A Bitter Pill Prozac made Eli Lilly. Then along came a feisty generic maker called Barr Labs. Their battle gives new meaning to the term 'drug war.'
(FORTUNE Magazine) – When you arrive at the Indianapolis headquarters of Eli Lilly & Co., the $10.9-billion-a-year pharmaceuticals giant, you must pass through an elaborate airport-like security system before you're permitted past the mammoth marble lobby. This paranoia is partly the result of a long-running campaign waged by Scientologists (who oppose psychiatric drugs) against Lilly's best-known product: Prozac. There aren't many drugs that inspire such fortress-like protection--but then, there aren't many drugs that also inspire best-selling books, bitter controversy, and of course billions upon billions in sales. Since it was launched in early 1988, Prozac has been one of the biggest-selling drugs in history; its $21 billion in sales represents some 30% of Lilly's revenues in that period. It's not too much to say that Lilly is the house that Prozac built.
But on Aug. 2, that is likely to change. On that day, barring a last-minute reprieve, Lilly will lose its patent protection on Prozac, which means that $2.4 billion in U.S. annual sales will evaporate almost overnight. If Lilly can't make up that amount--and then some--with new blockbusters, it's not just a matter of a temporary hit to the stock; the world's seventh-largest drug company could well become a merger target. As CEO Sidney Taurel often points out, no company has survived a patent expiration of this magnitude without losing its independence.
Lilly always knew it would someday lose the exclusive right to market Prozac. After all, patents expire. That's why Big Pharma works so assiduously to ensure that it has a pipeline of new blockbusters to replace the old ones. But Lilly thought that "Year X," as it's known inside the company, was still some three years--and $6 billion in Prozac sales--away. Instead, the patent was invalidated after a lengthy legal battle waged by a small, aggressive generic-drug company called Barr Laboratories. For its efforts, Barr's likely reward will be a six-month period during which only it--along with Lilly--will be allowed to sell 20-milligram capsules of fluoxetine, the chemical compound that is Prozac. After that, anyone who wants to sell the compound can do so--and a 20-milligram capsule that now retails for $2.50 likely will fall to less than 25 cents.
At first blush, this seems to be precisely the outcome that Congress was hoping for when it paved the way for the generic-drug industry 17 years ago. The landmark Hatch-Waxman Act of 1984 was aimed almost entirely at making low-priced generics available more quickly. And so it has. But in the process the law also has sparked a kind of civil war within the industry, pitting Big Pharma against generic-drug makers. As the battle over Prozac shows, the conflict is mostly about money. But the ultimate stakes are higher--much higher. To Big Pharma, the quest for tomorrow's miracle drug is being jeopardized by the rise of superlitigious generics, which haven't always acted in consumers' best interests. To the generics, Big Pharma is willfully abusing patent laws, pursuing product extensions that benefit the bottom line, not consumers, and driving up drug costs. Determining who's right is by no means easy. This much is clear: The group that stands to gain or lose the most from all this is the nation's health-care consumers. Now on to the extraordinary tale of an extraordinary little pill.
Prozac was never supposed to be a blockbuster. Originally, says Dr. Steven Paul, Lilly's vice president of research, the drug was expected to top out at no more than $70 million in annual sales. Sitting in his sun-filled office, Paul recalls what it was like back then, when Lilly was a $600 million company that focused mainly on antibiotics--and depression was a rarely acknowledged disease. It was the early 1970s, and Lilly researchers had just begun the attempt to make a compound--fluoxetine--that they believed could increase the level of a chemical called serotonin in the brain. (A lack of serotonin was believed to play a role in depression.) It took Lilly over a decade to complete its clinical trials on fluoxetine and submit its application to the FDA. Then it took another four years for the government to approve Prozac. That happened on Dec. 29, 1987, Prozac Nation's official birthday.
Like any smart drug company, Lilly had surrounded its new pill with a series of patents. There were four that were relevant to the product the FDA approved. One claimed the broad class of fluoxetine-like compounds; another claimed the way fluoxetine worked. Lilly also received other patents that it did not commercialize, including one filed by Lilly researcher Dr. Paul Stark claiming the use of fluoxetine to treat anxiety. The patents were all issued by the U.S. Patent and Trademark Office between 1974 and 1986.
Why the need for so many patents? One reason, of course, was to ensure that competitors couldn't find a way to design a similar drug. Another was to prolong the life of the patent. Under the laws then, patent life lasted 17 years from the issuance date. Even that time span put pharmaceuticals companies in a bind, because patents were invariably issued while the companies were still doing clinical research--well before the product was on the market. The fact that Lilly's first fluoxetine patent was issued in 1977--and the drug was not marketed until 1988--meant that Lilly would have only six years to sell Prozac exclusively. And that's why it was so important to Lilly that its last patent was issued in 1986: The company could keep selling Prozac exclusively until 2003.
In 1970, the same year Prozac was being concocted in Indianapolis, Barr Labs was founded in Pomona, N.Y., as a maker of generic antibiotics. In this, Barr was a trailblazer; the generic industry barely existed. Even when Big Pharma's patents expired, potential competitors had to go through the same expensive, time-consuming clinical-testing requirements as the original manufacturer--making it nearly impossible to produce a cheap version of a brand-name drug. (The one exception was antibiotics.) Indeed, in the early 1980s, Barr had financial difficulties. That's when Canadian entrepreneur Bernard Sherman bought some of Barr's debt for next to nothing. That converted into what was this spring a 42% stake--worth about $1 billion.
The key moment in the history of the generic-drug industry came in 1984 with the passage of the Hatch-Waxman Act. Sponsored by Utah conservative Orrin Hatch in the Senate and California liberal Henry Waxman in the House of Representatives, the bill made it practical, for the first time, for generic makers to manufacture and market drugs whose patents had expired. It did so by replacing those expensive clinical trials with a concept called "bioequivalence." That is, as long as the generic-drug maker could show that the active ingredient in the drug was released and absorbed at the same rate as in the brand-name version, it could sell its competing pill.
But Hatch-Waxman didn't just assume that the generics would patiently wait for Big Pharma's patents to expire; it explicitly provided a bounty for patent hunting. It allowed any generic-drug maker to file an application to make a patent-protected drug--and gave the big drug companies 45 days in which to sue to stop it. Which, of course, they did--triggering, in yet another weird Hatch-Waxman provision, a 30-month stay when the generic could not market its product while the litigation was resolved. Finally, if the generic prevailed in the courts, it would be given a 180-day window during which no other generic competition would be allowed--and the company could price its drug at, say, 70% to 80% of the brand name. After that, anyone could sell the drug. Today, unless the drug is difficult to manufacture, the price invariably collapses.
In return for such concessions, the major pharmaceuticals firms got something utterly unique and of great value in return--the right to apply for a patent extension for up to five years. (The patent that currently protects Prozac has been extended two years; it was originally due to expire in 1999.) While that provision has been worth billions of dollars to them, the big companies have never completely made their peace with the way the generic makers were legislated into existence. "Without us, there is no them," says Michael Bigelow, Lilly's manager for public policy planning and development. "We're the goose that lays their golden egg." And Lilly is especially embittered about the 180-day bounty, which its general patent counsel, Robert Armitage, likens to "the big lottery game, where you spend a dollar for the ticket and you know the prize can be millions."
Still, in broad terms Hatch-Waxman has been a huge success. Generic-drug use has risen from 18% of prescriptions to around 45% today; Big Pharma, which got an average of nine years of marketing time per drug, now gets more than 11 years. Mickey Smith, the professor of pharmacy administration at the University of Mississippi, calls Hatch-Waxman "the best political horse trade I've ever seen."
Perhaps not surprisingly, Barr's current CEO, Bruce Downey, is a lawyer. An Ohioan who started his career as a civil-rights attorney--and then spent 20 years as a trial lawyer--Downey hooked up with Barr in the early 1990s when the company was embroiled in a battle with the FDA over its manufacturing practices. Barr came through relatively unscathed--thanks in no small part to its lawyer. ("We fought 'em to a standstill," Downey now says of the FDA.) In 1993 he agreed to become Barr's president--and one year later he was named CEO.
At 52, Downey is blunt and confrontational--especially when it comes to patents. He gripes that U.S. laws allow people to patent many things that shouldn't be patentable. Though Barr remains headquartered in New York State, Downey spends about a third of his time in its tiny, bare-bones office in Washington, D.C. (While Big Pharma has battalions of lobbyists in Washington, Barr is the only generic with a D.C. office.) Barr's lobbyist, a gregarious man named Jake Hansen, is a passionate preacher of the generic gospel--"We're on the side of the angels!" he exults--but the CEO himself seems less motivated by idealism than by, well, business. Analyst Elliot Wilbur at CIBC remembers hearing Downey once say, "I don't care about making tablets, pills, and capsules. I care about making money."
That he has succeeded in doing so is beyond question. Since he joined the company, revenues have more than quintupled, to almost $550 million, while net income has leaped from under $10 million to roughly $60 million. The stock, meanwhile, has climbed about 1,000%.
What has made Barr controversial is the way it has made that money. There is simply no other generic-drug maker that has been as aggressive in going after Big Pharma's patents--or as successful. "There's a perception that Bruce Downey stays up late at night searching the patent listings," says Wilbur. In the most literal sense, that's not true; Downey himself doesn't pretend to be an expert in patent law. But in the broader sense, it is precisely right: Barr pays its outside patent lawyers several hundred thousand dollars a month to do that. "We see no end to the patent-challenge opportunities as long as branded firms continue to get patents," Downey told a recent investment conference. "I look at it as them generating business opportunities for Barr." Retorts Lilly chief spokesman Edward West: "We do our research in the laboratory; Barr does its research in the legal library."
Over the years Barr has scored victories over such major drugmakers as Bayer and AstraZeneca. And it has about half a dozen patent challenges in its litigation pipeline. But not every victory has resulted in deeply discounted drugs. For instance, the Bayer litigation led to a settlement that calls for the German drugmaker to either sell Cipro--an antibiotic that generates about $1 billion in U.S. annual sales--to Barr, which would then resell the drug, or to pay Barr some $30 million a year. (So far Bayer has chosen to pay Barr but must begin selling Cipro to Barr six months before its patent expires in December 2003.) The AstraZeneca case was also settled; in that instance, AstraZeneca agreed to sell the breast cancer drug tamoxifen to Barr, which in turn resells the product at a 15% discount. According to Arnhold S. Bleichroeder analyst Megan Murphy, such settlement arrangements account for over 65% of Barr's revenues over the past four years.
Such settlements, along with other actions by both Big Pharma and the generics that critics say inflate drug prices, have drawn increasing fire. In mid-April the FTC announced that it was opening an investigation into such practices. Three weeks later a coalition of 17 consumer groups called Prescription Access Litigation (PAL) filed suit against Barr and AstraZeneca, charging that they illegally kept generic tamoxifen off the market.
Downey, for his part, is unrepentant. "You can settle murder one," he says. "Why should you have to fight a patent battle to the death?" As for the PAL suit, Downey claims that thanks to Barr, generic tamoxifen was available ten years before AstraZeneca's patent will expire. The deal, he adds, "was good for shareholders and good for consumers."
In fact, in Barr's litigation history, there have been only a few drugs over which it failed to reach a settlement. One was GlaxoSmithKline's AIDS drug Retrovir--a case Barr lost. The other was Prozac.
From Downey's perspective, Prozac was always a fat target not only because of its blockbuster status but also because of all those patents surrounding it. In the lingo of the trade, patents that are issued after the initial one--patents that usually have the effect of prolonging the life of a brand-name drug--are called "add-ons." "When I see add-ons," says Downey, "I always suspect that a company is stretching patent law." So in December 1995, Barr filed its application to market a 20-milligram capsule of fluoxetine, charging that two Lilly patents--one set to expire in 2001 and the other in 2003--weren't valid. Lilly, of course, promptly sued. It also sued other generics that filed Prozac applications (one of which, Apotex, is a private Canadian company that's owned by Barr's largest shareholder, Sherman). So began what CIBC analyst Wilbur describes as the "mother of all patent challenges."
At first, everything went Lilly's way. On Jan. 12, 1999, in a scathing ruling, Chief Judge Sarah Evans Barker in the District Court in the Southern District of Indiana dismissed most of the case. Among other things, Barr had argued that Lilly's 2003 patent was invalid because it simply made the same claim as earlier patents--a practice called "double patenting." Judge Barker called that argument a "confusing amalgamation of broad patent law principles" and cited a "glaring deficiency" in Barr's evidence. Though most observers felt the case was over, Barr was just getting started. "The court was in Indianapolis," chuckles one Barr lawyer. The company quickly took the case to the court of appeals, where the judges are steeped in patent law. "Your average federal district court judge is an English major who avoided chemistry like the plague," sniffs Downey.
Why didn't Barr settle the suit as it had in the past? Downey stated publicly that he was open to a $200 million settlement--plus a guarantee that Barr would be able to sell Prozac before Lilly's patent expired. That's a healthy sum but nothing like the revenues Lilly stood to lose if it lost control of the patent. But Lilly wouldn't bite. "We believed and still believe that our patents are valid," says CEO Taurel. "And we felt that settling violated antitrust laws, and it isn't morally right." Besides, Lilly had won at the district court level and was confident it would win in the appeals court. Why settle with victory so close?
In March a three-judge appeals court panel heard the case. On Aug. 9, 2000, it handed down a decision that stunned not only Lilly but also the entire drug industry. In a unanimous ruling the court upheld Lilly's 2001 patent but found for Barr on the 2003 patent--claiming it was indeed an example of double patenting. The language was as sharp toward Lilly as the district court's had been toward Barr. Prozac's patent structure, wrote the court, "rivals the Hapsburg legacy." It accused the company of attempting to "extend the term of exclusivity it enjoyed...for an additional nine years beyond the statutorily prescribed term."
The decision was an event of enormous significance for Lilly, and Taurel wasted no time getting the message out. The company immediately notified the SEC, which halted trading in its stock, called its major shareholders, and scheduled a conference call with the Street for 1:30. By noon the news had been posted on the closed-caption TV sets that are scattered throughout Lilly's immense offices and serve as bulletin boards for employees. That day Lilly lost $36 billion in market cap. (Barr, meanwhile, saw its market cap jump by $1 billion.) At 8:30 the next morning, Taurel did a live broadcast for Lilly employees worldwide from the company's in-house studio. His message throughout was clear: The company was prepared to lose Prozac but would fight on.
Inside the Lilly executive suite, the mood was one of shock and disbelief--at both the decision and the underlying logic. Lilly's Armitage, who has been a patent attorney for 25 years and is currently vice chairman of the National Council of Intellectual Property Law Associations, says the court's legal analysis was "clearly wrong on its face." Some lawyers unaffiliated with Lilly agree, calling the reasoning "wacky" and "bizarre."
Why? Because a key piece of the court's ruling was that you can't patent a genus (in this case the broad group of fluoxetine-like compounds, which is what Lilly's first Prozac patent claimed) and then a species already covered by the genus (in this case fluoxetine, which is what Lilly claimed in its 2003 patent). The court called Lilly's argument about fluoxetine "disingenuous." But Lilly hadn't done anything that unusual. Even Jeff Ward, an attorney who fights patent battles on behalf of generic companies, says that the idea of patenting a species that was previously claimed in a genus is "very common."
Within two weeks Lilly asked that the full 12-member court rehear the case. Everyone anticipated a quick decision from the court on Lilly's appeal, but there would be nothing but silence for a long, long time.
Patent battles aren't fought just in the courts; they're also fought in federal agencies, in the patent office--and in the research labs and marketing divisions of the major pharmaceuticals companies. And in these latter realms there is not much doubt that Big Pharma has the advantage. Even when patents are set to expire "naturally," the drugmakers have a raft of tactics to prolong their monopoly on a drug. "In general the record is not a proud one," says one former industry executive. Various companies have reputations for playing clean or dirty or somewhere in between. Merck, for instance, is widely viewed as the "cleanest." Bristol-Myers Squibb, on the other hand, has a poor reputation--as one of the company's recent moves illustrates.
Last November, right before generic competition was scheduled to begin on Bristol-Myers Squibb's BuSpar--an anti-anxiety drug that generates around $700 million in annual sales--a new patent was issued that the generic competitors would infringe. Under Hatch-Waxman, you'll recall, such a move triggers a 30-month stay, keeping the generic off the market. It took only five months for the courts to throw out the patent and clear the way for competition--but that was five months of BuSpar sales that Bristol-Myers Squibb wouldn't otherwise have had.
Lilly, for its part, is viewed as one of the cleaner companies--a point that even Barr concedes. Which is not to say it wasn't doing what it could to extend the life of its Prozac franchise.
In the late 1990s, Lilly pursued a number of "franchise-extension strategies." For instance, in December 1998, Lilly struck a headline-making deal with a small company called Sepracor. Lilly would invest up to $90 million in Sepracor, which was researching a new formulation of Prozac, one that theoretically would have fewer side effects (no sexual dysfunction) and, perhaps more important, a patent that lasted until 2015. Lilly's huge sales force could then tell doctors that the Sepracor pill was an improved Prozac--better than Prozac and its generic version. Lilly was also working on smaller Prozac extensions, including a weekly dose (Prozac Weekly) and a product called Serafem, aimed at "premenstrual disorder," both of which had their own patents.
Such extension attempts, while healthy for the bottom line, draw fire from those who are trying to curtail rising drug prices. "Are marginal improvements on an existing drug really good for society?" asks Dr. John Borzilleri, a portfolio manager at State Street Research. Indeed, the Sepracor deal provoked an FTC review. Not surprisingly, one of the most vociferous opponents of the Lilly-Sepracor alliance was Barr, which argued that the deal would, in effect, give Lilly 38 years of patent life on Prozac. Although the FTC eventually gave its consent to the Sepracor deal, Lilly withdrew from the arrangement in October 2000 when clinical trial data showed increased, not decreased, side effects. Serafem, on the other hand, is now on the market--much to the annoyance of insurers.
Lilly had one more trick up its sleeve. FDA regulations allow drug companies to apply for another six months of exclusivity after the patent's expiration--if they've done pediatric testing. Lilly's 2001 patent--the one the appeals court upheld--was set to expire Feb. 2. But thanks to "pediatric exclusivity," the company was given until Aug. 2 before it has to face competition from Barr. The additional six months means an extra $1 billion or so in revenues for Lilly.
It took nine months for the court of appeals to reach its second verdict in the Prozac case. It was handed down May 30, 2001, and at first glance it was exactly the same: Lilly's 2003 patent was invalid because the company had double-patented fluoxetine. "The bottom line is, we won again, and they lost again," crowed Downey on his conference call to Wall Street the next morning.
In fact, though the result was the same, the court's rationale was completely--and stunningly--different. Yes, Lilly was still being accused of double patenting, but no longer was the court accusing the company of patenting a genus and then patenting a species. It wasn't even basing the decision on the same two patents! Remember that patent filed by Lilly researcher Stark, the one that claimed the use of fluoxetine to treat anxiety? This time the court said that Lilly's 2003 patent was invalid because it was simply the scientific explanation of what happens when you take Prozac. In other words, the court ruled that you can't claim a method of using fluoxetine (for treating anxiety, in the case of Dr. Stark's patent) and then claim the biological result of taking fluoxetine--enhancing serotonin, as Lilly's 2003 patent claimed.
The patent bar is divided on the question of whether this latest ruling stretches the law. The 2003 patent "is a trivial variation on what was already patented," says one of Barr's lawyers, Mark Waddell of Chadbourne & Parke. But Lilly, not surprisingly, is again outraged at the decision, feeling that well-established patent principles were being arbitrarily overturned. The decision was "amazing," says Armitage. "There was so little room for the court to find a credible way to decide against us," he says. "It's at least as wrong as the original decision." A Lilly spokesman described the ruling as "getting struck by lightning twice."
Lilly has asked the court of appeals to rehear the case and is even considering taking it to the Supreme Court. But the Supreme Court hears only 1% of patent cases. Barring a dramatic reversal in the appeals court or last-minute gamesmanship, most people believe that Prozac is gone. Concedes Armitage: "I hate to say it, but it's very likely that Aug. 2 will be the end of Prozac's life as a patented entity."
These days, Lilly's 90-acre Indianapolis campus doesn't show the slightest hint of vulnerability. From the giant fountain that graces the circular driveway to the triple-height marble lobby with its soaring floor-to-ceiling windows and its skylights, Lilly is the very picture of money and power. And Wall Street's view of Lilly's future is optimistic--perhaps too optimistic. The stock, which peaked last August, is down about 30% but still sells at 26 times earnings--more than most Big Pharma stocks. Its antipsychotic drug, Zyprexa, has been on the market four years--and is already generating more revenues than Prozac. There's great excitement about Lilly's new-product pipeline, which has been fed by $8 billion of R&D over the past five years and includes drugs like Xigris, a new treatment for sepsis, and duloxetine, which Lilly believes could be more effective than Prozac. "Prozac paid a lot of bills around here," says Dr. Paul, Lilly's vice president of research. Taurel even argues that the loss of Prozac is a good thing. "This event has brought a new sense of urgency and togetherness."
Still, there are plenty of potential problems just below the surface. Bert Hazlett, an analyst at Robertson Stephens, thinks that Prozac Weekly and Serafem will help Lilly hang on to around $250 million in annual U.S. Prozac sales--down from $2.4 billion. Its new products have to replace those billions--and quickly. But even drugs in late-stage research can fail to get government approval. And then there's the competition. Lilly's Zyprexa, for instance, is facing a fierce marketing battle from competing drugs made by Johnson & Johnson and Pfizer.
In February, Lilly announced that a generic company, Ivax, had filed an application to make Zyprexa, arguing that all eight of Lilly's patents are invalid--an argument based in no small part, Armitage says, on allegations of double patenting. Lilly is both irritated and disgusted. "Having even a 5% or 10% risk over your head for a major product has a chilling effect on your ability to invest in bringing new drugs to market," says Armitage.
The crux of Lilly's argument--indeed, the argument of all the big drug companies--is this: A long and impregnable patent life is the prize it deserves for spending those billions developing new drugs. Although a drug typically has over 11 years of exclusivity, Armitage argues that it should be more like 14 years. Dr. Paul adds that when you take into account all the drugs that fail, it costs almost $1 billion to get a new drug to market. And that, argues Lilly, is the real cost of the Prozac battle. "For two years users will get somewhat cheaper Prozac. Lilly will lose revenues that would have enabled us to develop one new drug. Which life-saving drug won't we develop?" asks Armitage.
Barr, of course, doesn't see it that way. And why would it? It is busy preparing for generic Prozac's debut by making 2 1/2 million 20-milligram capsules a day of fluoxetine. (Because of the time it will take for Lilly's appeals to wend their way through the courts, it's unclear exactly when Barr will be able to launch generic Prozac.) Barr says it spent about $12 million in legal and R&D costs to win the right to sell generic Prozac. For that, Wall Street expects Barr to reap between $270 million and $400 million in fluoxetine sales in its first year on the market, which at the high end would almost double the company's size. That's why Barr's stock trades at more than 24 times 2001's estimated earnings--roughly the same as Lilly's stock.
But in the generic-drug business, victory can be less than it appears--which is why analyst Megan Murphy calls Barr's win "Pyrrhic." You see, even with its 180-day prize, Barr will forfeit some of generic Prozac's potential profits. Barr won only the right to sell the specific dose of fluoxetine that it was first to file an application to make--the 20-milligram capsule, which currently accounts for about 80% of Prozac's U.S. sales. Under the twisted terms of Hatch-Waxman, the companies that were first to file applications to make other doses also get 180 days of exclusivity on those particular pills. Barr's biggest competitoris likely to be Pharmaceutical Resources, a generic maker in Spring Valley, N.Y., which has the rights to a 20-milligram tablet, as well as a 40-milligram capsule and a ten-milligram tablet. And Barr agreed to pay Apotex roughly 50% of the profits it earns from generic Prozac. Apotex, you'll recall, is owned by Barr's biggest shareholder. That's why Murphy believes that Barr would have been better off with a settlement.
After Barr's six months are up, the game is pretty much over. As of late June, more than a dozen other companies had filed to make generic Prozac. By next spring, Downey concedes, it will be "very hard" to make money selling generic Prozac. "This is not a product we would have undertaken without the 180 days," he says.
The anorexic profit margins on easy-to-make drugs help explain why many generic makers, Barr included, are trying to become--ta-da!--branded-drug makers. Barr, which spent $41 million on R&D in 2000 (about the same amount that Lilly spent per week) hopes to begin selling a major branded drug, an oral contraceptive named Seasonale, in 2003. "There's one thing I don't like about the generic-drug business," says Downey. "Your business opportunities are always derivative of what someone else has done. It can be creative, but it's limiting." On that point, at least, Lilly would agree.
And then there's Washington, where many say that anti-Big Pharma sentiment is stronger than it has been in decades--even stronger than during the Clinton years. While Lilly and its peers complain about the high costs of drug development, opponents point to their huge profits--Lilly earned $3.1 billion last year--and giant marketing budgets as evidence that Big Pharma can afford to make some economic concessions. After all, everyone else has already done so: Big Pharma is the only player in health care that has escaped a profit squeeze in recent years. In a strange way the generics even see themselves as Big Pharma's savior. "We're the only thing that stands between them and price controls," says Barr's Jake Hansen.
On May 1, Senators John McCain and Charles Schumer--almost as much of an odd couple as Hatch and Waxman--proposed amendments to Hatch-Waxman that many view as a generic-industry wish list. Among other things, McCain-Schumer would eliminate the 30-month stay, forcing Big Pharma to seek injunctions from the courts. "It pretty much does what we want,"says Downey of the proposal. Hansen puts McCain-Schumer's chances of passing at 50%.
In response, Big Pharma is trotting out the usual arguments. "If you have a life-threatening disease, your best hope is the American pharmaceuticals industry. The core of our industry is intellectual-property protection," says Alan Holmer, PhRMA's president. "The generic industry is trying to undo a very careful balance that was struck by Congress in 1984." As for Lilly, well, it doesn't think that any of this has much to do with consumers' welfare. "With McCain-Schumer, the generics are trying to make the 180-day period work better as a business model," shrugs Armitage. "Of course, the business is not the drug business. The business is the patent-litigation business."