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51–014 PDF 2010

BIOLOGICS AND BIOSIMILARS: BALANCING 

INCENTIVES FOR INNOVATION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COURTS AND 

COMPETITION POLICY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JULY 14, 2009 

Serial No. 111–73 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Majority Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON COURTS AND COMPETITION POLICY

HENRY C. ‘‘HANK’’ JOHNSON, JR., Georgia, Chairman 

JOHN CONYERS, JR., Michigan 

RICK BOUCHER, Virginia 

ROBERT WEXLER, Florida 

CHARLES A. GONZALEZ, Texas 

SHEILA JACKSON LEE, Texas 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

MIKE QUIGLEY, Illinois 

HOWARD COBLE, North Carolina 

JASON CHAFFETZ, Utah 

BOB GOODLATTE, Virginia 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

DARRELL ISSA, California 

GREGG HARPER, Mississippi 

CHRISTAL SHEPPARD, Chief Counsel 

BLAINE MERRITT, Minority Counsel 

(III) 

C O N T E N T S 

JULY 14, 2009 

Page 

OPENING STATEMENTS 

The Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress 

from the State of Georgia, and Chairman, Subcommittee on Courts and 

Competition Policy ............................................................................................... 1 

The Honorable Howard Coble, a Representative in Congress from the State 

of North Carolina, and Ranking Member, Subcommittee on Courts and 

Competition Policy ............................................................................................... 2 

WITNESSES 

The Honorable Anna G. Eshoo, a Representative in Congress from the State 

of California 

Oral Testimony ..................................................................................................... 7 

Prepared Statement ............................................................................................. 10 

Mr. Bruce A. Leicher, Senior Vice President and General Counsel, Momenta 

Pharmaceuticals, Inc., Cambridge, MA 

Oral Testimony ..................................................................................................... 14 

Prepared Statement ............................................................................................. 16 

Mr. Jeffrey P. Kushan, on behalf of the Biotechnology Industry Organization 

(BIO), Woodrow Wilson School of Public and International Affairs, Princeton, NJ 

Oral Testimony ..................................................................................................... 38 

Prepared Statement ............................................................................................. 40 

Mr. Alex M. Brill, Research Fellow, American Enterprise Institute (AEI), 

Washington, DC 

Oral Testimony ..................................................................................................... 173 

Prepared Statement ............................................................................................. 175 

Mr. Jack W. Lasersohn, General Partner, Verticle Group, on behalf of National Venture Capital Association (NVCA), Arlington, VA 

Oral Testimony ..................................................................................................... 181 

Prepared Statement ............................................................................................. 184 

Mr. Larry McNeely, Healthcare Reform Advocate, U.S. Public Interest Research Groups (USPIRG), Washington, DC 

Oral Testimony ..................................................................................................... 189 

Prepared Statement ............................................................................................. 191 

Ms. Teresa Stanek Rea, President, American Intellectual Property Law Association (AIPLA), Washington, DC 

Oral Testimony ..................................................................................................... 196 

Prepared Statement ............................................................................................. 198 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Howard Coble, a Representative in 

Congress from the State of North Carolina, and Ranking Member, Subcommittee on Courts and Competition Policy .................................................... 4 

Prepared Statement of the California Healthcare Institute (CHI) submitted 

by the Honorable Darrell Issa, a Representative in Congress from the 

State of California, and Member, Subcommittee on Courts and Competition 

Policy ..................................................................................................................... 224

Page

IV 

Bloomberg Article submitted by the Honorable Darrell Issa, a Representative 

in Congress from the State of California, and Member, Subcommittee on 

Courts and Competition Policy ........................................................................... 233 

Bloomberg Article submitted by the Honorable Brad Sherman, a Representative in Congress from the State of California, and Member, Subcommittee 

on Courts and Competition Policy ...................................................................... 239 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Response to Post-Hearing Questions from Bruce A. Leicher, Senior Vice President and General Counsel, Momenta Pharmaceuticals, Inc., Cambridge, 

MA ......................................................................................................................... 244

Response to Post-Hearing Questions from Alex M. Brill, Research Fellow, 

American Enterprise Institute (AEI), Washington, DC .................................... 252 

(1) 

BIOLOGICS AND BIOSIMILARS: BALANCING 

INCENTIVES FOR INNOVATION 

TUESDAY, JULY 14, 2009 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COURTS AND

COMPETITION POLICY

COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:20 p.m., in room 

2141, Rayburn House Office Building, the Honorable Henry C. 

‘‘Hank’’ Johnson, Jr. (Chairman of the Subcommittee) presiding. 

Present: Representatives Johnson, Gonzalez, Jackson Lee, Watt, 

Sherman, Issa, Goodlatte, and Coble. 

Staff Present: (Majority) Christal Sheppard, Subcommittee Chief 

Counsel; Eric Garduno, Counsel; Rosalind Jackson, Professional 

Staff Member; (Minority) and Blaine Merritt, Counsel. 

Mr. JOHNSON. This hearing of the Subcommittee on Courts and 

Competition Policy will now come to order. 

Without objection, the Chair will be authorized to declare a recess of the hearing. 

Under current law, generic versions of the chemical pharmaceutical products may be introduced through an expedited pathway 

that allows generic makers to rely on the safety and efficacy test 

data of an original Food-and-Drug-Administration-approved drug. 

This dramatically reduces the cost of entry for generics, which has 

translated into substantial savings to customers. The Congressional Budget Office has estimated that consumers save $8 billion 

to $10 billion a year, thanks to the price competition from generics. 

There is, however, no equivalent statutory pathway for generic 

versions of biological pharmaceutical products, otherwise known as 

biosimilars. Congress has explored the creation of a generic pathway for biosimilars for some time, but it wasn’t until this Congress 

that real momentum has built behind such a legislative endeavor. 

This is in large part due to the effort by Congress and the Obama 

administration to pass comprehensive health care reform. Many believe that establishing a pathway for biosimilars will contribute to 

our efforts to reduce the cost of health care. 

Creation of a pathway for biosimilars has been a contentious 

issue. Much of the debate concerning such a pathway revolves 

around whether the science is perfected enough to determine if a 

biosimilar that relies on an innovator’s test data will have the 

same health benefits as the innovator drug without additional 

health risks. Additional concerns center on the intellectual property 

2 

protections afforded drug innovators and how the nature of those 

protections will impact competition, future biotechnology industry 

investment and the cost of biological pharmaceutical products. 

It is, without a doubt, that the development of new biologics is 

an expensive endeavor. Estimates put average development costs 

as much as $1.37 billion. It is also without a doubt that the cost 

of pharmaceutical products, and in particular biologics, is huge. In 

2007, pharmaceutical expenditures accounted for $231.3 billion in 

health care costs, and biologics represented $40.3 billion of this 

total. 

The question before us today is how to frame the intellectual 

property protections in a pathway for biosimilars that incentivizes 

the extraordinary investment required to develop new biologics but 

does not discourage biosimilar introduction. 

I look forward to our hearing with the distinguished witnesses 

that we have on board who will comment on whether there should 

be a long data exclusivity period that significantly delays biosimilar 

competition, whether biotechnology patents are broad enough to 

apply to biosimilar products and processes, and the extent to which 

other factors provide market-entry barriers that will limit biosimilar entry and thereby protect innovators. 

I now recognize my colleague, Mr. Howard Coble, the distinguished Ranking Member of the Subcommittee on Courts and Competition Policy for his opening remarks. 

Mr. COBLE. Thank you, Mr. Chairman, and I thank you for having called the hearing which addresses an important health care 

issue and directly affects subject matter that is a portion of the Judiciary Committee’s jurisdiction. 

Mr. Chairman, I will try not to be too verbose, but this subject 

is very detailed and very complex; perhaps not so detailed and complex to the scientifically adept, but I belong to the scientifically 

inept group, and to me, it is very complex. 

The Hatch-Waxman Act, which is almost a quarter century old, 

gave birth to the generic chemical drug industry, as we all know. 

By most accounts, it has worked well by balancing the interests of 

brand manufacturers, generic companies, and patients. It has generated greater price competition in the pharmaceutical industry 

without destroying the incentive for brands to conduct further research and roll out new products that benefit patients worldwide. 

In recent years, Mr. Chairman, legislators and other health care 

experts have contemplated the creation of a similar legislative 

pathway for a generic biologics industry. This discussion not only 

resurrects some of the same issues confronting Congress during 

consideration of Hatch-Waxman, it also invites debate over the wisdom of using Hatch-Waxman as an appropriate template for 

biosimilars. 

As I said at the outset, I am no expert in the fields of biology, 

chemistry, or recombinant DNA, but I do understand the basic difference between chemical pharmaceuticals and biologics. 

Chemical drugs are usually produced in pill form. They are 

chemically synthesized and comprised of small molecules. Compared to biologics, chemical pharmaceuticals are far easier to manufacture and replicate. 

3 

Biologics are made, as we know, from living organisms. They are 

normally comprised of protein and are increasingly a part of recombinant DNA research and production. Their characteristic properties include a high molecular weight, varying levels of hard-to-remove biological impurities, and a high degree of sensitivity to environmental conditions. The manufacturing process is therefore critical to the final product. This complexity means one cannot guarantee that reproduction of a biological drug results in an exact duplicate. 

This is not the case for chemical pharmaceuticals regulated 

under Hatch-Waxman since it is chemically identical to the innovator drug. That is why the term generic biologic is technically inaccurate, it seems to me. Biosimilar or follow-on biologic would be 

preferred. 

In our quest to develop a legislative pathway for biosimilars, we 

must keep these differences in mind. While the Judiciary Committee’s jurisdiction does not include public health and related safety 

issues, all Members, whatever their Committee assignments, cannot discharge the importance of protecting patients. Any bill we 

end up supporting cannot sacrifice public safety on the alter of potential cost savings. 

I have some more to say, Mr. Chairman, but in the interest of 

time, I would ask unanimous consent to have my entire statement 

put into the record, and we hope that we will have a balanced and 

talented roster of witnesses, which we will have, who will add to 

our understanding of this complex subject. 

I look forward to participating and thank you again, Mr. Chairman, for having called the hearing. 

Mr. JOHNSON. Without objection, that will be done, Mr. Coble. 

I thank the gentleman for his statement. 

[The prepared statement of Mr. Coble follows:] 

4 

PREPARED STATEMENT OF THE HONORABLE HOWARD COBLE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF NORTH CAROLINA, AND RANKING MEMBER, SUBCOMMITTEE ON COURTS AND COMPETITION POLICY


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Mr. JOHNSON. Without objection, other Members’ opening statements as well will be included in the record. 

I am now pleased to introduce the witness for the first panel of 

today’s hearing. Our first panel will feature Congresswoman Anna 

Eshoo. 

Representative Eshoo, you are the top dog on this panel, there 

is no question about it. 

Ms. ESHOO. Wait until I tell my children. 

Mr. JOHNSON. You may want to put this in the new book that 

you are coming out with also. 

Representative Eshoo has served in Congress since 1993 and represents California’s 14th Congressional District, which includes 

large portions of Silicon Valley. She serves on the House Energy 

and Commerce Committee and on the House Permanent Select 

Committee on Intelligence. In addition, Representative Eshoo cochairs the Congressional High-Tech Caucus and the House Medical 

Technology Caucus and serves as Vice Chair of the 21st Century 

Health Care Caucus. 

Representative Eshoo, please proceed with your testimony. 

TESTIMONY OF THE HONORABLE ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. ESHOO. Good afternoon, Mr. Chairman, and thank you very 

much for allowing me to be here today to give testimony on the 

issue of biosimilars before this distinguished Subcommittee. 

Ranking Member, Mr. Coble, a good and long-time friend, to my 

friends Congressman Gonzales and Congressman Watt, thank you 

for being here. 

This is a very important, yet complex, discussion, to develop a 

regulatory pathway for biosimilars that, as Mr. Coble and others 

have said, protects patients—protects patients, that must be our 

number one goal—while balancing incentives for innovation. 

The field of biotechnology is the future of medicine. We are just 

beginning to scratch the service of the potential to harness the extraordinary power of biology and the astounding natural processes 

which occur in the human body, in animals, and in other living organisms to advance breakthrough medical discoveries and treatments. 

This vital future, in my view and I am sure yours, must advance. 

But the cost of biologic treatments are very expensive, and I think 

the time has come to develop a pathway, as the Congress did many 

years ago and was mentioned by the Ranking Member, to develop 

a pathway for biosimilar products in our country the way we did 

for pharmaceutical compounds. 

Now, what exactly do I mean when I say develop a pathway for 

biosimilars? In 1984, the Drug Price Competition and Patent Term 

Restoration Act, better known as the Hatch-Waxman Act, ushered 

in a new era of competition and cheaper drugs for traditional pharmaceuticals, called compounds. It is now appropriate for us to create a pathway for follow-on versions of biologics. 

But biologics and traditional drugs are fundamentally different, 

and they require different legal and scientific frameworks. First, 

8 

we need to understand the differences between biologics and traditional drugs. 

Many of us take a prescription or an over-the-counter drug frequently. Each time we reach for a pill, we expect the same safety 

and efficacy, whether we are using a brand name or a generic drug. 

Small molecule chemical compounds of traditional drugs are 

ideal for replication as generics. These products have well-defined 

structures that can be thoroughly characterized and copied, and generic drugs are chemically identical, chemically identical, to the 

brand name products they copy. Doctors and patients can expect 

the generics will have the same properties, the same efficacy and 

the same safety characteristics as the product that they copied. 

Biological products are fundamentally different. A biologic is a 

large complex molecule which is grown in living cells, in living systems, such as a microorganism, a plant, or an animal cell. The resulting protein is unique to the cell lines and the specific processes 

that are used to produce it, and even slight differences, even the 

slightest differences, in the manufacturing of a biologic can alter its 

nature. And that will have an effect on the patient. 

As a result, biologics are difficult and sometimes impossible to 

characterize, and laboratory analysis of the finished product is insufficient to ensure its safety and efficacy. 

I brought a chart. They say a picture is worth a thousand words. 

You see on the stand here the chart. These are both breast cancer 

treatments. The top is Tamoxifen. That is a small-molecule compound. You can see its simplicity. The picture says it all. 

Below it is Herceptin, and that is a biologic. Look at the complexity of that biologic. 

Even if a biosimilar is proven to be safe and effective, it will likely still have different properties than the original innovative product. There may be differences in dosing, different side effects or 

safety profiles, and differences in effectiveness for certain diseases 

or for different patient groups. 

Biologics are expensive, and they are risky to develop. A recently 

released study sponsored by the National Venture Capital Association analyzed the relative cost for investors in biotechnology and 

found that the cost of capital for startup biotech companies is more 

than double the costs that other companies must pay. These costs 

stem from long developmental timelines of typically 10 years or 

more and extraordinary levels of risk. 

Fewer than 1 percent of biologics make it to the market. Imagine 

that. Fewer than 1 percent. And the large amounts of capital required to support this development are at the other end of the 

scale. 

So, to preserve the existing incentives for investment and innovation, the Pathway for Biosimilars Act provides a data-exclusivity 

period equivalent to patent protections for small molecules. The 

Congressional Budget Office has determined that 11.5 years is the 

average length of time that drugs are marketed under patent. In 

other words, innovative drugs and biologics typically stay on the 

market for about 12 years before facing competition. My legislation 

maintains this level of protection for biologics. 

Now, today innovators are assured that the costly clinical trial 

results and data that they develop during their approval process 

9 

cannot be used by competitors to secure approval and enter the 

market even if their patents do not prevent entry. In effect, 

innovators today have infinite data protection, which allows for 

competition but doesn’t permit free-riding on their data. 

I am proposing to allow competitors access to their data and a 

shortcut into the market, but we preserve through the legislation 

the existing incentives for innovators by maintaining a 12-year period of exclusivity of concurrent data protection as a backstop to existing patent protections. 

In order to protect the rights of all parties and ensure that all 

patent disputes involving a biosimilar are resolved before, and I 

emphasis the word before, the expiration of the data-exclusivity period, H.R. 1548 also establishes a simple, streamlined patent resolution process. 

This process would take place within a short window of time, 

roughly 6 to 8 months after the biosimilar application has been 

filed with the FDA. It will help ensure that litigation surrounding 

relevant patents will be resolved expeditiously and prior to the 

launch of the biosimilar product, providing certainty to the applicant, the reference product manufacturer, and the public at large. 

Unlike any other proposal, our legislation also preserves the ability of third-party patent holders, such as universities and medical 

centers, to defend their patents. 

Once a biosimilar application is accepted by the FDA, the agency 

will publish a notice identifying the reference product and a designated agent for the biosimilar applicant. After an exchange of information to identify the relevant patents at issue, the applicant 

can decide to challenge any patents’ validity or applicability. All information exchanged as part of this procedure will be maintained 

in strict confidence and used solely for the purpose of identifying 

patents relevant to the biosimilar product. The patent owner will 

then have 2 months to decide whether to enforce the patent, and 

if the patent owner’s case is successful in court, the final approval 

of the application will be deferred until the patent expires. 

So this legislation I think sets forth a straightforward, scientifically-based process for an expedited approval of new biologics 

based on innovative products already on the market, with patient 

safety coming first. This new pathway will promote competition 

and lower prices and, most importantly again, protect patients and 

give them the safe and the effective treatments and I might say the 

hope that this represents to really conquer the most dreaded diseases that still plague humankind, and all through the scrutiny 

and testing by the FDA. 

The legislation enjoys today 130 bipartisan cosponsors, many on 

this Committee, the House Judiciary Committee, and it is known 

as the Kennedy Bill in the Senate. Last evening, the Health Subcommittee in the Senate voted the bill out 16-7, which I think is 

really quite a victory for the legislation. After all, it is complicated 

and enormously complex, as well as enormously important. 

I also want to note that the bill is endorsed by the Association 

of American Universities, the National Venture Capital Association, the Biotechnology Industry Organization, the Governors of 

four States, and a wide array of patient and industry groups. 

10 

Mr. Chairman and distinguished Members of the Subcommittee, 

I appreciate being welcomed here today. It is an honor to testify 

before my House colleagues. 

I thank you, and I stand willing to answer questions, should you 

have any. 

[The prepared statement of Ms. Eshoo follows:] 

PREPARED STATEMENT OF THE HONORABLE ANNA G. ESHOO, 

A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA


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Mr. JOHNSON. Thank you, Madam Congresswoman. It is our 

pleasure to host you today. 

Without objection, your written statement will be placed into the 

record. 

I now call for the second panel to take their seats. Thank you. 

I might add here also that Representative Waxman has introduced a similar bill, and he was offered the opportunity to come 


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today, but he is very much tied up with the health care issue, so 

he could not make it. 

Ladies and gentleman, our second panel will begin with Bruce 

Leicher. Mr. Leicher is senior vice president and general counsel at 

Momenta Pharmaceuticals, which is an innovative biotechnology 

company engaged the development of novel and follow-on biologics. 

Prior to joining Momenta, Mr. Leicher served in leadership capacities in a number of other biotechnology companies. 

Mr. Leicher also served as a law clerk to the Honorable Thomas 

F. Hogan in the United States District Court for the District of Columbia. 

Welcome, sir. 

Next will be Jeffrey Kushan, who is a partner with Sidley Austin 

and serves as the Chair of the firm’s D.C. Patent Group. Mr. 

Kushan specializes in Hatch-Waxman and biotechnology patent 

litigation, patent appeals, and complex patent administrative proceedings. He represents several biotechnology clients including, 

Genentech. Today he is representing the Biotechnology Industry 

Organization. 

Welcome, sir. 

Following will be Mr. Alex Brill, who is a research fellow at the 

American Enterprise Institute and CEO of the consulting firm Matrix Global Advisers. He is former chief economist and senior adviser to the House Committee on Ways and Means, and has served 

on the staff of the White House Council of Economic Advisers. His 

expertise lies in U.S. Federal tax policy, budget, trade and health 

care policy. 

Welcome, sir. 

Mr. Jack Lasersohn will be our next witness, who is a founding 

general partner of the Verticle Group, one of the Nation’s oldest 

and most successful venture capital firms, which focuses on health 

care venture capital investments. Mr. Lasersohn has served on the 

board of directors of 40 public and private companies and currently 

serves on the board of directors of the National Venture Capital Association, which he is representing today. He is also the named inventor on six U.S. patents. 

Welcome, sir. 

Next will be Mr. Larry McNeely, who is a health care advocate 

for the United States Public Interest Research Groups, otherwise 

known as USPIRG. Mr. McNeely advocates for legislation that will 

tame rising health care costs and offer consumers better choices in 

the health care marketplace. Prior to joining USPIRG, Mr. 

McNeely dedicated nearly a decade of his life to working as a community activist, political organizer, and union representative. 

Welcome, sir. 

Last will be Ms. Teresa Rea, who is a partner in the Washington, 

D.C., office of Crowell and Moring and is a member of the firm’s 

Intellectual Property Section. Her work there focuses on complex 

patent litigation, prosecution and procurement. Ms. Rea is also a 

registered pharmacist in the State of Michigan and worked for 

years as a hospital pharmacist. Ms. Rea is president of the American Intellectual Property Law Association and is representing the 

association today. 

Welcome, ma’am. 

14 

Thank you all for your willingness to participate in today’s hearing. Without objection, your statements will be placed into the 

record, and we will ask that you limit your oral remarks to 5 minutes. 

You will note that we have a lighting system that starts with a 

green light. At 4 minutes, it turns yellow, and then red at 5. After 

each witness has presented his or her testimony, Subcommittee 

Members will be permitted to ask questions subject to the 5-minute 

rule. 

Mr. Leicher, would you please commence with your testimony, 

sir. 

TESTIMONY OF BRUCE A. LEICHER, SENIOR VICE PRESIDENT 

AND GENERAL COUNSEL, MOMENTA PHARMACEUTICALS, 

INC., CAMBRIDGE, MA 

Mr. LEICHER. Thank you, Mr. Chairman. 

Good afternoon, Mr. Chairman, and Members of the Committee. 

Thank you for the opportunity to participate today. I am Bruce 

Leicher, senior vice president and general counsel at Momenta 

Pharmaceuticals. I believe I offer a unique perspective. 

Serving as counsel to biotech companies for almost 20 years, I 

have worked on the development and launch of some of the earliest 

breakthrough products, including EPO, recombinant factor VIII 

and IX, and many others. I have participated in numerous 

financings and collaborative research deals between biotech and 

large pharma. I have served on product development committees 

that seek to balance risk versus reward. I have experienced the joy 

of meeting parents whose children’s lives have been transformed by 

biologics. I have also participated in many of the seminal biotech 

patent cases that determined market exclusivity and biologic patent strength. I understand biotechnology’s potential to save lives. 

Momenta also offers a unique perspective in this debate. We are 

a biotech company that develops both generic and novel therapeutics. We use innovative technology to characterize or better understand the picture that Congresswoman Eshoo presented earlier, 

and we use this technology to control the manufacture of complex 

drugs and potentially biologics. We are seeking a balanced approach. We believe Waxman-Deal offers that approach, and I will 

explain why Eshoo-Barton does not. 

I would like to address three key points. First, the law should let 

science drive both brand and biogeneric innovation so that we can 

develop breakthrough therapies and affordable biologics to patients. Second, we must not use data exclusivity and other barriers 

to reward inefficient and non-innovative R&D. 

Third, thee patent clearance process should promote health care 

reform through timely access to affordable products. It must be 

transparent, efficient and respectful of both brand and biogeneric 

intellectual property. Each of these objectives we believe are best 

served by the Waxman-Deal bill. 

Patents drive innovation. They drive speed to market and already favor biologics. A complex web of patent rights provides substantial protection for each biologic, its genetic code, its biologic 

pathway, the technology it uses, its manufacture and formulation. 

While some argue that individual patent claims may be somewhat 

15 

less certain, the aggregate of this web provides many multiple defenses. 

Notably, biologics generally have more market exclusivity during 

their brand life than drugs. Add to this 5 years of patent extension, 

and I have to ask, why should biologics need more data exclusivity 

than drugs to recoup investment? 

Beyond that, brand innovation and competitiveness are motivated by limited data exclusivity as well. Extended data exclusivity 

will attract capital, but the wrong kind. It will promote low-risk, 

non-innovative development, and make biotech in the long run far 

less competitive. Biotech funding should be directed to innovative, 

patentable new cures. Or is our goal to offer brand exclusivity profit for me-too products? 

Biogeneric innovation and safer biologics also need limited data 

exclusivity to attract capital. Momenta’s first project was to characterize low molecular weight Heparin, a biologic-like drug. Having 

an ANDA pathway available made it possible to finance Momenta 

and develop its innovative technology. 

We thoroughly characterized Heparin, including its potential for 

immunogenicity. Notably brand companies assert that this is not 

possible, yet continue to market the products. This matters today 

and tomorrow. 

We are applying these tools to develop the first biogenerics and 

to enhance patient safety. Last year, Momenta used these tools to 

assist MIT and other academic centers, in collaboration with the 

FDA, to identify the contaminant in Chinese-sourced Heparin. Because of the ANDA incentive and limited data exclusivity, we were 

able to do the work and knew what should and should not be in 

the Heparin product. 

So let me sum up. The wisdom of Hatch-Waxman was that it did 

not dictate investment decisions. Rather it put guardrails and incentives in place that reward innovation and assured affordability 

at a time when products matured. Breakthrough innovation was 

aligned with return on investment, and biotech flourished in the 

1980’s and 1990’s, creating high-paying jobs and critical new cures. 

As the first generation of breakthrough biologics emerges from 

patent protection, will we learn from this experience? 

Will we support legislation like Waxman-Deal that uses the competitive incentive of biogenerics to promote long-term competitive 

advantage, global leadership and job growth? Or will we ignore this 

wisdom and allow R&D investment to veer off track? 

Will we create a fertile environment for biologics companies to 

invest in the hard science, to understand and make biologics safer 

and better, and will we let the patent system drive efficiency and 

high rewards for breakthrough biologics as biogenerics provide affordable access to mature products? 

As I see it, this is exactly what health care reform is all about. 

Thank you for this opportunity, and I would be pleased to answer 

any questions. 

[The prepared statement of Mr. Leicher follows:] 

16 

PREPARED STATEMENT OF BRUCE A. LEICHER


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Mr. JOHNSON. Thank you, Mr. Leicher. 

Mr. Kushan, will you proceed with your testimony now, sir? 


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TESTIMONY OF JEFFREY P. KUSHAN, ON BEHALF OF THE BIOTECHNOLOGY INDUSTRY ORGANIZATION (BIO), WOODROW 

WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS, 

PRINCETON, NJ 

Mr. KUSHAN. Thank you, Mr. Chairman and Members of the 

Committee, for providing BIO with an opportunity to testify today. 

BIO supports creation of an abbreviated regulatory pathway for 

biosimilar products. A viable biosimilar pathway will increase competition and improve access to the remarkable biomedical advances 

our industry has delivered over the past 20 or 30 years. 

A biosimilar pathway will be successful only if it preserves the 

incentives that exist today in our vibrantly competitive and innovative biotechnology industry. If it does not, fewer new biological 

products and treatments will ensue to the detriment of patients 

with unmet medical needs. And given the decade-plus time that it 

takes to bring a new biological product to market, we simply cannot afford to guess wrong about the proper incentives for this field. 

BIO is encouraged to see there is widespread support for several 

critical elements of any biosimilar regime. First, nearly all stakeholders agree that data exclusivity must be part of an abbreviated 

biosimilar pathway. 

Data exclusivity is a regulatory mechanism that functions by deferring when biosimilar products can be approved on the basis of 

the innovator’s clinical data. The differences of opinion that exist 

now revolve around how long the data exclusivity period should be 

and how it should relate to continued clinical development of products. 

Currently, as Representative Eshoo pointed out, biological products have an unlimited period of data exclusivity. This is because 

there is no pathway today that lets another biotech company freeride on the clinical investments of a first innovator. 

Biotech innovation has flourished in this environment. We have 

seen constant innovations resulting in new protein therapeutics, 

new ways of exploiting cellular processes to treat diseases, new diagnostic tools, and new manufacturing techniques for making proteins. Indeed, the manufacturing innovations Mr. Leicher just 

pointed out that his company has developed have been made in 

this environment where there is unlimited data exclusivity. 

Actual experience shows that innovators also do not stop clinically developing their products in this environment, despite being 

given essentially an unlimited period of data protection. Instead, it 

shows that innovators continue to invest heavily in new clinical development and research on their approved biological products and 

have brought hundreds of important new treatments to the market 

for the benefit of patients. 

I think these real-world results are the simplest answer to the 

various theories we have heard suggesting that excessive data exclusivity will somehow hinder innovation and slow the delivery of 

new clinical benefits to patients. 

The real question is not whether it should be provided; it is, how 

much should it be shortened by a biosimilar pathway? 

Some have suggested that data exclusivity provided today for 

small-molecule drugs will be adequate for biological production. 

Several factors explain why this is not true. 

39 

Studies have shown that in the small-molecule area, on average, 

generic competition starts around 12 to 14 years after the innovator product is launched. Patents are why that happens. Patents 

can do that because any generic drug must be structurally identical 

to the innovator product. 

That means drug innovators do not need broad patent claims to 

protect their investments. They can protect their innovative drug 

products with what we call picture claims on the exact molecule. 

All this means is that a small-molecule drug innovator deciding 

whether to make the investment and start the 10 to 15 year path 

to develop and bring a new drug to market today can assume that 

their patents, if they are upheld, will prevent the marketing of an 

infringing generic product until those patents expire. 

This is not going to be true for biological products. Biosimilar 

products will invariably have different structures than innovator 

products. The biosimilar bills we see today all do not require structural identity. 

Compounding this problem is the problem that most biotech patents issuing today are narrow. Let me say very clear, these are not 

weak patents. They are very strong and effective patents. They are 

just narrow patents. The same uncertain science that makes it difficult to make an exact copy of a biological product is actually why 

we have narrow patent rights. 

Together, these two factors make it impossible for an innovator 

to predict when it is deciding to invest in development of the product whether its patent estate is going to provide effective protection 

against a future biosimilar product, and that is why the HatchWaxman model as it exists today cannot be directly applied to the 

biosimilar environment. This patent loophole must be closed by the 

data exclusivity provisions. 

BIO strongly supports the data exclusivity provisions of H.R. 

1548, introduced by Representative Eshoo. We believe that provides the appropriate balance. It also incorporates fair and balanced patent review procedures that will precede approval of a biosimilar, and importantly includes regulatory linkage. 

Thank you. 

[The prepared statement of Mr. Kushan follows:] 

40 

PREPARED STATEMENT OF JEFFREY P. KUSHAN


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ATTACHMENT A 


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ATTACHMENT C 


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ATTACHMENT D 


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Mr. JOHNSON. Thank you. 

Mr. Brill, please proceed with your testimony, sir. 


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TESTIMONY OF ALEX M. BRILL, RESEARCH FELLOW, 

AMERICAN ENTERPRISE INSTITUTE (AEI), WASHINGTON, DC 

Mr. BRILL. Thank you. 

Thank you, Chairman Johnson, Ranking Member Coble, and 

other Members of the Committee for the opportunity to appear before the Committee today to testify on an important matter currently before Congress, creating a pathway to allow for more competition within the biologic drug sector. 

My name is Alex Brill, and I am a research fellow at the American Enterprise Institute. 

Biologic drugs offer great promise for improving outcomes in 

health care. While it is costly and risky to produce products for development, they offer some of the best hopes for treating some of 

the Nation’s most deadly and debilitating diseases. 

As you noted in your opening statement, Mr. Chairman, currently there is no expedited process by which a biogeneric product 

could enter the U.S. market. While many experts who discuss the 

expected market dynamic for biogeneric competition make reference to small-molecule drugs and generic small-molecules that 

emerged after enactment of Hatch-Waxman legislation, it is important to understand the critical differences between traditional 

pharmaceutical and biologics drug markets. 

Not only are there scientific differences between these drugs, as 

Congresswoman Eshoo described in her testimony, but because of 

the cost, uncertainty and complexity in biologic drug development, 

a competitive biologic drug market will be very different than the 

market for small-molecule generics. 

As described in the recently released FTC report on this issue, 

‘‘Competition from follow-on biologic drug entry is likely to resemble brand-to-brand competition rather than generic drug competition. Branded manufacturers are likely to continue to reap profits 

after follow-on biologic entry.’’ 

As the FTC reports, high barriers to entry will limit the number 

of generic competitors to only a few. The result, according to FTC, 

will be price declines for biogenerics of 10 to 30 percent. However, 

in small-molecule drugs, generic prices typically decline up to 80 

percent. These more modest price effects on a percent basis relative 

to small-molecule drugs means that the need for additional market 

protection for biologic drugs facing competition is weaker as innovator drug companies will continue to be able to profit from their 

innovations after a follow-on competitor has entered the market. 

The additional protections granted by the Hatch-Waxman legislation for small-molecule drugs gives innovators greater confidence 

that they would have sufficient time to generate the necessary 

rents to recoup their R&D costs. This additional protection was 

deemed necessary due to the particular dynamics of that industry. 

However, the FTC argues that biologic drug patents are collectively stronger than small-molecule drug patents, making the need 

for additional protections unnecessary. In the eyes of the FTC, 

none of the problems inherent to small-molecule drug patents apply 

to biologic drugs, and they advocate no additional protection beyond that given by the patent system. 

I do not take as strong a stand against an exclusivity period as 

does the Federal Trade Commission. The cost of providing modest 

174 

additional intellectual property rights to drug originators will likely 

outweigh the potential costs. 

Research I conducted demonstrates that an exclusivity period of 

7 years is sufficient to ensure that innovator drug companies continue to earn the necessary economic rents. Modeling included in 

the recent FTC report further extends that model and finds support for the view that 7 years of market exclusivity will be sufficient. Proposals that establish a long period of market protection 

will lead to unreasonably large rent for originator drug companies 

and provide no additional benefit to consumers. 

Ultimately, it is a balancing act, promoting innovation by shielding the company from market competitors, and promoting innovation and price competition by allowing market entrance. 

Yet as these proposals have become more complex, another important issue has come to the fore, that of tiered exclusivity. Postlaunch R&D involves costs, albeit less than the original development costs, and should be encouraged, since it only stands to reason that a drug’s original developer has the best knowledge of their 

own invention. 

However, when thinking about the optimal amount of protection 

to give an improvement to an existing drug, we must once again 

return to the basic question of the particular market dynamic. An 

improvement that enlarges market share would increase profits 

further, thereby mitigating the amount of needed exclusivity. Furthermore, the more exclusivity that is expected to be attached to 

a drug for its improvements, the shorter the period that needs to 

be given to a newly approved drug initially. In my view, the total 

exclusivity period, including extensions, should be close to 7 years. 

Thank you. That concludes my statement. I look forward to your 

questions. 

[The prepared statement of Mr. Brill follows:] 

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PREPARED STATEMENT OF ALEX M. BRILL


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Mr. JOHNSON. Thank you, Mr. Brill. 

Next, Mr. Lasersohn, please proceed. 

TESTIMONY OF JACK W. LASERSOHN, GENERAL PARTNER, 

VERTICLE GROUP, ON BEHALF OF NATIONAL VENTURE CAPITAL ASSOCIATION (NVCA), ARLINGTON, VA 

Mr. LASERSOHN. Mr. Chairman, thank you for inviting me to testify today on behalf of the National Venture Capital Association, 


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which represents nearly 500 venture capital firms who in turn invest more than 90 percent of all venture capital in the United 

States. 

Last year, we invested over $3 billion in over 100 new biotechnology companies and currently manage over 1,000 biotechnology companies in our portfolios. 

It is probably not well-known that the venture community is the 

primary founder and funder of biotechnology in the United States. 

Indeed, it is not an exaggeration to say that venture capitalists 

founded the biotechnology industry in the 1970’s and 1980’s. For 

example, both Amgen and Genentech were founded by venture capital firms, and even today supply nearly all of the capital for earlystage biotechnology companies. 

In turn, our entrepreneurial biotechnology companies discover 

and develop the overwhelming majority of new biological drugs in 

the world. I cannot emphasize this point enough. The last time we 

looked at this, these companies were responsible for 80 percent of 

the new biological drugs in the entire pipeline of biotechnology development. 

While we have been actively involved in this behind the scenes, 

we have in fact not participated in testimony before the Congress 

before, and we did not have an opportunity to testify to the FTC. 

If we had, we would have said the following: 

We absolutely support a well-designed FOB process that will ultimately lower prices and improve access for biologicals for consumers while preserving investment in discovery and development 

of revolutionary new biotechnology drugs. 

The FOB system endorsed by the FTC will absolutely not accomplish these goals. Instead, it will result in a dramatic reduction in 

our ability to fund new drug discovery, leading to a Pyrrhic victory 

in which we have very cheap versions of old biologics and a vast 

reduction in the pipeline of new drugs which have the potential to 

revolutionize medicine. Both goals are important. 

Now, this may sound like a rehash of arguments against HatchWaxman in 1984, but this really is different. First, the current biotechnology industry bears no resemblance to the pharmaceutical industry in 1984. Most small-molecule drugs were discovered by large 

pharmaceutical companies in those days, and still are today. 

As I said, in contrast, virtually all new biological drug development today are discovered by small, private, VC-funded start-ups. 

This is an absolutely critical difference. These companies have no 

cash flow and depend entirely upon us for financing. We in turn 

invest in these incredibly risky, illiquid and very long-term investments, and usually lose money on about 50 percent of them. 

To justify this risk and time, we must produce a return that is 

much higher than you can get from less risky investments and 

much higher than large biotechnology and pharmaceutical companies need to make. If we don’t get those returns, in turn our investors will not give us money to invest in biotechnology, and indeed, 

that is already beginning to happen. 

This return is our cost of capital and is much more than the 10 

percent that has been assumed by supporters of other more aggressive FOB systems. In fact, it is over 20 percent, as a new Harvard 

and Boston University report showed that was just published last 

183 

week. All of the published models demonstrate that with a 20 percent cost of capital, or even a blended cost of capital of 10 to 12 

to 15 percent, we cannot break even on these enormously risky investments if generic follow-on biologicals competition can enter the 

market immediately or as little as 7 years after our drugs. If we 

cannot break even, we cannot invest. 

The second difference is how patents work in this system as compared to the generic biological system. The difference is obvious 

and simple. Under Hatch-Waxman, a simple composition-of-matter 

patent gives you enormous certainty that you can preclude generic 

competition during the life of the patent. It gives you a reasonable 

period to recoup your investment. Under an FOB system, you have 

no such certainty, because an FOB does not have to be identical 

with the approved drug. So a composition-of-matter patent, which 

is the strongest type of patent, may be completely irrelevant and 

unprotective. 

The FTC dismisses this point by arguing that other biological 

patents may offset this risk. Unfortunately, this is just speculation 

with which many experts disagree. And what matters to us most 

is it creates uncertainty, which is what actually affects our investment decisions, venture capital investment decisions. I can tell you, 

despite the what the FTC argues, that I and other VCs cannot rely 

on patents alone to continue to make investments in early-stage 

biotechnology companies. 

The data exclusivity period of 12 years that we are requesting is 

merely insurance against the possibility the FTC and the proponents of more radical FOB systems are wrong in their speculations about how strong patents will be. If they are correct, patents 

will give us 12 years anyway and the data exclusivity will be completely irrelevant. But if they are wrong, the data exclusivity will 

simply give us the same period to recoup our investments that the 

pharmaceutical industry already has under Hatch-Waxman. This 

seems to us like a prudent compromise to avoid the enormous unintentional—unintended damage to our entire entrepreneurial biotechnology industry. 

Thank you for your attention, sir. 

[The prepared statement of Mr. Lasersohn follows:] 

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PREPARED STATEMENT OF JACK W. LASERSOHN


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Mr. JOHNSON. Thank you, sir. 

Last, but not least, Ms. Rea—Mr. McNeely. I am sorry. 

Mr. McNeely, please proceed. 


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TESTIMONY OF LARRY McNEELY, HEALTHCARE REFORM ADVOCATE, U.S. PUBLIC INTEREST RESEARCH GROUPS 

(USPIRG), WASHINGTON, DC 

Mr. MCNEELY. Not last, but perhaps least. We will see. I suppose 

you will judge. 

Thank you very much, Mr. Chairman, Mr. Ranking Member, and 

to Members of the Committee, for the opportunity and really the 

honor to testify here today. 

My name is Larry McNeely. I am the health care advocate for 

USPIRG, U.S. Public Interest Research Group. USPIRG is a federation of State-based public interest research groups. It is a nonprofit, nonpartisan public interest advocacy organization. 

I think much has been made about the truly miraculous results 

of some of these new biologic drugs, and I think, you know, that 

is a value that we all hold. But the one thing that hasn’t changed 

with these new, more complex biologic drugs we are here to discuss, the laws of economics haven’t changed. It is still true that 

those with the monopoly are going to continue to fight to keep that 

monopoly, whether it is in the marketplace or in the halls of public 

policy. 

Now, I suppose the Members of this Committee and Congress 

have a balancing act to strike here, to reward those who invested 

in the innovator drugs, the pioneer drugs, and also to encourage 

competition. And to give you that balance, I would like to actually 

return to where we started today, with the cancer biologic drug 

Herceptin. 

Approved by the Food and Drug Administration in 1998, this 

amazing medication, produced by Genentech, helps women fight off 

a particularly tough form of breast cancer. I believe it is related to 

the protein HER2. 

Herceptin has made a serious difference in that fight. Its use increases the disease-free survival rates of this type of breast cancer 

by 12 percent. And it did cost its maker—well, I say on average 

biologics like this cost their makers $1.2 million to bring a drug to 

market. And, frankly, with that kind of risk, Genentech should, the 

maker of the drug, should profit for bringing a product to market 

that saves lives. 

But there is a serious danger in conferring too much intellectual 

property protection. In Herceptin’s case, every year the drug manufacturer benefits from high monopoly prices conferred by exclusivity will cost patients both in dollars and in lives. Herceptin’s 

high monopoly prices make it less likely and more expensive for insurers to cover it, and thus fewer patients with breast cancer have 

access to this life-saving medicine. 

Herceptin’s patent protections, the legal mechanism that protects 

intellectual property in most industries, expired in 2005, but 

Genentech continues to enjoy effective monopoly pricing power. 

They certainly made the most of it, charging $48,000 a year wholesale for their Herceptin treatment. 

So, how should a law strike a balance between access and future 

innovation on one hand and the manufacturer’s need to profit from 

its investment in a great product? Rather than looking at research 

from one industry group or another, to fine the right balance, we 

examined an independent source, the Federal Trade Commission’s 

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report on follow-on biological drug competition. The report found 

that the patent system has a proven record of protecting and stimulating biotechnology innovation. In fact, they found in some ways 

biologic patents are stronger than chemical drug patents. In summary, FTC found that the pioneer biologic drug manufacturers can 

earn significant revenues many years after follow-on biologic entry, 

obviating the need for the 12- and 14-year exclusivity period. It is 

far too long. 

Finally, USPIRG’s recommendations. The Hatch-Waxman Act established the generic drug program at FDA for chemical drugs and 

conferred patent extensions and 5 years exclusivity—forgive me. 

It makes sense to learn from those successes. USPIRG believes 

that an approach such as that included in the Promoting Innovation and Access to Lifesaving Medicine Act of 2009 represents the 

best option before Congress today. 

Mr. Chairman, we need a strong, vibrant markets for biologic 

drugs in this country, but we need markets that drive innovation, 

not those that reward monopoly. 

Thank you for the opportunity to testify. 

[The prepared statement of Mr. McNeely follows:] 

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PREPARED STATEMENT OF LARRY MCNEELY


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Mr. JOHNSON. Thank you, Mr. McNeely. 

Last, but not least, Ms. Rea. Please. 

TESTIMONY OF TERESA STANEK REA, PRESIDENT, AMERICAN 

INTELLECTUAL PROPERTY LAW ASSOCIATION (AIPLA), 

WASHINGTON, DC 

Ms. REA. Thank you. Mr. Chairman, Mr. Ranking Memberand 

Members of the Subcommittee, I am Teresa Stanek Rea, the president of the American Intellectual Property Law Association. 

For purposes of my testimony today, I represent the AIPLA, and 

I am not speaking on behalf of my firm or any firm clients. I am 

pleased to have the opportunity to present the views of the AIPLA 

at this hearing. 

As outlined in my biography, I have spent a good portion of my 

legal career working with patents related to biotechnology and 

pharmaceutical chemistry. I am also a registered pharmacist in the 

State of Michigan and have worked for many years as a hospital 

pharmacist. I think that this experience provides me with a unique 

perspective to discuss the issues before the Subcommittee today. 

AIPLA believes that should Congress create an abbreviated regulatory approval process for a follow-on biological product, it is essential that such a process contain a patent enforcement mechanism that preserves the value of intellectual property by including 

five specific provisions. 

First, a timely and confidential information exchange between 

patent owners and the biologic follow-on companies. 

Second, a streamlined, efficient litigation mechanism that encourages prompt resolution of patent infringement claims. 

Third, a corresponding opportunity for a follow-on product applicant to seek declaratory judgment. 

Fourth, procedures which apply the existing law of venue. 

And, five, have all remedies available to both parties, including 

damages and injunctive relief. 

The development of a new pharmaceutical or biological drug 

product is both expensive and unpredictable. Pharmaceutical and 

biotech companies depend on patents to protect their innovations 

and to provide some expectation that they can recoup their investments in high-risk research and costly clinical trials. 

The value of a patent is undermined if there is no effective mechanism to enforce it. 

With the Hatch-Waxman Act, Congress recognized the critical 

role of patents by creating a mechanism by which an innovator 

could enforce its patent before a generic product obtains FDA approval and is launched into the marketplace. The pending bills in 

the House attempt to develop procedures parallel to the HatchWaxman Act. They include mechanisms for prelaunch patent dispute resolution, which is the primary focus of my testimony today. 

If there were no procedures, or ones adopted were inefficient, this 

may undermine the value of valid patent rights and potentially 

cause an unnecessary drain on the resources of all parties as well 

as the judiciary. With these thoughts in mind, I would like to share 

some specific observations regarding the patent dispute resolution 

procedures proposed in the two bills. 

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We believe that H.R. 1548 would encourage efficient, streamlined 

prelaunch patent litigation that would cover the follow-on product 

and employ procedures that would be less subject to gamesmanship 

and abuse. 

This bill addresses the need for an exchange of information concerning the follow-on product to allow a preliminary infringement 

analysis. The notice and certification provisions in H.R. 1548 would 

limit the patents that may be challenged to those which the patent 

holder believes are infringed by the follow-on product. 

This bill would also allow the follow-on applicant to bring a declaratory judgment action if an infringement suit is not filed on a 

timely basis. 

Conversely, H.R. 1427 has the potential to weaken the value of 

biotechnology patents by limiting the ability of the referenced product holder to assert its patents prior to market launch of a followon product. 

We believe that the bill lacks sufficient mechanisms for referenced product holders or third-party patent owners, such as universities, to obtain access to product and manufacturing information necessary to determine whether there is a good-faith basis for 

asserting an infringement claim. 

At the same time, H.R. 1427 would appear to expand declaratory 

judgment jurisdiction to create opportunities for interested parties 

to challenge patents which may not cover either the referenced 

product or the planned follow-on biotech product. 

Lastly, the patent notification procedure in H.R. 1427 includes 

ambiguous standards with severe penalties that may encourage additional patent challenges and create uncertainty in subsequent intellectual property transactions and litigation. 

Mr. Chairman, I appreciate the opportunity to present these 

views, and I look forward to any questions the Subcommittee may 

have concerning the observations and comments that I have presented. 

Thank you. 

[The prepared statement of Ms. Rea follows:] 

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PREPARED STATEMENT OF TERESA STANEK REA


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Mr. JOHNSON. Thank you, Ms. Rea. 

And at this time, I will commence with my questions. 

Mr. Leicher and Mr. Kushan, in the Hatch-Waxman Act data exclusivity and patents work together to provide guaranteed market 


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exclusivity for about 7.5 years. After that period, continued market 

exclusivity is contingent solely on the strength of the patents. 

Why wouldn’t a similar system work in the biosimilar context? 

Mr. LEICHER. We believe a similar system would work in the biosimilar and biogeneric context. Maybe it is worth taking a step 

back for a moment because there has been a use of the word biosimilar but not biogeneric this afternoon. We discussed this at the 

FTC as well. One of the things we believe Momenta is doing and 

many other biologics companies will begin to do over the next several years is develop the technology, and it’s really the next generation of biologics, to characterize what happens in a cell after a protein is created from its gene, is understanding the black box that 

exists today in biologics manufacturing that’s often referred to as 

post-translational events. 

I don’t want to get too detailed, but that’s what we have done 

at Momenta with the work with Heparin. We believe that once you 

are able to use this new technology, you are going to be able to 

characterize proteins and biologics with the same kind of specificity 

that one sees today with drugs. And that’s what we have done in 

the heparin world. 

And so it’s important to distinguish the two pathways. And the 

reason I bring that up is, I am very concerned, and we are very 

concerned, that if we adopt a law for the next 25 years, we are 

going to put in place a roof on the advancement of science. We need 

to have the pathway so that there’s a reason for venture capitalists 

to invest in biotech companies to actually develop this new technology. And if we limit the world to biosimilars, we are going to 

fall behind in the global race in the biotech industry. 

Mr. Kushan. Thank you, Mr. Chairman. 

It’s a very good question. The context for this debate, really is, 

when you center on Hatch-Waxman is, what is the expectation of 

the innovator regarding the time between the launch of the innovator drug and the time the generic competition begins? And that, 

in the Hatch-Waxman system, is predicated on the strength and 

the certainty that patent rights in that product will deliver. 

So when you are thinking, from an investment and pre-innovation points of view, the Hatch-Waxman system is designed to provide, you know, the period that the patent will deliver for exclusivity. 

When you look at the statistics, that period is around 12 to 14 

years at this point. So for small-molecule drugs, you are seeing generic competition start 12 to 14 years. 

Now, the big difference when you shift over into the biosimilar 

environment is that there’s a loophole that has been created. And 

that loophole is simply, unlike Hatch-Waxman, where it is prohibited to do this, a biosimilar manufacturer can essentially skirt the 

patent rights but then get the benefit of the clinical data to get on 

to the market much faster. 

And it’s that character of the biosimilar product that creates the 

risk that is answered and addressed by a data exclusivity period 

that essentially provides a backstop for the patent rights. 

Now, one important perspective on this, I think Representative 

Eshoo pointed to this, if you have the system work as it has been 

designed, if you have it work as the FTC hopes it would work, 

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where patents are delivering their intended purpose of 12 years or 

so of effective protection against biosimilar competition, then data 

exclusivity that is co-extensive with that period has no impact because the patents are working the way they should. 

The concern that is driving the call for a stronger data exclusivity period is precisely the uncertainty that exists that we can, 

as innovators, know that our patent rights will give us that protection, and that’s essentially the major difference. You have in the 

Hatch-Waxman system, the ability to kind of get around the patents. You are similar enough, but not so similar to not rely on the 

clinical data. 

Mr. JOHNSON. Thank you. 

Mr. Brill, you suggest that 10 percent is the right value for the 

cost of capital. 

And Mr. Lasersohn, you suggest the figure should be closer to 20 

percent. 

Can you both briefly explain this concept of the ‘‘cost of capital’’ 

and how you came up with different numbers and how they should 

affect data exclusivity? 

Mr. BRILL. Thank you. The cost of capital is, without question, 

an important component into the calculation that investors would 

make when looking forward at a potential investment in a biologic. 

And it’s also an important component into the modeling work that 

I have done, the FTC has done, and Henry Grabowski, a professor 

at Duke University, has done. 

The difference between 10, 11 or 12.5, which are cost-of-capital 

estimates that I use in my modeling, and higher numbers, such as 

the 20 percent figure that was cited earlier, has to do with where 

in the process that cost of capital applies. 

Without question, the hurdle rates in venture capital are significantly higher than they are in later-stage development of biotech, 

but that’s only one stage of the process. The proper cost-of-capital 

rate to consider is the average across the entire development process of a biologic drug. The cost of capital is very expensive at the 

beginning, but as a product develops and moves forward through 

the system, the risks decline and the cost of capital declines as 

well. 

So it may be expensive at the beginning to get funding, but many 

of our biologic drugs are provided by enormously large corporations 

that have access to equity markets as well as sophisticated debt 

markets, and cost of capital later in the process is much lower, 

thereby reducing the average cost of capital. 

Mr. LASERSOHN. I think the simplest way to think about this is, 

there are two key points. The first is cost of capital is equivalent 

to going to a bank and borrowing money at 10 percent. If you borrow money from a bank at 10 percent and invest it at 9 percent, 

you will be bankrupt. 

If you invest it at 11 percent, you will have positive cash flow. 

And so the rate of return that you need to make on an investment 

is related to what your cost of capital is. 

The problem with Mr. Brill’s analysis is that, in fact, we have a 

chain of development that starts from universities, goes to the venture capital community, and then later goes to large pharmaceutical companies. 

218 

If you break that chain at any point, if at any point in the cost 

of capital, the return on capital doesn’t meet the requirements of 

whoever is supplying capital at that point, in particular, at that 

early linking of the chain, the chain is broken, and nothing gets developed; nothing ends up in the hands of large pharmaceutical companies. 

So that is really the key, the point that we are trying to make. 

If that chain is broken, which it indeed will be, if we have a data 

exclusivity, for example, if, in fact, our exclusivity is much less 

than what we think it needs to be, for example, under Hatch-Waxman, of 12 years, that chain will be broken, and there will be nothing left for the large pharmaceutical companies to buy and invest 

in because we will not have invested in them. 

Mr. JOHNSON. Thank you both. 

Thank you, Mr. Lasersohn. 

We have got one vote on the House floor in about 10 or 11 minutes. So what we will do is have a brief recess so we can go over 

there and take care of that business, and we will be back quickly 

in about 15 or 20 minutes. Thank you. 

So we will stand in recess. 

[Recess.] 

Mr. JOHNSON. We are back in session, and Mr. McNeely is coming back; correct? I see some papers there. 

All right, what I would like to do is, Ms. Rea, I would like to ask 

you a question. 

You indicate that H.R. 1427 permits biosimilar makers to launch 

their products at risk. And if they do, is there not the potential for 

treble damages if a patent has been found valid and infringed? And 

isn’t this a substantial enough risk to keep biosimilar products off 

the market until their patent has expired? 

Ms. REA. I can’t speak on behalf of all generic follow-on biologic 

companies, but the opportunity to launch at risk is rarely undertaken by most generic companies at this time. 

Business certainty is something that everyone wants, whether 

you are the patent holder or you are the follow-on biologic applicant. Yes, if there is litigation, there is the potential for treble damages. You run a potential risk that maybe the payment of treble 

damages—- it may be difficult to pay treble damages, depending on 

the economics of any particular company. So even if a patent holder succeeded in litigation and obtained treble damages, the likelihood of recovery is not something that would be guaranteed. 

Mr. JOHNSON. Okay. Thank you. 

Last, I would like to ask Mr. McNeely, most analysts, Mr. 

McNeely, believe that biosimilar market entry will only result in 

modest price increases. And, if so, how much would consumers and 

the Federal Government really save? 

Furthermore, will these savings be worth any uncertainty we 

may cause in the biotechnology company financing? 

Mr. MCNEELY. Mr. Chairman, thank you for the question. 

I would say that, especially given the value that the current market is putting on these high-tech biologic medicines, that, in fact, 

there is quite a bit to be saved. If, I believe the FTC’s number was, 

if you will correct me, 10 to 30 percent reduction in prices due to— 

or 10 to 30 percent market penetration if there is a generic competVerDate Aug 31 2005 14:53 Apr 27, 2010 Jkt 000000 PO 00000 Frm 00222 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\071409\51014.000 HJUD1 PsN: 51014
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itor, and that that, one, would not have the effect of the generic 

competitors that now consume about—take about 70 percent of the 

chemical market when they come in. 

But the reality is, when you are talking about a drug like 

Herceptin, with $48,000 a year wholesale and we have seen reports 

of a lot more being charged to consumers, every little bit helps, and 

it helps a great deal in that respect. 

I am sorry, can you repeat your second question, Mr. Chairman? 

Mr. JOHNSON. Yes, I can. Will the savings that would be generated be worth any uncertainty we may cause in the biotechnology 

financing? 

Mr. MCNEELY. Sir, the biotech industry, while made up of small 

firms, certainly, is an extensive industry and a large industry, an 

important one. The reality is that the benefits of enhanced innovation that would come through a pathway, along the lines of what 

Hatch-Waxman did for chemical drugs, could actually benefit the 

industry as a whole over the long term and certainly would benefit 

consumers. 

Mr. JOHNSON. All right. 

And, Mr. Brill, would you respond to that part of the question? 

Mr. BRILL. Thank you. I wanted to comment on the potential for 

cost savings from a competitive market for biologics. 

As was noted, the FTC and as well the Congressional Budget Office have made estimates of how much prices will decline. And it 

is far less than it does, than the price declines and the savings per 

drug that we see in small-molecule drugs. 

In aggregate, the savings will be quite substantial. It could be 

billions of dollars a year for the Federal Government and an equal 

amount for private payers. But because the prices won’t collapse to 

the same extent they do for small molecules, that means that there 

are still opportunities for the innovator drugs to earn profits. They 

have a very large initial expense from developing this drug, over 

a billion dollars to bring a drug to market initially. 

We need a structure that ensures they can earn back profits to 

cover that expense. What’s different in this market is that, even 

after we have generic entry, we will still have an opportunity for 

the innovator drug to make enough profit to help pay off that fixed, 

that sunk cost, that fixed cost. That is one of the differences in the 

dynamics of the market. 

It doesn’t mean that there won’t be savings, but there is a tradeoff between the price decline effects and data exclusivity. So the 

less the prices are expected to decline, the less important it is, or, 

rather, the shorter duration of data exclusivity that we can have. 

Mr. JOHNSON. Thank you. 

Mr. Lasersohn. 

Mr. LASERSOHN. Thank you, Mr. Chairman. 

I would just like to respond. I, with respect to the issue that increased generic or FOB competition, or that those competitors will 

be innovators, is something I have to admit I have heard over and 

over again, and I don’t understand. 

It is absolutely the case that the FOB companies will produce 

price reductions, which may benefit consumers, but they have 

never been innovators. And I don’t think they are suggesting, in 

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fact, none of the ones I talked to suggest there are going be 

innovators in developing new drugs. 

That is my first point. Innovation will continue to come from 

branded, innovative, small entrepreneurial VC-backed companies. 

The second point is that the FTC’s analysis was based, on what 

the effect of competition would be, it was based on many assumptions, which I have to say, I don’t understand. One critical assumption is that their cost of entry would be very, very high, and that 

it is much higher than generic drugs, small molecules, and that 

they would have to make that return back. And this was in part 

based on the idea that they would have to spend $100 million or 

$200 million building plants to manufacture these drugs, which I 

can tell you is just not the case. 

I mean literally this morning we were approached, our firm was 

approached, by the Chinese-Taiwanese government with an offer to 

subsidize us to the tune of $50 million to build a bioreactor that 

could be accessed by the biotechnology, biosimilar industry. In essence, many governments around the world are going to build these 

plants essentially for nothing at their nickel. This is already happening in Singapore, Taiwan, Japan and in China. 

And the biosimilar companies are not going to have spend that 

kind of money. As a result, they are not going to have to make that 

money back, which means that they have much greater flexibility 

to reduce prices, far beyond what the FTC has assumed. 

So our group, the venture capital community, has looked at this 

very, very carefully. And we simply don’t agree with that conclusion. 

Mr. JOHNSON. Thank you, sir. 

Mr. Leicher, did you have something you wanted to add also? 

Mr. LEICHER. Yes, I just would like to comment, and that is, as 

I noted earlier, we really probably just disagree with the comment 

that the follow-on biologics industry is not an innovative industry. 

In fact, that is exactly what we are doing at Momenta and, we believe, at other companies. 

And that that data exclusivity actually works against that innovation, both on the brand side and on the innovator side. Let me 

just take a minute to say how. If you set up an excessively lengthy 

data exclusivity period, it is great from an investor point of view 

because it allows you to invest in lower-risk development activities, 

and that is what is being talked about when people are saying 

biosimilars have a patent loophole. 

If you invest in developing the second, third, and fourth version 

of an existing mechanism of action, all the hard science to discover 

the mechanism of action has already occurred. And what you are 

doing is essentially a drug development program, and that is a 

much lower-risk product. And you are not developing a new cure. 

And that was the beauty of Hatch-Waxman. What Hatch-Waxman did was it said to the brand industry, stick to your knitting, 

go out there and find new cures and get strong patent rights that 

lets you get the exclusivity you need. 

And it said to the generic industry, apply your science to find out 

how to make generic copies so that they can deliver affordable 

products that perform what the maturing biotech products today 

should be able to do in years to come. 

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And if we are shortsighted enough, and this is what concerns us, 

to pass a law that assumes that we are only going to have 

biosimilars and assumes that it is not possible to advance this 

science, then we are going to make ourselves captive to what is 

happening in China because they will move ahead of us, and we 

will be competing with China. 

If we build our technology base in the United States and actually 

own the science here in our biotech industry for innovative biogeneric products, we really create an opportunity that keeps us 

ahead of the rest of the world. 

Mr. JOHNSON. This has turned into a spirited debate. 

I don’t want us to take this too far. And I see a second round 

has been requested, but the water—I don’t want to go near the 

water. 

So I am thinking probably now would be a good time to turn it 

over to the Ranking Member, Mr. Coble. 

Mr. COBLE. Thank you, Mr. Chairman. 

And I thank the witnesses for appearing today. 

Mr. Brill, you mentioned it was costly and difficult to produce. 

It is indeed costly and difficult to produce. I don’t know that the 

average person appreciates this, but if a chemical pharmaceutical 

company brings a state-of-the-art drug to market, it is going to 

incur a cost of about $800 million, give or take, give or take a dollar or two. It costs even more for a biotech firm to do the same 

thing in excess of a billion dollars. So you are talking about a 

whole lot of money, a heap of money as they say down home. 

Mr. Kushan, let me—strike that. I was going to get into the 12 

versus 7 years, but I think that has pretty well been plowed 

through. 

Mr. Kushan, you don’t endorse the findings of the 2009 FTC 

study on biosimilar drug competition. Explain briefly, if you will, 

why the study, in your opinion is flawed. 

And did you and other representatives of the innovator industry 

attempt to contribute to the study? 

Mr. KUSHAN. I will take the second half of that question first. We 

did, I mean, a number of companies, both biosimilar companies and 

innovator companies and a lot of different people spoke to the FTC 

and the process they were in. And it was a little bit surprising they 

didn’t listen to any of us when they came up with a number of 

their assumptions that they then built a series of recommendations 

on. 

I think one of the things we take away from their report is that 

they believe, because patents will deliver 12-plus years of market 

security before biosimilars come on to the market, that justifies not 

providing any special data exclusivity period. 

And so that is the foundation of kind of why they—why they are 

saying, we don’t need to create this data exclusivity period of 12 

years. 

When I look at that, and then you kind of dig down into why 

they think there is no problem with patents, that is where I think 

the problems arise. They have looked at the patent standards in 

kind of an abstract way that doesn’t reflect what actually happens 

in the patent office. 

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One of the big issues we have flagged was that what we see in 

our current practices under current patent law standards is that, 

if a company does a research on a protein and you put that in a 

patent application and you send it to the patent office, the patent 

office will say, well, you can have that protein as your patent claim. 

And then you go back and forth, and you try to stretch out your 

claim to cover variations from this protein that you actually did 

your research on, and the PTO pushes back. 

And what that process ends up doing is giving you a relatively 

small number of alterations covered by a typical protein patent 

claim. 

Now, the FTC looked at the standards, and they said, oh, well, 

we think you can get variations up to 30 percent of the reference 

sequence. And that is where, they heard so many different people, 

practitioners, talking to them and saying this is not what is happening; we are seeing numbers in the 98, 95 percent as a common 

one. And they just disregarded that. 

I think the other thing they failed to do was to really understand 

the impact of the loophole that we have been talking about today. 

What they said, again, their assumption, we don’t need data exclusivity periods up to 12 years, is resting on the assumption that 

these patents are going to be protecting us. 

The design of the systems, the biosimilar systems, is they are 

being designed now to allow the proteins to change, the biosimilar 

to be different enough from the reference protein so that you don’t 

have to infringe the patents, but you can still get the benefit of the 

clinical data that supported the innovator. 

And that is the hole that I think they didn’t see that was communicated to them, and that is where I think our ultimate disappointment sits. 

Mr. COBLE. Thank you, sir. I need to move along to meet the 5- 

minute rule. 

Ms. Rea, what is the best way to resolve a patent dispute in a 

world that includes biosimilar competition? 

Ms. REA. The best way to resolve the patent dispute in a world 

that involves biosimilar competition? 

Mr. COBLE. Yes. 

Ms. REA. I think that it is critical to have timely and confidential 

information exchange between all of the parties, prelaunch, in advance of any FDA approval of the drug product. You need a 

streamlined efficient litigation mechanism to make sure that everything can be resolved in an efficient manner. 

We need things like declaratory judgment, actions being available to the follow-on applicant. I think our existing law of venue 

would be very good. And I would like all remedies to be available 

to both parties whether it is in terms of damages or injunctive relief. 

Mr. COBLE. Thank you. 

Mr. Chairman, if I may, one more question. 

Mr. Lasersohn, there are two competing bills, as we all know, 

that would create a pathway for biosimilars, the Waxman bill and 

the Eshoo bill. The economy, as we all know, is shaky now at best 

with unemployment hovering at around 10 percent. In light of 

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these economic conditions, Mr. Lasersohn, is one bill more likely to 

be a job loser as opposed to a job creator? 

Mr. LASERSOHN. Well, obviously, a very difficult question. 

We do support Representative Eshoo’s bill that has a 12-year 

date exclusivity period in it. We believe that that is the most reasonable compromise, which is, of course, what this is, between the 

interest of consumers for low prices versus innovation. 

As it affects jobs, the biotechnology industry does employ significant numbers of people. And our company specifically employs hundreds of thousands of people; that is our venture-backed biotechnology start-up companies. And our view is that data exclusivity of much less than 12 years will jeopardize continued investments. 

So I would have to say that Ms. Eshoo’s bill is more likely to protect the jobs than the alternative Waxman legislation. 

Mr. COBLE. Thank you all. 

Mr. Chairman, I yield back. 

Mr. JOHNSON. Thank you, Mr. Coble. 

Mr. Issa is ready to proceed. 

Mr. ISSA. Thank you, Mr. Chairman. 

I would like to ask unanimous consent that three submissions be 

put in the record. The first one is the California Healthcare Institute’s position. California Healthcare Institute represents more 

than 250 of my constituent companies. 

[The information referred to follows:] 

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Mr. ISSA. Secondly, I would like to ask unanimous consent that 

an article from bloomberg.com—thank you. 

[The information referred to follows:] 


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Mr. JOHNSON. Without objection, those two. 

Mr. ISSA. The first and second. 

And then the third one is simply a table of estimates that I am 

relying on for the return rate on pharmaceutical and R&D investments, the 15-year, if you will, basis. 

Mr. JOHNSON. Without objection. 

[Mr. Issa subsequently decided not to submit this material for 

the record.] 

Mr. ISSA. I thank the Chairman. 

I would like to take a slightly different tack in my questions, because I am concerned about the future of patents as well as the future of bio follow-ons. 


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So, Mr. Kushan, if I could start with you, from BIO’s standpoint, 

assume for a moment that contract or, sorry, patent historical sanctity went away and you had zero patent protection. 

In the BIO-type developments, these large complex proteins of 

molecules, wouldn’t it be possible to protect in perpetuity, or nearly 

in perpetuity, using complex series of trade secrets? In other words, 

if we failed to protect through patent, isn’t it certainly possible that 

the bargain that we have enjoyed for decades of, you tell all, you 

make a duplicatable product; we agreed to a limited period, a defined limited period; and, when exhausted, or as it is exhausting, 

generics come on? 

Isn’t that one of the risks if we don’t get it right in either one 

of these pieces of legislation? 

Mr. KUSHAN. You are correct in several respects. The historical 

trend of restricting patent protection has been to push innovators 

to kind of keep their innovations secret. And that will have impacts 

on things like manufacturing technology or the ways that we make 

proteins, the way we enhance their properties. There are a lot of 

things that in kind of the business of making our products that will 

probably be hit by that kind of a practice. 

The other, you know, the molecule patents and things like that, 

as a practical matter, we won’t be able to use trade secrets to protect because they will be publicly known and in circulation. And 

how you use them to treat new diseases, obviously, those procedures will be publically known. 

I think one general point to appreciate about the biotech industry; this industry grew out of the university community, and there 

is a cultural bias against keeping things confidential. It is hard for 

me to quantitate this, but if you had a discussion with a scientist, 

telling him not to publish something, so you could file a patent application, you will know what I mean. 

There is just a real culture of disclosure, which I think ultimately has helped our industry. 

Mr. ISSA. And I appreciate that, although that is a culture of disclosure at our universities. That is not true in China, is it? 

Mr. KUSHAN. No. I think what my comment is really focused on 

just the practice, and it is also against a backdrop of having that 

patent protection available. 

Mr. ISSA. Ms. Rea, when you look at the history of patents and 

the benefits versus those countries who either don’t respect or don’t 

have them, in general, isn’t ultimately the trade secret route the 

only thing you could advise a client if they could not get a strong 

and durable patent? 

Ms. REA. It if it was impossible to get a strong and valid patent—— 

Mr. ISSA. I like the term durable, because valid doesn’t keep 

them from ripping you off. 

Ms. REA. Okay, durable patent. I agree trade secrets would be 

the only alternative. 

But, in this day and age, it is difficult to maintain things as 

trade secrets with the very mobile work force we have today. But 

I guess you could do sequences of trade secrets in difference places, 

and thereby, unless somebody could put all the pieces of the puzzle 

together—— 

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Mr. ISSA. Everybody but the CIA manages to keep at least some 

secrets. 

Mr. Brill, biosimilar, from a standpoint, this is a Committee that 

cares about patent. Our hook for today’s legislation is our constitutional obligation for patents. 

But aren’t we inherently heading toward, if we are not careful, 

similarity being defined as close enough, but you take your chances 

on the medical similarity actually not causing a problem? Isn’t that 

inherently the problem? If the entire technology string of both the 

patented item and all of the know how involved, if that isn’t passed 

on in some transparent way, aren’t we essentially going to end up 

with, as I held up a couple of years ago in committee, a Rothschild 

wine being replaced by Mogen David? 

Mr. JOHNSON. And before you respond, I will say, Mr. Issa, that 

Ms. Eshoo was here earlier, and she would have appreciated your 

comment about the CIA. 

Mr. ISSA. You know, everybody except Mr. Waxman did. He 

cringed when I held up these various California wines and said, not 

all California wines are created equal, but they are all California 

wines. 

Mr. BRILL. Thank you, Congressman. 

I may know more about wine than I know about some of the scientific aspects of the complexity of developing biologics. 

Mr. ISSA. If you know enough to know that there is such a thing 

as a Cabernet and something that you cook with, but they are both 

called Cabernet, then you probably know about some of my concerns. 

Mr. BRILL. And I think that the scientific issues are important 

given the significantly greater degrees of complexity for the products that we are talking about here. 

With regard to the importance of ensuring that we have the intellectual property protection, I would echo a similar comment from 

Mr. Kushan, which is that the data exclusivity period can help ensure that protection. But I would also add that there is a period 

of which that protection is excessive and that the key here is to 

balance these factors. 

Mr. ISSA. And just one last question that hasn’t been asked, if 

I could, Mr. Chairman. 

It is not currently in either bill, but if this Committee wanted to 

find a fair compromise between the bills, if we provided, for example, Ms. Eshoo’s period, but strengthened or, let me rephrase that, 

but made a bargain that in order to take advantage of it, you must 

have exhausted all of your, if you will, similar patent claims so that 

small changes, incremental changes, the bar would rise at the patent office, and to get that protection, you essentially forego later 

patents still in the process. 

Now whether we set that at 2 years or 30 years, really it doesn’t 

matter. Is that something that any of you foresee being part of the 

bargain, meaning, if I am going to give you 15 years from the day 

your product is approved, can I expect that your continuations that 

are still coming and—Ms. Rea, you are laughing, because you know 

how many of those sometimes are stacked up behind, is that, in 

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mittee may have to consider whether or not that is a terminal disclaimer, so to speak, of some or all of your claims? 

I am not proposing it. I am just asking about it. 

Ms. REA. I do not think that it is a good idea. But, even so, to 

change the entire patent office and how all patent applications are 

followed, just to try to come out with a compromise in this area in 

the manner that you suggested, I think is not viable and would be 

difficult to implement and is not appropriate. Our patent system 

has existed the way it has for 220 years. It has worked well. I 

think it is why innovation drives our economy and we are where 

we are today. 

So I don’t think a compromise on the order that you suggested 

would be viable. Thank you. 

Mr. ISSA. And by the way, I hope you feel the same on the patent 

reform that we are wrestling with in this Congress, but I know you 

might not be quite with us on that. 

Yes, sir. 

Mr. LASERSOHN. I just wanted to add that there is, in fact, a provision that relates to this and these bills would have to do with the 

idea of evergreening. 

In other words, what is entitled to data exclusivity, to additional 

data exclusivity, and in fact, it is very restricted. They really are 

new drugs, new indications. It is not just tweaking this and tweaking that or a slightly different root of administration. So that had— 

in particular, in the Senate bill, that was looked at very, very carefully. And I think a very reasonable balance was struck there. 

Mr. ISSA. Yes, sir. You are the last one, because the Chairman 

will cut me off. 

Mr. KUSHAN. Thank you, I will try to be quick. 

I think that approach would be a very bad approach for the way 

the biotechnology industry innovates today because you shouldn’t 

think of biotechnology innovation as being limited to making new 

proteins that become blockbuster drugs. It is a whole environment, 

you know, of innovation that has a lot of opportunities at various 

levels. 

That issue should not be a problem. What happens typically is 

that innovations will be incremental. They will have limited protections, and you can work around them, such as manufacturing techniques. And I think that is essentially the self-solving problem for 

those later issuing patents. 

Mr. ISSA. Thank you all for clearing that up. 

Thank you, Mr. Chairman. 

Mr. SHERMAN. [Presiding.] I will now recognize the gentlelady 

from Texas. 

Ms. JACKSON LEE. Thank you very much, Mr. Chairman. 

And I want to thank Chairman Johnson for doing a real good 

balancing act. I think we have a team that can represent the issues 

that have been expressed by the Eshoo bill and the Waxman-Hatch 

bill very well. 

Let me anecdotally say that this Judiciary Committee room 

seems to be the bastion or the holding place for tensions between 

disparate but very important issues. For those of you who are 

aware of something called the Performance Rights Act, H.R. 848, 

you would believe on the surface that the legislation is all about 

237 

pop artists and maybe reflecting on the man in the mirror, and 

against radio stations. 

But, Mr. Chairman, as you well know, we have worked for a very 

long time to recognize that both of those entities are needed and 

that they are working together and coming together to resolve how 

you would best effectuate a response to the art and talent of a performance artist, and as well, how would you respond to championing radio stations which provide an important and powerful 

service? 

But the record is clear, for those of us who are supporting that 

legislation, that we want to strike a balance. Now we have come 

full circle on questions that you are concerned about, which are 

represented in the legislation by a very dear colleague, Congresswoman Eshoo, and, as well, interesting points that are being made 

by the Waxman bill as well. 

So my interest is to find that balance. I think we did it well, as 

you well know, that we were working on patent reform. And there 

was this whole tension on how you account for the work that has 

been put into patent, and how do you, in essence, assess the monetary value of a patent? How do you determine that a patent has 

not been copied, using layman’s terms? So we have had that challenge here in Judiciary, and I think we have clearly worked 

through it. 

For that reason, let me try to raise these questions quickly. 

The National Venture Capital Association asserts that, without 

12 to 14 years, the cost of capital will drive away venture capital 

investment from biotech and derail innovation. 

Mr. Leicher, would you tell me whether that is correct as we look 

at this effort to balance? Would we drive venture capital away, 

which is, the big pharmaceuticals might make that argument? 

Mr. LASERSOHN. Yes, is the short answer. And the question is, 

how much? Our view is that, at the extreme that the FTC took, for 

example, where there would be no data exclusivity and the ability 

for a, quote,generic biosimilar to be introduced the day after a new 

drug was approved, that that would have a devastating impact. 

At 12 years, we believe we can manage it. That is what we have 

under Hatch-Waxman. We have lived with it. Obviously, some investments are not being made because of that under Hatch-Waxman, but we have learned to live with 12 years. 

And at 7 years, the models, for example, Mr. Brill’s model, other 

models that we have run when we used the real cost of capital of 

the innovation sector of this industry, which is the venture, the 

small entrepreneurial venture-backed sector, relatively few drugs 

can break even. 

It doesn’t mean there might not be some investment continuing 

in the most extraordinary breakthroughs, but the volume of that 

investment activity will clearly decline substantially even at 7 

years. 

Ms. JACKSON LEE. Mr. Leicher, why don’t you give me an answer 

on that question? Remember, you are talking to someone who really does believe we can get into a room and address this question 

that brings balance to what we are all trying to do, but let me not 

put words in your mouth. 

Mr. LEICHER. Thank you for the opportunity. 

238 

And let me start with the first basic point, and it was a point 

that was brought up earlier that I think there is some disagreement on the panel, and that is the notion that there is a patent 

loophole. 

I actually believe that if we engage Mr. Kushan to file patents 

for us on some of our novel products in the biologic space, I have 

no doubt they would be strong, effective, and work as long as we 

were operating at the novel end of developing new mechanisms of 

action that really provide new cures. And we would be able to get 

patents that cover not just the product, which is what he was talking about earlier, but patents covering portions of the product, patents covering the biologic pathway, patents that would cover the 

whole range of biologic activity that could provide a lot of exclusivity and well more than—potentially more than 12 years in the 

experience of biologics. 

And what I think everyone is missing is, if we provide an excessive exclusivity period, we are going to create a huge incentive for 

the biotech industry to derisk their portfolios, because now, without 

having to innovate, without having to get patents, you can get a 

product developed and, by virtue of getting it approved by the FDA, 

guarantee 12, maybe 14 years of exclusivity. 

Ms. JACKSON LEE. And that kills innovation? 

Mr. LEICHER. I think it kills innovation. 

Ms. JACKSON LEE. What about investment? 

Mr. LEICHER. I think it would hurt—it might not kill investment. 

What it might do—but let’s talk about that over the long term. It 

is a little puzzling to me, in 2009, you know, in the year that GM 

declared bankruptcy and perhaps declared bankruptcy because it 

stopped innovating in the 1990’s and focused on high-margin SUVs 

as opposed to innovative cars—and I am concerned, having lived in 

biotech for 20 years, that we are going to push biotech from the innovative scale and the leadership in the world to the non-innovative scale. 

And if you step back from a historical point of view, look at what 

it was—— 

Mr. SHERMAN. We thank you for your answer. 

Ms. JACKSON LEE. Thank you, Mr. Chairman. 

We may have to revisit this again. 

Thank you very much. I will look forward to visiting with you. 

Mr. SHERMAN. Without objection, I will enter into the record a 

Bloomberg article about Mylan’s recent deal with India’s biggest 

biotechnology company for the development, production, and marketing of biosimilars. 

[The information referred to follows:] 

239 

Mr. SHERMAN. By contrast, the innovative biotechnology industry 

is uniquely American, and most of its companies are based in the 

United States. In fact, most of them are based in our best State, 

California. 

As the U.S. is struggling with the highest unemployment numbers in recent memory, now is not exactly the right time for Congress to be taking actions that would imperil future jobs in the 

United States. 


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Mr. Lasersohn, I realize a similar question was asked, I just 

wasn’t here for the answer. And, actually, before I ask that question, I will start with an observation. 

There has been talk about the biotechnology industry being able 

to recover its sunk costs on a particular drug. And if they can’t recover their sunk costs on that drug, obviously, there will be no 

more innovation. I think this massively understates the situation, 

because the vast majority of drugs are—the vast majority of drug 

development projects are failures. 

And even when they lead to success, they may be outmarketed 

by some other cure for that disease. So unless an innovator is able 

to recover double, triple or quadruple its sunk costs on the successful drug, we can basically pack up this industry and say we are not 

going to have any more innovation. 

Now, Mr. Lasersohn, I think that venture capital is the lifeblood 

of this industry, particularly some of the smaller and newer firms, 

and there is no denying that a lot of that investment is based on 

strong patent laws. 

In your view, is data exclusivity absolutely critical for the continuing development of biotech products, and, if so, how long 

should that period of exclusivity be? 

Mr. LASERSOHN. The easy part of the answer is, yes, I do think 

it is necessary. The hard part is, how long? I guess we believe that 

12 years is something that we have learned to live with. Our best 

guide here is Hatch-Waxman, small-molecule development has continued to exist under Hatch-Waxman. 

When we run our analysis of our cost of capital, making exactly 

the point that you have just made, Mr. Chairman, that we must 

recover all of the losses that we also take on drugs, 12 years appears to give us a reasonable chance to break even. 

I might just add one other thing about data exclusivity. I think 

there is a real misunderstanding. It is not market exclusivity. This 

doesn’t prevent anybody from competing at all. It just means that 

they can’t free-ride on the data produced by the innovator. 

Mr. SHERMAN. They can’t copy the innovator’s product or infringe 

on the innovator’s patent and use their data. They can just go out 

and perhaps develop an entirely different way of curing that same 

disease. 

Mr. LASERSOHN. Or agreeing to clinical trials. 

Mr. SHERMAN. Yes. 

Mr. LASERSOHN. And if we did, and the other key point is that 

the data exclusivity is merely a backstop for the patents. The question to ask yourself is, what if the FTC is wrong in their analysis? 

I mean, they are just speculating about what’s going to happen 

with all of the patent laws. I mean, what if they are wrong? If they 

are wrong, and we don’t have data exclusivity, and they just turn 

out to be wrong about how good these patents really are, we are 

in deep trouble. 

If, on the other hand, we have data exclusivity, it doesn’t add 

anything more to the 12 years that the FTC is saying we should 

have. It simply ensures that we actually get it. It is just an insurance system. 

Mr. SHERMAN. Mr. Leicher, as I understand my good friend Congressman Waxman’s bill or Chairman Waxman’s bill, the bill preVerDate Aug 31 2005 14:53 Apr 27, 2010 Jkt 000000 PO 00000 Frm 00244 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\071409\51014.000 HJUD1 PsN: 51014
241 

vents a patent holder from getting an infringed patent off the market even after a court has found the patent is valid, the patent is 

enforceable, and the patent has been infringed. And it does so if 

the suit was not initiated within the narrow window determined by 

the infringer. 

Now how does this compare with all other litigation in America, 

and particularly patent litigation? Would this impose upon the 

biotech industry a patent-minus as compared to every other kind 

of patent that is issued? 

Mr. LEICHER. I don’t believe it would impose a patent-minus. I 

think there is a trade-off in the Waxman approach versus the current Orange Book approach in the current Hatch-Waxman statute. 

The trade-off is, because we have a complex web of biologics patents that are often embracing the pathway and the biology, it requires more of a process of identification, and it is not as susceptible to an Orange Book, which was the criticism raised by some 

in developing the bills. 

There is an opportunity to the bring the suit, and we don’t see 

that as an issue. It actually provides an opportunity to clear patents that are invalid, and move forward with some innovative 

biogenerics. 

Mr. SHERMAN. Let me hear from somebody from the biotechnology industry. I believe Mr. Kushan is raising his hand, and 

I believe he will be our last speaker. 

Mr. KUSHAN. Yes. I think I can say, obliterating a patent right 

is a patent minus. The procedures that they have laid out essentially result in a loss of the patent right. And whether you call it 

a limitation on the recovery or just a lack of ability to enforce it, 

hinging that kind of a sanction on an administrative error is unprecedented in U.S. law. 

And I think it is important to also appreciate, this will change 

patent rights in a way that I think go against our international obligation. We are not supposed to make patent rights in biotech 

weaker compared to patent rights in other areas. 

Mr. SHERMAN. So if we pass this kind of law, other countries 

could question all U.S. patents, and industries not even realizing 

we having a hearing today could be subject to lawsuits in other 

countries saying, well, the United States is in violation of the internationally accepted rule that patents come in one flavor, one level 

of strength, if you will. 

So there are a lot of people not here who could be hurt by that. 

Mr. Brill. 

Mr. BRILL. Yes. If I could just very quickly address the comment 

about the sunk costs, the fixed costs, and the modeling, and as well 

the differences between the industries. 

Mr. SHERMAN. If you can do it in 30 seconds. 

Mr. BRILL. Okay. Very quickly, the costs assumed for bringing a 

biologic to market, generally discussed to be over $1 billion, that 

number includes the cost of failure, not just the cost of the successful drug. 

The modeling that I have done, that Professor Grabowski has 

done, BIO has done, all includes the cost of that failure. In addition, that modeling work also assumes that the only protection provided is the data exclusivity. The models that the FTC, that 

242 

Grabowski and I have all used, do not model the existence of the 

patent. It is a very conservative assumption in that regard. 

Mr. SHERMAN. Yes, although, it would be hard to figure out why 

we would try to protect a patent one way but not protect it another 

way; it would be an odd policy for us to say, well, we want to encourage copying and we want to prevent copying both on the same 

bill. 

I would also point out that I believe the Waxman bill has limits 

on the forum in which the suit can be brought. And this Committee 

gets bills limiting where plaintiffs can bring lawsuits all the time, 

and 99 percent of those proposals this Committee does not adopt. 

I don’t know if we have ever adopted anything quite as strict as 

Congressman Waxman’s bill. 

With that, I would like to—and at the same time, I want to voice 

again not only my affection but my incredible respect for Chairman 

Waxman and his knowledge of health care and pharmaceuticals in 

particular. 

I would like to thank all witnesses for their testimony today. 

Without objection, Members will have 5 legislative days to submit additional questions which we will forward to the witnesses 

and ask that you answer promptly in writing and that will be 

made—your answers and the questions, of course, will be made 

part of the record. 

Without objection, the record will remain open for 5 legislative 

days for the submission of any additional materials. 

With that, we stand adjourned. I would like to talk to the witnesses, but I have got to rush off to the floor. Thank you. 

[Whereupon, at 4:30 p.m., the Subcommittee was adjourned.] 

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