Copyright 1999 Federal News Service, Inc.
Federal News Service
JULY 1, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
3148 words
HEADLINE: PREPARED STATEMENT OF
MR.
BRUCE L. DOWNEY
CHAIRMAN
BARR LABORATORIES, INC.
BEFORE THE
HOUSE JUDICIARY COMMITTEE
SUBCOMMITTEE ON COURTS AND
INTELLECTUAL PROPERTY
SUBJECT - H.R. 1598, "THE PATENT FAIRNESS ACT OF 1999"
BODY:
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 Genetic
Pharmaceutical Industry Association and the National Pharmaceutical Alliance,
two of the three largest genetic 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 genetic 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:
- 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.A
fundamental mason 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.
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 3070% 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.
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 HatchWaxman, 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.
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 ScheringPlough 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.
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.
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.
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.
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.
END
LOAD-DATE: July 2, 1999 
