To amend the Public Health Service Act and the Internal Revenue Code of 1986 to require agreements regarding the wholesale price of brand-name prescription drugs as a condition of the allowance of certain tax deductions and credits.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Sustainable Drug Pricing Act''.

SEC. 2. AGREEMENTS REGARDING PRICES OF BRAND-NAME PRESCRIPTION DRUGS; 
              RELATION TO CERTAIN TAX DEDUCTIONS AND CREDITS.

    Part D of title III of the Public Health Service Act (42 U.S.C. 
254b et seq.) is amended by adding at the end the following subpart:

                 ``Subpart XI--Sustainable Drug Pricing

``SEC. 340H. AGREEMENTS REGARDING PRICES OF BRAND-NAME PRESCRIPTION 
              DRUGS; RELATION TO CERTAIN TAX DEDUCTIONS AND CREDITS.

    ``(a) In General.--
            ``(1) Agreement.--The Secretary may in accordance with this 
        section enter into an agreement with any manufacturer of a 
        brand-name prescription drug for purposes of--
                    ``(A) section 280I of the Internal Revenue Code of 
                1986 (relating to the allowance of a deduction for 
                expenditures relating to the advertising, promoting, or 
                marketing of such drug); and
                    ``(B) section 901(l) of such Code (relating to the 
                allowance of a foreign tax credit for income, war 
                profits, or excess profits taxes paid or accrued with 
                respect to such drug).
            ``(2) Coordination with tax provisions.--For purposes of 
        the provisions of the Internal Revenue Code of 1986 referred to 
        in paragraph (1), an agreement under this section shall be 
        considered to be in effect with respect to a brand-name 
        prescription drug unless the Secretary transmits to the 
        Secretary of the Treasury a notice in writing that such an 
        agreement is not in effect.
            ``(3) Negotiations.--The Secretary shall negotiate with any 
        manufacturer of a brand-name prescription drug that in good 
        faith seeks an agreement under paragraph (1), and shall make 
        reasonable efforts to enter into such an agreement with the 
        manufacturer.
    ``(b) Public Health Objectives of Agreement.--The purpose of an 
agreement under subsection (a) regarding a drug is to establish the 
maximum price at which the drug may be sold at wholesale under the 
agreement, reasonably taking into account--
            ``(1) the affordability of the drug in relation to the 
        public-health need for the drug; and
            ``(2) the need for the manufacturer to invest in research 
        and development activities toward the development of new drugs 
        that will benefit the public health.
    ``(c) Duration of Agreement; Renegotiation.--
            ``(1) In general.--With respect to taxable years of a 
        manufacturer, the Secretary may enter into an agreement under 
        subsection (a) regarding a drug only if the agreement contains 
        provisions in accordance with the following:
                    ``(A) In the case of the agreement as first in 
                effect, the agreement will be in effect for not fewer 
                than four successive taxable years.
                    ``(B) In the case of taxable years following such 
                four taxable years, the agreement may be periodically 
                renegotiated at the initiative of the manufacturer or 
                the Secretary, except that any agreement that takes 
                effect pursuant to such a renegotiation will remain in 
                effect for not fewer than four taxable years.
                    ``(C) Each agreement will apply to the entirety of 
                the taxable years with which the agreement is 
                concerned, except that in the case of the taxable year 
                during which the drug first enters the commercial 
                market, the applicability of the agreement will begin 
                on the date during the taxable year on which commercial 
                marketing of the drug begins.
            ``(2) Variation in maximum price under agreement.--With 
        respect to the maximum price established for a drug under an 
        agreement under subsection (a), this section may not be 
        construed as requiring that the agreement provide that a single 
        maximum price be in effect throughout the taxable years with 
        which the agreement is concerned. The maximum price may vary 
        under the agreement according to the terms of the agreement.
    ``(d) Violation of Agreement; Liquidated Penalty.--
            ``(1) In general.--The Secretary may enter into an 
        agreement under subsection (a) regarding a drug only if--
                    ``(A) the agreement specifies the amount that, as a 
                liquidated penalty, the Secretary may require the 
                manufacturer involved to pay to the United States for 
                failing to maintain substantial compliance with the 
                agreement; and
                    ``(B) such amount is sufficient to deter violations 
                of the agreement.
            ``(2) Hearing; loss of effective status of agreement.--
                    ``(A) Hearing.--If, after providing notice and an 
                opportunity for a hearing, the Secretary determines 
                that a manufacturer has failed to maintain substantial 
                compliance with the agreement under subsection (a), the 
                Secretary shall order the manufacturer--
                            ``(i) to pay to the United States an amount 
                        as a penalty for such failure, which amount 
                        does not exceed the amount specified under 
                        paragraph (1)(A) as a liquidated penalty; and
                            ``(ii) to take appropriate action to bring 
                        the manufacturer into compliance with the 
                        agreement.
                    ``(B) Loss of effective status.--If a manufacturer 
                fails to comply with an order under subparagraph (A), 
                the Secretary may transmit to the Secretary of the 
                Treasury a notice in writing that an agreement under 
                this section is not in effect with respect to the 
                brand-name prescription drug involved.
    ``(e) General Provisions.--
            ``(1) Individual drug agreements.--The Secretary shall 
        ensure that each agreement under subsection (a) concerns only 
        one brand-name prescription drug.
            ``(2) Monitoring of compliance.--With respect to brand-name 
        prescription drugs for which agreements under subsection (a) 
        are in effect, the Secretary shall monitor the prices at which 
        such drugs are being sold and determine whether the 
        manufacturers involved are in compliance with the agreements. 
        The Secretary may require, as a condition of a entering into an 
        agreement under subsection (a) with a manufacturer, that the 
        agreement include provisions regarding the cooperation of the 
        manufacturer with such monitoring of prices.
            ``(3) Access to records.--The Secretary may require, as a 
        condition of a entering into an agreement under subsection (a) 
        with a manufacturer, that the manufacturer provide the 
        Secretary, during negotiations and after the agreement is made, 
        with access to financial records of the manufacturer that 
        relate to the brand-name prescription drug involved.
            ``(4) Consideration of compliance record.--In determining 
        to what extent to establish requirements under paragraphs (2) 
        and (3) with respect to an agreement under subsection (a) with 
        a manufacturer, the Secretary shall take into account whether 
        the manufacturer has maintained substantial compliance with any 
        other agreements under such subsection that have been made by 
        the manufacturer.
    ``(f) Advisory Panel on Drug-Price Negotiations.--
            ``(1) In general.--The Secretary shall establish an 
        advisory panel to be known as the Advisory Panel on Drug-Price 
        Negotiations (in this subsection referred to as the `Advisory 
        Panel').
            ``(2) Duties.--The Advisory Panel shall provide advice to 
        the Secretary on establishing prices for the sale of brand-name 
        prescription drugs at wholesale under agreements under 
        subsection (a). Not later than one year after the date on which 
        the initial appointments to the Advisory Panel under paragraph 
        (3) are completed, the Panel shall--
                    ``(A) select, from brand-name prescription drugs in 
                commercial distribution as of the date of the enactment 
                of the Sustainable Drug Pricing Act--
                            ``(i) a list of 25 drugs that the Panel 
                        considers important to the public health; and
                            ``(ii) a list of the 25 most commonly 
                        prescribed drugs in the United States, 
                        exclusive of drugs included on the list under 
                        clause (i); and
                    ``(B) submit to the Secretary the recommendations 
                of the Panel with respect to such prices for drugs on 
                the lists.
            ``(3) Composition.--The Advisory Panel shall be composed of 
        five members appointed by the Secretary from among individuals 
        who are not officers or employees of the Federal Government. Of 
        such members--
                    ``(A) one shall be a representative of the 
                pharmaceutical industry;
                    ``(B) one shall be a representative of retail 
                consumers generally;
                    ``(C) one shall be a representative of retail 
                consumers who are members of racial or ethnic minority 
                groups;
                    ``(D) one shall be an academic with expertise in 
                health care economics; and
                    ``(E) one shall be an academic with expertise in 
                public health.
        The Secretary shall appoint the initial members of the Advisory 
        Panel not later than 180 days after the date of the enactment 
        of the Sustainable Drug Pricing Act.
            ``(4) Chair.--The Advisory Panel shall select, by recorded 
        vote, a member of the Panel to serve as the chair of the Panel.
            ``(5) Terms.--
                    ``(A) In general.--Each member of the Advisory 
                Panel shall be appointed for a term of four years, 
                except that the term of each of the initial members 
                expires December 31, 2007.
                    ``(B) Service after expiration of term.--A member 
                of the Advisory Panel may continue to serve after the 
                expiration of the term of the member until a successor 
                is appointed.
            ``(6) Vacancies.--
                    ``(A) Authority of advisory panel.--A vacancy in 
                the membership of the Advisory Panel does not affect 
                the power of the remaining members to carry out the 
                duties of the Panel.
                    ``(B) Appointment of successors.--A vacancy in the 
                membership of the Advisory Panel shall be filled in the 
                manner in which the original appointment was made.
                    ``(C) Incomplete term.--If a member of the Advisory 
                Panel does not serve the full term under paragraph 
                (5)(A), the Secretary, not later than 30 days after the 
                date on which the vacancy occurs, shall appoint an 
                individual to serve as a member of the Advisory Panel 
                for the remainder of such term.
    ``(g) Definitions.--For purposes of this section:
            ``(1) The term `brand-name prescription drug' means a drug 
        meeting each of the following criteria:
                    ``(A) An approved application under section 
                505(b)(1) of the Federal Food, Drug, and Cosmetic Act 
                is in effect for the drug, or in the case of a drug 
                that is a biological product, a biologics license is in 
                effect for the drug under section 351 of this Act.
                    ``(B) The drug is subject to section 503(b)(1) of 
                the Federal Food, Drug, and Cosmetic Act.
                    ``(C) A period of market exclusivity is in effect 
                with respect to the drug pursuant to a patent or 
                pursuant to section 505(j) or 505A of such Act.
            ``(2) The term `drug' has the meaning given such term in 
        section 201(g)(1) of such Act.''.

SEC. 3. DENIAL OF CERTAIN TAX BENEFITS UNLESS UNLESS PRICING AGREEMENT 
              FOR BRAND-NAME PRESCRIPTION DRUGS IS IN EFFECT.

    (a) Deductions for Advertising.--
            (1) In general.--Part IX of subchapter B of chapter 1 of 
        subtitle A of the Internal Revenue Code of 1986 (relating to 
        items not deductible) is amended by adding at the end the 
        following:

``SEC. 280I. DENIAL OF DEDUCTIONS FOR ADVERTISING FOR BRAND-NAME 
              PRESCRIPTION DRUGS UNLESS PRICING AGREEMENT IS IN EFFECT.

    ``(a) In General.--No deduction shall be allowed under this chapter 
for any taxable year for any expenditure relating to the advertising, 
promoting, or marketing (in any medium) of any brand-name prescription 
drug manufactured by the taxpayer.
    ``(b) Exception for Qualified Pricing Agreement.--
            ``(1) In general.--Subsection (a) shall not apply with 
        respect to any brand-name prescription drug for a taxable year 
        if there is in effect for the entire taxable year a qualified 
        pricing agreement with respect to such drug.
            ``(2) Special rule regarding initial commercial 
        marketing.--In the case of the taxable year during which a 
        brand-name prescription drug first enters the commercial 
        market, subsection (a) shall not apply with respect to such 
        drug for such taxable year if a qualified pricing agreement 
        with respect to the drug is in effect on the date of such entry 
        and remains in effect throughout the remainder of such year.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualified pricing agreement.--The term `qualified 
        pricing agreement' means an agreement entered into under 
        section 340H of the Public Health Service Act.
            ``(2) Brand-name prescription drug.--The term `brand-name 
        prescription drug' has the meaning given such term in section 
        340H of the Public Health Service Act.
    ``(d) Aggregation Rules.--For purposes of this section, all members 
of the same controlled group of corporations (within the meaning of 
section 52(a)) and all persons under common control (within the meaning 
of section 52(b)) shall be treated as 1 person.''.
            (2) Clerical amendment.--The table of sections for such 
        part IX is amended by adding after the item relating to section 
        280H the following:

``280I. Denial of deductions for advertising for brand-name 
                            prescription drugs unless pricing agreement 
                            is in effect.''.
    (b) Foreign Tax Credit.--Section 901 of such Code (relating to 
taxes of foreign countries and of possessions of United States) is 
amended by redesignating subsection (l) as subsection (m) and by 
inserting after subsection (k) the following new subsection:
    ``(l) Denial of Foreign Tax Credit, Etc. With Respect to Brand-Name 
Prescription Drugs Unless Pricing Agreement Is in Effect.--
            ``(1) In general.--Notwithstanding any other provision of 
        this part, no credit shall be allowed under subsection (a) for 
        any income, war profits, or excess profits taxes paid or 
        accrued (or deemed paid under section 902 or 960) with respect 
        to any brand-name prescription drug manufactured by the 
        taxpayer.
            ``(2) Exception for qualified pricing agreement.----
                    ``(A) In general.--Paragraph (1) shall not apply 
                with respect to any brand-name prescription drug for a 
                taxable year if there is in effect for the entire 
                taxable year a qualified pricing agreement with respect 
                to such drug.
                    ``(B) Special rule regarding initial commercial 
                marketing.--In the case of the taxable year during 
                which a brand-name prescription drug first enters the 
                commercial market, paragraph (1) shall not apply with 
                respect to such drug for such taxable year if a 
                qualified pricing agreement with respect to the drug is 
                in effect on the date of such entry and remains in 
                effect throughout the remainder of such year.
            ``(3) Definitions.--For purposes of this subsection, the 
        terms `qualified pricing agreement' and `brand-name 
        prescription drug' have the meanings given such terms by 
        section 280I.
            ``(4) Aggregation rules.--For purposes of this subsection, 
        a rule similar to the rule of section 280I(d) shall apply. ''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.

SEC. 4. FEDERAL REGISTER NOTICE.

    Not later than 90 days after the date of the enactment of this Act, 
the Secretary of Health and Human Services shall publish in the Federal 
Register a notice that informs manufacturers of brand-name prescription 
drugs of the provisions of the amendments made by this Act, and that 
invites the manufacturers to enter into negotiations with the Secretary 
for purposes of entering into agreements under section 340H of the 
Public Health Service Act.

Summary: Sustainable Drug Pricing Act - Amends the Public Health Service Act to require the Secretary of Health and Human Services to enter into agreements with the manufacturers of brand name prescription drugs for four-year terms to establish a maximum wholesale price for such drugs. Defines brand name prescription drugs as FDA-approved prescription drugs with market exclusivity. Requires such agreements to specify a liquidated penalty that is sufficient to deter violations for failure to maintain substantial compliance. Allows the Secretary to notify the Secretary of the Treasury that there is no longer an effective agreement in place if such a penalty is not paid. Requires the Secretary to monitor prices to ensure compliance. Allows the Secretary to require manufacturers entering into such agreements to cooperate with such monitoring and to allow the Secretary access to relevant financial records.

Requires the Secretary to establish the Advisory Panel on Drug-Price Negotiations to advise the Secretary on establishing prices. Requires the Panel to provide the Secretary with recommended drug prices for 25 drugs that the Panel considers important to the public health and for an additional 25 drugs that are the most commonly prescribed drugs in the United States.

Amends the Internal Revenue Code of 1986 to disallow: (1) a deduction for advertising, promotion, or marketing of brand name prescription drugs without a qualified pricing agreement in effect for the entire taxable year; and (2) a foreign tax credit for such drugs manufactured by the taxpayer without a qualified pricing agreement in effect for the entire taxable year.