Federal News Service Transcript - Legislative and Regulatory Responses to the FTC Study on Barriers to Entry in the Pharmaceutical Marketplace

Federal News Service

June 17, 2003 Tuesday

SECTION: CAPITOL HILL HEARING

HEADLINE: HEARING OF THE SENATE JUDICIARY COMMITTEE
 
SUBJECT: LEGISLATIVE AND REGULATORY RESPONSES TO THE FTC STUDY ON BARRIERS TO ENTRY IN THE PHARMACEUTICAL MARKETPLACE
 
CHAIRED BY: SENATOR ORRIN G. HATCH (R-UT)
 
LOCATION: 226 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

SEN. CHARLES SCHUMER (D-NY): Well, thank you, Mr. Chairman. And I first want to thank you not only for holding this hearing, but for your leadership on this issue. I said this a while back, that I think Hatch-Waxman was one of the great pro-consumer pieces of legislation of the last 25 years, and your authorship of it is a very important feather in your cap that I hope you wear proudly, and I'm glad to see that you're still involved and interested in this issue, which I know you are --

SEN. HATCH: Thank you so much. I appreciate that.

SEN. SCHUMER: -- from the last few years that we have been involved. I also want to thank Chairman Leahy who has been involved and, together with you, Mr. Chairman, worked on the Drug Competition Act which the Senate passed last year. And Senator Leahy wanted to be here today but couldn't, and I would just ask unanimous consent that his opening statement be put in the record.

SEN. HATCH: Without objection. And we'll put any statements in the record.

SEN. SCHUMER: Right. Thank you, Mr. Chairman. I'd also like to thank Senator Gregg for his leadership in approaching me and bringing together Senators McCain and Kennedy, with whom I've worked on this issue in the past few years. And together Judd and I, along with the others, have crafted a strong bipartisan bill which is now poised to pass the Senate, and I think has a real chance of making it through the House as well. And the bill, which passed out of committee unanimously last week, achieves the original—the goals of the original Schumer-McCain bill of closing loopholes in the law, which I know we're hearing about from our witnesses today. But it does so by modifying certain provisions to address the concerns that kept its critics from supporting it last year, including my friend Senator Hatch, who was always given me some good advice on how to deal with these kinds of issues.

Now, before I get into the discussion of the bill, I would like to talk about the issue and how far we've come in bringing these abuses to light over the last few years. Two years ago Chairman Hatch called a hearing on this very same issue. At the time we heard from the FDA, the FTC and witnesses representing consumers and states, who all shared their concern about ways in which the pharmaceutical industry was taking advantage of one of the most pro-consumer laws passed in decades, Hatch-Waxman.

And the compromise that Senator Hatch and Congressman Waxman crafted was carefully done, intended to strike a balance and help save consumers billions of dollars, while rewarding brand name companies for their innovations. For years the law worked to do exactly that. But as the profits became higher and, frankly, it seemed to me the pharmaceutical industry—the brand name industry had a large number of blockbuster drugs, that were about to expire and with their worry that they couldn't replace them with other drugs that were just as profitable, they began to find ways—instead of finding innovating new drugs, innovating new patents. And, you know, this is how America works: find a good lawyer and they'll find a good loophole.

And that's what happened. Companies began to do that. And even, to boot, some of the generic companies were hardly blameless. They would make deals with the brand name company and say, "Give us some money and we'll keep this drug off the market." So Congress began to look at all of these abuses two years ago with Chairman Hatch's hearing. Now, what's happened since then? First, the evidence mounted. In three additional hearings last year, Congress heard—both this committee, the Commerce Committee, the Health Committee, House Energy and Commerce Committee, we heard how double digit growth in drug costs and anticompetitive activity in the pharmaceutical industry has thrown not only citizens but corporations, state Medicaid programs, insurers into a tailspin as they struggle to pay for the drugs.

Then the FTC issued a report which documented abuse of several key loopholes in the law, creating barriers to generic entry. And most significantly, the report identified eight blockbuster drugs representing billions of dollars in sales, for which the brand companies listed patents late in the process and triggered the successive 30-month stays of generic competition.

The pharmaceutical companies have argued before Congress that these patents and the delays have been legitimate. Well, we've heard from the courts on five of these products and so far in every single instance the courts have decided that these patents have been invalid or not infringed by the generic challenger. That doesn't sound too legitimate to me. O for 5 is not a great batting record.

Let me illustrate with an example. The example is Paxil. This is a $2.1 billion drug used to treat obsessive-compulsive disorder. It's been in litigation since 1998. After the lawsuit began and the first 30-month stay was triggered, the brand company GlaxoSmithKline listed nine additional patents on the drug, which ended up triggering five additional 30-month stays. Well, over the last year there have been court decisions on four of those patents. The patent which began this litigation was not found to be infringed upon by the generic, and the other three were found to be flat out invalid. But the 30-month stays are still preventing the competition, costing consumers $3 billion.

So this is a problem. It's a real problem. We've had now the state attorneys general banding together to bring multiple suits against pharmaceutical companies. They've secured hundreds of millions of dollars in damages. The administration, under the FDA, has issued new regulations. And before I get into the substance of what we're talking about here, and I appreciate the opportunity to speak at some length, Mr. Chairman, I would make a plea to the pharmaceutical industry. You make a great product. You save people's lives. This is a good thing. You deserve a rate of return that is a fine rate of return. I don't dispute that. There are some who do, I don't.

But the bottom line is by overdoing it on these patents, you're ruining your goodwill. This is not an area where we're talking about price controls. It's not even an area we're talking about where American consumers pay for the research for the whole world. You've gotten what you're supposed to get on these patents: a large amount of profitability. God bless you, you've come out with a good product. But then to come up with some of these changes and say they're perfectly legitimate and we're really just searching for better ways to serve the consumer, everyone in America knows that's bunk. And it's making it hard—I think this is one area where the pharmaceutical industry should say, "Hey, we want to work with you to keep a legitimate rate of return for wonderful drugs that save people's lives, but not abuse it because we've made so much money we have to make more money."

And that's truly a heartfelt plea. We have some good companies in New York that employ thousands of people, and they do good things. But the bottom line is don't kill the goose that laid the golden egg, because that's what's happening here. And instead of the pharmaceutical industry being held in high esteem, which it was a decade ago, you're beginning to lose it. And some of it is just because the prices are high and people don't like that. But some of it is because you're abusing certain privileges and no more—you're not doing it in any area more so, that abuse, than generic drugs. So join with us, don't fight us.

And I do want to say, Mr. Chairman, I think this bill—the proposal that Senator Gregg and I have put together is fair and balanced and, again, saying to the pharmaceutical industry I know you're not fighting us head on, but I'm going to fight weakening this bill. I'm not going to allow loopholes. I'm not going to allow lack of enforcement.

I'm not going to let someone say, because you can pluck out some lawyer somewhere who says something might be unconstitutional, to leave this bill denuded. I feel strongly—I feel very strongly about this.

So where are we now? The proposal we've put together makes it easier for less expensive generic drugs to be sold in pharmacies. It will significantly reduce overall drug spending in the U.S. by billions and yet, as Senator Gregg is always mindful, it will continue to allow innovation. It will continue to say to the industry, "Create something good and new, you're going to get an excellent rate of return on it."

So here's basically—I think you've gone over what the bill does. But basically, the bottom line—I used to call it Mitch Daniels' dream. Now maybe we'll have to call it Josh Bolton's dream. It's free market, it's pro-consumer and it doesn't cost the government a penny. In fact, it will save the government money. The bill provides the critical complement to the work the FDA has done in clarifying its regulations on patent listing, but it goes much further. And the FDA, to its credit, has said, "We can't do it all. Lots of this needs statute," when they came out with their proposed regulations, which are now in effect --

SEN. HATCH: Senator, your time is up but I know you want to—my problem is I have to be out of here at 25 after 11:00.

SEN. SCHUMER: Okay. Let me just say quickly on this chart, the FDA regulations get you up to here. We take you all the way through. And there are many other things that need to be done and the FDA regulations are not sufficient. So I'm going to ask that the rest of my statement be placed in the record, Mr. Chairman, because I know you're busy.