DRUG PATENT EXTENSIONS
WILL COST CONSUMERS $11 BILLION
SAYS PRIME INSTITUTE REPORT

For Immediate Release:

Washington, D.C., August 3, 1999 - A report issued today by the Prime Institute of the College of Pharmacy at University of Minnesota concludes that pharmaceutical patent extension legislation pending in Congress would cost consumers over $11 billion from 2002-2012. The report finds that delayed generic drug competition would extend the market monopoly of selected brand drugs at the sacrifice of lower drug costs and with minimal stimulation of research and development leading to new drug discovery.

The study by Dr. Stephen W. Schondelmeyer was released on the eve of a Senate hearing on a bill that would grant extensions of up to three years to eight drugs whose patents are due to expire by 2002. The extensions proposed under the "Drug Patent Term Restoration Review Procedure Act of 1999" (S 1172) would be in addition to previous special protections and extensions already granted to these so-called "pipeline drugs."

Pipeline drugs are drugs that received special 2-year patent term extensions as part of a compromise between the brand and generic sectors of the pharmaceutical industry. The patent extensions were legislated under the
Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman Act).

"If legislation is passed to award additional years of patent monopoly to the pipeline drugs, American consumers would experience a delay in the opportunity for savings which result from generic competition in the pharmaceutical market... Pharmaceutical firms stand to benefit from extended patent monopolies, while consumers and payers in health care will experience an increase in expenditures due to lack of competition," the report states.

Claritin^TM
Dr. Schondelmeyer's report, entitled Patent Extension of Pipeline Drugs: Impact on U.S. Health Care Expenditures, focuses primarily on Claritin, an allergy drug that generated $1.8 billion in U.S. revenues for Schering-Plough in 1998. Claritin accounts for two-thirds of the total value of the eight drugs covered by S1172 and its counterpart in the House of Representatives, the "Patent Fairness Act of 1999" (HR 1598).

Using Claritin as a case study, Dr. Schondelmeyer finds that a 3-year delay in generic competition for Claritin would cost American consumers $5.31 billion from 2002-2007, and another $2.05 billion from 2008-2012. During this ten-year period, Schering-Plough would generate an additional $9.64 billion from Claritin. Based on current R&D spending by Schering-Plough and industry trends, the report projects that only 3.6% of this windfall for Schering-Plough would be used for the discovery of new drugs.

"If the intent of this legislation is to stimulate R&D, this is very inefficient legislation because it requires a cost to the public of $9.64 billion to achieve $350 million in R&D discovery," Dr. Schondelmeyer states.

At the same time, the report points out that pharmaceutical R&D expenditures have multiplied since Hatch-Waxman was enacted. The industry's R&D expenditure rate doubled from 1984 to 1990, and doubled again from 1990 to 1998, reaching $17.2 billion. This suggests that additional patent extensions are not necessary to stimulate R&D investment. Dr. Schondelmeyer cites a Congressional Budget Office study that concluded that "reducing FDA approval times--if it is done without sacrificing safety concerns--would be much more effective in helping both the drug industry and consumers than would lengthening the patent-protection period."

Generic Competition
According to an October 1994 market analysis of generic drugs, generics enter the market at a price averaging 73%of the originator price. After one month, the generic price is typically at 67% of the originator's price and at 12 months at 55%. After two years, the average generic price falls to 39% of the originator's price.

American consumers can expect to save $7.33 billion by 2007 if generic competition for Claritin begins in 2002 when its patent expires under current law, the report states. Those savings would be reduced to $2.02 billion in the same period if generic competition is delayed until 2005, sacrificing $5.31 billion in potential consumer savings for the benefit of one company.

Since Claritin represents 66% of the market value for the eight pipeline drugs that would benefit from patent extensions, Dr. Schondelmeyer estimates that the total cost impact for consumers and taxpayers would be $11.15 billion from 2002-2012.

Proposed Medicare Prescription Drug Benefit
"The added cost of prescription medications from this proposed patent extension legislation would be borne proportionately by individuals and institutional payers for health care services including federal and state governments," the Prime Institute report notes.

The study projects that the government's total share of U.S. outpatient prescriptions, now at 20%-25% of all expenditures, will double to 45%-50% if a Medicare Rx benefit is enacted. The cost of the patent extension bill to government will be a minimum of $1.89 billion, with that figure rising to $5.0 billion if a prescription drug benefit is added to Medicare.

Testimony
Testifying for the Coalition for Affordable Pharmaceuticals before the House Subcommittee on Courts and Intellectual Property on July 1, Andrew Berdon, Vice President and General Counsel of Faulding Inc. and Purepac Pharmaceutical Company, stated: "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 HR 1598, which would grant patent extensions of up to three years to eight brand name drug products... HR 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..."

Mr. Berdon is a Board member of the National Association of Pharmaceutical Manufacturers (NAPM), which provided a research grant for the Prime Institute study.

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Editors Note: Executive Smmary of the Prime Institute report is attached. For information on this report contact NAPM

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For more information about NAPM and generic drugs, contact Robert S. Milanese or Leon Shargel at NAPM, (516) 741-3699.

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