Mr. Or zach . You, madam chair, Ranking Member leave. I have conducted Extensive Research on the effect on consumers of reverse payment patent settlements. The Research Demonstrates that reverse payment settlements can be good for consumers under certain real world situations. One key reason in those situations without a payment from the brand to the generic the parties would be unable to reach an agreement on a thatement, even if settlement or good for consumers. Thus, attempts to ban patent settlement in which some form of consideration is provided for the generic would be misguided Public Policy to cause such a ban would make consumers worse off. Ask, why would the Branded Company enter into what i will call a pay for entry settlement, allowing earlier competition from lowerpriced generics . The answer litigation is expensive. It has a lot of uncertainty associated with it. If you are the ceo of a drug company, it may be better to have lower profits with certainty than an uncertain world where losing the financial harm. Our Research Shows other real world situations in which a reverse payment facilitates the settlement that is in the best interest of consumers, that is, a settlement where consumers can lowerpriced generics earlier. The proper Economic Analysis must also include the important effects of the the settle settlement on longterm incentives of branded manufacturers to innovate and generic oness of to challenge branded patents. Unfortunately, there is very little empirical evidence on this topic. As a first step in filling the gap, we conducted a survey of generic manufacturers. The results are industry and they are included in my written statement. Now regards to the Supreme Court decision. The good news is it that the economics basically right with the rule of reason text. It is precisely the rule of reason test that sound economics with the tape. The bad news is, the Supreme Court did not delineate precise factors for judges to evaluate whether celebrants settlements are proor anti competitive. Economic theory shows us circumstances where that is possible. First, is that easily obtained interpret evidence that the patent is very strong . If the patent is very strong, then whatever the reason is for the settlement, it cannot likely reduce competition. Even the ftc acknowledged to the absence an anticompetitive problem where a very strong patents were concerned we heard that this morning. Paymentis a reverse consistent with expected litigation cost of the branded manufacturer inclusive of its cost of bearing the litigation risk . The basis for some of the suspicion about the settlement also crumbles if the payment does not exceed the Patent Holders expected litigation cost less the benefits of reduced uncertainty that the Patent Holder obtained from settling litigation. The Justice Department stated a reverse payment is competitively benign when the payment is less about the Patent Holders litigation cost. Course, such safe harbors will not resolve every case. Be thosel inevitably cases where the trial court will have to conduct a full fledged analysis, fullfledged role reason analysis. In such cases, everyone must remember a very basic question inanticompetitive comparison to what . In other words, what is the alternative to the challenge settlement that the Challenging Party or parties believe would have been realized but for a settlement . Final point. The court suggested in this decision that one could examine the size of the reverse payment. However, on closer examination, this may prove to be less helpful them it seems. Shows the size of the payment may prove to be an unreliably blunt instrument for assessing the competitive effects of settlement. In conclusion, the role of reason test adopted by the court is surely the best available posture for guarding the Public Interest in settlement of pharmaceutical patent disputes involving reverse payment. Answeringthods for relevant questions raised under the role of reason test is critical. And courts will be well advised to take a careful and rigorous approach, especially in early cases, where the precedents are likely to be set. Congressional action at this bent would likely counterproductive and likely have very damaging unintended consequences for innovation and competition in the pharmaceutical sector. The settlements would not likely generate the consumer savings the ftc alleges. If the ftc does its job under the test, anticonsumer deals would be blocked in the court. And a ban would produce no incremental benefits for consumers. Thank you again for the opportunity to discuss this issue in committee and i look forward to your questions. Thank you very much, mr. They give very much. Mr. Russo . Thank you for the opportunity to confront just as affected by Public Interest group. I think this hearing is very important to draw attention of how these deals hurt consumers by inflated drug prices. As too often putting critically needed medication out of the hands of patients. As a mentioned, u. S. Pirg is federal andte state Public Interest groups that works to protect consumers. One of our key concerns is the high cost of healthcare. Because too often, consumers patients pay more than they should. Has paid closee attention to. Egregious example of how consumers to offer their much higher lost then they should. Putting an end to these deals would cut a lot of wasteful spending and improve the lives of millions. Chairman klobuchar, id appreciate you mentioned the bureau and remarks the story of we were who worked going on our campaign it is critical. Ofdiscussed a lot the impact incentives, how court cases would proceed, the Decision Making of brand name generic manufacturers but at the end of the day the real place where this matters is in the living rooms of consumers across the country. Linkerone hundreds of dollars a month for the medications she needed to survive and once the patent oneoff it was 16, which she said gave her her life back. It was certainly good news when they ruled that these deals may violate antitrust law and open the door to these types of challenges. It does hold out the hope that antitrust litigation may lead to the overturning of some of these deals and some compensation for consumers who suffered as a result of them. But we dont think it is appropriate to wait for years, if not, a decade, for litigation to ultimately converge on a solution to the problem. Consumers need relief right now. We do think congressional action is urgently needed and we are happy to support s214 by yourself and senator grassley as well as the generics act. Also in the wake of the recent Supreme Court ruling our staff Work Together with partners to pull together a realworld example of of how these deals are impacting consumers. Waitlist at month 20 drugs known to be impacted by these deals. We found the reverse payment settlements had affect drug use by patients with a wide range of serious and chronic conditions, ranging from cancer and and Heart Disease to depression and infection. If you wellknown examples the job to treat hormone receptive breast cancer, cipro, and the drug that helps ms patients and others with fatigue and sleep disorders. We found the payoffs delayed the entry of the 20 drugs for five years on average and the consequences of those delays on patients were significant. On average, the brand name drug was about 10 times more costly than the eventual generic. In one case, three times more costly. We estimate that the total amount of sales made by the brandname company over the course of the the delays was 98 billion. That was total sales but not that cost to consumers. It illustrates the scale of the problem and how much of these deals are doing. Again, with the reverse payment we expect generic version of the drugs to be available much sooner without the option of making an option to the payment generic drug makers. There are other alternatives, other settlement withdrawing the suit, pretty much all of which would lead to earlier generic entry. I want to highlight the Generic Pharmaceutical Association did take issue with our study and put out their own study that found that there were billions and billions of dollars of savings to consumers as a result of these deals. I think there are a few weaknesses in that study so it is not painting an accurate picture of the space for delay settlements. First, and looked at all settlements not just those under consideration. It also did not assume a deal could potentially even lead to any cost to consumers, even if it was having to do with a patent that had not been upheld. We do not think that analysis is the correct one to look at when assessing the cost. Finally, i want to thank you for holding the hearing and giving us the opportunity to share their views. Increased attention increased attention comes in a critical time in the wake of the Supreme Court ruling. While the rolling with a step in the right direction it is really up to congress to put an end to these deals once and for all and would urge all the members of the subcommittee and congress at large to take action. Thank you very much, mr. Russo. Dr. Thank you very much for inviting me to testify on this importance said it best subject. I have been doing Economic Research on the pharmaceutical industry for over 30 years and i have been thinking about these socalled pay for delay settlements for about 1213 years. Case frombout the chairwoman ramirez. I actually served as a trial witness in that case. And they did a rule of reason analysis 12 years before. Often forgotten is that the trial judge in that case found under the rule of reason there was no problem with the agreement under consideration. Of the advantages going last is a lot of the things youre going to say have been said already, so i can make my remarks that never stopped any of us. [laughter] please, go ahead. I will make my remarks brief, therefore. It is in fact the case that economics tells us that the best pure not terms is not always possible. Terms not always possible. You cannot compare the Settlement Agreement you had before you with some hypothetical settlement you wish the parties had entered into. You can really only compare it to what wouldve happened if they have not settled which, of course, is litigation. If you are tos is come to any reasonable conclusion about the actual competitive effect of settlement, you are going to have to think about the underlying patent. There is no way around it. I think every economist who has written a principled article on the subject has come to exactly the same conclusion. There are strong patents, and there are weak patents. An agreement involving a week patent, which involves the payment, may indeed be it a competitive and one involving a strong patents probably would not be anticompetitive. So this may pose at first sight a problem, a conundrum. Why do we want to litigate a patent case that was just settle . The answer to that apparent conundrum is actually in almost all of these cases, if you have a settlement, you have a patent suit has been going on for a while. You have a federal judge sitting there who has learned more than he or she has ever wanted to do about this Patent Technology who andprobably issued a ruling certainly, i would think, pretty well qualified at least to make the threshold judgment as to whether this is a strong patents involving the settlement or a week patent involving the settlement. The other thing that is frequently forgotten, the role of reason tells us, with good reason, that the very first step in any such analysis is to ask is their monopoly power being sought him a created, or protected by the agreement at issue . If there is not, we go home. Screen an important because these analyses, to be sure, are difficult. They are not easy. They are timeconsuming. But the question of, does the as monopoly power seems a bit completely forgotten in this settlement and analysis. As we should all know by now, patents confer exclusivity that does not necessarily confer monopoly power. Leastwould say that at two points are missing from 214 as it currently stands. One is that youve got to consider the entire settlements in the context of the underlying patent suit. And if you ignore the patent suit, you are never going to get to a right answer because you have ignored the most important underlying factor. Second, and monopoly power has a screen as a screen is an important part of any will of reason analysis and some mention should be made of monopoly by green. Finally, presumptions. Assumptions have a way of morphing into per se rules. An odd presumption here to say an agreement that allows for entry before patent expiration is invalid and illegal, and taking and tech competitive, when you got at the same time, as senator lee pointed out, a presumption that a patent is valid. I have certainly seen agreements that when the ftc had the power to block them, were blocked by the ftc because they appeared to contain the payment terms. The parties went under litigation. Patent was upheld. In french. The ftc decision cost consumers three or four years of generic competition. Presumptions, i think, ratcheting things. Youve got a perfectly good rule of reason other. It seems analysis under the rule of reason to do the job for them adequately. Thank you very much. Thank you to all our witnesses. I think i will start with you, mr. Romasco, because some of the witnesses, particularly mr. Orszag were talking about doing something about this and the Supreme Court opening the gates as well as, most typically, our bill would be anticonsumer, and because yourious represent a whole can seem seniors of america. Mr. Russo is representing the consumers. Supporting this legislation. We have a number of companies who have contacted me, including walmart, who are looking out for their employees and the cost of healthcare, and they support this legislation. I am curious how all of these groups could have gotten the wrong. Can you explain what you think it is good for the consumer to have the legislation passed and have some kind of presumption follow following the Supreme Court opening the door . Think we and walmart and others got it wrong, obviously. The telling issue for us is when you look at patent settlement with and without these agreements with these agreements, on average, it took 17 months longer to get into the marketplace. 17 months whether generics were not allowed to compete. The benefits were cap from consumers. Kept from they were consumers. Businesses pay more, businesses pay more, taxpayers pay more. The other issue is the unintended consequence of or at least not the consequence people talk about is when people have these Prescription Drugs, they modify their behavior in unhealthy ways. Fulfill, they dont they skip, they dont fulfill, cut them in half, and we all bear the cost of poor adherence to Prescription Drug medication. The estimate is 290 billion dollars a year in Incremental Healthcare cost for urgent care inpatient services. Getit is our benefit to these drugs as soon as possible at the generic level into the hands of people who could afford it. That is kind of the model we has at in the data that encouraged us to support issue that says at least these agreements bear scrutiny and intense standard for why they should be allowed to spam. Again, the issue is, they dont all have to be that way, but at least there is a standard and a bright line, as chairperson or meares said. Thank you very much. A number of people have talked about the effect of the Supreme Court hearing. Mr. Orszag noted it was bad news the court did not eliminate precise factor for District Courts to evaluate whether the settlement was for a competitive or not. After the Supreme Court ruling, an industry analyst said in a cnbc interview that the Court Created a holy mess out of this. If i were a patent attorney in the drug world, i would be opening a bottle of a champagne. It is basically a full employment of Patent Attorneys decision. Createsd the decision an enormous amount of uncertainty and it will take years of litigation to determine what activist means and what type of paper delayed deals are illegal. To affordablecess generics act which has been referenced many times today was originally a per se ban on pay for delay settlements as part of a compromise ban was removed and it now has a rebuttable resumption of illegality. What a per se ban be more clear and provide more certainty to the industry and save the inefficiencies associated with years of litigation . Short of a , what our bill with presumption of illegality lit a gallon the and factors courts should consider also help . Would be clear and it would lead lawyers putting the court back into the champagne because there would not be as much room for negotiation over all of these terms. It is conceivable that if you squint the right way, as several folks on this panel has said, maybe in theory once in a blue moon we see a settlement that could only take place because of so if we payment, really want to be of course is it possible we was a presumptive illegality is the right approach. I think as a practical matter, it is just hypothetical. I do not think it has really happened. So i think per se it would be fine. But if we really wanted to be precautions, presumptive illegality would be their approach where we seabees agreements are very concerning, a are a form of market division. The exclusion comes from the payment rather than the patents, but if the settling parties in a particular case want to say our case it really is different because there really is no delay in this case and that could be introduced under presumptive illegality. [inaudible] most people assume the pay for delay agreements were illegal 2000 and in 2004. Cases se