U.S. GOVERNMENT PRINTING OFFICE

67–573 CC WASHINGTON : 2000

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

(

COMMITTEE ON THE JUDICIARY

ORRIN G. HATCH, Utah, Chairman

STROM THURMOND, South Carolina

CHARLES E. GRASSLEY, Iowa

ARLEN SPECTER, Pennsylvania

JON KYL, Arizona

MIKE DEWINE, Ohio

JOHN ASHCROFT, Missouri

SPENCER ABRAHAM, Michigan

JEFF SESSIONS, Alabama

BOB SMITH, New Hampshire

PATRICK J. LEAHY, Vermont

EDWARD M. KENNEDY, Massachusetts

JOSEPH R. BIDEN, JR., Delaware

HERBERT KOHL, Wisconsin

DIANNE FEINSTEIN, California

RUSSELL D. FEINGOLD, Wisconsin

ROBERT G. TORRICELLI, New Jersey

CHARLES E. SCHUMER, New York

MANUS COONEY, Chief Counsel and Staff Director

BRUCE A. COHEN, Minority Chief Counsel

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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

Page

IV

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

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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

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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

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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

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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 brandname 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

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the inventor has had a fair opportunity to make a profit. Any changes to the HatchWaxman 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 ScheringPlough 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 brandname 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.

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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 twoyear 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.

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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, ScheringPlough’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

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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. ScheringPlough 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.

25

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 ScheringPlough, 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 appreVerDate 11-MAY-2000 08:17 Dec 05, 2000 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6602 DRUGS SJUD4 PsN: SJUD4
26

ciate 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 HatchWaxman 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 ScheringPlough 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.

27

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

28

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 ScheringPlough 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 HatchWaxman Act by allowing the manufacturers of Claritin and six other ‘‘pipeline

29

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

30

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.

31

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 ScheringPlough 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

32

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 ScheringPlough 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 ScheringPlough’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

33

1The seven drugs are Cardiogen-82, Claritin, Dermatop, Eulexin, Nimotop,

Penetrex , and Relafen.

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.

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

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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.

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2Pub.L.No. 98–417, 98 Stat. 1585 (Sept. 24, 1984).

3FDA, ‘‘New Drug Evaluation Statistical Report’’ 53 (Oct. 1985) (FDA mean approval time of

26.9 months for new molecular entities in 1984).

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—socalled ‘‘pipeline’’ drugs—the statute limits the restoration period to two years.

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.

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.

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4 35 U.S.C. §156(d)(3).

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.

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. ScheringPlough 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

37

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.

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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,

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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 boardcertified 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

40

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:]

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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.

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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 twoyear patent extension. It is also important to note that that in addition to the twoyear 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:

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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

44

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

45

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.

46

1Peter Barton Hutt & Richard A. Merrill, Food and Drug Law: Cases and Materials (1st ed.

1980 & 2d ed. 1991). 2See, 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). 3Peter 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). 6 76 Stat. 780 (1962).

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

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

47

7 98 Stat. 1585 (1984).

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.

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

The 1984 Act was an attempt to balance two competing interests. The researchbased 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 reaVerDate 11-MAY-2000 08:17 Dec 05, 2000 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6621 DRUGS SJUD4 PsN: SJUD4
48

8FDA, New Drug Evaluation Statistical Report 53 (October 1985) (FDA mean approval time

of 26.9 months for new molecular entities approved in 1984). 9Tufts Center for the Study of Drug Development, Time From First Pharmacological Testing

to New Drug Approval, 1963–1997 (1998).

sons 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

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

49

10Mr. 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. 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).

undergoing active research for more than five years before the enactment date of

the 1984 Act.

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.

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.

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:

50

12 ‘‘Patent Extension Hearing,’’ note 5 supra, at 218.

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.

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 unVerDate 11-MAY-2000 08:17 Dec 05, 2000 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 DRUGS SJUD4 PsN: SJUD4
51

justified 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 reVerDate 11-MAY-2000 08:17 Dec 05, 2000 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 DRUGS SJUD4 PsN: SJUD4
52

sume 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 HatchWaxman 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.

53

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.

54

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

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• 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 ScheringPlough 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.

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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 HatchWaxman 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.

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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.

58

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.

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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 reVerDate 11-MAY-2000 08:17 Dec 05, 2000 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6621 DRUGS SJUD4 PsN: SJUD4
60

solve the problems of dispensing medicines to all Americans, including the underinsured 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?

61

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

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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

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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.

64

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

65

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

66

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.]

67

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 atodds 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

68

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

69

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

70

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,

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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 reterm 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.

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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.

73

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

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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

75

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

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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,

77

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.]

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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

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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.

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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

82

1The eight drugs are Claritin, Eulexin, Nimtop, Relafen, Dermatop, Penetrex,

Cardiogen-82, and Daypro. 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). 3 Congressional Record, H4220, June 14, 1999.

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.

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.

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 exVerDate 11-MAY-2000 08:17 Dec 05, 2000 Jkt 000000 PO 00000 Frm 00086 Fmt 6601 Sfmt 6621 DRUGS SJUD4 PsN: SJUD4
83

4The 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.

pense of competition, consumer savings, and healthcare costs without a corresponding benefit to the consumer.

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 threeyear 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 ScheringPlough believes the outcome for their Claritin application would be.

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 decisionmaking 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 discovVerDate 11-MAY-2000 08:17 Dec 05, 2000 Jkt 000000 PO 00000 Frm 00087 Fmt 6601 Sfmt 6621 DRUGS SJUD4 PsN: SJUD4
84

5The Pink Sheet, articles dated October 31, 1986, November 9, 1987, November 27, 1989, June

24, 1991, and April 19, 1993. 6Testimony 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).

ery 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 ScheringPlough—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

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

85

1This study was funded in part by a research grant from the National Association of Pharmaceutical Manufacturers.

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 ScheringPlough 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.

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 ScheringPlough ‘‘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 DIRECTOR1

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 reve- nue 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.

86

• 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 HatchWaxman. • 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

87

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

88

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

89

1Schering-Plough, 1998 Annual Report. 2 Ibid.

3 NIH News Release, May 5, 1998, ‘‘Arthritis Prevalence Rising as Baby Boomers Grow Older.’’

4Scrip, No. 1927, May 31, 1994, p. 16.

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.

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.

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.

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 specialinterest 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

90

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,

91

5 Jerry I. Treppel and Edward A. Neugeboren, Generic Drug Industry Overview, Kidder, Peabody, October 5, 1994).

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 indexall 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 twentyfive 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.

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.

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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

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6Schering-Plough, 1998 Annual Report. 7Pharmaceutical Research and Manufacturers of America, PhRMA Annual Survey, 1998,

Table 2, p. 91. 8Taren Grom, Medical Advertising News, May 1999, 18(5) p.8. 9Price is the wholesale acquisition price for ClaritinTM 10 mg tablets in a bottle of 100.

PriceChek PC, First Databank, Indianapolis, IN, July 1999.

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 ScheringPlough 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.

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 ScheringPlough’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

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.

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

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10Price 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. 11 Cathy Spence (editor), The Pharmaceutical R&D Compendium: CMR International/Scrip’s

Complete Guide to Trends in R&D, 1997, p. 31. 12Pharmaceutical Research and Manufacturers of America, PhRMA Annual Survey, 1998. 13 Congressional Budget Office, How Increased Competition From Generic Drugs Has Affected

Prices and Returns in the Pharmaceutical Industry, July 1998. 14 Ibid. 15Food and Drug Administration, web site. 16Fortune 500 survey results, Fortune, April issue for years from 1970 to 1999.

$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.

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:

$9.64 billion added revenue × 12.5 percent for R&D × 29.1 percent 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.

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.

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 mid1980s, 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.

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

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17Office of Technology Assessment, Pharmaceutical R&D: Costs, Risks, and Rewards, February 1993. 18 Ibid, p. 104.

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).

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

96

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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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. 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).

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:

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 nonpatent 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

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4See, Hutt ‘‘The Importance of Patent Term Restoration to Pharmaceutical Irmovation’’,

Health Affairs, Vol. 1, No 2, p. 6 (1982). 5The 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.

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.

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

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.

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

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7The 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.

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.

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.

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