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AIDS Drugs & the Pharmaceutical Industry: A Need For Reform

Published online by Cambridge University Press:  24 February 2021

Mary T. Griffin
Mary T. Griffin*
Affiliation:
1985, Temple University School of Law; 1991, George Washington University Law Center; Food and Drug Law Institute Fellow
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Abstract

The pharmaceutical industry has long enjoyed substantial profits despite increased requirements for drug approval and various attempts to regulate the industry. Drug companies have avoided effective regulation by blaming high prices on the costs of research and development. The search for drugs effective in combatting HIV and AIDS related illnesses has provided a stark background on which to view the actions and justifications of drug companies. Despite increased cooperation between government and the drug industry and expedited approval of several useful drugs, these drugs are still prohibitively expensive. This Article explores the history and economics of the drug industry and proposes a system of national price regulation for all drugs.

Type
Articles
Information
American Journal of Law & Medicine , Volume 17 , Issue 4 , 1991 , pp. 363 - 410
Copyright
Copyright © American Society of Law, Medicine and Ethics and Boston University 1991

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Footnotes

*

This Article is adapted from a thesis done in partial satisfaction of an L.L.M. from George Washington University Law Center. The author wishes to thank Teresa Schwartz for her support and guidance with this Article.

References

1 Drugs are currently used to treat people who are HIV-positive but display no symptoms of the opportunistic infections which signify AIDS, as well as those who are experiencing “full blown” AIDS. Anti-viral drugs, such as AZT and ddl are used by people who are HIV-positive to attack the virus and delay the onset pf symptoms. Other drugs, such as Pentamidine, are used to treat the various infections which people with AIDS experience. This Article deals with all drugs which are used in various ways to combat HIV and the diseases that it causes. For the sake of clarity, all such drugs are here referred to as “AIDS drugs.” The reader is reminded that many people who are presently asymptomatic but HIV-positive receive these drugs.

2 Skyrocketing Prescription Drug Prices: Hearings Before the Senate Special Coram, on Aging, 101st Cong., 1st Sess. 9 (1989) [hereinafter Hearings on Skyrocketing Prices] (statement of G. Adrianssens, Belgian Consumers Ass'n).

3 UNITED STATES BUREAU OF CONSUMER PROTECTION, DRUG PRODUCT SELECTION 15 (1979) [hereinafter DRUG PRODUCT SELECTION].

4 See H. REDWOOD, THE PHARMACEUTICAL INDUSTRY: TRENDS, PROBLEMS AND ACHIEVEMENTS 37-40 (1987).

5 M. SILVERMAN & P. LEE, PILLS PROFITS & POLITICS 4 (1974).

6 Id.; H. REDWOOD, supra note 4, at 33. The intensified research efforts, and the discovery in 1937 that sulfonamide was the active ingredient in Prontosil, led to the discovery of many more sulpha drugs and to the development of industrial research laboratories to accommodate the research. Id. Prior to the development of these laboratories, much research had taken place in small laboratories and pharmacies, and by doctors experimenting with drugs to develop treatments for patients. H. DOWLING, MEDICINES FOR MAN: THE DEVELOPMENT, REGULATION, AND USE OF PRESCRIPTION DRUGS 24-25 (1970).

7 H. REDWOOD, supra note 4, at 40.

8 Id. at 45, 47. The term “leading drug” refers to the level of sales volume obtained on the particular drug and may vary depending upon the source.

9 Id. at 46.

10 M. SILVERMAN & P. LEE, supra note 5, at 328 table 2 (1974); UNITED STATES DEP't OF HEALTH EDUC. & WELFARE TASK FORCE ON PRESCRIPTION DRUGS, THE DRUG MAKERS AND DRUG DISTRIBUTORS 45-47 (1968) [hereinafter HEW TASK FORCE, THE DRUG MAKERS].

11 Lasagna, 1938-1968: The FDA, the Drug Industry, the Medical Profession, and the Public, in SAFEGUARDING THE PUBLIC: HISTORICAL ASPECTS OF MEDICINAL DRUG CONTROL 171 (J. Blake ed. 1970) [hereinafter SAFEGUARDING THE PUBLIC].

12 D. SCHWARTZMAN, THE EXPECTED RETURN FROM PHARMACEUTICAL RESEARCH 42-46 (1975).

13 PHARMACEUTICAL MFR. ASS'N, PRESCRIPTION DRUG INDUSTRY FACT BOOK 39 (1986) [hereinafter PMA FACT BOOK].

14 Id. at 40.

15 STATMAN, M., COMPETITION IN THE PHARMACEUTICAL INDUSTRY: THE DECLINING PROFITABILITY OF DRUG INNOVATIONS 28 (1983).Google Scholar

16 PMA FACT BOOK, supra note 13, at 63. Brand or trade name products are typically single-source or patented drugs developed by R & D intensive pharmaceutical companies. Brand name products are often referred to as “pioneer” drugs to distinguish them from generic (copied) drugs. Generic drugs are multi-source products marketed under the generic or abbreviated universal name developed for the drug, and are either copies of previously patented products or drugs which have never been the subject of patents. See, e.g., Generic Drugs: Still Safe?, CONSUMER REPORTS, May 1990, at 310-13. Prior to the proliferation of brand and trade name drugs in the 1940s, the majority of prescriptions were written generically and were pharmacy-filled, as opposed to factory-filled products. H. REDWOOD, supra note 4, at 11. For a discussion of the generics market in relation to the brand name market, see infra text accompanying notes 252-256.

17 M. SILVERMAN & P. LEE, supra note 5, at 335 table 8.

18 Id. at 110-12.

19 Id. at 111-14. Beginning in the late 1950s, the Senate Committee on the Judiciary, Subcommittee on Antitrust and Monopoly, began a series of hearings on administered prices in specific industries. Senator Estes Kefauver, Chair of the Subcommittee, held extensive hearings to examine pricing practices of the pharmaceutical industry in the early 1960s. The hearings culminated in the passage of the Kefauver-Harris amendments to the Federal Food, Drug and Cosmetic Act of 1938. See infra text accompanying notes 78-92. See also ADMINISTERED PRICES: DRUGS, REPORT OF THE SENATE COMM. ON THE JUDICIARY, BY ITS SUBCOMM. ON ANTITRUST AND MONOPOLY, PURSUANT TO S. RES. 52, S. REP. 448, 87TH CONG., 1ST. SESS. 155- 222 (1961).

20 UNITED STATES DEP't OF COMMERCE, COMPETITIVE ASSESSMENT OF THE U.S. PHARMACEUTICAL INDUSTRY 12 (1984) [hereinafter COMPETITIVE ASSESSMENT].

21 STANDARD AND POOR's INDUSTRY SURVEY, HEALTH CARE, H 18-19 (1989) [hereinafter STANDARD AND POOR'S].

22 Industry Will Invest $8.2 Billion to Discover, Develop New Medicines, in PHARMACEUTICAL MFR. ASS'N, NEW DRUG APPROVALS IN 1989 8 (1990) [hereinafter PMA, 1989 NEW DRUG APPROVALS].

23 Id.

24 UNITED STATES DEP't OF COMMERCE, BUREAU OF THE CENSUS, QUARTERLY FINANCIAL REPORT FOR MANUFACTURING, MINING AND TRADE CORPORATIONS, at XXIV table B & XXVI table D (2d Quarter 1988). The percentages are based on the last two quarters of 1987 and the first two quarters of 1988. PMA, 1989 NEW DRUG APPROVALS, supra note 22. Figures based on PMA members’ sales. STANDARD AND POOR'S, supra note 21, at H 17 (based on 1987 figures). Freudenheim, Price Revolt Spreading on Prescription Drugs, N.Y. Times, Nov. 14, 1989, at Dl, col. 4 (citing United States Department of Labor statistics); Interview with Christopher Jennings, Deputy Staff Director of the Senate Select Committee on Aging, Sept. 22, 1990 (citing to Consumer Price Index figures on prescription drugs provided by the Bureau of Labor Statistics, United States Department of Labor for the years 1980-1990) [hereinafter Interview with Christopher Jennings].

25 S. WIGGINS, THE PHARMACEUTICAL INDUSTRY 5-6 (1985).

26 Id. at 9.

27 M. STATMAN, supra note 15, at 54. Figures used in this Article may be based on those which relate to member firms of the PMA or to the pharmaceutical industry as a whole. Since the PMA members develop more than 95% of drugs, however, figures will be used interchangeably.

28 See M. SILVERMAN & P. LEE, supra note 5, at 110.

29 See, e.g., DRUG PRODUCT SELECTION, supra note 3, at 5-6.

30 See S. WIGGINS, supra note 25, at 9-12.

31 Id. at 10. Based on numbers of prescriptions physicians write each year and the type of drugs prescribed, Wiggins found that doctors who write 500-1,000 new prescriptions each year, those who write 2,000 new prescriptions each year, and those who write 3,500 new prescriptions each year prescribe each drug an average of 10-11 times per year. Id. Wiggins concluded that these numbers indicate a lack of experience with particular drugs on the part of the physicians. Id. at 11.

32 H. DOWLING, supra note 6, at 105.

33 See, e.g., H. REDWOOD, supra note 4, at 46. See generally HEW TASK FORCE, THE DRUG MAKERS, supra note 10, at 37-44 (discussing the role of patents and trademarks on competition in the pharmaceutical industry).

34 M. STATMAN, supra note 15, at 1.

35 Not everyone agrees as to the extent -of improvement in health care realized by the drug revolution. Many risks and health problems, i.e., adverse reactions and side effects, are associated with drug therapy. In addition, while drugs often manage diseases and symptoms, they do not always provide cures. For a discussion of the risks and benefits associated with the widespread introduction of drugs into our society, see M. SILVERMAN & P. LEE, supra note 5, at 1-23.

36 H. REDWOOD, supra note 4, at 46. The antibiotics market, one of the largest therapeutic markets, experiences the greatest price competition and has the lowest percentage of patent protected products. HEW TASK FORCE, THE DRUG MAKERS, supra note 10, at 39.

37 P. BROOKE, RESISTANT PRICES: A STUDY OF COMPETITIVE STRAINS IN THE ANTIBIOTICS MARKET 19 (1975).

38 HEW TASK FORCE, THE DRUG MAKERS, supra note 10, at 33.

39 Id. See S. WIGGINS, supra note 25, at 14.

40 HEW TASK FORCE, THE DRUG MAKERS, supra note 10, at 33; P. BROOKE, supra note 37, at 17.

41 For a discussion on AIDS drug pricing, see infra text accompanying notes 194-202.

42 See HEW TASK FORCE, THE DRUG MAKERS, supra note 10, at 33-34. Clinical factors include the size and characteristics of the population which will take the drug; whether there will be short or long term use; quantity of drug to be ingested; and frequency of use. Id. at 33.

43 See id. at 33-35. See, e.g., M. STATMAN, supra note 15, at 22-25 (nine year average introduction stage before plateau is reached). The annual rate of growth in sales revenue for NCEs during the period of introduction was determined by the author to be 11.5% for those drugs introduced between 1940 and 1974. Id. at 23.

44 HEW TASK FORCE, THE DRUG MAKERS, supra note 10, at 35-36.

45 See, e.g., Statman, The Effect of Patent Expiration on the Market Position of Drugs, in DRUGS AND HEALTH: ECONOMIC ISSUES AND POLICY OBJECTIVES 145 (R. Helms ed. 1981) (over 50% of drugs under study experienced price increases at time of or after patent expiration).

46 35 U.S.C. § 154 (1988).

47 See Wheaton, Generic Competition and Pharmaceutical Innovation: The Drug Price Competition and Patent Term Restoration Act of 1984, 35 CATH. U.L. REV. 433, 451 (1986).

48 Id. at 451.

49 Drug Price Competition and Patent Term Restoration Act, Pub. L. No. 98-417, 98 Stat. 1585 (1984) (codified as amended at 21 U.S.C. § 321 (1984)). For an account of the genesis of the PTRA and its predicted effects on competition and pharmaceutical innovation, see generally Wheaton, supra note 47.

50 Wheaton, supra note 47, at 454-55.

51 Id. at 455.

52 See, e.g., Statman, supra note 45 at 145, 149.

53 See, e.g., M. SILVERMAN & P. LEE, supra note 5, at 171-83.

54 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY, 1972: A SUMMARY AND ANALYSIS AND DISCUSSION OF ISSUES ON HEARINGS BEFORE THE SENATE SUBCOMM. ON MONOPOLY, SELECT COMM. ON SMALL BUSINESS DURING THE NINETIETH AND NINETY-FIRST CONGRESSES, 92ND CONG., 2D SESS. 17 (Comm. Print 1972) [hereinafter SUMMARY AND ANALYSIS OF HEARINGS].

55 UNITED STATES DEP't OF HEALTH, EDUC. & WELFARE TASK FORCE ON PRESCRIPTION DRUGS, FINAL REPORT 11 (1969) [hereinafter HEW TASK FORCE, FINAL REPORT]. See also M. SILVERMAN & P. LEE, supra note 5, at 174.

56 See, e.g., STAFF OF SENATE SPECIAL COMM. ON AGING, PRESCRIPTION DRUG PRICES: ARE WE GETTING OUR MONEY's WORTH?, 101ST CONG., 2D SESS. 31 app. I (Comm. Print 1989) (examples in table) [hereinafter ARE WE GETTING OUR MONEY's WORTH?]; SUMMARY AND ANALYSIS OF HEARINGS, supra note 54, at 15 (prices charged retail and institutional markets often vary by as much as several thousand percent); Williams, More Firms Give Medicaid Breaks on Drugs, L.A. Times, Sept. 17, 1990, at Dl, col. 5 (review of prices of 8 drugs reveals price differentials of 14%-35?S> between average wholesale price and prices charged to hospitals).

57 See Leffler, Persuasion or Information? The Economics of Prescription Drug Advertising, 24 J.L. & ECON. 45, 52-64 (1981) (examination of drug advertising to determine effects on physicians and market, concluding that getting the drug to the doctor through promotion provides information to doctors and promotes “brand name recall” or “habit formation” in prescribing practice and is worth the cost).

58 See, e.g., UNITED STATES DEP't OF COMMERCE, UNITED STATES INDUSTRIAL OUTLOOK — 1991 (DRUGS) 45-3,4 (1991) (generics accounted for 30% of the value of all prescriptions dispensed in 1989).

59 See, e.g., MEDICAL ECON CO., DRUG TOPICS’ RED BOOK 109-752 (1989) (yearly list of AWPs and retail and direct prices, where provided).

60 See, e.g., HEW TASK FORCE, THE DRUG MAKERS, supra note 10, at 32-33 (statement of drug industry employee commenting on drug industry's elaborate “selling plans“).

61 See, e.g., ARE WE GETTING OUR MONEY's WORTH?, supra note 56, at 12 (independent retail pharmacists typically receive 13% discounts); Conlan, AWP Prices for Medicaid Plans Comes Under New Attack, DRUG TOPICS, Dec. 11, 1989, at 48 (citing 15.5% below AWP discount figure).

62 ARE WE GETTING OUR MONEY's WORTH?, supra note 56, at 12.

63 Federal Food, Drug and Cosmetic Act of 1938, ch. 675, 52 Stat. 1040 (1938) (codified as amended at 21 U.S.C. §§ 301-392 (1988)).

64 Kefauver-Harris Amendments to the Federal Food, Drug and Cosmetic Act, Pub. L. No. 87-781, 76 Stat. 780 (1962) (codified as amended at 21 U.S.C. §§ 321, 331, 332, 348, 351- 353, 355, 357-360, 372, 374, 376, 381 (1988)).

65 See, e.g., PMA FACT BOOK, supra note 13, at 42 (noting observers’ conclusions that decline in innovation was the result of cost of drug amendments).

66 See infra text accompanying notes 95-113.

67 Young, Drugs and the 1906 Law [hereinafter Young, Drugs and the Law], in SAFEGUARDING THE PUBLIC, supra note 11, at 147-57. Between 1871 and 1905, approximately 200 bills addressing food and drug adulteration were introduced. M. SILVERMAN & P. LEE, supra note 5, at 83.

68 Federal Pure Food and Drugs Act of 1906, Pub. L. No. 384, ch. 3915, § 8, 34 Stat 768, 771 (1906).

69 See H. GRABOWSKI, DRUG REGULATION AND INNOVATION: EMPIRICAL EVIDENCE AND POLICY OPTIONS 12-14 (1976). There was no distinction made between prescription and proprietary, or over-the-counter, drugs for purposes of labeling requirements under the 1906 Act. Id. at 12 n.2.

70 The Sherley Amendment, ch. 352, 37 Stat. 416 (1912). The Sherley Amendment of 1912 banned false and misleading therapeutic claims made by patent or proprietary brand or trade name medicines directly to the public medicine manufacturers, i.e., manufacturers who sell. The amendment was passed in response to Johnson v. United States, 221 U.S. 488 (1911), in which the Supreme Court agreed with the drug manufacturers that the prohibition in the 1906 Act against false and misleading statements did not apply to therapeutic claims.

71 Young, Social History of American Drug Legislation, in DRUGS IN OUR SOCIETY 217, at 154- 55 (P. Talalay ed. 1964). See also J. YOUNG, THE MEDICAL MESSIAHS: A SOCIAL HISTORY OF HEALTH QUACKERY IN TWENTIETH CENTURY AMERICA 98-103 (1967) [hereinafter J. YOUNG, MESSIAHS].

72 Young, Drugs and the Law, supra note 67, at 154.

73 See J. YOUNG, MESSIAHS, supra note 71, at 101-04.

74 Federal Food, Drug and Cosmetic Act, ch. 675, 52 Stat. 1040 (1938) (codified as amended at 21 U.S.C. §§ 301-392 (1988)).

75 M. SILVERMAN & P. LEE, supra note 5, at 87.

76 Federal Food, Drug and Cosmetic Act, ch. 675, § 505, 52 Stat, at 1052-53 (1938).

77 Id.

78 See M. SILVERMAN & P. LEE, supra note 5, at 112-14.

79 See H. DOWLING, supra note 6, at 200-02.

80 The Kefauver-Harris Amendments, Pub. L. No. 87-781, 76 Stat. 780 (1962) (codified as amended at 21 U.S.C. §§ 321, 331, 332, 351-353, 355, 357-360, 372, 374, 376, 381 (1988)).

81 21 U.S.C. § 355(a).

82 Id. at § 355(d).

83 Id. at § 355(e)(1).

84 S. PELTZMAN, REGULATION OF PHARMACEUTICAL INNOVATION: THE 1962 AMENDMENTS 9 (1974) (discussing effects of 1962 amendments on R & D and on the drug development process).

85 21 U.S.C. §355(i).

86 Id. at § 360.

87 21 C.F.R. § 312.23 (1990); Gordon, The Drug Development and Approval Process, in PHARMACEUTICAL MFR. ASS'N, NEW MEDICINES IN REVIEW 5 (1990).

88 21 C.F.R. § 312.21(a)-(c) (1990); Gordon, supra note 87. Ember, FDA Presses to Speed Life-Saving Drugs to Marketplace, CHEMICAL & ENGINEERING NEWS, Sept. 25, 1989, at 10.

89 21 C.F.R. § 312.21(c) (1990); Ember, supra note 88. Under 21 C.F.R. § 312.42 (1990), the FDA has the authority to place a clinical hold on the clinical trial process halting the studies until the problems are resolved.

90 21 C.F.R. § 312.21(a)-(c) (1990); Gordon, supra note 87; Ember, supra note 88.

91 See generally 21 C.F.R. Part 314 (1990).

92 See 21 C.F.R. § 314.100-314.170 (1990).

93 See, e.g., Jackson, Unpublished Study Pegs Cost of New Drug at $231 Million, THE SCIENTIST, June 25, 1990, at 5 (unpublished study conducted by Tufts University Center for the Study of Drug Development concluded that it now takes 12 years to bring a drug to market).

94 OFFICE OF THE SECRETARY OF HEALTH, STATUS OF PRODUCTS FOR THE TREATMENT OF AIDS AND AIDS-RELATED DISEASES 3-08 (draft) (March 5, 1990) [hereinafter STATUS OF AIDS DRUGS],

95 See Ember, supra note 88, at 9-10.

96 Id. at 11. Cancer drugs have received highest priority status as well under the “1C” designation. Id. Many have gone through the FDA approval process in one year or less. Id.

97 Phase III trials involve a sample of 1,000 to 3,000 people afflicted with the specified disease. These trials are designed to obtain further information about the safety and effectiveness of the drug in order to assess the risks and benefits associated with the use of the drug. 21 C.F.R. § 312.21(c); Gordon, supra note 87.

98 Gordon, supra note 87.

99 21 C.F.R. § 312.82 (1990). The process involving early consultation was referred to as the “Bush Initiative” after the then vice-president who chaired the President's Task Force on Regulatory Reform, which was involved in these regulations. Ember, supra note 88, at 11. Prior to the AZT review process and the passage of these regulations, drug manufacturers typically did not meet with FDA reviewing officials until the end of Phase II trials. Phase II trials involve 200 to 300 people afflicted with the specified disease, and are “conducted to evaluate the effectiveness of the drug for a particular indication or indications in people with the disease or condition under study” and to determine side effects and risks associated with ingestion of the drug. 21 C.F.R. § 312.21(b).

100 21 C.F.R. §312.83 (1991).

101 Id.

102 Id. at §312.85 (1991).

103 Id. at §312.84 (1990).

104 Id. at § 312.34(a) (1991).

105 Ember, supra note 88, at 11. The drug manufacturer cannot receive profits from sales to people in the Treatment IND program. Id.

106 Id. at 12 (quoting Robert J. Temple, Director of FDA's Office of Drug Evaluation I).

107 Public Health Service, Expanded Availability of INDs through Parallel Track Mechanism for People with AIDS, Proposed Policy Statement, 55 Fed. Reg. 20,856 (1990).

108 Id.

109 See Ember, supra note 88, at 9-13; STATUS OF AIDS DRUGS, supra note 94, at 3-09. Phase I trials are conducted on a relatively small group of approximately 20-80 people with AIDS or other diseases, or on healthy volunteers. These trials are designed to ascertain the safety of the drug by determining the metabolism and pharmacologic actions of the drug and any side effects associated with increased dosage. 21 C.F.R. § 312.21(a) (1990); Ember, supra note 88, at 10.

110 55 Fed. Reg. 20,858-20,859.

111 Id. at 20,858.

112 Id. at 20,859.

113 Id. at 20,802 (1990) (to be codified at 21 C.F.R. pt. 312) (proposed May 21, 1990).

114 See generally H. GRABOWSKI, supra note 69, at 17-25 (discussing the various courses associated with the decline in innovation).

115 See Jackson, supra note 93, at 5.

116 PMA FACT BOOK, supra note 13, at 40.

117 M. STATMAN, supra note 15, at 28.

118 Id.

119 Id. at 29.

120 Id. at 71 (for the years 1967-1975, for drugs introduced in 1951).

121 HEW TASK FORCE, THE DRUG MAKERS, supra note 10, at 15.

122 Id. at 15. The Task Force pointed out that certain patents developed with the assistance or financing of federal monies revert to the federal government. Id.

123 PMA FACT BOOK, supra note 13, at 38 (figures relate to PMA member corporations).

124 M. STATMAN, supra note 15, at 28.

125 Id.

126 Id. The cost of developing a drug in 1960 was $5 million; in 1970, the cost was $48 million. Id.

127 P. BROOKE, supra note 37, at 22.

128 Id.

129 Council on Economic Priorities, In Whose Hands? Safety, Efficacy, and Research Productivity in the Pharmaceutical Industry, in 4 ECON. PRIORITIES REP. 48 table 10 (Aug./Nov. 1973).

130 H. DOWLING, supra note 6, at 36.

131 Id.

132 For a discussion on the development of drugs for the treatment of AIDS, see infra text accompanying notes 151-193.

133 See Haigler, Reduced Dosage Cuts Cost of AIDS Drug, N.Y. Times, Sept. 16, 1989, at A26 (Letters), col. 3 ; Mitsuya, Credit Government Scientists With Developing Anti-AIDS Drug, N.Y. Times, Sept. 28, 1989, at A26 (Letters), col. 3 (responding to Haigler letter, providing a chronology of AZT's development and pointing out the essential role of government scientists in developing the drug).

134 See generally Competitive Problems in the Drug Industry, Hearings Before the Senate Subcomm. on Monopoly of the Select Comm. on Small Business, Parts 1-23 (1968-1973).

135 SUMMARY AND ANALYSIS OF HEARINGS, supra note 54, at 26.

136 See id. at 27-31.

137 See, e.g., PMA, 1989 N EW DRUG APPROVALS, supra note 22 (R & D investment chart); Grabowski, An Analysis of US International Competitiveness in Pharmaceuticals, MANAGERIAL & DECISION ECON. (Special Issue) 27, 2 8 (1989).

138 PMA , 1989 NEW DRUG APPROVALS, supra note 22.

139 ARE WE GETTING OUR MONEY's WORTH?, supra note 56, at 7.

140 H. REDWOOD, supra note 4, a t 194.

141 Jackson, supra note 93, at 5.

142 The $125 million figure has been cited often since it was first reported through a study in 1986 conducted for PMA. See, e.g., Gordon, supra note 87.

143 Interview with Christopher Jennings, supra note 24.

144 See, e.g., Health and the Environment — Part 2: Hearings on H.R. 1663 Before the Subcomm. on Health and the Environment, House Comm. on Energy and Commerce, 97th Cong., 1st Sess. 83-84 (1981) (prepared statement of Lewis Engman, President of PMA, in which he discusses the effects of regulatory burdens on the costs of R & D).

145 Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98- 417, 98 Stat. 1585 (1984) (codified as amended at 15 U.S.C. §§ 68b, 68c, 70b (1988); 21 U.S.C. §§ 301, 360cc (1988); 28 U.S.C. § 2201 (1988); 35 U.S.C. §§ 156, 271, 282 (1988)). Next to Sweden, which has a 28 month drug approval period, the United States has the longest drug approval process, at 23 months. COMPETITIVE ASSESSMENT, supra note 20, at 48.

146 26 U.S.C. § 41 (1988). See also ARE WE GETTING OUR MONEY's WORTH?, supra note 56, at 8.

147 The Orphan Drug Act, Pub. L. No. 97-414, 96 Stat. 2049 (1983) (codified as amended at 21 U.S.C. §§ 360aa-360ee (1988)).

148 See, e.g., Goozner, Tax Laws Taking Jobs, Workers Claim, Chicago Tribune, Sept. 27, 1990, § 2, at 1 (large pharmaceutical plant in Illinois to be closed to shift production to facilities in Puerto Rico built three years ago to take advantage of tax benefits); see also Pharmaceutical Mfr. Ass'n, Information Packet Accompanying Slide Presentation 26 (1989) (lists Puerto Rico's political status among the 12 issues pending for the industry).

149 See, e.g., Wolpert, Pharmaceutical Capital of the World, GLOBAL TRADE, July 1988, at 38. Lyphomed, for example, the manufacturer of one of the leading AIDS-related drugs, Pentamidine, recently set up manufacturing facilities in the Virgin Islands to take advantage of the tax breaks. LYPHOMED, INC., ANNUAL REPORT 1989 6-7 (1990) [hereinafter LYPHOMED 1989 REPORT] (damage caused by Hurricane Hugo limited 1989 tax benefits attributable to Puerto Rican operations). See also sources cited supra note 148.

150 See Miller, Productivity and Competition: A Look at the Pharmaceutical Industry, COLUM. J. WORLD BUS., Fall 1988, at 85-88 (pharmaceutical industry is one of the most competitive in the international market and needs to be given larger tax breaks for funds to promote innovation); Vagelos, R & D: Good Medicine for the World, ACROSS THE BOARD, May 1987, at 22, 27 (need for stronger national and international incentives).

151 PHARMACEUTICAL MFR. ASS'N, AIDS MEDICINES IN DEVELOPMENT, 1991 [hereinafter 1991 AIDS MEDICINES].

152 See generally Gallo, Salahuddin & Popovic, Frequent Detection and Isolation of Cytopathic Retroviruses (HTLV-III) From Patients With AIDS and at Risk for AIDS, 224 SCIENCE 500 (1984) (discussing AIDS-causing virus).

153 See Yarchoan & Broder, Development of Antiretroviral Therapy of the Acquired Immunodeficiency Syndrome and Related Disorders: A Progress Report, 316 NEW ENG. J. MED. 557, 558 (1987).

154 AIDS, Drugs, Need and Greed, N.Y. Times, Sept. 29, 1989, at A34, col. 1.

155 Id.

156 AIDS Issues (Part 1): Cost and Availability of AZT: Hearings Before the House Subcomm. on Health and the Environment, Comm. on Energy and Commerce, 100th Cong., 1st Sess. 31 (1987) (Statement of R. Windom) [hereinafter Hearings on AZT].

157 Id. at 33.

158 Id. at 31.

159 Id. at 7 (statement of T.E. Haigler).

160 Yarchoan & Broder, supra note 153, at 562.

161 Hearings on AZT, supra note 156, at 32 (statement of R.E. Windom).

162 Id. at 33.

163 Id. at 30.

164 Id. at 8 (statement of T. Haigler); Ember, supra note 88, at 11.

165 Dideoxyinosine (ddI) is manufactured by Bristol-Myers Squibb Co., under the trade name VIDEX. 1991 AIDS MEDICINES, supra note 151, at 2.

166 Marx, New AIDS Drug Passes First Clinical Test, 245 SCIENCE 353, 353 (1989).

167 Gladwell, Second AIDS Drug Given Conditional Approval, Wash. Post, Oct. 10, 1991, at A4, col. 1.

168 Id.

169 Id.

170 Hilts, More Eligible for AIDS Drugs, N.Y. Times, June 1, 1990, at B5, col. 4.

171 Id.

172 Id.

173 Stroud, Will New Drugs Help Tame the AIDS Virus?, Investor's Daily.June 27, 1990, at 1; Experimental AIDS Therapies, L.A. Times, June 25, 1990, at A21, col. 2.

174 Knox, Earlier Use of AZT Urged for Those With AIDS Virus, Boston Globe, June 22, 1990, at 57, col. 1.

175 See Stroud, supra note 173.

176 1991 AIDS MEDICINES, supra note 151, at 2.

177 Id. at 11.

178 See id. at 2.

179 Id. at 1.

180 Stroud, AIDS Spurs Novel Approach to Drug Trials, Investor's Daily, July 31, 1990, Health-Care Business Section, at 1. Currently, 45 cities are involved in the Network across the United States. AMERICAN FOUND, FOR AIDS RESEARCH (AMFAR), AIDS/HIV TREATMENT DIRECTORY 107-08 (Summer 1991).

181 Stroud, supra note 180.

182 Orphan Drug Act, Pub. L. No. 97-414, 96 Stat. 2049 (1983) (codified as amended at 21 U.S.C. §§ 360aa-360ee (1988)). For a comprehensive review of the Orphan Drug Act, see C. ASHBURY, ORPHAN DRUGS: MEDICAL VERSUS MARKET VALUE (1985).

183 21 U.S.C.A. § 360bb(a)(2) (West Supp. 1990).

184 See HOUSE REPORT ON ORPHAN DRUG AMENDMENTS OF 1990, H.R. REP. NO. 635, 101st Cong., 2d Sess. 3 (1990) [hereinafter HOUSE REPORT ON ORPHAN DRUG AMENDMENTS].

185 The Health Promotion and Disease Prevention Amendments of 1984, Pub. L. No. 98-551, § 4, 98 Stat. 2815, 2817, amended the act to define “rare disease or condition” as one that affects fewer than 200,000 persons. Prior to this amendment, the Act provided no numerical ceiling. This gap created difficulties for the agencies in determining which diseases were “rare.” The Orphan Drug Amendments of 1985, Pub. L. No. 99-91, § 2, 99 Stat. 387, 387 removed the provision that only nonpatentable drugs could be granted orphan status. The Orphan Drug Amendments of 1988, Pub. L. No. 100-290, § 2(a), 102 Stat. 90, 90, established the time period for filing a request for orphan designation.

186 See HOUSE REPORT ON ORPHAN DRUG AMENDMENTS, supra note 184, at 2-3.

187 21 U.S.C. § 360cc(a). PMA President Gerald Mossinghoff has called the exclusivity provision “by far t h e most important incentive offered by t h e O r p h a n Drug Act.” BIOTECHNOLOGY NEWSWATCH, May 7, 1990, at 4.

188 26 U.S.C. § 2 8 (1988).

189 See OFFICE OF ORPHAN PRODUCTS DEVELOPMENT, ORPHAN DESIGNATIONS THROUGH AUGUST 31, 1991 [hereinafter 1991 ORPHAN DESIGNATION].

190 See Letter from Marlene E. Haffner, M.D., Director of the Office of Orphan Products Development, to Jean F. McGuire and Jeffrey Levi, AIDS Action Council (Nov. 30, 1989) (stating in response to a previous letter, that there was no sound basis for discounting the designation of products for AIDS treatment as orphan products), reprinted in Orphan Drug Act: Hearings Before the Subcomm. on Health and the Environment of the House Comm. on Energy and Commerce, 101st Cong., 2d Sess. 52-54, (1990) (included in prepared statement by Jean F. McGuire) [hereinafter Hearings on Orphan Drug Act].

191 21 U.S.C. § 360bb(a)(2) (the determination of whether the drug is an orphan drug is made on the basis of facts and circumstances existing at the time of the request for designation).

192 Id. at § 360b(c)(2)(F)(i).

193 See HOUSE REPORT ON ORPHAN DRUG AMENDMENTS, supra note 184, at 2-3. The amendment, H.R. 4638, would have required the FDA to make projections three years into the future in determining the number of persons affected for purposes of the orphan drug designation ceiling of 200,000. Id. at 4. The amendment also mandates that orphan drug designation be taken away if the affected population exceeds 200,000. Id. The amendment further provides for limited competition to thwart the excessive profits reported on some orphan drugs by allowing for the marketing of simultaneously developed orphan drugs. Id. See also Gladwell, Drug Law Splits Biotech Firms, Wash. Post, Apr. 1, 1990 at HI, col. 1.

194 Hearings on AZT, supra note 156, at 13 (statement of David Barry, V.P. of Research, Burroughs-Wellcome).

195 Jackson, supra note 93, at 5.

196 Id.

197 Id.

198 Hearings on AZT, supra note 156, at 31 (statement of R. Windom).

199 Id. at 13 (statement of David Barry, V.P. of Research, Burroughs-Wellcome).

200 1991 ORPHAN DESIGNATIONS, supra note 189, at 22; Conlan, AIDS Advocates Move to Import Pentamidine for Lower Price, DRUG TOPICS, Oct. 16, 1989, at 92.

201 See infra text accompanying notes 220-230.

202 Siler, LyphoMed's Vital Signs are Stabilizing, BUSINESS WEEK, July 3, 1989, at 46.

203 Hearings on AZT, supra note 156, at 8 (statement of T.E. Haigler); Ember, supra note 88,

204 GENETIC TECH. NEWS, Mar. 1988, at 12.

205 AZT was designated as an orphan drug in July 1985. When the drug was approved for marketing in March 1987, exclusive marketing privileges were granted to B-W pursuant to 21 U.S.C. § 360cc(a). During the past year, two suits have been filed in relation to B-W's patents on AZT. The first suit, instituted by potential AZT users (represented by the Public Citizen Litigation Group), alleges that the B-W use patent is invalid because, among other reasons, BW failed to name certain government scientists as co-inventors. The government was also named a defendant. Due to issues involving standing, the suit may be dismissed. People With AIDS Health Group v. Burroughs Wellcome Co., HEALTH SPAN: THE REPORT OF HEALTH BUSINESS AND LAW,July/Aug. 1991 [hereinafter HEALTH SPAN], at 25 (D.D.C. Mar. 18, 1991).

The second law suit was initiated by B-W in response to a generic firm's entry into the AZT market. Despite B-W's patent, the generic drug manufacturer filed an application for a generic copy of AZT, alleging that B-W's patent is invalid. The generic firm also cited B-W's failure to list government scientists as co-inventors. The NIH issued a press statement supporting the generic firm's allegations and, in a highly visual action, granted a non-exclusive license to the firm to manufacture and market AZT. Burroughs Wellcome Co. v. Barr Laboratories, HEALTH SPAN, supra, at 25-26 (E.D.N.C. May 14, 1991).

206 WELLCOME PLC, ANNUAL REPORT 1989 13, 39 (1990) [hereinafter B-W ANNUAL REPORT] (calculated on the basis of 16 million pounds sterling at the dollar exchange rate of 1.55 as listed by B-W in the annual report).

207 See Weiss, Charges, Countercharges, and Confusion on AZT Prices, DRUG TOPICS, Sept. 7, 1987, at 92.

208 Cimons, Maker of Only AIDS Drug Cuts Price 20%, L.A. Times, Dec. 15, 1987, at 122, col. 1.

209 B-W ANNUAL REPORT, supra note 206, at 13, 39 (calculated on basis of 90 million pounds sterling at the dollar exchange rate of 1.76).

210 Id. at 39.

211 Id. (7.5 earnings per share in 1985; 15.1 earnings per share in 1988).

212 See Freudenheim, One Hope for AIDS Patients is Hostage to the Market, N.Y. Times, Sept. 3, 1989, at E5, col. 1 (citing estimate provided by analyst with Shearson, Lehman & Hutton).

213 See Taravella, AIDS Drug Brings Providers Challenge of Distribution, MODERN HEALTHCARE, Sept. 29, 1989, at 38-39 (referring to price reduction announced in previous week).

214 Id. Estimates of prices of the drug very from $2,800 to $6,500 for a one year supply. See, e.g., Knox, supra note 174 ($4,000 per year); Pollack, Orphan Drug Law Spurs Debate, N.Y. Times, April 30, 1990, at Dl, col. 3 ($6,500 per year).

215 Steinbrook, AIDS Conference Ends on Note of Confidence, L.A. Times, June 25, 1990, at Al, col. 2.

216 Oram & Marsh, Wellcome AIDS Drug Wins US Approval, Fin. Times, March 3, 1990, at 14 (an estimated 400,000-600,000 people with AIDS or HIV worldwide were using drug at time of expanded approval).

217 Cimons, AZT Cleared for Children's Use, First Such AIDS Drug, L.A. Times, May 4, 1990, at A4, col. 1.

218 WELLCOME PLC, INTERIM REPORT (1990) (chairman's statement).

219 B.W ANNUAL REPORT, supra note 206, at 13, 39 (using exchange rates listed, this figure was as of mid-1990).

220 See R. SHILTS, AND THE BAND PLAYED ON: POLITICS, PEOPLE AND THE AIDS EPIDEMIC 54 (1987).

221 Hearings on Orphan Drug Act, supra note 190, at 162-63 (statement of Brian Tambi, Lyphomed).

222 Leary, F.D.A. Approves Drug that Fights Leading Killer of AIDS Patients, N.Y. Times, June 16, 1989, at D16, col. 1.

223 Kolata, Criticized on AIDS Drug, Maker Will Give it to Some, N.Y. Times, Oct. 12, 1989, at A26, col. 6.

224 Id.

225 See LYPHOMED, INC., ANNUAL REPORT 1988 15 (1989) [hereinafter LYPHOMED ANNUAL REPORT].

226 Kolata, supra note 223, at A26, col. 5-6.

227 Siler, supra note 202, at 46.

228 LYPHOMED ANNUAL REPORT, supra note 225, at 16.

229 Id. See Siler, supra note 202, at 46.

230 LYPHOMED 1989 REPORT, supra note 149, at 6-7. Lyphomed reported a net income loss in 1989 of $18 million despite a substantial increase in gross profit and sale. Lyphomed provided a number of reasons for the loss, including the cost involved with a stock acquisition by Fujisawa. However, the company gave credit to Nebupent for enhancing its economic status. Id. at 6.

231 Mitsuya, supra note 133.

232 Marx, supra note 166, at 353; Yarchoan, In vivo Activity Against HIV and Favorable Toxicity Profile of 2'-3'-dideoxyinosine, 245 SCIENCE 412, 412 (1989).

233 Freudenheim, supra note 212.

234 The licensing agreement between the NIH and Bristol-Myers Squibb Co. for the manufacture and development of ddl contains a clause requiring that the drug be sold at a “reasonable price.” Chase, Burroughs Wellcome Reaps Profits, Outrage from its AIDS Drug, Wall St. J., Sept. 15, 1989, at Al, col. 1. The agreement was entered into pursuant to provisions of the Technology Transfer Act, which was enacted in 1986 to serve as an incentive for innovation. The Act provides for government employees to profit from their inventions and sets up a mechanism for transferring technology to the private sector while ensuring that the government retains ownership rights. Id.

235 See Spolar, Footing the Bill: The Politics Behind the Money, Wash. Post., June 19, 1990, at 29; Boodman, The Dilemma of AZT: Who Can Afford It?, Wash. Post, Aug. 8, 1989, at 26.

236 OFFICE OF THE SECRETARY OF HEALTH, AIDS — TOTAL FEDERAL GOVERNMENT SPENDING (Feb. 23, 1990) [hereinafter TOTAL FEDERAL SPENDING REPORT]; HEALTH CARE FINANCING ADMINISTRATION, ESTIMATED FEDERAL MEDICAID AND MEDICARE COSTS OF AIDS (Dec. 8, 1989) (includes impact of AZT).

237 TOTAL FEDERAL SPENDING REPORT, supra note 236.

238 See NAT'L GAY RIGHTS ADVOCATES, ACCESS TO AIDS-RELATED DRUGS UNDER MEDICAID: A FIFTY STATE ANALYSIS 8-11 (1989) (listing which drugs are covered by various state Medicaid programs); UNITED STATES CONG. RESEARCH SERVICE, MEDICAID SOURCE BOOK 485- 94 (1988), reprinted in AIDS: CASES AND MATERIALS 578, 578-79 (M. Closen, et al. eds. 1989). But see Weaver v. Reagen, 701 F. Supp. 717 (W.D. Mo. 1988) (Missouri Medicaid program's refusal to place AZT on drug list violates federal regulations), aff'd, 886 F.2d 194 (8th Cir. 1989).

239 Arno & Green, The Economics of AIDS, in THE AIDS KNOWLEDGE BASE 10.1.1-8-9 (P. Cohen, M. Sande & P. Volberding eds. 1990).

240 Id. at 10.1.1-5 (study revealing 54% of hospitalization costs for people with AIDS covered by Medicaid while only 17% covered by private insurance); Lambert, AIDS Insurance Coverage is Increasingly Hard to Get, N.Y. Times, Aug. 7, 1989, at Al, col. 1 (substantial number of people with AIDS are denied coverage through variety of mechanisms such as insurer's knowledge of HIV screening tests performed on insured).

241 See supra text accompanying notes 223-225.

242 See Fed. News Serv., Jan. 29, 1990 (Department of Health and Human Services briefing); States News Serv., Sept. 27, 1989.

243 Arno & Green, supra note 239, at 10.1.1 ($40,000-$60,000 to treat people with AIDS based on one year median survival period); Perlman, Scientists Optimistic at AIDS Conference, San Francisco Chronicle, June 25, 1990, at A8 (citing government study).

244 Kemper & Novack, The Great American Health-Care Sellout, Wash. Post, Oct. 13, 1991, at C4, col. 2.

245 UNITED STATES DEP't OF COMMERCE, U.S. INDUSTRIAL OUTLOOK 1991 44-1 (1991).

246 Id.

247 PMA, 1989 NEW DRUG APPROVALS, supra note 22; Freudenheim, supra note 22.

248 BUREAU OF THE CENSUS, STATISTICAL ABSTRACT OF THE UNITED STATES 1990 470 table 761 (1990) [hereinafter BUREAU OF CENSUS ABSTRACT] (between 1980 and 1987, the consumer price index rose for medical care by 55.2 and for drugs by 68.3).

249 M. SILVERMAN & P. LEE, supra note 5, at 113-16 (the PMA and the AMA fought against the inclusion of compulsory licensing in the 1962 amendments to the Federal Food, Drug and Cosmetic Act of 1938).

250 See id. at 87 (industry fought against compulsory licensing, arguing threat to industry innovation); Hudson, State Medicaid Officials Battle Drug Firms in War to Cut Costs, HOSPITALS, Apr. 5, 1990, at 30 (arguments against proposals to lower prices charged to Medicaid put forward by industry include a decrease in incentive to produce innovative new drugs).

251 See Health and the Environment — Part 2: Drug Patent Restoration: Hearings Before the Subcomm. on Health and the Environment of the House Comm. on Energy and Commerce, 97th Cong., 1st Sess. 350-52 (1981) (statement of Lewis Engman) (industry asserted that patent restoration legislation, by restoring patent time lost to lengthy approval process, would exert downward pressure on prices of drugs).

252 H. REDWOOD, supra note 4, at 156.

253 Before describing the generics market, it will be useful to explain the nomenclature. Drug products have three names: the brand or trade name; the generic name; and the chemical name. HEW TASK FORCE, THE DRUG MAKERS, supra note 10, at 8. The chemical name describes the chemical structure or makeup of the drug. Id. The generic name is a shorter, established name, often an abbreviated chemical name, which is universally recognizable. Id. The brand name, or trademark name, is the name that the manufacturer assigns to the drug and uses to distinguish it from competitors’ products. Id. A generic drug is one that can be interchanged with a brand name drug because it has the identical active ingredient. COMPETITIVE ASSESSMENT, supra note 20, at 11; INTERNATIONAL RESOURCE DEVELOPMENT INC., GENERIC DRUGS IN THE 1990s 46 (1988) [hereinafter GENERICS IN THE 1990s]. Generic may describe the interchangeable drug or the process of prescribing or dispensing interchangeable drugs. COMPETITIVE ASSESSMENT, supra note 20, at 11. Generic prescription drugs include drugs which have never been subject to a patent cover or are copies of products the patents on which have expired. H. REDWOOD, supra note 4, at 232. Generic drugs may be “branded,” marketed under product or house brand names, or “unbranded,” sold only by the generic name of the drug and with little promotion or advertising. COMPETITIVE ASSESSMENT, supra note 20, at 12.

254 H. REDWOOD, supra note 4, at 231-32. Some European countries do not allow substitution of generics. Id. at 233.

255 See id. at 230-32.

256 Id. at 231-32; GENERICS IN THE 1990S, supra note 253, at 13.

257 MAJORITY STAFF OF SENATE SPECIAL COMM. ON AGING, 101ST CONG., 2D SESS., SKYROCKETING PRESCRIPTION DRUG PRICES: TURNING A BAD DEAL INTO A FAIR DEAL 28 (Comm. Print 1990) [hereinafter DRUG PRICES]; Perrin, Formularies and Pharmacy: The Uneasy Bond, DRUG TOPICS, July 3, 1989, at 32, 34.

258 See DRUG PRICES, supra note 257, at 11-14; Hudson, supra note 250, at 30-34; Shroeder, Congress Looks to Pharmacists for Clues on Drug Buying, DRUG TOPICS, Dec. 11, 1989, at 47-48; Freundenheim, Cutting the Cost of Medicaid Drugs, N.Y. Times, Jan. 30, 1990, at D2, col. 1.

259 See, e.g., Hearings Before the Subcomm. on the Health of Families and the Uninsured of the Senate Comm. on Finance, 102nd Cong., 1st Sess. 6 (1990) [hereinafter Finance Hearings] (statement of Gail Wilensky, Administrator of Health Care Financing Administration) (citing study by Systemetrics/ McGraw-Hill on California's Medi-Cal program which revealed a 15% increase per year since 1984 despite restrictive formula); Kreling, Knocke & Hammel, The Effects of an Internal Analgesic Formulary Restriction on Medicaid Drug Expenditures in Wisconsin, 27 MED. CARE 34, 39-43 (1989).

260 In 1976, the Department of Health and Human Services (DHHS) instituted a Maximum Allowable Cost/Estimated Acquisition Cost (MAC/EAC) system for all its health care programs. Under MAC, payments for high volume multisource drugs are limited to the lowest prices at which they are available. The DHHS Reimbursement Board was created to set the limit for a particular drug at the lowest unit price at which the drug is widely and consistently available. The MAC price becomes the basis upon which the level of reimbursement is determined.

The EAC program is state directed, requiring states to establish EAC limits for all drugs “ supplied under the Medicaid program. The states estimate the prices that pharmacies pay for drugs and may use various methods to determine these prices, as long as they reflect the actual prices paid. The EAC limit, like the MAC limit, becomes the basis upon which reimbursement amounts are calculated. Prescription Drug Price Increases: Hearings Before the House Subcomm. on Health and the Environment of the House Comm. on Energy and Commerce, 99th Cong., 1st Sess. 330-37 (1986) [hereinafter Hearings on Price Increases] (statement of Robert Helms, Acting Assistant Secretary for Planning and Evaluation, HHS). The MAC program saved the federal government $10 million in 1985, id. at 334, but the program later was abandoned due to a number of drawbacks in the administration of the program and to the time-consuming nature of the notice and comment rulemaking procedure which was required to set or change MAC. limits. See id. at 341-43.

A number of options to the MAC system were proposed, but in 1987 the DHHS decided to leave reimbursement decisions in the hands of the states. See Robinson, New Medicaid Drug Rules: Reform or Retreat?, DRUG TOPICS, Sept. 7, 1987, at 54-55. The Health Care Financing Association issued general guidelines, however, for determining the “aggregate limits” on drug costs which were based on 150% of the lowest average wholesale prices. Id. at 54.

261 Bulk purchasing simply refers to the practice of buying in large quantities to obtain discounts on particular high volume drugs. Typically, large institutional purchasers, either individually or with other institutions, will negotiate for discounts on the basis of the amount purchased. Some community pharmacies also have joined together to purchase in bulk in an attempt to control costs. In addition, large institutions, particularly governments, will make calls for bids on particular drug products. This practice inspires competition and lower prices but brand name manufacturers drop prices only when they perceive that a gain in market share will result. Many manufacturers have refused to participate in price bidding; have argued that states have no authority to negotiate prices; and have lobbied for legislation which would prohibit states from negotiating prices. See DRUG PRICES, supra note 257, at 11-12; Freudenheim, supra note 258; Shroeder, supra note 258.

262 Chargeback and rebate programs involve institutions contracting with drug manufacturers for drugs at discount rates. The institutional purchasers reimburse the pharmacies at the undiscounted rates which the pharmacies paid for the drugs dispensed to the beneficiaries of the institution or program, and the purchasers then recover the difference through a chargeback or rebate from the manufacturer. See Shroeder, supra note 258, at 47.

263 Purchasing prescriptions through the mail is one of the fastest growing methods of containing costs. The mail order prescription business now boasts sales in excess of $1.6 billion. See Should You Buy Drugs by Mail?, CONSUMER REPORTS: HEALTH LETTER, May 1990, at 33. Drugs by mail plans are offered through a variety of groups including mail service firms, chain drugstores, hospitals and a growing number of employers whose prescription drug costs are increasing faster than are other components in their health benefits packages. Handel, Employers Can Control Prescription Drug Costs Through Innovative Plans, PENSION WORLD, Apr. 1989, at 14-17. Cost benefits of mail order plans are achieved through increased generic dispensing, lower ingredient costs, lower dispensing fees and lower administrative costs. Barbieri, Sydlaske & Wilson A Case-Specific Experience Study of the Cost Effectiveness of Mail Service Drug Option Plans, BENEFITS QUARTERLY 80-82 (1988). Studies of individual plans reveal costs savings of 15-30%. Id. The extent of cost savings, however, is difficult to assess because only certain drugs are sent through the mail and there is evidence of waste due to the large quantities which typically are dispensed, i.e., 90-day supplies which often are not needed or used. See Vibbert, How to Restrain Ballooning Drug Benefit Costs, BUSINESS AND HEALTH, Apr. 1989, at 44.

264 BUREAU OF CENSUS ABSTRACT, supra note 248, at 94 table 137 (based on 1980-1987 figures; per capita expenditures on drugs rose from 73 in 1980 to 120 in 1987; per capita expenditures for all health care rose 50% from 577 to 1,115).

265 M. SILVERMAN & P. LEE, supra note 5, at 113-14.

266 See generally Competitive Problems in the Drug Industry: Hearings Before the Senate Subcomm. on Monopoly of the Select Comm. on Small Business, 93d Cong., 1st Sess. 9733-35 (1973) (statement of J.S. Turner).

267 HEW TASK FORCE, FINAL REPORT, supra note 55, at 7-8, 13-14.

268 Id. at 12-13.

269 HEW TASK FORCE, THE DRUG MAKERS, supra note 10, at 43. The period of time recommended was three years, in recognition of the fact that the greatest portion of sales on a new drug occurs in the first few years after the drug is approved for marketing. Id.

270 id.

271 118 CONG. REC. 32,931 (1972) (introduced as Amendment No. 1659 to the National Drug Testing and Evaluation Center Bill).

272 W. at 32,932.

273 Id.

274 28 U.S.C. § 1498 (1988).

275 Id. at § 1498(b).

276 E.g., Leesona Corp. v. United States, 599 F.2d 958, 966 (Ct. CI.), cert, denied, 444 U.S. 991 (1979).

277 See id. at 969; ITT Corp. v. United States, 17 CI. Ct. 199 (1989).

278 Leesona, 599 F.2d at 968. Although the “reasonable royalty” method is the one most often employed, courts use various methods of valuation to determine compensation for government infringement. In Decca, Ltd. v. United States, 640 F.2d 1156 (Ct. CI. 1980), cert, denied, 454 U.S. 819 (1981), the court listed three possible valuation methods: determination of reasonable royalty for the license (the preferred method); awarding percentage of cost savings to the government as a result of the infringement; and awarding lost profits. Id. at 1167.

279 See, e.g., ITT, 17 CI. Ct. at 205-10.

280 See, e.g., Hearings on Price Increases, supra note 260, at 145-47 (concern expressed that United States consumers were disproportionately financing research).

281 See Hearings on Skyrocketing Prices, supra note 2, at 7 table 3.

282 H. REDWOOD, supra note 4, at 156.

283 See id.

284 Id. at 156.

285 Id.

286 See id. at 157-58.

287 Id. at 160-61.

288 German Drug Companies Fight Price Cuts, PHARMACEUTICAL BUSINESS NEWS, Sept. 28, 1990, Finance/Business Section at 1.

289 See H. REDWOOD, supra note 4, at 158-59.

290 Id. at 158-59.

291 ASSOCIATION BELGE DES CONSOMMATEURS, DRUG PRICES AND DRUG LEGISLATION IN EUROPE: AN ANALYSIS OF THE SITUATION IN THE TWELVE MEMBER STATES OF THE EUROPEAN COMMUNITIES (1989).

292 Hearings on Skyrocketing Prices, supra note 2, at 7 table 3.

293 Id. at 2.

294 Id. at 8 table 4.

295 BUREAU OF THE CENSUS, ABSTRACT, supra note 248, at 470 table 761.

296 Hearings on Skyrocketing Prices, supra note 2, at 9 table 5 (per capita in United States was indexed at 152; 100 represented the EEC average).

297 See H. REDWOOD, supra note 4, at 186-91.

298 Seeid. at 189 (between 1961 and 1977, Japan introduced 10% of all NCEs introduced globally; during 1981-1985, that figure rose to 22%).

299 See id. at 189-90 (number of leading NCEs was only eight despite the increased number of NCEs introduced during the early 1980s; the United States had more than 30 leading NCEs, although it led Japan in number of introductions by only 3%).

300 See id. at 147-49, 186-91.