WASHINGTON _ Spending by U.S. drug makers on new drugdevelopment both here and abroad increased only 5.6 percent in1994, after achieving record high rates of growth of nearly 22 percentin 1980, Gerald Mossinghoff, president of the PharmaceuticalResearch and Manufacturers of America (PhRMA) told the SenateJudiciary Committee Tuesday.

Mossinghoff's statement that drug research and developmentinvestment is flattening came as sobering news to JudiciaryCommittee Chairman Orrin Hatch (R-Utah) who is exploring changesto the 1984 Drug Price Competition and Patent Term Restoration Act(commonly known for its co-sponsors as Hatch-Waxman) toencourage additional investment in new drug development.

"Given current budget realities, and the fact that the NationalInstitutes of Health budget will decline in real terms, we need to keepresearch and development costs high so that the U.S. remains theleader in breakthrough pharmaceuticals," Hatch told the hearing.

Hatch has not introduced legislation to amend the 1984 law but isconsidering a number of revisions including a controversial one putforward by PhRMA that has already engendered the heatedopposition of the generic drug industry. Controversial patent termlegislation is pending in the House Judiciary Committee. (SeeBioWorld Today, Sept. 14, 1995, p. 1.)

PhRMA wants to extend patent term protection by givingmanufacturers a day-for-day restoration of time lost during delays inthe drug approval process. That could mean as much as 3 to 5additional years tacked onto their patent terms.

Generic drug makers see extended patent term protection "as a tax onAmerican consumers," said Bruce Downey, president and CEO ofBarr Laboratories, a generic drug company located in Northvale, N.J.He viewed the recent General Agreement on Tariffs and Tradeimplementing legislation, which extended pharmaceutical patents, asa "$10 billion to $12 billion tax on American consumers that is goingdirectly into the coffers of the branded industry."

Downey urged the committee to focus on what the pharmaceuticalindustry has enjoyed: "record sales, record profits and recordresearch and development expansion."

John Klein, chairman of the Generic Pharmaceutical IndustryAssociation, of Washington, disputed Mossinghoff's claim aboutfalling new drug investment. "Research and development spendinghas been diverted to the high costs of buying each other," he said. Bigdrug makers have also spent $12 billion in recent years buyingpharmaceutical benefit management (PBM) companies "in order tocircumvent competition in managed care environments," Klein said.

The divergent views of the pharmaceutical and generic drug makersresound today as they did 11 years ago when Hatch and Rep. HenryWaxman (D-Calif.) sought legislation that would strike an optimalbalance between the public policy objectives of providing adequateincentives for pharmaceutical research innovation and promotingprice competition among generic drug products by making it easier toobtain FDA clearance.

Waxman called the branded drug companies' proposal to extendpatent term protection as "indefensible." Waxman told the hearing "Icannot help but comment that the U.S. remains the only country thatdoes not exercise direct control on drug prices. In some real sense ourconsumers bear the research cost for the world. To ask them to bearthe financial effects of a longer patent time for name brand drugs aswell seems indefensible."

Waxman urged Hatch not to consider any amendment to the patentterm protection act and reminded him of the "traumas we wentthrough when we originally" enacted 1984 law and "that there is noend to the demands from the brand-name drug companies forfinancial benefit. We went through fire to find the balance that wouldrespond to them without hurting the public. We worked through a lotof unpleasant moments to be able in good conscience to keep thedrug price competition of the bill intact. I don't think either of uswould welcome going through that again," Waxman said.

Hatch called the legislation "one of the most important consumerbills of the decade." But he observed that in the intervening 11 years,the health care marketplace has been transformed. "New competitiveforces have served to restrain the costs of pharmaceuticals _ forcessuch as pharmacy benefits managers and mail order pharmacies orhealth maintenance organizations and restrictive formularies. Furthercomplicating the competitive picture is the fact that ownership lineshave begun to blur. Indeed, most of the major research-basedpharmaceutical companies own generic drug divisions," he said.

"Eleven years ago when we were putting the finishing touches on theHatch-Waxman bill, it was estimated that it would take about nineyears and up to $100 million to secure FDA approval of a drug.Today estimates are that it can take up to 12 years and $500 millionfor drug approval," Hatch said.

Modest Problems Dictate Modest Legislation

David Beier, vice president for government relations for South SanFrancisco-based Genentech Inc., described the situation as "modestproblems in need of a modest legislative response." Beier testified onbehalf of the Biotechnology Industry Organization.

He reminded the committee that since enactment of Hatch-Waxmanin 1984, the point in time used to define the beginning of a patentterm has decreased; research and development costs now average$500 million for a new product compared to $100 million a decadeearlier; and the number of patients and clinical trials has doubledbecause of both FDA requirements and the need to completepharmacoeconomic studies to ensure acceptance of a new drug by amanaged care plan.

Mossinghoff's claim about flatter innovation budgets was obtainedfrom a confidential survey of pharmaceutical firms conducted by theBoston Consulting Group. The study also found that the period ofintellectual property protection given to an innovative new drug hasin effect declined by as much as five years since the Hatch-Waxmanlaw was enacted 11 years ago. Lack of adequate protection is"limiting the ability of pharmaceutical companies to recover the hugeinvestment necessary to document research and development forinnovative new drugs," Mossinghoff said. n

-- Michele L. Robinson Washington Editor

(c) 1997 American Health Consultants. All rights reserved.