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Recent Developments Which May Impact Consumer Access to, and Demand for, Pharmaceuticals
Subcommittee on Health
Mr. Bruce Downey
Mr. Chairman, members of the Sub-committee, 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 breast cancer to heart disease to depression. Barr Laboratories is a member of the Generic Pharmaceutical Association. Today, I am speaking on behalf of the GPHA and
its more than 140 member companies, which manufacture nearly all generic
pharmaceuticals distributed in the United States I want to thank Chairman Bilirakis, Chairman Tauzin, Congressman Dingell and Congressman Brown for focusing on an issue that has such significance for our industry and for the American consumer. This is the first House-sponsored hearing in some time that has looked specifically at the value and contribution of generic pharmaceuticals to consumers, and how our industry makes a significant contribution to affordable healthcare. Often, when industries come to Congress, they bring an agenda that would impose significant costs on American taxpayers. The generic industry comes before you today to discuss ways to create a direct and immediate benefit for consumers by reducing health care costs by billions of dollars. A strong generic industry will allow the government to do much more for all Americans -- particularly the elderly, under-insured and uninsured -- for much less. The opportunity to create immediate consumer benefits, at no additional cost, deserves serious consideration. As I intend to demonstrate in my testimony, the generic pharmaceutical industry has saved, and continues to save, consumers billions of dollars a year in prescription costs. The problem is, however, that the legislative balance that created significant annual savings for consumers has gradually been eroded. In just the past week, the value of America's pharmaceutical industry has been in the spotlight, as articles in newspapers and magazines across the nation focused on the 20th anniversary of the AIDS crisis. Universally, these stories addressed two issues: the extraordinary power of pharmaceutical research and development; and the extraordinary financial burden that has been created by these life-saving pharmaceutical therapies. I want to stress that the generic pharmaceutical industry recognizes the risks in the investment made by the brand pharmaceutical industry in new pharmaceutical therapies. We also recognize that the brand industry deserves to receive incentives for its innovation. In addition, the health of the generic industry is tied substantially to the health of the brand industry and our future is directly linked to the ability of the brand industry to innovate and to bring new therapies to market. As always, however, in the nearly 20-year history of the generic pharmaceutical industry, the challenge continues to be rewarding innovation but assuring competition at the end of brand exclusivity. Both the House and Senate, through recently introduced legislation, have taken the first steps in an effort to restore that balance. We welcome these initial first steps, but we respectfully call upon Congress to do much more to preserve the consumer savings that result from a healthy brand and generic pharmaceutical industry. Since its inception in 1984, with the
implementation of the Drug Price Competition and Patent Term Restoration Act According to the Congressional Budget Office Report of 1998, generic pharmaceutical competition returns a minimum of $8-10 billion a year in savings into the pockets of American consumers. With pharmaceutical sales in the United States in excess of $138 billion in the past year, sales of generic medicines accounted for less than 10% of the total dollars, but accounted for nearly one out of every two prescriptions filled. In fact, when you rank the top five pharmaceutical companies on the basis of prescriptions dispensed, three of the top five are generic pharmaceutical companies: Watson, Mylan and Teva, all members of our association. Interestingly, this savings has not come at the expense of innovation. According to the same CBO Report, "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." The evidence is compelling. The underlying premise of the Hatch-Waxman Act works - consumers benefit if a proper balance is maintained between rewarding innovation and guaranteeing competition. Unfortunately, the delicate balance struck by Congress in 1984 has gradually grown lopsided in favor of the brand pharmaceutical industry, hostile to the generic industry, and as a direct result, become a threat to the expansion of consumer savings. The reason is simple: the brand industry discovered years ago that competition is good for consumers but bad for their bottom line. When Hatch-Waxman was implemented, the assumption was that the brand products would lose about 30% of their market, but would recover this loss through price increases. However, the introduction of a generic product often results in such a significant market share loss -- as much as 80-90% -- that the brand company is not able to recover its loss. After starting their own generic businesses, and implementing other strategies, it became clear to brand companies that the only way to succeed was to delay competition for as long as possible. Additionally, laboring under the burden of significant expectations from the financial markets to maintain strong profits, brand companies have increasingly found that they are unable to generate a consistent pipeline of new products to meet profit and growth expectations. The investment in new product innovation continues, but the value of extending the market exclusivity of existing products is increasingly viewed as a prudent financial investment. The results of this investment in delaying competition have been significant. Delays in the introduction of generic competition, combined with the nearly $3 billion spent annually on direct-to-consumer marketing for new products that often displace generic sales, have resulted in a stagnation of the growth of generic substitution. Nearly two decades after Hatch-Waxman, generic substitution rates hover in the low 40% area, rather than the 50-65% that was predicted by many experts just a few years ago. Since 1984, no less than a half dozen different acts of Congress have delayed the introduction of generic competition for specific products. According to a National Institute for Health Care Management (NIHCM) Foundation study issued earlier this year, the slow erosion of Hatch-Waxman through legislation, and the increasing exploitation of legal and regulatory loopholes in the Act, has extended anticipated market exclusivity from approximately 12 years to more than 18 years for some drug products. The cumulative effect of these actions has resulted in extending product monopolies by almost 50%. With national prescription drug spending continuing to increase at an alarming rate, it is incumbent upon Congress to re-set the 1984 balance. In other words, its time to put the health of Americans first, with the challenge of re-achieving the optimal balance of rewarding innovation and assuring public access of affordable medicines immediately at the end of brand exclusivity. Over the past decade, as it has Certainly, the stakes in this game are high. Products representing annual sales of more than $37 billion are due to lose patent protection in the next five years. Many of these are the blockbuster names that we all know. To preserve their monopolies, brand companies have turned to such tactics as patent evergreening, citizen petitions, application of the automatic 30-month stay in patent litigation, application for pediatric exclusivity, and other techniques that delay generic approval or prevent timely introduction of generic competitors. I would like to cite two recent examples of the techniques used to "game the system." The cancer agent Taxol enjoyed nearly 8 years of
market exclusivity. But tactics employed by the brand manufacturer, Bristol- Taxol, an anti-cancer agent, was originally discovered and developed by federal researchers over a thirty-year period. Although BMS testified before Congress in 1991 that the compound was neither patented nor patentable and, therefore, BMS would not have any intellectual property rights, BMS received several patents on certain methods of administration and stabilizing the compound following FDA product approval. Another egregious fact is that prior to the expiration of five years of product exclusivity granted under Hatch-Waxman, BMS unsuccessfully appealed to Congress for additional market protection. In a complex series of legal maneuvers involving patent listings in the Orange Book, that followed, BMS was able to delay generic approval. Part of these delays resulted from the 30-month stay provision of Hatch-Waxman that automatically prevents approval of a generic product for this period, while patent litigation is underway. These tactics, assuming a modest generic penetration of only 50%, at a 50% price reduction, cost consumers more than $500 million. Another recent example is the anti-anxiety drug,
Buspar, which had annual sales of $700 million. The product was in its 14th year
of market exclusivity, when the brand company, again Bristol- The last-minute patent sought to protect a metabolite created by digestion of the drug in the human body. Again, because of the patent filing, the company was able to invoke the 30-month stay of approval of a generic competitor. Although this listing was ultimately overturned, these tactics, assuming a modest generic penetration of only 50%, at a 50% price reduction, cost consumers more than $57 million. Both of these examples highlight two issues that Congress must address. First, patent law allows the listing of any number of patents on drug products, making it impossible for generic competition to begin on a date certain, as long as the brand company can find some aspect of the product that can be patented. This issue is an area where Congress could make significant and immediate changes, simply by conforming U.S. patent law to that practiced throughout the world. The second issue is that of the 30-month stay. Delay equates to profit preservation, so the brand company has much to gain by initiating patent litigation against the generic competitor. They face no financial or other penalty if the case is ultimately found to be groundless. But they do get an automatic extension of their exclusivity while the case is in review. The burden rests entirely on the generic competitor. Congress could address this deficiency in Hatch-Waxman by requiring the brand holder to post a bond as part of any patent litigation. This would place them at risk for taking actions that have no other purpose than to delay competition. These are only two examples of a systematic process of investing in legal and regulatory innovation to prevent generic competition. These types of abuses need to be curbed. How can we work together to fix this problem, and increase both access and cost savings? I believe that the answer rests in the combination of encouraging the increased usage of generic medicines today and strengthening Hatch-Waxman to restore the balance first established in 1984. Each of these steps can generate billions of dollars in savings for America's health care system, while increasing access to medicines that can improve and prolong life. I would like to briefly address both points. First, I would like to address the potential and immediate savings that can result from increasing the utilization of generic medicines. The price difference between an equivalent generic product and its brand equivalent can be as much as 70-80%. A decade ago, the price differential between a brand product and an equivalent generic product was approximately $17. Last year, that price differential had grown to approximately $46. According to a study published last September by Tim R. Covington, Executive Director of The Managed Care Institute at Samford University, "An increase of only 1% in the nation's generic prescription utilization rate (approximately 27 million scripts) would generate a payer savings of $1.3 billion each year." Action by Congress to encourage the maximum utilization of generic medicines in federal and state prescription drug programs, and to develop national educational programs that communicate the sameness, safety and savings of generic medicines would be an investment that could return significant and immediate value to taxpayers. Estimates suggests that total pharmaceutical spending in the next decade will triple to more than $330 billion by 2010. Clearly, increased utilization of generic drugs represents the only immediate, significant opportunity to put the brakes on this runaway escalation of America's pharmaceutical bill. Second, I am encouraged that Congress has begun the process of considering ways to restore the intended balance of Hatch-Waxman. While it is too early in the legislative process for the generic industry to unconditionally endorse any current proposal, we strongly support Congressional initiatives that represent meaningful and substantive reforms of Hatch-Waxman, and that restore the balance necessary to remove the barriers that delay the introduction of more affordable generic pharmaceuticals. Proposals that have been introduced on the Hill have been criticized for being too pro-generic. If that is the case, then they must also be criticized for being too pro-consumer. The facts are simple: investment by brand industry innovation in the legal and regulatory arenas can carry less risk and more reward than new product development. Working together, I am confident that our industry and members of the House of Representatives and the Senate can find ways to increase consumer savings by restoring balance to the competitive landscape. The membership of GPHA has identified a number of areas where Hatch-Waxman reform would accelerate the introduction of more affordable generic medicines. These proposals include eliminating the 30-month stay component of patent challenges, and requiring brand manufacturers to post a bond if they challenge generic product applications. We believe that these and other proposals would dramatically encourage the competition that saves consumers more than $10 billion a year in prescription drug costs. GPHA is committed to working with the Senate and the Congress to ensure that any legislative initiatives: preserve the intent of Hatch-Waxman; result in a balance between the interests of the brand and generic industries; and, create a vibrant competitive environment in which substantial pharmaceutical savings reach American consumers. In summary, the brand and generic industry agree that affordable medicines are the key to longer, healthier and more productive lives. We also agree that innovation must be rewarded. But the generic pharmaceutical industry is unwavering in its belief that after the expiration of a fair and equitable period of patent protection and market exclusivity, consumers should be allowed to enjoy the benefits that competition creates in lower costs and increased access. Let us work together with you to resolve the problems of dispensing medicines to all Americans, including the under-insured and uninsured, by promoting the increased usage of generic medicines and working to ensure the timely introduction of generic competition. I am happy to answer any questions you might have.
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