Statements and Speeches

Speech on Generic Drugs and Drug Pricing
October 28, 2002

By Henry A. Waxman

This is a timely moment to talk about generic drugs and drug pricing issues facing the next Congress. There has been a lot of activity on these issues in the current Congress, and the next Congress will grapple with them as well. I have also been asked to touch briefly on bioterrorism, and then I will be happy to take questions.

Before we get to the problems, let's step back and remember what this is all about. When it comes to the development and marketing of prescription drugs, we must be aware that we are not talking about an ordinary commodity.

I recently saw a letter to the Food and Drug Administration from one of our largest drug manufacturers. The company suggested that, when it comes to regulating their advertising, drugs should be treated no differently from vacuum cleaners. According to the company, we don't require vacuum cleaner ads to disclose the kinds of stains the vacuum cleaner can't remove, so drug ads shouldn't have to disclose anything about the risks of the drug.

I could not disagree more.

If a vacuum cleaner fails or goes wrong, there will be more dirt on the floor. If a drug fails or goes wrong, people will suffer and sometimes die. When we talk about prescription drugs we are talking about a product and an industry with profound effects on the public health. From drug testing to drug marketing to drug pricing, we can't forget that American lives and health are affected by prescription drugs in a way that is matched by almost no other product. And because of that, the government's interest in assuring that drugs are safe, that they are effective, that they are fairly promoted, and that they are affordable is vastly stronger than its interest in anything to do with vacuum cleaners.

By any definition, pharmaceuticals are of vital interest and importance to Americans. Some people look to the pharmaceutical industry for new research toward cures. Others, facing soaring drug prices, are struggling simply to afford the treatments that are already known.

This is the balance: progress and access. Neither makes sense without the other. It is pointless to get cheap access to products that don't help.

The pharmaceutical industry is responsible for tremendous advances in health care and we would not want to do anything to interfere with their ability to produce important new therapies. On the other hand it is unfair and short-sighted to develop new products that sick people can't afford. Drug prices have risen at more than twice the rate of inflation in recent years, and these high prices place great financial burdens on the uninsured and particularly on seniors.

Balancing progress and access is something I know well. I have been working on it for almost twenty years now. In 1984, I co-sponsored legislation to both allow approval of generic drugs and strengthen patent-like protections for new drugs. In that legislation, which is sometimes referred to as the Hatch-Waxman Act, we worked hard to strike the right balance between the need to improve access to affordable generic drugs and the need to reward brand name drug companies for the costly process of developing new drugs. The provisions of Hatch-Waxman included both streamlined approval of generics and generous periods of exclusive marketing for innovators.

I am proud that the legislation that bears my name has been regarded as successful at its twin goals.

In 1984, generics had about 19% of the market. By last year, they had close to 50% of the market, saving consumers up to two-thirds the cost of brand-name drugs. At the same time, even as the generic market grew, innovation in the pharmaceutical industry remained robust through the 1980's and 1990's.

Despite the success of Hatch-Waxman, prescription drug prices continue to spiral upward. Needed treatments continue to be out of reach for many seniors and many of the uninsured. And the nation's health care bill continues to rise.

What are the reasons for this and what can Congress do about it? There are no easy answers to these questions. There is no doubt that drug development is very expensive and that this accounts for some of the cost of drugs.

But there are other forces that artificially raise drug prices for some or all consumers. Let me talk briefly about two of these and the steps Congress can take to address them.

One of the reasons that Americans are still paying too much for prescription drugs is that in the last few years, some drug companies have begun to exploit loopholes in the Hatch-Waxman Act, undermining the balance we struck between protecting innovation and encouraging competition. Through those loopholes, they have successfully delayed generic competition months and even years past the time intended by Congress.

At my request, the Federal Trade Commission recently investigated and then issued a report on abuses of the Hatch-Waxman Act. What they found confirmed many of my fears about how some companies are gaming the system.

The FTC found that some companies are using the law to gain repeated 30-month delays in generic competition. They do this by waiting until the original patent on the drug is about to expire, and then filing one new patent after the next, on the same drug. These patents are often on trivial aspects of the same drug, such as a method of scoring a tablet. Sometimes they are on different drugs altogether.

Because of a quirk in the law, brand-name companies can automatically delay generic competition for 30 months, for each patent they file, regardless of the relevance or validity of the patent. When we drafted the law, we had no intention of letting companies evergreen their monopolies through multiple 30-month stays.

According to the FTC, however, in the last five years, companies have increasingly obtained multiple 30-month stays on the same drug through eleventh-hour filings of new patents. They have used this tactic to delay competition on some of the biggest selling drugs scheduled to go off-patent.

The late-filed patents on which the companies obtain multiple 30-month stays are almost always thrown out in court as irrelevant or invalid. But not before the company has successfully delayed competition for several months, and thereby kept up their monopoly prices.

The abuse of Hatch-Waxman is by no means limited to the brand-name sector of the industry. And, as an aside, let me add here that not all brand-name companies engage in this anti-competitive behavior.

The FTC also found abuses engaged in jointly by brand-name and generic companies. They found that companies are taking advantage of another provision of the law and entering into collusive agreements in which the brand-name company pays the generic company large sums of money to stay off the market. Because of another quirk in the law, this kind of collusion can block all generics from entering the market for a period of time, not just the generic who made the collusive agreement.

These illegitimate delays in competition are costing consumers, the States, the Federal government, and insurers billions of dollars a year. The games being played by some members of the pharmaceutical industry to delay competition affect some of the top-selling drugs in America. Paxil, Neurontin, Buspar, Hytrin, Platinol, Taxol.

Every day that generic competition on these drugs is delayed costs consumers tens of millions of dollars. It has been estimated that a one-year delay in generic competition for Prilosec would cost State Medicaid programs $300 million. For a single drug. The Congressional Budget Office has estimated that elimination of these delays in competition would save consumers $60 billion over 10 years.

So, what can or should Congress do about this? Although I have been reluctant to reopen the Hatch-Waxman Act, I have come to believe that something must be done about such clear abuses.

In fact, the Senate has already passed, with a large bi-partisan majority, legislation to close the some of the biggest loopholes in the Hatch-Waxman Act. Unfortunately, the Republican-controlled House, responding to great pressure from PhRMA, has prevented a vote on this bill.

PhRMA has many objections to closing these loopholes, but the argument they voice most loudly is that the legislation will destroy their incentives for innovation. They say that limiting them to one 30-month stay per drug will so undermine their intellectual property rights and their profits that they will be unable to carry out research and development on new products.

I must say I find this hard to believe. The FTC looked at the patents on 8 blockbuster drugs on which companies managed to get multiple 30-month stays. Not one of these patents appeared to represent a significant innovation deserving of a 30-month stay.

PhRMA itself has not provided Congress with any examples of late-filed patents that actually covered the drug in question and represented any significant benefit to patients.

And there's a good reason for this. To be eligible for a 30-month stay under the Act, a new patent must cover the approved drug. However, there's also a rule of patent law that says that you can't get a patent on a product that is already on the market.

So what kind of patent can you get on a drug that has already been on the market for several years? Generally, these patents can be one of two things: First, they can be on the approved drug, and represent such a trivial change that FDA did not require a new approval for the change. FDA recently testified that there are very few changes that can made without approval, and gave as examples changing the color of a label, or extending the expiration date of a drug. Neither of these meets my test for a significant innovation.

Second, late -issued patents can be on an unapproved version of the drug. But these patents are not eligible for a 30-month stay at all under the Act.

So, I don't believe that research and innovation will really suffer if we limit companies to one 30-month delay of generic competition. Recently one generic drug company official said that "some of the most outstanding research happening at certain brand-name drug companies is in the field of law." I think we would all agree that this is not the kind of research that should be rewarded. At best it's a misinterpretation of the law, and at worst it's a scam. Unlike other pharmaceutical research, it makes no one healthier and improves no products.

The kind of research we should reward is research that produces significant benefits for patients. And the bill passed by the Senate does not eliminate any of the incentives for this kind of innovation that we included in the 1984 Act, from restoration of patent life lost during the drug review process at the FDA, to 5-year guarantees of exclusive marketing for new drugs.

Congress has not yet succeeded in passing legislation to end the abuses of Hatch-Waxman. This is not to say that we won't ultimately succeed. I believe that we will. We will succeed because consumers, insurers, businesses, and State governments have become more sophisticated about why their drug costs are so high.

In fact, State governors, insurers, and large corporations have now banded together to form a group, Business for Affordable Medicine, whose common goal is to push through legislation to end abuses of the Hatch-Waxman Act.

Even the President now agrees that something needs to be done about multiple 30-month stays. Last week, he announced that FDA would issue a proposed rule to limit manufacturers to one 30-month stay per drug.

I have some doubts about whether the rule will truly solve the problem and some bigger doubts about whether the rule will survive administrative hurdles and court challenges. But I am pleased that the Administration has recognized the problem and tried to move forward. Having recognized the problem, I hope that the Administration will now support legislation, a faster and more certain remedy than regulation.

When Congress does pass such legislation, will we have solved the problem of high prescription drug prices? Not entirely. We will have increased access to affordable generic versions of older drugs whose basic patents have expired.

But most new drugs are not subject to generic competition for several years. The prices of these drugs will remain high and out of reach for many of the uninsured, especially seniors on Medicare. This is because the drug industry has a two-tiered pricing structure, under which they charge one price to those with market power, such as HMOs and the federal government, and a higher price to the uninsured.

The United States is the only country in the developed world that does not protect its consumers from price discrimination.

In other industrialized countries, consumers are protected from drug price discrimination. For example, in Canada, prices of new brand-name drugs can't exceed the average price of those drugs in seven other industrialized nations. While the methods used by other countries vary, the result is the same: consumers in other developed nations pay less, often far less, than uninsured U.S. consumers do for the same drugs.

In my home district in Los Angeles, my staff has found that uninsured consumers pay, on average, more than twice as much for certain popular drugs as do purchasers in other countries.

For example, a month's supply of Celebrex, for arthritis pain, costs $30.60 in France, compared to $90.78 for an uninsured consumer in Los Angeles. A year's supply of Prilosec will cost an uninsured consumer in Los Angeles $1,100 more than it will cost a consumer in France.

Price discrimination causes severe problems for millions of senior citizens in the United States. Because they suffer more health problems, they use more prescription drugs than other age groups. At the same time, Medicare does not reimburse for prescription drugs. Over 40% of Medicare beneficiaries - about 11 million seniors - have no drug coverage of any kind. Many others have inadequate coverage.

It is simply not right that the group with the greatest need for prescription drugs and the least ability to pay is being charged the highest prices.

What should Congress do about this? First, Congress can stop price discrimination directly by requiring that drug manufacturers charge no more for prescription drugs in the U.S. than the average foreign price for those same drugs. I have co-sponsored a bill that would do just this.

Second, Congress can pass a strong and meaningful Medicare prescription drug benefit for seniors. As I'm sure you know, Congress failed to do so this session. It's not easy to design a good and comprehensive drug benefit. It is particularly difficult to pay for in a time of budget deficits.

But I am convinced not only that we can do it, but that we must do it. The day is long past when we can consider prescription drugs as anything other an integral part of medical care.

Let me finally say a few words about the challenges that bioterrorism poses for drug development.

Congress passed a comprehensive bioterrorism bill last spring that provided an infusion of funds to shore up our long-neglected public health infrastructure.

It strengthened our national pharmaceutical stockpile. It established programs to facilitate the development and approval of new drugs and vaccines to prevent and treat the effects of biological weapons.

And it affirmed the FDA's authority to approve drugs to treat biological agents on the basis of animal trials rather than human trials where human trials were not possible.

But much more remains to be done to speed the availability of drugs that can combat biological weapons. There is one aspect of this problem that I am particularly eager to see Congress take on. That is providing compensation for injuries caused by vaccines against infectious agents like smallpox that may be used as biological weapons.

If we have deploy smallpox vaccines on a large scale, we can expect to see 1 or 2 deaths and over 15 severe injuries for every million people vaccinated.

Both to protect drug developers from potentially enormous liability and to compensate the victims of a widespread vaccination program, I believe that we must develop a vaccine injury compensation program specifically for vaccines against biological weapons.

I authored a similar compensation program for injuries caused by childhood immunizations, and I believe that we can and must create one for bioterror vaccines. Without one, I am concerned that drug manufacturers may not be willing to take on the financial risks of developing these crucial vaccines.

Thank you. I would be happy to take questions on any of these topics.