[Senate Hearing 106-772]
[From the U.S. Government Publishing Office]
S. Hrg. 106-772
PIPELINE DRUGS: PROPOSED REMEDIES FOR RELIEF IN THE DRUG PATENT TERM
RESTORATION REVIEW PROCEDURE ACT OF 1999
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
on
S. 1172
A BILL TO PROVIDE A PATENT TERM RESTORATION REVIEW PROCEDURE FOR
CERTAIN DRUG PRODUCTS
__________
AUGUST 4, 1999
__________
Serial No. J-106-44
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
67-573 cc WASHINGTON : 2000
COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
Manus Cooney, Chief Counsel and Staff Director
Bruce A. Cohen, Minority Chief Counsel
(ii)
C O N T E N T S
----------
STATEMENTS OF COMMITTEE MEMBERS
Hatch, Hon. Orrin G., U.S. Senator from the State of Utah........ 1
Leahy, Hon. Patrick J., U.S. Senator from the State of Vermont... 19
Kennedy, Hon. Edward M., U.S. Senator from the State of
Massachusetts.................................................. 22
Feingold, Hon. Russell D., U.S. Senator from the State of
Wisconsin...................................................... 22
Torricelli, Hon. Robert G., U.S. Senator from the State of New
Jersey......................................................... 24
Ashcroft, Hon. John, U.S. Senator from the State of Missouri..... 30
PROPOSED LEGISLATION
S. 1172, a bill to provide a patent restoration review procedure
for certain drug products...................................... 4
CHRONOLOGICAL LIST OF WITNESSES
Panel consisting of Howard M. Metzenbaum, chairman, Consumer
Federation of America, Washington, DC; Richard Jay Kogan,
chairman and chief executive officer, Schering-Plough
Corporation, Madison, NJ; Gerald F. Meyer, senior consultant,
AAC Consulting Group, Inc., Potomac, MD; Carole S. Goldfine
Ben-Maimon, M.D., senior vice president for research and
development and scientific affairs, Teva Pharmaceuticals, Inc.,
Sellersville, PA; Peter Barton Hutt, Covington and Burling,
Washington, DC; and Bruce L. Downey, chairman, Barr
Laboratories, Inc., Washington, DC............................. 25
ALPHABETICAL LIST AND MATERIALS SUBMITTED
Ben-Maimon, M.D., Carole S. Goldfine:
Testimony.................................................... 39
Prepared statement........................................... 41
Downey, Bruce L.:
Testimony.................................................... 52
Prepared statement........................................... 54
Hutt, Peter Barton:
Testimony.................................................... 44
Prepared statement........................................... 46
Letters to:
Fredrick S. Ansell, chief counsel, Senate Committee
on Governmental Affairs from Peter Barton Hutt,
dated May 12, 1997................................. 50
John P. McLaughlin, executive vice president,
Genetech, Inc., from Peter Barton Hutt, dated Oct.
16, 1997........................................... 51
Peter Barton Hutt from John P. McLaughlin, dated Oct.
31, 1997........................................... 51
Kogan, Richard Jay:
Testimony.................................................... 31
Prepared statement........................................... 33
Leahy, Hon. Patrick J.: Prepared statement of Hon. Paul
Wellstone, U.S. Senator from the State of Minnesota............ 20
Metzenbaum, Howard M.:
Testimony.................................................... 25
Prepared statement........................................... 28
Meyer, Gerald F.: Testimony...................................... 37
APPENDIX
Additional Submissions for the Record
Prepared statements of:
Hon. Edward Bryant, U.S. Representative in Congress from the
State of Tennessee......................................... 79
Hon. Jim McDermott, U.S. Representative in Congress from the
State of Washington........................................ 80
The National Association of Pharmaceutical Manufacturers..... 81
``Patent Extension of Pipeline Drugs: Impact on U.S.
Health Care Expenditures,'' by Stephen W.
Schondelmeyer, Pharm. D., Ph.D., professor and director 85
Various tables and graphs............................ 97
Letter to Senator Orrin G. Hatch from Alfred B.
Engelberg, dated July 29, 1999......................... 122
PIPELINE DRUGS: PROPOSED REMEDIES FOR RELIEF IN THE DRUG PATENT TERM
RESTORATION REVIEW PROCEDURE ACT OF 1999
----------
WEDNESDAY, AUGUST 4, 1999
U.S. Senate,
Committee on the Judiciary,
Washington, DC.
The committee met, pursuant to notice, at 10:30 a.m., in
room SD-628, Dirksen Senate Office Building, Hon. Orrin G.
Hatch (chairman of the committee) presiding.
Also present: Senators Specter, Ashcroft, Sessions, Leahy,
Kennedy, Feinstein, Torricelli, and Schumer.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
THE STATE OF UTAH
The Chairman. I want them to get everyone in they can. This
is standing room only. This is not the biggest room in the
Senate, but I hope I can get everybody in. This is a very
important hearing. These are very complicated issues. There are
very important people testifying here today and I would like to
have as many people from outside get in here as we can.
Today, the Judiciary Committee will examine remedies
proposed in S. 1172, the Drug Patent Term Restoration Review
Procedure Act of 1999, sponsored by Senators Torricelli and
Sessions. This hearing will help us gauge what legislative
action is warranted.
Article I, section 8, clause 8, of the U.S. Constitution
reads,
The Congress shall have the power * * * to promote
the progress of science and useful arts, by securing
for limited times to authors and inventors the
exclusive right to their respective writings and
discoveries.
Congress' exercise of a constitutionally based patent power
has important consequences for society and has led to
occasional controversies between various business, consumer,
and inventor interests. Yet, few would argue with the basic
premise that people will be encouraged to produce inventions if
there is some reward as an incentive.
The fundamental question S. 1172 asks of this committee is,
are there instances where, through regulatory delay or
inefficiencies, Congress' constitutional responsibility to,
``promote the progress of science,'' is undermined to a level
which warrants remedial action and, if so, should an objective
mechanism be established for the consideration of such claims.
Assuming the answer to these questions is yes, the sponsors of
S. 1172 have proposed a mechanism for pipeline drugs.
S. 1172 would establish a review process within the Patent
and Trademark Office to assess the treatment of certain
pipeline drugs that lost patent protection due to exceedingly
lengthy regulatory reviews at FDA. Similar bipartisan
legislation introduced by Congressmen Ed Bryant and Jim
McDermott has also been introduced in the House of
Representatives. The House bill was the subject of a hearing in
the House Judiciary Committee on July 1, 1999.
Proponents of S. 1172 believe that proper patent protection
for pharmaceutical products is crucial for the discovery of new
potentially life-saving drugs. I agree with this premise, and
S. 1172 establishes a mechanism to determine if such protection
has been provided for individual drugs or whether the dictates
of Federal drug law and regulations undeservedly eat into this
protection.
The review process established in S. 1172 is one which
supporters believe is fair and impartial because an independent
body will employ specified, objective standards to determine
whether or not to restore lost patent life. It is argued that a
process-based solution is preferable to Congress acting on an
ad hoc case-by-case basis, which certainly has been the case
over the last number of years.
Under the bill, only pipeline drugs that were involved in
an FDA review process that took more than 60 months would be
eligible for review. There is no doubt that the protections
afforded a patent holder were significantly reduced and this
delay may have been due to circumstances that were beyond the
control of the applicant.
On the other hand, critics of S. 1172 will argue that this
legislation is unwarranted because the resulting additional
period of exclusivity will result in additional costs to
consumers. Opponents have suggested that inequities of the past
should be given little consideration and that as a matter of
public policy Congress' constitutional responsibility to
promote the progress of science should be prospective in
approach. Our focus, they argue, should be given exclusively to
advancing policies which rely on innovation to replace products
whose patents have expired.
Finally, critics argue that S. 1172 creates a procedure for
granting partial patent restoration through an entity, the
Patent and Trademark Office, that may inherently favor a
patentholder. There is some question about whether the PTO is
the appropriate forum to make decisions relating to the details
of an agency review.
As we examine this important issue, I hope we can examine
some of the following questions. Is legislation of this sort in
the interest of the American public? Many believe that it is,
and they may be right. Was the type of delay suffered by these
drug manufacturers one that warrants legislative action, and
will such action benefit others? What impact will S. 1172 have
on the generic drug industry? Should the committee only be
reviewing administrative delays affecting pipeline drugs, or is
it a much broader problem which warrants a broader, more
comprehensive solution?
Now, I look forward to exploring these and other questions
with our panel of distinguished witnesses. In the end, we must
be mindful of the fact that Congress at one point in its recent
history passed product-specific private relief bills which
granted those products patent term extensions. In fact,
Congress has enacted product-specific patent extensions for
pipeline drugs.
At the time, critics then argued that such product-specific
legislation did not benefit the public or the institution.
Instead, it was suggested that an objective process be put in
place, a process that subjected the claims for equitable relief
to a set of objective criteria and public scrutiny. S. 1172
appears to be an effort to rise to this challenge.
Therefore, it is appropriate that this committee closely
examine the merits of this legislation, with an eye on
Congress' constitutional obligation to promote the progress of
science, and balance them with what is in the best interest of
the American public. I believe that a fair and equitable
solution is possible, and I look forward to hearing the
recommendations of our witnesses on what they believe is the
appropriate solution to this critical issue.
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Mr. Chairman. In closing, I want to thank all of our
witnesses for taking the time to join us today and I look
forward to hearing their views on these critical questions.
With that, we will turn to our ranking member.
STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE
STATE OF VERMONT
Senator Leahy. Thank you, Mr. Chairman. I will be direct
because we want to hear from the witnesses. I am concerned that
Congress should not be in the business of approving individual
patents for drugs, and I am also concerned that this bill could
cost consumers $5 billion. Every time I go home, I hear from
one Vermonter after another about the prohibitive cost of
medications; I know I will this week when I go back home. I am
concerned that the bill goes in the wrong direction. Americans
need better access to affordable prescription drugs, and they
deserve it.
When I look at this legislation, it seeks to amend a bill
that was crafted by the distinguished chairman, Senator Hatch,
along with Congressman Henry Waxman. The Hatch-Waxman Act was
intended to stop the practice of Congress legislating patent
extensions one drug at a time. Now, when you have a bill
sponsored by Senator Hatch and Congressman Waxman, it is either
a darn good bill or one of them didn't read it. I suspect that
it was a darn good piece of legislation.
Now, the matter before us is that Schering-Plough has
enjoyed patent protection for its most popular product, the
allergy medication Claritin, for many years, also a product
that they spent a great deal of money in producing and one on
which they can and should enjoy the benefits of what they have
spent in preparing it.
When we passed the Hatch-Waxman Act, Claritin was granted a
2-year patent extension because it was being developed, or in
the pipeline, when the new law was passed. In 1994, Claritin
received a second 22-month patent extension under the terms of
the GATT. With these two patent extensions, the patent on
Claritin will expire in June 2002, after approximately 21 years
of protection. Since I am told the original Claritin patent was
granted in 1981, you can see why there has to be a lot of
convincing to support a third extension.
I am also concerned the bill will increase the cost of
medication to consumers and the Government. The PRIME Institute
found that if we granted Claritin a 3-year extension, it would
cost consumers $5.3 billion from 2002 to 2007. Over the same
period, the bill would cost the Government approximately $2.5
billion. Medicaid bears the brunt of the costs at $1.34
billion. A Medicare prescription medication benefit would cost
about $5 billion. So any true reform effort must preserve the
balance that was so carefully created in the original 1984
Hatch-Waxman legislation. Each change we make now will have
some effect on another provision of the original bill.
My final concern with S. 1172 is that it could create an
unbalanced review process that would appear to undercut the
responsibility of the FDA. It would create a new step in the
patent review process by allowing the Patent and Trademark
Office to have the ability to undercut the scientific judgments
made by the FDA and its advisory committees. It is hard to see
how that might work.
Schering-Plough has expressed concerns that the patent
approval process for Claritin was delayed at the FDA, and we
should listen to these concerns. But because the patent review
process at FDA is confidential, it has been difficult to
determine the accuracy of this claim. So I asked, along with
Representative Waxman, for the GAO to review the FDA process
surrounding the Claritin patent to determine the cause of the
delays.
I think, Mr. Chairman, it might be premature for this
committee to act on any piece of legislation that would alter
the review process until we hear the results of the GAO report,
which I understand will be out soon. We may want to have that
before us when we discuss the matter further, but I think these
hearings are well worthwhile. There are a lot of questions.
As you know, I have a bill on the floor and I will be in
and out.
The Chairman. I understand.
Senator Leahy. I would ask consent that after members of
the committee enter statements or whatever they do that a
statement by the distinguished Senator from Minnesota, Mr.
Wellstone, be entered into the record.
The Chairman. Well, thank you. We will add that statement
to the record.
[The prepared statement of Senator Wellstone follows:]
Prepared Statement of Hon. Paul Wellstone, a U.S. Senator From the
State of Minnesota
Today's hearing will consider possible patent extensions for a
handful of brand-name prescription drugs under S. 1172. These patent
terms were originally established by the Drug Price Competition and
Patent Term Restoration Act (Hatch-Waxman Act), a landmark piece of
legislation in 1984 that made drugs more affordable for American
consumers. At the time of enactment of the Hatch-Waxman Act, Congress
realized the importance of creating a more competitive marketplace in
prescription drugs. That is why the Act provided for a process for the
timely review of generic drugs. Hatch-Waxman Act offered something for
everybody: the consumers, who benefitted from lower-priced generic
drugs; the brand-name drug industry, who benefitted from patent
protections; and, the generic drug industry, who benefitted from the
establishment of a timely FDA process for generic drug approvals. At
the hearing today, you will hear from individuals who wish to reverse
course, and undo the progress that has been made.
Many of the generic prescription drugs approved since that time
have provided affordable prevention and treatment for a large variety
of diseases. Unfortunately, the battle has not yet been won. There are
still occasions when peoples' access to prescription drugs is limited
by their costs--especially for senior citizens who most need these
products. Prior to approval of a generic version of a brand-name drug,
the price of that drug is typically very high. The brand-name
pharmaceutical companies are fighting to keep the price high by
extending patent protection for so-called ``pipeline drugs,'' which
were under development during passage of the Hatch-Waxman Act. This
issue was considered back in 1984, and appropriate provisions for
patent extension were provided for in that law. Further extending the
patents of pipeline drugs will only extend the length of time that
patients may have difficulty paying the high price for their
medications. This is completely unnecessary. The price of brand-name
drugs is already too high!
Under the Hatch-Waxman Act, the brand-name drug companies currently
receive patent extensions. They take full advantage of this situation.
Further, patent protections were added for some products under the
General Agreement on Trade and Tariffs. While the brand-name
pharmaceutical companies already receive great patent protection, they
want more. Should we want to fix something that is not broken? The
Hatch-Waxman Act has worked well and no changes are necessary. The
patent protection system in this country is designed to first reward an
inventor for new ideas, then to share the invention to serve society's
need for this technology after the inventor has had a fair opportunity
to make a profit. Any changes to the Hatch-Waxman Act should be made
for the benefit of society, not for the benefit of a select few
companies who desire greater profits. Passing this law would be a bad
precedent. If this effort is successful, imagine every company lobbying
to change the patent laws in a manner that suits their bottom line.
Making changes to the length of patent protections for pharmaceutical
products is a very serious matter.
Let me be clear about where I stand on this issue. Brandname
pharmaceutical companies do not need further patent extensions, and I
will fight efforts to unfairly extend their patents through revisions
in the Hatch-Waxman Act. These companies have already made tremendous
profits on prescription drugs due to existing patent extensions.
Regardless, these same companies are now lobbying hard for an extension
of their patents. Of course these companies should make a ``fair''
return on their investment, but they should not make an ``excessive''
return on their investment.
Schering-Plough Corporation produces Claritin, one of the products
that is being considered for a patent extension. One of the arguments
advanced is that Schering-Plough needs additional profits so that more
money can be invested in new product development. In 1998, sales of
Claritin were in the neighborhood of two billion dollars. Exactly what
level of profits are needed for a company to invest in new product
development? The reality is that much of the money generated from
product sales is not devoted towards new product development, but
rather is spent on television advertisements and lobbying or retained
as profits by the companies. Without patent extensions, these companies
will still have healthy research and development budgets. New products
are necessary for companies to remain competitive, and patent
extensions are unrelated to new product development.
Considering a number of indicators of profitability, the brand-name
pharmaceutical industry is one of the most profitable industry groups
in America. Should this industry be granted patent extensions that
would only increase their profits to obscene levels at the expense of
Americans? Of course not. It is not fair to extend the patents for
pharmaceuticals when the industry is already making profits that other
industry groups could only hope for.
It is ironic that we are considering legislation that will lead to
an increase in the cost of drugs to consumers at a time when we are
also considering a prescription drug benefit. We should be going in the
opposite direction, decreasing the cost of prescription drugs. Drugs
are very expensive right now. In fact, senior citizens in my district
go all the way to Canada to purchase lower priced drugs because they
cost too much in this country. Some senior citizens must decide between
buying prescription drugs and buying food. Americans pay the highest
prices for drugs in the world. The brand-name pharmaceutical companies
are not doing any favors for Americans, but rather, these companies are
taking Americans for a ride.
One of the provisions of S. 1172 requires the Patent and Trademark
Office (PTO) to make a determination regarding patent extensions. This
is especially troublesome because Waxman-Hatch specified that the Food
and Drug Administration (FDA) is charged with making key decisions
about the conditions of review and approval related to patent term
restoration processes. The responsibility should not be transferred
from FDA to PTO. The Senate Health, Education, Labor and Pensions
(HELP) Committee is the appropriate Committee to consider the transfer
of authority from FDA, and this issue should therefore be considered by
the HELP Committee.
One purpose in enacting Hatch-Waxman was to stimulate investment
into new products. Because this Act allowed generic competition after a
period of patent and exclusivity protection, the brand-name
manufacturers could not simply rely on the same products indefinitely.
After the patent protection and exclusivity expired, the Act allowed
for the approval of generic competition. The generic version of that
product is less expensive and therefore cuts into the market share of
the brand-name product. The brand-name pharmaceutical companies
responded to that by spending more money on developing new products.
The result of this effort was an increase in the number of new drugs
that were brought to the market. Not only was this beneficial to the
brand-name companies, it was also beneficial to the public who then had
access to new drugs. Current efforts to extend patent protection, if
successful, would lessen the need for brand-name companies to bring new
drugs to the market. This erodes progress made after passage of Hatch-
Waxman Act.
Extending patent protections for brand-name prescription drugs is
the wrong medicine at the wrong time. Americans should pay less for
their drugs, not more. We should not be considering legislation that
would serve the special interests of a small number of pharmaceutical
companies. Instead, we should be considering legislation that would
make drugs more affordable. I urge my colleagues on the Committee to
reject this bill.
The Chairman. Senator Kennedy and Senator Feingold also
have submitted statements, and they will also be included in
the record at this point.
[The prepared statements of Senators Kennedy and Feingold
follow:]
Prepared Statement of Hon. Edward M. Kennedy, a U.S. Senator From the
State of Massachusetts
Today, the Committee hears testimony about proposed changes to one
of the most important health laws--the Drug Price Competition and
Patent Term Restoration Act of 1984--the Hatch-Waxman Act, which has
had an effective role in improving public health in America. The Act
has enhanced research and development by pharmaceutical companies and
encouraged the growth of the generic drug industry, which ensures
affordable prescription drugs for patients at all income levels.
The law, which has now been on the books for 15 years, streamlined
the approval process for generic drugs, and allowed generic drug firms
to make plans to enter the market before a brand-name drug's patent
expires. It also gave brand-name pharmaceutical firms an extension on
their patents to accommodate the often lengthy regulatory delays, so
that research and development costs can be fairly recouped. The law
strikes a balance between major interests on both sides and has served
the nation well for many years. Congress must carefully consider any
proposed changes to ensure that the balance is preserved.
S. 1172, the Drug Patent Term Restoration Review Procedure Act of
1999 proposes to amend the Act to provide greater patent term extension
for so-called ``pipeline drugs''--drugs under consideration by the FDA
when the Act became law. Proponents of the legislation believe it is
necessary to ensure parity and fairness for such drugs--some of which
currently reap millions of dollars--even billions of dollars--in
revenue every year.
Opponents of this legislation argue that it is unnecessary and
unwarranted. They believe the process proposed in S. 1172 will only
create a larger bureaucracy and add to the cost of health care for
millions of Americans. They also argue that it will do relatively
little to remove Congress from the annual, end-of-the-year rush to
provide patent term extensions for individual drugs, a process that
many of us find particularly disturbing.
Before Congress takes action, we must ensure that patients are the
beneficiaries. The careful balance that provides for research and
development, and for affordable prescription drugs must be maintained.
I look forward to today's testimony and to working with other members
of the Committee on this important health issue.
__________
Prepared Statement of Hon. Russell D. Feingold, a U.S. Senator From the
State of Wisconsin
Mr. Chairman, I want to thank you for holding this hearing. It is
important that the issues raised by this bill receive searching
examination.
I have serious concerns about S. 1172, the Drug Patent Term
Restoration Review Procedure Act of 1999. Our nation's patent system is
designed to encourage creativity and ingenuity in the research and
development of drugs, computer technology and so many other products
that enhance our lives and keep our economy thriving. Giving exclusive
market power to companies for a set period of time is a reward for the
time and resources that the private sector puts into research and
development. On the other hand, prolonged exclusive market power has an
adverse impact on competition and consumers. Our patent laws strike a
balance between these competing concerns. We should be very careful
when we think about revisiting that balance.
The brand name drug companies signed off on an agreement reached
when the Congress passed Hatch-Waxman Act in 1984. Hatch-Waxman
provided for a two-year patent extension for pipeline drugs. The
pipeline drug makers now complain that this two-year period was
inadequate. The Senate should rewrite the 1984 agreement only upon the
most compelling justification, and I am not convinced that high
standard has been reached here.
I am concerned that rewriting Hatch-Waxman and providing for a
patent extension for these drugs will result in an injustice to
American consumers. Three more years of profits to the pipeline drug
makers will come at the direct expense of consumers who rely on these
drugs.
Let's take the example of Claritin, produced by Schering-Plough,
which is the most popular of the drugs affected by this bill. Claritin
is an antihistamine used to treat sinus problems and seasonal
allergies. Schering-Plough received a patent for Claritin in 1981, so
it was ``in the pipeline'' when the Hatch-Waxman Act was passed. Under
current law, the patent will expire in June 2002--almost three years
from now and twenty-one years after Schering-Plough first received this
patent. The FDA approved Claritin in 1993. This means that by June
2002, Schering-Plough will have marketed and sold Claritin,
competition-free, for nine years.
Americans who use Claritin take one pill a day for anywhere from
one to two weeks for sinus problems, to months at a time for seasonal
allergies. At the Walgreens Pharmacy in Milwaukee, Wisconsin, a month's
supply of Claritin costs $71.39. This cost comes straight from the
pockets of Milwaukee residents and/or health insurers, depending on the
consumers' health insurance status and whether their health plans pay
for prescription medication.
Now, with generic drugs usually priced at a 25 percent to 60
percent discount, once the Claritin patent expires in June 2002 these
same Milwaukee residents could buy a generic equivalent of Claritin at
anywhere from roughly $28 to $53. It is probably fair to say that given
the immense popularity of Claritin and the generic industry's intense
interest in not extending the Claritin patent, there will be many
Claritin competitors. The presence of numerous competitors, in turn,
means the price of generic alternatives will be closer to the $28
figure. In fact, Mr. Downey of Barr Laboratories, who is testifying
today, suggested in recent testimony before the House Judiciary
Committee that the price for generic Claritin could be a little over
$15 per month. $71 versus $15 a month. That's a huge difference, Mr.
Chairman, to Americans who need this drug. Instead of lining the
pockets of drug companies, hardworking Americans could use this money
to put food on the table or buy school clothes for their children.
Schering-Plough and the other pipeline drug makers would like to
delay the ability of Milwaukee residents and all Americans to buy
generic Claritin at lower prices until June 2005. Thus, there is no
other way to look at this bill than as a net loss for consumers.
Consumers will pay roughly $71 per month for Claritin for an additional
three years under this bill. Private health insurers will pay higher
prices for pipeline drugs for an additional three years. Consumers will
pay for this bill either out of their own pockets or through higher
premiums for health insurance.
Brand name drug companies like Schering-Plough have already
benefitted quite handsomely from their exclusive sales periods. In just
one of its patent years, 1998, Schering-Plough had $1.8 billion in U.S.
sales and $2.2 billion in worldwide sales on Claritin. This is
incredible. Claritin sales last year represented roughly one-third of
Schering-Plough's total worldwide revenue. According to a study by Dr.
Stephen Schondelmeyer of the University of Minnesota College of
Pharmacy, Schering-Plough's R&D costs are generally only 12.5 percent
of its revenue. Based on this data, I think it is fair to say that the
enormous popularity of Claritin has more than amply compensated
Schering-Plough for its R&D costs incurred in developing Claritin. It
simply cannot be argued that Shering-Plough needs this extension to be
repaid.
Dr. Schondelmeyer also finds that Claritin sales are expected to
continue to climb to almost three and a half billion dollars in 2002.
American consumers will save over $7 billion during the first five
years that generic alternatives to Claritin become available. But, if
Schering-Plough gets its way and this legislation passes, American
consumers can expect to pay--not save, but pay--anywhere from $1.6
billion to over $5 billion on Claritin alone. American consumers can
expect to pay roughly $11 billion for a three-year extension for all
seven pipeline drugs. Mr. Chairman, each additional year of exclusive
marketing for these pipeline drug companies means billions of dollars
of additional profits for the companies, and billions of dollars of
additional costs for consumers.
Mr. Chairman, I do appreciate the fact that allies of the pipeline
drug manufacturers have chosen to seek redress through the standard
legislative process, by fashioning a bill and submitting it for hearing
and debate in this committee and possible consideration on the floor.
That is not the way things often happen around here. Patent extensions
are a favorite item to be slipped into big bills in the dead of night
at the very end of the process. So I am pleased that we're having a
chance to consider this bill rather than finding out about it at the
last minute.
That having been said, this bill still has the scent of a special
interest deal. It benefits a small number of drug companies at the
expense of American consumers. And it comes as no surprise to this
Senator, nor should it to anyone here, that the companies who are
asking us to pass this bill have made major political contributions to
the political parties and members of Congress. I will have more to say
about this when I call the Bankroll on the floor if this bill gets that
far, but let me give just a few examples. According to the Center for
Responsive Politics, Bristol-Myers Squibb made $559,975 in soft money
donations in the last election cycle. Schering-Plough contributed
$287,021 in soft money for the 1998 cycle. Both companies have reported
millions of dollars in lobbying expenditures in 1997 and 1998.
This will be money well spent, of course, if the pipeline drugs
succeed in convincing the Congress to pass this bill, which will result
in not millions, but billions of dollars of additional profits for the
manufacturers and costs for consumers. I believe we should think long
and hard before we go along.
The Chairman. I will permit one other statement. The
sponsor of the bill has asked for a few minutes to express
himself on this bill and so we will turn to Senator Torricelli
at this time.
STATEMENT OF HON. ROBERT G. TORRICELLI, A U.S. SENATOR FROM THE
STATE OPF NEW JERSEY
Senator Torricelli. I wanted, among the other witnesses
before the committee, particularly to welcome Richard Kogan,
who is the CEO of Schering-Plough, one of the most respected
corporations in New Jersey, and indeed one of the most
respected business leaders in America. Mr. Kogan has provided
extraordinary leadership to Schering-Plough and was invaluable
in helping to draft this legislation in attempting to strike a
balance between the understood and respected need of the
pharmaceutical industry which is such a basis of the economy of
New Jersey to be protected and provided with the incentives to
continue in the multibillion-dollar investment in the
production of new products, but also protecting the basic
integrity of Hatch-Waxman and the redesign of the approval
process which has proven so valuable to the industry.
I also want to note that Agnes Veras is here today. Agnes
Veras is also one of the leaders in the generic industry in our
country. She has personally created several of the most
successful companies in the generic industry, and was also
invaluable in working on this legislation to ensure that the
generics themselves and their own incentives and their ability
to hold down costs and provide alternatives to consumers were
protected in this process.
As I am sure the testimony will reflect, this is not, as
some would represent it, as the Congress has often done, simply
a patent extension. This is not designed for any one product or
any one company. It rather is an exception to the process to
allow different companies and different companies that
encounter difficulties in the approval process to have
exceptions, those exceptions designed to provide the same
incentives within the patent process, but nevertheless
recognizing that sometimes delays and problems in the process
involve unnecessary costs and therefore should be addressed
specifically. That is what this legislation is designed to do.
We have taken one approach in our Senate legislation. I
know the House of Representatives has taken a different
approach. But I think, Mr. Chairman, by virtue of this hearing
we will learn a great deal about the differences and the
virtues of each. And I am very grateful that you gave us this
opportunity and once again want to thank Agnes Veras, Richard
Kogan, and the other participants in the hearing who have done
so much.
I might also like to note on Senator Specter's behalf that
Carole Ben-Maimon, of Teva Pharmaceuticals, has also been very
important in this process, and for that I am also very
grateful.
The Chairman. Well, thank you, Senator.
We have a distinguished panel of witnesses here today.
First, we have our distinguished former colleague, Senator
Howard Metzenbaum, who is testifying on behalf of the Consumer
Federation of America.
Our next witness will be Dick Kogan, the CEO of Schering-
Plough, a major research-based pharmaceutical company with an
important stake in Senator Torricelli's legislation.
Next, we will be fortunate to have former FDA Associate
Commissioner, Jerry Meyer, who will tell us about the
intricacies of the FDA review process.
Joining us for the first time today is Carole Ben-Maimon,
who is the Senior Vice President of Research and Development
for Teva Pharmaceuticals. Dr. Ben-Maimon will testify on the
Torricelli bill from the perspective of the generic drug
manufacturer.
Next, a familiar face to this committee. We will hear from
Peter Barton Hutt, a leading member of the food and drug bar,
and a person for whom I think everyone has respect, as we do
every witness here today.
Finally, we will hear from Mr. Bruce Downey, who is CEO of
Barr Laboratories. Mr. Downey has testified before this
committee previously and he represents the views of many in the
generic industry. We are happy to have you here, Bruce, as
well.
We are familiar with all of you and we appreciate having
this distinguished panel here today.
Senator Kennedy.
Senator Kennedy. Could I just add a word of welcome to an
old friend, Howard Metzenbaum. He was, of course, a member of
this Judiciary Committee for many, many years, and he has been
a real watchdog for consumers over a long and distinguished
career. I admire not only his service in the Senate and service
on the committee, but his willingness after serving in the U.S.
Senate to continue his interest in public affairs.
We thank you for joining us and we extend a very warm word
of welcome.
The Chairman. Well, from the former chairman of this
committee and from me, we are glad to have you here, Howard,
and we look forward to hearing your testimony.
PANEL CONSISTING OF HOWARD M. METZENBAUM, CHAIRMAN, CONSUMER
FEDERATION OF AMERICA, WASHINGTON, DC; RICHARD JAY KOGAN,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER, SCHERING-PLOUGH
CORPORATION, MADISON, NJ; GERALD F. MEYER, SENIOR CONSULTANT,
AAC CONSULTING GROUP, INC., POTOMAC, MD; CAROLE S. GOLDFINE
BEN-MAIMON, M.D., SENIOR VICE PRESIDENT FOR RESEARCH AND
DEVELOPMENT AND SCIENTIFIC AFFAIRS, TEVA PHARMACEUTICALS, INC.,
SELLERSVILLE, PA; PETER BARTON HUTT, COVINGTON AND BURLING,
WASHINGTON, DC; AND BRUCE L. DOWNEY, CHAIRMAN, BARR
LABORATORIES, INC., WASHINGTON, DC
STATEMENT OF HOWARD M. METZENBAUM
Mr. Metzenbaum. Thank you. Good morning, Mr. Chairman,
Senator Leahy, distinguished members of the committee. I
appreciate the opportunity to offer my comments regarding this
legislation.
As you know, my name is Howard Metzenbaum and I now serve
on a pro bono basis as Chairman of the Consumer Federation of
America. The Consumer Federation of America is a nonprofit
association of some 240 pro-consumer organizations with a
combined membership of over 50 million Americans.
When I was in the Senate, I consistently opposed patent
extensions as being a giveaway to the patentholder and a very
costly and unwarranted invasion of the consumer's pocketbook.
On more than one occasion, I went to the floor and held the
floor in a one-man filibuster to keep such legislation from
passing.
Now, at a time when Americans are calling on Congress to
take decisive action to make prescription drugs more
affordable, S. 1172 would place an additional financial burden
on American consumers and the health system. The bill is
essentially a tax on the uninsured, the poor, the sick, and the
elderly. I strongly urge you to reject it.
Now, before I go on, let me make one important point. We
will hear a lot of rhetoric today about intellectual property
rights and FDA's delays in approving the so-called pipeline
drugs. Don't be misled, don't be mislead, don't be distracted
by these red herrings. This bill is unjustified on its face
because it would turn the intent of patent protection and of
the Hatch-Waxman Act on its head.
Patent life is intended to encourage research and
development, not after a drug is out on the market, but before
a drug is granted approval, not to reward a drug manufacturer
after the product has been on the market for a number of years.
Moreover, the Hatch-Waxman Act deliberately made allowances for
drugs already in the FDA review pipeline by granting two
additional years of pipeline protection.
Ten years later, in 1994, a number of those same pipeline
drugs received additional patent extension. Claritin got an
additional 22.5 months. Claritin has received more than its
fair share of extensions. Enough is enough. The bill is the
latest attempt by the drug manufacturer Schering-Plough to
protect its lucrative monopoly for its best-selling
antihistamine Claritin.
Last year, CFA, the organization I represent, helped to
defeat an attempt by Schering-Plough to get a back-door patent
extension by attaching it to the omnibus appropriations bill.
Schering-Plough has been well treated by the Congress and has
made billions by having patent protection for Claritin for
years. But I give Schering-Plough credit; they are very, very
persistent and I respect them for that.
As a matter of fact, before this hearing commenced I walked
up to three old friends who were at separate locations, not
standing with each other, and when I said to each one of them,
what are you here for, each one of them separately indicated to
me ``on behalf of Schering-Plough.'' Fortunately, I didn't talk
to three other people because possibly they also would have
been lobbyists on behalf of Schering-Plough. But they are
certainly well, well represented, and maybe that is good for
the economy, at least the lobbyist economy.
The Chairman. Are you suggesting there are no consumer
members here?
Mr. Metzenbaum. Pardon?
The Chairman. I was just kidding.
Mr. Metzenbaum. It is time for Congress to call a halt. Let
the free market prevail when the already extended patent
expires.
Senator Hatch, you provided great and wise leadership in
authoring the Hatch-Waxman Act, even though I am prepared to
confess that I was the only member of the Senate who voted
against it. [Laughter.]
The Chairman. And you have been repenting ever since, I
know.
Mr. Metzenbaum. Maybe it was just a knee-jerk reaction.
The Chairman. It was just one of those days when you
weren't thinking clearly, Howard. [Laughter.]
Mr. Metzenbaum. I do not have to tell you that the Hatch-
Waxman Act was and is a balanced Act. It was designed to
increase access to affordable generic drugs, while ensuring
that drug manufacturers have adequate patent protection to
justify substantial investment in research and development.
Unfortunately, S. 1172 would upset the careful balance by
allowing the manufacturers of Claritin and six other so-called
pipeline drugs to petition the Patent and Trademark Office for
additional patent life. If the 3-year extensions are granted, a
likely outcome under the terms of the bill, the cost will be an
astonishing $11.1 billion according to an analysis just
released by the PRIME Institute. Earlier figures had indicated
$5 billion, but this new analysis by the PRIME Institute, which
is a part of the College of Pharmacy at the University of
Minnesota, says it will be over $11 billion. It is unthinkable
that Congress should consider a patent extension for Schering-
Plough's blockbuster drug Claritin which had sales of $1.8
billion in 1998. That is nearly $5 million in sales each and
every day.
Now, let me tell you about some of CFA's other concerns
with S. 1172. Although Senator Torricelli deserves credit for
making this legislation somewhat less problematic than its
House counterpart, it is still fatally flawed. S. 1172 would
cut the agency with the most expertise on drug review, the FDA,
out of the decisionmaking process.
Right now, the Patent and Trademark Office performs a
function regarding prescription drug patent disputes that can
only be described and characterized as ministerial. Although
the Patent and Trademark Office makes the final judgment on
patent extension, the entire decision is based on key
determinations made by the FDA.
The FDA''s determination involves issues such as a drug's
eligibility for patent extension, the appropriate length of
extension based on a regulatory review period, and whether the
manufacturer acted with due diligence during the FDA review
process. S. 1172, on the other hand, would hand this
decisionmaking authority over to an agency with no experience
in drug review, the Patent and Trademark Office. It is sort of
absurd on its face.
S. 1172 further mandates a review process based in favor of
the drug manufacturer. Although the review process in S. 1172
is certainly less flawed than that outlined in H.R. 1598, the
bill's short decisionmaking timeliness and narrow criteria are
likely to result in unwarranted approval of patent extension.
For example, while requiring the Commissioner of the Patent
and Trademark Office to consider public interest and fairness,
a job for which it is questionable as to its ability to
evaluate, S. 1172 actually excludes the evaluation of the
consumer's interest in lower prices or the negative impact of
high prescription drug costs on taxpayers and their health. S.
1172 could subject Congress to an onslaught of copycat
legislation. Passage of 1172 would serve as a great precedent
for other drug manufacturers who might want Congress to pass
similarly unjustifiable patent extension.
In closing, let me thank you, Senators Hatch and Leahy, and
all the other members of this committee, for the opportunity to
offer our comments on this misguided legislation. I urge the
leadership of the committee, as well as each of the members of
the committee, to continue your high-profile leadership on the
issue of affordable prescription drugs by vigorously opposing
this bill. It will promote high prescription drug prices and
deny your constituents, our members, timely access to more
affordable generic medicine.
I thank you, Mr. Chairman.
The Chairman. Thank you, Senator Metzenbaum.
[The prepared statement of Mr. Metzenbaum follows:]
Prepared Statement of Howard M. Metzenbaum
Good morning, Mr. Chairman, Senator Leahy and members of the
Committee. I appreciate your invitation to offer my comments regarding
this legislation. My name is Howard M. Metzenbaum and I now serve as
Chairman of the Consumer Federation of America (CFA). CFA is a non-
profit association of some 240 pro-consumer organizations, with a
combined membership of over 50 million Americans. CFA was founded in
1968 to advance the consumer interest through advocacy and education.
For 19 years in the U.S. Senate, I opposed patent extensions, even
going so far as to use or threaten to use the Filibuster on many
occasions. The organization for which I speak today, CFA, has worked
very hard to improve access to affordable prescription drugs for all
Americans. Unfortunately, the legislation before you today moves in the
opposite direction. At a time when Americans are calling on Congress to
take decisive action to make prescription drugs more affordable, S.
1172 will place an additional financial burden on American consumers
and the health system. The bill is essentially a tax on the uninsured,
the poor, the sick and the elderly. I strongly urge you to reject it.
The bill is also the latest attempt by the drug manufacturer
Schering-Plough to protect its lucrative monopoly and achieve a patent
extension for its best-selling antihistamine, Claritin. Last year, CFA
helped defeat an attempt by Schering-Plough to get a backdoor patent
extension by attaching it to the omnibus appropriations bill. Schering-
Plough made similar efforts in 1997 and 1996.
the hatch-waxman act
Senator Hatch, you provided great and wise leadership when you
joined with Congressman Waxman in authoring the Drug Price Competition
and Patent Restoration Act of 1984, also known as the Hatch-Waxman Act.
It represents a careful balancing act. It was designed to increase
access to affordable, generic drugs, while insuring that drug
manufacturers have adequate patent protection to justify substantial
investment in research and development.
In other words, the Act promotes innovation and affordability. And
it has helped bring down drug prices. The Congressional Budget Office
estimated in 1998 that buyers saved roughly $8 billion to $10 billion
in 1994 alone in pharmacy purchases, by substituting generic for brand-
name drugs. At the same time, the wider availability of generic drugs
certainly has not affected the profitability of drug manufacturers.
According to researchers at Boston University, the pharmaceutical
industry was the most profitable in the U.S. in 1998 and has been so
for the last thirty years.
Unfortunately, S. 1172 would upset the careful balance achieved by
the Hatch-Waxman Act by allowing the manufacturers of Claritin and six
other ``pipeline drugs'' to petition the Patent and Trademark Office
(PTO) for additional patent life. If the three-year extensions are
granted--a likely outcome under the terms of the bill--the cost will be
an additional $2.2 to $4.5 billion. It is unthinkable that Congress
should consider a patent extension for Schering-Plough's blockbuster
drug Claritin, which had sales of $1.8 billion in 1998. That's nearly
$5 million in sales each and every day.
The Hatch-Waxman Act made allowances for drugs already in the FDA
review ``pipeline'' at the time of enactment by deliberately granting
two additional years of patent protection, instead of the five years
granted to drugs approved after 1984. After all, the purpose of patent
protection is to provide drug manufacturers with an incentive to pursue
future research and development for new drugs, not to increase profits
on existing drugs. At the time the Hatch-Waxman Act was enacted, drug
manufacturers had already invested heavily in research and development
for Claritin and the other pipeline drugs. Moreover, Claritin received
an additional 22.5-month patent extension in 1994 under the General
Agreement on Tariffs and Trade.
americans need access to affordable drugs
As I've said already, this bill couldn't come at a worse time for
Americans who desperately need access to affordable drugs. I'm sure
that all of the members of this committee are aware of the scope of the
problem, but let me provide you with a few ``hot off the presses''
statistics from the publication, ``Affordable Medications for
Americans: Problems, Causes and Solutions.'' This report was released
just last week by Alan Sager and Deborah Socolar, researchers at the
Access and Affordability Monitoring Project (AAMP) of the Boston
University School of Public Health.
Roughly 70 million Americans of all ages--about one in
four--have no prescription drug coverage, according to AAMP
estimates. Under-insurance for medications is also rising.
Retail prescription drugs will consume 8.4 percent of U.S.
health spending in 1999, up from 7.2 percent in 1997.
Prescription drug spending is rising about three times as
fast as overall health costs. Prescription drug prices are
rising 2.4 times as fast as the overall Consumer Price Index,
from April 1998 to April 1999.
In 1998, pharmaceuticals were the most profitable industry
in the U.S. in return on equity, on revenue and on assets. In
fact, drug manufacturing has been the most profitable U.S.
industry over the past thirty years. The median return on
equity was 1.5 times the all-industry in the 1970s and 1980s,
increasing to 2.3 times the industry average in the 1990s.
These statistics provide compelling evidence of the need for more
affordable prescription drugs, and of the fact that the drug
manufacturing industry is in no need of the unjustifiable windfall that
this bill would provide.
specific concerns with s. 1172
Although Senator Torricelli deserves credit for making this
legislation somewhat less problematic than its House counterpart, H.R.
1598, it is still fatally flawed.
1. S. 1172 would turn the intent of patent protection on its head.
Patent life is intended to encourage research and development
before a drug is granted approval, not to reward a drug
manufacturer with additional profits after the drug comes to
market. Despite the elevated rhetoric about intellectual property
rights and FDA review timelines and procedures that you will hear
this morning, this bill is really about one thing: protecting
Schering Plough's lucrative monopoly on Claritin. The irony is that
Claritin has undoubtedly earned back the investment made by its
manufacturer in research and development many times over. Moreover,
as mentioned above, Claritin has already received patent extensions
of nearly four years.
2. S. 1172 could cost consumers and the health system billions of
dollars. A 1996 Congressional Research Service report found that
generic competition reduced the price of a drug between 30 and 60
percent. According to an analysis prepared by Public Citizen, this
would mean savings on Claritin of between $1.6 billion and $3.2
billion over three years. Savings on all seven ``pipeline'' drugs
would be between $2.2 billion and $4.5 billion over three years.
Some consumers, especially older Americans, will pay hundreds of
dollars a year more in out-of-pocket costs.
3. S. 1172 would cut the agency with the most expertise on drug
review, the FDA, out of the decision-making process. The PTO is not
equipped by experience or training to make a judgment call in this
area. Questions involving the drug review process are well beyond
its area of expertise. Right now, the PTO performs a function
regarding prescription drug patent disputes that can only be
characterized as ministerial. Although the PTO makes a final
judgment on patent extension, the entire decision is based on key
determinations made by the FDA. The FDA's determinations involve
issues such as a drug's eligibility for patent extension, the
appropriate length of extension based on the regulatory review
period, and whether the manufacturer acted with ``due diligence''
during the FDA review process. If a ``due diligence'' determination
is challenged, the FDA will make a determination on the validity of
the challenge and then convene a hearing to consider appeals. S.
1172, on the other hand, would hand this decision-making authority
over to an agency with no experience in drug review, the PTO.
4. S. 1172 mandates a review process that is biased in favor of the
drug manufacturer. Although the review process in S. 1172 is less
flawed than that outlined in H.R. 1598, the bill's short decision-
making timelines and narrow criteria are still biased toward
approval of patent extension. For example, while ostensibly
requiring the Commissioner of the PTO to consider ``public interest
and fairness'', S. 1172 defines those terms to exclude
consideration of the consumer's interest in lower prices, or the
negative impact of high prescription drug costs on taxpayers and
the health care system, when the Commissioner decides whether to
grant patent extension approval. The bill also automatically grants
an extension to drugs for which the patent expires during the
bill's review process. Even if the application is denied, the
applicant is authorized to apply to the Court of Appeals to
continue the extension pending judicial review. All the dice are
loaded to keep the patent extant while the appellate process drags
on.
5. S. 1172 could subject Congress to an onslaught of ``copy cat''
legislation. Passage of S. 1172 will serve as a bad precedent for
drug manufacturers who will want to push Congress to pass similarly
unjustifiable patent extensions. If it is good for one, why not for
all?
You probably know that the General Accounting Office is
investigating allegations that Schering-Plough may have contributed to
the delay in approval of Claritin at the FDA. This delay is obviously
the basis for Schering Plough's claim that they deserve a patent
extension. As you have heard from my testimony, CFA believes that using
an FDA delay as justification for this legislation, no matter what the
cause, represents a serious misreading of the Hatch-Waxman Act. This
legislation should be rejected outright as unjustifiable and costly to
consumers.
In closing, let me thank both Senators Hatch and Leahy again for
the opportunity to offer our comments on this misguided legislation. I
urge you both to continue your high-profile leadership on the issue of
affordable prescription drugs by vigorously opposing this bill. It will
promote high prescription drug prices and deny your constituents--our
members--timely access to more affordable generic medicines.
Thank you.
Senator Ashcroft. Mr. Chairman?
The Chairman. Yes, Senator Ashcroft.
Senator Ashcroft. Due to pressing business on the floor,
some of which is related to drugs, given the sanctions measure
regarding medicine, I was late and didn't get a chance to make
a statement and won't be able to stay. May I submit for the
record my remarks which are in support of Senator Torricelli's
bill?
The Chairman. Without objection, we will put those in the
record. We appreciate that and we understand the pressures on
everybody here today.
Senator Ashcroft. Thank you.
[The prepared statement of Senator Ashcroft follows:]
Prepared Statement of Hon. John Ashcroft, a U.S. Senator From the State
of Missouri
Good Morning. I would like to thank the Chairman for holding this
hearing today on the important issue of the need for a system at the
Patent and Trademark Office to consider applications for patent
extensions for drugs that have been bogged down in regulatory
bureaucracy at the FDA for an inordinate amount of time.
I can't say I'm surprised that this situation exists. As President
Reagan used to say, `the only example of eternal life on earth is a
federal administrative agency.' President Reagan was right. Given this
immortality, I guess it is only natural that to the bureaucrats, a
delay of four, five, six or more years before approving the sale of a
commercial product seems like a relatively short time.
But to a company that has invested fortunes in research and
development to produce these drugs, every minute of regulatory delay is
time ticking against their patent. It is time that the company can't be
selling their innovation under the protection of a patent to recoup
these research and development costs, and to make a fair profit, This
is something that we cannot afford, if we create disincentives to
research and development, if we diminish the financial incentives to
innovation, we won't get any innovation. The Chairman rightly
understood this when he introduced and passed the Hatch Waxman Act in
1984, setting the delicate balance between the intellectual property
interests of pharmaceutical innovators and the public interest in a
competition market for consumer drugs.
Recently I became aware of the so-called ``pipeline'' drugs--the
small group of drugs that were already in the FDA review ``pipeline''
when Hatch-Waxman was enacted. These pipeline drugs may have been
inadvertent victims of the legislative process.
Because they were already in the pipeline, these drugs were given a
shorter patent extension (2 years) than drugs that had not started the
review process yet (5 years). Unfortunately, the review process for the
pipeline drugs took on average twice as long as expected.
Not surprisingly, the companies whose drugs were held up in the FDA
review process don't think it is fair that they should suffer due to
delay they claim was caused by the FDA. The companies want their
patents extended to reflect this delay. There are others, however, who
say that the delay at the FDA was warranted, or in some cases caused by
the companies themselves. These others say that no patent extension is
warranted.
Now, it seems to me that if the companies that made the pipeline
drugs are right that they are the victims of bureaucratic delay, it is
only fair that they get some relief in the form of a patent extension.
However, if their opponents are right, and the delay was due to the
companies' own actions, they do not deserve an extension.
One thing is clear, there needs to be a neutral and independent
process to review these disputes, and it is not Congress that should
make those determinations. That is why Senator Torricelli introduced S.
1172, a bill that reflects a lot of thought and hard work, and a bill
of which I am proud to co-sponsor. S. 1172 sets up an independent
review process at the Patent and Trademark Office to handle these
disputes. Interested parties can make their case for or against a
patent extension on any of these pipeline drugs. If the Commissioner of
the PTO believes that the manufacturer of the pipeline drug has shown
by clear and convincing evidence that it used due diligence in the
review process, and the Commissioner determines that an extension would
be in the public interest, the Commissioner can grant an extension of
up to 3 years. If the Commissioner is not convinced, no extension is
granted. Furthermore, this decision is reviewable by a federal circuit
court, and may be appealed by either party.
Let me be clear, S. 1172 does not take sides. It does not express
any opinion on the merits of granting an extension on any particular
drug. What is does is simply set up a fair and independent process for
these claims to be resolved, and that seems eminently reasonable to me.
That is why I co-sponsored this bill. I again want to thank Senator
Torricelli for his hard work and leadership on this issue and look
forward to the testimony today and to hearing if there are ways that
this process can be improved.
The Chairman. We will now turn to Richard Jay Kogan.
STATEMENT OF RICHARD JAY KOGAN
Mr. Kogan. Thank you, Chairman. My name is Richard Jay
Kogan and I am chairman and chief executive officer of
Schering-Plough Corporation. I appreciate the opportunity to
testify in favor of S. 1172, a proposal by Senator Torricelli
that would strengthen intellectual property protection in the
important area of pharmaceutical research.
The bill would establish an independent process within the
Patent and Trademark Office to consider patent restoration for
seven pipeline drugs that lost years of patent life because of
unanticipated regulatory delays. The bill would give the
companies that discovered and developed these innovative drugs
the chance to make their case for patent restoration. Let me
repeat, the bill gives the companies a chance, not a guarantee,
to make their case on the merits. That is all we are asking
for, a fair hearing by the Patent and Trademark Office.
These seven drugs affected by S. 1172, because they were
already in the regulatory pipeline and presumably close to
approval for marketing, received 2 years of patent restoration
under the terms of the Hatch-Waxman Act. By comparison, most
other drugs that have come to market since the late 1980's
received 5 years of patent restoration.
One of the pipeline drugs at issue here, as has already
been mentioned, is Claritin, which is a successful product and
has earned our company significant revenues. It is also
important to point out that millions of allergy sufferers live
safer, more comfortable, and more productive lives thanks to
the dedication of the Schering-Plough scientists who discovered
and developed this drug.
I was the company's Executive Vice President for
Pharmaceutical Operations when Claritin was awaiting regulatory
approval. An FDA advisory committee has recommended approval in
October 1987, and it looked like the Hatch-Waxman 2-year patent
restoration would be right on the mark. Unfortunately, though,
it actually took another 5.5 years from the first advisory
committee meeting before FDA allowed us to market the product.
During that time, the agency had a major reorganization
that slowed drug approvals. And because of limited resources at
the FDA during this same period, the agency was correctly
giving priority to the approval of life-saving drugs, so
products like Claritin were sort of sent to the back of the
line.
We were also asked to respond to two new scientific
questions that created further delays, and as a result, and
despite Schering-Plough's diligence in responding quickly and
fully to all FDA's requests, Claritin was stuck in the approval
pipeline until 1983. Now, members of the committee, that is 9
years after the enactment----
The Chairman. You mean 1993?
Mr. Kogan. I am sorry; 1993. Thank you, Chairman. So, that
is 9 years; we were stuck for 9 years after the enactment of
the Hatch-Waxman Act. In an industry where research is the key
to success and where funds for research can only come from
successful products, such a delay is highly detrimental.
Growth through research is a fundamental business strategy
at Schering-Plough. This is clear when one looks at our
business performance. We have increased our research spending
by an average of 13 percent every year. In 1998, we raised it
even more, by 19 percent, to just over $1 billion, and this
year we are going to spend 15 percent more than that.
Pharmaceutical research involves both high risk and an enormous
investment of resources, and without fair patent protection we
simply could not generate the necessary capital that allows us
to make these risky and large investments.
Schering-Plough has targeted many serious medical
challenges. Today, our scientists are working on drugs that
show promise against several cancers, including ovarian,
breast, lung, skin, pancreatic, and colon. We are also
developing a drug that would treat brain tumors in children,
and a new antibiotic that is highly effective against resistant
bacteria.
In the area of biotechnology, our research team is
conducting studies to better address devastating chronic
inflammatory diseases such as rheumatoid arthritis and Crohn's
disease. Also, Schering-Plough's gene therapy group in
California is presently in clinical trials with P-53, a
treatment that has shown encouraging results in certain solid
cancer tumors.
Pharmaceutical research is one of America's great success
stories. Generic drug companies provide a service by producing
copies of our products, but they don't invest in innovation.
Without research-based companies, generic companies would not
have products. I hope the members of the committee will
consider the strong connection between intellectual property
rights and the research that produces breakthrough drugs. It is
impossible to have one without the other.
The independent review process proposed in S. 1172 at the
Patent and Trademark Office is an important part of the
continuing fight against disease and illness, but it is also
about something larger, a continuing commitment to encourage
the spirit of invention and innovation that has helped make
America a world leader in almost every discovery area. I urge
you to embrace that commitment and support this bill.
Thank you.
The Chairman. Thank you, Mr. Kogan. We appreciate your
comments.
[The prepared statement of Mr. Kogan follows:]
Prepared Statement of Richard Jay Kogan
My name is Richard Jay Kogan. I am Chairman and Chief Executive
Officer of the Schering-Plough Corporation. I appreciate this
opportunity to testify in support of S. 1172, the Drug Patent Term
Restoration Review Procedure Act of 1999.
This Bill would establish an independent review process within the
Patent and Trademark Office (PTO) to consider the possibility of patent
term restoration for seven pipeline drugs.\1\ These seven drugs lost
significant patent life because of lengthy review in the new drug
approval process. In each case, FDA's review of the new drug
application (NDA) took over five years. Yet these drugs received only
two years of patent term restoration under the 1984 Hatch-Waxman Act,
compared to the five years of patent term restoration that other drugs
received.
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\1\ The seven drugs are Cardiogen-82, Claritin,
Dermatop, Eulexin, Nimotop,
Penetrex , and Relafen.
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S. 1172 is a major departure from the private patent extension
bills that Congress has considered in the past. The Bill does not
extend any patent or guarantee that any patent will be extended. Rather
it creates a nonpolitical process in which the PTO determines if it is
fair and equitable to restore patent term on any of these seven drugs.
In providing this process, Congress will reaffirm its commitment to
strong intellectual property protection which drives new drug research
and development (R&D).
schering-plough's commitment to r&d
Schering-Plough has been successful because we know our future will
be determined by research and by how well we identify discovery targets
and conduct our development projects. We also understand that the
development of new drug therapies is an extremely capital-intensive
endeavor.
Schering-Plough's R&D expenditures in 1998 exceeded $1 billion,
which was an increase of 19 percent over the prior year. R&D
expenditures for 1999 will increase by more than 15 percent. Within our
peer group of large research-driven pharmaceutical companies, Schering-
Plough ranks fourth in terms of research expenditures as a percentage
of total sales. Our R&D expenditures have increased steadily and
significantly in the 1990s, as shown in Table 1.
[GRAPHIC] [TIFF OMITTED] T7573.016
r&d is a high-cost and high-risk endeavor
Because of the cost and time it takes to bring a new drug to the
market, it is essential that we maintain, if not increase, our high
level of R&D investment. Schering-Plough continues to invest steadily
in new research and technologies. Through new technologies we have
increased the number of sample compounds tested from around 400,000
annually to an estimated 1.3 million this year.
Even with the research advances of today, only one in every 5,000
chemical compounds ever reaches the U.S. market. Bringing a drug to the
market place takes 12 to 15 years and costs up to $500 million.
r&d funding is dependent on revenues from currently marketed products
The market introduction of our product Claritin in 1993,
and its ongoing success since then, has fueled Schering-Plough's R&D
efforts. Revenues generated in the current year from our marketed
products are utilized to fund ongoing and future research initiatives.
Strong sales support increases in R&D investment, which in turn
delivers important new drug products to consumers. Especially critical
are the revenues from a small number of very successful products.
pharmaceuticals critically impact public health
Schering-Plough's researchers are pursuing novel therapies that
address important medical needs. Their efforts focus on cancer,
infectious diseases (like hepatitis C), cardiovascular disease, central
nervous system diseases (like Alzheimer's disease), and allergic and
inflammatory disorders. Our scientists are developing drugs that can
directly target the causes of disease, with the hope of offering
significant improvements over existing treatments that only address
disease symptoms.
But many of these promising drug candidates are years away from
marketing. A potential new drug must be evaluated for many years--in
laboratory testing, animal testing, and human clinical studies--in
order to develop the necessary data for a new drug application (NDA).
The speed with which we are able to pursue this innovative research is
directly dependent on earnings from marketed products, and those
earnings are directly dependent on strong and fair patent protection.
the outlier pipeline drug problem
Recognizing the importance of patent protection to pharmaceutical
R&D, Congress enacted the Drug Price Competition and Patent Term
Restoration Act of 1984, also known as the Hatch-Waxman Act.\2\ Under
that Act, the holder of a patent for a new drug can apply to the Patent
and Trademark Office for restoration of part of the effective patent
life lost due to regulatory review. For most drugs, the Hatch-Waxman
Act limits the restoration period to five years. For drugs whose patent
issued and whose regulatory review straddled the enactment date of the
legislation--so-called ``pipeline'' drugs--the statute limits the
restoration period to two years.
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\2\ Pub.L.No. 98-417, 98 Stat. 1585 (Sept. 24, 1984).
---------------------------------------------------------------------------
In 1984 when Hatch-Waxman was enacted, the average time for FDA
approval of an NDA was 2.25 years.\3\ However, for the seven pipeline
drugs that are covered by S. 1172, regulatory review took many years
longer than Congress would have anticipated based on this 2.25 years
average review time. FDA approval of the NDAs for these drugs took over
5 years, more than twice the amount of time that would have been
expected.
---------------------------------------------------------------------------
\3\ FDA, ``New Drug Evaluation Statistical Report'' 53 (Oct. 1985)
(FDA mean approval time of 26.9 months for new molecular entities in
1984).
---------------------------------------------------------------------------
The unfairness of applying the 2-year limitation on patent
restoration to Claritin and the other six pipeline drugs can
be seen by comparing these drugs to drug products which began clinical
trials just after the Hatch-Waxman enactment date and thus were not
subject to the 2-year limit on patent term extension. Products with
much shorter NDA review periods than Claritin received much
longer patent term extensions. For example, a blockbuster lipid
lowering agent that just missed being classified as a pipeline drug
spent 4.19 years in NDA review, received over 4.6 years of patent
extension, and has an effective patent life of 14 years. Similarly, a
well-known antibiotic that just missed being classified as a pipeline
product spent only 1.56 years in NDA review, received 3.4 years of
patent extension, and has an effective patent life of 14 years. In
comparison to these successful drugs, Claritin had an NDA
review time of 6.45 years, received only 2 years of patent extension,
and has an effective patent life of just over 9 years. These are but
two examples. There are numerous others.
Even drug products that were approved by FDA just prior to
enactment of the Hatch-Waxman Act received better treatment than many
of the outlier pipeline drugs covered under S. 1172. While these
already approved drugs did not receive any patent extension, they did
receive 10 years of market exclusivity under other provisions of that
Act. Thus, they received ten years of protection against generic drug
competition.
Pharmaceutical companies are under tremendous competitive pressure.
Companies that do not discover and develop new products oftentimes do
not survive. The number of pharmaceutical companies that have
disappeared through mergers and acquisitions in recent years is
evidence of this fact. Given this environment, and because so few
compounds ever make it through the development process and to the
market, it is critical that the rare successful product receive fair
patent protection.
solution to the outlier pipeline drug problem
Senator Torricelli has introduced legislation that would create a
process by which the PTO could consider applications for patent term
restoration for seven outlier pipeline drugs. The bill, S. 1172, would
authorize the PTO to determine whether pipeline drugs that were
subjected to more than five years of NDA review by FDA should be
awarded patent term restoration of up to three years. The period of
patent term restoration would be reduced for any period of time in
which the applicant did not exercise due diligence in pursuing
approval.
In past years, Congress has been asked to award patent term
extension directly to a specified drug product. In fact, Congress has
enacted product-specific patent extensions for pipeline drugs three
times since enactment of Hatch-Waxman. But this private bill approach
has been criticized for politicizing the patent term restoration
process.
In contrast, S. 1172 creates a neutral administrative process.
Under the Bill, the PTO--an informed decisionmaker with expertise on
patent matters--conducts an administrative proceeding in which
interested parties--including generic drug manufacturers--can
participate. FDA is given a significant consultative role and PTO has
access to all relevant documents and information. All seven outlier
pipeline drugs would be eligible to participate in the process. No drug
would automatically receive patent term restoration. We believe this
process-oriented approach can effectively address the outlier pipeline
drug problem.
Under the Bill, the applicant must show that it acted with ``due
diligence.'' This is the same standard an applicant must meet to
currently receive an extension under Hatch-Waxman. Due diligence is
defined as ``that degree of attention, continuous directed effort, and
timeliness as may reasonably be expected from, and are ordinarily
exercised by,'' an applicant during an NDA review period.\4\ Due
diligence focuses on the applicant's actions, not on FDA's actions. As
a result, the PTO is not put in the position of second-guessing FDA's
scientific judgments.
---------------------------------------------------------------------------
\4\ 35 U.S.C. Sec. 156(d)(3).
---------------------------------------------------------------------------
I was President and Chief Operating Officer of Schering-Plough
Corporation and Executive Vice President--Pharmaceutical Operations
during the time that Claritin was awaiting FDA approval. Less
than a year after the NDA for Claritin was submitted to FDA,
on October 23, 1987, an FDA advisory committee recommended that FDA
approve the Claritin NDA. FDA often promptly approves a drug
that has received a favorable recommendation from an advisory
committee. In the case of Claritin, however, approval did not
come until April of 1993. Schering-Plough had to wait more than six
years after the NDA was submitted to market Claritin in the
United States. When the Claritin approval finally came, the
public received access to a once-a-day, nonsedating antihistamine that
did not present the kinds of cardiac risks that existed with the other
nonsedating antihistamine products on the market at the time.
Two unanticipated scientific issues arose after the FDA advisory
committee recommended approval of Claritin in 1987--one
involved toxicology data and the other involved bioequivalence. FDA
addressed both of these issues with caution. Schering-Plough acted with
due diligence during the entire process.
The review of the Claritin NDA was complicated by FDA's
reorganization of the Center for Drug Evaluation and Research (CDER)
which began in 1987 and continued until 1989. Moreover, FDA reviewed
Claritin prior to enactment of the Prescription Drug User Fee
Act (PDUFA) in 1992. Before enactment of PDUFA, FDA lacked the funding
and resources to review NDAs expeditiously, particularly for drugs that
were not designated for ``priority'' review. During the CDER
reorganization Claritin was assigned to the same division
that reviewed cancer drugs, all of which received ``priority''
designations. Claritin received a ``standard'' review
designation.
All of these factors certainly had an adverse impact on the time
the Claritin NDA spent in the regulatory review. In contrast to the 6.5
years spent in regulatory review in the United States,
Claritin received approval in 2.5 years or less in many
countries with sophisticated regulatory agencies, including Germany,
France, Ireland, Italy and the United Kingdom.
Claritin is a good example of why the manufacturers of
the seven outlier pipeline drugs should be given an opportunity to
present their case to the PTO for up to three years of patent term
restoration. Claritin received the worst of both worlds,
extraordinarily lengthy regulatory review, and minimum patent
restoration.
Congress recognized the importance of, and relationship between,
fair and strong patent protection and pharmaceutical R&D when it
enacted Hatch-Waxman. In order to properly fund R&D, successful
products must have fair patent protection. S. 1172, in providing a
nonpolitical forum and a fair process, furthers this goal. That is why
Schering-Plough supports this Bill. That is why we urge you to do the
same.
The Chairman. Next, we will turn to former FDA Associate
Commissioner Jerry Meyer, and we will listen to your testimony,
Mr. Meyer.
STATEMENT OF GERALD F. MEYER
Mr. Meyer. Thank you, Mr. Chairman. I appreciate very much
this opportunity to appear and to speak in support of S. 1172,
the Drug Patent Term Restoration Review Procedure Act of 1999.
As you may know, I previously testified in support of this
kind of legislation before the House Subcommittee on Courts and
Intellectual Property of their Judiciary Committee on both July
1, 1999, and on May 21, 1998. I also participated in a panel
discussion on this subject with Surgeon General Koop and others
sponsored by the Intellectual Property Institute that was held
on the Senate side of this Capitol on June 10 of this year.
Mr. Chairman, I remain convinced of the merits of this
legislation, and I am personally pleased that this committee is
pursuing it, as well as appreciative that I have been given
this opportunity to appear in support of it. I say that from
the perspective of having served on the front lines of FDA's
drug review and approval processes as Deputy Director of FDA's
Center for Drug Evaluation and Research some 8 years ago. I
remember with both some pride and with some pain appearing
before both you and the distinguished Senator from
Massachusetts on a number of occasions.
I also want to make clear that I am not here on behalf of
anyone, and I am not being paid in any way by anyone in any
manner for my appearance in connection with this legislation or
any other activity in connection with this legislation. I am
here as a former official of the Food and Drug Administration.
I do now work as an independent consultant and I work for
several other organizations, but I am here strictly on my own.
Prior to enactment of the Prescription Drug User Fee Act of
1992, as you and Mr. Kennedy will remember, FDA faced enormous
difficulties in reviewing new drugs within the statutory
timeframe because of a chronic lack of adequate funding and
resources. And I believe that despite the very substantial
efforts of a talented and dedicated review staff to carry out
our responsibilities, our agency simply could not keep up with
the number of new drug applications that were being submitted
and are continuing to be submitted by the pharmaceutical
industry. There are almost 150 NDA's that come in every year.
Review and approval times increased, and it was not until
enactment of the user fee legislation that the drug review
activities of the agency began to receive the funds and
manpower that were needed to make a significant impact on this
extended review time. The fact is that the lack of sufficient
staff before enactment of this legislation meant that when
someone was ill or resigned or retired or had a child or was
otherwise unavailable to work on an application, there was no
one else available to step in.
And when the number of applications in a particular drug
class increased substantially, as they did for certain types of
drugs at different times, they could simply overwhelm the
available staff in a review division. You will remember this
occurred, for example, over time with antihypertensive, with
nonsteroidal antiinflammatory drugs, and with certain classes
of antiinfective drugs. It also occurred when an application
presented a difficult and complex scientific issue that
required extended time to address, such as occurred with
conjugated estrogens not very long ago.
In such cases, a division would simply have to defer review
until they could work through this backlog or this scientific
question. In some cases, these kinds of delay could and did add
years to review times. Mr. Chairman, I could cite examples, and
I remember Dr. John Harter telling me that it would be 2 years
before he could even pick up an application for a nonsteroidal
antiinflammatory drug to begin review because there were that
many applications in front of it.
In all candor, Mr. Chairman, I also don't believe these
kinds of problems will ever be completely eliminated. There
will always be applications that come in in a rush in a
particular class of drugs that overwhelm the reviewers who are
trained in that class of drugs. There will always be some
complicated scientific issue presented by a particular product,
where making the risk/benefit decision will be difficult and
require extended time. And there will also be situations where
we have trouble in recruiting people.
At the moment, the current number of applications for
products to treat asthma is an example of a division that is
almost overwhelmed with those applications. Learning how to
measure how much of a drug gets into the lungs by a novel
delivery system is a difficult and complicated task. Working
through the scientific issues that are involved is tough, and
the difficulty in recruiting pulmonologists for a government
salary is also a worthy, worthy challenge.
That is why a process like that proposed in this
legislation is so important, and not just for those few
problems that occurred in the past, but also for those problems
that I believe will occur in the future. And I hope the
legislation provides for that. I think there will always be
those kinds of issues.
It is true that the FDA did, and continues to assign
priorities to applications for products that represent drugs
for life-threatening diseases for which there is only limited
or no adequate authority. I agree with that priority. You and
others in our Congress agree with that priority. But I
acknowledge that it only adds years to the review time and
delays for other applications that may later on prove
important. I say that because as you know, Mr. Chairman, all
patients do not respond equally, in the same way, to all
products.
The additional resources provided to the drug process
through user fee legislation and appropriations that have been
made available are invaluable, but they have not eliminated all
of the inequities that existed before this legislation and may
somehow exist in the future. That is what I hope this new
legislation will correct. And as a matter of public policy, I
believe an open administrative process will almost always be
preferable to other alternatives.
Thank you, Mr. Chairman, for this opportunity and I will be
pleased to respond to any questions.
The Chairman. Well, thank you, Mr. Meyer. We are glad to
have you before the committee again. We have always respected
you and enjoy your point of view, or at least have enjoyed
listening to it.
Ms. Ben-Maimon, we look forward to hearing your testimony.
I think this is the first time you have appeared before our
committee, so we are happy to welcome you here and we look
forward to hearing what you have to say.
STATEMENT OF CAROLE S. GOLDFINE BEN-MAIMON, M.D.
Dr. Ben-Maimon. Thank you. Good morning, and thank you for
inviting me to testify before the Senate Judiciary Committee.
My name is Carole Goldfine Ben-Maimon and I am a physician
board-certified in internal medicine who has worked in research
and development in the pharmaceutical industry since 1991.
Currently, I am Senior Vice President for Research and
Development at Teva Pharmaceuticals. Teva is a manufacturer of
both pharmaceutical products and raw materials, with facilities
in New Jersey, Pennsylvania, and Missouri. Teva is a member of
the Generic Pharmaceutical Industry Association and the
National Pharmaceutical Alliance, and my testimony today is on
behalf of both of those trade organizations. In my current
position, I have been responsible for obtaining the approval of
a multitude of generic drug products, as well as working with
the FDA to obtain approval for several novel and new orphan
drug products.
I would like now to focus on the legislation at hand.
Hatch-Waxman is a law that was carefully and thoughtfully
drafted to strike a balance between the brand industry and the
generic industry, and to serve the public interest. The generic
industry is dependent on the brand industry for its lifeblood.
It is only through the brand industry's continued research and
development that new products ultimately become available for
the generic industry to develop and market.
It would be naive to believe that the risks involved in
drug development would be incurred without the anticipation of
significant financial reward. Thus, we understand the need to
protect intellectual property rights and the importance of
incentives to stimulate the costly research and development for
new drugs. We emphatically support the protection of these
rights. The question now is only when does the patient deserve
access to lower-cost generics.
S. 1172 is a bill that proposes extending the patents on
several branded pharmaceutical products, the most notable of
which is Claritin, Schering-Plough's multibillion-dollar drug
for allergy sufferers. I would ask that today we take a
different look at this and look at the alternative. In our
view, allowing Schering's Claritin patent to expire would
accomplish exactly what Congress intended when they passed the
Hatch-Waxman Act.
First, Hatch-Waxman has already provided the incentive to
continue the development of Claritin and ultimately bring the
product to market. Second, American consumers will finally have
access to more affordable generic versions of the drug. And,
third, and most importantly, letting patents expire stimulates
and encourages the development of new, improved and novel
approaches to disease. Allowing the brand industry to rely on
profits from an aging product line is not only inconsistent
with the intent of Hatch-Waxman, but undermines the incentives
to seek needed advancements in the treatment of disease.
S. 1172 accurately, although inadequately, acknowledges
some of the widely debated issues surrounding the 180-day
generic exclusivity. One of the mechanisms by which the brand
industry has delayed marketing of generic drug products is by
abusing the listing of patents in the Orange Book. FDA has
taken the position that they do not have the expertise to
oversee the listing of these patents and has accepted for
listing in the Orange Book any patent. This has resulted in a
situation where inappropriate patent listings have become a
major obstacle to the lawful market entry of competitive
generic drug products. It is clear to us that as a matter of
both law and policy, only patents on drug-active ingredients
should be listed. FDA initially agreed with that approach and
documented it in a letter to industry in 1984. Today, however,
FDA lists any patent.
S. 1172 in its current form creates additional inequities.
Generic drug applications for these seven products, already at
FDA, were forced to certify to all listed patents. If S. 1172
is passed in its current form, applications being submitted in
the future will not be required to certify to all the same
patents. In order to create a level playing field, filing
requirements for products which generic applications containing
paragraph IV certifications are already on file at FDA should
remain unchanged, while innovators should be required to remove
irrelevant patents from the Orange Book for all other products.
Finally, the extension of patents for pharmaceutical
products must be considered in light of the impact on patients
who will now be required to pay more for prescription drugs
and, as importantly, who may now have to wait longer for new
and improved drugs as the lack of incentive for their
development may delay their market entry. Requests for patent
extensions must be considered in an open forum in which
knowledgeable parties can adequately and fairly debate the
issue.
In summary, as a physician and a representative of the
generic industry, I implore you to consider the implications of
approving S. 1172. This bill does not achieve anything other
than an extension of several long-running monopolies at the
expense of the patients who suffer from the diseases these
products treat. I hope that if, prior to my testimony, Congress
believes that a balance had been struck, I have convinced you
to the contrary.
The Chairman. Thank you, Ms. Ben-Maimon.
[The prepared statement of Dr. Ben-Maimon follows:]
Prepared Statement of Carole S. Goldfine Ben-Maimon
Good morning. Thank you for inviting me to appear before the Senate
Judiciary Committee today and for giving me the opportunity to share
with you the generic pharmaceutical perspective on S. 1172. Before I
begin to address the specific legislation at hand, I would like to take
a moment to tell you a little about my background. My name is Carole
Goldfine Ben-Maimon and I am a physician, board certified in Internal
Medicine, who has worked in research and development in the
pharmaceutical industry since 1991. Currently, I am Senior Vice
President for Research and Development and Scientific Affairs at Teva
Pharmaceuticals, Inc. Teva is a manufacturer of both pharmaceutical
products and raw materials with facilities in Pennsylvania, New Jersey
and Missouri. Teva is a member of the Generic Pharmaceutical Industry
Association and the National Pharmaceutical Alliance and my testimony
today is on behalf of both trade organizations.
My responsibilities at Teva have included the development of both
brand name drug products and generic drug products. As Senior Vice
President of Research and Development, I manage the entire development
process for our pharmaceutical products. This has included obtaining
the approval of a multitude of generic products as well as working with
the FDA to obtain approval for several new and novel orphan drug
products, specifically a product called Copaxone for the treatment of
Multiple Sclerosis and a product called Galzin for the treatment of a
very rare and terminal disease, Wilson's Disease. I make this point
because it is important and relevant to understand that many generic
manufacturers, such as Teva, are engaged in the development and
innovation of new medicines in addition to the development of more
affordable generic medicines.
My work in research and development for the pharmaceutical industry
has allowed me to participate in some of the most exciting research
occurring today. As a physician committed to advancing the health care
profession's ability to significantly impact disease, there is nothing
more rewarding than providing quality pharmaceutical products to the
patients who need them. With this as my background and interest, I hope
my testimony will provide the committee with a somewhat unique view on
the issues presented in S. 1172.
When one talks about the pharmaceutical industry, one must keep in
mind that decisions made relating to drug development have a direct
impact on a very large and vulnerable subset of consumers; those who
are ill, those who are looking to pharmaceuticals sometimes to save
their lives and almost always to improve the way they feel and thus
their quality of life. As we all know, these necessary pharmaceuticals
can be very costly, all too often forcing a patient to choose between
spending their limited income on the drug or some other essential or
desired commodity. We all also know that senior citizens are often the
ones forced to make these unfortunate choices.
With this in mind, in 1984 Congress tackled the task of balancing
the public need for cost-competitive generic drug products while
providing incentives to encourage innovation and creativity by the
brand industry. The result was passage of the landmark Hatch-Waxman
Act. The Act was carefully and thoughtfully drafted to strike a balance
between the brand industry and the generic industry and to serve the
public interest. The generic industry relies on the brand industry for
its lifeblood. It is only through the brand industries' continued
research and development that new products ultimately become available
for the generic industry to develop and market. Thus, we understand the
need for strong intellectual property rights and the importance of
incentives to stimulate the costly research and development that is
required to bring new, safe and effective drugs to market. Therefore,
we emphatically support the protection of these rights. As I stated
earlier, many generic companies actually have patents of their own and
many also market branded products themselves. Thus, there is no
controversy over the importance of adequate and appropriate patent
protection, the question is only when does the patient deserve access
to more affordable medicines.
One can easily see the success of Hatch-Waxman worked when
financial data is reviewed. Since 1984 brand sales have increased
steadily, exceeding $80 billion in 1998. Last summer, the Congressional
Budget Office concluded that, ``Between 1983 and 1995, investment in
R&D as a percentage of pharmaceutical sales by brand name drug
companies rose from $17 billion to $57 billion, thus demonstrating that
the brand industry is not only continuing to invest in the development
of novel pharmaceutical properties but it is increasing its
commitment.'' During this time of escalating R&D, generic market share
increased from 13 percent to 41 percent. This is proof that generic
competition is the motivation for innovation.
Let's be realistic the brand industry is not developing new
products out the goodness of their hearts. They are doing this because
of the profits that are realized when a novel product is introduced to
the market place.
In light of what I have just said, let's consider the specific
issue at hand, whether or not so called ``pipeline drugs'' are entitled
to seek additional patent life. Let me be clear. Teva and other members
of the generic industry oppose patent extensions. There is a cost
associated to patent extensions and it is the American consumer who
ultimately pays the price. While the generic industry opposed patent
extensions back in 1984, it was provisions like the Bolar safe harbor
and the abbreviated new drug application process that rallied the
generic industry behind passage of the Hatch-Waxman Act. The cost of
the patent extension provisions were balanced out with the tremendous
savings consumers would reap from having access to more affordable
generic medicines the day after a patent expired.
A pipeline drug is a drug for which a patent had been issued and an
investigational new drug application (IND) or a new drug application
(NDA) was pending at FDA before the enactment date of the Hatch-Waxman
Act. While there were over 100 drugs in the FDA pipeline back in 1984,
S. 1172 applies to only seven. The most notable of which is Claritin,
Schering-Plough's multi-billion dollar drug for allergy sufferers.
Congress specifically addressed the brand industry's concerns that
their expected returns on their investment in these pipeline drugs
would be diminished by the accelerated generic competition stemming
from changes in the law. This would have led them to abandon the
development of these products. Thus, they were awarded a two year
extension as an incentive to bring the products to market.
Let me reiterate that the intent of the Hatch-Waxman Act was to
encourage future investment in research and development, not to reward
past investment. This is why the Act provides new chemical entities
with the opportunity to seek up to five years of additional patent life
when drugs like Claritin were limited to the two-year patent extension.
It is also important to note that that in addition to the two-year
extension, Claritin enjoys a 22.5-month extension under the General
Agreement on Trade and Tariffs (GATT). As a result of past extensions,
in June 2002, Claritin will have enjoyed patent life of approximately
21 years-- four years beyond the original patent term.
I would ask that today you consider the alternative. What if
Schering's patents were permitted to expire? In our view it would
accomplish exactly what Congress intended when they passed the Hatch-
Waxman Act.
First, Hatch-Waxman provided the initial incentive to continue to
development Claritin and ultimately bring it to market. Second,
American consumers will finally have access to more affordable generic
versions of the drug without additional costly delay. Third, and most
importantly, allowing patents to expire stimulates and encourages the
development of new, improved, and novel approaches to disease. Allowing
the brand industry to rely on profits from an aging product line is not
only inconsistent with the intent of Hatch-Waxman, it undermines the
incentive to seek needed advancements in the treatment of disease. The
knowledge that the Claritin patent will expire sooner rather than later
has encouraged Schering to invest in new products like the metabolite
of Claritin, desloratadine or better known as ``Super Claritin'', whose
patent will not expire until 2014. This product according to Richard J.
Kogan, Chief Executive of Schering-Plough is in late stage human
testing. Hopefully this product will provide some advantages over
Claritin, thus advancing medical therapy. At the end of the day
Schering has rightfully profited from Claritin sales of approximately
$30 billion.
I'd like to address some of the other issues in S. 1172. The bill
accurately acknowledges some of the widely debated issues surrounding
the 180-day ``generic exclusivity'' provided for in the Hatch-Waxman
Act. As you may know, this exclusivity was created to encourage generic
companies to challenge or circumvent weak patents and thus bring lower
cost pharmaceuticals to the market earlier. This provision has been
surrounded by controversy. One of the mechanisms by which the brand
industry manipulates the 180-day exclusivity clause is by abusing the
listing of patents in the Orange Book. Although the generic industry
whole-heartedly supports ``cleaning up'' the Orange Book, unfortunately
the proposal contained in S. 1172 as written is completely inadequate
to achieve that goal and may even exacerbate the problem.
FDA has taken the position that they do not have the expertise to
oversee the listing of drug patents, and has accepted for listing in
the Orange Book any patent that the sponsor of a reference listed drug
has submitted. This has resulted in a situation where inappropriate
patent listings have become a major obstacle to the lawful market entry
of competitive generic drug medicines. For example:
A patent covering ``multifracationable tablets with
bisectable/trisectable structures'' has been listed for the
drug trazadone, even though the patent does not refer to
trazadone or any other specific drug product. Because of this
listing, a generic applicant was forced to file a paragraph IV
certification to the patent, precipitating litigation that
triggered the statutory 30-month stay on final ANDA approval,
and causing substantial delay and expense.
A listed patent covering Terazosin drug products was held to
be expired in a 1996 federal district court case.
Notwithstanding that decision, the patentholder insisted on
maintaining the listing for the expired patent until
specifically ordered by the court to request FDA to delist it,
an order that was upheld by the Federal Circuit on appeal.
Meanwhile, generic applicants were forced to incur additional
expense and delay contesting a patent that had been held
expired and ordered to be delisted. The reference drug sponsor
ended up enjoying a de facto extension of patent protection for
well over a year after the actual expiration date of the
patent.
Several method-of-use patents that cover unapproved uses of
bupropion were listed, without use codes. Although ANDA applicants for
bupropion are not seeking approval of such uses, those applicants were
being forced to file paragraph IV certifications to these patents
because, in the absence of use codes, FDA does not recognize them as
use patents that may be omitted from an ANDA that does not seek
approval of the corresponding indications. Subsequent to the innovator
being notified and bringing suit these patents were delisted from the
Orange Book.
A patent is listed for the drug gabapentin that covers only a
monohydrate form of the compound not found in the approved,
marketed formulation. Yet because of this listing, generic
applicants will be forced to file paragraph IV certifications
to the patent, giving the patentholder the opportunity to
trigger a 30-month stay, and invoking the 180-day exclusivity
mechanism, over a patent that does not even claim a compound in
the reference drug itself.
It is clear to us that as a matter of both law and policy only
patents on drug active ingredients (and on methods of using them)
should be listed, and that patents that claim final formulations
incorporating such active ingredients (i.e. drug product patents)
should not be listed in the Orange Book, FDA initially agreed with that
approach, and documented it in 1984 in a Letter to Industry from Harry
M. Meyer, Jr., MD, Director, Center for Drugs and Biologics, dated
November 16, 1984.
The patents that FDA regards as covered by the statutory
provisions for submission of patent information are those on
the active ingredient or ingredients, or use patents for a
particular indication or method of using the product. The
agency will not publish patents relating to chemical
intermediates, methods of manufacturing, excipients or
formulations.
Today, however, FDA lists any patent, and refuses to even consider
ways to remedy the abuse potential its current approach has engendered.
S. 1172 in its current form, creates additional inequities. You may
not know there are generic drug applications (ANDA's) for these seven
products already pending at FDA. Each of these applicants was forced to
certify to all listed patents, whether or not these patents were
appropriately listed. If S. 1172 is passed in its current form, generic
applications submitted in the future will not be required to certify to
all listed patents, but only to the compound patent. By reducing the
burden of certification for these later-filed applicants, they could
potentially avoid the 30-month approval stay and enter the market
before the other ANDA applicants who filed first. Thus the current
proposal is essentially backwards and creates an unlevel playing field
within the generic market. Products for which generic applications
containing paragraph IV certifications that are already filed at the
FDA should remain untouched, while innovators should be required to
remove irrelevant patents from the Orange Book for all other products.
Resolution of this problem requires a more far-reaching and all-
inclusive approach than that contained in S. 1172.
Finally, we in the generic industry oppose any new process for
obtaining patent extensions. The extension of patents for
pharmaceutical products must be considered in light of the impact on
patients who will now be required to pay more for prescription drugs
and who may now have to wait longer for new and improved drugs as the
lack of incentive for their development may delay their market entry.
The Patent Office is not and has never been charged with this
responsibility. They do not possess sufficient knowledge of the FDA and
its processes nor do they possess sufficient knowledge of the impact on
the public good or pharmaceutical policy to justify this delegation of
authority. A truly fair and transparent process would insure that those
making the decision would have complete information available, the
expertise to evaluate this information, and would be capable of fully
understanding the impact of the extension on patients, third party
payors and the pharmaceutical industry. It is of the utmost importance
to those of us who use drug products, prescribe them for others, and
rely on generic products to help make ends meet, that requests for
patent extensions be considered in a forum in which knowledgeable
parties can adequately and fairly debate the issue. Given this type of
process, we are of the opinion that there would be no patent extensions
except in the most extreme of situations.
11 Using Claritin as an example, one can clearly see the intensity
with which a company will lobby for these extensions. This is the
fourth effort to extend these patents. In May 1997, Schering attempted
to add a patent extension amendment to the Omnibus Patent Act of 1997.
In the closing moments of the 1997 congressional session, there was
another attempt to extend the patent through the appropriation process,
and last year there was an attempt to add this proposal to the 1998
Omnibus Appropriations Bill. Schering is not the only company that has
made these submarine attempts to extend patents. Debating this process
in Congress has allowed the interests of the public to be kept at the
forefront of the debate and thus has assured an open debate based on
the merits. In contrast, such openness and fairness will be lost under
the extension process proposed in S. 1172.
In summary, as a physician and a representative of the generic
industry, I implore you to consider all the implications of granting a
patent extension for these products. S. 1172 is clearing focused on the
extension of several long-running monopolies at the expense of the
patients who suffer from the diseases these products treat. The
improper listing of patents in the Orange Book definitely needs to be
addressed, as must the problems surrounding the 180-day exclusivity
provision. Other important patient oriented issues such as providing
low cost generic biologics must also be confronted. However, this bill
does not remedy any of the above controversially issues while it
focuses on a self-serving strategy that only benefits a few select
innovator companies. I hope that if prior to my testimony, Congress
believed that S. 1172 struck a balance, I have convinced you to the
contrary. S. 1172 provides no such balance in its current form; it is
merely a patent extension for a multi-billion dollar allergy drug.
Thank you for your time.
The Chairman. We will turn to you, Mr. Hutt.
STATEMENT OF PETER BARTON HUTT
Mr. Hutt. Thank you, Mr. Chairman. When the Hatch-Waxman
was being considered during 1983 and 1984, I served as counsel
to the pharmaceutical industry on that particular legislation.
I was deeply involved in the development, negotiation, and
drafting of the provisions in the ultimate statute. As a
result, you have invited me to present testimony today on the
origin of the pipeline drug provision in that legislation.
The general rule under the 1984 Act was that the pioneer
drug received up to 5 years of patent term restoration. There
was, however, one general exception to this rule and it is the
exception that brings us here today. A pipeline drug was
limited to 2 years of patent term restoration. Pipeline drugs
are defined as any drug for which a patent has been issued and
an investigational new drug application submitted to FDA prior
to the date of enactment of the 1984 Act, which was September
24, 1984.
Accordingly, there was 3 years of disparity, a full 3 years
of difference in patent year restoration between two new drugs
that were being developed at the identical time simply by
reason of the fact either, first, that the IND was submitted
shortly before the enactment date for one and the other was
submitted shortly after the enactment date. Or, second, the
patent for one went through the patent process quickly and was
issued before the enactment date and the other went through the
patent process slowly and was issued after the effective date.
Now, 2 years ago, the chief counsel for the Senate
Committee on Governmental Affairs asked me about the origin of
this 3-year disparity. I provided a letter describing the two
reasons for the 2-year limitation on pipeline drugs. Let me
summarize those two reasons.
First, it was felt the pipeline drugs would be approved by
FDA shortly after enactment of the 1984 statute, and 2 years of
patent restoration was therefore fair and equitable under those
circumstances. Second, it was felt that because of anticipated
short time to approval of only 2 years that less of an economic
incentive was needed to assure continued pursuit of the drug to
final FDA approval.
Now, to make sure that my understanding was completely
correct on this, in October 1997 I discussed the matter with
John McLaughlin, who had been Representative Waxman's counsel
to the Subcommittee on Health and the Environment and was
involved in the legislation on a daily basis throughout 1983
and 1984. Mr. McLaughlin wrote me to confirm my recollection
that these two reasons were, in fact, the two reasons for the
pipeline drug limitation. I have attached to my testimony, Mr.
Hatch, all of that correspondence for the record.
Now, for most of the pipeline drugs, the assumption that
FDA approval would come shortly after enactment turned out to
be quite accurate. At that time, the average time for FDA
approval was approximately 2.25 years. For a few outliers,
however, this assumption turned out to be quite inaccurate. For
these outlier pipeline drugs, the time for FDA review and
approval of an NDA was well over twice the average.
It is important to understand that a number of post-1984
new drugs that received a full 5 years of patent term
restoration were, in fact, approved by FDA before the agency
approved the pre-1984 outlier pipeline drugs, and they received
only 2 years. This produced the anomalous result that the
outlier pipeline drugs whose NDA approval time was more than
twice the average received less than half the normal patent
term restoration. I can assure you that none of us who
participated in the drafting of the 1984 Act anticipated or
intended this inequitable result. And I am sure, Mr. Hatch,
that you as one of the leaders in that fight for legislation
never thought this would happen either.
Now, I want to make clear one part of this because there is
a great deal of misunderstanding about it. FDA approval of the
outlier drugs was not completed, as we have heard, until April
1993, which was more than 8 years after enactment of the 1984
statute. Within that 8-year period, many other drugs received
FDA approval, together with a 5-year patent term extension.
Now, like the pipeline drugs, these other drugs that got 5
years of patent extension had begun development, testing and
research prior to 1984, prior to the enactment date. Let me
emphasize that point because the opposite has been stated twice
so far in this hearing. Drugs that were approved by FDA prior
to the outlier pipeline drugs, yet received a full 5 years of
patent term extension, were undergoing active research,
development and testing for more than 5 years before the
enactment date of the 1984 legislation.
Now, in conclusion, let me say that, without doubt, outlier
pipeline drugs have not been treated fairly. These drugs
received only 2 years of patent term restoration, whereas
competitors who submitted their INDA applications later, but
received their NDA approvals earlier, received a full 5 years
of patent term restoration. This result cannot be justified on
any principled basis.
The assumptions on which the 2-year pipeline drug
limitation was based have turned out to be erroneous for this
very limited category of seven drugs. Under similar
circumstances, Congress on seven prior occasions in the past
has enacted specific legislation to redress the resulting
inequity. In the case of these outlier pipeline drugs, this
kind of redress of inequity could be accomplished either by
drug-specific legislation, or I believe far more efficiently by
establishing the type of new administrative procedure that is
contained in S. 1172.
Thank you very much.
[The prepared statement of Mr. Hutt follows:]
Prepared Statement of Peter Barton Hutt
Mr. Chairman and Members of the Committee, I am Peter Barton Hutt.
I am a partner in the Washington, D.C. law firm of Covington & Burling.
I have been asked by the Committee to present testimony on patent
term restoration and S. 1172. For almost forty years, I have been
engaged in the practice of food and drug law. During 1971-1975, I
served as Chief Counsel for the Food and Drug Administration (FDA). I
am the co-author of the casebook used to teach food and drug law in law
schools throughout the country.\1\ I teach a full course on food and
drug law during Winter Tenn at Harvard Law School and I have taught the
same course during Spring Term at Stanford Law School. When the Drug
Price Competition and Patent Term Restoration Act of 1984 was being
considered during 1983-1984, I served as counsel to the Pharmaceutical
Manufacturers Association (now the Pharmaceutical Research and
Manufacturers of America) and was deeply involved in the development,
negotiation, and drafting of the provisions in that statute.\2\ I have
published articles on the subject of patent term restoration both
before \3\ and after \4\ enactment of the 1984 Act. Finally, I have
twice before testified on legislation intended, and ultimately enacted,
to provide patent term restoration for specific products as a matter of
fairness and equity.\5\
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\1\ Peter Barton Hutt & Richard A. Merrill, Food and Drug Law:
Cases and Materials (1st ed. 1980 & 2d ed. 1991).
\2\ See, e.g., my testimony on behalf of PMA in ``Patent Term
Extension and Pharmaceutical Innovation,'' Hearing before the
Subcommittee on Investigations and Oversight of the Committee on
Science and Technology, U.S. House of Representatives, 97th Cong., 2d
Sess. 123 (1982).
\3\ Peter Barton Hutt, The Importance of Patent Term Restoration to
Pharmaceutical Innovation, 1 Health Affairs, No. 2, at 6 (Spring 1982).
\4\ Ellen J. Flannery & Peter Barton Hutt, Balancing Competition
and Patent Protection in the Drug Industry: The Drug Price Competition
and Patent Term Restoration Act of 1984, 40 Food Drug Cosmetic Law
Journal, No. 3, at 269 (July 1985).
\5\ ``Lopid Patent Term Restoration and Fairness Act of 1987,''
Hearing before the Subcommittee on Courts, Civil Liberties, and the
Administration of Justice of the Committee on the Judiciary, House of
Representatives, 100 Cong. 1st Sess. 41, 72 (1987), 101 Stat. 1107,
1569 (August 23, 1988); ``Patent Extension Hearing,'' Hearing before
the Subcommittee on Patents, Copyrights and Trademarks of the Committee
on the Judiciary, United States Senate, 102d Cong., 1st Sess. 44
(1991), 107 Stat. 2040 (December 3, 1993).
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the origin and purpose of the drug price competition and patent term
restoration act of 1984
In 1962, Congress enacted new legislation to increase the
regulatory requirements for new drugs. The Drug Amendments of 1962 \6\
replaced the 1938 requirement of premarket notification with a more
stringent requirement of premarket approval, and added a requirement of
proof of effectiveness to the 1938 requirement of proof of safety. In
the years that followed, the time required to obtain the necessary
evidence of safety and effectiveness increased, and the time required
for FDA review and approval of a new drug application (NDA) also
increased. As a result, instead of receiving the full statutory patent
term of seventeen years, the effective patent life for a new drug
gradually was reduced to less than ten years and at times to zero. The
longer it took a company to prove safety and effectiveness and the
longer it took FDA to review and approve the NDA, the shorter the
effective patent life became.
---------------------------------------------------------------------------
\6\ 76 Stat. 780 (1962).
---------------------------------------------------------------------------
By 1980, the average effective patent life of new drugs had
deteriorated to such an extent that many concluded it required remedial
legislation. During 1981 and 1982, Congress considered legislation
relating solely to patent term restoration. This legislation narrowly
missed enactment in September 1982.
Following enactment of the Drug Amendments of 1962, FDA approved
the marketing of generic versions of pioneer drugs under abbreviated
NDAs for those pioneer new drugs first marketed before the 1962
Amendments, but not for new drugs with NDAs approved after the 1962
Amendments. For two decades, generic versions of post-1962 new drugs
were virtually precluded from the market. Both administrative and
legislative approaches were considered during this time to permit FDA
approval of generic drugs, but none was successful.
In 1983 and 1984, the pending patent term restoration legislation
was combined with legislation authorizing FDA approval of generic
versions of post-1962 new drugs through an abbreviated NDA. That
legislation was ultimately enacted in September 1984 as the Drug Price
Competition and Patent Term Restoration Act of 1984 (which is shortened
in this testimony to the ``Patent Term Restoration Act'' or the ``1984
Act'').\7\
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\7\ 98 Stat. 1585 (1984).
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The 1984 Act was an attempt to balance two competing interests. The
research-based drug industry obtained up to five years of patent term
restoration for pioneer new drugs, to compensate for part of the
diminished effective patent life resulting from the FDA requirements
for the investigation and approval of a new drug. The generic drug
industry received the assurance that generic versions of a pioneer drug
would be approved by FDA following expiration of applicable patents and
market exclusivity through an abbreviated NDA that did not require
duplicative testing for safety and effectiveness.
the pipeline drug exception
As noted above, the general rule under the Patent Term Restoration
Act of 1984 was that the pioneer drug received up to five years of
patent term restoration. There was, however, one important exception to
this general rule. A pipeline drug was limited to two years of patent
term restoration. Pipeline drugs are defined in what is now 35 U.S.C.
156(g)(6)(C) as any drug for which a patent had been issued and an
investigational new drug (IND) application had been submitted to FDA
prior to the date of enactment of the 1984 Act, which was September 24,
1984. Accordingly, there was a full three years difference in patent
term restoration between two new drugs that were being developed at the
same time, simply by reason of the fact that either:
(1) The IND for one was submitted shortly before the enactment date
and the other was submitted shortly after the enactment date or
(2) The patent for one went through the patent process quickly and
was issued before the enactment date and the other went through the
patent process slowly and was issued after the effective date.
the congressional rationale for the reduced patent term restoration for
pipeline drugs
The three-year disparity between the two years of patent term
restoration provided where an IND had been submitted before the date of
enactment and the five years provided for all other new drugs has
provoked substantial interest and concern. Two years ago, the Chief
Counsel for the Senate Committee on Government Affairs asked about the
origin of this disparity. I provided a letter in May 1997 describing
the two reasons for the two-year limitation on pipeline drugs. A copy
of that letter is attached to this testimony.
As already noted, I participated in the development, negotiation,
and drafting of the 1984 Act on behalf of the industry trade
association. My clear recollection of the reasons for the two-year
limitation for pipeline drugs, as set forth in that May 1997 letter,
are as follows:
There were two fundamental reasons why the two-year
limitation was included for pipeline drugs in what is now 35
U.S.C. 156(g)(6)(C). These reasons were frequently discussed
among those of us who were involved in the daily negotiations.
First, it was felt that the pipeline drugs would be approved
by FDA shortly after enactment of the 1984 legislation.
Accordingly, it was thought that the five year period of patent
term restoration granted to all post-enactment drugs would be
unjustified for pipeline drugs, and that a two-year period of
patent term restoration would more appropriately reflect the
anticipated short period of time between the date of enactment
and the date of FDA approval for pipeline drugs. (While this
assumption has in large part proved to be true, I understand
that for a handful of pipeline drugs the time between date of
enactment and FDA approval has extended beyond the time needed
for approval of post-enactment drugs and has in fact exceeded
ten years--something clearly not contemplated by any of us when
we were drafting the legislation in 1984.)
Second, it was felt that, for any drug for which an IND had
been submitted to FDA prior to the date of enactment, the
manufacturer had already made the decision to invest resources
in the drug and therefore less of an economic incentive was
needed to assure continued pursuit of the drug to final FDA
approval--particularly when it was anticipated that approval
would come not long after enactment of the legislation.
Accordingly it was concluded that two years, rather than five,
would provide sufficient economic incentive to assure that a
pipeline drug would not be abandoned.
These were the two considerations that led to the two-year
limitation on patent term restoration for pipeline drugs, as
contrasted with the five-year grant of patent term restoration
for post-enactment drugs, in the 1984 Act. To the best of my
recollection, they were the only two considerations that were
discussed at that time.
In October 1997, I discussed this matter with John P. McLaughlin when I
saw him at a meeting and then sent him my May 1997 letter to ask his
recollection. Mr. McLaughlin had served as Counsel to the Subcommittee
on Health and the Environment of the House Committee on Energy and
Commerce, and was involved in the legislation on a daily basis,
throughout 1983 and 1984. At the time I wrote him, Mr. McLaughlin was
Executive Vice President of Genentech, a highly successful
biotechnology company. Genentech has no interest of any kind in any
pipeline drug. Mr. McLaughlin wrote back to confirm my recollection of
the above reasons for the pipeline drug limitation. Copies of my letter
to Mr. McLaughlin and his reply are also attached to this testimony.
the outlier pipeline drugs
For most of the pipeline drugs, the assumption that FDA approval
would come shortly after enactment of the 1984 Act turned out to be
accurate. At that time, the average time for FDA approval of an NDA was
approximately 2.25 years.\8\
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\8\ FDA, New Drug Evaluation Statistical Report 53 (October 1985)
(FDA mean approval time of 26.9 months for new molecular entities
approved in 1984).
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For a few outliers, however, this assumption turned out to be quite
inaccurate. For these outlier pipeline drugs, the time for FDA review
and approval of an NDA was more than twice the average, and they
therefore suffered an even greater reduction in effective patent life.
A number of post-1984 new drugs that received a full five years of
patent term restoration were in fact approved by FDA before the agency
approved these pre-1984 outlier pipeline drugs that received only two
years of patent term restoration. This produced the anomalous result
that the outlier pipeline drugs, whose NDA approval time was more than
twice the average, received less than half the normal patent term
restoration. None of us who participated in the drafting of the 1984
Act anticipated or intended this result.
FDA approval of the outlier pipeline drugs was not completed until
April 1993 which was more than eight years after enactment of the 1984
Act. Within that eight year period, many other drugs received FDA
approval together with a full five years of patent term extension. Like
the pipeline drugs, these other drugs that received five years of
patent term extension also began development prior to the enactment
date. The average time from first pharmacological testing to the filing
of an IND in the 1980s was 5.2 years.\9\ Thus, drugs that were approved
by FDA prior to the outlier pipeline drugs, yet received a full five
years of patent term extension, were undergoing active research for
more than five years before the enactment date of the 1984 Act.
---------------------------------------------------------------------------
\9\ Tufts Center for the Study of Drug Development, Time From First
Pharmacological Testing to New Drug Approval, 1963-1997 (1998).
---------------------------------------------------------------------------
In testimony before the House Judiciary Subcommittee on Courts and
Intellectual Property on July 1, 1999, on legislation (H.R. 1598) that
is similarly designed to address the inequity suffered by outlier
pipeline drugs, Representative Henry Waxman presented the following
rationale for the pipeline drug provision in the 1984 Act:
The pipeline drugs were not made eligible for five years of
patent extension precisely because the point of the patent
extensions was to encourage the research and development of
future products. All products which had not yet undergone
testing or review by the FDA were judged to be appropriately
eligible for the full five years of patent extension.
This statement is demonstrably inaccurate. Dozens of drugs that had
already undergone testing prior to the date of enactment received the
full five years of patent extension.\10\ It was no more necessary to
provide five years of patent extension to these drugs, in order to
encourage the research and development of future products, than it was
for the pipeline drugs that received only two years of patent
extension. If Mr. Waxman were correct, none of the drugs that were
being tested and were under development before the enactment date would
have received the five years of patent term extension that they in fact
received. Thus, contrary to Mr. Waxman's contention, the criteria in
the 1984 Act that define a pipeline drug--the filing of an IND and the
issuance of a patent prior to the enactment date--were completely
arbitrary. As Mr. Waxman's counsel at that time has verified, the
rationale for these arbitrary criteria was the assumption that the
pipeline drugs would be approved by FDA shortly after enactment. For
the outlier pipeline drugs, however, that has proved to be an erroneous
assumption.
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\10\ Mr. Alfred B. Engelberg makes an even more inaccurate
statement in his letter to Senator Hatch dated June 11, 1999, where he
states that five years of patent term extension was reserved for
``drugs which were first developed after the new law was enacted.''
Initial ``development'' of a drug occurs prior to pharmacological
testing, and thus even more drugs that received a full five years of
patent term extension were under development prior to enactment of the
1984 Act.
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These outlier situations, with approval times more than double the
average, reflect the large new drug review workload imposed on FDA in
the late 1980s and early 1990s, the increasingly restricted resources
available to the agency to do this work, and thus the growing shortfall
in the personnel assigned to these tasks. FDA was doing everything it
could to meet its new drug review obligations throughout this time. But
the resources simply were not there to satisfy the workload needs.
Congress squarely faced this issue in the early 1990s and found a
solution in the Prescription Drug User Fee Act of 1992.\11\ Using the
additional funds made available under the 1992 Act, FDA hired
approximately 650 new employees to handle NDAs in a more expeditious
manner. As a result, the time for NDA approval was cut in half. If this
approach had been adopted earlier, there would have been no outlier
pipeline drugs and no need for legislation to redress the inequity in
patent term restoration that has in fact occurred for these drugs.
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\11\ 106 Stat. 4491 (1992). The 1992 Act, which was limited to five
years, was reauthorized for an additional five years in the Food and
Drug Administration Modernization Act of 1997, 111 Stat. 2296, 2298
(1997).
---------------------------------------------------------------------------
legislative attempts to redress the inequity for outlier pipeline drugs
The two-year limitation for pipeline drug patent term restoration
in the 1984 Act was intended to deal with the expected FDA average
approval time of about 2.25 years. It made no attempt to address
unusual or unique situations of lengthy regulatory review for which
accepted principles of fairness and equity would justify exceptions.
As a result, Congress has on seven specific occasions enacted
legislation to address particular FDA-regulated products where
application of the general rules in the 1984 Act would have been unfair
and inequitable. Two of those occurred in the middle of the
congressional consideration of the 1984 Act, two occurred at the end of
the congressional consideration of the 1984 Act and were enacted a
month later, and the remaining three occurred in 1988, 1993, and 1996.
In all seven instances, Congress concluded that the general rules
applicable under the 1984 Act were insufficient to address the
particular situations involved, and thus that legislation was necessary
and appropriate. The following table lists those seven statutes:
Statutory Patent Term Restorations Since 1980
------------------------------------------------------------------------
Product Statute
------------------------------------------------------------------------
Aspartame (food additive)................. 95 Stat. 2049, 2065 (January
4, 1982)
Forane (new drug)......................... 97 Stat. 831, 832 (October
13, 1983)
Impro (new animal drug)................... 98 Stat. 3430 (October 19,
1984)
Glyburide (new drug)...................... 98 Stat. 3434 (October 19,
1984)
Lopid (new drug).......................... 102 Stat. 1107, 1569 (August
23, 1988)
Olestra (food additive)................... 107 Stat. 2040 (December 3,
1993)
Daypro (new drug)......................... 110 Stat. 1321, 1321-320
(April 26, 1996)
------------------------------------------------------------------------
In a number of other instances, similar legislation has been considered
by Congress for other FDA-related products but has not been enacted.
I have in the past supported this type of legislation, because I
believe it is entirely appropriate for Congress to enact legislation
addressing the inequities that inevitably arise in the application of
general rules to unique situations. It is, however, time-consuming and
inefficient for Congress to examine and take action on each specific
product where a general problem has been identified, such as outlier
pipeline drugs. During a Senate hearing held in August 1991 to consider
patent term restoration bills for three specific products, Bruce
Lehman, who later served as Commissioner of Patents and Trademarks,
offered the thoughtful suggestion that Congress establish some type of
new administrative procedure to consider identified problems of
fairness and equity rather than to handle each individual product on an
ad hoc legislative basis.\12\ As Mr. Lehman pointed out at that time,
this alternative way of approaching the matter offers substantial
advantages. This approach for outlier pipeline drugs has been discussed
since 1991, and legislation incorporating it has recently been
introduced as S. 1172.
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\12\ ``Patent Extension Hearing,'' note 5 supra, at 218.
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conclusion
Without doubt, outlier pipeline drugs have not been treated fairly.
These drugs received only two years of patent term restoration, whereas
competitors who submitted their IND applications later but received
their NDA approvals earlier received a full five years of patent term
restoration. This result cannot be justified on any principled basis.
The assumptions on which the two-year pipeline drug limitation was
based have turned out to be erroneous for this limited category of
drugs. Under these circumstances, Congress has in the past enacted
legislation to redress the resulting inequity. In the case of outlier
pipeline drugs, this could be accomplished either by drug-specific
legislation or, more efficiently, by establishing a new administrative
procedure to evaluate the few remaining outlier pipeline drugs involved
as set forth in S. 1172.
______
Covington & Burling,
Washington, DC, May 12, 1997.
Fredrick S. Ansell,
Esquire, Chief Counsel, Senate Committee on Governmental Affairs,
Dirksen Building, Washington, DC.
Dear Mr. Ansell: This is in response to your request for
information on the origin of the two-year limitation on patent term
restoration for pipeline drugs under the Drug Price Competition and
Patent Term Restoration Act of 1984. As counsel to the Pharmaceutical
Manufacturers Association (now the Pharmaceutical Research and
Manufacturers of America) with respect to that legislation, I
participated in the development, negotiation, and drafting of the 1984
Act.
The 1984 Act established patent term restoration of up to five
years for new drugs approved by the Food and Drug Administration (FDA)
after the date of enactment, except that a two-year limitation was
placed on pipeline drugs. Pipeline drugs were defined as those drugs
for which an IND was submitted prior to the date of enactment.
There were two fundamental reasons why the two-year limitation was
included for pipeline drugs in what is now 35 U.S.C. 156(g)(6)(C).
These reasons were frequently discussed among those of us who were
involved in the daily negotiations.
First, it was felt that the pipeline drugs would be approved by FDA
shortly after enactment of the 1984 legislation. Accordingly, it was
thought that the five year period of patent term restoration granted to
all post-enactment drugs would be unjustified for pipeline drugs, and
that a two-year period of patent term restoration would more
appropriately reflect the anticipated short period of time between the
date of enactment and the date of FDA approval for pipeline drugs.
(While this assumption has in large part proved to be true, I
understand that for a handful of pipeline drugs the time between date
of enactment and FDA approval has extended beyond the time needed for
approval of post-enactment drugs and has in fact exceeded ten years--
something clearly not contemplated by any of us when we were drafting
the legislation in 1984.)
Second, it was felt that, for any drug for which an IND had been
submitted to FDA prior to the date of enactment, the manufacturer had
already made the decision to invest resources in the drug and therefore
less of an economic incentive was needed to assure continued pursuit of
the drug to final FDA approval--particularly when it was anticipated
that approval would come not long after enactment of the legislation.
Accordingly, it was concluded that two years, rather than five, would
provide sufficient economic incentive to assure that a pipeline drug
would not be abandoned.
These were the two considerations that led to the two-year
limitation on patent term restoration for pipeline drugs, as contrasted
with the five-year grant of patent term restoration for post-enactment
drugs, in the 1984 Act. To the best of my recollection, they were the
only two considerations that were discussed at that time.
Sincerely yours,
Peter Barton Hutt.
______
Covington & Burling,
Washington, DC, October 16, 1997.
John P. McLaughlin,
Esquire, Executive Vice President, Genentech, Inc., South San
Francisco, CA.
Dear John: For the past several years, manufacturers of
``pipeline'' prescription drugs--those drugs that received only two
years of patent term restoration under the Drug Price Competition and
Patent Term Restoration Act of 1984 because a clinical trial had begun
before the date of enactment--have pursued legislation to expand their
term of patent term restoration to a full five years. They argue that
the 1984 Act unjustifiably discriminated against the pipeline drugs and
that the premises on which the reduction from five to two years of
patent term restoration was based have turned out to be incorrect.
Recently I was asked to provide a letter to the Senate Committee on
Governmental Affairs to relate my views on why the pipeline drugs were
provided a shorter term of patent term restoration. A copy is enclosed.
I would be very interested in knowing your recollection of this
matter. When you have a moment, please give me a call.
With best regards,
Sincerly yours,
Peter Barton Hutt.
______
Genentech, Inc.,
South San Francisco, CA, October 31, 1997.
Peter Barton Hutt,
Covington & Burling, Washington, DC.
Dear Peter: Thank you for your letter of October 16, 1997. You ask
whether I have a recollection as to the rationale for affording two
years of patent restoration for ``pipeline drugs' (as compared to five
years for certain other categories of drugs) in the Drug price
Competition and Patent Term Restoration Act of 1984. Based on my
service as Counsel to the House Subcommittee on Health and the
Environment, I have a very clear recollection of the rationale. It is
accurately summarized in your letter of May 12, 1997 to the Senate
Committee on Governmental Affairs.
If you would like to discuss this matter further, please feel free
to give me a call.
Sincerely,
John P. McLaughlin,
Executive Vice President.
The Chairman. Mr. Downey, I have to go vote. That is why
everybody has left here. I think what we had better do so we
don't disrupt your testimony is wait until I can get back so we
can resume the hearing. And I presume most of my colleagues
will come back, as well. It is an important testimony.
So, with that, I will recess until I can get back and I
will try to hurry as fast as I can.
[The committee stood in recess from 11:22 a.m. to 11:39
a.m.]
The Chairman. We will turn to you, Mr. Downey. I apologize
for the delay, but I couldn't have taken your testimony before
the vote and so we will take it now after the vote.
STATEMENT OF BRUCE L. DOWNEY
Mr. Downey. Thank you very much, Mr. Chairman. It is good
to be back before the committee. I am Bruce Downey. I am
chairman and president of Barr Laboratories, a generic and
proprietary drug firm located in New York, as a constituent of
Mr. Schumer; in New Jersey, as a constituent of Mr. Torricelli;
and in the State of Virginia.
The Chairman. You know how to put the pressure on these
people.
Mr. Downey. I would remind them that, in fact, there are
also generic companies in those districts. We are also a member
of the National Pharmaceutical Alliance and the Generic
Industry Association, two of the leading trade associations for
our industry.
I have prepared a written statement I would like to have
submitted for the record. To go through that statement would
take longer than the amount of time allotted and I would like
to confine my remarks to some of the things that were said
today.
The Chairman. We will put the full statement in the record
as though fully delivered.
Mr. Downey. Thank you, Mr. Hatch.
The first thing I would like to do really is address the
questions that you asked at the beginning of the hearing
because I think that really gets to the heart of what we are
about today.
Your first question was is this bill in the interests of
the American public. I think the answer to that is decidedly
no. The Hatch-Waxman Act that you helped craft in the 1980's
was really built on two twin pillars. The first pillar was to
provide incentives to stimulate innovation, and that is a value
that we all share, something we all think is an important
public policy interest.
The other pillar of the Act was to guarantee competition
and to make sure that a date certain generic pharmaceuticals
were available to reduce the cost to the consumer. And by
embracing those two concepts and writing them into the law, you
were able to achieve remarkable success for consumers and for
the branded and generic industry. I would submit that this
legislation serves neither of those purposes.
In the first instance, the reward or the extension of the
patents that would be contemplated by this Act would reward
work that was done years ago. It wouldn't stimulate anything.
It might provide some funds for the Schering-Plough company or
any other company that gains a patent extension, but it is
certainly not directly designed to stimulate innovation. It is
only rewards that are offered for the work that actually
stimulates innovation in the way that I think your legislation
contemplates.
And, second, it certainly would not guarantee competition
or serve the consumer interest of those allergy sufferers who
take Claritin and the other products that are part of the
pipeline bill. Clearly, they have an interest in early access
to low-cost, high-quality generic products that will save them
literally billions of dollars on Claritin alone. So in answer
to your question, will this serve the public interest, I think
the answer is clearly no.
The second question you asked is, under the circumstances
presented here, does the delay warrant legislative action.
Again, I think the answer is clearly no. In the first instance,
the approval time for Claritin, the principal drug product that
precipitated this legislative proposal--that approval time was
consistent with the time of other products being approved at
the time. And that is all laid out in our written testimony,
and I think when you review that you will see quite clearly
there was no disparate treatment or no unfair treatment of
Claritin at the time.
In the second instance, I think you will see that the
Claritin approval process, to the extent it was delayed, was
delayed in substantial part because of the decision of the
company to switch from a capsule to a tablet product. The
original FDA advisory panel recommendation to approve the
product that Mr. Kogan mentioned was one at a time when
Claritin was in a capsule form. In 46 countries around the
world, Claritin moved directly to the market in capsule form.
In the United States, the company for their own reasons
decided to change that product from a capsule to a tablet. As
part of the approval process when you make that change you have
to submit scientific data to show that the tablet performs in
the same way as the capsule in bioequivalent studies. On two
occasions, they submitted those studies with failing results.
So it was the inability to promptly move from a capsule to a
tablet that accounted for a good part of the delay in the
approval of this product.
So we think the answer to: Should there be some delay here
or some extent for the pipeline drugs? We think the answer is
no. And when you look at Claritin particularly, it is a product
that is already enjoying 21 years of patent life, the original
17 in the patent that was granted, 2 years' extension through
the Hatch-Waxman Act, and 2 additional years through the GATT
treaty implementation legislation. So at the time of expiry,
there will be 21 years of patent life for this product and we
think that is enough.
The third question you posed is, is a new process required
to allow for patent extensions to avoid this ad hoc
consideration in the Congress. Again, I think the answer to
that is clearly no. The Congress and the laws of our country
establish a 20-year term for patents from date of application.
And, second, they have a Hatch-Waxman provision to grant an
extension under situations of regulatory delay.
To a third really exception to the exception and provide
for a second extension, I think is a political decision. It is
a decision where the Congress needs to balance those twin
pillars of stimulating innovation and guaranteeing competition,
and look at the particular subject matter of that particular
patent and decide how those interests are best served, whether
they are served through a patent extension or allowing it to
expire as the law contemplates.
I would like to close by debunking two points that we have
learned maybe some members of the staff and some members of
Congress have come to believe because of the lobbying efforts
that have been put forward on this bill.
The first of those is do we think the Senate bill is
somehow better than the House bill, we in the generic industry,
so that the passage of Senate 1172 or some tinkering with that
bill would solve our basic objections? And the answer to that
is clearly no. I would describe the House bill as a wolf in
wolf's clothing, and no one is fooled by what it is. I think
the Senate bill is really a wolf in sheep's clothing, and so
there is a little packaging around the sides. I don't think it
is really clear.
What we object to is the wolf, and the wolf in this case is
the ability to extend patents beyond their natural period of
expiration in a way that does not serve the interests of
promoting competition or innovation. And for that reason, we
would urge the Senate to oppose this legislation, to vote it
down, because I think when you get down to the bottom line what
you really have here is a piece of legislation, carried to its
logical extension in granting the patent extension, that is
really a multibillion-dollar tax on allergy sufferers. And from
a consumer point of view, there is absolutely no difference
between extending the patent life on Claritin, and on the other
side imposing a tax on allergy sufferers, collecting the money,
and wire-transferring those funds to Schering-Plough. I think
when you look at it in that light, it is clear that this is a
piece of legislation that should be defeated.
Thank you, sir.
[The prepared statement of Mr. Downey follows:]
Prepared Statement of Bruce L. Downey
Mr. Chairman, members of the Committee, thank you for the
opportunity to testify. My name is Bruce L. Downey, and I am Chairman
of Barr Laboratories, Inc., which has facilities in New York, New
Jersey and Virginia and manufactures and distributes a wide range of
prescription medicines for the treatment of diseases ranging from
cancer to heart disease to depression. Barr Laboratories is a member of
the National Pharmaceutical Alliance and the Generic Pharmaceutical
Industry Association, two of the three largest generic pharmaceutical
industry associations.
The future of the generic pharmaceutical industry is directly
linked to a vibrant brand industry that has appropriate incentives to
develop new and innovative pharmaceutical products. The flow of such
products provides patients with improved alternatives to currently
available therapies, and also generates the opportunities for our
industry to develop more cost-effective versions of existing products.
The best way for Congress to preserve the balance among competition,
innovation and intellectual property rights is to preserve and expand
the Hatch- Waxman Act. S. 1172 fails to meet this objective.
The members of the generic pharmaceutical industry stand together
in strong opposition to the approval of S. 1172. We believe it will
upset federal drug policy that has served patients for nearly two
decades for the sole purpose of extending patents protecting a specific
product and thereby delaying generic competition.
Our industry opposes S. 1172 because it:
Imposes an unwarranted multi-billion dollar burden on
patients through years of lost access to cost-saving generics;
Establishes a process that substantially reduces brand
company incentives to innovate new therapies by delaying
competition;
Imposes piecemeal changes to Hatch-Waxman that disrupts the
delicate public policy balance that has generated a decade of
increased innovation and patient savings;
Invites imitation by other special interests for countless
other products; and
Diverts the attention of Congress from concentrating on ways
to dramatically increase patient access to pharmaceutical
products at reasonable costs.
history of claritin patent extensions
Although this legislation is proposed in part as a mechanism to
address suggested deficiencies within the Hatch-Waxman compromise, the
driving force behind this initiative is Schering-Plough and its efforts
to extend the patents that protect Claritin, a multi-billion dollar
international allergy drug.
This is the sixth effort by Schering-Plough to use the Congress to
obtain a third extension of the patents protecting Claritin. Last
month, the House Subcommittee on Court and Intellectual Property
considered a similar legislative proposal for the second time in two
years. While S. 1172 purports to improve upon the House version
addressing procedural deficiencies, in fact the inevitable result--if
not the purpose--of this bill and the House version are identical--a
patent extension for Claritin.
Previous efforts to extend these patents have been more direct, and
not disguised as public health policy initiatives. In May 1997,
Schering-Plough attempted to add a patent extension amendment to the
Omnibus Patent Act of 1997, an effort that was blocked in this very
Committee. In the closing moments of the 1997 congressional session,
there was a second attempt to extend the patent through the
appropriation process, while a bill was in conference. That effort was
also rejected. Last year, there was an attempt to add this proposal to
the 1998 Omnibus Appropriations Bill. That initiative failed as well. I
am confident that when you have considered all of the evidence you will
reach the same conclusions that the Congress has previously reached and
reject S. 1172.
A fundamental reason for the previous rejections of an extension to
the Claritin patents is that the government has already granted two
such extensions. If you look at the record, the patents protecting
Claritin have already been extended far beyond what Schering-Plough
could have expected at the time it was developing this product. The
original patents for Claritin were filed on June 19, 1980 and granted
on August 4, 1981. The product was launched in 1993 and without any
extensions the patents would have expired on August 4, 1998, after 17
years of protection.00
According to a Federal Register Notice of August 31, 1993,
Schering-Plough sought a two-year patent extension pursuant to Hatch-
Waxman and was successful in extending the patent until August 4, 2000.
As part of the GATT implementation legislation, the patent was further
extended by another 22 months to June 19, 2002. As a result of these
extensions, in June 2002 Claritin will have enjoyed patent life of
approximately 21 years--four years beyond the original patent term.
potential lost savings to patients
The two-year Hatch-Waxman extension protected approximately $5
billion in Claritin sales from generic competition. The two-year GATT
extension is estimated to protect approximately $7 billion in sales,
based on projections by ABN AMRO Associates of Boston. From the
patient's point of view, anywhere from 30-80 percent of this $12
billion cost could have been saved if generic competitive market forces
were in play. While analysts' projections for Claritin's growth end
with the patent expiry, if one were to assume the same growth levels
through 2005, S. 1172 would protect more than $20 billion from
competition.
Extending the patents will delay generic competition and force
Claritin patients to continue to pay more than $80 per month for a
typical prescription for three more years. For those patients covered
by insurance these costs will be borne by the insurance firm
subscribers and employers who pay for medical coverage. For those who
must cover prescription costs themselves, the monthly cost will come
directly out of their pockets. And taxpayers will be forced to pay the
additional federal costs that these patent extensions will create.
inhibiting innovation and investment in new product development
Clearly, if Claritin were not protected from competition, the
pressure on Schering-Plough to innovate new, equally effective and
profitable therapies would increase significantly. In fact, it is this
very pressure to innovate, while simultaneously providing an economic
benefit to patients upon patent expiry, that was the heart of the
Hatch-Waxman compromise.
Mr. Chairman, any senior corporate executive can appreciate
Schering-Plough's corporate motives in working to preserve its Claritin
profit stream from competition. But there are few instances in our
nation's history where corporate monopoly interests have made sound
public policy. We don't need to tell you that competition in the
pharmaceutical industry is good for the consumer, and our most needy
citizens.
When a product patent expires, it is not unusual for multiple
generic pharmaceutical companies to launch versions of the product. As
a result, prices fall rapidly and dramatically, as competition
increases. One need only look at Zantac, an ulcer medication, for a
good example. Following introduction, generics rapidly climbed to 80
percent of the units sold in the market in less than three months. The
cost savings were equally as dramatic for patients, falling from more
than $80 a month to less than $12 per month.
But perhaps as important, working with a finite period of
protection promotes investment in new product innovation, encourages
creativity and results in new and improved therapies. Last summer, the
Congressional Budget Office considered the very issue of innovation
when it examined the value and impact of generic competition. The CBO
study concluded that, ``Between 1983 and 1995, investment in R&D as a
percentage of pharmaceutical sales by brand name drug companies
increased 14.7 percent ($2.7 billion) to 19.4 percent ($14.4 billion).
Over the same period, U.S. pharmaceutical sales by those companies rose
from $17 billion to $57 billion. Overall, then, the changes that have
occurred since 1984 (the Hatch-Waxman Act) appear to be favoring
investment in drug development.''
Since the Hatch-Waxman Act, brand sales have increased steadily,
exceeding $80 billion in 1998. Generic companies and consumers also
have benefited. Since 1984, the generic industry has grown steadily and
today has total annual revenues of approximately $11 billion. In fact,
42 percent of all prescriptions filled today are for generics. Because
of generic competition, consumers have saved literally billions of
dollars by having access to generic pharmaceuticals that are priced as
much as 70 percent-80 percent below their brand counterparts.
There is compelling evidence today that the underlying premise of
the Hatch-Waxman Act works--the entire pharmaceutical industry and all
consumers will benefit if there is a proper balance between rewarding
innovation and guaranteeing competition. A study recently commissioned
by Warner Lambert and prepared by the Boston Consulting Group explored
issues related to access to brand pharmaceuticals as related to market
interventions outside the U.S. marketplace.
The study considered market interventions, including government
price controls, and concluded that, ``the net effect of reducing the
degree of market intervention would be to encourage competition later
in the product life cycle, and reward and encourage innovation in the
early years * * * It is ultimately the patient who suffers from a
poorly designed and ineffective intervention regime.'' S. 1172
contradicts this conclusion.
piecemeal amendments to hatch-waxman
The Hatch-Waxman Act was a delicate compromise that sought to
encourage competition from generic pharmaceuticals while maintaining
the brand industry incentives to invest in the development of
innovative drugs. It has also provided American consumers and taxpayers
with more than 15 years of multi-billion dollar savings in health care
costs. The generic industry strongly encourages Congress to maintain
the fundamental provisions of the Act while simultaneously expanding
the benefits of this landmark consumer legislation through appropriate
legislation. S. 1172 is not the vehicle for the consideration or
approval of mechanisms to extend the benefits of Hatch-Waxman.
However, two of the arguments made in support of S. 1172 would
significantly recast the effect of this legislation. One of the
arguments for extending the patents on Claritin is related to the
product's status at the time of Hatch-Waxman, and the other argument is
that the Claritin product was unnecessarily delayed by the FDA.
At the time the compromise for extending patents under Hatch-Waxman
was forged, all of the parties recognized that one of the key
objectives of the Act was to promote innovation. The formula for these
incentives was straightforward. The Act recognized the need to provide
incentives for drug products in the early stages of development, and
research projects initiated after the implementation of the Act. Hatch-
Waxman also recognized that there was no need to provide incentives for
those products that were already on the market, and therefore they
received no patent extension. The parties recognized that there was no
obligation to offer an incentive for investing in products that had
already reached the marketplace because the investment in innovation
had already been made. For those products that were in the middle
stages of development, including Claritin, it was agreed that the Act
should provide some incentive for the work remaining to be completed,
so a partial extension of patents was granted for these products. The
amount of time granted was based on the point in development when the
Act was implemented. S. 1172 would repudiate this deal.
In addition, Schering-Plough argues that Claritin deserves
additional patent protection because FDA approval was unusually
delayed. The facts, however, do not support this argument. The IND for
the product was filed with the FDA in January 1983, and the NDA was
filed in October 1986. An FDA advisory committee recommended approval
for Claritin one year after the NDA was filed. Normally, prompt FDA
approval would have followed. Schering-Plough, however, amended the
application to change Claritin from a capsule product to a tablet
product. This decision ultimately delayed the approval process by
several years.
In the pharmaceutical industry, changes in the dosage form require
bioequivalence tests to ensure--as in the case of Claritin--that the
capsule and tablet will work the same way. That is, Schering-Plough was
required to prove that the active ingredient in the tablet would be
absorbed into the patient's blood stream at the same rate and to the
same extent as the capsule version. Schering-Plough twice provided
failing bioequivalence data, which further delayed Claritin's approval.
Had Schering-Plough proceeded with approval to market the capsules
as originally intended, and as it did in 46 other countries, the
product could have been launched years earlier and we would not be here
today. Had it submitted appropriate bioequivalence data, the approval
could have proceeded normally. Clearly the delay in entering the U.S.
market rests solely with Schering-Plough's management and scientists
and cannot be blamed on an FDA delay.
Another defect in S. 1172 is the requirement that the patent holder
exercise due diligence during the NDA review process. In the context of
this bill, ``due diligence'' is a meaningless standard. The most
minimal efforts to communicate with FDA during the review process, for
example, would likely satisfy ``due diligence.'' This standard does not
permit a proper determination of whether the patent holder was
responsible for any delay or to apportion accountability.
Proponents of S. 1172 suggest that they have corrected a deficiency
in the House version (H.R. 1598) by placing the burden of proof for
gaining an extension on the patent holder. (H.R. 1598 placed the burden
of proof on those opposing the extension.) The problem with this
argument is that engaging in the discussion of where the burden of
proof belongs legitimizes the consideration of the validity of the
patent extension process proposed under S. 1172. Congress has already
established the appropriate period of patent life and the appropriate
process for extending patents within the Hatch-Waxman Act. Only an act
of Congress should extend the life of patents beyond the original and
already generous extensions already existing. S. 1172 would substitute
an administrative procedure that upsets the balance of Hatch-Waxman and
replaces congressional scrutiny with an inappropriate bureaucratic
decision-making process.
As was true with H.R. 1598, S. 1172 would place the technical
decisions of the FDA under scrutiny of a separate agency ill-qualified
to address them. The bill requires the Commissioner of the United
States Patent and Trademark Office to make a legal determination about
whether a separate agency, the Food and Drug Administration, performed
its responsibilities in accordance with its statutory mandate. At no
time during the entire consideration of this legislation has there been
a credible demonstration that the Commissioner of Patents has
sufficient knowledge and understanding of the FDA and its processes or
pharmaceutical policy to justify this delegation of authority. In
addition, if Congress wanted to give PTO this type of authority, it
would have specified it in the Hatch-Waxman Act. Instead, Congress made
a conscious decision to give FDA the responsibility for reviewing and
calculating agency delay to support an extension.
Finally, the argument is made that S. 1172 provides a benefit to
the generic industry by resolving issues related to the listing of
product patents. In essence, this legislation is designed to offer
something to the generic industry in exchange for their support for
granting extensions to brand product patents. This proposal, however,
offers the generic industry no real benefits. The generic industry
believes that there are a number of more substantive, critical
problems, that if corrected, would strengthen the Hatch-Waxman Act and
directly benefit consumers. Unfortunately, the proposals put forth in
S. 1172 are extremely limited and would generate additional inequities
by benefiting some manufacturers at the expense of others.
The bill is further evidence that the development of effective drug
policy or the improvement of Hatch-Waxman can not be achieved by
periodic, limited legislation designed to award a specific benefit to
one or two companies. These issues are far too complex to be addressed
in a procedural bill whose primary purpose is to protect one drug from
the very competition envisioned by the Hatch-Waxman Act.
For example, Section 2(a) of S. 1172 does attempt to limit the
breadth of required Paragraph IV certifications to only the patents
that claim, in one form or another, the active ingredient. In this way,
the bill tries to exclude Paragraph IV certifications for extraneous
patents.
However, the bill's Paragraph IV limitation only applies to patents
for the eight or so ``pipeline'' drugs affected by the bill itself and
would apply only after the pipeline drugs had received the additional
three years of patent protection proposed by S. 1172. Generic companies
have already filed Paragraph IV certifications for some of these
pipeline drugs, and have relied on the existing law in making
investment decisions about the development of generic versions of these
drugs. S. 1172 does not address that investment or the resulting
inequity to the generic companies pursuing these products.
The limitation also does not apply to the hundreds of patents that
are presently listed erroneously in the Orange Book (FDA's Approved
Drug Products With Therapeutic Equivalence Evaluations), or in any way
limit future improper patent listings attempted by the brand industry.
The generic industry has been concerned for some time about the
brand industry's abuse of patent listings in the Orange Book. The
Hatch-Waxman Act requires that FDA compile--the Orange Book, and that
NDA applicants submit patent information to FDA for inclusion in the
Orange Book. FDA may not approve a generic drug application until the
listed patent terms have expired. For generic applicants, the listing
of patents in the Orange Book triggers the Paragraph IV certification
requirement discussed above.
Thus, whenever an NDA holder has a patent listed in the Orange
Book, the NDA holder is eligible to exercise the statutory 30-month
stay against generic competition, thereby extending its product
monopoly. With such a lengthy monopoly period at stake, it is no
surprise that NDA applicants submit patent information to FDA that is
voluminous or only tangentially related to the drug at issue. For
example, some products, such as the osteoporosis drug Evista, have more
than 100 patents listed in the Orange Book.
The generic industry believes that only compound patents should be
listed in the Orange Book and entitled to Paragraph IV certification
and the 30-month stay. A separate ``Grey'' Book could then be created
to provide industry notification of other patents. To accomplish this,
the industry proposes three statutory changes to prevent the Orange
Book listing of irrelevant patents.
Limit patents eligible for listing in the Orange Book.
Congress should amend the Act's patent listing and protection
provisions to limit listings to patents that claim a new active
molecule(s) of a pharmaceutical product. Only those new
molecule patents would require a Paragraph IV or other patent
certification. Furthermore, if eligible patents are submitted
to FDA later than 30 days after the date the patents are
issued, as required by Section 505(c)(2) of the Act, generic
drug applicants would be excused from making the patent
certification.
Develop a ``Grey Book'' for patents that are merely related
to the drug product. In addition, Congress should require that
all NDA holders list all other patents related to a new drug
product, including the use of the drug product or the method of
manufacturing the drug product, in a new book to be compiled by
FDA called the ``Grey Book.'' Patents listed in the Grey Book
would not require patent certification by generic drug
applicants.
Provide administrative relief for improperly listed patents.
Congress should authorize FDA, with assistance from the Patent
and Trademark Office, to identify and remove improperly listed
patents from the Orange Book. As a penalty for submitting
improper patents to FDA, the patent holder and NDA applicant
should lose the right to enforce the patent against a generic
drug applicant.
S. 1172 also purports to address the complex issue of market
exclusivity. While clearly an area where there has been a great deal of
controversy and litigation, this bill is not the appropriate vehicle
for that debate. According to the Hatch-Waxman Act, FDA is to award 180
days of market exclusivity to the first company that seeks to market a
generic drug product and, in so doing, challenges the scope or validity
of an existing patent covering the brand drug product.
Numerous administrative challenges and court cases have ensued over
the statutory provision itself and over how FDA has interpreted it.
While the generic industry agrees that Congress should address the
confusion by clarifying the meaning of the 180-day exclusivity
provisions, the limited provision proffered in Section 2(b) is
inadequate. The proposed amendment would not begin to address the
numerous and complicated fact patterns that have arisen to make this
section of the Hatch-Waxman Act such a controversial matter. It also
does not provide relief for companies that have invested based on the
current reading of the law. Only prospective application of solutions
to these questions would be equitable for the generic industry and a
benefit for consumers. Without prospective application, the delay in
introduction and cost savings to consumers could be very significant.
The generic industry believes that these are only a few of the
areas where the Hatch-Waxman Act could be clarified, strengthened and
expanded. However, these complex issues require measured consideration
and complete, knowledgeable debate. Amending significant provisions of
Hatch-Waxman, which is what is proposed in S. 1172, would occur without
the benefit of such a comprehensive debate. It is bound to produce
further inequities, disrupt innovation, and harm patient access to new
and more affordable medicines, all in the name of extending the patent
protecting Claritin from competition.
Even though S. 1172 attempts to resolve procedural flaws contained
in earlier proposals and tries to provide some a very limited benefit
to some generic companies, it still fails what should be the
fundamental test of any legislation affecting federal drug policy--
namely, will this proposal benefit consumers by encouraging innovation
while ensuring affordability or will it simply protect a product from
competition? Schering-Plough has not demonstrated a true injustice that
would support such an upset of the Hatch-Waxman balance.
the problem with imitation
Success in moving S. 1172 will breed imitation. There is no reason
to believe that the proposed legislation will not be amended to provide
other companies with additional patent relief. In fact, some brand
pharmaceutical firms have made it clear that they will attempt to amend
this legislation to provide patent relief to other products should it
be considered seriously by Congress. Thus, one of the real dangers of
S. 1172 is its inexorable and inevitable disruption of the Hatch-Waxman
Act, opening the door for the ultimate reversal of the most significant
consumer health care access and savings act in history.
summary
In closing, I would like to pose a question, and then answer it.
What will happen to Schering-Plough if they are unsuccessful in getting
Congress to extend their Claritin patents? The answer comes directly
from Schering-Plough's Chief Executive, Richard Jay Kogan. In a story
published in the Wall Street Journal on June 28, Mr. Kogan is quoted as
saying that his company had several add-on patents on Claritin that may
protect the drug for years beyond 2002, when the first patent expires
on the chemical compound. The story went on to note that the ``company
was in late-stage human testing of desloratadine, a metabolite of the
chemical in Claritin, whose patents expire in 2004 and 2014,'' and as
such Schering-Plough is in a ``good position to compete on its own and
isn't interested in a merger at this time.''
It is our hope that when Congress considers the issues of federal
pharmaceutical policy, the debate will not focus on how to construct a
process designed to achieve only one outcome--the endless preservation
of one company's product monopoly. Instead, we urge that the focus
should be on how to protect the public health policy issue of balancing
brand pharmaceutical research and development with the introduction of
new generic medicines, and the economic balance of rewarding innovation
while promoting competition.
The American people would be better served by a debate on ways to
extend access to affordable medicines, such as looking for ways to
expand the benefits of the Hatch-Waxman Act. Some examples might
include closing loopholes, speeding approvals, and expanding coverage
to new classes of drugs such as biotechnology products.
Today, the biotechnology industry is unique in the pharmaceutical
industry in that it does not have generic competition. There is no
explicit regulatory pathway for generic biotech approval, despite the
fact that a number of blockbuster biotech products are already off
patent or will be by the turn of the century. Not only would consumers
and government purchasers benefit greatly from the cost savings
attributed to generic biotech products, but allowing new competition
from generic manufacturers would serve as an incentive for the biotech
industry to innovate the next generation of biotech drugs. In this way,
we could save money for all consumers, rather than tax consumers to the
benefit of select companies.
When you look at the headlines from the past several months, the
cost of pharmaceutical products is of paramount concern to a broad,
bipartisan group of legislators deeply concerned about the ability of
Americans to afford their medicine. The generic industry encourages
Congress to turn its back on this debate over special interest
legislation and focus instead on the more important discussion over how
to give every citizen access to the medicines they need.
The brand and generic industries agree that affordable medicines
are the key to longer, healthier and more productive lives. Let us work
together with you to resolve the problems of dispensing medicines to
all Americans, including the under-insured and uninsured, and not waste
time debating the dispensation of special corporate favors that drive
up the cost of medicines. We urge the Committee to reject S. 1172. I am
happy to answer any questions.
The Chairman. Well, thank you. We certainly have
differences of opinion on this matter, but that is what makes
this place interesting as far as I am concerned. And as the
author of the Hatch-Waxman bill, I am very concerned about
these areas. I am always concerned about equity and fairness
both ways.
Frankly, as I heard the testimony today, especially the way
that Jerry Meyer and Peter Hutt tell the story, I am not clear
in my own mind whether Senator Torricelli's bill should be
thought of as a Hatch-Waxman reform measure. Perhaps the
question here is should the Congress enact a process to provide
relief for certain pipeline products. It seems to me that is
the question. This process would be governed by standards that
are applied by experts.
So let me ask each of you, do you believe that pipeline
drug issue and the way this bill attempts to address it is
actually a legitimate exercise by Congress of the law of equity
or should it be considered as part of a more general discussion
of the Hatch-Waxman reform?
Why don't we start with you, Mr. Hutt, and then why don't
we go to Ms. Ben-Maimon, Mr. Meyer, Senator Metzenbaum, then
Bruce Downey and then Dick Kogan?
Mr. Hutt. Senator, let me state unequivocally this is not
an attempt to reform the 1984 Hatch-Waxman law, nor have any of
the seven prior statutes enacted to provide specific, equitable
relief to one, or in one case a class of five patents, been
attempts to reform the basic 1984 statute.
This is a pure equitable relief bill targeted to solve a
problem because a statute was enacted with very broad
objectives and very broad terms, the original Hatch-Waxman Act.
And no one back in 1984 could have anticipated this kind of
inequitable result. And so what Congress has had to do--this is
not the first time, as you pointed out--is to enact specific
legislation each time one of those inequities surfaces.
Here, this is a process rather than a product-specific
bill, and I believe very strongly, as I stated in my prepared
statement, that a process is much better. We will find out, in
response to Mr. Downey, whether, in fact, there was a lack of
due diligence on the part of the seven companies involved or
whether they were engaging in due diligence.
The Chairman. So you are saying they would have to prove
their case within this process?
Mr. Hutt. They must prove their case.
The Chairman. Within this process?
Mr. Hutt. Yes.
The Chairman. Ms. Ben-Maimon?
Dr. Ben-Maimon. I would like to answer the question on
three specific points. First of all, I think it is very clear
that the generic industry clearly does not endorse patent
extension. We believe that the expiration of those patents is
actually what stimulates research and development.
The Chairman. But you do agree that patents are important
in order to stimulate investment to begin with?
Dr. Ben-Maimon. No question about it.
The Chairman. OK.
Dr. Ben-Maimon. But this is not a request necessarily for a
guarantee of patent life, which they already have at 21 years.
It is a request to guarantee market life; that because of what
is occurring during the regulatory process, there should be a
guaranteed market life for products. And that is very different
than the extension of patent and the protection of intellectual
property rights, which we clearly believe are exceptionally
important.
The intent of Hatch-Waxman clearly included in its concept
the encouragement of research and development, and allowing
patents to expire actually stimulates some of that research and
development. So it is important that patents, in a timely
manner--and clearly when is the question--are permitted to
expire so that research and development is encouraged and aging
products don't just remain on the market forever.
From the standpoint of the process itself, the issue here
is that in order for a process to be fair, it needs to
understand the technical nature of the review process. It needs
to understand and take into account what are the motivators of
the innovator, why are things being changed. And the PTO
clearly doesn't have the expertise to be able to evaluate the
processes at FDA.
Should we be granting extensions for products that there is
a choice made during the regulatory review process to switch a
formulation that actually delays the entry of market willingly
by the innovator? I am not sure about that. Or should we be
encouraging them to bring the product to market, especially if
it truly is an advantage for patients over what is currently on
the market? I don't know that we should be allowing them to
make switches in formulations and things like that for drugs
that we clearly want to have on the market.
And, last, I think 1172 also does try to address some of
the issues that we do consider important, such as the Orange
Book issues which clearly get at the heart of Hatch-Waxman. And
I think in other hearings this has been likened to the
unraveling of a button, and I think we have to be very cautious
when we start to unravel that button. We start to change things
that were clearly discussed and negotiated and we can unravel
the button to the point where it falls off.
And I would hope that we take these issues in the context
of what is good for patients and what is good for the public
health, and look at them separately from a patent extension
which is clearly what the intent of the bill was originally.
The Chairman. Thank you.
Jerry.
Mr. Meyer. Thank you, Senator. I certainly did not intend,
Mr. Chairman, to suggest that this bill or whatever form it
finally takes would be viewed as a Hatch-Waxman reform bill.
That is not my intent at all. I think that legislation was
extraordinarily helpful and I think it continues to be so
today.
But I also believe there have been and there will always be
a few outlier products that will have faced very extenuating
circumstances. And there ought to be a process, and that is
what I saw was a process being created that at least permits
open public consideration of that issue. That is how I see that
legislation, and I don't think it is limited to a few products
in the past. I think it will probably include a few products in
the future.
There was one just recently. A constituent of yours,
Senator, that was involved in obtaining approval faced
circumstances that were certainly not anticipated--that is
probably the kindest thing I could say--at the time the
application was reviewed, and then extended by well over a year
after an advisory committee has recommended approval, 19-0. So
I believe there will always be a few of these products around
and they will surface, and unfortunately no one could ever
write legislation that would cover every conceivable
circumstance. So I am hopeful that a process will be created
that will provide at least public consideration of those kinds
of issues.
The Chairman. Thank you.
Senator Metzenbaum.
Mr. Metzenbaum. I think, Mr. Chairman, the question before
the committee is what is equitable and fair to the consumers of
this country. The focus should be on public policy and how to
contain high drug prices.
Now, let's face it. This company has been incredibly
successful and able in its effort to extend its patent. Part of
the reason for its delay originally was that it had switched
from a capsule form to a tablet form during the process of
going through the approval. And had they not done that, the
process would have moved much more rapidly. But Schering-
Plough, I give them double-A for being persistent and being
determined because even coming in the middle of the night with
an amendment to an appropriations bill, they attempted to get
an extension.
The real question is what is the right thing to do for the
American consumer. This company has been treated fairly, very
fairly by the Congress and by FDA, and now I think they are
just being a bit hoggish in wanting to extend their patent
which, as I previously stated, cost the American people an
additional $11 billion, according to an impartial source.
So, Mr. Chairman, I say to you as the author of a piece of
legislation that was major legislation--the Hatch-Waxman Act
was not just a piddling bill; it was a major piece of
legislation. This is an effort to hang onto that, move forward
and say, well, yes, but now we want an exception, we want to
make another $11 billion, or whatever the actual number is, by
getting an exception.
And I just say to you, Mr. Chairman, and I urge upon you,
you and I have differed at times on various issues, but on the
matter of fairness we have never differed. And in this
instance, the Congress and the FDA have been very fair to this
company and I think they are just being rather hoggish in now
asking the Congress to see to it that they can exploit the
American public for an additional sum of about $11 billion.
The Chairman. Thank you, Senator.
Mr. Downey.
Mr. Downey. I think it is clear that this bill as written
is not a Hatch-Waxman reform or an expansion piece of
legislation. I do think from our perspective in the generic
industry, there are a number of issues that we would like to
see taken up. Principal among those would be the expansion of
Hatch-Waxman to biotech products, to biologics. There is no
clear regulatory pathway to get a generic biotech product
approved. We think that is a logical expansion. That is the
kind of subject we think should be taken up rather than an ad
hoc bill that benefits one or two companies.
The balance was struck between innovation and competition,
40, 50 issues resolved. There was compromise on both sides. To
reach out and move one item from the pro-competitive side and
move it over to the innovation side as an ad hoc approach, we
think that is wrong. If we are going to approach it, we should
do it on a comprehensive basis.
The Chairman. Thank you.
Mr. Kogan, we would like to hear your viewpoint.
Mr. Kogan. Thank you, Mr. Chairman. The issue under
consideration is to provide a fair and open process at the
Patent Office to determine whether certain pipeline drugs--and
here we are just limiting it to seven drugs--lose valuable
patent time due to unanticipated regulatory delays. So I think
this is clearly an issue of equity.
But let me comment on some facts I think that have not been
correctly presented to the committee, Mr. Chairman. I want to
talk about the 17 years of patent protection, the 20 years of
patent protection, and I think somebody mentioned the 23 years
of patent protection that Claritin has received. That is really
misleading.
We have received, if Claritin runs to its normal patent
life--we will receive 9.2 years of effective patent protection;
that is, from the date we introduced the product, we will have
9.2 years of patent protection, not 17, not 20, not 23.
Furthermore, if we are successful in our attempt here, if
S. 1172 is passed by the Congress, if we prevail at the Patent
Office, if we then prevail on appeal in the Federal judiciary,
we will gain 3 more years of patent extension which will give
us an effective patent life for Claritin of 12.2 years. That is
less, Mr. Chairman, than the average patent life drugs received
in the 1980's. That was 12.6 years.
So even if we go through the hurdles that are being set up
here, even if we are successful in passing legislation, even if
we are successful in the Patent Office and successful in the
Federal judiciary, we still will receive a total effective
patent life that is lower or less than the average of those
products approved in the 1980's.
The Chairman. But you are saying that you have to prove
your way all the way up that tree?
Mr. Kogan. That is right, sir.
The Chairman. And you could lose at any time on the way up?
Mr. Kogan. Well, that is correct.
The Chairman. Even under this bill?
Mr. Kogan. Yes, and even if we win all the way, we will
have less effective patent protection for Claritin than the
average product approved in the 1980's. So it is clearly an
issue of equity.
Just one other comment. It has been referenced here that
there was an effort on Schering-Plough's part to delay approval
of Claritin by, well, different vehicles. I mean, that is
nonsense. We worked absolutely diligently and hard to get this
product approved. We were in a competitive race to get it
approved and we worked hard.
The issue of bioavailability--I can explain that, but just
let me say that we don't market this product in 46 countries in
capsules. We market it pretty much the same way we market it in
the United States, in tablet form, because that is the
presentation that consumers like and that is the presentation
that is safer in terms of product tampering, which was an
issue, as you all will recall, back in the late 1970's and the
1980's.
Thank you, Mr. Chairman.
The Chairman. Well, this whole area has always interested
me. It is a very, very interesting area, and there are the two
competing sides, plus the generic industry competing. Anything
that is done has to be fair. But as I understand it, Claritin
was approved in 1993. Let me just make sure I am right on these
issues. It was approved in 1993 and its primary patent will
expire in 2002. Am I right on that?
Mr. Kogan. That is correct, sir.
The Chairman. OK, so that gives you a marketing exclusivity
period of 9 years?
Mr. Kogan. Yes, sir.
The Chairman. Now, under today's patent law the patent term
is 20 years. Let me just ask you, Mr. Meyer, this. What is the
effect of a legal and regulatory system that renders important
pharmaceutical patents with a market exclusivity period of 9
years as opposed to a widget that has 20 years? Does that
affect a company's ability to raise capital and invest in
research and plan their future business strategies?
Mr. Meyer. Well, I certainly think it would. You know, I
was here as a representative----
The Chairman. It seems to me that is one of the issues
here.
Mr. Meyer. I mean, you know, it has to. You know, I work,
Mr. Chairman, for both generic and innovative firms now.
The Chairman. Right. Well, that is why your testimony is
very important here.
Mr. Meyer. This is a delicate balance that people try to
do, and that is why I see the process as such an important
process so they can at least have their views considered. But,
you know, the current patent system is difficult from a
pharmaceutical point of view because you file for a patent
without ever knowing when you will be able to begin to achieve
the protection of that patent, and that happens when the
product is finally launched.
Another firm that I worked with, as a matter of fact, faced
an issue where they had built a manufacturing facility for
millions and millions of dollars for a product whose review
time was extended and extended and extended--it was an
antibiotic--to the point where the firm had to make a decision
as to whether it was worth to pursue because by the time they
got approval, they wouldn't even be able to get back the money
for the building they built that would never be used.
So you can be very squeezed in the way our patent process
is set up, and somehow I hope that the right committee will
take a look at some point at some combination of marketing
exclusivity and patent protection to establish it for when the
product is approved and to start there so it will be equal for
everyone. That is the position I argued. I am not an attorney,
so I don't know how to craft that. When I was at FDA--and I
still believe that is the only ultimate fair way to resolve
that.
The Chairman. Well, thank you. My time is up, but I would
like to ask you and Peter Hutt and Dick Kogan this because you
are for this bill, as I see it. Former Patent Commissioner
Lehman and Judge Randy Rader of the Federal Circuit have
proposed that Congress consider assigning the role of fact-
finder with respect to pipeline drugs to the Federal Court of
Claims.
Do you have any opinions on the advisability of this
recommendation? If you could answer it really quickly, I will
go to you.
Mr. Meyer. I don't have opinions on that issue, Mr.
Chairman. I heard those arguments. I don't have a personal
opinion on that.
The Chairman. Mr. Hutt.
Mr. Hutt. Senator, I believe that would be an unproductive
approach. First, we need something that can be resolved very
quickly because for these seven----
The Chairman. That is why you want the Patent Office to do
it?
Mr. Hutt. That is exactly right.
The Chairman. Then there would be an appeal to the Federal
circuit court?
Mr. Hutt. Exactly, but if this were given to the judiciary,
particularly to a court that has thousands of cases in backlog,
it is highly unlikely the court would ever even hear the case
before the patent is expired. So we need an administrative
process.
Second, I don't believe that litigating this in court is
the best way to resolve the issue. We need an independent,
neutral administrative tribunal that can look at the entire
record; can ask questions of FDA, of the company, of the
generic industry; put it together quickly and resolve this in a
matter of months. This is, I think, easily the best way to do
it.
The Chairman. Mr. Kogan.
Mr. Kogan. I have nothing to add to that, Senator.
Mr. Metzenbaum. Mr. Chairman.
The Chairman. Yes.
Mr. Metzenbaum. Let me just add one word in view of these
comments.
The Chairman. Sure.
Mr. Metzenbaum. If there were to be some procedure,
certainly under no circumstances should the determinative body
be the Patent and Trademark Office. It ought to be FDA, where
the original jurisdiction lay. At least they have some
cognizance of what is right or wrong. I am not advocating that
that be the solution, but I am saying that if the chairman and
others should conclude to go forward, then I certainly think
that the idea of giving the Patent and Trademark Office the
authority with respect to this determination is absolutely the
wrong place to put it. They don't have the background for it.
The Chairman. What do you think of that, Mr. Meyer?
Mr. Meyer. Well, I think the FDA should certainly be a
party to the proceedings and provide information. But you must
understand that when some of these applications are delayed, it
is in part because of things the FDA has done. And I suppose I
would worry about the FDA being so defensive of their actions
that they would be less than partial.
The Chairman. One of the actual parties then, if you took
Senator Metzenbaum's view, would be making the determination.
I have taken too long, but I have got to ask this. Why,
Howard, do you have such a lack of confidence in the PTO? I
mean, I have a lot of confidence.
Mr. Metzenbaum. Not for matters within their normal
jurisdiction, but I don't think they know anything at all about
this subject.
The Chairman. But they would have to deal with FDA as one
of the interested parties, as well as in this case Schering-
Plough and the genetic industry.
Dr. Ben-Maimon. But, Senator Hatch, confidentiality is a
major issue here.
The Chairman. I see.
Dr. Ben-Maimon. The genetic industry doesn't have access to
any of the documentation at FDA.
The Chairman. I see.
Dr. Ben-Maimon. So unless FDA is able to play a major role,
you will have no equity.
The Chairman. I would presume they would play a major role.
Mr. Meyer. I envision they would.
Mr. Kogan. I think the issue is one that should be
described as due diligence. I mean, that is the original basis
of the Hatch-Waxman Act is that a company pursued its approval
with due diligence. You need an independent party.
The Chairman. And if the FDA is not doing its job----
Mr. Kogan. Yes, sir, you need an independent party. The FDA
may be embarrassed, may be concerned about the role they
played. And we don't want to point the finger at anyone. We
don't want anybody--we are not pointing blame.
The Chairman. So it is more a question of equity, what
should be done?
Mr. Kogan. Yes, it is an issue of equity. The Patent Office
has been looking at patent extension since 1984. It is not new
to them.
The Chairman. Yes.
Mr. Kogan. They have been doing this as part of their role
under the Hatch-Waxman Act. It is an independent body. It can
react quickly. The patent commissioner said it is an
appropriate thing for the Patent Office to look at, and so it
seems like a fair and equitable place.
The Chairman. Let me go to Senator Schumer.
Senator Schumer. Thank you, Mr. Chairman.
Senator Sessions. Well, Mr. Chairman, I will have to leave.
Could I have 1 minute?
The Chairman. Could I let him ask a couple of questions and
then I will turn to you, because I know he has to go?
Senator Schumer. Sure.
Senator Sessions. I will just share the thought that Randy
Owens, the lead singer and writer from the group Alabama, asked
me recently--he said, do you believe in private property? And I
said yes. He said, protect my songs. I know you share that
view. [Laughter.]
The Chairman. Yes, but not enough of you are buying those
songs. [Laughter.]
Senator Sessions. I think Senator Torricelli's bill has
really, Senator Metzenbaum, emphasized public interest a lot
more than the House bill has, and I feel pretty good about it.
I do not suggest for one moment I am capable of deciding this
matter, and I wouldn't begin to.
The Chairman. Well, that is what has been happening.
Congress has been deciding these matters, and you have the two
very at-odds sides and we get into a fight every time and I
feel like I am right in the middle all the time. You know, I
would like to be fair to everybody.
I am sorry to interrupt you.
Senator Sessions. Well, I would just like to introduce for
the record former Surgeon General, Dr. Koop's support for this,
and a letter from Mr. Lehman, Assistant Secretary of Commerce
for Patents and Trademarks. They may be part of the House
record, but may not be part of this.
The Chairman. That is fine.
[The information referred to was not submitted.]
Senator Sessions. I am sorry I will have to leave, Mr.
Chairman. Thank you for your leadership.
The Chairman. We understand. Thank you.
Senator Schumer.
Senator Schumer. Thank you, Mr. Chairman, and I appreciate
the testimony and I appreciate everything that you are doing
here, Mr. Chairman. Let me give you my thoughts on this and
then ask people to comment.
First, it is my view, Mr. Chairman, that if you had to
choose a law during the last 20 years that has probably had the
most impact on average people with the least amount of people
knowing about it, it is Hatch-Waxman. The law has allowed for
the creation of a vibrant generic drug industry. It has saved
the consumer billions of dollars. At the same time, it has
maintained the balance between brand and generic pharmaceutical
firms so that brand name companies are still profitable--in
fact, more profitable than ever--and they have ample incentives
to conduct research and development into new drugs.
Since the passage of Hatch-Waxman, pharmaceutical R&D has
increased from $3 billion to $21 billion. So, obviously, these
folks are doing it because they think they can make money under
that regime, and that is fine. God bless America. Schering-
Plough, the company that is testifying today, was recently
mentioned in a news article, for instance, as being close to a
vaccine for AIDS, and we all pray you are successful in that.
So Hatch-Waxman has worked extraordinarily well.
And one thing I would just add, Mr. Chairman, is even
though 20 years was the full time in Hatch-Waxman, the average
drug was supposed to get, and does get about 12 years. There is
a difference, but it is not that great a disparity as 9 to 20
would be; it would be 9 to 12.
But in my view, the balancing act which Hatch-Waxman
achieved has become more precarious over time, and that is
because those with a vested interest in this complicated law
have used, shall we say, innovative means. With the same
innovation they use to produce drugs, they have been very
innovative at trying to get around Hatch-Waxman and delay the
entry of cost-saving generic drugs onto the market. They have
been very good at finding new ways at market exclusivity.
So if you look at the Claritin case in a vacuum, I can
understand why Schering-Plough feels they deserve a patent
extension. They were in the pipeline during Hatch-Waxman. It
put them in a hazy category, a little less than everybody else
gets. And rightly or wrongly, the FDA took a long time to
approve Claritin, so they have had less time with an exclusive
product than the typical drug. So I believe that saying that
Schering-Plough is simply being greedy, as some opponents have
argued, is an oversimplification. That is not what I would say.
But we are not in a vacuum. Branded drug companies
routinely list additional and sometimes inappropriate patents
in the FDA's Orange Book to complicate and frustrate the
generic drug industry's ability to develop a competing product
and get it to market. The citizen's petition, originally
intended to ensure that generic drugs are safe, has been
abused, in my judgment, to delay the approval of a generic drug
firm's application with the FDA. And there have been numerous
attempts to pass rifle-shot amendments in the dark of night
without hearings to extend a patent for a drug.
So I am concerned that simply allowing, Mr. Chairman,
Claritin and these six drugs to have a few more years is more
of the sort of ad hoc-racy which has threatened Hatch-Waxman.
So I have a suggestion. I believe that after 15 wonderful and
highly effective years of Hatch-Waxman, it is time to modernize
the law. It is time to restore the certainty for both sides,
branded and generic, so that there is a definite period of
market exclusivity after FDA approval, not different than what
some have suggested. Maybe it is 10, maybe it is 12. I don't
know. We could pick an amount of years that we thought was
fair, with a balance, but it is a different period with a
definite end date where generics can enter the market with no
delays; no more of this Orange Book, no more of the citizen
petitions, no more ways to extend the period beyond the other
way.
I would support an extension for a handful of drugs like
Claritin which got less, provided there were limits to prevent
other drugs from getting more. And when Mr. Kogan came to my
office, he gave a very good presentation and then I asked him
would he support a change on the other end. And to his credit
to the fidelity he has to his fellow manufacturers, he said I
couldn't say that. So I am a little frustrated here.
Are we going to come and do this because there is a good
reason on one side? But when there is a good reason to let the
generic go ahead on the other side, we all know--you know it
well, Mr. Chairman; you are the champion of this. The generic
industry doesn't have the clout to do the cut-off for
individual drugs. They are not going to come here and say, OK,
drug ``x'' has more than the 12 years; they would have 16 by
what they have done with the Orange Book or the citizen's
petition.
So let's put it all together. Let's reexamine Hatch-Waxman.
Let's come up with a set period of years that might give some
relief to these drugs which have too short a period, but
prevent other drugs from getting too long a period. I think
that would make the most sense.
I am reluctant to vote for this bill if it doesn't include
broader reform. I am reluctant to say that this one case should
get an exception when we are going to find other instances
everyday where maybe even Schering-Plough itself, but certainly
other companies, are going before the FDA, are going before
other things, and trying to get more than the 12 years through
what I would consider, to be charitable, things that were never
intended by Hatch-Waxman, such as use of these citizen
petitions to actually extend the life of drugs.
So, in conclusion, Mr. Chairman, I have sympathy for the
makers of Claritin. I will keep an open mind should this bill
move forward, but I hope that we also take this opportunity to
realize that after 15 years of great success, it is a tribute
to you, Mr. Chairman. I think that is one of the 10 laws that
has been passed in the last 15 or 20 years that really has made
this country a better place and done just what we wanted--new
breakthroughs, lots of money going into R&D by a great
industry, the pharmaceutical industry, but at the same time
making those drugs, after the reward for all the research,
available to people.
I guess to sum up my position, to deal with the unfairness
on one side of the equation without dealing with the unfairness
on the other side of the equation might well be unfair. And so
I have said my little piece here, but I would like the views
particularly of those who advocate this particular piece of
legislation, Mr. Meyer, Mr. Hutt and Mr. Kogan, about what I
said about putting this in a bigger package to prevent the
abuses on the other side.
The Chairman. I think I am going to invite Senator Schumer
to come with me to Iowa this next weekend and tell people about
Hatch-Waxman----
Senator Schumer. You deserve it, Mr. Chairman.
The Chairman [continuing]. And how much we have benefited
consumers all these years.
Senator Schumer. You deserve it.
The Chairman. I appreciate your kind remarks. I think it is
really a very important bill, but it hasn't solved all the
problems. No bill solves all the problems, but at least it
comes close, but I wish we could get everybody together some
way or other.
Senator Schumer. Well, that is just what I would say. So in
the remaining period, I would like Mr. Meyer, Hutt and Kogan to
comment on what I had to say about doing it all in one package
and being a little fair on the other side, too.
Mr. Meyer. I would be very supportive, Mr. Chairman, of a
fixed period of exclusivity, or whatever you want to call it,
that begins at the date of approval. I would be very supportive
of that, sir. I was when I was at FDA, and was ineffective in
the position I was in to be able to see that through.
Senator Schumer. Well, I hope I won't be able to say the
same about myself a few years from now.
Mr. Hutt. Senator Schumer, we are obviously dealing with
two quite different issues here this morning. On the one hand,
you and many others have raised the concept of structural
reform of both the patent law and the generic drug approval
system. That is a very complex matter that I assure you is not
going to be resolved in a short period of time. It is not on
the table today.
What we are dealing with today is the last seven drugs.
There are no others for people to come in and talk about. So
when people say, well, this is just the beginning, no. This is
the end.
Senator Schumer. No, no. I disagree with you strongly, Mr.
Hutt, and that is not a way to win me over because you can say
that this particular inequity should be dealt with by itself. I
want to know how we are going to deal with some of the other
inequities, such as citizen petitions. To me, since I am, and
we are on this side of the table elected officials,
politicians, trying to balance interests, I would tell you if I
let this horse go out of the barn, you may never get a chance
to rope in the others.
Now, do you believe that there are abuses on the other
side? Just answer that, if you would, yes or no.
Mr. Hutt. I do not.
Senator Schumer. OK, then we are not on the same wave
length.
Mr. Hutt. And I will tell you why I do not, and let me
explain very clearly. It happens I invented the citizen
petition process when I was chief counsel for FDA, and that
process depends upon FDA handling those citizen petitions in a
forthright, effective way. What is the problem isn't the
citizen petition process. What is the problem is FDA's lack of
resources to provide responses.
Now, just because there is delay at FDA doesn't mean it is
the agency's fault. It isn't the fault of the person who
submitted the petition. It isn't the fault of anyone there. It
is the fault of our system of not having adequate resources at
FDA. I will stand here and defend the citizen petition process
as a process, as being the height of American democracy. If you
can't petition your Government to take action, then there is
something wrong in America.
So, yes, the process works. It is the implementation
because of resources that is the problem, and you are not going
to solve that by another statute. That is not the problem. If
this were an appropriation committee, then we could begin to
address that problem.
But let me turn back to where we were because there were
some important points, I think, that have to be addressed. You
are raising structural reform of the entire system. You can't
just take one little thing like the citizen petition or another
little thing--it is not little, it is large, as Jerry Meyer was
talking about, the date when a patent begins to run. This is
all part of a continuum. It is going to require several years
of hearings, debate, intellectual thought about the best way to
approach this.
To hold these seven last drugs hostage to that process, I
think, is the height of inequity. We ought to decide for these
seven drugs are we going to be fair or not. Are we going to
have a process that will decide whether there was due diligence
or not? And we ought to get this off the table and then we can
approach structural issues of the entire statute.
Now, people have said this is a tax on the sick and the
elderly. I look at this totally differently. What this does is
provide funds so we can develop drugs for the sick and the
elderly. If we don't have pharmaceutical process, if we don't
have an industry willing to invest in the future research for
our dread diseases in this country, then we are going to be
stuck forever where we are today with the same diseases
claiming the same number of lives every year. We are dependent
on research and we are dependent on profits. We are dependent
on the profits of these seven drugs.
Senator Schumer. No one is disputing that. The dispute is
where you find the equilibrium.
Mr. Hutt. That is correct.
Senator Schumer. And I would say this to you, in all due
respect, sometimes it is better to look at the forest than the
trees. You are looking at the trees, these seven little trees.
I would argue to you that the forest here is the same exact
argument--you can't separate the two--which is how long, how
many years should a drug have once it is on the market--let's
even define it that way, which is the way you would want to
define it--and be protected from competition. That is the
issue, at least the way I look at it.
Again, I haven't had the years of looking at it in detail
that you have, but I think it is a pretty sound way to look at
it. I could re-term what you are saying as, well, to say that
we should deal with it when the period is too short separately
from dealing with it when the period is too long, I don't buy
it.
Mr. Hutt. Well, I am not suggesting that we should.
Senator Schumer. Well, in effect, you are, sir.
Mr. Hutt. No, I am not because the period--we are not
arguing here for these seven drugs for a period that even
remotely approaches either 17 or 20 years. We are arguing for a
period that would bring these drugs----
Senator Schumer. Mr. Hutt, in all due respect, there are
pharmaceutical companies right now filing all sorts of extended
petitions before the FDA to get 17 to 20 effective years. That
is what is happening right now, not on these drugs but on
others, as we speak.
Mr. Hutt. But what you are suggesting then is we treat
these drugs inequitably because other people are doing
something that Congress may not agree with. That doesn't seem
right.
Senator Schumer. No; I am saying for the greater good--and
my concern is not one company; my concern is having, as you
say, a balance between consumer prices and the ability of
somebody to recapture years of hard work, which I agree with. I
believe in intellectual property very strongly. It is at the
core of my beliefs. And to find that balance, you ought to find
it in macro, not just looking at this little piece.
The Chairman. Well, it is true that there is a cap of 14
years under Hatch-Waxman, as I recall.
Mr. Hutt. Yes, Senator.
The Chairman. And so we do have----
Mr. Hutt. There is a cap.
Senator Schumer. But it can go beyond that when people file
petitions.
The Chairman. Only if they can make an equitable case, as I
understand it.
Mr. Hutt. That is true, and there is no question that
Senator Schumer is right that some citizen petitions are not
handled as quickly as they should be, just as some NDA's are
not handled as quickly as they should be. But that isn't
resolved by a statute.
The Chairman. You are saying that would be resolved if we
would give FDA the----
Mr. Hutt. The adequate resources.
The Chairman. I have always felt strongly about that, but
we have failed to do that up here. It is our fault more than
anybody else's.
This has been a very interesting exchange, but I want to
give Mr. Downey a chance to respond.
Mr. Downey. I would like to respond to Senator Schumer's
points because I think they are really at the core of our
objection to this legislation. This legislation, given its best
reading, is an ad hoc address of a problem that some people
perceive in the Act. We disagree with whether that is a problem
or not on the merits, but clearly we think there are problems
in the Hatch--Waxman Act, things like the unavailability of a
regulatory pathway for biologics; the unavailability of a
regulatory pathway for nonabsorbed drugs; the Orange Book
listings that Senator Schumer mentioned where, in fact, we are
improperly, we think, delayed from market entry.
So we see great inequities in particular provisions of the
statute, while we see overall equity in the statute as a whole.
So I think it is clearly wrong to take an ad hoc approach to
pipeline drugs and move it around and do something there
without addressing all of the problems that we see in the Act.
So I support Senator Schumer's approach to this.
The Chairman. This has been a good discussion.
Senator Torricelli, we will turn to you. I have to leave
for a minute, but if you will----
Senator Torricelli. We will proceed immediately to a vote,
then, Mr. Chairman. [Laughter.]
Senator Schumer. It might be tied.
The Chairman. Listen, any time we talk to the Senator from
New Jersey, we have to be very, very careful is all I can say.
If you would allow me time to get back in, I would
appreciate it.
Senator Torricelli. Thank you, Mr. Chairman. I have clearly
succeeded in providing an unprecedented amount of unity on this
subject, since everyone has had criticism of my bill. It didn't
actually concern me until Senator Sessions spoke at length in
endorsement of the Torricelli bill and I noted--perhaps I was
the only one who did--it is actually the Torricelli-Sessions
bill.
Senator Schumer. It was noted, it was noted. [Laughter.]
Senator Torricelli. First, let me just suggest to Senator
Schumer's point, I not only agree with some of his thesis, but
I attempt to accomplish some of his points in writing this
legislation as someone who is both sympathetic and supportive
of the generic drug industry. It was noted that in addition to
the process that has been established, Orange Book
certification and the Mauve decision have been addressed in
this legislation because indeed there is some need for systemic
reform.
Hatch-Waxman, I agree with Chuck Schumer, is remarkable
legislation that has impacted the health and the finances of
almost every American family. But 15 years is a long time. No
one, even the distinguished chairman of this committee, could
have the kind of foresight to anticipate all problems and every
way in which this industry would be impacted by the
legislation.
So if in some small measure by this legislation, or
whatever vehicle ultimately is approved by this committee, we
can address assorted other problems, I believe we should take
the opportunity to do so. I believe in some small measure I
have done so. Nevertheless, it is always a problem in
legislating to make the perfect the enemy of the good. I would
like a broader vehicle, I would like to deal with these
problems, but I would like to not do so much in one vehicle
that in the end we accomplish nothing, including dealing with
the potential injustice of these seven specific products, which
is before this committee with a deadline that is approaching.
That is a problem that is before us.
Now, I know that I have been in enough of these hearings
that no matter what is said or no matter how much testimony we
give, there are several inaccuracies that will come through the
reporting of the hearing. And in a vain attempt to deal with
those, though I know nothing will come of my efforts, I would
like, Mr. Kogan, to ask several specific questions to you.
What guarantees are provided to Schering-Plough as a result
of this legislation on patent extension?
Mr. Kogan. Senator Torricelli, there are clearly no
guarantees.
Senator Torricelli. None?
Mr. Kogan. None whatsoever.
Senator Torricelli. If this bill is passed, your assurance
that Claritin gets a single day of patent extension amounts to
nothing?
Mr. Kogan. That is correct, sir.
Senator Torricelli. And whom is the burden of proving that
there is a need, a just end for patent extension? Where does
that burden lie?
Mr. Kogan. As I understand it--and, of course, you know,
Senator Torricelli, I am not a lawyer.
Senator Torricelli. We make allowances in this committee.
Mr. Kogan. Thank you. The burden in the Senate bill rests
on us, and I think that is quite unfair, sir. I would much
prefer, if I might--I know you didn't ask this question, but
the House bill----
Senator Torricelli. I didn't, and you are breaking my whole
rhythm here, but that is all right. [Laughter.]
Senator Schumer. Did the dress rehearsal go like this?
[Laughter.]
Senator Torricelli. It really didn't. We need new
consultants here.
Can I get back to the House bill? It is in my sequence
here. One, there is no guarantee. Second, the burden is
entirely on you to prove the justice of your application, and
the standard of proof that is before you is ``clear and
convincing.''
Mr. Kogan. I understand that that is the highest standard
of proof.
Senator Torricelli. Now, if indeed the FDA disagrees with
your application or believes that you have not met a clear and
convincing standard, the legislation has provided for the
commissioner to be able to enter the process and be heard, is
that not correct?
Mr. Kogan. That is correct, sir.
Senator Torricelli. Now, the commissioner then can make his
or her own case as to whether or not they believe you have met
the burden of proof. Now, even if they do so, and then even if
the Patent Office is in agreement with your case, there is then
a third hurdle you face, is that not correct, in an application
to the Federal court?
Mr. Kogan. That is correct.
Senator Torricelli. So indeed not only does the legislation
not give you a guarantee, but you have no guarantee because you
may not meet the burden of proof. You have no guarantee because
the FDA Commissioner may not agree with you and may meet their
own burden. And then you have no guarantee because there may be
an application to Federal court which finds a contrary
judgment.
Mr. Kogan. That is correct. Now, not to break your rhythm,
but even if we make it through the Congress and even if we make
it through the Patent Office and even if we prevail on judicial
review, we will still get less effective patent life for
Claritin than the average drug approved in the 1980's.
Senator Torricelli. Mr. Kogan, I am getting to this now.
[Laughter.]
Mr. Kogan. Sorry, Senator.
Senator Torricelli. Therefore, you have four of these
independent hurdles over which you must pass. So clearly there
is not only no guarantee, but indeed an arduous process through
which you have to go. And indeed for those who will write this
about Claritin, and indeed as we now have for the record, there
are seven potential drugs that have dealt with this.
Now, even if you pass these four hurdles and meet this
burden and you succeed, the total amount of time, then, under
this patent would compare how with other pharmaceutical
products under Hatch-Waxman?
Mr. Kogan. The effective patent life for Claritin, if we
succeed, would be 12.2 years.
Senator Torricelli. And how would that compare with other
products?
Mr. Kogan. The average, I am told, is 12.6 years, so it is
less.
Senator Torricelli. So if we pass this legislation and
everything goes in your favor and every burden is met, the net
result is you still have less patent life than otherwise is
provided under the legislation?
Mr. Kogan. Correct, sir.
Senator Torricelli. Now, in spite of this extraordinarily
thoughtful legislation which I believe gives you a very fair
opportunity, it is my information that you actually still
prefer the House equivalent, is that correct?
Mr. Kogan. Yes, sir.
Senator Torricelli. Could you explain why?
Mr. Kogan. Well, I think the number of hurdles we have to
go through here are sufficient. They ought not to be added on
by higher standards than I understand were required in the
original Hatch-Waxman bill.
All we are saying is we believe we acted with due
diligence. We believe we acted with appropriate resources and
in an appropriate period of time to solve the scientific issues
with Claritin. We were held up unduly for a long period of time
at FDA. We are not pointing a finger there. That was an issue
of priorities and resources. So all we think we have to prove
to make this issue a very clear issue, rather than get a lot of
lawyers involved and a lot of terminology, is did we do what we
were supposed to do. Did we diligently pursue the approval of
this drug at the FDA? That ought to be the hurdle we have to
get over.
Senator Torricelli. Mr. Kogan, thank you very much. I just
want to conclude again by making an offer both to the chairman
and to Mr. Schumer that I am very concerned that the continuing
potential in the generic industry for the availability of
products and the price competition be as available as possible.
And if, in drafting this legislation to deal with this
significant but individual problem, there are other ways to
improve this process, I certainly want to be available to do
so.
Finally, Mr. Chairman, I neglected when I actually began
and introduced Mr. Kogan at the beginning of this hearing to
welcome Senator Metzenbaum, for which I apologize. While he may
not be here to endorse my legislation, I endorsed most of the
legislation that he has brought before this committee in his
career, which has been a remarkable achievement for the people
of our country.
Mr. Metzenbaum. Thank you.
Senator Torricelli. Also, Senator Metzenbaum, if, in the
process of passing this legislation, there are other ways for
consumers, for generics, or for other interests that we can
make this more responsive and deal with other related problems,
I am only too glad to work with you.
Mr. Metzenbaum. Thank you.
Senator Torricelli. Mr. Chairman, thank you very much.
The Chairman. Well, thank you very much. Frankly, this has
been a good hearing today. I hope that we can all agree on at
least one thing, that the Judiciary Committee presented a
balanced view of this issue. Without objection, I will hold the
record open for an additional week so that any interested party
may provide written comments on this important issue.
Now, I wish to thank each of the panelists. I think you all
did a tremendous job, and I hope that we can all continue to
work together and exchange views as the legislative process
continues. It is critical that we agree on one thing. We must
be guided by what is in the best interest of the American
public, and I am convinced that everybody on this panel shares
that exact goal.
Frankly, I think that the proponents of this legislation,
including our colleagues, Senators Torricelli, Sessions and
Ashcroft, have done a good job. They have made a good-faith
effort in putting this bill together. I also believe that the
critics of this legislation, some of whom are with us here
today, have made some valid points. I plan to stay involved as
this legislation continues to be reviewed by Congress. And who
knows? Maybe this Congress and the affected parties will give
consideration to Senator Schumer's proposal. Frankly, he is
coming at it from a view that a lot of us have shared for a
long time, and I am concerned about every one of these issues.
We should not be against Schering-Plough's rights here just
because they are a very successful company. They are, and I
commend you for the leadership you have provided. If they
haven't been treated fairly in this process, Howard, we ought
to look at that. To be honest with you, if we don't have
correct patent term extensions, we are not going to have the
innovation and the products that we want.
On the other hand, it seems to me what you are saying here
is you want a chance to present your case. You may not win it,
but you at least want a chance to present it. Howard is
concerned about having the PTO handle it, but to be honest with
you, I have a lot more confidence in the PTO, Howard, than you
do. And I don't think it is particularly an organization that
is going to go one way or the other on this issue. I would
think that they would take this pretty seriously.
I would have to believe, as Jerry Meyer says, that the FDA
would play a significant and very important role in this
process in every case, probably making it pretty tough for
companies like Schering-Plough to present their case. So if I
haven't misconstrued this, of course, Ms. Ben-Maimon and Mr.
Downey are concerned about getting these matters out to the
public in a less expensive form so that the public--and Howard
feels this way, too--can save money. We have to balance these
interests. They are all good interests. And, Mr. Hutt, there is
hardly anybody in the industry who knows more about this
subject than you. So this has been a great panel.
I am very concerned about these issues because year after
year we have had people coming to the Congress wanting to
resolve these issues. I know, Senator Metzenbaum, there were a
couple of times when you went along with a couple of
extensions. All of us have, because it seemed equitably right.
Now, a 9-year patent process versus the average of a 12 on its
face looks like something is wrong here, even though you have
been successful, and you have a right to be successful.
So I am going to look at this as clearly as I can. I am
going to ask each of you to give us any additional remarks or
suggestions that you have for us. I am going to look at what
Senator Schumer has to say because there may be some way of
buttoning this down so it works better for everybody. But I
have to say I agree with Senator Schumer that when we did the
drug price competition and patent term restoration bill, the
Hatch-Waxman Act, it was one of the toughest things I ever did.
I mean, it was a solid 2 weeks, 18 hours a day, and I had a
root canal right in the middle of it and I threatened to kill
every one of the people who did not cooperate in getting that
thing done. Finally, we did.
And nothing is perfect, but that bill has saved consumers a
considerable number of billions of dollars since 1984, but
there are some inequities that still exist. And on its face,
Mr. Kogan, it appears that there is an inequity in your case.
Now, Mr. Downey feels that there is not. Well, you ought to
both have a chance at presenting your case, it seems to me.
Now, I am going to look at it. It is awfully hard for me
because every one of you at this table is a close friend. I
don't know you, Ms. Ben-Maimon, very well, but I am very
impressed with your testimony, and it is clear that you are a
very effective person for Teva Pharmaceuticals. But all the
rest of you have been friends for a long time and I just want
to do what is right. So, just help us to do it. We will keep
this record open, and if we need further hearings, I think this
is significant enough that we can do it. But, frankly, this
hearing kind of covered it all, all of the respective points of
view.
The question is can we find some way of putting this
together so that everybody at least is somewhat satisfied, like
we did with the Hatch-Waxman bill. Everybody was somewhat
satisfied, everybody was somewhat disappointed, but in the end
the bill has worked. I am hoping that we can solve these
problems, and I wish you all great luck. As someone who has
wanted to see the generic industry be very successful and works
hard to try and do that, I wish you luck, certainly, as well.
But as somebody who has watched what Schering-Plough has gone
through, I have got a lot of empathy for you, no question about
it, and you ought to have a chance to present your case. The
question is how can we provide that best opportunity and a fair
opportunity, with both sides being able to present their
cases--or all sides would be a better way of saying it because
it is more than just generics versus mainline pharmaceuticals.
It is the FDA, it is the consumers, it is a lot of different
people.
So it has been a great hearing. I want to thank each of
you. I appreciate the comments that you have made and we will
certainly think these things through even more. Last but not
least, I would like to make sure that those out there who have
comments on this or who believe that they can add to what has
been said here today that you will submit--we will keep the
record open until Friday for any additional comments or any
additional written remarks.
With that, we will adjourn until further notice.
[Whereupon, at 12:44 p.m., the committee was adjourned.]
A P P E N D I X
----------
Additional Submissions for the Record
----------
Prepared Statement of Hon. Edward Bryant, a U.S. Representative in
Congress From the State of Tennessee
Thank you, Mr. Chairman, for providing me with the opportunity to
journey to the other side of the Capitol in order to present my views
on the important issue before you. It is, indeed, a pleasure to have
the opportunity to visit again with a number of my former colleagues
from the House who have exchanged one view of Washington for another.
I would like to commend one of those former House members, Senator
Torricelli, for his commitment to fair patent treatment for
pharmaceutical products and for his support of an independent process
to review possible inequities in the patent treatment of pipeline
drugs.
But before I do so, Mr. Chairman, I also would like to acknowledge
your leadership on this issue over the years. I want to emphasize that,
despite my belief that we need a process to review the patents of some
pipeline drugs, I consider the 1984 Hatch-Waxman Act a monumental
achievement. It has helped spur pharmaceutical research and also
enabled consumers to experience the benefits of this research in a more
timely fashion.
We are here to discuss S. 1172, Senator Torricelli's proposal to
establish an independent process within the Patent and Trademark Office
to review the status of seven pipeline drugs that faced significant
delays in the regulatory approval process. While the bill differs in
some respects from the Bryant-McDermott measure, we are in accord on
the core proposal.
This effort is about three principles--fair play, equity, and
removing politics from the patent process. We believe in fair and
equitable treatment of all involved in this issue--both in the
regulatory process and in the independent review process that we and
Senator Torricelli propose. Importantly, the review process would be a
public process open to all interested parties and--by taking it out of
Congress--we would provide for a decision on the legal merits.
Hatch-Waxman, as you know, limited patent restoration for pipeline
drugs to two years, which was intended to deal with a Food and Drug
Administration approval time that averaged slightly more than 2.25
years. But it later turned out that several drugs were caught in the
regulatory approval pipeline much longer.
Since 1984, Congress has occasionally enacted specific legislation
to deal with inequities discovered in the implementation of Hatch-
Waxman. In each case, Congress concluded that the general rules adopted
in 1984 were insufficient when applied to a particular situation. But
Representative Jim McDermott and I, and more than [50] cosponsors from
both sides of the aisle, have concluded that Congress needs a better
way of addressing regulatory delays that have diminished the useful
life of a pharmaceutical patent. We believe that Congress needs to
enact a process to handle these issues rather than tackling each
situation on an ad hoc basis.
Our approach--and I believe this is true of Senator Torricelli's
proposal as well--is based on two worthwhile principles. One principle
is that patents are an important incentive for research and inventions.
The second principle is that Congress should not make patent extension
decisions on a case-by-case basis.
First, there is no question that our prosperity in America is
built, to a great extent, on research and development. Patents foster
that research. In fact, the relationship of R&D and patent integrity is
one of mutual dependence in which each fosters the other for the
benefit of us all. We know that those who conduct pharmaceutical
research help provide one of the best patient protection policies that
we can buy as Americans. Just ask anyone who has benefited from the
healing powers of a new breakthrough pharmaceutical. At the same time,
we also know that R&D can be expensive. This is particularly the case
when it comes to pharmaceutical innovations. Without strong and fair
patent protection, research-based pharmaceutical companies would not
have the incentive or the wherewithal to continue research that would
lead to tomorrow's breakthrough drugs.
The second principle involves the necessity of establishing a fair,
consistent process to protect the integrity of patents. In this
context, it is vitally important to say what H.R. 1598 and S. 1172
would not do. They do not automatically extend a patent. Rather, they
would establish a fair and open process that is conducted in a public
forum. This would be an independent, non-political review. These bills
would apply to seven pipeline drugs than spent over 60 months in the
FDA's New Drug Approval process. All affected parties would be able to
make their case before the appropriate body--the PTO, an independent
agency whose experts deal with the legalities of patent issues day in
and day out.
I believe strongly that these bills fulfill the intent of Congress.
The record since 1984 is clear. When Congress passed Hatch-Waxman, it
believed that there would be relatively quick FDA approval for drugs
that were in the approval ``pipeline'' at the time. In fact, that did
not occur. Because of lengthy regulatory reviews, many pipeline drugs
received substantially less patent coverage than Congress intended.
Often in Washington we talk of ``unintended consequences.'' Hatch-
Waxman truly involves a case of unintended consequences. But they are
consequences that, nevertheless, should be dealt with.
Mr. Chairman, I am gratified that H.R. 1598 has attracted so many
co-sponsors--Democrat and Republican alike. I also am gratified that
Senator Torricelli has introduced parallel legislation. I think this
support demonstrates that there is widespread and growing support to
enact a fair, independent process that protects patent integrity.
In sum, Mr. Chairman, I believe these bills have identified the
right solution. It is a solution that provides patent integrity and, in
so doing, ensures the continuation of research that leads to
breakthrough drugs and other innovations that truly help people live
longer and better lives. Thank you.
__________
Prepared Statement of Hon. Jim McDermott, a U.S. Representative in
Congress From the State of Washington
I am pleased that the Senate Judiciary Committee is taking the time
to review the facts behind the Drug Patent Term Restoration Review
Procedure Act of 1999. I have sponsored similar legislation in the U.S.
House of Representatives, H.R--1598--the Patent Fairness Act, and I
appreciate the opportunity to share with you the reasoning behind the
proposal.
The Patent Fairness Act encompasses three principles--fair play,
equity and taking politics out of the process.
Maintaining the integrity of our system of patents is central to
whether or not our society continues to receive the desired public
benefits from pharmaceutical research--or any other type of cost-
intensive research for that matter.
Creating a fair and impartial process where an independent body can
determine whether or not to restore lost patent life is a matter of
fairness. And it is the right thing to do. It also is a matter of
ensuring adequate incentives for research and development in the
future.
This bill takes the first step in attempting to find a long-term
solution to the patent integrity issue that is impacting several drugs
that were caught in a review process that took significantly longer
than Congress anticipated.
As a result of this lengthy delay, the patent life of these
``pipeline'' drugs--drugs that were at FDA for more than 60 months--was
reduced by an unintended consequence that had nothing to do with their
medical safety. I believe that the developers of these pharmaceuticals
deserve to have their grievances evaluated in a fair and impartial
manner.
There are two important questions: What type of process can we put
in place to guarantee a fair and reasonable evaluation of the issues?
And, what types of assurances should be embedded in this process to
make sure it is equitable and removed from politics?
H.R. 1598 answers these questions. Our bill establishes a process
that is fair, equitable, independent, separated from politics, fully
open to the public, and subject to judicial review. Let me expand on
these features.
The bill establishes an independent and public review process
within the U.S. Patent and Trademark Office. This would be a new
administrative procedure--one that is fair and impartial.
The Patent and Trademark Office is the right place to hold a
hearing about these issues, because these issues involve questions not
of medical research, but go to the core of the definition of patent
life.
Within the office, a procedure would be established to review
claims for patent term restoration to compensate for unanticipated
lengthy regulatory review of five years or more in the FDA's New Drug
Approval proceeding.
The process established by this legislation would be akin to a
court hearing.
Any company that believed its product was unintentionally deprived
of patent protection would have the opportunity to present its case.
Any other interested party would also be free to make its case. Both
sides would be treated equally.
Everything would occur in the open. The review board would be bound
by objective criteria. And, after an opinion has been rendered, each
side would be allowed an additional opportunity for judicial review.
Now contrast the process H.R. 1598 would establish with the way
things usually work around here. Patent extensions--regardless of their
merits--are snuck into a bill in the middle of the night, by some
Congressman or Senator, regardless of the consequences. I disagree with
that tactic and I think it's a lousy way to legislate.
By turning over the issues of patent integrity to an independent
panel of experts, as H.R. 1598 would do, the process would be driven by
public policy objectives-not politics.
This is an important point. Our bill is driven by the principle
that it is best to take politics out of the equation, to de-politicize
the process, to take Congress out of the job of deciding individual
patent issues.
And finally, our legislation would require the Commissioner of
Patents and Trademarks to evaluate the review procedure established by
the bill and report to Congress.
Another way to describe the legislation is to outline what it does
not involve.
There is no preferential treatment for any affected pipeline drug.
There are no arbitrary decisions. There are no guarantees. Our bill is
about process, not about a predetermined outcome.
There is one more point that I would like to make that strikes at
the heart of the argument being made by the generic drug industry
against the Patent Fairness Act. They argue against a fair and open
process to resolve patent disputes because they feel that if a party
wins its case before the PTO and then its case survives judicial
review, the American consumer win then be harmed. Well, I hope that you
keep an open mind about this claim. The idea that generic drug makers--
copiers of prescription drugs developed by pharmaceutical companies--
offer lower prices to consumers should NOT be assumed as fact.
For example, last December the Federal Trade Commission filed an
unprecedented $120 million suit against Mylan laboratories for its
conspiracy to horde pharmaceutical ingredients. The hoarding, according
to the FTC, led to more than a 3,000 percent increase in the cost of a
hypertension generic drug and more than a 2,000 percent increase in the
cost of an anxiety drug.
Due to Mylan's actions, the cost of a bottle of pills rose from $11
to $377 a bottle, for a drug which the company did not spend one
research dime to develop but copied from one of its competitor's. So to
say that the generic industry is somehow a victim of any attempt to
look at the fairness of our current patent system in protecting the
rights of companies that spend billions of dollars to develop life
saving drugs is dearly a stretch of the truth.
I am convinced that the Patent Fairness Act--or similar legislation
that also initiates an equitable process to resolve patent disputes--is
the right solution. As a medical doctor and psychiatrist, I have seen
the benefits of breakthrough drugs and innovations. They truly can make
people's lives better, and there is more to do.
Thank you.
__________
Prepared Statement of the National Association of Pharmaceutical
Manufacturers
The National Association of Pharmaceutical Manufacturers (NAPM) is
a national, not-for-profit trade association representing manufacturers
and distributors of finished, multi-source generic pharmaceuticals,
manufacturers and distributors of bulk active pharmaceutical chemicals,
and suppliers of other goods and services to the generic drug industry.
NAPM appreciates the opportunity to submit this testimony to the Senate
Committee on Judiciary regarding S. 1172, the ``Drug Patent Term
Restoration Review Procedure Act of 1999.''
We believe it is ironic that as this Congress debates ways to
reduce the high cost of prescription medications to the elderly and
Medicare Reform, we are here today to discuss S. 1172, which would
grant special-interest patent extensions of up to three years to eight
brand name drug products.\1\ S. 1172 denies the American consumer the
choice of selecting a more affordable generic version of these brand
products. According to a recent study by the PRIME Institute of the
College of Pharmacy at the University of Minnesota, a three-year delay
in generic competition for Claritin, the drug that would most benefit
from S. 1172, would cost consumers $7.36 billion from 2002 to 2012.
(See attached report.) There would also be a tremendous fiscal impact
on government programs offering a drug benefit, such as Medicaid and
programs offered by the Veterans Administration and the Department of
Defense.
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\1\ The eight drugs are Claritin, Eulexin,
Nimtop, Relafen, Dermatop,
Penetrex, Cardiogen-82, and Daypro.
---------------------------------------------------------------------------
This being said, by this testimony, NAPM will demonstrate that S.
1172 would, in fact:
Increase the cost of prescription medicines by foreclosing
generic competition;
Undo the delicate, agreed-to compromise and policy decision
essential for the passage and success of the Hatch-Waxman Act
of 1984;
Establish a procedure for extending patent terms, despite
the fact that the need for a procedure outside of Congress,
much less the need for the bill itself, has not been
satisfactorily demonstrated; and,
Offer a gesture at Orange Book reform that would have a
minimal benefit because the reform would be limited to the
eight pipeline drugs.
In short, NAPM strongly opposes S. 1172. The bill would not be a
constructive way to reopen a successful law that put public health
concerns, and not company pocketbooks, first.
In 1984, the U.S. Congress fairly balanced all the interests of the
pharmaceutical industry and consumers by passing the Drug Price
Competition and Patent Term Restoration, Act of 1984 (Hatch-Waxman
Act). This law created a framework for patent term extensions and non-
patent exclusivity periods for brand name drug products and a system
for speeding the Food and Drug Administration (FDA) approval of generic
drug products. As a result of the Hatch-Waxman Act, generic competition
entered the marketplace, which in turn served to motivate the brand
name industry to innovate the next generation of life-saving drugs.
Since 1984 brand name drug companies' profits and research and
development expenditures have grown exponentially. The generic drug
industry has enabled American consumers and taxpayers to save billions
of dollars in the purchase of medicines, while creating new jobs and
investment opportunities in every region of the country.
During the negotiations that led to the Hatch-Waxman Act, it was
agreed by all parties, including the brand name industry, that brand
name drug companies would receive up to a two-year patent term
restoration for so-called ``pipeline drugs'' \2\ instead of up to a
five-year patent term restoration granted for later developed products.
Patent term extensions were more generous for future development rather
than for pipeline drugs because a purpose of the Hatch-Waxman Act was
to encourage future investment.
---------------------------------------------------------------------------
\2\ A drug for which a patent had been issued and an
investigational new drug application (IND) or a new drug application
(NDA) was pending at FDA before the enactment date of the Hatch-Waxman
Act (September 24, 1984).
---------------------------------------------------------------------------
Representative Henry Waxman, the co-author of the Hatch-Waxman Act,
recently stated on the House floor that the difference in the maximum
times of patent term restoration was far from arbitrary. He stated
``the pipeline drugs were not made eligible for five years of patent
extension precisely because the point of the patent extensions was to
encourage the research and development of future products.'' \3\ This
explicitly demonstrates that the decision to grant a two-year extension
to the pipeline drugs was a carefully considered policy decision to
create a process which has proven successful in assuring high-quality
research and development in conjunction with providing access to
affordable pharmaceuticals in a competitive marketplace. With S. 1172,
certain brand name companies, led by the Schering-Plough Corporation,
are selectively attempting to undo the policy decision struck in 1984--
the policy that all sides agreed to--in order to extend their monopoly
periods at the expense of competition, consumer savings, and healthcare
costs without a corresponding benefit to the consumer.
---------------------------------------------------------------------------
\3\ Congressional Record, H4220, June 14, 1999.
---------------------------------------------------------------------------
S. 1172 purports to put eight pipeline drugs on an equal footing
with later developed drugs products, a result that was clearly not
Congress' intent. Specifically, S. 1172 would permit the holder of a
patent that was in force as of 1984 and remains in force today the
opportunity to seek additional patent life by filing an application
with the Patent and Trademark Office (PTO). A product meeting these
criteria and whose NDA was under review by FDA for at least 60 months
would have its patent term restored for up to three years, assuming the
PTO determined that ``granting the patent restoration would not be
detrimental to the public interest and the interest of ``fairness'' as
defined through five factors set forth in the bill.\4\ These factors
require a very subjective determination of what the result of a patent
extension would be. These factors do not take into consideration delays
in the FDA approval process that are due to the company's internal
decisions (e.g., Schering-Plough's decision to switch from capsule to
tablet form after clinical trials were completed) or instances when FDA
should fully and completely explore concerns (e.g., when
carcinogenicity concerns arise.) While S. 1172 is not the out-and-out
grant of a three-year extension that H.R. 1598 is, S. 1172 merely sets
up a few more hoops for the brand name companies to clear. One only
needs to witness the vigor with which Schering-Plough is pursuing the
passage of S. 1172 to determine what Schering-Plough believes the
outcome for their Claritin application would be.
---------------------------------------------------------------------------
\4\ The three-year restoration would be reduced by any period in
which the applicant did not act with due diligence. In the years since
passage of Hatch-Waxman, there has never been a determination of a lack
of due diligence by a brand name company with regards to an application
for an extension.
---------------------------------------------------------------------------
S. 1172 would place the responsibility for extending patent terms
for the pipeline drugs with the PTO. The PTO lacks the expertise to
evaluate the FDA decision-making process to determine if there was due
diligence on the part of the company, and the bill does not appear to
require an examination of the company records. While S. 1172 would
allow for FDA consultation, NAPM believes that FDA is best equipped for
any evaluation of due diligence.
S. 1172 would provide compensation to a generic applicant with an
application pending at FDA for one of the pipeline drugs at the time of
enactment. In fact, S. 1172 is generous enough to double the amount of
compensation granted under H.R. 1598. A generic applicant would be
entitled to compensation of $2 million from the patent owner. A holder
of a Type II DMF that has permitted a reference to its DMF in such an
application would be entitled to compensation of $1 million from the
patent owner. The patent owner's liability would be capped at $10
million to drug applicants and $5 million to DMF holders. This
provision is yet another thinly veiled attempt at an appearance of
``fairness,'' but in reality there is nothing fair about this provision
to the generic applicant, the DMF holder, and the consumer. The generic
industry is committed to bringing quality generic medicines to the
public, not receiving renumeration in exchange for ``correcting'' brand
name companies' ``unanticipated'' delays.
S. 1172 offers a gesture to the generic drug industry by making
modest reforms to the Orange Book. Unfortunately, these reforms are
limited to the eight pipeline drugs' listings in the Orange Book, and,
therefore, do little to thwart the brand name industry's abuses of the
Orange Book. The bill also attempts to address the widely debated issue
of granting 180 days of market exclusivity for generic drugs. S. 1172
does not begin to address the numerous and complicated fact patterns
that have arisen to make this section of the Hatch-Waxman Act such a
controversial matter. FDA is in the process of revising its regulation
on this issue to better reflect the recent related court decisions.
Thus, it may be prudent for Congress to address this issue, if
necessary, after FDA attempts to clarify the procedures involved.
The extra costs to consumers and taxpayers from this legislation
would be enormous. The PRIME study concludes that a three-year delay
(from 2002 to 2005) in the availability of generic versions of Claritin
if the legislation passes would cost American consumers $7.36 billion
from 2002 to 2012. For all eight pipeline drugs, the estimated total
cost impact from delaying generic competition for three years would be
$11.15 billion from 2002 to 2012. The study projects that the
government's total share of U.S. outpatient prescriptions, now at 20
percent-25 percent percent of all prescription expenditures, would
increase to 45 percent-50 percent if a Medicare prescription drug
benefit is enacted. If S. 1172 is enacted, the cost to the government
would be a minimum of $1.89 billion, with that figure rising to $5.0
billion if a prescription drug benefit is added to Medicare.
The huge increase in costs to consumers and taxpayers from this
legislation would lead to very minimal stimulation of research and
development leading to the discovery of the next generation of drugs.
By delaying generic competition for three years, the study estimates
that Schering-Plough would receive an additional $9.64 billion from
Claritin sales. Based on current research and development spending by
Schering-Plough and industry trends, the study estimates that only 3.6
percent of this windfall for Schering-Plough, or $350 million, would be
used for research and development leading to the discovery of new
drugs.
While the national association representing the interests of brand
name pharmaceutical firms, Pharmaceutical Researcher and Manufacturers
of America (PhRMA), has not, to our knowledge, supported or taken any
position on this special interest legislation, Schering-Plough has been
most vigorous in promoting S. 1172 because it would reap a huge
unanticipated windfall by the patent extensions for its blockbuster
drug, Claritin, and its cancer drug, Eulexin. This is not
their first money grab. Schering-Plough has pressed Congress on this
issue on multiple occasions. Schering-Plough lobbied tenaciously to add
this monopoly extension to last year's Omnibus Appropriations Act for
fiscal year 1999, an effort that continued until the bitter end despite
news reports exposing the provision as another infamous ``special
interest'' rider. Schering-Plough had already attempted to add this
extension onto the Omnibus Patent Act of 1997. And, at the end of the
1997 session, there was an effort to award additional market
exclusivity for specific products in exchange for a 3 percent royalty
payment to the National Institutes of Health, with no prohibition
against the companies passing on this royalty payment to consumers.
These mostly behind-the-scenes, secret efforts to secure longer
monopoly times were rightly denied by the Congress, but Schering-Plough
has clearly not given up--even though it received a two-year Hatch-
Waxman extension and a 22.5-month extension under the General Agreement
on Trade and Tariffs (GATT), and now is reportedly poised to secure an
additional six-month extension for conducting pediatric studies under
the Food and Drug Administration Modernization Act of 1997--pediatric
studies which the brand name drug industry refused to conduct without a
payoff to them in the form of longer monopolies. These extensions were
``unanticipated'' by Schering-Plough when it first began development of
Claritin. Schering-Plough argues that this legislation is fair because
of unanticipated delays in FDA's review of Claritin. If this is the
argument, wouldn't it also be fair to reduce any new extension by the
lengths of the unanticipated extensions it has already secured?
Schering-Plough has also failed to adequately address openly the
reasons why Claritin's review was delayed. Schering-Plough instead has
blamed FDA and the reviewers for moving too slowly. While we have no
access to internal company documents nor to FDA review documents, trade
press articles discussed two reasons for the length of the review time.
After Claritin received an FDA advisory committee recommendation for
approval on October 23, 1987, Schering-Plough decided to market
Claritin in a tablet form as opposed to the capsule form used in its
clinical trials. This change--which was purely a marketing decision
made by Schering-Plough--raised bioequivalency questions that had to be
addressed by FDA. Schering-Plough cannot possibly claim that it was
unaware such questions would be raised by their internal decision that
they wanted to market a tablet instead of a capsule, and this ``delay''
cannot be blamed on FDA. By 1991 FDA was examining carcinogenicity
concerns with Claritin. Certainly even Schering-Plough cannot fault FDA
for focusing on concerns as serious as cancer. FDA's mission is to
ensure efficacy and safety, and carcinogenicity concerns cannot be and
should not be resolved overnight.\5\
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\5\ The Pink Sheet, articles dated October 31, 1986, November 9,
1987, November 27, 1989, June 24, 1991, and April 19, 1993.
---------------------------------------------------------------------------
This year a House Judiciary Subcommittee heard testimony from Peter
Barton Hutt, Esq., that brand name drug companies had received a
maximum two-year rather than five-year patent extension for pipeline
drugs under the Hatch-Waxman Act because:
(1) It was anticipated that pipeline drugs would be approved by FDA
shortly, and
(2) ``less of an economic incentive was needed to assure continued
pursuit of [pipeline drugs] to final FDA approval.'' \6\ Mr. Hutt
argued that several pipeline drugs were not approved by FDA as
quickly as anticipated by the negotiators of the Hatch-Waxman Act.
Yet, Mr. Hutt failed to establish that additional patent time was
needed as an economic incentive to brand name drug companies to
pursue final approval of these pipeline drugs. The fact is,
pipeline drugs did not need more than two years of extra monopoly
time because the companies making those drugs were at a point in
the review process where it was highly unlikely the development of
the drugs would be abandoned. The 1984 Congress obviously
recognized this situation and, therefore, passed into law the
language which Schering-Plough is trying to undo today. Extending
these patent terms would not be consistent with Congressional
intent, nor would the establishment of a sham ``process'' that
merely purports to examine the merits of each application.
---------------------------------------------------------------------------
\6\ Testimony of Peter Barton Hutt, Esq., before the Subcommittee
on Courts and Intellectual Property of the Committee on the Judiciary,
U.S. House of Representatives, on H.R. 1598, at 6 (July 1, 1999).
---------------------------------------------------------------------------
Schering-Plough claims that it only wants to set up a process. NAPM
hopes that the Congress can recognize not only that S. 1172's version
of a process is a stacked deck against consumers and the generic drug
industry, but also that a process was created and is still in place
under the Hatch-Waxman Act. Congress should send the message now that
this special interest legislation is not about intellectual property
rights or about fairness and equity. Congress should send the message
that it is serious about containing healthcare costs and about ensuring
a competitive marketplace to the benefit of all Americans.
Perhaps the brand name drug companies are correct in labeling this
issue as one of ``fairness'' and ``equity''--it is not fair and
equitable for the Federal Government and consumers, especially the
elderly on fixed incomes, to continue to pay inflated prices for
pharmaceuticals in a competition-free market. Congress has told
Schering-Plough ``no'' before. Congress must tell Schering-Plough
``no'' again, for what will hopefully be the final time.
NAPM appreciates the opportunity to present our views.
______
Patent Extension of Pipeline Drugs: Impact on U.S. Health Care
Expenditures
stephen w. schondelmeyer, pharm.d., ph.d., professor and director\1\
---------------------------------------------------------------------------
\1\ This study was funded in part by a research grant from the
National Association of Pharmaceutical Manufacturers.
---------------------------------------------------------------------------
executive summary
Background
HR 1598 will affect 7 drug firms and 8 drugs worth $2.7
billion; that is 3.3 percent of U.S. Rx sales in 1998.
Congress addressed additional exclusivity for the ``pipeline
drugs''when it passed the Hatch-Waxman Act.
Pipeline drugs have already benefitted from 2 to 5 years of
additional protection from generic competition.
Drugs covered by this legislation currently have effective
patent lives ranging from 6.8 to 13.8 years.
Drug Products Affected
Claritin TM had sales of $1.9 billion in 1998,
RelafenTM had $450 million, and DayproTM
had $300 million.
There are 45 million allergy sufferers and 40 million
arthritis sufferers who may be affected by this bill.
U.S. sales of ClaritinTM ($1.9 billion) in 1998
accounted for 84 percent of ClaritinTM worldwide
revenue ($2.3 billion).
ClaritinTM sales provide 34 percent of Schering-
Plough's total worldwide revenue of $7.3 billion in 1998.
The Canadian price of ClaritinTM is one-third of
the U.S. price for the identical drug from Schering-Plough.
ClaritinTM 10 mg (#30) in the U.S. costs $54.72,
while the same drug costs $18.34 in Canada (mfg price).
Cost to Consumers from Three-Year Delay in Generic Competition
A case study of ClaritinTM was done to estimate
the economic impact of a 3-year delay in generic competition.
ClaritinTM sales are expected to reach $3.46
billion by 2002 and $3.78 billion (NPV, 2000$) by 2005.
Generic competition for ClaritinTM is expected to
begin in July 2002; with a delay, it is expected in July 2005.
Consumer savings from generic competition for
ClaritinTM is estimated at $0.70 billion (NPV 2000$)
in 2003; $1.15 billion in 2004; $1.55 billion in 2005; $1.82
billion in 2006; and $2.01 billion in 2007.
Consumers can expect to save $7.33 billion (NPV, 2000$) from
generic versions of ClaritinTM in the first 5 years.
A 3-year delay in competition for ClaritinTM will
cost consumers $5.31 billion (NPV, 2000$) from 2002 to 2007;
and $7.36 billion (NPV, 2000$) from 2002 to 2012.
The total cost to consumers from an exclusivity extension
for the 8 ``pipeline drugs'' will be about $11.1 billion.
Effect on Schering-Plough
Two Schering-Plough products (ClaritinTM and
EulexinTM) represent 68 percent of the market value
of affected product.
Schering-Plough's marketing, advertising & admin. expenses
are above industry average (39 percent vs. 25 percent-30
percent).
Schering-Plough's R&D expenditures are considerably below
the industry average (12.5 percent vs. 20.0 percent).
This legislation will add $9.64 billion to Schering-Plough
revenue from 2002 to 2012.
More than 60 percent (-$5.83 billion) of Schering-Plough's
added revenue will go to marketing, sales, and profits.
Less than 30 percent of R&D expenditures is typically
allocated to discovery of new medicines.
Less than 3.6 percent of the added costs to the American
public is expected to go toward discovery of new drugs.
Effect on Pharmaceutical Firms
Pharmaceutical firms had higher net profit as a percent of
revenue than any U.S. industry group for 20 years.
The profitability gap between pharmaceutical firms and the
median Fortune 500 firm (America's best corporations) has grown
wider since passage of Hatch-Waxman.
Both R&D expenditures and drug firm profits have shown
dramatic growth since the Hatch-Waxman Act.
The rate of return to pharmaceutical firms is higher than
other industries in the U.S., even when risk-adjusted.
CBO says lengthening patent periods is not the most
effective means of encouraging R&D.
Reduction of FDA review times is a more effective means of
stimulating research and development.
The FDA's NDA review time has been reduced substantially
from >30 months (1984) to 11.7 months in 1998.
Economic Impact on Consumers and Government
The cost to American consumers from this proposed
legislation exceeds $11 billion (NPV, 2000$).
Medicaid will bear about $1.34 billion of the cost, and
other government programs will bear $0.55-$1.34 billion.
Govt. programs will bear a cost of about $2.5 billion, and
with a Medicare drug benefit about $5.0 billion.
This legislation will have very real costs in terms of
increased pharmaceutical expenditures for Americans.
______
Table of Contents
executive summary
I. Introduction
II. Pipeline Drugs Affected by HR 1598
III. Patent Monopoly Periods for Pipeline Drugs
IV. Method for Economic Impact Analysis
A. Pipeline Drugs Proposed for Additional Patent Extension
B. Added Years of Market Monopoly
C. Time Frame of the Analysis
D. Market Value and Net Present Value of Impact
E. Generic Market Penetration and Generic Pricing
V. Economic Impact of Patent Extension for Pipeline Drugs
A. Cost to American Consumer's of Patent Monopoly Extension for
Pipeline Drugs
B. Benefit to Pharmaceutical Firms from Patent Monopoly Extension
of Pipeline Drugs
ClaritinTM Sales Revenue
Schering-Plough Revenue Distribution
ClaritinTM Marketing and Advertising Expense
ClaritinTM Price
Research & Development
Net Profit and Return on Investment
C. Cost to Consumers and Government from Patent Monopoly Extension
for Pipeline Drugs
VI. Summary and Conclusions
References
______
list of tables and figures
List of Tables
Table 1 Pipeline Drugs Affected by Proposed Legislation (HR 1598)
Table 2 Market Value of Pipeline Drugs Affected by Proposed
Legislation (HR 1598)
Table 3 ClaritinTM Annual Sales With & Without Generic
Competition: Assumes Generic Competition Begins in July 2002 (Current
Year $)
Table 4 ClaritinTM Annual Sales With & Without Generic
Competition: Assumes Generic Competition Begins in July 2002 (Net
Present Value $)
Table 5 ClaritinTM Annual Sales With & Without Generic
Competition: Assumes Generic Competition Begins in July 2005 (Current
Year $)
Table 6 ClaritinTM Annual Sales With & Without Generic
Competition: Assumes Generic Competition Begins in July 2005 (Net
Present Value $)
Table 7 Schering-Plough Annual ClaritinTM Revenue with
3-year Delay in Competition Percent Distribution By Expense Type: 1993
to 2012
Table 8 Schering-Plough Annual ClaritinTM Revenue with
3-year Delay in Competition Amount Distribution By Expense Type (Net
Present Value $): 1993 to 2012
Table 9 Schering-Plough Additional ClaritinTM Revenue
from 3-Year Delay in Generic Competition Amount Distribution By Expense
Type (Net Present Value $): 1993 to 2012
Table 10 Price of ClaritinTM 10 mg Tablets: United
States vs. Canada (loratidine, Schering-Plough, #30, July 1999)
Table 11 R&D Expenditures as a Percent of U.S. Ethical
Pharmaceutical Sales, Research-Based Pharmaceutical Firms, 1980-1999
Table 12 Profitability of Pharmaceutical Firms and Fortune 500
Firms
List of Figures
Figure 1 Pipeline Drugs Affected by Proposed Legislation (HR
1598): 1998 U.S. Sales Volume
Figure 2 Annual Loss of Consumer Savings Due to 3-Year Delay in
Generic Competition
Figure 3 Generic Penetration of Brand Market by Units Sold and
Price per Unit
Figure 4 Consumer Savings from Generic Competition for
ClaritinTM: 1993 to 2012
Figure 5 Lost Consumer Savings Due to 3-Year Delay in Generic
Competition for ClaritinTM
Figure 6 Annual Loss of Consumer Savings Due to 3-Year Delay in
Generic Competition for ClaritinTM
Figure 7 Schering-Plough Revenue Percent Distribution by Expense
Type: 1993 to 2012
Figure 8 Schering-Plough Additional ClaritinTM Revenue
from 3-Year Delay in Generic Competition Amount Distribution by Expense
Type: 2002 to 2012
Figure 9 Price of ClaritinTM 10 mg Tablets: United
States vs. Canada (loratidine, Schering-Plough, #30, July 1999)
Figure 10 U.S. Research & Development Expenditures Financed by
Firms: 1970 to 1999
Figure 11 Research & Development Expenditures as a percent of
Sales Revenue for Pharmaceutical Firms: 1970 to 1999
Figure 12 Fortune 500 Firms: Profit as a percent of Revenue
Figure 13 Fortune 500 Firms: Profit as a percent Return on Equity
______
Patent Extension of Pipeline Drugs: Impact on Health Care Expenditures
i. introduction
Legislation has been proposed to extend the patents of a special
set of drug entities defined under the Hatch-Waxman Act as ``pipeline
drugs.'' The Hatch-Waxman legislation specifically mentioned the set of
drugs which had submitted a new drug application (NDA) to the Food and
Drug Administration (FDA) prior to passage of the Hatch-Waxman Act, but
which had not yet received approval to market from the FDA. When
Congress defined this set of drugs, it explicitly indicated that these
drugs would have their patent monopoly extended by two years. Proposed
legislation (HR 1598) has been offered which would provide an
additional patent extension of up to 3-years for these pipeline drugs
which have already had patent extensions under the Hatch-Waxman
legislation.
The implementation of this proposed legislation (HR 1598) is
delegated to the U.S. Patent and Trademark Office (PTO), despite the
fact that PTO does not have expertise in either FDA approval procedures
or assessment of the economic impact of its actions on public health
programs (e.g., Medicare and Medicaid) or consumers. In addition to the
patent extension proposed in this act, these drug products have already
benefitted from other legislation extending their patent monopoly or
market exclusivity periods including:
(1) Hatch-Waxman Act adding 2 years;
(2) GATT extensions up to 3 years;
(3) Pediatric study extensions up to 6 months; and
(4) Other special-interest legislation extending the exclusivity of
drug products (e.g., DayproTM).
Pipeline drugs have already received the benefit of 2 to 5 years of
patent monopoly extension from the Hatch-Waxman Act and other
legislation. Further lengthening the period of patent protected
monopoly for pipeline drugs will create a barrier to the presence of a
free market with competition. If legislation is passed to award
additional years of patent monopoly to the pipeline drugs, American
consumers would experience a delay in the opportunity for savings which
result from generic competition in the pharmaceutical-market. The delay
of generic competition will result in awarding a ``windfall profit'' to
the pharmaceutical firms whose products are affected by the proposed
patent extensions. In other words, pharmaceutical firms stand to
benefit from extended patent monopolies, while consumers and payers in
health care will experience an increase in expenditures due to lack of
competition. Much of this added cost for prescription drugs will be
paid by individual consumers such as senior citizens, low income
families with no health insurance, and others who do not have
prescription drug coverage. Insurers, managed care plans, self-insured
employers and corporate sponsors of health benefit plans will also bear
some of the cost of this legislation.
The consequences in the pharmaceutical market from additional
patent extension for pipeline drugs will include the following:
(1) The pharmaceutical firms marketing these drug entities will
benefit from a ``windfall extension'' in market exclusivity time;
(2) The pharmaceutical firms (i.e., generic firms) preparing generic
versions of currently patented drug products will face delays in
approval and may have added costs due to the delay in market entry;
and
(3) The consumer will have delayed access to lower-cost, generically
equivalent pharmaceutical products. While each of these effects
deserves substantial analysis, the focus of this study is on the
added costs to consumers from a three-year delay in generic
approval and market entry.
ii. pipeline drugs affected by hr 1598
Eight drug entities will benefit from additional patent monopoly
granted by the proposed legislation (HR 1598). Various characteristics
of these drug entities are described in Table 1. Collectively these
eight drugs accounted for more than $2.72 billion in U.S. sales at the
manufacturer level in 1998 (Table 2). The $2.72 billion represented by
these special-interest drugs is 3.3 percent of the total U.S.
pharmaceutical sales in 1998.
ClaritinTM, the best-selling of these drugs, had $1.9
billion in 1998 sales and accounted for two-thirds of the total value
of the eight pipeline drugs included in this legislation.
ClaritinTM is indicated for seasonal allergy symptoms. In
the United States there are approximately 45 million seasonal allergy
sufferers.\1\ This drug could potentially be used by one in six
Americans. Claritin'sTM U.S. sales of $1.9 billion in 1998
accounted for 84 percent of the $2.3 billion reported as worldwide
sales for ClaritinTM. Worldwide pharmaceutical revenue for
Schering-Plough Corp. was reported to be $7.3 billion in 1998.\2\ In
other words, ClaritinTM provides 34 percent of Schering-
Plough's total revenue worldwide.
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\1\ Schering-Plough, 1998 Annual Report.
\2\ Ibid.
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RelafenTM and DayproTM are also major drugs
with 1998 sales of $450 million and $300 million, respectively (Figure
1). Both RelafenTM and DayproTM are non-steroidal
anti-inflammatory drugs (NSAID) used for treatment of arthritis. An
estimated 40 million Americans have some form of arthritis.\3\
RelafenTM has been the number one NSAID (by. sales volume)
for more than five years and had U.S. sales of about $450 million in
1998. U.S. RelafenTM sales account for about 88 percent of
worldwide RelafenTM sales. RelafenTM provided
nearly 12 percent of Smith-Kline Beecham's total pharmaceutical revenue
in the U.S. in 1998. DayproTM became the second-leading
NSAID in the U.S. during 1997 and in 1998 produced revenue of about
$300 million.
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\3\ NIH News Release, May 5, 1998, ``Arthritis Prevalence Rising as
Baby Boomers Grow Older.''
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The other five pipeline drugs are Cardiogen-82TM (Bracco
Diagnostics), EulexinTM (Schering-Plough),
NimotopTM (Bayer), DermatopTM (Hoechst Marion
Roussel), and PenetrexTM (Rhone-Poulenc Rorer).
Collectively, these drugs are estimated to have had 1998 U.S. sales of
about $170 million (Table 2). In summary, three pipeline drugs account
for 93 percent, while the other five pipeline drugs account for less
than 7 percent of the collective 1998 U.S. sales volume for pipeline
drugs.
iii. patent monopoly periods for pipeline drugs
A single pharmaceutical product today may have two, three, or more
patents each with different implications for the manufacturer of
competing products. Patents may be issued for:
(1) The chemical composition of the drug entity or intermediate
chemical entities;
(2) One or more processes by which the drug can be made;
(3) The formulation of the drug product or the dosage form in which
the drug is delivered (e.g., a sustained release tablet); or
(4) A specific medical indication or use of the product.
When the drug product, TagametTM, went off patent (May 1994)
with respect to the principal drug entity, the patent holder (Smith-
Kline Beecham) made it known to potential generic manufacturers that it
holds at least 26 other patents related to Tagamet and that it intended
to vigorously enforce them.\4\ A compilation of drug products and
certain related patents can be found in the Food and Drug
Administration's publication titled, Approved Drug Products with
Therapeutic Equivalence Evaluations published by the U.S. Food & Drug
Administration (also known as The FDA Orange Book). Process patents are
not eligible for listing in the FDA Orange Book.
---------------------------------------------------------------------------
\4\ Scrip, No. 1927, May 31, 1994, p. 16.
Although the language of the proposed legislation refers to
``patent term restoration'', the additional monopoly period proposed is
beyond the existing patent term. Furthermore, each of the affected
pipeline drugs in this proposed legislation has already had its patent
term extended by other legislation. Each of these drugs was granted a
2-year patent extension by the Hatch-Waxman Act. Three of the drugs
(ClaritinTM, DayproTM, and DermatopTM)
have also received a previously unexpected patent extension from the
GATT legislation which changed the basis for calculating the patent
period from 17 years after patent issue to 20 years after patent
filing. Three drugs (ClaritinTM, DayproTM, and
RelafenTM) have also submitted written requests to FDA for a
6-month exclusivity extension based on the conduct of pediatric studies
on the drug. One drug (DayproTM) has benefitted from
additional special-interest legislation to further extend its non-
patent market exclusivity period.
The pipeline drugs covered by this legislation currently have
effective patent lives ranging from 6.8 to 13.8 years and some have an
additional 6 months exclusivity for conducting pediatric studies. These
periods of market monopoly are typical of the monopoly periods for
other prescription drug products and do not suggest that these pipeline
drugs have been disproportionately disadvantaged in a manner that
warrants further extension of their patent monopoly period. Since each
of these drugs has already benefitted from extensions of market
exclusivity ranging from 2 to 5 years, there appears to be no reason to
legislate an additional 3 years of market exclusivity for pipeline drug
products. ClaritinTM, for example, has already received
about 5 extra years of patent monopoly and market exclusivity
extension.
There does not appear to be any ``equity'' basis for the proposed
legislation (HR 1598) which requests up to 3 years of additional patent
monopoly beyond the 2 to 5 years of added monopoly already received by
these pipeline drugs. To further extend the patent monopoly of these
pipeline drugs would put other drug products on the market at a
disadvantage. If this legislation is passed, then the other drug
companies may request legislation to extend patents on their drug
products to be ``fair and equitable'' compared to the deal the Hatch-
Waxman pipeline drugs received.
iv. method for economic impact analysis
The purpose of this section is to explicitly describe the methods
and assumptions used to estimate the economic impact of additional
patent extensions for pipeline drugs proposed by certain pharmaceutical
firms. Several aspects of the methodology deserve description and
comment including:
(1) Identification of the drugs affected by the proposed legislation;
(2) The method for calculating added years of market monopoly;
(3) The time frame of the analysis;
(4) The market value and the net present value used to express the
cost to American consumers; and
(5) The expected level of generic market penetration and generic
pricing.
A. Pipeline Drugs Proposed for Additional Patent Extension. This
analysis is a case study of ClaritinTM, which represents
two-thirds of the economic value of the pipeline drugs covered by this
proposed patent extension legislation. Since ClaritinTM is
such a dominant drug in terms of U.S. sales in relation to the other
pipeline drugs, it is assumed that ClaritinTM will be
responsible for the vast majority of the economic impact of this
proposed patent extension legislation. ClaritinTM
represented two-thirds of the U.S. sales for pipeline drugs in 1998,
while the remaining seven pipeline drugs, collectively, generated only
one-third of the U.S. sales for the affected drugs. Certainly a 3-year
patent extension for RelafenTM, DayproTM, and the
other five pipeline drugs will also have an economic impact on American
consumers.
B. Added Years of Market Monopoly. The legislation proposed by HR
1598 would extend the patent monopoly of Hatch-Waxman pipeline drugs
for a period of up to 3 years. ClaritinTM is expected to
receive 3 years of additional patent monopoly if this legislation is
passed.
C. Time Frame of the Analysis. If implemented, the economic impact
of the added patent monopoly from this proposed special-interest
legislation will be felt by American consumers well into the first
decade of the 21st century. The present patent exclusivity period of
pipeline drugs extends out as far as 2002. The effect of implementing a
3-year extension of the patent for these pipeline drugs will move the
patent expiration date to some time in 2005. The full effect of this
legislation requires assessment of the economic impact from delay of
generic competition well beyond a 3-year period. The 3-year delay in
generic competition means that the savings curve is shifted to the
right on the time axis.
This means that the consumer savings from competing generic
products will be three years behind where it would have been for every
year moving out into the future (Figure 2). Note from the illustration
of this effect (Figure 2) that the majority of loss in consumer savings
occurs after the first three years of the delay in generic competition.
Therefore, any fair evaluation of the impact of this proposed
legislation must examine the effect for at least 6 to 7 years beyond
the extended patent period (i.e., at least to 2011 or 2012).
Since a 3-year delay in generic competition for the affected drug
products will continue to have an economic impact 6 to 7 years beyond
the 3-year patent extension, the overall time frame of this analysis
should be at least 9 to 10 years beyond the current patent expiration
dates. Consequently, an economic impact analysis that uses a time frame
of less than 10 years beyond the current patent dates would not capture
the full impact of this legislation and could grossly understate the
cost of this proposed legislation to the American government and
public.
D. Market Value and Net Present Value of Impact. The market value
of drug sales reported in this analysis is based on sales at the
manufacturer level. By reporting sales at the manufacturer level, the
impact of wholesale and retail mark-ups are not taken into account. The
focus on sales at the manufacturer level results in under-reporting of
the expected effect by about 25 percent. This approach, however,
results in a more conservative and lower estimate the cost of a 3-year
delay in generic competition for pipeline drugs.
Net present value (NPV) is a means of reporting economic data over
a long period of time so that dollar values are represented in
comparable terms. Over time the spending power of the dollar declines.
For example, it would take about $1.42 in 2012 to have the same
spending power as $1.00 in 2000 using a 3 percent inflation rate over
that time period. The dollar values reported in the analysis section of
this report, unless otherwise noted, have been converted to net present
value or constant dollars for the year 2000. For purposes of this
analysis, the consumer price index-all items (CPI-all) for urban
consumers was used as the deflator to determine the net present value
for amounts from all years prior to 1998. An inflation rate of 2
percent was assumed for 1999 and 2000, and 2.5 percent for the year
2001. The inflation rate for 2002 through 2012 was assumed to be 3
percent.
E. Generic Market Penetration and Generic Pricing. Generic
competition cannot begin until after each patent listed in the FDA
Orange Book (including patents on the drug's active ingredient,
formulation, dosage form, or indications for use) has expired, unless
the patent is challenged by a generic applicant as invalid or not
infringed. In many cases, generic applicants have not challenged basic
patents regarding the drug's active ingredient or the indications for
use, but they have challenged other FDA Orange Book patents
(particularly formulation and composition patents) as invalid or not
infringed. Therefore, it will be assumed that generic competition
begins after the initial (or ``blocking'') patent expiration.
This is a conservative assumption which does not take into account
other barriers which may impede generic competition, such as tactics
used by the original marketer to delay the FDA in establishing a
bioequivalence standard, the 6-month exclusivity period awarded to the
first approved generic, contractual agreements between the initial
patent holder and the first approved generic to delay marketing of that
first generic and thereby blocking entry of other generic products,
difficulty in obtaining a source of raw material, administrative delays
in approval by the FDA, or other factors. This assumption would tend to
underestimate the cost to American consumers if generic competition is
delayed for several months to several years beyond the expiration of
the ``blocking'' patent.
Two primary factors determine the savings which American consumers
can realize from access to generic competition among drug products.
First, the penetration of generic drug products into the original
marketer's unit volume must be estimated. The generic penetration can
be assessed by examining the proportion of units (tablets or capsules)
of a given drug product which are filled with generic versions of the
drug product. The second factor is the price of generic drug products
in relation to the original marketer's price over time. This determines
the amount of savings realized for each unit of the original brand
which is filled with a lower-cost generic.
Empirical evidence related to these two critical factors, market
penetration and pricing of generic products, was examined. An October
1994 market analysis of the generic drug market evaluated the generic
pricing and unit penetration of twenty-five major drug products that
had gone off patent in the previous few years.\5\ The analysis used
data from IMS America, one of the leading sources of pharmaceutical
market information used extensively by the pharmaceutical industry, to
determine the dollar and unit sales volume for these products from 1989
to 1994. The effect of both generic unit penetration and competitive
generic pricing is shown in Figure 3.
---------------------------------------------------------------------------
\5\ Jerry I. Treppel and Edward A. Neugeboren, Generic Drug
Industry Overview, Kidder, Peabody, October 5, 1994).
---------------------------------------------------------------------------
Off-patent drug products were found to have lost 3 percent of the
units in the first month, 14 percent in the second month, and 21
percent by the third month after generic competition entered the
market. After one year generics, averaged 45 percent of the unit volume
and at two years generic penetration had grown to 52 percent. The
effect of generic competition on prices was measured by examining the
average price of generics in comparison to the originator product price
over time. Generics entered the market at a price averaging 73 percent
of the originator price. By the second month after generic competition,
the price was typically at 67 percent of the originators price and at
12 months it was at 55 percent. After two years, the average generic
was priced at only 39 percent of the originator's price.
Evidence from the market in the past few years suggests that
generic penetration may occur even faster today than it did in 1994.
While this is quite likely, use of the 1994 penetration rates would be
more conservative in that it would understate the cost to consumers
from delay of generic entry into the market.
v. economic impact of patent extension for pipeline drugs
The relevant parties who stand to be significantly impacted by this
proposed extension of patent monopolies include:
(1) Individual Americans who purchase their own prescription
medications (about 25 percent to 30 percent of the population);
(2) Corporate employers who purchase managed care and insured health
benefit programs that pay for prescription medicines (about 55
percent to 60 percent of the market);
(3) Government health programs that pay for outpatient or inpatient
prescription drugs including Medicaid, Medicare, the Veterans
Administration, Indian Health Service, and others;
(4) Multinational brand name pharmaceutical manufacturers with
pipeline drugs; and
(5) Generic pharmaceutical manufacturers planning to compete with the
brand name product upon patent expiration.
This analysis has focused on economic impact from the perspective of
those who pay for prescription medicines either individually or
collectively.
A. Cost to American Consumers of Patent Monopoly Extension for
Pipeline Drugs. The combined effect of generic unit penetration and
competitive pricing can be used to estimate the savings that will
result from generic competition in the market, and to estimate the cost
to American consumers from the proposed extension of patent monopoly
periods of the previously marketed pipeline drugs. The generic unit
volume penetration and pricing pattern (Figure 3) was used to estimate
the consumer savings expected from the availability of generics in the
pharmaceutical market.
To illustrate the economic impact of a 3-year delay in generic
competition as proposed in this legislation, ClaritinTM was
used as a case study. ClaritinTM sales since introduction to
the market have been quite brisk. In 1993 ClaritinTM
recorded $107 million in U.S. sales and then showed a 192 percent
increase to $316 million in 1994. Since then the annual sales growth
has been 92 percent in 1995, 52 percent in 1996, 37 percent in 1997 and
42 percent in 1998 (columns A and 6 of Tables 3 and 4 and Figure 4).
Sales have been projected forward for ClaritinTM assuming a
conservative declining rate of growth curve. By the year 2002,
ClaritinTM should be selling $3.46 billion (NPV, 2000$) and
by 2005 it should be up to $3.78 billion (NPV, 2000$) (Table 4).
The sales revenue for ClaritinTM was projected forward
to the year 2012 assuming that no generic competition enters the
market. Patent 4,282,233 covers the use of ClaritinTM for
treating seasonal allergies. This patent expires June 19, 2002, but the
patent monopoly period would be extended by 3 years under the proposed
legislation (HR 1598). The FDA Orange Book also lists other patents
with later expiration dates in connection with ClaritinTM.
This study assumes that generic competition for ClaritinTM
can begin upon expiration of the 4,282,233 patent, and that other
patents listed in the FDA Orange Book will not serve as impediments to
generic competition.
Therefore, the savings to consumers from generic competition for
ClaritinTM. will begin after July 2002. Savings in the first
6 months of generic competition during 2002 are estimated to be $94
million (NPV, 2000$). Then, annual savings will be $0.70 billion in
2003 and will grow to $2.52 billion in 2010 (column F of Table 4 and
Figure 4). If generic competition for ClaritinTM begins in
2002 as would be expected under the current Hatch-Waxman Act and other
relevant patent laws, American consumers can expect to save $7.33
billion (NPV, 2000$) in the first 5 and \1/2\ years (July 2002 to
2007).
Extension of the exclusivity period for ClaritinTM, and
the consequent delay of generic competition, was evaluated next.
Assuming a 3-year patent monopoly extension, as proposed in HR 1598,
the impact of generic competition beginning in July 2005 was calculated
(Tables 5 and 6). Initial generic competition in the last six months of
2005 would produce consumer savings of nearly $100 million (NPV, 2000$)
and $0.73 billion annual savings would accrue in 2006. In 2007 annual
savings would be $1.19 billion and in 2008 $1.60 billion in annual
consumer savings would be realized.
The savings lost by American consumers from a 3-year delay in
competition for ClaritinTM can be calculated by subtracting
the savings achieved each year with a 2005 generic launch from the
savings achieved each year with a 2002 generic launch. [Note: this is
column F on Table 4 minus column F on Table 6.] The net present value
(NPV, 2000$) of consumer loss from this 3-year delay in generic
competition would be $94 million in the last six months of 2002. The
impact will grow to nearly $0.70 billion in 2003, and $1.15 billion in
2004. During the first 5 \1/2\ years (July 2002 to 2007) after this
delay of competition, American consumers would pay an additional $5.31
billion (NPV, 2000$) and in the next five years (2008 to 2012) will add
another $2.05 billion in cost to American consumers.
To summarize, the cost of this proposed patent extension
legislation upon those who pay for prescription drugs is estimated to
be $7.36 billion (NPV, 2000$) between the years 2002 and 2012 (Figures
5 and 6) for ClaritinTM alone. Recall that
ClaritinTM represents only 66 percent of the market value
for the pipeline drugs covered by this proposed legislation. If one
extrapolates these ClaritinTM findings to the other pipeline
drugs covered by this proposed legislation, the total cost to American
consumers could reach more than $11.15 billion. If wholesale and retail
margins were taken into account, the total cost to the American public
would reach nearly $15 billion.
B. Benefit to Pharmaceutical Firms from Patent Monopoly Extension
for Pipeline Drugs. The eight drugs known to be affected by this
special-interest legislative proposal are marketed by seven different
firms (Table 1). Schering-Plough Corp. has two drug products affected
(ClaritinTM and EulexinTM). Not only does
Schering-Plough have the most products affected, but these two drug
products are 68 percent of the 1998 U.S. market value for the pipeline
drugs affected (Table 2).
ClaritinTM Sales Revenue. As noted earlier,
ClaritinTM had U.S. sales in 1998 estimated to be $1.9
billion and worldwide sales of $2.3 billion. U.S. sales of
ClaritinTM represent about 84 percent of
ClaritinTM worldwide revenue.\6\ If ClaritinTM is
to receive $9.64 billion additional revenue because of a 3-year patent
monopoly extension, it is reasonable to ask how is this money likely to
be used (Tables 8 and 9). One can not always second guess the corporate
decisions which will be made in the future, but examination of the
distribution of revenue for a company over time can provide some fairly
good clues about how a 3-year continuation of monopoly revenues might
be used. Annual reports and market information for Schering-Plough were
reviewed and the actual distribution of revenues across major expense
categories were identified. The expense categories were net profit
(after taxes); research and development (R&D); marketing, advertising,
selling, and other administrative expense; cost of production (or cost
of goods sold); and taxes and other expenses. Although there were minor
variations, Schering-Plough showed a fairly consistent pattern for
distribution of revenues across these expense categories for the years
1993 to 1998 (Table 7). For purposes of this study it was assumed that
a similar distribution of revenues will continue by Schering-Plough in
future years.
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\6\ Schering-Plough, 1998 Annual Report.
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Schering-Plough Revenue Distribution. Schering-Plough Corp.
retained 21.7 percent of 1998 revenues as net profit after taxes, while
expenditures on research & development accounted for 12.5 percent of
revenue. The cost of production was reported to be 19.8 percent, and
taxes and other expenses consumed 7.1 percent of revenue. Finally, 38.9
percent of revenue was spent on marketing, advertising, selling and
other administrative expense (Figure 7). It should be noted that
Schering-Plough's marketing, advertising, selling and other
administrative expenditures are somewhat above industry averages (38.9
percent vs. about 25 percent to 30 percent) and the R&D expenditures
are considerably below the industry average (12.5 percent vs. 20.0
percent).\7\
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\7\ Pharmaceutical Research and Manufacturers of America, PhRMA
Annual Survey, 1998, Table 2, p. 91.
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ClaritinTM Marketing and Advertising Expense. If
Schering-Plough continues these expenditure trends into the future, the
majority of the additional revenue (60 percent or about $5.83 billion)
from this proposed legislation will go toward marketing, advertising,
selling, and administrative expense or toward corporate profits (Table
9 and Figure 8). ClaritinTM was the most heavily promoted
prescription drug by direct-to-consumer advertising in 1998. In 1998,
alone, Schering-Plough spent an estimated $172,802,900 on direct-to-
consumer advertising and $81,814,000 on professional promotion of
ClaritinTM.\8\ These expenditures were an increase of 149.8
percent over the 1997 expenditures. Direct-to-consumer advertising may
include television, radio, magazines, and newspapers as well as direct
mail to consumers.
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\8\ Taren Grom, Medical Advertising News, May 1999, 18(5) p.8.
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ClaritinTM Price. The U.S. wholesale acquisition cost
for a one-month supply (30 tablets) of ClaritinTM 10 mg
tablets in July 1999 was $54.72 (US $).\9\ The Canadian wholesale
acquisition price of a one-month supply of the same drug entity in the
same strength and the same dosage form manufactured by Schering-Plough
was $18.34 (US $) in July 1999 (Table 10 and Figure 9).\10\ The
Canadian price is just one-third of the price of the same drug product
being sold in the United States. Since the cost of production for this
drug product is expected to be the same for the product whether it is
sold in the U.S. or in Canada, the difference in price must be from
other differences in expense such as net profit, administrative
expenses, or marketing and advertising expenses.
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\9\ Price is the wholesale acquisition price for
ClaritinTM 10 mg tablets in a bottle of 100. PriceChek PC,
First Databank, Indianapolis, IN, July 1999.
\10\ Price at ex-factory level provided by pharmacist at a Shoppers
Drug Mart, Toronto, Canada, July 1999. Note: ClaritinTM in
Canada is over-the-counter, but the dosage form and strength are the
same as the prescription version in the U.S.
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Research & Development Expense. Schering-Plough Corp. currently
spends 12.5 percent of their revenue on R&D. Based on industry
standards, less than 30 percent (29.1 percent) of R&D expenditures is
typically allocated to research which leads to the discovery of new
medicines.\11\ This would mean that only about 3.6 percent of the
additional revenue to Schering-Plough would be used for discovery of
new drugs. The actual net present value of this estimate of the R&D
expenditure would be as follows:
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\11\ Cathy Spence (editor), The Pharmaceutical R&D Compendium: CMR
International/Scrip's Complete Guide to Trends in R&D, 1997, p. 31.
$9.64 billion added revenue x 12.5 percent for R&D x 29.1 percent
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for discovery research = $350 million.
If the intent of this legislation is to stimulate R&D, this is very
inefficient legislation because it requires a cost to the public of
$9.64 billion to achieve $350 million in R&D discovery.
The R&D expenditures of the pharmaceutical industry have been
growing dramatically since the time of Hatch-Waxman. A review of the
R&D expenditure trend does not show any adverse effect from the Hatch-
Waxman legislation. The U.S. R&D expenditures of pharmaceutical firms
totaled nearly $3 billion in 1984 (Table 11 and Figure 10).\12\ This
expenditure rate had more than doubled by 1990 to $6.8 billion. From
1990 to 1998 the R&D expenditure rate has again doubled reaching more
than $17.2 billion. The growth in R&D expenditures has been at a double
digit rate in all but two years since 1984, the era of the Hatch-Waxman
Act (Figure 11). The growth rate of R&D expenditures does not appear to
raise questions about difficulty in securing private market funds for
R&D investment.
---------------------------------------------------------------------------
\12\ Pharmaceutical Research and Manufacturers of America, PhRMA
Annual Survey, 1998.
---------------------------------------------------------------------------
The Congressional Budget Office conducted a study of the Hatch-
Waxman Act.\13\ That study concluded that ``reducing FDA approval
times-if it is done without sacrificing safety concerns-would be much
more effective in helping both the drug industry and consumers than
would lengthening the patent-protection period.'' \14\ In fact, the FDA
has done an excellent job of reducing the review time for new drug
applications (NDAs). The average review time for an approved NDA was
more than 30 months at the time the Hatch-Waxman Act was passed (1984).
In 1998, the FDA averaged only 11.7 months per NDA review--a two-thirds
reduction in the NDA review time.\15\ This notable reduction of NDA
review times by FDA has done far more to provide an incentive for
research and innovation than legislation such as HR 1598 would provide.
---------------------------------------------------------------------------
\13\ Congressional Budget Office, How Increased Competition From
Generic Drugs Has Affected Prices and Returns in the Pharmaceutical
Industry, July 1998.
\14\ Ibid.
\15\ Food and Drug Administration, web site.
---------------------------------------------------------------------------
Net Profit and Return on Investment. Empirical evidence on rewards
for innovation indicates that no other industry in the United States is
more rewarded than the pharmaceutical industry. According to Fortune
magazine, the pharmaceutical industry has the highest level of net
profit as a percent of revenue of any industry group in the United
States.\16\ Pharmaceutical firms have been the most profitable industry
for nearly two decades, and for two decades prior to that time
pharmaceuticals were the second most profitable industry (Table 12).
Not only have pharmaceuticals been the most profitable industry, but
the gap between pharmaceuticals and the median Fortune 500 firm
(America's best corporations) has been widening in the last one and a
half decades (Figures 12 and 13). Both the net profit as a percent of
revenue and the return on equity have risen dramatically since the mid-
1980s, while the growth of other industries has been much more modest.
From the Fortune 500 measures of profitability, it would appear that
the Hatch-Waxman Act had a very positive effect on the pharmaceutical
industry.
---------------------------------------------------------------------------
\16\ Fortune 500 survey results, Fortune, April issue for years
from 1970 to 1999.
---------------------------------------------------------------------------
Because of the risk involved in discovery and development of
pharmaceutical products some analysts have argued that a comparison of
profits in the pharmaceutical industry with profits in other industries
should be adjusted for risk. A study by the Office of Technology
Assessment (OTA) included an analysis which used an internal rate of
return adjustment rather than the usual accounting rate of return.\17\
The OTA report concluded that ``the economic rate of return to the
pharmaceutical industry as a whole over a relatively long period (1976-
1987) shows returns that were higher than returns to non-pharmaceutical
firms by about 2 to 3 percentage points per year after adjustment for
differences in risk among firms.'' The OTA report went on to say ``This
is a much lower differential than is suggested by conventional
comparisons of profit ratios, but it is still high enough to have made
the industry a relatively lucrative investment.'' \18\ During the
period (1976-1987) studied by OTA the average difference in net profit
as a percent of revenue between pharmaceutical firms and the Fortune
500 median was 5.6 percent. In the years since that study (1988-1998)
the average difference in net profit between pharmaceutical firms and
the Fortune 500 median grew to 10.2 percent. This growth in the profit
gap between pharmaceutical and other Fortune 500 firms would suggest
that return on investment in pharmaceutical firms has been even more
lucrative in the past decade (the 1990s) than the OTA study indicated
for the previous decade (the 1980s).
---------------------------------------------------------------------------
\17\ Office of Technology Assessment, Pharmaceutical R&D: Costs,
Risks, and Rewards, February 1993.
\18\ Ibid, p. 104.
---------------------------------------------------------------------------
C. Cost to Consumers and Government from Patent Monopoly Extension
for Pipeline Drugs. American consumers will be impacted by this
proposed legislation, not only through the cost of medications directly
purchased, but also through the cost of such medications to government-
related health programs. The current expenditure patterns of Medicaid,
and other government programs such as the Veterans Administration and
the Department of Defense, indicate that the government pays directly
for about 16 percent to 18 percent of outpatient prescription drugs in
the United States. If one included federal and state employee health
benefit plans, as well as active and retired military personnel with
dependents, the government share of outpatient drug expenditures in the
U.S. approaches 25 percent or more. Also, there is debate about
coverage of outpatient prescription drugs for the elderly under
Medicare. The elderly consume 34 percent of the outpatient
prescriptions even though they represent only about 12 percent of the
population.
The added cost of prescription medications from this proposed
patent extension legislation would be borne proportionately by
individuals and institutional payers for health care services including
federal and state governments. The government has a substantial role in
paying for outpatient prescription drugs at present (estimated to be 20
percent to 25 percent), and the future potential for a significant
expansion in responsibility for purchase of prescription drugs with
Medicare coverage of outpatient prescriptions (another 20 percent to 25
percent). If the Medicare expansion occurs, this would place the
government's total share of U.S. outpatient prescriptions as high as 45
percent to 50 percent of all expenditures.
The economic impact of this proposed legislation was estimated to
be more than $11.15 billion (NPV, 2000$). Approximately $1.34 billion,
or 12 percent of this amount, would be borne by Medicaid (both federal
and state shares). Other current government programs would bear another
$0.55 billion to $1.34 billion (5 percent to 12 percent of the total
impact). Coverage of outpatient prescriptions by Medicare could result
in government being liable for an additional 20 percent to 25 percent
of the cost of this legislation ($2.23 billion to $2.79 billion). In
total, the government share of the cost of this proposed patent
extension legislation will range from $1.89 billion to as high as $5.0
billion, if Medicare drug coverage is adopted.
vii. summary and conclusions
The proposed legislation sets up a patent extension process for a
special set of products known as ``Hatch-Waxman pipeline'' drugs. At
least eight drugs will receive patent extensions from this proposed
legislation, purportedly due to inequities resulting from the Hatch-
Waxman legislation. The effective patent life of these eight drugs
appears, however, to be consistent with the effective patent life of
other drugs approved at the time of the Hatch-Waxman Act. These eight
drugs would have market exclusivity ranging from 7 to as much as 14
years.
Both R&D expenditures and pharmaceutical company profits have shown
dramatic growth since the passage of the Hatch-Waxman Act.
Consequently, it is hard to accept the argument that research-intensive
pharmaceutical firms have been significantly disadvantaged by this Act.
R&D expenditures over the past two decades have grown at double digit
rates in most years while the economy and inflation have slowed to low
single digit growth rates in recent years. The pharmaceutical industry
has been America's most profitable industry for nearly two decades. The
pharmaceutical industry is more profitable than other industries even
after considering a risk-adjusted rate of return. In addition, the gap
in profits between pharmaceutical firms and other Fortune 500 firms
(the best of corporate America) has grown wider in the last decade.
The major product (ClaritinTM) affected by this proposed
legislation sells for a price which is three times the price of the
same product in Canada. If consumers in the U.S. market had access to
the same price as in Canada, American consumers would have saved $1.2
billion in 1998. With passage of the proposed legislation, the
projected cost to American consumers from patent monopoly extensions
will exceed $11 billion (NPV, 2000$) over the next 10 years. The
majority of the added cost ($7.36 billion) will benefit one corporation
(Schering-Plough). Less than 3.6 percent of this added cost to the
American public is expected to go toward discovery of new drugs, while
it is quite likely that more than 60 percent of the total cost (greater
than $6.6 billion) will go for marketing and advertising or for
corporate profits.
This legislation would increase barriers to competition and to a
free market. Without generic competitors in the market, American
consumers will pay higher prices for their prescription drugs. The
lower price and high market penetration of generics, when available,
results in substantial savings to American consumers. These savings
also benefit Medicaid, federal and state government, private insurers,
managed care, employers, unions, ERISA plans, and others who pay
directly for prescriptions. The cost of this patent extension
legislation could add as much as $1.32 billion in costs for the joint
federal and state Medicaid programs and another $0.55 billion to $1.32
billion to the cost of other federal and state government health
programs.
13 The extension of patent monopolies for these marketed drugs will
mean that the introduction of lower cost generics will be delayed up to
three years. Therefore, the American consumer will have to pay more for
prescription medications. Although the patent extension may have
positive benefits for those few pharmaceutical companies whose products
are affected, this proposed legislation will have some very real costs
in terms of increased pharmaceutical expenditures by Americans. These
increased pharmaceutical expenditures will be felt by individual
American citizens, by hospital and community pharmacies, by managed
care and health insurance plans, and certainly by federal and state
government health programs. The impact of this drug legislation will be
even more dramatic if Congress adopts some form of coverage of
outpatient prescriptions for Medicare recipients.
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Alfred B. Engelberg,
Palm Beach, FL, July 29, 1999.
Senator Orrin G. Hatch,
Chairman, Committee on the Judiciary, U.S. Senate, Washington, DC.
Dear Senator Hatch: I was patent counsel to the Generic
Pharmaceutical Industry Association (GPIA) in 1984 and was intimately
involved in drafting and negotiating the Drug Price Competition and
Patent Term Restoration Act which was cosponsored by you and Rep. Henry
Waxman. While I have retired from the practice of law and no longer
represent GPIA or anyone else, I believe that I have an obligation to
make my knowledge and experience regarding the 1984 Act available to
Congress in order to preserve and protect the public's interest in
affordable pharmaceuticals. Therefore, I respectfully request that this
letter be considered and made part of the record in the Judiciary
Committee's deliberations with respect to S. 1172, a bill which seeks
to create a procedure, for granting additional patent term extensions
to certain pipeline drugs.
One of the principal concerns of the research-based drug companies
in the negotiations leading to the 1984 Act was to insure that the
contemplated changes in the law would occur gradually and in a fashion
which would not affect the near term balance sheets of those companies.
Protecting pipeline drugs was critical to that process. This was not an
easy task since it was also recognized that patent term extension
should be perceived as providing incentives for future research
investments and not as a reward to pharmaceutical companies, at public
expense, for past investment. These seemingly contradictory goals were
addressed by legislating a series of non-patent exclusivities in Title
I of the 1984 Act which were unrelated to the patent term extension
provisions of Title II. By limiting the FDA's ability to approve
Abbreviated New Drug Applications (ANDAs) under certain circumstances,
the potentially adverse near term economic consequences of the new law
were neutralized, At the same time, as the Rep. Waxman's House
Committee report shows,\1\ the important concept of prospectivity was
preserved by limiting patent term extensions for drugs which were in
the pipeline \2\ prior to the 1984 Act to 2 years while granting a 5
year patent extension to drugs which were first developed after the new
law was enacted. The Committee's rationale for the relatively short
patent term extension for pipeline drugs is succinctly stated in the
Committee Report at p. 41 as follows:
---------------------------------------------------------------------------
\1\ House Committee on Energy & Commerce, Rept. 98-857, Part 1,
98th Congress, 2d Sess. The provisions of the 1984 Act with respect to
pipeline drugs were originally drafted as part of H.R. 3605 and there
are no Senate reports.
\2\ A ``pipeline'' drug is a drug on which tests in humans had
begun prior to the enactment of the 1984 Act.
The Committee established different maximum periods of
extension to provide greater incentive for future innovations.
By extending patents for future innovations for up to five
years for products developed in the future, and by providing
for up to fourteen years of market exclusivity, the Committee
expects that research intensive companies will have the
necessary incentive to increase their research and development
---------------------------------------------------------------------------
activities.
The principle profit protection mechanism which was incorporated in
the earliest drafts of the 1984 Act was a so-called ``transition'' rule
which prohibited the FDA from approving an ANDA for 10 years on any new
chemical entity which was the subject of a New Drug Application (NDA)
approved between December 31, 1982 and the date of enactment of the
1984 Act. This provision insured that the newest and most important
drugs would have 10 years of monopoly protection irrespective of their
patent expiration dates. In the late stages of the negotiations, 2
additional non-patent exclusivities were added. First, the FDA was
prohibited from accepting any ANDA for any new chemical entity first
approved in an NDA filed after the date of enactment of the 1984 Act
for a period of 5 years thereby assuring a monopoly of at least 7 years
since the ANDA review process typically takes 2 years. Secondly, the
FDA was prohibited from approving any ANDA covering a new use or form
of a previously approved chemical entity for a period of 3 years. The
drugs for which S. 1172 now seeks additional protections have all
received the benefit of these non-patent exclusivities in addition to a
2-year patent extension.
There may well be areas where the 1984 Act was flawed either as a
result of poor draftsmanship or because of unforeseen circumstances.\3\
Those issues should be addressed by Congress. But to suggest that the
parties who agreed to the 1984 Act did not completely address the issue
of protection for pipeline drugs is absurd. Assuring protection for
those drugs was, in fact, at the very heart of the deal. It may well be
that certain pipeline drugs did not get as much protection as others,
but each company got what it felt it needed in terms of product line
protection to sign on to the compromise. It is simply wrong for a new
generation of legislators and lobbyists to ignore that history and seek
to pile additional patent term extensions on top of the patent and non-
patent exclusivities which those pipeline drugs have already received
on the theory that the 1984 Act produced unintended hardships for some
companies or products.
---------------------------------------------------------------------------
\3\ I have addressed several such areas in my recent article
entitled ``Special Patent Provisions for Pharmaceuticals; Have They
Outlived Their Usefulness?'', IDEA, The Journal of Law & Technology,
Vol. 39, No. 3 (1999).
---------------------------------------------------------------------------
In his recent testimony before the House, Peter Barton Hutt, who
represented the Pharmaceutical Manufacturers Association (PMA) in the
negotiations leading to the 1984 Act has crafted a personal
recollection of the rationale for the 2-year pipeline extension. Mr.
Hutt states that the two-year limitation on extensions for pipeline
drugs resulted from the fact that ``it was felt that the pipeline drugs
would be approved by FDA shortly after enactment of the 1984
legislation''. No statement remotely resembling Mr. Hutt's recollection
can be found in any committee report, floor statement or any other
document that could be legitimately described as being a part of the
official or unofficial legislative history of the 1984 Act. Moreover,
prior to the enactment of the 1984 Act, Mr. Hutt was vigorously
advocating for patent term extension legislation which would have
provided up to seven years of extension for all pharmaceuticals at the
time of their approval without regard to their ``pipeline'' status.\4\
---------------------------------------------------------------------------
\4\ See, Hutt ``The Importance of Patent Term Restoration to
Pharmaceutical Irmovation'', Health Affairs, Vol. 1, No 2, p. 6 (1982).
---------------------------------------------------------------------------
In his 1982 article, Mr. Hutt states that by 1980, the testing and
approval process for drugs was taking seven to thirteen years.
Therefore, his current assertion that there was an expectation that
these pipeline drugs would be approved shortly after enactment of the
1984 Act makes no sense. According to Senator Torricelli's testimony of
July 1, 1999 on the House version of S. 1172 (H.R. 1598) there were 123
drugs in the pipeline on the day the 1984 Act became law. Some of these
drugs were in the very early stages of human testing, i.e. the IND
stage whereas others were either at advanced stages of clinical testing
or pending before the FDA for approval. Therefore, as expected; some
pipeline drugs were approved shortly after enactment of the 1984 Act
while many others were not approved for many years because they were
only in the early stages of development in 1984. The records of the PTO
show that 2-year patent extensions were being granted for pipeline drug
approvals well into the 1990's.
The testimony of Mr. Hutt and Senator Torricelli also raises
serious questions regarding the timing and scope of S. 1172. If, as now
alleged, pipeline drugs were improperly treated by the 184 Act, why was
no broad-based remedial legislation introduced in Congress until after
almost all of the patents covering pipeline drugs had expired? If, as
Sen. Torricelli indicates, there were 17 pipeline drugs that had FDA
review times greater than five years (as compared to an average review
time of 2+ years), why is this legislation only being offered now after
10 of those 17 patents have expired? In seeking answers to these
questions, the Judiciary Committee should take note of the fact that of
the 7 patents potentially affected by S. 1172, 4 of them \5\ were
discovered and developed in foreign countries by non-US citizens
working for foreign-owned companies and were first patented in a
foreign country. There is no policy rationale for granting additional
patent extensions to those foreign products. Moreover, of the three US-
based patents, the patent covering Eulexin provides 12.3 years of
market exclusivity; and the patent covering Cardiogen provides 12.7
years of exclusivity without the additional extensions contemplated by
S. 1712. According to a report issued by the Congressional Budget
Office \6\ the average length of market exclusivity for drugs developed
after 1984 is 10 to 11 years. Given all of these facts, it seems rather
clear that the only purpose of S. 1172 is to provide Schering with an
opportunity to extend its multi-billion dollar/year monopoly on
Claritin. Therefore, Schering's entitlement to that relief (or lack
thereof) should be directly addressed by Congress rather than creating
an elaborate and unnecessary administrative process.
---------------------------------------------------------------------------
\5\ The patents covering Relafen, Nimotop, Penetrex and Dermatop
are all based on patents first filed in foreign countries and later
filed in the United States.
\6\ How Increased Competition From Generic Drugs Has Affected
Prices and Returns in the Pharmaceutical Industry, July, 1998.
---------------------------------------------------------------------------
It is undisputed that the FDA was prepared to approve the capsule
dosage form of Claritin, on which the clinical trials had been based,
in October 1987 just one year after the NDA was filed. In fact,
Schering publicly announced in December 1997 that Claritin would be
launched during the first half of 1988. If Schering had proceeded as
planned, it would have enjoyed more than 14 years of market exclusivity
before its basic Claritin patent expired and would be ineligible for
any patent term extension under either the 1984 Act or S. 1172.
However, Schering made a belated market-based decision to switch from
the approved capsule form of Claritin to a tablet dosage form. Under
FDA rules, the burden was on Schering to prove that its new tablet was
bioequivalent to the approved capsule. It was this belated change in
the NDA and subsequent technical difficulties in proving bioequivalence
that apparently delayed the approval of Claritin for several years.\7\
Therefore, Schering is seeking compensatory patent extension for its
own actions and not for a delay caused by the FDA.
---------------------------------------------------------------------------
\7\ The full facts with respect to the timing and events relating
to the NDA review and approval process for Claritin are confidential
and Schering has refused to waive confidentiality so that the process
can be independently reviewed. It is unconscionable for Schering to
claim that it has been wrongly treated and to simultaneously refuse to
make the facts available. An adverse inference should be drawn from
this conduct.
---------------------------------------------------------------------------
There are those who argue that the foregoing facts are irrelevant
because S. 1172 merely creates a process for determining whether
Claritin is entitled to an extension without prejudging that issue. I
respectfully disagree for two reasons. First, before Congress puts a
process in motion which has the potential for creating billions of
windfall profits for Schering at the expense of the millions of
patients who take Claritin, there should at least be a prima facie case
which establishes that Schering was treated inequitably and is entitled
to the relief being sought. Here, the available facts and law establish
that Schering's shortened exclusivity is the result of its deliberate
business decision to belatedly abandon the original dosage form of
Claritin for business reasons.
Second, the ``process'' established by S. 1172 is seriously flawed.
It would only require Schering to prove that it acted with ``due
diligence''. Schering has already received a 2-year patent extension on
that theory. Additional relief should be available, if at all, only if
it can be shown that the unusually long regulatory review period for
Claritin was caused by improper delays by the FDA. Schering may well
have acted with due diligence in seeking approval for a new dosage form
but it could have marketed the capsule form of Claritin beginning in
1988 and apparently did so in many other countries. Schering should not
be entitled to a patent extension for marketing time lost as a result
of its business decision to refrain from marketing Claritin in the
United States until it could gain approval for a more preferred dosage
form. Yet, S. 1172 is not drafted in a manner which would require the
PTO to examine that question of who or what caused the delay in
approving Claritin. Nor does the bill prohibit the granting of an
extension if the delay was caused by the applicant. Indeed, the bill
does not even require an applicant for extension to publicly disclose
all of the facts and proceedings relating to the approval process so
that the cause of any delay can be independently determined. In short,
the ``process'' established by S. 1172 is lopsided and essentially
guarantees Schering an extension by merely asking for it.
For all of the foregoing reasons, no case has been made to support
the notion that the 1984 Act erroneously short-changed pipeline drugs
or that the FDA acted in a manner which improperly denied any pipeline
drug the full measure of market exclusivity to which a drug was
entitled. Without such evidence, it would be wrong for Congress to
establish a process for providing farther patent term extensions for
pipeline drugs.
I appreciate this opportunity to provide my views on this important
issue and would be pleased to answer any questions that may arise from
my comments or related matters.
Sincerely,
Alfred B. Engelberg.