Good afternoon. I am pleased that the Committee is holding this hearing today on the antitrust implications of recent settlements relating to pharmaceutical patents.

       Not only is this a matter squarely within the jurisdiction of the Judiciary Committee, but as a coauthor with Rep. Henry Waxman of the Drug Price Competition and Patent Term Restoration Act of 1984, I have long been interested in the laws and competitive forces that underpin the American pharmaceutical industry. And as I have stated on occasions, if there is interest in revisiting these laws, I am willing to play the same type of facilitator role that I did in 1984.

       The American public has a great stake in achieving the twin ends of the 1984 law. These goals are:

- First, making available today’s medicines at the most competitive and affordable prices; and,

- Second, encouraging the development of tomorrow’s breakthrough cures.

       We should all take pride in the fact that the United States is the world’s leader in biomedical research. Through a public/private partnership that has grown steadily since World War II, it is our country that is on the cutting edge of medicine. Just this year alone, there has been a combined $50 billion investment in life science research. It is America’s scientists and technology that have led the way for the mapping of the human genome. We stand poised to unravel the mysteries of the human genetic code and translate this knowledge to advance the health of public.

       Al Rabson is one of America’s unsung heroes. Dr. Rabson has long served as the Deputy Director of the National Cancer Institute. He started his distinguished career at NIH 46 years ago. I wish all of you could experience first hand the sheer excitement that Dr. Rabson conveys to me when discussing the latest developments in cancer research. He tells me that cancers that have been virtually untreatable are now succumbing to medications like the recently announced leukemia drug, STI-571.

       We are literally at the doorstep of a revolution in biology that promises to benefit mankind in profound ways. But this progress will not come easily; nor will it come cheaply. When factoring in the costs of false starts and blind alleys, it can take literally several hundred million dollars to bring an effective new drug to market. Some estimate that for every product that makes it through the complex scientific and regulatory screening systems, five thousand failures fall by the wayside – and do so with great expenditures of time, expense, and talent.

       When we speak about competition, we must not forget that, in addition to critical price competition between pioneer and generic firms, it is the competition among pioneer firms for the next generation of diagnostic and therapeutic products where the future of medicine resides. But we must never lose sight of the hard fact of life that an unaffordable medication may be the same as no medication at all.

       With the stakes so high, it is imperative that our intellectual property laws provide the proper incentives to facilitate a new era in our understanding of human biology, health, and disease. At the same time, we must be sure that the pharmaceutical marketplace is highly competitive so that patients and their families can obtain their medicines at the most affordable prices.

       Congress is debating the question of developing a Medicare drug benefit for one simple but powerful reason: too many of our seniors have a hard time making ends meet when paying the out-of-pocket costs of prescription drugs. For those of us who also serve on the Finance Committee, the estimates of providing a Medicare drug benefit have skyrocketed over the last several months. CBO tells us that it may take at least $368 billion over ten years to pay for catastrophic drug coverage alone; and these estimates, in my opinion, will continue to go up.

       I mention these staggering costs in part because of the growing therapeutic importance of biological products which can sometimes be very expensive. Therefore I think it is imperative, and frankly inevitable, for policymakers to examine whether there ought to be alternative regulatory pathways for biological products to enter the market once patents have expired.

       I know there are formidable scientific questions regarding the wisdom of even beginning down the path of a fast track approval system for equivalent biologics. But, as was evidenced yet again in the mad dash to complete the mapping of the human genome, properly motivated scientists have a way of overcoming scientific obstacles. I just raise the question of whether Congress can, or should, enact and sustain over time a Medicare drug benefit in parallel with a FDA regulatory system that acts like a secondary patent by barring bioequivalent biological products. At some point, the forces of economics will compel discussion of science and legal issues involved in the consideration of fast track biologicals.

       Also at the intersection of science and law are questions pertaining to the patenting of human genes. We must also examine how much science has changed since 1984 and whether our patent laws facilitate both basic research and appropriate commercial development of genetic discoveries.

       I am proud of the Drug Price Competition and Patent Term Restoration Act – CBO estimates that it contributes to consumer savings of $8 to $10 billion annually. We have had a substantial success on both fronts: we have helped stimulate the development of many new drugs all the while fostering an environment in which the generic segment of the market has about tripled and now comprises almost half of all new prescriptions in the United States. Some experts have projected that each additional percentage point of generic drug usage represents over $1 billion in consumer savings.

       To those who would propose to change the 1984 legislation, I would urge you to consider that this is a carefully balanced bill and caution against making changes that tilts the balance. Yet no law is so perfect that it cannot stand improvement as it gets tested by the realities of a changing marketplace and society. There have been several unanticipated and unintended consequences of the 1984 Act and other changes in the landscape that need attention.

- In this regard, I believe this Committee should examine in detail the operation of the 30 month stay provision of the 1984 law. Over the last several months, there have been a number of controversial cases of late-issued patents that have been entered into the FDA Orange Book. There are powerful arguments that justify the 30 month statutory period to allow pioneer firms a fair chance to attempt to resolve the status of patents. Yet, there may be grounds to treat patents differently that suddenly appear in the Orange Book so late in the day that there are literally approved generic products on the loading docks that must be destroyed. As well, the 30 month stay provision has an effect on the nature of the patent settlements we explore today although we want to concentrate on the settlements themselves and the 180 day rule at today’s hearing.

- Similarly, the Committee should explore the ramifications of the First Amendment and the U.S. Supreme Court’s Noerr-Pennington Doctrine as they relate to suggestions to remedy the alleged abuses of the citizens’ petition process with respect to challenges to generic drug applications. Sometimes, legitimate questions of science are raised by those who might directly benefit from FDA delay. Maybe the 10 year battle over premarin fits this model.

- There has also been concern that FDA’s bioequivalence standards should be examined and that perhaps we should codify the FDA guidelines in this area. Certainly this issue should be fully examined.

- As well, on the R&D side of the industry, there are those who argue for day for day patent term restoration, harmonization of U.S. law with European marketing exclusivity rules, and for changes in the current limitations on the type of patents and products that may receive partial patent term restoration. Frankly, I think the Committee would be well advised to put these issues on the table and learn about their merits and down-sides. I believe it might be a worthwhile inquiry to examine the implications of the fact that the 1999 American Inventors Protection Act generally permits all patents to be restored up to 17 years of patent life if there is undue delay at the PTO but under the 1984 Hatch-Waxman law, patent term restoration in recognition of the lengthy FDA review of new drugs is capped at 14 years. Why should PTO review time be treated differently than FDA review time?

       So there are many areas relating to pharmaceutical development that Congress should examine.

       My preference is to see if we can develop a comprehensive consensus legislative package that addresses all of the issues I have just outlined. Such a bill would provide incentives for all segments of the industry to better produce their products that have so many benefits for the American public. We need to find ways to grow the pie, not just re-slice it.

       This is, of course, a tall order. It will take a bipartisan spirit, hard work, and leadership to craft legislation that can help usher in the next generation of treatments and do so at more affordable prices.

       I commend Senator Leahy for his work in introducing legislation aimed at helping to promptly identify any possibly anti-competitive pharmaceutical patent settlements. These settlements are the subject of our hearing today and I believe there is great merit in his notification approach and would like to work with him on this legislation.

       I must also commend our colleague from New York, Sen. Schumer, who with my friend, Sen. McCain, has offered legislation on some of the areas that I just outlined. While I personally would prefer to take a broader and more balanced approach and have some reservations about how they resolve some of the issues, I want to recognize them for their work.

       Having said that, I would like to focus in on the important matters before the Committee today. The 1984 provides incentives for generic drug applicants to challenge the validity of, or invent around, the patents of pioneer drugs. Each time a patent is found to be deficient or can be legally circumnavigated, consumers can benefit from speedier access to generic products.

       In order to encourage such pro-consumer activities, the 1984 law awarded 180 days of marketing exclusivity for the first generic firm to meet certain conditions. For many years, FDA practice provided that this exclusivity be awarded only to that applicant first to file a substantially complete drug application, be sued by the pioneer firm under the special terms of the statute, and win the suit.

       However, due to a series of federal court decisions, that FDA will further explain in its testimony, the successful defense requirement has been struck down. The courts in the Mova and Granutec decisions, strictly construing the language of the law, awarded the exclusivity to the first filer. As a drafter of the 1984 law, I am afraid that, to paraphrase the great philosopher Pogo, this may be a case of "We have met the enemy, and he is me. Mea Culpa. Mea Culpa."

       Once the courts struck down the successful defense requirement there has been a potential mismatch of the first filer and the party who actually defeats the patent. Many have observed that the blocking position the statute grants to first filers creates perverse incentives for patent settlements.

       As a general matter, the law smiles upon patent settlements. For example, the 1995 joint DOJ –FTC Antitrust Guidelines for the Licensing of Intellectual Property state:

"Settlements involving cross-licensing of intellectual property rights can be an efficient means to avoid litigation and, in general, courts favor such settlements."

       Yet, according to these guidelines not all such patent settlements will automatically survive antitrust scrutiny:

"(w) hen such [settlement] involves horizontal competitors, [the government] will consider whether the effect of the settlement is to diminish competition among entities that would have been actual or likely potential competitors."

       As the FTC will explain, several agreements in the last few years have triggered antitrust actions. The Committee needs to know if these cases represent a few outliers or a pattern. The Committee needs to know if the existing antitrust laws are sufficient to police this situation.

       We need to know if there are ways to improve Sen. Leahy's legislation that is designed to help solve the problem by assisting FTC and DOJ to respond more quickly and effectively in this area.

       The FTC will tell us about a major study that they have recently initiated to gauge the frequency and nature of these settlements. This will help the Administration and Congress examine whether there is a pattern of behavior that requires a comprehensive legislative response rather than the current case by case approach.

       The public deserves the effective and affordable drugs that competition can bring, not elaborate legal machinations that identify or create then exploit anti-competitive loopholes. Some have already concluded that the 1984 law, as implemented by FDA regulation, and interpreted by the courts, presents a legal framework that invites improper, anti-competitive settlements.

       For example, as former FTC official, David Balto, has assessed the situation:

"The competitive concern is that the 180-day exclusivity provision can be used strategically by a patent holder to prolong its market power in ways that go beyond the intent of the patent laws and the Hatch-Waxman Act by delaying generic entry for a substantial period of time."

       In short, the questions we face at today's hearing are straightforward: Is the 180 day exclusivity law broken and, if it is, how should we fix it?

       I am pleased that the FTC, DOJ, and FDA will help us start to think through these issues. I am also pleased that Attorney General Mark Shurtleff from my home state of Utah will explain how a group of states have responded to the current environment.

       I am more interested in examining the underlying law, pattern of cases, and whether the law needs to be changed than I am in conducting a "Who Struck John" analysis of the cases that have triggered governmental involvement. I would hope that my colleagues on the Committee will also step back and focus on the forest rather than the trees.

       While no parties to these settlements -- either pioneer or generic firms – requested to testify today, I understand there may well be interest in how these agreements may be characterized. Without objection, I will hold the record open until next Friday to allow the Committee to receive comments from all parties interested in today's hearing.

       I look forward to learning from the testimony we will receive today.