Drug Firms Face Growing Pressure Over Extensions of Their Patents

Drug Firms Face Growing Pressure Over Extensions of Their Patents

WASHINGTON -- Republican Gov. William Janklow of South Dakota bows to no one as a fan of business and the profit motive -- except when it comes to drug companies. They are "gouging people," he says flatly.

Mr. Janklow is among 10 governors from both parties, tired of high prescription-drug costs burdening states' Medicaid budgets, who have joined a fight to block patent extensions for lucrative brand-name pharmaceuticals. The National Governors Association also surprised drug companies last month with a policy statement calling for congressional hearings.

The governors' backing of a coalition of employers and unions -- dubbed Business for Affordable Medicine -- is making possible the once-unlikely prospect of a major overhaul of the 1984 generics law that opened a wider door to cheap generic drugs.

Even some within the brand-name industry wonder if some changes aren't needed. The 1984 law that essentially gave birth to the modern generics industry, known as Hatch-Waxman for its main congressional sponsors, also permitted brand-name drug-makers a slew of defenses to slow or block the introduction of generic competitors.

Executives at three of the top 10 manufacturers -- Merck & Co., Pharmacia Corp. and Eli Lilly & Co. -- have expressed concern about other companies' aggressive patent-extension tactics. Worried that perceived abuses could lead to a broader dismantling of their patent protections, they privately suggest they could support a crackdown against some techniques to extend patents.

But such sentiments are being drowned out by the rest of the industry, which fears any bill that opens up Hatch-Waxman. The brand-name industry overall insists the law's protections provide the financial incentives the companies need to keep doing costly research.

The industry also has invested a lot in campaign contributions and lobbyists, and has been able to thwart the generics industry's past attacks. Even some pro-generic lawmakers, including the statute's original sponsor, Democratic Rep. Henry Waxman of California, are leery of seeking pro-generic changes because of concern that brand-name companies would manage to make the law more favorable for themselves.

President Bush hasn't addressed this issue and right now has no plans to, spokesman Scott McClellan said. But he added, "If Congress also has ideas about ways to lower drug prices by increasing competition, then those ideas should be looked at as well."

The National Governors Association called for congressional hearings on whether brand-name drugmakers are manipulating the patent system to keep generics rivals at bay. "I think people are entitled to their patents, but I also think you have to play by the rules in life. If you don't, that's cheating, and that's what's happening right now," Mr. Janklow says.

Democratic Gov. Howard Dean of Vermont, a doctor, spearheaded the governors' effort, but the participation of Republican Govs. Janklow and Mike Foster broadened its reach. One hope is that Mr. Foster can win over his fellow Louisiana Republican, Rep. Billy Tauzin, chairman of the House Energy and Commerce Committee, which has jurisdiction over the law.

That is far from assured: A Tauzin aide says "it's too early to tell how this will play out," but adds that the chairman would prefer to address high drug prices "without reopening Hatch-Waxman." On the Senate side, Massachusetts Democrat Ted Kennedy, the Health, Education, Labor and Pensions Committee chairman, hasn't put it among his priorities either.

But with many states facing budget deficits, the governors complain that patent extensions are adding big bucks to their Medicaid costs.

Vermont's Gov. Dean says states could end up paying an extra $600 million a year if companies get extensions for all 17 drugs with patents expiring between now and 2004, based on the calculations of state Medicaid directors. Mr. Foster joined the coalition after estimates that Louisiana would pay an extra $10.6 million next year alone -- and after complaints about rising drug costs from one of Louisiana's big employers, Georgia-Pacific Corp.

Pharmaceutical Research and Manufacturers of America, the brand-name companies' trade group, recently issued a blistering statement vowing to oppose the generics industry's attempt at "the theft of innovation," promising to use "every ounce of strength ... we can muster." Changing the law, it warned, would be a "devastating blow to America's patients," jeopardizing drug safety.

Since the 1984 law's passage, generics manufacturers' share of drugs sold, by volume, has risen to 49% last year from 19% for 1984, PhRMA says. "Hatch-Waxman has largely worked," says spokesman Jeff Trewhitt. Generic-drug companies say that long-term market trend is beside the point. What matters, they say, is that their market penetration has stagnated during recent years as brand-name companies got increasingly aggressive at getting their patents extended.

Moreover, "if you look at the ones they fight on, it's the massive blockbusters that can save everybody a lot of money," says Jake Hansen, vice president of government affairs for Barr Laboratories Inc., of Pomona, N.Y.

Under Hatch-Waxman, a generic-drug maker has to show federal regulators that its product has the same active ingredients and other properties as the existing brand-name drug. If so, it can bypass the sort of costly clinical research and animal tests that the brand-name company originally performed.

But what especially rankles the generics makers is that, if a generic drug is headed to the market, a brand-name company can cite its patent listing in the Food and Drug Administration's "Orange Book" to raise challenges. That delays the generic drug's entry for as many as 30 months while the fight is decided. According to generics companies, brand-name makers file frivolous Orange Book patents.

Brand-name manufacturers also commonly file so-called citizen petitions raising safety questions about a potential competitor. While drug makers say the petitions are filed in good faith on serious patient-safety issues, between 1990 and 2000, 80% were substantially rejected by the FDA or were withdrawn; meantime, the generic versions were delayed.

Democratic Sen. Charles Schumer of New York and Republican Sen. John McCain of Arizona last year introduced a bill to block such tactics. For instance, it would require citizen-petitioners to better substantiate their challenges, and to prove they aren't raising questions for anticompetitive reasons. The bill failed to make it to a committee vote. Last week, officials from several insurance and consumer groups met with staffers from four congressional offices -- two in the House, two in the Senate -- to discuss strategy for passing the bill.

Meanwhile, supporters hold out hope that lawmakers in an election year may end up scurrying to find ways to help lower drug costs for retirees. Chris Jennings, a former health-policy adviser to President Clinton who now is a consultant to the generics industry, says optimistically of lawmakers' calculus, "If you haven't delivered on a drug benefit, you need to have done something on cost containment."

Write to Chris Adams at chris.adams@wsj.com¹ and Gardiner Harris at gardiner.harris@wsj.com²

Updated March 19, 2002