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Recent Developments Which May Impact Consumer Access to, and Demand for, Pharmaceuticals
Subcommittee on Health
Mr. Gregory Glover M.D.
Mr. Chairman and Members of the Subcommittee: On behalf of the Pharmaceutical Research and Manufacturers of America, I am pleased to appear at this hearing today on the Hatch-Waxman Act, direct-to-consumer advertising of prescription drugs, and the switching of drugs from prescription to over-the-counter status. I am a physician and an attorney with the law firm of Ropes & Gray, specializing in intellectual-property and FDA regulatory issues. PhRMA represents the country's major research-based pharmaceutical and biotechnology companies, which are leading the way in the search for new cures and treatments that will enable patients to live longer, healthier, and more productive lives. HATCH-WAXMAN Turning first to Hatch-Waxman, PhRMA strongly believes that the U.S. pharmaceutical market is robust, competitive, and working to the benefit of consumers and patients - is working, in fact, as Congress intended when it passed the delicately-balanced Drug Price Competition and Patent Term Restoration Act of 1984 (commonly known as the Hatch-Waxman Act after its principal sponsors). We believe that advocates of change have a heavy burden to clearly show that change is needed and would not upset the careful balance achieved by Congress, as discussed immediately below. They have not met that burden. Generics Flourish On the one hand, the generic industry has flourished since the passage of the 1984 compromise law eliminated the barriers to entry and made it much easier, far less costly, and quicker for low-cost generic drug manufacturers to get their copies of innovator medicines to market following patent expiration. · Since 1984, the generic industry's share of the prescription-drug market has jumped from less than 20 percent to almost 50 percent. · Before 1984, it took three to five years for a generic copy to enter the market after the expiration of an innovator's patent. Today, generic copies often come to market as soon as the patent on an innovator product expires. And in most cases, sales of pioneer medicines drop as much as 75 percent within weeks after a generic copy enters the market. · Prior to 1984, only 35 percent of top-selling innovator medicines had generic competition after their patents expired. Today, almost all innovator medicines face such competition. Research Incentives Preserved On the other hand, the research-based pharmaceutical industry - the source of virtually all new drugs in the U.S. - was provided limited incentives for innovation under the 1984 law, which restores part of the patent life lost by pioneer medicines as a result of regulatory review by the Food and Drug Administration (FDA). The industry, spurred by accelerating scientific and technological advances, continues to increase its investment in R&D and to develop new, more advanced, and more effective medicines. · The industry's investment in pharmaceutical R&D has jumped from $3.6 billion in 1984 to more than $30 billion this year. · During the 1990s, the industry developed 370 new life-saving, cost-effective medicines - up from 239 in the previous decade. · The research-based pharmaceutical industry now has more than 1,000 new medicines in development - either in human clinical trials or at FDA awaiting approval. These include more than 400 for cancer; more than 200 to meet the special needs of children; more than 100 each for heart disease and stroke, AIDS, and mental illness; 26 for Alzheimer's disease; 25 for diabetes; 19 for arthritis; 16 for Parkinson's disease, and 14 for osteoporosis. The Public Benefits What these data show is that the Hatch-Waxman compromise is both promoting competition - by making it easier, cheaper, and quicker for low-cost generic copies of pioneer medicines to enter the market - and providing limited incentives for innovation - by restoring part of the patent life lost by pioneer products due to FDA regulatory review. As a result, consumers are receiving the benefits of early access to low-cost generic copies and of an expanding stream of new, more precise, and more sophisticated medicines. The Hatch-Waxman Compromise How has the Hatch-Waxman compromise both promoted competition and preserved incentives for innovation? A little history helps to explain. Prior to 1984, there were few generic copies of pioneer drugs that had been approved after 1962. The safety and effectiveness data supporting the approval of a post-1962 drug was considered to be trade-secret information that could not be used to approve generic copies. Apart from repeating the long, costly clinical studies performed by an innovator company, a generic applicant could obtain approval of a post-1962 drug only by using a literature-based (so-called "paper") New Drug Application (NDA), which was possible only when published scientific literature demonstrated a drug's safety and effectiveness. To permit the approval of generic copies of all post-1962 drugs, the Hatch-Waxman compromise in effect revoked the trade-secret status of innovators' safety and effectiveness information. Instead of proving safety and effectiveness, a generic manufacturer was allowed to show only that its copy is "bioequivalent" to a pioneer product and FDA could rely on the pioneer's safety and efficacy data to approve the copy. Bioequivalence means that a copy's active ingredient is absorbed at the same rate and to the same extent as that of the pioneer medicine. As a result of the 1984 law, generic manufacturers are able to avoid the huge cost (estimated at $500 million on average) of discovering and developing a new drug. It costs only a very small fraction of that amount for generic manufacturers to demonstrate bioequivalence - which is why they can market their copies at reduced prices. The Hatch-Waxman compromise also helped generic manufacturers by overruling a 1984 Court of Appeals decision in the Bolar case. The Court had held that it constituted patent infringement for a generic company to manufacture and test a medicine before its patent expired even if its only purpose was to prepare a marketing application. In a unique exception to patent law, the Hatch-Waxman compromise allows generic manufacturers to use innovator medicines still under patent to obtain bioequivalency data for their FDA applications (a use that ordinarily would be a patent infringement) so they can be ready to market their copies as soon as the pioneer patents expire. The 1984 law also sought to increase the number of generic copies by providing an incentive for generic manufacturers to challenge pioneer patents. The first generic manufacturer to certify to FDA that a patent on an innovator medicine is invalid or is not infringed by its product obtains 180 days of exclusive marketing rights if the copy is approved before the patent expires. During that 180-day period, FDA cannot approve any other copies. To attempt to balance the generic provisions, the Hatch-Waxman compromise provided limited incentives to pioneer companies to help spur innovation. The law restores part of the patent life - but not all - lost by innovator products as a result of FDA review: · A pioneer drug receives a half-day in restored patent life for every day the product is in clinical trials prior to FDA review. · A pioneer drug receives day-for-day restoration of patent life for the time it is under review by FDA. However, the effective patent life of a drug cannot exceed 14 years, regardless of how much time is lost in clinical testing and review. And the total time restored is limited to no more than five years (even if more than five years is lost during drug development and review). Innovator drugs introduced in the 1990s that obtained patent restoration enjoyed an average effective patent life of less than 11.5 years - substantially less than the 18.5 years enjoyed by inventors of other products. (The full patent term in the U.S., as with all member nations of the World Trade Organization, is 20 years from the date a patent application is filed with the Patent and Trademark Office.) In addition to partial patent restoration, the Hatch-Waxman law
provides that FDA is prohibited from approving generic copies of a pioneer drug
for five years after approval of an innovator product in the case of new
chemical entities and for three years in the case of other drugs and
innovations in existing drugs. These
exclusivity periods are to protect an innovator's data when there is no patent
protection. The law also creates a
procedure for litigating patent disputes before FDA approves an allegedly
infringing generic copy. Few Patent Disputes Despite the generic industry's arguments to the contrary, data compiled by FDA conclusively show that, in the overwhelming majority of cases, generic applications have not raised or encountered any patent issues that have delayed their approval. The facts speak for themselves: · From 1984 through January 2001, 8,259 generic applications were filed with FDA. · Of these applications, 7,781 - 94 percent - raised no patent issues. · Only 478 generic applications - 5.8 percent - asserted a patent issue, either challenging a patent's validity or claiming non-infringement of a patent. Further research shows that: · Only 58 court decisions involving just 47 patents have been rendered resolving generic challenges to innovator patents - a tiny fraction of the number of generic applications. · Only 3 of the patent disputes settled between innovator and generic companies have reportedly been challenged by the FTC - an infinitesimal percentage of the applications. A Heavy Burden to Justify Change Even though the Hatch-Waxman compromise stimulates competition and provides limited research incentives, generic manufacturers are advocating major changes in the legislation. We believe that, in view of the balanced nature of the law, any proponent of change has a heavy burden to clearly demonstrate that change is necessary and would not upset the delicate compromise achieved in 1984. We do not believe this burden has been met with regard to any of the changes that have been proposed. Therefore, we strongly oppose such changes that would, we believe, unfairly skew the law in favor of generic manufacturers and impede the ability of the research-based industry to realize in a timely way the promises that the accelerating biomedical advances hold for patients in all parts of the world. The generic industry has raised concerns in four areas in particular, which are addressed to various extents and in various ways in the Brown-Emerson bill, H.R. 1862. (See also the Schumer-McCain bill, S. 812.) The research-based industry is convinced that the changes sought by the generic industry would overturn some of the main trade-offs of the Hatch-Waxman compromise, as briefly described below. We would be pleased to discuss these and other such issues in more detail with any Member of the Committee or staff member who so desires. Patent-Dispute Settlements: The generic industry has proposed to place limits on settling patent litigation between innovators and generic manufacturers that are different from the rules that apply to the settlement of other types of patent litigation. There is no need to amend the Hatch-Waxman compromise to deal with this issue. Settling cases is encouraged by the courts, it avoids the expenses of litigation, and it can create results that accommodate the interests of both parties. Any settlements that are anti-competitive are subject to regulatory challenge under existing law. The actions of the Federal Trade Commission (FTC) in challenging some recent settlements demonstrate that the antitrust authorities are actively and adequately monitoring settlements between pioneer companies and generic manufacturers. Orange-Book Listings: The generic industry would change the procedure by which innovator companies can litigate patent disputes prior to FDA approval of an allegedly infringing product. This would upset a major feature of the Hatch-Waxman compromise. The provision was intended to offset the loss by pioneer companies of trade-secret status for their safety and effectiveness data and the loss of patent rights that had been recognized in the Bolar case that was overruled by the 1984 law. Prior to 1984, FDA approved a marketing application for a generic product even if the patent holder contended that the product would infringe its patent. Although patent holders could sue infringers, recovery of damages was questionable, particularly when the infringer was a small generic manufacturer that was potentially responsible for treble damages that accumulate during the patent litigation. Under Hatch-Waxman, innovators are required to have their patents listed in the FDA Orange Book, and a generic applicant must file a "Paragraph IV certification" if it wants the agency to approve its application before the listed patent expires. A generic applicant may file such a certification only if it contends that the unexpired patent is invalid or would not be infringed by its product. The generic applicant must send a copy of the certification to the patent holder and the manufacturer of the innovator drug. If the patent holder sues for infringement within 45 days, FDA is automatically barred from approving the generic application for up to 30 months while the case is litigated. The generic industry has complained that this process has been abused and has argued that the law should be changed to limit the patents that can be listed, such as only listing patents on active ingredients. The data presented earlier conclusively show that the process has not been abused as the overwhelming majority of generic applications - 94 percent - have not raised or encountered any patent issues. There is no sound rationale why a generic manufacturer should be able to avoid pre-approval patent litigation by making small changes from the marketed product, such as by changing the crystalline form, when the changed product still infringes an innovator's patent. Pre-approval patent litigation should be linked to a generic applicant's reliance on an innovator's safety and effectiveness data - that was one of the trade-offs in the Hatch-Waxman compromise. If a generic product would both rely on an innovator's data and infringe one of the innovator's patents, pre-approval patent litigation should be allowed. Thus, any patent that covers a product that could be approved based on an innovator's data should be listed in the Orange Book to permit pre-approval litigation. Thirty-Month Bar: The generic industry contends that, once the patent-dispute procedure is triggered as described above, FDA should not be automatically barred from approving a generic application for up to 30 months. The industry also contends that innovator companies should be required to post a bond that a generic manufacturer could collect if it prevails in patent litigation. Patent disputes involving generic drugs are a special case under the law because the Hatch-Waxman compromise overruled the Bolar case and permits generic manufacturers to develop and test a competitive product before its patent expires, thus barring patent holders from asserting their rights during this period. Such otherwise-infringing testing is not permitted in any other U.S. industry. Since the 1984 compromise gave generic manufacturers a multi-year head start on getting to market by authorizing product-development that would otherwise constitute patent infringement, innovator companies were given the offsetting benefit of being allowed to litigate a patent before FDA approves the product. If it were not for the Hatch-Waxman compromise, an innovator could sue a generic manufacturer when it begins product development and the litigation might well be concluded by the time a product is ready for FDA approval. The generic industry cannot reasonably claim the right to engage in development activity that normally would be considered patent infringement and at the same time assert that there should be no special rules governing the related patent litigation. "Late-Listed" Patents: The Hatch-Waxman compromise requires that, if a patent has been issued at the time an NDA is submitted to FDA, the patent information must be included in the NDA. If a patent is issued after FDA approves an NDA, the patent information must be submitted to FDA within 30 days after the issuance of the patent for listing in the Orange Book. If a patent is listed in the Orange Book within 30 days of issuance, it is treated the same as all other listed patents. The generic industry has argued that the pre-approval litigation process should not apply to patents issued when generic drugs are close to being approved. The generic industry refers to these as "late-listed" patents even though they are listed promptly after they are issued in accordance with the Hatch-Waxman compromise. The purpose of the pre-approval litigation procedure is to protect innovator companies from the injury that would occur if generic manufacturers sell infringing products and are unable to pay the potentially large amounts that would be due at the conclusion of litigation. This rationale applies to all patents, regardless of when issued. Innovator companies should not be deprived of one of the important rights conferred by the Hatch-Waxman compromise simply because a patent was issued after a drug was approved or because the Patent and Trademark Office (PTO) was slow in processing a patent application. There are sufficient protections in existing law against abuse of the pre-approval litigation procedure. For example, patents are issued only if the PTO determines that they meet the statutory standards; innovator companies are subject to criminal penalties if they knowingly make a false statement to FDA to obtain listing of a patent in the Orange Book, and the Federal Rules of Civil Procedure provide sanctions if an innovator files a frivolous or improper patent suit. Further, if a patent is truly late-listed - i.e., listed more than 30 days after it is issued - FDA's rules exempt generic applicants with pending applications from filing a certification regarding the patent. DTC ADVERTISING On DTC advertising, PhRMA strongly supports direct-to-consumer advertising of prescription medicines as currently regulated by FDA and opposes any further restrictions on this pro-patient, pro-health activity. Left sitting on pharmacy shelves, medicines don't do anyone any good. Unless they are prescribed for patients, prescription medicines cannot prolong life, ease pain, reduce disability or improve the quality of life. And unless medicines are prescribed and used, they will not generate the funds needed for private industry to continue to research and develop new and more effective medicines. In 1997, FDA under the Clinton Administration issued guidelines that clarified the agency's broadcast requirements. FDA no longer required radio and television ads to contain voluminous information about a drug's side effects. Under the draft guidance, ads still have to list major health risks as well as side effects and must set forth four ways for consumers to receive additional information. FDA's 1997 decision was in reaction to a policy that had generated ineffective and confusing advertisements. Prior to the guidance, FDA required that a brief summary of the prescribing information for a drug had to be included in all advertisements - including broadcast advertisements - that both named a prescription drug and stated its purpose. The brief summary is an FDA-approved document that advises physicians, in very technical language, how to appropriately use a drug. Because of its technical, scientific wording, this summary is very difficult for ordinary patients and consumers to understand. In announcing the clarifying guidance in August 1997, then FDA Lead Deputy Commissioner Michael Friedman, M.D., said: "Today's action can help promote greater consumer awareness of prescription drugs." Robert Temple, M.D., Associate Director for Medical Policy at FDA's drug division, added that, under the new guidance, ads could inform consumers about new products they might not learn about through other means. As an example, he cited a new generation of antihistamines that do not cause drowsiness. "You need to be told by someone that those products are out there or you'll never know," he said. Patients are now more actively involved in their own health care than ever before. The consumer movement and the information explosion have empowered patients to participate in these decisions. Armed with information, patients have become active partners with health-care professionals in managing their own health care and they are savvy consumers. Rather than remaining uninformed and relying entirely on an increasingly complex health-care system, patients are asking questions, evaluating information, and making choices. Direct-to-consumer advertising provides a valuable resource for patients to obtain information about specific diseases and conditions, particularly in rural areas of the country where access to providers and health-care information may be difficult. Too often, many common yet serious conditions go untreated even though effective treatments are available. Affected individuals may not realize they have a health condition. Others are aware of their symptoms, but may not know that treatment is available. Patients suffering from chronic conditions may be dissatisfied with current treatment, but are unaware that different options are available with fewer side effects or easier dosing regimens. Pharmaceutical advertisements raise awareness of conditions and diseases that often go undiagnosed and untreated. For example, the American Diabetes Association estimates that of the 16 million Americans who have diabetes, 5.4 million don't know it. One third of the people with major depression do not seek treatment and millions of Americans are unaware that they have high blood pressure. By informing people about the symptoms of such diseases and the availability of effective, non-invasive treatments, direct-to-consumer advertising can improve public health. There are encouraging signs that this is happening: · A survey by Prevention magazine found that, as a result of DTC advertising, an estimated 24.7 million Americans talked to their physicians about a medical condition they had never previously discussed with a doctor. In other words, millions of people who had suffered in silence were encouraged to seek help. · A 1999 survey by FDA found that 27 percent of respondents asked their doctors about a condition they had not discussed before. These conditions ranged from diabetes and heart disease to arthritis and depression. · In the two years that ads for a medicine for erectile dysfunction have appeared, millions of men have visited their doctors to request a prescription for the drug. For every million men who asked for the medicine, it was discovered that an estimated 30,000 had untreated diabetes; 140,000 had untreated high blood pressure, and 50,000 had untreated heart disease. These numbers are striking - and this is just one drug. · A study by IMS Health, a health-information company, found that, in the one year after an advertising campaign for an osteoporosis drug began, physician visits by women concerned about the disease doubled. A growing body of evidence suggests that consumers like DTC advertising. A 1999 survey by FDA found that those who liked these ads outnumbered those who did not by nearly two to one. Eighty-six percent said the ads "help make me aware of new drugs," while 62 percent said the ads helped them to have better discussions with their physician about their health. A survey by Prevention magazine found that 76 percent of respondents thought the DTC ads "help people be more involved in their health care" and 72 percent felt the ads "educate people about the risks and benefits of prescription medicines." Advertising is only one source of user-friendly information available to consumers. Some 50 consumer magazines that deal with health care are published every month. The Physicians' Desk Reference, or PDR, once confined to doctors' offices, is now available in a consumer edition at pharmacies. Internet users can surf tens of thousands of sites dedicated to health-care topics. In fact, according to health-care consultant Lyn Siegel, about 25 percent of online information is health-related, and more than half of the adults who go on the web use it for health-care information. So, while DTC advertising is an important source of information for consumers, it is clearly not their sole source of information - even though it is the most accurate because it is regulated by FDA. Critics contend that increasing expenditures on DTC advertising are driving up the price of drugs, but the amount spent by pharmaceutical companies on advertising has remained fairly constant and price increases have been relatively modest. As health care shifts from a physician-directed to a patient-directed system, companies are shifting the allocation of expenditures within their marketing budgets away from doctors to patients, although the distribution of free samples by pharmaceutical companies (provided to physicians for trial use by patients) continues to grow and remains by far the largest part of their advertising budgets. And, while total pharmaceutical expenditures are rising, price increases have been in line with inflation in recent years. According to IMS Health, a health-information company, total drug expenditures rose 14.7 percent in 2000. Of that figure, only 3.9 percent of the increase resulted from price increases. Most of the increase in drug expenditures came from the increased use of prescription medicines, including the use of newer, more expensive, and more effective therapies. The increased use of prescription drugs is a healthy trend. Drugs not only save lives - they save money in many cases by reducing the need for alternative, more expensive care. They keep patients out of hospitals, out of nursing homes, out of surgery, out of doctors' offices - and on the job. Still, only 8.2 percent of every health-care dollar is spent on prescription medicines, compared to 32 percent on hospital care and 22 percent on physician and clinical services. In summary, direct-to-consumer advertising helps to meet the increased demands of consumers for information about diseases and treatments. It fosters competition among products, which can improve the quality of care for consumers. Most important, DTC advertising can improve public health. It is intended to start a dialogue between patients and doctors. Often, the dialogue will not result in a physician prescribing the drug mentioned by a patient. But it will prompt a discussion that may lead to better understanding and treatment of a patient's condition. And, whatever happens, it is important to remember that it is a physician who ultimately decides whether a drug should be prescribed and, if so, which medicine is most appropriate for a particular patient. Rx/OTC SWITCHES The issue has recently arisen as to whether a party other than a sponsor of a New Drug Application (NDA) can request that FDA switch a prescription medicine to over-the-counter (OTC) status. It has been a long-term policy of FDA that such a request can be made only by an NDA sponsor, or by another with its approval, through the submission of an NDA supplement with extensive data to support safe and effective OTC use with appropriate OTC labeling. PhRMA strongly supports this practice that has long been followed for good reasons. There are compelling legal reasons against forced switches of prescription drugs. These reasons have been spelled out in submissions to FDA. Without elaboration in this testimony, such switches would violate the confidentiality provisions of the Federal Food, Drug, and Cosmetic Act, the Trade Secrets Act, and the Fifth Amendment to the U.S. Constitution. The process of discovering and developing new medicines, and new uses for existing medicines, is risky, expensive, and time-consuming. It is undertaken principally by private companies at their own initiative through the investment of huge sums in research and development ($500 million on average for one drug). This process has led to enormous progress in preventing and treating disease and in improving public health. The sponsor of an NDA has the most comprehensive and detailed knowledge of its drug and is in the best position to design, finance, and conduct additional studies necessary to evaluate the safety and effectiveness of the drug for OTC use and to prepare the appropriate OTC labeling. Every recent switch has been based on the development and submission of substantial amounts of data demonstrating that a prescription drug would be safe, effective, and properly labeled for OTC use. Such data have been almost universally submitted through NDA supplements, which give manufacturers the opportunity to earn exclusivity rights established by Congress as an incentive to invest in the necessary research. The NDA holder is in the best position to take all of the relevant information into account and to decide whether and when to initiate a switch. Forced switches are being proposed by insurers seeking to shift costs to patients. These third parties lack the necessary data to determine whether a switch is appropriate and are not themselves proposing to conduct the extensive studies needed to support a switch. Rather, they are seeking switches on the basis of assertions, anecdotal evidence, and other flawed and incomplete data. FDA would be acting arbitrarily and capriciously if it applied a lower standard to switches initiated by the agency itself or by third parties than it applies when an NDA sponsor seeks such action. Forced switches also would alter revenue streams and expose manufacturers to different product-liability risks than anticipated when they planned their research investments. There are good reasons to retain the process that has been of great benefit to FDA, industry, and the public for many years. It is the process most likely to generate the needed data and to ensure that only drugs that are actually safe for over-the-counter use can be obtained without a prescription. Switches based on insufficient data could put the public at risk. In fact, the one time FDA initiated a switch without the active support of the NDA holder - for a bronchodilator almost 20 years ago - the agency quickly rescinded its decision after receiving numerous adverse comments. If third parties were allowed to initiate switches, moreover, there likely would be an outpouring of such requests - and it would be difficult, if not impossible, for FDA to control the process and decide who should and should not be permitted to seek these changes. FDA certainly plays a critical role in the drug-development process in general and in switching drugs in particular. If the agency believes that a drug is an appropriate candidate to be switched, it can consult with the NDA holder to determine whether there is an interest in such a change and in developing a study program to support an application for a switch. Industry has long cooperated with FDA on issues of mutual interest and is ready to do the same on this important issue. But forced switches would be unprecedented, would violate the rights of NDA holders, and could be detrimental to public health. This concludes my written testimony. I would be pleased to answer any questions or to supply any additional materials requested by Members or Committee staff on these or any other issues.
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