That is something that is worth
    knowing. We don't have that now. Transparency could help.
        Ms. Blunt Rochester. Great. And I want to also shift a
    little bit to, one thing I know for sure is that drug patents
    and approvals are incredibly complex, and it is clear that some
    actors have taken advantage of the system to drive up these
    prices and ultimately reduce access to affordable healthcare
    for Americans.
        This question is to the panel. How do the physicians and
    individuals find out about these reformulations? That is number
    1.
        And then, are there ways that we can use the available
    resources to improve physician education or even consumer
    awareness? And maybe we will start with Mr. Francer.
        Mr. Francer. Sure. Well, I think it can be very difficult,
    actually, to find out about some of the changes, which is why
    some of the suggestions for improved transparency would be
    helpful. I think often physicians are finding out from
    communications directly from the drug company. You can find out
    some of them from the FDA Web site. But as was discussed
    before, it can be very difficult to learn about some of them.
        Ms. Blunt Rochester. Mr. Mitchell?
        Mr. Mitchell. Clearly, physicians are learning through
    medical journals, but they are also learning from detailers who
    are coming from pharmaceutical companies to explain why a given
    drug is superior. Likewise, I know a lot of people with
    diseases at this point, chronic or acute, and they go out and
    try and research.
        And so they will look around to see if there is something
    that helps them understand, is this drug in fact superior? What
    are the side effects that come with it? And so having a
    database where you could go look, especially in situations
    where there are minor changes taking place, would be helpful.
        Ms. Blunt Rochester. Right, right. Anyone else from the
    panel?
        Ms. Shepherd. I agree.
        Mr. Carrier. Yes. So drug companies are the ones that tell
    the doctors, and that is why they have so much power here.
        Ms. Blunt Rochester. Gotcha. Back to the awareness piece, I
    think that you said people are basically doing it on their own
    and really with no help from the government. I have one more
    question, but I will submit it for the record. Again, thank you
    so much for your time and for your testimony.
        And just on the hope piece, this committee passed out of
    committee after markup before the recess 25--I think 25, 24,
    bipartisan bills, and many people didn't hear about that. And
    so if I want to put one other thing on the record, there are
    things that we are doing together, and I think this is an area
    where we all feel there is a need to help the American people.
        Thank you so much. I yield back.
        Mr. Soto. The gentlelady yields back.
        The Chair now recognizes Mr. Carter for 5 minutes.
        Mr. Carter. Well, thank you very much, and I appreciate
    every one of you being here. This is an extremely important
    subject, something that we have been concentrating on on this
    full committee, both in Health Subcommittee and on this
    subcommittee as well, and certainly something the American
    people need help with.
        And no one knows that better in Congress than I do, because
    currently I am the only pharmacist serving in Congress. So I
    have lived this. I have been the one on the other side of the
    counter who has had to tell the patients how much their
    medication is. So this is extremely important, as you can
    imagine, to me.
        Mr. Francer, I want to start with you and ask you, I am
    happy to be talking about the anti-competitive behaviors that
    are used. But I think we would be making a mistake if we didn't
    look at the whole piece of the puzzle, and I want to do that.
        You discuss in your written testimony the problems around
    rebates. In fact, you said, ``Recent analysis found that
    Medicare drug plans are increasingly shifting generic drugs
    from tiers with lower co-payments for patients to brand tiers
    with higher co-payments and co-insurance.'' And this is the way
    that these PBMs are doing this, and this is the way that it is
    increasing costs, particularly to the patients, increasing
    their co-payments.
        Can you just explain how these rebate agreements work very
    briefly?
        Mr. Francer. Yes. And thank you very much for the question.
    This is a case in which the system is failing patients. When
    you go to the pharmacy counter and meet with, you know, your
    former colleagues, you know, you expect that if you are going
    to get the generic version it is going to be pretty cheap. And
    it has taken a long time for it to get that way, but finally
    there is competition.
        We, in our industry, have been surprised by recent findings
    that more and more the generics are being put on these higher
    co-pay tiers, so that it could actually be more expensive to
    the patient at the pharmacy counter to get the generic than the
    brand. I think this is something that the committee should look
    at, whether it is for Medicare, and then to look at the whole
    system.
        Mr. Carter. You are exactly right. I mean, I was appalled
    at times to see that a generic would be on a higher tier than a
    brand-name would. And I knew the reason why the pharmacist is.
    I knew it was because the PBM was getting a higher rebate. No
    other reason except for that, and that is something that it is
    hard to articulate to someone who doesn't necessarily
    understand it.
        Now, most of the members of this committee get it and
    understand it. A lot of the members of the Energy and Commerce
    Committee understand it. But once you get outside of that,
    there are very few who do, and it is hard to explain that and
    getting in the weeds enough to where we can explain it.
        How widespread do you think this is?
        Mr. Francer. Well, we are finding actually more and more.
    We are going to be releasing a paper next week that goes into
    more detail on this, but it is becoming an increasing problem.
    Number 1, the generic just not being covered at launch. And,
    number 2, this placement on tiers.
        So I am happy to provide that for the record and to give
    you more information.
        Mr. Carter. Good, good. So what about biosimilars? We had
    Dr. Gottlieb, Dr. Scott Gottlieb, when he was with the--when he
    was the director--commissioner of the Food and Drug
    Administration, he had suggested that this was one of the
    problems and that the abuse of the rebate system was blocking
    out a lot of affordable biosimilars.
        Would you agree that that is happening there as well?
        Mr. Francer. Well, there is a fairly well-known case in
    which there is litigation between Pfizer, which is trying to
    put a biosimilar on the market, and Johnson & Johnson, which
    has the innovative drug. And evidently the rebate situation has
    essentially made it extraordinarily difficult for the
    biosimilar to get on the market.
        Again, this is a failure of the system. This isn't the way
    it is supposed to work.
        Mr. Carter. How can we fix it?
        Mr. Francer. Well, I think in that case, we have to make
    sure that you treat biosimilars in a way that incentivizes
    their uptake, whether it is sharing the savings with the
    physicians or whether it is making sure that they are on the
    preferred tier.
        There are a lot of different types of solutions, and we
    would be happy to work with you on it.
        Mr. Carter. You know, I get so frustrated because we meet
    with Medicare and we meet with the staff, and we explain it to
    them, and they say, ``Yes, we know. We know.''
        You know and you are not doing anything about it.
        ``Well, if we do something about it, they will just do
    something else in another area.'' It is like squeezing a
    balloon. It is just going to go somewhere else.
        You know, I really get passionate about this and really get
    upset about it, as you can imagine, because when you--I have
    spent over 30 years as the one on the other side of the counter
    having to explain this to people. I am the one who had to see
    the mother in tears because she couldn't afford the medication
    for her child.
        I am the one that saw the senior citizens who were trying
    to decide, literally--and I am not exaggerating--trying to
    decide whether they were going to buy groceries or buy their
    medication.
        What is happening now with the pharmacy benefit managers,
    the PBMs, the lack of transparency in the drug supply chain, is
    criminal. And until we get the resolve in Congress to do
    something about it, it is going to continue on.
        Thank you, Madam Chair, and I yield.
        Mr. Soto. The gentleman yields back.
        The Chair now recognizes Mr. McNerney for 5 minutes.
        Mr. McNerney. I thank the chair, and I appreciate my
    colleague from Georgia's passion on this issue. And I
    appreciate the testimony. It has been very illuminating, so I
    appreciate that.
        Each of you has acknowledged how product hopping impacts
    generic uptick and the market generally. The lack of
    competition in the market directly affects prices that
    consumers pay for their drugs. And to that point, Professor
    Carrie has shared some data from some well-known product hops,
    and I appreciate that, Professor.
        The FTC has acknowledged that product hopping is an abuse
    of the regulatory system, and that it hurts consumers, and the
    FTC has acted in cases to enforce some of the most egregious
    practices. I would like to learn more about what the FTC has
    done and how Congress can ensure that the FTC has the authority
    it needs to stop product hopping.
        So I am going to start with Professor Carrier. Can you
    explain what enforcement authority the FTC currently has to
    address product hopping?
        Mr. Carrier. So the FTC can go after these cases in court
    under its jurisdiction, and it has used that authority in the
    pay-for-delay settlement area. It has barely used it with
    product hopping. There is a 50 million piece of the Suboxone
    billion dollar settlement that was product hopping. That is the
    first time the FTC dealt with it, but legislation that you
    would consider it potentially and that the Senate Judiciary
    Committee consider it, will be incredibly important.
        The FTC does not use its authority a lot. Six times in 20
    years is the only time it has brought a pay-for-delay case. But
    in the most egregious cases, it could be incredibly important.
        Mr. McNerney. Very good. Thank you. What additional
    measures should we consider to further clarify their
    authorities?
        Mr. Carrier. So one other thing that you could do is to ask
    the FTC to do a report on product hopping.
        Mr. McNerney. That was my next question. Should they do a
    report?
        [Laughter.]
        Mr. Carrier. Absolutely. And so one of the difficulties
    here is that it is a nuanced subject. And when you hear about a
    soft switch, you think, oh, maybe it is OK because there are
    two products on the market. Let's get evidence on how soft
    switches can be bad. Let's get evidence on how these concerning
    switches make no economic sense whatsoever. There is a test to
    apply. It makes no sense, other than keeping the generic off
    the market.
        The FTC is uniquely situated to get all of this
    information. And just to go back for one second to
    Representative Carter's question, PBMs are a part of the
    problem here. They should be solving the price quality issue,
    and they are not. And we can still deal with this while still
    dealing with PBMs.
        Mr. McNerney. Thank you.
        Professor Shepherd, would you like to make a comment on
    this?
        Ms. Shepherd. No. No, I would agree with that. I mean, I
    think that some--you know, there has been some kind of like
    small reports, but I do think a larger study of the problem
    would help us get our head around how many times are there an
    innovation that we might consider incremental that are
    happening within this window, have no other offsetting benefit,
    and we can presume them to be anti-competitive. So I would
    agree that----
        Mr. McNerney. Well, it is interesting. Professor Carrier
    just said there is only six times that they have prosecuted
    product hopping. What singles out those six cases that made the
    FTC decide to go after them?
        Mr. Carrier. So it really--so six pay-for-delay cases, the
    FTC has been on the front lines of this for 20 years. They
    really choose the most egregious examples. And so these are the
    worst ones, like in the Cephalon case where the brand company
    paid the generics $300 million, just half the market, use that
    period of time to switch the market from the old version to the
    new version. By the way, product hopping and settlements work
    together a lot of the time. They really picked the most
    egregious example.
        So for anyone worried about innovation, if we are giving
    authority to the FTC, look to pay-for-delay settlements. They
    have had this authority for 20 years. They bring one case every
    three years. This is not going to be an avalanche of
    innovation-hurting activity.
        Mr. McNerney. So do you think the FTC just lacks resources,
    or----
        Mr. Carrier. Yes. I think that these cases are big cases.
    You have the largest firms on the other side. Antitrust
    litigation goes on for years. The FTC certainly could use more
    resources.
        Mr. McNerney. Thank you.
        Dr. Francer, or Mr. Francer, do you believe that sensible
    legislation can be crafted that would use market forces to
    bring drug prices in the U.S. in line with the average
    international market price?
        Mr. Francer. Well, I think that what we are talking about
    today, there is actually a lot of consensus on this panel to
    let competition work. And I am hopeful that the committee will
    continue to work in that way.
        Mr. McNerney. All right. I am going to yield back, Mr.
    Chairman. Thank you.
        Mr. Soto. Mr. McNerney yields back.
        The Chair now recognizes Mr. Gianforte for 5 minutes.
        Mr. Gianforte. Thank you, Mr. Chairman.
        Skyrocketing costs of prescription drugs are making it more
    difficult for Montanans to prosper. I am committed to finding
    commonsense solutions to this problem. Competition is
    incredibly important, as we have discussed here today, in any
    marketplace. And I am glad that we have passed many bills out
    of committee to increase generic competition for generic drugs.
        I am also encouraged by the work of the Trump
    administration that they have been doing in this area. The FDA
    has approved more generics than ever before, and it is driving
    down costs of medications.
        We need to find commonsense solutions that make drugs less
    expensive, increase transparency where it is needed, and put
    patients first.
        I want to focus on biosimilars. They hold enormous
    potential to lower prescription drug prices and enhance patient
    access to lifesaving cures. I am working with Representative
    Schrader to help bring down biosimilars--more biosimilars to
    market and get them in the hands of patients.
        That is our bill. The Biosim Act will temporarily increase
    the reimbursement for biosimilar drugs for the average price of
    the drug plus six percent, increase it to the average price
    plus eight percent, to help utilization.
        I know the FDA has approved 24 biosimilars since 2015, but
    only nine are in the hands of patients now. That is a problem;
    we want to fix it.
        Mr. Francer, what are the barriers to getting more
    biosimilars in patients' hands?
        Mr. Francer. Yes. Thank you for the question. I just want
    to give you one example. The drug Humira, this is a drug that
    is an incredible treatment. It was approved in 2002, and so it
    had its 12 years of exclusivity. That was over in 2014.
        Its compound patent expired in 2016, yet they have 136
    patents surrounding competition for this drug. And the drug
    takes in more revenue every year than all of the NFL teams
    combined. We need to do something about our patent system and
    making sure that drugs don't have a limitless monopoly to have
    competition.
        Mr. Gianforte. OK. Thank you.
        Ms. Shepherd, in your testimony, you suggest that whether
    product hopping is anti-competitive is highly situational
    dependent. Can you please explain what you mean by that?
        Ms. Shepherd. Sure. You know, with the hard switch, it
    depends on when the switch is actually happening. Certainly, if
    a drug company removes their drug from market years after there
    has been generics in the market, it is not going to affect the
    availability of these generics to patients, or if they remove
    their product years before there is a generic even on the
    horizon, it is presumably just an improvement that they find
    necessary. And it is not impeding competition in any way.
        And then with the soft switch, I think it depends so much
    on what is the behavior that is associated with it. Just
    introducing a new product, leaving the old one on the market,
    and even advertising the new product, you know, very
    aggressively. That is not--there is nothing anti-competitive
    about that. There is plenty of choice. Both products are on the
    market. Automatic substitution laws work. It is when there is
    some other clearly wrongful conduct that accompanies a soft
    switch that it would be anti-competitive.
        Mr. Gianforte. So if we want to introduce a bill that
    prevents anti-competitive product hopping, how can we ensure
    that we are not capturing legitimate actions and get swept up
    with the anti-competitive stuff?
        Ms. Shepherd. Well, again, you know, I think on the hard
    switch, defining the window is important. I think on the soft
    switch, just being extremely clear about, what is the behavior
    that will unfairly disadvantage the older product. And when we
    look at most court decisions, they have often--and the FTC, in
    addition, has commented on this--that it typically will require
    some other sort of wrongful conduct that accompanies the soft
    switch.
        Mr. Gianforte. Yes. Could you give a couple of examples of
    past product improvements that could have been considered
    illegal under an overly broad approach to anti-hopping.
        Ms. Shepherd. Sure. Well, I mean, when we look at--you
    know, I mentioned the antimalarials earlier. But when we look
    at the history of oral contraceptives, birth control pills,
    they have--over the last multiple decades they have slowly come
    down in dosage.
        Now, a lot of people would say a slight tweak in dosage,
    that is just an unimportant little improvement that doesn't
    offer real benefits, but over time those add up. And, in fact,
    we have, you know, statements from the--hold on one second--the
    National Research Council that says the cumulative effect of
    incremental innovation is often more transformational than a
    first in class or radical innovation.
        And so, you know, we just need to be careful. When these
    small improvements may one at a time look not so important,
    they do add up to being very important.
        Mr. Gianforte. OK. I want to thank the panel for your
    testimony today. I appreciate your helping with this. It is
    critically important that we get prescription drug prices down,
    so I appreciate it.
        And with that, I yield back.
        Ms. Schakowsky [presiding]. The gentleman yields back.
        Thank you, Mr. Soto, for being in the chair. You are next
    for 5 minutes.
        Mr. Soto. My pleasure, Madam Chair.
        First, I just want to get a clarification, because I have
    been a little confused about it. Is evergreening and product
    hopping the same thing? Or is it two different things? Mr.
    Carrier, my fellow Scarlet Knight, it would be great to hear
    from you first.
        Mr. Carrier. So evergreening is used more loosely to refer
    to not only product hopping but patent thickening as well. So I
    would focus on product hopping as the switch from one version
    to another that really makes no good reason, whereas
    evergreening is more the life cycle management practice that
    drug companies use in many places.
        Mr. Soto. Thank you for that. I wanted to--obviously, this
    committee has worked on pay-for-delay, updating the Orange and
    Purple Books. We are now looking at product hopping and
    evergreening.
        Is there any other unfair deceptive trade practices to
    extend patents that exist right now that we haven't covered
    yet? And we will start with you and we will go across to hear
    from everybody. Mr. Carrier.
        Mr. Carrier. So I would like to continue the discussion on
    biosimilars. There are not enough biosimilars on the market
    today, and there are so many hurdles, not just the patent
    thicket that Mr. Francer talked about, but also the rebates
    that he talked about, the cost of developing the drug, and
    disparagement.
        Biologic companies are disparaging biosimilars, saying,
    ``Oh, you could take this, but you might die,'' or something
    like that when under the statute you are not allowed to do
    that. And so that is one other thing to keep in mind.
        And, again, everything else that you have dealt with on
    sample denials, pay for delay, and citizen petitions I would
    say as well are very important.
        And the final piece is the PBM piece. Representative Carter
    made a great point that PBMs are not putting drugs on the
    formularies because they are better drugs. They are putting
    drugs on the formularies because they are getting a big payout
    from the brand company.
        And sometimes we hear, ``Well, we can't do anything about
    brand companies because it is the PBM problem. We can't do
    anything about PBMs because it is a brand company problem.'' Do
    both. You can do both. You can solve everything we have talked
    about this morning, and you can also deal with the PBMs, and
    those are complimentary approaches.
        Mr. Soto. Mr. Mitchell, any additional unfair deceptive
    trade practices that we haven't covered in our initial list?
        Mr. Mitchell. I will just pick up on what Professor Carrier
    just said. It is outrageous for me, as a patient, that I can't
    know if the preferred drug on a formulary is there because it
    is the most effective drug, the least expensive drug among
    equally effective options, or if it is simply there because the
    brand drug company paid the PBM a big rebate, a kickback, which
    you give safe harbor to under law. That is not a good way to
    run a railroad. That is not a good way to do healthcare for
    people.
        So when Mr. Carrier says, ``You could do both,'' this is a
    brand problem and a PBM problem. Fix it, so I can depend that
    the PBM is taking care of me and not his profit needs.
        Mr. Soto. Ms. Shepherd, any additional gamesmanship
    happening to extend patents that either you would like to
    elaborate on or that we haven't discussed yet?
        Ms. Shepherd. No. I think Professor Carrier made the point
    about the citizens' petitions and the sample availability, but
    I would also reiterate, I have done quite a bit of work on the
    PBM rebate issue as well. And so that is creating this just
    kind of absurd incentive within the market that a lot of people
    don't understand how responsible those rebates are for the
    actual list price increases we are seeing.
        Mr. Soto. Thank you. And Mr. Francer.
        Mr. Francer. So agree with what Professor Shepherd just
    mentioned, and the only one I would add is find a way to move
    up the biosimilar litigation, so that it can happen earlier and
    so that it is not blocking availability.
        Mr. Soto. Now it would be great to hear from you all about
    a new bill that was just filed today to allow Medicare and the
    HHS Secretary to negotiate drug prices. It would be great to
    hear a show of hands. How many people--how many of you believe
    that if we allow the HHS Secretary to negotiate Medicare drug
    prices that that would lower prices for the market overall?
    Raise your hand. OK.
        Secondly, if we focused on 250 of the most used, most
    expensive drugs, do you think that is a good start to lowering
    drug prices? Raise your hand if you agree with that statement.
    OK.
        Finally, it would be great to hear from you, Mr. Carrier. I
    know you mentioned a little bit of--a lot of these issues, but
    if you--how key is it for Medicare to be able to negotiate a
    lot of these prices?
        Mr. Carrier. So I have not studied this issue as much as
    the others, but I do think it is important to negotiate.
        Mr. Soto. OK. And Mr. Mitchell?
        Mr. Mitchell. Well, we pay two to three times in this
    country what people pay in other countries. And the principal
    reason is that every other country in the world negotiates
    directly with drug companies; we don't. If PBMs were doing such
    a good job on my behalf negotiating for Part D, for example,
    why am I paying so much more than those other countries? So we
    think that just in the same way that the Federal Government
    negotiates for everything it buys--aircraft carriers, copying
    paper--that we should be negotiating drug prices as well and
    using our purchasing power to help American people get a better
    deal.
        Mr. Soto. Thank you. My time has expired.
        Ms. Schakowsky. Thank you.
        Mr. Guthrie, you are recognized for 5 minutes for
    questions.
        Mr. Guthrie. Appreciate it very much. I wish I had been
    here for this full discussion. But there is another committee
    meeting--subcommittee meeting downstairs, and the chair and I
    just--she was just down there as well, so sorry for not being
    here for the full discussion. But I am the ranking member of
    the Oversight and Investigations Committee, which is meeting,
    not today, but we are currently examining the increases in
    insulin prices, particularly the list price versus the--list
    price versus the discount, what people, what the
    pharmaceuticals or the insurance company actually pays.
        And we looked at that one because it is not--it has been
    around for 100 years. It is not part of the innovation, big
    innovation. There is great innovation in diabetes. But what is
    going on in healthcare, we are getting incredible innovations
    in pharmaceuticals. You mentioned Humira. You mentioned--and I
    know that is a little dated, but you can cure Hepatitis C with
    a pill now. I know it is a procedure we can cure sickle cell
    anemia.
        So we look at just the healthcare, in general. So my
    concern is we--and I really pushed with Chair DeGette to go
    look at insulin because we need to get to the bottom of it. But
    what I am concerned about--and, Ms. Shepherd, I think some of
    your looks and research you look into this--is as we move
    forward--and some are going to say, We don't care about the
    unintended consequences. We are paying too much money.''
        But the unintended consequences would be to kill innovation
    that we have. I think some of the other countries do negotiate
    for drug prices, but they also limit formularies. And so we can
    have that tradeoff as the Congressional Budget Office has said.
    If you want cheaper prices on Medicare Part D, the only way you
    are going to get it cheaper is if you limited formularies, even
    if you negotiate, which means limit what people can have in
    choice.
        So I guess my question I am getting to is, how do we find
    the appropriate balance, Ms. Shepherd, between the need for
    innovation and the need for the competition to bring the prices
    down? Can we have both?
        Ms. Shepherd. I think we can. I mean, you know, each side
    might have to give a bit, but I think it is possible. I think
    it depends on just crafting extremely clear legislation that
    makes it clear what is and what is not anti-competitive, making
    sure you are not capturing any improvements that could be
    innovative.
        Mr. Guthrie. So what would be the ambiguities in some--I
    know in your testimony you talk about ambiguities in law could
    limit innovation. So what are some of the ambiguities that you
    would want to see clear in a piece of legislation that----
        Ms. Shepherd. Sure.
        Mr. Guthrie. You were right where you were going. I just
    want to----
        Ms. Shepherd. Yes, yes, yes.
        Mr. Guthrie [continuing]. My next question.
        Ms. Shepherd. So, for example, if let's say in regards to a
    soft switch, the legislation says ``any soft switch that
    unfairly disadvantages the old product.'' Like I have no idea
    what that means. And, you know, disadvantage, I mean, I think
    most new product innovations disadvantage in some way older
    products because there is more competition on the market.
        Unfairly? That is not a term we see described anywhere to
    really judge what that would be. And so I would just caution
    the subcommittee to think very clearly, maybe with precise
    examples or some real way to kind of--to judge what would
    constitute an unfair disadvantage rather than just throwing it
    out with a bunch of ``mays'' instead of ``wills,'' so that
    nobody really knows what it is.
        Mr. Guthrie. OK. Should the number of generics that already
    enter the market be a factor in determining whether or not
    removal of the brand product is anti-competitive?
        Ms. Shepherd. No. That is not really--as long as one
    generic is on the market, automatic substitution laws are
    working. And more generics, all that is going to do is--will
    bring down the price, and that is important But as long as
    there is one on the market, there is nothing stopping more from
    coming into the market.
         So that is kind of irrelevant from whether or not the
    automatic substitution laws have kicked in and have started
    working.
        Mr. Guthrie. OK. Mr. Mitchell, you had a comment?
        Mr. Mitchell. Yes, sir. I think one of the things that is
    important there is, was it a hard switch? Because if they
    pulled the old product, then there is nothing for a doctor to
    write me a prescription for that is substitutable? And so that
    is the kind of, you know, specific act that you guys could
    clarify on.
        Mr. Guthrie. OK. Yes, Mr. Carrier?
        Mr. Carrier. And just to make even clearer, the no economic
    sense test is the most conservative test in antitrust law. It
    says, ``Drug company, you win, as long as you have one reason
    other than keeping the generic market.'' Much more deferential
    than the rule of reason. That unifies hard switches and soft
    switches.
        In the five cases that have been litigated, there has been
    no reason. Why pull a billion dollar drug off the market? Makes
    no sense. No economic sense. Unifies hard and soft switches and
    does not touch innovation.
        Mr. Guthrie. Thanks. Thanks.
        Mr. Francer, do you have any comment on that? You are the--
    and Ms. Shepherd?
        Ms. Shepherd. Yes. On that comment, I think that the no
    economic sense, I think that is very difficult to
    operationalize for various reasons. You know, pharmaceutical
    companies have a lot of overhead. They do a lot of R&D that
    isn't designated to a specific drug. It is spread out across a
    lot of drugs.
        And so the no economic sense test is going to require a
    pharmaceutical company to produce what are the specific costs
    of this drug, and what are the specific benefits. It is very
    difficult for them to do.
        In addition, I just wonder if it doesn't--it is not going
    to encourage gaming. I mean, that would give pharmaceutical
    companies the incentive to spend less on R&D--not what we want
    them to do--in order for the benefits to be more likely to
    exceed the cost. And so it just--I worry about how that could
    be operationalized.
        Mr. Carrier. And just to respond, if you look at the
    litigated cases, these are not close calls. I know there was a
    paper written a few days ago criticizing my test, but the cases
    that have been litigated involve TriCor, a $200 million drug
    pulled off the market; Nexium, a $4 billion drug; $1.5 billion
    in Namenda. These are not close cases. The companies are
    pulling off blockbuster drugs, and there is no sense whatsoever
    that this makes any sense at all.
        Mr. Guthrie. OK. Thank you.
        My time has expired, and I will yield back. Thank you.
        Ms. Schakowsky. Thank you. Well, all time for questioning
    has expired. I certainly want to thank all of our--oh, I am so
    sorry. I yield 5 minutes to Mr. Sarbanes. Forgive me.
        Mr. Sarbanes. Thank you. Thank you, Madam Chair. Thank you
    for the opportunity to waive onto the committee today on a
    very, very important topic.
        Mr. Mitchell, I wanted to ask you some questions. First,
    thanks for your testimony, and thanks for sharing your personal
    story and then channeling that into the effective advocacy that
    you have offered----
        Mr. Mitchell. Thank you.
        Mr. Sarbanes. On so many different venues. You have been
    pushing on this issue of lower drug prices for a long time, and
    you are frustrated, I am sure, as I am, by the lack of progress
    that we have made in terms of addressing the prices of drugs
    and producing meaningful drug legislation that can push back on
    industry and prevent these anti-competitive practices that have
    been detailed today, including product hopping and other things
    of that nature.
        Tell me what you think is creating the barriers up here in
    Congress when it comes to passing and enacting legislation that
    would make a meaningful difference with respect to bringing
    down the cost of drugs for patients.
        Mr. Mitchell. I believe that there is one and a half drug
    company lobbyist for every one of you in Congress right now.
        Mr. Sarbanes. I think it is three, actually.
        Mr. Mitchell. I believe that by definition--and the
    economists flanking me can correct me if I am wrong--by
    definition, monopoly industries have unlimited resources to
    sustain the monopoly with political power. That monopoly power
    is being mobilized forcefully to block anything that will
    effectively lower the list prices of prescription drugs.
        And, remember, we can talk about PBMs, we can talk about
    hospital markups, and we can talk about markups by doctors. The
    headwaters of this problem is the list prices that are set by
    the drug companies. Nobody sets list prices except the drug
    companies. If we lower the list, everybody who is making a
    percentage markup downstream will make less money, and it can
    go back to lower prices for people like me.
        So those are the barriers I think that are chief in the
    way--chiefly in the way of reform.
        Mr. Sarbanes. Well, I agree with you, you won't be
    surprised to hear, 100 percent on that. I have kind of made
    myself a student of how the special interest ecosystem has
    developed here in Washington. Nobody has manipulated that more
    effectively than the pharmaceutical industry in the ways that
    you just described.
        According to the Center for Responsive Politics, that
    industry spent more on lobbying last year than any other
    industry--$280 million--and in the 2018 election cycle donated
    over $41 million to federal candidates and federal committees.
        You just made the point about the number of lobbyists that
    are deployed here on behalf of the industry, some 1,400
    lobbyists last year, according to the Center for Responsive
    Politics. So we are actually being--we are actually being
    teamed at three to one ratio, which is even more than you
    suggested, and it is all about protecting the bottom line.
        Mr. Mitchell. Well, if I may add, the scare tactics really
    offend me as a patient. You know, socialism, I am not going to
    get the drugs I need. There will be no innovation. I am going
    to die. There is room to lower drug prices. The pharmaceutical
    industry has profits that run in excess of two times the S&P
    500.
        There was a piece today in Axios that said that they are
    getting 20 percent of the profits in the healthcare system
    based on 20 percent of their revenues. Fifty percent of the
    profits, I am sorry, based on 20 percent of the revenues. There
    is money in the system to lower drug prices, allow us to have
    innovation, especially given that taxpayers pay so much of the
    money for innovation, to get lower drug prices. It is not going
    to make the world collapse on us as patients.
        But they are shameless in the ways that they go out and lie
    and try and scare people, that if we actually lower drug
    prices, so people don't have to die because they can't afford
    their insulin, that somehow more people are going to die.
        Mr. Sarbanes. Well, I appreciate that. I think you are
    right on the money. And, you know, it is hard sometimes to
    completely diagnose how this influence-peddling system works up
    here. I think it is a combination of conscious active decision-
    making on the part of industries like the pharmaceutical
    industry, to protect the bottom line and to maximize their
    profits. And they make those judgments along the way.
        But I also think what operates here is this kind of self-
    perpetuating system of influence, which makes it hard, even for
    the more enlightened people within some of these industries and
    companies, who might want to approach things in a different
    way, to break free of that model. It just keeps churning and
    churning and churning.
        And it is up to us here, who are the ones at whom those
    efforts are being directed day in and day out to take action to
    diminish undue influence that comes from these special
    interests and lift up and expand the influence of the average
    person out there. And if we can do that, we will be able to
    address many of the issues I think that you all have brought to
    us today.
        So thank you for your testimony, and I yield back to the
    Chair.
        Ms. Schakowsky. Thank you, Mr. Sarbanes.
        So, once again, let me just thank our witnesses for
    participating in this hearing. I think we learned a lot today,
    especially the kinds of things that we should watch for as we
    work on legislation. And certainly we learned about the
    expertise at hand on this panel when we do so.
        I hope my colleagues will all work with me to address this
    issue of gaming the system and do it right. The time I believe
    to act is now.
        I remind Members that, pursuant to committee rules, that
    they have ten business days to submit additional questions for
    the record, to be answered we hope by the witnesses who have
    appeared, and prompt replies to any of the questions that you
    may receive.
        And now I request unanimous consent to enter the following
    into the record, other informational material. And without
    further objection. A research paper by Timothy J. Muris of
    George Mason University, a journal article published in the
    Journal of Law and Bioscience titled ``May your Drug Price be
    Evergreen,'' and a journal article titled ``Product Hopping: A
    New Framework.''
        Ms. Schakowsky. And with that, the Subcommittee on Consumer
    Protection and Commerce is adjourned. Thank you.
        [Whereupon, at 12:27 p.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]
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