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Hearing Of The Health Subcommittee Of The House Energy And Commerce Committee - Emerging Health Care Issues: Follow-On Biologic Drug Competition

Chaired By: Rep. Frank Pallone, Jr.

Witnesses: Pamela Jones Harbour, Commissioner, Federal Trade Commission.

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REP. PALLONE: (Sounds gavel.) The meeting of this subcommittee is called to order, and I'll recognize myself initially. Today, this subcommittee is meeting to discuss the Federal Trade Commission report entitled "Emerging Health Care Issues: Follow-on Biologic Drug Competition."

This is an extremely timely report and goes to the very heart of our president's and this Congress' commitment to ensuring affordable and quality health care for every American. Creating a statutory pathway for the approval of follow-on biologics presents us with an opportunity to improve millions of lives at a more affordable cost.

Currently brand biologics account for approximately 15 percent of total U.S. prescription drug sales, and the industry is growing at a rate of around 20 percent annually. In a couple years, we could be spending over $100 billion just on biologic drugs. According to data from the Centers for Medicare and Medicaid Services, CMS, just four biologics account for 30 percent of all Medicare Part B spending.

Obviously, these drugs are costing the health care system a lot of money. And it's not just the health system that is being burdened by these high costs. For American families, biologics can cost in the tens of thousands of dollars for the most popular drugs.

In some cases, the lifesaving biologics can cost a patient over $300,000 a year. There's no doubt that these innovative drugs provide Americans access to groundbreaking treatments for devastating illnesses, including cancer, arthritis, and multiple sclerosis.

But I've heard too many stories from my home district in New Jersey and from all around the country of hardworking people who just can't afford the tremendous cost of these lifesaving and life- improving drugs. In a country of the best and the brightest, which we are, I have to believe that we can do better.

We must continue to innovate and push the envelope to discover more effective treatments and cures for the scourges of our time. In the same vein, we must also ensure that these innovative products are available to patients at an affordable price.

We're faced with a delicate balance moving forward between ensuring reasonable drug prices and expenditures, increasing access for more Americans, and supporting innovation. And I know that, you know, we have different bills on this subject and we have significant disagreements, but I also think that we all believe that we need to move forward with the pathway for these follow-on biologics.

And this hearing today is the beginning of that process. There are some principles -- the same principles that essentially guided us with chemical substances, I think can guide us in the creation of legislation today.

We all know about the Hatch-Waxman Act. Mr. Waxman isn't here, but I'm sure he will be.

REP. HENRY A. WAXMAN (D-CA): I am.

REP. PALLONE: Oh, you are. I'm sorry.

REP. WAXMAN: It's called the Waxman-Hatch Act.

REP. PALLONE: Yes, I know. I was going to say that. I see in the documents, it says Hatch-Waxman. I said it's Waxman-Hatch, not Hatch-Waxman, so.

But we know that Waxman-Hatch has been a great success since its passage or since it went into effect in 1984. And since its passage, more generic drug manufacturers have entered the market driving down cost for the consumer. Also pioneer drug companies have given protections that have spurred innovation leading to advancements that are helping us live longer and healthier lives.

In addition to driving innovation, Waxman-Hatch was also able to effectively and without any market interference, drive down the cost of drugs. In fact, the U.S. health care system has saved over ($)700 billion in the past 10 years through the use of generic pharmaceuticals.

In a time when we are facing an economic crisis, partly brought on by skyrocketing health care cost, this is a staggering figure. If biologics is the future, then we should do everything we can now to control costs while aiding innovation just like Waxman-Hatch did.

So today we're hearing testimony on the newly released Federal Trade Commission report looking specifically at the issues of innovation, cost, and competition. The FTC has decades of expertise in this area and I value their objective and comprehensive analysis.

I'm anxious to hear from the FTC about what factors we must consider when moving forward with legislation and how follow-on biologics are likely to behave in the market setting as compared to generics. I'm especially curious to hear about what incentives and protections will be necessary in a biologic and follow-on biologic world that are similar or different than the current brand and generic arena.

And I want to welcome FTC Commissioner Harbour to the committee today. She comes from the state of New Jersey. Thank you for coming to testify before us.

And I'd also like to welcome the author of the FTC report, Michael Wroblewski, who has been invited along with the commissioner to answer more technical questions about the report. So thank you both for being here.

Why don't we just call Waxman? Why do we even have to throw in the Hatch at all?

REP. WAXMAN: (Off mike.)

REP. PALLONE: Okay. All right, so I'll now recognize Mr. Deal for five minutes.

REP. NATHAN DEAL (R-GA): Thank you, Chairman Pallone, for holding this hearing today on the issues surrounding the establishment of an approval pathway and a patent protection concerns on follow-on biologics at the Food and Drug Administration, and the resulting impact that this may have on competition and innovation in the biologic drug marketplace.

I also want to thank Commissioner Harbour for joining us today to discuss the results of the commission's very recently completed report. I look forward to that testimony and to the questions and answers that will follow regarding that report, and we hope she will be able to provide us some definition to the debate that currently surrounds this issue.

As this subcommittee prepares to consider fundamental health reform this summer, I believe a critical component of such reform must include the establishment of appropriately abbreviated approval processes for follow-on biologic drugs, a priority upon which innovators and generic manufacturers both agree.

In 2007, global sales of biologic drugs reached $75 billion and current estimates suggest that over half of all drugs, both chemical and biologic in nature will be biopharmaceutical products next year.

Biologic drugs have provided some of the most promising benefits for a wide range of diseases, including anemia, hemophilia, cancer, diabetes, HIV, rheumatoid arthritis, and other debilitating medical conditions that affect millions of Americans everyday.

Access to lower-cost biologics represents a critical step forward in reducing the overall high cost of health care, and will provide greater access to patients in need of these critical lifesaving therapies. In doing so, Congress must be certain a balanced approach is established which encourages new innovation and new biopharmaceuticals, while providing more affordable options for the American people.

At the center of this issue the period of market exclusivity given to the innovative products, as well as patent dispute resolution procedures, and the flexibility which Congress will give to FDA to approve biosimilars will directly affect our nation's ability to expound upon the advancements in the biologic arena, and to serve a growing number of patients in dire need of these drugs.

In the report under consideration today produced by the Federal Trade Commission, a number of arguments are made which support the robustness of our current patent system as it applies to biologics, and highlights the question, how long of a period of market exclusivity must an innovator biologic product be afforded in order to yield net profit results, notably with respect to the significant outlays expended in bringing the product to market, and how the current intellectual property rights translate into the field of biopharmaceuticals.

I recognize the critical need for innovators to earn a profit on innovative and cost and cutting-edge therapies, but also recognize the importance of ensuring access to the American people who simply cannot gain access to these critical therapies solely based upon their significant cost.

Therefore, a delicate balancing act must be played as we pursue congressional establishment of an appropriate approval pathway and patent resolution processes under FDA for this unique -- for these unique drugs. Among the report's findings, I am particularly interested in the stated dynamic of competition, which follow-ons are likely to face upon an appropriate approval mechanism once it's in place.

According to the report, pioneer manufacturers, potential follow- on biologic manufacturers, and payors were virtually unanimous in their predictions that competition from follow-on biologic drug entry is likely to resemble brand-to-brand competition, rather than brand- to-generic drug competition.

And unlike chemical generic drug entry, follow-on biologic entry would not result in steep price discounting or rapid acquisition of market share by follow-on biologic manufacturers.

Therefore, although the introduction of a biosimilar may result in a 10 to 30 percent reduction in innovator price, and an introduction of a competing product into the marketplace, innovator companies are still capable of securing adequate positive returns on investment for years to come and maintain significant market share.

And it is important to note the exorbitant cost of many of these therapies which thousands of Americans across the country are forced to accept. For example, taking a conservative 15 percent reduction in cost of a hypothetical follow-on biopharmaceutical which would cost $40,000 per year, allowing biosimilars into the marketplace could potentially save this individual $6,000 per year which is a dramatic step toward reining in the cost of these drugs while encouraging innovation.

There are a lot of questions which remain -- I remain committed to working on this issue, an issue which I do believe can wait -- cannot wait any longer to be addressed. I appreciate the cooperation of my colleagues in this committee.

I look forward to the testimony. I look forward to working together cooperatively as we move this issue forward. Thank you, Mr. Chairman.

REP. PALLONE: Thank you, Mr. Deal, and thank you for prioritizing this issue.

And now the Chairman, Mr. Waxman.

REP. WAXMAN: Thank you very much, Mr. Chairman.

Today we're going to hear from the Federal Trade Commission on an issue of paramount importance to the debate on a pathway for approval of follow-on biologics, how long a period of exclusive marketing must we give to biotech drugs to sustain innovation.

As was true when Congress passed the Hatch-Waxman Act 25 years ago, an effective follow-on biologics bill must maintain a balance between increasing consumer access to affordable medicines on the one hand, and providing adequate incentives for innovation on the other.

Lifesaving drugs are useless if no one can afford them, yet making today's drugs affordable does us little good if we cutoff the supply of future breakthroughs. We've made great progress in the last three years towards a consensus on how to ensure that follow-on biologics are safe and effective.

Just two years ago, the drug industry argued that it was impossible to make follow-on biologics. Now there's agreement that it can be done. But we remain divided on what incentives are needed for innovation.

It's no longer a matter of whether patients will get generic versions of these lifesaving medicines, but when. In assessing how much exclusive marketing is needed to sustain innovation, I began with a basic premise.

The balance we struck in the Hatch-Waxman Act has worked well for 25 years. It has given us access to affordable drugs and it has not damaged innovation. Pharmaceutical R&D expenditures have not just been maintained, but have steadily risen throughout these 25 years.

Under Waxman-Hatch, innovative drugs get five years of exclusivity. The drug industry has been engaged in a massive and expensive lobbying campaign to convince the members of this committee that the supply of lifesaving drugs will dry up if they don't get triple the monopoly protection available to all other drugs.

The drug industry is demanding 12 or even 14 years of exclusivity for biotech drugs. To support this extraordinary request, the industry makes two main arguments.

First, that their patents are much weaker than drug patents and won't block competition from follow-ons. Second, that it takes 12 and 16 years for biotech drugs to breakeven, so that's the period of exclusivity they need. Though I've seen little persuasive -- little or no persuasive evidence to support these arguments, the industry has blanketed Capitol Hill with them.

The outcome of this debate is too important for our nation's health to let lobbying clout decide it. The cost of reaching the wrong decision is simply too high.

Instead, the appropriate length of exclusivity must be decided on the basis of evidence and analysis by objective experts, experts who are not being paid by one side or the other.

That's why I am so pleased that the Federal Trade Commission has undertaken an in-depth review of all the evidence and arguments on both sides of this debate. The FTC employs economists, patent lawyers, and experts in the pharmaceutical marketplace.

Their job is to assess the impact of laws, regulations, and marketing practices on both competition and innovation in the prescription drug marketplace. The FTC has overseen this marketplace for decades and has produced highly respected reports on generic drug competition and anticompetitive practices in the drug marketplace.

For example, in 2002, the FTC produced a report on abuses of Hatch-Waxman that inappropriately delayed consumer access to generic drugs. The report resulted in important amendments to our law enacted the following year.

Today the FTC will tell us whether the methods we have used to sustain innovation in the drug industry, patents, and the market-based pricing with perhaps a short period of exclusivity are adequate to sustain innovation for biotech drugs. And they will tell us whether the arguments in favor of 12 to 14 years of exclusive marketing hold up to scrutiny.

Objective, evidence-based answers to these questions from the expert agency charged with overseeing competition and innovation in the drug marketplace will provide critical information to the committee as we move forward. I look forward to exploring the FTC's analysis and conclusions on these questions.

Thank you very much, Mr. Chairman.

REP. PALLONE: Thank you, Chairman Waxman. Next is the gentleman from Kentucky, Mr. Whitfield.

REP. ED WHITFIELD (R-KY): Mr. Chairman, thank you very much for this important hearing today on an important subject matter. All of us are in total agreement that some type of generic pathway for biological drugs must be created.

I think it demonstrates by the different bills that we have that there are some significant differences in how we create that pathway.

We all understand yesterday that the Federal Trade Commission's report was submitted. And at least many of us with some serious concerns with their findings, specifically the claim that data exclusivity is essentially unnecessary in a generic pathway.

The scenario outlined by the FTC would, I believe, unfairly tilt competition in favor of biosimilars by allowing them to capitalize on the innovator's substantial research and development efforts at any time.

This would create even more uncertainty, I believe, for innovators when they make their R&D decisions. I might also say that Professor Dr. Henry Grabowski at Duke University -- and you all can correct me if I'm wrong on this, but I believe he has the only peer- reviewed document on this.

And he summarized the findings of his study that -- it concludes that without a data exclusivity period of between 13 and 16 years, the future introduction of important new medicines could be delayed significantly, or deterred altogether, and that a strong innovative industry is necessary for an industry to thrive over the long-term.

So we find ourselves today trying to balance the need for new drugs, providing low-cost medicines for our senior citizens. And so this hearing is vitally important, and I certainly look forward to hearing from the Federal Trade Commission today, and learning more about their reports and how it compares with Dr. Grabowski's report. And thank you very much.

REP. PALLONE: Thank you. Next is the gentlewoman from California, Ms. Eshoo, and I want to thank her also for all her work on this issue.

REP. ANNA G. ESHOO (D-CA): Thank you, Mr. Chairman, and good morning to everyone that's here. I'm pleased to be here to discuss the competition in the biotechnology industry.

But I have to say that I'm puzzled and somewhat disappointed by the subcommittee's approach to this critical issue. Everyone understands that this is not only critical, it's extremely complex.

In May of 2007, over two years ago, the Health Subcommittee had a hearing on biosimilars. In October of 2007, subcommittee members met to discuss biosimilars.

And the result of that meeting, as members might recall, was a series of questions that the members provided to the stakeholders and the FDA several months later in April of 2008.

We received thoughtful, thorough responses from a large number of interested organizations and experts. Now, today, this is the first committee action on biosimilars in more than two years, in a hearing on an FTC report we received less than 24 hours ago.

When we were informed that there was going to be this hearing, we immediately called the FTC to ask for a copy of the report. They said that we could not have it, that it would be available the morning of the hearing.

I then, Mr. Chairman, approached you and asked if members could at least see this the day before. Why have a hearing if you can't read the report that you are having the hearing on?

So we did receive it. I don't know how many members have read this report. And I don't think that this process really reflects well on I think the most distinguished full committee and subcommittee in the House.

Now, I assume that the FTC has devoted significant efforts and resources in putting this report together, but I'm not convinced that the FTC Commission is -- and what they have in this report are exactly what we've been waiting for two years to hear about.

I've met with many scientists, doctors, patients, who have much to contribute to the subcommittee's deliberations. But we only have the FTC here today -- and I guess it was the decision of the chairman not to have anyone else.

This is a report that has not even had -- been subjected to the scrutiny of the public. I think that we can do better than that.

Now, what does the FTC report -- as I read it as quickly as I could, what does it conclude? It says that increased competition in the biotechnology industry would result in lower prices for biologics.

It's exactly why I introduced along with Mr. Inslee, Mr. Barton, the Pathway for Biosimilars Act. This is the Kennedy legislation in the (House ?).

Now, competition is always healthy. Anyone that has known me over the 16-1/2 years I've been in the Congress, knows that I believe that it benefits consumers, whether it's in biotechnology, whether it's in telecommunications, whether it's in energy, whether it's in health care, or whether it's in baseball.

I'm a staunch advocate of fair competition and open market. And I believe that my legislation will provide new competition while promoting sound science, and above all else protect patients.

Any new pathway for biosimilars must provide effective safeguards for patients and sufficient incentives for the development of new treatments for the most deadly diseases that affect humankind today.

I'm pleased that my bill enjoys the support of just shy of 100 members, bipartisan members of the House. And it's received the endorsements of over 70 patient, physician, industry, and academic groups, as well as governors of four states.

So I think that we need to be respectful of both efforts, and I'm very proud of this because this is a complicated issue, and the amount of time spent with members as well as members of the public and others has been considerable.

The establishment of a new regulatory pathway for approval of biosimilars is a critical matter for this subcommittee and the Congress to consider. I'm eager to get to work on this.

And I encourage you, Mr. Chairman, to hold more thorough and more inclusive hearings in the near future. I'm glad that the FTC is here today.

My understanding of the FTC is that most of its work deals with antitrust. This -- in my questions, I would like to know where the scientific data and the basis for the report has come from.

But I nonetheless welcome the FTC here. You're an important agency.

And I thank you, Mr. Chairman, and I hope that -- when I asked you why we were doing it this way, your response was it's the only time we have before the August recess.

I think it could have been broader. I think the subcommittee deserves that. I think the full committee deserves that.

I think the House of representatives deserves that on this issue which is so critical -- so critical to the wellbeing of patients and a process by which we can reduce the cost of biologics for people in our country. So thank you and I yield back.

REP. PALLONE: Thank you. And let me assure the gentlewoman, as I said, that we will have additional hearings on this very important issue.

REP. ESHOO: When do you plan to do that? When do you plan to do that?

REP. PALLONE: Well, as I mentioned, we are going into the health care debate, so I can't say when. But I promise you we will, because this is a very important issue for the members.

Let me turn to the gentleman from Texas, Mr. Burgess.

REP. MICHAEL C. BURGESS (R-TX): Thank you, Mr. Chairman. Well, mark me down as leaning ambivalent on this issue.

Now, just like everyone who sits on this committee, I know we've all spent months looking at the legislative proposals dealing with follow-on biologics. I know I personally have been in meeting after meeting with interested parties, and I've become convinced that this committee needs to hold more hearings.

We lack sufficient information, primarily safety information to render an informed opinion. We do have two bills championed by leaders in this committee, and we obviously need to explore those divergent points of view it's involved.

Certainly, like Congresswoman Eshoo I welcome Commissioner Harbour here. I -- there are lots of things that I would like to discuss with the Federal Trade Commission.

I'm terribly interested in the lack of the ability of our physician community to be able to negotiate with our insurance community. But we don't get to do that today.

So my excitement about this hearing was tempered when I realized we're really only going to be focusing on a very narrow aspect of the biosimilars discussion, and that that very narrow aspect will not include patient safety.

Market exclusivity and patent integrity are important elements of any legislation authorizing a pathway for follow-on biologics. I was unaware that this committee had already achieved consensus on issues of safety, science, and the Food and Drug Administration.

Assuming this committee has not reached such a consensus, I find it is just downright frustrating that the Food and Drug Administration is not here in this room at this hearing.

Now, assuming that we did want to hold a series of hearings on points of disagreement, it wanted our first focus to be on market forces, as we will today, then a second panel representing concurring or dissenting opinions from industry would be appropriate in my opinion. And then maybe we could even hear from the scientists and the doctors.

Mr. Chairman, I referenced last week, I took a fieldtrip out to the Food and Drug Administration last week. I had some wonderful interactions with some of the scientists who are working on some of these very issues, the issues of biosimilars as they relate to monoclonal antibodies.

This is a type of research that may unlock a lot of secrets that have been kept from our physician community for years. And it's just such terribly important information that I cannot believe we're going to be asked to make a decision without access to that information.

I'll be interested to what extent the commissioner would be able to testify on the issue of interchangeability.

Interchangeability is one of the foremost in issue of science, but it is an importantly one of patient's safety, and that should have a physician and a patient at the heart of the discussion. I would not typically associate the Federal Trade Commission with such a discussion.

Mr. Chairman, I am fascinated by the prospect of a reliable biosimilar pathway. Texas is becoming a focal point for biotechnology development. Not only does this mean new therapies for previously untreatable diseases, with just the chance of projection that 50 percent of the drugs by 2020 will be biologics, so this is a huge economic issue for Texas as well.

Just as scientists and doctors have just scratched the surface of potential biologics for the next generation of cures and treatments, this committee has plenty of work to do to find a compromise bill that solidifies our ambitions, and meets or exceeds our expectations.

No artificial deadline -- and this goes to the health reform debate as well, no artificial deadline should compel us to ride roughshod over the deliberative nature of this party in regular order. To do so not only tarnishes this great committee, but could literally mean life or death for our constituents.

Thank you, Mr. Chairman. I'll yield back the balance of my time.

REP. PALLONE: Thank you.

The Chairman Emeritus, Mr. Dingell.

REP. JOHN D. DINGELL (D-MI): Mr. Chairman, thank you, and I commend you for hold this hearing which is very important.

We are here to discuss the findings of the Federal Trade Commission with respect to its study on how competition between pioneer biologics and follow-on biologics is likely to develop. This is a series of hearings which I hope will take place which is fraught with many, many questions of great importance and many fewer answers of any relevance or importance.

We have a tremendous opportunity here to develop a follow-on biologics policy that will breed the competition needed to provide greater access on lifesaving biological drugs.

However, we also have a responsibility to ensure that the innovation that develops the current biologic products continues in a way that will breed new effective therapies for a new group of conditions.

One thing the FTC report makes abundantly clear is that biologic products are different from small molecule chemical drugs that are enormously complex, much longer, and they are also either products of, or sometimes living organisms.

The science is clearly different. The safety considerations between the two categories of drugs are different, and as the FTC reports concludes the competition between pioneer products and generic competitors is different.

It must be noted that we will find that the traditional questions that FDA has had to address will be somewhat different either in form or in total. And the question of whether it is safe, biologically equivalent, what are the side-effects, contraindications, and whether it is effective, are going to be interesting and different questions that have to be addressed.

It also is going to be a major question before us as to how we address the question of biological equivalency, and whether or not one drug is an honest, safe, substitute for another which can properly be prescribed with the expectation of helping rather than hurting the patient.

In 1984, Congress granted the FDA authority to approve generic drugs, and we all commend Chairman Waxman for his leadership in that effort. We did not foresee the need for a similar pathway for generic biologics.

The science has exploded under our feet since then, and in certain instances biotechnology provides clear, technical advantages over other traditional therapies.

We also need to examine if the exclusivity limitations that we create is reflective of true costs in time and resources. We also need to know how this is going to affect the cost of medicine, and how it's going to impact on our efforts to reduce the tremendous skyrocketing now going on in health care costs.

We also owe it to consumers to make sure that there is affordable access to these life-enhancing and sustaining therapies. What is the path forward on exclusivity?

Is it 5 years, 12 years, or 14 years? More or less? Eleven years as the European Union has set forth? We need to create a framework that balances good science and the public health.

We can also focus on patient safety and at the same time ensure that incentives remain for private innovation. The FTC report does a good job of laying out the economic and competitive effects of a follow-on biologics policy.

However, we should be reminded that safety should be our number one priority and protection of the American consuming public should be of the highest priority. Policy that protects the safety of the patient is paramount as we forge ahead in the new area of follow-on biologics.

We should be thoughtful as we move forward, but not allow fear to restrict us, but above all else, we've got to move forward to get the answers to the question. Here are a few questions that I find troublesome.

What standards will ensure that follow-on biologics are as safe as the original products, and that we provide the necessary knowledge to medical practitioners in the use of these products?

As we study potential competition models, should we be guided by a one-size-fits-all approach, or should we allow different approaches, and if so, when, how, and what discretion should we give FDA to use those?

Or should there be a variation from one product to another? What studies should support follow-on biological applications? Can a generic biologic product be created that is genuinely or sufficiently interchangeable?

People tell us, yes, people tell us, no. But in this area of enormous complexity, I'm not convinced that we can give a decent answer to that question.

I am convinced that all these questions could be answered, and that there is a way forward in developing sound follow-on biologics policy that provides greater access to current products and supports innovation in developing new ones.

I look forward to contributing to that discussion, and I know that this committee is fully up to the task which -- for which we are created and that is dealing with questions of this kind.

I am pleased the hearing is being held. I look forward to the testimony, and I anticipate much needed feedback from our members.

And I thank you, Mr. Chairman.

REP. PALLONE: Thank you, Chairman Dingell. The gentlewoman from Tennessee, Ms. Blackburn.

REP. MARSHA BLACKBURN (R-TN): Thank you, Mr. Chairman, and I want to say welcome to our witnesses today. And members on this committee have heard me talk a little bit about serving in the state senate in Tennessee.

And one of the things that I've worked very diligently on while I was there was starting our Tennessee Biotech Association, and now that has 130 members across our state.

And they really have become the recognized authority on biotech research in our state. Right now we've got about 300 companies that are life science companies that are working in Tennessee that are innovating every day.

And they're working with pharmaceutical companies and bioscience companies large and small to create new products, and therapies, and protocols, and we're very pleased with the work that they're doing.

We're also pleased with the work that is being done by many of our universities in Tennessee which are taking a lead in this, and they received $580 million in external funding for biotech related research in our universities in the past year.

And we have Memphis -- the University at Tennessee Health Science Center has Memphis Bioworks. We have complementary work that is being done at St. Jude. We have the Life Sciences Center where Vanderbilt has a partnership and that's in the mid-state area.

East Tennessee State, University of Tennessee, and Oakridge are on the east side of our state, and in the past six years, along with the funding that is going to the universities you've seen just $1 billion in venture capital go into innovation.

So I'm pleased to be able to praise that innovative industry in our state, but I will tell you I am very concerned about protecting the intellectual property of the industry in that state.

And quite honestly as I read through your report it was something that was of concern to me, and I am going to have some questions from -- for you today as we move forward with this hearing.

One of the things that I felt as I read your report, if you followed the scenario, the patent scenario that you lay forth, then it appears that biosimilars could be brought to market while they are still infringing on valid patents.

And as my colleagues know, last week when we debated the energy bill, I sought to bring intellectual property protection for those innovators that are working in the energy sector. Yesterday on the floor, Congressman Larsen, Congressman Kirk, and I had an amendment that went in to provide protection for this innovation.

So this raises some red flags with me of how infringement could be allowed in product brought to market. It raises red flags to me that it is uncertainty that would be placed on our innovators, and I see that as a hamper to R&D which we badly need.

I know I am over my time, and we're going to have votes, so I will yield back. And I do look forward to the questions.

Thank you, Mr. Chairman.

REP. PALLONE: Thank you. The gentleman from Utah, Mr. Matheson.

REP. JIM MATHESON (D-UT): Thank you, Mr. Chairman. I think we all know that as we go into the 21st century and we look at the U.S. economy, innovation is such a key factor in how our economy is going to succeed.

I think it's very important to remember that in the context of today's hearing, because within the innovation economy, few industries have more promise and more uncertainty and risk than the biotechnology industry.

The biotech industry supports more than 3.2 million jobs in the United States, and we all know many of these are high-wage jobs, but we should also acknowledge that this is an industry where the U.S. is still the leader in the world.

This is one of those centers of excellence within the United States when you look at the global economy. Yet with all that good news, more than 80 percent of the biotech companies in our country remain unprofitable and a third of the companies had less than six month's cash on hand.

And this is with no competition from follow-on products. The companies that make up the majority of this industry are small. They had no source of revenue and they're operating solely on the hope that they will achieve a major breakthrough in medicine.

So one of the main issues up for discussion today is the issue of data exclusivity, how much time should an innovative biotechnology product have on the markets to try to recoup the investment in research and development before a follow-on biologic is approved.

The average cost of developing a biologic is about $1.2 billion. Clearly, that's an expensive investment, particularly when you have no revenues coming in the door.

I think we can all agree that competition in the market for medicines is a good thing. It brings down cost for individuals and for the health care system as a whole, and I fully support establishing a pathway for approval of follow-on biologics.

However, I believe we need to be sure we are creating appropriate incentives for biotechnology companies to take the risks involved in bringing these medicines to patients.

Now, I understand that the FTC believes that five years is sufficient period for data exclusivity for innovative biotechnology products. I disagree.

As I said earlier, this is one of America's strengths, but we've got to look at the context of global competition. The exclusivity period in Europe is longer than five years.

This is an industry that can move offshore in a moment. And as members of Congress, we need to take that in consideration when we set this type of policy.

A recent report from Duke University shows that the breakeven point for most biologics is somewhere between 12 and 16 years. Without an appropriate incentive, the researchers of Duke believe that few companies or venture capitalists would invest the necessary capital to research and develop a biotech product.

These products are going to be developed in this country not necessarily with taxpayer dollars, that last statement I just made about this is an industry that's financed through venture capital and other private capital markets. And the public policy platform we set will establish the proper incentives I hope to allow that private investment to happen.

These are the issues we ought to be talking about today. It's our job to make -- take these steps to make sure this innovation agenda has an opportunity to succeed in this country.

And I would hope, Mr. Chairman, as others have voiced that this subcommittee can bring in other witnesses besides just the one panel today to bring in other points of view as we examine this very important issue. I look forward to working with the committee on that. And I yield back the balance of my time.

REP. PALLONE: Thank you. The gentleman from Georgia, Mr. Gingrey.

REP. PHIL GINGREY (R-GA): Mr. Chairman, thank you very much. I would tend to agree with Ms. Eshoo that getting the report from the FTC at 2:00 o'clock yesterday afternoon really allows very little time to go through the 120 pages.

And I have to admit that I haven't had the opportunity to go through any of it. So I certainly do look forward to the witness that we're going to hear from shortly.

This is a hugely important issue, this issue of follow-on biologics. And as we all know there are two bills introduced, on the one hand by leadership on the majority side combined with some leadership from the minority side, and also a bill on the minority side coauthored by our Ranking Member Barton.

I've looked at these bills. I've studied them. I've tried to understand. And you know, on the one hand 16 years I guess of exclusivity, and on the other hand about 8 years of the issue of interchangeability, once these generic biologics, follow-on biologics are actually approved by the FDA I think is a very important issue.

And it's tough. It's a tough thing to decide on. And we just need, as my colleagues have said, as much information we can possibly get particularly in regard to patient safety, because as the chairman emeritus said these are not single molecules or small molecules as we dealt with back in '84 under Hatch-Waxman.

These are different. These are living cells and every manufacturing process for these drugs are different. And there's no way to make them completely the same. So it's going to be a tough thing.

I would hope that maybe there's room for compromise quite honestly as we listen to the debate and study further the two particular bills, because there are great members that are trying to do the right thing, and trying to make sure that we get cost- effective.

I don't want to say cheap, but cost-effective, the very expensive medications to the public as soon as possible, but also that we have to always keep in mind safety.

So I look forward, Mr. Chairman, to the hearing and getting more information on this hugely important issue. And I yield.

REP. PALLONE: Thank you. The gentlewoman from California, Ms. Harman.

REP. JANE HARMAN (D-CA): Thank you, Mr. Chairman. I'm a new member to this subcommittee. And I surely agree with Ms. Eshoo that this subject is complex.

And I'm persuaded that I don't know enough about it to have a final opinion. That's why I'm happy we're having this hearing and that we will a series of hearings in the fall.

I have not cosponsored either of the pending bills because I feel I need to learn more, but surely I know enough to believe that we should be getting reports more than 18 hours in advance of hearings. And I hope that in the future that will happen so that all of us can be as knowledgeable as possible.

I just want to say a couple of things about the general subject. First of all, although new to the committee, I'm not new to this earth and I'm not new to Congress.

And I remember 1984 when Henry Waxman did something very impressive. And that was to strike an agreement with his political opposite Orrin Hatch on a bill that the drug industry strongly opposed.

And that has led to considerable progress. So I really think these things can happen and be done right. And that's the history in our committee. And hopefully we will follow it again.

But this time, I think the subject is more complicated, and I think the implications, as Mr. Matheson said, for the future of the U.S. industry are grave.

I don't know much about this subject, but I do know what we did to the U.S. commercial satellite industry, when in my opinion we got it wrong in the late 1990s. And we basically took away the market edge for our U.S. satellite makers.

Now we're trying to get it back, hopefully we will, but we lost 10 years. And so I just want to make sure we get this right.

And I want to be sure that I make the best contribution I can as a hopefully thoughtful member of this committee.

So I thank you for holding this hearing. And I look forward to learning a lot more about this subject. I yield back.

REP. PALLONE: Thank you. Gentleman from Pennsylvania, Mr. Pitts.

REP. JOSEPH R. PITTS (R-PA): Thank you, Mr. Chairman. I'd like to thank you for convening this hearing on the Federal Trade Commission's report "Emerging Health Care Issues: Follow-on Biologic Drug Competition."

I think all of us realize the potential of follow-on biologics. And I believe we all agree on the need to set up a pathway sooner rather than later.

I must say also that it would have been more helpful to give the members a little more time until they had the time to read and analyze this 120-page report, which was released just yesterday before having the hearing.

I'm quite concerned by the report's assertion that no period of data exclusivity is necessary for pioneer or brand biologics because patents and market pricing should provide sufficient protection and incentive. This logic has worked well for small-molecule drugs governed by Hatch-Waxman.

But as this report points out multiple times there are significant differences between small-molecule drugs and biologics. As the report acknowledges a generic small-molecule drug is identical to its brand counterpart. A follow-on can only be similar to the brand biologic.

It is this space between identical and similar that opens the door for the follow-on to circumvent or skirt one or more of the brand biologics patents. With this uncertainty over whether a patent will actually protect the brand biologics investment, biotech companies and the venture capitalists that fund them may reassess the cost and the risk involved in the development of new biologics and opt not to go forward with new drug development.

Stifling innovation and potentially impeding patients' access to the most promising cutting-edge biologics is surely not the goal of anyone on this subcommittee. Data exclusivity provides the certainty brand biologics needs to spend hundreds of millions of dollars and years investing in the research, development, and approval of new drugs and the assurance that this investment can be recouped.

I would ask our witnesses to carefully explain why they believe that patent circumvention by biosimilar companies is not a valid scenario. Thank you, and I yield back the balance of my time.

REP. PALLONE: Thank you, Mr. Pitts.

The gentlewoman from the Virgin Islands, Ms. Christensen.

REP. DONNA M. CHRISTENSEN (D-VI): Thank you, Mr. Chairman. And thank you for beginning this discussion on this very important and complex issue at this hearing.

As I understand it the report was requested basically to determine if follow-on biologics would result in reductions in cost of these complex, but very important therapeutic drugs.

And anyone who knows me would know that one of my concerns is that life-improving or saving medication be accessible to everyone. And yes, cost is an important barrier to that. But as a physician, safety trumps everything.

I've seen substandard meds marketed in the Caribbean and while small-molecular drugs that -- and in small-molecular drugs that may not be a dangerous difference. The situation with biosimilars or follow-on biologics is totally different.

I only had a chance to read the executive summary and some of the first pages of the report, but what I've taken away so far is that a clear understand -- is a clear understanding the biologics are very complex large molecules produced under very sensitive conditions that are not easy to reproduce exactly, that significant investment is made in their production.

And that if reduction of cost is what has generated the request of this report, FOBs are not likely to result in much of a price decrease. If the latter is true, then why sacrifice safety?

And some questions remain unanswered. Why accept the similar rather than the same in the case of such a complex medication when a tiny difference could make a difference in its action and its immunogenicity? I'm puzzled by the assertion also that a short patent life will not stifle innovation.

If it takes 12 to 14 years to recoup investment as demonstrated by a peer-reviewed article by Duke Professor Grabowski, and that is likely after many trials have failed with that company and they've experienced financial losses. Why should these complex molecules not have a longer time?

Very importantly the report states that technology is not yet -- and I'm quoting here, "Technology is not yet robust enough to determine whether an FOB product is interchangeable with the pioneer products."

That statement plus the fact that not a single country in the EU has authorized interchangeability, and several have outlawed it, should slowdown any rush to allow products that are only similar to the pioneer and to require more of any follow-on manufacturer to prove safety.

It seems to me that sufficient uncertainty exists so that the FTC didn't even make a specific recommendation for a period of exclusivity. I'd like to see these important drugs reach everyone.

And that means exploring ways to ensure that that happens including having the pharmaceuticals look at after a period of time perhaps reducing the costs. But I'm convinced that shortening the time of patent and data exclusivity would adversely impact needed innovation.

And it seems to me that based on the complexity of the large molecules, and the lack of information on several factors, we should err on the side of safety and make sure that we do no harm. So I welcome Commissioner Harbour and look forward to your testimony.

Thank you, Mr. Chairman.

REP. PALLONE: Thank you. Gentleman from Indiana, Mr. Buyer.

REP. STEVE BUYER (R-IN): I've come here today also like my colleague, Jane Harman, and I have not cosponsored either of these two bills yet. And I find myself in a curious position why we are even seeking the counsel of the Federal Trade Commission on an issue whereby we're most concerned with regard to the drug safety and efficacy.

When I look at the commissioners from the Federal Trade Commission, none of them have any experience in public health whatsoever. You know, we've got lawyers.

Well, I'm a lawyer too and so what I need is not the advice or counsel of another lawyer. I need advice and counsel from public health, from scientists.

So we can have a conversation today lawyer to lawyer. You can give me your opinion on what you think the marketplace is and what it's like. And I guess if you're going to tell me about trying to promote competition in the drug industry, big versus small, and how we protect innovation is part of your core missions of the FTC, I guess we might as well ask your report on NASA.

Gee, let's talk about what big companies out there and how we can promote innovation to do exploration in space. Hey, the last frontier isn't even space, it's marine.

So maybe we should ask a report from the FTC about the exploration on the ocean floor.

You can give me an opinion on that. Maybe I should ask for -- I'll just make it up.

So I'm sitting here today as a curious member of Congress that I've come here to listen to lawyers tell us what they think about drug efficacy and safety. Now, I haven't had a chance to read this. I'm more than anxious to look at it. I'm also curious as to who initiated this.

Who is -- did anyone from Congress ask you to do this? I don't know. So I'm interested for you to let us know why you initiated this, why these group of lawyers think that your opinion is so important with regard to efficacy and the safety of drugs.

Now, what bothers me the most is that what I've learned over the years in dealing with the drug industry and biologics is that we do everything we can to promote this innovation, yet we try to find science into narrow populations. And it's very challenging because when you go into the marketplace how do you raise that capital, at- risk capital?

And if we don't give these companies an opportunity to recoup their costs and make a profit, they won't go into narrow spectrums. And if they won't go into narrow spectrums, then people then turn to government and say that government, you have to do it.

And if it's all about innovation, safety, and efficacy I want to hear from the experts, Mr. Chairman. So what I'm hopeful is that if you're going to do this today, please bring us a panel of experts, the FDA, bring in the scientists so that we can have equal -- you know, quality here with regard to substance of testimony.

That's what I'm looking for. And that would be my request to you, Mr. Chairman. I yield back.

REP. PALLONE: Gentleman from Texas, Mr. Green.

REP. GENE GREEN (D-TX): Thank you, Mr. Chairman. And like my colleagues, I have concerns about this hearing on the FTC's report that we received yesterday on follow-on biologic competition.

We've heard this would be the only hearing on the issue of follow-on biologics because the schedule will not accommodate additional hearings on the topic.

If we're going to have a fair debate on follow-on biologics and the issues surrounding H.R. 1548 the Eshoo-Barton-Inslee Pathway to Biosimilars Act, which I'm a co-sponsor and the H.R. 1427 the Waxman- Pallone-Deal Promoting Innovation and Access to Life-Saving Medicine Act, the arena for those should not be centered around a hearing with one witness from the FTC.

Follow-on biologics is an extremely complex issue and members of this committee are divided between the two bills pending before us. One hearing with one witness who isn't from the FDA, an innovator company, a generic drug company, or even a patient who has used biologic is not a true hearing on the difficult issues surrounding follow-on biologics.

We believe we need to have a hearing with at least the FDA before this committee moving forward -- before this committee moves forward with any legislation on biologics -- follow-on biologics.

I think we can all agree that there needs to be a regulatory path in this country to follow-on biologics and whatever we resolve the differences -- however we resolve the differences between the two bills, we need to consider the implications for employers, innovators, the generic industry, and most importantly the patients who depend on these life-improving and lifesaving therapies.

Biologics offers a tremendous promise -- (inaudible) -- but there is no question we have to get it right. The undeniable fact is biologics are very different from the small-molecule drugs and present unique concerns about the safety and effectiveness.

Holding one hearing doesn't allow us to explore the questions such as what effect does a small change in an amino acid sequence produce. Is that effect large enough and concerning enough to warrant additional clinical trials before the follow-on biologic is available to public?

Can we in good conscience consider the follow-on products safe if they're never even tested on a human population? I share the goal of lowering patient's costs through follow-on pathway, but not at the expense of the same patient's safety.

Any action by the committee must depend -- balance the desire for the lower cost of biologics with the need to preserve the incentives for innovation and patient safety, so that more Americans can benefit from the therapeutic promise of biologics. And again, I thank you and yield back my time.

REP. PALLONE: Thank you.

Gentleman from Illinois, Mr. Shimkus.

REP. JOHN SHIMKUS (R-IL): I knew I could be here when the gavel dropped and go to the next meeting and still make it. So I apologize to the commissioner. The -- I will just read from the report here on the executive summary.

"Current technology does not yet allow the creation of an exact replica of a pioneer biological drug product according to the FDA. In addition, technology is not yet robust enough to determine whether the follow-on biologic product is interchangeable with the pioneer product such as that a patient would be able to switch between the two products without risk of an adverse effect. Follow-on biologics are not chemical compounds."

We need more hearings on this, Mr. Chairman. And we need to have science brought in. And with all due respect to the FTC, they're not the ones.

They're not the ones to give us the direction on the safety and efficacy on follow-on biologics. So I look forward to that and I hope we can follow-up with more hearings. I yield back.

REP. PALLONE: Thank you.

Gentlewoman from Wisconsin, Ms. Baldwin.

REP. TAMMY BALDWIN (D-WI): Thank you, Mr. Chairman.

And thank you, Commissioner Harbour, for joining us today. I've really been interested in the issue of follow-on biologics for a number of years. I happen to represent a district that is rich in intellectual capital in this area.

The University of Wisconsin-Madison has produced some of the world's leading research in biologic drugs. We also have a unique entity in my district called the Wisconsin Alumni Research Foundation. We call it WARF.

And what they do is they work with business and industry to transform university research into real products benefiting society at large. It was founded in 1925 to manage the University of Wisconsin- Madison discovery that eventually eliminated the childhood disease rickets, and today WARF holds nearly 100 patents related specifically to biologics.

I am certainly supportive of the creation of a pathway for the approval of biosimilars. And we will hear from the FTC this morning that when we do create this pathway, current patent protections coupled with market-based pricing are sufficient to continue to spur innovation in the biologic drug market.

And yet on the ground, I hear oftentimes the opposite is true. Even with current patent protections, and without a pathway for biosimilars, WARF is having trouble finding companies to buy and license those 100-plus biologic patents that I referred to and that they currently hold.

Developing biologic drugs is a billion dollar enterprise with an extraordinarily high failure rate. To take that knowing that another company could invest a fraction of that amount and take even a small portion of your market share maybe enough to rethink the enterprise all together.

I'm extraordinarily proud of the companies in my district to have taken on this risk in hopes of saving lives and improving health. Just one example is the example of FluGen located in Madison.

They are working on developing influenza vaccines, and we know that this is a timely and critically important enterprise. FluGen, like the vast majority of biotech industry colleagues is a very small company.

It does not have the profit margins of 50 and 60 percent. Yet these are the profit margins that are used to conduct these economic analyses that conclude that only minimal data exclusivity is necessary.

Without sufficient data exclusivity protection, FluGen faces the risk that a company will really come in and take a free ride off of their clinical data and design around their patent forcing them out of the market entirely.

One final point, Mr. Chairman; the FTC report seems to conclude that a long period of data exclusivity would hamper innovation. Currently, with no pathway and -- biologics enjoy infinite data exclusivity, and yet we have had an astounding innovation in this arena.

So you really only need to look to the 2nd congressional district in Wisconsin to see the best proof of that.

Thank you, Mr. Chairman. And I yield back my balance of time.

REP. PALLONE: Thank you. Gentlewoman from North Carolina, Ms. Myrick.

REP. SUE MYRICK (R-NC): (Off mike) -- Mr. Chairman, but I'll wait.

REP. PALLONE: Gentleman from Pennsylvania, Mr. Murphy.

REP. TIM MURPHY (R-PA): Thank you, Mr. Chairman. Part of what we have to do here with Solomon's sword is to understand that drugs that are not affordable offer little consolation and a drug that is not invented offers little cure.

A couple of years ago when we had a hearing on this issue of follow-on biologics, I talked about a constituent of mine who had pancreatic cancer. And he, at that time, was taking a experimental biologic drug which actually shrank his tumors down considerably, but unfortunately ended up with some kidney failure and he died in that process.

It was exciting to watch how his cancer was going away, and otherwise it would be a lethal problem for him. It was troubling to see how he had to jump through lot of hoops to get the treatments.

But moreover, I want to make sure that we are continuing to do everything we can to encourage companies to make the investments to come up with these cures.

I know that part of what we are facing here is the way that once we come up with these cures, how do we make sure that people can afford these drugs. And that is what I hope we have a lot of discussions on, a lot of hearings to really work out some mechanism whereby these become affordable.

But again, I say that if the drug is not invented there is no cure and therefore no hope. And I hope that as we proceed with this, we will both hear from witnesses with some ideas along these lines, but also continue to deliberate among ourselves in using all discernment possible to make sure that we do not stop either end of this. And with that I yield back.

REP. PALLONE: Thank you. Gentleman from Ohio, Mr. Space.

REP. ZACK T. SPACE (D-OH): Thank you, Mr. Chairman, for the opportunity to provide my perspective on what is clearly a very difficult and somewhat controversial issue.

In listening to the opening statements of my colleagues on both sides of aisle, it's clear that we are arriving at a consensus, and very eloquently stated by Mr. Murphy from Pennsylvania, the need to innovate is directly conflicting right now with the need to provide affordable biologic medication.

We have seen a tremendous boom in the manufacture of biotechnology and industry. Generally, the United States has been a leader, and it's something that we can be very proud of. I'm sincerely torn right now on this issue because I have a child who suffers from a disease who is alive today because of biologics.

And I understand the need to foster innovation to create an environment in which those biotech companies that are flourishing in this country right now are able to take the risks necessary to innovate and create new treatments and new cures. At the same time, I come from a district where many people don't have quality health care.

Many people do not have the ability to pay considerable sums for these sophisticated medicines. And I do take hope in listening to the opening statements of my colleagues on both sides of the aisle that this committee will face this challenge in the way that it should with a sincere and passionate desire to do the right thing.

I look forward to working with you, Mr. Chairman. I appreciate the hard work that you have devoted to this issue. And I do look forward to hearing the testimony today, and I yield back. Thank you.

REP. PALLONE: Thank you. Gentleman from Georgia, Mr. Barrow.

Gentlewoman from Ohio, Ms. Sutton.

REP. BETTY SUTTON (D-OH): Thank you, Mr. Chairman for holding this extremely important hearing, and I look forward to hearing what the panelists have to say. In the United States, competition has always been an engine for innovation, and that has been true in the health care and the industry that supports it.

And while national unemployment numbers continue to be a source of concern, the Bureau of Labor Statistics reported that in May of this year, health care employment increased by 24,000. This increase is inline with the average monthly job growth so far in 2009.

Clearly, when it comes to the need for health care, demand far outweighs supply, and it's important to nurture the technology and advancement that leads to medical breakthroughs. However, in doing so, we must also consider that those who use our health care system have -- we have to be accountable to them as well.

Patient access to lifesaving technology and drugs is critically important. With the cost of health care bankrupting American families, we must consider how we can make things work for our citizens.

It's important that we have a pathway for options such as biologics, but it's equally important that this pathway be safe. Our experience in the field of genetics has taught us that multiple entrance into a pharmaceutical field or category can drastically drive down price and increase accessibility of drugs for patients.

And I'm eager to hear from our panelist about how the FTC envisions a market for follow-on biologics that will allow innovation to flourish and also serve to better our health care system and protect the health and the wallets of Americans. I yield back.

REP. PALLONE: Thank you. The gentleman from Iowa, Mr. Braley?

REP. BRUCE BRALEY (D-IA): Thank you, Mr. Chairman. If you've been paying attention to what my colleagues have been saying this morning, you will appreciate this is a tough job. This is a tough job that we have.

I have friends on both sides of this issue. You've heard great arguments on the strengths and weakness of these various proposals.

And I think that the thing that unites us all is a strong desire to make something happen that's going to benefit the people who are going to realize whatever potential medical gains there are to be realized from the research and development of biologics, and that's what brings us here and motivates this.

I want to thank the chairman for holding this important hearing. And we all know that establishing a fair pathway for follow-on biologics is extremely important. And we stand to see tremendous health care improvements as biologics continue to come to the market.

And when you look at the challenges we're facing with the broader health care reform debate, these are questions that have enormous implications going forward. And that's why we're all so focused on this issue.

We know that biologics have improved the treatment of many Americans, and saved countless lives, and these innovations will only see more and more use in coming years. The proteins that form the basis of biologics are extremely complex, and I must say the policy questions surrounding the creation of a pathway to the market are almost just as complex.

Any pathway for follow-on biologics must ensure fair completion without discouraging innovation in the industry. We owe many of our biggest medical achievements to those who have spent significant time and resources researching and experimenting with drugs, and biologics is no different.

We need to continue innovating, and we must make sure that every American who needs them can access lifesaving drugs and biologics that are a result of that innovation. I have been studying this issue closely since joining this committee and hearing from parties on all sides of the issue.

I am glad to see that we are gearing up to address the issue today, and I am confident that at the end of the day we'll have a proposal that both encourages innovation and ensures affordable access to those lifesaving biologics.

I look forward to continuing in these negotiations to make sure that Iowans that I represent continue to benefit from innovative, affordable medications. The FTC has a great deal of expertise, and a long record of ensuring fair competition in the marketplace, but that record is without -- is sometimes not always perfect.

They have thoroughly examined Waxman-Hatch in the past, and I always take their findings very seriously. That's why I look forward to today's testimony, to the follow-up hearings we're going to have. And I want to thank the chairman for convening the hearing.

REP. PALLONE: Thank you, Mr. Braley. Gentleman from Maryland, Mr. Sarbanes.

REP. JOHN P. SARBANES (D-MD): Thank you, Mr. Chairman. I don't have much to add to what's being said. Obviously, we have on one end of the equation the need for research and development to proceed in a way that's meaningful and leads us to new discoveries that can benefit consumers.

On the other hand, we've got -- on the other end of the equation, we've got the interest of affordability and access for the consumer, and we're struggling -- or we're not struggling yet. We're just -- we're working hard to figure out where the right balance is going to be.

The testimony today is obviously going to be helpful in that process. I just hope that when we reach the balance, we come to it principally through the perspective of what makes sense for the consumer. And so I look forward to the testimony, and I yield back my time.

REP. PALLONE: Thank you. The gentlewoman from Illinois, Ms. Schakowsky.

REP. JAN SCHAKOWSKY (D-IL): Thank you, Mr. Chairman. As we continue moving forward on health reform legislation, it is important that we take a long hard look at prescription drugs and how we can work together to reduce drug prices, and increase patient access to lifesaving drug therapies.

I'm a cosponsor of H.R. 1427. And I thank Chairman Waxman and Chairman Pallone for sponsoring this legislation, because I believe this bill effectively safeguards against unsafe drugs entering the market while allowing patients to access lower cost generic drugs.

I recognize the importance of encouraging innovation in the pharmaceutical industry as the report authored by the FTC shows innovation will not be hampered by allowing biologic generics into the market.

First, the research shows that it will most likely take 8 to 10 years to develop the manufacturing capacity to make a similar and interchangeable generic for a brand-named biologic.

Most -- more importantly, the amount of money required to produce the generic between a ($)100 (million) and $200 million will limit the number of generic manufacturers.

In other words, assuring that generic manufacturers can enter the market after a five year exclusivity period will pose little threat to the brand name industry, but it would have enormous paybacks for consumers.

I strongly believe that encouraging competition, particularly in the health care industry, not only promotes creativity and energizes researchers to discover better and more effective products, but it reduces costs. I think it's important that we give this complex issue some context.

Like many of the states represented on this committee, Illinois is facing a budget crisis, a deficit that's approaching $11 billion. As a result, many of the programs currently in place to help our citizens are facing drastic cuts.

Among those programs headed for a cut includes the Illinois Cares Rx program, a program that provides prescription drug assistance to a 172,000 seniors with high drug costs.

Many of these drugs cost patients tenths of thousands of dollars each year. Some can be over $100,000 and out-of-pocket copayments could run ($)10,000 to $20,000 a year. We obviously have to do all we can to bring down drug costs for patients. I believe that H.R. 1427 will help us do that.

Mr. Chairman, I look forward to working with you, and further the health and wellbeing of our constituents, and bring drug prices -- bring drugs to the market in a safe, and timely, and affordable way. I yield back.

REP. PALLONE: Thank you. The gentlewoman from Colorado, Ms. DeGette.

REP. DIANA DEGETTE (D-CO): Chairman, I'll submit my statement for the record. Let me just say an issue that none of us knew one thing about, we now are quite conversant.

And I think we need to move forward and talk about how we're going to resolve it. I'm very much eager to hear the testimony of Commissioner Harbour today. I think that will lend some light on to this very tough decision we have to make. And with that I yield back.

REP. PALLONE: Thank you.

And -- no, he is not here. Okay. I think we've heard all the opening statements. I just want to make sure that that's true, yeah.

Okay. I will now turn to our witness, and thank you for being here. First, let me say that our witness -- actually we only have one witness. It's the Honorable Pamela Jones Harbour, who is the commissioner, or a commissioner from the Federal Trade Commission.

However, my understanding is she has been joined by Mr. Wroblewski, who is the prime author of the report. And he is not going to testify, but will be available for questions is the way I understand it.

And you know -- we know we have five minute opening statements, and then we may get back to you later with additional written questions as well. But we'll have questions from all the panelists, from all the members of the subcommittee today. So if you'd begin, thank you.

MS. HARBOUR: Thank you, Chairman Pallone, Ranking Member Deal, and members of the subcommittee. I am Pamela Jones Harbour, a commissioner of the Federal Trade Commission.

I am joined by Michael Wroblewski, deputy director of the FTC's Office of Policy Planning. Thank you for inviting us to testify today.

I appreciate this opportunity to provide an overview of the commission's recently released report called "Emerging Health Care Issues: Follow-On Biologic Drug Competition.

"

A primary goal of our report is to examine how competition is likely to evolve in biologics markets, in particular, between pioneer biologics and follow-on biologics or FOBs.

The report sets forth our findings regarding the competitive dynamics of FOBs, and we hope that our recommendations will inform the legislative debate. I note that the report does not address any specific bills.

The commission recognizes that legislators are balancing many different objectives as they seek to craft a solution that best protects the public interest. The commission has limited its recommendations to competition issues, which are our core area of expertise.

We believe of course that this competition perspective is of critical importance in the FOB debate which is why we are grateful to have been given literally, a seat at the table today.

If Congress can create a balanced pathway for FOBs, and also pass legislation to eliminate pay-for-delay patent settlements between branded and generic companies in small-molecule markets, then Congress will have taken substantial steps to ensure that all Americans have access to affordable, lifesaving medicines.

On behalf of Chairman Leibowitz, I commend the Commerce Committee for moving legislation to ban these patent settlements through the Consumer Protection Subcommittee last week. The report's basic premise is that competition between pioneer biologics and FOBs is likely to look much more like current competition between two or more branded drugs that treat the same medical condition -- for example, Enbrel and Remicade, which both treat rheumatoid arthritis.

It will look less like current competition between branded and generic versions of a drug. And I will explain why the commission reached this conclusion, and I will also identify some implications for legislation seeking to create an abbreviated regulatory approval pathway for FOBs.

But first, I will begin by highlighting some important characteristics of the of the biologics marketplace. As you know, the emergence of biologics drugs has dramatically improved the lives of thousands of Americans over the past few decades. For example, the biologic Herceptin is used to treat breast cancer, and an annual course of treatment costs about ($)48,000 a year.

One way to reduce the costs of biologics would be to authorize the Food and Drug Administration to permit follow-on biologics to enter the market once a biologics drug's patents expire. However, there is no statutory or regulatory pathway to allow abbreviated FOB entry without the FOB applicant having to duplicate existing knowledge about safety and efficacy.

This duplication represents an inefficient use of limited R&D resources. Also, as the FDA has explained, repeating all of the clinical trials raises ethical concerns associated with unnecessary human testing. Elements of the Hatch-Waxman Act provide a model for reducing FOB entry costs and addressing ethical concerns.

Hatch-Waxman does not require generic applicants to duplicate the clinical testing of branded drugs that have already been proven safe and effective. Hatch-Waxman has successfully reduced drug prices, has broadened access, and has hastened the pace of innovation. And if pay-for-delay settlements are prohibited, these benefits of Hatch- Waxman will be preserved.

But as the report describes, according to the FDA, there are key scientific differences between biologic and small-molecule drug products. Most notably, under Hatch-Waxman, the generic applicant must show that the product is bioequivalent to the branded drug product. This is important because it means that the product is identical.

In stark contrast, according to the FDA, biologic products cannot be perfectly duplicated, at least not based on current science. Technology is not yet robust enough to determine whether an FOB product is interchangeable with the pioneer product. Current FOB legislative proposals reflect the complexities of biologics.

They would permit FDA approval of an FOB drug that is similar to, but not an exact replica of, the pioneer biologic product. Under these proposals, the FDA could rely on its previous findings regarding the pioneer biologic drug's safety and efficacy, to the extent those findings also would be relevant to the FOB.

An FOB manufacturer likely would save on some clinical testing expenses, which would reduce entry costs. So with that background in mind, let me turn to the commission's report. The purpose of our study was to evaluate how FOB competition is likely to develop and evolve, paying particularly close attention to the differences between small-molecule and biologic drugs.

The study was coordinated by an interdisciplinary FTC team headed by Mr. Wroblewski that included not only pharmaceutical industry experts, but also patent lawyers and economists. As part of its inquiry, the commission solicited two rounds of public comments, which attracted submissions from approximately 30 industry participants and other stakeholders.

In November 2008, the commission conducted a public roundtable discussion that included over 30 panelists. Then commission also has examined European markets where FOB entry has occurred. In the interest of time, let me briefly summarize the four major reasons why FOB competition is not likely to be like generic brand competition.

First, it is the extraordinary cost and time necessary to develop an FOB, which will sharply limit the number of competitors who can afford to enter, and also will limit the discounts the FOB can offer in relation to the pioneer price. Second, follow-on entry will not radically erode the pioneer's market share.

Third, the specialty pharmaceutical characteristics of FOBs are likely to further constrain the FOB's entrant's ability to gain market share. And the fourth reason is because biologics are provided in clinic-type settings as part of medical treatments; they are not purchased and reimbursed in the same manner as small-molecule drugs.

As a result of all of these factors, the commission's report predicts that FOB markets are likely to develop with the following characteristics. First, that FOB entry is likely to occur in biologic drug markets with more than $250 million in annual sales. Only two or three FOB manufacturers are likely to attempt entry in competition with a particular pioneer drug product.

These FOB entrants likely will not offer price discounts larger than 10 (percent) to 30 percent off of the pioneer product's price. Although this discount is not as steep as with small-molecule generic drugs, it does represent millions of dollars in consumer savings for these very expensive products.

Pioneer manufacturers are expected to respond by offering competitive discounts to maintain their market share. This price competition likely will increase consumer access and further expand the market. Without automatic substitution, FOB market share acquisition will be slowed.

Pioneer manufacturers likely will retain 70 (percent) to 90 percent of their market share. This means that a pioneer firm will continue to reap substantial profits for years, even after entry by an FOB. FOB market dynamics will contrast sharply with the market dynamics of generic drug competition, where lower-cost generic entry plus automatic substitution lead to rapid erosion of the branded drug's market share.

When the first generic drug enters the market, it generally offers a 25 percent discount off of the branded drug's price. As additional generic firms enter -- and often there are eight or more of them -- the price discounts reach as high as 80 percent. Given these likely dynamics of FOB markets, the commission next asked whether any additional incentive --

REP. PALLONE: Commissioner, I'm sorry, but you're like twice the time so far, so --

MS. HARBOUR: Okay. Then I will stop --

REP. PALLONE: No, no, just wrap up. I don't want to stop you completely. But just try to summarize the rest if you could.

MS. HARBOUR: I would say that the findings have several implications for the design of an abbreviated approval system. I think first, pioneer manufacturers are unlikely to need additional incentives to continue to innovate in the face of FOB entry beyond the existing patent protection and market-based pricing.

I would be ready to answer questions now. We can engage in a Q and A. And I know that the committee is very interested to hear what we have to say. So thank you.

REP. PALLONE: Thank you very much. And I always hate to stop anyone, but you know, we really have time constraints. We're going to have a series of questions. I'm going to start. And then we'll go back and fourth between Democrats and Republicans as you know.

First of all, I want to thank you for the report. As the expert agency charged with overseeing competition, as you mentioned in the drug marketplace, the FTC's conclusions on how much exclusivity is needed to sustain innovation I think is crucial to any resolution of many of the questions that have been raised on this issue.

And I have to be honest to say that, you know, I of course hear mostly from people who have a financial stake in this. And I think it's essential that we have an objective assessment with regard to exclusivity. And that's one of the reasons why I think it's really crucial that you're here today, and that this report came out.

Now, members of the biotech industry argue that their patents are not as strong as those on traditional drugs, and are not as strong enough to protect them from competition from follow-on biologics. If I understand you correctly, the FTC has reviewed all the evidence provided by the industry as well as relevant patent law, and has concluded that the industry's claim is unsupported by the evidence.

And this is an extremely important point, because members of the biotech industry have premised their argument for a 12- to 14-year exclusivity period on the claim that their patents cannot fulfill the role they're supposed to. And it's important -- I mean this is important enough that I want to be sure I understand your conclusions and that there is, you know, no doubt it.

So let me ask three questions. First, are patents on biotech drugs too narrow or too weak to protect them from competition from follow-on biologics? And Mr. Wroblewski, obviously, can answer as well.

MS. HARBOUR: Yes, Mr. Wroblewski is the expert here. But I would say that our research has shown that the patents are strong in this area. In fact, as we look at the sector, the biotech sector, they have been very strong, the stocks in that area actually has been very strong.

In the general sector stock prices have gone down 30 percent, but in the biotech sector they've only gone down 15 percent. So we have not seen as much erosion in that area. And I do believe that the patents are strong in that area.

REP. PALLONE: All right. Well, maybe I'll just go to the second question. My second question is will biotech patents provide less protection from follow-on biologics than the protection against generic competition offered by patents on traditional drugs.

MR. WROBLEWSKI: The patent questions are really --

REP. PALLONE: Maybe -- put that mike closer, you'll be --

MR. WROBLEWSKI: The patent questions are really central to this entire debate. And what we did was we examined -- you know, you can -- currently you -- there is branded competition between competitors. And so what we did is we looked to see -- we looked at all of those cases in which the industry gave us, and the ones that we found on our --you know, all the cases that are out there during our own research. And we broke them into two groups.

The first group was the -- patents have been very strong. Both the drug molecule patents and the process patents have been very strong to keep other branded competitors off the market. When we looked at those cases in which the branded competitor or the pioneer had lost, it was really -- the cases really turned on a factual determination that was central to that patent or how those claims were drafted.

It wasn't because the law prohibited them to draft their claims in a broader way. And there is no -- the PTO's written description guidelines that say this is how you can -- the legal requirements to get a broad patent to protect against those types of claims that FOBs are likely to make. The written guidelines allow that the claims be drafted broadly enough to protect against those types of patents.

The one last thing we did is there was a great study that came out about a year ago that surveyed all of the patent cases in terms of, you know, has the law changed so that it's very difficult to get a broad scope on your patent to kind of guard against the potential threat of an FOB.

And it found that the law had not changed, and that the patent holders have the ability to provide -- to draft their claims, to draft their patents to provide a potent shield against FOB competitors.

REP. PALLONE: Let me just ask my third question quickly. Is there any defect in the protection offered by biotech drug patents that justifies a longer exclusivity period than the period available to traditional drugs?

MR. WROBLEWSKI: We found that there are no defects. There is an argument that there may be drugs that have been discovered but somehow are unpatentable because they're not novel any longer, and the requirement to get a patent is this drug has to be novel. If that's the case -- and we haven't seen any evidence -- if that's the case, then an exclusivity period similar to the way Hatch-Waxman had a five- year exclusivity period for a new chemical entity that didn't have patent protection.

Hatch-Waxman also gives three years for a new indication, because that indication couldn't get patent. It seems a -- if there is something new that is being delivered that the patents won't incentivize, then it may be very appropriate to have an exclusivity period to encourage the companies to engage in the expensive R&D to test those drugs.

MS. HARBOUR: Such as in the drugs for children population and the diseases of -- that affect very small populations. That would be an example where one would offer an exclusivity period.

REP. PALLONE: But not otherwise, but not otherwise as would --

MS. HARBOUR: Unless there was an unpatentable drug as Mr. Wroblewski indicated.

REP. PALLONE: Okay. Thank you very much.

Mr. Deal.

REP. DEAL: First of all let me make sure that I understand, since there has been criticism about the scope of this hearing today. What I understand you to say is that your study and your testimony today is to deal with this question of competition and how it will evolve in a follow-on biologic marketplace. And questions like safety, interchangeability, those are issues that best address themselves to the Food and Drug Administration and not to you, am I correct?

MS. HARBOUR: That's precisely correct. We are --

REP. DEAL: I didn't want you to be criticized for something you were not undertaking to do here today.

MS. HARBOUR: All right.

REP. DEAL: And I think that's important. Because we all are concerned about safety, we're all concerned about the things that are within the province of the FDA. But let me focus, you know, on what you have testified to and what your report identifies. Most of us have heard from the lobbying community about how long should the period of exclusivity be.

Now, what I hear and what I see in your -- at least the summary that I've read of your report is that you don't even feel that there is even a need for any exclusivity period.

And specifically, I think your statement says the drug has already been incentivized through patent protections and market-based pricing.

So you are saying that there are two protections that the pioneer drugs enjoy that is somewhat different from the chemical-based arena in these areas, one being that patents are strong enough, and let me ask you specifically about that.

As I understand you to say the reason you think patents are stronger than we might be led to believe is that in this arena there are more and varied patents in the follow-on biologic arena than in the chemical arena, specifically including patents on manufacturing and the technology platforms on which they are based. Is that correct?

MS. HARBOUR: That is correct. And there is another component too that competition resembles brand-to-brand competition. And in brand-to-brand competition, the patents protect the innovation. In the follow-on context you have the method of treatment patents, you have the product-by-process patents, the manufacturing process, including the cell lines. So yes, the report concludes that patents have been shown to be strong in this area.

REP. DEAL: And the second component that gives protection that is more unique to this follow-on arena than chemicals is what you referred to as "market-based pricing." And I think you've already told us that you do not expect the drastic reduction in pricing to occur on the pioneer product just because a follow-on comes on to the market.

MS. HARBOUR: That's right.

REP. DEAL: And that is an additional protection that the pioneer enjoys in this arena that they do not necessarily enjoy in the chemical arena.

MS. HARBOUR: And the characteristics of this market is a follow- on -- there would only be two to three follow-ons that would enter the market. And those follow-ons would only take 10 (percent) to 30 percent of the market share away, so the branded pioneer mf manufacturer would still enjoy 70 percent of its market share.

And so there would be enough incentive and competition and pricing to satisfy the entrants. And contrasted with the generic market where after the first generic comes in taking 25 percent of the branded firm, then you would have 8 to 10 generics come in, and then they would all cannibalize that 80 percent. So it's a very different competitive, you know, situation with the follow-on.

REP. DEAL: Plus also, am I correct that the follow-on biologic will take a longer period of time for approval -- even with the exclusivity period even nonexistent, they would still take longer to get a follow-on on the market than a traditional chemical-based generic would take?

MS. HARBOUR: I'm not sure about that. I'm going to turn to Mr. Wroblewski. I think not, but I will let Mr. Wroblewski answer that.

MR. WROBLEWSKI: The time to bring a follow-on to the market would take longer than it would -- the time it take --

REP. PALLONE: Just check the mike and closer to the mike too, Mr. Wroblewski.

MR. WROBLEWSKI: The time to bring a follow-on to the market would be we -- the evidence show that'd be about 8 to 10 years. The time it takes to bring a generic drug to the market is three to five years.

And the one thing about market-based pricing, the point that we -- to complement what Commissioner Harbour just talked about was that when you have a patent, that allows you to charge -- and you are the only one on the market and you've developed an innovation -- that allows you to charge a price, any price, a monopoly price.

So if the period of time in which you enjoy that monopoly is shortened, the ability to raise the price -- that's what market-based pricing is all about to make up for that.

MS. HARBOUR: Mr. Deal, I misunderstood what you had said. I had thought you meant FDA approval -- whether that would take longer and my answer was no, it would not. But as Mr. Wroblewski said, yes, FOB drugs would take about 8 to 10 years to develop, and they would likely cost between ($)100 (million) to $250 million as compared to small- molecule generic drugs, which would take 3 to 5 years to develop and would cost roughly between ($)1 (million) to ($)5 million.

REP. DEAL: Thank you.

REP. PALLONE: Thank you, Mr. Deal.

Chairman Waxman.

REP. WAXMAN: Thank you very much, Mr. Chairman.

Could you just repeat that last point -- for biologic drugs it takes 8 to 10 years?

MS. HARBOUR: Yes. Biologic drugs would take 8 to 10 years. Follow-on biologic drugs would take 8 to 10 years to develop, and it would likely cost between ($)100 (million) to $250 million contrasted with the small-molecule generic drugs where product development would take approximately 3 to 5 years to develop, and would cost between ($)1 (million) and $5 million.

REP. WAXMAN: Okay, thanks. So it costs more money.

MS. HARBOUR: Yes.

REP. WAXMAN: And it takes more time --

MS. HARBOUR: Yes.

REP. WAXMAN: -- to develop these biologic drugs. And therefore, they want to know they're going to have their full protection. Mr. Wroblewski would --

MR. WROBLEWSKI: I just want to make sure that we're talking about the follow-on and not the pioneer.

REP. WAXMAN: Oh, I see. You're talking about the follow-on.

MS. HARBOUR: Follow-on.

MR. WROBLEWSKI: You know, I just want to make sure --

REP. WAXMAN: So if you got a new biologic drug, you got a patent and you think the patents are good, that's enough protection, we could give an exclusivity for that period of time. Patents, by the way, offer 20 years. Isn't that right?

MR. WROBLEWSKI: Correct.

REP. WAXMAN: When we did the Hatch-Waxman Act, the patents were 17 years. We moved the patent period all the way to 20 now. And when the Hatch-Waxman Act was a trade-off, we said that we would allow generics to be approved through an abbreviated process in exchange for giving the brand name company additional time lost at FDA for the approval time.

And that's called the patent term restoration. Well, we didn't know about biologic drugs in the mid-1980s, but these drugs get that patent term restoration, don't they?

MR. WROBLEWSKI: Yes, they do.

REP. WAXMAN: So they now have a longer patent time, and they get the restoration period for the time spent at FDA. Your conclusion is pretty surprising because what you're saying is that if somebody says they need 12 to 14 years of exclusivity, you don't think they need it, because patents -- and they have market-based pricing available under the current law which you believe provides sufficient incentives for innovation.

MR. WROBLEWSKI: It's not only that we believe it. It's what the industry has said for years that patents have been so essential to their development.

REP. WAXMAN: Now, you've also concluded and Mr. Deal pointed this -- so let's say we say at some period of time there's going to be an approval process for a generic follow-on and that may take 8 to 10 years. So that's a long period of time once they even start to get the generic follow-on to come into competition.

But once it's approved, it's not the same as the small-molecule drug where people know it's the exact same drug and it could be substituted. A generic follow-on drug, which is going to take longer to finally get on the market -- and they can't even be considered until the patent period is up, or the exclusivity period is up -- won't be substitutable.

It's going to be like another brand name drug competing with a different brand name drug. What will that mean in terms of the loss of market to the generic competitor?

MR. WROBLEWSKI: You know, one of the aspects of branded drug competition is the substantial first-mover advantage that the pioneer has. And so what's going to have to happen is when that follow-on comes on, it's going to have to develop its own marketing and sales force to show that its product is actually more safe or more effective or somehow improves safety, convenience, efficacy for treatment of that drug to gain any market share.

And that's actually a huge benefit for competition. Competition brings not only price competition, but it also brings improvements to the products which are very, very important. So you have to look at both of them.

REP. WAXMAN: But the competition doesn't start immediately to drop that price, because they have to convince the doctors and others that this is a follow-on that can serve the same purpose as the original drug.

MR. WROBLEWSKI: That's correct. And when we've looked at market experience in Europe in which they have a biosimilar pathway -- in the two markets that we've looked at, the two -- there are two drug markets -- both of them after three to four years where the biosimilars have already been on the market, only have about a 15 percent combined market share total.

So that means the pioneer still retain 85 percent of the market share which is totally different from the generic drug model.

REP. WAXMAN: And well, will follow-ons provide a -- going to make high price biotech drugs more affordable, and will these follow- ons provide other benefits to consumers?

MR. WROBLEWSKI: I think that they'll -- the original -- or the evidence that we've seen shows that they'll come in at a 10 (percent) to 30 percent discount, and a 10 (percent) to 30 percent discount on a drug that for a course of treatment annually is $50,000 is a substantial savings. And it will then prompt the pioneer to then move forward to further refine and develop and improve its drugs which benefit consumers.

REP. WAXMAN: So having an endpoint and then having competition, even if it's not as strong as generics are for small-molecule drugs, does spur innovation?

MR. WROBLEWSKI: Of course it does. Of course it does.

REP. WAXMAN: Thank you.

Thank you, Mr. Chairman.

REP. PALLONE: Thank you, Mr. Chairman.

Next we have the gentlewoman from North Carolina, Ms. Myrick.

REP. MYRICK: Thank you, Mr. Chairman.

A couple questions. This is just a kind of a regional question relative to North Carolina. Biotech sector, you know, is very important in North Carolina in how it plays into our economy. We see a total employment impact of over 200,000 jobs because of our rich biotech sector.

No doubt, a well-designed FOBs pathway could also generate additional economic growth. If the pathway were designed as the FTC describes, do you ever see any negative economic impact when it comes to profitability of innovative biotech companies?

MS. HARBOUR: I don't believe that the report identifies any. And as I had said earlier, the biotech sector is doing better than a lot of other sectors in today's economy, looking at our stock industry.

REP. MYRICK: Right, I heard you say that. So you just don't think that there is any problem. The other thing I wanted to ask was about the European Union. You know, their system is different than ours is. And when you look at the policies that we have and they have, do you think that their policies generally translate to the United States because we have such a glut of biotech companies here, and you know, our existing patent system, the way it's setup?

MR. WROBLEWSKI: The two things that we look -- the two things that we looked at in terms of the European market; they do things a little bit differently in terms of their patent coverage, and they do things differently in determining -- at the European level they decide what is safe and effective for a biosimilar. And they are leaving to the states, the member states and the countries, to decide what would be interchangeable.

That is a slightly different structure than we have here in the United States. But the commercial aspects, in terms of what these large multinational companies are doing, can provide some insight -- in Europe can provide some insights into what they are likely to do here in the U.S.

REP. MYRICK: One more question. When you talk about the delay and the time it takes for the price differential between the FOBs and the innovative biologics, you know, it becomes significant, because the point of entry for these products is different than traditional generic drugs.

The study says that, you know, the price differential will be 10 (percent) to 30 percent of the original therapy's price. Do you think that that would put pressure on the insurers and large companies, would put pressure on providers to make the time period shorter?

MR. WROBLEWSKI: To make the time period shorter?

REP. MYRICK: Yeah, of bringing them to market. You don't think there is a possibility that can even happen from what you said --

MR. WROBLEWSKI: Right.

REP. MYRICK: -- basically.

I think that's all at this point, Mr. Chairman. Thank you.

REP. PALLONE: Thank you.

Let me mention to everyone that we will have two votes. One's already been called, but I'd like to get at least two more of our members to ask questions before we go.

So next is the gentlewoman from Wisconsin, Ms. Baldwin.

REP. BALDWIN: Thank you.

Commissioner, the FTC report claims that the development time for small-molecule and biological drugs are roughly equivalent. And I'd like to highlight the example of FluGen, which is a company that I talked about during my opening remarks. They are currently working on an adjuvant to the standard flu vaccine which would allow 10 times as many doses from the same stock of vaccines.

So it basically allows what would be usually one dose to be used for more vaccines. This adjuvant was patented from a University of Wisconsin-Madison research lab in the year 2001, but will likely not make it to clinical trials until the year 2011, and then is predicted to be another seven years to get to market, which leaves only three years of patent protection.

And so I'm wondering how do companies like this factor into your analysis? Do you think the patent protections are sufficient in an instance like this?

MS. HARBOUR: Could I just clarify the first part of your question? I believe you said something was equivalent. Would you just go back to that, please?

REP. BALDWIN: Absolutely. My understanding is that the FTC report claims that the development time for small-molecule and biologic drugs are roughly equivalent.

MS. HARBOUR: They are not.

REP. BALDWIN: Okay. Then maybe you could shine some light on it.

MR. WROBLEWSKI: You know, this is -- it's a -- there are two things that we're talking about. One is, if you are looking at a pioneer drug, the first in class, the new, the innovator. If you look at a biologic drug or a chemical drug, they roughly cost the same amount to develop. And this takes the same amount of time. If you then look at the follow-ons or the generics, a generic is much quicker to come to the market than a follow-on. Does that make sense?

REP. BALDWIN: Yeah.

MR. WROBLEWSKI: So the pioneers are equivalent. The second in the class, so to speak, take a little bit longer for follow-ons. Your question is whether the patent restoration that -- the example that you gave is basically they're only going to have three years left or four years left on their patent. They get patent restoration now -- so they would be able to add back that time that was lost in FDA approval, that applies to them now.

And if that isn't sufficient because of the long period of -- the longer period, so to speak, of testing for or FDA approval, then the fix would be to fix the restoration of the patent -- not to then add an additional layer somewhere else, but to fix the underlying problem which is what -- that the patent isn't providing the length of time that was caught up in the FDA approval process.

REP. BALDWIN: Let me also ask you a little bit about changes in technology that take place over these periods of time. Over the lifetime of a patent for biologics, manufacturing technology will surely improve, making it much easier for companies delivering biosimilars to enter the market.

These companies will gain, really at the innovator's significant expense. And you know, isn't this an argument for some period of exclusivity to be sure that innovators will still be willing to take the upfront risks to develop these, you know, incredible medicines?

MR. WROBLEWSKI: Sure. You know, those technologies that they're going to be developing are actually -- would be applicable to the pioneer as well. So the pioneer actually can benefit from the increase in technological advancement.

For example, if a follow-on develops a better manufacturing process, that manufacturing process can be then imported or be used by the pioneer as well. And so that competition to improve innovation benefits not only the follow-on, but can benefit the pioneer as well.

REP. PALLONE: Okay. Mister -- I'm sorry, Mr. Buyer.

REP. BUYER: Thank you very much.

REP. PALLONE: Before you start let me just mention, he'll be the last speaker before we break for the votes, and then we'll come back right after.

REP. BUYER: I would like to know who asked you to do this report. Who asked you to do this report?

MS. HARBOUR: Thank you for that question. Before I answer that, I would just like to say that there is a lot of commonality in this room although it may not --

REP. BUYER: Well, that -- just start answering my question.

MS. HARBOUR: All right. Well --

REP. BUYER: Answer my question.

MS. HARBOUR: I did. In --

REP. BUYER: All right. Were you contacted or encouraged by any member of the House and Senate or staff to do this report?

MS. HARBOUR: Absolute -- may I answer your question, sir?

REP. BUYER: Yes.

MS. HARBOUR: In 2003, I read the commission's IP report. I was a new commissioner, I read it, and there was a footnote that talked about -- generic biologics they called it then, and how there was a great debate and a lot of controversy about this issue, and how it was keeping potentially life-saving drug products from the American consumer.

So as a commissioner, I went to my staff and I said this is an issue that is very important to the American people -- and I know that my staff is very expert in these areas. I said can we take a look at this and see if we can add to the debate. That is how this issue came to the fore.

REP. BUYER: Okay. All right, so you've did this on your own?

MS. HARBOUR: No, it was with the approval of the other commissioners, but --

REP. BUYER: All right.

MS. HARBOUR: -- I did see this issue back in 2004.

REP. BUYER: So do you see yourself as an expert in promoting competition in U.S. markets?

MS. HARBOUR: No, I do not. No, I see myself as an expert on the American consumer and trying to be a champion of the American consumer much as what Congress is.

REP. BUYER: Well then, since you're eager to sit at the table and discuss health, would you be equally as eager to turn to your commissioners and ask that the FTC consider studying the effects of the proposed public health plan options on competition in the health insurance market?

MS. HARBOUR: First of all, I was summoned to the table. I'm not eager to sit here, but I'm happy to sit here. So I --

REP. BUYER: All right. I'm just going to ask you to answer the question that I've asked.

MS. HARBOUR: Would you repeat it, please?

REP. BUYER: Would you -- will the FTC consider studying the effects of the proposed public health plan options on the competition in our health insurance market?

MS. HARBOUR: If we are directed to study anything by Congress --

REP. BUYER: Well, you weren't directed to do this study and give it to us. You did this on your own initiative, you just said with pride.

MS. HARBOUR: Well, yes, and we do a lot of things on our own initiative at the Federal Trade Commission, and --

REP. BUYER: All right.

Would you on your own initiative consider the public option plan discussed by the president and its impact on competition in the insurance market?

MS. HARBOUR: If we were asked to do so, we --

REP. BUYER: You are asked to do so. All right, I ask you to do so. Would you consider --

MS. HARBOUR: But we would have to vote on that and it would have to be decided by a majority of the commission.

REP. BUYER: Right, okay. All right, so what your -- oh, wonderful. I'll even put it in writing to you. I'll ask you to do that and you can consider for the other commissioners. Will that be okay?

MS. HARBOUR: Sir, you may do whatever you'd like, and we will consider --

REP. BUYER: All right. Well, you've done just whatever you like, right, on your own initiative. So let me just do this. If you are willing to -- now you are willing to consider the public plan options in the insurance market, its impact on competition to America because you're so concerned about the consumer.

Number two, I'm going to ask you for another report. You see, here in the House we just passed the tobacco bill. The Senate's about to pass the tobacco bill that locks down the tobacco market, and matter of fact, almost eliminates competition, because we don't even have harm reduction anymore. And so I'm going to ask for a second report for you to also consider -- the impact of tobacco legislation and competition in the marketplace.

MS. HARBOUR: Actually --

REP. BUYER: So I'm going to ask you for two reports, okay? Now the other question I have is, I noted in a footnote that you'd send a letter to Chairman Pallone outlining preliminary views on the likely effects of the regulatory approval pathway. That's great. That wasn't shared with any of us.

If this had been done back in May of 2008 -- this is a hearing, Mr. Chairman, that should have happened sometime ago. So I appeal to you that this not be our only hearing that we have prior to the --

MS. HARBOUR: Sir, I believe that matter is on the public record.

REP. BUYER: Madame, madame, I'm not asking any question of you.

MS. HARBOUR: It's on the public record.

REP. BUYER: Madame, I'm not asking any question of you. So Mr. Chairman --

REP. PALLONE: If you're asking me the question --

MS. HARBOUR: Tell him it's on the public record.

REP. PALLONE: Excuse me, madame, let me just clarify --

REP. BUYER: My point is --

REP. PALLONE: Is the gentleman yielding to me?

REP. BUYER: My point is, is this -- this is my personal opinion. This is a hearing that we should have had later or at an earlier time, not now. And so my appeal to you is, Mr. Chairman, that we bring the FDA in so we can look at --

MS. HARBOUR: FTC.

REP. BUYER: Pardon?

REP. PALLONE: Wait a minute, let's please --

MS. HARBOUR: I'm sorry.

REP. BUYER: Madame, I am not asking you any questions.

REP. PALLONE: Mr. Buyer, look, it's a little unclear who you are asking the question of, and I -- you know, it may not be obvious to you, but it is increasingly to the two of us that we're not sure. The question is to me at this point?

REP. BUYER: All right. My appeal is that you bring the FDA in so we can get into the efficacy and safety issues. That's my appeal to you.

REP. PALLONE: Okay.

REP. BUYER: So I'm not asking any questions of this witness, but I --

REP. PALLONE: Okay. Let me just, if you would -- well, you are out of time anyway, but let me answer the question. First of all, the letter you mentioned, it's my understanding that that letter was posted on the website for the committee and circulated almost a year ago, the one that you mentioned that was sent to me.

And I've already -- as far as the second question, I've already stated that we are going to have additional hearings and this is just the first one. So, I mean, I just want to make that clear again.

REP. BUYER: All right. I have a unanimous consent request?

REP. PALLONE: Unanimous, you have a unanimous consent request?

REP. BUYER: Yes.

REP. PALLONE: Go ahead.

REP. BUYER: I have a letter from the Association of American Universities, which includes the leading research universities, not only researchers in Indiana and Purdue, but over 60 in the country. And I would ask unanimous consent that the Association of American Universities' letter be inserted into the record.

Obviously, they are seeking providing 12 years of data exclusivity. And I don't believe it's very clear from the FTC report that they include the nation's leading academic researchers and what their opinions are.

REP. PALLONE: Without objected so ordered. And the committee is going to now recess until we have the conclusion of these two votes, and then we will come right back. Thank you. (Sounds gavel.)

(Recess)

REP. PALLONE: The subcommittee will reconvene. Thank you for still being here -- (laughs.) And we go to the gentlewoman from the Virgin Islands, Ms. Christensen.

REP. CHRISTENSEN: Thank you, Mr. Chairman. And, again, thank you for holding this hearing and welcome to --

REP. PALLONE: You might need to put your mike on there or closer to you.

REP. CHRISTENSEN: I will get over closer to it.

REP. PALLONE: Okay.

REP. CHRISTENSEN: And again, welcome to the commissioner, Commissioner Harbour. Let's see. The report makes several statements to support its conclusions that a 12 to 14 data exclusivity period is unnecessary. One statement is that there is no evidence that patents claiming a biologic drug products have been designed around more frequently that those claiming small molecules.

And the other is that because there is no evidence about the lack of patentability of new biologic products, nor that market forces have been insufficient to incentivize the development, the commission has not recommended a specific length for an exclusivity period.

If then no bias similar pathways that exist, how could there be any evidence as to how patents could be worked around? Isn't the whole point that in a biosimilar world patentability changes because the approval standard has been reduced from sameness to similarity?

MS. HARBOUR: Let me just say that in this market we know that the follow-on biologic will resemble brand to brand competition, and we know that the patents are strong on biologic drugs. Then your question was rather long, so I didn't get the whole of it, but I'm going to let Mr. Wroblewski answer what he heard, and then I will come back and explain.

REP. CHRISTENSEN: Okay.

MR. WROBLEWSKI: Sure. Your question was to the extent that if there's no follow-on biologic, how can there be -- if there is no pathway yet, how can there be any evidence. Well, what we looked at is the existing brand competition because these markets are very large.

And so there is plenty of opportunity for another branded competitor to come into the market, duplicate all the clinical and safety efficacy data, get a full new drug and then compete. But we found that the patents have been so strong in so many of these markets, that it has even kept out a branded competitor from doing just that.

REP. CHRISTENSEN: So -- from creating a similar product that comes through a different pathway?

MR. WROBLEWSKI: If you create a similar product, what you are doing is you are saying to the FOB, you don't have to do as much clinical testing though you're still going to have to do some in order to be approved. And you can rely on the FDA's previous findings about the innovator drug that it's safe and effective.

You won't have to do as much. But if the patents have been strong to keep out the branded competitors, they are going to be equally as strong to keep out the follow-on competitors who have to be similar.

REP. CHRISTENSEN: I guess you don't really make a recommendation as to what the period of exclusivity is, but just given the difference and the complexity of the drugs and all of the other factors, the length of time that the very specific processes that have to take place that may not be able to be duplicated, the amount of investment that has to made. And why -- can you just explain to me again why you would not provide for a longer period?

It just seems, I mean as a physician, I know that I would have a lot of difficulty -- I had to adjust myself to generics period to begin with because my patients, some of them, wouldn't accept them even if I did. But because there may be immune differences in how a person reacts immunologically under the medication, why wouldn't you give these complex molecules with all of the other factors a longer period of exclusivity?

MS. HARBOUR: Let me take a stab at that. We feel that the patent protection and market-based pricing is enough. Why? First of all, the rationale for a 12 to 14-year branded exclusivity period basically would be to compensate for any perceived failures of the patent system to reward and protect and to incentivize biologic drug invasion, but our report has not found any perceived failure.

Therefore, we found that branded exclusivity was not necessary because the branded biologic manufacturers are likely to enter the market and earn substantial revenues even after a follow-on entry. And the follow-on biologics are unlikely, when they do enter the market against the pioneer manufacturers, they are unlikely to price discount more than 10 to 30 percent.

That means that the branded pioneer manufacturers are likely to maintain their first-mover advantage. They will still retain 70 to 90 percent of their market share after the follow-on biologic enters. They are still making very excellent profit. And the biologic product has already, as I said, been incentivized through patent protection and market based pricing.

MS. HARBOUR: Well, my time is up, so I'll -- if there's another round, I may come back.

REP. PALLONE: I wouldn't -- just to know, we're not going to have another round, but thank you.

Mr. Murphy?

REP. MURPHY: Thank you, Mr. Chairman.

Some quick questions here. The comment you just made about 70 or 90 percent, they will maintain a 70 to 90 percent of the market share, and they will likely continue to reap substantial profits. What's the basis of that statement? Likely, what does likely mean?

MS. HARBOUR: Do you want to answer that?

MR. WROBLEWSKI: The basis of the statement is the experience that we have seen so far in Europe in terms of how they are priced, and then with a limited experience that we have seen with the one example with Omnitrope here in the U.S. It's a biologic drug, but happens to be approved under the Federal Food Drug and Cosmetic Act. So it's an exception.

So when we looked at those -- but then it's also based on -- the commission conducted a workshop in which we had all the -- we had the biotech industry, we had the potential FOB competitors, we had the payers, the PBMs and the --

REP. MURPHY: Did you have the companies that actually do the research and development in the room? Did you have the companies that actually develop the new drugs in the room?

MR. WROBLEWSKI: Oh, yes. Oh, yes, and --

REP. MURPHY: And did they say that they thought with maintaining a 70 percent --

MR. WROBLEWSKI: Yes, they all agreed to that.

REP. MURPHY: Did they say with maintaining 70 percent market share, they can continue to come up --

REP. PALLONE: I am not -- I couldn't hear some of the comments you made. I don't know if the reporter could. Maybe don't repeat it now, but just --

MR. WROBLEWSKI: Okay.

REP. PALLONE: Just move close to that mike, all right?

MR. WROBLEWSKI: I'm almost swallowing it, but --

REP. PALLONE: (Laughs). I'm sorry.

REP. MURPHY: I understand that nearly 90 percent of biotech companies have remained unprofitable. In 2008, a third of them had less than 6 months cash on hand. They have to go out and get venture capital for these things.

And if you say to the venture capitalists who are investing that they are going to reduce it by several years of return on investment here that to have someone come through -- now, I wasn't in this room when everybody met. Let's take out the payers, let's take out the FOBs who is going to benefit from this. Just the companies developing it because they said, yes, it's fine with us, cut us down to five years and we can make -- deal with this?

MR. WROBLEWSKI: No, no.

REP. MURPHY: Okay. What did they agree to?

MR. WROBLEWSKI: They agreed to what the market effect would be of FOB entry.

REP. MURPHY: And they are fine with it?

MR. WROBLEWSKI: Because their researches have --

REP. MURPHY: Down to what level? Down to how many years of exclusivity?

MR. WROBLEWSKI: Say that again?

REP. MURPHY: Down to how many years of exclusivity are they --

MR. WROBLEWSKI: What we were trying to do is analyze how competition was likely to develop. Once --

REP. MURPHY: But down to how many years of exclusivity? Did they ever comment on that?

MR. WROBLEWSKI: They have strenuously advocated for a 12 to 14- year period of exclusivity.

REP. MURPHY: So they are okay if it stays 12 to 14 years and to have competition into the market there? Is that what they have said they can still work --

MR. WROBLEWSKI: Say the last piece again. And the --

REP. MURPHY: The 70 to 90 percent of the market share. But it's at 70 to 90 percent of market share. So let FOBs come in. But will that also still maintain some exclusivity for that 12 to 14 years.

MR. WROBLEWSKI: What we had tried to do was to see how the competition was likely to develop to determine whether --

REP. MURPHY: Well, I only have two minutes left. I just need an answer. Does that -- are they agreeing yes, we are okay with competition if we can keep the 12 to 14-year exclusivity and that allows us to raise enough money in an unprofitable time to do research on new drugs?

MR. WROBLEWSKI: I don't think they -- I don't it was -- they ever agreed that they would be able to keep 70 to 90 percentages. It's just what the experience has shown that they would --

REP. MURPHY: Well, I'm confused because I thought that you said that they were all -- they all met together and they told you they were supportive?

MR. WROBLEWSKI: Everybody predicts that the effect of a follow- on biologic will be that they will come in at a 10 to 30 percent discount, and if they do that, the brand or the pioneer is likely to retain 70 to 90 percent of its market share.

REP. MURPHY: Okay. But I thought you said --

MR. WROBLEWSKI: We looked -- what the implication would --

REP. MURPHY: Look, I need an answer here. I'm really not trying to be funny, but I don't want to dance around this because I want to make sure we have plenty of money to continue to develop life saving drugs. That's what I want.

Cheap drugs that don't cure anything are worthless. Expensive drugs that no one can afford are worthless. So I need to know. You talked about some people sat around and they agreed to something. What the heck did they agree to? And if they didn't, don't tell me they did.

Are they saying that this 12 to 14-year exclusivity remains? Are they saying that they are okay with competition? Are they saying that they are okay with making it five-year exclusivity? What specifically did they say in three words of less? I just need an answer quickly.

MR. WROBLEWSKI: They agreed that competition would be like a branded competitor, and we have ways to deal with branded competitors now.

REP. MURPHY: Did they comment at all on the years of exclusivity or is your report not touching on it today?

MR. WROBLEWSKI: No, no, no, it describes completely that they have put forth a model that shows that they need 12 to 14-years.

REP. MURPHY: Okay. One another thing I want to ask real quick. The issue of similarity. So a molecule may change as large molecule. Molecule may change. We are not going to require the FDA to do testing on those?

MR. WROBLEWSKI: We took it as a given that the FDA would approve a safe and effective product whatever that required.

REP. MURPHY: So the FDA may still require additional testing of some of these drugs?

MR. WROBLEWSKI: That, and that's the reason why it's going to so expensive to bring in an FOB.

REP. MURPHY: Okay. So, I mean just changing a molecule on something. I mean you could change one molecule in the -- on atom -- one molecule in the H2O formula and make something that's toxic versus something that's necessary. So I hope that's an important part of this whole report there.

If that's something we discussed more, perhaps you can elaborate on this for me because I -- it's something you made reference to in writing and also in your testimony here. I would really like to know that means because that's going to be very important to understand how we can have a competitive marketplace and also make sure there is sufficient funding in here that we can keep moving forward in developing these new drugs. I would be grateful for that. And the procedure would be, you let the chairman know, and we'll know from there. Thank you so much.

REP. PALLONE: Now, let me mention to you and to the members, and obviously as always we will -- you will be able to post questions in writing that we would ask you to respond to after the hearing.

The gentlewoman from California, Ms. Eshoo.

REP. ESHOO: Thank you, Mr. Chairman. The first thing I'd like to start out with is to ask for unanimous consent to place in the record the comprehensive responses to every question raised by the Subcommittee from the chief scientist of the FDA, Dr. Frank Torti, which was peer reviewed.

And second, the exhaustive economic analysis of data exclusivity of biologics by Henry Grabowski, whose name has been mentioned several times by several members of both sides of the aisle today. He is the director of the program in pharmaceuticals and health economics at Duke University. So I would ask that these be placed in the record.

REP. PALLONE: Let me just ask. These are the comments by the FDA under the Bush administration. Is that what they are?

REP. ESHOO: Well, the FDA is the FDA regardless of what administration it's under. So --

REP. PALLONE: No, no, I just to make sure because we've asked -- I'm only asking because I know that we have asked the FDA, the current FDA too. But these are the ones from the previous, right? Why don't you just give them -- let me see them then.

REP. ESHOO: You know what, Mr. Chairman, I think you know what I asked. I'm just asking for unanimous consent to place this in the record.

REP. PALLONE: Right.

REP. ESHOO: If people want to read it, they will have access to it. If they think it is garbage, they can throw it out. It doesn't force anyone. It's a very simple request.

REP. PALLONE: No, no, I agree. I'm just trying to verify what it is again.

REP. ESHOO: But you can read it, and then you will see. Do we have the -- is there a unanimous consent to it?

REP. PALLONE: Well, normally we -- normally, I'd like to know what it is before I agreed.

REP. ESHOO: I just read it into the record.

REP. PALLONE: All right, tell me again. It's the FDA --

REP. PALLONE: This is the -- these are the comprehensive responses to the questions that the members of the Subcommittee, almost two years ago --

REP. PALLONE: Right.

REP. ESHOO: Remember we had the meeting?

REP. PALLONE: Right. But we've also asked them -- these are the ones from the previous administration because we have asked them again in the current administration.

REP. ESHOO: But you don't agree with what the FDA responded, but I still would like that in the record?

REP. PALLONE: No, I just want to make sure that they are the ones from the previous administration. That's what we are talking about, right?

REP. ESHOO: What's the date on it? It's September 18, 2008.

REP. PALLONE: Okay, all right.

REP. ESHOO: So it's just before my candidate for president won.

REP. PALLONE: All right, so ordered.

(Laughter.)

REP. ESHOO: In trying to read the report, digest it and then analyze it in the unfair timeframe that was established either by the FTC or by the committee, I don't know which it is, there is something that stood out to me, and that is throughout the report, throughout your report, you base the -- you talk about obviously the generics that are the result of Hatch-Waxman, which we all celebrate, and this new attempt to use that framework, very broad framework, and apply it to biologics.

But what you, I think, failed to state and then develop in the report is that under Hatch-Waxman, the compounds, the pharmaceuticals must be identical. That is by law. Biologics, biosimilars -- think of the two parts of that word -- will be similar. They cannot be identical.

I don't know what scientists you brought in to instruct you on this, but I have to say that to base your report, as I read it -- I think it's deeply flawed because you base your outcome and your analysis of biosimilars on the previous regiment and the previous law, which is very different.

I don't see why you have taken into consideration the differences between the two, which is what makes this case very complex. We have a regulatory framework today in which any new biologic will receive -- and I want to move on because I want to ask my questions, but that's an observation -- any new biologic would receive 20 years of patent protection and no potential for biosimilar competition.

Innovators and investors are sure that as long as their patents are in force, there is no possibility of a competitor going to the FDA, using the innovator, safety, and efficacy record and taking shortcut to the market to compete against them. Now, we are proposing to move to a policy in which patents will remain in force, but competitors will be able to come to market, to compete against an innovative product, without going through a full blown FDA review. As you point out in the report, this will cause a biosimilar manufacturer about a tenth of the cost for an innovator or a non-biosimilar competitor to bring a product to market.

Now, how can this not possibly change? How can this -- because you say in the report that investment incentive won't change. How can this not possibly change the investment incentives in biotechnology? If a venture capitalist or a drug company is contemplating a new product for development, won't this fundamentally alter their risk/reward calculation?

This has to have an examination. And I don't know where you leapfrog to. It's almost as if this doesn't exist or that if we don't talk about it, we don't have to deal with it. Therefore, it doesn't exist. So I think that you need to answer that.

And I want to bring out my next question as well. Your report states that a 12 to 14-year exclusivity period, this is quote, "is unnecessary to promote innovation by pioneer biologic manufacturers" unquote.

This position is based on your assumptions that patent workarounds will be no easier to accomplish for a -- for biologics than they have been for small molecule generic drugs. You also state that data exclusivity is only justified for products that are unpatentable.

But I see no substantiation at all for these positions in your report. That's why I question whether past or present information about small molecule generics is a reliable predictor for biologics. And that's why I question the basis for your assumptions.

We have absolutely no experience. And I want to repeat that. We have absolutely no experience with the similarity standard that will be used for biologics for the approval of biosimilars. So how can you be sure that a new and untested standard would not facilitate a patent -- a path for patent workarounds for biologics?

How can you be sure that the different nature of biologic patents in conjunction with the similarity standard would not facilitate patent workarounds? How can you be sure? And you know what? Guessing in this is not going to be good enough.

I would challenge you to ingest what comes out without the kind of scrutiny of the FDA and the - and comparing one with the other as if they are the same, as it it's apples and pears. It's not.

How can you be sure that today's science and the scientific advances in the future would not make it easier for biosimilar companies to work around biologic patent claims? And, you know, I think that this is a real chink in the armor of the report or just in the report, which I have to tell you, at quarter to 1:00 this morning, I thought really suggested a lot of guesswork on the part of the FTC.

And let me hold something up. And I don't know if you had anyone come in and show you this. This is a regular drug, small molecule compound. This is tamoxifen. Look at it. It's all the same. This is herceptin. If this doesn't -- if this picture doesn't speak a thousand words, where you used the model throughout your report based on the generics of the small molecules and apply it to this, I want to tell you something, patients are going to be in big trouble in this country. Patients are going to be in big trouble in this country.

And if efficacy of this movement is not taken into consideration, God help us. Now, there is something else that has gone around in the committee. For those that are opposed to my viewpoint -- and they have every right to oppose it, but I want to -- and there are other members that have touched on this.

We cannot take for granted those that innovate to pursue the cure of these deadly diseases. The FDA is not going to do it. The Energy and Commerce Committee is not going to do it. We have a private sector that does it.

Yes, there need to be new rules of the road because we want lower costs and safe products. But that role cannot be diminished. And I don't know -- I looked at the back of your report.

Did you have any people that do the investing in this come and be part of your roundtable? I didn't -- if they were law firms, I didn't recognize them. But -- (cross talk) -- my district. So --

REP. PALLONE: Let me just -- we're like twice the time. So I'm just going to ask you to -- I know you can't respond to everything, but --

REP. ESHOO: Yeah. Well, there was an assertion, Mr. Chairman.

That's when I raised that --

REP. PALLONE: Yeah, but if you could just respond as quickly as you can because we need to move on.

MS. HARBOUR: Okay. I will. There were just a number of assumptions. First of all, let me just apologize to you for the lack of time you had to read the report.

REP. ESHOO: Well why did that happen, to begin with? Well, you told -- how long have you been working on this?

MS. HARBOUR: The commissioners --

REP. ESHOO: The commissioner --

MS. HARBOUR: -- received the report at 4:00 on Tuesday evening.

REP. ESHOO: No, no. How long has the FTC been working on this report?

MR. WROBLEWSKI: We started the -- we announced our workshop because we had a public hearing in August of last year.

REP. ESHOO: No, how long have you been working on it?

MR. WROBLEWSKI: Ten months.

REP. ESHOO: Ten months.

MS. HARBOUR: And it was finished on Tuesday.

REP. ESHOO: And you notified the committee that it was complete when?

MR. WROBLEWSKI: Notified on beginning of last week that it would be ready.

MS. HARBOUR: And it was ready Tuesday at 4:00.

REP. ESHOO: And did the FTC -- was it the FTC that refused to put the report out to members and only after cajoling that we finally got it and that some of us took it home to read last night?

MS. HARBOUR: Let me be really clear. The report was finished Tuesday at 4:00 p.m. The commissioners of the Federal Trade Commission voted this Tuesday, this week, at 4:00 p.m., on the report.

REP. ESHOO: Uh-huh.

MS. HARBOUR: There were embargoed copies that went probably before we even voted on it, but it went to the full committee the very next day.

REP. ESHOO: No, that's not so.

MR. WROBLEWSKI: No, we had -- it was voted on --

REP. ESHOO: You know what, let's get to the --

REP. PALLONE: All right. But we have to move on.

REP. ESHOO: I'd like you to answer the question that I posed.

MS. HARBOUR: Okay. There was an assumption that was made. You said that the report applied the Hatch-Waxman framework in this context. It doesn't --

REP. ESHOO: Similarities. The -- I'm sorry, the identical standard and use it and apply it to a similar standard.

MS. HARBOUR: The report actually did not say that. In fact, the approval pathway for biologics will be very different than the Hatch- Waxman approval process. And that's why I started by apologizing that you didn't get a chance to read the full report because it doesn't say that the approval process is similar. It is not.

In fact, we are advocating that a Hatch-Waxman approval process would not be appropriate in the case of follow-on biologics. And the reason we say that is because it mimics brand to brand competition.

REP. ESHOO: I'm not talking about the approval process. I'm talking about the investment incentive. You all are the ones that are in charge of competition. That's why, I guess, you got involved in this whole issue. And --

REP. PALLONE: All right, we are going to -- let me just -- if you just answer that, and then we have to move on. I'm just going to have to move to the next person.

MR. WROBLEWSKI: What we did is we looked at -- we did look at the investment incentives for biologics and compared them to the investment incentives for a small molecule drug, you know, the Hatch- Waxman type drug.

And the research that we have that is out there and I provided to your staff earlier was that the actual time and the cost to develop a pioneer biologic drug versus a pioneer small-molecule drug are the same.

REP. PALLONE: All right, I have to go. Ms. Capps is the next for questions.

REP. LOIS CAPPS (D-CA): (Off mike.)

REP. PALLONE: Oh, he is deferring to you. So we'll let to you go next.

REP. CAPPS: Thank you.

Thank you Honorable Commissioner, for being here for this long. One of the reasons -- I have three different questions to ask. One of the reasons that is being given for 12 to 14-year exclusivity period is that without such a lengthy period startup biotech companies will not be able to interest venture capitalists in investing in their companies, and without venture capital, these companies cannot survive.

Some believe that this claim, the specific number of years, is very difficult to evaluate. Before Congress makes a determination on exclusivity periods, this hearing is because we feel a duty to determine whether there is adequate evidence to support arguments in its favor.

First question. Did the evidence gathered by the FTC in the course of its investigation support the claims that venture capitalists will no longer invest in startup biotech companies without this 12 to 14 years of exclusivity?

MR. WROBLEWSKI: We believe that patent protection will still provide those incentives. Patent protection plus market-based pricing will still provide those incentives for venture capitalists to invest in start up biotech ventures.

REP. CAPPS: I know, you've mentioned this already. I just wanted to get it clearer from my prospective as well. Next question.

Is there evidence that startup biotech companies will still be able to recruit venture capitalists' capital in -- during, like, a five-year period comparable to what the traditional drugs have or the small molecule drugs have?

MR. WROBLEWSKI: Yes, because of patent rights, they're still going to be strong.

REP. CAPPS: Do you have the evidence that this is the case?

MS. HARBOUR: Well, we've seen, if you take a look at the stock market in the biotech market, the stock prices only went down 15 percent compared with the general market indices that went down 30 percent.

REP. CAPPS: So you are using that as one method of your evaluation.

The stock --

MS. HARBOUR: There's probably more as well, but that's what comes to my mind.

REP. CAPPS: Is there -- are there others?

MR. WROBLEWSKI: The only thing I was going to add was the venture capital that has come into the biotech industry in the past quarter has actually been very robust.

REP. CAPPS: And now, right now there is no 12 to 14-year exclusivity because that's what we are debating. So right now they have nothing -- no additional protection --

MR. WROBLEWSKI: (Off mike.)

REP. CAPPS: Pardon?

MR. WROBLEWSKI: And that's true. There is no 12 to 14-year exclusivity --

REP. CAPPS: No, it's the same as the small-molecule protection.

MR. WROBLEWSKI: But you still have the protection, right.

REP. CAPPS: Right. Finally, another kind of tack. The FTC report concludes, as you've just mentioned, the 12 to 14 years of exclusivity is unnecessary because patents and market-based principle -- pricing available under current law provides sufficient incentives for innovation.

I'm particularly interested in one of your conclusions that giving an excessive period of exclusivity may in itself have negative consequences. And that may actually harm patients. This is a piece that I'd like you to spell out.

What are some of these negative consequences, particularly, how the length of exclusivity might decrease the number of medical breakthroughs, but also the particular -- I know many people hang on to the hope that something is going to be available to them for their own, you know, lifesaving needs.

And so these two aspects. Additional breakthroughs that follow- on behind some new discovery. Oftentimes they do. And then the part that relates to the patient's own survival ability.

MS. HARBOUR: I would say that the 12 to 14-year exclusivity period could in fact slow the pace of innovation. So new --

REP. CAPPS: So other companies will know they just can't even do anything for that long a time, so they won't try.

MS. HARBOUR: That's right. And ultimately that is not good for the American consumer because you are not getting new drug products in the market as quickly.

REP. CAPPS: Right. I know, especially, because they are different criteria in other countries that sometimes people see availabilities in other places that they can't make available to themselves here, which could create quite a possible tragic situation at least from their points of view. Although, you know, to be sure, we want to make sure that our standards are ones that we set ourselves.

Is there any evidence on the previous, since I have just a few seconds left, that a long length of time of exclusivity would have this sort of chilling effect on additional innovations to that particular; so upgrading it or making it better or doing something different along the side of it? Sometimes different outcomes based on something that is set up in a particular -- and they are very complex, will spin off into some other kind of breakthrough.

MR. WROBLEWSKI: We've seen in other areas that the -- whenever the exclusivity ends, that that's when the innovation occurs. And so to the extent that the follow-on pathway that you are establishing still keeps intact those very robust incentives of patent protection and market-based pricing, then you'll have the threat of competition coming from behind acting -- it's almost a carrots-and-sticks.

With the carrot that you have the ability to price at market, whatever the market will bear, for that period of time for your patent. And then you have the competition can come on and hasten the development that's a win-win for the consumers.

MS. HARBOUR: And one thing I want to add. The exclusivity is really additional protection over and above what the patent system provides. And the original rationale 12 to 14-year branded exclusivity period under Hatch-Waxman was to compensate for a perceived failure of the patent system. We haven't perceived that failure here with biologics and follow-ons.

REP. CAPPS: Thank you. I yield back.

REP. PALLONE: Thank you.

The gentleman from Utah, Mr. Matheson.

REP. MATHESON: Thank you, Mr. Chairman.

In my opening statement I mentioned that 80 percent of the biotech industry right now remain unprofitable. Is that consistent with what you've heard as well?

MR. WROBLEWSKI: We've seen the same statistics.

REP. MATHESON: In the previous round of questions, you were asked for evidence about ability to attract capital. You mentioned recent stock performance and quarterly investment in -- from venture funds. Do you think that short-term window over the last few months is really the best evidence you got for telling us that the investment incentives are right because I got to tell you that doesn't sell me.

MR. WROBLEWSKI: Sure. We can certainly provide you all of the evidence, would be more than happy to give you the evidence --

REP. MATHESON: Mr. Chairman, I think it will be real helpful to, again, in future hearings, let's get the -- let's get some folks from the venture capital industry and let's get some other the folks in here, so we can have a broad discussion about what's really going on here. Because I do think we want to make sure when we are setting policy that we do set an environment that encourages that private sector investment in these areas. I think that'd be a useful tool.

Right now -- I want ask a question. Right now in Europe you've heard, I know a number of people said this in their opening statements, that it's 10 to 11 years of data exclusivity. . Have you in your analysis thought about an exclusivity period that would -- in the United States would be lower than the European model? How that would affect U.S. competitiveness in this industry?

MR. WROBLEWSKI: The European model is very different than -- for two reasons that we mentioned earlier. One was that the scope of -- the patent system is different in that, and that they have regulated prices in Europe. So with a 10-year period of exclusivity and only the ability to charge a regulated price as opposed to a price that the market would bear and if it's a -- if they've developed monopoly, it's a monopoly price, that that market necessarily isn't -- that model, isn't necessarily as translatable here to the U.S.

REP. MATHESON: Have you -- in your analysis have you seen where biotech industry is moving away from Europe and coming to the United States in previous years?

MR. WROBLEWSKI: I think what we saw throughout the entire analysis was that biotech in many ways is a global industry, but that it's -- here in the United States, it's locally centered. So because of the strong collaborative efforts between universities, between start ups that have talent to manage projects that you have a collaboration. And so that's why you have -- in Wisconsin you have a biotech industry. And in the Silicon Valley it's the same thing.

REP. MATHESON: Let me ask you this. In your analysis, did you look at why you are -- in terms of looking why the Europeans set this data exclusivity level at 10 to 11 years, you have mentioned your issue about market pricing? Did you analyze other reasons why they set that exclusivity period, where they did? And in fact was it not one of the reasons because industries were leaving Europe and coming to this country?

MR. WROBLEWSKI: When we spoke with the European regulators, they explained that their system was kind of a different system because they were incorporating not only biologics, but small-molecule drugs too in that whole system. And that that it was a different dynamic than I think that we are facing here.

REP. MATHESON: Let me ask you this question. Obviously, the committee is looking at different bills to look at data exclusivity. What are the factors you think we ought to be taking to consideration as a committee in terms of how we determine an appropriate length of the exclusivity?

MR. WROBLEWSKI: I think there are a couple of things that we should look at. One, to see, you know, when -- if there is a failing in the patent system because drugs are unpatentable, that's a serious flaw for all drug development and there should be some type of mechanism to recoup and to encourage people or firms to engage in that clinical testing.

REP. MATHESON: So you are suggesting that it's more of a patent reform issue and not data exclusivity? Is that what you are saying?

MR. WROBLEWSKI: Yes.

REP. MATHESON: And you are saying that, you know, the fact that biologic industry maybe it facing a different set of dynamics than conventional prescription drug industry, that this exclusivity issue is not an appropriate tool for us to acknowledge the challenges in the biotech industry?

MR. WROBLEWSKI: We didn't see that the tools that we currently use to incentivize innovation, basically patents, and the fact that you can price at the market that somehow would fail in -- with a biosimilar that wouldn't have nearly the dramatic market impact that a small molecule generic drug would have.

REP. MATHESON: If you think that the intent is that we want to set up an appropriate opportunity for the private sector to recoup its R and D cost to develop one of these, are you telling me data exclusivity is not an appropriate tool for us to be looking at?

MR. WROBLEWSKI: I think it's an appropriate tool to look at if the other two tools which have been wildly successful are broken.

REP. MATHESON: And you're suggesting they're broken?

MR. WROBLEWSKI: I'm not -- I'm -- quite the opposite.

REP. MATHESON: Okay.

MR. WROBLEWSKI: I'm suggesting that they are very strong.

REP. MATHESON: I see my time has expired, Mr. Chairman. But as -- I guess I'll reiterate what a number of folks have said. I think there are -- I think it would be helpful to bring some other folks in before this committee to get some other points of view. And I yield back my time.

REP. PALLONE: Thank you. Before I ask Mr. Inslee, I know that my colleague from Georgia has a request.

REP. DEAL: Yes, Mr. Chairman. I have unanimous consent request that a report from Alex M. Brill, who is a fellow at the American Enterprise Institute, and a report from Laurence L. Kotlikoff, professor of economics at Boston University, and a report from the AARP Public Policy Institute on biologics that they be included in the record.

REP. PALLONE: Without objection, so ordered.

Mr. Inslee?

REP. JAY INSLEE (D-WA): Thank you, Mr. Chair. Thanks for allowing me to participate in this very important hearing, and I hope there are others on this line. This is a complex area, but there is one conclusion on this report that is so in my view fantastically unrelated to the realities of the marketplace, I've really got a question.

On page 7 of your executive report, I'll read you what it says. It says, "Central to each of these exclusivities as a public policy tradeoff, a restriction on competition is provided in return for the development of a new -- " underline, "drug product or new -- " underline, "use of an existing product.

"A 12 or 14-year exclusivity period departs sharply from this tradeoff, because it does not spur the creation of a new -- " underline new, "biologic drug or indication. The drug has already been incentivized through patent protection and market-based pricing," close quote.

Now, that statement is so fantastically unrelated to reality, suggesting that the removal of the exclusivity period will help the -- incentivize further investment in new drugs to cure new diseases. Right now, if a drug company wants to go out there and develop a new drug that will cure leukemia, they have an incentive to investment in part because of the data exclusivity.

And yet you have turned that upside down, and suggest by removing that data exclusivity, somehow you'll create an additional incentive for investment of a new drug. Now, a biologically similar drug is not going to cure a disease that hasn't already been dealt with by the original product.

And I just cannot fathom how you make this argument that removing the data protection is going to create greater incentive for investors to put money into products that will truly respond to this condition in a new way.

I just think you've turned reality on its head in that regard. So I'll give you a chance to respond to that. I can't imagine what it would be, but take a shot.

MS. HARBOUR: Yes, I'll take -- let me take that shot first. Your question seems to presume that the patent system is not strong enough to protect patents. Basically, exclusivity is additional protection above and beyond what the patent system provides.

REP. INSLEE: Yeah, but let me just ask you this. Don't you agree that data exclusivity is one of the things that investors take into consideration when they decide to plunk down several million dollars on something that may take a decade that may or may not work?

Don't you think that's an incentive for investment in truly new drugs that truly treat conditions in a new way which is the original patent-holder that we're talking about here? Don't you agree with that?

MS. HARBOUR: Only if there's truly a perceived failure with the patent system.

REP. INSLEE: Well, then you do not have any -- with all due respect, any recognition of the investment climate in the United States if you do not recognize this as critical to inspiring investment in these truly new drugs. Let me ask you about that.

Did your study evaluate the impact on the investment in new products, truly new products that will approach these conditions in a new way? Did you evaluate how that would effect the investment in these new products? And I mean new that's not follow-on biologics; did you?

MR. WROBLEWSKI: We did not evaluate that in particular, and I'll tell you why. It's because the patent protection has been very, very strong. We've suggested though, in the executive summary, that one way to -- if there were -- if there is --

REP. INSLEE: I've got little time. I think if you've answered my question, I appreciate it. But the point I want to make is you assumed for purpose of this study that there's no impact.

That sort of assumption we can't make because if you make that assumption and it's wrong, which I believe it is wholeheartedly wrong, you will cutoff the development of new drugs, because investments will not be made in them.

So let me ask you a further question, Madame Commissioner. You've told us that you consider yourself an expert on consumers.

I'll give you a hypothetical consumer. Let's take parents of a 10-year-old kid with leukemia. And we are now evaluating risks when we consider this legislation.

One of the risks is that we would continue data exclusivity, and the parents might have a 10 to 30 percent increased cost of a drug that might cure leukemia. Let's assume that there is one right now. The other risk is that a drug would never be created to cure leukemia, because by removing follow-on -- or excuse me, by removing data exclusivity, the investment never gets made to provide that lifesaving drug.

As an expert in consumer behavior, what do you think is more important and the bigger risk to those parents of that kid?

MS. HARBOUR: First of all, if I said I was an expert on consumers, I misspoke. But let me address --

REP. INSLEE: Well, I think that was the direct misquote I could find.

MS. HARBOUR: I'm an expert on protecting the American consumer.

REP. INSLEE: Okay, as an expert in protecting the consumer, what do you think would be a greater risk in the minds of the children or the parents of that child -- the risk that they'd have a 10 to 30 percent higher cost of the drug, or the risk that this drug that could cure their child would never be created?

MS. HARBOUR: You are assuming that data exclusivity is the only way that one would invest in a drug, and that's what I'm pushing back against. I don't think that assumption is correct.

REP. INSLEE: Well, unfortunately you apparently --

MS. HARBOUR: There are exceptions though where if you have a small patient population or if you are bringing drugs on the Orphan Drug Act where exclusivity would be necessary because there is a perceived market failure. In that circumstance, exclusivity would be absolutely appropriate.

REP. INSLEE: And the unfortunate limitation of your study, according to what you just testified --

REP. PALLONE: I just have to -- gentleman --

REP. INSLEE: -- we have to study that. Thank you, Mr. Chair. I appreciate your cooperation.

REP. PALLONE: Okay. The gentlemen from Texas, Mr. Burgess.

REP. BURGESS: Thank you, Mr. Chairman.

Let me just follow along that discussion that you were just having for a moment. Now, within the Federal Trade Commission, have you constructed a matrix that will give you a cost-benefit analysis, some of the newer compounds for example that inhibit small blood vessel growth that may be used in treating more advanced cancers? Do you look at the number of the hospital days that might be saved by using one of these advanced biologics in considering the cost?

Yes, they're expensive, but the disease that they're treating also has expensive consequences associated with it so that if we avoid a surgery, if we avoid a week in the hospital, there are additional savings, not just the baseline cost of the drug, but there are other things to consider.

So is there a matrix, or simulation, or program that you use to help make those evaluations or is this simply data that's derived from the price tag on the bottle or box that the drugs comes in?

MS. HARBOUR: Those sort of questions sound like they are within the expertise of the FDA. We are looking at the --

REP. BURGESS: I'm so glad you brought that up, because, Mr. Chairman, we should be having this discussion with the FDA.

MS. HARBOUR: And perhaps you will. I mean, we are your beginning act here, and we are talking about the competitive consequences of this sort of follow-on. I believe there will be more hearings and discussions on these issues.

REP. BURGESS: Now do you and the FDA -- are you aligned on your definition of things like biosimilar and biogeneric? Do you mean the same thing when you say those terms?

MR. WROBLEWSKI: Yes.

REP. BURGESS: I'm -- you know, I don't know. I -- it seems like the FDA has hinted that it might be otherwise. But you feel that there's a scientific -- currently there's a scientific basis for determining interchangeability of biologics from different and unrelated manufacturers?

MR. WROBLEWSKI: What we tried to do was to say if there is an abbreviated pathway where the follow-on does not have to duplicate findings of safety and effectiveness because it can rely on the FDA's approval of the pioneer drug, if that's allowed. These are the -- (cross talk.)

REP. BURGESS: Well, but that's such a crucial question because the safety question can be very, very difficult to answer. And again, just as an aside, a week ago I was visiting the FDA, Dr. Hamburg, and getting a tour with her through the new facility that they're occupying out there.

One of the researchers just passing in the hall said what a difficult time they were having because of the viruses that might infect the cell cultures that are going to create these monoclonal antibodies that might be useful in the treatment and prevention of Alzheimer's in the future.

Well, that's a pretty important arm or branch of that research. And I don't know that he knows or rather would be interested if he could tell us that is this something that is so standard and so settled that you could do this in Dallas, as well as Denver, as well as Beijing, and get the same result.

MS. HARBOUR: That's very important. And that certainly would be for the FDA, not the FTC to determine, the safety and efficacy of these follow-on biologics.

REP. BURGESS: Again, we're hitting on a recurrent theme.

Mr. Chairman, we need to have a hearing that involves the FDA, and many of us have been asking for that for some time. And again, I'll just emphasize that I've not aligned myself with either of the two bills that are out there.

I'm really in an information-gathering mode and safety has to be paramount. The poor doctor that picks up the prescription and the pen and writes the prescription and whips it off and puts it in the patient's hand and counsels him of its risks and benefits, we've got to be able to provide them the best data.

And it isn't always just the price tag on the box or the bottle that the medication is going to be delivered in. What about -- because this would come up all the time -- I was a doctor and I was in practice for years.

There were some classes of medicines -- and these were not biologics, these were just regular things. But there were some classes of medicines where you just really didn't want to make a change.

And if you -- you didn't want a generic to be substituted and some of those things might be some of the cardiac drugs, certainly some of the diuretics that treat congestive heart disease.

And in my practice, estrogen -- different -- estrogens from different manufacturers actually seem to have a different biologic behavior.

And I don't know whether it's bioavailability of the vehicle or what it was. But our -- what are -- how are we going to address that?

A doctor has got a patient who is on a very stable regimen, a patient with a serious and significant disease and now a new biosimilar becomes available. How are we going to govern that?

Because in the generic world it became harder and harder for me to control that, and oftentimes I'd have to pick up my phone and call 1-800 California, stay on hold for a long time to get my point across.

MR. WROBLEWSKI: We couldn't agree with you more that those types of switching are going to be very difficult to do in the biosimilar environment. And that's really the -- one of the foundations of -- that drew our conclusions of that when a follow-on comes on to the market that its market impact is going to be substantially different than a generic drug, the market impact that a generic drug has.

REP. BURGESS: Well, under the (Waxman-Hatch ?) or whatever it was, we lost the ability to control -- the provider, the doctor lost the ability to control that. And again, you had to really intervene on your patient's behalf if you didn't want to -- if you didn't want to have a substitution.

MS. HARBOUR: And no similar type mechanism in --

REP. BURGESS: Well, I think we heard that discussed this morning that there would have to be ways of directing this behavior because you couldn't always trust doctors to do the right thing, imagine that.

Just one last point I'll make, and we've heard the -- we've heard of the Heparin tragedy a year ago in this very hearing room, the fact that oftentimes the active pharmaceutical ingredient -- we only manufacture the compounds in this country, but actually the active pharmaceutical ingredient may come from overseas, and the ability of the FDA to monitor those manufacturing facilities that are overseas.

And again we saw a tragedy with Heparin which is not a complex molecule. It's a little bit more complex than Aspirin, but it's -- it is not -- would not fall into this category. And we saw what happened with the intrusion of a foreign substance into that active pharmaceutical ingredient.

It just seems to me that this manufacturing process, which is fraught with much more peril, we've got to be much more precise. You don't just line up the amino acids and say there, I've made the protein.

It's the folding, the unfolding, the sulfide bonds or hydrogen bonds, all of those things are going to be critical to the biologic action of that product. And again, all of which could be affected by the humidity, the atmospheric pressure, and goodness knows what else.

We have an obligation to protect. You say you're the advocate for the consumer. I think, you know, our first obligation has to be for the safety of that consumer which is both the physicians and the patient in the -- in that scenario.

MS. HARBOUR: And as an advocate for consumers, I think it's a good thing to discuss all of these issues. We are here discussing the competitive implications. Obviously, the safety implications are paramount.

You can't -- (inaudible) -- safety implications. There needs to be a hearing on this potentially as well. But here we can opine on those.

We don't have the expertise to opine on the safety. The FDA would have to do that.

REP. BURGESS: Well, thank you for your testimony.

Mr. Chairman, did you get that, that we need to have a hearing with the FDA?

REP. PALLONE: I've repeatedly said that we're having more hearings. So no one is disagreeing with that notion. And I think it's pretty obvious that we have a lot of disagreements here, and we need further hearings.

Let me just thank both of you for being here. This has not been easy for you -- (laughs.) But I appreciate your bearing with us. And as I mentioned before, we will undoubtedly have members asking in writing for you to respond to questions.

Normally the clerk -- normally that's about 10 days and the clerk will notify you within the next 10 days of any written questions that the members would have. But I cannot stress enough that I think that this report was really informative for me and the other members, and appreciate your bearing with us today.

Thank you very much and without further ado, this subcommittee hearing is adjourned. (Sounds gavel.)


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