[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]





    TWENTY-FIRST CENTURY CURES: EXAMINING THE ROLE OF INCENTIVES IN 
              ADVANCING TREATMENTS AND CURES FOR PATIENTS

=======================================================================

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 11, 2014

                               __________

                           Serial No. 113-151


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov
                        
   
                                   ______

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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman
RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
JOE BARTON, Texas                      Ranking Member
  Chairman Emeritus                  JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               FRANK PALLONE, Jr., New Jersey
JOSEPH R. PITTS, Pennsylvania        BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon                  ANNA G. ESHOO, California
LEE TERRY, Nebraska                  ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan                GENE GREEN, Texas
TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
  Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
PHIL GINGREY, Georgia                JIM MATHESON, Utah
STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio                JOHN BARROW, Georgia
CATHY McMORRIS RODGERS, Washington   DORIS O. MATSUI, California
GREGG HARPER, Mississippi            DONNA M. CHRISTENSEN, Virgin 
LEONARD LANCE, New Jersey                Islands
BILL CASSIDY, Louisiana              KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky              JOHN P. SARBANES, Maryland
PETE OLSON, Texas                    JERRY McNERNEY, California
DAVID B. McKINLEY, West Virginia     BRUCE L. BRALEY, Iowa
CORY GARDNER, Colorado               PETER WELCH, Vermont
MIKE POMPEO, Kansas                  BEN RAY LUJAN, New Mexico
ADAM KINZINGER, Illinois             PAUL TONKO, New York
H. MORGAN GRIFFITH, Virginia         JOHN A. YARMUTH, Kentucky
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
MICHAEL C. BURGESS, Texas            FRANK PALLONE, Jr., New Jersey
  Vice Chairman                        Ranking Member
ED WHITFIELD, Kentucky               JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan                LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          JIM MATHESON, Utah
PHIL GINGREY, Georgia                GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
LEONARD LANCE, New Jersey            JOHN BARROW, Georgia
BILL CASSIDY, Louisiana              DONNA M. CHRISTENSEN, Virgin 
BRETT GUTHRIE, Kentucky                  Islands
H. MORGAN GRIFFITH, Virginia         KATHY CASTOR, Florida
GUS M. BILIRAKIS, Florida            JOHN P. SARBANES, Maryland
RENEE L. ELLMERS, North Carolina     HENRY A. WAXMAN, California (ex 
JOE BARTON, Texas                        officio)
FRED UPTON, Michigan (ex officio)
  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     2
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     4
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     6
    Prepared statement...........................................     7
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     8

                               Witnesses

Marc Boutin, Executive Vice President and Chief Operating 
  Officer, National Health Council...............................    10
    Prepared statement...........................................    12
    Answers to submitted questions...............................   121
Sam Gandy, Chair, Mount Sinai Alzheimer's Research Center, on 
  Behalf of Dr. Kenneth Davis, President and CEO, Mount Sinai 
  Health System..................................................    21
    Prepared statement...........................................    23
    Answers to submitted questions...............................   128
Alexis Borisy, Partner, Third Rock Ventures......................    31
    Prepared statement...........................................    33
    Answers to submitted questions...............................   135
Mike Carusi, General Partner, Advanced Technology Ventures, on 
  Behalf of The National Venture Capital Association.............    40
    Prepared statement...........................................    42
    Answers to submitted questions...............................   144
Steven Miller, Senior Vice President and Chief Medical Officer, 
  Express Scripts Holding Company................................    51
    Prepared statement...........................................    53
    Answers to submitted questions...............................   150
Fred Ledley, Professor, Natural and Applied Sciences, and 
  Management Director, Center for Integration of Science and 
  Industry, Bentley University...................................    58
    Prepared statement...........................................    60
    Answers to submitted questions...............................   154
C. Scott Hemphill, Professor of Law, Columbia Law School.........    72
    Prepared statement...........................................    74
    Answers to submitted questions...............................   156

                           Submitted Material

Statement of the Premier Healthcare Alliance, submitted by Mr. 
  Pitts..........................................................   110
Statement of the Generic Pharmaceutical Association, submitted by 
  Mr. Pitts......................................................   113
Statement of the California Public Employees Retirement System, 
  submitted by Mr. Pallone.......................................   116

 
    TWENTY-FIRST CENTURY CURES: EXAMINING THE ROLE OF INCENTIVES IN 
              ADVANCING TREATMENTS AND CURES FOR PATIENTS

                              ----------                              


                        WEDNESDAY, JUNE 11, 2014

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10 a.m., in room 
2322 of the Rayburn House Office Building, Hon. Joe Pitts 
(chairman of the subcommittee) presiding.
    Present: Representatives Pitts, Burgess, Shimkus, Murphy, 
Blackburn, Gingrey, McMorris Rodgers, Lance, Cassidy, Guthrie, 
Griffith, Bilirakis, Ellmers, Upton (ex officio), Pallone, 
Engel, Schakowsky, Matheson, Green, Barrow, Christensen, 
Castor, DeGette, and Waxman (ex officio).
    Staff present: Clay Alspach, Chief Counsel, Health; Gary 
Andres, Staff Director; Matt Bravo, Professional Staff Member; 
Noelle Clemente, Press Secretary; Paul Edattel, Professional 
Staff Member, Health; Brad Grantz, Policy Coordinator, 
Oversight and Investigations; Sydne Harwick, Legislative Clerk; 
Robert Horne, Professional Staff Member, Health; Carly 
McWilliams, Professional Staff Member, Health; Krista 
Rosenthall, Counsel to Chairman Emeritus; Chris Sarley, Policy 
Coordinator, Environment and Economy; Heidi Stirrup, Health 
Policy Coordinator; John Stone, Counsel, Health; Tom Wilbur, 
Digital Media Advisor; Ziky Ababiya, Democratic Staff 
Assistant; Eric Flamm, Democratic FDA Detailee; Karen Nelson, 
Democratic Deputy Committee Staff Director for Health; and 
Rachel Sher, Democratic Senior Counsel.

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Pitts. The subcommittee will come to order. The chair 
will recognize himself for an opening statement.
    Today's hearing provides us with an opportunity to examine 
an important aspect of the 21st Century Cures Initiative: 
whether current economic and regulatory incentives are 
sufficient to encourage robust investment in the research and 
development of innovative new drugs and medical technologies.
    I am particularly interested in better understanding what 
we can do to make it more attractive for companies and venture 
capitalists to invest in the development of therapies that 
would provide hope to patients without adequate treatment 
options. After all, as we have learned, there are only 
effective treatments for 500 of the 7,000 known diseases 
impacting patients today.
    To help close this innovation gap, as part of 21st Century 
Cures Initiative, we must take a fresh look at the challenges 
facing innovative companies and make certain the right 
incentives are in place so America is home to the next 
generation of cures.
    The Hatch-Waxman Act created the modern generic drug 
industry as we know it and has brought great benefits to our 
Nation's patients and health care system. Nonetheless, as 
Senator Hatch recently explained, since the early 1980s, ``the 
cost of developing a drug has doubled, as has the number of 
clinical trials necessary to file a new drug application. 
Further, the number of participants required for those trials 
has tripled.''
    We continue to hear about the many unique challenges of 
developing and testing therapies for patients with rare 
diseases and certain types of cancer. However, we cannot lose 
sight of the fact that new products targeting diseases that 
impact large patient populations such as diabetes and 
Alzheimer's take much longer to get to market and are therefore 
becoming less attractive for investors and companies to pursue. 
Innovative trial designs with surrogate endpoints are almost 
unheard of in some of these areas, despite the fact that 
patients and our health care system would greatly benefit from 
new treatments. If and when they ultimately get to the market, 
these products are often left with the least amount of patent 
life and are granted the shortest exclusivity periods. We must 
reexamine the incentive structure, particularly for small-
molecule drugs, before we are left wondering who will be 
developing the next generation of treatments and in which 
country.
    Finally, for a variety of what are oftentimes different 
reasons, investment in new medical technology companies is at 
startlingly low levels. There are only 11 venture capital firms 
remaining in this space, down from almost 40 in in 2007. In 
2013, we witnessed the lowest level of initial funding activity 
in more than two decades. This is not only a cures issues; this 
is a jobs issue and one we must address head on.
    I want to welcome our witnesses today and look forward to 
learning more about the incentives necessary to encourage vital 
investment in biomedical innovation across the board.
    [The prepared statement of Mr. Pitts follows:]

               Prepared statement of Hon. Joseph R. Pitts

    The Subcommittee will come to order.
    The Chair will recognize himself for an opening statement.
    Today's hearing provides us with an opportunity to examine 
an important aspect of the 21st Century Cures Initiative: 
whether current economic and regulatory incentives are 
sufficient to encourage robust investment in the research and 
development of innovative new drugs and medical technologies.
    I am particularly interested in better understanding what 
we can do to make it more attractive for companies and venture 
capitalists to invest in the development of therapies that 
would provide hope to patients without adequate treatment 
options. After all, as we have learned, there are only 
effective treatments for 500 of the 7,000 known diseases 
impacting patients today.
    To help close this innovation gap, as part of 21st Century 
Cures Initiative, we must take a fresh look at the challenges 
facing innovative companies and make certain the right 
incentives are in place so America is home to the next 
generation of cures.
    The Hatch-Waxman Act created the modern generic drug 
industry as we know it and has brought great benefits to our 
nation's patients and health care system. Nonetheless, as 
Senator Hatch recently explained, since the early 1980s, ``the 
cost of developing a drug has doubled, as has the number of 
clinical trials necessary to file a new drug application. 
[Further,] [t]he number of participants required for those 
trials has tripled.''
    We continue to hear about the many unique challenges of 
developing and testing therapies for patients with rare 
diseases and certain types of cancer. However, we cannot lose 
sight of the fact that new products targeting diseases that 
impact large patient populations such as diabetes and 
Alzheimer's take much longer to get to market and are therefore 
becoming less attractive for investors and companies to pursue. 
Innovative trial designs with surrogate endpoints are almost 
unheard of in some of these areas, despite the fact that 
patients and our health care system would greatly benefit from 
new treatments. If and when they ultimately get to the market, 
these products are often left with the least amount of patent 
life and are granted the shortest exclusivity periods. We must 
reexamine the incentive structure-particularly for small-
molecule drugs-before we are left wondering who will be 
developing the next generation of treatments, and in which 
country.
    Finally, for a variety of what are oftentimes different 
reasons, investment in new medical technology companies is at 
startlingly low levels. There are only 11 venture capital firms 
remaining in this space-down from almost 40 in in 2007. In 
2013, we witnessed the lowest level of initial funding activity 
in more than two decades. This is not only a cures issue; this 
is a jobs issue and one we must address head on.
    I want to welcome our witnesses today and look forward to 
learning more about the incentives necessary to encourage vital 
investment in biomedical innovation across the board.
    Thank you, and I yield the remainder of my time to --------
------------------------------------.

    Mr. Pitts. Thank you, and I yield the remainder of my time 
to the vice chairman of the subcommittee, Dr. Burgess.
    Mr. Burgess. Thank you, Mr. Chairman, and I want to join 
you in welcoming our panel of witnesses. I certainly look 
forward to hearing your testimony today.
    Once again, we are examining the role of various market 
incentives on the development of new drugs, biologics and 
devices. From bench to bedside, the timeline right now is about 
12 years, and that is a long time. Of all the drugs that enter 
pre-clinical testing, only five of 5,000 will make it to human 
testing. Balancing the importance of facilitating innovation 
and expediting patient access has been a priority of this 
committee. Many of these incentives have been actually quite 
successful over the years. Hatch-Waxman--we have a robust 
market. The Orphan Drug Act--we have encouraged manufacturers 
to develop and test existing products for the treatment of rare 
diseases. The bottom line in each instance, patients have 
benefited.
    The greatest market incentive is a developer knowing that 
there is a market for their product and that it will be 
covered. Whether the payer is the Federal Government or the 
private insurance, payers need to know what is coming down the 
road so that they are prepared to integrate the new treatments 
into their coverage because really, what difference does it 
make to the patient that a product was developed if they have 
got no access to it.
    Really, the headline in all of this should be, we have the 
ability to develop cures that no generation of doctors has been 
able to deliver to patients ever, and we can't let the 
regulatory side get in the way. We want to be facilitators. We 
want to be catalysts.
    And again, we thank you for being here. We welcome your 
testimony this morning, and I yield back.
    Mr. Pitts. The chair thanks the gentleman and now recognize 
the ranking member of the subcommittee, Mr. Pallone, for 5 
minutes for an opening statement.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Chairman Pitts.
    When we talk about medicines and disease, there is a 
natural emotion that comes from the personal stories we hear 
from our constituents as well as from our own lives, and many 
of us know all too well about the pain and suffering families 
face when battling an illness and losing those we love.
    As Members of Congress, we typically speak about treating 
disease in sound bites. Innovation, cures, discovery, 
incentives and, of course, access are some of the key words 
that we use. In today's hearing, we will hear about the 
thousands of diseases with little or no treatments and we will 
examine whether additional steps need to be taken to accelerate 
biomedical discoveries in this country.
    Innovative new drugs for decades have made major 
contributions to our lives. In many instances, they have 
allowed us to watch our loved ones get better and live longer, 
sometimes even healthier lives, and now we are even seeing some 
new drugs curing diseases outright, discoveries certainly 
worthy of praise.
    But we must be careful in this debate. We can't look at 
these issues filled with emotion and we certainly can't look at 
these issues in a vacuum. It is complicated with far-reaching 
effects, and we continue to battle thousands of rare diseases 
affecting small populations for which there are no known causes 
or cures. We need to address this problem. The Orphan Drug Act, 
which includes tax incentives and market exclusivity, has been 
successful, leading to a number of medical treatments, and many 
of these treatments, while they can be expensive, serve a 
fairly small number of patients.
    When we think about diseases like Alzheimer's or chronic 
conditions like diabetes, we may be talking about treating 
millions of people for decades, and what is more, baby boomers 
are aging into Medicare at a pace of thousands a day, so we 
absolutely need to encourage innovation and help to ensure that 
new treatments emerge but we also need to make sure that 
patients have access to affordable treatments. Otherwise we 
will bankrupt families for which new medicines may be the 
difference between life and death. And we will strain our 
federal health care system. Cures and cutting-edge medicines 
are of no value if their high costs put them out of reach of 
the patients who need them.
    Thirty years ago, Congress sought to address the high costs 
and access to medicine, and as a result, the Hatch-Waxman Act 
was negotiated to strike an important balance between providing 
incentives to innovative new and better medicines and access to 
lower-cost medicines. Since then, there has been a tremendous 
public health and economic benefit. Today, generic drugs 
account for 84 percent of all prescriptions in the United 
States with savings amounting to $217 billion annually. But 
Hatch-Waxman isn't just about lower-cost drugs. Fundamentally, 
I believe its existence has resulted in competition, 
innovation, and great discoveries. Without the threat of 
generic alternatives, brand companies would have little reason 
to engage in research on new drugs to outpace their 
competitors. Furthermore, there are real examples of brand 
companies spurring innovation amongst other brands.
    So as we move forward, it is important that we do not alter 
the central construct of Hatch-Waxman. However, that doesn't 
mean there aren't additional ways to find further balance in 
our development ecosystem. In 2012, the committee worked to 
pass the FDA Safety and Innovation Act, or FDASIA, which 
included a number of additional economic incentives. One 
example was the GAIN Act for antibiotics for serious or life-
threatening infections. In that provision, we carefully 
constructed narrowly focused incentives for companies to 
advance in the antibiotic space. At only 2 years old, there is 
promise with nearly 17 applications in the pipeline and one 
approval so far.
    So Mr. Chairman, I believe that there are many factors to 
encouraging and ensuring robust investment in medicines. 
Federal funding is one notable example. It is the foundation of 
our biomedical ecosystem and is one of the best investments we 
can make to spur economic prosperity, drug and device 
development and cures for the 21st century.
    And I would like to yield the remainder of my time, Mr. 
Chairman, to Ms. DeGette, a member of the full committee who 
joins us today.
    Ms. DeGette. Thank you very much. I appreciate you 
yielding, and I am very proud to be co-chairing the 21st Cures 
Initiative with Chairman Upton.
    This is our second hearing focused on the initiative. The 
first hearing broadly touched on the eight recommendations 
provided in the President's Council of Advisors on Science and 
Technology report on propelling innovation and drug discovery 
development and education. The hearing today focuses on one of 
those recommendations, studying current and potential economic 
incentives to promote drug innovation.
    We know there are many types of incentives in place right 
now--some of the other members have mentioned them--to help 
spur research and development in both the drug and device 
space. These range from funding for research and public-private 
partnerships to tax credits and various exclusivity periods.
    I look forward to hearing form the witnesses talking about 
some of these incentives. For example, the recently implemented 
exclusivity provided under the GAIN Act seems to be spurring 
investment in antimicrobial and antifungal drugs. And so there 
are other initiatives too.
    I want to thank you, Mr. Chairman, for having this hearing 
and I look forward to this continuing discussion that we are 
having.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the chairman of the full committee, Mr. Upton, for 5 
minutes for an opening statement.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Thank you, Mr. Chairman.
    We did launch the 21st Century Cures Initiative with the 
goal of accelerating the discovery, development, and delivery 
of innovative new treatments and cures to patients, ensuring 
that the United States remains the biomedical innovation 
capital of the world. 21st Century Cures aims to close any gaps 
between the science of cures and how we regulate those 
therapies, and this must be an ongoing conversation.
    Today we are going to hear testimony about whether our 
current legislative and regulatory framework encourages 
innovators to pursue the development of drugs and devices that 
are crucial to helping our Nation's patients. I am so proud of 
the fact that this committee recently came together on a 
bipartisan basis to address this innovation gap in the context 
of antibiotics, but it is clear that our work is far from over.
    We lack effective treatments for almost 95 percent of the 
known diseases affecting patients today and over 95 percent of 
drugs in development do not make it to market. In addition to 
working with the FDA and others to decrease the time and cost 
it takes to bring new products to patients, we have got to heed 
the advice of the President's Council of Advisors and take a 
fresh look at current and potential economic incentives to 
promote innovation. As we have seen in the context of orphan 
diseases and most recently for antibiotics, periods of market 
exclusivity are powerful tools for us to consider in ushering 
in the next generation of treatments and cures. This is 
certainly a balancing act, and I am committed to pursuing any 
such changes only after engaging in a thorough and thoughtful 
dialogue with all interested stakeholders, which is precisely 
why we are here today.
    The Hatch-Waxman Act is an enduring piece of legislation 
that will undoubtedly form the basis for any such conversation. 
I agree with Senator Hatch, who recently said, ``The foundation 
laid by Hatch-Waxman Act 30 years ago will continue to be the 
mechanism by which the management incentives development of 
lifesaving drugs but we do have an obligation to periodically 
reevaluate how the balance can be adjusted to account for the 
sweeping changes in the broader health care sector.''
    The time and cost of bringing an innovative product to 
market today is much different than it was in 1984, and yet 
under Hatch-Waxman, the same baseline exclusivity period is 
still granted to new drugs. We have an opportunity today to 
assess whether we still have the right balance in place, 
particularly for products meeting unmet medical needs.
    We also have an opportunity to hear about incentives for 
new devices. This committee has worked with FDA and 
stakeholders to help make the regulation of devices more 
predictable and consistent, but it is clear that we have to 
continue that collaboration to not only improve FDA but also 
coverage and reimbursement.
    So I want to thank everyone that is here. Please continue 
to share your ideas with [email protected]. Working 
together, we are going to make a difference.
    I yield the balance of my time to the vice chair of the 
committee, Ms. Blackburn.
    [The prepared statement of Mr. Upton follows:]

                 Prepared statement of Hon. Fred Upton

    We launched the 21st Century Cures initiative with the goal 
of accelerating the discovery, development, and delivery of 
innovative new treatments and cures to patients, ensuring that 
the United States remains the biomedical innovation capital of 
the world. Twenty-First Century Cures aims to close any gaps 
between the science of cures and how we regulate those 
therapies. This must be an ongoing conversation.
    Today we will hear testimony about whether our current 
legislative and regulatory framework encourages innovators to 
pursue the development of drugs and devices that are crucial to 
helping our nation's patients. I am proud of the fact that this 
committee recently came together on a bipartisan basis to 
address this innovation gap in the context of antibiotics. But, 
it is clear that our work is far from over.
    We lack effective treatments for almost 95 percent of the 
known diseases affecting patients today and over 95 percent of 
drugs in development do not make it to market. In addition to 
working with FDA and others to decrease the time and cost it 
takes to bring new products to patients, we must heed the 
advice of the President's Council of Advisors and take a fresh 
look at current and potential economic incentives to promote 
innovation. As we have seen in the context of orphan diseases 
and most recently for antibiotics, periods of market 
exclusivity are powerful tools for us to consider in ushering 
in the next generation of treatments and cures.
    This is certainly a balancing act, and I am committed to 
pursuing any such changes only after engaging in a thorough and 
thoughtful dialogue with all interested stakeholders, which is 
precisely why we are here today.
    The Hatch-Waxman Act is an enduring piece of legislation 
that will undoubtedly form the basis for any such conversation. 
I agree with Senator Hatch who recently stated, ``The 
foundation laid by the Hatch-Waxman Act thirty years ago will 
continue to be the mechanism by which the government 
incentivizes development of lifesaving drugs'' but we do have 
``an obligation to periodically reevaluate how the balance can 
be adjusted to account for the sweeping changes in the broader 
health care sector.''
    The time and cost of bringing an innovative product to 
market today is much different than it was in 1984, and yet 
under Hatch-Waxman, the same baseline exclusivity period is 
still granted to new drugs. We have an opportunity today to 
assess whether we still have the right balance in place--
particularly for products meeting unmet medical needs.
    We also have an opportunity to hear about incentives for 
new devices. This committee has worked with FDA and 
stakeholders to help make the regulation of devices more 
predictable and consistent, but it is clear that we must 
continue our collaboration to not only improve FDA but also 
coverage and reimbursement.
    In closing, I want to thank those folks who have responded 
to our call for input in this 21st Century Cures initiative--we 
appreciate the thoughtful contributions, especially the 
responses from everyday Americans. Please continue to share 
your ideas with [email protected]. Working together, we will 
make a difference.

    Mrs. Blackburn. Thank you, and I appreciate that we are 
having this hearing today and focusing on 21st century cures.
    The United States has done so much to advance health and 
wellness in the country. Just looking back over some of the 
recent accomplishments, in children, 90 percent of all leukemia 
is cured. You have survival rates for melanoma post 5 years 
that have doubled. Kalydeco for cystic fibrosis. Diabetes--they 
have done away with the twice-daily shots. You have got the 
pump. Now they are working on the artificial pancreas. The list 
could go on and on talking about different vaccines, but I have 
to tell you, I am very concerned because when you look at the 
investment that has taken place in medical devices from 2007 to 
2013, it is down 40 percent. This isn't good for us and we want 
to make sure that the incentive is there to come back into that 
marketplace just as the chairman and Ms. DeGette have both 
mentioned. We have got to reverse that trend for 21st century 
cures.
    Some of the incentives, the protection of intellectual 
property, the use of new pathways in order to move through the 
maze of FDA regulation and of course FDASIA has the 
breakthrough therapy designation, clarity around reimbursement 
issues that focuses on the value of treatment. These incentives 
provide an investment in our Nation's fiscal future as well.
    Alzheimer's disease is a great example of this. It is one 
where I have a particular interest and focus. It is something 
that costs our Nation $215 billion a year. That is about 
$50,000 per patient, or the median household income, to care 
for an Alzheimer's patient.
    So to focus on these cures is an imperative. It is the 
proper use of our time. I welcome you and I yield back the 
balance of my time.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the ranking member of the full committee, Mr. 
Waxman, 5 minutes for an opening statement.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you very much, Mr. Chairman.
    This hearing today has very real implications for patients 
everywhere. How do we ensure that drug and device companies 
have the right incentives to discover important new treatments 
for disease? We cannot legislate scientific advances. In some 
areas, the lack of new treatments is attributable to a lack of 
scientific knowledge, not the lack of incentives. To tackle 
these problems, we will need more investment in research.
    That is why our country has been so far ahead of the rest 
of the world. Our taxpayers want basic research to be funded 
through the National Institutes of Health, and I would assume 
everybody that cares about this problem is outraged when we see 
cuts at the NIH budget. But in other areas, incentives can play 
a key role in sparking and sustaining innovation. That is why 
it is important for us to consider how the incentives that 
exist today are working and whether they can be improved.
    The good news is that innovation in this country is 
flourishing. More important new drugs are launched here than 
any place else in the world. A key reason is that our system 
recognizes that both competition and market exclusivity can 
spur innovation. We have led the world in developing new 
treatments because we have sought to get the balance right.
    There are a variety of types of incentives: tax credits, 
monetary prizes, and public funding of basic scientific 
research, to name a few. I hope we will focus today on this 
wide range of incentives. I suspect, however, that much of our 
time will be spent on patents and marketing exclusivities.
    Let me say a few words about these tools because I don't 
think anyone in Congress has worked longer or harder on getting 
their use right than I have. I authored the Orphan Drug Act, 
which provides 7 years' exclusivity to incentivize development 
of drugs for rare diseases. The 7 years was justified because 
the small populations in need of these drugs did not provide an 
adequate market. The Act has been a resounding success. Prior 
to enactment, only ten drugs for rare diseases had been 
developed. In the 30-plus years since enactment, over 400 have 
been approved and many are in the development stage and are 
being used without the final approval.
    I was the co-author of the Hatch-Waxman law, which 
established our generic drug system. The Act struck a balance 
between generic competition and maintaining adequate incentives 
for brand companies to continue to innovate. We allowed 
generics to rely on the brands' safety and effectiveness data 
in order to avoid wasteful duplicative clinical trials. In 
exchange, we gave the brands 5 years of exclusivity to store 
some of the patent time lost during the FDA review process. The 
law has been an enormous success. Today, over 86 percent of 
prescriptions are generics, yet spending on generics accounts 
for only 29 percent of total drug spending, and at the same 
time, the brand industry is booming.
    Most people understand that the introduction of generic 
competition has drastically lowered our national drug bill. But 
generic competition also has another critical effect that may 
seem counterintuitive: it also spurs innovation. An innovator 
company that knows generic competition is just around the bend 
needs to develop new products. In contrast, excessive periods 
of exclusivity allow innovators to sit back and relax. Why 
spend a lot of money on discovering the next groundbreaking 
product, if it can continue to charge monopoly prices for 10, 
12, or even 15 years on a drug that has already been approved? 
Too much exclusivity is as bad as too little, if not worse. 
Innovation is stifled by the lack of competition, and American 
patients foot the bill by paying higher prices for their drugs.
    When our committee considers these issues, the first 
question should be whether new or additional incentives are 
really needed in any particular area and what is an appropriate 
incentive. We should insist on getting the answers that are 
supported with data demonstrating this need. If new marketing 
protections are warranted, they should be narrowly focused to 
achieve a targeted aim. Otherwise we run the risk of allowing 
companies to reap huge windfall profits, windfalls that are 
paid for by American patients and the government and insurance 
companies in this Nation.
    So I urge caution when considering patents and exclusivity 
as incentives. These are not the only tools, and in many cases, 
they are not the best ones for ensuring the development of new 
cures.
    Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman. The written 
opening statements of all members will be made a part of the 
record.
    That concludes our opening statements by the members. We 
will now go to our witnesses. We have one panel with seven 
witnesses. I will introduce them in the order of their 
speaking.
    First is Mr. Marc Boutin, Executive Vice President and 
Chief Operating Officer of National Health Council. Then Dr. 
Sam Gandy, Chair, Mount Sinai Alzheimer's Disease Research 
Center on behalf of Dr. Ken Davis, the President and CEO of 
Mount Sinai Health System. Then Mr. Alexis Borisy, Partner, 
Third Rock Ventures; Mr. Mike Carusi, General Partner, Advance 
Technology Ventures on behalf of National Venture Capital 
Association; Dr. Steven Miller, Vice President and Chief 
Medical Officer, Express Scripts Holding Company; Dr. Fred 
Ledley, Professor, National and Applied Sciences, Management 
Director, Center for Integration of Science and University, 
Bentley University; and finally, Mr. Scott Hemphill, Professor 
of Law, Columbia Law School.
    Thank you all for coming. You will each have 5 minutes to 
summarize your testimony. Your written testimony will be made a 
part of the record. There is a little system of lights on your 
desk so you have 5 minutes when the green light will be on. 
When the red light goes on, we ask that you wrap up your 
opening statement.
    So at this time, Mr. Boutin, we will start with you. You 
are recognized for 5 minutes for an opening statement.

 STATEMENTS OF MARC BOUTIN, EXECUTIVE VICE PRESIDENT AND CHIEF 
  OPERATING OFFICER, NATIONAL HEALTH COUNCIL; DR. SAM GANDY, 
 CHAIR, MOUNT SINAI ALZHEIMER'S RESEARCH CENTER, ON BEHALF OF 
   DR. KENNETH DAVIS, PRESIDENT AND CEO, MOUNT SINAI HEALTH 
   SYSTEM; ALEXIS BORISY, PARTNER, THIRD ROCK VENTURES; MIKE 
   CARUSI, GENERAL PARTNER, ADVANCED TECHNOLOGY VENTURES, ON 
BEHALF OF THE NATIONAL VENTURE CAPITAL ASSOCIATION; DR. STEVEN 
   MILLER, SENIOR VICE PRESIDENT AND CHIEF MEDICAL OFFICER, 
 EXPRESS SCRIPTS HOLDING COMPANY; DR. FRED LEDLEY, PROFESSOR, 
 NATURAL AND APPLIED SCIENCES, AND MANAGEMENT DIRECTOR, CENTER 
 FOR INTEGRATION OF SCIENCE AND INDUSTRY, BENTLEY UNIVERSITY; 
  AND C. SCOTT HEMPHILL, PROFESSOR OF LAW, COLUMBIA LAW SCHOOL

                    STATEMENT OF MARC BOUTIN

    Mr. Boutin. Good morning, Chairman Pitts, Ranking Member 
Pallone, Ms. DeGette, members of this subcommittee.
    There are more than 133 million people living with one or 
more chronic conditions. That is more than 40 percent of the 
population. Effective treatments are available for some but for 
many patients, all they have is hope.
    My name is Marc Boutin. I am the Executive Vice President 
and Chief Operating Officer at the National Health Council. We 
provide a united voice for people with chronic disease and 
disabilities.
    As a child, I remember growing up in a tiny town in 
northern Maine. Every surface of my home was covered in floral 
wallpaper, including the light switches. You actually had to 
rub the wall to find the switch. The wallpaper, the rugs, the 
furniture, everything was covered in flowers, and when my mom 
sat perfectly still in her floral dress, you couldn't see her. 
In my 30s, I remember sitting in the doctor's office when my 
father was told he had incurable cancer. My mom became his 
primary caregiver even though she had multiple chronic 
conditions herself. I held my father's hand when he took his 
final breath. My mom soon died on my birthday. Dismantling our 
family home was difficult. All the memories, all that 
wallpaper. Getting the house ready to sell was not easy but it 
had to be done.
    Nearly every person in this room has been touched by the 
burden of disease. Michael Gollin sitting behind me is an 
intellectual-property lawyer. He is also living with ALS, or 
Lou Gehrig's disease, which progressively robs you of your 
ability to walk, talk, swallow and even breathe.
    Thirty years ago, Representative Waxman coauthored the 
Hatch-Waxman Act, which updated our innovation ecosystem and 
made medications affordable for millions of Americans. But as 
Senator Hatch recently wrote, ``We cannot rest on our laurels. 
We have an obligation to periodically reevaluate and adjust to 
account for the sweeping changes in the health sector.''
    Our current innovation ecosystem was built decades ago, 
long before we mapped the human genome, had supercomputers or 
advanced diagnostics. Much like my family home, the ecosystem 
has not kept pace with time. No one is to blame for this. It 
just happens. You get used to the wallpaper.
    The 21st Century Cures Call to Action provides an 
opportunity to update, to modernize. While we may not all yet 
agree on the specific solutions, consensus is emerging on some 
of our most pressing challenges. Let me address two.
    First, we all know that you need a patent to develop a new 
medicine but just because you cure Parkinson's or lupus doesn't 
mean you get a patent. Some of the best science is not 
translated into treatments simply because they don't meet the 
technical requirements of the law. From a patient perspective, 
this makes no sense, and Congress can fix it.
    Second, our current system encourages the fastest, least 
expensive innovation, not necessarily the treatments that are 
most important to society or individual patients. As you know, 
patents run concurrently with clinical and regulatory review. 
As a result, the best and most promising medicines sometimes 
receive the shortest protection from general competition. For 
example, conditions which progress slowly like Alzheimer's can 
come to the market with the shortest periods of protection. 
This also encourages the development of treatments for late-
stage illness rather than early-stage illness despite the huge 
social and economic value of addressing and preventing disease 
early. From a patient perspective, this makes no sense, and 
Congress can address it.
    The MODDERN Cures Act, introduced by Representative Lance 
with bipartisan support, is the first legislative attempt to 
address these two challenges. It promotes the best science, not 
the best patent, but only for drugs that address an unmet 
medical need.
    On behalf of my dad, my mom, Mr. Gollin and nearly everyone 
in this room affected by disease, thank you for including the 
patient community in this multi-stakeholder approach. We stand 
willing, ready and able to help you solve this and other 
complex challenges. It is time to take down the wallpaper. It 
is time to modernize our innovation ecosystem. Thank you.
    [The prepared statement of Mr. Boutin follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes Dr. Gandy 5 minutes for an opening statement.

                     STATEMENT OF SAM GANDY

    Dr. Gandy. Chairman Pitts, Ranking Member Pallone, 
distinguished members of the Subcommittee on Health, thank you 
for inviting me here today. I am Dr. Sam Gandy. I am Professor 
and Chair of Alzheimer's Disease Research at Mount Sinai 
Medical Center and Director of the Center for Cognitive Health 
Care. Dr. Ken Davis was meant to be here addressing you but he 
became ill at the last minute and was unable to come. Thank you 
for allowing me to present in his stead.
    In the 1970s, as a young researcher, Dr. Davis was the 
first to show that Alzheimer's symptoms could be improved by 
restoring levels of a brain chemical called acetylcholine as 
required for memory function. His work eventually lead to FDA 
approval of three of the four drugs currently on the U.S. 
market for Alzheimer's disease but that was decades ago, and 
incredibly, in terms of caring for Alzheimer's patients, almost 
nothing has changed.
    The need for breakthrough medications for Alzheimer's is 
greater than ever, and the public health impact and the 
economic impact of Alzheimer's are both escalating.
    Alzheimer's affects more than 5 million American seniors 
today, and by 2050, that number will rise to 15 million. Fully 
one-half of everyone over age 85 is demented. That means that 
everyone across the country and everyone in this room who lives 
past age 85 will be either a patient or a caregiver.
    The financial implications are staggering. This year, 
Medicare and Medicaid are expected to pay $150 billion in 
acute, chronic and hospice care for individuals with 
Alzheimer's. The Medicare cost of caring for Alzheimer's will 
increase more than 600 percent over the next 35 years, rising 
to $627 billion.
    Alzheimer's symptoms begin when people are in their 70s, so 
if we were able to slow the progression of the disease by half, 
most of these individuals would not develop symptoms until 
their 90s, and indeed, many would not live long enough to 
develop the disease at all. If we could simply delay the onset 
of Alzheimer's by 5 years, that would cut costs to all payers 
by half a trillion dollars by 2050.
    Scientific opportunities for breakthrough oral medications, 
in other words, pills, have never been more promising. An 
extraordinary series of recent studies have found that most 
people who will eventually develop Alzheimer's accumulate in 
their brains clumps of a material known as beta amyloid, and 
this begins two decades or more before symptoms. My own 
research career began in the 1980s when my team identified the 
first model drugs that reduce amyloid buildup.
    The FDA appropriately requires that safety and efficacy of 
new drugs must be demonstrated in two independent and most 
commonly sequential trials. Developing a drug for Alzheimer's 
is a slow process. Unlike antibiotic medications, for example, 
that can be tested over a few weeks, Alzheimer's trials require 
3 to 5 years. When that is added to, say, 2 years to recruit 
patients and another year to analyze the results, virtually all 
the drug's patent life will have lapsed. Because of this, many 
drug companies, I would say most, are reducing their emphasis 
on Alzheimer's.
    As you well know, Congress has stepped in before to provide 
market incentives for research. We now need an exclusivity 
policy for orally administered pills that slow Alzheimer's. Why 
do I stress the need for a pill? Because infused biologics can 
cost as much as 20 times the cost of ordinary medication. For 
Alzheimer's, that kind of cost would provide no fiscal 
advantage.
    In conclusion, Alzheimer's science is poised to accelerate 
but business incentives must be realigned in order to provide 
for the public's best interest. By providing market exclusivity 
for pills, we would allow innovators to receive a return on 
their expenditure of resources. In exchange, we would bend the 
dementia cost curve and reduce the number of individuals 
suffering from Alzheimer's disease.
    I would like to thank the subcommittee for inviting me here 
today and for shining a spotlight on this important issue. 
Thank you.
    [The prepared statement of Dr. Gandy follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes Mr. Borisy 5 minutes for an opening statement.

                   STATEMENT OF ALEXIS BORISY

    Mr. Borisy. Good morning, Chairman Pitts, Ranking Member 
Pallone and members of the subcommittee. My name is Alexis 
Borisy, and I am a Partner at Third Rock Ventures. At Third 
Rock, our mission is to create, launch, and grow innovative 
companies that will make a meaningful difference for patients, 
for physicians, for our health care system overall. I applaud 
this committee for initiating the 21st Century Cures Call to 
Action to ensure that U.S. biopharmaceutical and life sciences 
industry is best equipped to maintain global leadership and 
deliver lifesaving medicines.
    Successful development of new medicines is dependent on 
policies that support the entire life sciences ecosystem from 
the lab to the patient. Disrupting any part of the ecosystem 
weakens the entire enterprise. This endeavor is high risk, 
taking over a decade and more than a billion dollars to deliver 
a single new drug. But there can be no question of the reward. 
Over the last 20 years, we have provided medicines that have 
changed and saved the lives of patients with diseases such as 
cancer, heart disease, HIV/AIDS.
    This hearing is focused on a critical component of ensuring 
a forward-learning biopharmaceutical industry, life sciences 
industry. What incentives are needed to advance treatments and 
cures? One key to a robust life sciences industry is a national 
commitment to support basic research. The United States has 
long been a world leader in basic research but funding for NIH 
has been flat or declining for the past several years. 
Diminished support for basic research will lead to a smaller 
pipeline of next-generation medicines and impede our country's 
innovation potential.
    Building from that base, venture funding is the lifeblood 
of small biotech companies. However, early-stage venture 
investment is under significant pressure in the life sciences. 
A primary reason for its decline is the increased time and cost 
of developing new treatments. These struggles are especially 
acute for drugs designed to treat chronic diseases with larger 
patient populations. The decision to deploy capital is directly 
impacted by regulatory and reimbursement behaviors. Better 
enabling and encouraging FDA to utilize flexible approaches and 
modern tools would have a positive impact on venture funding.
    For example, since the implementation of the accelerated 
approval pathway, over 80 drugs have been approved, most in 
cancer and HIV. Likewise, in recent years, FDA has shown an 
increased willingness to work with companies to develop more 
effective clinical development programs for rare diseases. The 
majority of designations under the new breakthrough therapy 
program are also for cancer and for rare diseases. The time 
required to put a drug on the market is usually longer than the 
length of time of a typical venture capital investment fund.
    The modern approach to regulation that exists now for 
cancer and rare diseases attracts investment for three 
important reasons. First, the regulatory process is more 
interactive, flexible and reflective of the disease and patient 
being treated. Second, the amount of investment required to 
fund a company through proof of concept is better understood, 
and third, the next step in the innovation ecosystem, be that a 
larger company or public investors, feel more confident about 
the development and approval process going form that step 
further.
    The results are clear. Over a third of recent drugs 
approved have been drugs for rare diseases, and oncology 
remains one of the hottest investment areas. However, the same 
cannot be said for chronic diseases where the regulatory 
requirements are greater. Without improving these processes, 
early-stage investment in those areas will continue to 
struggle. We must ask ourselves how we can learn from rare 
disease and oncology and work to improve how we treat 
conditions like obesity, diabetes and Alzheimer's, which have a 
dramatic impact on our long-term health care costs. We must 
advance to a system that critically determines whether the 
information required is actually informative as to the 
potential use of the drug in the real world. Creating approval 
pathways that enable the development of drugs for 
subpopulations of patients in these chronic diseases could be a 
game changer.
    There is also a need to provide incentives for the 
development of new diagnostics. I applaud Congress for passing 
PAMA, which includes a provision designed to significantly 
improve reimbursement for diagnostics but its ultimate impact 
will be determined by the rule writing process. I would like to 
recommend that we consider a program for diseases important to 
the public health with high unmet dg needs where we could 
identify these diseases critical to the Nation's health and 
establish a payment policy for these desired diagnostics. Clear 
reimbursement policies for personalized-medicine tools combined 
with modern regulatory approaches would advance personalized 
medicine by leaps and bounds.
    Congress has the opportunity to support a policy 
environment that fosters the search for the next generation of 
cures and treatments, and I applaud the committee for taking 
steps to improve this process.
    Thank you for the opportunity to share my thoughts.
    [The prepared statement of Mr. Borisy follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes Mr. Carusi 5 minutes for an opening statement.

                    STATEMENT OF MIKE CARUSI

    Mr. Carusi. Chairman Pitts, Representative Pallone, members 
of the subcommittee, thank you for the opportunity to testify 
today on behalf of the National Venture Capital Association. 
Chairman Upton, Representative DeGette, thank you for 
spearheading the 21st Century Cures Initiative. It is important 
work.
    My name is Mike Carusi. I have been in the venture capital 
business for over 16 years. Over the course of my career, I 
have had the privilege of helping innovative companies develop 
therapies for some of the most daunting diseases of our time 
including heart disease, diabetes and cancer.
    I am here today to share my perspective on what is 
happening with medical technology innovation. Simply put, we 
are facing a crisis, and the continued leadership of this 
committee is needed more than ever. Without changes in public 
policy, the United States will no longer lead the world in 
developing lifesaving treatments, and American patients face a 
grave risk of losing access to these innovative cures.
    The promise and importance of innovation has never been 
greater. Our understanding of the origins of disease and human 
physiology are growing. We see dramatic advancements in 
engineering, material science, information technology. As the 
population ages, new and improved medical technologies can play 
a critical role in not only helping to improve patient care but 
also in reducing long-term costs as well. But despite our 
patients' needs and our ability to meet them, funding for 
innovative medical technologies has declined substantially in 
recent years. As Congresswoman Blackburn noted, between 2007 
and 2013, medical device venture investments fell by a total of 
40 percent. In 2013, we witnessed the lowest level of medical 
device initial funding activity in more than two decades with 
just 44 companies receiving first-time funding--44 companies.
    Poor investment returns have resulted in institutional 
investors such as universities, pension funds and foundations 
fleeing the device sector. It is important to note that these 
are the very groups that we get our money from. As a result, an 
estimated 70 percent of all medical device venture investors 
have or will exit the business over the next 5 years, and most 
of these departures are not by choice.
    Another equally troubling fact is that for those with 
capital, we are shifting more and more of our resources 
overseas. In my firm's case in particular, 25 percent of our 
future investment will focus out of the United States. This is 
a big change from the way we have done business in the past.
    So why is this shift occurring? First, access to capital. 
Countries like Ireland and Singapore are offering powerful 
economic incentives to groups like Lightstone to invest. 
Second, and more importantly, the regulatory path in these 
markets is simply faster and more predictable. It is now 
commonplace for our companies to seek regulatory approval and 
commercialize new products in other markets ahead of the United 
States.
    We have talked at length about the path to FDA approval, 
about the challenges in this path, about the delays in the 
unpredictability, and I am happy to say that progress has been 
made to begin reducing these regulatory barriers. The 2012 
FDASIA bill included a number of important provisions which are 
beginning to have a positive effect. The veterinarian community 
and medical device incubators also has enjoyed a productive 
dialog with CDRH Director Shuren and other members of his 
leadership team in working to further improve the medical 
device regulatory process. We are by no means done and we have 
more work to do to continue to build on this progress, but FDA 
has no longer become the greatest obstacle to innovation. That 
obstacle is now reimbursement.
    Obtaining coverage and reimbursement for innovative 
products has become an increasingly difficult process that can 
add another 3 to 5 years to the development of a new product. 
It is a process that lacks transparency, predictability and 
consistency. I have experienced this firsthand--changing 
standards for data, no clear benchmarks, an ever-moving bar. It 
is an extraordinarily frustrating process that you simply need 
to go through once to clearly see that the system is broken.
    In my written testimony, I have included several specific 
recommendations on how we can improve on the system. At its 
core, I would bring us back to transparency, predictability and 
consistently, similar themes that we echoed in our discussion 
on FDA. These are the three hallmarks that we need as investors 
to have confidence in moving ahead.
    Again, it is important to underscore that none of these 
steps alone will ensure a reinvigorated medical technology 
ecosystem. There is no silver bullet. But I believe a renewed 
focus on drastically improving the coverage and reimbursement 
situation is sorely needed.
    Again, thank you for the opportunity to testify today. I 
love what I do, I love the process of innovation, I love 
developing treatments for patients. That is why the work of 
this committee is so important and so necessary. We look 
forward to working with you, and I am happy to answer any 
questions you might have.
    [The prepared statement of Mr. Carusi follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes Dr. Miller 5 minutes for an opening statement.

                   STATEMENT OF STEVEN MILLER

    Dr. Miller. Thank you, Chairman Pitts, Ranking Member 
Pallone and members of the committee.
    Mr. Pitts. Can you push the mic?
    Dr. Miller. I appreciate the opportunity to testify today. 
I am the Chief Medical Officer for Express Scripts but a former 
transplant nephrologist and former Vice President and Chief 
Medical Officer for Washington University and Barnes Jewish 
Hospital. I started my career in primary drug discovery and 
hold many patents and have been with Express Scripts for the 
last 9 years. Express Scripts is the largest pharmacy benefits 
manager, administering the benefits for 85 million Americans on 
behalf of clients including health plans, large and small 
businesses, and the Department of Defense. Each day we work to 
make the use of prescription drugs safer and more affordable.
    The current system works very well to drive innovation. 
There is more than 5,000 drugs in human testing in the United 
States today, more than any time in my 30-year career. But for 
payers, this is concerning. Whether highly or mildly 
innovative, these advances come at enormous cost to patients 
and payers. These new therapies cost tens of thousands of 
dollars per patient, and the challenge is made clear by one 
recent approval, Solvadi. Solvadi is a new treatment for 
hepatitis C. In the first quarter of 2014, its sales exceeded 
$2 billion. Cost of Solvadi varies by nation, but in the United 
States, it is $84,000, or $1,000 per pill. You compare that to 
Canada or Europe where it is $55,000, and in Egypt, $900, which 
is less than a single dose in the United States.
    Solvadi is a breakthrough with a high cure rate but varied 
analysis suggests that Solvadi may not be worth the price. A 
study from the California Technology Assessment Forum found 
that even over a 20-year horizon, the cost-benefit is only two-
thirds of the original $84,000.
    Solvadi is valuable to patients worldwide but should it be 
the United States' role to pay the lion's share where Solvadi 
manufacturers have the most incentives available to promote 
innovation. Americans will pay more for the medicine than 
anywhere else. Incentives available for Solvadi or other 
include, one, market exclusivity. In addition to the usual 
patent protection afforded to high-tech products, brand drug 
manufacturers receive a period of exclusivity under Hatch-
Waxman where they are protected for competition. Two is they 
get breakthrough approval designations. Since 2012, drug makers 
have had the ability to see a breakthrough therapy designation 
by the FDA to expedite the review of new drug applications that 
demonstrate substantial improvements over existing therapies. 
Three, we have a free market to sell medicines. Unlike other 
nations, the new drug approval process doesn't include cost-
effectiveness comparisons. Manufacturers are free to sell their 
medications at prices they determine without government 
intervention, validation or approval. And four, NIH support. 
The NIH supports drug makers with bench science, basic research 
and support for clinical trials.
    The price of Solvadi should be disappointing to lawmakers, 
who have worked to foster innovation and encourage a 
marketplace in the United States for brand drugs. Any action 
that Congress considers should explore the need for an 
environment where America doesn't pay the lion's share for 
research and development that is benefited worldwide. Congress 
should consider the proven ideas. One: Support NIH with 
additional funding. Drug discovery begins with excellent work 
by the team at the NIH. Two: Support the FDA. Given the success 
of Fast Track, accelerated approval, priority review programs, 
without compromising safety and effectiveness of drugs, these 
hastened timelines can become the norm of new drug approval if 
additional funding is provided. And three: Reserve marketplace 
incentives for true innovations. Market exclusivity is 
invaluable to drug makers and it should only be granted to new 
drug applications that substantially improve upon existing 
therapies. What better way to promote innovation than to more 
carefully grant monopolies to drug manufacturers?
    In conclusion, existing incentives for innovation are 
working. Today we have more companies doing drug discovery than 
ever. The industry is healthy and profitable. Express Scripts 
is concerned by the idea that rewarding certain types of drug 
development with additional market exclusivity will pervert the 
commercial market for prescription drugs. It will inhibit 
innovation. It artificially restrictions competition and it 
affords the same reward to breakthrough therapy as to less 
innovative product improvements. Most importantly, it places 
the burden for funding this additional incentive solely on the 
back of payers of health care rather than socialized equally by 
society through the tax code. Proposals that seek to expand 
market exclusivity in any situation need to be approached very 
carefully, very narrowly to ensure the right solution to the 
underlying problem.
    Thank you very much for this opportunity.
    [The prepared statement of Dr. Miller follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    Mr. Pitts. The chair thanks the gentleman. Dr. Ledley, you 
are recognized for 5 minutes for an opening statement.

                    STATEMENT OF FRED LEDLEY

    Dr. Ledley. Good morning, Chairman Pitts, Ranking Member 
Pallone, members of the committee. My name is Fred Ledley. I am 
Director of the Center for Integration of Science and Industry 
at Bentley University, where we focus on studies aimed at 
accelerating the translation of scientific discoveries for 
public benefit. I have been an investigator of the Howard 
Hughes Medical Institute, the founder of an early company in 
the field of gene therapy, gene medicine, the president and CEO 
of another startup, which was a pioneer of personalized 
medicine, and I am the holder of 10 U.S. patents.
    My takeaway message today is very simple, that the role of 
incentives should be exclusively to promote 21st century cures 
based on 21st century science. This requires sustained support 
for translational science from the early stages of basic 
research that comes out of the NIH through drug discovery and 
drug development. It requires patent rights that protect the 
inventor's priority to novel art. It requires predictable 
pricing, and it can be inhibited by statutory exclusives 
granted to older products, which draw resources away from the 
discovery of new cures and innovations that could reduce the 
cost of health care.
    While testimony before this committee has celebrated the 
many advances scientific advances of recent decades, our 
research suggests that few of these advances are being 
translated into cures. Let me give you an example. Monoclonal 
antibodies are one of the most important classes of new 
medicines now covering the market but the basic science that 
enabled that dates to 1975. My colleague, Laura McNamee, has 
recently studied 100 new medicines approved by the FDA since 
2010 and found that these products arose from basic science 
that was on average 40 years old. Thus, in the second decade of 
the 21st century, the pharmaceutical pipeline is not providing 
21st century cures but rather cures based on 20th century 
science.
    One reason the pharmaceutical industry is facing the 
dwindling pipeline and a patent cliff is that it has depended 
for too long on the products of old science--``me too'' drugs, 
product extensions and the eternal hope that there will be a 
blockbuster around the corner. I urge the committee to focus on 
incentives that will move the pharmaceutical industry forward, 
forward from reliance on old science towards these 21st century 
cures.
    Now, patent rights are essential for this innovation. 
Patents transform scientific discoveries into economic capital 
that can be monetized through technology transfer, capital 
investments by our venture colleagues, licensing fees or 
royalties. Innovation can be incentivized by more efficient and 
timely patenting of these discoveries.
    Statutory exclusives can have the opposite effect. Extended 
exclusivity makes companies less likely to commit resources to 
the always risky business of translational science. Such 
companies are less likely to discover and develop modern cures, 
less likely to enter into alliances with startup companies and 
less likely to acquire those companies. Extended exclusivity 
granted to products that are late in their lifecycle or dormant 
are particularly problematic since they explicitly favor the 
products of old science over modern science. Statutory 
exclusivity can promote science, as we have seen in Hatch-
Waxman, in the Orphan Drug Act and in the Best practices 
Pharmaceuticals for Children Act, which I remind you achieved 
this goal with 6 months of extended exclusivity.
    Even with market incentives, the path to 21st century cures 
needs to be nurtured. I started a gene therapy company 25 years 
ago. I have been working in the field for 30 years. There are 
no gene therapy products on the market. One of the reasons is 
that while more than $4 billion has been invested in gene 
therapy companies, all this money went to technologies that 
were immature and not likely to develop drugs. This is a long 
process that requires sustained, continuous investment. 
Incentives that engage stakeholders in the long-term success of 
innovation can promote innovation. These could include 
accounting standards that assign value to R&D spending, 
valuation models that consider the intermediate products of 
innovation or differential tax rates or even shareholder rights 
that favor long-term over short-term investments.
    The reason we are here today is that the treatments and 
cures that were developed from 20th century science are just 
not good enough. There are critical unmet needs and incurable 
diseases and the ever-increasing cost of health care. 
Incremental improvements are not what we are after. I urge the 
committee to focus on the mission of advancing 21st century 
cures that move the industry forward to using 21st century 
science.
    Thank you very much for the time.
    [The prepared statement of Dr. Ledley follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes Mr. Hemphill 5 minutes for an opening statement.

                 STATEMENT OF C. SCOTT HEMPHILL

    Mr. Hemphill. Thank you. Mr. Chairman, Ranking Member, 
members of the subcommittee, my name is Scott Hemphill, and I 
am a Professor at Columbia Law School. I write and teach about 
innovation and competition. My research examines the incentives 
for drug innovation and affordable drug access provided by 
patents and regulation. Thank you for the opportunity to 
testify today about these important issues.
    I think we can all agree that innovative drugs have made an 
enormous contribution to longer and healthier lives. Patents 
and regulation are the key to that success by supplying 
incentive to innovate, thereby justifying large investments in 
research and clinical testing. Patents and regulation also 
serve a second goal, which is to ensure low-priced access to 
lifesaving drugs. This is the balancing act discussed by 
Chairman Upton and others.
    As an engine of drug innovation, of course, the patent 
system is not perfectly tuned. Sometimes a patent can't be 
secured, for example, or a drug development takes too long and 
the patent expires too soon.
    Now, this issue is not a new problem but rather a 
longstanding focus of drug regulation. For example, as you have 
heard, the Waxman-Hatch Act fills in the gaps in patent 
protection by giving drugs special non-patent protection from 
competition, and to help make up for long development time, the 
Act extends the term of existing drug patents, and the Orphan 
Drug Act serves a similar purpose.
    Now, to the extent that there is a problem even after these 
extra protections, the question arises, what should we do about 
it, and we have heard a few options. One option is to rethink 
and speed up clinical trials. Another is targeted public 
support where appropriate. A third option is to expand existing 
legal exclusivity. Now, the key here, I think, is to limit the 
expansion and target it to situations where it is truly needed, 
and one possibility here is Dr. Gandy's suggestion of narrower 
protection to help address Alzheimer's disease.
    The MODDERN Cures Act also expands exclusivity but not in a 
way that is narrow or targeted. It would grant a large increase 
in protection for essentially all novel drugs. The Act gives 15 
years of protection for so-called dormant therapies. Now, when 
I first heard the term ``dormant therapy, '' I figured this 
would be a limited, targeted expansion along the lines of the 
Orphan Drug Act but I think that conclusion is incorrect. The 
key point is that a drug must address a so-called unmet medical 
need but unmet medical need is defined quite broadly. It is not 
just a drug for a disease that has no treatment but any sort of 
improved outcome. So even a drug that merely improved patient 
compliance or increased convenience would count under the Act.
    Now, in effect, the Act grants 15 years of protection to 
any drug with a novel active ingredient, and 15 years is a long 
time. It is about 3 years longer on average than even novel 
drugs get today, 3 years longer than biologics, and is 4 or 5 
years longer than protection in Europe. The result, I fear, is 
a large windfall through longer exclusivity for many drugs that 
would have been developed anyway. Billions of dollars will be 
transferred from drug purchasers to drug makers, and worse, 
where patients pay in whole or in part for the drugs, this 
would also reduce access to drugs.
    How big is this problem? Well, we can consider just the 
novel drugs that experienced generic entry over the decade 
between 2001 and 2010 and imagine that all of these drugs had 
gotten a 15-year term instead of the average 12 or so that they 
do today. That roughly 3-year extension would suggest an 
overpayment for these drugs of more than $120 billion. In other 
words, purchasers are likely to pay a lot more for drugs that 
would have been produced even without the extra protection. 
Beyond the windfall problem, the Act seems quite vulnerable to 
evergreening strategies that would extend protection beyond the 
15 years, and as we have already heard, risks placing a 
disproportionate burden on U.S. purchasers, and I am happy to 
discuss these issues during the question-and-answer period.
    To conclude, claims that larger drug maker rewards would 
increase innovation are easy to make but hard to pin down. The 
right next step here is careful study to determine the scope of 
the lost innovation problem in practice, and if warranted, a 
solution narrowly targeted at that problem.
    Thank you again for the opportunity to discuss these 
important issues with the subcommittee.
    [The prepared statement of Mr. Hemphill follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    Mr. Pitts. The chair thanks the gentleman, and that 
concludes the opening statements of our panel.
    I would like to ask unanimous consent to submit for the 
record a statement submitted by the Premier Health Care 
Alliance and a statement submitted by the Generic 
Pharmaceutical Association. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Pitts. We will now begin questioning, and I will 
recognize myself 5 minutes for that purpose.
    In a statement issued by the California Public Employees 
Retirement System related to this hearing, they state that 
``Despite historic breakthroughs in scientific research, 
clinical trials and new lifesaving therapies, many common 
diseases remain incurable. Heart disease and stroke continue to 
be leading causes of mortality. Psychiatric diseases are 
serious burden on patients, their families and society as a 
whole, and infectious disease presents new critical challenges 
in terms of drug resistance.''
    I will note that the committee acted in an overwhelmingly 
bipartisan manner to pass the GAIN Act as part of FDASIA, which 
was a needed first step towards addressing this innovation gap 
by granting an additional 5 years of exclusivity to new 
qualified infectious-disease products. We must build on this 
momentum in the antibiotic space as well as in other areas of 
unmet medical need and where public health demands innovation.
    We will start with you, Mr. Borisy. Have there been 
breakthroughs in clinical trial designs for chronic diseases 
that impact large patient populations?
    Mr. Borisy. So we have seen--if the goal is ultimately to 
get medicines to patients and to our society that needs them, 
we have seen through breakthrough therapy, through accelerated 
approvals in multiple different disease areas an adoption of 
approaches that have helped to speed those therapies to the 
patients that need them. So it becomes a question of, what is 
the information that is necessary to understand how a drug will 
be in the real world setting and are we applying the current 
best understanding of biomarkers, of personalized medicine 
subsets of patients in some of these other disease settings, 
could we move things more quickly.
    Mr. Pitts. How long does it typically take to conduct a 
clinical trial for a new therapy targeting a chronic condition 
such as heart disease or stroke?
    Mr. Borisy. The total time in clinical development for 
those types of chronic diseases are usually longer than 10-plus 
years.
    Mr. Pitts. Are venture capitalists investing in the 
development of new products targeting chronic diseases?
    Mr. Borisy. It is very difficult to do so. If our focus is 
on patients and bringing through those innovative breakthrough 
medicines, if the time in clinical development is going to be 
on the order of 10-plus years, building from wonderful basic 
research that has been done, there still is usually additional 
years before you ever get to the clinic to create that drug 
that can then go be in the clinic for another 10 years of 
development. So as a venture capitalist, if you are considering 
deployment into an area that is going to take 15-plus years 
before it may get to the market, that is very challenging. It 
is challenging in that time period is longer than the length of 
our investment funds, which means that we will be dependent on 
other entities, recognizing that that is an important product 
for patients, but other entities, if they have uncertainty 
about how long it will take them to continue developing it or 
what risks may be involved, we will not recognize the value 
that we have created early on. So that long period of time and 
uncertainty makes those very conditions which as a society and 
as a Nation we need to be some of the most challenging to 
invest in from a venture-capital perspective.
    Mr. Pitts. Thank you.
    Dr. Gandy, in your testimony you note that the lack of 
therapeutics for chronic conditions such as Alzheimer's places 
an enormous strain on our country's finances and that without 
novel therapies, costs will only escalate. At this rate, will 
the next generation of Americans that develop Alzheimer's be 
taking the same medications that were approved over a decade 
ago, and what would this mean to health system costs?
    Dr. Gandy. At this point, the medications that are used to 
treat Alzheimer's disease are the same that were developed in 
the 1970s, so we have nothing new on the horizon. Those 
medications don't change the progression of a disease. They 
relieve symptoms briefly. They always wear off. So we continue 
in the current cycle of having no way to slow the progression 
of the disease.
    Mr. Pitts. And Mr. Boutin, the California Public Employees 
Retirement System asserts in their testimony that the market 
exclusivity period of 5 years for brand drugs is ``appropriate 
to properly incent innovation.'' Can you comment on whether 5 
years of exclusivity is appropriate to properly incent 
innovation for chronic diseases?
    Mr. Boutin. It is clear when you look at the number of 
conditions that lack treatments that it is not. It has worked 
in some cases but we now have approximately 7,500 conditions 
without treatments, and I hear Representative Waxman's comment 
of ``the science is not always there'' but the incentives are 
clearly not there to drive the innovation we need for many of 
the conditions. We hear from NIH-funded researchers that they 
develop treatments or potential treatments that could come to 
market but lack patent protection and therefore they don't. We 
hear repeatedly from our patient organizations and the 
organizations they work with on developing treatments that the 
timeline is taking too long to bring many of these products to 
market. We have a huge opportunity to incentivize them.
    Now, I think the question is, what is the right balance 
point of incentivizing them. I think we agree that the need is 
there, and I want to just take issue with the notion of unmet 
medical need. Unmet medical need is really important to people 
with chronic conditions. Alzheimer's is clearly an unmet 
medical need but so is ALS, so are countless other conditions 
without effective treatments. Our challenge is to incentivize 
those highly innovative, highly valued products to address 
those needs. We can quibble over what that balance is but this 
Congress has an opportunity to do the hard work, figure that 
out and incentivize treatments for people who are dying now 
waiting for them.
    Mr. Pitts. The chair thanks the gentleman. My time is 
expired. The chair recognizes the ranking member, Mr. Pallone, 
5 minutes for questions.
    Mr. Pallone. Thank you, Mr. Chairman.
    I wanted to ask some questions of Dr. Gandy and Dr. Miller. 
Let us start with Dr. Gandy.
    In reading your testimony, it is apparent that you share my 
concern about the seemingly ever increasing cost of drugs and 
its impact on both patients and on the health care system as a 
whole. You mentioned the Affordable Care Act and the 
biosimilars provision, which provided for 12 years of 
exclusivity for innovator biologics, and as you point out, 
biologics are extremely expensive, 22 times the cost of 
ordinary drugs, so if a biologic at that price were to be 
discovered for Alzheimer's, it would cost as much, if not more, 
than it currently costs to treat and care for patients with the 
disease. It would also not alter the unsustainable trajectory 
for Medicare as your testimony explains.
    You mention an Alzheimer's Association report that 
concluded that if there were an effective Alzheimer's treatment 
that could delay the onset for 5 years, American taxpayers 
would save $447 billion in the year 2050 and the human 
suffering brought by Alzheimer's of course heartbreaking and 
obviously the projections for how much of our health care 
system will be spending on the care of those with Alzheimer's 
are dire. So it would be a tremendous public health advance if 
we could get this treatment and see that kind of savings, and I 
share your goal in trying to bring this treatment to market. 
Your recommendation to the committee is that we would consider 
extending the current 5-year term of exclusivity for drugs to 
treat Alzheimer's but I seriously question whether a lengthy 
exclusivity will achieve the kind of savings we all hope to see 
or whether it would necessarily give patients access to 
treatments they can afford, and your testimony seems to assume 
that if we extend exclusivity for traditional or small-molecule 
Alzheimer's drugs, the price of these drugs would be lower than 
we are seeing in the biosimilars area. I think we have seen 
recently that is not a safe assumption to make, and your 
testimony points out that ideally a novel Alzheimer's treatment 
would start to be given to people in their 50s before they 
develop symptoms in order to slow the development of plaques.
    So Dr. Gandy, if we are talking about giving a drug that 
could actually prevent Alzheimer's, how many people do you 
estimate would need to take it? Obviously the dosage might take 
different forms. If it is an oral solid, I would guess that it 
might need to be taken daily, maybe even more than once a day, 
and that potentially means taking a drug every day for decades. 
So I guess I wanted to ask, if we were talking about that kind 
of drug, how many people do you estimate would need to take it? 
I just have to ask a series of questions, if you could.
    Dr. Gandy. Sure. The number of people who would have to 
take the medication would be in the tens of millions.
    Mr. Pallone. And what if the cost of this new Alzheimer's 
treatment was $1,000 per pill, and if we extended the term of 
exclusivity for that treatment beyond the current 5 years to, 
say, 12 years, as you suggest, or even 15 as some of my 
colleagues suggest, what would that look like for an individual 
patient and what would it look like for the health care system 
overall?
    Dr. Gandy. I think the details of how to focus the 
exclusivity and target it narrowly are sort of a second-
generation problem. I mean, I think we are really trying to 
find ways to deal with what we clearly observe as the retreat 
of the pharmaceutical industry from Alzheimer's both at the 
venture level and at the large pharmaceutical level, and this 
is at least a way to begin to do that, but I share your concern 
about the expense, and it is difficult to know exactly which 
business model to use to get started. But think of the 
financial savings from the polio vaccine, think of having 
people who would be on iron lungs for their entire lives. There 
clearly needs to be some balance between the exclusivity and 
the cost savings.
    Mr. Pallone. Well, let me ask Dr. Miller. Would you comment 
on it? Would you care to comment?
    Dr. Miller. Yes. I am very familiar with Alzheimer's. I am 
on the board of an Alzheimer's cure at the University of 
California San Francisco and so have studied this quite a bit. 
It turns out these models of savings often are never seen in 
reality so it doesn't matter if you are looking at drugs, 
devices, imaging or even robotic surgery, they often have these 
models when they try to get to the marketplace but their 
savings are rarely appreciated when they get to the market, 
therefore, the health crisis we have today.
    If you look at this drug, though, and you were to take your 
scenario, you just make it the price of a traditional oral 
solid branded product, you would quickly actually mitigate if 
not swamp any potential savings that are there, especially when 
you consider drug price inflation. That model that you are 
speaking to prices the new therapy at zero. It is free. And so 
the savings of a half trillion dollars or when the drug is 
free. If you have to truly treat the tens of millions that you 
are talking about, you would never have any savings.
    Mr. Pallone. And the problem I have is if we grant 
exclusivity, we are essentially giving the pharmaceutical free 
rein to charge whatever it wants during that time period, and 
we are removing the effect of market competition forces, and I 
don't think we have any guarantees that a company developing a 
new groundbreaking drug treatment would do the same thing and 
obviously that is my concern.
    Dr. Miller. Well, it has been our experience that they 
don't because they do have the ability to freely price in the 
United States, and if you are going to treat Alzheimer's, there 
is a lot of reasons to treat Alzheimer's. This is not about an 
economic argument. This is because it is the right thing to do 
for patients, but the likelihood of us seeing savings 
downstream are much less likely, especially if you extend 
exclusivity.
    Mr. Pallone. Thank you very much. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman and now recognize 
the chairman of the full committee, Mr. Upton, 5 minutes for 
questions.
    Mr. Upton. Well, again, we appreciate all your testimony 
this morning.
    Mr. Carusi, the fact that the number of venture capital 
firms investing in medical technology has dropped from 39 in 
2007 to just about 11 or 12 today is certainly concerning to a 
lot of folks. Who is going to provide the necessary startup 
capital for innovative new medical technology companies? How 
can we grow that number back to where it was before?
    Mr. Carusi. Well, I think that is exactly the challenge 
right now. I think at its core, venture capitalists raise money 
from institutional investors, so we raise capital from 
universities, endowments, pension funds. As a part of that 
process, we also have a fiduciary duty to generate returns. 
That is the agreement that we are entering into. We can get 
that number back to 20, 25, 30, 35 if we can fix the math 
problem that we have, which is that it is very difficult right 
now to generate the kind of returns that our investors need to 
see when you look at the delays of FDA, you look at the delays 
of reimbursement. So I think this Congress and we as a device 
community, if we can find ways to get back to streamlining that 
innovation process, the math starts to work better and that 
starts to bring these investors back into the fold. Until then, 
we have been forced to go elsewhere, and as we like to say, we 
have been looking for a new set of best friends. That is in 
part why I am spending a lot of time my time overseas, and so 
we have seen other countries that are very interested in 
building their own life sciences ecosystem invest in venture 
capital funds directly in return for us locating our companies 
in those local geographies. So there are ways to access capital 
but it does come with strings and some of those strings are 
that we need to start to conduct business outside of the United 
States, and we are doing that right now to fill the gap.
    Mr. Upton. So are those venture capital companies that are 
helping companies overseas, are they located overseas 
themselves or are they U.S. firms that are investing and then 
encouraging those companies to in fact develop those products 
overseas?
    Mr. Carusi. So will speak for my own firm. Our new fund, 
Lightstone Ventures, it is a U.S.-based fund but we are--in 
fact, we just announced that we are opening an office in 
Dublin. We are moving one of our partners to Dublin, and a part 
of what we will do, not all, but a part of what we will do will 
be to look for innovative ideas and innovative technologies but 
to reside those companies overseas and to build those companies 
overseas. And so they are U.S. funds that are locating 
elsewhere.
    Mr. Upton. Is any part of that equation that decision 
making part of the tax code consequences? I know we lost a 
company in my district to Ireland--Perrigo--in terms of their 
headquarters, in large part because of the tax rate of 35 
versus 10 \1/2\.
    Mr. Carusi. So that has certainly been in the press and 
certainly tax rates and lower tax rates and more attractive tax 
rates play a role but recognize the fact that our companies are 
very far from revenues and very far from profits and so the 
bigger driver for our companies is really around, A, the access 
to capital, and B, the regulatory environment in those markets, 
and it comes back to the fact that we can get a device product 
approved in Europe 3 to 4 to 5 years ahead of what we can get 
that product approved in the United States. The fact that 
product is approved 3 to 4 to 5 years ahead of time then allows 
us to start to do the studies that the payers want to see to 
start to try to generate some of the cost data. In the United 
States, we are behind in that cadence and so consequently given 
the fact that we are now running these trials in Europe and 
seeking European approval, we like to be close to our 
companies. We don't just invest and so we are naturally moving 
overseas to be closer.
    Mr. Upton. Mr. Borisy, you referenced the expected patent 
life and market exclusivity of a drug in development does 
impact the investment decisions, and you also indicated earlier 
that the size and cost of clinical trials is an impediment to 
investment and innovation. What are other thoughts that you 
might have in advancements and technology that can help make up 
the difference for those?
    Mr. Borisy. So for any drug that is being brought forward, 
as a society we are putting a level to say what is the 
information that we need to have that drug will be useful in 
the real world population and make a difference for patients 
and have the requisite safety information associated with it. 
We have in areas as has been discussed here in the committee in 
cancer and rare genetic diseases been willing to adopt the use 
of biomarkers, surrogate endpoints, and a recognition that the 
full understanding of the use of that drug will come post 
approval with experience in the real world.
    For some of these areas that are outside of cancer and rare 
genetic disease, there are likewise opportunities to take some 
of those modern approaches, and we can be doing that both pre 
approval as well as post approval. I think an important point 
to recognize is to the comment of we are in the 21st century 
now and not the 20th century with electronic medical records, 
with information technology, we are able to know an enormous 
amount about what is actually happening with a drug in the real 
world. So when we are dealing with the question of how do we 
develop drugs for some of these chronic diseases, some of these 
things affecting such large swaths of our population and we are 
dealing with the question of how do we make sure that 
innovation invests in those areas. We should ask, can we use 
some of these modern technologies to make that process more 
doable, more stable, more predictable.
    Mr. Pitts. The chair thanks the gentleman and now recognize 
the ranking member of the full committee, Mr. Waxman, 5 minutes 
for questions.
    Mr. Waxman. Thank you very much, Mr. Chairman. I appreciate 
all the testimony. I am sorry, I had to go to another 
subcommittee and didn't hear all of your oral presentations. 
The chairman has often said to me, I ought to clone myself, but 
we don't know how to do that, and it probably wouldn't be 
allowed anyway, and nobody would want it.
    Mr. Hemphill, I want to ask you some questions about this 
MODDERN Cures Act, because that is a legislative proposal that 
has been put forward. In your testimony, you said it is likely 
that some drugs are not developed because the exclusivity 
rewards are not large enough, but it is unclear how large a 
problem this is, and I would like to explore that with you. 
Certainly we ought to be willing to use patent term extensions 
and exclusivities as an incentive to spur the research and 
development of new drugs. That was the basis of some of the 
laws that we are all praising like the Orphan Drug Act. In that 
law, we gave 7 years of market exclusivity for drugs to treat 
rare disease. That meant that these were rare and didn't offer 
a huge profit potential because they weren't a lot of people 
that were likely to buy the drug but this MODDERN Cures Act 
gives not 7 but 15 years of exclusivity and post-approval 
patent protection to so-called dormant therapies. Do you see a 
reason why we would need an even longer period for these drugs 
than we gave for orphan drugs? The Orphan Drug Act has been 
very successful. We have a lot of new drugs for people with 
these rare diseases.
    Mr. Hemphill. So I would say no, not necessary under the 
MODDERN Cures Act as it is currently conceived, given the 
breadth of applications of unmet medical need and its 
applicability to essentially any new drug. I leave open the 
possibility that in principle, there could be therapies for 
which the lead time is so long that some kind of targeted 
additional protection would be worthwhile. I just think the 
MODDERN Cures Act goes way beyond that in its current breadth 
of application as well as its duration.
    Mr. Waxman. In a biosimilars provision in the Affordable 
Care Act, we gave 12 years of exclusivity to biologics. That is 
7 years longer than we gave in Hatch-Waxman for small-molecule 
drugs. I have always believed that the 7 years was too long. 
However, the argument was made that a lengthier time was needed 
because biologics were harder to develop and their patents were 
weaker. Do you see any reason why dormant therapies would need 
3 years longer exclusivity than biologics?
    Mr. Hemphill. Well, I think in principle, it is always 
possible that longer protection would elicit additional 
innovation, and then the question is, at what cost to the 
therapies that we would get either way, which is why I think it 
is so important for us to do careful study to figure out where 
those gaps are, if anywhere.
    Mr. Waxman. Well, you mentioned the evergreening provision 
in your testimony. Now, that is not just a one-time event, that 
could go on forever wherever a small change can produce another 
15 years of exclusivity. There was an interesting statement. 
Mr. Boutin in his testimony claims that MODDERN Cures has the 
strongest anti-evergreening language ever included in 
legislation. Do you agree with that? Do you think that that law 
prevents evergreening or could companies get multiple 15 years 
exclusivity?
    Mr. Hemphill. I don't agree. I am very concerned about 
evergreening in this bill. There may be a difference in what we 
mean by ``evergreening. '' One particular issue that I am very 
concerned about is product hopping where you get close to the 
end of the exclusivity and then the drug maker switches the 
patients over to a new version of the same drug. We have been 
talking about Alzheimer's, and Namenda is a nice example. The 
existing Namenda treatment is going away this summer and all 
the customers are being--all the patients are being shifted to 
a once-a-day version, and this extends the exclusivity, and I 
don't see how the MODDERN Cures Act is going to get around 
that.
    Mr. Waxman. This MODDERN Cures proposal, the sponsors point 
out it is only for therapies that address an unmet medical need 
for serious or life-threatening diseases. On the surface, that 
sounds reasonable. Do you think it is appropriately targeted to 
only those drugs whose development would warrant and be 
appropriately stimulated by such extraordinarily long periods 
of exclusivity and patent protection?
    Mr. Hemphill. It looks like it would apply to roughly any 
drug that currently gets new chemical entity protection. Maybe 
there are small exceptions to that but I think it extends quite 
a bit further than what would you normally think of by unmet 
medical needs.
    Mr. Waxman. And that could be a huge windfall?
    Mr. Hemphill. Correct.
    Mr. Waxman. Mr. Boutin, I know you met with our staff on 
several occasions, and I understand you are trying to get them 
data and information to show whether there are significant 
numbers of dormant therapies out there waiting to be developed. 
Have you had any success in collecting this data? And I would 
also appreciate data justifying why 15 years of exclusivity and 
patent protection are necessary for these therapies.
    Mr. Boutin. So with respect to the data question, there is 
data that is available but it is very limited. It is very 
challenging to collect that information because the incentives 
are not there to exist, and when we speak with companies, they 
routinely tell us that when they had a good product that they 
shelve because it has gone dormant because there is not enough 
time to develop it, they routinely shred the data. What we have 
seen with the filing of MODDERN Cures is, companies now are 
starting to keep that data in-house. So they are starting to 
look at how they might potentially recapture these lost 
opportunities.
    Mr. Waxman. Well, it is important that we insist on 
receiving more information as we look at this law because this 
is a huge windfall in some cases, and we want to know if it is 
necessary. If it is necessary, we certainly want to do what 
will help spur innovation.
    Mr. Boutin. Well, in----
    Mr. Waxman. But we know, Mr. Chairman, in conclusion, that 
there have been many laws where we have just overpaid. We have 
overpaid the drug companies to do research on dosages for kids 
and we look at how much money that costs them to do it and that 
exclusivity was so much more valuable. We have overpaid for 
even some of the orphan drug laws, and we are overpaying at the 
expense of patients going without drugs or the payers for drugs 
not being able to afford it or the Medicare system and the 
Affordable Care Act not being able to sustain these kinds of 
costs. So we have got to get the balance right and we need the 
data to make sure that we are doing that. Thank you.
    Mr. Pitts. The gentleman's time is expired. The chair now 
recognizes the vice chair of the committee, Ms. Blackburn, 5 
minutes for questions.
    Mrs. Blackburn. Thank you, Mr. Chairman, and I want to 
thank everybody for being here and we have a hearing downstairs 
as well as here so we are kind of back and forth.
    Mr. Carusi, I want to come to you. I would like to talk 
with you a little bit about your due diligence process as you 
look at funding a startup with a concept, and being from the 
Nashville area where a lot of health IT is taking place and 
Health Box is active there, the Entrepreneur Center, when I go 
over there and I talk to some of these innovators and you look 
at what is taking place from concept to commercialization to 
distribution, it is a pretty long timeline. In preparing for 
the hearing and reading through your testimony, I want you to 
just talk to me about that due diligence process, what you are 
looking at, how the FDA approval process affects that, how that 
window has changed in the past 10 to 15 years.
    Mr. Carusi. I would be happy to. I think it is important to 
note that at my firm, so at Lightstone, we are involved from 
the very early stages. In fact, about a third of our companies 
have been created either in-house or in coordination with 
incubators that we work with. So this means that we are 
literally sitting down with an entrepreneur, a physician, an 
inventor looking at a market and inventing. So we are involved 
at that early stage. We then have to take a look at that 
starting process. We have to look at the technical risks, the 
development risks, the risks in the clinical trials, what kind 
of a study can we run. If we run that study, will we get FDA 
approval. How long will that take. We then have to make a 
determination as to whether or not we will have created enough 
value that we can then find another player, be it at the public 
market or one of the major players take on that project or if 
we have to keep going. If we have to keep going, then we have 
to look at the whole reimbursement process, what is involved in 
getting coding, coverage, payment. At the end of the day, we 
have to get the product from the ideation phase all the way 
through to the point where we are generating revenues and we 
are generating profits. That is what we do. If you look at that 
timeline, and Mr. Borisy has already mentioned this, that 
timeline is now pushing anywhere in devices up to 8 to 10 to 12 
years with a great deal of uncertainty along the way, and one 
of the things that we as venture investors hate the absolute 
most is seeing our companies fail late. We would rather 
introduce experiments where we can have these companies fail 
early and move on. But what is happening is, these companies 
are either failing at the point where they get in front of 
panel for FDA approval, even if we have met the appropriate 
endpoint, or they are failing when they get into the morass of 
reimbursement, and then they become restarts. Nobody wants to 
fund a restart. It is easier to give birth than resurrect, and 
the reality is, if these companies then die and we have to move 
on and it is dragging won the returns of our industry and it is 
dragging down innovation, and that is the process that we are 
facing right now.
    Mrs. Blackburn. You mentioned the challenges with the IDE 
process. Do you want to add anything more to that?
    Mr. Carusi. Yes. So I mean, again, on the IDE process, that 
is the process to actually initiate our clinical studies to 
then demonstrate the safety and the efficacy of the device. 
What happened over the years is the data requirements to start 
those studies, it was as if we were actually going for 
approval. We are not going for approval; we are going for the 
approval to start the trial. And again, some of these are going 
to fail. They are not going to work. If you start to layer on 
additional preclinical requirements, additional bench 
requirements that aren't necessarily adding to the safety of 
these products, then again you are adding to the cost of time 
before we actually get to the experiment where we can run the 
clinical trial and see if the product is safe, more effective 
and good for patients, and if it costs too much, capital is 
fungible. We will go somewhere else.
    There was just a discussion around Alzheimer's. We are not 
funding Alzheimer's drugs. We can't. We can't bring them to 
market. And so the math won't work, and so it is simply a 
matter of making sure that the right incentives are in place so 
that we don't kill innovation. At the same time, we are in the 
game of disrupting things. That is what we do for a living. So 
we don't want to see incumbents sitting on drugs and new 
devices down the road but we need enough incentive to make sure 
that the math works so that we can fund them to begin with, and 
right now in a lot of spaces, we are not able to do that.
    Mrs. Blackburn. Thank you, and I will yield back my time, 
Mr. Chairman.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the gentleman, Mr. Matheson, 5 minutes for 
questions.
    Mr. Matheson. Thank you, Mr. Chairman.
    I want to talk a little bit about the issue with medical 
devices, small manufacturers in particular. They are the ones 
in the marketplace who are really creating some of the 
groundbreaking technologies. They rely heavily on venture 
capital, as we just heard in the last answer. And I think that 
as should be expected, venture capitalists are going to only 
take on a certain amount of risk both in terms of product 
performance and uncertainty and regulatory uncertainty as well 
because uncertainty in business is a cost. I think that sounds 
pretty basic but I think that is something Members of Congress 
need to be reminded of.
    One area in which I believe venture capital firms consider 
when deciding whether to make an investment in medical device 
is the likelihood of adequate and predictable reimbursement 
from Medicare because once you get FDA approval, that doesn't 
mean Medicare is going to give you reimbursement.
    Over the past several years, I have heard from device 
manufacturers and venture capital firms that Medicare is 
requiring more data to obtain appropriate coverage of payment, 
and I appreciate that CMS wants to put forth an effort to spend 
taxpayers' dollars in an efficient and responsible manner, but 
this change in standards, if you will, and the lack of clarity 
surrounding what the standards are from what I understand has 
made it increasingly difficult for VC firms to make an educated 
and informed decision about the viability of a device once it 
gets through the FDA approval process. So if an FDA-approved 
device is not approved by Medicare, its viability in the 
marketplace and the ability for patients to access the 
technology obviously is greatly reduced.
    In order to help alleviate some of this uncertainty, I have 
cosponsored legislation authored by my friend and colleague, 
Congressman Paulson, the Accelerating Innovation in Medicine, 
or AIM Act, which would give device manufacturers the 
opportunity to make an FDA-approved product available on a 
self-pay basis for an initial 3-year period before approaching 
CMS about Medicare coverage on reimbursement. This program 
would be entirely voluntary. It would allow manufacturers the 
time to collect needed data to justify reasonable and adequate 
coverage and payment for Medicare down the road, reducing some 
of the uncertainty associated with the Medicare coverage 
process and hopefully providing the venture capital community 
with a measure of certainty in the device and more broadly in 
the market in general.
    So Mr. Carusi, I wanted to ask you if you had heard of this 
or were aware of this proposal and do you feel it would assist 
both the venture capital community and the small device 
manufacturers in reducing some of the uncertainty in the 
process and bringing products to the market on a more expedited 
basis?
    Mr. Carusi. Yes, I am familiar with the AIM Act, and I 
think it very much goes to the heart of one of the challenges 
that we are facing, which is to your point. We now have FDA 
approval but we are now in a process where we have to generate 
more data. As we are generating that data, we are not 
profitable entities. We are burning $500,000 to $2 million a 
month, and in fact, that number tends to go up because we now 
have to start marketing these products. So the question comes 
down to, we can't as small companies continue to fund these 
products through that next phase of development. So I think 
what the AIM Act does or could potentially do is help to 
provide a source of funding during this period of time so that 
we can continue to generate the data that payers, that Medicare 
would want to see.
    Look, the world has changed. We recognize that data is 
everything. Clinical data is our sole focus, so generating that 
data is necessary, it is important, but if we are going to have 
to add more years, more uncertainty and more disruption, then 
we need policies like the AIM Act, and I would say that is one 
of several potential approaches. That is not going to do it. We 
need more things and more creative ways to try and think about 
how we can as an ecosystem help the ecosystem generate this 
data. It is not simply about device companies or biotech 
companies. It benefits hospitals, payers, patients. So what is 
the right mechanism to fund this additional data-gathering 
exercise?
    And then the other thing I would add is, and then what is 
the data that is required. Don't move the bar. Tell us--and we 
have had this conversation with FDA. If it is X, we hit X, then 
you are going to get paid, and right now that bar is constantly 
moving so we don't even know if we generate that data if we are 
going to get payment and coverage.
    Mr. Matheson. I appreciate that.
    Mr. Chairman, I will yield back.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the vice chair of the subcommittee, Dr. Burgess, 5 
minutes for questions.
    Mr. Burgess. Thank you, Mr. Chairman, and Mr. Carusi, just 
briefly before we leave that point, it was the intention or the 
desire of this committee 2 years ago when the reauthorization 
of the Food and Drug Administration came to our committee that 
many of these problems would be, if not solved, at least 
managed or mitigated, and that has not been the case?
    Mr. Carusi. No. On FDA, that is having an impact, and so I 
think we are starting to see benefits from FDASIA, and 
certainly with FDA and improved dialog with Commissioner Shuren 
and his leadership, we are seeing improvements. So that is why 
in my testimony I moved from FDA, we still want to continue to 
improve it, but to the reimbursement side of the equation 
because parallel to the discussions we had several years ago 
around FDA and a lack of transparency and predictability and 
consistency, that is what we are now facing in reimbursement.
    Mr. Burgess. Let me ask you a question because it came up 
yesterday in a Rules Committee hearing over the appropriation 
for the United States Department of Agriculture, which for 
reasons that escape most of us includes the FDA. But the whole 
issue of special protocol assessments came up and the fact that 
the rules might be changed late in the game in that 
environment. Can you speak to that just briefly?
    Mr. Carusi. Yes, I can. Again, I think that has been 
utilized more on the drug side, which is frankly less where I 
play. It is probably more where you play. Again, I think the 
intention of SPAs is terrific. I think the intention is to 
provide again a bar where if you hit a certain data 
requirement, you have certainty that you will get approval. 
That is the right intent. Where it runs into problems if that 
doesn't prove to be the case. So in other words, if you are now 
three-fourths down the process, you are in the middle of your 
clinical trial and the bar has changed, the bar has moved, you 
have to start that clinical trial all over. You have just taken 
a step of 3 to 4 years back. In many ways you may have flushed 
$50 to $100 million down the drain. So I think the intent is 
right but we can't monkey with the SPA, unless there is some 
meaningful new clinical piece of data that has emerged one that 
has been established.
    Mr. Burgess. I thought it was telling, your comment, fail 
early, avoid the rush, you certainly get why that concept is 
there.
    Dr. Gandy, I really appreciate you being here and 
appreciate the work you are doing in Alzheimer's. It must have 
been as startling for you to hear as it was for me that Mr. 
Carusi is no longer funding Alzheimer's research. But let us 
talk about that for a minute because one of the first things 
after I was elected to Congress in 2003, I asked for a meeting 
with Dr. Zarounian out at the NIH and we talked about things on 
the horizon, things in the future, and he related that 
statistic that you gave us, that 5 years delay in the onset of 
symptoms, big savings on the other side. So if I have done the 
math calculation correctly where I am now into my third of 
those 5-year intervals but as you relate, it hasn't really 
happened, has it?
    Dr. Gandy. No, that is right. We currently don't have 
anything on the horizon that will make an impact on the course 
of Alzheimer's, on the progress of Alzheimer's disease.
    Mr. Burgess. Well, what about actions like establishing 
clinical trial networks in the study of Alzheimer's?
    Dr. Gandy. The NIA has established a nationwide network of 
Alzheimer's centers, and that is the mechanism by which it uses 
to recruit and test new drugs--recruit patients and test new 
drugs, and that system, that network often partners with 
industry to test new industry drugs as well.
    Mr. Burgess. And that in turn then spur new investment, 
perhaps get Mr. Carusi again involved and invested in our 
research?
    Dr. Gandy. I think what we need is a success, and I think 
that would attract more investors. I mean, we have 
relationships and actually a number of public-private fora for 
discussion but I think the thing that would really build the 
enthusiasm is some success.
    Mr. Burgess. And would things like standardizing 
biomarkers, would that help?
    Dr. Gandy. That certainly is the--the NIH has established 
what is called the Alzheimer's disease Neuroimaging Initiative, 
which has been really a landmark study, ongoing study, in 
defining a number of biomarkers of the natural aging process, 
of the conversion from aging to mild cognitive impairment and 
then conversion from mild cognitive impairment to Alzheimer's 
disease.
    Mr. Burgess. Thank you.
    Dr. Ledley, you brought up a gene therapy, and I can 
remember reading in the newspapers in the mid-1990s, late 1990s 
about some promising gene therapies and then unfortunately 
there were a series of unsuccessful problems, and then it kind 
of went away. Can you kind of give us an idea of what is on the 
horizon with gene therapies?
    Dr. Ledley. So the short answer, gene therapy works. The 
last couple of years have been incredibly exciting. It has seen 
some very high-profile IPOs in the past couple years. So people 
are happy about it again. I think it is a classic story where a 
lot of--there is a real disconnect between the good support for 
therapy for NIH, venture capitalists who made a lot of profit 
early in the field and found a lack of sustained support for 
the innovations required to take immature technologies and make 
them mature, and we believe the field has slowed by that. It 
was a difficult process. There are very important pricing 
issues for that field to work out in the next couple of years 
but it is a great example of where the basic science is now 
ready for investments that can take advantage of discovery and 
the type of review process which is put in place at the FDA.
    Mr. Burgess. All right. I have more questions, Mr. 
Chairman, if we have time for a second round, but I will yield 
back.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Texas, Mr. Green, 5 minutes for 
questions.
    Mr. Green. Thank you, Chairman, and both you and the 
ranking member for asking our witnesses to testify.
    First of all, it is frustrating what my mother-in-law went 
through with Alzheimer's in the 1990s. There is no drug today 
different from that than Aricept. It wasn't really useful then, 
slow delay of the illness but we are just not there. And Dr. 
Gandy, I appreciate all your efforts, and I even appreciate 
your purple tie, Mr. Carusi, from working with our local 
Alzheimer's group in Houston.
    But let me get to my other issue. The need for greater 
antibiotic drug development is something I, along with 
Congressmen Gingrey, Shimkus, DeGette and others, have long 
championed. We have successfully started getting the ball 
rolling with GAIN Act last Congress and we are already seeing 
positive signs. However, as much as it pains me to say, it has 
not done enough to fully set our country back on a path of 
investment and development in new antibiotics. We need to 
combat ever-emerging and deadly diseases. The health of our 
soldiers and veterans is particularly at risk. An article that 
ran in The Hill yesterday titled Fighting Superbugs by 
Developing Targeted Weapons in which the author was Rear 
Admiral James Kerry stating that many soldiers and civilians 
have lost their lives because we do not have the drugs we need. 
It is time to mount an urgent defense against superbugs and use 
all the tools at our disposal to put new weapons on the field.
    Mr. Borisy, I know that knowing that you know about the 
antibiotic space today, the risk-reward profile, would you 
advise your clients or colleagues to invest in antibiotic 
development today, and why or why not?
    Mr. Borisy. Investment from a venture perspective in new 
antibiotic development is very challenging. As an optimist from 
the science and the medicine perspective, I actually believe we 
have the tools and the technologies today that if we applied it 
and focused the capital around it, we could come up with the 
tremendous innovations that we need against some of these 
superbugs and areas of very important need to our society in 
infectious disease.
    Mr. Green. OK. I only have 5 minutes. But if Congress were 
to create additional incentives on antibiotic development, do 
you believe that it might help move the needle with investors 
such as yourself?
    Mr. Borisy. Yes.
    Mr. Green. If so, what types of reforms or incentives would 
be needed to improve your outlook on investment in this area?
    Mr. Borisy. So one of the most important would be again 
drawing the analogy from cancer and from rare genetic diseases, 
which is if we accept it for these antibiotic infections, 
allowing to develop for those specific populations to show that 
if we could show that a drug works in those specific 
populations, that would have a tremendous impact.
    Mr. Green. I, along with my colleague, Congressman Gingrey, 
have introduced the ADAPT Act, which is a follow-up on the GAIN 
law from last Congress. It would create a special designation 
for critically important antibiotics with a goal of improving 
FDA process around them. If we could demonstrate to industry 
leaders such a process would shorten approval times for safe 
and effective products, would that help increase the worth of 
antibiotic products on the market?
    Mr. Borisy. Yes, it would. It would have a direct impact.
    Mr. Green. Thank you. Without new antibiotics, medical 
advances and new cures to treat other diseases will largely be 
moot since treatments like chemotherapy, even a miracle future 
therapy could be too dangerous to patients because of the risk 
of infection and no antibiotics to protect them, and I urge my 
colleagues to take swift action and aggressive action because 
we do not have a moment to waste, and again, hopefully our 
subcommittee will look at the ADAPT Act as a follow-up to the 
success we are seeing with GAIN. I know just recently there was 
one of the pharmaceuticals approved.
    Mr. Chairman, I will yield back my time.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Illinois, Mr. Shimkus, 5 minutes 
for questions.
    Mr. Shimkus. Thank you, Mr. Chairman. It is great to be 
here. I am way down on this side. And it is great--I too am in 
the other subcommittee so I am bouncing back and forth, but it 
is really important to hear the plethora of the panel because 
it really just gets your mind going. It drives staff crazy 
because they want us to direct our questions, but you start 
thinking. So I am going off script for a second.
    Mr. Hemphill, Alzheimer's, everyone has been touched by it. 
So you hear the testimony. Obviously the capital community is 
not here. There is no return on investment, can't make the 
case. It is an epidemic. It is going to--so this whole brand 
exclusivity stuff, I mean, doesn't that not make a case for 
creating a market condition where capital will flow so they can 
get a return so we can solve this disease?;
    Mr. Hemphill. So----
    Mr. Shimkus. I have got to be quick so----
    Mr. Hemphill. I am off script.
    Mr. Shimkus. I am off script too. That is right.
    Mr. Hemphill. I completely agree that in principle if you 
have a situation where you otherwise would not have a drug----
    Mr. Shimkus. Like this, I mean right now, we got it.
    Mr. Hemphill. Well, I am not sure the case is proved from 
the fact of long development.
    Mr. Shimkus. But I will just say, there is no money going 
right now so the market is making the case now.
    Mr. Hemphill. The absence of investment doesn't necessarily 
tell us that a different legal regime would yield a different 
result.
    Mr. Shimkus. OK. Let me move forward. That is part of the 
challenge, this debate that we have to get to.
    I also want to just highlight--Mr. Matheson did a great 
job. I am a cosponsor of the AIM Act for all the reasons that--
I am not going to go into it in detail, but I would encourage 
my colleagues to look at that and get on it.
    Mr. Chairman, I would encourage you to--I don't know if we 
want to wait on this 21st century cures thing or you may want 
to consider trying to at least get it through the process so we 
can see where we are because I don't see a downside to it. I 
just don't. It helps bring capital in the early formation. It 
is outside the Medicare morass, coding issue. It brings more 
certainty than less at a time when you are looking for capital 
flow.
    So now I will get on script, Chris. But we are trying to 
focus in--and a lot of this debate has been on obviously the 
lifesaving drug that will emerge and the cost, but I think as 
important in this debate is the diagnostic portion because the 
way the world is changing and the science behind this, you can 
target specific drugs to specific conditions based upon markers 
and the like.
    So Mr. Borisy, starting with the premarket approval 
process, what types of incentives do you believe might spur 
development in this space? Were you thinking it might be 
constructed similar to a drug-like postmarket incentive 
structure or something different?
    Mr. Borisy. So for diagnostics, a clear and predictable 
understanding of reimbursement, which does not exist today, 
would have a direct connection to capital formation for 
innovative new diagnostics that we mean and that clear and 
predictable reimbursement in diagnostics, whether that was in 
some form of postmarket exclusivity, whether that was just in 
clear Medicare rules and understanding that clarity and 
transparency would make a tremendous difference.
    Mr. Shimkus. In your testimony, you recommend the committee 
consider a process whereby CMS create a program for diseases 
important for public health with high unmet diagnostic needs. 
Can you tell us more about how such a program might work and 
for instance, could it help cut down the time between FDA 
approval and the CMS coverage?
    Mr. Borisy. So if we take an example that we have been 
talking about at the hearing today such as Alzheimer's and if 
we said from the work that Dr. Gandy and others are doing that 
we had a diagnostic imaging biomarker that we felt was 
meaningful and predictive, understanding how that would be paid 
for, just simply having that clarity and stability would allow 
then the development and proof of that diagnostic. That 
diagnostic would then enable the development of therapeutics to 
Alzheimer's that we have been bemoaning here today as lacking.
    Mr. Shimkus. Yes, and I just want to throw--Mr. Miller is 
here and in part of his testimony he said on Alzheimer's, it is 
just the right thing to do. So we have got to change our 
programs and processes to address this, and hopefully we can 
get there working together. This is a very exciting time but 
there are unmet needs that we should be about meeting, and with 
that, Mr. Chairman, thank you and I yield back my time.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentlelady from Florida, Ms. Castor, 5 minutes 
for questions.
    Ms. Castor. Thank you, Mr. Chairman. I want to thank the 
panel for your expert advice today and also commend my 
colleagues for focusing on this important issue for American 
families.
    We have today about the MODDERN Cures Act, which would 
extend the period of exclusivity for essentially any new drug 
to 15 years. That is 3 years longer than any other term of 
exclusivity currently in the law, and the intent of the bill is 
very good, but I have been listening closely and I haven't 
heard today that a case has been made for why there would be a 
need to extend exclusivity for such a lengthy term, and a 
number of you have testified to that today and to some of the 
negative effects of lengthy periods of exclusivity.
    Dr. Ledley, could you explain in greater detail how in your 
view greater exclusivities would discourage uptake by hands of 
smaller biotech companies?
    Dr. Ledley. Sure. Fifteen years is a very long time in the 
progress of science. We don't use 15-year-old computers 
anymore, and by the time a drug has been on the market for a 
certain length of time, science is able to come up with 
something better and should, and the public needs it. So there 
needs to be a return on the investment in the original drug and 
there needs to be an immediate turnaround to invest in the next 
drug that is that much better, and 15 years is just out of 
proportion to the space of scientific progress.
    Ms. Castor. And I am also extremely concerned about the 
price tag for providing extended exclusivities. Dr. Miller, 
your testimony mentions the Solvadi situation, the hepatitis C 
drug that is now about $1,000 per pill. It is an extraordinary 
price but coupled with the fact that we have over 3 million 
Americans that could have their hepatitis C cured, they would 
benefit greatly. So that has raised these difficult questions 
for public and private payers especially. Could you describe 
for us the tradeoffs and compromises that payers are having to 
make as a result, and could you tell us why Solvadi is unique 
or could it be part of a trend or are there other similarly 
priced drugs on the market?
    Dr. Ledley. That is a great point. So what you see is that 
for manufacturers, they don't have just exclusivity as a lever 
to pull, they have pricing. So in this country we allow them to 
freely price, and that is what has happened with Solvadi. If 
you treat all 3 million patients in the United States, you will 
spend over $300 billion, which is equal to the entire drug 
spend for the United States, and when you look at the pipeline, 
of that 5,400 drugs that are in human testing, there are many 
that are going to be breakthrough products that also will be at 
prices that we can't afford. And so it is no good having drugs 
that people can't afford and so access has to be considered in 
your policies when you consider extending exclusivity because 
you are guaranteeing higher prices for longer periods of time.
    Ms. Castor. And one of the issues that confronts us as the 
population ages and the call on Medicare will be greater is the 
fact that we don't allow negotiation of drug prices in America. 
It is kind of un-American that we don't negotiate by law. This 
means that drug companies can charge almost any price that they 
would like, particularly for lifesaving drugs that are the only 
treatments or cures for a particular disease. In such cases, it 
is hard to imagine the need for extending the length of time 
for which they are shielded from price competition by generics.
    Professor Hemphill, is America, in having that policy 
against negotiating drug prices, do we subsidize drug use in 
other countries?
    Ms. Castor. Well, certainly, U.S. payers and patients pay a 
disproportionate part of the research and development that 
ultimately has a global benefit.
    Ms. Castor. Well, I thank you for your testimony, and I 
want to end on the note of even though we might have 
differences of opinion on the panel on the Cures Act, I think 
everyone that I heard today was united in the fact that we need 
to make sure we are committed to basic research, and the fact 
that the budget battles, sequester, government shutdowns of the 
past few years has taken a bite out of NIH and sent scientists 
possibly looking at careers in other countries, is really 
something that this committee has got to focus on. Dr. Collins 
said NIH has lost 25 percent of its purchasing power. We are 
throwing away half of the innovated, talented research 
proposals. This really should be the committee's primary point, 
and maybe moving medical research from a discretionary category 
to something we have a long, sustained commitment.
    Thank you, and I will yield back.
    Mr. Pitts. The gentlelady's time is expired. The chair 
recognizes the gentleman from Georgia, Dr. Gingrey, 5 minutes 
for questions.
    Mr. Gingrey. Thank you, Mr. Chairman, Ranking Member 
Pallone, and to the witnesses for testifying today.
    You know, the GAIN Act of course was an important first 
step in addressing a lack of new antibiotic drug development 
and we have already seen the first successes of the GAIN Act. I 
am real happy to have worked with Mr. Green, Ms. DeGette, MR. 
Shimkus and others on the committee in a bipartisan way to 
develop the GAIN Act. Obviously--and Mr. Green talked about 
this a little bit earlier about the ADAPT Act, which of course 
is follow-on to GAIN and the work that we need to do in regard 
to that.
    I wanted to direct my questions mainly to Mr. Borisy. When 
making investment recommendations, Mr. Borisy, can you explain 
how not just potential economic returns but clinical trials and 
the approval process impact the likelihood that you would 
recommend to your team investing in a particular drug?
    Mr. Borisy. So me and my partners at Third Rock focus 
fundamentally on early-stage investments in areas of science 
and medicine where we can make a breakthrough, make a big 
difference for patients. So if we talk about infectious 
diseases as an example, coming up with therapies that would 
work for something where, you know, it is a superbug and 
nothing works and it is a critical need, that is the type of 
thing that we would like to do.
    When we are considering an area to invest, when we are in 
the process of translating those out of the basic research that 
has been done, a lot of work, multiple years before it can even 
get to the clinic to refine it into being a drug has to be 
done. This takes tens of millions of dollars. Then we go into 
the clinical development period of time, and the questions 
focusing us are two, which is how much money and how long is it 
going to take until we can get that proof of concept that we 
have created something that really makes a difference for 
patients, not the final bar of approval perhaps but that smart 
people looking at it say that is important, and the second is, 
does other parts of the ecosystem that we have talked about 
recognize that as important. That could be public investors so 
we could take the company as an IPO. It could be a larger 
pharmaceutical company that is going to take it across the 
finish line. Things such as ADAPT where we know that the 
clinical study can be faster, quicker in a specific targeted 
population that we can really show it works and makes a 
difference, if that is more doable, then that is what enables 
our capital formation to invest in that.
    Mr. Gingrey. Well, cutting right to the chase, let me ask 
you this follow-on. And I think Mr. Green asked you this 
question but maybe I would like for you to elaborate a little 
bit more.
    Knowing what you know about the antibiotic space today, the 
risk-reward profile, would you advise your clients or 
colleagues to invest in antibiotic development today, and why 
or why not?
    Mr. Borisy. And this is not an academic question to us. 
Actually yesterday morning before flying down here to 
Washington, D.C., I was looking at an innovative technology in 
infectious diseases that could do exactly what we all here 
talking about want it to do, and it is a very difficult 
question for us right now because it is that question of 
regulatory uncertainty in the area, and so it is something that 
we want to be able to do but as we have talked about, the 
question of if we can do what we have done in areas of cancer 
and rare genetic diseases with breakthrough therapies, 
accelerated approvals, it could make it very doable.
    Mr. Gingrey. And the last question in my remaining minute, 
again, Mr. Borisy, my colleague Gene Green and I introduced, as 
you know, the ADAPT Act, which 23 other members of this 
committee have cosponsored. The legislation allows the FDA to 
approve antibiotics that treat serious and life-threatening 
infections for specific patients based on smaller and then more 
rapid clinical trials. Do you believe if Congress could 
streamline the approval process for such products without 
lowering the FDA's safety and effectiveness standards the 
climate for investing in new antibiotics wou8ld improve?
    Mr. Borisy. Yes, it would.
    Mr. Gingrey. Well, I thank you very much, and I don't have 
time to address the other members of the panel--it is a large 
panel--but again, I am grateful that you all are here.
    Without new antibiotics, advancements in new cures to treat 
other diseases would largely be moot since treatments like 
chemotherapy, even a miracle future treatment, would be too 
dangerous to patients if you didn't have these antibiotics 
because you wipe out the bone marrow, you lower their 
resistance to infection, and as you well know, in many cases 
the patient doesn't get the cure because they get wiped out and 
get overwhelmed with an infection and die before the bone 
marrow has a chance to recover. So all of this is interrelated 
very closely.
    Thank you very much, Mr. Chairman. I yield back.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentlelady from Virgin Islands, Dr. Christensen, 
5 minutes for questions.
    Mrs. Christensen. Thank you, Mr. Chairman, and I thank the 
panelists for being here this morning.
    I am going to direct my questions to Mr. Hemphill. Your 
testimony describes various types of market protections that 
are granted to brand drugs in current law and you assert that 
those protections are, for the most part, functioning quite 
well. So I am correct in interpreting that in your testimony, 
that they are functioning quite well?
    Mr. Hemphill. So my testimony is that they have been 
effective in providing strong incentive for drug makers to 
innovate.
    Mrs. Christensen. OK. Obviously there are many diseases for 
which no effective treatments exist. You mentioned the 
possibility that some drugs are not developed because 
pharmaceutical companies do not view current protections are 
providing an adequate reward but you state that the scope of 
the problem is unclear, and I would assume it is also unclear 
whether weak market protections, if they exist, are actually 
the cause of failures by companies to develop new treatments. 
Can you say more about the impact of so-called weak market 
protections?
    Mr. Hemphill. Sure. So two brief points on this. One, I 
think we just don't know a lot about the innovation that 
doesn't happen. We have anecdotes but we don't have hard data 
so the data collection effort that was mentioned earlier seems 
really important.
    Second, even though limited protection, the limited non-
patent protection that is provided, for example, by the Hatch-
Waxman Act, has a big effect. We have therapies on the market 
that have no patent protection. An Alzheimer's drug, if it a 
great Alzheimer's drug, suppose they only get 5 years of new 
chemical entity protection but 20 million people are taking it, 
and each are a $1,000-a-year business for the brand, not an 
unreasonable amount judged from what other chronic diseases 
have as a pay. A thousand times 20 million people, 10 million 
people times 5 years, and that is a $50 billion business which 
I think would focus the mind if you have the kind of excellent 
drug that we are talking about. Now, that is not going to 
answer every question but I think for some drugs, a lot of 
times the existing protections are going to be adequate.
    Mrs. Christensen. Are there other factors that might be 
causing delays in the emergence of new lifesaving treatments 
that we haven't discussed?
    Mr. Hemphill. Well, sure. I mean, we have talked a bit 
about just the nature of scientific inquiry and the 
uncertainties in solving really tough problems like Alzheimer's 
and cancer.
    Mrs. Christensen. It is clear we have a lot to learn about 
how much a problem this even is but we are hearing a lot of 
conclusions from some of our witnesses today about insufficient 
patent protections being the cause of pharmaceutical 
development failures. Mr. Hemphill, have you heard anything in 
the other testimony today that convinces you that others on 
this panel have new facts and new data to substantiate this 
problem?
    Mr. Hemphill. So I think we certainly have new anecdotes, 
and it is quite possible that in principle that as we get 
better at science, the remaining problems are harder and 
therefore require new solutions. I think the question is 
nailing down what that other world would look like were we to 
engage in the kind of changes that are being proposed.
    Mrs. Christensen. And finally, we have heard a lot today 
about the need for new incentives. A major focus has been on 
marketing protections like exclusivity and patent extensions. 
Mr. Hemphill, your testimony briefly described some other 
incentives that you indicate could be affected such as 
providing government funding for certain research and 
development itself. Can you maybe give us some more ideas about 
what other incentives are out there and whether you think they 
hold potential to spur innovation?
    Mr. Hemphill. Sure. Just briefly, we hear about extremely 
lengthy trials sometimes being a problem vis-a-vis patent 
protection because if the patent runs out before you can get 
your drug to market because of the long trial, the Hatch-Waxman 
renewal or extension of patents might not be enough. But in 
those situations where we feel some confidence that this is a 
worthwhile project to pursue, you could readily imagine, it is 
a subsidy, it is a government outlay to support those trials. 
We see this sometimes in cancer, and I think that has been 
effective, and that is the kind of targeted solution that I 
think we should really be paying a lot of attention to.
    Mrs. Christensen. Thank you. Thank you, Mr. Chairman. I 
yield back.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the gentleman from New Jersey, Mr. Lance, 5 minutes 
for questions.
    Mr. Lance. Thank you very much, Mr. Chairman.
    I am the Republican chair of the Rare Disease Caucus, and 
in that capacity, I frequently meet with patients and families 
where there are no medicines, and I am the sponsor of MODDERN 
Cures. MODDERN Cures is completely bipartisan in its 
sponsorship, and I want to thank all of my colleagues who have 
become cosponsors including, for example, Mrs. Eshoo, Mr. 
Butterfield, Mr. Tonko, distinguished members of this committee 
on the Democratic side, as well as Republican cosponsors I see, 
Mrs. Ellmers and Mr. Bilirakis right in front of me.
    Mr. Boutin, can you give your perspective on the incentives 
in the Orphan Drug Act, which is an improvement in orphan-drug 
therapies from the original Hatch-Waxman Act, a monumental 
piece of legislation, whether regarding the Orphan Drug Act and 
whether you think it is sufficient to incentive rare-disease 
research or should we be doing more?
    Mr. Boutin. Thank you for the opportunity.
    Mr. Lance. Certainly.
    Mr. Boutin. Orphan Drug Act is a monumental piece of 
legislation. I think everybody in the room recognizes that. But 
at the same time, we have approximately 8,000 rare diseases.
    Mr. Lance. Yes.
    Mr. Boutin. We have 500 treatments.
    Mr. Lance. Yes.
    Mr. Boutin. Clearly, we need to do more.
    Mr. Lance. Yes. And regarding Alzheimer's and the moving 
questioning of my colleague, Congressman Green, would it be 
fair and is this the consensus of the panel that we need to do 
a much better job regarding Alzheimer's and somehow have to 
reach a solution to bring that to a better situation for the 
hundreds of thousands, indeed millions of patients who will 
suffer from Alzheimer's? Is that the consensus of the panel?
    Mr. Boutin. Without question.
    Mr. Lance. Is there anyone who dissents from that? Thank 
you.
    Professor Hemphill, in responding to Congressman Shimkus's 
questioning, I believe you said--and I am paraphrasing and I 
certainly want to give you the opportunity to respond fully--I 
believe you said that the absence of new drug therapy doesn't 
necessarily mean that we need a new legal regime. Is that what 
you said? And I certainly want to give you every opportunity to 
express your point.
    Mr. Hemphill. Yes.
    Mr. Lance. You did say that?
    Mr. Hemphill. Yes. Do you want me to explain?
    Mr. Lance. Of course.
    Mr. Hemphill. So the idea here is simply that we don't know 
simply by the fact of increased legal protection that we will 
thereby have new cures.
    Mr. Lance. Yes, I am an attorney, and we do not know. It 
seems to me we need some progress in these terrible rare 
diseases and not so rare diseases like Alzheimer's, and of 
course, we cannot be conclusive that a new legal regime would 
bring that about. Is it possible that modification of the 
current legal regime would bring that about?
    Mr. Hemphill. As I said, in principle, it is possible. What 
is tricky here is that we know a lot about the costs from 
length and exclusivity vis-a-vis drugs that are going to be 
elicited either way and we know almost nothing about the 
theoretical improvement that we would get from a longer period 
of----
    Mr. Lance. That is why we need a healthy discussion to 
reach a balance.
    Mr. Hemphill. Agreed about a balance.
    Mr. Lance. And at the moment, there is the balance in 
Hatch-Waxman and then there is the balance in the Orphan Drug 
Act and we are trying to move forward in rare diseases, I, as 
the Republican chair of the Rare Disease Caucus. We need a 
healthy balance, and that is what this committee in particular 
is trying to strike, and I would encourage all on the panel to 
determine what that healthy balance should be, and Mr. Boutin, 
you believe we need to update or at least modify orphan drugs 
regarding rare diseases?
    Mr. Boutin. Without question, we need to update the 
balance, strike it better, and two quick points. The anti-
evergreening issue that was raised applies to every 
medication----
    Mr. Lance. That is precisely accurate.
    Mr. Boutin [continuing]. Not what would be on MODDERN 
Cures. The issue around costing currently applies to every 
medication, not what would come out of MODDERN, just to be very 
clear.
    Mr. Lance. Thank you.
    And finally, Professor Hemphill, I don't think we have ever 
met before. You are welcome to come into my office at any time 
to discuss my legislation, MODDERN Cures. I understand you 
teach in Upper Manhattan and live in Manhattan, and I assure 
you, the Lincoln Tunnel, the Holland Tunnel and even the George 
Washington Bridge are all open, and I welcome healthy 
discussion on my completely bipartisan legislation, MODDERN 
Cures Act.
    Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from New York, Mr. Engel, 5 minutes 
for questions.
    Mr. Engel. Well, thank you very much, Mr. Chairman. I live 
on the other side of the George Washington Bridge, the side 
that people couldn't get to when it was blocked, so I want to 
thank all of you for your testimony and especially give a call 
out to the New Yorkers, Dr. Gandy and Mr. Hemphill. Always good 
to see New Yorkers down here in Washington.
    The 21st Century Cures Initiative creates an important 
bipartisan opportunity for us to consider creative new 
approaches to incentivize getting new treatments into the hands 
of patients as quickly and safely as possible. I am the 
coauthor of the Paul Wellstone Muscular Dystrophy Community 
Assistance Research and Education Amendments of 2008 and 2013 
along with my colleague on this committee, Dr. Burgess. I have 
seen how new research models have produced great advances in 
our understanding of the various forms of muscular dystrophies. 
So I raise this now because I think we can use the Wellstone 
Muscular Dystrophy Research Centers' model to incentivize other 
forms of research. Much like the National Pediatric Research 
Network, the Wellstone Centers use a network approach that is 
designed to ensure that research is not conducted in silos, and 
I believe this network approach fosters collaboration and 
allows government funding to be supplemented by nonprofits and 
patient advocacy dollars and by private biotech and 
pharmaceutical funding.
    Let me ask you, Dr. Gandy, given your experience with 
Alzheimer's research at Mount Sinai, could you comment on how a 
network approach to research can serve as a force multiplier to 
incentivize treatments and cures for patients?
    Dr. Gandy. I think the network approach is essential. For 
one thing, the network standardizes the approach to medication, 
the approach to diagnosis across all centers, and by disbursing 
the person power across the country enables the rapid 
recruitment of new subjects for trials. I think in terms of 
operations, there is really no other way to do it.
    Mr. Engel. Are there any other models of public-private 
partnerships that you think would be constructive to consider 
in addition to the Wellstone Center approach?
    Dr. Gandy. No, I think that is a reasonable place to start.
    Mr. Engel. OK. Thank you.
    I would also like to ask about the development of treatment 
and cures for patients with rare diseases. Within our rare-
disease research communities, more and more personalized 
approaches to therapeutic development are becoming possible but 
these lifesaving personalized drug therapies have small 
consumer markets and are among the most expensive therapeutics 
ever created. So let me ask Mr. Borisy and Dr. Miller, could 
you comment on how we can continue to attract biotech and 
pharmaceutical industry partners into this space and how we can 
support industries' work with payer groups to ensure access 
once therapies are approved?
    Mr. Borisy. So on the investing in new potential companies 
that are focused on rare genetic disease, if we believe the 
science and medicine is there to really make a tremendous 
different for the lives of those patients, my partners and I 
are one by one working through those opportunities and forming 
multiple companies to do exactly that. Part of that is based on 
the understanding as we have talked about here today on the 
path through regulatory approval. A second part is 
understanding the reimbursement as being there, and when we are 
talking about diseases that might have a couple thousand 
patients, a couple hundred, or some that are even as few as 100 
patients that are involved, that necessarily means a high price 
associated with those, and we know those are challenging 
issues. There are potential therapies that could make a huge 
difference for patients. If we have stable reimbursement, even 
at those high prices, then innovation in those rare diseases 
will continue.
    Mr. Engel. Thank you.
    Dr. Miller?
    Dr. Miller. Yes. What has been proven that makes a 
difference for these diseases is, one, NIH funding, so having 
basic science to support it. So even when we look at 
Alzheimer's, it is rarely about the basic science that is going 
to drive the industry development. Second, it is actually the 
FDA. You have heard from everyone, it's regulatory and 
reimbursement certainty. That is actually their bigger risk 
than looking for added incentives, and so if you are really 
going to concentrate on the things that help everything from 
antibiotics to Alzheimer's to rare diseases, it is really about 
regulatory and reimbursement certainly.
    Mr. Engel. Thank you. I see my time is up.
    I was wondering if I could just ask one more. Many of you 
have mentioned that funding basic science through funding the 
NIH is critical to the goal of creating incentives for 
innovation, and I certainly agree.
    So let me ask Dr. Miller and Dr. Ledley, if either of you 
could tell us more about how basic science gets translated into 
cures that can then be capitalized upon by drug makers and what 
effect have recent cuts to NIH's budget had on this process?
    Dr. Miller. So I started as an NIH investigator. My wife is 
the Chairman of Medicine at Washington University. The NIH 
budget cuts have been devastating to basic science research at 
universities. The great thing about the NIH is they allow the 
investigators to actually spin these products off and work with 
the venture capitalists to start new companies. When you stop 
that process, when you choke off at NIH the basic science 
level, the rest of the process doesn't work and so it is 
crucial that we restore and even improve funding for basic 
science.
    Dr. Ledley. I think we have heard big numbers about how 
many rare diseases and how many unmet needs there are, and 
there are enormous numbers. I think it is useful to look at the 
number of grants the NIH puts out every year relative to that 
number and ask how many investigators do we think should be 
taking independent new initiatives for these diseases, each one 
of which harbors the potential for the new cure that can then 
be developed.
    Mr. Engel. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Louisiana, Dr. Cassidy, 5 
minutes.
    Mr. Cassidy. Thank you, Mr. Chair. I really enjoy the 
panel.
    Now, Mr. Hemphill, I have to say when I read your 
testimony, your spoken testimony had something different. I say 
this not to challenge, merely to understand. You said listen, 
you don't think extending exclusivity is necessarily important 
but when you spoke you said except maybe as Dr. Gandy 
suggested. Now, clearly you left a door open there. Do you see 
that there is circumstances in which this extension of patent 
protection exclusivity for something particularly like I think 
you used the example of an oral therapy for neuromuscular 
disease or neurologic disease would indeed be helpful?
    Mr. Hemphill. So I certainly didn't intend any 
inconsistency between my written testimony and my oral. I feel 
strongly that if we have clear evidence that a targeted 
increase in exclusivity would work, we should take that really 
seriously.
    Mr. Cassidy. Now, hang on, and again, this is a great 
conversation, so I am not saying this to challenge but there is 
a certain existentialism about this, right?
    Mr. Hemphill. Right.
    Mr. Cassidy. Now, we cannot know the future, and so we are 
always going to have the anxiety that oh, my gosh, I made the 
wrong decision.
    Mr. Hemphill. Right.
    Mr. Cassidy. I do that whenever I buy a stock. So that 
said, we know Gandy. He is an incredible investigator, which by 
the way, the NIH 20 years ago was advised to redirect their 
funding to things which have more importance to modern disease. 
They have not done it in 20 years. So as we speak of the NIH, 
let us note that the IOM has suggested that they redirect 
funding and they have not done so, and in a period of 
constrained resources, we have to call upon them perhaps to be 
a little bit more directing towards your diseases.
    Now, that said, I go back to my point. Is there a kind of 
situation in which indeed these sorts of incentives would be 
important?
    Mr. Hemphill. Yes. Certainly that is possible, and I also 
don't mean to suggest that certainty has to be our standard. As 
you say, we are investing, we are gambling, but we are gambling 
with the public's money to the extent that----
    Mr. Cassidy. I agree.
    Mr. Hemphill [continuing]. Existing drugs get this 
extension, which is why I say narrowing our view not to every 
single drug and probably not every single----
    Mr. Cassidy. So let me challenge you. Are you ready, man?
    Mr. Hemphill. Yes.
    Mr. Cassidy. You are a bright guy. Figure out that metric 
and give it to Lance. That would have an incredibly important--
because I look at Alzheimer's, and there is few models I think 
outside of Down's kids of where you know they are going to 
develop disease.
    Now, as the son of a man who died of Alzheimer's, this is 
so incredibly important. If you could figure out that metric 
talking to Gandy across town, that would be fantastic for our 
country. So I say that just to kind of put the plug in.
    Mr. Hemphill. I appreciate that.
    Mr. Cassidy. Yes, thanks.
    Dr. Miller, good to see you, man. Listen, I have some 
problems with your California study. I am a hepatologist. And 
so if you look at the intention to treat, I do think they 
underestimate the impact of Solvadi upon outcomes. Every time I 
still see patients mentally ill and such who are not candidates 
for interferon, wouldn't be included in a clinical trial so the 
47 percent cure rate that that paper posits, it doesn't happen 
among my patients with addiction disorders or mental illness. 
That said, I am struck that you suggest that we need to have a 
mechanism by which we would limit what a company could charge 
but you don't mention that mechanism. And I say that because 
your company is incredibly disruptive. I mean, you all are 
good. So you think about how markets work. Do you have a 
suggestion how the Federal Government could limit what 
companies charge without squelching the innovative drive that 
has given us a drug which is truly a breakthrough drug?
    Dr. Miller. If you interpret what I said as the government 
should be price-setting, the answer is absolutely not. We do 
not believe the government----
    Mr. Cassidy. And you didn't say that but I didn't know 
where you would go with it.
    Dr. Miller. No, we actually believe it is a free market 
solution that has to be required, and so we look at it the 
exact opposite. We think that they have taken advantage of it, 
which is just a warning to you all that when you talk about 
extending the period of exclusivity, remember that that is not 
the only lever that these people have. They have pricing as a 
lever and they clearly have exercised it, and Solvadi is a 
great example of it, but we believe that the pushback to 
Solvadi has to come from the marketplace, not from the 
government.
    Mr. Cassidy. So if we are talking about patent protection, 
it seems like there is limited levers to push back form the 
marketplace. Is that a fair statement?
    Dr. Miller. So you know----
    Mr. Cassidy. And again, we are kind of guessing what their 
true cost is to develop a drug, which is an incredible drug.
    Dr. Miller. So we actually know in this particular case 
their true cost of developing it because they didn't develop 
it, they bought it for $11 billion and they will make that back 
in the first year alone. The trouble is, is that you also need 
the pharmaceutical manufacturers to act responsibly in their 
pricing, but even in that absence, there is going to be 
competitors to the marketplace and they will have to pay a 
consequence if the competitors can create a product that is 
equally good because, as you said, we will shift our market 
share to someone that is willing to give us a better price.
    Mr. Cassidy. Well, I am out of time. I really enjoyed the 
written testimony and I wish I had more time to ask questions, 
and thank you each for your good work. I mean, I thank you each 
for your good work. Thank you.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentlelady from North Carolina, Ms. Ellmers, 5 
minutes for questions.
    Mrs. Ellmers. Thank you, Mr. Chairman, and thank you to our 
panel for being here today.
    You know, the 21st Century Cures is certainly something 
that I have considerable passion for, and I think it is 
certainly the right approach for us to take in government when 
unfortunately, many times we are always reactive rather than 
proactive.
    My first question is for Mr. Borisy. We have all discussed 
the challenges of costly cures to come up with for diseases. 
Again, Alzheimer's is a devastating disease. Certainly I know 
many of us have been touched by this personally. My mother died 
of Alzheimer's, and we all want a cure, and I hear this from my 
constituents all the time, ``I don't understand, you spend so 
much money in Washington on so many different things, why can't 
you come up with a cure for Alzheimer's, why can't you come up 
with a cure for diabetes.'' We know how much this affects the 
American people.
    I think I have a better understanding from listening to the 
testimony that you are all giving today, that the cost and the 
benefit are not necessarily adding up, and that forces some of 
the innovations, research, and the development outside of our 
own country. What can we do here in Washington, right now, as 
part of this 21st Century Cure, what changes in policy can we 
make and what specifically--I know a lot of it is the length of 
time--it is the FDA. If you had one thing that you could say 
would change this dramatically, what would it be?
    Mr. Borisy. So we want to bring these innovations to 
patients, as you just very eloquently said. Of course, the 
science and the medicine, the basic science and medicine has to 
be there, but with it there, what we can do is if we can apply 
the tools that we have learned from accelerated approval, from 
breakthrough therapies with FDA to say as a society that we 
want to apply those for these chronic diseases like diabetes, 
like Alzheimer's, that simple act alone will change the 
consideration of the game. It doesn't guarantee we will 
successfully create----
    Mrs. Ellmers. Right. No guarantees. That is never----
    Mr. Borisy. But it totally would change the game that if 
there are ideas and sparks out there, it makes it something 
that is investable in to go take that risk.
    Mrs. Ellmers. So again, it is getting back to uncertainty 
that is out there and the unfortunately--we are talking about 
dollars. I mean, we are talking about investment. We are 
talking about folks putting their hard-earned money behind 
these initiatives, and there has to be a payoff, and you know, 
sometimes that is hard for us because again, we are passionate 
about the issues and it is a very emotional and personal issue.
    Mr. Carusi, one of the things--again, it gets back to the 
availability to be developing drugs. I have a business company 
in my district, Entera Health, which is a medical foods 
company. Basically, this is one of the innovations that we are 
seeing moving forward. For patients, medical foods, and helping 
patients who are taking many of these medications for HIV, 
Parkinson's, Alzheimer's, rheumatoid arthritis, irritable bowel 
syndrome, and helping the patient to respond better to drugs. 
How can we help this process when we are talking about 
reimbursement? How can we do a better job to make sure that 
there again we are making this advancement? What changes at the 
FDA level would you say would streamline this process for 
something that is on the edge as we are talking about medical 
foods?
    Mr. Carusi. Yes. Medical foods is not an area where I have 
been heavily focused or invested, but again, I think the theme 
that you have heard is one of consistency, transparency and 
predictability, and when you start to have, as you defined it, 
devices, drugs, therapeutics that are on the fringe, the 
pathways start to become less defined, less certain, and so as 
a result, any of these approaches, we need to know with clarity 
starting with FDA what the path is and then with reimbursement 
if these were indeed reimbursed products what that looks like, 
what the bar is and will they be reimbursed. Alternatively, 
some of these may be self-pay opportunities and that has its 
own set of discussions. But all of these testimonies and all 
these discussions, it comes back to transparency, certainty, 
and predictability.
    Mrs. Ellmers. Thank you. I have just one quick question. 
Does CMS now have the authority to create codes? Because I know 
this is a conversation we have had in the past where we have 
reached that level and then we have to unfortunately see 
another level realized. Do they have that authority right now?
    Mr. Carusi. To create codes?
    Mrs. Ellmers. To create codes.
    Mr. Carusi. My understanding is--around medical foods 
specifically or more----
    Mrs. Ellmers. Well, not necessarily around medical foods.
    Mr. Carusi. My understanding is yes, but again, this is 
starting to get to the--there are others that are more 
knowledgeable in that area than me.
    Ms. Ellmers. Thank you, Mr. Carusi, and I have overstepped 
my time, so thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the gentleman from Florida, Mr. Bilirakis, 5 minutes 
for questions.
    Mr. Bilirakis. Dr. Gandy and Mr. Borisy and also Mr. 
Carusi, let us talk about increasing incentives. I know that it 
was mentioned earlier. We want companies to continue to invest 
in new and innovative treatments, but it seems to me there are 
so many diseases that currently go without treatment options. 
In your testimony, you all touched on extending exclusivity and 
patent life. Can you elaborate on how market exclusivity, data 
exclusivity and patent life play a part in driving innovation 
for treating neurological diseases such as Alzheimer's or 
perhaps Parkinson's, and how if we do nothing this could hurt 
the development of new innovative therapies? Why don't we start 
with Dr. Gandy?
    Dr. Gandy. I would say in my experience over the past 30 
years, I have watched the pharma and VC investment in 
Alzheimer's research dwindle and the single reason that is most 
frequently cited is the regulatory path, the challenge for 
getting approval and then having sufficient patent life left to 
recoup any of the investment. Alzheimer's disease moves very 
slowly. The clinical trials require hundreds of patients. They 
take years to complete, and it is a monumental task, and we 
don't have yet any templates. We are trying to do something in 
biology we have never done before.
    Mr. Bilirakis. Thank you. Mr. Borisy, please.
    Mr. Borisy. Two weeks or so ago, I was talking with a 
senior pharmaceutical executive who is running a program in 
Alzheimer's, literally spending billions of dollars over many 
years. If we are to try to create and invest in a company that 
is going to pursue Alzheimer's therapeutics, given that type of 
scale of time and money that is required, we need to have 
confidence that if we get to some early stage of proof of 
concept in the clinic that a future partner, be that a 
pharmaceutical company or be that public market investors, will 
believe or be willing to take on the risk from there, we need 
to be able to hand the ball off to the next stage in the 
ecosystem for it to have been a viable place to put our money 
in the beginning. If for the next step in the ecosystem they 
literally are spending billions of dollars and an indefinite 
period of time, then they will say you have created that 
innovation but there is no protection left for that product and 
therefore even if we show that proof of concept, they will say 
but that has no value to us. That is a fundamental impediment 
to us investing in companies in the area.
    Mr. Bilirakis. Thank you. Mr. Carusi, please.
    Mr. Carusi. Yes, I think it comes back to time, and so I 
want to give an example. In my portfolio of companies, we have 
a company GI Dynamics, and GI Dynamics is developing a device-
based approach to treat type 2 diabetes and obesity, two of the 
biggest chronic-disease issues we have in this country. We 
first started that company in 2004. It is now 2014. We are 
still in the midst of running our clinical trial for FDA 
approval and we are starting to commercialize the product 
outside of the United States. If you had asked me today, oK, 
you know, 10 years back, would you invest in this company 
knowing you weren't going to have approval until 2015, 2016, I 
wouldn't have made the investment despite the fact that what 
they are doing is tremendously valuable. So it comes back to 
the incentives and whether or not if it is going to take this 
much time and this much money that again we can make a 
reasonable return on that investment, and to me, it is a math 
problem and that is what this comes down to, and I do think 
there are certain areas, and I think they are in the chronic-
disease field, where there are big studies a lot of times huge 
potential but we are going to need help, and I think that is 
what we are asking for.
    Mr. Bilirakis. Very good. Thank you.
    Can anybody on the panel give me a rundown on Parkinson's 
disease, if there are any promising therapies, breakthroughs, 
maybe delaying the onset of Parkinson's disease? Is there 
anybody on the panel that would like to discuss that?
    Dr. Gandy. The Parkinson's disease field is now following 
in the template of the Alzheimer's field in terms of generating 
these networks that are nationwide looking for biomarkers. I 
think that they have the advantage of having a little more in 
terms of impact using transmitter replacement and manipulation 
than has happened with Alzheimer's, so there are some new 
medications there targeting some new receptors for symptomatic 
relief, but they haven't yet changed the progression of the 
disease, and that is really what the key is, to slow the 
progression.
    Mr. Bilirakis. Anyone else?
    Dr. Ledley. A lot of good work on gene therapy. This came 
up earlier, but this is one that is a challenging target but 
clearly a feasible and difficult one, but a lot of good work. 
Some of the companies that have raised money lately are doing 
it aimed at Parkinson's.
    Mr. Bilirakis. Very good. Thank you.
    Thank you, Mr. Chairman. I appreciate it. I yield back.
    Mr. Pitts. The chair thanks the gentleman. I hate to cut 
this off, but this has been the best interaction we have had 
with members and witnesses, and frankly, this has been one of 
the most informative, helpful, exciting hearings that we have 
had. So I want to thank each of the witnesses for your 
testimony. We have a UC request?
    Mr. Pallone. Thank you, Mr. Chairman.
    Let me echo what you said about the hearing and the value 
of it. I totally agree.
    I just would ask unanimous consent to enter into the record 
the statement of Ann Boynton, Deputy Executive Officer for the 
California Public Employees Retirement System.
    [The information appears at the conclusion of the hearing.]
    Mr. Pitts. Without objection, so ordered.
    There will be follow-up questions. We have members at other 
hearings on the floor. Dr. Burgess is having to manage time on 
the floor. We have follow-up questions. We will submit those to 
you in writing. We ask that you please respond promptly. I 
remind members that they should submit their questions by the 
close of business on Wednesday, June 25th.
    Again, thank you so much, a very good hearing. Without 
objection, the subcommittee is adjourned.
    [Whereupon, at 12:38 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
    
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