SPEAKERS CONTENTS INSERTS Tables
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62–499
2000
PATENT FAIRNESS ACT OF 1999
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS AND INTELLECTUAL
PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
ON
H.R. 1598
JULY 1, 1999
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Serial No. 61
Printed for the use of the Committee on the Judiciary
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR S. SMITH, Texas
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
LINDSEY O. GRAHAM, South Carolina
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MARY BONO, California
SPENCER BACHUS, Alabama
JOE SCARBOROUGH, Florida
DAVID VITTER, Louisiana
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
THOMAS E. MOONEY, SR., General Counsel-Chief of Staff
JULIAN EPSTEIN, Minority Chief Counsel and Staff Director
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Subcommittee on Courts and Intellectual Property
HOWARD COBLE, North Carolina, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
WILLIAM L. JENKINS, Tennessee
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
MARY BONO, California
HOWARD L. BERMAN, California
JOHN CONYERS, Jr., Michigan
RICK BOUCHER, Virginia
ZOE LOFGREN, California
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
MITCH GLAZIER, Chief Counsel
BLAINE MERRITT, Counsel
VINCE GARLOCK, Counsel
DEBBIE K. LAMAN, Counsel
ROBERT RABEN, Minority Counsel
EUNICE GOLDRING, Staff Assistant
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C O N T E N T S
HEARING DATE
July 1, 1999
TEXT OF BILL
H.R. 1598
OPENING STATEMENT
Coble, Hon. Howard, a Representative in Congress from the State of North Carolina, and chairman, Subcommittee on Courts and Intellectual Property
WITNESSES
Berdon, Andrew M., Vice President and General Counsel, Purepac Pharmaceutical Company, on behalf of the Coalition for Affordable Pharmaceuticals
Berry, Hon. Marion, a Representative in Congress from the State of Arkansas
Binder, Gordon, CEO, Amgen
Bryant, Hon. Ed, a Representative in Congress from the State of Tennessee
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Burgoon, Richard P., Jr., Vice President, General Counsel, and Assistant Secretary, Arena Pharmaceuticals, Inc.
Downey, Bruce L., Chairman, CEO, and President, Barr Laboratories
Hutt, Peter Barton, Partner, Covington and Burling
Kealey, Maura, Deputy Director, Public Citizen's Congress Watch
Lehman, Bruce, President and CEO, International Intellectual Property Institute
McDermott, Hon. Jim, a Representative in Congress from the State of Washington
Meyer, Gerald F., Senior Consultant, AAC Consulting Group, Inc.
Orr, William, Chairman, National Alternative Fuels Association
Selden, Richard, M.D., CEO, Transkaryotic Therapies, Inc. (TRT)
Spicehandler, Jonathan R., M.D., President, Schering-Plough Research Institute
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Torricelli, Hon. Robert G., a U.S. Senator from the State of New Jersey
Waxman, Hon. Henry A., a Representative in Congress from the State of California
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Berdon, Andrew M., Vice President and General Counsel, Purepac Pharmaceutical Company, on behalf of the Coalition for Affordable Pharmaceuticals: Prepared statement
Berry, Hon. Marion, a Representative in Congress from the State of Arkansas: Prepared statement
Binder, Gordon, CEO, Amgen: Prepared statement
Bryant, Hon. Ed, a Representative in Congress from the State of Tennessee: Prepared statement
Burgoon, Richard P., Jr., Vice President, General Counsel, and Assistant Secretary, Arena Pharmaceuticals, Inc.: Prepared statement
Downey, Bruce L., Chairman, CEO, and President, Barr Laboratories: Prepared statement
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Gallegly, Hon. Elton, a Representative in Congress from the State of California: Prepared statement
Hutt, Peter Barton, Partner, Covington and Burling: Prepared statement
Kealey, Maura, Deputy Director, Public Citizen's Congress Watch: Prepared statement
Lehman, Bruce, President and CEO, International Intellectual Property Institute: Prepared statement
McDermott, Hon. Jim, a Representative in Congress from the State of Washington: Prepared statement
Meyer, Gerald, Senior Consultant, AAC Consulting Group, Inc.: Prepared statement
Orr, William, Chairman, National Alternative Fuels Association: Prepared statement
Selden, Richard, M.D., CEO, Transkaryotic Therapies, Inc. (TRT): Prepared statement
Spicehandler, Jonathan R., M.D., President, Schering-Plough Research Institute: Prepared statement
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Torricelli, Hon. Robert G., a U.S. Senator from the State of New Jersey: Prepared statement
Waxman, Hon. Henry A., a Representative in Congress from the State of California: Prepared statement
APPENDIX
Material submitted for the record
PATENT FAIRNESS ACT OF 1999
THURSDAY, JULY 1, 1999
House of Representatives,
Subcommittee on Courts and
Intellectual Property,
Committee on the Judiciary,
Washington, DC.
The subcommittee met, pursuant to notice, at 2 p.m., in Room 2237, Rayburn House Office Building, Hon. Howard Coble [chairman of the subcommittee] presiding.
Present: Representatives Howard Coble, Elton Gallegly, Bob Goodlatte, Chris Cannon, Mary Bono, John Conyers, Jr., Howard L. Berman, Zoe Lofgren, William D. Delahunt, and Robert Wexler.
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Also present: Representative Randy ''Duke'' Cunningham.
Staff present: Mitch Glazier, Chief Counsel; Blaine Merritt, Counsel; Eunice Goldring, Staff Assistant; Julian Epstein, Minority Chief Counsel and Staff Director; Sampak P. Garg, Minority Counsel; Stephanie Peters, Minority Counsel, and Bari Schwartz, Minority Counsel.
OPENING STATEMENT OF CHAIRMAN COBLE
Mr. COBLE [presiding]. I don't like to penalize people who arrive in a timely way, but I see two-fifths of our first panel has arrived. So let's stand easy for a few moments and give the other three time to be here. Otherwise, we will get this train rolling.
[Recess.]
Mr. COBLE. Representative Cunningham, in the interest of time, we are still waiting for the remainder of our first panel to appear. I believe you wanted to make a few introductory remarks, did you not?
Mr. CUNNINGHAM. Yes, sir.
Mr. COBLE. Why don't we recognize you then? Prior to officially starting the hearing, we will do that.
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Mr. CUNNINGHAM. Thank you.
Mr. COBLE. This may be a little irregular parliamentary-wise, but we are saving time this way.
Mr. CUNNINGHAM. Thank you, Mr. Chairman, and I thank you for the opportunity to introduce one of my constituents, and for Mr. Berman, who is not here yet, but——
Mr. COBLE. He will be here presently.
Mr. CUNNINGHAM. [continuing]. Rick Burgoon, the general counsel of Arena Pharmaceuticals. I would like you to think about, Mr. Chairman, and my friend, Mr. McDermott, that one of the things on Labor/HHS that we are working with, and NIH, is genomics and the ability to look at different genes. All of us are affected differently with medicines in different areas, and the exciting things in medical research. Biotech builds a medicine based on the highest potential of helping that particular individual.
You may have an 80 percent medicine that works on 80 percent of the people, and another one that is 50, but usually the doctor is going to prescribe the 80 percent. And if you have a system that can predict more accurately which of these medicines will work on that particular individual, then that is the direction we ought to go.
Mr. Burgoon will be testifying before the subcommittee in support of the Fairness in Pharmaceutical Testing Act of 1999. I have met with the officials myself within the district. It is also important to rise to be helpful to you in considering the patent fairness of 1999 and the different things that affect especially in the biotech. I personally feel that the 21st century is going to be the biotech century and the medical research century in the world.
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Mr. Burgoon received his law degree from Franklin Pierce Law Center. And if you were a business, you would surround yourself with the absolute experts in a particular area, and this is the guy. Not only Pierce Law Center, but he got his undergraduate degrees from the University of California, Irvine. I question that a little bit. He is registered with the California Bar and registered to practice before the U.S. Patent and Trademark Office, and is immediate past Chair of the Intellectual Property Committee for the Biotechnology Industry Organized, BIO; an adjunct professor at Franklin Pierce Law Center; in 1996 and 1998, was appointed by the U.S. Secretary of Commerce and U.S. Trade Representative as a member of an industry advisory group on intellectual property.
I hope you will give his comments full consideration, and I thank you, Mr. Chairman, for the opportunity.
Mr. COBLE. I thank you, sir, Mr. Cunningham.
Good afternoon, ladies and gentlemen. The subcommittee will come to order. Even though we are not fully staffed on the first panel, I think, in the interest of time, I want to commence the hearing.
Today we will discuss three patent issues. The first is H.R. 1598, the Patent Fairness Act of 1999, introduced by our colleague, Ed Bryant of Tennessee. Representative Bryant's bill will allow the Patent and Trademark Office to extent term for patents of so-called ''pipeline'' drugs, which were subject to lengthy FDA review.
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106TH CONGRESS
1ST SESSION
H. R. 1598
To provide a patent term restoration review procedure for certain drug products.
IN THE HOUSE OF REPRESENTATIVES
APRIL 28, 1999
Mr. BRYANT (for himself, Mr. MCDERMOTT, Mrs. BONO, Mr. DUNCAN, Mr. WICKER, Mr. JENKINS, Mr. FRANKS of New Jersey, Mr. FORD, Mr. BLUNT, Mr. WAMP, Mr. HOYER, Mr. ROTHMAN, Mr. MENENDEZ, Mr. GORDON, Mrs. TAUSCHER, Mr. DELAHUNT, Ms. JACKSON-LEE of Texas, Ms. ESHOO, Mr. PASTOR, Mr. CONYERS, Mr. SMITH of Texas, Mr. PAYNE, Mrs. EMERSON, Mr. HILLEARY, and Mr. FRELINGHUYSEN) introduced the following bill; which was referred to the Committee on the Judiciary
A BILL
To provide a patent term restoration review procedure for certain drug products.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ''Patent Fairness Act of 1999''.
SEC. 2. PATENT TERM RESTORATION REVIEW PROCEDURE FOR CERTAIN DRUG PRODUCTS.
(a) PATENT TERM RESTORATION.—
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(1) IN GENERAL.—Chapter 14 of title 35, United States Code, is amended by inserting after section 155A the following new section:
''§155B. Patent term restoration review procedure for certain drug products
''(a) DEFINITIONS.—For purposes of this section—
''(1) the term 'Commissioner' means the Commissioner of Patents and Trademarks; and
(2) the term 'drug product' has the meaning given such term under section 156(f)(2)(A).
''(b) SPECIAL PATENT TERM REVIEW PROCEDURE.—
''(1) IN GENERAL.—The term of any patent, in force on September 24, 1984, and on the date of the filing of an application under this section, that claims—
''(A) a drug product,
''(B) a method of using a drug product, or
''(C) a method of manufacturing a drug product,
shall be restored under paragraph (4) from the expiration date of the patent term determined under section 154 (including any extension granted under section 156) if the Commissioner determines that the standards under paragraph (2) have been met.
''(2) STANDARDS.—Upon application, filed under paragraph (6), by the owner of record of a patent described in paragraph (1) or its agent and consideration of the application and all materials submitted by parties that would be aggrieved by grant of the restoration of the term of such patent, the term of such patent shall be restored if the Commissioner determines that—
''(A) the period set forth in section 156(g)(1)(B)(ii) for the drug product exceeded 60 months; and
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''(B) there is no substantial evidence overcoming the rebuttable presumption that the applicant for patent term restoration for the drug product acted with due diligence (as such term is defined in section 156(d)(3)) during the period referred to in section 156(g)(1)(B)(ii).
If the Commissioner determines there is substantial evidence that the applicant for patent term restoration did not act with due diligence during a part of the period referred to in section 156(g)(1)(B)(ii) that part shall be deducted from the total amount of time in such period for purposes of paragraph (4).
''(3) RECORDS.—The Commissioner may request and obtain relevant records from the Food and Drug Administration to verify the facts underlying the Commissioner's determinations under paragraph (2). Such records shall be afforded the same protections against public disclosure that apply to such records when in the possession of the Food and Drug Administration.
''(4) RESTORATION TERM.—If the Commissioner determines that the standards in paragraph (2) have been met for a patent, the term of such patent shall be restored for a restoration period equal to the period set forth in section 156(g)(1)(B)(ii) for the drug product that is the subject of an application under paragraph (6), except that—
''(A) the restoration period shall be reduced by any deduction made pursuant to paragraph (2);
''(B) if the sum of—
''(i) the remaining term of such patent after the date of the approval of the drug product covered by the patent under
the provision of law under which the regulatory review occurred, and
''(ii) the restoration period as revised under subparagraph (A),
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exceeds 14 years, the restoration period shall be reduced so that the total of such periods does not exceed 14 years; and
''(C) the restoration period, after any adjustment required by subparagraph (A) or (B) plus any previous extension of the patent term under section 156(c), shall not exceed 5 years.
''(5) INFRINGEMENT.—During the period of any restoration granted under this subsection, the rights derived from a patent the term of which is restored shall be determined in accordance with sections 156(b) and 271.
''(6) PROCEDURE.—
''(A) TIME FOR FILING.—An application under this section shall be filed with the Commissioner within 90 days after the date of the enactment of this section.
''(B) FILING AND DETERMINATION.—Upon the filing of an application to the Commissioner under this section—
''(i) the Commissioner shall publish within 30 days of its filing a notice in the Federal Register of receipt of the application;
''(ii) any party who would be aggrieved by the granting of a patent term restoration under the application may submit comments on the application within the 30-day period beginning on the date of publication of the notice under clause (i);
''(iii) within 7 days following the expiration of the 30-day comment period, the Commissioner shall forward a copy of all comments received to the applicant who shall be entitled to submit a response to such comments to the Commissioner within 30 days after receipt of the comments from the Commissioner;
''(iv) within 30 days following the receipt of the applicant's response to comments or, if there are no such comments, within 30 days following expiration of the 30-day comment period, the Commissioner shall, in writing—
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''(I) determine whether to grant the patent term restoration for which the application was filed; and
''(II) make specific findings regarding the criteria set forth in paragraph (2); and
''(V) if the Commissioner grants such patent term restoration, on the same date that the Commissioner makes the determination under clause (iv) the Commissioner shall—
''(I) issue to the applicant a certificate of patent term restoration, under seal, for the period prescribed under paragraph (4); and
''(II) record the certificate in the official file of the patent, which certificate shall be in effect from such date and shall be considered a part of the original patent.
''(C) INTERIM RESTORATION.—If the term of a patent that is the subject of an application filed under this section would otherwise expire before a determination under subparagraph (B)(iv) is made, the Commissioner shall extend the term of such patent until—
''(i) a determination is made under such subparagraph to restore the term of such patent, or
''(ii) 60 days after a determination is made under such subparagraph to not restore the patent term,
as applicable. If the Commissioner determines not to restore the patent term, then during the 60-day period described in clause (ii), an applicant may apply to the United States Court of Appeals for the
Federal Circuit for an order directing the Commissioner to extend the patent pending judicial review and subsequent Commissioner action following that review.
''(D) RECORD.—The Commissioner's determination under subparagraph (B)(iv) shall be based solely on the record developed under this subsection.
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''(7) APPLICATION FEE.—The applicant shall pay a fee for an application made under paragraph (6) which shall be established in accordance with the same criteria applicable to fees required under section 156(h). If no such fee has been established at
the time of the application, the applicant may provide the Commissioner with an undertaking, satisfactory to the Commissioner, to pay the subsequently established fee.''.
(2) TECHNICAL AND CONFORMING AMENDMENT.—The table of sections for chapter 14 of title 35, United States Code, is amended by inserting after the item relating to section 155A the following:
''155B. Patent term restoration review procedure for certain drug products.''.
(b) APPEAL OF DETERMINATIONS OF THE COMMISSIONER.—Section 141 of the title 35, United States Code, is amended by adding at the end the following: ''The applicant under section 155B or any aggrieved party that made a submission commenting on an application made under such section may appeal the determination of the Commissioner with respect to the application involved under such section only to the United States Court of Appeals for the Federal Circuit.''.
(c) COURT JURISDICTION.—Section 1295(a)(4) of title 28, United States Code, is amended—
(1) in subparagraph (B), by striking ''or'' after the semicolon;
(2) in subparagraph (C), by adding ''or'' after the semicolon; and
(3) by inserting after subparagraph (C) the following:
''(D) the Commissioner of Patents and Trademarks under section 155B of title 35;''.
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(d) COMPENSATION.—
(1) IN GENERAL.—In the event a person has submitted an application described in section 505(b)(2) or 505(j) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(b)(2),(j)) for a drug product covered by a patent for which a patent term restoration was provided under section 155B of title 35, United States Code (as added by subsection (a)(1)) and such application has been found by the Food and Drug Administration on or before the date of the enactment of this section to be sufficiently complete to permit substantive review, such person shall be entitled to compensation of $1,000,000 by the patent owner. Any holder of a Type II Drug Master File that has permitted a reference to its Type II Drug Master File to be made in such application shall be entitled to compensation of $500,000 by the patent owner.
(2) LIMITS ON LIABILITY.—A patent owner shall not be required to make under paragraph (1) payments exceeding—
(A) $5,000,000 to persons submitting applications described in such paragraph, or
(B) $2,500,000 to holders of Type II Drug Master Files.
If the aggregate limits are insufficient to pay the applicants or holders the full amounts specified in paragraph (1), each such applicant or holder shall be paid its per capita share of the aggregate liability imposed by paragraph (1) upon the patent holder.
(e) EFFECT OF FILING OF ABBREVIATED APPLICATIONS.—The fact that one or more applications have been filed under section 505(b)(2) or 505(j) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(b)(2),(j)) for approval of a drug or a method of using a drug which is claimed by a patent that is the subject of an application under section 155B of title 35, United States Code, for restoration of the patent term shall not affect the grant of such patent term restoration.
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(f) REPORT.—Not later than 1 year after the date of the enactment of this section, the Commissioner of Patents and Trademarks shall submit to Congress a report evaluating the patent term restoration review procedure established under section 155B of title 35, United States Code, and shall include in such report a recommendation whether Congress should consider establishing such a patent term review procedure for patents not covered by such section.
(g) EFFECTIVE DATE.—The owner of record of a patent referred to in section 155B(b)(1) of title 35, United States Code (as added by subsection (a)(1)) or an agent of the owner shall be immediately eligible on the date of the enactment of this section to submit an application to the Commissioner of Patents and Trademarks for a determination in accordance with section 155B(b)(6) of such title.
Mr. COBLE. Secondly, we will examine the so-called ''Bolar exemption'' to the Hatch-Waxman Act. This provision allows third parties access to testing data owned by pharmaceutical patent-holders, but only for the purpose of using the data for FDA approval of a drug. Current litigation on this point has compelled us to re-examine the scope of the exemption. Specifically, did Congress intent the exemption to apply only to generic drugs or to new drugs and biologics as well?
Finally, we will hear testimony about specific patent re-examination issues and regulatory delay affecting the alterative fuels industry.
I will conclude by noting that all of us, I think without exemption, want a sound healthcare system that provides access to state-of-the-art pharmaceutical products. Thus said, I hope we can remember to remain civil and to acknowledge that the main focus of this hearing is on subject matter which is a part of our subcommittee jurisdiction—that is, patent law—and the criteria by which term is properly restored.
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Now this matter, folks, is limited in scope, but it is, nonetheless, controversial, and we are here today trying to determine, among other things, if inequity has been imposed, and if so, how it can be resolved. I hope we can do this in an even and balanced manner.
I am now pleased to recognize the ranking member from California, the gentleman, Mr. Berman.
Mr. BERMAN. Well, thank you very much, Mr. Chairman. I appreciate very much this hearing.
The Drug Price Competition and Patent Term Restoration Act of 1984 was enacted in my first term as a member of this subcommittee and of the Congress. I don't want to overstate my contribution to that achievement. It would be hard to understate it. [Laughter.]
But I have long supported the act and its twin features of patent term restoration and market exclusivity for brand-name drugs, on the one hand, and accelerated FDA approval of lower-cost generic drugs, on the other hand.
The suggestion is now made that what I had considered a balanced product might, instead, have gotten the calibration of interests wrong. Certainly, H.R. 1598 should not be subjected to criticism simply on the grounds that a deal is a deal. We all acknowledge, and frequently cite, the truism that no Congress can bind future Congresses. We can always re-evaluate our public laws and assess whether they need to be amended in light of subsequent developments or of expectations at the time of their enactment that have not been borne out.
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That is why, Mr. Chairman, that I am delighted that you scheduled this hearing. Our subcommittee is the proper venue for consideration of the important issues raised by this bill. It is my hope today that our witnesses will take us through a close reading of the bill, because that is what I think would be of optimal benefit to our members. I, for one, am much less interested in hearing about extraneous matters, such as how much money might be spent lobbying for or against the bill, but I do seek guidance on whether enacting this bill is the right thing for us to do.
I want to learn whether this bill hands the PTO a neutral process to which pertinent Executive branch expertise can be applied or whether PTO is called upon to make a purely ministerial judgment with a preordained result. I want to hear a discussion of why Hatch-Waxman—or Waxman-Hatch—[Laughter]—limited pipeline drugs to only 2 years of patent term restoration.
Some have suggested that this subcommittee had egg on its face in 1994 because our title of the Uruguay Round Agreements Act, by changing patent term from 17 years from the date of award to 20 years from the date of application, a change which I strongly support, created an unintended windfall for patented drugs, to the detriment of consumer access to generic alternatives. I don't think anyone disputes that Claritin, for example, received a 22.5-month patent extension by dint of GATT.
What is more, while the GATT legislation provided an extended patent would not block market entry, as of the original patent expiration date, by anyone that had made a, quote, ''substantial investment,'' in reliance on the original expiration date, Congress neglected to amend Hatch-Waxman to allow this exception for pharmaceuticals, so that the generic pharmaceutical industry is the only industry that did not receive the benefit of this, quote, ''substantial investment'' exception.
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Some would characterize the GATT patent extension as a windfall to the pipeline drugs, but I want to make sure that the proponents of H.R. 1598 have the opportunity to explain why they might differ with this characterization, and why they, nonetheless, seek the additional 3 years offered by H.R. 1598.
And, finally, about the second panel, Mr. Chairman, I just want to say a word about my good friends and neighbors at Amgen. They will be testifying on a separate issue in the second panel.
I am excited and encouraged by the successes that they have achieved as pioneers in the field of biotechnology products, and have been pleased to visit their Thousand Oaks facilities and meet with a number of their quite impressive executives over the years. I know Mr. Gallegly is also—his district is located right near their facility.
Amgen's achievements offer the promise of enhanced health and well-being for millions of Americans, and of no less concern to Mr. Gallegly and myself, have made a significant contribution to job creation in our part of the country.
However, just as with regard to H.R. 1598, I would like to see a closer reading by our witnesses on the final panel of the actual legislative changes sought by Amgen. Here, as well, I seek the point/counterpoint which a good hearing can offer to myself and to my colleagues as we consider the important issues before us today.
Thank you very much, Mr. Chairman.
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Mr. COBLE. Thank you, Mr. Berman.
Normally, we restrict opening statements to the Chair and the ranking member, but Mr. Delahunt from Massachusetts has been very actively involved on this subcommittee, and I will recognize him for an opening statement.
Mr. DELAHUNT. Yes, thank you, Mr. Chairman. I, too, want to thank you for convening this hearing. I am hopeful, like others have indicated, that it will afford us an opportunity to hear all points of view, and I intend to listen closely.
I am a co-sponsor of H.R. 1598, and I co-sponsored the bill in large part because of the concerns generated by some earlier efforts to secure additional patent term for these so-called pipeline drugs. We have heard much about how some proponents of this legislation sought in previous Congresses to slip patent extension provisions into conference reports during late-night sessions. My own sponsorship of this bill should not be misinterpreted as an endorsement of such tactics. On the contrary, I agreed to co-sponsor the bill in order to ensure that this time the process is conducted in the clear light of day, so that all the arguments can be fully and fairly assessed. That is our responsibility, Mr. Chairman, and I know it is one which you and every member of this subcommittee takes seriously.
In the same vein, I want to make clear that in supporting this bill, I am endorsing a process, not a particular result. I do not know whether the delays in FDA approval of Claritin, for example, were due to agency delays, as Schering-Plough has asserted, or due, instead, to dilatory behavior by Schering-Plough itself, as critics allege.
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I understand that Mr. Waxman and others have asked the GAO to look into this issue, and I look forward to that analysis. But, whatever the GAO may conclude, it seems to me that this is essentially a factual question, and such questions are best decided not by Congress, but by an agency, a tribunal, that is independent of political pressures and has sufficient expertise to make the necessary findings of fact. Such an approach seems to me far preferable to our continuing to legislate extensions on an ad hoc, case-by-case basis, as Congress has done on a number of occasions since the Waxman Act was enacted in 1984.
It has been argued—and I expect we will hear today—that the specific process proposed by H.R. 1598 is flawed; that is assigns the fact-finding function to the wrong agency; that it allocates the burden of proof to the wrong parties; that it creates a decisionmaking process that can only lead to a preordained result. I am prepared to listen to all points of view on these questions and to consider any modifications that will help ensure that the process is a genuinely fair and impartial one. That is precisely what a hearing is for, and that is why this particular hearing is so important.
At the risk of understatement, Mr. Chairman, I recognize that at least two sides in this dispute have invested heavily in the outcome, in the hope that we will choose the corporate winners and losers. In my view, that is not our role, and I am prepared to let the chips fall where they may.
But before I close, I would like to say a word about the relationship between this legislation and prescription drug pricing, with which I know my friend and colleague from Arkansas, Mr. Berry, has had much to do. Some who know of my strong support for various measures to lower drug prices for consumers have asked how I can support a bill which might result in continued high prices for these seven pipeline drugs. It is a fair question, but I don't see any contradiction.
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The question of what consumers should have to pay for prescription drugs is academic if we lack these drugs in the first place. The development of new drug therapies is a risky and capital-intensive undertaking. It takes more than $500 million and an average of 12 to 15 years to develop a new drug and to bring it to the marketplace. For every Claritin that produces windfall profits, there are 6,000 drugs that never make it through the approval process.
Yet, in the midst of all this uncertainty, there is one mechanism—the patent system—that assures investors that, once a drug does make it through the process, they will be entitled to the fruits of their investment. It is up to us to maintain the integrity of that system of incentives, so that investors and entrepreneurs will continue to generate new and better pharmaceuticals.
Opponents of H.R. 1598 have said that that is all very well, but that patent term restoration does not serve the public interest because the investment has already been made. There is nothing left to incentivize, if you will. Well, that argument misses the point. The very purpose of the patent system is to create incentives by assuring patent-holders of the opportunity to recoup their investment. By restoring lost patent term when circumstances warrant, we demonstrate that the system is fair and can be relied upon.
And if it is fair to restore lost patent term for a particular drug, then this is true even if it delays price reductions to consumers, even if it generates additional profits for wealthy drug companies. The extensions awarded under the Hatch-Waxman Act did this, too, because market exclusivity is part of the price we pay as a society to ensure that these drugs will be available when we need them.
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Whether prescription drugs need to be as costly as they are is a legitimate, but separate, question. I am concerned—and, in fact, appalled—by the disparities between prices paid by some seniors for some drugs in my district and the prices paid for the same drugs by HMO's and other favored customers. It is a very serious issue, but this is not the place to address it.
I look forward to the testimony, Mr. Chairman, and thank you for the opportunity to make an opening statement.
Mr. COBLE. I thank the gentleman from Massachusetts.
We have been joined by the distinguished gentleman from Michigan, the ranking member of the full committee, Mr. Conyers.
Mr. CONYERS. Thank you, Chairman Coble, and good afternoon to all of my friends at the witness table, a familiar group of people from both the House and the Senate. There seem to be a lot of familiar faces in the audience as well, as I look around the room, Mr. Chairman.
You know, patent restoration is fundamentally a balancing act. On the one hand, the lofty, overriding importance of encouraging innovation is enshrined in the Constitution and is one of the turbine engines of our economy. To that end, patent law creates temporary monopolies to reward innovation.
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On the other hand, we know that we should grant such monopolies very sparingly, so as to protect the pocketbooks of our consumers. Thus, so we arrive at a bottom line. We promise inventors a certain patent life, as an incentive for creating that invention; it is a promise on which they rely.
In principle, I am opposed to patent extensions because such extensions are not part of the original deal, but in cases where inventors do not realize the full commercial promise of a patent because the Government—in this case, the FDA—was unfairly dilatory in approving the use of the product, then I believe the promise of a specified patent life should be restored. It seems that this is the purpose of the bill. While I am open to discussions about how to determine whether patent life should be restored, it is my belief that if the Government unfairly delayed approving a drug's use, then the equities require us to fulfill the promise of the patent on which the inventors originally relied.
I look forward to the testimony of all our distinguished witnesses. Thank you.
Mr. COBLE. I thank the gentleman from Michigan, and thank the other gentlemen for the opening statements.
Now, folks, we are inevitably going to be interrupted at least twice—and maybe as many as four times—by floor votes. Each witness has been requested to limit his or her oral testimony to 5 minutes. When the red light illuminates in your eye, I don't mean to say that I will send the U.S. Marshal down after you, but I want you to wrap up, because we have 16 witnesses in three panels who will appear before us today. We don't mean to appear inhospitable, but if we are going to be out of here in time to great the supper bell, we are going to have to stay on a short leash. So not only my five colleagues before me, but if the other members would take that to heart, I assure you your written testimony has been examined and will be re-examined. So if you can be ever alert to the red light?
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We are pleased to have our first panel with us: the Honorable Ed Bryant, Member of Congress from the 7th district of Tennessee; the Honorable Jim McDermott, Member of Congress, 7th district of Washington; the Honorable Henry Waxman, Member of Congress from the 29th district of California; the Honorable Marion Berry, 1st district of Arkansas, and our former colleague—I started to say our former friend—our friend and former friend, now in the other body, Mr. Torricelli.
I think the best thing might be for us—yes, Mr. Bryant?
Mr. BRYANT. Mr. Chairman, if you were going to recognize me first, I might suggest that, since we are all on the same schedule here with the exception of the Senator, if we might defer to him, and perhaps get his statement before we leave for the vote?
Mr. COBLE. Without objection, would you like to do that, Senator?
STATEMENT OF HON. ROBERT G. TORRICELLI, A U.S. SENATOR FROM THE STATE OF NEW JERSEY
Mr. TORRICELLI. I would, Mr. Chairman.
Mr. COBLE. Well, that is a very generous gesture, Ed, and we will do that. We will hear from the Senator, and then at the conclusion of his 5 minutes, then we will adjourn and go to the floor, vote, and then return. Is that what you had in mind, Ed?
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Mr. BERMAN. And I think some of the Members have to leave at 3. So we will have to come right back.
Mr. COBLE. We will come back promptly after the vote.
So, Senator, if you will commence?
Mr. TORRICELLI. Thank you, Mr. Chairman. That is very generous, and I am very appreciative. In fact, if you will permit me to go into the English language as it is spoken in New Jersey, I can go into high gear and do this in a lot less than 5 minutes. [Laughter.]
First, thank you very much for holding this hearing. As might appear obvious, I have a great interest in this issue because most of the pharmaceutical industry—at least a great deal of it—and the generic industry is housed in the State of New Jersey. Some 60,000 workers contribute $200 million to our economy.
As, indeed, I think has been adequately said today, patent protection for this industry is its life and its survival. The invention, the production of these products is enormously expensive. Five hundred million for a pharmaceutical product, as Mr. Delahunt has said, is not at all unusual.
So we are engaged in a balancing act of patent law that protects and rewards research and development while promoting sufficient competition. And I believe in many instances, thanks to the work of Mr. Waxman and my colleague, Mr. Hatch, we have often achieved that balance in recent years.
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But I am also concerned that there are problems that need to be corrected. When, indeed, Hatch-Waxman was being introduced and debated, there was this issue of pipeline drugs, 123 drugs already in the review pipeline at the time of enactment. They were granted a 2-year patent protection.
While the average review time of these 123 drugs was slightly over 2 years, 17 drugs had review times that were twice as long, and 7 of those patents are still in effect. That, of course, Mr. Chairman, is what brings us here today.
This hearing on H.R. 1598, authored by Mr. Bryant, Mr. McDermott, and S. 1172, which I introduced, addresses specifically the patent life of these seven drugs. Each bill establishes a nonpolitical process where interested parties can present their case to the Commissioner of Patent and Trademark. The Commission can grant a patent extension up to 3 years, and the decision is reviewable by the circuit court, by either party.
However, I think there are some differences, fully respecting the version my colleagues presented, which I think the committee should focus upon. First, under my version, S. 1172, the party seeking the extension bears the burden of proving that they showed due diligence during the regulatory review process. This goes exactly to Mr. Delahunt's point that the companies involved, was there due diligence involved on their part? H.R. 1598 has a rebuttable presumption, a very different standard.
Second, under my version, S. 1172, the PTO Commissioner must consider public interest factors, and prior to granting an extension, decide that an extension would not be detrimental to the public interest. H.R. 1598 is silent on this issue.
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Third, my bill provides a mandatory consultation role for the FDA. The FDA, and its timeliness, is at the heart of this issue. They should be consulted. H.R. 1598 has no consultative role mandated for the FDA.
Finally, S. 1172 recognizes the significance of generic drugs and contains provisions to encourage market competition within the drug industry. Mr. Chairman, my point simply is this: I believe that both pieces of legislation seek a worthwhile extension, recognizing the unusual delays of these few drugs, but I believe that the committee would be wise—indeed, the authors of the House version would be wise—to consider some of these provisions that deal with the public interest, the role of the FDA, the need for generics as well, in this process, and I think may have some advantageous provisions. But while I would endorse either version of the bill, I believe ours has several very important provisions.
That is as fast as I can talk, as little time as I could take. I thank you very much.
[The prepared statement of Senator Torricelli follows:]
PREPARED STATEMENT OF HON. ROBERT G. TORRICELLI, A U.S. SENATOR FROM THE STATE OF NEW JERSEY
I would first like to express my appreciation to Chairman Coble and Ranking member Berman for holding this hearing today. My home state of New Jersey is fortunate to be the home of the brand name and generic pharmaceutical industry. Together they employ over 60,000 workers and pay $200 million in state and local taxes.
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Adequate patent protection is the basis of the pharmaceutical industry. It provides the incentive for the Research and Development that is responsible for wonderous new drugs like those that are lowering and changing the face of health care. But patent law also provides the framework necessary for the development of market competition and cost reduction for consumers. Effective patent law must strike a balance between rewarding R&D and promoting competition.
That is why today's hearing is so important. Traditionally, patent extensions have appeared in the dead of night, in end of the year, must-pass legislation with little or no oversight or debate. With the effort of this committee, Congress is rejecting that approach. We are saying that while there are differences of opinion on patent extension, it is an issue that should be decided in the open and with input from all concerned parties.
The Hatch-Waxman Act of 1984 was a compromise which granted drugs that entered the regulatory review ''pipeline'' after its enactment a maximum patent extension of five years. For the 123 drugs already in the review ''pipeline'' at the time of enactment, the Act granted two years of patent protection. While the average review time for these 123 drugs was slightly over two years, 17 drugs had review times twice as long. Seven of those patents are still in effect today.
Today's hearing on HR 1598, authored by Reps. Ed Bryant & Jim McDermott, and S 1172 which I introduced, addresses the future patent life of those 7 drugs. Each bill establishes a non-political process by which interested parties can present their case to the Commissioner of the Patent & Trademark Office. The Commissioner, if he or she believes the evidence warrants, can grant a patent extension for up to three additional years. This decision is reviewable to the Circuit Court by either party.
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However, there are significant differences within the process of each bill that I would like to outline to the Committee. First, under S 1172, the party seeking the extension bears the burden of proving they showed due diligence during the regulatory review process. In contrast, HR 1598 has a rebuttable presumption that the extension should be granted. The party opposing the extension must prove it is undeserved.
Second, under S 1172, the PTO Commissioner must consider public interest factors and, prior to granting an extension, decide whether an extension would be detrimental to the public interest or interests of fairness. HR 1598 contains no similar public interest requirements.
Third, S 1172 provides a mandatory consultation role for the FDA. Possible delay by the FDA is at the heart of the issue and it is appropriate that they be consulted prior to a decision. HR 1598 makes FDA records available but has no consultation role.
Finally, S 1172 recognizes the significance of generic drugs and contains provisions to encourage market competition within the drug industry. The first provision is a limited revision of the ''Orange Book Certification''. S 1172 would allow generic companies to certify only to the active ingredient of the patent product. This would simplify the current requirement of certifying to patents for specific formulations or for methods of use, as well as to active ingredients. Because this is a new idea, it applies only to the 7 pipeline drugs in the bill
The second provision addresses the recent Circuit Court decision in Mova Pharm. Corp. v. Shalala regarding when Generic Drug exclusivity is established. S 1172 would restore the original Congressional intent by providing that generic drug exclusivity is established upon the filing of a generic drug application and subsequent suit for infringement. The Court decision, by allowing exclusivity to be established solely by filing an application, will result in a reward without the benefit of testing the patent in court.
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Mr. Chairman, the issue of patent extensions in Congress has been controversial. But for my state, and both sides in this debate call New Jersey home, it is extremely important. The bill I have introduced represents compromises developed over two years of discussions with the leading companies in my State. This issue is difficult and contentious and I appreciate your efforts to it forward. The road to passage is difficult but is worth pursuing. I look forward to working with you and the Committee in support of this effort.
Mr. COBLE. Well, Senator, in spite of the fact that the red light appears, you were within the 5-minute limit because of an error at the clock. So you still beat the red light.
Folks, why don't you all rest easy? We will go vote and return immediately.
Mr. TORRICELLI. Thank you, Mr. Chairman.
[Recess.]
Mr. COBLE. Bryant. Ed? We will wait another minute or two, Ed. I would like for you to have someone to address other than me, and I am sure you would like to address others. So we will stand by for another minute or two.
[Recess.]
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Mr. COBLE. Okay, Mr. Bryant, we are back in force. If you will commence, Mr. Bryant, we are glad to have you with us, and you are, of course, the primary sponsor of the bill at hand.
STATEMENT OF HON. ED BRYANT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE
Mr. BRYANT. Thank you, Mr. Chairman. Thank you for holding this important hearing which marks the continuation of a serious bipartisan effort to enact a process—and I stress the word ''process''—that protects patent integrity.
As you and the members of the subcommittee will recall—and I think certainly several of you have spoken eloquently on this issue—in the last Congress the full committee considered legislation encompassing a series of reforms that were designed to bring patent laws up-to-date. This legislation contained a section which addressed delays at the U.S. Patent and Trademark Office, and how time could be restored to those who hold patents. This legislation, in turn, prompted me to examine other instances in which Federal regulatory delays had diminished the useful life of an invention.
I soon learned that one of those areas involves so-called pipeline drugs that were affected by the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act. Hatch-Waxman, as you know, included a 2-year limitation for patent term restoration for pipeline drugs. The limitation reflected an expected FDA average approval time of slightly more than 2.25 years, but it later turned out that several drugs were caught in the regulatory approval pipeline much longer.
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Since 1984, Congress has occasionally enacted special legislation to deal with individual cases of these inequities, when they were discovered, during the implementation of the Hatch-Waxman. In each case Congress concluded that the general rules adopted in 1984 were insufficient when applied to a particular situation.
As my colleagues recall, as we attempted to correct those inequities, very often we had to do so by adding these measures into very large bills, and some accusations were even made that these were snuck into some bills and sort of hidden away to obtain these extensions. Certainly, this is what we hope to avoid—the continued effort to hide extensions and to do things not completely in the light of day that has occurred in past history. But we hope that this Congress sees this as a better way of addressing this inequitable, or potentially inequitable, situation in which the regulatory delays have diminished useful lives of patents. Congress, in short, needs to enact this process to handle these issues rather than tackling each situation on an ad hoc, case-by-case basis.
Now I understand the opposition to this. I think there are good people on both sides of this. I think certainly arguments can be made one way or the other. But I would refer and commend, I think, Mr. Delahunt's opening statement in terms of the statistics and the successes and failures that are involved in developing a drug. The successes are far outweighed by the number of failures.
What we are essentially asking for here is to set a process that would be fair and open, not behind the scenes, to fairly review those drugs that were caught in this process. We just think it is very appropriate, given all the circumstances, that we finally establish such as fair and open process.
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Such a process would be an independent, nonpolitical review. H.R. 1598 would institute this administrative procedure for the seven pipeline drugs that had an unusually long FDA review. In fact, I think there are instances of more than 5 years. All affected parties would be able to make a case. They would have, in effect, their day in court, and they would be able to make their case before the appropriate body, the PTO, an independent agency whose experts deal with the legalities of patent issues day-in and day-out.
I believe very strongly that H.R. 1598 fulfills the intent of Congress. The record since 1984 is clear. When Congress passed Hatch-Waxman, it believed that there would be a relatively quick FDA approval for drugs which were in the pipeline at the time. In fact, that didn't happen. Because of the lengthy regulatory reviews, many pipeline drugs received substantially less patent coverage than Congress intended.
Mr. Chairman, I am gratified that H.R. 1598 has about 50 co-sponsors, including members from both sides of the aisle in this committee and the House as a whole. I am also gratified that Senator Torricelli has introduced legislation in the Senate that also envisions an independent review process. I believe this support demonstrates clearly that there is widespread and growing support for a fair, independent process that protects patent integrity.
Mr. Chairman, the Patent Fairness Act of 1999 offers a solution that provides patent integrity, and in doing so, ensures the continuation of research that leads to breakthrough drugs and other innovations that truly help people live long and better lives, and I do thank the Chair.
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[The prepared statement of Mr. Bryant follows:]
PREPARED STATEMENT OF HON. ED BRYANT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE
Thank you Mr. Chairman for holding this important hearing, which marks the continuation of a serious, bipartisan effort to enact a process that protects patent integrity
Mr. Chairman, I first would like to offer some background leading up to the introduction of H.R. 1598, the Patent Fairness Act of 1999. My own interest in this important issue goes back to hearings held just over a year ago by the Judiciary Committee. At that time, we had recently completed work on H.R. 400, which encompassed a series of reforms that were designed to bring patent laws up to date. One section of H.R. 400 addressed delays at the U.S. Patent and Trademark Office and how time could be restored to those who hold patents.
That legislation, in turn, prompted me to examine other instances in which federal regulatory delays had diminished the useful life of an invention. I soon learned that one of those areas involves so-called ''pipeline'' drugs that were affected by the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act.
Hatch-Waxman, as you know, included a two-year limitation for patent term restoration for pipeline drugs. The limitation reflected an expected Food and Drug Administration average approval time of slightly more than 2.25 years. But it later turned out that several drugs were caught in the regulatory approval pipeline much longer.
Since 1984, Congress has occasionally enacted special legislation to deal with individual cases of inequities discovered in the implementation of Hatch-Waxman. In each case, Congress concluded that the general rules adopted in 1984 were insufficient when applied to a particular situation. Certainly, inequities existed. One drug, Daypro, which helps people who suffer from arthritis, spent just over 21 years in regulatory review. Remarkably, that was more years than its total patent life. In 1996, Congress passed an appropriations measure that extended the effective patent life of Daypro by roughly five years.
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In examining the details of Daypro, it became clear that the inequities extended beyond this one drug. I reached a simple conclusion: Congress needs a better way of addressing inequitable—or potentially inequitable—situations in which regulatory delay has diminished the useful life of a patent. Congress, in short, needs to enact a process to handle these issues rather than tackling each situation on an ad hoc, case-by-case basis.
As you remember, Mr. Chairman, a committee hearing last year examined how to deal with these issues in the future.
From all this, Rep. McDermott and I arrived at the process outlined in H.R. 1598. This bill clearly is in the public good because it is based on two worthwhile principles: 1) Patents are an important incentive for research and inventions, and; 2) that Congress should not make patent extension decisions on a case-by-case basis. Let me discuss each principle in detail.
First, there is no question that our prosperity in America is built, to a great extent, on research and development. Patents foster that research. In fact, the relationship of R&D and patent integrity is one of mutual dependence; it is a relationship in which each fosters the other for the benefit of us all. We know that those who conduct pharmaceutical research help provide one of the best patient protection policies that we can buy as Americans. Just ask anyone who has benefited from the healing powers of a new breakthrough drug. At the same time, we also know that R&D can be expensive. This is particularly true when it comes to pharmaceutical innovations. Without strong and fair patent protection, research-based pharmaceutical companies would not have the incentive or the wherewithal for the research that leads to tomorrow's breakthrough drugs.
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The second principle involves the necessity of establishing a fair, consistent process to protect the integrity of patents. In this context, it is vitally important to say what H.R. 1598 would not do. It does not automatically extend a patent. H.R. 1598 instead establishes a fair and open process that is conducted in a public forum. This would be an independent, non-political review. H.R. 1598 would institute this administrative procedure for seven pipeline drugs that had an unusually long NDA review of more than five years. All affected parties would be able to make their case, to have their day in court, so to speak. And they would be able to make their case before the appropriate body—the PTO, an independent agency whose experts deal with the legalities of patent issues day in and day out.
I believe strongly that H.R. 1598 fulfills the intent of Congress. The record since 1984 is clear. When Congress passed Hatch-Waxman, it believed that there would be relatively quick FDA approval for drugs that were in the approval ''pipeline'' at the time. In fact, that did not occur. Because of lengthy regulatory reviews, many pipeline drugs received substantially less patent coverage than Congress intended. Often in Washington we talk of ''unintended consequences.'' Hatch-Waxman truly involves a case of unintended consequences. But they are consequences that, nevertheless, should be dealt with.
Mr. Chairman, I am gratified that H.R. 1598 has about 50 co-sponsors, including members from both sides of the aisle in this committee and the House as a whole. I also am gratified that Senator Torricelli has introduced legislation in the Senate that also envisions an independent review process. I believe this support demonstrates clearly that there is widespread and growing support for a fair, independent process that protects patent integrity.
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In sum, Mr. Chairman, H.R. 1598 is the right solution. The Patent Fairness Act of 1999 offers a solution that provides patent integrity and, in so doing, ensures the continuation of research that leads to breakthrough drugs and other innovations that truly help people live longer and better lives.
And I thank the Chair.
Mr. COBLE. And you established a good precedent because you beat the red light to the goal line, putting pressure upon your colleagues. [Laughter.]
Thank you, Mr. Bryant.
Mr. BRYANT. Can I call for a vote? [Laughter.]
Mr. COBLE. Mr. McDermott.
STATEMENT OF HON. JIM MCDERMOTT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON
Mr. MCDERMOTT. Thank you, Mr. Chairman. I will try to be as fast as he was. I ask unanimous consent to have my entire statement put into the record.
Mr. COBLE. Without objection.
Mr. MCDERMOTT. We are here really to talk about a process. We hold no brief for anybody. I think that the Patent Fairness Act encompasses three principles: fair play, equity, and taking politics out of this process.
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There are two important questions that need to be answered: What type of process can we put in place to guarantee a fair and reasonable evaluation of the issues, and what types of assurances should be embedded in this process to make sure it is equitable and removed from politics?
H.R. 1598 answers these questions. Our bill establishes a process that we believe is fair, equitable, independent, separated from politics, fully open to the public, and subjected to judicial review. Let me expand a little on these features.
The bill establishes an independent and public review process within the U.S. Patent Office that would be a new administrative process, one that is fair and impartial. The PTO is the right place to hold these hearings about these issues because these issues involve questions not of medical research, but go to the core of the definition of patent life.
Within the office, a procedure would be established to review claims for patent term restoration to compensation for unanticipated lengthy review of 5 years or more in the FDA's new drug approval proceeding. The process established by this legislation would be akin to a court hearing. Any company that believed its product was unintentional deprived of patent protection would have the opportunity to present its case; any other interested party would also be free to make its case. Both sides would be treated equally. Everything would occur in the open. The review process would be bounded by objective criteria. And after an opinion has been rendered, each side would be allowed an additional opportunity for judicial review.
Now, contrast that process with the way things usually work around here. We just saw the emergency appropriations acts go through here with a bunch of riders attached to it. Patent extensions, regardless of their merit, have been snuck into those kinds of those bills in the middle of the night by some Congressman or Senator, regardless of the consequences. I disagree with that tactic, and I think it is a lousy way to legislate. I actually worked against one of those where they were trying to get a particular vaccine for AIDS. They shoved it into a military appropriations act. To me, that is the wrong way to go.
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By turning the issues of patent integrity to an independent panel of experts, as this bill would do, the process would be driven by the public policy objectives, not the politics. That is, in my view, an important point. Our bill is driven by the principle that it is best to take politics out of this equation, to depoliticize the process, to take Congress out of the job of deciding individual patent issues.
And, finally, our legislation would require the Commissioner to report to the Congress an evaluation of the review procedure established by this view.
Now another way to describe this bill is to outline what it is not. There is no preferential treatment for any affected pipeline drug. There are not arbitrary decisions. There are no guarantees. Our bill is about process, not about answering a predetermined outcome.
And I want to say something about—I read some of the testimony that people will make about generic drugs. One makes the assumption that generic drugs, once they come off the patent, are somehow always of lesser cost. That is not an assumption one should make.
Last December the Federal Trade Commission filed an unprecedented $120 million suit against a laboratory for its conspiracy to hoard pharmaceutical ingredients, a generic company. This hoarding led to more than a 3,000 percent increase in the cost of hypertension generic drugs and a 2,000 percent increase in the cost of an anxiety drug. Now that means that a bottle of pills went from $11 to $377.
When anybody makes the idea that this is somehow cutting off the possibility of generics, which generics will certainly be lesser cost, one has to look carefully at the evidence. I think this committee can look at this bill—maybe Mr. Bryant thinks he wrote something that should not be amended. I don't believe that. I believe that the process ought to work out in public, and that changes can be made, if the committee sees and listens to the entire issue. I think that that is the proper way it should be done, not by midnight amendments, as we have seen in the past.
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I thank you for your consideration.
[The prepared statement of Mr. McDermott follows:]
PREPARED STATEMENT OF HON. JIM MCDERMOTT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON
Thank you for allowing me to testify at today's hearing. I am pleased to have the opportunity to review the facts behind this legislation with you.
The Patent Fairness Act encompasses three principles—fair play, equity and taking politics out of the process.
Maintaining the integrity of our system of patents is central to whether or not our society continues to receive the desired public benefits from pharmaceutical research—or any other type of cost-intensive research for that matter.
Creating a fair and impartial process where an independent body can determine whether or not to restore lost patent life is a matter of fairness. And it is the right thing to do. It also is a matter of ensuring adequate incentives for research and development in the future.
This bill takes the first step in attempting to find a long-term solution to the patent integrity issue that is impacting several drugs that were caught in a review process that took significantly longer than Congress anticipated.
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As a result of this lengthy delay, the patent life of these ''pipeline'' drugs—drugs that were at FDA for more than 60 months—was reduced by an unintended consequence that appeared to have nothing to do with their medical safety.
There are two important questions: What type of process can we put in place to guarantee a fair and reasonable evaluation of the issues? And, what types of assurances should be embedded in this process to make sure it is equitable and removed from politics?
H.R. 1598 answers these questions. Our bill establishes a process that is fair, equitable, independent, separated from politics, fully open to the public, and subject to judicial review. Let me expand on these features.
The bill establishes an independent and public review process within the U.S. Patent and Trademark Office. This would be a new administrative procedure—one that is fair and impartial.
The Patent and Trademark Office is the right place to hold a hearing about these issues, because these issues involve questions not of medical research, but go to the core of the definition of patent life.
Within the office, a procedure would be established to review claims for patent term restoration to compensate for unanticipated lengthy regulatory review of five years or more in the FDA's New Drug Approval proceeding.
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The process established by this legislation would be akin to a court hearing.
Any company that believed its product was unintentionally deprived of patent protection would have the opportunity to present its case. Any other interested party would also be free to make its case. Both sides would be treated equally.
Everything would occur in the open. The review board would be bound by objective criteria. And, after an opinion has been rendered, each side would be allowed an additional opportunity for judicial review.
Now contrast the process H.R. 1598 would establish with the way things usually work around here. Patent extensions—regardless of their merits—are snuck into a bill in the middle of the night, by some Congressman or Senator, regardless of the consequences. I disagree with that tactic and I think it's a lousy way to legislate.
By turning over the issues of patent integrity to an independent panel of experts, as H.R. 1598 would do, the process would be driven by public policy objectives—not politics.
This is an important point. Our bill is driven by the principle that it is best to take politics out of the equation, to de-politicize the process, to take Congress out of the job of deciding individual patent issues.
And finally, our legislation would require the Commissioner of Patents and Trademarks to report to Congress an evaluation of the review procedure established by the bill.
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Another way to describe the legislation is to outline what it does not involve.
There is no preferential treatment for any affected pipeline drug. There are no arbitrary decisions. There are no guarantees. Our bill is about process, not about answering a predetermined outcome.
We are convinced this is the right solution. This is the right way to go. As a medical doctor and psychiatrist, I have seen the benefits of breakthrough drugs and innovations. They truly can make people's lives better, and there is more to do.
Thank you.
Mr. COBLE. Thank you, Mr. McDermott.
Mr. Waxman.
STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. WAXMAN. Thank you very much, Mr. Chairman. I have a written statement I would like to put in the record.
Mr. COBLE. Without objection.
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Mr. WAXMAN. The Drug Price Competition and Patent Term Restoration Act of 1984 balanced the interests of the brand-name drug industry, which gained patent term extensions to restore time expended obtaining FDA approval, and the generic drug industry, which obtained clear and fair statutory standards for the timely approval of their products. I am very proud of that act. Its success has truly exceeded my expectations. Generic drugs have saved American consumers and the Federal Government billions of dollars. At the same time, the brand-name drug industry has prospered like never before, posting record profits, while tripling its research and development spending in the past 10 years.
From the onset, I want to emphasize something upon which I think Senator Hatch and I agree. The 1984 act succeeded because it struck a very careful balance. Both of us have said publicly, and repeatedly, that any revisions must preserve that balance and should be made in a comprehensive manner. For many years we have emphasized to the regulated industries and to consumers that they must work together to reach consensus before legislative action can reasonably be contemplated, and to date they have agreed.
Piecemeal changes to the 1984 act won't work for a simple reason: Every revision you contemplate necessitates changes elsewhere in the act. I would caution this subcommittee to recognize that any changes it considers to the patent provisions of the 1984 act will have a direct impact on consumer health and safety. Extending monopoly rights for a fortunate few drug companies will come at the expense of American consumers and taxpayers, just as we are struggling to enact a Medicare drug benefit for the elderly and just as the prices of best-selling drugs like Claritin have soared 10 to 20 percent in the past 2 years.
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Let me turn to H.R. 1598. This bill is the newest version of the patent extension which Schering-Plough has attempted for years to sneak into law for its multibillion dollar blockbuster drug Claritin. In my written testimony I detail the history of stealth lobbying which has only been stopped by public outrage and determined opposition by Members of both the House and the Senate.
I want to set the record straight about the legislative history of the 1984 act. Pipeline drugs such as Claritin were not arbitrarily penalized, as Schering-Plough has alleged. Pipeline drugs were not eligible for the full 5-year patent extension under the act because the point of the patent extensions is to encourage the research and development of future products, not simply increase profits on existing products. Only now, faced with their imminent patent expirations, are Schering-Plough and other companies lobbying vigorously to undermine that policy.
In my written statement is an excerpt from the 1984 House committee report which says, very clearly, ''By extending patents for up to 5 years for products developed in the future, the committee expects that research-intensive companies will have the necessary incentive to increase their research and development activities.'' This was the clear policy which motivated this provision, to encourage additional research, not simply to reward monopoly profits to a product that was well on its way to market.
The law was also intended to preempt drug companies from lobbying Congress for patent extensions. It has been generally successful, with the exception of the ambitious efforts of Schering-Plough and others, but we would see the law turned on its head by H.R. 1598, which would ''depoliticize'' its own secretive lobbying for patent extensions.
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H.R. 1598 itself has many serious flaws. The most important is the bill's mandate that the Patent Office undercut scientific judgments made by the FDA and its advisory committees in new drug reviews. Having the Patent Office second-guess the conclusions of a scientific regulatory agency like the FDA and its expert advisors would be extremely ill-advised. I wasn't impressed by Senator Torricelli's idea that you would have the FDA come in and give their views to the Patent Office. Judgments by the FDA were made for good reasons, and they are judgments that should be the FDA's, not the Patent Office's, to make.
The bill's proposed administrative process would also be heavily and obviously weighted in favor of Schering-Plough and other applicants, creating a stacked deck in favor of drug companies.
And, finally, Schering and other pipeline drug sponsors have claimed that they were delayed at FDA. There is a way to learn the truth, and we are awaiting a review by the General Accounting Office of the circumstances surrounding the approval of Claritin. I think Mr. Delahunt is correct; this is a factual determination. In the past we have successfully relied upon objective GAO reviews to evaluate patent extension requests for products such as Olestra and Lodine. We know that GAO is already evaluating evidence that Claritin's approval was slowed by concerns of safety, cancer, and Schering-Plough's own decisions to alter the product. Given the complex and fact-intensive nature of GAO's inquiry, I believe that any claims of regulatory delay should be viewed with great skepticism until that inquiry is complete.
In conclusion, let me address the Amgen proposal. Since enactment of the 1984 act, the courts have interpreted the provisions known as the Bolar exemption as applying to prescription drugs, biotech drugs, and medical devices, as well as food and color additives. This was the holding of the Supreme Court in Eli Lilly v. Medtronics. It has been the law for almost a decade.
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The Amgen proposal would restrict the application of the Bolar exemption to prescription drugs. In essence, it overturns the 1990 Supreme Court decision and subsequent case law, and resets the clock to 1984. But unlike 1984, today there is a thriving biotech industry, and this country is its global leader. I think what we need to do is look at, rather than change dramatically, the Bolar exemption, and determine how to encourage generic competition to biotech drugs. Rather than narrow current law, we ought to look forward to working with the FDA, biotechnology and generic drug companies on establishing the basis for fair and timely generic biotech competition.
I thank you for this opportunity to testify.
[The prepared statement of Mr. Waxman follows:]
PREPARED STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
THURSDAY, JULY 1, 1999
Thank you, Mr. Chairman. I am pleased to have this opportunity to address two of the patent extension proposals being considered today, H.R. 1598 and the Amgen proposal to be introduced by Congressman Gallegly. And I am joined in my remarks by our colleague, Pete stark, who is unable to attend this afternoon's hearing.
I am particularly interested in this hearing because both proposals contemplate major changes to the Drug Price Competition and Patent Term Restoration Act of 1984, better known as the Waxman-Hatch Act. Fifteen years ago, as the Chairman of the House Commerce Subcommittee on Health and Environment, I was the law's primary sponsor in the House, and my friend Senator Orrin Hatch of Utah was the primary sponsor in the other body.
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I am very proud of the Act. Its success has truly exceeded my expectations. The Act balances the interests of the brandname drug industry, which gained patent term extensions to restore time expended obtaining FDA approval, and the generic drug industry, which obtained clear and fair statutory standards for the timely approval of their products.
As a result, generic drugs have saved American consumers and the Federal government billions of dollars. Today, America has a uniquely thriving and competitive generic drug industry. At the same time, the brandname drug industry has prospered like never before, posting record profits while tripling its research and development spending in the past ten years.
Waxman-Hatch Reform Must Be Comprehensive and Based on Consensus
From the onset, I want to emphasize something upon which both Senator Hatch and I agree. The 1984 Act succeeds because it strikes a very careful balance between promoting innovation and ensuring that consumers have timely access to affordable medicines. Both Senator Hatch and I have publicly and repeatedly emphasized that any revisions to the 1984 Act must preserve that balance and must be made in a comprehensive manner.
For many years, we have emphasized to the regulated industries and to consumers that they must work together to reach consensus before legislation action can reasonably be contemplated. They have done that, and I would be extremely disappointed now if the brandname drug industry, the generic drug industry or consumer groups diverged from this path.
There's a simple reason why piecemeal changes to the 1984 Act won't work: every revision contemplated unquestionably necessitates changes elsewhere in the Act to preserve its careful balance of interests. In this regard, I would caution this Subcommittee to recognize that any changes it considers to the patent provisions of the 1984 Act will have a direct impact on consumer health and safety.
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Everyone recognizes that extending monopolies will mean increased costs to American consumers and taxpayers. We should be especially conscious of making prescription drugs more costly for the elderly while at the same time we are trying to create a Medicare drug benefit. We should be particularly concerned about the impact on consumers of patent extensions in light of the dramatic 10 to 20 percent increase in the prices of the best-selling prescription drugs since 1997, as reported by Tuesday's Wall Street Journal.
Just as importantly, the regulated industries, consumers and Congress have only begun to consider the legislative changes that will undoubtedly be necessary to greatly expand competition for biotechnology drugs, speed the availability of generic drugs, and prohibit some of the anticompetitive practices employed by the prescription drug industry. No consensus exists among these interests, so much more needs to be done before we can seriously consider a legislative solution.
H.R. 1598 Linked to History of Secretive Lobbying
Let me turn to the first patent extension proposal, H.R. 1598. For my colleagues who are unfamiliar with its history, this bill is the newest version of a patent extension which Schering-Plough has repeatedly attempted to sneak into law. For many years, Schering has sought to extend its patent protections for Claritin, a prescription antihistamine with over $900 million in annual U.S. sales.
Last year, Schering tried to sneak this patent extension into the omnibus appropriations bill, and was only stopped because of public attention and determined opposition by Members in both the House and Senate.
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In 1997, Schering lobbied the Senate for an amendment to omnibus patent reform legislation granting outright five-year patent term extensions for a number of drugs, including Claritin. And in 1996, Schering tried unsuccessfully to attach Claritin patent extensions to the omnibus appropriations bill, the continuing resolution and the agriculture appropriations bill. In the first half of that year alone, Schering spent over $1 million in lobbying the Congress.
Despite this history, Schering-Plough now claims that H.R. 1598 would ''depoliticize'' the secretive efforts to secure patent extensions. I guess that's a fancy way of saying they'll quit trying to weaken the law in backdoor maneuvers. In reality, however, H.R. 1598 would simply and permanently institutionalize the fruits of Schering's lobbying within an administrative agency.
H.R. 1598 is Premised on a Misinterpretation of the Waxman-Hatch Act
Before I turn to the substance of H.R. 1598, I want to set the record straight about the legislative history of the 1984 Act.
It has been alleged that Schering and the five other companies that would benefit from this special-interest legislation—Smith Kline Beecham, Bristol Myers Squibb, Bayer, Rhone Poulenc Rhorer and Hoechst Marion Roussel—somehow were arbitrarily or unexpectedly penalized by the Waxman-Hatch Act. Because these companies were the sponsors of drugs in the ''pipeline'' seeking Food and Drug Administration (FDA) approval at the time of the Act's enactment in 1984, these pipeline products are only eligible for a 2-year patent extension, and not the 5-year patent extension available to products approved after 1984.
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The proponents of H.R. 1598 have described this provision as arbitrary. It is no such thing. The pipeline drugs were not made eligible for 5 years of patent extension precisely because the point of the patent extensions was to encourage the research and development of future products. All products which had not yet undergone testing or review by the FDA were judged to be appropriately eligible for the full 5 years of patent extension.
Let me illustrate how the Act's intent in this regard is precise and fair by quoting the legislative history from the 1984 House committee report on this point:
''By extending patents for up to five years for products developed in the future . . . the Committee expects that research intensive companies will have the necessary incentive to increase their research and development activities.''
This is the clear policy which motivated this provision—to encourage additional research, not to simply increase profits on existing products. Only now, faced with their imminent patent expirations, are a handful of companies, including Schering Plough, lobbying vigorously to undermine that policy.
H.R. 1598 Creates Unbalanced Process and Undercuts FDA
H.R. 1598 has several serious flaws. The bill's proposed administrative process would be weighted in favor of Schering-Plough and other applicants, creating a stacked deck in favor of drug companies. It forces the burden of proof onto opponents of the patent extensions. It creates a rebuttable presumption in favor of the drug companies. And it restricts the FDA from providing input about the scientific judgements it had to make about safety and effectiveness. Were this legislation to be enacted, it would create an unbalanced forum—essentially a loophole—which would create the possibility of its use for other drugs, other patents, and other companies—a bad policy and worse precedent.
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H.R. 1598's most serious problem is its mandate that the Patent Office undercut scientific judgments made by the FDA and its advisory committees in new drug reviews. No one likes ''regulatory delay,'' but there are other instances where more time is required to make fundamental determinations of a drug's safety and efficacy. Often, such ''delays'' are the product of sponsor miscalculations, unexpected complications in the conduct of large-scale clinical trials, and legitimate scientific disagreements concerning a product's toxicity or carcinogenicity.
Having the Patent Office second guess the conclusions of a scientific regulatory agency like the FDA and its expert advisors on such issues would be extremely ill-advised. As I've said in the past, this would be like putting the IRS in charge of second-guessing how NIH funds biomedical research.
Let me make a final observation concerning H.R. 1598. One of the points of the Waxman-Hatch Act was to preempt drug companies from lobbying Congress for patent extensions. It has been generally successful, with the exception of the ambitious efforts of Schering Plough, and others.
I have heard claims that Schering and other pipeline drug sponsors were ''delayed'' at FDA. There is a way to learn the truth, and we are awaiting a review by the General Accounting Office (GAO) of the circumstances surrounding the approval of Claritin. In the past, we have relied upon such objective GAO reviews to evaluate patent extension requests for products such as Lodine, Olestra, and Ansaid.
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We know that GAO is already evaluating evidence suggesting that Claritin's approval was characterized by persistent and serious scientific concerns regarding its safety, as well as the sponsor's own miscalculations regarding their formulation of Claritin. For example, the FDA's Pulmonary and Allergy Drugs Advisory Committee undertook a lengthy review of Claritin's potential carcinogenicity. Only in 1991 did the Committee conclude that Claritin was ''not likely'' a human carcinogen, yet a 1994 study published in the Journal of the National Cancer Institute only served to resurrect concerns that Claritin and other antihistamine drugs might cause cancer.
Given the complex and fact-intensive nature of GAO's inquiry, I believe that any claims of ''regulatory delay'' should be viewed with great skepticism until the GAO has completed its analysis.
The Amgen Proposal Restricts Current Law When It May Need Expansion
Let me turn to the Amgen proposal. One of the most significant changes under the 1984 law was the creation of an exemption from patent infringement for tests and other activities conducted for the purposes of obtaining FDA approval. The exemption was created to overturn the ruling in Roche v. Bolar, which held that uses of a patented drug to prepare a generic drug application to the FDA were infringing.
Since its enactment, the courts have interpreted the ''Bolar exemption'' as applying to prescription drugs, biologic drugs, and medical devices, as well as food and color additives. This was the holding of the Supreme Court in the 1990 case, Eli Lilly v. Medtronic, and has been the law for almost a decade.
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As I understand the Amgen proposal, it would restrict application of the Bolar exemption to prescription drugs. In essence, it overturns the 1990 Supreme Court decision and subsequent caselaw, and resets the clock to 1984.
But the litigation between two biotechnology companies, Amgen and TKT, which has led to this proposal to reform the Waxman-Hatch Act, simply underscores how greatly the health care marketplace has changed since 1984. Today, there is a thriving biotechnology industry in which the United States is the global leader. There are scores of innovative biotechnology-derived drugs on the market.
To preserve the balance between innovation and affordable access, I question whether the correct policy is to ignore these changes and seek to narrow current law. Indeed, there is every indication that we must anticipate the need for competition and affordable access to the many new drugs being discovered through biotechnology. When the patents protecting such biotechnology drugs expire, surely we should ensure that consumers have timely access to competing versions in the same manner in which they have access to generic versions of chemically-based prescription drugs.
If this is where the marketplace is heading, it seems that we should refrain from dramatic changes to the Bolar exemption until we have established how to encourage generic competition to biotechnology drugs. That is why I look forward to working with the FDA, as well as the biotechnology and generic drug industries, in establishing the scientific basis and conditions for fair and timely generic competition to biotechnology drugs. If this is where the health marketplace is moving, this is where the law should undoubtedly follow.
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On behalf of myself and Congressman Stark, I thank the Chairman for the opportunity to testify.
Mr. COBLE. Messrs. Bryant and McDermott will be awarded gold stars, and Mr. Waxman will sit in the corner, having violated the red light. [Laughter.]
Mr. Berry, you are recognized for 5 minutes.
STATEMENT OF HON. MARION BERRY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARKANSAS
Mr. BERRY. Thank you, Mr. Chairman. My interest in pharmaceutical drug prices has led me to establish, along with Tom Allen and Jim Turner of Texas, the Prescription Drug Task Force.
What I feel we are really talking about here today can be exemplified by these two bottles I have in front of me. One of them is a bottle of 100 10-milligram Claritin tablets made by Schering-Plough that is sold in Arkansas for $218.96. The other one is a bottle of Claritin made by Schering-Plough, 10 milligram, 100 tablets, that is sold in Canada for $61.23 American. What we are talking about is who gets the money and extending this monopoly yet three more years to companies that are already making outrageous profits at the expense of the American people.
I am here today representing the constituents of Arkansas' 1st congressional district who are concerned about both the high prices charged for prescription drugs and the ability of the pharmaceutical industry to continue to bring new and more innovative cures to the market. I have also worked as a licensed pharmacist. I understand the economic and moral values associated with the public having access to affordable prescription medication.
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Supporters of H.R. 1598 claim the legislation is intended to create a fair and equitable process to extend patent life. I agree with the need for such process. However, I believe a sufficient process already exists as it was created under the Drug Price Competition and Patent Restoration Act of 1984, better known as the Waxman-Hatch Act.
Claritin, a product of the Schering-Plough corporation, has received equitable treatment under this act. Last year Claritin had an estimated $1.8 billion in sales. Business Week referred to it as a ''blockbuster that Hollywood would envy.''
Although Claritin was developed prior to the implementation of the Waxman-Hatch Act, it received a 2-year patent extension because it was in the Food and Drug Administration pipeline at the time Waxman-Hatch created a patent extension for up to 5 years to give incentives to drug companies for new products. Congress decided at that time that the drugs that were already developed should only be eligible for 2 years, the patent extensions, since those drugs obviously didn't need new incentives to be developed. In addition, Claritin received an additional 22 months of market exclusivity when Congress implemented the GATT agreement.
This legislation will take billions of dollars out of the pockets of patients who take Claritin and other medications and from the pockets of the American consumer. The legislation would create a new bureaucratic process in the Patent and Trademark Office to virtually guarantee a patent extension for Claritin and at least six other drugs. While the legislation does appropriately allow the PTO to consider material offered by all parties that would be aggrieved by the extension being granted, it is made clear on page 3 of the bill that the PTO shall grant the extension if the product was in the FDA approval process for at least a specified amount of time, and there is no substantial evidence overcoming the rebuttable presumption that the applicant for patent term restoration for the drug product acted with due diligence. Due diligence in this case means little more than the applicant was actively seeking to have the patent approved. This process, clearly, does not take into consideration the impact such extensions could have on consumers or the Government, which is the largest purchaser of prescription drugs.
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It is outrageous that this legislation doesn't even allow the PTO to take into consideration who was responsible for the delays in approving the drugs. It is evident that much of Claritin's delay is the result of Schering-Plough's bumbling the application process. An FDA advisory committee had tentatively approved Claritin's original application in about a year. After that, Claritin decided it wanted to receive marketing approval for a tablet instead of the capsule form it had originally used. It took Schering-Plough several years just to establish that the tablet would have the same therapeutic effect as the capsule. Schering went ahead and marketed the capsule in several countries.
It is amazing that the bill doesn't even require the PTO to request documentation from the FDA. It is also confusing that the PTO will be placed in the situation of second-guessing scientific judgments made by the FDA.
It is no surprise that Schering-Plough and other pharmaceutical companies support creating the process specified in the bill. With billions of dollars in profits at stake, it would be foolish for them to support anything else.
Everyone should be entitled to a fair and equitable process. Schering-Plough is a Fortune 500 company with profits that are the envy of the corporate world. American consumers pay more for prescription drugs than citizens of any other country. Uninsured customers pay twice as much for their drugs as preferred customers of the drug makers. There is no fairness or equity in this process to American consumers. Congress should not be in the business of passing legislation with a specific purpose of giving billions of dollars in a financial windfall to a handful of companies.
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Thank you, Mr. Chairman.
[The prepared statement of Mr. Berry follows:]
PREPARED STATEMENT OF HON. MARION BERRY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARKANSAS
Thank you Chairman Coble and Ranking Member Berman for allowing me to testify before your subcommittee today. My interest in pharmaceutical drug prices led me to establish, with Tom Allen and Jim Turner, the House of Representatives Prescription Drug Task Force.
I appreciate having the opportunity to discuss H.R. 1598, which has been titled the Patent Fairness Act of 1999. I am here today representing the constituents of Arkansas' First Congressional District who are concerned about both the high prices charged for prescription drugs and the ability of the pharmaceutical industry to continue to bring new and more innovative cures to market. I have also worked as a licensed pharmacist, and understand the economic and moral values associated with the public having access to affordable prescription drugs.
Supporters of H.R. 1598 claim the legislation is intended to create a fair and equitable process to extend patent life. Indeed, I agree with the need for such a process. However, I believe a sufficient process already exists as it was created under the Drug Price Competition and Patent Restoration Act of 1984, better known as the Waxman-Hatch Act. Claritin, a product of the Schering-Plough Corporation, has received very equitable treatment under the Waxman-Hatch Act. Last year Claritin had an estimated $1.8 BILLION in sales. Business Week has referred to the drug as a ''blockbuster that Hollywood would envy.'' Although Claritin was developed prior to implementation of the Waxman-Hatch Act, it received a two year patent extension because it was in the Food and Drug Administration's (FDA's) approval pipeline at the time. Waxman-Hatch created patent extensions of up to five years to give pharmaceutical companies incentives to develop new products. Congress decided at the time of the legislation's passage that drugs which were already developed should only be eligible for two years of patent extensions since those drugs obviously didn't need new incentives to be developed. In addition to the extension Claritin received under Waxman-Hatch, it also received an additional 22 months of market exclusivity when Congress implemented a GATT agreement. This legislation will take billions of dollars out of the pockets of patients who take Claritin and the other medications.
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Today's hearing is a result of excessive corporate lobbying. The legislation would create a new bureaucratic process in the Patent and Trademark Office (PTO) to virtually guarantee a patent extension for Claritin and at least six other drugs. While the legislation does appropriately allow the PTO to consider material offered by all parties that would be aggrieved by the extension being granted, it is made clear on page three of the bill that PTO shall grant the extension if the product was in the FDA approval process for at least a specified amount of time and ''there is no substantial evidence overcoming the rebuttable presumption that the applicant for patent term restoration for the drug product acted with due diligence (emphasis added.)'' Due diligence in this case means little more than the applicant was actively seeking to have the patent approved. This process clearly does not take into consideration the impact such patent extensions could have on consumers or the government, which is the largest purchaser of prescription drugs. I also find it problematic that under H.R. 1598, the PTO will be in the position of interpreting and second guessing scientific decisions made by experts at the FDA. H.R. 1598 contains no meaningful procedure to evaluate who actually caused the delays, the FDA or the companies involved. It is no surprise that Schering Plough and other pharmaceutical companies support creating the process specified in the bill. With billions of dollars in profits at stake, it would be foolish for them to support anything else.
Schering-Plough and other companies manufacturing prescription drugs knew how the patent system and the FDA approval process worked when they made the decision to develop the ''pipeline drugs.'' In fact, prior to the Waxman-Hatch Act becoming law, a study showed that on average drugs received less than ten years of effective patent life. Now, under existing patent law, Claritin will receive more than nine years of monopoly pricing rights. Schering-Plough made a very profitable decision to develop Claritin. Now, 15 years after passage of Waxman-Hatch, the patents on many ''pipeline drugs'' have already expired. It is unclear why this handfull of companies should be entitled to special treatment. Retroactively extending patents on these older drugs will not give manufacturers additional incentives to develop new drugs. It will punish consumers and increase profits in what is already the most profitable industry in existence.
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Mr. Waxman, along with several other of our colleagues, has asked the General Accounting Office (GAO) to examine the delay in Claritin's approval. There is no reason to consider this legislation prior to the completion of the GAO study, considering that Claritin's patent does not expire until June of 2002.
In the past, proponents of patent extensions for prescription drugs have made the claim that longer patent life would give manufacturers more time to recoup their investment in research and development, and would result in lower prices for prescription drugs. I generally take the view that prescription drug prices are based on profit maximization and that manufacturers charge the highest price a large number of consumers in the market place will be able to pay. That is generally how prices are set for products for which there is a monopoly or relatively few sellers manufacturing competing products. However, those in the pharmaceutical industry that claim longer patent lives cause lower prices, should admit this would simply not be the process set forth in H.R. 1598. When Schering-Plough and other companies that developed ''pipeline drugs'' marketed their products, they knew exactly how much time they had remaining on their patents. At this time the companies most likely established a price that would at a minimum recover their original investment and make a reasonable return. Granting up to three additional years of monopoly pricing rights for these products now will result in billions of extra dollars in profits at the expense of sick patients.
Everyone should be entitled to a fair and equitable process. Schering-Plough is fortune 500 Company with profits that are the envy of the corporate world. American consumers pay more for prescription drugs than citizens of any other country. Uninsured customers pay twice as much for their drugs as the preferred customers of drug makers. There is no fairness or equity in this process to American consumers. Congress should not be in the business of passing legislation with the specific purpose of giving billions of dollars in a financial windfall to a handful of companies.
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Mr. COBLE. Mr. Waxman will be joined in the corner with his companion. [Laughter.]
Gentlemen, generally, you all stayed pretty well within the timeframe. We thank you all for being here.
This is a first step today. One of the gentlemen just asked me out in the hall, ''What are you going to do next?'' And I said, ''Steve, I'm not sure. We don't know yet.'' And we don't know yet, but this is the first step. We appreciate your being here.
We will now call the second panel to come forward.
Mr. BRYANT. Mr. Chairman, could I have my full statement attached as an exhibit to my testimony?
Mr. COBLE. You may, indeed. Without objection, the full statements will be incorporated into the record.
Mr. BERMAN. You guys are just lucky. [Laughter.]
Mr. COBLE. And I will introduce you all, as you are making your respective ways to the table.
The first witness on the second panel is Peter Hutt, who is a partner with the law firm of Covington and Burling.
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Well, I will suspend for a moment while some of these people leave. I think we all need to hear about the credentials of our witnesses.
[Pause.]
Mr. COBLE. I will read in order as they appear on my sheet. The first witness on the next panel is Mr. Peter Hutt, who is a partner with the law firm of Covington and Burling, specializing in food and drug law. He teaches a course on food and drug law during the winter term at Harvard School of Law and during the spring term at the Stanford School of Law. From 1971 to 1975, he was the chief counsel for the Food and Drug Administration.
Our next witness is Mr. Bruce Downey, who is chairman of the board, chief executive officer, and president of Barr Laboratories, Incorporated, a leading independent developer, manufacturer, and marketer of genetic pharmaceuticals. Mr. Downey joined Barr in 1993 as president and chief operating office, and was named chairman and CEO 1 year later. For 3 years prior to joining Barr, Mr. Downey served as the company's legal counsel. Mr. Downey was graduated with honors from Miami University in 1969, and received his law degree cum laude from Ohio State.
Now, Mr. Downey, this does not indicate on my sheet, but I presume that is Miami of Ohio?
Mr. DOWNEY. Yes, sir.
Mr. COBLE. The next witness is Mr. Andrew Berdon, who is the vice president and general counsel of Purepac Pharmaceutical Company, a manufacturer and marketer of human prescription generic pharmaceuticals, headquartered in Elizabeth, New Jersey. Purepac is a division of F.H. Falding and Company, Limited, the Australian pharmaceutical company. Mr. Berdon has represented clients in the pharmaceutical industry for over 10 years. Mr. Berdon is a 1984 graduate of the University of Rochester, and received his law degree in 1987 from the Albany School of Law of Union University.
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Our next witness is Dr. Jonathan R. Spicehandler, who is president at Schering-Plough Research Institute, a research-based pharmaceutical company. Dr. Spicehandler received his B.A. in biology in 1970 from Union College and his internship and residency at New York University Medical Center in 1976.
Our next witness is Mr. Gerald Meyer, who is a senior consultant at AAC Consulting Group.
And, incidentally, ladies and gentlemen, I know this is taking time, but I do think it is important that we all know the background and credentials of these very distinguished witnesses.
Mr. Meyer previously served as health sector vice president for regulatory affairs for Domain Solutions Corporation and as a director of development and regulatory affairs for the Pharmaceutical Industry Group of the Digital Equipment Corporation. Mr. Meyer currently serves as a senior advisor to Charter Venture Capital in Palo Alto, California; as a member of the board of directors of the Pharmaceutical Education and Research Institute, and as a member of the Editorial Board of Pharmaceutical Technology. Mr. Meyer is a graduate of the University of Notre Dame and was designated a presidential meritorious executive in 1996.
Our next witness is Mr. Bruce Lehman, who is president and chief executive officer of the International Intellectual Property Institute, a not-for-profit institution based here in Washington. Prior to joining IIPI, until December 31st of last year, Mr. Lehman served as Assistant Secretary of Commerce and United States Commissioner of Patents and Trademarks for nearly 6 years. He also served as a chief counsel to our subcommittee in his previous life.
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And, Mr. Lehman, I would be remiss if I did not commend you for an outstanding job, very effectively rendered, as Commissioner, and I believe this—is this your first appearance as a witness on the Hill since your departure from PTO?
Mr. LEHMAN. Yes, sir, it is.
Mr. COBLE. I knew it was the first time before our subcommittee. It is good to have you back on the Hill.
Mr. Lehman, by the way, earned his B.A. in 1967 and a J.D. in 1970 from the University of Wisconsin, and is a member of the Bar of the District of Columbia.
Our next witness is Mr. William Orr, who is the chairman of the National Alternative Fuels Association. In 1979 Mr. Orr organized Intergo Systems, Inc., an alternative fuels company, and served as its president. In 1986 Mr. Orr co-founded a High-Altitude Engine and Emissions Research Facility, subsequently renamed Colorado Institute for Emissions Research. The facility is the only one of its kind in the world concentrating on the unique aspects of emissions generated at high altitude. In 1990 Mr. Orr organized the National Alternative Fuels Association, a scientific-based entity. Mr. Orr holds a B.A. in business administration from the University of Colorado, and studied chemistry at the United States Coast Guard Academy.
I am a former Coast Guardsman, Mr. Orr, so I can relate to that.
And, Mr. Orr, if you would, in order to have avoided a separate panel, we included you on this panel. So since your area of interest and expertise is unrelated to the issue at hand, I will ask you to be the final witness, if you don't object to that.
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Our final witness on this panel is Ms. Maura Kealey, who is a deputy director of Public Citizen's Congress Watch. She is the lead legislative representative for health and regulatory affairs. Prior to joining Public Citizen's, she was the legislative director of the California State Council of Service Employees for 8 years, and taught comparative social history of the United States and Germany at the University of California at Berkeley and San Francisco State University. She received advanced degrees in comparative history at the University of California at Berkeley, was graduated with honors from the University of Wisconsin, and attended the Georgetown University School of Foreign Service.
We have written statements of all of the witnesses on this panel, and I ask unanimous consent to submit them into the record in their entirety.
Folks, bear with me for being repetitive, but I will ask you, if you will, to be ever vigilant of the red light. We are pleased to have each of you with us. As I said before, and as we have already found out, this is a controversial issue, and we are all here to learn and, hopefully, benefit.
Mr. Hutt, why don't we start with you, and we will work our way down from my left to my right.
STATEMENT OF PETER BARTON HUTT, PARTNER, COVINGTON AND BURLING
Mr. HUTT. Thank you, Mr. Chairman.
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When the Drug Price Competition and Patent Term Restoration Act of 1984 was being considered by Congress during 1983 and 1984, I served as counsel to the Pharmaceutical Manufacturers Association and was deeply involved in the development, negotiation, and drafting of the provisions of that statute. As a result, you have invited me today to present testimony on the origin of the pipeline drug provision in the 1984 act.
The general rule under the 1984 act was that the pioneer drug received up to 5 years of patent term restoration. There was, however, one important exception to that general rule, and it is the one we are addressing today.
A pipeline drug was limited to 2 years of patent term restoration. Pipeline drugs are defined as a drug for which an investigational new drug application, called an IND, had been submitted to FDA prior to the date of enactment of the 1984 act.
Accordingly, there was a full 3 years' difference in patent term restoration between two new drugs that were being developed at the identical time, simply by reason of the fact that the IND for one was submitted shortly before the enactment date and the IND for the second was submitted shortly after the enactment date.
Two years ago, the Chief Counsel for the Senate Committee on Government Affairs asked me about the origin of this 3-year disparity. I provided a letter describing the two reasons for the 2-year limitation on pipeline drugs, and let me summarize those quite briefly.
First, it was felt at the time that the pipeline drugs would be approved by FDA shortly after enactment of the 1984 act, and 2 years of patent term restoration was, therefore, fair and equitable under those circumstances. Second, it was felt that, because of this short time to FDA final approval, less of an economic incentive was needed to assure continued pursuit of the drug to final approval.
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In October 1997, I discussed this matter with John McLaughlin, who had served as counsel to the House Subcommittee on Health and the Environment at the time, and was involved in the legislation on a daily basis, along with me, in 1983 and 1984. He then wrote me to confirm my recollection that these were, in fact, the two reasons for the pipeline drug limitation. Copies of all this correspondence is, of course, attached to my prepared statement.
For most of the pipeline drugs, the assumption that FDA approval would come shortly after enactment of the 1984 act was, in fact, a very accurate assumption. At that time, the average time of NDA approval was approximately 2.25 years. For a few outliers, however, this assumption turned out to be quite inaccurate. For these outlier pipeline drugs, the time for FDA review and approval of an NDA was more than twice the average.
A number of post-1984 new drugs that received a full 5 years of patent restoration were, in fact, approved by FDA before the agency approved these pre-1984 outlier pipeline drugs, but, of course, only received 2 years of patent term restoration. This produced the anomalous result that the outlier pipeline drugs whose NDA approval time was more than twice the average received less than half the normal patent term restoration. None of us who participated in the drafting of the 1984 act anticipated or intended this kind of anomalous result.
In conclusion, Mr. Chairman, without doubt, outlier pipeline drugs have not been treated fairly. Those drugs received only 2 years of patent term restoration, whereas competitors who submitted their IND applications later, but who received FDA approval earlier, received a full 5 years of patent term restoration. This result cannot be justified on any principled basis.
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The assumptions on which the 2-year pipeline drug limitation was based have turned out to be erroneous, even though well-intentioned, for this very limited category of some six to eight drugs. Under similar circumstances, Congress has in the past enacted special legislation on seven occasions, which are laid out on page 10 of my testimony, to redress inequities. In the case of outlier pipeline drugs, this could be accomplished either by drug-specific legislation or, I believe much more efficiently, by establishing a new administrative procedure to evaluate the few remaining outlier pipeline drugs, such as is set forth in H.R. 1598.
Thank you, sir.
[The prepared statement of Mr. Hutt follows:]
PREPARED STATEMENT OF PETER BARTON HUTT, PARTNER, COVINGTON AND BURLING
Mr. Chairman and Members of the Subcommittee, I am Peter Barton Hutt. I am a partner in the Washington, D.C. law firm of Covington & Burling.
I have been asked by the Subcommittee to present testimony on patent term restoration and H.R. 1598. For almost forty years, I have been engaged in the practice of food and drug law. During 1971–1975, I served as Chief Counsel for the Food and Drug Administration (FDA). I am the co-author of the casebook used to teach food and drug law in law schools throughout the country.(see footnote 1) I teach a full course on food and drug law during Winter Term at Harvard Law School and I have taught the same course during Spring Term at Stanford Law School. When the Drug Price Competition and Patent Term Restoration Act of 1984 was being considered during 1983–1984, I served as counsel to the Pharmaceutical Manufacturers Association (now the Pharmaceutical Research and Manufacturers of America) and was deeply involved in the development, negotiation, and drafting of the provisions in that statute.(see footnote 2) I have published articles on the subject of patent term restoration both before(see footnote 3) and after(see footnote 4) enactment of the 1984 Act. Finally, I have twice before testified on legislation intended, and ultimately enacted, to provide patent term restoration for specific products as a matter of fairness and equity.(see footnote 5)
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THE ORIGIN AND PURPOSE OF THE DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT OF 1984
In 1962, Congress enacted new legislation to increase the regulatory requirements for new drugs. The Drug Amendments of 1962(see footnote 6) replaced the 1938 requirement of premarket notification with a more stringent requirement of premarket approval, and added a requirement of proof of effectiveness to the 1938 requirement of proof of safety. In the years that followed, the time required to obtain the necessary evidence of safety and effectiveness increased, and the time required for FDA review and approval of a new drug application (NDA) also increased. As a result, instead of receiving the full statutory patent term of seventeen years, the effective patent life for a new drug gradually was reduced to less than ten years and at times to zero. The longer it took a company to prove safety and effectiveness and the longer it took FDA to review and approve the NDA, the shorter the effective patent life became.
By 1980, the average effective patent life of new drugs had deteriorated to such an extent that many concluded it required remedial legislation. During 1981 and 1982, Congress considered legislation relating solely to patent term restoration. This legislation narrowly missed enactment in September 1982.
Following enactment of the Drug Amendments of 1962, FDA approved the marketing of generic versions of pioneer drugs under abbreviated NDAs for those pioneer new drugs first marketed before the 1962 Amendments, but not for new drugs with NDAs approved after the 1962 Amendments. For two decades, generic versions of post-1962 new drugs were virtually precluded from the market. Both administrative and legislative approaches were considered during this time to permit FDA approval of generic drugs, but none was successful.
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In 1983 and 1984, the pending patent term restoration legislation was combined with legislation authorizing FDA approval of generic versions of post-1962 new drugs through an abbreviated NDA. That legislation was ultimately enacted in September 1984 as the Drug Price Competition and Patent Term Restoration Act of 1984 (which is shortened in this testimony to the ''Patent Term Restoration Act'' or the ''1984 Act'').(see footnote 7)
The 1984 Act was an attempt to balance two competing interests. The research-based drug industry obtained up to five years of patent term restoration for pioneer new drugs, to compensate for part of the diminished effective patent life resulting from the FDA requirements for the investigation and approval of a new drug. The generic drug industry received the assurance that generic versions of a pioneer drug would be approved by FDA following expiration of applicable patents and market exclusivity through an abbreviated NDA that did not require duplicative testing for safety and effectiveness.
THE PIPELINE DRUG EXCEPTION
As noted above, the general rule under the Patent Term Restoration Act of 1984 was that the pioneer drug received up to five years of patent term restoration. There was, however, one important exception to this general rule. A pipeline drug was limited to two years of patent term restoration. Pipeline drugs are defined in what is now 35 U.S.C. 156(g)(6)(C) as any drug for which a patent had been issued and an investigational new drug (IND) application had been submitted to FDA prior to the date of enactment of the 1984 Act, which was September 24, 1984. Accordingly, there was a full three years difference in patent term restoration between two new drugs that were being developed at the same time, simply by reason of the fact that the IND for one was submitted shortly before the enactment date and the other was submitted shortly after the enactment date.
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THE CONGRESSIONAL RATIONALE FOR THE REDUCED PATENT TERM RESTORATION FOR PIPELINE DRUGS
The three-year disparity between the two years of patent term restoration provided where an IND had been submitted before the date of enactment and the five years provided for all other new drugs has provoked substantial interest and concern. Two years ago, the Chief Counsel for the Senate Committee on Government Affairs asked about the origin of this disparity. I provided a letter in May 1997 describing the two reasons for the two-year limitation on pipeline drugs. A copy of that letter is attached to this testimony.
As already noted, I participated in the development, negotiation, and drafting of the 1984 Act on behalf of the industry trade association. My clear recollection of the reasons for the two-year limitation for pipeline drugs, as set forth in that May 1997 letter, are as follows:
There were two fundamental reasons why the two-year limitation was included for pipeline drugs in what is now 35 U.S.C. 156(g)(6)(C). These reasons were frequently discussed among those of us who were involved in the daily negotiations.
First, it was felt that the pipeline drugs would be approved by FDA shortly after enactment of the 1984 legislation. Accordingly, it was thought that the five year period of patent term restoration granted to all post-enactment drugs would be unjustified for pipeline drugs, and that a two-year period of patent term restoration would more appropriately reflect the anticipated short period of time between the date of enactment and the date of FDA approval for pipeline drugs. (While this assumption has in large part proved to be true, I understand that for a handful of pipeline drugs the time between date of enactment and FDA approval has extended beyond the time needed for approval of post-enactment drugs and has in fact exceeded ten years—something clearly not contemplated by any of us when we were drafting the legislation in 1984.)
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Second, it was felt that, for any drug for which an IND had been submitted to FDA prior to the date of enactment, the manufacturer had already made the decision to invest resources in the drug and therefore less of an economic incentive was needed to assure continued pursuit of the drug to final FDA approval—particularly when it was anticipated that approval would come not long after enactment of the legislation. Accordingly it was concluded that two years, rather than five, would provide sufficient economic incentive to assure that a pipeline drug would not be abandoned.
These were the two considerations that led to the two-year limitation on patent term restoration for pipeline drugs, as contrasted with the five-year grant of patent term restoration for post-enactment drugs, in the 1984 Act. To the best of my recollection, they were the only two considerations that were discussed at that time.
In October 1997, I discussed this matter with John P. McLaughlin when I saw him at a meeting and then sent him my May 1997 letter to ask his recollection. Mr. McLaughlin had served as Counsel to the Subcommittee on Health and the Environment of the House Committee on Energy and Commerce, and was involved in the legislation on a daily basis, throughout 1983 and 1984. At the time I wrote him, Mr. McLaughlin was Executive Vice President of Genentech, a highly successful biotechnology company. Genentech has no interest of any kind in any pipeline drug. Mr. McLaughlin wrote back to confirm my recollection of the above reasons for the pipeline drug limitation. Copies of my letter to Mr. McLaughlin and his reply are also attached to this testimony.
THE OUTLIER PIPELINE DRUGS
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For most of the pipeline drugs, the assumption that FDA approval would come shortly after enactment of the 1984 Act turned out to be accurate. At that time, the average time for FDA approval of an NDA was approximately 2.25 years.(see footnote 8)
For a few outliers, however, this assumption turned out to be quite inaccurate. For these outlier pipeline drugs, the time for FDA review and approval of an NDA was more than twice the average, and they therefore suffered an even greater reduction in effective patent life. A number of post-1984 new drugs that received a full five years of patent term restoration were in fact approved by FDA before the agency approved these pre-1984 outlier pipeline drugs that received only two years of patent term restoration. This produced the anomalous result that the outlier pipeline drugs, whose NDA approval time was more than twice the average, received less than half the normal patent term restoration. None of us who participated in the drafting of the 1984 Act anticipated or intended this result.
These outlier situations, with approval times more than double the average, reflect the large new drug review workload imposed on FDA in the late 1980s and early 1990s, the increasingly restricted resources available to the agency to do this work, and thus the growing shortfall in the personnel assigned to these tasks. FDA was doing everything it could to meet its new drug review obligations throughout this time. But the resources simply were not there to satisfy the workload needs.
Congress squarely faced this issue in the early 1990s and found a solution in the Prescription Drug User Fee Act of 1992.(see footnote 9) Using the additional funds made available under the 1992 Act, FDA hired approximately 650 new employees to handle NDAs in a more expeditious manner. As a result, the time for NDA approval was cut in half. If this approach had been adopted earlier, there would have been no outlier pipeline drugs and no need for legislation to redress the inequity in patent term restoration that has in fact occurred for these drugs.
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LEGISLATIVE ATTEMPTS TO REDRESS THE INEQUITY FOR OUTLIER PIPELINE DRUGS
The two-year limitation for pipeline drug patent term restoration in the 1984 Act was intended to deal with the expected FDA average approval time of about 2.25 years. It made no attempt to address unusual or unique situations of lengthy regulatory review for which accepted principles of fairness and equity would justify exceptions.
As a result, Congress has on seven specific occasions enacted legislation to address particular FDA-regulated products where application of the general rules in the 1984 Act would have been unfair and inequitable. Two of those occurred in the middle of the congressional consideration of the 1984 Act, two occurred at the end of the congressional consideration of the 1984 Act and were enacted a month later, and the remaining three occurred in 1988, 1993, and 1996. In all seven instances, Congress concluded that the general rules applicable under the 1984 Act were insufficient to address the particular situations involved, and thus that legislation was necessary and appropriate. The following table lists those seven statutes:
In a number of other instances, similar legislation has been considered by Congress for other FDA-related products but has not been enacted.
I have in the past supported this type of legislation, because I believe it is entirely appropriate for Congress to enact legislation addressing the inequities that inevitably arise in the application of general rules to unique situations. It is, however, time-consuming and inefficient for Congress to examine and take action on each specific product where a general problem has been identified, such as outlier pipeline drugs. During a Senate hearing held in August 1991 to consider patent term restoration bills for three specific products, Bruce Lehman, who later served as Commissioner of Patents and Trademarks, offered the thoughtful suggestion that Congress establish some type of new administrative procedure to consider identified problems of fairness and equity rather than to handle each individual product on an ad hoc legislative basis.(see footnote 10) As Mr. Lehman pointed out at that time, this alternative way of approaching the matter offers substantial advantages. This approach for outlier pipeline drugs has been discussed since 1991, and legislation incorporating it has recently been introduced as H.R. 1598.
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CONCLUSION
Without doubt, outlier pipeline drugs have not been treated fairly. These drugs received only two years of patent term restoration, whereas competitors who submitted their IND applications later but received their NDA approvals earlier received a full five years of patent term restoration. This result cannot be justified on any principled basis. The assumptions on which the two-year pipeline drug limitation was based have turned out to be erroneous for this limited category of drugs. Under these circumstances, Congress has in the past enacted legislation to redress the resulting inequity. In the case of outlier pipeline drugs, this could be accomplished either by drug-specific legislation or, more efficiently, by establishing a new administrative procedure to evaluate the few remaining outlier pipeline drugs involved as set forth in H.R. 1598.
| Covington & Burling, |
| Washington, DC, May 12, 1997. |
FREDERICK S. ANSELL, ESQUIRE, Chief Counsel,
Senate Committee on Governmental Affairs,
United States Senate, Washington, DC.
DEAR MR. ANSELL: This is in response to your request for information on the origin of the two-year limitation on patent term restoration for pipeline drugs under the Drug Price Competition and Patent Term Restoration Act of 1984. As counsel to the Pharmaceutical Manufacturers Association (now the Pharmaceutical Research and Manufacturers of America) with respect to that legislation, I participated in the development, negotiation, and drafting of the 1984 Act.
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The 1984 Act established patent term restoration of up to five years for new drugs approved by the Food and Drug Administration (FDA) after the date of enactment, except that a two-hear limitation was placed on pipeline drugs. Pipeline drugs were defined as those drugs for which an IND was submitted prior to the date of enactment.
There were to fundamental reasons why the two-hear limitation was included for pipeline drugs in what is now 35 U.S.C. 156(g) (6) (C). These reasons were frequently discussed among those of us who were involved in the daily negotiations.
First, it was felt that the pipeline drugs would be approved by FDA shortly after enactment of the 1984 legislation. Accordingly, it was thought that the five year period of patent term restoration granted to all post-enactment drugs would be unjustified for pipeline drugs, and that a two-year period of patent term restoration would more appropriately reflect the anticipated short period of time between the date of enactment and the date of FDA approval for pipeline drugs. (While this assumption has in large part proved to be true, I understand that for a handful of pipeline drugs the time between date of enactment and FDA approval has extended beyond the time needed for approval of post-enactment drugs and has in fact exceeded ten years—something clearly not contemplated by any of us when we were drafting the legislation in 1984.)
Second, it was felt that, for any drug for which an IND had been submitted to FDA prior to the date of enactment, the manufacturer had already made the decision to, invest resources in the drug and therefore less of an economic incentive was needed to assure continued pursuit of the drug to final FDA approval—particularly when it was anticipated that approval would come not long after enactment of the legislation. Accordingly, it was concluded that two years, rather than five, would provide sufficient economic incentive to assure that a pipeline drug would not be abandoned.
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These were the two considerations that led to the two-year limitation on patent term restoration for pipeline drugs, as contrasted with the five-year grant of patent term restoration for post-enactment drugs, in the 1984 Act. To the best of my recollection, they were the only two considerations that were discussed at that time.
Sincerely,
| Covington & Burling, |
| Washington, DC, May 12, 1997. |
JOHN P. MCLAUGHLIN, ESQUIRE,
Executive Vice President,
Genentech, Inc., San Francisco, CA.
DEAR JOHN: For the past several years, manufacturers of ''pipeline'' prescription drugs—those drugs that received only two years of patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984 because a clinical trial had begun before the date of enactment—have pursued legislation to expand their term of patent term restoration to a full five years. They argue that the 1984 Act unjustifiably discriminated against the pipeline drugs and that the premises on which the reduction from five to two years of patent term restoration was based have turned out to be incorrect.
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Recently I was asked to provide a letter to the Senate Committee on Governmental Affairs to relate my views on why the pipeline drugs were provided a shorter term of patent term restoration. A copy is enclosed.
I would be very interested in knowing your recollection of this matter. When you have a moment, please give me a call.
With best regards,
Sincerely yours,
| Genentech, Inc., |
| San Francisco, CA, October 31, 1997. |
PETER BARTON HUTT,
Covington & Burling,
Washington, DC.
DEAR PETER: Thank you for your letter of October 16, 1997. You ask whether I have a recollection as to the rationale for affording two years of patent restoration for ''pipeline drugs'' (as compared to five years for certain other categories of drugs) in the Drug Price Competition and Patent Term Restoration Act of 1984. Based on my service as Counsel to the House Subcommittee on Health and the Environment, I have a very clear recollection of the rationale. It is accurately summarized in your letter of May 12, 1997 to the Senate Committee on Governmental Affairs.
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If you would like to discuss this matter further, please feel free to give me a call.
Sincerely,
| John P. McLaughlin, Executive Vice President. |
Mr. COBLE. Thank you, Mr. Hutt.
Mr. Downey.
STATEMENT OF BRUCE L. DOWNEY, CHAIRMAN, CEO, AND PRESIDENT, BARR LABORATORIES
Mr. DOWNEY. Thank you, Mr. Chairman. Before I address specifically the provisions of H.R. 1598, I would like to address four misimpressions I think some of the Members of the House have received as a result of visitations by those advocating this bill. As we visited in your offices, we have learned of these misimpressions, and I would like to address them, so that we can clear that up for the record.
The first misimpression is that our industry hates patents; that we are against patent protection, and that we are against the monopolies that they embody. That is not true. Our industry also holds patents. Our company holds patents, and we look to the law to enforce those property rights. What we hate is this bill. We think this bill unjustifiably will extend patent rights beyond any reasonable basis.
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Second is an impression that our industry is not united in opposition to this bill. That, also, is untrue. We have three trade associations in our industry. All three trade associations are adamantly opposed to this legislation. They include dozens of suppliers to our industry, all of whom are opposed to this legislation. It includes dozens of companies that make generic drugs, and all but the generic division of Schering-Plough opposes this legislation, and includes dozens of suppliers who distribute our products through drug sales around America, and all of those companies are opposed to this legislation. So it is untrue that there is any division within our ranks about the propriety of this legislation.
Third, even in Mr. McDermott's testimony earlier, there was a misimpression about the pricing that we have in our industry. There is not a single product where the generic drug isn't substantially lower in cost than the branded alternative, including the drugs referenced in the FTC proceeding that has started, but not yet concluded.
We believe there is a misimpression about the specific requests embodied in this legislation that really is being advocated by Schering-Plough. This is not the first time Schering-Plough would be getting an extension on this patent. As other witnesses have shown, this is the fifth request for the third extension on this patent. Already, extensions granted will guarantee 21 years of patent life for Claritin; the last two extensions cost American consumers $12 billion in protected monopoly sales, and the third extension being requested would guarantee another $12 billion in branded sales without generic competition.
Turning directly to the provisions of this legislation, I am reminded, really, of a passage from a character sketch by Mark Twain, who described one of his characters as a man who had the ability to draw a straight line from an unwarranted assumption to a foregone conclusion. I would like to address what I believe are the unwarranted assumptions that underlie this legislation.
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First, that somehow the pipeline drugs weren't fairly treated in the Hatch-Waxman compromise of 1984—that's simply wrong. That legislation, as Mr. Hutt and others have indicated, was the product of 2 years of legislative process and hearings. Pipeline drugs was one of dozens of issues that addressed the tension between competition, a value that we all hold dear in our society, and property rights, another value that we hold dear. Those two rights and those two principles are in conflict and a tension, and the original Hatch-Waxman Act resolved dozens of places where those two concepts came into collision course.
One of them was the pipeline drug bill, and the pipeline drug provision was the product of compromise. It got less than full patent restoration granted new products, but it got more than the zero patent restoration that existing products got—a logical compromise and a very common-sense resolution of this approach.
Mr. Berman, when you gave your remarks, I would agree with you that a deal is not always a deal. There are times when things need to be revisited. But in this case, the revisitation of this one provision in a 40-or 50-provision piece of legislation that balances these very important interests of competition and property rights is like pulling the string on a button. As you pull that string out, the thread keeps coming, and pretty soon the button falls in your hand. It is not the kind of situation where you can go in and look at one thing.
There are parts of the act we would like to move from the property rights side of the ledger to the pro-competition side of the ledger, but here is a case where we are looking at only one provision. I think the complexity of this issue is why both Senator Hatch, a conservative Republican, and Congressman Waxman, a liberal Democrat, agree on both the original bill and on the concept that, if there is a revisitation of the legislation, it has to look at the entire array of issues, and not just one issue.
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In conclusion, Mr. Chairman, I think what we would have with the passage of this bill, and going to the foregone conclusion which I believe it mandates, is tantamount to imposing a $12 billion tax on allergy sufferers, collecting that tax, and transferring it by wire to the Schering-Plough coffers. We believe that is wrong. We believe such a decision belongs in the political process, not in some bureaucratic cubbyhole in Crystal City or in Rockville. I think here in this hearing room, where all the facts can be explored, and the balance between consumer interests, competition, and property rights can be aired fully by the elected officials of our people, that is the proper place to resolve this question.
Thank you for your time.
[The prepared statement of Mr. Downey follows:]
PREPARED STATEMENT OF BRUCE L. DOWNEY, CHAIRMAN, CEO, AND PRESIDENT, BARR LABORATORIES
SUMMARY
The Generic Pharmaceutical Industry opposes HR 1598 because it would:
Impose a multi-billion dollar tax on allergy sufferers;
Disrupt the public policy balance embodied in Hatch-Waxman that has created more than a decade of increased R&D spending in the brand industry and substantial consumer savings from new generic product introductions;
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Negate the economic balance between rewarding innovation and research and promoting competition;
Invite imitation by other special interests for countless other products; and
Require Congress to spend time extending monopoly protection to a specific group of products at a time when it should be concentrating on increasing access to pharmaceutical products at reasonable costs.
One of the real dangers of H.R. 1598 is its inexorable and inevitable disruption of the Hatch-Waxman Act, opening the door for the ultimate reversal of the most significant consumer health care access and savings act in history.
The patents protecting Claritin have already been extended far beyond what Schering-Plough could have expected at the time it was developing this product. Schering-Plough sought a two-year patent extension pursuant to Hatch-Waxman and was successful in extending the patent until August 4, 2000. As part of the GATT implementation legislation, the patent was further extended by another 22 months to June 19, 2002. As a result of these extensions, in June 2002 Claritin will have enjoyed patent life of approximately 21 years—four years beyond the original patent term.
The two-year Hatch-Waxman extension had a value of $5 billion in sales. The two-year GATT extension is expected to generate approximately $7 billion in sales based on projections by ABN AMRO Associates of Boston. There is no economic justification for assessing an additional multi-billion dollar tax on allergy sufferers to pay for extending the patents on Claritin for an additional three years. While analyst's projections for Claritin's growth end with the patent expiry, if one were to assume the same growth levels through 2005, HR 1598 would result in an additional windfall of approximately $20 billion. This windfall, or tax, would be paid by allergy sufferers and the rest of American consumers and taxpayers.
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Instead of relying upon innovation to replace products whose patents have expired, HR 1598 rewards legal tactics and gimmickry that have one purpose—to delay as long as possible real market competition.
The Generic Pharmaceutical Industry urges the Committee to reject HR 1598.
STATEMENT
Mr. Chairman, members of the Subcommittee, thank you for the opportunity to testify. My name is Bruce L. Downey, and I am Chairman of Barr Laboratories, Inc., which has facilities in New York, New Jersey and Virginia and manufactures and distributes a wide range of prescription medicines for the treatment of diseases ranging from cancer to heart disease to depression. Barr Laboratories is a member of the Generic Pharmaceutical Industry Association and the National Pharmaceutical Alliance, two of the three largest generic pharmaceutical industry associations. I am speaking at the behest of the Coalition for Affordable Pharmaceuticals, which includes these two organizations and the National Association of Pharmaceutical Manufacturers.
As you know, and as I have testified in the past, the members of the generic pharmaceutical industry stand together in strong opposition to the approval of HR 1598. Our opposition is not based on our status as generic companies. No one has a bigger interest in pharmaceutical innovation than the generic industry. Our future is directly linked to a brand industry that is fairly rewarded for choosing innovation over stagnation, creativity over monopoly maintenance. Rather, our industry opposes this measure because it would:
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Impose a multi-billion dollar tax on allergy sufferers;
Disrupt the public policy balance embodied in Hatch-Waxman that has created more than a decade of increased R&D spending in the brand industry and substantial consumer savings from new generic product introductions;
Negate the economic balance between rewarding innovation and research and promoting competition;
Invite imitation by other special interests for countless other products; and
Require Congress to spend time extending monopoly protection to a specific group of products at a time when it should be concentrating on increasing access to pharmaceutical products at reasonable costs.
Let's be honest. We are here today because of the multi-billion dollar, international success of the drug, Claritin. The driving force behind this legislative initiative is Schering-Plough and its efforts to extend the patents that protect Claritin and Schering-Plough's corporate profits—from competition.
This is not a new proposal. This is the second time that this issue has been raised before your committee and the fifth time that Schering-Plough has attempted to obtain a third extension of the patents protecting Claritin.
In May 1997, the company attempted to add a patent extension amendment to the Omnibus Patent Act of 1997, an effort that was blocked in the Senate Judiciary Committee. In the closing moments of the 1997 congressional session, there was a second attempt to extend the patent through the appropriation process, while a bill was in conference. That effort was also rejected. Last year, there was an attempt to add this proposal to the 1998 Omnibus Appropriations Bill. That initiative failed as well. I am confident that when you have considered all of the evidence you will reach the same conclusions that the Congress has reached on four previous occasions and reject HR 1598.
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A fundamental reason for the four previous rejections of an extension to the Claritin patents is that the government has already granted two such extensions. If you look at the record, the patents protecting Claritin have already been extended far beyond what Schering-Plough could have expected at the time it was developing this product. The original patents for Claritin were filed on June 19, 1980 and granted on August 4, 1981. The product was launched in 1993 and without any extensions the patents would have expired on August 4, 1998, after 17 years of protection. According to a Federal Register Notice of August 31, 1993, Schering-Plough sought a two-year patent extension pursuant to Hatch-Waxman and was successful in extending the patent until August 4, 2000. As part of the GATT implementation legislation, the patent was further extended by another 22 months to June 19, 2002. As a result of these extensions, in June 2002 Claritin will have enjoyed patent life of approximately 21 years—four years beyond the original patent term.
The two-year Hatch-Waxman extension had a value of $5 billion in sales. The two-year GATT extension is expected to generate approximately $7 billion in sales based on projections by ABN AMRO Associates of Boston. From the consumers point of view, this $12 billion is paramount to a tax collected by the federal government and paid directly to Schering-Plough.
There is no economic justification for assessing an additional multi-billion dollar tax on allergy sufferers to pay for extending the patents on Claritin for an additional three years. While analyst's projections for Claritin's growth end with the patent expiry, if one were to assume the same growth levels through 2005, HR 1598 would result in an additional windfall of approximately $20 billion. This windfall, or tax, would be paid by allergy sufferers and the rest of American consumers and taxpayers.
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Rather than paying a little more than $15 dollars per month for a generic Claritin, patients will be forced to continue to pay for three more years the $87 per month Claritin costs now. For those patients covered by insurance these costs will be borne by the insurance firm subscribers and employers who pay for medical coverage. For those who must cover prescription costs themselves, the $87 per month will come directly out of their pockets. And all taxpayers will be forced to support the federal costs that these patent extensions will create. Clearly, each one of us here, whether one of the unlucky 45 million allergy sufferers or not, will be a partner in lining Schering-Plough's coffers with unwarranted profits.
If this multi-billion dollar tax is not enough to derail this bad public policy initiative, let us consider the damage that would result to the compromise that created the generic industry, the Hatch-Waxman Act.
Mr. Chairman, as a CEO of a corporation, I can appreciate Schering-Plough's corporate motives in working to preserve its Claritin profit stream from competition. But there are few instances in our nation's history where corporate monopoly interests have made sound public policy. In fact, competition in the pharmaceutical industry is good for patients, taxpayers, the government, and particularly, for innovators. Working with a date certain, finite period of protection promotes innovation. It certainly does in the generic pharmaceutical industry.
When a product patent expires, it is not unusual for multiple generic pharmaceutical companies to launch versions of the product. As a result, prices fall rapidly and dramatically, as competition increases. Today, generic products can capture from 75–80% of the market within the first year, at anywhere from 30–70% of the brand price. One need only look at Zantac, an ulcer medication for a good example. Following introduction, generics rapidly climbed to 80% of the units sold in the market in less than three months. The cost savings are equally as dramatic for patients, falling from more than $80 a month to less that $12 per month.
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Because of this stiff competition, most brand companies are forced to innovate. Last summer, the Congressional Budget Office considered the very issue of innovation when it examined the value and impact of generic competition. The CBO study concluded that, ''Between 1983 and 1995, investment in R&D as a percentage of pharmaceutical sales by brand name drug companies increased 14.7 percent to 19.4 percent. Over the same period, U.S. pharmaceutical sales by those companies rose from $17 billion to $57 billion. Overall, then, the changes that have occurred since 1984 (the Hatch-Waxman Act) appear to be favoring investment in drug development.''
Since the Hatch-Waxman Act, brand sales have increased steadily, exceeding $80 billion in 1998. Generic companies and consumers also have benefited. Since 1984, the generic industry has grown steadily and today has total revenues of approximately $11 billion. In fact, 45% of all prescriptions filled today are for generics. Because of generic competition, consumers have saved literally billions of dollars by having access to generic pharmaceuticals that are priced as much as 70%–80% below their brand counterparts.
Two of the arguments made in support of HR 1598 are that specific drugs deserve additional patent protection because of their status at the time of Hatch-Waxman, and second, that the Claritin product was unnecessarily delayed by the FDA. At the time the compromise for extending patents under Hatch-Waxman was forged, it was recognized by all parties that one of the key objectives of the Act was to promote innovation. The formula for rewarding innovation was straightforward.
Drug products in the early stages of development, and research projects initiated after the implementation of the Act were entitled to full patent restoration as a means of promoting innovation. Those products already on the market received no patent extension, because the parties recognized that there was no obligation to make restitution for the innovation that had previously lead to their development. For those products that were in the middle stages of development, including Claritin, it was agreed that some period of patent extension would be granted as a partial restoration of the investment made to bring these products to market. The amount of time granted was based on the point in development when the Act was implemented. HR 1598 repudiates this deal.
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In addition, Schering-Plough argues that Claritin deserves additional patent protection because FDA approval was unusually delayed. The facts, however, do not support his argument. The IND for the product was filed with the FDA in January 1983, and the NDA was filed in October 1986. An FDA advisory committee recommended approval for Claritin a year after the NDA was filed. Normally prompt approval would have followed. Schering-Plough, however amended the application to go from a capsule to a tablet form, providing failing bioequivolence data on two occasions. Had Schering-Plough proceeded with approval to market the capsules as originally intended, and as it did in 46 other countries, the product could have been launched years earlier and we would not be here today.
Despite the decision to change the product from capsules to tablets, the approval time for Claritin was in line with other pharmaceutical approvals. According to the testimony of Joseph A. Dimasi, Ph.D., Director of Economic Analysis, Tufts University, before the House Commerce Committee's Subcommittee on Health and the Environment on April 23, 1997, ''The time it takes to go from initial clinical testing in the United Sates to marketing approval has averaged nine years for approvals in recent years.'' The approval time for Claritin was approximately 10 years.
If HR 1598 is approved, Schering-Plough will have realized total sales of approximately $30 billion during the life of the Claritin patents, based upon sales since launch and recent financial analyst projections. It is impossible to argue that Schering-Plough is entitled to this additional windfall.
There is compelling evidence today that the underlying premise of the Hatch-Waxman Act works—the pharmaceutical industry and consumers will benefit if there is a proper balance between rewarding innovation and guaranteeing competition. A study recently commissioned by Warner Lambert and prepared by the Boston Consulting Group explored issues related to access to brand pharmaceuticals as related to market interventions outside the U.S. marketplace. The study considered market interventions, including government price controls, and concluded that, ''the net effect of reducing the degree of market intervention would be to encourage competition later in the product life cycle, and reward and encourage innovation in the early years . . . It is ultimately the patient who suffers from a poorly designed and ineffective intervention regime.'' What Schering-Plough has proposed in HR 1598 is in direct contraction to this conclusion. The very kind of patient benefits that result from competition will be lost by this approach.
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Instead of relying upon innovation to replace products whose patents have expired, HR 1598 rewards legal tactics and gimmickry that have one purpose—to delay as long as possible real market competition. One would think that this is the very kind of corporate mentality that should be discouraged not rewarded.
Equally important to understand in assessing HR 1598 is that there are several fundamental conceptual flaws with the proposed legislation that results in a pre-determined outcome. First, the bill is absurdly slanted in favor of the applicant. Section 2 establishes a procedure for granting patent extension that has two primary standards: 1) an FDA review period exceeding 60 months; 2) the applicant acted with ''due diligence.'' HR 1598 assumes that the applicant acted with due diligence unless substantial evidence to the contrary is presented. In other words, if Schering-Plough was ''diligent'' in its attempts to file bioequivalence data—faulty though it may have been—and was actively engaged with the FDA, then they get a multi-billion dollar patent extension.
Second, as was true with prior versions of this proposal, HR 1598 would require the Commissioner of the United States Patent and Trademark Office to make a legal determination about whether an entirely different agency, the Food and Drug Administration, performed its responsibilities in accordance with its statutory mandate. At no time during the entire consideration of this legislation has there been a credible demonstration that the Commissioner of Patents has sufficient knowledge of the FDA and its processes or pharmaceutical policy that justifies this delegation of authority.
Third, the burden of proof rests with the wrong party. According to the proposed process, the requested extension will be presumed by law to be in the public interest, unless an opponent of the extension can prove that there is substantial evidence that the applicant did not act with ''due diligence''. The burden is not on the company to prove that granting the patent extension is in the public's interest. Instead, inexplicably, some unknown third party must prove the negative.
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As a result of these deficiencies, we believe that this process is really intended to achieve a pre-determined result, not to establish an impartial procedure for determining whether a company was so disadvantaged that it should receive a special legal dispensation that injures consumers, taxpayers, and the federal government.
Success in moving HR 1598 will breed imitation. There is no reason to believe that the proposed legislation will not be amended to provide other companies with additional patent relief. In fact, some brand pharmaceutical firms have made it clear that they will attempt to amend the legislation to provide patent relief to other products should it be considered seriously by Congress. Thus, one of the real dangers of H.R. 1598 is its inexorable and inevitable disruption of the Hatch-Waxman Act, opening the door for the ultimate reversal of the most significant consumer health care access and savings act in history.
In closing, I would like to pose a question, and then answer it. What will happen to Schering-Plough if they are unsuccessful in getting Congress to extend their Claritin patents? The answer comes directly form Schering-Plough's Chief Executive, Richard Jay Kogan. In a story published in the Wall Street Journal on Monday, Kogan is quoted as saying that his company had several add-on patents on Claritin that may protect the drug for years beyond 2002, when the first patent expires on the chemical compound. The story went on to note that the ''company was in late-stage human testing of desloratadine, a metabolite of the chemical in Claritin, whose patents expire in 2004 and 2014,'' and as such Schering-Plough is in a ''good position to compete on its own and isn't interested in a merger at this time.''
Clearly, without a multi-billion dollar, three-year tax on allergy sufferers, the makers of Claritin will be all right.
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In summary, it is my hope that when Congress considers the issues of federal pharmaceutical policy, the debate will not focus on how to construct a process designed to achieve only one outcome—the endless preservation of one company's product monopoly. Instead, I hope that the focus will be on how to protect the public health policy issue of balancing brand pharmaceutical research and development with the introduction of new generic medicines, and the economic balance of rewarding innovation and promoting competition.
The American people would be better served by having us debate ways to extend access to affordable medicines, such as looking for ways to expand the benefits of the Hatch-Waxman Act. Some examples might include closing loopholes, speeding approvals, and expanding coverage to new classes of drugs such as generic biotechnology derived-drug products.
Today, the biotechnology industry is unique in the pharmaceutical industry in that it does not have generic competition. There is no explicit regulatory pathway for generic biotech approval, despite the fact that a number of blockbuster biotech products are already off patent or will be by the turn of the century. Not only would consumers and government purchasers benefit greatly from the cost savings attributed to generic biotech products, but allowing new competition from generic manufacturers would serve as an incentive for the biotech industry to innovate the next generation of biotech drugs. In this way, we could save money for all consumers, rather than tax consumers to the benefit of select companies.
When you look at the headlines from the past several weeks, clearly the cost of pharmaceutical products is of paramount concern to a broad, bipartisan group of legislators deeply concerned about the ability of Americans to afford their medicine. I would encourage Congress to turn its back on the debate of such special interest legislation as HR 1598, and focus on debate over ways to give every citizen the medicines they need, without the financial hardship they now face.
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The brand and generic industry agree that affordable medicines are the key to longer, healthier and more productive lives. Let us work together with you to resolve the problems of dispensing medicines to all Americans, including the under-insured and uninsured, and not waste time debating the dispensation of special corporate favors that drive up the cost of medicines.
I urge the Committee to reject HR 1598. I am happy to answer any questions you might have.
Mr. COBLE. Thank you, Mr. Downey.
Mr. Berdon.
STATEMENT OF ANDREW M. BERDON, VICE PRESIDENT AND GENERAL COUNSEL, PUREPAC PHARMACEUTICAL COMPANY, ON BEHALF OF THE COALITION FOR AFFORDABLE PHARMACEUTICALS
Mr. BERDON. Thank you, Mr. Chairman. I appear here today on behalf of CAP, the Coalition for Affordable Pharmaceuticals. We are the united——
Mr. COBLE. Mr. Berdon, if you could that mic a little closer to you—thank you, sir.
Mr. BERDON. We are the united voice of the generic pharmaceutical industry.
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The generic industry opposes this latest effort by Schering-Plough to extend the monopoly on their blockbuster allergy drug Claritin for three more years. H.R. 1598 is anti-competitive and ant-consumer, and offers no public health benefit. The patent extension would be an unwarranted windfall, and Schering-Plough has already reaped a return on its research and development investment on this product billions in excess of its reasonable expectation at the time its NDA was filed.
The proponents of this legislation have tried to paint this bill as one that will address an inequity arising under the Waxman-Hatch Act. The pipeline drug provision was a carefully negotiated policy decision, and was agreed upon by all sides, including the brand industry. It was agreed that the 2-year patent term restoration for so-called pipeline drugs was appropriate because the research and development cost for those drugs had already been sunk. A 5-year extension for later-developed products was also seen to be an appropriate incentive for future development. The Schering-Plough decision to develop this drug was a long foregone conclusion at the time that the patent extensions were contemplated.
Through H.R. 1598, Schering-Plough and other brand companies are selectively attempting to undo the balance struck in 1984 in order to extend the monopoly periods, at the expense of competition, consumer savings, and healthcare costs. Perhaps the most compelling reason why this bill should be rejected is that it establishes a sham process with a predetermined outcome. The bill would apply to any pipeline drug for which the NDA was under review for at least 60 months. A product meeting this criteria would automatically have its patent term restored for 3 years minus any period in which it can be established that the applicant did not act with due diligence. Critically—and I believe contrary to Representative McDermott's characterization—this would not be done in a true court setting. There is nothing in the bill that would require the brand company to grant access to its internal documents, setting forth the internal decisionmaking process that could conceivably have led to some of the regulatory delays that they experienced.
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Schering, in essence, won the lottery with Claritin. It was that perhaps once-in-a-pharmaceutical-company's-lifetime drug that hit for more than a billion dollars in sales a year, and they have cashed that ticket. What they are asking us to do, and what they are asking Congress to do, is let them cash that ticket again, at the expense of the American consumer.
This is not the sort of process that most people would label as fair, and this is not an example of an inequity that needs to be addressed through a special-interest legislation.
In its many attempts to secure this extension, Schering has blamed unanticipated delays at FDA. Noticeably absent has been a discussion of the unanticipated extensions that have already been secured or the reasons for those delays.
Mr. Chairman, proper FDA investigation of cancer concerns or proper FDA investigation of bioavailability concerns cannot be swept aside as undue regulatory delay. And I submit that there is a forum and a way that this could be done in an open and equal setting, but it is not described in H.R. 1598, where the deck is clearly stacked in favor of Schering-Plough and the other brand companies.
Schering cannot claim that they were unaware that bioequivalency issues could arise from a dosage form switch. Schering cannot possibly claim that additional clinicals, in response to cancer concerns, were not a valid concern for the FDA to investigate and ask Schering to investigate properly.
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CAP hopes that Congress can recognize not only that H.R. 1598's version of a process is a stacked deck against consumers and the generic industry, but also that the process created under Waxman-Hatch resulted in Schering's realization of billions of dollars in profit. That this legislation has come up for debate at the same time as the Clinton administration has proposed prescription drug benefit is very significant. Providing for such a benefit in an affordable way will be a major challenge. Were this bill to pass, it would make that challenge that much more difficult and expensive.
I note that I am running out of time. I would like a separate statement that has been prepared by CAP on the subject of Amgen proposal also to be made part of my statement. I thank the committee for the opportunity to present our views.
[The prepared statement of Mr. Berdon follows:]
PREPARED STATEMENT OF ANDREW M. BERDON, VICE PRESIDENT AND GENERAL COUNSEL, PUREPAC PHARMACEUTICAL COMPANY, ON BEHALF OF THE COALITION FOR AFFORDABLE PHARMACEUTICALS
Mr. Chairman, members of the Subcommittee, my name is Andrew M. Berdon, and I am the Vice President and General Counsel of Faulding Inc. and Purepac Pharmaceutical Company. Faulding has approximately 450 employees and operates facilities in New Jersey, Tennessee, North Carolina, and Puerto Rico dedicated to the manufacture, marketing, and distribution of prescription generic pharmaceutical products. Through your invitation today, I appear on behalf of ''CAP,'' the Coalition for Affordable Pharmaceuticals.
The Generic Pharmaceutical Industry Association (GPIA), the National Association of Pharmaceutical Manufacturers (NAPM), and the National Pharmaceutical Alliance (NPA) formed CAP to increase consumer access to high-quality generic pharmaceuticals. GPIA, NAPM, and NPA are national, not-for-profit trade associations representing manufacturers and distributors of finished, multi-source generic pharmaceuticals, manufacturers and distributors of bulk active pharmaceutical chemicals, and suppliers of other goods and services to the generic drug industry. Our combined membership encompasses virtually the entire U.S. generic pharmaceutical industry. My company is a member of NAPM and NPA.
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CAP appreciates the opportunity to present this testimony to the House Subcommittee on Courts and Intellectual Property of the Committee on Judiciary regarding H.R. 1598, the ''Patent Fairness Act of 1999. '' We believe it is ironic that as this Congress debates ways to reduce the high cost of prescription medications to the elderly and Medicare Reform, we are here today to discuss H.R. 1598, which would grant patent extensions of up to three years to eight brand name drug products(see footnote 11) and numerous others which have not been identified but are expected to come off patent this year and next year. H.R. 1598 denies the American consumer the choice of selecting a more affordable generic version of these brand products. It not only costs the consumer, particularly the elderly, billions of dollars, but also has a tremendous fiscal impact on government programs offering a drug benefit, such as Medicaid and programs offered by the Veterans Administration and the Department of Defense. This being said, by this testimony, CAP will demonstrate that H.R. 1598 would, in fact:
increase the cost of prescription medicines by foreclosing generic competition;
undo the delicate, agreed-to compromise and policy decision essential for the passage and success of the Waxman-Hatch Act of 1984;
establish a process which, contrary to its billing, is neither ''independent'' nor a true ''process'' but instead dictates the outcome and fails even to require an examination of the factors presumably at issue;
provide no meaningful role for the agency with the most intimate knowledge surrounding the scientific issues and regulatory process; and
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place the burden of proof with the party that has access to the least amount of relevant information, instead of the brand name company asserting the ''injustice. ''
In short, CAP strongly opposes H.R. 1598. This would not be a constructive way to reopen a successful law that put public health concerns, and not company pocketbooks, first.
In 1984, the U.S. Congress fairly balanced all the interests of the pharmaceutical industry and consumers by passing the Drug Price Competition and Patent Term Restoration Act of 1984 (Waxman-Hatch Act). This law created a framework for patent term extensions and non-patent exclusivity periods for brand name drug products and a system for speeding the Food and Drug Administration (FDA) approval of generic drug products. As a result of the Waxman-Hatch Act, generic competition entered the marketplace, which in turn served to motivate the brand name industry to innovate the next generation of life-saving drugs. Since 1984 brand name drug companies' profits and research and development expenditures have grown exponentially. The generic drug industry has enabled American consumers and taxpayers to save billions of dollars in the purchase of medicines, while creating new jobs and investment opportunities in every region of the country.
During the negotiations that led to the Waxman-Hatch Act, it was agreed by all parties, including the brand name industry, that brand name drug companies would receive up to a two-year patent term restoration for so-called ''pipeline drugs'' (a drug for which a patent had been issued and an investigational new drug application (IND) or a new drug application (NDA) was pending at FDA before the enactment date of the Waxman-Hatch Act (September 24, 1984)), instead of up to a five-year patent term restoration granted for later developed products. Patent term extensions were more generous for future development rather than for pipeline drugs because a purpose of the Waxman-Hatch Act was to encourage future investment.
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Representative Henry Waxman, the co-author of this Act, recently stated on the House floor that the difference in the times of patent term restoration were far from arbitrary. He stated ''the pipeline drugs were not made eligible for 5 years of patent extension precisely because the point of the patent extensions was to encourage the research and development of future products.''(see footnote 12) This explicitly demonstrates that the decision to grant a two-year extension to the pipeline drugs was a carefully considered policy decision to create a process which has proven successful in assuring high-quality research and development in conjunction with providing access to affordable pharmaceuticals in a competitive marketplace. With H.R. 1598, certain brand name companies, led by Schering-Plough Corporation, are selectively attempting to undo the policy decision struck in 1984—the policy that all sides agreed to—in order to extend their monopoly periods at the expense of competition, consumer savings, and healthcare costs without a corresponding benefit to the consumer. These ''pipeline drugs'' are not new and innovative drug products, but rather drugs that were already on the market and under review by the FDA at the time of the Waxman-Hatch negotiation.
H.R. 1598 purports to put eight pipeline drugs on an equal footing with later developed drugs products, a result that was clearly not Congress' intent. Specifically, H.R. 1598 would permit the holder of a patent that was in force as of 1984 and remains in force today the opportunity to seek additional patent life by filing an application with the PTO. A product meeting these criteria and whose NDA was under review by FDA for at least 60 months would automatically have its patent term restored for three years, minus any period in which the applicant did not act with due diligence. The company applying for the restoration would not have to prove their due diligence; in fact, there is a presumption of due diligence that would only be overcome by ''substantial evidence.'' Presumably the ''substantial evidence'' would be provided by an aggrieved party, though an aggrieved party would not have access to FDA records or, more importantly, to the company's records, therefore, making the presumption very unlikely to be overcome. This is not the sort of ''process'' most people would label as ''fair.'' In fact, the bill grants a de facto extension, which brings this debate right back to where we began—a process was established under the Waxman-Hatch Act in 1984, preempting the need for creating a pseudoprocess in 1999.
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H.R. 1598 would place the responsibility for extending patent terms for the pipeline drugs with the Patent and Trademark Office (PTO), subject to judicial review. PTO lacks the expertise to evaluate FDA and company records fully to determine if there was due diligence on the part of the company, though under the bill this point is somewhat moot—PTO review of FDA records is not even required, and company records are not available for scrutiny by PTO or anyone else. Again CAP would like to point out that this renegotiation of Waxman-Hatch undermines the public good for the benefit of a few large corporations and is far from the dictionary's definition of ''fair,'' which is ''just to all parties. ''
While judicial review of PTO's decision appears to offer a modicum of fairness, as H.R. 1598 is currently written there would, in fact, be quite little to review beyond PTO's ability to count days. PTO's role is almost totally ministerial because the primary requirement for the patent extension is that the application was pending at FDA longer than 60 months. The PTO's only discretionary decision concerns whether the drug applicant acted with due diligence in pursuing FDA approval. As noted earlier, the bill creates a presumption of due diligence. The bill gives PTO the authority to review FDA's files, but such a review is not required, nor is FDA consultation required. The bill does not address access to the company's documents, which would be instrumental in attempting to establish substantial evidence of a lack of due diligence. The bill also does not address instances in which FDA should move deliberately and with caution, based on sound scientific and medical judgment—such as when carcinogenicity concerns arise, as they did with Claritin. Therefore, there would be little in the record for a court to review other than the application's date of filing at FDA and the FDA date of approval—so judicial review would provide no relief from this ''process'' that requires no actual showing of fact.
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H.R. 1598 would also allow for an ''interim restoration'' period if the patent that is the subject of an application under this bill expires before the PTO has made a final determination on the application. This provision would extend the otherwise expired patent until the PTO made a decision on whether to grant the three years of restoration. Although the focus of the bill is on eight brand name drug products, the criteria for submission of an extension application are so broad that brand name drug companies might be able to assert that other drugs whose patents are due to expire also qualify under H.R. 1598. In essence, a company could file an application under this bill for a drug whose patent was in force on September 24, 1984, and which was about to expire, and secure a 60-day patent extension regardless of whether the drug otherwise meets the ''standards'' set forth in the bill. Therefore, depending on when this bill is enacted, a variety of companies could file frivolous restoration applications with the PTO within the 90-day time frame and receive a 60-day extension regardless of whether they meet the qualifications. Keep in mind the applicant can appeal the denial and, while the court is reviewing the case, the applicant may apply for an order directing PTO to extend the interim restoration pending judicial review. There is no limitation to the interim restoration pending judicial review and subsequent PTO action following that review. Such a provision serves no discernible purpose other than to give a potential windfall to companies that cannot be identified at this time. Certainly the 1984 Congress could not have intended this result, and CAP hopes the 1999 Congress will quickly recognize the ludicrous nature of this provision.
The bill would provide compensation to an ANDA applicant with an application pending at FDA for one of the pipeline drugs at the time of enactment. Such an applicant would be entitled to compensation of $1 million from the patent owner. A holder of a Type II DMF that has permitted a reference to its DMF in such an application would be entitled to compensation of $500,000 from the patent owner. The patent owner's liability would be capped at $5 million to drug applicants and $2,500,000 to DMF holders. This provision is yet another thinly veiled attempt at an appearance of '' fairness, '' but in reality there is nothing fair about this provision to the ANDA applicant, the DMF holder, and the consumer. The generic industry is committed to bringing quality generic medicines to the public, not receiving renumeration for unexpected delays.
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The extra costs to consumers and taxpayers from this legislation would be enormous. A Congressional Budget Office (CBO) study found that, in the first full year of generic competition, generics account for an average of 44 % of prescriptions dispensed through pharmacies.(see footnote 13) The CBO study also found that, with one to ten generic manufacturers in the marketplace, the average generic retail price is 61 % of the brand name price; the average generic retail price is even lower with more competing generic manufacturers.(see footnote 14) If we assume that generic versions of Claritin would capture 44 % of the Claritin market at an average of 61 % of the price of Claritin, generic competition for Claritin would save U.S. consumers $300 million each year. For all eight pipeline drugs, the annual savings to U.S. consumers would be $450 million. If this legislation is allowed to pass, these savings would be lost for each of three years.
While the national association representing the interests of brand name pharmaceutical firms, PhRMA, has not, to our knowledge, supported or taken any position on this special interest legislation, Schering has been most vigorous in promoting H.R. 1598 because it would reap a huge unanticipated windfall by the patent extensions for its blockbuster drug, Claritin, and its cancer drug, Eulexin. This is not their first money grab. Schering has pressed Congress on this issue on multiple occasions. Schering lobbied tenaciously to add this monopoly extension to last year's Omnibus Appropriations Act for fiscal year 1999, an effort that continued until the bitter end despite news reports exposing the provision as another infamous ''special interest'' rider. Schering had already attempted to add this extension onto the Omnibus Patent Act of 1997. And, at the end of the 1997 session, there was an effort to award additional market exclusivity for specific products in exchange for a 3 % royalty payment to the National Institutes of Health, with no prohibition against the companies passing on this royalty payment to consumers.
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These mostly behind-the-scenes, secret efforts to secure longer monopoly times were rightly denied by the Congress, but Schering has clearly not given up—even though it received a two-year Waxman-Hatch extension and a 22.5-month extension under the General Agreement on Trade and Tariffs (GATT). These extensions were ''unanticipated'' by Schering when it first began development of Claritin. Schering argues that this legislation is fair because of unanticipated delays in FDA's review of Claritin. If this is the argument, wouldn't it also be fair to reduce any new extension by the lengths of the unanticipated extensions it has already secured?
Schering has also failed to adequately address openly the reasons why Claritin's review was delayed. Schering instead has blamed FDA and the reviewers for moving too slowly. While we have no access to internal company documents nor to FDA review documents, trade press articles discussed two reasons for the length of the review time. After Claritin received an FDA advisory committee recommendation for approval on October 23, 1987, Schering decided to market Claritin in a tablet form as opposed to the capsule form used in its clinical trials. This change—which was purely a marketing decision made by Schering—raised bioequivalency questions that had to be addressed by FDA. Schering cannot possibly claim that it was unaware such questions would be raised by their internal decision that they wanted to market a tablet instead of a capsule, and this delay cannot be blamed on FDA. By 1991 FDA was examining carcinogenicity concerns with Claritin. Certainly even Schering cannot blame FDA for requiring clinical studies into concerns as serious as cancer. FDA's mission is to ensure efficacy and safety, and carcinogenicity concerns cannot be and should not be resolved overnight.(see footnote 15)
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Last year the Subcommittee heard testimony from Peter Barton Hutt, Esq., that brand name drug companies had received a maximum two-year rather than five-year patent extension for pipeline drugs under the Waxman-Hatch Act because (1) it was anticipated that pipeline drugs would be approved by FDA shortly, and (2) ''less of an economic incentive was needed to assure continued pursuit of [pipeline drugs] to final FDA approval.''(see footnote 16) Mr. Hutt argued that several pipeline drugs were not approved by FDA as quickly as anticipated by the negotiators of the Waxman-Hatch Act. Yet, Mr. Hutt failed to establish that additional patent time was needed as an economic incentive to brand name drug companies to pursue final approval of these pipeline drugs. The fact is, pipeline drugs did not need more than two years of extra monopoly time because the companies making those drugs were at a point in the review process where it was highly unlikely the development of the drugs would be abandoned. The 1984 Congress obviously recognized this situation and, therefore, passed into law the language which Schering is trying to undo today. Extending these patent terms would not be consistent with Congressional intent, nor would the establishment of a sham ''process'' that merely purports to examine the merits of each application.
Perhaps the brand name drug companies are correct in labeling this issue as one of ''fairness '' and ''equity''—it is not fair and equitable for the Federal Government and consumers, especially the elderly on fixed incomes, to continue to pay inflated prices for pharmaceuticals in a competition-free market. Congress has told Schering ''no'' before. Congress must tell Schering no'' again, for what will hopefully be the final time.
Schering claims that it only wants to set up a process. CAP hopes that the Congress can recognize not only that H.R. 1598's version of a process is a stacked deck against consumers and the generic drug industry, but also that a process was created and is still in place under the Waxman-Hatch Act. Congress should send the message now that this special interest legislation is not about intellectual property rights or about fairness and equity. Congress should send the message that it is serious about containing healthcare costs and about ensuring a competitive marketplace to the benefit of all Americans.
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We appreciate the opportunity to present our views.
| Coalition for Affordable |
| Pharmaceuticals (CAP), |
| Washington, DC, July 1, 1999. |
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.
DEAR CHAIRMAN COBLE: NPA The Coalition of Affordable Pharmaceuticals (CAP) is a coalition of the three generic drug trade associations, the Generic Pharmaceutical Industry Association, the National Association of Pharmaceutical Manufacturers, and the National Pharmaceutical Alliance. CAP strongly opposes Amgen's proposal, which we understand would restrict the safe harbor for pre-patent expiry experimentation (i.e., ''the Bolar exemption'') to abbreviated new drug applications (ANDAs). The proposal would eliminate the Bolar exemption for new drug applications (NDAs) and biological license applications (BLAs). (CAP has not been provided a copy of Amgen's proposal.) We object to this modification of the Bolar exemption for two reasons.
First, Amgen's proposal would have the effect of shielding, for at least several years after patent expiry, the biotechnology industry from generic competitors who wish to market generic biotechnology derived-drug products. The great majority of these products are regulated as biologicals under BLAs, rather than as pharmaceuticals under NDAs and ANDAs. In order to provide the American public with timely access to generic biotechnology derived-drug products, generic manufacturers must rely on the Bolar exemption to perform the necessary FDA testing before patent expiration. There is no explicit regulatory pathway for generic biological approval, despite the fact that a number of blockbuster biotech products are already off patent or will be by the turn of the century. The Amgen proposal would prohibit reliance on the Bolar exemption if the BLA route becomes the mechanism for approving generic biotechnology derived-drug products. The consequence is years in delayed consumer access to more affordable generic biotechnology derived-drug products.
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Not only would consumers and government purchasers benefit greatly from the cost savings attributed to generic biotech products, but allowing new competition from generic manufacturers would serve as an incentive for the biotech industry to innovate the next generation of biotech drugs. Generic competition as an incentive for innovation has worked in the pharmaceutical industry. As pointed out in the Congressional Budget Office's July 1998 study, the 1984 Hatch-Waxman Act increased generic competition and as a result the research and development (R&D) expenditures as a percentage of sales revenue by the brand pharmaceutical industry increased from 14.7 % in 1983 to 19.4 % in 1995. It is safe to say the R&D budgets for many biotech firms would rise and mirror the R&D trends of the pharmaceutical industry if the doors of competition were open to generic manufacturers.
Second, Amgen's proposal would hinder the development and approval of pharmaceutical products under 505(b)(2) NDAs, by precluding research and development until patent expiration. A 505(b)(2) NDA (named after section 505(b)(2) of the Federal Food, Drug and Cosmetic Act ) may be used to obtain FDA approval for a modified version of a brand name drug product when differences between the products preclude the submission of an ANDA. Sustained release drug products are one example of situations where 505(b)(2) NDAs have been used.
CAP urges Congress to reject any proposal to narrow the scope of the Bolar exemption.
Sincerely,
| Robert Milanese, President, |
| National Association of Pharmaceutical Manufacturers. |
| Christina Sizemore, President, |
| National Pharmaceutical Alliance. |
Mr. COBLE. Without objection, that will be done. We thank you, Mr. Berdon.
Dr. Spicehandler.
STATEMENT OF JONATHAN R. SPICEHANDLER, M.D., PRESIDENT, SCHERING-PLOUGH RESEARCH INSTITUTE
Mr. SPICEHANDLER. Thank you, Mr. Chairman, and good afternoon. My name is Jonathan Spicehandler, and I am a physician and president of the Schering-Plough Research Institute, the discovery and development arm of the Schering-Plough Corporation. I want to thank you for the opportunity to testify on behalf of Schering-Plough about H.R. 1598, the Patent Fairness Act of 1999.
As you know, this bill would establish an independent review process within the Patent and Trademark Office to consider patent restoration for seven pipeline drugs. These are drugs that lost significant patent life because of lengthy delays in the drug approval process, and that did not receive the same 5 years of patent restoration that other drugs received.
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Schering-Plough strongly supports H.R. 1598. We believe it will foster research and development by reaffirming our Nation's commitment to the protection of intellectual property rights. Private industry develops 92 percent of all new chemical entities, and research-based pharmaceutical companies will invest over $24 billion in R&D in 1999. Our ability to invest substantial resources in R&D depends on the success of our products. The more they earn, the more money we have for research.
Claritin's success has helped spur research activity at Schering-Plough. Last year we spent more than $1 billion on research, up 19 percent from 1997, and almost twice what we spent when Claritin went on sale in 1993. This is not a coincidence, and its implications are significant.
Prescription pharmaceuticals are the most cost-effective components of our healthcare system. Nothing costs our society more than extensive, life-threatening illnesses, especially when these patients could be treated with effective medications.
With these revenues, Schering-Plough Research has targeted many serious medical challenges. Schering-Plough is a leader in the development of therapies for cancer, chronic hepatitis, and serious respiratory diseases. Right now Schering-Plough scientists are working hard on drugs that show promise for skin cancer, brain tumors in children, and other cancers such as ovarian, lung, pancreatic, and colon. In the biotech area, we are conducting human studies in the field of devastating chronic inflammatory disorders such as rheumatoid arthritis and Crohn's disease. We are in the final stage of development of a new antibiotic that is highly effective against the growing problem of antibiotic resistance.
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In order to fund more of this type of research, our successful products must have full patent protection. Claritin was in the FDA review pipeline when Hatch-Waxman was enacted in 1984. Based on the average review at the time, Claritin would have moved through the process to a decision and approval in early 1989. In fact, Claritin was recommended for approval by the FDA advisory committee in October 1987. Yet, it was not until 1993, more than 6 years from the point of FDA submission, that we were authorized to market Claritin in the United States.
To my knowledge, there were two reasons for the delay, one major and one minor. In the late 1980's, FDA learned of tumors in laboratory animals treated with doxylamine, an antihistamine ingredient in two marketed, over-the-counter products, Unisom and NyQuil. At this time the FDA decided to further scrutinize the toxicological profile of Claritin. We complied diligently with all FDA's requests, and ultimately, a second advisory committee concluded that Claritin did not pose a risk of cancer in humans. It should be noted that Unisom and NyQuil continued to be available over the counter in the United States without recall during this entire review period.
The second of the two issues, which was less time-consuming, involved bioequivalence. It was then common in the drug industry—and well known to FDA—that clinical trials could be conducted with a capsule. Having followed this accepted practice, we submitted data to the FDA to establish bioequivalence of the capsule to the tablet. To resolve FDA's concerns, we promptly conducted a new clinical study that resolved this issue to FDA's satisfaction 4 years before Claritin was eventually approved.
Resolution of these issues was complicated by a reorganization within the FDA center reviewing Claritin and by staff shortages at that time. In the days before user fees, FDA was required to prioritize use of limited resources to give preference to potentially lifesaving drugs. Products like Claritin were dropped to the bottom of FDA's review.
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Hatch-Waxman limited patent restoration for pipeline drugs to 2 years because it was believed drugs already in the pipeline would be approved in that time. Despite Schering's diligence, Claritin spent nearly six-and-a-half years in the approval process.
The Patent Fairness Act of 1999 offers a chance to address this inequity. This bill would put the patent restoration issue before an independent expert. That is fully consistent with fairness to everybody in the process. This bill also justly incentivizes companies for being innovative and diligent, while acknowledging FDA's need to be thorough.
So, as you consider this bill, I respectfully urge you to keep in mind the connection between strong intellectual property rights and the research that produces breakthrough drugs. It is impossible to have one without the other. That is why we support this bill, and we urge you to do the same.
Thank you.
[The prepared statement of Dr. Spicehandler follows:]
PREPARED STATEMENT OF JONATHAN R. SPICEHANDLER, M.D., PRESIDENT, SCHERING-PLOUGH RESEARCH INSTITUTE
Mr. Chairman, members of the Subcommittee, thank you for the opportunity to testify. My name is Jonathan Spicehandler, and I am President of Schering-Plough Research Institute (SPRI), the pharmaceutical research and development unit of Schering-Plough Corporation (Schering-Plough). I began my career with SPRI in 1982. In 1987, I was appointed Vice President of Worldwide Clinical Research and in 1993 I became President of the Schering-Plough Research Institute. In total, I have worked for Schering-Plough for 17 years. Schering-Plough is a worldwide pharmaceutical company committed to discovering, developing, and marketing new drug therapies that can save lives and improve people's health and quality of life. Schering-Plough products are used in the treatment of cancer, hepatitis B and C, cardiac disease, allergic and respiratory disorders, and various types of life-threatening infections.
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I am pleased to offer testimony on behalf of Schering-Plough in support of H.R. 1598, the Patent Fairness Act of 1999. This Bill would establish an independent review process within the Patent and Trademark Office to consider the possibility of patent restoration for seven pipeline drugs—those that lost significant patent life because of lengthy review in the drug approval process and that did not receive the same five years of patent restoration that other drugs received.
We believe H.R. 1598 will foster research and development by reaffirming our nation's commitment to the protection of intellectual property rights.
Schering-Plough's Commitment to Pharmaceutical Research & Development
Schering-Plough is a research-based pharmaceutical company. And let me emphasize the word research. Our 1998 worldwide research and development (R&D) expenditures exceeded $1 billion, 19 percent more than the prior year. In 1999, Schering-Plough expects R&D spending to increase by more than 15 percent. Our R&D expenditures have increased steadily and significantly, as shown in Table 1. Schering-Plough's ability to invest in research and development is directly dependent on the success of its already marketed products. It is no coincidence that since the introduction of Claritin in the United States in 1993, our R&D expenditures have almost doubled.
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The development of new drug therapies is both a high-cost and high-risk endeavor. Only one in every 5,000 chemical compounds that are identified by research scientists as potential pharmaceuticals ever reaches the U.S. market. On average, bringing a new drug from the laboratory to the marketplace takes between 12 to 15 years and costs up to $500 million.
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Basic pharmaceutical research is an examination of the compound's structure and its potential biological effects in humans. A potential new drug must be evaluated in laboratory testing, animal testing, and human clinical studies in order to develop the data required for a new drug application, or NDA. At each of these steps, issues may, and often do, arise that result in further research being terminated. Few compounds make it to the clinic. For the rare product that makes it through clinical study, FDA then reviews the substantial amount of data contained in the NDA. Within FDA's Center for Drug Evaluation and Research (CDER), personnel from different scientific disciplines review the drug chemistry data, pharmacology and toxicology data, biopharmaceutical data, and clinical data.
The development of new drugs is financed almost entirely by private industry. For example, from 1981 through 1990, 92% of all new chemical compounds developed were developed by private industry. Research based pharmaceutical companies will invest $24 billion dollars in research and development in 1999.
The United States leads all countries in company financed pharmaceutical R&D. In 1995, 36% of all company financed pharmaceutical R&D came from the United States. This was almost twice as much as the second rated country, and more than three times the amount of the third. The United States also leads, by a significant margin, in the development of new pharmaceutical compounds. For example, 45% of all new global drugs developed between 1975 and 1994 were developed in the United States. This was three times the number of the country rated second. It is no accident that the U.S. pharmaceutical industry leads the world by a wide margin in both company-financed pharmaceutical research and the development of new drug products.
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As I stated before, the ability to invest in research and development is directly dependent on the success of already-marketed products. Our research programs cover a broad spectrum of medicine. They all address important medical needs and as a result each has the potential to critically impact public health.
In the area of cancer: We are involved with the development of chemotherapy agents including a new and safer form of doxorubicin, one of the most widely used anti-cancer agents. We are also evaluating a new agent, temozolomide, for the treatment of among other things, skin cancer and brain tumors in children. We are pioneers in the discovery and early development of a new class of drugs called Farnesyl Protein Transferase inhibitors. This novel approach could lead to new opportunities in the therapy of cancers that do not currently have effective treatments, such as pancreatic and colon cancer. Finally, we are among the world leaders in gene therapy and are looking at the potential impact of an important cancer related gene, p53, for the treatment of ovarian, lung, and other cancers.
In the infectious disease area: Schering is the leader in the field of hepatitis C and we have had a tremendous impact on public health with the introduction of ribavirin together with interferon alpha 2b. For the first time, this has brought therapy for this condition that can result in viral eradication in between 40% and 50% of patients. We are committed to building on this breakthrough therapy with longer acting interferons and new oral therapies for hepatitis C. Our new long-acting interferon is also being studied in oncology (melanoma, CML). We are also involved with the clinical development of a new antibiotic for the management of life-threatening infections caused by multi-resistant pathogens.
In the biotechnology area: We are conducting clinical trials with Tenovil, or interleukin-10, a recombinant human protein in the field of devastating chronic inflammatory processes such as rheumatoid arthritis, severe psoriasis and Crohn's Disease. Tenovil is also being assessed in severe acute inflammatory diseases which address the worst situations confronted by critical care medicine specialists.
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In the respiratory area: Schering is completing the clinical development of a new inhaled corticosteroid for asthma. It is the most potent compound in its class and we expect it to provide the best safety and effectiveness profile available. Also, we are in the early development stage for a new monoclonal antibody directed against interleukin-5 for the management of severe forms of asthma.
Our society wants the most effective drugs possible. When someone is seriously ill, we expect that there will be a drug available to treat that illness. Schering-Plough's R&D effort is directed at addressing this expectation. But it is important to remember that our ability to invest as heavily as we do in research is dependent on earnings from marketed products. Especially critical are the profits from a small number of very successful products.
The pharmaceutical industry is both highly fragmented and extremely competitive. In 1998, the largest pharmaceutical company ranked by sales in the United States represented only 6% of the total market. The top ten companies collectively represent only 51% of the total market. Competition is fierce not only in the marketing of products, but also in the discovery and development of new products.
Pharmaceutical companies are under tremendous pressure to discover products. Companies that do not discover and develop new products oftentimes do not survive. The number of pharmaceutical companies that have disappeared through mergers and acquisitions in recent years is evidence of this fact. Given this environment and because so few compounds ever make it through the development process and to the market, it is critical that the rare successful product have full patent protection.
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The Outlier Pipeline Drug Problem
Recognizing the importance of pharmaceutical R&D, Congress enacted the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act.(see footnote 17) Under that Act, the holder of a patent for a new drug, medical device, animal drug, or food additive can apply to the Patent and Trademark Office (PTO) for restoration of part of the effective patent life lost due to regulatory review by the Food and Drug Administration (FDA). For most drugs, the Hatch-Waxman Act limits the restoration period to five years. For drugs whose regulatory review straddled the enactment date of the legislation—so-called ''pipeline'' drugs—the statute limits the restoration period to two years.
At the time of enactment of Hatch-Waxman, the average time for FDA approval of an NDA was 2.25 years.(see footnote 18) However, for seven outlier pipeline drugs, regulatory review took many years longer than Congress would have anticipated based on this 2.25 years average review time. FDA approval of the NDAs for these drugs took over 5 years, more than twice the amount of time we (and Congress) would have expected.
Solution to the Outlier Pipeline Drug Problem
Representatives Bryant and McDermott, together with 42 co-sponsors, have introduced legislation that would create a process by which the PTO could consider applications for patent term restoration for these seven outlier pipeline drugs. The bill, H.R. 1598, would authorize the PTO to determine whether pipeline drugs that were subjected to more than five years of NDA review by FDA should be awarded patent term restoration of up to three years. The period of patent term restoration would be reduced for any period of time in which the applicant did not exercise due diligence in pursuing approval.
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In past years, Congress has been asked to award patent term extension directly to a specified drug product. In fact, Congress has enacted product specific patent extensions for pipeline drugs three times since enactment of Hatch-Waxman. But this private bill approach has been criticized for politicizing the patent term restoration process. In contrast, H.R. 1598 creates a neutral administrative process. Under H.R. 1598, the PTO—an informed decisionmaker with expertise on patent matters—conducts an administrative proceeding in which interested parties—including generic drug manufacturers—can participate. All seven outlier pipeline drugs would be eligible to participate in the process, and no drug would automatically receive patent term restoration. We believe this process-oriented approach can effectively address the outlier pipeline drug problem, and we support this legislation.
Factors Affecting FDA Review of Claritin
Claritin (loratadine), Schering-Plough's once-daily, nonsedating antihistamine used to treat seasonal allergies and urticaria (hives) would be eligible for the procedure contemplated in H.R. 1598. Claritin was in the FDA review pipeline when Hatch-Waxman was enacted in 1984. Based on the average review times at the time, Claritin, with an NDA submission date of October 1986, would have expected approval in the first quarter of 1989. Instead, the Claritin NDA was not approved until April of 1993. Schering had to wait more than six years after the NDA was submitted to market Claritin in the United States.
Less than a year after the NDA for Claritin was submitted to FDA, on October 23, 1987, an FDA advisory committee recommended that FDA approve the Claritin NDA. FDA often promptly approves a drug that has received a favorable recommendation from an advisory committee. In the case of Claritin, however, two unanticipated scientific issues arose after the initial approval recommendation. Resolution of these issues was complicated by a lack of adequate resources at FDA, and by a reorganization within FDA's drug center and related reassignment of the Claritin NDA to a new reviewing division.
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One of the two scientific issues involved FDA's review of the toxicology data for loratadine. It appears FDA's review of the toxicology data was prolonged because of a federal government study of another drug that occurred while Claritin was in the review queue at FDA. The study's results supported an association between the antihistamine doxylamine succinate and certain types of tumors in rats and mice. Substances administered in high doses over a long period that cause or promote tumors in animals are not necessarily toxic to humans. Commonly available medicines such as phenobarbital, used for over 30 years to safely treat epilepsy, support this fact.
We believe that in light of the doxylamine study findings, FDA determined to reevaluate the toxicology data for loratadine. FDA requested, and Schering-Plough supplied, a re-analysis of the existing toxicology data. FDA also referred the matter to an Advisory Committee, which concluded in 1991 that loratadine, doxylamine and cetirizine (another antihistamine) were not likely to present a risk of cancer in human beings. In addition, in 1992, Schering-Plough submitted the results of a second mutagenicity assay confirming the results of earlier tests showing that loratadine did not present a risk of cancer in human beings. In total, resolution of the toxicology issue took over four years. Schering acted diligently throughout FDA's review of the toxicology data.
The second scientific issue concerned bioequivalence. Schering-Plough conducted clinical studies using a capsule dosage form and sought marketing approval for a tablet. It was then common in the drug industry to conduct trials with a capsule and seek marketing approval for a tablet.
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The use of capsules in clinical trials was considered beneficial in conducting early stage studies such as dose ranging studies and was also advantageous in complying with FDA's requirement for adequate, well controlled (double blind) comparative studies, to preclude patient or investigator bias. The preference for a marketed tablet product was, and is, based on consumer preferences and, more importantly, tablets are much safer from a product tampering perspective. Schering's use of capsules in clinical trials and its intention to file an NDA for a tablet was known to FDA. Having followed this practice, Schering-Plough submitted data in the NDA to establish the bioequivalence of the two dosage forms.
A standard method for demonstrating bioequivalence is to compare the blood levels of the active ingredient and/or metabolite of each dosage form. Schering-Plough's view was that bioequivalence between the capsule and tablet forms should be assessed using measurements of the active metabolite, because the drug ingredient loratadine is rapidly converted into the metabolite in the body. Moreover, data indicate that the antihistamine activity is greatly related to the pharmacological properties of the metabolite, and that the bioavailability of loratadine varies significantly from person to person. FDA believed it was necessary to compare the blood levels of both the active ingredient and the metabolite. While disagreeing with the agency, Schering-Plough quickly conducted a new clinical study that resolved the matter and was acceptable to both the company and FDA. Again Schering acted diligently in all its dealings on this issue.
FDA addressed the toxicology and bioequivalence issues with caution. This is consistent with the agency's public health mission and statutory mandate. Review of the Claritin NDA also occurred during FDA's reorganization of the Center for Drug Evaluation and Research (CDER) which began in 1987 and continued until 1989, and before enactment of the Prescription Drug User Fee Act (PDUFA) in 1992. Before enactment of PDUFA, FDA lacked adequate resources to review NDAs expeditiously, particularly for drugs that were not designated for ''priority'' review. The Claritin NDA was assigned a ''standard'' as opposed to ''priority'' review designation. During the reorganization it was assigned to the same division that reviewed cancer drugs, which had ''priority'' designation. All of these factors certainly had an adverse impact on the time the Claritin NDA spent in the regulatory review. In contrast to the over six years spent in regulatory review in the United States, Claritin received approval in 2.5 years or less in many countries with sophisticated regulatory agencies, including the United Kingdom, France and Canada.
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Nobody could have anticipated, at the time the 1984 Hatch-Waxman law was enacted, that Claritin would have a 77 month NDA review time. Like the other pipeline drugs, Claritin received only two years of patent term extension. But Claritin and the other six pipeline drugs that would be eligible to apply for patent term restoration under H.R. 1598 spent over 5 years in FDA review. Non-pipeline drug products received a full five years of patent extension under Hatch-Waxman. In fairness, manufacturers of the seven outlier pipeline drugs should be given an opportunity to present their case to the PTO for up to three years of patent term restoration under H.R. 1598.
In conclusion, strong patent protection is essential to reward pharmaceutical innovation and risk-taking, and to provide the funding for the development of new drug therapies. By enacting this Bill, Congress can enhance intellectual property rights. In this way, it can help make sure that innovative companies have the ability to reinvest in the discovery and development of life-saving and life-enhancing drugs.
Mr. COBLE. Thank you, Dr. Spicehandler.
Mr. Lehman.
STATEMENT OF BRUCE LEHMAN, PRESIDENT AND CEO, INTERNATIONAL INTELLECTUAL PROPERTY INSTITUTE
Mr. LEHMAN. Thank you very much, Mr. Chairman. Actually, I would like to start out my remarks to you by saying a word about the red light. I have been involved in this issue for many, many years, and the last time that I publicly testified about it was during one of the hearings in 1991 on a patent-specific legislative patent term extension bill over in the Senate, when then-Senator DeConcini asked me to testify before his subcommittee as an expert witness. I represented no clients then, as I represent none now, with regard to this.
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And the essence of my testimony at that time was that the committee should not be there trying to make complicated judgments on a private patent term extension bill. Most everyone on this committee—I believe everyone—is a lawyer; you are all familiar with litigation. Can you imagine litigating a complex matter such as this in court with a 5-minute limitation, being stuck with the red light, with no possibility of cross-examining witnesses or anything like that? And what's really required—that is why I support legislation of this type—what is required is a procedure which, in fact, permits all parties involved to go fully into the facts and details and circumstances regarding these patent term extensions and this particular approach before you is one such approach.
There are other approaches. The institute that I now head held a public forum on this just a few weeks ago. We had a number of eminent persons there, including two judges, one judge from the Court of Appeals for the Federal Circuit, our patent appellate court, and another from the Federal Court of Claims.
The Court of Claims for years has been hearing private relief legislation. There is a reference procedure that permits, for example, the Court of Claims to have what amounts to private legislative relief bills referred to the court, and the Court of Claims has developed the jurisprudence on this. That jurisprudence really revolves around whether or not the claim involved is a mere gratuity or whether there is a case in law and equity.
Now one can make the case here, if you look at the specific Claritin patent. And I am not trying to take a position on that. But you, clearly, have a situation where there have been seven legislative patent term extensions for very similar drugs. That starts to add up to me, if I were sitting on the Court of Claims and had this referred to me, maybe we have a case in equity for this kind of exception or this kind of extension.
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The point is it is a judgment not something that Congress itself can make. Really, if Congress is going to continue making this judgments, then it will be whoever has the best lobbyists or whoever can go out and hire the best witnesses, whoever can support the right public interest organizations, that can be most persuasive, and that is not the way we should be handling these matters.
And, finally, Mr. Chairman, I would like to suggest that the very fact that we are sitting here today suggests difficulties with the underlying Hatch-Waxman legislation. I think those difficulties have been exacerbated in recent years.
At the time that the legislation was enacted, we had a 17-year patent term, and pharmaceutical companies were given this relief because, as a practical matter, unlike other high-technology industries, they were unable to actually realize 17 full, effective years of patent protection because they had problems of FDA approval. They still have those problems, but today we have actually extended patent life because we have a 20-year term from filing, and since most patents issue within 2 years of filing, we actually have added a year to patent life.
That has had a negative effect on certain investment decisions that involve the pharmaceutical and biotechnology industry. I happen to be involved with a company that is in the electronic commerce business, and I am happy that they have patents. They have got 18 years of protection. When they go to the marketplace for an IPO, the market initially values them at $16 billion. When a biotech company, which is saving people's lives rather than dealing with electronic commerce, goes to the venture capital marketplace, what can it say? It can say, I have less patent protection inherently than that electronic commerce company. And how are they going to be valued? If you look at these valuations—I happen to be involved with a company here in Washington which is in phase two clinical trials on cures for cancer—their valuation is $300 million. A lot of that has to do with the incentive for investors.
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And so we have gotten ourselves in a situation now where health and lifesaving industries actually have less an incentive than other industries. I think that is something, Mr. Chairman, that the committee needs to take a look at.
Thank you.
[The prepared statement of Mr. Lehman follows:]
PREPARED STATEMENT OF BRUCE LEHMAN, PRESIDENT AND CEO, INTERNATIONAL INTELLECTUAL PROPERTY INSTITUTE
Mr. Chairman,
Thank you for asking me to appear before you as an expert witness this afternoon on the ''Patent Fairness Act of 1999,'' legislation that would transfer to the Patent and Trademark Office the responsibility for holding hearings and making administrative determinations concerning certain ''pipeline drugs'' that currently receive only a two year extension (as opposed to a five year extension for similar drugs) under ''The Drug Price Competition and Patent Term Restoration Act of 1984'' (commonly known as the Hatch-Waxman Act).
For more than two decades, I have been keenly interested and actively engaged in the public policy aspects of patent-specific term restoration legislation. As you know, as counsel to the House Judiciary Committee and its subcommittee on intellectual property during the 1970s and early 1980s, I served as principal legal advisor in the early drafting stages of the Hatch-Waxman Act. Even after leaving the Committee in 1983, I remained very involved in these important legal and public policy issues, testifying on these matters before the Senate Subcommittee on Patents, Copyrights, and Trademarks in 1991.
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During my recent term as Assistant Secretary of Commerce and Commissioner of Patents and Trademarks (July 1993 through December 1998) under the Clinton Administration, I continued to give considerable attention to the question of fairness or equity in drug patenting and the related policy issue of private patent legislation.
Most recently, as President and CEO of the International Intellectual Property Institute (IIPI), a nonprofit organization dedicated to improving intellectual property systems worldwide, I moderated an open public policy discussion, ''Fairness in Drug Patenting: The Role of Congress,'' June 10, 1999. While the subject of this afternoon's hearing, H.R. 1598, is somewhat narrower in focus, the underlying public policy issues are of great importance to the scientific and pharmaceutical communities, courts, federal administrative agencies, Congress, and the American public.
As I understand these issues, the task currently facing Congress is to find a way to regularize the process of enacting patent-specific term restoration legislation. Central to this task is to develop a system that is fair to the public and patent holders. Certainly, to shorten arbitrarily effective patent term for one of the industries whose innovations have the greatest public benefits—the pharmaceutical industry—is unfair, and discourages investment in those industries.
A brief comparison of the ability of American innovation-based companies to attract funding in U.S. capital markets will underscore my point. At the present time, innovators in the computer components and software industries receive full twenty (20) year patent protection for inventions which require far less capital and involve far less risk than is the case in pharmaceutical innovation. Since most patents issue after about two years' examining time, these innovators are receiving 18 years of effective patent exclusivity. Is it no wonder that companies producing very important, but far from life saving or disease-curing products, attract market value and investment capital on a scale an order of magnitude beyond that of pharmaceutical and biotech companies?
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Clearly, the current approach is not fair. Since the enactment of the Hatch-Waxman Act in 1984—which included a shorter, two-year restoration for certain drugs already in the FDA approval process based on the assumption that these drugs would be approved quickly—Congress on seven occasions has enacted legislation to address particular FDA-regulated products where the application of the two-year restoration period would be unfair because of lengthy delays in the regulatory approval process that were unanticipated at the time the Hatch-Waxman was passed
As I testified before the Senate Subcommittee on Patents, Copyrights, and Trademarks in 1991, the root problem stems from basic weaknesses in the Hatch-Waxman Act, which was evident even at the time of enactment. For example, the two-year restoration period for certain pipeline drugs was itself arbitrary, apparently the result of political compromise rather than an informed understanding of the complexities of the FDA review and approval process and the lengthy delays that might arise as a drug works its way through that complex process. Similarly, the time limits on the FDA testing phase for certain pipeline drugs were arbitrary rather than reasoned.
Related to, but distinct from, the merits of specific claims for legislative term restoration for particular FDA-regulated products, is the larger public policy question of how Congress might go about regularizing the process of granting relief in cases where the application of the general two-year rule in the Hatch-Waxman Act would be unfair or inequitable. In 1991, I testified that a fair and impartial method of considering private claims for patent term extensions must be found to prevent the subcommittee from being overcome with a deluge of similar requests and to ensure that all who seek private relief are treated with uniform fairness. That need is as great today as it was when I last testified almost a decade ago.
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What alternatives are available to Congress? In my 1991 testimony, I identified a number of approaches for obtaining independent review and fact determination in these cases, including referral of the bill to the Commissioner of Patents and Trademarks, the alternative adopted in H.R. 1598. After serving as Commissioner of Patents and Trademarks for almost five years, I remain convinced that such an approach constitutes sound public policy. For that reason alone, and without the time this afternoon to undertake a detailed discussion of this legislation, I can strongly endorse the ''Patent Fairness Act of 1999.'' H.R. 1598 is a sound approach for achieving fairness and predictability in America's intellectual property system.
Mr. COBLE. Thank you, Mr. Lehman.
Ms. Kealey.
STATEMENT OF MAURA KEALEY, DEPUTY DIRECTOR, PUBLIC CITIZEN'S CONGRESS WATCH
Ms. KEALEY. Thank you very much, Mr. Chairman and members of the subcommittee. Thank you for letting me testify this afternoon on behalf of Public Citizen, which is a nonprofit group, 150,000 members, that advocates for the rights, health, and safety of American consumers.
Prescription drug costs are one of the top challenges facing consumers in the United States today. As has been mentioned, 2 days ago, President Clinton announced a serious effort to provide Medicare coverage for outpatient prescription drugs in order to make medicines affordable. Ironically, the same week, this subcommittee is considering H.R. 1598, which goes in exactly the opposite direction. The Clinton bill seeks to expand drug coverage, while placing Medicare on a sound financial footing, but this bill would have no benefit for the health of consumers and would increase costs that would extend beyond Medicare.
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In judging H.R. 1598, the fundamental question is this: Does it advance the goal of making prescription drugs more affordable for—and, thus, more accessible to—American consumers? The answer is a resounding no. The bill attempts to undo a compromise reached in 1984. Now one side is attempting to rewrite the rules to favor them. This is not only unfair; it is a bad precedent.
A 3-year patent extension for Claritin alone would cost American consumers an additional $1.5 billion to more than $3 billion. If all seven drugs get the extension, the additional cost to consumers and the U.S. healthcare system is between $2.2 and $4.5 billion. Thus, when H.R. 1598 is evaluated on the basis of its economic impact on U.S. consumers, it fails to pass the test of good public policy.
That is perhaps why the bill's proponents have attempted to clothe it in the man of defending intellectual property rights or stimulating research and development into new treatments. I want to briefly outline the three claims that the proponents of this bill make and why we think all three should be rejected by the subcommittee.
The first claim is that Claritin was denied the full patent term restoration that it should have been entitled to under the 1984 act. Now, since Mr. Waxman has already spoken to that point and testified that there is no basis in the legislative history for this claim, I will move to the second very quickly, which is that H.R. 1598 is somehow a necessary incentive for companies to continue to do research and development to find new treatments. My written testimony provides the documentation for the two reasons I want to just briefly outline for why that is a false premise.
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First, brand-name companies rely on research and development to make money—it is the source of their new patents, their new products, and, thus, of their future profits. These firms are not going to commit business suicide by curtailing R&D.
Secondly, the brand-name industry's profit margins are more than sufficient to increase R&D right now. This industry simply does not operate on such razor-thin margins that some equitable price relief for consumers will drive brand-name pharmaceutical companies to cut research and development. The record shows that for Schering-Plough, as well as the 10 other leading brand-name companies, profits are a much higher priority than R&D. In 1998 Schering-Plough allocated almost 22 percent of its net sales to profit—that is net income—and just 12.5 percent to R&D. The R&D scare argument is particularly laughable, for the reasons that I have just cited, as a justification for a 3-year patent extension for Claritin, in view of Schering-Plough's enormous profit and the imbalance between their profits, their net income, and their R&D.
The third claim is that H.R. 1598 merely sets up a fair and open review process. There has already been ample discussion of the specifics of why this is neither a fair nor open process, but I would point out that some of H.R. 1598's proponents have seized on the controversy about this process issue to try to focus the entire debate about the public policy, the debate about this bill, as if getting the process right, to fix the problem with the process, would be, in fact, a good solution, would fix the bill. In our view, to enter into that discussion is to have taken the bait; that is, to have accepted the claim that there is any legitimate reason at all for Congress to establish any such review process for these drugs.
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But since the bill's proponents have utterly failed to meet the threshold burden of showing that some past wrong was done to them that should be righted, their attempt to cloak their special interest bill in the sacred mantle of defending intellectual property rights should be rejected as the sophistry that it is.
In conclusion, I want to come back to the contrasting stories that I started with; that is, the President's proposal 2 days ago to finally provide a Medicare prescription drug benefit and H.R. 1598, which goes in exactly the opposite direction—makes medicine less rather than more affordable. That is the contrast by which we hope this subcommittee will evaluate H.R. 1598.
We certainly are not opposed to either pharmaceutical patents or intellectual property rights, but drug patent protection should not, to paraphrase former Senator Pryor, be viewed as a God-given right, but, instead, as something that Government creates to promote the public good.
Thank you very much.
[The prepared statement of Ms. Kealey follows:]
PREPARED STATEMENT OF MAURA KEALEY, DEPUTY DIRECTOR, PUBLIC CITIZEN'S CONGRESS WATCH
Mr. Chairman and Members of the Subcommittee, thank you for the opportunity to testify this afternoon. I am Maura Kealey, Deputy Director of Public Citizen's Congress Watch. Public Citizen is a 150,000-member nonprofit organization that advocates for the rights, health and safety of American consumers. For more than 25 years Public Citizen's Health Research Group, under the direction of Sidney M. Wolfe, M.D., has been at the forefront of the fight to ensure that consumers have access to safe, effective, and affordable medicines.
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Prescription drugs is one of the top challenges facing consumers in the United States today. Two days ago, President Clinton announced a serious effort to provide Medicare coverage for outpatient prescription drugs in order to make medicines affordable for two groups who need drugs the most, seniors and individuals with disabilities.
Ironically, in the same week this Subcommittee is considering H.R. 1598, the special patent extension bill that is the subject of this hearing, which goes in exactly the opposite direction. While the Clinton bill seeks to expand drug coverage while placing Medicare on a sound financial footing, this bill would have no benefit for the health of consumers and would increase costs that would extend beyond Medicare.
If Congress passes H.R. 1598, the message it will send to the American people is that Congress is in favor of protecting drug company monopoly pricing practices—not helping seniors and the rest of us afford the medicines we need.
In judging H.R.1598, the fundamental question is this: Does it advance the goal of making prescription drugs more affordable for and hence more accessible to American consumers?
The answer is a resounding no. H.R. 1598 attempts to undo a compromise reached in 1984 when all affected parties were at the table and reached agreement on the Drug Price Competition and Patent Term Restoration Act of 1984 [Waxman-Hatch Act]. Now one side is attempting to rewrite the rules to their benefit. This is not only unfair; it would set a bad precedent for the future.
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A three-year patent extension for Claritin would alone cost American consumers an additional $1.6 billion—$3.2 billion.(see footnote 19) For all seven drugs affected by the bill, the additional cost to consumers and the U.S. healthcare system would be between $2.2 billion and $4.5 billion over the three years. For individual allergy sufferers, this could mean up to hundreds of dollars a year in additional drug costs.
The billions of dollars that H.R. 1598 would cost consumers would, of course, translate directly into billions of dollars of additional revenue to Schering-Plough, Claritin's manufacturer. This is an unwarranted transfer of income particularly in the case of Claritin, a drug that has already more than amply repaid its maker. Claritin had worldwide sales of $2.2 billion in 1998, and accounted for 28 percent of Schering-Plough's total sales. Public Citizen estimates that between its initial marketing in 1993 and 1998, Claritin earned at least $1.3 billion in profits. Before its patent expires in 2002, we estimate that it will earn another $2.2 billion.(see footnote 20)
Thus when H.R. 1598 is evaluated on the basis of its economic impact on U.S. consumers and the U.S. healthcare system, it fails to pass the test of good public policy. That is perhaps why the bill's proponents attempt to clothe it in the mantle of defending intellectual property rights or stimulating research and development into new treatments. Before explaining why we believe those arguments are without merit, let me quickly sketch how H.R. 1598 would work.
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H.R. 1598 would create a special patent extension review process for seven ''pipeline'' drugs [so-called because they were in the FDA new drug review process at the time the Waxman-Hatch Act] became law: in addition to Schering-Plough's Claritin, the main drug affected, Smith-Kline Beecham's Relafen, Bristol-Myers Squibb Cardiogen-82, Bayer's Nimotop, Hoechst Marion Roussel's Dermatop, Rhone-Poulenc-Rorer's Penetrex, and Schering-Plough's Eulexin would be eligible. Manufacturers could petition the Commissioner of Patent and Trademarks for three additional years of patent protection for these drugs. The sole basis on which the extension could be challenged would be a showing that a firm failed to exercise ''due diligence'' during some part of the review process; the burden of proof would be on the opponents. FDA would have no role in the review process. Public interest considerations, such as how higher prices would affect consumers, would be irrelevant. If a patent expired during the review process, an automatic extension would be granted, which could be extended during any period of judicial review.
H.R. 1598's proponents make three claims for their bill. We believe the Subcommittee should reject all three, for the reasons explained below.
Claim #1: Claritin was denied the full patent term restoration to which it should have been entitled under the 1984 Waxman-Hatch Act.
In an attempt to justify this windfall profits scheme, H.R. 1598's proponents have attempted to rewrite legislative history. They claim that the two-year patent extension granted to seven ''pipeline'' drugs, including Claritin, should be extended because the FDA review process for these drugs took much longer than average. Proponents claim that in order to ''remedy'' an ''unintended consequence,'' Claritin should be made eligible for an additional three years of patent protection.
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This ''fairness'' claim rests on a clever attempt to confuse two unrelated parts of the Act:
1. The five-year patent term restoration process. Congress made this provision of the Waxman-Hatch Act prospective only. It deliberately chose to exclude the pipeline drugs from this section because patent term restoration was intended as an incentive to stimulate new research and development. Since the research and development phase for the pipeline drugs had already occurred, they were not meant to be covered.
2. Special protections for pipeline drugs. This does not mean that Congress ignored the competitive situation of the pipeline drugs. Other sections of the Act provided them two types of protection: (a) two years of patent extension, and (b) a variety of special non-patent exclusivity provisions, which prevented or delayed generic competition. Schering-Plough got its two years for Claritin. (In addition, it later received another 22 months extension due to the General Agreement on Tariffs and Trade [GATT]).
It is wishful thinking on Schering-Plough's part to read into the Waxman-Hatch Act any intent to provide pipeline drugs with more protection that the Act gave them. If Congress had wanted to make the length of the FDA review and approval process a factor for pipeline drug patent extension terms, it could have—and would have—done so.
Claim #2: H.R. 1598 is somehow a necessary incentive for companies to continue to do research and development to find new treatments.
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Brand-name pharmaceutical companies frequently play what has been called the ''R&D scare card''—that is, raising the threat that they will not be able or motivated to invest in new research and development unless they get their way on whatever legislation Congress is considering. Although this argument can be a successful scare tactic, playing on the fears that a vitally needed treatment for a disease won't be discovered, its premise is false.
There are two reasons why it is false. The first is that brand-name companies rely on R&D to make money: it is the source of new patents, new products, and future profits. Over the 15 years since the Waxman-Hatch Act passed, according to the Pharmaceutical Research and Manufacturers of America (PhRMA), brand-name company R&D has increased from $3.4 billion in 1985 to $17.2 billion in 1998. In the five years after Congress imposed price restraints on Medicaid drug prices in 1990, which also had been opposed by the brand-name industry on the grounds that they would have a chilling effect on research and development, R&D expenditures almost doubled, going from $6.8 billion to $11.9 billion. These firms are not going to commit business suicide by curtailing R&D.
Secondly: The brand-name industry's profit margins are more than sufficient to increase R&D. According to Fortune Magazine, in 1998 the pharmaceutical industry was the most profitable in the U.S. based on rate of return on sales, assets, and equity.(see footnote 21) Its profit margin of 28.7 percent is nearly three times higher than the profit margin of other manufacturers of branded consumer goods.(see footnote 22) This industry does not operate on such razor-thin margins that some equitable price relief for consumers will drive brand-name pharmaceutical companies to cut research and development.
The record shows that for Schering-Plough, as well as other leading brand-name pharmaceutical companies, profits are a much higher priority than R&D. In 1998, Schering-Plough allocated almost 22 percent of its net sales to profit (net income) and just 12.5 percent to research and development. None of the top ten U.S. pharmaceutical companies ranked by sales in 1998 spent more on R&D than they generated in profits (net income). The median for the ratio of net income to R&D for the top ten was 1.5.
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These numbers show three things: (1) the enormous profitability of brand-name pharmaceutical companies; (2) that they all earn enough to allocate more money to research and development than they now do and still maintain enormous profits; and (3) that without exception, the top ten place a higher priority on profits than R&D. The R&D scare argument is particularly laughable as a justification for a three-year patent extension for Claritin, in view of Schering-Plough's enormous profits and the imbalance between profits (net income) and research and development expenditures.
Claim #3: H.R. 1598 merely sets up a ''fair and open'' review process to resolve disputes about these patent term extensions objectively instead of through ''stealth'' riders
The first thing that's wrong with this argument is that Schering-Plough, the company whose aggressive lobbying is driving H.R. 1598, tried for three years to get a patent extension for Claritin with just those stealth tactics. It is only because they were unable to put their special interest provision as a last minute rider onto various appropriations and other bills, due to alert legislators and attention from the media, that a legislative strategy is underway this year. But if it succeeds, the consequences for consumers will be no different.
Next, H.R. 1598's review process is neither fair nor open. The bill gives the drug company asking for the patent extension the winning hand before the cards are dealt by, as noted above, placing the burden of proof upon the opponents and constructing the review criteria so that a favorable outcome for the petitioner is all but inevitable.
Some of H.R. 1598's proponents have sought to find a way to profit from adversity. In responding to widespread criticism of their stacked deck process, they attempt to re-focus the entire debate on this question, as if getting the process right could ''fix'' the problems with the bill. Should the Court of Claims hear the case rather than the Commissioner of Patents and Trademarks? Should the review criteria be changed?
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But to enter into that discussion is to have taken the bait—that is, to have accepted proponents' claim that there is any legitimate reason for Congress to establish any review process—no matter how structured or where located—that could result in three-year monopoly patent extensions for drugs already on the market, one of which is enormously profitable. Since H.R. 1598's proponents have utterly failed to meet the threshold burden of showing that some past wrong was done them that should be righted, their attempt to cloak this special interest bill in the sacred mantle of defending intellectual property rights should be rejected as the sophistry it is.
In conclusion, I want to come back to the contrasting stories with which I began—the President's proposal two days ago finally to provide a Medicare prescription drug benefit to help seniors and persons with disabilities afford the medicines they need. The bill that is the subject of today's hearing goes in exactly the opposite direction by making medicines less, rather than more, affordable.
That is the context in which we hope this Subcommittee will evaluate H.R. 1598. We are certainly not opposed to either pharmaceutical patents or intellectual property rights. But drug patent protection should not, to paraphrase former Senator Pryor, be viewed as a God-given right, but instead as something government creates to fulfill a public purpose.
An examination by this Subcommittee of how the U.S. drug patent monopoly price system is actually working—and whether it is truly promoting the public good as it should—would be welcome. But in the meantime, we would urge you to reject H.R. 1598. The public interest demands that medicines be made more affordable for American consumers—not less.
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Mr. COBLE. Thank you, Ms. Kealey.
Mr. Meyer.
STATEMENT OF GERALD F. MEYER, SENIOR CONSULTANT, AAC CONSULTING GROUP, INC.
Mr. MEYER. Thank you, Mr. Chairman.
Mr. COBLE. Get the mic down to Mr. Meyer, please.
Mr. MEYER. Thank you, Mr. Chairman, for this opportunity to speak in support of H.R. 1598, the Patent Fairness Act of 1999. As you may know, I testified in support of this legislation before this subcommittee last year, and participated in a panel discussion on this subject sponsored by Mr. Lehman's International Institute of Intellectual Property, held in the Capitol on June 10. Mr. Chairman, I have not changed my views since my previous testimony.
I served at FDA for 24 years. For 8 years, I served on the front lines of FDA's drug review and approval process, as Deputy Director of their Center for Drug Evaluation and Research. As I have always stated, prior to enactment of the Prescription Drug User Fee Act of 1992, we at FDA faced enormous difficulties in reviewing new drugs within the statutory timeframe because of a continued lack of adequate funding and resources. I believe that, despite the substantial efforts of a talented and dedicated review staff to carry out their responsibilities, the agency simply could not keep up with the number of new drug applications being submitted by the industry. Review and approval times increased, and it was not until enactment of this user fee legislation that the drug review activities of the agency began to receive the funds and manpower that were needed to make a significant reduction in this extended review time.
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The fact is that the lack of sufficient staff before enactment of this legislation meant that when an FDA reviewer was ill or otherwise unavailable to work on an application, there was no one else available to step in; or when the number of applications in a particular drug class increased substantially, as they did for certain types of drugs such as, for example, the anti-hypertensives, the nonsteroidal anti-inflammatories, certain classes of antibiotics—and I could go on—that the amount of time required for review was substantial. If an application presented a difficult and complex scientific question, requiring extended time to address, the Division would simply have to defer review on applications in the queue until they could work through this backlog, and in some cases that could take substantial periods of time.
Mr. Chairman, I can still remember Dr. John Harter responding to an inquiry of mine that, ''Gerry, it still will be two more years before I can even pick up this application because that's where it is in the queue.''
It is true that the FDA assigned priorities to applications for products that represented drugs for life-threatening diseases without current adequate therapies, and I agree with that priority. I fully agree with it. But I also acknowledge that it only adds to the delays for other applications that also may prove to also be important over time. I say that because, as almost everyone knows, all patients do not respond equally to all products.
The additional resources provided to the drug process through user fee legislation appropriations have been invaluable, but they have not eliminated all of the inequities that existed before this legislation, and that I believe may still somehow exist in the future. That is what I hope this new legislation will correct. And as a matter of public policy, I believe an open administrative process will almost always be the preferable way to proceed.
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Mr. Chairman, I appreciate this opportunity to appear before your subcommittee, and I will be pleased to respond to any questions.
[The prepared statement of Mr. Meyer follows:]
PREPARED STATEMENT OF GERALD F. MEYER, SENIOR CONSULTANT, AAC CONSULTING GROUP, INC.
Good Afternoon Mr. Chairman.
Thank you for this opportunity to speak in support of H.R 1598, the ''Patent Fairness Act of 1999.''
As you may know I testified in support of this kind of legislation before this Subcommittee earlier this year, and participated in a Panel Discussion on this subject sponsored by the Intellectual Property Institute held in the Capitol on June 10, 1999.
Mr. Chairman, I have not changed my views since my previous testimony. As I stated previously, prior to enactment of the Prescription Drug User Fee Act of 1992 (PDOUFA), FDA faced enormous difficulties in reviewing new drugs within the statutory time frame because of a chronic lack of adequate funding and resources. I believe the efforts of a talented and dedicated review to carry out their responsibilities, but the Agency simply could not keep up with the number of New Drug Applications being submitted by the pharmaceutical industry.
Review and approval times increased, and it was not until enactment of the User Fee legislation that the Drug Review activities of the Agency began to receive the funds and manpower needed to reduce this extended review time. The fact is that the lack of sufficient staff before enactment of this legislation meant that when someone was ill, or otherwise unavailable to work on an application, there was no one else available to step in. And, when the number of applications in a particular drug class increased substantially, as they did for certain types of drugs at different times, that Division would simply have to defer review until they could work through this backlog. In some cases that delay could add years to review time.
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It is true that the FDA assigned priorities to applications for products that represented drugs for life-threatening diseases without current adequate therapies. I agree with that priority, but I also acknowledge that it only adds to the delays for other applications that may prove to also be important over time. I say that, because as you may know Mr. Chairman, all patients do not respond equally to all products. The additional resources provided to the Drug process through user fee legislation and appropriations have been invaluable, but they have not eliminated all of the inequities that existed before this legislation, and that may somehow exist in the future. That is what I hope this new legislation will correct.
Mr. Chairman, I appreciate this opportunity to appear before your Subcommittee, and I will be pleased to respond to any questions the Members of your committee may ask.
Mr. COBLE. Thank you, Mr. Meyer. Good to have you back with us.
Mr. Orr. Essentially, Mr. Orr, the same subject matter, but in a different vein.
STATEMENT OF WILLIAM ORR, CHAIRMAN, NATIONAL ALTERNATIVE FUELS ASSOCIATION
Mr. ORR. Mr. Chairman, I am honored to be here. Thank you for the invitation.
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Honorable members of this committee, I feel like a fish out of water to a certain extent, but perhaps within the churning waters of this hearing it might be good that I am out of water.
I am the chairman of the National Alternative Fuels Association, and we have an interest very similar to the interest that has been presented to this committee regarding term depreciation. We are grateful to the pharmaceuticals for having advanced this concept, but we would also like to emphasize we have heard the word ''process'' here many times, and it seems peculiar that the process only relates to FDA. We are concerned with EPA regulatory delays; other industries are as well.
Let me state initially that the National Alternative Fuels Association is a scientific organization dedicated, and principally concerned about, our Nation's air. In 1994 there was a report by 100 Nobel Laureates who said that cleaning up our environment and cleaning up our air had to be our No. 1 priority this century, and their words were, ''else we condemn our children to eternal misery.''
There are major differences between alternative fuels and pharmaceuticals, both in terms of how it is advanced, how they are approved, and how they are marketed. History has shown that the greatest breakthrough inventions have come from individual inventors. In the case of alternative fuels, this is particularly the case. Institutional fuels today are primarily in the domain of large petrochemical companies and petroleum companies. They have a vested interest not to make breakthrough changes. Their interests are primarily incremental.
Noting an article that was in The Washington Post this last week, the Pew Center on Global Climate Change has shown that in the last 20 years we have seen a full degree temperature increase globally on global warming. This particular increase is alarming for many people, many environmentalists. The incrementalists in our industry are suggesting, well, let's take sulfur out of gasoline. Yet, this particular report says that it is precisely that which is increasing the global warming. So we have to find a mechanism, a means, to making the breakthrough innovations necessary to solve these problems.
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The biggest problem that we have in the alternative fuel industry is the Government—not innovation, but the Government. At the Patent Office there are delays. There are delays at the EPA. These delays kill the innovation of these individual inventors.
After the inventions are invented, after they are approved by the EPA, which can take as long as the pharmaceutical approvals—there is a case where one particular technology took over 20 years to get approved through the EPA—it is then that process development begins. Process development, unlike pharmaceuticals, may take between three and 5 years before the process is developed. Subsequent to development of the process, there may be another 3 to 10 years in prototype plant construction before you can produce even enough product to satisfy one-tenth of 1 percent of the demand. By that time, the patents have long expired.
We would be very grateful, and very respectful of this committee, to consider this process to include other entities, other industries, that are being gored by the regulatory delays. Thank you very much.
[The prepared statement of Mr. Orr follows:]
PREPARED STATEMENT OF WILLIAM ORR, CHAIRMAN, NATIONAL ALTERNATIVE FUELS ASSOCIATION
Good Afternoon, Honorable Members of the Subcommittee.
My name is Bill Orr. I am Chairman of the National Alternative Fuels Association (NAFA). NAFA membership includes alternative fuels companies, scientists, engineers, inventors, environmentalists, and concerned individuals. We are extremely concerned about the quality of our environment, and particularly the continuing degradation of our nation's air.
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Briefly, we support: i) an Amendment that corrects a technical matter relating to older pre-GATT applications, where the Patent Trademark Office (PTO) improperly considered applied transition rules denying pre-Gatt applications a full examination. Under the PTO's interpretation if claims were amended adding new elements or changing the subject of the invention, e.g. converting from a composition to a method, it would not be examined. This treatment by the PTO unfairly penalized a number of alternative fuel technologies (and presumably many other technologies). I am aware of several exciting clean fuel technologies, which were involuntarily abandoned due to this abuse by the PTO.
We also support in the context of H.R. 1907, ii) an Amendment which provides any patent term extension due to PTO delays, be effective for all patents, which start issuing this year (1999). In short, pending patent applications, already abused by PTO delays and granting this year should not be excluded relief.
While these two matters are not officially before you, they are items for which we respectfully request that this Honorable Subcommittee take notice.
History has shown that individual inventors, not corporate inventors, make the most significant technological breakthroughs. Individual inventors typically do not have the financial staying power to support extended regulatory delays occurring either at the PTO or Environmental Protection Agency (EPA).
Thus, we support an Amendment, which would provide any delay caused by the (EPA) or any other governmental regulatory agency (state or local) in the commercialization of an alternative fuel technology, be added back to the term of a patent.
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This Amendment is vital, especially if we are going to clean up our nation's air. Its' importance becomes manifest when one understands the unique life cycle of an alternative fuel technology, which is quite different than other technologies.
First, the alternative fuel technology invention is made, an invention, which preliminarily tests shows reductions in air pollution.
Second, a series of additional tests are conducted to determine if the technology merits further development or abandonment. Specifically, can the technology initially survive a long list of criteria, including materials, catalytic converter, storage and fuel systems compatibility, not to mention a broad spectrum of minimum health, toxicity, and emissions requirements. This alone requires a significant amount of capital, which typically can not be raised by an independent inventor absent a granted patent. Thus, delays in the PTO effect the process.
Third, assuming capital to support these preliminary tests (e.g. a granted patent) and their success, a much more extensive battery of EPA tests implicating a large number of vehicles must to be tested. These tests are over their useful lives (75,000 to 100,000 miles, or more). These tests and the subsequent EPA waiver effort will cost several millions of dollars and take several years. However, in the end there is no assurance of approval.
Fourth, after EPA approval (e.g. grant of a §211 (f)/(k) waiver), chemical process development commences in order to create a commercially viable process. This implicates an additional investment of millions of dollars and several additional years. Due to the ultimate nature of these full-scale production facilities, typically, various progressively larger facilities are built during development. Due to the competitive nature and slim profit margins associated with fuels, there is a very real chance an economically viable process will not be developed, forcing abandonment of the entire effort at that point. For example, conventional ethanol processes today would not be competitive, if not for federal subsidy. NAFA does not believe the federal taxpayer should provide future subsidies to new alternative fuels.
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Fifth, after successful process development, initial prototype plant construction can commence (typically at a reduced scale), which generally takes several years. It then takes several additional years of plant operations, after start up, before such plants are deemed viable for commercial scale replication.
Under current PTO practices, an alternative fuel patent term would have likely expired long before meaningful plant construction (assuming the PTO did not force the patent application's abandonment under the GATT transition rules).
Thus, the pathway to successfully cleaning up the air is a long and painful one, taking a significant amount of time, money, and energy.
At a minimum, there needs to be a restoration of time lost due to both EPA and PTO delays.
Specifically, as far as EPA delays, the Amendment is necessary because:
1) The EPA requires extensive and expensive fleet type tests before any new fuel or fuel additive can be approved under §211 (f)/(k) of the Clean Air Act. These tests cost several millions of dollars and must be conducted long before the EPA application is filed. The tests and prosecution before the EPA can require many years, and it is not unusual for several reapplications for a waiver to occur before approval is secured. Economic risk is significant because there is no guarantee of EPA approval. And, until there is EPA approval, the fuel can not be marketed. Thus, there is no economic incentive to develop the chemical processes, much less build prototype production plants, until EPA approval is secured. I am personally aware of one case, involving a fuel additive, which has been proven to reduce NOx emissions, the basis for which the EPA is now taking sulfur out of gasoline; to take almost two decades before it was finally approved. Obviously, there is no individual inventor and few corporations, who have the persistence to withstand this kind of delay, and watch what ever patents they may have had expire prior to even being able to think about commercialization.
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4) Once EPA approval is received, it is only then that the economic incentive exists to proceed with process development, which is necessary before the engineering and design of a production facility commences. Again, process development alone can take several years, and unfortunately may never result in a cost-effective process. Thus, even after patent and EPA approval, the technology may never be developed for want of a viable cost-effective process. Alternative fuels must compete with low cost traditional fuels, as distinguished from pharmaceutical products where pricing need not be as competitive due to a lack of product substitution.
5) After patent and EPA approvals, and assuming successful process development, it is only then that a production facility can be constructed. Construction can take several years. Again, these prototype plants need to operate for several years before they are ready for commercial replication. Unfortunately, by this time the patent's remaining life has likely expired, failing to provide economic incentive to the inventor. Even if a prototype production facility can be built prior to the expiration of the patent, a single alternative fuel plant's capacity will not supply but a small fraction of total demand (unlike the pharmaceutical that can supply worldwide demand from a small single facility). Thus, it would be impossible to build enough facilities to provide total demand before a patent term expired. NAFA would like to suggest a longer patent term for alternative fuels patents, due to this reality.
In conclusion, under existing patent law, the alternative fuel inventor is essentially a martyr. The odds are stacked against him from the very beginning from ever enjoying the economic fruits of his invention, even under the most favorable of circumstances.
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| Holland & Hart, |
| Attorneys at Law, |
| Denver, CO, February 24, 1998. |
Sen. ORRIN HATCH, Chairman,
Senate Judiciary Committee,
U.S. Senate, Washington, DC.
DEAR SENATOR HATCH: I am a patent attorney who regularly practices before the U.S. Patent & Trademark Office. I am concerned about what appears to be excessively restrictive application by the Patent Office of the transitional procedures under 37 C.F.R. §1.129(a) for patent applications pending for at least two years prior to June 8, 1995.
In general, 37 C.F.R. §1.129(a) allows for examination of pre-GATT patent applications. This examination is ''limited'' to three submittals. More particularly submittals under 37 C.F.R. §1.129(a) accompanied by the fee required by 37 C.F.R. §1.17(r), are subjected to consideration of amendments to claims and specification, with the ''finality'' of the previous Patent Office rejection withdrawn. It is my understanding that this transitional practice was intended to provide patent applicants having applications filed substantially before GATT, an opportunity for repeated examination (which is limited to three submittals), so that such applicants would not be penalized by having to refile and lose patent term life as a result of GATT.
However, despite the fact that the §1.129(a) fee is the same amount as the fee for filing a new application, examination of amended claims under §1.129(a) is regularly refused. Unfortunately, I have seen 37 C.F.R. §1.129(a) applied by the Patent Office as a basis for refusal to even consider new claim amendments, even in cases where substantially the same subject matter was claimed under pre-GATT patent prosecution.
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By refusing to examine amended claims, the Patent Office is, in effect, accepting a fee amount which is the same as an application filing fee, but refusing to perform the services associated with such fee. So, in order for a pre-GATT applicant to obtain a fair examination of amended claims, the applicant is forced to refile the application. For any patent which subsequently issues, the patent will be significantly less than 17 years.
It is noted that under 35 U.S.C. §41(d), the Commissioner of Patents and Trademarks establishes fees not otherwise specified to recover the estimated average cost to the Office of the services associated therewith. Indeed, in promoting itself as a self-sufficient agency capable as functioning as an independent government corporation, the Patent Office regularly characterizes patent application applicants as ''customers'' purchasing Patent Office ''services''. Adjustments are annually made to Patent Office fees ''to reflect fluctuations in the Consumer Price Index (CPI) and to recover costs of operation.'' See U.S. Patent & Trademark Office fee sheet effective October 1, 1997.
The implication clearly left with Patent Office customers/applicants/taxpayers, is that the application filing fee and §1.129(a) submittal fee (both presently $790) represent the cost of the services associated with these filings. However, by giving an excessively restrictive examination of §1.129(a) submittals, pre-GATT applications are not given the same service as new applications, yet charged the same fee. Consequently, pre-GATT applications are effectively discouraged.
The effect of the Patent Office's excessively ''limited'' examination of 37 C.F.R. §1.129(a) submittals causes pre-GATT applicants to choose amongst three undesirable options: (1) abandon an applications because they cannot get consideration of amended claims for possible allowance and cannot afford the costs associated with an appeal; (2) refile the application, claiming priority of a pre-GATT application and obtain a patent of having a term of substantially less than 17 years; or (3) refile without claiming priority or a pre-GATT application. None of these options are fair to the pre-GATT applicant and can effectively discourage the development of their inventions.
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Please call or write if you would like to discuss this matter further.
Very truly yours,
62499b.eps
Mr. COBLE. Thank you, Mr. Orr.
Well, the bell has just rung. I think we will suspend. Let us go vote, and then we will return and begin the round of questioning.
[Recess.]
Mr. COBLE. The best laid plans of mice and men go awry, as you all know. We had two votes. So that is why we were delayed somewhat in returning. But, folks, I very much appreciate each of you giving of your time and your talents today. Let me begin the questioning.
Dr. Spicehandler, how much does Schering-Plough spend on research and development of new drugs each year (a), and (b) how does term protection affect your ability to conduct further research?
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Mr. SPICEHANDLER. This year we will spend over a billion in research.
Mr. COBLE. Billion?
Mr. SPICEHANDLER. A billion dollars. And, in fact, since Claritin was approved, we have doubled the research budget from approximately $500 million to a billion. We anticipate a nice, healthy 15 percent increase in that budget next year.
Regarding your second question, it is absolutely critical. A basic model of how we in the industry fund future research is through the revenues of existing products. So the notion that a certain product has made a profit and there is no incentive to carry that forward as relates to future research is really not rational. In fact, all the revenues from current products flow back, provide us the possibility to start new programs, which we have done in the last couple of years. We have started programs based on those revenues in central nervous system diseases such as Alzheimer's, in new areas of cancer, entirely new approaches such as gene therapy, tumor gene therapy, and most recently, we have started two new programs in diabetes research and obesity—really important problems for the American public.
Mr. COBLE. Thank you, sir.
Messrs. Lehman, Meyer, and Hutt, now each of you possess institutional knowledge of the Hatch-Waxman Act, since you all contributed to the negotiations and the writing of the law. Let me ask you this: Each of you, if you will—Bruce, you, Mr. Meyer, and Mr. Hutt, in that order—why the disparate treatment of pipeline drugs, and is this treatment fair 15 years after the fact?
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Mr. LEHMAN. Well, Mr. Chairman, I think that Peter Barton Hutt's statement to you was probably a pretty accurate one in terms of what the official reasons were. But I also think it is important to note that the 1998 legislation—and I had left the committee staff by then—was very much a product of a very hard-fought political effort on both sides. The generic industry put a lot of effort into this, and the pharmaceutical industry did.
In fact, this committee, which I think tends to see things more from a patent perspective, was more generous to the pharmaceutical companies, and what it really came down to in the end was whether there would be any patent term extension at all. Would we have patent term extension or would we not? And in the end, the pharmaceutical industry, basically, agreed to pull back on its initial request of Congress. This committee, which tended to see it more from their point of view, acceded, and a compromise piece of legislation was enacted.
But in my view it was just that; it was a compromise piece of legislation. It wasn't some sort of scientific balancing of anything. It was just a part of the political process.
Mr. COBLE. Mr. Meyer?
Mr. MEYER. Well, I think the disparate treatment is probably linked to individual and extenuating circumstances for the products. I haven't examined in detail all of those that historically had that problem, but I can tell you from knowledge of a couple that there were circumstances where a product could get caught in a reorganization, where someone could raise a question about a similar compound for which there was perhaps an association with tumors in animals, or something, and suddenly the application gets sort of ''put on hold'' while people go and try to resolve that particular scientific question.
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This kind of thing occurred in the past—and I want to make certain that you know I think the potential to have these problems will continue in the future. I believe there will always be situations where a Review Division is flooded with applications in a particular class and they won't begin to have adequate staff. Right now, for example, there is a tremendous number of asthma drug applications coming in. FDA can hardly recruit a pulmonologist. We don't begin to offer competitive salary for this very small labor pool. So when you get those kinds of situations, or a very difficult scientific question, then that application gets way out of sync in terms of the way in which it would ordinarily be handled.
I suspect if the committee were to examine the seven products at issue—that is one of the things I like about an administrative process—they would be able to determine whether, and exactly why, there was this small group of products in the past that received treatment different than what I think the Hatch-Waxman Act anticipated or intended. And as I say, I think we will have problems like that in the future. That is why I think you need a process.
Mr. COBLE. Mr. Hutt, since I asked the question before the red light illuminated, I am going to let you answer that. [Laughter.]
Mr. HUTT. Mr. Chairman, I not only have a very clear recollection of why those of us who drafted that provision drafted it the way we did, but I have also verified that with the lawyer who was counsel for the then-Democratic majority of that House subcommittee. And the reasons, as laid out in my prepared statement, were twofold.
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The first, as I have already said, is because it was thought to be fair for drugs that were near approval to give them just 2 years, and similarly, it was thought that since they were about to get approved, there was not as much incentive needed to make sure that the company would continue to pursue NDA approval.
Now what we did not do—and could not do because we did not have the data available—is to see how that would work out in real life for all of what are now more than 120 drugs that turned out to be subject to the pipeline drug provision. We did not anticipate these outlier pipeline drugs, way at the end of that famous bell-shaped curve, that would be unfairly harmed by this kind of provision. It was a very broad and not very narrowly targeted provision.
Mr. COBLE. Thank you, sir. I have some more questions, but I want to go to Mr. Berman now, and I will come back maybe for a second round. Howard?
Mr. BERMAN. Great. I would appreciate your doing that. I know it is late, but this is an important subject, and we have a lot of panelists here. So I think a second round would be useful in this particular case.
Mr. Hutt, I am having a little difficulty understanding the thrust of the argument. Almost by definition, when you guys put together this deal—I take it at that point you were what; you were a lawyer for the Pharmaceutical Manufacturers?
Mr. HUTT. Yes, sir.
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Mr. BERMAN. You were representing them?
Mr. HUTT. Yes, sir.
Mr. BERMAN. So you were a private party in negotiations, which gives you some credibility to talk about intent because you were sitting there, but it is not an official—you don't have the capacity to make an official determination. You are not a committee report yet?
Mr. HUTT. That is correct.
Mr. BERMAN. Okay. Because Mr. Engleberg, who I don't know, sends a copy of a letter to someone who sends it to us, and he was apparently a lawyer for the generic drug manufacturers in these same negotiations, and participated with you in the discussions. Were you working for the committee then, Bruce?
Mr. LEHMAN. I was there not in 1984, but I left the committee in January 1983. So the legislation, the committee approved a version of it while I was still there, I think in 1982, but it didn't pass Congress, and then they came back and had the final compromise in 1984.
Mr. BERMAN. Right. Okay. Well, in any event, I believe—and you maybe would know—that Mr. Engleberg played a role for the generics that Mr. Hutt played for the Pharmaceutical Manufacturers, and he gives a letter that is his statement of what happened, and why it happened. And I think it is appropriate, since Mr. Hutt has included his letter, for Mr. Engleberg's letter to be in the record. Could I ask unanimous consent, Mr. Chairman, to be able to include this in the record of this hearing?
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Mr. COBLE. Without objection, it will be entered into the record.
[The information referred to follows:]
| Alfred B. Engelberg, |
| Counselor at Law, |
| Greenwhich, CT, June 11, 1997. |
Sen. ORRIN G. HATCH, Chairman,
Committee on the Judiciary,
United States Senate, Washington, DC.
DEAR ORRIN: You may recall that I acted as patent counsel to the Generic Pharmaceutical Industry Association (GPIA) in 1984 during those hot summer days when, with your help, we negotiated the final terms of the Drug Price Competition and Patent Term Restoration Act. While I no longer represent the generic industry, and have largely retired from the practice of law, I still believe that I have an obligation to help keep the historical record straight in the interest of good government and the notion that the principles of fair play and the obligation to honor prior commitments ought to apply in the field of legislation to the same extent that they apply to other aspects of our business and personal lives. That sense of obligation compels me to call your attention to certain facts which make it clear that the attempt by Senator Thompson (R-Tenn.) to legislate additional patent extensions for drugs which were under development in 1984, clearly violates the heart of the compromise which led to the enactment of the '84 Act.
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Anyone who had any real involvement in the negotiations which led to the '84 Act knows that the principal concern of the PMA (now PhARMA) companies was to insure that the contemplated changes in the law would occur gradually and in a fashion which would not affect the near term balance sheets of those companies. Protecting pipeline drugs was critical to that process. This was not an easy task since it was also recognized that patent term extension should be perceived as providing incentives for future research investments and not as a reward to pharmaceutical companies, at public expense, for past investment. These seemingly contradictory goals were addressed by legislating a series of non-patent exclusivities in Title I of the '84 Act which were unrelated to the patent term extension provisions of Title II. By limiting the FDA's ability to approve Abbreviated New Drug Applications (ANDAs) under certain circumstances, the potentially adverse near term economic consequences of the new law were neutralized. At the same time, as the House Committee reports show, the important concept of prospectivity was preserved by limiting patent term extensions for drugs which were in the pipeline prior to the '84 Act to 2 years while granting a 5 year patent extension to drugs which were first developed after the new law was enacted.
The principle profit protection mechanism which was incorporated in the earliest drafts of the '84 Act was a so-called ''transition'' rule which prohibited the FDA from approving an ANDA for 10 years on any new chemical entity which was the subject of a New Drug Application (NDA) approved between December 31, 1982 and the date of enactment of the '84 Act. This provision insured that the newest and most important drugs would have 10 years of monopoly protection irrespective of their patent expiration dates. In the late stages of the negotiations, 2 additional non-patent exclusivities were added. First, the FDA was prohibited from accepting any ANDA for any new chemical entity first approved in an NDA filed after the date of enactment of the '84 Act for a period of 5 years thereby assuring a monopoly of at least 7 years since the ANDA review process typically takes 2 years. Secondly, the FDA was prohibited from approving any ANDA covering a new use or form of a previously approved chemical entity for a period of 3 years. The drugs for which Sen. Thompson now seeks additional protections have all received the benefit of these non-patent exclusives in addition to a 2 year patent extension.
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The '84 Act need not be viewed as a document which is engraved in stone. There may well be ares where the law was flawed either as a result of poor draftsmanship or because of unforeseen circumstances. Those issues, if they exist, should be addressed prospectively. But to suggest that the parties who agreed to the '84 Act did not completely address the issue of protection for pipeline drugs is absurd. Assuring protection for those drugs was, in fact, at the very heart of the deal. It may well be that certain pipeline drugs did not get as much protection as others, but each company got what it felt it needed in terms of product line protection to sigh on to the compromise. It is simply wrong for a new generation of legislators and lobbyists to ignore that history and seek to pile additional patent term extensions on top of the patent and non-patent exclusivities which those pipeline drugs have already received on the theory that the '84 Act produced unintended hardships for some companies or products.
Please feel free to call on me if I can be of further service on any issues related to the '84 Act. The Act has clearly accomplished a great deal of good for public health and no apparent harm to the economic health of the research-based pharmaceutical industry. I am proud to have played a role in helping that occur and would be pleased to do whatever I can to preserve those important gains.
Sincerely,
Mr. BERMAN. But, now, what puzzles me here is there is an arbitrariness in all of this. Somewhere in the process you decided, the committee decided, Congress decided, the drugs for which there has not been any—what do you call it, the innovative—when you actually are applying for the approval; you have done the testing; you already have the patent, and you are doing testing. Now you make your formal application. There are some initials to cover that——
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Mr. HUTT. IND.
Mr. BERMAN. That's it.
Mr. HUTT. The IND is to justify clinical testing. Then the NDA is what is submitted to FDA to obtain approval.
Mr. BERMAN. The NDA then. In the case of the pipeline drugs, an NDA had been filed——
Mr. HUTT. No, Mr. Berman, the IND had been filed.
Mr. BERMAN. They were being tested at that time?
Mr. HUTT. Yes, they were—or at least the IND had been filed. They may or may not actually have been in clinical tests at that moment, but at least the IND had been submitted.
Mr. BERMAN. At the time when this bill was signed into law, some universe of drugs had just been approved for sale, right? That is a fair assumption, isn't it? There was some group of drugs that within 6 months prior to the passage of the law they were——
Mr. HUTT. Yes, it is entirely possible that some might have been approved literally days after the effective date of the statute.
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Mr. BERMAN. Or days before?
Mr. HUTT. Or days before, correct.
Mr. BERMAN. And they didn't get the 5 years and they didn't get the 2 years, right?
Mr. HUTT. Yes. There were some complicated provisions, but let me say, yes, as a general rule.
Mr. BERMAN. All right. And they have some of the same arguments that could be made about how much of their patent time was taken in the regulatory process? I mean, they got cut off from any of this action just by virtue of the time that the FDA approved their drugs?
Mr. HUTT. Congress undoubtedly had to draw lines. What we are talking about here is necessarily the result of applying a broad rule to a wide variety of different situations which results in equity for some, but demonstrated inequity for others.
Mr. Berman, I should also point out that, when you asked me about my recollection of the origin of the pipeline drug and the reasons, I did not rely just on my recollection. I verified that with the counsel to the Democratic side of the House subcommittee, John McLaughlin. This was the lawyer who represented Mr. Waxman at that time in the committee negotiations.
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Mr. BERMAN. What's he doing now?
Mr. HUTT. He is now working for a small biotechnology company, but I should also point out he did not at the time he verified my recollection work for anyone who had any interest in this legislation.
Mr. BERMAN. All right.
Mr. HUTT. His company had no interest whatever.
Mr. BERMAN. Well, my time has expired. If we are going to have a few more rounds——
Mr. COBLE. Yes.
Mr. BERMAN. [continuing.] I'll wait.
Mr. COBLE. I think this is important enough to justify a second round.
Mr. Berdon and Mr. Downey, let me ask you all a question. Each of you alluded, I think, to Mr. McDermott's comment regarding some of the generic pricing. Now there have been some recent news accounts detailing excessive markups for certain generic drugs as well, I think—correct me if I am wrong—investigations by the FTC, the Federal Trade Commission, of the generic industry for anti-competitive activities.
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In light of what Mr. McDermott said concerning pricing, and in view of my question, how about you all responding to that?
Mr. DOWNEY. I would like to respond to that, Mr. Chairman, and I will take them in order.
First, the question about the price increases alluded to by Mr. McDermott, those are the subject of an allegation made by the FTC. It is in litigation. The company involved in that very strongly denies any wrongdoing. I happen to believe personally that they are right. I also believe that, if you look at the record, wherever those price increases are and whatever they have been, the brand company product is still substantially more expensive than the generic counterpart.
So, in essence, the FTC's argument is, it is improper somehow some way for a generic product company to raise their products' prices, even though the price threshold remains below the branded price. I think that is incorrect. I think, ultimately, the company involved in that will be vindicated.
You mentioned FTC investigations that have not resulted in litigation. There are a number of those of both the generic and branded industry. There have been newspaper accounts about an investigation involving my company. I would be happy to respond to that.
That concerns a patent settlement we reached with Seneca in a patent challenge in 1993, and the result of that settlement has been the introduction of a generic version of a very important product 9 years before patent expiration, which we sell on the market every day below the price of the brand product, and that difference in price has resulted in 90 percent of the women who need that—80 percent of the women who use that product switching to our lower-cost alternatives, at a savings of tens of millions of dollars. I think that at the end of that investigation there will be no action because we had a pro-competitive, pro-consumer settlement.
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Mr. COBLE. Mr. Berdon, do you want to add to that?
Mr. BERDON. Mr. Chairman, yes, thank you. I would just like to note for the record that my company has not been the subject of an FTC investigation. [Laughter.]
Mr. COBLE. I was certainly not implying that with my questions. You did not take it that way, did you?
Mr. BERDON. No, I did not, sir.
Mr. COBLE. Okay.
Mr. BERDON. I think that investigations by the Federal Trade Commission into the activities of individual companies in individual product categories should not deflect from the overall benefit that generic drug manufacturers deliver to the American consumer and to the economy overall, including the Federal Government.
I think that if there are individual instances of bad acts, those acts need to be investigated, and they need to be resolved. But, overall, this industry delivers valuable service to the American economy, and I think it is a very important service that we provide. My company is dedicated to doing it the right way, as I think are most of the participants in this industry, if not all.
I would like to go back to something that was said in response to one of your earlier questions, because I think there has been a confusion of issues here. I don't think the question at the time that the negotiations were underway was whether a 2-year patent extension was fair to compensate the brand company with pipeline drugs for ongoing R&D in general. It was whether there was a need, for that specific product, for there to be some compensation in respect of a delay.
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What I think Schering's position here is, is that they are entitled to a patent extension here not in respect of the efforts that went into developing Claritin, but so that they in the future can be incentivized to do more. Well, Claritin is an old drug, and I don't see any reason, principled reason, why they deserve a patent extension on an old drug to justify expenditure going forward. They take risk on new compounds every day, and they will be rewarded with exclusivities relating to those compounds. To leverage it off of Claritin, I think is fundamentally unfair.
Mr. COBLE. All right, let met another question before the red light. Ms. Kealey, do you think it would be in the public interest to grant patent term restoration to alternative nonpolluting fuels to create incentives to clean our air and water?
Ms. KEALEY. I am taking a deep, deep breath, Mr. Chairman, because this happens to be a subject that I learned about today for the first time, due to the very informative testimony of my next-door neighbor, and I would be very happy to take that question back and provide you with an answer of substance, which I can't do today.
[The information referred to follows:]
| Public Citizen, |
| Congress Watch, |
| Washington, DC, July 12, 1999. |
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
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DEAR CHAIRMAN COBLE: Thank you again for inviting Public Citizen to testify at your Subcommittee's July 1, 1999 hearing on H.R. 1598, legislation that would allow seven pipeline drugs, including Claritin, to obtain patent extensions of up to three years. At the hearing, you requested that I respond to two questions in writing. I am pleased to provide you with our response.
Question 1: Does Public Citizen support patent extensions for alternative fuels?
Public Citizen has no knowledge of, and takes no position on, the specific facts and situation about which Mr. William Orr, Chairman of the National Alternative Fuels Association, testified at the hearing. But as a general rule, we would oppose patent extensions because they are inherently anti-consumer. Once patents expire on alternative fuels, prices on those fuels would likely drop, thus encouraging alternative fuel consumption and improving our environment.
Question 2: What would be the difference between a patent extension for an alternative fuel and a patent extension for a prescription drug?
We see no difference in principle between a patent extension for an alternative fuel and a patent extension for a prescription drug. Drug patents are intended to provide an incentive for pharmaceutical companies to invest in new research and development to bring new drugs to market. By definition, the research and development phase for a drug that is already on the market has passed. Therefore, allowing drugs that are already on the market to qualify for patent extensions contradicts the incentive basis of the drug patent system.
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Thank you for the opportunity to provide written answers to your questions. We request that they be included in the hearing record.
Sincerely,
| Maura Kealey, Deputy Director. |
Mr. COBLE. And let me put a second question to that. Let's assume that you answer that in the affirmative. Should the policy be different for drugs? I mean, we have a nonpollutant, on the one hand, resulting in clean air and clean water—obviously desirable—and, then, on the other hand, we have drugs that also are desirable. Put that in your answer as well.
Ms. KEALEY. Well, I think your second question allows me to answer.
Mr. COBLE. All right.
Ms. KEALEY. Thank you very much for asking me another one.
We do believe that drugs are very, very valuable and vital to our Nation's health, and as I said in my testimony, we support the patent system and we strongly support intellectual property rights.
The issue that we see in the bill here today is that this is not a situation where you are providing an incentive for new research, where you are in fact in any way upholding what should be the integrity of the patent system. Instead, we see it as a subversion. By giving an extension to an old drug, as the previous speaker just pointed out, there is no incentive here. What you are doing is simply rewarding a very profitable drug with an additional monopoly pricing period. That is why the fundamental interest involved here should be: What is the public policy about whether consumers can afford medicines?
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That is why we think that the framework here that the committee should be putting H.R. 1598 in is: Is it in the public interest to make drugs more or less affordable? H.R. 1598 fails utterly that test, when that question is asked.
Mr. COBLE. And if you don't object, Ms. Kealey, give me a written answer to both questions, if you are not adverse to that.
Ms. KEALEY. I would be very happy to; thank you.
Mr. COBLE. My time has expired. Let me go to the gentleman from California. Then we will recognize our other colleagues who have joined us.
Mr. BERMAN. Thank you, Mr. Chairman.
It is interesting to hear Public Citizen speak in favor of monopoly power for the first time that I can remember. [Laughter.]
Ms. KEALEY. Don't tell Dr. Wolfe. [Laughter.]
Mr. BERMAN. I want to make some observations and then get reactions, to try to maximize the use of the short time.
This is a better approach, I think, than coming to us with a specific bill to extend a specific patent for a certain period of time. The question is—it was raised by implication or it was raised in a fashion somewhat by Senator Torricelli: Is the process of this bill a real process or is it simply, instead of us making the discretionary decision in the middle of the night, does it have us making a process decision in the light of day to mandate that an agency in the middle of the night come to a certain decision? In other words, is the way the standards are written—and I didn't hear Bruce Lehman speak too much to it; he spoke more about the process—but is the way the standards are written, by focusing on ''X'' number of months, that is a pretty ministerial act, and then whether or not there was due diligence, when the FDA has never, ever, ever certified anybody as showing a lack of due diligence, and therefore, has always granted the extensions? Are those the only tests? Could it not be that Schering-Plough exercised completely due diligence; the FDA fully exercised their responsibilities, and to change a vulgarism of the day, bad things happen? And this is where we were.
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So that is one point I wanted to make—some concern that the process isn't really a meaningful process. It is given to the Patent Office, but a second part of that is the access to information.
Mr. Chairman, I sent a letter asking the companies involved here to waive confidentiality because I wanted to see what happened not just from the companies' point of view in the process, but from the FDA's point of view, and see chronologies and documents, or at least have somebody, on my behalf, see them and tell me what they said. And the companies came forward, understandably very concerned about this request, because to what extent if they waive something for me could FDA then be required to waive it for the next person, including a competitor who walks down the street? To what extent would the waiver be partial as to chronology of things, rather than proprietary as to information?
But I see nothing in this bill that creates a process by which FDA can give relevant information to the PTO to overcome the limitations. And by the way, for whatever it is worth, the FDA thinks they could show the committee or show me things they wouldn't have to show anybody else regarding chronology, with an appropriate waiver by the company. But that is another point.
Mr. COBLE. If the gentleman would yield——
Mr. BERMAN. Sure.
Mr. COBLE. [continuing.] I would be willing to go with you, Howard, and ask the FDA for that, if you would like to do that.
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Mr. BERMAN. Yes, I think we need, though, we need the companies to——
Mr. COBLE. Yes, we would confer.
Mr. BERMAN. With the understanding that it would have to be only if it were limited, if the company maintained the right to protect proprietary information, and that the waiver to us would not be a waiver to everyone, no matter what the situation. So those are a couple of points I want to make, because I certainly think the PTO should have that ability, if this is going to be a meaningful process.
A third comment: Dr. Spicehandler, Mr.—is it Berdon or——
Mr. BERDON. Berdon.
Mr. BERMAN [continuing]. He makes a point that I was thinking. You make a compelling case for the importance of the pharmaceutical industry's contributions. You make a compelling case for the importance of resources for research and development. But isn't it a funny way? I mean, maybe it should be through tax credits. Maybe it is indirectly through an increase in the NIH budgets. Maybe it is directly through subsidizing private pharmaceuticals in terms of this research. But there is something somewhat random about justifying a patent extension on an existing product because that will produce more resources for the research. I mean, maybe the best researchers you had were just hired by another company, and we should be giving them the money, rather than you. You know, I don't know.
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And then on this issue of fairness, apparently, 50 different pipeline drugs, 50 in this universe of drugs that are now down to 6 or 8, or whatever it is, their patents have already expired. I don't know how many of them went through a great deal of regulatory delay without regard to whose fault it was, who didn't have adequate time to exploits their market. Here we are excluding that portion of the universe from the equity that we are supposedly giving by this process. Should we be addressing that issue?
Mr. COBLE. I thank the gentleman. The other gentleman from California, Mr. Gallegly.
Mr. BERMAN. Those are my questions.
Mr. GALLEGLY. Thank you very much, Mr. Chairman, and I apologize for coming in late. We had markups in two other committees today, and this is a very, very important issue. So I don't want the fact that I wasn't here to be an indication that I made it less important than it really is.
I would like to take this opportunity, if I can, because I know that the next panel is going to be addressing a little different issue, but since Mr. Hutt was involved—and correct me if I am wrong—back in 1983 and 1984, in the original Hatch-Waxman, I would like to get his assessment of what, since he is not going to be on the next panel, given his background and knowledge of the issue, what is your opinion of the change in section 271(e) which is being proposed? Are you comfortable giving us an assessment of that?
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Mr. HUTT. Yes, certainly, sir. I was involved very extensively in the development of the so-called Bolar provision, which was designed to overrule the Federal Circuit's Bolar opinion.
The sole reason that was discussed in 1983 and 1984 was to permit the generic drug industry to test their products prior to the expiration of a patent, so that they could submit an abbreviated new drug application to FDA prior to the expiration of the patent. Thus, the day the patent expired, FDA would be able to approve the abbreviated NDA.
I never once heard in those 2 years of 1983 and 1984 of any intent that that be applied other than to abbreviated NDAs.
Mr. GALLEGLY. I thank the gentleman for his very succinct answer.
Mr. Chairman, I would yield back my time.
Mr. COBLE. I thank the gentleman. The gentleman from the Roanoke Valley of Virginia, Mr. Goodlatte.
Mr. GOODLATTE. Mr. Chairman, I also want to thank you for holding this hearing on what is obviously an issue of significant consequence to many people. I have been reviewing the testimony and listening with interest to the questions, but I don't have any of my own at this time. So I will yield back.
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Mr. COBLE. The gentleman yields back.
Mr. GOODLATTE. I would particularly like to welcome Mr. Downey, whose company has a facility not in my district, but very close to it.
Mr. COBLE. So noted.
Mr. GOODLATTE. We welcome all the employees from my district that have jobs there. [Laughter.]
Mr. COBLE. Very astutely inserted into the record.
The gentleman from Utah, Mr. Cannon.
Mr. CANNON. Thank you, Mr. Chairman.
Mr. Hutt, isn't it true that, by the time an NDA is submitted to the FDA, a drug company has already made a commitment of many years, many millions of dollars, to bring the compound to the point of filing the NDA? Therefore, to the extent that one of the motivations of Congress in passing the Hatch-Waxman was to incentivize the pharmaceutical industry, would you agree that although it must have been a very long-term consideration, one of the primary goals was to equalize the relationship between the patent term and the regulatory process?
Mr. HUTT. In dollar terms, Mr. Cannon, probably upwards of 80 to 90 percent-plus has been spent by the time the NDA is submitted. Yes, indeed, there is very rarely a situation where you would stop at that stage. You are talking in excess of $400 million today.
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Mr. CANNON. Thank you very much.
Mr. Meyer, if I could direct a couple of questions to you—can you restate for us what your position at FDA was back in 1984 and what your responsibilities were at that time?
Mr. MEYER. Yes, sir. In 1984 I was Associate Commissioner for Management and Operations. I essentially ran the agency internally, and my responsibility with respect to this legislation was to develop estimates of what we thought it would take to implement this legislation in terms of resources and then to serve as a witness with the Commissioner before the Appropriations Committee.
Mr. CANNON. Great. And in 1984, what was the average length of time for an FDA approval of a new drug application?
Mr. MEYER. From memory, probably about 30 to 36 months, sir, the average. That is misleading because there were outliers, then, too, sir.
Mr. CANNON. Some shorter; some much longer?
Mr. MEYER. Some shorter, and there were some horror stories.
Mr. CANNON. In your opinion, could Congress, or anyone else outside the FDA, have possibly contemplated the extraordinary regulatory delays that took place at the agency with regard to the pipeline drugs covered under H.R. 1598?
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Mr. MEYER. I think it would be very hard for someone who had not worked in that organization to fully appreciate the range of reasons that might account for an extended review time, sir.
Mr. CANNON. A number of fact-based allegations have been made today and in the past about the possibility that some of those holding patents on the pipeline drugs at issue may have been responsible for the delays in the FDA review process. What is your reaction to those allegations?
Mr. MEYER. Well, sir, I never saw a firm not argue vigorously, almost unreasonably, and even chase me through the parking lots, and everything else, to get their approval as fast a possible. I cannot imagine the circumstances under which a firm would have a patent on a pending application and not be pressing hard to get that product approved, sir.
Mr. CANNON. Thank you very much, Mr. Meyer.
Mr. Spicehandler, if I could ask you a couple of questions—what is the average time it takes to develop a new drug, recognizing that average is not a good concept? Can you give us some idea of the time it takes to develop?
Mr. SPICEHANDLER. From the point of the first concept to the verification that that target is appropriate, to the screening or synthesis of the compound, the modification, optimization—all this occurs before we even get in the clinic, and we do the pre-clinical testing in a variety of animals to be sure it is safe. Then the clinical program, it is 12 to 14 years.
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Mr. CANNON. Can you give us a sense of what the industry failure rate is with the new drugs that are attempted?
Mr. SPICEHANDLER. Yes, I can. In the pre-clinical, before we even get into the clinic, we have to synthesize 5,000 chemicals before we will be interested in progressing one full into clinical trial. When we get past the first stages of clinical research, which basically shows that the drug is safe, but we don't know its efficacy—we don't know its extended safety, but we confirm it is safe in humans—1 out of 10 will progress all the way to an NDA approval.
Mr. CANNON. Out of 5,000 compounds, then you come up with some that may be interesting, and 1 out of 10 of those goes——
Mr. SPICEHANDLER. One out of 10 that make it into human testing will wind up in the marketplace.
Mr. CANNON. So what does that cost typically for a drug that gets to the marketplace?
Mr. SPICEHANDLER. Well, what one needs to understand is failures occur all the time at different points in the time. So we may have a drug that has failed after the early testing of it in the test tube, and that may be $100 million of research. We may have it fail after phase two, and that may be $200 to $300 million. Occasionally—we have had one example of that in our past in my whole career—we have had a drug that successfully made it throughout the process, and in a large market experience a very rare side effect was observed, which would not have been accounted for. Thus, the full investment was there, $400 or $500 million, and then we still could have a failure out in the marketplace.
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Mr. CANNON. Great. Thank you, Mr. Spicehandler.
I yield back.
Mr. COBLE. Thank you, Mr. Cannon.
Mr. Orr, you have been odd man out, not because of the book from which you read, but because of the chapter from that book from which you read. I am confident that I speak for the entire subcommittee when I say to you that the Patent and Trademark Office does a tremendous job, given the resources that it has. We would be happy to work with you and the PTO to see if we can help expedite the prosecution of any applications that concern you that have not yet been approved.
Now Mr. Todd Dickenson, who is the Acting Commissioner of the Patent and Trademark Office, I am told, has developed obvious expertise in this particular area, synfuel technology. If you would be willing to work with our staff, perhaps we can iron out some of the problems.
Mr. ORR. Thank you, Mr. Chairman.
Mr. COBLE. Is that satisfactory to you?
Mr. ORR. That would be very beneficial on that issue.
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Mr. COBLE. Anything else, Howard?
Mr. BERMAN. Well, Mr. Chairman, I tried to snooker you by spending 5 minutes raising a series of issues and asking questions, and hoping that, therefore, when the red light went on, there would be no more time for me to talk, but everybody else could answer, and you caught my tactic. So none of these gentlemen had a chance to respond to any issues I have raised. If you are willing me to confiscate Mr. Goodlatte's time just to hear their answers——
Mr. COBLE. Sure, I will be happy to.
Mr. BERMAN. Otherwise, if they could write me just with some of the observations——
Mr. COBLE. No, you may confiscate Mr. Goodlatte's time, and we will get it by word of mouth.
Mr. HUTT. I would be happy to start, Mr. Berman. You first made the point that sometimes bad things happen without the fault of anyone. That is often true in the new drug approval process. I think that Mr. Meyer made clear that you don't need malice on the part of FDA, when they have a lack of resources to deal with a matter. Similarly, you can have due diligence on the part of the company—which is at the heart of the issue here, not FDA's diligence, but rather has the company acted reasonably for all of these six to eight drugs—you can have that and still have a lengthy review process because FDA is not equipped to deal with the issue. And the point, under those circumstances, is that you still arrive with an inequitable and unfair result that Congress did not intend.
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Mr. BERMAN. Let me accept what you have said, and say, but what that really says is this process that has been created is a process to give to the PTO the ministerial function to determine that, unless there is some case where the company didn't engage in due diligence, the extension shall be granted?
Mr. HUTT. That is not a ministerial task, Mr. Berman. They have to look through the record. Incidentally, there is an answer to your second question. On page 4, starting on line 3, of H.R. 1598, it explicitly says, the Commissioner may request and obtain relevant records from FDA, so that they will be still held with confidentiality. So this would not be the PTO acting within some kind of black box. They would have the full information, would be able to review it, talk to anyone at FDA who should be talked to, and make sure that they are satisfied there is, in fact, due diligence.
Mr. BERMAN. But where is the adversarial process? Where is the aggrieved party able to have access to any of that information, so that they can—the FDA is not a combatant in this fight. They aren't here testifying. They aren't participating in the process. At this point they are a repository of information. Where does the aggrieved party get a chance to say that I am looking at the FDA stuff and I see a basis for non-due diligence or any——
Mr. HUTT. Mr. Berman, I do not think that the purpose of this or any of the prior seven bills that Congress enacted was to create an adversarial relationship. It was to conduct what, hopefully, is an impartial review by an independent tribunal, which certainly the PTO is.
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Mr. BERMAN. I look at this panel and I see an adversarial process.
Mr. HUTT. Well, that is not what, I believe reading this legislation, was intended to be set up. It is an independent review and an impartial review. That is at the heart of what I understand to be, this legislation. I think if the six or eight drugs cannot withstand that, then they should not get patent term restoration.
Mr. BERMAN. Anybody else?
Mr. DOWNEY. Mr. Berman, I will take a crack at your question about the fairness. I said in my opening remarks I thought this was a situation going from unwarranted assumption to a foregone conclusion, and your question really addresses the point of the foregone conclusion.
If you look at this as described by Mr. Hutt and others, this is an inquiry. It's like an inquest. It is not an adversarial proceeding. We don't believe these drugs are entitled to the extension. And the way, under our system of justice, that is handled is an adversary system, full discovery, full opportunity to make arguments and present evidence on both sides. We think, frankly, that the better option is to have it in the political arena, where the Congress can make the decision between the competing interests of competition and intellectual property rights. Failing that, we certainly think that any kind of proceeding has to be an adversarial one, where we have a chance to take discovery, make our arguments, present our case, and show why we think the patent should be extended—with the burden of proof on the other side, the advocate for the extension.
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Congress did come up with a system here, and they came up with some hard rules: Zero extension for existing product because the incentives to develop them were adequate and they were in the market; 5 years of extension for brand-new products that had nothing in the pipelines, to incent people to go forward, and 2 years for those in the middle. We think it is clearly incentive, and not a reward system.
Mr. LEHMAN. Mr. Berman?
Mr. BERMAN. Sure, Mr. Lehman and Dr. Spicehandler.
Mr. COBLE. That is fine.
Mr. LEHMAN. Congressman, if I were drafting this legislation, I would give more authority to the entity that is making the patent term restoration decision. I specifically referred to the precedent of legislative referrals to the Court of Claims for private relief. I mean, all of these patent term restoration bills are, in effect, private bills that didn't fall under the Patent Term Restoration Act. For many years, we have had situations in which people come in with claims against the Government, for example, because the statute of limitations has run, or something like that, and there has been a provision where those can be sent to the Court of Claims for adjudication. The restrictions on the court's jurisdiction are much looser. And, the Court of Claims has developed a set of judicial standards which it was in resolving those cases.
In that context, you have really an adversarial proceeding. The Justice Department represents the Government, which normally doesn't want to pay the claim, but then the other side is represented by counsel. And there is more freedom for the court, I think, to establish what the standards by which the case shall be judged will be.
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I would give more discretion to the agency, and I would even consider not using—it may sound like treason, given my former job—but I would even consider having someone else other than the PTO do it. The Court of Claims is a possibility. I always liked that solution because it is a judicial body, which is more accustomed to this kind of adversarial process, which is more likely to produce the truth.
Mr. SPICEHANDLER. Mr. Berman, I appreciate your comments about potential alternative vehicles to help support my research efforts. The fact of the matter is nobody is stepping forward. We in the pharmaceutical industry almost entirely provide the funding for all the applied drug discovery and development in this country.
And another misconception, the funding entirely comes from the revenues, in the case of Schering-Plough, for that existing year. So the revenue for our products for a given year provide the basis for the funding of research for that year.
I might add, additionally, that besides the—we talked about percentages of profits and sales and R&D spending. I think there is another very important cost, which is the capital that the company commits every year to the research, cost of equipment, and mostly importantly, the facilities. For instance, Schering-Plough in the next 3 years will be building $600 million of research facilities.
Mr. HUTT. Mr. Berman, could I respond just very briefly to one other question you raised? You indicated a belief that the 2 years was intended for products that were not just in the pipeline, but also under an IND. But what was not brought out is that 5 years was given to people who didn't file an IND, but who had done up to 10 years of research before the enactment of this statute. This was not a situation where, if anybody did any research prior to the enactment date, they only got 2 years. It all came down to the issue of the filing of the IND. And let me give you a statistic because Dr. Spicehandler alluded to this, but did not carry it far enough.
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It takes roughly, and in the 1980's exactly, 13.8 years on average to go from discovery to NDA approval. Any of the drugs that got 5 years' patent term extension, and were approved within the first 5 years after date of enactment, necessarily had been in the pipeline for 8 years—eight full years—prior to the date of enactment. Yet, they got 5 years of patent term extension because they did not happen to file an IND before enactment.
So please do not leave with the idea that these drugs that got 5 years did not do their research until after the date of enactment. They were out there for almost a decade prior to the date of enactment doing their research. That is what makes this inequitable and unfair.
Mr. BERMAN. All during their patent.
Mr. HUTT. They got 5 years, and the six outliers—which represent, incidentally, the worst cases, which is why all the others have dropped by the wayside and these are the last ones—get only 2 years, even though they got approved last.
Mr. BERMAN. Mr. Chairman, the time has expired, and I don't want to belabor this. I don't know quite exactly why, because six still have their patents alive, and therefore, are affected by this, they were the ones who got the most shafted. Maybe the ones whose patents have already expired got—I don't know what outlier means exactly, but——
Mr. HUTT. The longest——
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Mr. BERMAN [continuing]. Got shafted, I understand.
Mr. COBLE. Well, we will keep this—the file will remain open for a week, folks, so you all can—because the time is dragging.
Ms. Kealey, if you will, regarding my question concerning the grant of restoration for nonpolluted fuels for the purpose of clean air, clean water, and then does the public interest justify that, and how could that differ from drugs?
Lady and gentlemen, we appreciate very much you all being with us, and we will excuse you. I apologize for the elongated time, but sometimes we can't control that.
Well, folks, we are about to come to the conclusion of a long day, and I appreciate your patience. I will suspend momentarily until those who are leaving depart. I want everyone to hear about the credentials of our present panel.
The first witness on this panel is Dr. Richard Selden, who is founder, president, and chief executive officer of TKT, a small publicly-traded biopharmical company located in Cambridge. Dr. Selden received his undergraduate medical and Ph.D. degrees from the Harvard University, and has taught pediatric medicine at the Harvard Medical School.
Our next witness is George Binder, who was elected Amgen's chief executive officer in October 1988, after serving as chief financial officer for a period of 6 years. In July 1980, Mr. Binder was elected to the additional post of chairman of the board. Mr. Binder received his bachelor's degree in electrical engineering in 1957 from Purdue University, and his MBA in 1962 from Harvard, where he was a Baker scholar.
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Our next witness is Mr. Richard Burgoon—have I pronounced that correctly, Mr. Burgoon?—who is vice president and general counsel and assistant secretary to the Arena Pharmaceuticals, Inc., in San Diego, California. He is also a co-founder, director, and secretary of an Internet commerce company which was spun out from Arena in 1999. Mr. Burgoon received his J.D. from the Franklin Pierce Law Center in 1987 with an emphasis on intellectual property and corporate business law, and his undergraduate degree in biology and psychology from the University of California, Irvine.
We have written statements of each of the witnesses on this panel, and I ask unanimous consent to submit into the record their entirety.
Again, gentlemen, I will remind you all of the infamous red light that appears.
Mr. Gallegly, the gentleman from California, has requested to make a statement.
Mr. GALLEGLY. Mr. Chairman, thank you very much for calling this hearing today. I do have a formal statement for the record, but in the interest of time, I would ask unanimous consent that it be made a part of the record, rather than me reading it into the record.
Mr. COBLE. Without objection.
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[The prepared statement of Mr. Gallegly follows:]
PREPARED STATEMENT OF HON. ELTON GALLEGLY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Thank you, Mr. Chairman.
Today we are holding a hearing on proposals to clarify specific provisions of the Hatch/Waxman Act. When Hatch/Waxman was enacted in 1984, Congress had no idea how complex the pharmaceutical industry would be today. In 1984, the biotechnology industry was in its infancy.
The biotechnology industry is now on the forefront of discovering treatments for millions of people who face life-threatening diseases. Over 200 million people worldwide have been helped by more than 80 biotechnology drug products and vaccines that have been approved by the Food and Drug Administration.
As impressive as this track record has been, the future for discovering cures is even brighter. Today, there are more than 350 biotechnology products and vaccines currently undergoing human clinical trials and hundreds more in early development. These medicines have the potential to treat cancer, Alzheimer's disease, heart disease, Multiple Sclerosis, AIDS, obesity and many other conditions.
However, the future of the biotechnology industry is threatened by an unintended loophole in Section 27 1 (e)(1) of the patent law, known as the ''Bolar amendment.'' Mr. Chairman, we need to close this loophole and ensure that unforeseen interpretations of Hatch/Waxman do not stop the development of new, life-saving biotechnology products.
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Closing the loophole would allow a pharmaceutical or biotechnology patent owner to obtain a determination of his rights before a competitor's product enters the market.
In 1984, Congress passed the so-called ''Bolar amendment,'' overturning the Bolar case. The intent of the ''Bolar amendment'' was simple. It allows generic companies to use a patented product for their abbreviated drug application trials. When it is not abused, the provision is effective.
Safeguards were established that forbid a generic manufacturer from entering the market before a patent expired. However, the Bolar amendment's language is vague. As such, courts have interpreted it to exempt not only activities related to generic drugs, but also activities in support of full biologics license applications and new drug applications, even if the intent is to market these products before a patent expires. Current law does not allow a patent owner to protect his rights before the market entry of a new, competing drug.
The proposed revision would simply clarify Congress' original intent when it passed the ''Bolar amendment.'' It would exempt an applicant for a new drug or a biological license from the Bolar amendment.
The needed revision will put a stop to the unfair use of the Bolar amendment. If enacted, it will resolve patent disputes quickly and fairly.
I want to emphasize that the proposed revision would have absolutely no bearing on the outcome of any patent infringement case that is currently being litigated.
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I look forward to hearing from all interested parties on this important matter.
Thank you Mr. Chairman, I yield back the balance of my time.
Mr. COBLE. Mr. Binder, why don't we start with you, sir, and then work from my left to my right?
STATEMENT OF GORDON BINDER, CEO, AMGEN
Mr. BINDER. Thank you, Mr. Chairman and members of the committee. I am Gordon Binder, chairman and chief executive officer of Amgen, a biotechnology company headquartered in Thousand Oaks, California.
The biotechnology industry is the source of some of the most exciting science taking place today. Scientists in biotechnology are translating new knowledge about the causes of diseases into new medicines to prevent, treat, and cure those diseases—often diseases that have plagued humanity for centuries.
The success of the biotechnology industry over the years may be attributed to two principal factors: dedication to research leading to development of novel, innovative products to treat diseases previously untreatable and the ability to obtain meaningful, enforceable patent protection of these products. Without the expectation of obtaining meaningful, enforceable patent protection to protect the fruits of scientific research, no company can raise the necessary capital or justify the expenditures to do the research and development, and bring these lifesaving products from the bench to the bedside.
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Today, Mr. Chairman, a new issue that threatens the U.S. biotechnology industry deserves the immediate attention of this committee and the Congress. It threatens the ability of the United States biotechnology industry to protect its products from the unfair, predatory tactics of infringing competitors. This issue is easy to resolve and, in fact, requires only that Congress revise the language of the so-called Bolar amendment to return it to its original intent.
The Waxman-Hatch law is a good law, and this country has enjoyed many benefits from this law. You have heard much testimony that it struck a fair balance between the research-based pharmaceutical industry and the generic drug industry. I agree that it did, indeed, strike a fair balance when it was enacted. Unfortunately, the courts have interpreted this law in a way inconsistent with congressional intent with regard to biotechnology products; thus, destroying the fair balance that Congress provided.
The proposed legislation would restore the law to the original intent of Congress and restore this fair balance. The fair balance in the bill provided the pioneering pharmaceutical industry with additional patent life to compensate for regulatory delays. On the other hand, it gave the generic drug industry the right to conduct clinical trials necessary to file abbreviated new drug applications during the patent term of the pioneering drug being copied by the generic firm.
Mr. COBLE. Mr. Binder, if you would pull that mic a little closer, so that those in the back of the room can hear you? Thank you, sir.
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Mr. BINDER. Okay. Is this better, sir?
Mr. COBLE. That's better.
Mr. BINDER. This would allow the generic company to enter the market as soon as patent protection expired. Prior to the Waxman-Hatch legislation, doing clinical trials was an act of patent infringement.
Additional safeguards were provided in the bill to prevent a party from using this so-called clinical exemption to get early FDA approval and then enter the market prior to patent expiration. Legislative history clearly confirms the intention of its founders was solely to authorize generic pharmaceutical companies to conduct this testing prior to expiration of the patent for the purpose of submitting an ANDA.
Court decisions now allow patent infringers to hide behind this exemption as they prepare to market these products prior to patent expiration. So we have the clearly unintended grant of an exemption for patent infringement for products which are not even included in the original legislation.
In conclusion, we should not allow an entity to develop a low-risk, copycat product and take a free ride on the research of the pioneering company while the patent is in force. As interpreted by the courts, Waxman-Hatch legislation provides this unintended loophole which allows patent infringers to avoid the consequences of issued U.S. patents until after they engage in activities unrelated to FDA approval. If successful today, what would stop other large, financially-rich pharmaceutical companies from employing the same strategy to undermine the patents of biotechnology companies.
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Amgen urges this committee to approve a simple change that would make the patent infringement exemption of the Bolar amendment apply in the case of human drugs only to companies that conduct activities in support of abbreviated new drug applications; that is, only to generic drugs, as originally intended by Congress.
Congress should update the law to return it to what was clearly its original limited purpose—to exempt testing of generic drug products from patent infringement lawsuits while they were seeking FDA approval. We are not asking Congress to enforce our patent rights. We are merely seeking to have the right to sue patent infringers as soon as they make or use our patented products. This is the same right that all companies had in every industry before the Waxman-Hatch law was misinterpreted by the courts, and companies in every other industry except ours have today.
In fact, Mr. Chairman, in a statement last year on the Senate floor, Senator Hatch, one of the chief architects of this law, said that, quote, ''Congress would be wise to reassess the breadth of section 271(e) in light of a number of court decisions since 1984 that have tried to expand the scope of this provision.'' He also added that, quote, ''One proposal worthy of serious consideration is to more clearly limit the applicability of 271(e) to exclude testing and other activities necessary for approval of NDAs and BLAs from the patent infringement exemption.'' This is precisely what the proposed legislation would do.
Finally, Mr. Chairman, we make a point about the U.S. global position in, and the high rate of innovation in, the biotechnology industry today. To my knowledge, there are approximately 40 biotech drugs on the world market today. Virtually all of these breakthrough medicines were researched and developed by U.S. companies. In the research and development of breakthrough drugs, the United States is No. 1, and no other nation is No. 2.
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If we are to maintain our medical research dominance in biotech, Congress should ensure that our industry will not be undermined by patent infringers. All we ask is the same meaningful and enforceable patent protection that every other industry has. In this way, Congress will once again send a clear message that it does not condone or support patent infringement, and that competitors must compete fairly with the United States biotechnology industry.
The FDA does not accept generic applications for biotech drugs. There are no generic biologics, and the FDA has no intention of creating any. Therefore, the proposed legislation does not affect the generic drug industry. The proposed legislation will affect only two types of companies. It will help companies who do research and develop new medicines and obtain patents, and it will hurt patent infringers.
Thank you very much, Mr. Chairman, for the opportunity to address this committee regarding this important issue.
[The prepared statement of Mr. Binder follows:]
PREPARED STATEMENT OF GORDON BINDER, CEO, AMGEN
Legislation is necessary to close an unintended loophole in the Drug Price Competition and Patent Term Restoration Act of 1984 (commonly known as the Hatch-Waxman law), and in particular the provisions of Section 271(e) of Title 35, United States Code—provisions added by Hatch-Waxman designed to overturn the ruling in Roche Products, Inc. v. Bolar Pharmaceutical Co., which held that performing tests necessary to produce a generic copy of a patented drug constituted patent infringement. Section 271(e)(1) establishes an exception from patent infringement and was intended to allow generic pharmaceutical companies to conduct testing on patented approved pharmaceutical products for purposes of marketing the product as soon as possible following expiration of patent protection for the product. This provision was a portion of the balance between the interests of generic and pioneer pharmaceutical companies crafted in 1984. However, the courts have broadly interpreted the language of Section 271(e)(1) to include clinical trials and related activities in support of full biologics license applications (BLAs) and new drug applications (NDAs) within the patent infringement exception. The legislative history of Hatch-Waxman makes it clear that this is not the result intended by Congress.
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In addition, remedies were provided to patent owners that would allow them to seek a determination of their rights if the generic manufacturer were to attempt to enter the market prior to patent expiration. Unfortunately, the statute does not provide the same remedies if a party is using the BLA or NDA process to seek FDA approval and market the product prior to expiration of patent protection for the product.
Amgen urges this committee to approve a technical change that would make the patent infringement exemption of the Bolar amendment apply in the case of human drugs only to persons who conduct activities in support of abbreviated new drug applications, (i.e. for generic drugs) as originally contemplated by Congress. Congress should update the law to return it to what clearly was its original, limited purpose: exempt testing of generic drug products from patent infringement laws. We are not asking Congress to enforce our patent rights. We are merely seeking to have the unintended barriers removed to allow companies to defend their rights against patent infringers.
INTRODUCTION
Mr. Chairman and members of the Committee, I am Gordon Binder, Chairman and Chief Executive Officer of Amgen, a biotechnology company headquartered in Thousand Oaks, California. As you may know, Amgen is now the largest independent biotechnology company in the world. The U.S. biotechnology industry is the source of some of the most exciting science taking place today. Scientists in biotechnology are translating new knowledge about the cause of diseases into new medicines to prevent, treat and cure those diseases—often diseases that have plagued humanity for centuries.
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California, where our company is located, is home to one-third of America's biotechnology and medical device companies, which together with the biosciences community forms the state's third leading industrial sector. Companies like ours are the engines of growth in our state and other areas heavy in biotechnology. No other segment of the U.S. economy is creating as many high-paying and creative jobs as high-tech companies do.
The success of the biotechnology industry over the years may be attributed to two principal factors: dedication to research leading to development of novel, innovative products to treat diseases previously untreatable and the ability to obtain meaningful enforceable patent protection of these products. Without the expectation to obtain meaningful enforceable patent protection to protect the fruits of its scientific research, no company can raise the necessary capital to bring life-saving products from the bench to the bedside.
BACKGROUND
Amgen
Since its founding in 1980, Amgen has been dedicated to the development of innovative human therapeutic products, using advances in molecular biology. Amgen spent eight years and over $300 million to develop an erythropoietin (''EPO'') product, a pioneering therapeutic product of enormous medical value to hundreds of thousands of patients suffering from various forms of anemia.
When Amgen was formed in 1980, the primary treatment for severe anemia in kidney dialysis patients was to administer repeated blood transfusions. Needless to say, this type of treatment presented hazards such as exposure to AIDS and hepatitis; moreover, it provided only a partial and temporary increase in the patient's red blood cell level. What clearly was needed was a replacement of the missing vital protein, erythropoietin. However, the naturally-occurring human protein itself was only available in miniscule amounts insufficient for therapeutic applications. Using genetic engineering technology and molecular biology, Amgen's scientists were able, for the first time, to produce an erythropoietin product that was therapeutically useful. Amgen was the first to identify the EPO gene and use the knowledge thus obtained to produce EPO. EPOGEN was Amgen's first product approved for sale after eight years of costly investment in research and development.(see footnote 23) Since this groundbreaking work by Amgen, many other companies have attempted to develop EPO products. Because Amgen has been able to enforce its U.S. patents, these other companies have come to respect Amgen's patents.
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Patent and Regulatory Status
Clinical trials of EPO began in 1985. In June 1989, the Food and Drug Administration (''FDA'') approved Amgen's Product License Application for EPOGEN.
In late 1983, Amgen filed its first patent application on the several inventions that were responsible for the development of EPOGEN. A first patent issued in 1987, but uncertainty over the meaning of a 1985 court decision, In re Durden,(see footnote 24) as well as attempts of our competitors to prevent issuance of additional patents using litigation and patent office procedures, delayed the issuance of additional patents. As this Committee is well aware from previous testimony, Amgen campaigned vigorously throughout the 1990s to remove bureaucratic barriers and obtain these patents as early as possible.
During this period, while Amgen was frustrated in its attempts to obtain additional patent protection, foreign competitors sought to exploit loopholes in the United States patent laws that would allow them to manufacture biotechnology products offshore using technology patented in the U.S. and then import and market the product in this country. Under the leadership of this Committee, Congress enacted Biotechnology Process Patent Legislation in 1995 (P.L. 104–41) which closed most loopholes and updated the law to protect against foreign competitors using technology claimed by U.S. biotechnology patents. In addition, we strongly support the Committee's current efforts to enact Patent and Trademark (PTO) Office Reform (H.R. 1907) which will contribute significantly to stronger patent protection in the U.S. We and our colleagues in the biotechnology community remain most grateful to this Committee for this legislation which sends a clear message that the U.S. biotechnology industry should be protected from unfair foreign competition.
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Today, Mr. Chairman, a new issue that threatens the U.S. biotechnology industry similarly deserves the immediate attention of this Committee and the Congress. Like the issue resolved by the 1995 law, it threatens the ability of the United States biotechnology industry to protect its products from the unfair and predatory tactics of foreign competitors. This issue is easy to resolve, and in fact, requires only that Congress revise the language of the so-called Bolar Amendment in a 1984 law to return it to its original intent.
Misapplication of the Bolar Amendment
Mr. Chairman, as you know, the 1984 Waxman-Hatch legislation represented a carefully crafted balance between the competing interests of the pioneering pharmaceutical industry and the generic manufacturers. In exchange for additional patent life due to regulatory delays, one provision amended the patent laws for the purpose of authorizing generic pharmaceutical companies to conduct tests necessary to file abbreviated new drug applications (ANDAs) during the patent term of the pioneer drug being copied by the generic firm and allow the generic company to enter the market as soon as patent protection expired. The provision—Section 271(e)(1) of Title 35 U.S. Code—was designed to overturn the Federal Circuit ruling in Roche v. Bolar,(see footnote 25) which held that performing tests necessary to produce a generic copy of a patented drug constituted patent infringement. Additional safeguards were added to the statute to prevent a party from using this so—called Bolar ''clinical trial exemption'' and then enter the market prior to patent expiration.(see footnote 26)
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As enacted, the Bolar Amendment provides as follows:
''It shall not be an act of infringement to make, use, or sell a patented invention—solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs.''(see footnote 27)
Attached to this statement is an analysis of the legislative history of section 271(e)(1), which clearly confirms that the intention of its framers was solely to authorize generic pharmaceutical companies to conduct testing on patented products prior to expiration of a dominating patent for the purpose of submitting an ANDA. This intent is demonstrated by the intricate remedial provisions of 271e which only apply to ANDA filings. However, courts have held that the Bolar Amendment language exempts activities in support of, or in relation to any drug or medical device product, and not just those in support of ANDA filings.(see footnote 28) In the case of human pharmaceutical products, the result of judicial interpretation of the broad language of section 271(e)(1) has been to allow the conduct of clinical trials in support of FDA applications for products that will not go off patent for many years. This allows these infringers to hide behind this exemption as they prepare to market these products prior to patent expiration. However, the statute does not provide any remedy to patent owners to take legal action except against those truly generic products filed as ANDAs. And so we have the clearly unintended grant of any exemption from infringement for products which were not even included in the original legislation.
For generic products trying to enter the market prior to patent expiration, a procedure is provided to resolve the dispute prior to product approval and market entry.(see footnote 29)
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CONCLUSION
We should not allow an entity to avoid the time, expense and risk of developing novel products, and instead employ a strategy that involves developing a low risk ''copycat'' product that has been shown to be effective both therapeutically and commercially by seeking to exploit loopholes in the law to avoid the consequences of issued U.S. patents until after they entered the market. If successful today, what would stop other large financially rich pharmaceutical companies from copying the same strategy to the disadvantage of small biotechnology companies?
Amgen urges this committee to approve a simple change that would make the patent infringement exemption of the Bolar amendment apply in the case of human drugs only to persons who conduct activities in support of abbreviated new drug applications, i.e. for generic drugs as originally contemplated by Congress. Congress should update the law to return it to what clearly was its original, limited purpose; exempt testing of generic drug products from patent infringement laws. We are not asking Congress to enforce our patent rights. We are merely seeking to have the unintended barriers removed to allow companies like us to defend their rights against infringers.
Finally, Mr. Chairman, let me make a point about the U.S. global position of, and the high rate of innovation in, the biotechnology industry today. To my knowledge, there are approximately 40 major biotechnology drugs on the market today worldwide. Virtually all of these breakthrough medicines were researched and developed by U.S. companies. In the research and development of breakthrough drugs, the U.S. is number one——no other nation is number two. If we are to maintain our medical research dominance in biotechnology, Congress can ensure that our industry will not be threatened if we are vigilant in ensuring meaningful and enforceable patent protection, without which the biotechnology industry in the U.S. will disappear and that disappearance would include billions of dollars in medical research and hundreds of thousands of the highest paid and best jobs in the U.S. In this way, Congress will once again send a clear message that it does not condone or support patent infringement and that foreign competitors must compete fairly with the United States biotechnology industry.
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MEMORANDUM
Legislative History of 35 U.S.C. §271(e)(1)
Section 271(e) of Title 35, United States Code was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984. As originally enacted, paragraph (1) provided as follows:
''It shall not be an act of infringement to make, use, or sell a patented invention (other than a new animal drug or veterinary biological product (as those terms are used in the Federal Food, Drug, and Cosmetic Act and the Act of March 4, 1913) solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs.''(see footnote 30)
The legislative history of section 271(e) confirms that the intention of its framers was solely to authorize generic pharmaceutical companies to conduct clinical trials on a patented pioneer product prior to expiration of a patent, solely for the purpose of submitting an abbreviated new drug application after the patent expires.(see footnote 31) It was necessary to accomplish this result by statute because of the ruling in Roche Products, Inc. v. Bolar Pharmaceutical Co., 733 F.2d 858 (CAFC, 1984), that held that performing tests necessary to produce a generic copy of a patented drug constituted patent infringement.
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H.R. 3605 was considered in the House by two committees: the Energy and Commerce Committee and the Judiciary Committee. The Committee Report of the Energy and Commerce Committee confirms that section 271(e)(1) was intended to apply exclusively to generic manufacturers:
''. . . Title II [which includes section 271(e)] provides that it is not an act of infringement for a generic drug maker to import or test a patented drug in preparation for seeking approval if marketing of the drug would occur after expiration of the patent.''(see footnote 32)
Section 271(e) was subsequently considered by the House Judiciary Committee as part of H.R. 3605. In describing section 202 of the bill (which added section 271(e)), the committee report on H.R. 3605 clearly indicates that committee's understanding that the new provision was intended solely to authorize testing during the patent period of a patented drug in order to develop bioequivalency data—data which are required to be included in an ANDA, but which are irrelevant in the context of an NDA or PLA:
Under the approval process in H.R. 3605, a generic manufacturer may submit an application for approval to FDA before the so-called pioneer drug goes off patent. The generic may submit data establishing bioequivalency during this time period. In order to complete this application the generic manufacturer must conduct certain drug tests. In order to facilitate this type of testing, section 202 of the bill creates general exception to the rules of patent infringement. Thus, a generic manufacturer may obtain a supply of a patented drug product during the life of the patent and conduct tests using that product if the purpose of those tests is to submit an application to FDA for approval.(see footnote 33)
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During debate on H.R. 3605 in the House of Representatives, Members of Congress stated their understanding that the purpose of section 271(e)(1) was to permit testing of patented pioneer drugs by generic manufacturers. The summary of the bill included in the floor statement of Representative Kastenmeier, the author of the Judiciary Committee's version of the legislation is identical to the language of the committee report. See, H. 8708, Congressional Record, August 8, 1984 (remarks of Rep. Kastenmeier). For example, Representative Mike DeWine of Ohio, a member of the Energy and Commerce Committee, stated that ''. . . this particular bill would overrule Bolar and thereby permit a generic company to engage in acts which heretofore would have constituted patent infringement.''(see footnote 34)
Mr. COBLE. Thank you, Mr. Binder.
Dr. Selden, I inadvertently did not start Mr. Binder's clock until about 3 minutes after he began. So he got three additional minutes, which I will award to you as well. So you may disregard the red light, and I will let you know when the 3 minutes are up.
STATEMENT OF RICHARD SELDEN, M.D., CEO, TRANSKARYOTIC THERAPIES, INC. (TRT)
Mr. SELDEN. Thank you, sir. Mr. Chairman and other distinguished members of the subcommittee, I want to begin by thanking you for providing me this opportunity to testify today. I am honored.
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In the early 1980's I became familiar with, and concerned about, devastating diseases such as Fabry disease, hemophilia A, and diabetes—terrible disorders without a cure. Millions of patients are counting on the biotechnology industry to find answers and to develop cures. I feel privileged to work in the biotech field today, and I am committed to the pioneering science that TKT and others in our industry are pursuing.
The legislative proposal before you threatens to do significant harm to biotech and pharmaceutical companies by unnecessarily stifling innovation, diminishing competition, and encouraging litigation without providing any discernible public policy benefit.
To begin, I think it is important to note that the genesis of this legislation rests in litigation that has been ongoing since 1997. Amgen brought suit against TKT in 1997, alleging infringement of three submarine patents related to their $3 billion product, EPOgen. In 1998 the district court in Massachusetts ruled in TKT's favor, stating that TKT's R&D activities into a pioneer biologic named GA-EPO were protected under the Hatch-Waxman safe harbor provision. The court also ordered Amgen's declaratory judgment claim, quote, ''administratively closed, to be reopened upon motion of either party for good cause shown.''
GA-EPO is not a generic drug. It is the first truly human erthropoetin and has the potential to be superior to the current Amgen product.
With the litigation on administrative hold, TKT continued its research into GA-EPO, and Amgen turned to Congress in an attempt to reverse the court's ruling. Many proposals were floated by Amgen during the closing weeks of the 105th Congress, each of which would have had the effect of overturning the district court's decision in the Amgen/TKT litigation. Fortunately, none of these proposals were enacted, but, as witnessed by today's hearing, these efforts continue. Moreover, to date, none of these proposals has ever been introduced, including the most recent version.
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TKT is now well into clinical testing of GA-EPO in patients. We filed a motion last month to reopen the Amgen litigation; thus, ensuring that the question of Amgen's patent rights relative to TKT's GA-EPO will be decided by the court before our product comes to market.
As a result of these developments, the litigation-related dispute that brought Amgen to Congress is now behind us. The court will decide on TKT's ability, or inability, to go to market with its GA-EPO product. The proposed legislation would, however, have an impact on all other drug and biologic products under development, whether at TKT or any company. It is for this reason that TKT remains adamantly opposed to this proposal.
As to the issue of Congress' intent with respect to the scope of safe harbor, I do not presume to know the intentions of the Members of Congress back in 1984. I do know, however, that the language of section 271(e)(1) could not be more clear. Moreover, the courts have agreed that, as written, it applies to all drugs and biologics.
But, more importantly, rather than engage in a debate about what may or may not have been intended 15 years ago, I believe it is most critical to examine the benefits that have flowed from the safe harbor over the past decade and a half, and for Congress to decide what makes the most sense from a public policy perspective going forward.
If the Hatch-Waxman safe harbor is restricted as proposed, pioneer drug and biotech companies will face costly and time-consuming patent infringement lawsuits early in the development process. Many of these lawsuits will be strike suits filed by opportunists seeking a quick payoff from companies anxious to proceed with their research unimpeded.
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Regardless of the motives, early-stage patent suits will siphon scarce resources from R&D activities, thereby constricting or delaying the amount of R&D actually undertaken by healthcare companies. The proposed limitation of safe harbor will be used by large, established companies to drive smaller companies like TKT out of business, thereby further limiting innovation and competition in healthcare.
A great deal of biotechnology innovation occurs at small firms that have limited financial resources. The mere existence of a lawsuit against a small company, regardless of the merits of the case, seriously impairs its ability to raise the investment capital it needs to continue operations. Moreover, most small biotech firms do not have the resources to conduct R&D, to meet FDA's stringent regulatory requirements, and to defend a hugely expensive patent lawsuit all at the same time.
Third, the proposed limitation will produce a large amount of speculative, unnecessary litigation. It will allow litigation to begin even before a new product has been tested and proven safe and effective on human subjects, wasting corporate and judicial resources.
Next, the proposed limitation will place U.S. companies at competitive disadvantage. Many other countries, including Japan, Germany, and France, have created a safe harbor for research and development like 271(e)(1). If safe harbor is restricted as proposed, U.S. companies will be placed at a competitive disadvantage, and incentives will have been created to move U.S. research and development offshore.
Fifth, the safe harbor, as interpreted today, does not disadvantage patent-holders in the healthcare industry as compared to patent-holders in other industries. As a practical matter, patent-holders in virtually every other industry are unable to sue for infringement until a potentially-infringing product is sold to the public. Prior to that time, the patent-holder is usually unaware of the existence of the potentially-infringing product.
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The situation with medical products, drugs, and biologics is different, though. Because of the need for companies, particularly small companies, to raise capital, and because of the regulatory approval process which involves often public disclosures of clinical trials, most patent-holders of medical products are able to learn about investigational products and file infringement suits long before a new drug or biologic reaches the market. By precluding litigation until FDA approval, the current law imposes on drug and biologic patent-holders no greater disadvantage than exists for any other patent-holder.
Finally, with respect to the drug discovery technique patent issue to be raised by the next witness, this is a perceived narrow injustice that has, to the best of my knowledge, never been dealt with in courts. In order to correct this hypothetical problem, the suggested solution would expose all biotech and pharmaceutical companies to a torrent of new litigation unrelated to the perceived narrow injustice itself. This is truly a baby-in-the-bath-water solution.
In conclusion, I would urge Congress not to disadvantage research companies by limiting the safe harbor. Instead, Congress should allow the biotech industry to continue to move forward in their efforts to develop the next wave of cutting-edge weapons to combat devastating diseases, and not to take a step backward by restricting the safe harbor protections for new drugs and biologics.
Thank you.
[The prepared statement of Dr. Selden follows:]
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PREPARED STATEMENT OF RICHARD SELDEN, M.D., CEO, TRANSKARYOTIC THERAPIES, INC. (TRT)
SUMMARY
The Amgen proposal to restrict the Hatch-Waxman Section 271(e)(1) safe harbor for new drugs and biologics would be harmful to the public interest because:
It Will Stifle Innovation—If the safe harbor is restricted, pioneer drug and biotech companies will face costly and time-consuming patent infringement lawsuits early in the development process. Many of these will be ''strike suits'' filed by opportunists seeking a quick pay-off from companies that are anxious to proceed with their research unimpeded. Regardless of the motives, early-stage patent suits will siphon scarce resources from research and development activities, thereby constricting or delaying the amount of R&D actually undertaken by health care companies. In addition, R&D activities that actually are undertaken will be substantially delayed by litigation that may be unnecessary. The upshot of this statutory tinkering will be (1) less R&D by drug, device and biologic companies, (2) slower development of innovative new medical products, (3) less competition in the pharmaceutical industry, (4) a general stifling of innovation in the health care field, and (5) harm to the public health.
It Will Impede Competition—Any limitation of the safe harbor will be used by large, established companies to drive smaller biotech companies out of business, thereby further stifling innovation and competition in the health care field. A great deal of biotech innovation occurs at small firms that have limited financial resources. The mere existence of a lawsuit against a small company—regardless of the merits of the case—seriously impairs its ability to raise the investment capital it needs to continue operations. Moreover, most small biotech firms do not have the resources to conduct R&D, to meet FDA's stringent regulatory requirements, AND to defend a hugely expensive patent infringement lawsuit all at the same time. By making small companies vulnerable to premature patent suits, the limitation of Section 271(e)(1) will provide large companies with a powerful anticompetitive weapon that can and will be used to drive smaller companies out of business.
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It Is Encourage Unnecessary Litigation—A limitation of the safe harbor will produce a large amount of unnecessary litigation. It will allow litigation to begin even before a new product has been tested and proven safe and effective for human subjects. Since many new products do not achieve the beneficial results that are envisioned by their sponsors, limiting the safe harbor will result in patent litigation over products that will never reach the market. Also, drugs and biologics change in the course of development. If litigation begins too soon, the ''product'' that is the subject of the litigation will often be different from the product that reaches the market. This is one more reason why limiting the safe harbor will spawn useless, resource-draining litigation.
It Will Place U.S. Companies at a Competitive Disadvantage—Many other countries, including Japan, Germany and France, have created a safe harbor for research and development activities like the Section 271(e)(1) safe harbor. If the safe harbor is restricted as proposed, U.S. companies that are developing new drugs and biologics will be placed at a competitive disadvantage vis a vis companies who conduct research and development in countries like Japan and Germany and incentives will have been created to move U.S. research activities offshore. That cannot be in the best interests of the United States.
They Are Unnecessary—The current safe harbor does not result in disadvantage to patent holders in the health care industry as compared to patent holders in other industries. As a practical matter, patent holders in virtually every other industry cannot sue for infringement until a potentially infringing product is sold to the public. Prior to that time, the patent holder is usually unaware of the existence of the potentially infringing product. The situation with medical products such as drugs and biologics is different. Because of the FDA approval process, which often involves public advisory committee meetings and other public disclosures, most patent holders can learn about investigational products and file infringement suits long before a new drug or biologic reaches the market. By precluding litigation until a product is approved by the FDA, the current law imposes on drug and biologic patent holders no greater disadvantage than exists for other patent holders. Moreover, current law permits drug and biologic patent holders to seek the full range of legal remedies available to other patent holders, including: (1) preliminary injunctions; (2) permanent injunctions; and (3) treble damages. Indeed, a patent holder can file suit as soon as the FDA approves a competing drug or biologic and, if it can convince a judge of its likelihood of success on the merits, it can be awarded a preliminary injunction, thus preventing the competing product from ever coming on the market.
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For all of the foregoing reasons, the Amgen proposal to restrict the Section 271(e)(1) safe harbor should be rejected.
STATEMENT
I. Introduction
Mr. Chairman, Mr. Ranking Member, and other distinguished Members of the Subcommittee, I want to begin by thanking you for providing an opportunity for Transkaryotic Therapies, Inc. (''TKT'') to address one of the most important issues facing TKT and the biotechnology industry today: the proposed limitation of the Hatch-Waxman safe harbor for new drugs and biologics.
My name is Richard F Selden. I am TKT's Founder, President and Chief Executive Officer. I received my undergraduate, medical and Ph.D. degrees at Harvard University and subsequently served as an Instructor in pediatrics at Harvard Medical School.
In the early and mid-1980's, I became familiar with—and concerned about—devastating diseases such as Fabry disease, Hemophilia A and diabetes disorders which affect a great number of individuals but presently have no cure. Millions of patients who need our help are counting on the biotechnology industry to find answers and develop cures. That's why I feel privileged to work in the biotech field today and am committed to the science that TKT and others in our industry are pursuing.
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Over the past decade, TKT has established itself as a pioneering biotech company in Cambridge, Massachusetts. TKT has about 180 employees and has entered into a collaborative agreement with Hoechst-Marion Roussel, Inc. (''HMR'') on the biologic that is the center of the issue which brings me here today. If the Subcommittee pleases, I will take the next few minutes to describe how the proposed restriction of the Section 271(e)(1) safe harbor poses a serious risk to new drug and biologic research and development not only at TKT, but at hundreds of other companies across the nation.
II. Background on Amgen v. TKT and HMR Litigation
Amgen holds a patent on a form of erythropoetin (''EPO''). Erythropoetin is a hormone that stimulates the body's production of red blood cells and is used to treat anemia (particularly in cases of kidney failure, cancer and AIDS). The sale of EPO currently produces annual revenues of $3 billion or more for Amgen and its licensees annually. These revenues are expected to more than double over the next few years. There is currently no competition for the sale of EPO in the United States.
TKT has pioneered, developed and obtained patents related to a new EPO that is made in a fundamentally different way from Amgen's version of EPO. The result of TKT's method is the production of a pure human protein containing human sugars and amino acids instead of Amgen's hybrid protein which contains hamster sugars and human amino acids. TKT's product is not a generic drug and is currently undergoing the full series of FDA-regulated clinical trials that is required for the approval of any new drug or biologic. If the current Phase III clinical trials at FDA continue to be successful, a ''Biologic License Application (''BLA'') will be filed seeking final approval to manufacture and market TKT's new product. TKT's product would offer a competitive, and we hope superior, alternative to Amgen's product if, and when, it is approved by the FDA.
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In an attempt to block TKT from developing its new, competing product, Amgen brought suit in April 1997 against TKT and HMR (1) claiming that TKT's EPO, and the process used to make it, infringes three Amgen patents that were issued only shortly before the commencement of the lawsuit—the applications for all three of Amgen's patents are ''submarine'' patents that had been filed in the U.S. Patent Office in 1983; and (2) asking the Court for a declaratory judgement that TKT will infringe on Amgen's patents when commercial sales of TKT's product begin.
In April 1998, the U.S. District Court in Boston granted TKT's Motion for Summary Judgment of non-infringement, stating that the company's activities in developing GA–EPO were reasonably related to submissions seeking regulatory approval from the U.S. Food and Drug Administration (FDA) and were thus protected under the safe harbor provision of 35 U.S.C. §271(e)(1) (the Price Competition and Patent Term Restoration Act of 1984, or ''Hatch-Waxman Act''). The Court also ordered Amgen's declaratory judgment claim with respect to future patent infringement ''administratively closed, to be reopened upon motion of either party for good cause shown.''
With the litigation on administrative hold, pending TKT's continued research into GA–EPO, Amgen turned to Congress in an attempt to reverse the court's adverse ruling. Numerous different proposals were floated by Amgen during the closing weeks of the 105th Congress, each of which would have had the effect of reversing the court's April 1998 decision. Fortunately, none of these proposals were enacted but, as witnessed today, these efforts continue. Moreover, we note that, to date, none of these proposals have ever been introduced, including the most recent proposal that has been shared with us.
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TKT is now well into Phase III of its clinical trials at FDA. It recently filed a motion to reopen the litigation. Amgen agreed that the litigation should be reopened, thus guaranteeing the question of Amgen's patent rights relative to TKT's GA–EPO will now be decided by the court—on the merits of the case.
As a result of these developments, the litigation related dispute that brought Amgen to Congress is now behind us. The proposed legislation to amend the safe harbor provisions will have absolutely no impact on TKT's ability or inability to go to market with its GA–EPO product. The legislation would, however, have an impact on the development of other drug and biologic products, whether developed at TKT or at any other company. It is for this reason that TKT remains adamantly opposed to the proposal.
III. Background on Hatch-Waxman Act Section 271(e)(1) Safe Harbor
As the Members of the Subcommittee know, the Hatch-Waxman Act provides a limited safe harbor in 35 U.S.C. §271(e)(1) under U.S. patent law that enables companies to research and develop innovative medical products, including drugs, biologic and devices, without fear of premature patent litigation. Section 271(e)(1) provides, in pertinent part:
It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention . . . solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products.
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In 1990, the Supreme Court in Lilly v. Medronic(see footnote 35) held that Section 271(e)(1)'s safe harbor should be interpreted broadly to protect a wide range of medical products that are required to undergo pre-clinical and clinical testing pursuant to FDA regulations, including medical devices. The federal courts have similarly held that Section 271(e)(1)'s safe harbor protects development and testing activities conducted with respect to other types of non-generic medical products, including drugs and biologics.(see footnote 36)
Since the Hatch-Waxman Act's safe harbor provision was enacted over 15 years ago, medical product manufacturers have been able to plan and conduct research and development activities with the knowledge and expectation that these activities will be protected from premature patent infringement suits. This protected zone for research has fostered unparalleled advances in medical science, including the development of potent cancer and AIDS therapies and the emergence of the biotech industry. Companies like TKT and others in the biotech industry, in particular, have been extremely active in researching innovative therapies that promise to revolutionize the health care industry in the coming decade.
IV. The Fairness in Pharmaceutical Testing Act of 1999
The most recent draft proposal we have been provided would significantly restrict the scope of the Hatch-Waxman safe harbor. The so-called ''Fairness in Pharmaceutical Testing Act of 1999'' proposal would amend Hatch-Waxman by specifying that section 271(e)(1) ''does not apply to the development or submission of information under a new drug application . . . or biologics license application.'' If adopted, a safe harbor would continue to exist for generic drugs, for new medical devices and food additives, but would no longer protect research and development activities leading to innovative new drugs or biologics.
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V. Restricting Hatch-Waxman Safe Harbor Would Be Harmful to the Public Interest
The proposal to restrict the safe harbor, if enacted, would profoundly impact the current and future development of other pipeline drug and biologic products.
Amgen argues that, notwithstanding the established practice of the past 15 years and Supreme Court precedent to the contrary, Congress intended Section 271(e)(1) to apply only to generic drugs when it was enacted in 1984. Amgen further argues that the safe harbor harms patent holders by restricting their access to the courts during the early stages of research and development of new medical products. In seeking to insulate its market-share from legitimate competition, Amgen contends that it is unfair and contrary to the public interest to require it to wait to commence a patent infringement suit until a competitor like TKT begins final preparations to bring its product to market.
In support of its position, Amgen offers an inconclusive analysis of 1984 congressional intent. TKT does not presume to know the intentions of the members of Congress in 1984; it notes, however, that the language in Section 271(e)(1) could not be more clear. As written, Section 271(e)(1) applies to all drugs and biologics. Even Amgen's weak congressional intent argument, however, misses the mark because the latest proposal would end the safe harbor protections for only drug and biologic research, but not for medical devices or food additives. Thus, the proposal fails to conform the patent statute to what Amgen argues was Congress' original intent.
The proposal to restrict the Section 271(e)(1) safe harbor would be harmful to the public interest for the following reasons:
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A. It Will Stifle Innovation—If the safe harbor is restricted as proposed, pioneer drug and biotech companies will face costly and time-consuming patent infringement lawsuits early in the development process. Many of these lawsuits will be ''strike suits'' filed by opportunists seeking a quick pay-off from companies that are anxious to proceed with their research unimpeded. Regardless of the motives, early-stage patent suits will siphon scarce resources from research and development activities, thereby constricting or delaying the amount of R&D actually undertaken by health care companies. The upshot of this statutory tinkering will be (1) less R&D by drug and biologic companies, (2) slower development of innovative new medical products, (3) less competition in the pharmaceutical industry; (4) a general stifling of innovation in the health care field, and (5) harm to the public health.
B. It is Anticompetitive—The proposed limitation of the safe harbor will be used by large, established companies to drive smaller drug and biotech companies out of business, thereby further limiting innovation and reducing competition in health care. A great deal of biotech innovation occurs at small firms that have limited financial resources. The mere existence of a lawsuit against a small company—regardless of the merits of the case—seriously impairs its ability to raise the investment capital it needs to continue operations. Moreover, most small biotech firms do not have the resources to conduct R&D, to meet FDA's stringent regulatory requirements, AND to defend a hugely expensive patent infringement lawsuit all at the same time. By making small companies vulnerable to premature patent suits, the limitation of Section 271(e)(1) will provide large companies with a powerful anticompetitive weapon that can and will be used to drive smaller companies out of business.
C. It Will Encourage Unnecessary Litigation—The limitation of the safe harbor will produce a large amount of unnecessary litigation. It will allow litigation to begin even before a new product has been tested and proven safe and effective on human subjects. Since many new products do not achieve the beneficial results that are envisioned by their sponsors, limiting the safe harbor will result in patent litigation over products that will never reach the market. Also, drugs and biologic change in the course of development. If litigation begins too soon, the ''product'' that is the subject of the litigation will often be different from the product that reaches the market. This is one more reason why limiting the safe harbor will spawn useless, resource-draining litigation.
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These public policy considerations have been repeatedly noted by judges who have been faced with real cases in this area. There have been many cases decided under §271(e)(1). In most of these cases, the plaintiff argues, first, that the protections of §271(e)(1) do not apply to the defendant's activities, and second, that, even if the safe harbor applies, the court should exercise its declaratory judgment jurisdiction to decide whether the defendant's product, when it is sold commercially, will infringe the plaintiff's patent. In virtually every case, the court has declined to exercise declaratory judgment jurisdiction for precisely the reasons outlined above.(see footnote 37)
In Amgen Inc. v. Hoechst Marion Roussel, Inc. the Court declined to exercise declaratory judgment jurisdiction, saying among others things:
Not only is FDA approval uncertain but the process or the product itself may be altered during the interval [prior to FDA approval] in ways that are material to an infringement analysis. Any declaration issued by the Court now may be rendered moot by such alterations.(see footnote 38)
Judge Young's comments are applicable to virtually every new drug and biologic during its development phase.
D. It Places U.S. Companies at a Competitive Disadvantage—Many other countries, including Japan, Germany and France, have created a safe harbor for research and development activities like the Section 271(e)(1) safe harbor. If the safe harbor is restricted as proposed, U.S. companies that are developing new drugs and biologics will be placed at a competitive disadvantage vis a vis companies who conduct research and development in countries like Japan and Germany and incentives will have been created to move U.S. research activities offshore. That cannot be in the best interests of the United States.
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E. It is Unnecessary—The current safe harbor does not result in disadvantage to patent holders in the health care industry as compared to patent holders in other industries. As a practical matter, patent holders in virtually every other industry cannot sue for infringement until a potentially infringing product is sold to the public. Prior to that time, the patent holder is usually unaware of the existence of the potentially infringing product. The situation with medical products such as drugs and biologic is different. Because of the FDA approval process, which often involves public advisory committee meetings and other public disclosures, most patent holders can learn about investigational products and file infringement suits long before a new drug or biologic reaches the market. By precluding litigation until a product is approved by the FDA, the current law imposes on drug and biologic patent holders no greater disadvantage than exists for other patent holders. Moreover, current law permits drug and biologic patent holders to seek the full range of legal remedies available to other patent holders, including: (1) preliminary injunctions; (2) permanent injunctions; and (3) treble damages. Indeed, a patent holder can file suit as soon as the FDA approves a competing drug or biologic and, if it can convince a judge of its likelihood of success on the merits, it can be awarded a preliminary injunction, thus preventing the competing product from ever coming on the market.
VI. Conclusion
The U.S. District Court will soon address the question of whether TKT's product and process infringes Amgen's patents—well in advance of TKT's product going to market. Accordingly, it is difficult to see how Amgen or any other company will be prejudiced by the current interpretation of the Hatch-Waxman safe harbor.
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In conclusion, I would urge Congress to not disadvantage research companies by limiting the safe harbor provision. Instead, Congress should allow the biotech industry to continue to move forward in their efforts to develop the next wave of cutting edge weapons for combating devastating diseases and not take a step backwards by restricting the safe harbor protections for new drugs and biologics.
Thank you for providing me with this opportunity to present my views on this critical issue.
Mr. COBLE. Thank you, Dr. Selden.
Mr. Burgoon.
STATEMENT OF RICHARD P. BURGOON, JR., VICE PRESIDENT, GENERAL COUNSEL, AND ASSISTANT SECRETARY, ARENA PHARMACEUTICALS, INC.
Mr. BURGOON. Thank you, Mr. Chairman and members of the committee. Arena Pharmaceuticals is the third biotechnology company that I have worked for in my career. The other two were IDEC Pharmaceuticals and Cephalon. Both have patented products on the market. One is a biologic, and the other is a drug. So I have had to become very familiar with the interplay between 271(e)(1) and (2). We seem to be forgetting that there is a second section to 271(e) that is important here, and the interplay of that section with both BLAs and NDAs. I think these are important issues for all of us to address and understand.
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In that context, there are three issues I would like to talk about today: the slow shift in our industry that is taking place right now; the purpose of 271(e); and the solution that the Fairness Act would provide.
First of all, the biotechnology industry, as you have heard today, is about 25 years old. In the initial stages of the industry, the intent was to become like a mini-pharmaceutical company, except we didn't, obviously, have the resources of the large pharmaceutical companies. What we wanted to become were companies where we could take one or two products and do everything—discover, develop, market, and sell. That works very well if you have a successful product, but, as our industry has found over the past few years, it takes just one failure to wipe out the entire company. Therefore, to lower the risk, there has been a shift away from focusing on just the development of a single drug and toward the discovery of many drugs—to, in essence, fill the pipeline of our larger biotechnology companies and the pharmaceutical companies.
Now, obviously, for those types of companies such as Arena Pharmaceuticals that focus on drug discovery, and not the end product itself, our intellectual property, our patents, are focused on drug discovery techniques. That is an important point to understand. Our patents are covering the techniques and the procedures for the discovery of drugs. How does this interact with section 271(e)?
Section 271(e), as you have heard today, was enacted to provide an opportunity for the generic industry to conduct bioequivalency studies of already-approved drugs, to, in essence, get those generic products on the market sooner. It is a very limited exemption to an act of infringement. With that, too, you have to remember that the act of infringement to a generic company that conducts such bioequivalency study is found in 271(e)(2). The act of infringement upon which the pioneer company can sue is the filing of the abbreviated new drug application. It is very important to understand that 271(e)(2) is specifically limited in the case of drugs to only the filing of an abbreviated new drug application.
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Let me step back, then, to a pioneer company such as IDEC Pharmaceuticals or Cephalon. The statutory mechanisms for getting their drugs approved are new drug applications and biological license applications. The only companies in the industry that are interested in drug discovery patents are those that will be filing new drug applications or biological license applications, not the generic companies that file abbreviated new drug applications. How, then, is this a problem for companies such as Arena?
If our patents are directed toward drug discovery—and, as you have heard today a variety of times, the entire process can take anywhere from 10 to 13 years—the drug discovery process obviously takes place in the very beginning of that 10-to-13-year period. So the infringement of our patents is not taking place when the product is on the market, but in the very initial stages.
Now when you are doing drug discovery, you are gathering data for submission ultimately to the FDA. Section 271(e)(1) provides the opportunity to avoid infringement with the safe harbor provision—in the words of the statute—if your data collection is ''solely for purposes reasonably related to the gathering of information for submission'' ultimately to the FDA. Several court decisions over the past few years have read out the word ''solely'' from 271, and, in essence, have said, any opportunity that you are going to use the data for, as long as ultimately you may have to give some of that information to the FDA, provides you with the opportunity for claiming a safe harbor exemption.
In the case of Arena Pharmaceuticals, I respectfully disagree with the colleague to my right. This is not a baby-in-the-bath-water problem. We have been told that there are pharmaceutical companies that have taken the position that, when they are infringing drug discovery patents, they will claim the exemption under 271(e)(1) because they are gathering data ultimately for submission to the FDA in the form of either a new drug application or biologics license application. That has the effect of creating grave uncertainty with respect to the value of our patents. So this is not a baby-in-the-bath-water problem.
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The Fairness Act is very, very narrowly limited, and tries to put 271(e) back onto its original plane. It merely says that that 271(e) exemption is not applicable to those that are filing NDAs and BLAs. We think that this makes sense. It doesn't upset the generic industry's objectives of getting ANDAs on file, nor does it interfere with medical device companies. So in that respect, I think it is very fair to say that there are many small biotechnology companies, particularly those that are involved in drug discovery techniques, that very much need the Fairness Act to be passed into law. Thank you.
[The prepared statement of Mr. Burgoon follows:]
PREPARED STATEMENT OF RICHARD P. BURGOON, JR., VICE PRESIDENT, GENERAL COUNSEL, AND ASSISTANT SECRETARY, ARENA PHARMACEUTICALS, INC.
EXECUTIVE SUMMARY
A combination of: (1) a judicial shift in the analysis of the wording of Section 271(e)(1), Title 35, United States Code; and (2) an unintended loophole in Section 271(e)(2), has perversely expanded the so-called ''safe harbor'' provisions of Section 271(e) well beyond the boundaries intended by Congress. This expansion has made quite real the ability to undermine the importance and value of patents directed to drug discovery techniques, methods and procedures. Undermining the importance and value of these patents has the very real and chilling effect on the opportunity for innovators to publicize and secure funding for their drug discovery techniques, thus slowing-down and hampering the ability to discover unique therapeutics for human diseases and disorders.
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Section 271(e)(1) was intended by Congress to allow generic drug manufacturers the opportunity to conduct human bioequivalency studies of generic equivalents of FDA-approved pioneer drugs, prior to the expiration of patents covering the approved pioneer drug, without being liable for patent infringement during this bioequivalency testing period. As long as the studies are, in the words of Section 271(e)(1), ''solely for uses reasonably related to the development and submission of information'' to the FDA, the studies are legally permissible. However, as the judicial analysis of Section 271(e)(1) has shifted the focus away from the term ''solely'' and towards the phrase ''reasonably related,'' the safe harbor of Section 271(e)(1) has become grossly expanded.
As intended by Congress, the act of infringement by a generic drug manufacturer claiming the safe harbor protections of Section 271(e)(1) is narrowly and precisely defined in Section 271(e)(2). Under Section 271(e)(2), the infringing activity is the filing of, in the case of a generic drug manufacturer, a so-called ''paper-NDA'' or Abbreviated New Drug Application [ANDA]. Unfortunately, because Section 271(e)(2) was very narrowly drawn to specifically incorporate sections of the Federal Food, Drug and Cosmetic Act only applicable to ANDA's, the filing a New Drug Application [NDA] or Biological License Application [BLA], the regulatory vehicles used by pioneer drug manufacturers, is not a proscribed act of infringement under Section 271(e)(2).
The ''Fairness in Pharmaceutical Testing Act of 1999'' would beneficially close the unintended loophole of Section 271(e) and prevent those who would inappropriately hide within the shadows of the safe harbor provisions of Section 271(e)(1) from so doing without in any manner: (1) undermining the ability of the generic pharmaceutical industry to conduct bioequivalency studies within the safe harbor provisions of Section 271(e)(1), or (2) impacting the applicability of Section 271(e) to medical devices, or (3) overruling judicial precedent. The Fairness Act would merely prevent the use and further expansion of Section 271(e) by the pharmaceutical and biotechnology industries in assessing drug discovery patents.
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STATEMENT
My name is Rick Burgoon. I am Vice President, General Counsel and Assistant Secretary to Arena Pharmaceuticals, Inc., a two year old, 60-employee strong, biopharmaceutical company located in San Diego, CA. The majority of my career has been spent as in-house patent counsel within the biotechnology industry, including IDEC Pharmaceuticals, Inc. and Cephalon, Inc., both of whom have patented products on the market. I have served as the Chair of the Intellectual Property Committee for the Biotechnology Industry Organization (''BIO''), and am a twice-appointed member of the U.S. Secretary of Commerce and U.S. Trade Representative Industry Functional Advisory Committee on Intellectual Property Rights for Trade Policy Matters (IFAC3). A portion of my legal education was spent with the Court of Appeals for the Federal Circuit where I was privileged to serve as a full-time extern to the Honorable Pauline Newman. I appreciate the opportunity and courtesy that the Subcommittee has extended in allowing me to present this testimony to you today. References in support of the positions that I will take, and a description of Arena Pharmaceuticals, are appendixed to my written testimony.
As a brief caveat, neither my company, Arena Pharmaceuticals, nor I, are advocates of the respective legal positions of Amgen or TKT in their legal dispute. My company does not have a business relationship with any of the parties to that dispute. My appearance here today is based upon my advocacy of our United States Patent System and a sincere desire to do my part to entice Congress to take proactive measures to ensure that the expansion of Section 271(e) does not continue to the detriment of innovative drug discovery opportunities.
Unlike Amgen and TKT, who collectively will spend millions of dollars in legal fees in their dispute, smaller companies such as Arena are lucky, in the current financial markets, if they can raise operating dollars equivalent to the Amgen and TKT legal fees. Neither Amgen nor TKT is directly at fault in this situation—the unexpected problems with the wording and judicial interpretation of Section 271(e) has significantly contributed this problem.
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I respectfully ask the Members of the Subcommittee to consider the following: if by accepting and supporting the passage into law of the Fairness In Pharmaceuticals Testing Act of 1999 [''Fairness Act''], just one patent lawsuit is avoided by a small company such as Arena, limited dollars that would otherwise be wasted on legal fees can instead be appropriately spent on salaries for scientists, equipment for research, materials for testing, and ultimately the discovery of therapeutics for the treatment of diseases such as breast cancer, Alzheimer's disease, obesity, Grave's disease, and heart disease (all of which are being investigated at Arena). Perhaps with this perspective, the Members of the Subcommittee will understand that in supporting the passage into law of the Fairness Act, your efforts will be greatly appreciated not just by the small companies who are now vulnerable to the loophole and continuing judicial expansion of Section 271(e), but also by the citizens of our country who will benefit from these innovative treatments.
Thus, to the extent that any advocacy on my part for the Fairness Act may appear to support one party over the other in the legal dispute, this is merely because the narrowly drawn and corrective aspects of the Fairness Act beneficially solve a variety of problems with Section 271(e) that have surfaced during the past few years. There are three points that I would like to address this afternoon: (1) the technological shift within our industry has created a greater reliance on patents for drug discovery techniques than in the past; (2) although enacted based upon a very specific problem encountered by generic drug companies in conducting clinical testing of FDA-approved innovative therapeutics, Section 271(e)(1) has been grossly extended and interpreted to cover activities that span the entire drug discovery and development process; and (3) the Fairness Act, if enacted into law, would correct these problems WITHOUT undermining the original objective of Congress in enacting the Drug Price Competition And Patent Term Restoration Act of 1984.
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THE IMPACT OF COST, EFFICIENCY AND SPEED ON THE BIOTECHNOLOGY INDUSTRY: MOVEMENT AWAY FROM A ''MINI-PHARMA'' BUSINESS MODEL TO A ''PIPE-LINE'' BUSINESS MODEL
Perhaps a bit of historical analysis of our industry would be helpful to establish some context regarding the need for passage into law of the Fairness Act.
Our ''industry'' began in the 1970's when it was discovered that scientists could creatively use the tools of molecular biology to genetically engineer, and thereby harness, the ''machinery'' of cellular organisms. These techniques were expanded into a variety of areas, including the production of highly specific monoclonal antibodies, so-called ''magic bullets'' because of their specificity and disease targeting capabilities, as well as the ability to grow in the laboratory large quantities of human proteins that might be useful in the treatment of human diseases. Anti-CD20 antigen monoclonal antibodies for the treatment of B-cell lymphoma and recombinant human insulin for the treatment of diabetes are examples.
For the first 10–15 years of our industry, the biotechnology business model tended to focus on becoming miniature pharmaceutical companies: smaller versions of the ''big-pharma'' companies from which some of the early pioneers of our industry had once been employed. This meant that all of the necessary infra-structure of the pharmaceutical industry would have to be transformed on a smaller scale to our companies, with one major exception: lacking the financial and non-financial resources of the established pharmaceutical industry and the ability to simultaneously pursue the discovery and development of several drug candidates, individual biotechnology companies were forced by their smaller size to focus on one, perhaps two drug candidates at a time. Because it can take at least ten years from the initial test-tube experiments to the approval of a pharmaceutical, and because most of biotechnology companies had everything riding on the approval by the FDA of their one or two pharmaceuticals, a non-approval for the pharmaceutical often meant that such a company would experience massive lay-offs of staff, if not the outright implosion of the company itself. These circumstances have become all too real in the past few years, and with this, the financial community has considerably soured on biotechnology investments.
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In short, for every IDEC Pharmaceuticals or Amgen or Genentech, there are dozens of biotechnology companies that no longer exist or are on the verge of nonexistence because of the adherence to the ''mini-pharma'' business model.
But ours is an industry where failure is almost always viewed by others as an opportunity for success. Nobody doubts the value of biotechnology in the discovery of innovative therapeutics. What has come into doubt is the business model that required biotechnology companies to become ''mini-pharma'' companies. The value of our industry is that when we stay small in size, we maintain the ability: (1) to be innovative and creative, as well as (2) to be rapid in the application of our innovation and creativity. In our industry, especially in the beginning stages of the company's development history, innovation is at a premium, the chain of command usually has but a few links, and meetings are often held around the company coffeepot. Because of our smaller size, we also have the opportunity to not only learn from our internal mistakes and the mistakes of others, but also to adapt, improvise and quickly move forward.
Indeed, and precisely because of the foregoing, it is the intent of Arena Pharmaceuticals to not exceed 100–125 employees. Because of this objective, we can not become even a mini-pharma. Rather than focus our efforts on the discovery and development of one or two pharmaceuticals, Arena is focused on the discovery of multiple drug candidates that we license to our partners for development.
Drug discovery then, focuses on the up-front efforts of our industry where a variety of compounds are investigated and tested in a ''narrowing'' process; this narrowing process is intended to lead to one-to-a-few compounds for drug development, i.e., animal testing, human testing, formulation development, etc. Drug discovery techniques should not be confused with ''research tools.'' It has been argued that drug development inventions and research tools are the same—this argument is generally raised by some who may want to confuse the issue. Research tools are generally directed to the types of procedures that primarily take place in academic or governmental settings; research tools are typically not intended to lead to the discovery of a drug candidate but are more often geared towards, e.g., enhancing the efficiency of gene sequencing or growth of bacteria. Research tools are, clearly, tools for research; drug discovery inventions are, clearly, inventions directed to methods for the discovery of drugs.
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Other companies besides Arena have recognized the value of focusing on one aspect of the drug development process, rather than trying to ''do it all.'' A subtle shift has begun within our industry over the past few years. This shift has tended to focus on the ''drug discovery'' aspect of the pharmaceutical development process. As a result of this shift, our industry now includes companies that are primarily focused on the discovery of many drug candidates, rather than the development of a single pharmaceutical. Rather than hope for the success of one or two drugs, these new companies are focused on filling the pipeline of larger companies who have the resources to fully develop these promising drug candidates. Arena Pharmaceuticals is an example of this type of ''drug discovery'' company.
THE PROBLEM: DRUG DISCOVERY DATA MAY BE ''REASONABLY RELATED'' TO THE DEVELOPMENT AND SUBMISSION OF DATA IN A NEW DRUG APPLICATION
By definition, the patents that evolve from drug discovery companies are not necessarily limited to the pharmaceutical product but rather on drug discovery techniques, methods and procedures. In the context of the drug development process, the pharmaceutical product occupies the final step in a ten-year long process, whereas drug discovery techniques, methods and procedures are, obviously, at the very beginning of the process, and occupy, in general, the first one to two years of the ten year process.
Thus, common-sense alone dictates, indeed mandates, that if the violation of a drug discovery patent is legally permitted and cannot be stopped as soon as possible by the owner of the patent, the relevance and value of such a patent may be nonexistent.
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An infringer who violates a pharmaceutical product patent generally tends to do so when the product has been approved by the FDA and already is on the market; generally, in this context, the patent violator will be a generic manufacturer who knows, going into the process, that if there is a patent on the pharmaceutical product, the bioequivalency testing procedures are absolutely protected under Section 271(e)(1), AND, when the ANDA is filed, the generic manufacturer will be liable for patent infringement under Section 271(e)(2).
An infringer who violates a patent on a drug discovery technique, method or procedure does so nearly a full decade before the fruits of that method, i.e., the pharmaceutical products, are approved by the FDA and on the market. However, because those who would violate a drug discovery patent are pioneer, and not generic, pharmaceutical companies, their objective in taking these inventions is to discover a new drug—thus, the regulatory mechanism that such a company will utilize to seek marketing approval of the innovative drug is an NDA or BLA, and not an ANDA. Thus, even if there is infringement of a drug discovery patent that is arguably protected by Section 271(e)(1), there is no statutory mechanism by which the owner of a drug discovery patent could bring a patent infringement suit under Section 271(e)(2) when the infringer's NDA or BLA is filed with the FDA. And, unlike the situation with a generic version of a patented drug, there would be no ACTUAL INFRINGEMENT of a drug discovery patent when the NDA or BLA is filed. This is not even the case when a generic drug company utilizes the safe harbor provisions of Section 271(e)(1)! Such an unfair and nonsensical distinction should not exist, and should be abolished.
Consider as but one example a drug discovery technique based upon a complicated, innovative computer model for analyzing and assessing initial test-tube data for several compounds against a disease target. The computer model is patented and claims a method to assess the initial data and predict the ability of the tested compounds to affect the disease in animal models; thus, based upon this drug discovery technique, those using the computer model can save substantial time and financial resources because the efforts can be focused on those compounds that have a predicted chance of success, rather than those for which the computer model suggests little chance of therapeutic success.
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If a company uses the patented drug discovery technique described above without permission of the patent owner, that company is obviously gathering data, and it is probable that such data may be submitted to the FDA when the company submits its NDA—perhaps as many as ten years after the computer patent claims had been infringed. Thus the question becomes: is the company liable for infringement of the patent? Unfortunately, the answer is not clear, but based upon several judicial opinions, it is possible that a court would provide a Section 271(e)(1) safe harbor protection to the company for this act of patent infringement. Furthermore, as noted above, there is no statutory mechanism by which the patent owner could sue such an infringer under Section 271(e)(2) when the NDA or BLA that incorporates such data is filed with the FDA. And, most troubling, the act of infringement of the drug discovery patent would have taken place years before the NDA or BLA is filed, making the opportunity to seek damages tenuous at best.
A reason for this is because the term ''solely'' in Section 271(e)(1) has effectively been read-out of the law by several courts. Indeed, as the Court of Appeals for the Federal Circuit held just last year, ''As long as the activity is reasonably related to obtaining FDA approval, [the accused infringer's] intent or alternate uses [of the data] are irrelevant to its qualification to invoke the Section 271(e)(1) shield.'' As one court noted:
''[W]e do not believe that Congress intended a party to lose the [271(e)(1)] exemption merely because it turns out, after the fact, that some of the party's otherwise infringing 'uses' either failed to generate information in which the FDA was interested or generated more information than turned out to be necessary to secure FDA approval.''
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Based upon this analysis, a ''test'' was articulated as to how the potential infringer should consider the issue:
''[W]ould it have been reasonable, objectively, for a [potential infringer] to believe that there was a decent prospect that the 'use' in question would contribute (relatively directly) to the generation of kinds of information that was likely to be relevant in the processes by which the FDA would decide whether to approve the product?''
With due respect to the court that articulated this test, this analysis basically states that if there is a desire to wantonly infringe the claims of a drug discovery patent, the potential infringer need merely believe that there was a decent chance that the data might contribute to the generation of information that could be relevant to the FDA's reviewing process. There are more linguistic ''waffles'' in this ''test'' than in an average International House of Pancakes.
It is this judicially created test, and its real and potential application, that has provoked grave concern by those whose businesses are based upon drug discovery techniques. No longer limited to just bioequivalency testing of a generic version of an already approved pioneer drug, Section 271(e)(1), like a cancer, has been granted judicial license to spread throughout all inventions related to the discovery, testing, and clinical analysis of innovative therapeutics.
Nobody even remotely connected with the history of Section 271(e)(1) could reasonably conclude that this section was intended to be judicially interpreted in this manner—nevertheless, the cancer has begun to spread, and once this process begins, it can not and will not unilaterally stop.
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A REASONABLE SOLUTION TO THE PROBLEM: ''THE FAIRNESS IN PHARMACEUTICAL TESTING ACT OF 1999''
The Fairness Act deferentially acknowledges that the several courts have let the ''genie'' out of the bottle. Rather than try to stuff the genie back into the bottle by re-writing Section 271(e) to address these concerns or ''overrule'' these decisions, in the context of pharmaceuticals, the Fairness Act very crisply limits the applicability of Section 271(e) to ANDA's. The concerns that I have briefly raised today regarding patents claiming drug discovery techniques, methods and procedures would be solved by having the Fairness Act enactment into law.
So that there is no misunderstanding—only a biotechnology or pharmaceutical company would infringe a drug discovery patent and claim the safe harbor protection of Section 271(e)(1). Why? Because only a biotechnology or pharmaceutical company is concerned with the discovery of innovative, new drug candidates. A generic manufacturer, by definition, is not interested in drug discovery and therefore, by definition, a generic manufacturer would have no reason or even the ability to infringe a drug discovery patent. As such, and because the pharmaceutical resulting from infringement of a drug discovery patent would be a new drug or new biologic, the regulatory document that would result from such infringement would be either a New Drug Application or Biologic Drug Application, and not an Abbreviated New Drug Application. Because of this, if Section 271(e)(1) is applicable to the infringement of a drug discovery patent, a perverse irony would result—there would be no statutory authority to bring a patent infringement lawsuit under Section 271(e)(2).
The Fairness Act would rectify this perverse irony by NOT providing the safe-harbor provision of Section 271(e)(1) to data developed for purposes of the filing of an NDA or BLA. Thus, if the Fairness Act is enacted into law, a biotechnology or pharmaceutical company that infringes a drug discovery patent in an effort to discover novel drugs or biologics would not be entitled to claim the safe harbor provisions of Section 271(e)(1).
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With simplicity and clarity, the Fairness Act would add a level of common sense to the analysis without in any way disrupting the initial objectives behind Section 271(e)(1): to allow generic drug companies to establish the bioequivalency of a generic version of an innovative drug prior to the expiration of a patent covering the innovative drug.
I respectfully suggest the following to the Members of the Subcommittee: as you consider the Fairness Act and are approached by companies who might oppose its passage into law, ask the basis for such opposition. Once the arguments in opposition are presented, I am confident that you will reasonably conclude that such opposition is based exclusively upon a desire to leave open the opportunity for such companies to infringe drug discovery patents. This, of course, should raise the legitimate question in your minds—why is it acceptable for these companies to protect their inventions by suing for patent infringement, but UNACCEPTABLE for drug discovery companies to similarly protect their inventions? The truth, and common sense, should not be bartered or mangled via a logically inconsistent position.
CONCLUSION
Because these are real problems affecting nascent companies developing promising technologies, AND because Section 271(e) was not intended to be expanded in the manner by which it has been expanded, I respectfully urge the Members of the Subcommittee to earnestly support the Fairness Act and its passage into law. Thank you for the opportunity to present these views. I would be pleased to answer any questions that you might have.
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ARENA PHARMACEUTICALS, INC.
Founded in April 1997, Arena is a leading developer of novel biochemical assays, derived from its proprietary screening platform technology, termed ''CART'', which Arena believes enables the discovery of novel, small molecule therapeutics in a significantly more time and cost-efficient manner than traditional drug screening techniques. Specifically, Arena's CART(TM) technology allows novel cell-surface receptors to be screened directly against chemical libraries for activator and/or inhibitor activity without the need to first discover their native (natural) ligands. This differs radically from current industry practices for drug screening which rely upon characterization of the receptor's native ligand for use in competitive binding assays. Discovery and characterization of a receptor's native ligand is the rate-limiting step in translating novel receptor discoveries into drug screening programs. This rate-limiting step typically requires three-to-ten years to complete at an estimated average cost of $5 million per receptor. CART enables this ligand discovery step to be omitted entirely. Additionally, because CART-based assays directly measure receptor activity, Arena's technology can also identify compounds of potential therapeutic utility in circumstances where ligand inhibition screens fail. This is critical for diseases, including hypertension and cancer, where ligand-independent receptor activity is responsible for, or contributes to, the disease.
Arena's CART technology involves the genetic alteration of cell-surface receptors to cause receptor activation and thus production of a biological response. This allows for the direct assay of drug candidates that modulate receptor signaling events, without a need for the native ligand. Modulation of proximal receptor signaling events is then readily measured by Arena in a highly discernable and quantifiable manner, enabling identification of compounds that increase or decrease the receptor's activity. The proprietary, genetic alterations used by Arena to activate G protein-coupled receptors (GPCRs) are applied to the intracellular loops of the receptor, leaving its extracellular portion intact. Because all GPCRs have highly similar structural elements, CART activation can be accomplished with a small set of discrete alterations that Arena has reduced to a family of routinely applicable genetic cassettes. Once the genetic sequence information of an orphan GPCR is obtained, it typically requires less than one month for Arena to create a CART-activated version of such orphan GPCR and begin screening chemical libraries.
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REFERENCE CITATIONS*
Intermedics, Inc. v Ventritex, Inc., 775 F. Supp. 1269, 20 U.S.P.Q. 2d 1422 (N.D. Ca, 1991)
Telectronics Pacing Systems, Inc. v. Ventritex, Inc., 982 F.2d 1520, 25 U.S.P.Q. 2d 1196 (Fed. Cir. 1992)
Abtox, Inc. v. Exitron Corporation, 122 F.3d 1019, 43 U.S.P.Q. 2d 1545 (Fed. Cir. 1997)
1Brinckerhoff, C.C. ''Can The Safe Harbor of 35 U.S.C. 271(e)(1) Shelter Pioneer Drug Manufactures?'' 53 Food & Drug L.J. 643 (1998)
*I wish to acknowledge the assistance of Brad Close and Kim Nguyen, students at the Franklin Pierce Law Center, for their legal research assistance.
Mr. COBLE. Thank you, Mr. Burgoon.
Dr. Selden, if you will explain to us in some detail why you believe that the Bolar safe harbor applies to biologics and new drugs in addition to generics?
Mr. SELDEN. Yes, sir. What I'm saying is really a summary of what courts have decided over the last 10 years. 271(e)(1) and (e)(2) are written differently. The language in (e)(2) is very specific about generics and ANDAs, as described. 271(e)(2) talks about new drugs broadly. It is not limited.
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What the courts have found over the last decade is that indeed the safe harbor should apply to drugs and biologics that are in early stages of development. Consider, for example, the decision that came down in April 1998 from the U.S. District Court in Boston. The judge said to have a premature lawsuit when the drug hasn't been proven to work in patients, (even if it is shown to work, the drug may change during the development process), would not be a good use of the court's time, because in end you would have this early lawsuit, the product would change, or the product wouldn't even turn out to be product. So I think all we are looking at is a history of the court over the last 10 years and what they have said.
Having said that, I understand that Congress was made up of different people with different views back in 1984. I don't pretend to know what all those views are, or even if I knew them, to understand them. Nonetheless, as a result, which was either intended or unintended, there has been a dramatic growth in biotechnology over the last 15 years. More companies, more small companies, over 1,500 companies all over the country have sprung up. In part, because they know they can do their basic research without being sued early.
So I think that the issue from my perspective, is not what people thought in 1984, but rather, what should we do today to protect this strong and wonderful industry that will have an enormous impact on the public health.
Mr. COBLE. Mr. Binder, how long did it take the patents which are subject of your suit with TKT to issue?
Mr. BINDER. Well, there were several different patents. It took a very long time because first of all, the Patent Office rejected the claims because of an In Re Durden court decision. We ultimately persuaded them that that was in error, but it took quite a while. Then there was patent litigation with Genetics Institute, which coupled with an interference that Genetic Institute had filed, caused the Patent Office to take very many years to decide who these patents should be issued to. So although we were eager to get these patents issued as fast as we could, in fact, it took a very long time to get them.
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Mr. COBLE. How long after issuance was it until you commenced the litigation with TKT?
Mr. BINDER. Well, there were different ones on different days. We commenced the litigation as soon as we felt we reasonably could. We didn't want to sue too early and run into the situation that was described where the product might change later on. That would be a waste of our money and we wouldn't want to do that. So when TKT had progressed far enough that we felt it was unlikely that there would be any significant change in the product, that was our decision on the timing of the suit.
Mr. COBLE. But you don't remember right now how long from issuance?
Mr. SELDEN. I remember. Two days on the third of three patents, about 10 days on the second, and about 6 months on the third. About April 1997. The patents were filed, sir, in December 1983. They issued one in 1996, two in 1997. That is why we view them as submarine patents.
Mr. COBLE. All right, sir.
Mr. Burgoon, summarize, and you did this to some extent, your understanding of the legislative history of section 271. Do you have any supporting corroboration from staffers, industry lobbyists, or Members of Congress, or anyone who may have participated in the development of Hatch-Waxman who concur with you?
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Mr. BURGOON. I just read the legislative history. I mean, I have taken the words themselves from the legislative history. If you read the House Report with respect to 271(e)(2), which I think has to be read in conjunction with 271(e)(1), it was at least clear to me in reading the report, that the House was looking at the concept of giving generic companies who were gathering data for purposes of obtaining ANDA approval a ''bye.'' That was it.
Now I know that there have been other court decisions that have extended this to medical devices. That is not a concern of ours here. We are only interested in pharmaceuticals. There is no support in the legislation, I think you heard other witnesses this afternoon that have also backed this up, that there was any discussion that the safe harbor should or would apply to pioneer drug companies. That is the issue that we are facing today. Courts, as I am sure you have been told, have basically told us in the community what Congress intended.
Mr. COBLE. Thank you, gentlemen.
The gentleman from California, Mr. Berman.
Mr. BERMAN. Let me ask Dr. Selden first. As I understand this world of patent law, a world which I do not understand, prior to 1984, X could bring a patent infringement suit against Y or a drug, a new drug, even though that drug had not been approved by the FDA. That drug was not being approved. An application had not even been filed for drug approval. Is that a fair statement?
Mr. SELDEN. Yes, with a caveat that in my entire career, I have lived under Waxman-Hatch, so back in 1984, I can't be positive. If that's wrong, I can provide a written record to the contrary. But I believe you are right, sir.
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Mr. BERMAN. You do know, Mr. Chairman, that prior to 1994, it was always called Waxman-Hatch. It was only after the November elections in 1994 that it started being called Hatch-Waxman. [Laughter.]
Well, is that a fair—that's what I heard Mr. Binder say and that's what I have heard before.
Mr. SELDEN. Yes.
Mr. BERMAN. So you could file this suit. Now they come along and they got this thing. The drug companies want longer patents. The generics want to be able to get on the market the day the patent expires. They work out a deal. The way the generics get their part of the deal is they get this safe harbor to insulate them from the lawsuits that they used to get prior to 1984 in order to test, develop, get the application ready and put the application in. The drug companies get the longer patent term extension.
I have no idea. I mean, I have not done enough research to know what the legislative history really meant. But in the whole discussions of this, today and in the past, you had an impression that this was a deal between generic drug companies and pharmaceutical drug companies, and that therefore, the safe harbor provisions would only benefit the generics.
Now I gather courts have come along, looked at the language, and said quite differently. I gather Amgen is coming in and saying this is what was intended, yes, the courts have said differently, but that isn't what the deal was, and the policies behind allowing a drug company that has developed something to protect its patent should, against an infringer, not a generic, against an infringer which they claim you are, and which you very strongly claim you are not, and the courts will settle that. Right? That's what the lawsuit was that you are referring to. But that we should go back to that policy, and not extend the safe harbor provisions to cover somebody that was never contemplated to benefit from those safe harbor provisions.
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Now that's probably restating it from sort of the Amgen perspective, but tell me what is wrong with that reasoning?
Mr. SELDEN. The first thing is that the delicate balance between the pharmaceutical and generic companies I think is even more complicated than that. The whole issue of the ANDA is a real benefit to the generic companies.
Mr. BERMAN. Yes.
Mr. SELDEN. Because unlike TKT, where we have to go through some years worth of clinical trials and then have a very long and in-depth new drug or biological——
Mr. BERMAN. But isn't that what they had to do, Amgen?
Mr. SELDEN. No. Well no. Within ANDA though, I'm talking about the benefits with the generics, you end up being in a situation where you just do a very short clinical——
Mr. BERMAN. Right. No, no, but you are not a generic.
Mr. SELDEN. Understood.
Mr. BERMAN. And they are not a generic, Amgen. They had a drug. They went through all that same process.
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Mr. SELDEN. So the point is that there were many other parts of the deal. So we are in a situation where we are going through this long clinical trial period. We don't get a benefit like the generic gets. We don't get the ability to do——
Mr. BERMAN. No, but if you got a new patent, you got five, you got a bunch more years from that, and you have some more years from GATT. You have got a lot more time to exploit your new drug.
Mr. SELDEN. Actually I think that the timing of the exploiting of the drug is a good point, but I don't think it is the heart of the point.
Mr. BERMAN. Okay.
Mr. SELDEN. Because in these issues of congressional intent, the courts have come down so clearly on one side of what the law must mean—that 271(e)(1) very clearly refers to new drugs. It doesn't limit it. Whereas in (e)(2), it says generics, ANDA requiring. In 1984, how could anyone have understood or predicted how important the biotechnology industry would become to this country and to the public health? So even if it were unintended, and that's not what I think, that's not what the court thinks—I guess the court matters more—even if it was unintended, if there was an unintended benefit, that is a great outcome.
Now in terms of having an early lawsuit, having an early lawsuit with a drug that hasn't even been proven to work, I don't think the potential benefit is nearly as great as the harm a change in 271(e)(1) would do to innovation. If you look at TKT's case in particular, we do no harm to Amgen if we are wrong. If we are wrong, we will never get onto the market. The harm that a change in 271(e)(1) would cause would be to reverse the consequences, unintended or intended, of 271(e)(1), and make companies susceptible to a torrent of early lawsuits.
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Mr. BERMAN. At some point if we have a chance, I would like to hear from Gordon Binder on why the early lawsuit is that important, why what you say isn't true.
Mr. COBLE. We will go to Mr. Gallegly. Then I will come back to you, Mr. Berman.
The gentleman from California.
Mr. GALLEGLY. Thank you very much, Mr. Chairman.
Mr. Binder, if this proposed amendment were to be enacted, would it have any affect on the pending litigation with TKT?
Mr. BINDER. No. It would not.
Mr. GALLEGLY. So no matter how this amendment would take place, it would not have any affect on the pending litigation?
Mr. BINDER. That's right.
Mr. GALLEGLY. Mr. Burgoon, you briefly hit on the affect that not enacting this proposal would have on the biotech industry. But would you maybe just go a little bit more in depth if this proposed amendment did not pass, would you elaborate a little bit on the affect status quo would have on your industry?
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Mr. BURGOON. Sure. The one thing that I am sure you all appreciate, our industry is heavily dependent upon capital funding. The worst thing that capital markets like to see is uncertainty. We have had some pretty significant failures in our industry, whereby I think it is pretty fair to say that the investment community has soured on our industry as a whole. Coupled with that, obviously, is the e-commerce boom that has taken place where, investments can be substantially increased in a very short period of time. So we are struggling for dollars right now, those of us that are starting out in this game.
One of the strongest things that we have, obviously, is intellectual property. When we can get a strong intellectual property position, that gives some comfort to those that are putting investment dollars into our companies. So the status quo right now leaves a high level of uncertainty with respect to these newer wave of biotechnology companies, the drug discovery companies, because it is unclear whether or not the safe harbor provision will or will not apply to those that are infringing these patents.
Status quo, I think it is a dangerous precedent. I think you are going to cut off the opportunity for the flowering companies to provide newer opportunities for drugs. Again, we don't focus on the development of just one drug. We are trying to discover multiple leads that then can be developed by bigger companies. So I think there is greater opportunity for a smaller company such as Arena to flower the drug market with newer opportunities. The last thing you would want to do right now I think is to keep the status quo. You may cut off the future of drug discovery right here.
Mr. GALLEGLY. Mr. Binder, would you take a shot at that?
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Mr. BINDER. I think that's right. I think if I could extend it one step further, when you get a patent, the patent law always provides that if you make, use, or sell, that's infringement. TKT's position seems to be that really what it should be is sell, that make and use should not be something that you could sue people for. So if you were to go that far, you would simply invalidate tens of thousands of patents that exist today that are use patents, and wouldn't have any value if selling were the only significant event, because those things are never sold. They are just used.
So I think it is an excellent point. The people that have patents on ways to find new products but not patents on the products, would be severely disadvantaged if nothing is done.
Mr. GALLEGLY. Well, why would a small, and I assume that you consider yourselves relatively small biotech companies, why would you invest hundreds of millions of dollars in new products under the current or under the status quo?
Mr. BINDER. Well, a biotech company wouldn't, but a very large pharmaceutical company clearly would and is doing that. So that would be something they could do that biotech companies could not do.
Mr. GALLEGLY. Would you agree with that, Mr. Burgoon?
Mr. BURGOON. Absolutely.
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Mr. GALLEGLY. Mr. Chairman, I would yield back. I know Mr. Berman had a follow-up. I would like to hear the answer to his question.
Mr. COBLE. I will recognize Mr. Berman for a second round.
Mr. BERMAN. Well, I guess I got a little hint of the issue of early lawsuit on the ground that if ''early'' means prior to marketing, not all patents are for products that are sold.
Mr. BINDER. That's right.
Mr. BERMAN. But still, why do you need to sue them? Why couldn't you have waited until they were in FDA before you sue them? Or what would be wrong with that? Why would that hurt Amgen's interest? If you are right, they will be doing a lot of work to produce money for you. If you are wrong, you will find out eventually that you are wrong. You are still marketing your product and competing with them.
Mr. BINDER. Well, one reason would be that just because a court would award damages wouldn't necessarily mean they are collectible or even if the company had the financial resources to pay them. Another reason is that as is well known in litigation, a jury would be more likely to keep a patent infringer off the market who has never been in the market than it would be to take a patent infringer off the market after they were already there. They would testify all these jobs will be lost and all these terrible things will happen, don't take us off the market.
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Mr. BERMAN. So in the world of patent lawyers, it's generally thought you have a better shot winning if you can get it before it's out there being marketed. Your only relief is really what, an injunction or something at that point?
Mr. BINDER. That's right.
Mr. BERMAN. What about could you get hoisted on your own petard with this proposal? I mean Amgen as an innovator developing a new biotechnology product and someone now suing you early claiming patent infringement. You having no window of opportunity, no safe harbor for 30 months to develop the product and see what you are doing. You have to spend all your time trying to defend this thing which could be changing and——
Mr. BINDER. No, sir. I think the patent system works. I think if people with patents want to sue people, they ought to be allowed to sue people. If people are infringing or not infringing, they should defend themselves. That is the system we have had in this country for a long, long time and it has worked fine.
I would add that there is a fundamental unfairness to the way this thing has turned out. The bargain that was struck was that on the one hand, the generic drugs would get the exemption. But on the other hand, the generic drug company would not go to market until after the patent expired.
Mr. BERMAN. Right.
Mr. BINDER. That was the other part of the deal.
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Mr. BERMAN. But how could they not? I mean if they went to market beforehand, they were risking everything.
Mr. BINDER. Well, now we're getting the worst end of both. Our patent infringers are getting the clinical trial exemption, but they don't have to wait until our patent expires before they go to market. They can go right ahead and go to market because they don't sue them ahead of time.
Mr. BERMAN. The problem is, they don't think they are an infringer and they don't think there is a patent that needs to expire before they can go to market because they have got a new product.
Mr. BINDER. That's right.
Mr. BERMAN. I mean that's the fight. You will have that fight in court. All right. So this issue, as Mr. Gallegly pointed out, both sides agree. Your dispute is not affected by this proposal?
Mr. BINDER. That's right.
Mr. BERMAN. You are here because you don't think it's right and you are worried about your future. Where in the heck are all the other innovators in the world who think that this would be disastrous for their ability to develop new products and play around and change things and test things, and do whatever you do with it?
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Mr. SELDEN. That is a very important question. Since the proposal is something that last year changed many a time, changed this time, and even now hasn't been introduced, there has been nothing for the major biotechnology industry organization, BIO, or PhRMA, of which Mr. Binder I believe is chair, to shoot at right now.
So last year, which is the only data that I have when this issue came up, the intellectual property committee of BIO voted against the changes to safe harbor that were proposed. The vote was about 22 to 2, roughly. When it went to the BIO board of directors, it was voted down unanimously. PhRMA, I believe, voted it down last year 14 to 4. So I think that there is a significant amount of opposition out there. I believe that given time and given something specific to shoot at, I think that opposition will become very apparent.
Mr. BINDER. May I respond to that? As a member of the board of directors of both organizations, those votes and those proposals were not today's proposal, first of all. The truth is, that the biotech companies generally are much more likely to favor this proposed legislation. The very large PhRMA companies are less likely to favor this legislation as a matter of fact. It is nowhere near unanimous in either organization. Neither organization has an official position because we all know how trade associations work.
Mr. BERMAN. Is the answer to change the law is to—well there is no generic biotechnology product really.
Mr. BINDER. That's right. There is unlikely to be one for a long, long time, in our opinion.
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Mr. COBLE. Gentlemen, Mr. Binder, and Dr. Selden, I wish you both well as you all resolve your differences. Mr. Burgoon, you are a stranger to the lawsuit, so I wish you well on your own motion.
Gentlemen, we thank you all for being with us today. We appreciate your testimony. This concludes the legislative hearing on H.R. 1598, the Patent Fairness Act of 1999, and the oversight panel regarding the Bolar exemption. The record will remain open for 1 week. We thank you for your cooperation.
The subcommittee stands adjourned.
[Whereupon, at 6:02 p.m., the subcommittee was adjourned.]
A P P E N D I X
Material Submitted for the Hearing Record
| U.S. Congress, |
| House of Representatives, |
| Washington, DC, July 20, 1999. |
GORDON M. BINDER, Chairman,
Amgen, Inc.,
Thousand Oaks, CA.
DEAR MR. BINDER: On July 1, 1999, the House Judiciary Committee's Subcommittee on Courts and Intellectual Property held a hearing on H.R. 1598, the ''Patent Fairness Act of 1999,'' and the Bolar exemption to patent infringement, which is codified at 35 U.S.C. §271(e)(1). At the hearing, your testimony on the Bolar exemption and Amgen's proposal to narrow it was helpful, but there remain some unanswered questions.
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In order to complete the hearing record, it would be helpful for you to respond to the following two questions.
(1) Considering the number of years and millions, if not billions, of dollars it takes to develop a new drug, does a broad reading of the Bolar exemption, allowing other companies to use the patents to develop other new drugs, discourage research into and development of new drugs? If so, how?
(2) Would it violate the purpose of the patent laws, which prohibit others from making, using, or selling inventions, to permit other drug companies to use your patented drugs for their own new drug research? Please explain.
Sincerely,
| John Conyers, Jr., Ranking Member, |
| House Committee on the Judiciary. |
cc:
The Honorable Howard Coble, Chairman,
House Subcommittee on Courts and Intellectual Property.
The Honorable Howard L. Berman, Ranking Member,
House Subcommittee on Courts and Intellectual Property.
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PREPARED STATEMENT OF HON. WILLIAM D. DELAHUNT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS
Chairman, I would like to thank you for convening this hearing. I am hopeful that it will afford us an opportunity to hear all points of view, and I intend to listen closely.
I am a cosponsor of H.R. 1598. And I cosponsored the bill in large part because of the concerns generated by some earlier efforts to secure additional patent term for these so-called ''pipeline'' drugs. We have heard much about how some proponents of this legislation sought in previous congresses to slip patent extension provisions into conference reports during late night sessions.
My own cosponsorship of this bill should not be misinterpreted as an endorsement of such clandestine tactics. On the contrary, I agreed to cosponsor the bill in order to ensure that THIS time the process is conducted in the clear light of day, so that all the arguments can be fully and fairly assessed. That is our responsibility, Mr. Chairman, and I know it is one which you and every member of this subcommittee take seriously.
In the same vein, I want to make clear that in supporting this bill I am endorsing a process, not a particular result. I do not know whether the delays in FDA approval of Claritin, for example, were due to agency delays, as Schering-Plough has asserted, or due instead to dilatory behavior by Schering-Plough itself, as its critics allege.
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I understand that Mr. Waxman and others have asked the General Accounting Office to look into this issue, and I look forward to their analysis.
But whatever the GAO may conclude, it seems to me that this is essentially a factual question. And such questions are best decided not by Congress, but by an agency or tribunal that is independent of political pressures, and has sufficient expertise to make the necessary findings of fact.
Such an approach seems to me far preferable to our continuing to legislate extensions, on an ad hoc, case-by-case basis—as Congress has done on a number of occasions since the Hatch-Waxman Act was enacted in 1984.
It has been argued, as I expect we'll hear today, that the specific process proposed by H.R. 1598 is flawed. That it assigns the fact-finding function to the wrong agency. That it allocates the burden of proof to the wrong parties. That it creates a decisionmaking process that can only lead to a preordained result.
I, for one, am prepared to listen to all points of view on these questions, and to consider any modifications that will help ensure that the process is a genuinely fair and impartial one. T.hat is precisely what a hearing is FOR, and that is why this particular hearing is so important.
At the risk of understatement, Mr. Chairman, I recognize that at least two sides in this dispute have invested heavily in the outcome, in the hope that we will choose the corporate winners and losers. In my view, that is not our role. And I am prepared to let the chips fall where they may.
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But before I close, I would like to say a word about the relationship between this legislation and prescription drug pricing. Some who know of my strong support for various measures to lower drug prices for consumers have asked how I can support a bill which might result in continued high prices for these seven pipeline drugs. It's a fair question. But I see no contradiction.
The question of what consumers should have to pay for prescription drugs is ACADEMIC if we lack those drugs in the first place The development of new drug therapies is a risky and capital-intensive undertaking. It takes more than $500 million and an average of 12–15 years to develop a new drug and bring it to the marketplace. For every Claritin that produces windfall profits, there are 6,000 drugs that never make it through the approval process.
Yet in the midst of all this uncertainty, there is one mechanism—the patent system—that assures investors that once a drug DOES make it through the process, they will be entitled to the fruits of their investment. It is up to us to maintain the integrity of that system of incentives, so that investors and entrepreneurs will continue to generate new and better pharmaceuticals.
Opponents of H.R. 1598 have said that this is all very well, but that patent term restoration does not serve the public interest because the investment has already been made. There is nothing left to ''incentivize,'' if you will.
This argument misses the point. The very purpose of the patent system is to create incentives, by assuring patent holders of the opportunity to recoup their investment. By restoring lost patent term when circumstances warrant, we demonstrate that the system is fair and can be relied upon.
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And if it IS fair to restore lost patent term for a particular drug, then this is true even if it delays price reductions to consumers. Even if it generates additional profits for wealthy drug companies. The extensions awarded under the Hatch-Waxman Act did this, too. Because market exclusivity is part of the price we pay as a society to ensure that these drugs will be available when we need them.
Whether prescription drugs need to be as costly as they are is a legitimate—but separate—question. I am appalled by the disparities between the prices paid for Zocor or Prilosec or Procardia by seniors in my district, and the price paid for the same drugs by HMOs and other favored customers. It's a very serious issue. But this is not the place to address it.
Mr. Chairman, yesterday I received an exceptionally thoughtful letter from Mr. Tom Schatz of Citizens Against Government Waste, which I would ask unanimous consent to have included in the record. [Without objection.]
The letter says, and I quote,
Tomorrow your subcommittee will have a hearing on H.R. 1598, 'The Patent Fairness Act of 1999.' Contrary to some reports, the Council of Citizens Against Government Waste (CCAGW) is not against this bill. Nor are we for it. What we have always been in favor of is an honest debate on this legislation and we are pleased you are providing a forum for such a discussion.
Hopefully, your subcommittee will be able to discern whether H.R. 1598 will truly provide an open and non-political way to determine if seven 'pipeline' drugs received fair treatment during the drafting and implementation of Hatch-Waxman that decided their effective patent life.
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While brand-name drugs deserve a decent return on their research and investment, and the pipeline chugs are a unique circumstance, generic drugs must be allowed to come to the marketplace in a timely manner to provide competition, lower prices and more choices to consumers. This legislation should be limited to the pipeline drugs and not set a precedent that will provide a vehicle for brand-name companies to use this procedure to extend patent life and avoid solving the real problem—a clinical trial process that is still too bureaucratic and too long.
That expresses precisely the result which I hope this process will produce. Again, I thank you, Mr. Chairman, and I look forward to the testimony.
| Citizens Against Government Waste, |
| Washington, DC, June 30, 1999. |
Hon. WILLIAM DELAHUNT,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.
DEAR REPRESENTATIVE DELAHUNT: Tomorrow your subcommittee will have a hearing on H.R. 1598, ''The Patent Fairness Act of 1999.'' Contrary to some reports, the Council for Citizens Against Government Waste (CCAGW) is not against this bill. Nor or we for it. What we have always been in favor of is an honest debate on this legislation and we are pleased you are providing a forum for such a discussion.
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Hopefully, your subcommittee will be able to discern whether H.R. 1598 will truly provide an open and non-political way to determine if seven ''pipeline'' drugs received fair treatment during the drafting and implementation of Hatch-Waxman that decided their effective patent life.
While brand-name drugs deserve a decent return on their research and investment, and the pipeline drugs are a unique circumstance, generic drugs must be allowed to come to the marketplace in a timely manner to provide competition, lower prices and more choices to consumers. This legislation should be limited to the pipeline drugs and not set a precedent that will provide a vehicle for brand-name companies to use this procedure to extend patent life and avoid solving the real problem—a clinical trial process that is still too bureaucratic and too long.
We look forward to the hearing, and expressing our further opinion of this legislation in the future.
Sincerely,
PREPARED STATEMENT OF HON. KEN CALVERT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Chairman: I am pleased to address the Subcommittee on its deliberations on H.R. 1598, ''The Patent Fairness Act of 1999.'' 1 believe it is time to resolve this issue once and for all, and it is my sincere hope that the ultimate public policy that is pursued by the Subcommittee will reflect the deep concerns held by American consumers on patent extensions.
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Let me first say that I believe strongly in the philosophical underpinnings of the U.S. patent law that ensures appropriate incentives exist for innovators to develop new and exciting products and technologies for the benefit of consumers. In the pharmaceutical arena, the respect for patents is the centerpiece for preserving the incentives needed for new drug research.
You do not have to look very far to see the incredible benefits that have come from innovation in the drug industry: reduced pain and suffering of patients; increased mobility of patients otherwise hampered by injuries and age; drug therapies that are real alternatives to invasive surgery that often requires recovery time in a hospital and a diminishment in the quality of life; and therapies that not only extend life, but also improve the quality of lives of patients.
I also strongly support the generic drug industry once the underlying patent has expired. Consumers are supposed to be the primary beneficiaries of a patent expiration, but too often we get bogged down in the debate between what is fair to the companies involved rather than what is fair and equitable for consumers. In essence the patent protected price is a ''research tax'' on consumers, and the expiration of the patent is an automatic ''sunsetting'' of that tax.
In 1984, the Congress enacted the Drug Price Competition and Patent Term Restoration Act, often referred to as the Waxman-Hatch Act. This law attempted to balance the need to preserve incentives for funding research and development of new breakthrough drug therapies, while ensuring that consumers would reap the benefits of a price competitive prescription drug marketplace.
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The Waxman-Hatch Act was not crafted easily. In fact, the brand name companies and the generic drug companies vehemently opposed it for a variety of reasons. It only became law because the pharmaceutical manufacturers responded to the bold leadership of Congressman Waxman and Senator Hatch. The brand industry argued they needed a guarantee period of time for each drug approved by FDA to essentially ''amortize'' the cost of research and development of a new chemical entity. The generic industry sought to have the ability to use the patented chemical compound for the noncommercial use in order to prepare and submit an Abbreviated New Drug Application New Drug Application (ANDA) to the U.S. Food and Drug Administration, theoretically so that the ANDA could be approved for marketing on the day of the underlying patent expiration.
The Waxman-Hatch compromise was then and remains today a complex and often difficult to understand piece of legislation. Yet, the basic principles in this law are relatively simple. For example, H.R. 1598 essentially seeks to restore additional patent time to a class of drugs know as ''pipeline drugs'' that were in the final stages of review at the FDA when the Waxman-Hatch law was enacted. These pipeline drugs are those drugs for which a patent had been issued and that were under review by the FDA before the enactment of the Waxman-Hatch Act on September 24, 1984.
The Congress recognized that these drugs, which comprise the eight drugs now seeking relief from the Subcommittee today, were entitled to a two year patent term extension by virtue of their status at the time of the enactment of the legislation. This was a deal that each of the impacted companies agreed to in the specific negotiations and it paved the way for final passage of what is now recognized as the landmark Waxman-Hatch legislation.
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Today, the manufacturers of these pipeline drugs are before the Congress asking that the deal they made fifteen years ago be undone, and that they receive an additional three years of market exclusivity. They base this argument on the premise that Waxman-Hatch allowed for another, separate category of drugs, to receive a total of five years of patent extensions. The basis for the five years extension was distinctly different than pipeline drugs, and it would be unfair to consumers to now allow these companies to undo this negotiated and agreed upon compromise that has served us so well since its enactment.
Beyond the details of HR 1598, 1 believe that we have a more fundamental challenge as public policy makers than simply evaluating the merit of these petitions for patent extensions by brand companies. As I have reviewed the history of these kinds of issues, it strikes me that the battle lines always seem to be drawn between the competing business interests of the brand and generic industries. Appropriate considerations should be given to these competing interests. However, we should never forget the consumers who ultimately bear the brunt of any public policy decisions. In this case, it will be our nation's most vulnerable citizens.
I am very proud to join with my colleague, Representative Alan B. Mollohan of West Virginia, as a Co-Chair of the newly organized Generic Drug Equity Caucus. Our mission statement is set forth in the following three points:
To protect the right of consumers to obtain more affordable generic pharmaceuticals as soon as the original patents for brand pharmaceuticals expire;
To increase pharmaceutical competition by removing impediments in the marketplace that block consumer access to generic drugs;
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To promote the use of generics as one of the most effective means of reducing rising pharmaceutical and health care costs.
The Caucus is intended to be a clearing house for information on how public policy could best serve the needs of consumers in providing them with timely access to safe, effective and affordable generic drugs. It hopefully will provide consumers with a place at the public policy table when deliberations take place on these issues. The caucus will also hold forums in an effort to make Congress aware of the public policy options that would effectively balance the interests of the pharmaceutical industry, taxpayers and consumers to encourage a competitive marketplace where consumer choice and competitive pricing are protected.
Mr. Chairman, I am absolutely committed to build this caucus into a valuable resource for Members of this Committee, as well as the entire Congress. I hope we can provide needed input from a consumer perspective on these often difficult and complex pharmaceutical issues. In doing so, America's consumer will become the beneficiaries of reasoned and well developed public policies that best protect their economic and physical health.
Thank you.
| Schering-Plough Research Institute, |
| Kenilworth, NJ, July 9, 1999. |
Hon. HOWARD COBLE, Chairman,
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Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.
DEAR MR. CHAIRMAN: I wanted to thank you for having given me the opportunity to testify on behalf of Schering-Plough Corporation in support of H.R. 1598.
At last week's hearing before the Subcommittee on Courts and Intellectual Property, I listened carefully to the testimony delivered by Mr. Waxman, Mr. Berry, Mr. Downey and others. I feel it is important to provide clarification to some of the points made in their testimony.
Mr. Waxman stated that the prices of best-selling drugs like Claritin have increased 10 to 20 percent in the past two years. In fact, the price of Claritin has increased by an average of 3% in each of the last three years. This is reflective of the extremely competitive antihistamine market.
Mr. Berry compared the prices of a bottle of Claritin in the United States with those charged in Canada to suggest that the price paid in the U.S. is not justified. Yet international comparisons of any type of good or service will yield price differences. In Canada, Claritin competes in an over-the-counter market, an undifferentiated market where a physician's decision is not required. In addition, Canada's federal government exerts price controls on medicines. It should also be noted that Claritin was approved in approximately two years in Canada, with the Canadian approval coming almost 5 years before the product's approval in the United States.
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Mr. Berry also indicated that the delay in Claritin's approval was caused by Schering-Plough's actions during the application process. He stated that Schering changed its mind in deciding to market a tablet rather than a capsule even though Schering markets a capsule in several other countries. I want to re-emphasize that Schering acted diligently throughout the application process and did not change its mind on dosage forms. Schering was always going to market a tablet. To be clear, in contrast to the information conveyed by other witnesses, we do not nor have we ever marketed a capsule in any other country. We market the tablet worldwide.
Mr. Downey stated that Claritin received two patent extensions and as a result was guaranteed 21 years of patent life. In fact, even with all extensions Claritin's effective patent life is a little over 9 years. Claritin's patent was issued in 1981 but because of regulatory review it took almost twelve years, until 1993, for Claritin to be marketed in the United States.
I hope this will clarify the record. Thank you again for giving me the opportunity to testify.
Sincerely,
| Jonathan Spicehandler, M.D. |
| AAC Consulting Group, |
| Bethesda, MD, July 8, 1999. |
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
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House of Representatives, Washington, DC.
DEAR MR. CHAIRMAN: Thank you for the opportunity of testifying before the subcommittee last Thursday in support of HR 1598. On reflecting on the testimony I provided, I would request that I be permitted to supplement my testimony with written testimony I provided the subcommittee last year at a May 21st hearing on patent and trademark issues. I have enclosed that testimony with this letter.
I have also had an opportunity to check further into a question posed to me by Representative Cannon during last week's hearing. Mr. Cannon asked me what the average length of time was for an FDA approval of a new drug application in 1984. 1 responded from memory, but the precise answer is 2.25 years.
Sincerely,
PREPARED STATEMENT OF GERALD F. MEYER
Good afternoon Mr. Chairman. My name is Gerald F. Meyer, and I appreciate this opportunity to testify today concerning the Food and Drug Administration's process for reviewing and approving new drug applications (NDAs). From 1987 through September of 1993, I served as Deputy Director of FDA's Center for Drug Evaluation and Research, the agency's operating component responsible for NDA review and approval. From 1993 through April of 1994, I was Acting Director of the Center. In total, I spent 22 years in senior positions within FDA I currently serve as a consultant to firms that are regulated by the FDA, but I would emphasize that I am not here today on behalf of any firm, group of firms, or industry association, and I am not being paid by anyone in any way for my testimony.
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Prior to enactment of the Prescription Drug User Fee Act of 1992 (PDUFA), FDA faced enormous difficulties in reviewing new drugs because of a chronic lack of adequate funding and resources. Talented and dedicated physicians, statisticians, chemists, and many other scientists and specialists employed by the FDA devote their professional lives to the vital process of reviewing and approving new drugs. In the late 1980s and early 1990s, however, the agency simply could not keep up with the number of NDAs being submitted by the pharmaceutical industry.
Review and approval times inevitably increased. By 1992, the median review time was a bit more than 22 months for NDAs covering new molecular entities and approximately 26 months for all NDAs.
Many causes have been suggested for these delays. In my opinion, the principal and overriding reason was quite simply the lack of sufficient staff as a consequence of limited available funding. This view is borne out by experience and PDUFA, which has infused hundreds of millions of dollars from industry user fees into the drug approval process. By 1997, the median review time had dropped to just over 12 months, cutting the time essentially in half from the last year before user fees. In recognition of the agency's accomplishments under PDUFA, Congress reauthorized the user fee program last year as part of the Food and Drug Administration Modernization Act of 1997.
Going back to the era before user fees, I can assure you that FDA did everything in its power to review applications efficiently and in a manner designed to promote the public health. Toward that end, we prioritized the NDA review process to ensure that those drugs representing the greatest potential benefit would be considered first. Thus, for example, drugs for life-threatening diseases without current adequate therapies would be given a higher priority, and more rapid attention, than other drugs. This is not to say that other drugs are not important to the public health. They are. But in an era of limited resources, priorities had to be established and that was how we made choices. Thus, it happened that some drug applications took longer than others did, and some took several years—while available agency reviewers had to focus their attention on higher-priority products.
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Even under PDUFA, different priorities have been established based on similar criteria. Priority drugs are targeted for review within six months. Others are reviewed within 10 to 12 months. Today, of course, the non-priority drugs receive much quicker review and approval than they did before PDUFA, faster even than priority drugs used to receive.
I hope that this short summary is useful to the subcommittee in your consideration of how to provide opportunities to fairly restore effective patent lives for those drugs that experienced delays due primarily to the limited and inadequate funding of the FDA review process before 1992.
| SmithKline Beecham, |
| Washington, DC, June 29, 1999. |
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.
DEAR CHAIRMAN COBLE: On behalf of SmithKline Beecham we respectfully request that the attached statement be included in the record of your July 1, 1999 hearing on H.R. 1598. the Patent Fairness Act of 1999. We strongly support this legislation and thank you and your colleagues for your consideration of the legislation and our views.
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incerely,
| Patrick M. McLain, Vice President, |
| Federal Government Affairs. |
cc: The Honorable Howard Berman, Ranking Democrat
PREPARED STATEMENT OF SMITHKLINE BEECHAM
SmithKline Beecham urges the Subcommittee to give favorable consideration to H.R. 1598, the Patent Fairness Act of 1999. Enactment of the legislation will establish a fair, open and independent process that may correct an unforeseen inequity that was created with the 1984 passage of the Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Act). The Hatch-Waxman Act established a process for the regulatory review of generic drugs and for what was then thought to be a fair restoration of patent term lost by innovator pharmaceuticals during the FDA regulatory review process. For products that were filed for approval after the date of enactment, Hatch-Waxman provided for full patent term restoration of time spent during the New Drug Application review process and one-half of time spent during clinical development—up to a maximum of five years, subject to a maximum patent term of 14 years.
With regard to those drugs that had already entered the regulatory process at the time of enactment (''pipeline drugs''), Congress understandably envisioned that those drugs would be approved soon and would not need five years of restoration. Consequently, Congress limited the restoration of these pipeline drugs to two years. As Congress envisioned, many products were approved soon and received fair restoration of their patent term. Unfortunately, and unpredictably, several products experienced inordinate delays and were therefore deprived of the fair and equitable restoration of their patent life lost through the regulatory process. Such delays were certainly not contemplated by Congress.
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One such product is Relafen, developed, manufactured and distributed by SmithKline Beecham. Relafen is a nonsteriodal anti-inflammatory drug (NSAID) that is approved for acute and chronic treatment of signs and symptoms of osteoarthritis and rheumatoid arthritis. Relafen was patented in December of 1983. The Investigational New Drug exemption (IND) was submitted to the FDA on April 30, 1980 and the New Drug Application (NDA) was filed on February 10, 1986. However, the FDA did not approve Relafen until December 24, 1991. Hence, a total of 11 years elapsed from the submission of the IND application and nearly six years elapsed from the NDA filing until final FDA approval.
SmithKline Beecham's patent on Relafen will expire on December 13, 2002. This includes the two year extension received. under Hatch-Waxman as a pipeline drug. As the chronology makes clear, the useful patent life for Relafen is only 11 years—far less than Congress intended as fair, and far less than that enjoyed by other non pharmaceutical products. Had SmithKline Beecham filed its IND for Relafen after the enactment of the Hatch-Waxman Act it would have received an additional, and we think fair, three years of protection.
The Patent Fairness Act of 1999 is a responsive approach to address the unintended and sometimes unfair consequences associated with the Hatch-Waxman treatment of pipeline drugs like Relafen. It does so by establishing a fair, open and equitable process, within the Patent and Trademark Office, to review claims for patent term restoration for pipeline drugs to offset lengthy FDA review times. The legislation provides reasonable and appropriate standards, allows for the input of all interested persons, provides for judicial review by any party and establishes a compensation system for potentially harmed generic drug manufacturers.
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We think the record clearly establishes that certain drugs experienced unfair patent restoration consideration through the Hatch-Waxman Act. The Patent Fairness Act of 1999 allows for the expert consideration of those claims in an independent forum, removed from political consideration and open to all. We believe this approach is a responsible way to address an existing inequity and we urge its favorable consideration by the Subcommittee.
(Footnote 1 return)
Peter Barton Hutt & Richard A. Merrill, Food and Drug Law: Cases and Materials (1st ed. 1980 & 2d ed. 1991).
(Footnote 2 return)
See, e.g., my testimony on behalf of PMA in ''Patent Term Extension and Pharmaceutical Innovation,'' Hearing before the Subcommittee on Investigations and Oversight of the Committee on Science and Technology, U.S. House of Representatives, 97th Cong., 2d Sess. 123 (1982).
(Footnote 3 return)
Peter Barton Hutt, The Importance of Patent Term Restoration to Pharmaceutical Innovation, 1 Health Affairs, No. 2, at 6 (Spring 1982).
(Footnote 4 return)
Ellen J. Flannery & Peter Barton Hutt, Balancing Competition and Patent Protection in the Drug Industry: The Drug Price Competition and Patent Term Restoration Act of 1984, 40 Food Drug Cosmetic Law Journal, No. 3, at 269 (July 1985).
(Footnote 5 return)
''Lopid Patent Term Restoration and Fairness Act of 1987,'' Hearing before the Subcommittee on Courts, Civil Liberties, and the Administration of Justice of the Committee on the Judiciary, House of Representatives, 100th Cong. 1st Sess. 41, 72 (1987), 101 Stat. 1107, 1569 (August 23, 1988); ''Patent Extension Hearing,'' Hearing before the Subcommittee on Patents, Copyrights and Trademarks of the Committee on the Judiciary, United States Senate, 102d Cong., 1st Sess. 44 (1991), 107 Stat. 2040 (December 3, 1993).
(Footnote 6 return)
76 Stat. 780 (1962).
(Footnote 7 return)
98 Stat. 1585 (1984).
(Footnote 8 return)
FDA, New Drug Evaluation Statistical Report 53 (October 1985) (FDA mean approval time of 26.9 months for new molecular entities approved in 1984).
(Footnote 9 return)
106 Stat. 4491 (1992). The 1992 Act, which was limited to five years, was reauthorized for an additional five years in the Food and Drug Administration Modernization Act of 1997, 111 Stat. 2296, 2298 (1997).
(Footnote 10 return)
''Patent Extension Hearing,'' note 5 supra, at 218.
(Footnote 11 return)
The eight drugs are Claritin, Eulexin, Nimtop, Relafen, Dermatop, Penetrex, Cardiogen-82, and Daypro.
(Footnote 12 return)
Congressional Record, H4220, June 14, 1999.
(Footnote 13 return)
How Increased Competition From Generic Drugs Has Affected Prices And Returns In The Pharmaceutical Industry, Congressional Budget Office, at 28 (July 1998).
(Footnote 14 return)
Id. at 32.
(Footnote 15 return)
The Pink Sheet, articles dated October 31, 1986, November 9, 1987, November 27, 1989, June 24, 1991, and April 19, 1993.
(Footnote 16 return)
Testimony of Peter Barton Hutt, Esq., before the Subcommittee on Courts and Intellectual Property of the Committee on the Judiciary, U.S. House of Representatives, on the Impact of Regulatory Delay on Patents, at 8 (May 21, 1998).
(Footnote 17 return)
See Pub. L. No. 98–417, 98 Stat. 1585, codified in scattered sections of 15 U.S.C., 21 U.S.C., 28 U.S.C., and 35 U.S.C. (Sept. 24, 1984).
(Footnote 18 return)
FDA, ''New Drug Evaluation Statistical Report'' 53 (Oct. 1985) (FDA mean approval time of 26.9 months for new molecular entities in 1984).
(Footnote 19 return)
Public Citizen fact sheet, ''Stop Claritin's Billion Dollar Patent Extension Grab,'' May 24, 1999, p. 3.
(Footnote 20 return)
Public Citizen fact sheet, ''Claritin Patent Extension Bill: Don't Be Fooled by the R&D Scare Card,'' June 21, 1999.
(Footnote 21 return)
''Drug Dependency: U.S. Has Developed an Expensive Habit,'' Wall Street Journal (Nov. 16, 1998).
(Footnote 22 return)
Houlihan Lokey Howard & Zukin, Expert Analysis of Profitability (Feb. 1998).
(Footnote 23 return)
Amgen received FDA approval in February 1991 for its second product, a Granulocyte-Colony Stimulating Factor,, NEUPOGEN.
(Footnote 24 return)
In Re Durden, 763 F.2d 1406 (Fed. Cir., 1985.)
(Footnote 25 return)
Roche Products, Inc. v. Bolar Pharmaceutical Co., Inc., 733 F.2d 858 (Fed. Cir.), cert. denied, 469 U.S. 856 (1984).
(Footnote 26 return)
35 U.S.C. §271(e)(2) and (4).
(Footnote 27 return)
35 U.S.C. §271(3)(1)(1982 ed., Supp. II)(emphasis supplied). The Generic Animal Drug and Patent Term Restoration Act of 1988 amended this provision to make it applicable to new animal drugs and veterinary biological products that are not produced by biotechnology.
(Footnote 28 return)
See, e.g., Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661 (1990); NeoRx Corp. v. Immunomedics, Inc., 877 F. Supp. 202 (D.N.J., 1994). In Lilly v. Medtronic, the Supreme Court stated that ''[n]o interpretation we can imagine can transform §271(e)(1) into an elegant piece of statutory draftsmanship''. 496 U.S. at 679.
(Footnote 29 return)
If the Amgen v. TKT/Hoechst case involved research and development activities in support of a generic drug application, Amgen would be entitled to invoke a 30-month stay of FDA approval until patent infringement issues are resolved. This is because corollary Waxman-Hatch provisions—authorize such a stay in cases in which the generic applicant denies patent infringement and intends to commercialize the product during the pioneer's patent term. See Section 505(j)(4)(B)(iii) of the Federal Food, Drug and Cosmetic Act. These provisions are not available in the case of the alleged infringer's intent to file a full NDA or BLA, however. Thus, the Amgen v. TKT/Hoechst litigation demonstrates the absurdity of applying the patent infringement exception to NDAs or BLAs—the competitor can rely on an exemption intended only for companies intending to file an abbreviated new drug application, yet it is not subject to procedural guarantees designed to resolve patent litigation prior to approval of the second application.
(Footnote 30 return)
35 U.S.C. §271(3)(1) (1982 ed., Supp. II). The Generic Animal Drug and Patent Term Restoration Act of 1988 amended this provision to make it applicable to new animal drugs and veterinary biological products that are not produced by biotechnology.
(Footnote 31 return)
The authority to file an ANDA (section 5050) of the Federal Food, Drug, and Cosmetic Act) was included in the 1984 legislation that enacted section 271(e).
(Footnote 32 return)
House Report 98–857, Part I at 15 (June 21, 1984) (emphasis supplied).
(Footnote 33 return)
House Report 98–857, Part 2, at 5 (August 1, 1984) (emphasis supplied).
(Footnote 34 return)
H. 8710, Congressional Record, August 8, 1984 (remarks of Rep. DeWine).
(Footnote 35 return)
496 U.S. 661 (1990).
(Footnote 36 return)
See, e.g., Amgen, Inc. v. Chugai Pharmaceutical Co. Ltd., 13 U.S.P.Q.2d 1737, 1780 (erythropoietin); NeoRX Corp. v. Immunomedics, Inc., 877 F. Supp. 202 (D.N.J. 1994) (processes and resultant products for labeling proteins, such as antibodies, with radioactive metal isotopes to detect and treat cancer); Elan Transdermal Ltd. v. Cygmus Therapeutic Systems, 24 U.S.P.Q.2d 1926 (N.D. Cal. 1992) (transdermal delivery of nicotine).
(Footnote 37 return)
Examples of judicial reluctance to devote court resources to the adjudication of patent disputes with respect to products that are still in a developmental stage include Electronics Pacing Systems, Inc. v Ventritex, 982 F.2d 1520, 1527 (Fed. Cir. 1992); NeoRX Corp. v. Immunomedics, Inc., 877 F. Supp. 202, 214 (D.N.J. 1994); Upjohn Co. v. Monsanto Co., 1192 U.S. DIST. Lexis 14917 (*11); and Amgen Inc. v. Hoechst Marion Roussel, Inc., 3 Fed. Supp.2d 104, 112 (D. Mass. 1998).
(Footnote 38 return)
3 F. Supp.2d at 112.