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S. HRG. 109–685

THE GENERIC DRUG MAZE: SPEEDING ACCESS

TO AFFORDABLE LIFE-SAVING DRUGS

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

WASHINGTON, DC

JULY 20, 2006

Serial No. 109–28

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING 

GORDON SMITH, Oregon, Chairman 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

JAMES M. TALENT, Missouri 

ELIZABETH DOLE, North Carolina 

MEL MARTINEZ, Florida 

LARRY E. CRAIG, Idaho 

RICK SANTORUM, Pennsylvania 

CONRAD BURNS, Montana 

LAMAR ALEXANDER, Tennessee 

JIM DEMINT, South Carolina 

HERB KOHL, Wisconsin 

JAMES M. JEFFORDS, Vermont 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

BILL NELSON, Florida 

HILLARY RODHAM CLINTON, New York 

KEN SALAZAR, Colorado 

CATHERINE FINLEY, Staff Director 

JULIE COHEN, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Herb Kohl ............................................................. 1

Opening Statement of Senator Gordon Smith ....................................................... 3

Prepared Statement of Senator Hillary Rodham Clinton .................................... 55

PANEL I 

Gary Buehler, director, Office of Generic Drugs, Center for Drug Evaluation 

and Research, Food and Drug Administration, Rockville, MD ........................ 4

Jon Leibowitz, commissioner, Federal Trade Commission, Washington, DC ..... 18

PANEL II 

Heather Bresch, senior vice president of Corporate Strategic Development, 

Office of the Chief Executive Officer, Mylan Laboratories, Inc., Canonsburg, 

PA .......................................................................................................................... 59

Mark Merritt, president and chief executive officer, Pharmaceutical Care 

Management Association, Washington, DC ....................................................... 74

APPENDIX 

Letter to Senators Smith and Kohl from Generic Pharmaceutical Association 

(GPhA) ................................................................................................................... 97

(III) 

(1)

THE GENERIC DRUG MAZE: SPEEDING ACCESS TO AFFORDABLE LIFE-SAVING DRUGS 

THURSDAY, JULY 20, 2006 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:04 a.m., in room 

SD–106, Dirksen Senate Office Building, Hon. Herb Kohl presiding. 

Present: Senators Kohl, Smith and Clinton. 

OPENING STATEMENT OF SENATOR HERB KOHL 

Senator KOHL. We will call this hearing to order at this time, 

and we welcome our witnesses. As always, I thank our Chairman, 

Gordon Smith, for the opportunity to put this hearing together 

today. 

We will examine today the bureaucratic and legal barriers that 

stop new generic drugs from entering the market and what we can 

do about it. This is of particular interest to this Committee as we 

work to help seniors cope with the high costs of prescription drugs. 

But rising drug prices don’t only harm the elderly; they hurt us 

all as they undermine our private and public health systems. 

Health insurance premiums continue to skyrocket in large part due 

to escalating drug costs. The Federal Government, with the new 

Medicare prescription drug benefit, also feels the squeeze. 

Yet, the pharmaceutical industry, as you know, remains one of 

the most profitable industries in the world, returning more than 15 

percent on investment. As a businessman myself, I respect an industry’s right to maximize profits. Nevertheless, I believe they are 

charging Americans the highest drug prices in the world—that is 

almost beyond dispute—and forcing many employers to drop health 

coverage for their employees and squeezing the budgets of State 

and Federal Governments as well. 

As we will examine in this hearing today, government needs to 

consider action if companies unfairly and or evenly illegally manipulate the private market. According to the CBO, generic drugs save 

consumers $8 to $10 billion every year. Just last week, this Committee heard from Richard Wagoner, the CEO of General Motors, 

who stated how important using generic drugs are in reducing 

General Motors’ health costs. 

General Motors employees and retirees substitute generic drugs 

for brand name drugs in 90 percent of the cases in which a generic 

exists, and this has come about, this 90 percent, because General 

Motors pushes it with such great energy. General Motors estimates 

2

savings of $400 million every year as a result of using generic 

drugs. 

So we need to find every possible way to get government, companies and individuals to emulate what General Motors has done. If 

we could do that, health care savings in this country as a result 

of using generic drugs could be astronomical. One way to make 

that happen is for Congress to monitor more closely and adequately 

fund FDA’s Office of Generic Drugs. 

Earlier this year, the FDA had a backlog of more than 800 applications to bring new generic drugs to the market. That was an alltime high. This backlog continues to grow as more brand drugs lose 

their patent protection. According to FDA guidelines, the agency 

should take no longer than 6 months to review a generic application, and yet the wait averages nearly 2 years. 

We have been working with the FDA to reduce this time. Earlier this year, we were able to add $10 million for generic drug review 

at FDA in the Ag appropriations bill, and we hope to keep these 

dollars in conference. While increasing funding for this program is 

just step one, we are pleased that the Director of the Office of Generic Drugs is here today to outline steps two, three and four so 

that we get generics to pharmacy shelves much more quickly. 

Since passage of the Drug Price Competition and Patent Term 

Restoration Act, commonly known as Hatch-Waxman, we have seen 

a wider availability of generic drugs with little effect on the profitability of drug manufacturers and their ability to do research and 

development. Unfortunately, some brand name pharmaceutical 

manufacturers have learned to circumvent Hatch-Waxman using 

litigation and other means to extend the life of patents and keep 

generics from entering the market. 

Courts and the FTC have determined that some brand name 

drug manufacturers have even colluded with generic drug manufacturers to delay the marketing of competing generic products. One 

form of collusion is to use payoff settlements. A drug company that 

holds a patent on a blockbuster brand name drug will pay off a generic drug maker to delay the sale of a competing generic drug. So 

while the brand name drug company and generic manufacturer 

make out extremely well, consumers, as we can readily understand, 

can lose out. 

The FTC has taken a strong stand against these types of payoffs, 

but they still flourish because of recent court rulings which allow 

back-room deals to occur. I have introduced bipartisan legislation 

to prohibit these payoffs. We hope to talk about this bill today, as 

well as other ways to address practices used by the drug industry 

to delay generic drug entry into the market. In our effort to cut 

down the cost of health care in this country, there is nothing more 

important than making sure that consumers, employers and governments have full access to affordable generic drugs. 

So we look forward to this hearing today, and at this time I turn 

to our esteemed Chairman, Gordon Smith.

3

OPENING STATEMENT OF SENATOR GORDON H. SMITH, 

CHAIRMAN 

The CHAIRMAN. Thank you, Senator Kohl. 

Senator Kohl is our Chairman for this day. We have a relationship on this Committee that allows us to pass the gavel back and 

forth, and I want to thank Senator Kohl for his leadership on this 

issue. We jointly share a real concern about affordable prescription 

drugs. 

Clearly, the biggest problem we have in health care today is just 

simply the skyrocketing cost that far outpaces overall inflation for 

other goods and services. In fact, from June 2004 to 2005, prices 

for health care grew at a rate double other types of consumer 

goods. Obviously, driving much of this growth in costs are prescription drugs. Prices for brand name prescription drugs have grown 

4 percent since January of this year alone. 

For some medications like the sleeping aid Ambien, increases 

have been in the double digits. Frankly, if this trend continues, 

drug therapies important to seniors will just simply be undermined. The gains we have achieved with the implementation of 

Medicare Part D will just simply be lost. 

Generic drug alternatives do hold some promise in helping to 

provide consumers more affordable options. The CBO estimates 

that generic drugs save health care consumers $8 to $10 billion a 

year. With a number of popular brand name drugs soon going off 

patent, Americans and the Federal Government could save billions 

of dollars by choosing to purchase generic alternatives. 

Such savings will only be realized if the drugs get to market in 

a timely manner, and as Senator Kohl has just indicated, we are 

very concerned about the practice of paying by brand to keep 

generics off the market. This is of great concern to us. Obviously, 

we want the market to work, but it is not working when it is done 

in that way. 

So given the potential cost savings that could be gained by getting more generic drugs to market, Congress needs to carefully consider whether it is appropriately funding the FDA’s approval activities. An even greater impediment to generic drug access is this 

practice of paying off. That simply needs to stop. As Senator Kohl 

noted, Congress is already taking steps to prohibit brand name 

drug companies from entering into these kinds of agreements so 

they can delay less expensive alternatives from coming to market. 

So I look forward to learning more about this important topic 

and I appreciate very much the effort that our Committee is making on this. Senator Kohl has assembled an excellent group of witnesses today and I know they will provide us with useful information on this issue. 

Senator KOHL. Thank you, Senator Smith. 

We are very pleased to welcome our first panel here today. The 

first witness will be Gary Buehler. Mr. Buehler has been the director of the FDA’s Office of Generic Drugs, Center for Drug Evaluation and Research, since July 2001. Besides working for FDA for 

the past 10 years, Mr. Buehler has compiled a great deal of experience with various aspects of the issues that we will be examining 

today. Mr. Buehler’s testimony, I believe, will help us understand 

4

some of the factors that slow the approval of generic drug applications. 

After him, we will hear from Jon Leibowitz, who has been an 

FTC commissioner since 2004. Before joining the executive branch, 

Mr. Leibowitz served in a variety of different offices in the Congress, including my own as my chief counsel on Judiciary from 

1989 to 2000. Additionally, he has prior experience on the U.S. 

Senate Antitrust Subcommittee as the Democratic chief counsel 

and staff director from 1997 to 2000. Mr. Leibowitz will discuss 

current efforts by the FTC to protect consumers from anti-competitive practices of the pharmaceutical industry. 

We welcome you both here today and we look forward to your 

testimony. 

Mr. Buehler. 

STATEMENT OF GARY BUEHLER, DIRECTOR, OFFICE OF 

GENERIC DRUGS, CENTER FOR DRUG EVALUATION AND 

RESEARCH, FOOD AND DRUG ADMINISTRATION, ROCKVILLE, MD 

Mr. BUEHLER. Good morning, Mr. Chairman and Ranking Member Senator Kohl. I am Gary Buehler, Director of the Office of Generic Drugs in the Center for Drug Evaluation and Research at the 

U.S. Food and Drug Administration. Thank you for the opportunity 

to testify about FDA’s efforts to expedite the approval of generic 

drug products. 

FDA understands that Congress and the public are concerned 

about the high cost of prescription drugs. Generic drugs play an 

important role in granting access to affordable products that will 

benefit the health of consumers and especially seniors. Generic 

drugs typically cost 50 to 80 percent less than their brand name 

counterparts, and prompt approval of generic drug product applications, also known as abbreviated new drug applications, or ANDAs, 

is imperative in making generic products available to American 

consumers at the earliest possible date. 

FDA has taken a number of significant steps to provide greater 

access to affordable prescription medicines. In 2003, FDA published 

a final rule to improve access to generic drugs and lower prescription drug costs for millions of Americans. This rule was first proposed in response in part to FTC recommendations and other 

changes that the agency identified as being useful in improving generic competition. 

The rule limits an innovator drug company to only one 30-month 

stay of a generic drug applicant’s entry into the market for resolution of a patent challenge. These changes will save Americans over 

$35 billion in drug costs over the next 10 years, and will also provide billions in savings for the Medicare and Medicaid programs. 

We were pleased that elements of this rule are prominent in part 

of the Medicare law, and that with FDA’s technical assistance, the 

law added additional mechanisms to enhance generic competition 

in the marketplace. 

In addition, since fiscal year 2001, the administration and Congress have increased funding for FDA’s generic drug program by 66 

percent—a clear sign of the important role played by the Office of 

Generic Drugs. These increases have enabled FDA to hire addiVerDate 0ct 09 2002 11:38 Nov 21, 2006 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 H:\DOCS\30710.TXT SAGING1 PsN: JOYCE
5

tional expert staff to review generic drug applications more quickly 

and initiate targeted research to expand the range of generic drugs 

available to consumers. 

While there remains work to be done, as I will discuss, we have 

been able to produce significant reductions in approval times for 

generic drugs since 2002. These reductions, coupled with changes 

to reduce the time for developing generic drugs and making them 

available, will save consumers billions. 

Much concern has been raised from the public and Congress 

about a backlog of pending ANDAs currently under OGD review. 

OGD generally maintains a first in, first reviewed policy for 

ANDAs to ensure the integrity of the approval process. A number 

of factors govern the timing of generic drug approvals, including 

whether the application is of high quality, meets the inspection 

standards and the scientific and technical requirements for approval, and whether patent protection and exclusivity periods have 

expired on the innovator drug. 

Over the last 5 years, the number of applications submitted to 

OGD has increased by 150 percent, which is shown in detail on the 

graph to my right. The receipts are in yellow and the tentative approvals are in green. You can see the receipts from 1995 through 

2001 remained at around 300. They were very, very static at that 

point. In the year 2002, they increased to 364, and continued to increase in 2003 to 449; in 2004, 563, and then in 2005, 766 applications. This year, since we are three-quarters of the way through 

the year, I can report that we expect to receive almost 800 applications for generic drug applications by the end of September. 

Just last month, we approved 45 applications, but received 92. 

Clearly, this rate of increase in applications resulted in a dramatic 

increase in the workload. It is important to stress that the ANDAs 

in the backlog are not all unreviewed, but may be applications that 

have had an initial review and are now waiting a second or subsequent review of the company’s attempts to satisfy our approval requirements. 

Although OGD still has a backlog, the graph demonstrates that 

we have managed to increase the number of approvals each year, 

and in 2001 OGD approved or tentatively approved 310 ANDAs, 

and this number increased to 467 in fiscal year 2005. OGD’s efforts 

are also evident when looking at the median approval time. The 

median approval times have decreased from the 18.4 figure in fiscal year 2001 to 16.3 months in fiscal year 2005. Some of these applications were approved in less than a year. 

FDA has taken significant steps to improve our resources. With 

additional resources each year, FDA has increased its generic drug 

FTE positions from 134 in fiscal year 2001 to 201 in fiscal year 

2006. In addition, OGD has taken actions to streamline the ANDA 

review process, which includes addition of a third chemistry review 

division and a fifth review team in OGD’s division of bioequivalence. Also, a number of new review practices have been implemented to improve interactions with the generic drug companies. 

Other new efficiencies to the application review process are described in detail in my written statement. 

Because of these efforts, on the very day that the last patents or 

exclusivities expire on an innovator product, OGD has been able to 

6

approve at least one generic application in most cases. Recently, 

FDA approved applications for generic versions of the popular 

brand names Pravachol, Zoloft and Zocor on the day the innovator 

protections expired. Just yesterday, OGD approved 13 applications 

for Meloxicam, the generic equivalent for Mobic, a popular analgesic used for osteoarthritis. These applications were approved in just 

over 9 months from the date they were submitted. The approvals 

of these four products should produce savings measured in the billions of dollars per year. We will work to continue our success in 

staying ahead of the curve on first-time generics and responding to 

all pending applications. 

An issue of particular focus in OGD is streamlining the citizen 

petition review process. Citizen petitions may be submitted at any 

time, requesting FDA to impose new criteria for approval of 

ANDAs. These petitions often make serious challenges to whether 

or not a generic product can be approved; that is, whether a specific application or group of applications would meet the statutory 

requirements for approval. 

FDA must consider and address the merits of the challenges to 

generic drug approvals. It is not required that FDA respond to citizen petitions before approval of a related ANDA, and it is very 

rare that petitions present new issues that CDER has not fully considered. But the agency must nevertheless assure itself of the fact 

by carefully reviewing these citizen petitions. 

A high percentage of the petitions to OGD are denied. While the 

citizen petition process is a valuable mechanism for the agency to 

receive information from the public, it is noteworthy that very few 

of these petitions on generic drug matters have presented data or 

analyses that significantly altered FDA’s policies. CDER’s recent 

efforts to improve the process for responding to citizen petitions are 

described in detail in my written statement. 

An issue garnering discussion among many stakeholders is that 

of authorized generics. The term ‘‘authorized generic’’ is generally 

used to describe an instance when an innovator company, in the 

face of pending generic competition, repackages its own product 

and markets it as a generic. Generic drug companies, through citizen petitions and lawsuits, have sought FDA’s intervention to halt 

the marketing of authorized generics, especially during the 180-day 

exclusivity period. FDA determined, and the courts have upheld, 

that the Federal Food, Drug and Cosmetic Act does not give FDA 

authority to intervene in this matter. 

Thank you for the opportunity to highlight some of the areas 

that OGD is working diligently to address. FDA appreciates the 

Committee’s interest and concern about expediting the approval of 

generic drug products and the opportunity to discuss these important issues. In spite of an increasing workload, be assured that 

there is a sense of purpose and knowledge among my staff and the 

administration that we are working to fulfill an important public 

health mission. 

FDA will continue to work toward greater efficiency in ANDA review and attempt to deal with the issues discussed today and the 

many emerging challenges ahead. We are committed to continue to 

make additional generic products available to the American public 

as soon as legally possible. 

7

I would be pleased to respond to your questions. 

[The prepared statement of Mr. Buehler follows:]


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Senator KOHL. Thank you very much, Mr. Buehler, and now we 

will turn to Mr. Leibowitz. 

STATEMENT OF JON LEIBOWITZ, COMMISSIONER, FEDERAL 

TRADE COMMISSION, WASHINGTON, DC 

Mr. LEIBOWITZ. Chairman Smith, Co-Chairman Kohl, protecting 

competition, as you know, in the pharmaceutical sector is a mainstay of our work at the FTC, and your hearing is both timely and 

important. Let me start, though, with the usual disclaimer. The 

written statement that we submitted today represents the views of 

the Commission. My oral testimony today reflects my own views 

and not necessarily the views of any other Commissioner or the 

Commission itself. 

Mr. Chairman, the savings that generic drugs offer are particularly important for older Americans. Research indicates that 87 

percent of persons aged 65 or older take at least one prescription 

drug on a regular basis. On average, seniors take four different 

prescription drugs daily. Persons over 65—and they only compose 

about 13 percent of the population—account for 42 percent of every 

dollar spent on prescription drugs. 

There is a particular urgency to pharmaceutical competition 

issues right now. Recent decisions by some appellate courts are 

making it difficult to challenge agreements that delay generic competition. If these decisions are allowed to stand, prescription drug 

costs, already the fastest growing segment of our Nation’s spending 

on health care, will rise even more dramatically. 

These increased costs will burden not only individual consumers, 

especially older Americans, but also the Federal Government’s new 

Medicare Part D drug program, which you mentioned, Senator 

Kohl, in your opening statement, and American businesses striving 

to compete in a global economy, for example, like General Motors, 

and I know you had their CEO testify here last week. 

In my oral remarks this morning, I will focus primarily on what 

are called exclusion payments. By this I mean settlements of patent litigation in which the brand name drug firm pays a generic 

challenger to stay out of the market. Then I will briefly touch on 

two other issues: bottlenecks that keep subsequent generic filers off 

the market and so-called authorized generics. 

Now, when Congress enacted the Hatch-Waxman statute in 

1984, it encouraged speedy introduction of generics. That statutory 

framework, while ensuring that our pioneer drug firms remain the 

envy of the world—and they are—has also delivered enormous consumer savings. Indeed, as a general matter, when the first generic 

enters the market, it does so at a 20- to 30-percent discount off the 

brand prices, and prices drop even further, by as much as 80 percent, after other generic competitors go to market, and that is usually 6 months after the first generic entrant. 

The consumer and government savings that result from generic 

entry will be lost, however, if companies settle through arrangements in which they share the monopoly profits that are preserved 

by delay. Sadly, the incentives to enter into these pernicious settlements are substantial because generic entry causes the branded 

drug firm to lose far more in revenues than the lower-priced generic can possibly earn. As a result, if both companies agree to 

19

delay entry, both firms are better off financially. Of course, it is 

consumers who are left holding the bag, or more precisely footing 

the bill. 

For the past decade, the FTC has made challenging patent settlements that delay generic entry a bipartisan priority. In the late 

1990’s, when we started seeing these disturbing settlement payments, we acted to stop them. The Commission obtained two major 

consents involving anti-competitive payments and we put pharmaceutical companies on notice that we would consider all available 

remedies, including disgorgement of profits, against similar conduct 

in the future. 

As a result, our action stopped this conduct cold. It set forth 

rules that everyone in the pharmaceutical industry understood. If 

you settled a pharmaceutical patent case by paying off a generic, 

you would face antitrust scrutiny. As a result, to the best of our 

knowledge there were no such settlements between 2000 and 2004. 

The Commission did rule in 2003 that in an earlier settlement 

in, I think, 1998, a payment from Schering-Plough, the brand, to 

Upsher-Smith, the generic, violated the antitrust laws. That case, 

by the way, involved a potassium supplement that was widely used 

and still is widely used by older Americans. The Eleventh Circuit 

reversed us in 2005, and the Second Circuit, in a two-to-one decision in the In re Tamoxifen case, issued a similar opinion late last 

year. 

These decisions, which essentially hold that a patent-holder has 

a right to compensate a generic except where the brand’s infringement suit is a sham, have dramatically altered the legal landscape, 

and we believe it has done so to the detriment of consumers. 

Mr. Chairmen, this is not idle speculation. Thanks to the reporting requirement that Congress included in the 2003 Medicare Modernization Act—and you passed this law presumably because you 

were also troubled by these agreements—the FTC reviews each and 

every Hatch-Waxman settlement. Tellingly, here is what the data 

for the last few years tell us and what it reveals. 

For fiscal year 2004 and the early part of 2005, none of the nearly 20 agreements reported contained a payment from the brand to 

the generic accompanied by a deferred generic entry. In other 

words, parties could and did settle patent litigation without money 

flowing to the generic. 

In sharp contrast, the most recent data for the first half of fiscal 

year 2006—and that reflects agreements after the Schering and the 

Tamoxifen cases—is far more disturbing. Seven of the ten agreements between brands and generics during this period included a 

payment from a brand and an agreement to defer generic entry. In 

other words, just before Schering and Tamoxifen, there were almost no such payments. Just after these decisions, it appears to be 

the new way of doing business. 

From our perspective, we will continue to be vigilant in looking 

for ways to challenge anti-competitive settlements, and I certainly 

hope the Supreme Court will eventually weigh in on this problem. 

A legislative approach, however, could provide swifter and a more 

comprehensive solution. For that reason, we strongly support the 

intent behind the Preserve Access to Affordable Generics Act, the 

bipartisan bill that you introduced, Senator Kohl, with Senator 

20

Grassley, Senator Leahy and Senator Schumer. But drafting such 

a measure is challenging, so we are happy to work with you as the 

bill moves forward. 

Let me very briefly raise two other issues. The first is yet another strategy that thwarts consumer access to generic drugs and 

which we believe undermines congressional intent, and we discuss 

this bottleneck issue in detail in our written submission. It involves 

legal complexities unique to Hatch-Waxman. 

But boiled down into plain English, it is this: subsequent 

generics are supposed to have an alternative way to enter the market when the first generic delays its own entry. Instead, because 

of recent case law, they are stuck in a sort of pharmaceutical 

catch–22. The courts won’t let them bring a patent challenge and 

the FDA won’t let them market without winning one. It is a sort 

of drug purgatory and we believe one that results in considerable 

delays for consumers. We made a legislative recommendation to 

solve this problem in 2002 before I came to the Commission and 

it is in our written statement. We are happy to work with you on 

that. 

The second matter is authorized generics, a product, as you 

know, that involves a chemically identical drug to the brand drug 

and the brand firm when the brand firm introduces its own generic. In recent years, brand firms have increasingly begun to market authorized generic drugs at precisely the same time that the 

first generic entrant begins its 180-day exclusivity period. In the 

short run, the entry of an authorized generic may benefit consumers by creating additional competition that lowers prices. 

But critics assert that in the long term, consumers will be 

harmed because of the competition from authorized generics, and 

the significantly lower profits for the generic industry that result 

will basically decrease the incentives of generic firms to pursue 

entry especially for non-blockbuster drugs. At the Commission, we 

are now undertaking a study to examine the competitive impact of 

authorized generics. 

Mr. Chairman, at a time when this Nation faces the challenge 

of ever-mounting health care costs, ensuring that seniors and other 

consumers have access to low-cost pharmaceuticals is a matter of 

critical concern. The FTC is committed to doing whatever we can 

to promote drug competition and we stand ready to assist your 

Committee. 

Thank you. 

[The prepared statement of Mr. Leibowitz follows:]

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Senator KOHL. Thank you, Commissioner Leibowitz. Commissioner Leibowitz, after the FTC lost the Schering case, as you 

pointed out, I introduced legislation to prevent brand name drug 

companies from paying off generics to stay off the market. I understand that the FTC has not taken a formal position on our bill as 

of yet. 

Can you tell us why the FTC has not endorsed this legislation? 

Mr. LEIBOWITZ. Well, we strongly support the intent of your legislation, but the FTC is the epitome of a consensus-driven agency. 

We haven’t reviewed the legislation in detail. By the way, I believe 

it will go to Senator Smith’s subcommittee, which is the FTC subcommittee on the Commerce Committee. But we are very supportive of what you are trying to do and we are very supportive of 

a legislative solution. 

Senator KOHL. Is the FTC pursuing other cases to challenge different payoffs in an effort to get a better result in court? Is the 

FTC holding public hearings on this issue? 

Mr. LEIBOWITZ. We are looking to find cases so that we can create, for example, a split in the circuits that would militate toward 

the Supreme Court taking a case. I can’t discuss any of our individual investigations publicly, but we are looking to find a case. As 

for a public hearing, we have not initiated one. I would be glad to 

take that back to the Commission and talk to them about it. 

Senator KOHL. You referred to authorized generics. As you pointed out, the FTC is currently studying the effects of authorized 

generics. The question is does the FTC have the authority to address this anti-competitive practice, or do you believe that we also 

need to find a legislative fix for this issue. What is your opinion 

on that, Commissioner Leibowitz? 

Mr. LEIBOWITZ. Well, I don’t know that authorized generics rises 

to the level of an antitrust violation, which is really what is within 

our purview at the FTC. We certainly think that it is an important 

public policy issue and we are committed to doing a very thorough 

study and looking at both the potential short-term benefits and the 

potential long-term problems that it may cause. 

Senator KOHL. Mr. Buehler, over the last 5 years, as you have 

been discussing this morning, the number of generic drug applications have increased 150 percent, while your budget to work with 

this increase has not increased nearly to that percentage. Of the 

close to 800 applications that you have already received this year, 

as you pointed out, you have only approved a little more than half. 

So what is your plan to eliminate this backlog? How long do you 

expect it to take before we can eliminate this backlog? 

Mr. BUEHLER. To be able to eliminate the backlog, we would 

have to increase the monthly average of approvals from our present 

40 applications to somewhere between 65 and 70. To be able to do 

that, we have submitted a plan that we believe, with additional resources, FTEs, of about 70 to 100 over 3 years—this would entail 

$16 to $19 million annually. We would be able to create new review 

teams, continue to enhance the efficiency of our review process, and 

be able to first attain parity with the number of applications that 

we are receiving, and we are about a minus 300 right now. Once 

we attain parity, we will be able to address the backlog, and hopeVerDate 0ct 09 2002 11:38 Nov 21, 2006 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 H:\DOCS\30710.TXT SAGING1 PsN: JOYCE
52

fully within 3 to 4 years be able to begin to whittle down this number. 

Senator KOHL. With respect to the amount of time that it takes 

to review these petitions, since the start of your process over a 

year-and-a-half ago, what is the average time right now? 

Mr. BUEHLER. For the petitions, sir? 

Senator KOHL. Yes. 

Mr. BUEHLER. Citizen petitions usually take about 6 months to 

review. We have a statutory 6-month timeframe to review citizen 

petitions. They are taking about that time, although we do get scientifically challenging ones that can run quite a bit longer than 

that. 

Senator KOHL. Senator Smith. 

The CHAIRMAN. Gary, is the backlog, in your view, then just a 

manpower issue? 

Mr. BUEHLER. For the most part, yes. These applications are all 

types, and we have done a number of analyses on the types of applications in our backlog and we have analyzed them by patent certification and we have found that there are about an equal number 

of paragraph I and paragraph II certification applications, which 

are applications that either have no patents or the patents have expired. These tend to be older drugs and drugs that probably already have generic competition. 

The CHAIRMAN. So there is nothing in your processes that you 

think could be streamlined without compromising safety? 

Mr. BUEHLER. We have looked at our process very carefully and 

I have said to my division directors that we have got to identify 

things that we do that we don’t have to do that don’t impact the 

safety and efficacy of the products. But at the same time, we have 

to be very aware of what we do do that does impact safety and efficacy. 

My mandate, my mission in life is to make sure that every generic drug that goes out on the market is safe, effective and bioequivalent and the American public can take these products with 

confidence. So we can reduce our process and the fat in our process, 

but only to a certain point. These are all full-standing applications 

with full data packages that have to be reviewed. 

The CHAIRMAN. I don’t in any way want you to take from my 

question that we want to compromise safety or efficacy of these 

drugs. We are counting on you for that, but obviously if there is 

something that can be streamlined systemically, great, do it, but 

don’t compromise those two things. 

As to the manpower issue, have you sought the authorization 

from the appropriate committee and are you getting the appropriations to add the staff? 

Mr. BUEHLER. We have provided our plan to Senator Kohl. He 

had requested a plan from us a few months ago and we have provided it to Senator Kohl. 

Mr. LEIBOWITZ. If I could just add one thing, Chairman Smith. 

The CHAIRMAN. Yes. 

Mr. LEIBOWITZ. We work very closely with the FDA and in response to a request from them several years ago, we did raise the 

potential for abuse of citizen petitions. Very often, they are filed at 

the eleventh hour. As Mr. Buehler’s testimony points out, they usuVerDate 0ct 09 2002 11:38 Nov 21, 2006 Jkt 000000 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 H:\DOCS\30710.TXT SAGING1 PsN: JOYCE
53

ally raise redundant issues that have been resolved by the FDA. 

I was really heartened to see that in his testimony it looks like 

FDA is looking at ways to sort of tweak their rule so that maybe 

you would have to raise a citizens’ petition earlier. That might 

solve part of the problem. 

The CHAIRMAN. OK, so you are not barring the citizen, but you 

are just saying it can’t be unduly dilatory in this process. 

Mr. LEIBOWITZ. Yes, that is right. 

The CHAIRMAN. Well, I hope you will succeed. You have got the 

ear of the right person in the Appropriations Committee. I guess 

it is the Health, Education and Welfare Committee that gives you 

the authorization for more, and if I can help, let me know. 

Mr. BUEHLER. Thank you, Mr. Chairman. 

The CHAIRMAN. I assume that with patents expiring, this issue 

is going to grow. It is not going to go down, and I think that is 

what your chart is saying. 

Mr. BUEHLER. It doesn’t look like our submissions are declining, 

no. 

The CHAIRMAN. Jon, I am troubled by the holding. I am not an 

antitrust lawyer, but I do know something about antitrust law and 

I can’t imagine a lower court finding that this was not uncompetitive action. What was their rationale and what was their holding? 

Mr. LEIBOWITZ. Well, I think rather than looking at it from an 

antitrust perspective, which is the way we look at these cases—and 

I think the way Senator Hatch, one of the drafters of Hatch-Waxman, does—I think they looked at it more as patent case, and also 

wanted to ensure the benefit of settlements. 

Having said that, what we found from 2000 to 2004 when we 

pretty much stopped this practice cold was that there were plenty 

of settlements; there were just no settlements with money. So, of 

course, reasonable people can disagree. The Eleventh Circuit disagreed with us, but we think our position is the right one. 

The CHAIRMAN. On what basis did they disagree? I am not expecting you to agree with them, but I mean what was their rationale? 

Mr. LEIBOWITZ. Well, their rationale essentially was that settlements are very important and as long as the settlement didn’t go 

beyond—in the Eleventh Circuit—as long as the settlement didn’t 

go beyond the scope of the patent, then this was an agreement that 

really shouldn’t be analyzed under a rule of reason or a per se 

analysis or any antitrust approach. 

The CHAIRMAN. So antitrust wasn’t even considered? 

Mr. LEIBOWITZ. I guess I would say that it was looked at, but it 

wasn’t considered; at least it wasn’t considered sufficiently. 

The CHAIRMAN. Obviously, that would fall under the Justice Department to bring that action, I suppose, under antitrust. 

Mr. LEIBOWITZ. We bring antitrust cases. We share that jurisdiction——

The CHAIRMAN. With them? 

Mr. LEIBOWITZ. With the Justice Department. That is right. 

The CHAIRMAN. The Supreme Court denied certiorari? 

Mr. LEIBOWITZ. The Supreme Court denied cert. You know, the 

Supreme Court gets a lot of applications for cert. Some people believed that there wasn’t a sufficient split in the circuits to make it 

54

a case that they wanted to take or they ought to take. Hopefully, 

some other cases will come with better case law—if we bring further cases perhaps someday they will take it, perhaps someday 

soon. 

The CHAIRMAN. But as you saw it from the FTC, you clearly 

could demonstrate monetary impact to the marketplace. 

Mr. LEIBOWITZ. Yes, we thought we did. We thought we did it 

compellingly. The Eleventh Circuit disagreed with us. 

The CHAIRMAN. But they didn’t consider the antitrust implications? 

Mr. LEIBOWITZ. From our perspective, at least, not sufficiently. 

The CHAIRMAN. That is amazing to me. You know, I am not an 

antitrust lawyer, but it seems like an antitrust violation, per se. 

Mr. LEIBOWITZ. It certainly seemed to us like an antitrust violation. I wasn’t on the Commission when we wrote our own opinion, 

but it was very compelling when I read it and I wasn’t as persuaded by the Eleventh Circuit. But that is the nature of judicial 

review here. 

The only other point I want to mention is during the debate on 

the 2003 Medicare Amendments where Congress gave us the authority and really required us to review all of these settlements, 

Senator Hatch himself, one of the coauthors of Hatch-Waxman, 

said these types of reverse payments are ‘‘appalling’’. I think what 

Congress intended to do by requiring us to review all of these settlements was to see which ones were anti-competitive. 

The CHAIRMAN. So the legislation you have given to Senator 

Kohl’s care provides the legal clarifications necessary under patent 

law to remedy this? 

Mr. LEIBOWITZ. It basically would prohibit under the FTC Act 

these types of agreements where there was compensation, cash 

compensation particularly, given to the generic from the brand for 

the generic to stay out of the market. We don’t think that was the 

intent of Hatch-Waxman. We don’t think the Eleventh Circuit got 

it right. Reasonable people can disagree, but that is our hope. 

The CHAIRMAN. Well, we will surely take it up in the Commerce 

Committee post haste. 

Mr. LEIBOWITZ. Thank you so much. We appreciate that. 

The CHAIRMAN. To your reference on the catch–22 issue, talk to 

me about the legal clarifications there that you need. 

Mr. LEIBOWITZ. Well, under Hatch-Waxman, as I understand it, 

usually the first filer gets 180 days of exclusivity. That is the approach that Congress took when it designed Hatch-Waxman. But 

if the first filer for some reason—sometimes it might be because of 

a payment, sometimes because their challenge is weak—agrees to 

not enter for several years, there is supposed to be a way for subsequent patent challengers to trigger the 180 days by winning a declaratory judgment. 

Because of decisions in the D.C. Circuit and the Federal Circuit, 

they haven’t been able to do that. So we have a proposal, again 

written by the staff in 2002, that is in my testimony that would 

solve that problem, and we believe do it in a constitutional way. 

There are different ways you can do it. 

The CHAIRMAN. Where is that legislation now? 

55

Mr. LEIBOWITZ. That legislation is in my testimony, but has not 

been introduced. 

The CHAIRMAN. So we need it introduced. 

Mr. LEIBOWITZ. Certainly, if you decide that introducing that legislation is a good idea, we would be supportive of it. 

The CHAIRMAN. Thank you, Mr. Chairman. 

Senator KOHL. Thank you very much, Chairman Smith. 

We are joined today by our colleague, Senator Clinton, from New 

York. We will turn to you for your thoughts, comments and questions. 

Senator CLINTON. Thank you very much, and once again thanks 

to Senator Smith and Senator Kohl for doing these very informative hearings. I would ask unanimous consent to submit my statement to the record. 

The CHAIRMAN. Without objection. 

[The prepared statement of Senator Clinton follows:] 

PREPARED STATEMENT OF SENATOR HILLARY RODHAM CLINTON

Prescription drugs are vital to preventing and treating illness and helping to 

avoid more costly medical problems. Spending in the U.S. for prescription drugs was 

almost $189 billion in 2004, over 4 and half times the amount spent in 1990. And 

although prescription drug spending has been a relatively small proportion of national health care spending compared to hospital or physician services, it is one of 

the fastest growing components, increasing over the past decade at double-digit 

rates compared to single-digit increases for hospital or physician services. 

As the population ages and our healthcare system faces increasing pressures, 

finding real and legitimate cost savings must be a top priority. And prescription 

drugs are clearly a place we should be looking. The 2003 Medicare prescription drug 

law explicitly prohibited the government from using the collective purchasing power 

of more than 40 million seniors to negotiate lower drug prices, in stark contrast to 

the authority to reduce prescription drug costs that other federal agencies and programs have including the VA and DoD. In addition, many of my colleagues and I 

continue to call for passage of legislation to allow for the safe reimportation of prescription drugs. But I think the real potential—and I thank and commend the Chair 

and Ranking Member for having the foresight to hold this hearing—is in generic 

drugs. 

According to a 1998 CBO analysis, generics save consumers between $8 and $10 

billion each year. And generic drugs are now used to fill more than half—approximately 55 percent—of all prescriptions each year, but account for only about 13 percent of spending on prescription drugs. 

It is estimated that every 1 percent increase in generic utilization results in 

a 1–2 percent total cost savings. But since generic substitution rates are in the 

range of 90 percent, the greatest potential for cost savings rests with bringing new 

generics to the market. And the recent study that PCMA did, and that they talk 

about in their testimony today, really highlights the future potential of cost savings 

as brand drugs come off patent and generics are able to enter the market. The 

PCMA analysis found the potential for $49 billion in savings across the healthcare 

system from 14 drugs that are going off patent in the next five years. Medicare’s 

share of that total is approximately $23 billion. 

One important component that I am particularly interested in for ensuring that 

generic drugs are able to come to market is the establishment of a clear pathway 

for generic biologics. Since the passage of Hatch-Waxman in 1984, scientific advances have made the biotechnology industry an integral part of the pharmaceutical 

industry and we must update this law to reflect the critical role biologics now play 

in treatment. 

And biologics are a major driver of increasing prescription drug costs. Six biotech 

pharmaceuticals—Procrit, Epogen, Neuposen, Intron-A, Humulin and Rituxan generated sales of more than $1 billion in 2003 and the top three biotech pharmaceuticals: Neupogen, Epogen and Intron A cost patients $23,098, $10,348 and $5,850 

respectively, each year. As evidenced by these examples, generic competition for biopharmaceuticals has the potential to offer consumers dramatic and substantial savings. 

56

As the number of biologics grows, and the lifecycle of these products matures, the 

patents on these products expire. In 2004 there were more than a dozen biopharmaceuticals for which U.S. patents have expired, or will expire by 2006. Providing a 

clear pathway for bringing generic biologics to market provides a significant opportunity to save healthcare dollars and I look forward to exploring this in more detail 

this morning and as we move forward. 

Thank you, Mr. Chairman.

Senator CLINTON. Mr. Buehler, I recognize that the FDA has 

been very public about its belief that it does not have the legislative authority to develop a pathway that would allow the vast majority of generic biologics to enter the market. However, the FDA 

began working on drug-specific guidance documents 7 years ago 

during the Clinton administration to provide information to companies about two biologics—insulin and growth hormone—drugs that 

you have asserted authority over. 

While these guidance documents are not an explicit pathway, 

they would certainly facilitate bringing a biogeneric for each of 

these drugs to the market. But just last month, after 7 years, the 

FDA announced that it is reversing course and will instead begin 

all over again and develop industry-wide guidance on this issue. 

Now, I am particularly concerned about this because since the 

passage of Hatch-Waxman in 1984, a lot of scientific advances have 

been made and the biotechnology industry is now an integral part 

of our pharmaceutical industry. I think we have to update the law 

to reflect the critical role that biologics are now playing in treatment of disease. Biologics are a major driver of increasing prescription drug costs. Six biotech pharmaceuticals are generating more 

than $1 billion in sales and the top three biotech pharmaceuticals—Neupogen, Epogen and Intron-A—cost patients $23,000, 

$10,000 and $5,000, respectively, each year. 

So as the number of biologics grows and the life cycle of these 

products mature, the patents on these products expire. In 2004, 

there were more than a dozen pharmaceuticals for which U.S. patents have expired or will expire by the end of 2006. So providing 

a clear pathway for bringing generic biologics to market provides 

a significant opportunity to save health care dollars. 

So now even where the FDA has accepted authority to facilitate 

bringing a generic to the market and where you have spent 7 

years, you have missed the opportunity to save millions of dollars 

for consumers and taxpayers. In fact, just for insulin and growth 

hormone alone, the Medicaid program spent $752 million last year. 

If a biogeneric had been on the market in 2005, the Medicaid program could have saved over $100 million on these two drugs alone. 

Of course, the savings in Medicare and the health care system 

overall would be even greater. 

So with that preface, Mr. Buehler, why after 7 years did the FDA 

decide to change course, No. 1? No. 2, what happened to the insulin 

and growth hormone specific documents you were working on? 

Mr. BUEHLER. Well, first, let me preface, Senator Clinton, that 

through the extensive discussions we have been having at the 

agency over generic biologics, the initial feeling is that my office 

would not be involved in the review and approval of these products 

because of the complexity of the molecules and the feeling that 

there would be the need for some additional clinical work that 

57

would accompany the application that could not be submitted in an 

ANDA and could not be reviewed in the Office of Generic Drugs. 

So the direction that the discussions are going are that these 

particular applications would be what we call 505(b)(2) applications, which are a hybrid application that is reviewed in the Office 

of New Drugs and gives the applicant the capability to do a number of various studies that are requested by FDA. 

These are complex molecules. There is a lot of concern at the 

agency that when biogenerics are available, they are clearly—as 

the concern is for small molecules, they are clearly bioequivalent 

products that can be used interchangeably in the marketplace. So 

we are taking our time in making sure that the requirements for 

these products are clearly delineated and scientifically based. 

The reason I believe—and again I am not privy to a lot of these 

discussions because my office is not going to be involved in the review and approval of these products, but I believe the thought was 

that we wanted to put out a global document that would cover the 

class of biogenerics or follow-on protein products from the very simplest to the more complex, and that we can provide a road map for 

the industry that would outline the requirements for FDA approval. 

Senator CLINTON. Well, Mr. Buehler, just so I understand, was 

your office involved in the 7 years of study with respect to insulin 

and growth hormone? 

Mr. BUEHLER. We were involved in the discussions, and clearly 

our scientists were involved in the discussions with the scientists 

from the Office of New Drugs. But at a certain point, the Office of 

New Drugs and the clinicians in the Office of New Drugs felt that 

these particular applications should be put in as a (b)(2) application so that it would allow us to request more information, if needed, for these particular products. 

Senator CLINTON. So is it your understanding that the Office of 

New Drugs will handle both the original biologics and the generic 

version of the biologics? 

Mr. BUEHLER. At this point, I believe that is the direction we are 

going, yes. 

Senator CLINTON. Now, would you or anyone else who is here 

with you from the FDA know who has possession of the guidance 

documents that were generated with respect to insulin or growth 

hormone? 

Mr. BUEHLER. I do not know. 

Senator CLINTON. Is there anyone else from FDA who knows who 

has possession? 

Mr. BUEHLER. We can get back to you with that. 

Senator CLINTON. I think it would be very useful because this is 

an area which is crying out for some legislative direction. It doesn’t 

really have a specific pathway yet, and because the FDA has taken 

the position that it doesn’t have authority, I think that we need to 

look to see how we are going to handle both the biologics and then, 

of course, the generic biologics. I think it would be useful to have 

those guidance documents because 7 years of effort went into those. 

So, Mr. Chairman, I might ask that we try to obtain those guidance documents to see if it can inform our concerns about the generic issue, in general, but specifically in this new field of biologics, 

58

because I am concerned that we don’t yet have a framework for 

this and I think we need to work on that. So I look forward to getting more information from the FDA about this process and then 

trying to figure out what we might do to work with the FDA to create a better understanding of how this is going to be handled because I think Mr. Buehler very correctly said this is incredibly complicated and so we need some guidance. 

I understand from the reports I got that there was some very 

good questioning by the Chairman and the Ranking Member about 

whether the FDA has the resources to do what we are asking them 

to do, and I don’t think it does. This new field which is about to 

explode on biologics will add even more burden, but there is no better place to put it if it is well-resourced. So I think that has to be 

taken into account as well. 

Thank you. 

Senator KOHL. Thank you very much, Senator Clinton. 

We would like to thank the first panel. You have been really 

good, very informative, and at this point we will go on to the next 

panel. 

Mr. LEIBOWITZ. Thank you. 

Mr. BUEHLER. Thank you. 

Senator KOHL. The first witness on our second panel is Heather 

Bresch, who is the senior vice president of Corporate Strategic Development at Mylan Laboratories. Mylan Laboratories is a leading 

U.S.-based generic pharmaceutical company and one of the world’s 

leading providers of prescription medications. Ms. Bresch has 15 

years of experience in the generic pharmaceutical industry, including multiple senior positions with Mylan Laboratories and the Generic Pharmaceutical Association. She is here to provide us with 

firsthand examples of the challenges generic pharmaceutical companies face in getting their medicines on the market. We welcome 

you. 

The second witness will be Mark Merritt. Mr. Merritt serves as 

president of the Pharmaceutical Care Management Association, the 

national association representing America’s pharmacy benefit managers which administers prescription drug plans for more than 200 

million Americans. Mr. Merritt will demonstrate the cost savings 

associated with increased utilization of generic drugs, as well as recent analysis showing the potential savings seniors and Medicare 

could realize over the next 5 years. 

We thank you both for coming, and so we will start with you, Ms. 

Bresch.

59

STATEMENT OF HEATHER BRESCH, SENIOR VICE PRESIDENT 

OF CORPORATE STRATEGIC DEVELOPMENT, OFFICE OF THE 

CHIEF EXECUTIVE OFFICER, MYLAN LABORATORIES, INC., 

CANONSBURG, PA 

Ms. BRESCH. Thank you, Chairman Smith and Co-Chairman 

Kohl and members of the Committee on Aging. I am Heather 

Bresch, with Mylan Laboratories, one of the world’s leading providers of prescription drugs. 

Fifty-five percent of all drugs dispensed today in the United 

States are filled by generic drugs. However, this 55-percent generic 

utilization only consumes 15 percent of America’s drug spend. The 

average cost of a brand drug is about $95, while the average cost 

of a generic drug is less than $30. 

My written testimony today addresses a number of issues. However, I wanted to devote my limited time with you today to talk 

about two of the more debilitating obstacles facing our industry: 

the misuse of authorized generics and the abuse of citizen petitions 

by brand companies. 

To save consumers billions of dollars, the Hatch-Waxman Act of 

1984 created a balance encouraging innovation and promoting access to affordable medicines. The only incentive provided to generic 

companies to challenge questionable brand patents was the 180-

day exclusivity period. 

Members of this Committee, the release of authorized generics 

during this exclusivity period is the single greatest threat to the viability of the generic industry going forward. Supporters of authorized generics claim that consumers benefit from this practice 

through lower prices, as cited by a recent study by PhRMA. A soon 

to be released independent study proves that nothing could be further from the truth. 

PhRMA’s study looked at wholesale prices, not retail- level 

prices. The independent study replicates PhRMA’s products and 

calculations, but uses the retail price. It is also important to note 

that this study shows that 90 percent of our population is insured 

by a third-party payer or the government. So while they realize 

savings with a generic product coming to market because it establishes a generic co-pay, the presence of an authorized generic provides no additional savings to this group. 

The remaining 10 percent of our population who pays cash saw 

virtually no additional savings from the presence of an authorized 

generic during the 180 days. Brand companies would never lower 

their price or launch an authorized generic without the presence of 

a true generic coming to the market. 

For brand companies, authorized generics are a long-term strategy designed to debilitate our industry because they understand 

this revenue very importantly generates and enables us to further 

challenge questionable patents in their pipeline. There is no shortterm benefit and there is long-term detriment to the generic industry because of this practice. 

In fact, to use the exact words of J.P. Garner, CEO of Glaxo, 

quote, ‘‘The idea was somebody has a 6-month exclusivity, but we 

are king-maker. We can make a generic company compete during 

a very profitable time. We are not a generic company and we do 

not wish to become one. If we acquired the most successful generic 

60

company in the world, it would barely move our needle on profit.’’ 

Authorized generics are on the marketplace solely to cripple the industry. Eli Lilly CEO Sidney Laurel said back in December 2003, 

‘‘For this to really work, you would have to have the whole industry 

do this systematically each time a patent expires so that you would 

truly eliminate the incentive and the calculation that generic companies would make.’’ Well, to my knowledge, since December of 

2003, each and every generic launch has been met in the marketplace with an authorized generic. 

Brand companies also leverage authorized generics during settlement negotiations. We are aware, Senator Kohl, of your bill which 

seeks to prohibit any and all consideration but early entry of brand 

generic patent settlements. But we think this approach goes too 

far. The truth be told, unless and until the authorized generic problem is resolved, the patent settlement issue cannot rationally be 

discussed. Even if the generic company has invalidated a patent or 

believes that it will, the fact that a brand company can release an 

authorized generic during the 180-day period dramatically reduces 

the generic returns and leaves the generic with little choice and no 

bargaining power. 

During the time period that Commissioner Leibowitz discussed 

that they reviewed patent settlements, the phenomenon of authorized generics has escalated dramatically. So we do not think it is 

coincidental the types of patent settlements that you are reviewing 

and their coordination with the practice of authorized generics. 

The second tactic I want to discuss is the abuse of the citizen petition process to improperly delay competition. Frequently, a brand 

company will file a petition on the eve of FDA approval of a generic 

product to delay its approval. The brand strategy is that it will 

take months or longer for the FDA to answer the petition, during 

which time final approval of the generic drug will not be granted, 

and during which time brands can receive millions of dollars of day 

of revenue by delaying competition. 

A review of citizen petitions filed with the FDA over the last 3 

years reveals a very clear picture. During the last 3 years, brand 

companies have filed 45 petitions requesting the delay of FDA approval of a generic drug. Of these 45 petitions, the average time at 

the agency is 13 months. The FDA has ruled on 21, denying 20 of 

them, but not before causing delay anywhere from a few months 

to over a year. 

To bring this critical issue sharply into focus, consider Mylan’s 

successful challenge to J and J’s brand name incontinence drug 

Ditropan XL. On August 29, 2005, with a decision expected at any 

moment, J and J filed an eleventh-hour citizen petition requesting 

that the FDA rethink its standards for approving a generic version 

of this drug. On September 26, 2005, not even a month later, a 

Federal district court found that J and J’s patent was invalid and 

not infringed. However, today, 11 months later, the patent stands 

invalid, but consumers wait to enjoy the lower cost of a generic alternative because Mylan cannot receive final approval due to the 

citizen petition, even though we received tentative approval months 

and months ago. 

In conclusion, we believe that Congress cannot stand still with 

such threats facing our health care system and the viability of the 

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generic drug industry. We applaud this Committee for conducting 

these hearings and urge Congress to take action now in two specific areas. We urge you to support legislation introduced yesterday 

by Senator Rockefeller and cosponsored by Senator Schumer and 

Senator Leahy. 

Let me be clear about a very important point. The generic industry is not opposed to honest competition. Following the 180 days of 

exclusivity, we recognize the right of any company with an FDAapproved product, including the brand itself, to compete in the generic marketplace. But competition timed to hurt the long-term viability of our industry will lead to an escalation of the health care 

crisis, not its resolution. 

Second, in 1999 the FDA proposed a rule that would have separated the review of citizen petitions from the approval of the generic product, and the FTC weighed in on the rule and even enhanced it. With little explanation, the FDA withdrew this proposed 

rule in 2003. We urge Congress to call on the FDA to reissue its 

proposed rule of 1999. If the FDA fails to take such action, we urge 

Congress to act immediately to support the bipartisan bill, 

Stabenow-Lott, which implements effectively the same rule. 

I want to thank the Committee again for its time and interest 

in making sure seniors and all Americans have access to affordable, safe generic pharmaceuticals. I am happy to answer any questions you may have. 

[The prepared statement of Ms. Bresch follows:]

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Senator KOHL. We thank you very much. 

Mr. Merritt. 

STATEMENT OF MARK MERRITT, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, WASHINGTON, DC 

Mr. MERRITT. Thank you, Senator Kohl, Senator Smith, Senator 

Clinton, other members of the Committee. I am Mark Merritt, 

president of PCMA, the Pharmaceutical Care Management Association, which represents pharmacy benefit managers, or PBMs. 

PBMs administer drug benefits for more than 200 million Americans with coverage provided through private and public purchasers. 

We appreciate the invitation to be here today. 

PBMs work on behalf of employers, unions, government agencies 

and others to help offer their people drug benefits that are as generous and affordable as possible. We don’t set the price, prescribe 

or produce these drugs. Our job is to use our enormous purchasing 

power on behalf of our thousands of clients to generate competitive 

pricing from drug manufacturers and drugstores so that payers and 

consumers get the best deal possible. As a result of these efforts, 

PBMs typically reduce costs for purchasers and consumers by an 

average of 25 percent. 

Regarding generics, PBMs do as much or more than anyone in 

America to increase generic utilization where appropriate, and we 

do this in a number of ways. First, we design formularies that offer 

consumers significant incentives to choose generic drugs when appropriate. We offer lower co-pays, step therapy programs and options like mail service pharmacy which tend to have a higher generic substitution rate than those achieved by retail pharmacies. 

Second, we educate consumers, physicians and pharmacists 

about the availability of generics themselves. It is not always apparent to them, and we do as much as we can through calls and 

letters, and so forth, to make sure everybody knows of the affordable alternatives available to them. 

Third, we have played a major leadership role in the e-prescribing front, which empowers physicians and patients to better 

understand their options and to make more affordable choices 

while they are still in the doctor’s office. 

PBMs routinely get generic substitution rates above 90 percent, 

and this hearing is very timely. PCMA looked at the impact of 

generics coming to market and found an unprecedented number of 

brands coming off patent in the next few years. As a result, we believe the potential savings across the entire health system will be 

$49 billion over 5 years, from 2006 to 2010, if these generic market 

entries happen when they are supposed to. 

The challenge for all of us is to not only increase the utilization 

of the current generics available, but to expand the number of 

generics that come to market. PCMA offers the following recommendations on how to bring this about. 

First, Congress should enact S. 2300, the Lower Price Drugs Act, 

cosponsored by you, Senator Kohl. Second, the funding of the Office 

of Generic Drugs needs to be increased so that generic applications 

can be moved through faster. 

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Third, PCMA believes Congress should establish a clear legal 

pathway to approve biogenerics sooner rather than later. Last year 

alone, the cost of biologics soared 17.5 percent, compared with traditional drugs which increased by 10 percent, and biologic costs are 

expected to represent $90 billion of drug spend in 2009. Obviously, 

there are no generic alternatives to make prices more competitive 

in this area. 

Traditional drugs are created from chemicals, whereas biologics 

are derived from living organisms and are regulated differently by 

the Federal Government. While some argue that the science of creating generic biologics is not fully developed, progress is being 

made on a daily basis and the European Union has already approved legislation that creates a regulatory pathway for the approval of biogenerics. For these reasons, PCMA recommends that 

Congress create a clear legal pathway for generic biologics which 

would allow for some needed competition to bring down prices. 

Fourth, and finally, PCMA believes Congress should adopt a national, uniform e-prescribing standard to make it easier for physicians in both the commercial market and with Medicare patients 

to adopt this revolutionary technology. E-prescribing empowers the 

physician and patient by showing them the choices of drugs in a 

plan formulary, including low-cost generic options and mail service 

pharmacy options, and again all while everybody is still in the doctor’s office, the doctor and patient working together on this. 

One e-prescribing demonstration project increased generic utilization by more than 7 percent in 1 year alone. Similarly, a recent 

study showed that widespread adoption of e-prescribing could save 

$29 billion annually, part of this because of increased generic utilization. 

The key is having one simple, uniform e-prescribing standard for 

physicians to actually encourage them to use this technology. A 

doctor in Washington, DC is much more likely to embrace and actually use e-prescribing if they are not required to comply with four 

different standards to accommodate their patients in DC, Maryland, Virginia, and now the Medicare program. 

PCMA is pleased to have the opportunity to testify here today 

and we look forward to working with the Committee as it considers 

these issues further. I would be happy to answer any questions the 

Committee may have. 

[The prepared statement of Mr. Merritt follows:]

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Senator KOHL. Thank you very much, Mr. Merritt. 

Ms. Bresch, in your company’s experience, what is the biggest 

roadblock that you face when trying to get one of your drugs to 

market? 

Ms. BRESCH. Well, I think, Senator, I highlighted in my testimony the authorized generics and the citizen petition process. Certainly, in my written testimony I talk about several other obstacles 

such as declaratory judgments, as Commissioner Leibowitz discussed. 

I believe that as we look at generic biologics, which is a vital role 

of the next frontier, I think, for the pharmaceutical industry, 

brands and generics alike, if we do not fix the obstacles we face 

today, I can only imagine what it would do to health care costs if 

a generic company would need to take on the additional cost in litigation and whatever that pathway may be, the costs that it would 

take to bring a generic biologic to market if we faced an authorized 

generic at the same time competing with us in the marketplace. 

So while we know that generic biologics are going to be a vital 

component, we need a pathway sooner than later. If we don’t fix 

some of these issues today, we believe that it is only going to lead 

to more billions of dollars in costs for the government and consumers. So that is why to fix authorized generics, declaratory judgments—we believe that you are going to restore a competitive marketplace in allowing a level playing field to be put back in place 

and give the generic company the leverage and bargaining power 

it had before these practices were implemented. 

Senator KOHL. Mr. Merritt, do you have a comment on that? 

Mr. MERRITT. Well, I just think that we need to clarify whatever 

confusion there is on how we can get generics to market faster. In 

other words, if it is a funding problem with OGD, then let’s solve 

that. On the generic biologic front, I am not a patent lawyer and 

I am not a scientist, but I know from a public policy point of view 

and from the point of view of all the people who pay for health care 

in this country who hire us to help them get more affordable care, 

the fact that there is no generic pathway right now is a big problem. Competition is the key to getting these prices lower. Without 

it, we are not going to get the savings that we need. 

Senator KOHL. What do you say to the comment that these roadblocks for the most part, if not entirely, are just there to prevent 

generic companies from getting products to market that are otherwise entirely safe, and the roadblocks are put there—and in many 

cases they are legal—just to maximize profits for the brand name 

manufacturer at the expense of customers all across the country? 

Is there any useful purpose that these roadblocks are serving, Ms. 

Bresch? 

Ms. BRESCH. Certainly, not in my opinion. I believe that the FDA 

is well equipped to handle the scientific issues, the approval process for a generic drug. I think we heard Mr. Buehler talk about 

while there may be some backlog, certainly they are addressing the 

prominent issues that we face to make sure they put out their safe 

and effective medicines when approved. 

I believe that as you look historically at the delay tactics that 

brand companies have used, I can’t say they have served any purpose in our health care system. Generic drugs continue to save evVerDate 0ct 09 2002 11:38 Nov 21, 2006 Jkt 000000 PO 00000 Frm 00094 Fmt 6633 Sfmt 6633 H:\DOCS\30710.TXT SAGING1 PsN: JOYCE
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eryone billions and billions of dollars. I think that while they are 

maximizing their franchise for their shareholders, there is certainly 

nothing being done to the benefit of the consumer or the health 

care system. 

Senator KOHL. Mr. Merritt, do you agree with that? 

Mr. MERRITT. Well, I would prefer not to ascribe motives as to 

why it is not happening, but it needs to happen. Every time we 

talk to somebody, we get a different answer as to why it is not happening and it is always a rational, complex answer. But I mean if 

we can send a man to the moon, we can get a regulatory pathway 

for generic biologics. It is going to happen; it has to happen. There 

are too many people who need these drugs. They are great products. 

But to not have competition, to not find a scientific way that is 

both legal and is clinically sound—that, to me, doesn’t make sense. 

I am sure there is a way to do it. I don’t have the expertise on how 

to do it, but I think Congress needs to get involved to make sure 

there is consensus around how to do it and make it happen. 

Senator KOHL. Thank you very much. 

Mr. Chairman. 

The CHAIRMAN. Heather, you indicated that it was the FDA that 

had a regulation out in 2002 and pulled it? 

Ms. BRESCH. They issued guidelines in 1999 that would have decoupled the citizen petition process from the ANDA approval process. So while we certainly are all for citizen petitions being filed 

and raising any issues that an interested party or a citizen wants 

to raise, we don’t believe that blocking the ANDA approval was in 

the best interest because as our data shows, the majority of them 

are eleventh hour that don’t raise any new issues. 

So what the rule did was put in place the mechanisms to still 

have the process, not delay——

The CHAIRMAN. You have to timely file? 

Ms. BRESCH. Timely filed, and allow the process to go on as it 

should. The FTC weighed in on that rule and said they thought 

that that was a great step to ensure that there wasn’t a delay of 

the generic entry. 

The CHAIRMAN. Do you have to raise new issues under the proposed rule? 

Ms. BRESCH. No, it didn’t limit the issues you could raise. What 

it did limit is the direct attack on a specific company’s product. So, 

for instance, if you wanted to raise an issue on the process of the 

generic drugs or a specific test or process that the FDA was doing, 

you could raise that. You couldn’t make it product-specific, because 

a lot of times these petitions try to bring in some specific process 

on a specific product that they have known about for months and 

years specifically because we are usually in litigation for months 

and years prior. So they are familiar with all the information. So 

it doesn’t limit what you can raise. It certainly just limits the fact 

that you can’t use it to specifically tie it to a generic drug approval. 

The CHAIRMAN. In your view, why was it pulled? 

Ms. BRESCH. As I stated, it was with very little explanation in 

2003 that it was pulled. So it came under the Clinton administration and was pulled out under the Bush administration. The only 

thing on the record was that back in 2003, they felt that there 

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wasn’t a backlog of citizen petitions. But I think recent testimony 

from Mr. Bradshaw, FDA counsel, and others within the FDA has 

now very much admitted on the record that they are seeing a dramatic increase and a backlog in citizen petitions. 

So we have been in to HHS and the FDA asking them to please 

reissue these guidelines, especially with the FTC comments that 

they made to them. It would certainly dramatically alter the way 

citizen petitions are used. 

The CHAIRMAN. Are they going to reissue it? 

Ms. BRESCH. We have no commitment that they are going to reissue it. So as I mentioned, Senators Stabenow and Lott have introduced a bill that pretty much does the exact same thing that the 

rule did in 1999. So our feeling is it certainly could be done administratively. They do not need legislation, as they once did in 1999. 

They did need legislation then; we don’t need it now. But if they 

won’t act and reissue the guidelines, certainly the legislation would 

correct the problem. 

The CHAIRMAN. It needs to be fixed. We want consumers to have 

opportunities to petition, but, you know, if it amounts to no more 

than just an abuse of process, that abuse ought to stop. 

Ms. BRESCH. We have had many personal experiences with citizen petitions, but right now with Ditropan XL, it has been 11 

months. We have had tentative approval, which means our application meets all scientific and regulatory issues. We have invalidated 

the patent. The Federal district court found it to be invalid, and 

yet we can’t receive final approval because the FDA hasn’t signed 

off on the petition J and J filed. 

The CHAIRMAN. Thank you. 

Senator KOHL. Thank you very much. 

Senator Clinton. 

Senator CLINTON. I want to compliment these two witnesses. 

They are extremely informative and very clear in the information 

they are providing, and I appreciate both of you for being here. 

Mr. Merritt, I am really interested in your comments about eprescribing because I think e-prescribing has been a great advance. 

When I went down to Houston after Katrina and visited a lot of 

the evacuees, one of the big problems they had was dealing with 

chronically ill people, frail elderly people who had been evacuated. 

They were evacuated often either without their medicine or without 

adequate supply. They didn’t have any way of getting back to their 

physicians. Doctors’ offices and hospital records were destroyed. 

Pharmacies were flooded. 

In talking with the physicians who were attempting to make 

sense out of all of this, the only good news was that for those patients who had shopped at a pharmacy that used e-prescribing, 

they could get into those national systems and that was the only 

way they could reconstruct what the dosage and the particular prescription was for an individual. So e-prescribing, in general, has 

been a great gift. 

Now, e-prescribing also increases generic utilization and it is another example of why we need to adopt a national framework for 

the electronic exchange of information in our health care system. 

As you know, we have been trying here in the Congress. I worked 

with Senators Frist, Enzi and Kennedy, and last year the Senate 

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unanimously passed a bill to set up a framework for electronic 

medical records which, of course, would include e-prescribing. We 

are trying to get it through the House, so if anybody has any influence over on the other side, I hope that you will help us with that. 

I think that the experience with e-prescribing provides us with 

a lesson about broader health information technology implementation. As your testimony notes, the Medicare law that was enacted 

included a provision that called for a uniform standard for e-prescribing, but it was implemented only to apply to the Medicare population. So your example was a good one. You might have a pharmacy trying to figure out how to deal with four different standards 

right here in the District—Virginia, the District, Maryland and 

Medicare. 

We ended up, then, with 50 State e-prescribing laws, and a 51st, 

namely the Medicare standard. That is too complicated, that is too 

expensive. We are once again shooting ourselves in both feet. We 

are making everything so expensive because we can’t get rational 

about what we need to be doing to minimize the expense and maximize quality and safety. 

It is one of my biggest concerns about the broader implementation of health IT. If we don’t pass a national legislative framework, 

that is what is going to happen across the board. GW Hospital will 

have a different system than Georgetown, which will have a different system than Johns Hopkins. You know, once again we are 

going to be in the Tower of Babel and we are going to be spending 

billions of dollars for no purpose. It is not going to cure anybody. 

It is not going to put a doctor or a nurse at anybody’s bedside. It 

drives me crazy. 

I mean, we need a set of national standards and the only place 

to get that is from the national government that creates the architecture, systems that can talk to each other, systems that can 

cross-cut on quality and maximize savings. 

So I would appreciate perhaps, because as you can tell, I am passionate about this and I don’t understand why we just don’t do it, 

if you could expand perhaps on your testimony any lessons in implementation, any of the additional barriers or problems that you 

have seen with this increasing differentiation in e-prescribing that 

is going on. 

Mr. MERRITT. Sure. Well, first of all doctors, if you talk to them, 

obviously—and, of course, you have talked to thousands of them—

they don’t want one more thing to have to do or one new gadget 

to have to figure out. So the key is how do we get them integrated 

into the system, and so adoption has got to be as simple as possible. 

One standard that not only one doctor can look at and find out 

that it is easy for her to do, but can also talk to the AMA, to other 

physicians organizations, and so forth, to get easy clarity, guidance, 

any education that needs to happen—that is the best pathway to 

getting this done. So the biggest problem that we have seen is just 

the fact that it is new, the fact that people have no idea of the 

enormous benefits that it will have. 

Everybody talks about the very important IOM study, and they 

are releasing more information and probably already have by now 

on medical errors that will be prevented by e-prescribing. But there 

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is another huge cost saver that e-prescribing offers, in that it 

brings doctors into the benefits and cost equation. Doctors currently have no idea of what formulary information people have. So 

they will go in and say, ‘‘Well, you have a cholesterol problem. I 

have got some free Lipitor. Why don’t you take that?’’ That is their 

way of helping them address the cost issue. 

But if they knew that this person had on their formulary a generic with a five-dollar co-pay or perhaps waived co-pay—or if they 

had generic samples available, that would even be better—but if 

they knew that and had it on a little PDA, a little hand-held computer, and could show the person, hey, there are a couple of different options here and they are all basically the same, but this one 

is cheaper, do you want it, bang, it gets rid of all the noise around 

this issue. 

Direct to consumer advertising pushes people in all kinds of 

ways. Physician detailing by PhRMA companies pushes them all 

kinds of ways. To have that little hand-held device with that information cuts through all of that in a moment and will save literally 

billions of dollars. 

Senator CLINTON. May I ask just one more question? 

Senator KOHL. Sure. 

Senator CLINTON. I wanted to ask Ms. Bresch, who raised another issue of great concern to me, the pediatric exclusivity issue—

and I think it is very important that we do provide a path for testing drugs to make sure that they are safe on our children and we 

know what dosage is permissible. We have made some progress on 

that with the Pediatric Research Equity Act and the Best Pharmaceuticals for Children Act. 

Now, the Best Pharmaceuticals for Children Act provides pediatric exclusivity incentives to manufacturers that conduct pediatric 

studies, and I think that that has helped to improve confidence in 

the safety of drugs for children. The FDA allows companies to request waivers from requirements to conduct pediatric studies for 

drugs that are not likely to be used in the overall pediatric population, such as drugs for ovarian cancer, for example. 

Now, in your testimony you noted that some companies that 

should be seeking waivers are instead conducting pediatric studies 

to receive the 6 months of exclusivity made available under the 

Best Pharmaceuticals Act, and that is another abuse of the system 

because they have no intention of making this drug available for 

the pediatric population. But they go ahead and claim they are and 

take advantage of it and get the 6 months of additional exclusivity. 

Do you have any suggestions about what actions the FDA could 

take to ensure that drugs that are obviously not geared to the pediatric population do not qualify for the exclusivity incentives? 

Ms. BRESCH. I believe that the intention of the law and what it 

was seeking to do was a great act by Congress to make sure, as 

you said, that the drugs are safe on children and we know dosages, 

and so forth. I think as with anything, there are some loopholes 

and abuses that have taken place with this practice. 

I think the way the law was intentionally set out, the FDA would 

have to look at data, would look at a product and be interested in 

more information in the pediatric population. They would then 

have to request a PhRMA company to do the studies, and that 

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would then earn them the 6 months of additional exclusivity in the 

marketplace. 

I can tell you today as one of the largest generic manufacturers, 

every product in our pipeline, every product that we look at, every 

timing that we look at, we automatically add 6 months of exclusivity to every single product we look at. So somewhere from the 

intention and the spirit of the law to its actions today, I think 

something has been lost in the translation because it is not limited 

to any specific universe of drugs or things that need to be looked 

at. 

So I think one thing that we would urge is to go back and look 

at the original framework, at how the request would be made to 

PhRMA to look at these studies. Just recently, within the last couple of weeks, a product that is a combination of a product with aspirin—we all know that aspirin is not recommended for children in 

the pediatric population. Yet, because of what you just explained, 

Senator Clinton, they received 6 months’ exclusivity to show that 

this product should not be used in children. So we completely concur that, again, there is an abuse of this practice that needs to be 

looked at before I think the bill is reexamined next year as it sunsets. 

Senator CLINTON. Thank you. 

Senator KOHL. Thank you very much, Senator Clinton. 

In closing this hearing, I just want to make, I think, a fairly obvious comment. There are few areas that provide more opportunity 

for us to serve consumers all across this country than tackling this 

whole issue of prescription drugs and bringing them to the American people at the lowest possible cost. 

We are fighting legitimate legal obstacles with respect to the 

pharmaceutical companies and their desire to do well by their 

stockholders. But that is not our job here. Our job is to do well by 

the American people, and there are a lot of barriers out there that 

we have to knock down and I think we have touched on many of 

them this morning. It is an urgent issue and I personally feel determined, and I know my colleagues feel the same way, to make 

measurable progress in a short amount of time. 

Your testimony this morning adds urgency and a lot of illumination to the problem, so we very much appreciate your being here. 

Unless there are any more comments—Senator Smith, would you 

like to add anything? 

The CHAIRMAN. No. Well said. 

Senator KOHL. Senator Clinton. 

Senator CLINTON. No, thank you. 

Senator KOHL. Thank you very much for being here. 

Ms. BRESCH. Thank you. 

Mr. MERRITT. Thank you very much. 

Senator KOHL. We are adjourned. 

[Whereupon, at 11:28 a.m., the Committee was adjourned.] 

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