    [Senate Hearing 117-822]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 117-822

                           A PRESCRIPTION FOR CHANGE:
                        CRACKING DOWN ON ANTICOMPETITIVE
                      CONDUCT IN PRESCRIPTION DRUG MARKETS

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

                                    HEARING

                                   before the

                     SUBCOMMITTEE ON COMPETITION POLICY,
                        ANTITRUST AND CONSUMER RIGHTS

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                              UNITED STATES SENATE

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JULY 13, 2021

                                   __________

                              Serial No. J-117-27

                                   __________

             Printed for the use of the Committee on the Judiciary

                    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                            www.judiciary.senate.gov
                                www.govinfo.gov

                      U.S. GOVERNMENT PUBLISHING OFFICE

    54-645                     WASHINGTON : 2026

                           COMMITTEE ON THE JUDICIARY

                       RICHARD J. DURBIN, Illinois, Chair
    PATRICK J. LEAHY, Vermont            CHARLES E. GRASSLEY, Iowa, Ranking
    DIANNE FEINSTEIN, California             Member
    SHELDON WHITEHOUSE, Rhode Island     LINDSEY O. GRAHAM, South Carolina
    AMY KLOBUCHAR, Minnesota             JOHN CORNYN, Texas
    CHRISTOPHER A. COONS, Delaware       MICHAEL S. LEE, Utah
    RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
    MAZIE K. HIRONO, Hawaii              BEN SASSE, Nebraska
    CORY A. BOOKER, New Jersey           JOSH HAWLEY, Missouri
    ALEX PADILLA, California             TOM COTTON, Arkansas
    JON OSSOFF, Georgia                  JOHN KENNEDY, Louisiana
                                         THOM TILLIS, North Carolina
                                         MARSHA BLACKBURN, Tennessee
                 Joseph Zogby, Chief Counsel and Staff Director
          Kolan L. Davis, Republican Chief Counsel and Staff Director

                      SUBCOMMITTEE ON COMPETITION POLICY,
                         ANTITRUST AND CONSUMER RIGHTS

                        AMY KLOBUCHAR, Minnesota, Chair
    PATRICK J. LEAHY, Vermont            MICHAEL S. LEE, Utah, Ranking
    RICHARD BLUMENTHAL, Connecticut          Member
    CORY A. BOOKER, New Jersey           JOSH HAWLEY, Missouri
    JON OSSOFF, Georgia                  TOM COTTON, Arkansas
                                         THOM TILLIS, North Carolina
                                         MARSHA BLACKBURN, Tennessee

                   Keagan Buchanan, Democratic Staff Director
                     Wendy Baig, Republican Staff Director

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page

    Klobuchar, Hon. Amy..............................................     1
    Lee, Hon. Michael S..............................................     3

                                   WITNESSES

    Abbott, Alden....................................................     7
        Prepared statement...........................................    42

    Kades, Michael...................................................     5
        Prepared statement...........................................    65

    Levitt, Geoffrey.................................................     8
        Prepared statement...........................................    81

    Mitchell, David..................................................    12
        Prepared statement...........................................    47

    Moodie, Rachel...................................................    10
        Prepared statement...........................................    77
        Responses to written questions...............................    99

                                    APPENDIX

    Items submitted for the record...................................    41

                           A PRESCRIPTION FOR CHANGE:
                        CRACKING DOWN ON ANTICOMPETITIVE
                      CONDUCT IN PRESCRIPTION DRUG MARKETS

                                  ----------

                             TUESDAY, JULY 13, 2021

                                  United States Senate,
                            Subcommittee on Competition Policy,
                                Antitrust, and Consumer Rights,
                                    Committee on the Judiciary,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 2:30 p.m., in
    Room 226, Dirksen Senate Office Building, Hon. Amy Klobuchar,
    Chair of the Subcommittee, presiding.
        Present: Senators Klobuchar [presiding], Blumenthal,
    Ossoff, Lee, Hawley, Cotton, and Blackburn.
        Also present: Senators Durbin and Grassley.

                OPENING STATEMENT OF HON. AMY KLOBUCHAR,

               A U.S. SENATOR FROM THE STATE OF MINNESOTA

        Chair Klobuchar. I want to thank my colleague, Senator Lee,
    and our staff, and his staff who work very well together, as
    well as Senator Grassley is with us, who has been such a leader
    when it comes to these competition issues way before it was
    cool. Thank you for being here, Senator Grassley.
        This is the latest in the Competition Policy's Subcommittee
    series of hearings examining America's monopoly problem. Today,
    we're going to focus on the lack of competition in our
    prescription drug markets.
        The stakes could not be higher. According to the Centers
    for Medicare & Medicaid Services, healthcare spending accounted
    for 17.7 percent of U.S. gross domestic product in 2019. That
    is more than one-sixth of the American economy. That is
    projected to rise to 19.7 percent by 2028. Rising prescription
    drug prices is a key driver in those numbers.
        But it isn't just about GDP. It's also about the all too
    real human costs that we will hear about today. For some, the
    ability to access prescription drugs is what enables them to
    work, to care for their families and loved ones, preserve their
    mental health, or just get through the day without excruciating
    pain. For others, access to safe and affordable prescription
    drugs is nothing less than matter of life or death.
        Nearly 20 percent--just remember this figure if you forget
    all of the other ones--nearly 20 percent of older adults report
    not taking their medicines as prescribed because of cost. That
    means, and I have met some of these seniors at home, they're
    cutting pills in half, they are saving little drops of insulin
    for the next day.
        Even drugs that have been available for decades, like
    insulin, are out of reach for some. In my State, one of my most
    memorable families that I've gotten to know is the mom and dad
    of Alec. He was a restaurant manager, had a pretty good job in
    the suburbs of the Twin Cities, and when he aged off his
    parents' healthcare at age 26, he had to start paying for his
    own insulin. He was trying to cut the doses and do it himself,
    and he didn't do it right one day, and he died. His mother has
    made it her life's work to make sure that never happens to
    anyone again.
        Americans should not have to choose between risking their
    lives and risking financial ruin because of the cost of
    prescription drugs. I actually got involved in the area of
    antitrust, not just because I drew the good luck of working
    with Mike Lee on the Subcommittee, but when I was actually a
    brand new Senator, and pharmacists from my State and doctors
    started calling me about an infant heart drug called
    indomethacin. The price of the drug, the cost of the drug, had
    suddenly gone up from $78 per treatment to $1,614, more than 20
    times its original price and 44 times the price in Canada.
        What had happened was one company called Ovation--they
    later sold it to another company--they had cornered the market.
    They bought the other competitive drug. There is absolutely no
    doubt. There were two drugs that were able to be used for this
    condition, and then, once they had done that and reached the
    monopoly jackpot, they basically raised the prices that much.
    It took years and years, suit by the FTC that failed because of
    conservative precedent that was out there when it comes to
    antitrust or consumer issues.
        Other States, red States, blue States joined in the
    lawsuits, but that just didn't work. And so what happened was
    it took years and years for another competitor to come in, but
    all during that time, they reaped the benefit of a monopoly.
        So, ideas for solutions. We have the work that Senator
    Grassley and I have done on pay-for-delay. One court case
    helped with that, but there is a lot more work that can be
    done, and I believe that if we put that bill up for a vote on
    the Senate floor in any which way, we would get that done. As
    you know, that's when brand names pay off generics to keep
    their products off the market.
        We've got problems of product hopping, in which branded
    pharmaceutical companies force patients with an established
    drug with an expiring patent to a new drug with a new patent,
    often with little or no therapeutic difference, just to avoid
    competition from generics. That's a bill that our friends
    Senator Cornyn and Senator Blumenthal have that could get at
    that.
        Sham petitions. Just before a generic is going to come on
    the market, the brand, it files a petition, says it's not safe,
    slows it down. That's another bill that Senator Grassley and I
    have to do something about that.
        Other solutions. Senator Lee and I have worked together on
    a bill to allow the importation of drugs in certain
    circumstances when there are issues with pricing. Senator
    Grassley and I have another bill to do that more permanently of
    reimportation.
        We have got the work that we could do on sweeping reform,
    which is contained in the bill that a number of us has put
    forward.
        Then, finally, making sure that we are funding the agencies
    who go after these problems. We're proud that we got our bill
    through, Senator Grassley and I did, on that issue.
        We also can empower our seniors to negotiate drug prices. I
    think seniors can get a pretty good deal through Medicare if
    negotiation was allowed, something that the President of the
    United States directly addressed in the State of the Union.
        Those are just a few of my ideas. I know there are others,
    and I want to thank our witnesses for coming today, and with
    that, I will turn it over to Senator Lee.

               OPENING STATEMENT OF HON. MICHAEL S. LEE,

                 A U.S. SENATOR FROM THE STATE OF UTAH

        Senator Lee. Thank you, Chair Klobuchar, and thanks to all
    of you for being here today. Drug competition in pharmaceutical
    markets, as well as drug pricing, are frequent and recurring
    topics of congressional oversight, and with good reason. Access
    to prescription drugs is an issue that inevitably affects every
    life at one point or another.
        If a lack of competition leads to higher prices, as it
    tends to do, because one thing we know about competition--when
    it increases, prices tend to go down, quality tends to go up.
    The opposite happens when there's diminished competition. So if
    the lack of competition leads to higher prices, we can live
    without some things. You can live without the latest smartphone
    or free shipping for gadgets made in China. But a lot of people
    can't do without prescription drugs. My wife, Sharon, for
    example, is one of 7 million Americans who can't live without
    insulin.
        Innovation competition and affordable prices are arguably
    more important to prescription drug markets than almost any
    other consumer market we can think of. And it's a consumer
    market that happens to be particularly important to the
    sustaining of human life.
        This makes the continuing rise in drug prices all the more
    concerning. When we look at the data from 2007 to 2018, the
    cost of prescription drugs during that period rose 3 times
    faster than inflation. That's after we take into account
    manufacturing discounts.
        Last month, AARP released findings that drug price
    increases outpaced inflation, had cost taxpayers $38 billion
    just between 2015 and 2019 alone.
        I expect this will only worsen in the wake of the
    inflationary economic policies that our Government has put in
    place over the last year and a half, regardless of any
    Executive order, and regardless of which administration is in
    power. When our Government expands its role, it tends,
    inevitably, to inflate, and that has an effect here.
        Make no mistake. This is a multifaceted problem, and it's
    one that requires a multifaceted solution. Antitrust
    enforcement is not a panacea for drug prices, but it can
    certainly help. Failure to enforce them can, of course, lead to
    catastrophic consequences. In fact, our antitrust enforcers
    have developed an impressive track record thus far in stopping
    anticompetitive patent litigation settlements and attempts to
    game the FDA regulatory process to their unfair advantage.
        Since the 2013 Actavis decision, pay-for-delay settlements
    have slowed to barely a trickle. The task is now to remain
    vigilant until that trickle is no longer even a trickle, but
    it's gone.
        The benefit of antitrust enforcement is that it takes
    matters on a case-by-case basis rather than attempting to
    impose a one-size-fits-all approach on the entire market. This
    allows us to stop--stop harmful conduct without needlessly,
    unnecessarily burdening pro-competitive and innovative conduct,
    something that usually proves elusive in comprehensive
    rulemaking in legislation.
        In situations that are more straightforward, like getting
    access to brand samples in order to develop a generic
    alternative, it's easier for Congress to step in and remove the
    need for lengthy investigations and lengthy litigation. This is
    what we did with the CREATES Act, a bill that I was honored to
    Co-Sponsor along with Senators Grassley, Leahy, and Klobuchar.
        My understanding is this that since it became law back in
    2019, at the end of that year, the CREATES Act has already made
    it much easier for generic competitors to gain access to the
    samples that they need for FDA-mandated testing. At the time,
    CBO estimated that the CREATES Act would save taxpayers nearly
    $4 billion over 10 years.
        Today's hearing may also help shed light on other areas
    where Congress could step in to reform regulations and policies
    that create anticompetitive and anticonsumer incentives. I'll
    be interested to hear the witnesses' thoughts on potential PBM
    reforms and whether reform to our patent laws might help remove
    the impetus behind practices like product hopping and patent
    thickets, saving money for consumers, and freeing up antitrust
    enforcement resources to address other harms.
        I look forward to each of our witnesses testifying today
    and look forward to our conversation. Thank you.
        Chair Klobuchar. Very good. Okay. Excellent. Senator
    Grassley is going to come back, so we look forward to that, and
    his name was mentioned enough that he doesn't need to do an
    opening. But we're very pleased he was here.
        I'm going to introduce our witnesses, and thank you,
    Senator Lee, for mentioning the CREATES Act, which I failed to
    do, and you did excellent work on that bill.
        Our first witness today is Michael Kades. Mr. Kades is the
    director for markets and competition policy at the Washington
    Center for Equitable Growth. His research focuses on
    competition and antitrust enforcement. Prior to joining
    Equitable Growth, he worked as antitrust counsel for me on this
    Subcommittee as a detailee from the FTC, so he knows this
    Committee well.
        Before that, he spent nearly 20 years as an attorney at the
    FTC, including working on a number of healthcare cases. It's
    good to have him back.
        Our second witness is Alden Abbott. Mr. Abbott is currently
    a senior research fellow at George Mason University, Mercatus
    Center, where he focuses on antitrust issues. He is the former
    general counsel of the Federal Trade Commission. Prior to his
    tenure as FTC general counsel, he worked at the Heritage
    Foundation, and BlackBerry, and held several senior positions
    in the Federal Government.
        Look, there are so many of them, I'm not going to say all
    of them. But it's very--okay, I will, because it's--Deputy
    Director of the Office of International Affairs, Associate
    Director of the Bureau of Competition at the FTC, Acting
    General Counsel, Assistant General Counsel, and Chief Counsel
    of the National Telecommunications and Information
    Administration, and Special Assistant to the Assistant Attorney
    General for Antitrust. That's quite a resume.
        Our third witness is Geoffrey Levitt, and Mr. Levitt is co-
    chair of DLA Piper's life sciences policy and regulatory group.
    He is testifying today on behalf of the Pharmaceutical Research
    and Manufacturers of America, a trade group representing many
    of the country's leading biopharmaceutical companies. He
    previously served as senior vice president and chief counsel
    for Pfizer's Upjohn division in China and as chief regulatory
    counsel for Pfizer and Wyeth Pharmaceuticals.
        He also previously served as chair of the Pharmaceutical
    Research and Manufacturers of America's Law Section Executive
    Committee.
        Next up will be Rachel Moodie. Dr. Moodie is vice president
    and head of Legal and Intellectual Properties, Biosimilars at
    Fresenius Kabi, a global--did I say that right? Very good--a
    global healthcare company that specializes in lifesaving
    medicines and technologies for infusion, transfusion, and
    clinical innovation. Previously, she served as a patent
    attorney for biosimilars at a major pharmaceutical company, and
    director and patent attorney as well at Merck. She has a Ph.D.
    in biochemistry and molecular biology.
        Our final witness is David Mitchell. Mr. Mitchell is the
    founder and president of Patients for Affordable Drugs. He is a
    patient advocate focused on promoting policies to lower the
    cost of prescription drugs. He's also a patient who relies on
    prescription drugs and expects to be in continuous treatment
    for the rest of his life. He has 40 years of experience working
    on healthcare and public health policy, and has worked to
    reduce teen smoking, increase use of seat belts, fight drunk
    driving, and improve child health and safety.
        I want to thank the witnesses for being here today. I guess
    we'll swear in the witnesses. Okay. You want to stand and--
    thank you.
        [Witnesses are sworn in.]
        Thank you. You can be seated, and I'll now recognize the
    witnesses for 5 minutes of testimony each, starting with Mr.
    Kades, then we'll go through in that order, so. Thank you.

                STATEMENT OF MICHAEL KADES, DIRECTOR FOR

               MARKETS AND COMPETITION POLICY, WASHINGTON

              CENTER FOR EQUITABLE GROWTH, WASHINGTON, DC

        Mr. Kades. Thank you, Chairwoman Klobuchar and Ranking
    Member Lee, for the opportunity to testify about prescription
    drugs markets and competition, a critical issue. It's also an
    honor to be back with the Subcommittee, although it's a little
    more stressful from this side of the dais.
        Prescription drugs cost America nearly $370 billion a year,
    forcing too many to choose between their health and other
    necessities, like rent or food, or to ration among different
    medicines. Protecting competition in these markets both reduces
    the financial burden on Americans and improves their
    healthcare.
        Unfortunately, that is not what we are doing. Prescription
    drug markets are rife with persistent anticompetitive conduct.
    Current antitrust law as interpreted and applied encourages
    this activity instead of deterring it. Over the past 4 years,
    the Federal courts have shown an almost neurotic fear of
    overenforcement, have increased burdens on plaintiffs, and
    narrowed the scope of antitrust law.
        Courts have raised inappropriate and unnecessary hurdles to
    antitrust enforcement, which allows anticompetitive activity to
    escape condemnation. For example, courts are discounting direct
    evidence of anticompetitive effects, ingenuously accepting
    business justifications without sufficient evidence,
    discounting the value of potential competition, and dismissing
    the likelihood that exclusionary conduct can be successful.
        Both economic research and empirical results discredit that
    approach. As misguided as that approach is, it has opened the
    door to anticompetitive conduct, particularly in prescription
    drug markets. By their nature, these markets are susceptible to
    abusive and anticompetitive conduct. Compared to other
    industries, harming competition is easy to accomplish and
    extremely profitable. Preventing or just delaying, generic or
    biosimilar competition increases the dominant firms' revenues
    and profits substantially.
        So, not surprisingly, within the pharmaceutical industry,
    some companies have taken advantage of more lenient antitrust
    rules to adopt increasingly problematic strategies that
    increase drug costs.
        It would take more than 5 minutes to catalog every
    anticompetitive tactic in these markets. I focus on three in my
    testimony.
        Rebate traps, which are really a penalty provision that
    allow a dominant firm to punish buyers who seek to purchase a
    lower cost alternative.
        Product hopping, in which a dominant firm tweaks its
    product to deaden the impact of generic competition. In one
    case, this amounted to literally putting a tablet inside a
    capsule and selling it as a new product.
        Pay-for-delay patent settlements, in which a branded
    company pays its generic competitor to stay out of the market.
    Even in this area, where there has been significant, important
    enforcement success, that success is both incomplete and
    tenuous.
        It would be wrong, however, to think anticompetitive
    conduct and market power are uniquely a prescription drug
    market phenomenon. We are seeing this kind of conduct growing
    across the economy, in markets as different as digital,
    agriculture, and labor.
        There are two types of broad reforms we can look at.
    Updating the antitrust laws would go a long way to preventing
    harmful conduct, while promoting aggressive competition in
    prescription drug markets and across the economy. The
    Competition in Antitrust Law Enforcement Reform Act would
    significantly address most of the problems I discussed in my
    testimony.
        Second, certain problems that are unique to pharmaceutical
    markets may require special legislation. Senator Lee, you
    talked about the CREATES Act, which was a bipartisan bill that
    followed precisely this approach.
        Without reform, attacking competition--I'm sorry. Without
    reform, attacking anticompetitive conduct in prescription drug
    markets, and across the economy, will be unnecessarily
    difficult. Consumers, small business, and workers will suffer.
    I urge Congress to stem the tide of anticompetitive conduct by
    restoring the vitality of the antitrust laws, which will
    substantially improve competition in prescription drug markets.
        Thank you, and I look forward to your questions.
        [The prepared statement of Mr. Kades appear as a submission
    for the record.]
        Chair Klobuchar. Very good. Thank you very much. Mr.
    Abbott.

                   STATEMENT OF ALDEN ABBOTT, SENIOR

               RESEARCH FELLOW, GEORGE MASON UNIVERSITY,

                   MERCATUS CENTER, FAIRFAX, VIRGINIA

        Mr. Abbott. Thank you, Chair Klobuchar, Ranking Member Lee,
    distinguished Members of the Subcommittee. I'm Alden Abbott,
    senior research fellow at Mercatus Center at George Mason
    University. My research focuses primarily on antitrust and
    competition policy. I will focus on three key points.
        One: Federal antitrust enforcement has been robust and
    effective in promoting prescription drug market competition.
    Not perfect, but effective. New enforcement tools are not
    needed, but additional resources to support FTC and DOJ
    enforcement are warranted.
        Two: Antitrust enforcement directed at prescription drug
    markets should remain attentive to potential efficiencies
    associated with the practices under review. Specialized
    legislation, generally, is not appropriate in this area. There
    are exceptions. As already mentioned, the CREATES Act is one,
    which I testified in favor of a few years ago.
        Three: Antitrust enforcement alone will not eliminate all
    competitive problems in prescription drug markets or in
    healthcare in general. Indeed, I would argue most of the
    serious competitive problems will remain because of the nature
    of a regulatory and legal system in healthcare. Fundamental
    regulatory reform would be needed.
        First, antitrust enforcement. The FTC and DOJ have many
    decades of experience in studying and bringing appropriate
    antitrust enforcement actions concerning healthcare markets in
    general, and the pharma sector in particular. FTC has also
    carried out public hearings, undertaken sectoral
    investigations, and issued numerous reports on competition
    policy in these areas.
        An April 2021 Bureau of Competition staff report summarizes
    the many recent FTC initiatives in pharma. These include
    actions directed at monopolization and agreements not to
    compete involving pharma products, mergers involving pharma
    products, mergers involving distribution, agreements involving
    monopolization, price and price-related terms, and schemes to
    obstruct innovative methods of delivering and financing pharma
    products. In addition, the report describes a variety of FTC
    friend of the court briefs concerning pharma competition.
        DOJ's Antitrust Division has been very busy lately in
    bringing prosecutions against hardcore cartel conduct by
    generic drug manufacturers. A March 2021 division update
    explains seven firms have been prosecuted, five have already
    agreed to deferred prosecution agreements. Those firms have
    agreed to pay over $426 million in criminal penalties for
    collusion that affected over $1 billion of generic drug sales.
    And that investigation continues.
        The two recent Government reports tell a success story. The
    FTC and DOJ would, however, benefit from additional resources
    to carry out their enforcement duties, given a great economic
    significance and complexity of pharma market issues.
        Second, enforcement should continue to focus on
    efficiencies. Apart from per se illegal cartel conduct, Federal
    antitrust enforcers apply the antitrust rule of reason in
    assessing potentially anticompetitive pharma market practices.
    They ask whether particular conduct under scrutiny yields
    consumer welfare-enhancing efficiencies that would offset
    potential anticompetitive effects. Efficiencies might include,
    for example, practices that reduce manufacturing or
    distribution costs to the benefit of consumers. They might also
    involve enhanced product innovation facilitated by patents and
    other intellectual property.
        In the pharma sector, issues of anticompetitive harm and
    pro-competitive efficiencies often are associated with patents.
    Harm may arise from the strategic use of patents to delay or
    deter entry from potential competitors. At the same time,
    however, patents may facilitate efficient and innovation-
    enhancing distribution of new technologies. There is a good
    reason why the U.S. is a leading country in production of new
    pharmaceuticals, and that has been our robust patent system.
        Patents can be abused, but they can be very important
    incentive devices as well. I would argue Congress should not
    likely legislate in this area, except in cases of clear abuses,
    as in the CREATES Act.
        Finally, as I indicated earlier, antitrust is not enough.
    Broader U.S. healthcare reform itself is important. That's been
    pointed to by this administration, the prior ones, in open
    reports. I thank you for your time. I look forward to your
    questions.
        [The prepared statement of Mr. Abbott appears as a
    submission for the record.]
        Chair Klobuchar. Thank you very much, Mr. Abbott. Mr.
    Levitt.

                STATEMENT OF GEOFFREY LEVITT, OF COUNSEL

            DLA PIPER APPEARING ON BEHALF OF PHARMACEUTICAL

                 RESEARCH AND MANUFACTURERS OF AMERICA,

                             WASHINGTON, DC

        Mr. Levitt. Good afternoon, and thank you, Chairwoman
    Klobuchar, Ranking Member Lee, Chairman Durbin, and Members of
    the Subcommittee for the invitation to testify.
        I've worked for innovative pharmaceutical companies for
    most of my career, and I appreciate the Subcommittee's focus on
    ensuring robust competition. While I am currently with a law
    firm, I spent many years as in-house counsel in the
    biopharmaceutical industry, as Chairwoman Klobuchar noted, and
    I bring that perspective to my testimony today on behalf of the
    Pharmaceutical Research and Manufacturers of America, or PhRMA.
        PhRMA represents the Nation's leading biopharmaceutical
    research companies, which are dedicated to developing new
    treatments and cures to enable patients to live longer,
    healthier lives. PhRMA's activities on behalf of its members
    are limited by the antitrust laws and PhRMA's antitrust
    compliance policy. As I am here on behalf of the trade
    association, I won't be able to comment on individual
    companies' current or future strategies relating to drug
    pricing, R&D, marketing, relationships with customers, or how
    member companies might or might not individually respond in the
    marketplace to a change in law or regulation.
        The highly competitive structure of the U.S.
    biopharmaceutical market has made it possible to bring new
    medical advances to patients, while holding medicine's share of
    health spending nearly constant. This competition has been
    facilitated by regulatory frameworks that provide abbreviated
    approval pathways for generic and biosimilar competition, while
    maintaining incentives for innovative medicines. These
    frameworks have shifted utilization from brand medicines to
    generics and biosimilars so successfully that 91 percent of all
    prescriptions for drugs in the U.S. are filled with generic
    medicines, saving the healthcare system hundreds of billions of
    dollars.
        Brand medicine prices after discounts and rebates have
    grown in line with or below inflation for the past 5 years.
    Last year, these net prices actually declined by 2.9 percent,
    and this trend is expected to continue. Net prices for brand
    drugs are projected to remain flat or drop by up to 3 percent
    annually through 2025. This is due, in large part, to robust
    competition in the drug pricing market.
        However, on the pharmacy benefit manager, or PBM side,
    negotiating power has become increasingly concentrated, with
    just three PBMs now controlling more than three-quarters of the
    market. We know that the rebates and discounts negotiated
    between drug manufacturers and PBMs are not consistently shared
    with patients filling their prescriptions.
        So, while the overall U.S. biopharma market has seen price
    growth at or below inflation, the patient experience is often
    different. Given that nearly half of spending on brand
    medicines today goes to entities other than the manufacturers,
    an initial step in any drug pricing discussion, in our view,
    should be to ensure that these price concessions are shared
    with patients.
        As to innovation, the U.S. is the global leader in this
    space. Of the nearly 8,000 medicines in development globally,
    more than half are being developed in the U.S. This is
    precisely because we reject government price setting and
    protect intellectual property. This strong intellectual
    property framework has enabled biopharmaceutical companies over
    the past several decades to develop new medicines that have
    saved lives and alleviated the burden of disease in many areas,
    from cancer to cardiovascular disease to COVID-19.
        Undermining IP protections or adopting policies that would
    chill industry's ability to innovate would unduly restrict--
    could seriously threaten these dynamics--excuse me. This
    concern applies equally to any measure that would unduly
    restrict companies' ability to obtain patent protection for
    improvements to existing products that contribute to disease
    treatment and patient care.
        In closing, I want to say that the way biopharmaceutical
    companies have been frequently mischaracterized by the media
    and critics bears little resemblance to the industry that I
    spent decades working in. The reality I experienced was of
    teams of professionals dedicated to making medicines to cure
    disease and save lives, with an unwavering focus on ethics and
    compliance. While we have all observed publicized examples of
    questionable behavior, we are aware of these examples precisely
    because we have a system that provides remedies for
    anticompetitive behavior. Isolated cases that have been the
    subject of enforcement actions are not evidence of an entire
    industry run amok, but rather of a healthy, functioning system.
        The U.S. biopharmaceutical market is the most innovative in
    the world precisely because it is highly competitive. We urge
    caution and respect for the strong IP protections and market-
    based policies that have been the foundation of American
    innovation. Thank you, and I look forward to your questions.
        [The prepared statement of Mr. Levitt appears as a
    submission for the record.]
        Chair Klobuchar. Thank you very much, Mr. Levitt. Dr.
    Moodie.

               STATEMENT OF RACHEL MOODIE, VICE PRESIDENT

             AND HEAD OF LEGAL AND INTELLECTUAL PROPERTIES,

              BIOSIMILARS, FRESENIUS KABI, WASHINGTON, DC

        Dr. Moodie. Chairwoman Klobuchar, Ranking Member Lee, and
    Chairman Durbin, thank you for the opportunity to talk today on
    this important issue.
        Fresenius Kabi is a healthcare company that specializes in
    bringing affordable, off-patent medicines to patients. We
    employ over 4,000 people in the U.S. and have key domestic
    manufacturing, research and development, and distribution
    centers across the country.
        During the pandemic, our injectable medicines were
    routinely used to treat patients in the ICUs, and several of
    our medicines and devices are currently held in the U.S.
    Strategic National Stockpile. One of our products is also used
    in the COVID-19 vaccine.
        A balanced and fair patent and rebate system is essential
    to be able to continue this lifesaving work, as well as
    providing branded companies with the time that they need to
    recoup their investments and fund the next generation of
    innovative drugs before our more affordable products come to
    market.
        However, Fresenius Kabi has experienced a system shift
    whereby branded pharmaceutical companies are now able to hold
    on to monopolies for old drugs for much more than 20 years,
    long after they've aged out of being thought of as being
    considered innovative. This hurts access for patients to
    affordable medicines and stresses payment systems that need to
    be kept solvent to pay for true innovation.
        Prolonged monopolies exacerbate rebate practicing and
    intensify the already misaligned incentives for health plans
    and pharmacy benefit managers, the PBMs. By extending the
    number of years that a rebate and a list price can grow, it
    exacerbates and grows the patient out-of-pocket costs, and it
    also puts pressure on the PBMs--the PBM to prefer the more
    expensive branded products compared to the more affordable
    alternatives in order to secure the rebate revenue. Of course,
    these benefits to the PBMs are not passed on to the patients.
        So far, the current policy debates around drug prices have
    failed to address the root cause of the problem, which is an
    excessive number of patents around drugs, many of which are low
    quality and do not provide true benefits to patients. Because
    of the misuse of patent thickets and rebates as marketing
    tools, and product hopping as another tool to thwart
    competition, the U.S. branded pharmaceutical industry is not
    currently operating as a true free market system with downward
    pressure at an appropriate time.
        I'd like to explain how it's possible to grow a patent
    thicket around a single drug. But to be clear, of course,
    Fresenius Kabi is in favor of high-quality patents. Our
    industry cannot exist without it.
        Patent thickets comprise mostly of secondary patents, which
    are those patents that are filed after the core patents on the
    product are filed. Not all secondary patents are bad. However,
    the key to forming a patent thicket is you take each secondary
    patent, let's say, for example, a patent that covers a weekly
    dosing regimen for a drug, and then you multiply it into child
    patents, or they're called continuation patents, each having
    incrementally different words. For example, patent one, if I'm
    using the same example, might claim dosing every 5 to 7 days.
    Patent two might claim dosing every 6 to 8 days, and you keep
    going. This forms a family around a secondary invention.
        Let's say you have a drug that has 10 such families, and
    each family contains, say, 15 continuation patents. That
    results in a thicket of 150 patents, all derived from just 10
    original patent filings. Most of the patents in that thicket
    are those incremental continuation patents that don't bring new
    benefits to patients.
        I'm not suggesting that all secondary patents are bad. The
    problem is the sheer volume of patents strategically thicketed
    around a drug which shields most of the patents from scrutiny.
        Biosimilar companies do not have the funds and resources to
    litigate scores, and certainly not hundreds, of patents. Courts
    can't even litigate scores of patents effectively in a single
    lawsuit. So how do we know that many of these patents that are
    shielded and protected are low quality? The Patent Office
    offers a procedure called an IPR, an inter partes review or a
    post-grant review, IPR or PGR, to challenge the validity of a
    patent.
        Statistics from the USPTO show that in 2020, third parties
    were successful in having their IPRs instituted against 56
    percent of all the patents that they challenged, which
    suggested over half of the patents that were challenged were at
    least of questionable quality. However, patent thickets can be
    created at a cost that's easily affordable to branded
    companies. It costs approximately $25,000 to obtain and
    maintain just one patent. Conversely, it costs third parties
    approximately $1 million to file a single IPR against a single
    patent.
        Biosimilar applicants cannot economically use IPRs and PGRs
    to clear a path through hundreds of patents. This is why
    building a patent thicket is a numbers games, designed to
    shield patents, side-step the scrutiny of IPRs and PGRs, and
    create an inappropriate monopoly.
        Among the root causes of patent thickets are the
    examination procedures and incentives at the U.S. Patent
    Office. This patent thicket trend is particular to the United
    States. It's true that the U.S. is the innovation capital of
    the world, and so we must have a strong patent system. But the
    pendulum of encouraging innovation should not swing so far as
    it goes into an anticompetitive direction.
        As well as exacerbating rebate pricing, inappropriate
    monopolies also allow branded drugs the time to develop more
    and more sophisticated life cycle management strategies so that
    by the time biosimilars come to the market, they're irrelevant.
    Furthermore, patent thickets in the U.S. are now discouraging
    development and launch of biosimilars, and while biosimilars of
    these drugs will eventually reach the U.S., we expect that they
    will be delayed several years after they come on market in
    Canada and Europe.
        In sum, we urge Congress to address the root cause of the
    drug pricing problem. Look beyond the policies in the
    jurisdiction of traditional healthcare entities. Instead, we
    urge Congress to put an end to the inappropriately long patent
    monopolies and rebate schemes that reward prescribing the
    higher-cost branded drugs when the lower-cost drugs are
    available.
        Thank you again for the opportunity to speak on behalf of
    my company and patients who would benefit from availability of
    affordable and essential medicines.
        [The prepared statement of Dr. Moodie appears as a
    submission for the record.]
        Chair Klobuchar. Thank you very much. Last, but not least,
    Mr. Mitchell. Then I'm going to concede my time of questioning
    to our Chair of our Judiciary Committee, who is in charge of
    getting us out of all kinds of thickets.
        [Laughter.]
        Chair Klobuchar. I thought that would be a good segue. Mr.
    Mitchell.

                      STATEMENT OF DAVID MITCHELL,

                    PRESIDENT AND FOUNDER, PATIENTS

                  FOR AFFORDABLE DRUGS, WASHINGTON, DC

        Mr. Mitchell. Chair Klobuchar, Ranking Member Lee, Chairman
    Durbin, Members of the Committee, I'm David Mitchell. I'm
    founder for Patients for Affordable Drugs. More importantly for
    today, I have an incurable blood cancer, and prescription drugs
    are keeping me alive. My doctors have me on a four-drug
    combination right now with a list price of more than $900,000
    per year. Just one of my oral drugs [holds up bottle] that
    comes in this little bottle is called Pomalyst. It's priced at
    almost $21,000 for 21 capsules that I have to buy every 28
    days.
        Because Medicare beneficiaries like me pay our cost based
    on list price, I spent more than $18,000 out of pocket last
    year just for Pomalyst. For people with my cancer, multiple
    myeloma, drugs account for 60 percent of the cost of treatment.
        I'm a very lucky man. These drugs are keeping my cancer at
    bay right now, but eventually, this combination will stop
    working, and I'll need a new treatment. So, I care deeply about
    innovation and new drug development, but drugs don't work if
    people can't afford them. That's why today's hearing is so
    important. Examining anticompetitive industry practices that
    both inhibit innovation and drive up prices.
        When a drug company makes a truly inventive discovery, it
    should be rewarded with a patent and receive a fair return. But
    the drug industry would have you believe that every patent is
    deserved, and that the volume of patents granted is an
    indicator of innovative achievements. That could not be further
    from the truth, as you just heard. Neither new patents nor new
    drugs necessarily equal real innovation. Worse, in too many
    cases, manufacturers are abusing America's patent system to
    prevent competition and block affordable generic and biosimilar
    drugs from coming to market.
        There are a variety of strategies. They've been outlined by
    everybody up here. Product hopping, patent thicketing, pay-for-
    delay deals, abuse of the FDA's citizen petition process. More
    importantly than the problems is that there are solutions.
    There are bipartisan bills that address these abuses, including
    legislation led by Members of this Committee, and Chair
    Klobuchar went through them: Senator Blumenthal's bill with
    Senator Cornyn, addressing product hopping and patent thickets;
    Senator Durbin and Cassidy's Remedy Act is another terrific
    solution for further cracking down on evergreening behaviors;
    Chairwoman Klobuchar, we hope this year is the year that we see
    your bills with Senator Grassley, that stop pay-for-delay and
    citizen petition abuses, be acted into law.
        Of course, Biopharma opposes reforms that would constrain
    its monopolies or curb its unilateral power to dictate prices.
    It threatens me that any reforms will destroy innovation and
    access to new drugs. But in fact, it's these anticompetitive
    practice that actually inhibit innovation. Why? Because if drug
    companies can block competition, and raise prices on old drugs
    to drive profits and trigger executive bonuses, they have far
    less incentive to take risk and invest in R&D to find the
    innovative new drugs that could command high prices and extend
    my life.
        The headwaters of the drug price problem is high list
    prices set by manufacturers. There are other anticompetitive
    practices downstream in the supply chain that should be
    addressed this year, including those by pharmacy benefit
    managers. PBMs are black boxes that cut secret, mutually
    beneficial rebate deals with manufacturers, and none of it is
    transparent. Drug companies and PBMs enter into rebate
    arrangements that are specifically designed to thwart lower-
    cost competition. Rebate walls, rebate traps, and other
    exclusionary contracting practices should simply be outlawed.
        Let's be clear. These deals are not designed to help
    patients like me by lowering prices or increasing patient
    choice. No. They are emblematic of our drug pricing system that
    is built to benefit those who profit from it at the expense of
    those it is supposed to serve.
        We're pleased that the FTC recently decided to tackle these
    issues. We hope Congress will ensure that the FTC's ability to
    seek damages and monetary penalties in consumer protection and
    competition cases.
        Of course, the President's Executive order on competition
    includes many welcome steps to lower drug prices. But when all
    is said and done on everything I've just mentioned, we could
    still wind up paying four times what other wealthy nations pay
    for the exact same brand drugs. That's why we need
    comprehensive reforms, including Medicare, to negotiate lower
    prices. Medicare negotiation is supported by 90 percent of
    Americans, and it's time to pass it.
        In the end, all of the work on drug pricing that's being
    done up here is about restoring balance to ensure we get the
    innovation we need at prices we can afford. You hold the power
    to make the changes the American people are demanding. We're
    going to try and do our part to make sure their voices are
    heard. Thank you.
        [The prepared statement of Mr. Mitchell appears as a
    submission for the record.]
        Chair Klobuchar. Thank you very much, Mr. Mitchell.
    Chairman Durbin.
        Chair Durbin. Thank you, Chairman and Senator Lee. This is
    an important hearing. I think the American people, when given a
    choice of topics that we might discuss in Congress, would put
    this at the top of the list. At least, they tell us that when
    we take polls.
        It's interesting to me that we live in a country where so
    many people can spell the word Xarelto. You just wonder how in
    the world did that happen? Could it be that the pharmaceutical
    industry is spending $6 billion a year? Is it possible
    advertising? Is it possible that the fact that we see their ads
    nine times a day on average is educating the Americans on these
    drugs?
        Senator Grassley and I decided to ask the General
    Accounting Office for some information on this, and they did a
    study. They found that between 2016 and 2018, advertised drugs
    on television and other places accounted for 58 percent of
    Medicare's budget for medications. Coincidence? These ads
    ballooned Medicare spending to the tune of 320 billion over 3
    years. When I asked Blue Cross and Blue Shield in Chicago,
    ``Why are premiums going up?'' they said, ``Number one reason:
    the high cost of prescription drugs.''
        They advertise them on television so consumers will ask for
    them at the doctor's office. The doctor then has a choice:
    explain to them why they may not need it, maybe even lose the
    patient, or just prescribe it. Most times, they just prescribe
    it, and it ends up being added to the cost of healthcare in
    America. And it just keeps going up. Unless you're lucky enough
    to live in Canada, instead, you're going to be stuck with these
    prices.
        Mr. Mitchell, when it comes to this advertising on
    television, since the United States and New Zealand are the
    only two countries in the world that allow it, what value is it
    to the consumer?
        Mr. Mitchell. I think the more information you give to
    consumers, the better to help them understand the choices they
    are being called upon to make. I'm not sure that including
    prices in ads will lower prices, but I do believe that it will
    help consumers understand better the--what's happening to them.
        We also support, frankly, eliminating the tax deduction for
    consumer advertising by drug companies in order to discourage
    their use because they really are used only to sell more drugs
    at higher prices.
        Chair Durbin. I might just say that the fact that a drug as
    common as Lantus insulin, approved in 2000, with 45 follow-on
    patents that helped to block competition for 37 years, during
    that time, the price of Lantus insulin was hiked 25 times, from
    $35 to more than $300, and that's not an unusual situation.
    Unfortunately, it's a common situation.
        Perhaps if the consumer finally catches on that these drugs
    are just going wildly high, there might be a second thought
    about the heavily advertised Humira as to what it might cost on
    a monthly basis. I'm glad your drugs are saving your life. I'm
    glad you're here to tell us about it. But there comes a point
    where you say it's your money or your life when it gets right
    down to it.
        Let me ask you this if I can, Mr. Levitt. In your
    testimony, you cite the $83 billion investment in research and
    development by pharma companies in 2019. You state, quote,
    ``Due to uncertainty around R&D endeavors, investors require
    higher returns to compensate for higher risk.'' This
    pharmaceutical industry responds to every single policy
    proposal in drug pricing, claiming it will chill innovation,
    and that a single penny in reduced profits could mean a freeze
    on lifesaving innovation.
        How do you square the colossal amount spent on spending--
    how do you square the fact that 14 largest drug makers spent
    more on stock buybacks than on research and development during
    the past 5 years?
        Mr. Levitt. Thank you, Chairman Durbin. These are
    individual, obviously, economic decisions by pharmaceutical
    companies. I would say--let me step back and start out by
    saying I can assure you that biopharmaceutical companies do not
    invent lifesaving medicines in order to make them inaccessible
    to patients. There is a balance between innovation and access,
    and innovation is critical. R&D spend is very high and has
    increased significantly over the past several years. It's at a
    peak now, and the U.S. accounts for the vast majority of that
    spending.
        Companies also put their money into making patients aware
    of the benefits and potential uses of their products through
    direct-to-consumer advertising, which is an important means of
    conveying information to patients about drugs. As you said,
    prescribers then have the choice of whether to prescribe the
    drug.
        Chair Durbin. It doesn't work that way. Unfortunately, it
    just doesn't work that way, and you know it. If you get the
    consumer remembering the name of the drug, and remembering the
    person who skipped across the field of flowers, that go into
    their doctor's and say, ``I think I need this,'' you know that
    most doctors, instead of getting into a debate, are going to
    prescribe it. That's why you win on consumer advertising.
    People are partially educated, and doctors neither have the
    inclination nor time to debate with those patients.
        Mr. Levitt. Mr. Chairman, I would rather not posit that
    doctors are making irresponsible prescribing decisions because
    of their patients coming in to them, but it may be that we have
    to agree to disagree on that one.
        Chair Durbin. Well, we do disagree on that one. I do want
    to tell you, there has been a massive investment in innovation
    in pharmaceuticals. It's been done in Washington with the
    National Institutes of Health. The numbers are pretty amazing.
    Funding for the NIH contributed to the published research
    associated with every single new drug approved by FDA between
    2010 and 2019. Three hundred fifty-six new medications.
        We're putting billions each year into the NIH. We want to
    make sure the consumers can afford the products that these
    pharmaceutical companies generate from that research. Do you
    think we're getting that kind of return?
        Mr. Levitt. Senator Durbin, I would say that the research
    ecosystem is a complete whole of which basic research, funded
    by the Government, by NIH, is an important part. But NIH does
    not bring drugs into clinical development and marketing
    approval. That can only be done by pharmaceutical companies. I
    think if we look at the statements of the NIH itself, they will
    acknowledge that without the efforts of the pharma industry to
    develop and bring drugs to market, their basic research would
    not produce patient-accessible innovation.
        Chair Durbin. If you listen to Dr. Moodie, and she's pretty
    convincing, the thickets that we've created in patent law
    cannot serve the purpose of research or innovation or the
    benefits to the consumers. It's all about monopoly control of
    some of these drugs so that you can have profits for a longer
    period of time, isn't that right?
        Mr. Levitt. Mr. Chairman, I guess I would take issue with a
    couple of comments made by my learned colleague here, Dr.
    Moodie. First of all, it's not that easy to get a patent in the
    first place. To get a patent, you have to show that the
    invention is patentable. It has to have novelty, utility, and
    other features that entitle it to get a patent.
        I would also point out that innovation does not stop upon
    approval of a product. There are many very important
    innovations in product development post-approval that benefit
    patients tremendously. Things like even changing the dosage
    form of a product from an injectable to an oral, even reducing
    dosage frequency or allowing for a fixed drug combination
    instead of having the patient take multi-drugs for HIV or other
    conditions.
        I could go on. There's many, many, many innovations.
    Improving stability profile--that's something that's been in
    the news recently. It's obviously a key----
        Chair Durbin. I'm sorry. I'm out of time. I'm sorry. I'll--
    --
        Chair Klobuchar. You can--I mean, if you want--Senator
    Durbin, please----
        Chair Durbin. I just wanted Dr. Moodie----
        Chair Klobuchar [continuing]. If you want to allow him to
    finish, and then Dr. Moodie to respond, and then we'll turn it
    over to Senator Lee.
        Chair Durbin. That's what I'm looking for. I'd like to ask
    Dr. Moodie to respond to that.
        Chair Klobuchar. Okay. Dr. Moodie.
        Dr. Moodie. Sure. We see the U.S. patent system as being an
    outlier now compared to other systems around the world. In the
    U.S., there are, of course, rules for examining patents that
    are working well, but it's also easy to circumvent those rules
    in order to do this numbers gaming, where you can build up
    incrementally different patents of having claims of
    incrementally different wording to make an army of continuation
    patents, all derived from just one original patent filing.
        This ends up building a patent thicket that's both
    protracted and multilayered. Overall, we do believe that the
    root cause of the problem is the examination procedures and the
    rules that the USPTO is using, and that by tightening up those
    rules, it can help provide a more balanced patent system that
    can provide the benefits to both incentivizing innovation as
    well as allowing affordable medicines to come onto the market
    in a more appropriate time.
        Chair Durbin. Madam Chairman, if I could just read one
    sentence into the record and thank you for your patience.
        Chair Klobuchar. Of course.
        Chair Durbin. The top 12 best-selling drugs in America each
    have an average of 71 patents, and 78 percent of all new
    patents are for drugs that are already on the market. Thank
    you.
        Chair Klobuchar. Excellent. Not excellent fact. Excellent
    job, Senator Durbin. Next up, Senator Lee.
        Senator Lee. Thank you, Chair Klobuchar. In the last few
    hours as we've been talking about the CREATES Act, we've seen
    the filing of what may well be the first complaint. It was a
    complaint filed in the U.S. District Court for the Eastern
    District of Pennsylvania, asserting claims under the CREATES
    Act. I've gone through the complaint. It looks like it's well-
    written. I can't speak to the merits of it beyond what I've
    seen, other than to point--this was a complaint filed by Teva
    Pharmaceuticals against Amicus Therapeutics.
        In reading the complaint, it was confusing, mildly, because
    the fact that one of the real parties in interest, the
    defendant, is named Amicus, and I think that might throw off
    the court from time to time.
        [Laughter.]
        Senator Lee. Mr. Levitt, let's start with you. In 2019, the
    Office of Inspector General for the Department of Health and
    Human Services found that the rebate model used by PBMs was at
    least a significant contributor to high drug prices. What
    reforms do you think we ought to consider in order to address
    this? I ask that keeping in mind that some experts believe that
    PBMs should be required to have a fiduciary obligation to their
    beneficiaries. Would this help solve the problem?
        Mr. Levitt. Thank you, Senator Lee. We believe that the
    major need and necessity in this area in terms of reform is
    greater transparency in pricing and the ability to pass rebates
    and discounts through to the patients at the point of filling
    their prescriptions because what's going on here is that we
    have a growing disparity between list prices, which are then
    subject to rebates and discounts that are negotiated between a
    manufacturer and a PBM, and those rebates and discounts then do
    not reliably find their way to the patient.
        We strongly believe in greater transparency, and your point
    about fiduciary duty on the part of PBMs is interesting. I
    don't think we have a position on that yet, but we certainly
    will look at that very closely.
        Senator Lee. Dr. Moodie, do you have any opinion on that?
        Dr. Moodie. When it comes to rebates and patent monopolies,
    the problem with these inappropriately extended monopolies is
    that the rebates can then increase for a longer period of time,
    and so this grows the patient out-of-pocket costs. But--well, I
    mean, I'm not the expert here on the mechanics of rebates, so
    I'm happy to hand over to other witnesses on that.
        Senator Lee. While we're with you, do you think our patent
    system encourages or enables some of the anticompetitive
    conduct by branded pharmaceuticals, and if so, what can we do
    to change that?
        Dr. Moodie. The way that the patent system's working right
    now is that it's easy to circumvent certain rules that allow
    you to repetitively claim a similar invention over and over
    again. Then this means by building up the numbers of patents by
    similar applicants, we can't economically clear a path through
    that many patents.
        Then you can create an inappropriate monopoly, because
    you're shielding your patents from being scrutinized by the
    checks and balances that were built into the system.
        Also, the processes that we use to challenge patents, IPRs
    and PGRs, have been weakened over the years. And so, what would
    be very beneficial for third parties, such as ourselves, to be
    able to really scrutinize the patents and put the checks and
    balances back into the system would be to strengthen the IPRs
    tools, as well.
        Senator Lee. Yes, I've believed that for some time. One of
    the things that I've struggled with there is knowing how we do
    that and trying to figure out where that problem stems from. Do
    you think the PTO is sort of rubber-stamping weak patent
    applications? Is that how we're getting there?
        Dr. Moodie. I would say that there are, of course, good
    secondary patents. When I pointed to those statistics earlier,
    evidence shows that over half of the patents that are granted
    are at least of questionable quality. Yes, that is one side of
    it. We do need to raise the bar with patentability at the
    USPTO. We also need to tighten up the rules that make it
    possible to game the system to create lots of patents.
        We also need to give third parties better tools to
    challenge the patents to put back that checks and balances into
    the system.
        Senator Lee. What about within the generic marketplace?
    I've lost track of the number of drugs that I've followed over
    the years, where once a drug goes off patent, you'll see some
    generic competition. You'll see prices go down. Then, in many,
    many instances, you'll see the price for the same molecule,
    that's now off-patent skyrocket, sometimes to levels or even
    above levels where it was selling while it was still on-patent.
    Do you have any theory as to why that's happening?
        Dr. Moodie. It could be that the generics are dropping out
    of the market. For various reasons, they just can't make any
    profit whatsoever. Yes, I mean that's not only a patent issue.
    That goes beyond that.
        Senator Lee. You have some attrition there if they think
    they can't make money, and then--okay.
        Mr. Abbott, we often hear calls for Government-mandated
    price controls, sometimes as a response to the rising costs of
    prescription drugs. Do you think that approach would work?
        Mr. Abbott. I don't think so, Senator. As a general matter,
    and history shows price controls distort markets, and they
    create shortages, reduce investment and innovation. The classic
    example is Federal oil and gas price controls in the 1970s. You
    had less investment in oil and gas, major shortages.
        In the case of pharma, that would mean fewer drug
    improvements and new drugs, with many patients being denied
    opportunities for cures or improvements in the cures in
    treatment of diseases. The U.S. leads the world in pharma
    innovation and R&D and would surrender it if it adopted price
    controls. Canada directly regulates drug prices, which has led
    to widespread drug shortages according to a University of
    British Columbia study, and those shortages are getting worse.
        Also, consider that pharma R&D fell in Canada between 2001
    and 2017 significantly, while U.S. pharma R&D more than doubled
    from $24 billion to $56 billion during that period. Importing
    drugs from Canada with the aim of reducing prices could also
    import the problems of reduced availability and investment.
        Senator Lee. What's cross-subsidization, and what role do
    you think it might be playing here?
        Mr. Abbott. The cross-subsidization problem is you have, in
    many countries, these one-buyer national systems, where drug
    companies face a monopsonist, like a monopoly buyer, and they
    are threatened in some situations with lack of protection for
    intellectual property, or lack of access to markets. That is
    one of the reasons why prices are a lot lower. In fact, you
    have anticompetitive buyer activity going on.
        Of course, two wrongs don't make a right. The fact that you
    have price controls there doesn't mean that, well, you're going
    to solve a problem in the U.S. if you have price controls. If
    you then have price controls in the U.S., you're just going to
    get less investment, and the people will be harmed, and the
    future patients who would have had cures or better health
    results but won't because there will be a slow rate of
    introduction of new and improved drugs.
        Senator Lee. I see my time is expired. Thank you.
        Chair Klobuchar. Thank you very much, Senator Lee. Senator
    Blumenthal has joined us, so I'll have him go ahead. I have
    noted, Senator Blumenthal, your work that you and I are doing
    on rebate traps, as well as the work you are doing with Senator
    Cornyn on product hopping. Senator Blumenthal.
        Senator Blumenthal. Thank you. Thank you, Senator
    Klobuchar, and I really appreciate all the great work that
    you're doing and the work that we're doing together, and thank
    you to you and the Ranking Member for having this hearing. I
    can't think of a hearing that's more important. Today, I should
    just note that I'm also a Member of the Armed Services
    Committee, and we are having a joint hearing with the
    Intelligence Committee on reports of unidentified aerial
    whatever you want to call them.
        Chair Klobuchar. You still joined us? That's impressive.
        [Laughter.]
        Senator Blumenthal. Yes. I feel like I have returned to the
    real world.
        [Laughter.]
        Senator Blumenthal. It is a real world that bedevil us
    every time we go home. Literally. I can't think of a better
    time to have this hearing because we're all back here from
    visiting our States, where we hear, every one of us, doesn't
    matter whether we're Republican or Democrat, about a woman, or
    a family, or a man who is foregoing whatever--clothes, food on
    the table, or maybe even the medicine itself because of the
    skyrocketing prices of drugs.
        They've increased 40 percent over the last decade and
    they're continuing to climb, and I want to come right to the
    point. At least some of this price increase is due to abuse of
    our patent system. I say with no great pride that the engineers
    and designers here are many of my own profession, lawyers, who
    advise how to game that system, and one of the particularly
    harmful ways to do it is known as product hopping.
        All of you know what product hopping is. It's a process by
    which branded pharmaceutical manufacturers make small,
    incidental, often irrelevant changes to drug formulas to extend
    their patent exclusivity and keep competition out. Let me give
    you an example, which happens to be very timely, as well.
    Alzheimer's disease is treated by a branded medicine known as
    Actavis. Knowing that the market exclusivity for this drug was
    running out, Actavis sought to replace its twice-daily dosage
    of Alzheimer's treatment with a new extended-release, a once-
    daily version, without changing the medical benefits, the
    essential ingredients of the drug.
        After the FDA approved the new drug, Actavis was able,
    strategically to wait for 3 years, 3 whole years, to introduce
    the new extended-release version, in order to extend its
    exclusivity in the U.S. market. Once introduced, Actavis used
    the patent system to hop patients, pushing all of its customers
    onto the new drug, while pulling the old drug from the market.
    As a result, it was able to continue charging monopoly prices
    long after its market exclusivity had run out.
        This product hopping practice enables drug companies to
    stop generics, biosimilars, and other essentially innovations
    at lower prices, which is kind of the definition of abusing
    market power.
        I want to ask Dr. Moodie, how are biosimilar alternatives
    hindered by the practice of product hopping?
        Dr. Moodie. Yes, that's very true. Product hopping is a
    tactic used by branded drug companies to shift market just
    before biosimilars come to market in order to thwart the
    competition. This tactic can also be used to increase the
    price. We feel like advertisements for the new presentations of
    these product-hops, they often minimize the risks and
    exaggerate the effectiveness, as well as including
    unsubstantiated claims of superiority over the biosimilars.
        Product hops can be addressed by limiting the promotional
    material, including the direct-to-consumer advertising that
    would influence patients and providers to switch to the product
    hop, unless the product--unless the branded drug company has
    conducted a clinical trial that proves evidence of clinical
    superiority.
        Another mechanism to address product hopping is to
    strengthen the Department of Justice and/or Federal Trades
    Commission's ability to bring cases against branded drug
    companies who are engaging in product hopping.
        Senator Blumenthal. Thank you. I can tell you also, Senator
    Cornyn and I have introduced--actually, we've reintroduced the
    Affordable Prescriptions for Patients Act, which would put an
    end to this anticompetitive practice. It was approved
    unanimously in the last session of Congress, unanimously by the
    Judiciary Committee. It never received a vote on the floor, and
    I'm hoping that we'll get bipartisan support to do it again.
        It would also prohibit some other abusive practices, like
    patent thicketing, but product hopping, in a way, epitomizes
    the worst of the present system. I recognize the importance of
    patents in encouraging innovation. We can all talk about it
    fairly well, but when it's abused, it actually impedes
    innovation and prevents it.
        Mr. Mitchell, I'm hoping you, perhaps, can shed light on
    the human costs of this anticompetitive practice. How are
    patients affected by product hopping by branded pharmaceutical
    companies?
        Mr. Mitchell. When a drug is about to come off-patent, as
    Dr. Moodie just mentioned, and small changes are made that are
    incremental to try and move people to this new and more
    expensive drug, usually, they're stuck in many cases. If it's a
    hard switch, it's a problem. Courts have begun to get that. If
    it's a soft switch, sometimes they can be misled into thinking
    that, without evidence, this is better, a superior drug.
        Sometimes the drug--brand drug companies actually disparage
    their old version of the drug, and so patients are often misled
    into taking the hopped product, the new product, when the old
    product would do just fine. Or, say they change the dose from
    160 milligrams to 80 milligrams, or 80 milligrams twice a day
    to 160 milligrams and charge--once a day, and charge a lot
    more, when they could go on taking the other drug, and it would
    work just fine.
        The fact is, the product hops reduce choice and kind of
    push people toward more expensive drugs that they don't
    necessarily need.
        Senator Blumenthal. Thank you. My time has expired. This
    topic is a big and important one, and I thank all of you for
    helping us shed light on it. The American people, although they
    already know, in their pocketbooks and their hearts and, all
    too often, their bodies, how devastating it can be. Thanks,
    Senator.
        Chair Klobuchar. Thank you very much, Senator Blumenthal.
    Just to show how big and important this is, we've not only had
    the Chair of the Judiciary Committee at much of this hearing,
    but also the Ranking Member, who's been such a leader on these
    issues, and so Senator Lee and I welcome Senator Grassley.
        Senator Grassley. I was going to open with some comments
    about you and I cooperating on a lot of legislation, but----
        Chair Klobuchar. You can go ahead.
        [Laughter.]
        Senator Grassley [continuing]. I'll just put those two
    pages in the record----
        Chair Klobuchar. Okay, excellent.
        Senator Grassley [continuing]. So I don't take time for
    that.
        [The information appears as a submission for the record.]
        Senator Grassley. I'd like to have the witnesses comment on
    the issue of pharmacy benefit managers, or PBMs and the
    possible negative effects their actions have on prescription
    drug prices for consumers. PBMs operate with little to no
    transparency, making it very difficult, if not impossible to
    understand the price of prescription drugs. Instead, we have a
    complex web of prices, rebates, and formularies that make it
    near impossible to understand drug prices.
        This problem is made worse by consolidation and
    concentration within the PBM marketplace. Three companies
    control 75 percent of the market and are vertically integrated
    and owned by other players in the healthcare industry. This is
    a high level of concentration and control over a projected $358
    billion spent on prescription drugs in 2020.
        Has there been too much concentration leading to very few
    companies with too much power, would be one of my questions.
    The second one would be, should PBMs be required to provide
    more transparency on how prescription drugs are priced? Anybody
    can take a crack at it on either side of the issue.
        Mr. Levitt. I'm happy to jump in there, Senator Grassley,
    if you don't mind.
        Senator Grassley. Please.
        Mr. Levitt. We completely agree with you that the current
    situations with respect to pharmacy benefit managers and the
    market power and negotiating power that they have, needs to be
    scrutinized very carefully.
        What is often perceived as an increase in prescription drug
    costs on the part of patients is actually the result of the
    failure of these PBMs, who, as you said, control three-quarters
    of the market for prescription drug benefits, the failure of
    these PBMs to be transparent, or to share or pass through the
    rebates and discounts that are being negotiated between
    themselves and manufacturers to the patients at the point of
    prescription.
        This is why, although when you look at net prices, that is
    the price of pharmaceuticals after rebates and discounts, those
    prices are stable or declining. But patients are perceiving an
    increase in costs, and that is because the costs are being
    shifted onto the patients. We believe that's a problem that
    really needs to be examined closely.
        Senator Grassley. Anybody to add to it, or anybody want to
    express an opposite position?
        Mr. Kades. Senator, I don't know that I want to express an
    opposite position. I think there clearly has been substantial
    consolidation in the PBM market, and you would expect that that
    consolidation leads to market power that----
        [Voice heard off microphone.]
        Mr. Kades. Sorry about that--that that consolidation, if it
    leads to market power, you would see that in the PBMs taking a
    larger and larger share of the rebates. I think that's a really
    important question, and I think this Committee and those of you
    who have asked the agencies to focus on it are quite right.
        I do want to say that one of the things that can be
    problematic in this debate is that various actors like to
    finger-point, and so we should be looking at all actors, but we
    should also remember that the rebates are a tool used by
    branded pharmaceutical companies to prevent generic entry, or
    to limit competition, which is something your Finance Committee
    report found--made a finding about on insulin.
        Yes, let's look at PBMs, but let's make sure we look at all
    actors in this marketplace.
        Mr. Mitchell. Senator Grassley, if I may----
        Senator Grassley. Yes.
        Mr. Mitchell [continuing]. I think it is wrong that a
    patient like myself cannot know if the preferred drug on a
    formulary is there because it's the best drug for me, it's the
    least expensive drug among equally effective options, or if
    it's just there because the PBM got a big kickback, a legal
    kickback that we call a rebate.
        We believe that there must be more transparency in the way
    the PBMs operate. We need to know how much of the rebate is
    going to lower my premium, lower my out-of-pocket, is going to
    the profit of the PBM and/or the insurer, and now, they're one
    and the same for the big three. So, we believe that
    transparency is key.
        The headwaters of the problem of high drug prices is list
    prices set by drug companies, but these downstream
    anticompetitive practices by PBMs need to addressed, and we
    need to make sure that they're working on behalf of patients.
        Senator Lee mentioned maybe they should have a fiduciary
    responsibility to me. That would be just fine. Thank you.
        Senator Grassley. I want to go on to another issue. I'm
    concerned about the effect of so-called rebate traps, rebate
    walls on patients' access to quality low-cost medicine. These
    are practices where drug manufacturers bundle together rebates
    over multiple products so that if a payer decides to purchase
    or cover a competitor's alternative cheaper drug, they forfeit
    the rebates and discount on the entire bundle of a
    manufacturer's product.
        For any of you that want to tackle this, do you believe
    that companies engage in--bundling rebates over multiple
    products can be harmful to patients' access to quality, lower-
    cost drugs? If you believe this kind of action is
    anticompetitive, what kind of action would you think would help
    address the issue? Then that will have to be my last question.
        Mr. Mitchell. I'll go again if you don't mind, Senator. I
    do believe that these things are hurting patients. I think it's
    very important to recognize, however, that these rebate traps
    and rebate walls are deals entered into voluntarily, to the
    benefit of both the drug maker and the PBM, but they are not
    increasing my choice or lowering my price.
        That's why we need you to take a closer look, and to have
    the ability, through transparency, to examine how these deals
    are working, and how PBMs are doing their business, but always
    remembering that there is a mutuality there going on between
    the drug company and the PBM.
        Mr. Levitt. If I could, Senator. Sorry.
        Senator Grassley. Yes.
        Mr. Levitt. To answer your question directly, Senator
    Grassley, this--if a company uses its market power coercively
    in such a way as to exert anticompetitive effects and bar
    competitors from the market, then that is anticompetitive
    behavior, and it should be scrutinized.
        You'll, however, have to realize at the same time, that not
    all exclusive contracts are necessarily anticompetitive. It
    really does depend on the terms and conditions, the duration,
    the market power of the parties. They can be used in such a way
    as to reduce prices in principle. But again, when they are used
    in a coercive and anticompetitive way, they're definitely
    wrong.
        Senator Grassley. I think one other person wanted to
    comment, and then I'll be done. Go ahead.
        Mr. Kades. Yes. Senator, that's a great question, and it's
    absolutely true that dominant companies in this marketplace use
    rebate traps to forestall entry. That inures mostly, if not
    entirely, to the benefit of the dominant company. While, in
    theory, that action should be anticompet--illegal under the
    antitrust laws, we know it's pervasive, it's part of the reason
    why costs are high in insulin markets, it's why costs are high
    in the EpiPen market, it's why the drug Remicade, biosimilar
    competition has not developed.
        Part of that reason is because when courts look at this,
    they're getting it wrong. They're defining markets too broadly.
    Or, as just recently happened, court looks at a case at summary
    judgment, before you go to trial, and says, yes, the plaintiff
    can prove the defendant is a monopolist. They can prove both
    parties expect a generic entry to take 30 percent of the
    market. The brand didn't lower price. The brand didn't improve
    its product, and yet the entry was an absolute failure, and the
    court says, ``Oh, but the rebate increased, so there can't be
    an antitrust problem.''
        That's why, when you have laws that are so deferential to
    dominant firm conduct, then you get this kind of activity that
    we are all paying for.
        Chair Klobuchar. Very good. Thank you. I just thought I
    would ask each of you the same question, if you could just keep
    it to 30 seconds. It pertains to the fact that U.S.
    prescription drug prices are the highest in the world. It's
    been estimated that our drugs here cost between 4 and 2.5 times
    more in the United States than they do in other developed
    countries.
        We can argue about what the right number is, but it is
    clear we are paying far too much, and it's not getting better.
    According to one study, prescription drug costs in the U.S.
    rose 76 percent between 2000 and 2017. We are the largest drug
    market, with so many of the companies located here. And we are
    grateful for the work that was done to develop the vaccine, but
    yet, we continue to pay these high prices, so I just want this
    30-second answer.
        Why are U.S. drug costs so much higher than they are
    anywhere else in the world, when it's so much of our research
    money that went into this, and does a lack of competition play
    a role? Mr. Kades.
        Mr. Kades. Thank you, Senator. Yes, competition,
    absolutely--the lack of competition plays a significant role,
    but there are other causes which might be addressed by your
    bill to improve negotiations allowing Medicare to negotiate
    under Part D or other payment processes that could help control
    drug prices. The patent system reform would also help. Sorry.
        Chair Klobuchar. Thank you. Mr. Abbott.
        Mr. Abbott. Yes, Senator, prices are high, but there are
    also institutional factors. For example, a 2018 HHS report
    indicated that the expansion of rebates that was actually
    facilitated, supported by the ACA in some areas, may have
    actually contributed to the raising of list prices.
        But also, recall pharmaceutical companies have to cover the
    90 percent plus of efforts that fail to bring forth a new drug.
    A heart of those efforts are in the United States. We, in
    effect, are cross-subsidizing other parts of the world as
    mentioned to Senator Lee.
        Chair Klobuchar. Mr. Levitt.
        Mr. Levitt. Senator Klobuchar, other developed countries
    tend to have very different healthcare systems, with a much
    greater degree of government involvement and price control
    than, I think, Americans would be willing to tolerate, and they
    pay for that degree of government control with less access,
    less innovation for patients.
        Yes, we do spend somewhat more on prescription drugs in
    this country. We can debate the exact number. Our figures would
    be lower than yours, but yes, but we also spend more on all
    aspects of healthcare in this country. I saw a study recently,
    administrative costs in our healthcare system are 4 times what
    they are in Canada, so we have to put this in context.
    Prescription drug costs have remained flat, at around 15
    percent of the overall healthcare expenditure in this country,
    for the past several years.
        Chair Klobuchar. All right. I have some responses, but I'm
    going to keep going down the line. Next, Dr. Moodie.
        Dr. Moodie. We're seeing biosimilars hit foreign markets
    years before they hit the U.S. That trend is going to continue
    and get worse because with patent thickets that we're seeing
    growing up around the newer biological drugs are growing so
    much faster and bigger than the famous thickets that people are
    talking about today. The branded drug companies are getting
    better at this gaming of the numbers game of patent thickets.
    Just getting biosimilars to the market at a more appropriate
    time is the best way to bring down those prices, and then you
    don't need reference pricing, either.
        Chair Klobuchar. Okay. Mr. Mitchell.
        Mr. Mitchell. Thank you, Senator. We're paying almost 4
    times what other wealthy nations pay for the exact same brand
    drugs. We--no other country allows brand drug makers to dictate
    the prices of drugs as we do in this country, and that's why
    our prices are so high. They negotiate, we don't, and the
    outcome is prices that range as high as everyone here knows.
        Chair Klobuchar. Okay. Thank you. We turn to solutions
    here. Mr. Kades, in your written testimony, you compared the
    competition problems in prescription drug markets to the canary
    in the coal mine for the failure of U.S. competition law. Are
    you saying these problems in our drug market should have been
    an early warning sign? Then, I think most importantly, do you
    think broad-based reforms, as we look at these markets that
    we've looked at in this Committee, yes, tech and there can be
    some specific tech laws. What we're going to be doing next
    month on the agriculture markets and something Senator
    Grassley's very interested in, as well as what we've seen from
    online travel on.
        Do you think a broad-based support--this is called a
    softball, leading question--would be most helpful?
        Mr. Kades. Absolutely I do, Senator. You talked about the
    Ovation case. All right, and it's a perfect example of where
    antitrust has gone off the rails. It should be very easy to
    figure out. If there are only two products that can treat a
    disease, that--they're in the same market. They have to be, and
    getting rid of that competition has to be bad. Somehow, the
    court got that wrong.
        Time and again, the Government is spending massive
    resources, proving essentially what is obvious, and proving--
    and essentially having to prove water makes things wet.
        And so, when we look at the antitrust enforcement in
    pharmaceutical industries, my good friend, Mr. Abbott says,
    it's a sign that things are working. But we need to look at
    what is the conduct that is occurring? And this conduct is so
    egregious. We've heard about it today. Literally companies
    bringing products to market where they put a tablet inside a
    capsule just to prevent generic competition. It's not
    innovation. The fact that the system allows that tells us the
    antitrust laws are too weak.
        Chair Klobuchar. You would suggest a broad-based support,
    as well as doing some of these specific things, like pay-for-
    delay and some of the other things we've been talking about
    with rebates, patent thickets--the best words that we will all
    take away from this hearing. Dr. Moodie, thank you. So that's--
    --
        Mr. Kades. Yes, I think it is a combined approach.
        Chair Klobuchar. I think you also are concerned about the
    loss of disgorgement and restitution authority at the FTC, is
    that right?
        Mr. Kades. Yes.
        Chair Klobuchar. You think that needs to be fixed?
        Mr. Kades. Absolutely. Just a very quick example. Back when
    I was a young attorney and had more hair, the FTC brought a
    case against a generic company for cornering the market and had
    claimed $100 million in disgorgement. That was roughly 80
    percent of what the company made by violating the law. As a
    result of that decision, a strong signal and a strong
    deterrent, that type of conduct disappeared from the
    marketplace for the next 40 years.
        Taking away that the--the Commission's ability to deprive
    people of the illegal profits just says, go ahead and violate
    the antitrust laws because the Federal enforcers, the most they
    can do is tell you to go forth and sin no more.
        Chair Klobuchar. Mr. Levitt, in your testimony, you wrote
    that for both generics and biosimilars, our laws are intended
    to, quote, ``strike a balance between providing access to
    medicines and preserving incentives for innovation.'' But we
    are not seeing that balance when it comes, as Dr. Moodie has
    pointed out. What we are seeing is these deep patent thickets
    with sometimes more than 100 patents, as she pointed out, filed
    for a single drug, many of which are filed after the drugs are
    approved.
        Aren't these practices throwing off what you call the
    delicate balance between patient access and development
    incentives? I know there have been a lot of questions about the
    thickets, but I'm getting to that. That will be my last one.
    I'll ask you, Dr. Moodie for a quick response.
        Mr. Levitt. Thank you, Senator Klobuchar. To begin with,
    again, as I said earlier, product innovation does not stop upon
    approval of a product. Particularly with complex products like
    biologics, there can be many different kinds of inventions that
    can take place after approval that can improve the profile of
    the product in ways that matter to patients: to make it easier
    to administer, to extend the shelf life or improve the
    stability, and many, many other characteristics.
        Each of these potentially qualifies for a patent, and
    patents, contrary to what some have said, are not so easy to
    get. You have to, as I said earlier, show the requisite
    requirements to get a patent in the first place. Once you get
    the patent, it is absolutely subject to challenge through
    either the inter partes review process, or in court, or the PGR
    process.
        In a way, one could take the figure cited by Dr. Moodie
    that 56 percent of the IPRs succeed as evidence that that
    process works, that if a patent is weak and it's subject to
    challenge, then it's going to go down. I can assure you that
    innovator companies are not in the business of getting weak
    patents so that they can be struck down. They're getting
    patents for innovations that improve the product.
        We--am I?
        Chair Klobuchar. Yes. One more sentence here.
        Mr. Levitt. Okay. I just wanted to say we don't oppose
    properly targeted legislation on product hopping, and I'm happy
    to discuss, you know, the specifics of that with the Committee.
        Chair Klobuchar. Okay. Dr. Moodie, quickly. We have two
    Senators here that have been waiting for a while. So----
        Dr. Moodie. Sure. Due to the numbers gaming of the patent
    system, we can't economically use IPRs and PGRs to clear a path
    through hundreds of patents. It would be--the system would work
    better if you would get one patent per secondary or follow-on
    invention, but now they're creating these families of patents
    around each invention, to circumvent and shield the patents
    just through economic means.
        Chair Klobuchar. Okay. Very good. Thank you. I don't know
    who's next, Senator Hawley or Cotton. I'm not going to decide
    between them. Senator Lee----
        Senator Lee. It's your call.
        Chair Klobuchar [continuing]. No, you decide, it's your--
    who is--was Senator Hawley here--are you--what are your rules
    here?
        Senator Lee. Josh was here first, but then left, and Tom
    came, so----
        Chair Klobuchar. Okay, you go for it. Okay. Senator Cotton.
        Senator Cotton. Thank you. Thank you all for appearing
    today. We've heard a lot about patent rights and
    anticompetitive drug company actions that harm consumers, and I
    share my concerns on that front.
        But I also want to discuss a concern I have about a Biden
    administration decision that will also jeopardize our ability
    to deal with any pandemics in the future.
        In May, the Biden administration announced its support for
    a waiver of intellectual property rights at the World Trade
    Organization. This waiver would mean that American companies
    that develop lifesaving vaccines and treatments to address the
    pandemic will lose that intellectual property, and the property
    will be turned over to the rest of the world, including
    adversaries like China.
        Now waiver may be the technical term for what the Biden
    administration has decided. A more accurate description would
    be confiscation. The American companies that spent billions of
    dollars developing this technology don't exactly have a choice
    to participate in a waiver of their property rights, of course.
    We are used to countries like Russia, and China, and Cuba
    expropriating the property of not only their own citizens, but
    Americans, as well. But it is unprecedented for an American
    administration to help our adversaries steal such intellectual
    property.
        I won't put aside the question of whether this is morally
    right or wrong, because it is clearly wrong to steal the
    property of an American company and its American shareholders.
    It is also an incredibly dangerous precedent to set.
        However, I want to focus more directly on the practical
    implications of the Biden administration's decision to steal
    the property of American companies.
        Mr. Levitt, if the Biden administration succeeds in pushing
    through this expropriation of American companies' property,
    will this increase the production of vaccines worldwide?
        Mr. Levitt. Thank you, Senator Cotton. The short answer is
    no. Biopharmaceutical companies share the goal of vaccinating
    as many people as possible as quickly as possible around the
    world. But punitive transfers of patents will not help increase
    production capacity, nor will they accelerate access to COVID-
    19 vaccines, and, in fact, they also risk putting production in
    the hands of parties who lack the technical and quality know-
    how to accomplish this.
        The concern that apparently lies behind this move, this
    unfortunate move of transferring patent rights--patent rights
    and seizing patent rights is misdirected. If there are any
    issues about getting product and vaccine out, it's in the
    supply chain, not in the IP rights that, as you said, have
    enabled companies to develop these vaccines in an incredibly
    short amount of time.
        Senator Cotton. This supply chain and manufacturing process
    for the coronavirus vaccines is incredibly complicated, is that
    correct?
        Mr. Levitt. It absolutely is, Senator.
        Senator Cotton. It depends on very customized equipment, as
    well has highly specialized knowledge, is that correct?
        Mr. Levitt. Vaccine production is among the most
    complicated manufacturing processes in the world. There are
    many, many dozens of separate steps, each of which has to be
    very carefully controlled and under stringent quality
    requirements. It's absolutely correct.
        Senator Cotton. It is not, in fact, the patent rights that
    these companies have that is the bottleneck for vaccine
    production around the world, but rather the supply chain and
    the manufacturing process itself?
        Mr. Levitt. Absolutely correct, in our view. Yes, Senator.
        Senator Cotton. If that is the case, who will benefit from
    this so-called waiver, or what you might better call an
    expropriation, of American companies' property?
        Mr. Levitt. In our view, it certainly won't be patients. In
    fact, if anyone, as you said, it's going to be the foreign
    economic competitors who really don't play by the rules in the
    first place, and that's very unfortunate.
        Senator Cotton. To put names to those competitors, would
    most of them, or at least many of them be located in China?
        Mr. Levitt. It has been said that that is one of the
    countries that is in that category, yes, Senator.
        Senator Cotton. Mr. Levitt, these technical terms, like a
    TRIPS waiver, or WTO protections are not exactly things that
    roll off the tongues of most Arkansans when I visit with them.
    Can you explain why it matters to them? Why it matters to all
    Americans that we protect the intellectual property rights of
    companies to include the patent rights of these vaccine
    manufacturers?
        Mr. Levitt. Senator, it matters because taking this kind of
    drastic action to seize intellectual property and violate
    intellectual property rights is going to endanger future
    production and innovation by creating confusion and uncertainty
    among vaccine manufacturers at a time when they are working
    around the clock to bring needed vaccines to patients.
        In short, the damage will be less access to needed
    medicines, and economic harm, as well, to a vibrant industry
    that provides high-quality jobs for hundreds of thousands of
    Americans.
        Senator Cotton. All in return for which we don't get any
    acceleration in the effective production of coronavirus
    vaccines, is that correct?
        Mr. Levitt. Precisely.
        Senator Cotton. Thank you.
        Chair Klobuchar. Senator Hawley.
        Senator Hawley. Thank you, Madam Chair, and thanks to all
    the witnesses for being here. I want to come back, if I could,
    to the question of these pharmacy benefit managers and some of
    the techniques, mechanisms that they use that are causing so
    much pain to independent pharmacists in particular.
        Mr. Kades, if I could just come to you. I know this has
    been a subject of much discussion throughout today's hearing,
    but I want to ask you about something I don't think has come
    up, and that is DIR fees. Could I ask you about the DIR fees
    that PBMs apply, often retroactively, and ask you to comment on
    why we wouldn't want to limit the ability of PBMs to apply
    these fees retroactively?
        In other words should--let me state that in the affirmative
    rather than the sort of double negative there. Shouldn't we
    limit the ability of PBMs to apply these fees retroactively?
        Mr. Kades. In a moment of being humble, I'm going to say
    that's actually not an issue I'm aware of, and so I don't think
    I could provide you an answer that would be useful.
        Senator Hawley. Does anybody else have a view on this down
    the panel?
        Mr. Levitt. Senator, my apologies, but if you could define
    the DIR, please. I'm so sorry, I don't recognize that term.
        Senator Hawley. A DIR--it's a direct or indirect
    renumeration fee----
        [Audio malfunction occurs.]
        Senator Hawley [continuing]. that is charged, often levied
    by PBMs as part of the Medicare Part D program. This is
    something that independent pharmacists are very, very concerned
    about, certainly in my State. Many of them look to these DIR
    fees as a prime driver in their own, frankly, insolvency.
        As I talk to pharmacists around the State of Missouri, and
    we have a long tradition in my State of having a lot of
    independent pharmacists, this practice--PBMs in general, as you
    may imagine, they're not fans of, but the practice of DIR fees
    is something that is particularly, particularly harmful in
    their view. Their view, and I have to say I tend to agree with
    them, is that the application of DIR fees retroactively is
    particularly harmful, it's nontransparent, and it's often
    devastating to independent pharmacies.
        If anybody has a comment on that, I'll gladly take it.
    Otherwise, I want to ask----
        Chair Klobuchar. We can also ask them to--if a few of the
    witnesses want to put it in writing after they have a chance--
    okay?
        Senator Hawley. That would great. That would be great.
    We'll give it to you as a QFR. Yes, thank for that, Madam
    Chair. That's a good suggestion.
        Senator Hawley. Mr. Levitt, let me just change subject and
    ask you about your client trade groups' view about what is----
        Senator Blackburn. Make sure they know I'm on virtually.
        Senator Hawley [continuing]. What is a reasonable time to
    profit from a single drug before a generic version can hit the
    market. Do you have a sense of what that time period, what a
    reasonable time period should look like?
        Mr. Levitt. Yes, Senator, so I think we can take as a
    starting point the term of a patent, which, as you know, is 20
    years from the date of application. Of course, we also know
    that a considerable amount of that patent life is consumed in
    the development and approval process, which is subject to some
    extension under the Hatch-Waxman law, but certainly not what
    makes up for the entire time of that process.
        At the end of the day, many, many estimates have stated
    that the effective patent life of a pharmaceutical product on
    the market averages around 12 to 13 years. That is the figure
    that pharmaceutical manufacturers take into account in
    calculating their exclusivity in order to get the return on the
    pharmaceutical product that will enable them to make a
    reasonable profit and continue to invest in innovation.
        Senator Hawley. Does that number take into account the
    filing of the child patents, or the patents that don't deal
    with drug structure, such as dosing combination treatments?
        Mr. Levitt. Right. Yes, it does, and I do have to point out
    one clarification here, which is that these continuation
    patents, as I understand it, do not extend patent life. They
    may broaden the scope of an originally granted patent in ways
    that are presumably justified by the inventions that they
    cover, but they don't extend the life of a patent, and so I
    would say that this is factored in to the 12-to 13-year
    estimate. It's sort of an aggregate global estimate that
    factors in all of the different inputs into the exclusivity
    life of a product on the market.
        [Audio resumes.]
        Senator Hawley. That's helpful. Here is where I'm going
    with this. If we can agree that the life of a patent should be
    limited, and 12 to 13 years, you've pointed out, but if in
    principle, as a matter of policy, we can agree on that, I'm
    trying to figure out why it is that some of the member
    companies in the organization you represent have gone to such
    great lengths to stretch things out in a way that seems almost
    indefinite. Can you help me with that?
        Mr. Levitt. Senator, I guess I would respectfully take
    issue with the characterization of stretching out. As I've said
    before, innovations continue after the approval of a product,
    and those innovations can come in many, many different areas. I
    won't take up more of the Committee's time. I've already listed
    a number of examples, which can be then subject to patenting.
    If those innovations are truly beneficial to patients, they
    will get out onto the market and they will have uptake in the
    market. If they're not, then they won't.
        Senator Hawley. Let me ask you something about to--to
    comment on something that former FDA Commissioner Scott
    Gottlieb said a few years ago, that patent thickets are purely
    designed to deter the entry of approved biosimilars. His view
    was that there's no real business need here. It's about
    profits.
        My question would be, if your clients aren't trying to
    behave in an anticompetitive way, then why aren't all the
    relevant patent applications for a particular drug filed at
    once? Up front, so to speak, when the product first comes to
    market, as opposed to staggered over time in a way, again, that
    tends to lengthen and lengthen and lengthen the protections?
        Mr. Levitt. Senator, that is because as the manufacturer
    gains further experience with the product and continues to
    examine the product for ways that it can be improved upon,
    that's a process that naturally takes place over time. When you
    get the initial approval of a product is when it is ready for
    approval on the basis of safety and efficacy. That doesn't mean
    the product is perfected at that time, or that it cannot be
    improved upon in a whole variety of ways that can be beneficial
    to patient care, to the quality of the product, and to other
    important attributes.
        It's naturally a process that takes place over time, as
    providers and manufacturers gain more experience with the
    product and continue to perform scientific research on the
    characteristics of the product. That doesn't--it just doesn't
    happen all at once. It's not the way science works.
        Senator Hawley. I'll leave it at that. My time is nearly
    expired. I just want to point out that I think that there is
    agreement that I'm sensing here, at least on this side of the
    dais, that we've got to do something about the ability of the
    manipulation of the patent system in order to prevent
    biosimilars from coming to market in a way that's really
    harmful to consumers. Thank you, Madam Chair.
        Chair Klobuchar. I think you'll see, Senator Hawley, there
    was a lot of discussion on this side of the aisle, as well,
    about the patent thicket issues, and the concern, which was one
    of the reasons we agreed to have Dr. Moodie here as a witness.
    We thought it was important to hear that perspective. Senator
    Blackburn, you're next. Thank you.
        Senator Blackburn. Thank you, Madam Chairman. I really
    appreciate the hearing on this, and I thank all of you for
    being here today. I think that it is going to be important that
    we look at the entire prescription drug chain when we're
    talking about possible anticompetitive behavior.
        The middlemen, the pharmacy benefit managers, as we have
    talked about more than once today, control nearly 4 out of 5
    prescriptions written in the U.S. That is astounding. This is a
    vast, a vast arena of influence that they have over issues that
    end up being life and death issues. Especially concerning to me
    is the fact that they are controlling the access to so many of
    these pharmaceuticals. Mr. Mitchell, as you mentioned in your
    comments, this is something that is really opaque. There is a
    need for transparency.
        In addition to this, these healthcare middlemen have
    undergone vertical transformation that combine the PBM with
    insurers, specialty pharmacies, and healthcare providers.
    Vertical integration can result in increased inefficiencies and
    consumer benefits. However, such integration can also lead to
    higher barriers for competition in each individual market.
        Onerous audits, clawback provisions, and patient steering
    are anticompetitive behaviors by the PBMs, and as some of you
    have referenced today, you know that that is taking place. They
    have caused small pharmacy business owners to struggle to
    survive.
        In recent years, 40 States, including my home State of
    Tennessee, have enacted legislation to actually curb some of
    these PBM practices. States have also taken action against the
    spread pricing activities of PBMs, which have cost taxpayers
    hundreds of millions in the Medicaid program.
        I do believe it's time for Congress to understand the
    impact of potentially anticompetitive PBM practices on
    patients, small pharmacy businesses, and taxpayers. Senator
    Braun and I have introduced S. 298, the Pharmacy Benefit
    Manager Accountability Act. I do encourage all of my colleagues
    on supporting this legislation. Madam Chair, I have a letter
    for the record, which is a statement from the National
    Community Pharmacists Association that I'd like to submit.
        [The information appears as a submission for the record.]
        Chair Klobuchar. It will be entered in.
        Senator Blackburn. Thank you. Mr. Levitt, if I could come
    to you, please. I know that Senator Grassley talked a little
    bit about the Senate Finance report on insulin, and you all had
    an exchange on that.
        Let's look at the incentives in the pharmaceutical supply
    chain, and let me ask you how you think these incentives are
    aligned. If they are there to drive costs lower and out-of-
    pocket costs lower, which by--that is one of the things that I
    hear from so many individuals. They never see the discount that
    is there, and there is a lack of appropriate alignment in
    actually lowering the cost of out-of-pocket expenses. I know
    Mr. Mitchell had referenced this earlier, also.
        If you would, for the record, talk a little bit about that
    alignment.
        Mr. Levitt. Thank you, Senator. Yes, in our view, that is
    one of the fundamental problems in the entire drug pricing
    system today is that the incentives are misaligned, and that
    savings that may exist upfront in the system between the
    manufacturers and the pharmacy benefit managers, in the form of
    rebates or discounts, there's no incentive to pass those on to
    consumers.
        What we've seen is a growing trend for other entities in
    the healthcare system, other than manufacturers and consumers,
    to basically realize those savings for themselves, so that,
    today, manufacturers, for example, only get a little bit over
    half of the actual cost of the drugs that they're providing.
    The rest is going to a variety of stakeholders, including PBMs,
    Government entities, payers, and others.
        But the patients, the problem is, as you pointed out, is
    that the patients are not seeing those savings at the pharmacy
    counter. We really believe that that is an issue that needs
    urgent attention.
        Senator Blackburn. When we're talking to Tennesseans, that
    is one of the things that comes up most often. If it is a
    cardiovascular disease, and they have a certain pharmaceutical
    or certain cancers, what they have to actually stay alive, what
    they need every month, and the cost for that and that discount
    not going to the customers, so I appreciate that.
        Mr. Kades, I want to come to you, if I may. Commissioner
    Chopra from the FTC recently made a statement that I thought
    was significant. The FTC largely stood by as the PBM industry
    consolidated to three main giants, and even took steps to
    undermine State legislation. This would indicate that there is
    an intentionality to what the PBMs have done, as you now have
    the three main ones, as I said earlier.
        They are there at the juggernaut, if you will, for four out
    of every five prescriptions that are being made in this
    country. Can the FTC or should the FTC do more to evaluate the
    anticompetitive behavior of the PBMs, or should this be given
    to someone else?
        Mr. Kades. Thank you, Senator. The FTC absolutely should be
    looking at PBMs and considering whether there is
    anticompetitive conduct and bringing cases where they can. I do
    think it's important to remember that at the time those--that
    consolidation occurred, when we look at where merger law is,
    where the case that Senator Klobuchar talked about, which was a
    merger monopoly and the Court said, not a problem. We look at
    other mergers that the Government is losing, it's not at all
    clear that FTC trying to stop those consolidation, based on
    what was before them, would have been successful, given how
    lenient the merger laws have become.
        That's not an excuse for them not to try or to look at it
    now, but I think it's important to understand that part of the
    problems we're seeing, whether it be PBMs or with branded
    companies gaming the system is directly related to how we have
    abandoned antitrust law as a true regulator and promoter of
    competition.
        Senator Blackburn. Hindsight is always 20/20, correct? Let
    me ask each of you this, and I'll ask just for a show of hands.
    How many of you think that PBMs should be eliminated from the
    marketplace? There is no one who would eliminate them.
        How many of you think that PBMs should be reformed, and
    that their power should be diminished? Okay, we've got one hand
    that is there. All right, thank you, Madam Chairman.
        Chair Klobuchar. Okay, very good. Thank you. A few things.
    I misunderstood Senator Hawley when he said on this side of the
    dais, we have support for doing something about patent
    thickets. He meant on this side, like all of us together, as
    opposed to on the party side. I really appreciate that
    bipartisan moment, and so that's good.
        Then, I thought I'd start out just with something
    clarifying something that Senator Cotton was asking about. Just
    a little bit of a different perspective.
        Mr. Mitchell, there is a different look at why President
    Biden was interested in sharing vaccines with other countries
    in this pandemic like we have never seen, with very difficult
    vaccines to develop. Could you talk about how from a public
    health perspective, not to mention a humanitarian perspective,
    it's beneficial to America to get other people vaccinated in
    other countries as soon as possible?
        Mr. Mitchell. I'll say for Patients for Affordable Drugs,
    we don't have a position on international issues like the TRIPS
    waiver, but I can speak for myself. A pandemic, by definition,
    is global, and until we defeat the pandemic globally, we are
    all going to continue to be at risk from emerging variants like
    the Delta variant that has popped up and is now killing people
    disproportionately in this country who haven't been vaccinated,
    for example.
        That didn't come from here, it came from elsewhere. From a
    public health perspective and trying to look after ourselves in
    America, but also to be good citizens of the world, making sure
    people can get vaccines all over the globe is in our best
    interest, both as people who want to have good health, but also
    be good citizens.
        Chair Klobuchar. Okay. Mr. Kades, are you aware of what
    happened--I don't know what happened, when President Biden made
    this announcement, to the stock ratings of the pharmaceutical
    companies. Did they plummet when this went out there?
        Mr. Kades. My understanding, although not an expert in the
    stock market, that they did not take a substantial hit.
        Chair Klobuchar. Okay. All right. Sham FDA petitions. There
    was a moment of asking questions you didn't know the answer to,
    but I figured you would have some impression of it.
        Mr. Kades, the practice of filing sham petitions risks
    delaying the approval of generic drugs and biosimilars and
    imposes unnecessary burdens on limited FDA resources. Senator
    Grassley and I introduced a bill, the Stop Stalling Act, to
    give the FTC enhanced authority to crack down on abuses of this
    process, while allowing petitions submitted in good faith to
    raise legitimate health and safety concerns. Can you elaborate
    on the harms to patients and competition caused by the filing
    of sham FDA petitions?
        Mr. Kades. Yes, and it's a tragic story, right? The
    Government comes up with this idea that when the FDA makes
    decisions, average citizens and people involved should be able
    to petition the FTC--I mean, I'm sorry, the FDA and so this
    improves participation. Nobody in their wildest dreams thought
    that virtually all the citizens' petitions dealing with generic
    approvals would be filed by their competitors and the branded
    companies saying, ``Oh, no, this generic product, you know,
    either you have to put special restrictions on it, or don't
    approve it, or require more testing.''
        Even if the petition isn't successful, it can take the
    time--the FDA has to look at it, has to review it, and even
    though they're supposed to decide within 180 days, they have a
    million things to do.
        Simply by using, in ways similar to the CREATES Act, the
    problem the CREATES Act addressed, using the process of the
    FDA, a process that was supposed to improve participation,
    branded companies can delay competition and force all of us to
    pay more for drug costs without any innovation, without any
    additional advantage.
        I think legislation here to correct that problem would be
    excellent. I would note that Congress has already tried to fix
    it once. The branded industry found ways to nullify that, and
    so I think Congress should take another crack at it.
        Chair Klobuchar. Okay. Mr. Abbott, you talked about in your
    written testimony, is that the need for greater resources for
    enforcers, these are your words, ``is particularly acute with
    regard to pharmaceutical enforcement given the great economic
    significance and complexity of pharmaceutical market issues.''
    We don't agree on everything in this hearing, but, given that
    you see this acute need, would you recommend that we get some
    additional resources for enforcement of the laws to the
    Agencies?
        Mr. Abbott. Thank you for that question, Senator. Yes.
        Chair Klobuchar. Very good. Thank you, and you know, we
    have this bill that Senator Grassley and I did, that actually
    has passed the Senate now, to change the merger fee statute
    that would add over $100 million to the two Agencies, and we
    haven't gotten a lot of objections to it because including the
    Trump administration did support this when we tried to get it
    done at the end of the year, so. All right. Thank you.
        Mr. Mitchell, our Medicare program is limited by law in its
    ability to negotiate drug prices. Removing the noninterference
    clause--you, I think, mentioned this--so we can allow 43
    million patients on Medicare Part D to lower the cost of their
    medication would be a critical way. I think it would help
    everyone, not just the seniors who benefit from this.
        Do you think that removing the noninterference clause is a
    good idea, and what additional reforms do you think would be
    required for Medicare to get better price terms for the
    enormous quantity of drugs that it purchases?
        Mr. Mitchell. Yes, we believe the noninterference clause
    should never have been inserted in 2003, and that it needs to
    be removed. It needs to be removed not only for Part D drugs,
    but for Part B drugs, as well. You know, the specialty drugs,
    many of which are Part B drugs, account for 0.4 percent of all
    prescriptions, but 46 percent of all spending on drugs in this
    country.
        We would love to see the noninterference clause eliminated,
    negotiations extended to D and B, and the prices negotiated by
    Medicare extended to the private sector to help employers who
    provide healthcare for 156 million Americans.
        Chair Klobuchar. Very good. Thank you. Just a few last
    questions here. It has been a long hearing. Mr. Kades, as we
    look to merger, I mean, there's a lot of predictions, and we're
    seeing them now. We're seeing this merger bonanza, not just in
    pharma, across the way. What can the FTC do to better police
    pharmaceutical mergers under current law? Another softball.
    Would reforming the laws, as suggested in my bill, would that
    enable the Agencies to do more to police anticompetitive
    mergers--changing the burden for big mergers, other ideas that
    we have out there?
        Mr. Kades. Yes. Merger enforcement is going to be critical
    for the Agencies. I think it's fair to say that they need to be
    more risk-seeking, but under the current standards, the law is
    too lenient.
        I absolutely agree that it's time for Congress to reset
    that balance. Because what we see now is that the average
    litigated merger case, it's not a complicated case, but it
    still goes to trial. The Government has to go--even when it
    wins, has to prove that a merger monopoly is problematic.
        I think ideas of adopting new presumptions makes sense, and
    we have 20 years of economic research that actually identifies
    better situations where mergers are likely to be harmful. That
    should be incorporated into the law.
        I think changing the standard to make it clear that
    potential competition matters, and rejiggering the balance
    between competition and consolidation, and finally, obviously,
    just giving the Agencies more resources.
        Chair Klobuchar. Okay. Last thing, because it's good to end
    with something Senator Lee and I have been working on together.
    Way back, Senator Collins and I worked on, when there were drug
    shortages, and there still are, obviously, from time to time,
    using that as a reason to bring in drugs from other countries
    when they didn't have kids' cancer drugs and things like that,
    which was actually happening.
        This is looking at it a different way, of allowing the
    Secretary of Health and Human Services to respond when sellers
    of older off-patent drugs are in a position to drastically
    raise prices due to a lack of competition. We would put
    together the Short on Competition Act, along with Senator
    Durbin and Grassley, to address the problem by allowing
    temporary importation of the same product from other countries
    that have strong drug safety standards. Then, of course,
    Senator Grassley and I have a more permanent bill.
        Would allowing the safe importation of drugs inject some
    competition into our system because maybe, you know, I think
    our argument here is if you do have the competition, or you
    have the lower prices, then you wouldn't have to go to this.
    But if you don't, why not allow some competition from safe
    countries?
        Mr. Kades. Particularly from safe countries, I think that's
    an excellent idea and would improve competition. What we find
    particularly in older----
        Chair Klobuchar. Do you think maybe even if it was just out
    there as a threat that that might keep some prices down
    sometimes? You know, the Ovation case? Other things?
        Mr. Kades. It very well could. But one of the problems on
    older drugs is to get approval, a company--they tend to be
    smaller markets, and a company has to go through 18 months,
    spend money for that, and so when the price went sky high with
    Daraprim, there were all sorts of products on the market in
    Europe that had been on the market for 20 years. Let's find a
    way to inject that competition back into the United States, and
    maybe you're right, the price increase wouldn't have happened,
    or it wouldn't have lasted as long.
        Chair Klobuchar. Okay. Senator Lee.
        Senator Lee. Mr. Kades, there's a bill called the TEAM Act
    that I introduced along with Senator Grassley, and one of its
    provisions would require courts to find that conduct is
    anticompetitive where there is direct evidence of clear intent
    to harm competition. In your view, would this make it easier
    for antitrust enforcers to stop anticompetitive conduct in the
    pharmaceutical industry?
        Mr. Kades. Yes, I think it would help improve antitrust
    enforcement. The number of times when I was litigating, where I
    felt like it was a triangle litigation, was the FTC versus what
    the company said in its documents versus what they were saying
    on the stand, you know, you would think fact finders would say
    the stuff you put in your documents that said, we were doing
    this to harm competition matters, but you know, they see the
    person on the stand and they're like, ``Okay, well, I guess I
    don't believe that, so.'' You know, I do think it would help.
        I would say that you know, one thing to think about is once
    you make that law, companies will be more careful about what
    they put in their documents, but that's just a minor comment.
    I----
        Senator Lee. Right. Yes, and that's our hope and our
    intent, and certainly our expectation is that that would help,
    as would the fact that it roughly doubles the total amount that
    we would spend on the enforcement of our antitrust laws.
        In your written testimony, you allude to the way that
    courts have come to treat economic evidence in antitrust cases.
    One of the provisions of the TEAM Act would limit the ability
    of courts to give credit to defendants for justifications that
    are speculative, out of market, or that don't benefit
    consumers. Would this help some of those same problems based in
    protecting competition in healthcare markets?
        Mr. Kade. Absolutely. It's sort of the same dynamic as your
    last question. Once you get to litigation, magically, companies
    have all sorts of justifications that aren't in the record.
        Senator Lee. Right.
        Mr. Kade. And so tightening up those requirements would be
    very helpful.
        Senator Lee. Thank you. Mr. Abbott, as I alluded in my
    opening remarks, I have reason to be concerned about the cost
    and availability of insulin. I was excited to see recently that
    Walmart has broken into the insulin market and has launched two
    new low-cost products. What can you tell me about why it's
    taken so long for this kind of disruption to occur, and why
    haven't we seen this kind of innovation from a traditional
    pharmaceutical company?
        Mr. Abbott. I'm not an expert, Senator, on the traditional
    pharmaceutical companies, but I will notice that it's
    interesting that discount retailers, and Walmart, obviously, is
    a prime example, have been very important figures in
    healthcare. In fact, there was some recent study that Medicare
    Part D, that some costs for generic, some Medicare Part D
    bargaining was actually higher than the prices negotiated by
    Walmart, so this suggests, again, that perhaps there should
    have been more companies doing this.
        The private sector is very good at bargaining, and if you
    lift regulatory barriers to the ability of companies to enter
    into these markets, that's all to the good.
        I think one of the big problems here is all the discussion
    with the PBMs and of other big actors is you have so many
    large, entrenched actors, and regulatory structure, and I don't
    have an exact answer here, but it may be that regulatory
    structure made a lot of large companies reluctant to enter. But
    that's my thought.
        Senator Lee. Yes. Dr. Moodie, what I was talking to Mr.
    Abbott about relates, in many ways, to restrictions on entry.
    Anytime you have a viable market, in order to have actual
    competition, you sort of need to have the ability of new
    entrants to enter a marketplace. So, I'm always worried about
    restrictions on entry that make it more difficult for people to
    enter into a marketplace.
        Many times, we see drug manufacturers imposing really high
    prices just, well, because they can. I mean, that is sometimes
    what will happen if someone has the ability to do that without
    facing competition. In a normal market, this would prompt entry
    into the marketplace by a would-be competitor, and thus spawn
    competition. Competition would, in turn, bring about
    corrections in price. It certainly wouldn't reward someone for
    continuing to escalate the price of their own product. It would
    end up punishing them.
        But in the drug space, entry can take many years, and can
    cost millions or tens of millions, or hundreds of millions, or
    billions of dollars of investment to break into it. What do you
    think we could do to make it easier so that patients benefit
    from competitive markets? Is there anything we can do to limit
    the effect of restrictions on entry?
        Dr. Moodie. Sure. I mean, there has been a lot of talk
    about price controls. We don't think that's the solution. The
    solution is more competition. Of course, it does take you know,
    up to 10 years to develop a biosimilar. It takes a long time.
    By the time those biosimilars are ready to launch, we're then
    seeing the thickets that I described earlier, which contain
    large families of patents around the same inventions.
        What we should also do is preserve pro-competitive
    settlements. It's important that we don't assume that all
    patent settlements are anticompetitive, because pro-competitive
    settlements, which are those settlements that do not include
    pay-for-delay, those settlements are one of the few tools that
    we have to address a patent thicket as a whole because, as I
    mentioned before, it's not economically possible to litigate
    scores and hundreds of patents.
        Those pro-competitive settlements act as a compromise that
    strike a right balance. Because we can't litigate so many
    patents, if we were to not have any settlements, you would
    often see the biosimilars coming to market much later at the
    end of the expiry of the last patents in the thicket, including
    the lower quality ones, which are shielded from scrutiny.
        And so, a pro-competitive settlement brings the launch date
    earlier as a kind of a compromise of, yes, the overall
    settlements. It strikes that right balance of bringing the
    products to market earlier. We just have to be careful that any
    legislative proposals of course have to target those
    anticompetitive settlements, but carve out the pro-competitive
    settlements, as well.
        Senator Lee. Yes, that's a fair point. I mean, if we were
    to discourage or even prohibit settlements generally in this
    area, one can imagine ways in which that could harm consumers.
    It would harm basically everyone except perhaps lawyers, who
    could benefit from the ability to generate revenues to fund
    indefinite generations of their posterity in their private
    college tuition expenses.
        But other than lawyers, it probably would benefit no one
    and hurt everyone. Thank you.
        Chair Klobuchar. Thank you very much, Senator Lee. Thank
    you to our witnesses. It has been a long hearing, and I think a
    good one. I was talking to some reporters yesterday about this,
    and I think that they said, ``But we've heard these hearings
    before, and is anything actually going to happen?'' I came out
    of this more hopeful than I was before. I think you have a
    number of Senators very interested in your patent thicket
    issue, Dr. Moodie.
        I think that there has been long-term interest in funding
    the Agencies, even from our conservative witness here, in
    making sure that we have ample enforcement authority and we
    have, I should say, ample resources to do the work, and I think
    there also are some things that we can do specific to the
    pharmaceutical issues, as we talked about product hopping and
    the pay-for-delay and the sham petitions, all of which are of
    bipartisan interest.
        But then, I also think that there are some bigger things
    that we need to do if we really want to get this done. Some in
    the pharma area with negotiation of prices, Mr. Mitchell, but
    then also, as Mr. Kades has so well pointed out, beyond pharma,
    to look at our antitrust bills as laws, as we have done so
    often in this country's history, where we see a problem and we
    adjust, and we make some changes to them so that they can be
    actually used in an effective way.
        I think we know that somehow the pendulum has swung too far
    one way, and that's part of why we've been having these tech
    issues, and other things because we just don't have the tools
    to match the sophistication of our economy. When that has
    happened in the past, actually people who sat in these chairs--
    well, maybe not right in this room. It probably didn't exist
    100 years ago. I know it didn't. But they adjusted. They made
    changes to the laws, and I truly believe that's what we need to
    do again.
        I want to thank the witnesses, and we're going to leave the
    record open for a week.
        Do you want to add anything, Senator Lee? You're in your
    own thicket over there? Oh, good.
        [Laughter.]
        Senator Lee. Thank you.
        [Laughter.]
        Chair Klobuchar. Okay. All right. The hearing is adjourned.
    Thank you everyone.
        [Whereupon, at 4:58 p.m., the hearing was adjourned.]
        [Attitonal material submitted for the record follows.]

                                A P P E N D I X

    Miscellaneous submissions:

     AHIP, Statement, July 13, 2021...................................   125
     Association for Accessible Medicines (AAM), Statement, July 13,
        2021..........................................................   109

     American Economic Liberties Project (AELP), Statement............   117

     American Pharmacists Association (APhA), Statement, July 13, 2021   130

     Various Unions, Consumer and Public Interest Groups, Letter, July
        12, 2021......................................................   142

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