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             UNITED STATES OF AMERICA
      DEPARTMENT OF HEALTH AND HUMAN SERVICES
          TASK FORCE ON DRUG IMPORTATION
               STAKEHOLDER MEETING:
      INTERNATIONAL AND ACADEMIC PERSPECTIVES

                      TUESDAY,
                   APRIL 27, 2004


            The meeting was held at 1:00 p.m. in
Conference   Room  1066    of  the   Food and   Drug
Administration,   5630   Fishers   Lane,  Rockville,
Maryland, Surgeon General Richard H. Carmona, Task
Force Chairman, presiding.

PRESENT:
VADAM RICHARD H. CARMONA               Chairman
JAYSON P. AHERN                        Member
LESTER M. CRAWFORD                     Member
ELIZABETH M. DUKE                      Member
TRACEY HARDIN                          Member
MARK B. McCLELLAN                      Member
MIKE OGRADY                            Member
WILLIAM RAUB                           Member
THOMAS REILLY                          Member
AMIT K. SACHDEV                        Member
ELIZABETH A. WILLIS                    Member
                                                       2
                      A G E N D A

OPENING STATEMENT: ................................. 4
      Task Force Chair, VADM Carmona

PANEL I: .......................................... 5
      Opening Remarks

      Barbara Wells
      National Association    of    Pharmacy   Regulatory
      Authorities

      Ronald Guse
      The Manitoba Pharmaceutical Association

      Jean-Yves Julien and Jocelyn Binet
      The Quebec Order of Pharmacists

QUESTIONS & ANSWERS: ............................. 22

PANEL II: ........................................ 48
      Opening Remarks

      Patricia Danzon, Ph.D.
      University of Pennsylvania

      Frank Lichtenberg, Ph.D.
      Columbia Business School

      Iain Cockburn, Ph.D.
      Boston University

      Jeff Lemieux
      Centrists.org

      Jack Calfee, Ph.D.
      American Enterprise Institute

QUESTIONS & ANSWERS: ............................. 72

PANEL III: ...................................... 104
      Opening Remarks

      Eric B. Sheinin, Ph.D.
      United States Pharmacopeia

      Alastair J. J. Wood, M.D.
      Vanderbilt University

      Marcus Reidenberg, M.D.
      Cornell University

      Carl C. Peck, M.D.
      Georgetown University
                                                   3

      Elena Rios, M.D.
      National Hispanic Medical Association

QUESTIONS & ANSWERS: ............................ 130

CLOSING STATEMENT: .............................. 156
      VADM Carmona
                                                                             4
1                            P R O C E E D I N G S

2                                                           (1:42:54 p.m.)

3                       CHAIRMAN CARMONA:         Ladies and gentlemen,

4    good afternoon.           I'm Rich Carmona.           I'm the Surgeon

5    General.           My   apologies     for   keeping     you    waiting.

6    There    were       several      scheduling     difficulties         that

7    challenged me today, and I just flew in from out of

8    town, so my apologies.                I know how important your

9    time    is    to    you, and        I did the best I could to

10   expedite, but I thank you for your patience, and I

11   thank you for being willing to help my colleagues

12   and I, and the President and the Secretary shed some

13   light on this very complex situation.

14                      Because of the lateness, I will waive

15   the usual introductory remarks and just say that we

16   are striving to keep this as transparent and open a

17   process as possible.             We desperately need all of the

18   information that you can provide to us to help us to

19   make the recommendations to the Secretary and the

20   President and, ultimately, to our Congress as to how

21   to     deal     with      this       very    complex     problem      of

22   importation that is before us.                 And I think we all

23   recognize      that      as    we   move    further    along    in   the

24   process, we open the door for as many questions as

25   we have answers.              And it is quite more complex than

26   any of us, maybe except Dr. McClellan who had to

27   deal with it before me, really understood.                     So, once
                                                                          5
1    again, thank you so much.

2                   And   why   don't     we    just     move    onto   our

3    first panel member.         We'll start off on the left.

4    Ms. Barbara Wells from NAPRA.             Thank you, ma'am.

5                   MS. WELLS:     Chairman Carmona and members

6    of the task force, I want to first of all thank you

7    for this opportunity to appear before you today.

8    And certainly I would echo the Chairman's remarks

9    that this is a very complex issue, and certainly

10   Canada has just as many issues I think as you do in

11   grappling with this.

12                  I represent the National Association of

13   Pharmacy     Regulatory     Authorities        in     Canada,      and

14   that's the umbrella voluntary organization of the

15   pharmacy     licensing     bodies    in     eight     of    our    ten

16   provinces,    our    two   territories,       as     well    as    the

17   Pharmacy   Services      Division     of    our     Department     of

18   National Defense.          And this issue has been on a

19   front burner for us for a number of years now.

20                  In February of 2003, we held a forum

21   with stakeholders from both the U.S. and Canada to

22   identify the issues with exportation of drugs to the

23   U.S., and this prompted us to develop a communique

24   jointly with the National Association of Boards of

25   Pharmacy here in the U.S. to signal publicly that we

26   were   concerned      about    the        exportation       and    re-

27   importation, and that we needed to work together to
                                                                          6
1    protect the citizens of both countries.

2                  In    October    last      year,   you     were    aware

3    that our Assistant Deputy Minister of Health, Diane

4    Gorman,   issued    a    letter    to    Canadian       stakeholders

5    alerting us to the potential for shortages of drugs

6    in Canada due to the export of drugs here, and also

7    alluded to the fact there could be human resource

8    implications,      health   worker       implications       to   this

9    trade.    And that prompted my association last fall,

10   last November to call upon the Canadian government

11   to ban the export of drugs to the U.S. until, first

12   of all, there could be a study done on the long-term

13   effects of this trade to           the Canadian public.            And

14   pending    that,    that      there      was     some    regulatory

15   structures   put    in    place    to    help    us     regulate   it

16   better.    And I want to very quickly just tell you

17   some of the issues that prompted us to call for this

18   ban.

19                 First of all, there are legal issues.

20   Our licensing bodies find that their investigations

21   are    somewhat    hampered       when    you're      investigating

22   complaints   and    situations        when     customers    reside,

23   patients reside in the U.S.               There are issues in

24   terms of issuing subpoenas from Canada to the U.S.

25   if we need to            if our members need to call upon

26   witnesses and so on.        And there's even              with this

27   trade we find that you may have physicians in one
                                                                               7
1    province co-signing prescriptions for patients of a

2    pharmacy in another province.                  And we've heard that

3    there are barriers to sharing information between

4    the     pharmacy      licensing       bodies      and      the   medical

5    licensing authorities from province to province in

6    some cases.

7                     We also have             we're troubled a little

8    bit by some of the ethical issues. We are concerned

9    about     Canadian         pharmacists     aiding       and      abetting

10   American citizens to, in effect, break the law by

11   importing drugs.            And we also              there are issues

12   with -- a lot of our medical licensing bodies have

13   concerns       and    consider       it   to    be    malpractice       or

14   mispractice to co-sign a prescription from a U.S.

15   physician,      unless       that    physician       has    a    personal

16   relationship         with    the    patient,     has    a     bona    fide

17   professional relationship with that patient.                            And

18   some of our medical licensing bodies have come out

19   against physicians who do co-sign prescriptions, so

20   we're saying well, we have an issue with pharmacists

21   honoring those prescriptions if they know that the

22   patient    and       the    physician     did    not    have      a   true

23   patient/physician relationship.

24                    Obviously, if Canada gets less than 5

25   percent of the pharmaceuticals in the world, and you

26   folks    get    around      50     percent,     obviously,       this   is

27   causing us some real supply issues, as well.                            We
                                                                                         8
1    know that pharmacists are now having trouble getting

2    supplies.          The supply issue hasn't quite reached the

3    public        in       Canada        yet    because        pharmacists            are

4    scrambling to come up with supplies for them, so it

5    hasn't quite hit the public yet, but it is taking

6    time     up        for     our       pharmacists         to        secure       these

7    supplies.

8                        I, myself, have had a call in the last

9    week    from       a     major      drug    company      asking          about   the

10   chances       of    a    product       being       exported         to    the    U.S.

11   They are looking at releasing, launching a new drug

12   in   Canada        that        is    available      in     the      States,      and

13   they're looking at not launching it in Canada if

14   there's a chance it could be re-imported into the

15   U.S.    So we're seeing those kind of issues now.

16                       With       the    increase      in     pressure         to    the

17   exporters to get supplies of drugs -- because you

18   know some of the drug companies have cut-off the

19   exporters -- we see now that they are purchasing

20   medications from community pharmacies right across

21   Canada,       and       they     offer      them    a    10    or    20     percent

22   premium to purchase their drug supplies.                                  And that

23   is     keeping         these        large    amounts          of    drugs       being

24   ordered       from       being       on     the    radar       screen       to   the

25   Canadian companies.

26                       And we also are seeing things where some

27   of the websites have direct links to pharmacies in
                                                                                9
1    other countries -- in England and other places -- to

2    obtain drugs.         And, of course, there's allegations

3    that   some    are     bringing       drugs       into    the     country

4    illegally, unapproved drugs, to satisfy the orders.

5

6                   There's also                we have a shortage of

7    pharmacists     in    Canada       and,     of     course,       this    is

8    exacerbating that shortage, as well.                       So I think

9    aside from these issues that we have pointed out to

10   our government, I think, too, that my members could

11   not condone this style of pharmacy service.                       We feel

12   that   it's    certainly       not     in     your       public's       best

13   interest to have fragmented pharmacy care in this

14   way, that they're getting drugs from companies in

15   Canada as well as their community pharmacies in the

16   U.S.    And    certainly,         searching       the     Internet      for

17   drugs does not bode well for optimal health.                          And I

18   thank you again.

19                  CHAIRMAN      CARMONA:            Thank    you,       ma'am.

20   Let's move on to Mr. Ronald Guse from the Manitoba

21   Pharmaceutical Association.            Thank you, sir.

22                  MR. GUSE:          Thank you.       And thank you to

23   Chairman      Carmona       and      the    committee           for     the

24   opportunity      to     address        this        issue        on      drug

25   importation     to    the   United        States.         And    I    bring

26   greetings from my president, Gary Cavanagh, and my

27   past president, Lois Cantin.
                                                                                  10
1                    The Manitoba Pharmaceutical Association

2    has made a written submission, and I believe it's

3    before the committee, and I strongly encourage you

4    to    refer     to     that        submission.              And    just     for

5    clarification,              the          Manitoba           Pharmaceutical

6    Association, although the name may seem to indicate

7    that we represent the drug industry, we do not.                             It

8    also may indicate that we're a self-interest group,

9    and   we      certainly         are      not    that        either.         The

10   association itself is the regulatory authority in

11   the Province of Manitoba, and it would be analogous

12   to your boards of pharmacy that exist in the United

13   States.

14                   The MPhA has been on the forefront, if

15   not the chopping block, of this issue for the past

16   couple     of    years,            and     we    have        gained        some

17   experiences,         and    I   wish      to    share       them    with    you

18   today.

19                   The two major concerns that we want to

20   highlight for the committee, and the report does

21   that, is one issue that was stressed and re-stressed

22   in a presentation we heard just a couple of days ago

23   by the former Secretary, Donna Shalala.                               And the

24   former     Secretary         strongly       supports         the    idea     of

25   watching patient safety in the issue of drug re-

26   importation.         In our submission, that's one of the

27   two   principles           we've    identified         to    you;     one   is
                                                                                 11
1    patient       safety,       and    certainly      the    second      one   is

2    product quality and safety.

3                        From    our    experiences,         and    any    health

4    care professional or board protecting the public's

5    safety, introducing more and cheaper drugs does not

6    necessarily equate to better or enhanced care, and

7    that's important for the community to remember.

8                        I'd also like to take you back briefly

9    to prior to the year 2000 when pharmacies in Canada

10   in    attempting       to    supply       medications         to   Canadians

11   temporarily residing in the United States (some of

12   our winters being a little more aggressive than some

13   of your winters), the pharmacies trying to ship the

14   medications to the Canadians had to make sure that

15   there    is    a     certain      amount    of    information        in    the

16   package,       as    well     as    the    medication.             And    that

17   information had to confirm that the patient was, in

18   fact, a Canadian, the medications were prescribed.

19   There was some information that was required from

20   the medical practitioner, as well.                       And even with

21   all   that     information         in     those   packages,        frankly,

22   there was no guarantee that the product would move

23   through U.S. customs.

24                       Well, we've gone from that to a system

25   now    where,       with    few    exceptions,      the       borders      are

26   pretty    well       wide     open.        And    that's       caused      the

27   Manitoba Pharmaceutical Association to address what
                                                                          12
1    our pharmacists are doing with regards to patient

2    care.

3                    Also as recent as yesterday, we had a

4    presentation at the National Association of Boards

5    of Pharmacy conference from former Mayor Giuliani,

6    and    he    referred   to   information       that      he    saw   at

7    Kennedy Airport where 40,000 packages of medications

8    from all over the world come through that customs

9    location.      It's his description that the staff only

10   have the resources to review 500 of those packages.

11   His concern was to identify the great potential for

12   lack    of   safety,    lack    of   security,      and       risk   of

13   dangerous      products,     and     perhaps      even    terrorism

14   through that port.

15                   Now this might be an oversimplification,

16   but to me, if 500 packages are the ones that are

17   inspected and cleared, then 500 packages should go

18   through.

19                   Also,   there      might    be     some       solution

20   through pre-authorization.            Part of our ten-point

21   priorities that we have in the submission is the

22   idea    of   pre-authorized     suppliers        that    might    ship

23   products into the United States.

24                   I have to admit that I'm here presenting

25   a bit of a schizophrenic position to the task force.

26   Increased       importation     or    the   current       issue      of

27   importation of drugs into the United States from
                                                                                13
1    Canada   will       harm       and     has    harmed    the     healthcare

2    system in Canada.              However, I have to recognize, as

3    well, there are a certain amount of pressures within

4    our country in certain areas for this commercial

5    activity to continue.

6                       As certain authorities within the United

7    States and Canada appear to want the cross-border

8    industry      to     continue,         the     task    force     needs     to

9    therefore consider the ten points identified in our

10   written submission.              And I can explain these points

11   further if that's requested by the committee, but

12   I'd   just     like       to     take    a     few    moments     just     to

13   highlight them for you, and it starts on page 3 of

14   our submission.

15                      It's        important       that     there      is       a

16   development          of         international          standards         and

17   agreements that conform and enforce patient care as

18   a primary goal, placed over commercial interest; the

19   development of mutual international recognition for

20   licensing     wholesalers,             pharmacists, and pharmacies

21   located in Canada and the United States that choose

22   to    serve    other           countries;       and    development         of

23   memoranda of understanding regarding which laws are

24   enforceable        for     the       safety    and     benefit    of     the

25   patient,      as      many        of     the     businesses        require

26   disclaimers, agreements, and powers of attorney that

27   basically remove the patient autonomy.                             Until
                                                                               14
1    such    time    as    the    provincial       and      state     pharmacy

2    regulators          can     openly        forward         and     receive

3    information and intelligence from the American Food

4    and    Drug    Administration,           Health     Canada,      and     the

5    provincial          and     state         prescribing           licensing

6    authorities,        cross-border         pharmacy      sales     of   drugs

7    under    the   authority       of    a    prescription          should   be

8    limited or temporarily suspended.

9                    A    review    is    required       to    identify       the

10   legal    impediments        and     barriers      of     investigation,

11   complaint       investigation,            jurisdictional          issues,

12   powers of subpoena, and the collection of evidence.

13   As the international movement of drugs is based

14   heavily upon issues of access to cheaper drugs and

15   professional care, the flow of medication across the

16   international        border       through     wholesale         purchases

17   ought to be permitted rather than, or in addition to

18   the      pharmacy          distribution           pursuant         to     a

19   prescription.

20                   As         confirmed         by          all      parties

21   knowledgeable in this industry, the Canadian drug

22   supply    system      cannot       provide     for       all    Americans

23   requiring      catastrophic         medications,       nor      the   cost-

24   saving    needs       of    private       and/or       state-run        drug

25   benefit programs.           A plan is needed, therefore, to

26   carve out the cross-border movement of drugs that

27   can initially benefit those who need it the most,
                                                                                15
1    and ultimately address the needs of others.

2                     The drug source needs to be confirmed,

3    and      only       purchases         directly           from        licensed

4    wholesalers       to      pharmacies    would       be    permitted       for

5    international sales on prescription.                          Our referral

6    prescription programs to pharmacies and businesses

7    located outside the country of the pharmacy of first

8    contact    must      be    approved     by     provincial         or    state

9    licensing       authorities      prior       to     implementing        that

10   program.

11                    And,       finally,     all      advertisements           of

12   pharmacies       servicing      other    countries            must    clearly

13   indicate      the      jurisdiction      of       license,       meet     the

14   requirements        of     international       license          authorities

15   based     upon      a      program      such      as      the        National

16   Association of Boards of Pharmacy IPS program, and

17   no    other     pharmacy      business       would       be     allowed    to

18   advertise for international shipment of medications

19   or participate in that activity.

20                    In closing, Chairman Carmona, I'd like

21   to again express appreciation for the opportunity to

22   address the task force.               Your decisions will affect

23   Canada     in    the      back-and-forth          movement       of     drugs

24   between    the      two    countries.         The    issue       of    cross-

25   border movement of legal drugs is very complex, as

26   you've already alluded to.              It involves and entwines

27   professional,          legal,   and     political         jurisdictions;
                                                                             16
1    however,      the     overall       goal   must       remain      clear:

2    patient safety and product quality and safety.

3                    We look forward to future opportunities

4    for   further       discussions      and   thank      you    for     this

5    opportunity again.

6                    CHAIRMAN CARMONA:          Thank you, sir.             Our

7    next speaker, Mr. Jean-Yves Julien from the Quebec

8    Order    of   Pharmacists.          Sir,   thank      you   for      being

9    here.

10                   MR.      JULIEN:      I    thank      you      for     the

11   invitation,     and      I    am   accompanied     by    Mr.    Jocelyn

12   Binet, who is responsible for investigations, so he

13   could answer some of the questions later on.

14                   In the short period of time, I'll focus

15   on some of the activities that we have been running

16   in order to prevent this situation from spreading in

17   the Quebec province.

18                   The first message that we always give to

19   people is to make the distinction between the drugs

20   and the prescription.              And what has been said, I

21   share    most       of       the   comments      to     enforce       the

22   professional legislation and control.                       That's the

23   key message out of the paper that I'm presenting

24   today.

25                   So about the drug itself.               You know it's

26   like in the United States, the jurisdiction.                            We

27   don't     have,       in      a    province   in        Canada,       the
                                                                                  17
1    jurisdiction over the drug itself, the moving of a

2    drug.          We        have     the     jurisdiction          over        the

3    professional activities.

4                       The Quebec Order of Pharmacists is the

5    licensing      body       for    the    Province    of    Quebec.           The

6    Quebec Pharmacy Law is unique in one sense in that

7    it's only a pharmacist that can own a pharmacy in

8    Quebec.       And this is something that gives us a tool

9    to act more easily than somewhere else in Canada.

10   You   have     a    few    of    the     references.        I    won't       go

11   through that, but you can refer to it.

12                      About the prescription dispensing:                       our

13   pharmacies         are     allowed       to    dispense     or       fill    a

14   prescription only if it's signed by a Canadian, or

15   especially a Quebec physician.                     So for myself, I

16   cannot    -    I    don't       feel    I'm    authorized       to   fill    a

17   prescription        coming        from    an     American       physician.

18   This is very important.                  That's what we are acting

19   on to prevent.

20                      About the Internet:             we are not against

21   the use of the Internet as a tool of communication.

22   Everyone would be really surprised if we said that

23   we don't like to use the Internet.                        It's a common

24   tool.     But I'd just like to underline that we never

25   experienced fax pharmacy, we never experienced phone

26   pharmacy,      we    never       experienced       delivery      pharmacy,

27   the widespread use of this designation.                              But now
                                                                               18
1    with    the    Internet,         everything      goes,     and     we   feel

2    because we use an Internet pharmacy, that it's full

3    pharmacy.       It's not.         We should make people aware of

4    that.

5                     Internet          and     the     challenge        across

6    borders.        I guess the main thing is professional

7    activities.          Again, it's not because a prescription

8    is transiting through the Internet that it becomes a

9    legal prescription in Canada.                    We should stop that

10   to move.       That's what we do in our jurisdiction.

11                    Three steps that we have been trying to

12   work     on     in    order       to     prevent       that.        First,

13   disciplinary action against our member.                          Those who

14   are     involved,         we    bring     them    in     front     of   the

15   disciplinary committee and stop them from doing it.

16   They are fined or other actions are taken against

17   them.         Penal       lawsuits       for   people      who    are   not

18   pharmacists and are operating a website from the

19   Quebec territory.               We have been suing them.                It's

20   not    easy,    as    has       been    mentioned.         We    need   help

21   because       it's    a    very    complicated         situation.       Mr.

22   Binet can talk about it.

23                    And the third type of action is public

24   awareness,       public         information.         And    when    I   say

25   public information, I mean the public in general,

26   but    as     well,       the   authorities,       because       it's   not

27   always easy.              It seems easy to say that they're
                                                                                          19
1    different, a prescription is not a drug, and the

2    opposite.         But it's not always easy when I mention

3    that   to      some      politician         in   Quebec       or     some      civil

4    servant.       They say, oh, it's the same.                        No, it's not

5    the same, because it's the key to preventing that

6    situation from spreading more.

7                      So disciplinary action.                      We have been

8    acting for pharmacists and non-pharmacists.                                    Penal

9    lawsuits.           We    simply       do    not    have       the    important

10   financial resources needed to conduct all inquiries

11   we would like to do.                   But more importantly, we do

12   need   the       support,      technical          and    financially,               and

13   collaboration            of      all        jurisdictions            that           are

14   implicated in that law enforcement.                           That's what has

15   been mentioned.

16                     And     a   great         example      of    that       is       drug

17   importation itself.              The Quebec Order of Pharmacists

18   cannot      control       what    transits         through         the    border.

19   It's up to other legislation, but we can stop, from

20   the pharmacy, the sending of messages or information

21   to the Internet when it's not considered legal.

22                     Public information.                 It is important to

23   make     the     public       informed           about     that.              Public

24   protection.           It's an issue on both sides of the

25   border      to      protect      the        people.           When       we        stop

26   pharmacists doing that, we know that they are losing

27   money.         It     has     been      mentioned         that       it       is    an
                                                                        20
1    important    issue.      We   know    that    they     are    losing

2    money, but it's not the way to make money.                   We feel

3    that.     And I think it's a protection for the U.S.

4    citizen, as well.

5                  Canadian    drugs.        I     don't     think    the

6    quality of Canadian-made drugs are at stake here,

7    are an issue, but the problem is that if we allow an

8    illegal    practice,   why    don't     we    allow,     as     well,

9    counterfeit drugs.       That's the risk of mixing two

10   types of illegal activities.            That will increase.

11   That's what we find very threatening, so that's why

12   counterfeit drug is a real threat, as well, because

13   if we let things go, everything will come, like has

14   been mentioned, from everywhere in the world.

15                 The important distinction for the public

16   in-between    a   service,     that's       something    that     we

17   continuously repeat.          The loophole that helps to

18   facilitate that is the fact that if I cross the

19   border with my personal medication for 90 days, I

20   will be allowed to do that.             That's rational, but

21   not more than that.       So then, it is complicated to

22   control, as has been mentioned.

23                 Practice control.         The important point

24   is the fact that for a prescription to be valid, it

25   has to be issued by a physician in Quebec or in

26   Canada.      And we should make the people aware of

27   that.     They are putting themselves in danger if they
                                                                     21
1    are calling and getting services from distance like

2    that.

3                   Negative      impacts   have    been    mentioned.

4    We share that.          Societal challenge for the future.

5    The key message there that we're trying to send is

6    it's unfortunate when we see a public person, mayor,

7    other, in Canada, politician in authority who says,

8    Go and buy your cheapest prescription through the

9    Internet, for instance.         I mentioned, in Quebec and

10   Montreal, that it's exactly like if the mayor in

11   Montreal told the people, Go to the reserve, buy

12   your cigarettes.         It's going to be cheaper.       I think

13   it's    a   type   of    societal   behavior    that   should   be

14   condemned publicly.         This is very important, because

15   it's part of this issue.

16                  And, finally, I do think that I would

17   not like to be in a world where we have pharmacy

18   paradise like we have fiscal paradise.                 That's my

19   comments.

20                  CHAIRMAN CARMONA:        Thank you, sir.          I

21   appreciate it.          I understand Mr. Binet is just here

22   for questions and will not make a statement.                    Is

23   that correct?

24                  MR. JULIEN:      Yes.

25                  CHAIRMAN CARMONA:        Okay.     Then I would

26   open the questions to my fellow task force members.

27   Anybody have any questions of our panelists?                    Go
                                                                                  22
1    ahead, please.

2                 DR.     O'GRADY:        Yes,     just        a   couple        of

3    questions.    One,     in    terms      of   both         what    Monsieur

4    Julien and Ms. Wells brought up, is the role of the

5    physician as sort of a co-signer of a prescription.

6    I just wonder what sort of liability is there under

7    Canadian law for a physician -- or if there is any

8    liability -- a physician who sort of really doesn't

9    ever examine this patient, sees that an American

10   colleague has signed, and therefore, just goes ahead

11   and signs a Canadian version of the same script?

12                MS.     WELLS:        Well,      I       can              as    I

13   mentioned in my presentation, there are a lot of the

14   licensing bodies now for physicians who have come

15   out against co-signing.         And I know that the agency

16   in Canada that covers liability for physicians has

17   also publicly stated that there would probably be a

18   problem if there was an error or a mishap with an

19   American   patient    who    had     received         a     prescription

20   that was just co-signed.           There may not be coverage

21   for that physician.

22                MR.     JULIEN:       We   are       working        with       the

23   College of Physicians, and they have been acting on

24   that.   They have sanctioned their members who co-

25   sign prescriptions.         Their public message is not to

26   do that, and they are acting against that.

27                DR.     O'GRADY:        Could        I    ask       one    more
                                                                              23
1    question?

2                    CHAIRMAN      CARMONA:       Please.          Go    ahead,

3    Dr. O'Grady.

4                    DR.    O'GRADY:       Sure.           Ms.    Wells,     you

5    brought up a discussion that you had either over the

6    phone or whatever with a drug manufacturer who was

7    thinking of introducing a new drug into Canada but

8    was hesitating in some sense.              Now can you just sort

9    of    expand     for    us    a     little      bit,        without    any

10   confidences here, if I'm a drug manufacturer and

11   I've already introduced something in the States, and

12   I'd like to think about introducing it in Canada, if

13   there's not            I mean, much of what is behind the

14   whole   importation         thing   has    go    to    do    with     price

15   differentials between the two countries.                      So if I'm

16   a manufacturer, don't I just offer it in Canada at

17   the   same     price   as    I'm    asking      for    in    the    United

18   States, and then sort of the incentive to import or

19   re-import goes away?          Or are there other limitations

20   on that manufacturer's ability to simply charge the

21   same amount as they do in the States?

22                   MS. WELLS:          Yes.     We have the Patent

23   Medicine Prices Review Board in Canada.                       There are

24   price controls on pharmaceuticals in Canada, so I'm

25   presuming that would stop them from charging the

26   same prices in the U.S.

27                   DR. O'GRADY:        I see.       So if the Canadian
                                                                                  24
1    Board    basically      allowed       them    to     charge      the    same

2    prices, their incentive to not offer in Canada would

3    go away?

4                  MS.       WELLS:        Well,     I       mean    the    price

5    differential is probably the main driver.

6                  DR.       O'GRADY:       Yes.         I    guess    all       I'm

7    thinking    about,      in    terms     of     the       board    and       its

8    responsibilities in terms of access to drugs for

9    Canadian citizens, that at some point there is that

10   notion of price versus gaining access to what you

11   view are needed drugs.               So that dynamic between the

12   manufacturer and the board in Canada seems to be

13   somewhat    separate      from       either    our       world    or    your

14   world, other than we're both affected by the price

15   differential and its effects.

16                 MR. GUSE:          If I can add to that just

17   briefly,      what we're seeing in recent history is

18   that the introductory prices set by the board that

19   Ms. Wells described, the amount is pretty well on

20   line with what the American introductory prices are.

21   One of the requirements under the Patent Medicine

22   Prices    Review    Board       is    that    the       price    increases

23   thereafter,       and    your    price        increases         are    at    a

24   greater    rate    than      what     our's    is.         So    what       the

25   starting point might be, same or similar, the gap

26   grows as the years pursue.

27                 CHAIRMAN          CARMONA:        Thank          you.         Dr.
                                                                           25
1    McClellan.

2                    DR. McCLELLAN:        Yes, thank you.         This is

3    actually for any of you.              You all expressed some

4    concerns about safety on both sides of the border,

5    with a disconnected system, with us each going about

6    our own ways of trying to meet our medical needs.

7    You all talked about a fragmented system for filling

8    prescriptions over here, with people going across

9    the    border     and    having     prescriptions       written       by

10   doctors that hadn't seen patients, and not being

11   connected    to    our     safety     systems.         And    on     the

12   Canadian side about potential problems in access to

13   medicines, as well.           They just aren't marketed or

14   there's not enough supply of them given the U.S.

15   demands for those medicines.

16                   I clearly understand all the problems.

17   I just wonder if you all have any other suggestions

18   on how we can work together to address them.                       In my

19   former job at FDA, I spent a good deal of time with

20   Deputy     Assistant       Minister     Gorman     on        our     new

21   collaborations in some areas.              We signed a joint

22   memorandum of understanding to work together on, not

23   just     cross-border      safety     issues,    but     also       drug

24   manufacturing           methods,     harmonizing         regulatory

25   approaches, steps that collectively might bring down

26   the costs of medicines in both countries.                          And I

27   wonder if there are other ways to do that, as well.
                                                                26
1                 For example, in the United States there

2    obviously    are    some    real      concerns   about   the

3    differences in the prices of brand-name medicines,

4    and we'd like to find ways to bear less of the share

5    of those costs, and reduce our price burdens here.

6    On the other hand, in Canada, as I understand it,

7    most    generic    medicines    are     significantly    more

8    expensive than in the U.S., perhaps as a result of

9    price regulation or other steps that maybe got in

10   the way of what should be a very competitive market,

11   and they're not used as widely as they are in the

12   U.S.,   a   significantly      lower    share    of   generic

13   prescriptions.

14                Well, maybe there's something we could

15   learn from each other that would reduce the price

16   differences between the countries without having to

17   spend more on prescription drugs in Canada.              Any

18   thoughts like those about how we could work together

19   on this, because it seems like when we're working

20   separately it reinforces both higher costs, access

21   problems, and safety problems.

22                MR. GUSE:     Yes, thank you.       And I think

23   it's a great issue, and there's some answers out

24   there that we need to look at, for sure.

25                A couple of things on those points.          The

26   overall perception is, on even a limited category of

27   drugs, that Canadian prices are much better than the
                                                                             27
1    American price.         In fact, that's what driving the

2    industries      in     some     regard.             But      there     is

3    differential      pricing     within    your     country,         through

4    organized - I don't know if I'm going to use the

5    right term - but organized purchase groups that get

6    phenomenal prices, I'm sure, probably better than

7    what some of the Canadian prices are.

8                   However, the profile appears to be with

9    the individuals that can least afford to pay the

10   higher prices.         In fact, those are the ones.                    And

11   when you take that population, the prices they're

12   paying, then the Canadian price seems to be a great

13   advantage,      and     obviously        that's        why        they're

14   purchasing     the    product    from    Canada.          So    I   think

15   those issues are right on.

16                  The issue about generics, the thing you

17   described    is      also    correct,    in     that      our     generic

18   prices appear to be higher than they are in the

19   United States.        And again, as much as we can look at

20   the issues of price and disparities, and why that's

21   occurring, we can't lose sight of the patient care.

22   And     if   you      boil     this     issue     down       to     price

23   differences, how do we get the right price -- and I

24   don't   mean    disrespect       --    but    you    also       have    to

25   clearly roll into there is it the right drug, are

26   they being taken, is it the compliance.                        Because I

27   think there's a lot of cost savings when you look at
                                                                                 28
1    patient    compliance         and     the     pharmacists       doing      the

2    care that they ought to be providing.

3                     MR. JULIEN:             Yes, if I might comment.

4    For the generic, we know that what we see of the

5    price,    it's    higher      in      Canada    than     in    the    United

6    States.      We    have       to    learn      from    you.         For    the

7    original    drugs,       as     has    been     mentioned,       it's      not

8    always       it's sometimes misleading for the public,

9    because    the    price       that       is   paid    that     we    see    in

10   general -- we have a buying group or we have, for

11   instance,    in        Quebec      the      insurance     for       all    the

12   population, so the price that we see is the price

13   that the government pays or the pharmacist will pay.

14   So sharing information about the real acquisition

15   costs through different groups in the United States

16   would be useful in order to understand what is the

17   real differential at the end.                  It's certainly higher

18   in the United States, but some action means that

19   it's higher for part of the population, but not for

20   all.     So if we compare hospitals, for instance, they

21   might be lower than in Canada, or a bit higher, but

22   it has           we need more information.                    And I think

23   people dealing with that need to share information

24   that would be helpful on that situation.

25                    CHAIRMAN       CARMONA:         Dr.     Crawford,         and

26   then Dr. Raub after.

27                    DR.     CRAWFORD:            Monsieur        Julien,      you
                                                                                  29
1    mentioned that it's not possible under Quebec law

2    for a prescription to be filled that's written by an

3    American physician unless the American physician is

4    also licensed in Quebec.               Is that correct?

5                   MR. JULIEN:             Yes, that's the situation

6    that we are enforcing, the interpretation - that the

7    prescription           the pharmacist is authorized to fill

8    prescription      by     an    authorized       prescriber,             meaning

9    someone   authorized              in     Quebec,         or     in         some

10   circumstances from other provinces, but it's mainly

11   in Quebec.        So a prescription I interpret -- and

12   that's what we enforce, that a physician that signs

13   a prescription from the States is not authorized in

14   Canada.      If      I    receive        it,    it's     not        a     legal

15   prescription, and it's illegal for me to fill it.

16                  DR.       CRAWFORD:           Whether      or        not     the

17   physician is licensed in Quebec?

18                  MR.       JULIEN:        If     he   is    licensed           in

19   Quebec, then the other step that we will look -- it

20   doesn't mean that we'll encourage that, to have a

21   physician in Florida that is authorized in Quebec

22   and signs prescriptions and that over the Internet,

23   because   we're          going     to    look       at    comprehensive

24   pharmacy services.            So will the patient get in touch

25   with his pharmacist and so on.                  So we're looking at

26   another aspect.          But at the very first, most of the

27   prescriptions        that        transit       through        the       border
                                                                                       30
1    through the Internet are for us considered illegal

2    prescriptions.            That's        where     we       stop     pharmacists

3    from     using      it.           And     if      a        Quebec    physician

4    countersigns, we even say that it's not allowed.

5    It's not good practice, and we don't consider it the

6    thing to do, and we stop that, as well.

7                       DR. CRAWFORD:         Okay.         Thank you.

8                       DR.    RAUB:         Thank     you.            This      is     a

9    question for anyone or everyone on the panel, and

10   it's    about      capacity.            If   we       had    a    satisfactory

11   system for importation of prescription drugs from

12   Canada        to    the         United       States,          and      if        the

13   pharmaceutical manufacturers were willing to sell to

14   Canadian pharmacies all the drugs that they wanted

15   to     buy,    where      does     the       strain         begin    with        the

16   Canadian system?           Would twice the current volume of

17   transactions break it?                   Three times? Five times?

18   What is the capacity of the infrastructure to go

19   significantly beyond the volume of sales that you

20   handle now, especially pharmacists, facilities, and

21   the like?          It's unfair to ask for any particular

22   numbers.       I don't mean that, but just some attempt

23   at a quantification.

24                      MR. JULIEN:          If I may start and try, I

25   don't think it will work like that.                          It won't break,

26   because if we open the door, we have a lot in the

27   United    States         that    will     come        up    to    service        our
                                                                            31
1    sales.     So there's no            they will have a problem, a

2    short-term problem, but the fact is that we're not

3    going to authorize the moving of a drug.                        What we

4    will do if we allow the system to continue, we will,

5    in fact, allow the professional moving like free

6    trade.        Free trade does not include right now the

7    professional free moving in one country to another.

8    When a mayor from a city here said, Go buy your

9    drug, I say he should say, Come, Mr. Julien, to work

10   in my city, because that's what he's saying.                         He's

11   saying to people the services offered up North are

12   good.     Why not bring the professional here.                   So why

13   do we stay there?            Because of the product.            Then, I

14   guess, what will happen is the price will go up and

15   moving across the border, and certainly we'll find

16   American       pharmacies      wise    enough   to    try       to   send

17   cheaper       drug,     cheaper   prescription       up    in   Canada,

18   even though there is a differential of price.                         We

19   have     seen    a    very    big     transaction     so    far      with

20   pharmacies and people on both side of the border, so

21   I cannot say that it will break the system.                     It will

22   reach     a     point     where     other   measures       work,     and

23   probably some pharmacists will work for Americans,

24   and other will work for Canadians from the States,

25   beside the fact that there is a problem, but the

26   price will go up in Canada, certainly.

27                    MR. GUSE:        Dr. Raub, if I can just add
                                                                          32
1    to   that.     Again,     it    comes   down     to    the    idea   of

2    distribution.        If we're talking about distribution

3    pure and simple, I think the likely alternative,

4    rather than having the product packaged and prepared

5    in Canada, with due respect, it might very well be

6    to have the product shipped to the States through

7    the wholesalers, for example.             And you have                I

8    mean, our pharmacists, we've done some studies on

9    how the pharmacists in the United States compare to

10   the pharmacists in Canada, and the competencies are

11   right-   on   equivalent.        And    you've    got    some    good

12   practitioners there, I know, and they can deliver

13   the care.     And if it comes down to where the product

14   comes, it might very well be the concept to have the

15   wholesale     ship   to   the    pharmacies       in    the    United

16   States and provide the care locally.

17                  MR. SACHDEV:       This is a question for Ms.

18   Wells and Mr. Guse.        In your testimony, each of you

19   talked separately about, Ms. Wells, the need for

20   some study of the impact of importation and noted

21   that   your   organization       had    called    for    a    ban    on

22   importation until such study could be done.                      And,

23   Mr. Guse, you mentioned the need for sort of an

24   assessment or an analysis of the legal impediments

25   related to importation.           Can you both update us on

26   what the status is of that, of your call to the

27   government, but also of the effort to do that type
                                                                              33
1    of analysis?

2                   MS. WELLS:      I know there are groups in

3    Canada right now looking at collecting information

4    on drug shortages, for instance.                And we also know

5    that   Health        Canada    has     started        to      do    some

6    inspections in pharmacies looking for breaches in,

7    if they are purchasing drugs from other pharmacies,

8    they're acting as wholesalers.                And if they don't

9    have   an    establishment          license,     that      would        be

10   illegal, so they're looking for that.

11                  Health     Canada       is    also     looking           for

12   unapproved drugs being dispensed, so that's going on

13   right now, as well as studies on shortages of drugs,

14   and impact on pharmacist manpower, so it's going on

15   right now.

16                  MR. SACHDEV:         And in terms of your call

17   for a ban, how has that been received?

18                  MS.    WELLS:    Health       Canada     has     pointed

19   out that in terms of the exportation of drugs to the

20   U.S., there's nothing federally that prevents that,

21   so they're still sort of being watched right now by

22   the federal government.         We actually have a meeting

23   scheduled for next week.             The federal government is

24   meeting with the regulators of pharmacy and medicine

25   just   to   discuss     some   of    these     issues,     so      it   is

26   certainly something that's under study right now by

27   the federal government.
                                                                                      34
1                       MR. GUSE:        Thank you.             And with regards

2    to the legal issues -- and I'm not a lawyer, I'm a

3    pharmacist.         But the idea of our jurisdiction, our

4    public,      if     you     will,    is        patients         that      receive

5    medications from pharmacies located in Manitoba, so

6    we    have    an    obligation,          and       in    fact   do     complaint

7    investigations.              The     challenge             around      that      is

8    collecting evidence when the evidence is not located

9    in my province, or in my country.                           The ability to

10   subpoena witnesses has been a challenge, so we're

11   still    exploring        some      of    those          challenges,       and   I

12   don't have all the answers for you, but I do have a

13   lot of the questions, or the challenges that we see.

14                      MR.    SACHDEV:             A    follow-up          question.

15   Actually, in all of your statements you note that

16   it's not possible for any particular province or

17   state regulatory agency to possess the resources or

18   expertise to go beyond its borders. I think that was

19   from Ms. Wells' statement.                         From Mr. Guse's, it's

20   something to the effect of the provincial regulatory

21   systems do not               really are not designed to allow

22   for     the        regulation        of            the     exportation           of

23   prescription drugs.              And from yours, Mr. Julien, I

24   think    you       talked    about       the        loosening        of   public

25   protections          as     a      result           of     importation           or

26   exportation of prescription drugs where you think

27   about issues like liability concerns.
                                                                            35
1                      To the U.S. consumer who is purchasing

2    drugs typically through an Internet portal, what are

3    you saying in terms of what they should expect from

4    the provincial pharmacy regulator in Canada in terms

5    of their oversight of the price coming into this

6    country?

7                      MR.   GUSE:         Well,      there        are    some

8    challenges also in that regard because first off,

9    there's       different     businesses           out     there,       and

10   businesses, pharmacies, in fact, that we do license,

11   and     they're     required     to        display    that     on    their

12   website    if     that's   all   they're        advertising.          But

13   there's also businesses out there that leave the

14   consumer with the impression that they are licensed

15   in Canada, or they are Canadian, or in fact, they're

16   licensed by us.         And we have some challenges around

17   that, where we try to convince them that they ought

18   to remove that impression from their website.                         And

19   if they wish to participate in that, then we have

20   cooperation.        We have a success.               If they wish not

21   to, and they're not located in Manitoba, or they're

22   not located in Canada, frankly, I don't know what we

23   do.

24                     MS.   WELLS:        We     developed       some    model

25   standards a couple of years ago, not designed to

26   speak    to     American   citizens          looking     to    buy   from

27   Canada, but for         folks across Canada looking to use
                                                                         36
1    websites to interact with their pharmacies.                   And one

2    of the requirements is that there be posted on the

3    opening page of the website sort of a warning that

4    if there is a problem, the consumer may not be able

5    to find redress in the jurisdiction of where the

6    pharmacy is located.              They might have to seek some

7    assistance    from       the   licensing     body    where    they're

8    located.     So when you say what do you say to the

9    American     citizens,         it's    not     clear        how   much

10   assistance a licensing body in Canada could give

11   them if there was a problem.            They may have to go to

12   their state board.

13                  MR. JULIEN:          May I make a comment and

14   then Mr. Binet.          What I wrote in the paper is that

15   the public is losing.             That's my opinion, and that's

16   what we promote.            The public is losing its legal

17   umbrella protection when it deals with a pharmacist

18   across the border for prescription drugs.                     In most

19   of the provinces and states, we have consumers law

20   protection.         It    works     within   this    jurisdiction.

21   Professional activities, it's about the same, so if

22   someone         I        cannot    guarantee    to     an    American

23   citizen, come and buy through a pharmacist, that I

24   will be able to protect him in case of an error, for

25   instance, because we are suing the pharmacist not to

26   do that.      Since it's illegal, the pharmacist won't

27   be protected by his professional insurance.                   So then
                                                                                       37
1    we are losing, and it will be the same problem for

2    someone in Canada buying from a distance.                                 So this

3    is very important, and that's what we are explaining

4    to     people,        that    we    are        losing       this      type       of

5    protection.

6                     It's like if I buy a used car here today

7    and drive up to Canada, I won't have much protection

8    with    that     car.        So    this       is   very     important,           and

9    that's what we say to people.

10                    MR. BINET:         If I might just add, I'm the

11   investigator, the chief investigator and director of

12   the Order of Pharmacists, and you've just asked what

13   would you say to one of our citizens.                            I had those

14   complaints        before.            Some          people       called       from

15   Illinois, Hawaii, wherever in the States, and the

16   answer is I can't help you.                    That's the problem, and

17   that's the reason why we are working hard in Quebec,

18   as Mr. Julien told you.               We have a law that prevents

19   anybody     else       not    being       a    pharmacist            to    own    a

20   pharmacy    and       sell    drugs.           And    this      is    our    main

21   success because if you have a website or a cyber

22   pharmacy,        it     cannot      be        owned       by     other       than

23   pharmacists in Quebec.                And this is not a type of

24   practice that we allow, so we prevent this type of

25   practice.

26                    And     those      people         who    are    buying          the

27   medication from a website that's in Montreal, or in
                                                                                  38
1    Quebec, anywhere in the Province of Quebec, because

2    it's illegal to practice this way, we don't have

3    directly    a    sense    or     a    manner        to    work    for    their

4    problem.    The thing we have to work upon is to go

5    into court and have a penal lawsuit against those

6    people.         But    because       they're           practicing      illegal

7    pharmacy, not directly assessing the problem of the

8    patient    who       called   us     having        a    problem     with   the

9    pharmacy or the cyber pharmacy, so we're doing it

10   generally       to    prevent        this        type    of     practice    in

11   Quebec.

12                    MR. JULIEN:          A final point on what we

13   say to pharmacists:            if you get engaged in this type

14   of what we call illegal activities, you may feel

15   protected because you are behind the U.S. border.

16   But if you cross with your car or if your plane

17   stops in the United States and you get caught there,

18   you will have to answer a question from the patient

19   then, and a lawsuit is possible over there.                                 So

20   professional            we have to protect our professionals

21   who sometimes are led to get involved in that.

22                    MR. SACHDEV:          One last question for any

23   of you.     We've also read recently of accounts of

24   more limited supplies occurring in Canada because of

25   the   restrictions        that       are     being       placed     by     U.S.

26   pharmaceutical companies on supplies to Canada.                            And

27   we've   also     read     accounts          of    some     of    the    larger
                                                                                39
1    suppliers of the pharmaceuticals back in the United

2    States looking to alternative sources, sources where

3    they hadn't previously looked to identify supply,

4    including over in Europe, the U.K., and the like.

5                    If,      in     fact,      those        operations         of

6    pharmacies in the various provinces do decide to

7    change their supply and start supplying product to

8    the United States from those European sources, or

9    England, or Ireland, would that be considered, under

10   the     provincial       laws       an   acceptable       practice         in

11   Canada?     Would it be a legal practice?                  Would it be

12   a practice that you all believe is an appropriate

13   practice?

14                   MS. WELLS:          Are you speaking about using

15   unapproved drugs?

16                   MR.   SACHDEV:           Well,    it's    unclear.          I

17   mean, these are drugs that they would be                               what

18   we've    read    about    in    the      recent    articles      is    that

19   these     pharmacies      --        whether      it's    the     Internet

20   website     that's    got       a    pharmacy      behind       it    or   a

21   pharmacy     that's       a     cross-border        pharmacy         that's

22   sending drugs to the United States -- as they run

23   out of certain supplies, perhaps they are looking

24   elsewhere, including in Europe and the U.K. to find

25   additional      supply.         What     that    supply    is    an    open

26   question.       The question I'm asking is what your view

27   would be of the shipment of those products into the
                                                                       40
1    United States if, in fact, they go from a pharmacy

2    that's located in one of the provinces?

3                    MS.    WELLS:       We   would        not     condone

4    pharmacists     dispensing       unapproved drugs regardless

5    of where the patient lived.

6                    MR. SACHDEV:       And so your view is that

7    the drug would be unapproved in Canada when it came

8    into your country.

9                    MS. WELLS:       That's right.

10                   MR. SACHDEV:       So the exportation of that

11   product    would      not   be    something   that      you    would

12   support.

13                   MS. WELLS:       That's right, because one of

14   the things that -- there seems to be a sort of a

15   misconception      that     trans-shipment       is    allowed    in

16   Canada.    And we've had it confirmed by Health Canada

17   that that's not the case.           There is a section in the

18   food and drug regulations that there are some sort

19   of misinterpretations of, but if our pharmacies were

20   dispensing unapproved drugs to anyone, regardless,

21   that would not be condoned.

22                   MR. SACHDEV:       So any of the drugs coming

23   from   Europe         the so-called trans-shipped drugs --

24   would be not consistent with your import-for-export

25   provisions?

26                   MS. WELLS:       If they weren't approved for

27   use in Canada, right.
                                                                             41
1                   MR.     SACHDEV:         Other       folks      want     to

2    comment on that?

3                   MR.     JULIEN:          Very        briefly.           For

4    pharmacists,    they       are    allowed      to    buy    drugs     from

5    authorized     manufacturer            or     wholesalers.             We

6    recommend to do that, so we assume that the drugs

7    that they are selling have been authorized by Health

8    Canada.      And what we say to Health Canada is we

9    should    improve     the    supply,        the     security    of    the

10   supply    chain,     and    have   a    better       recognition      and

11   probably some type of standard and permit for the

12   wholesalers, a better framework with them in order

13   to secure that, and be sure that the drugs that are

14   sold   are   authorized      in    Canada.          That's     the    main

15   point about the product.

16                  MR. SACHDEV:            And just a follow-up on

17   that comment.        I think each of you, particularly Mr.

18   Guse, you've mentioned that you're seeing sort of

19   prescription          brokers,          pharmacy            affiliates,

20   prescription         co-signers,            fulfillment        centers,

21   international      prescription         service      pharmacies.        I

22   guess the question I have for each of you that's a

23   follow-on to this is:            In terms of the distribution

24   chain that you're talking about, what pressure are

25   you already seeing in Canada as a result of the

26   increased    importation         into    the      United     States    of

27   these drugs to the distribution system, and what
                                                                                      42
1    would     you    expect        if     Congress       does       -     the     U.S.

2    Congress decides to legalize importation?

3                     MR. GUSE:          Thank you.           The difficulty is

4    that because this business is again, a frontierism,

5    gold-    rush type of entrepreneurship -- let's get

6    into it -- we are seeing prescription brokers, we're

7    seeing a lot of intermediaries between the patient

8    and     the     pharmacist          or     the     pharmacy.             So   the

9    challenges are, from an investigation perspective,

10   to follow the drug, to follow the information, to

11   follow     the       money     -     the       challenges       are      getting

12   greater       and      greater,          and     frankly,       beyond        the

13   expertise        and     resources          of     any    one       provincial

14   licensing authority to work on their own.                                 So the

15   challenges that those types of situations present

16   are very grave, to say the least, because we have

17   difficulties looking for the chain, the connection

18   between these businesses.

19                    And I just wanted to clarify one point.

20   In    Canada,        when      people      use     the    term           internet

21   pharmacies , I just want to be certain that the task

22   force is aware that we really don't have virtual

23   Internet      pharmacies.            They        would   have       to    have   a

24   location.        They would have to have a traditional --

25   if I can use that term -- license, so there is a

26   hard and fast location.                  They just choose to service

27   Americans       or     other       jurisdictions         outside         of   that
                                                                                    43
1    location.

2                     MR. SACHDEV:                So would you expect, if

3    the     U.S.     Congress             were     to      provide       a      broad

4    legalization          of     importation,              would    you      expect

5    additional       changes         in    the     way      your    distribution

6    system in Canada operates?

7                     MR.        GUSE:            The       distribution           for

8    Canadians?

9                     MR. SACHDEV:            Yes.

10                    MR. GUSE:            I'm not certain. I guess, I

11   don't           the impact that I would see is if the

12   Canadian government reflects what your decisions or

13   the American government has here, that not only is

14   there a north-to-south flow, but there's a south-to-

15   north flow.        And that, yes, absolutely would have

16   impact.

17                    MR. SACHDEV:            And so you would expect to

18   see     more     of        these        prescription           brokers       and

19   affiliates and fulfillment centers?

20                    MR.       GUSE:       Well,       I   think    as    we     work

21   together to set up a framework where this can be

22   done,     and     it        doesn't          have      to      be    done     in

23   contravention of some of your laws, and maybe some

24   of     our's,    so        the    agreements           are     set    up,    the

25   standards are in place, and if it's going to be

26   done, this is how it's to be done.                       I think it would

27   take    those     types          of    activities,           they    would    be
                                                                                   44
1    diminished.           And    if     pharmacies          were       involved   in

2    those types of activities that maybe exploit the

3    patient     or    take       away     the    patient       autonomy,        that

4    those businesses would discontinue.

5                      CHAIRMAN CARMONA:               Yes, Ms. Hardin.

6                      MS. HARDIN:          I just want to clarify one

7    point that just came up.                    Ms. Wells, you mentioned

8    that you've confirmed with Health Canada that trans-

9    shipment is illegal in Canada.                          Do you know what

10   penalties someone would face if they did engage in

11   trans-shipment?

12                     MS. WELLS:          That would be, I guess, akin

13   to   illegal       importation,             and    we     don't      recognize

14   trans-shipment          at     all.         So     once    a       shipment   of

15   pharmaceuticals hits our shores, regardless of --

16   like where it's ending up is irrelevant, so I'm not

17   sure of the penalties, but it would be considered to

18   be illegal importation of drugs.                        But I don't know

19   the penalties.

20                     MS. HARDIN:          So you don't have a sense

21   of   what        kind     of      action          either       a    provincial

22   government       or     your    federal          government         could   take

23   against someone who was engaging in that kind of

24   activity?

25                     MR. GUSE:         Well, the federal government

26   would be responsible for the product coming in and

27   what type of activities, or not activity, what laws
                                                                                     45
1    that     would     contravene.               If      the       pharmacy,       for

2    example, was using those products, then it would be

3    a     provincial         jurisdiction               of     the        regulatory

4    authorities, and they could potentially lose their

5    license from a provincial activity.                            But in Canada,

6    the product - as our Quebec colleagues have said -

7    the product is more so -- the quality and safety of

8    the product is a federal jurisdiction.                               And if the

9    product     is     coming         in   illegally           and       being    used

10   illegally,        then       it     would      be    federal          monitoring

11   activity,     and       any       fines    and      stuff       would    be   the

12   federal government.               We would then, if it involved a

13   pharmacist or pharmacy, then it would be up to the

14   provincial        licensing         authorities           to     address      that

15   issue.

16                     MS.    HARDIN:            And      is     the       provincial

17   authority to take away someone's license, is that

18   the    same      penalty          someone      would        face      for,     for

19   example, filling prescriptions that were signed by a

20   United States doctor or someone who wasn't licensed

21   in Canada?        Is that the same penalty, or is that the

22   only penalty?

23                     MR. BINET:           Well for us in Quebec, the

24   penalty    could        be    the      same.         It    depends       on    the

25   disciplinary committee, but as it's written in our

26   comments,     I    think,          there    was      one       pharmacist     who

27   engaged     in     cyber          pharmacies,        and       his    right    to
                                                                                       46
1    practice was suspended for 18 months.                          And as I said

2    before, to own a pharmacy in Quebec you need to be a

3    pharmacist,      so      when        you        are     suspended           as    a

4    pharmacist, you don't keep your title pharmacist.

5    So you cannot own your pharmacy, so you have to sell

6    it.     So it's a big, big penalty for a pharmacist

7    engaged in            that's probably why we don't have a

8    broad    problem       with     cyber           pharmacies          in    Quebec

9    regarding pharmacists, because we act quickly.                                   The

10   problem is that those aren't pharmacists who are

11   opening their sites.             So what the penalty would be

12   for    those    people     who       are        now    in     front       of     the

13   Superior       Court     for      penal           lawsuit           for     three

14   companies,      three    cyber        pharmacies,             the    fine      that

15   we're seeking is more than $150,000 for engaging in

16   those activities right now.                      So we're in front of

17   the Superior Court, so we don't know until maybe

18   2006 what will happen, but this could be the penalty

19   or the fine for this kind of practice.

20                   CHAIRMAN        CARMONA:              Thank    you       all     for

21   taking the time.          Thank you for your patience.                           We

22   appreciate your input.               I know some of you have to

23   catch    some   flights,        so     thank          you     for   staying        a

24   little     longer       with     us        to     answer        the       panel's

25   questions.       We     really        do    appreciate          your      input.

26   We'll go ahead and switch over to the next panel

27   now.    Thank you very much.
                                                                                        47
1                       (Whereupon,            the     proceedings              in     the

2    above-entitled matter went off the record at 2:43:04

3    p.m. and went back on the record at 2:45:06 p.m.)

4                       CHAIRMAN        CARMONA:          All      right.           Ladies

5    and gentlemen, we'll begin with Panel II.                                And let's

6    start    at    the       other     end     this      time         with    Dr.    Jack

7    Calfee.       Thank you, sir.

8                       DR.    CALFEE:          Okay.          Thank       you.        I'm

9    honored       to   be     here.           I     submitted          some      written

10   comments, and I would just summarize those briefly.

11   I     assume       at     this      point       we       should       move      along

12   rapidly.       I'll only look to two issues of the long

13   list that were published in connection with these

14   hearings,      and       that      is    Item    8   where         the     wording:

15   "Assess the potential short- and long-run impacts on

16   drug prices and prices for consumers associated with

17   importing drugs from other countries."                               And Item 9:

18   "Assess the impact on drug research and development

19   and the associated impact on consumers and patients

20   if importation were permitted."

21                      On the first of those two items, which

22   is    the    impact      on     drug      prices,        I    think       that   the

23   impact depends very much on what kind of importation

24   law     we    have.           If    we    have       a       simple      law     that

25   essentially permits free importation with some sort

26   of    reasonable          safety         standards           to     give       people

27   reasonable         assurance            that     they're           getting       safe
                                                                              48
1    drugs, and nothing much more than that, then I think

2    that the dynamics would be similar to some of those

3    that the earlier panel was referring to briefly; and

4    that is that the demand for drugs from Canada to be

5    shipped to the U.S. would quickly exceed any volumes

6    that are available in Canada.                     The manufacturers

7    would   restrict      supplies       to     Canada.         They      would

8    refuse to undercut their profits by shipping drugs

9    to Canada, or by arranging for drugs to be shipped

10   from Canada at Canadian prices.

11                   The Canadian authorities would face some

12   difficult problems.          There would be movement towards

13   trans-shipment        from       other      nations,        which      I'll

14   mention    in   a    moment,      but     it's   unlikely      that    the

15   supplies   that      would       arrive    in    the   U.S.    would    be

16   sufficient to lower prices very significantly.

17                   If Congress passes a different kind of

18   law, the kind of laws that are now under active

19   review, which more or less requires manufacturers to

20   satisfy    demand         from     wholesalers         in    Canada     at

21   Canadian    prices,        then     it's       possible     that      large

22   supplies would arrive at the U.S.                      There is good

23   chance that there would be a mismatch between the

24   kinds of drugs that have been approved in Canada,

25   specifically        the    dosages,       et     cetera,      which    Dr.

26   Danzon can tell you more about.                   But, nonetheless,

27   at least for certain of the more heavily used drugs,
                                                                                    49
1    we could expect supplies to arrive fairly rapidly.

2    And   the   question           then    is    what     would        happen      to

3    prices.     And       if       the    manufacturers       are      literally

4    required to sell to wholesalers at Canadian prices,

5    then we're going to get a supply of at least quite a

6    few drugs at Canadian prices, and we would be in a

7    very strange situation because there isn't just one

8    price in Canada.               The PMPRB regulates prices in a

9    general fashion, but then the provinces have their

10   own regulations, and those usually result in prices

11   that are lower than the PMPRB limits, and different

12   provinces   are       different.             We   would      end    up    in   a

13   situation in which American prices are being linked

14   to certain specific Canadian prices, which would be

15   a very strange situation.

16                  If     Canada         were    to     permit    mass       trans-

17   shipment, then at some point U.S. prices would be

18   linked to prices in Greece or Portugal or Spain or

19   some place like that, again a very, very strange

20   situation   which          I    don't       think    would     be    tenable

21   politically.

22                  On the question regarding research and

23   development,      I    think         the    scenario      that      commands

24   attention is the second one that I just mentioned,

25   in which manufacturers are more or less forced to

26   ship sufficient drugs so that the shipments have an

27   impact on U.S. prices, and U.S. prices are pushed
                                                                                  50
1    down towards Canadian prices.                      There, I think the

2    analysis        is      pretty       straightforward.                      Drug

3    development is conducted in order to realize profits

4    later    on.      If    the    expected       profits      are    reduced,

5    manufacturers will rationally reduce their R&D, and

6    more specifically, they'll reorient their R&D, to

7    the    extent    they       pursue   it,      towards      the       kind    of

8    development that's less risky, that produces drugs

9    that have less potential.                  And eventually, we would

10   end up with some very serious adverse effects on R&D

11   incentives.       And that summarizes my remarks.

12                    CHAIRMAN CARMONA:            Thank you, sir.               Our

13   next speaker is Mr. Jeff Lemieux.

14                    MR.    LEMIEUX:        Thank      you,    Dr.    Carmona,

15   for the opportunity to comment.                      My name is Jeff

16   Lemieux.             I'm     with      a     small        group       called

17   Centrists.org.         Our mission is to help policymakers

18   like you develop ideas that could achieve lasting

19   bipartisan support on some of the toughest national

20   issues, like health care.               And I know the panel has

21   already heard from consumer advocates and elected

22   officials       talking      about     how    important         it    is    to

23   reduce    prices       and    improve       drug    coverage         for    the

24   uninsured and people with low incomes, especially

25   senior citizens, so I won't talk about that.                            And I

26   know you've also heard from experts on security, and

27   from    people       with    serious       illnesses      who     are      very
                                                                              51
1    concerned about the safety of drugs imported, and so

2    I won't talk about that either.

3                     Instead, what I'd like to do is offer a

4    very broad and admittedly simple economic analysis

5    of globalization, and how medicines would be priced

6    around     the     world        if     unrestricted           trade    and

7    pharmaceutical prices became the norm.                          And this

8    follows on the comments from Jack.

9                     First,        there's       three        characteristics

10   that    differentiate          medicines      from    trade     and    some

11   other     products,        I     think.             The     industry    is

12   extensively involved with government.                         Governments

13   sponsor basic research, monitor safety, and act as

14   the     main     purchasers          and     set     prices     in     some

15   countries.

16                    Second, with medicines, there are strong

17   moral issues and economic externalities; that is, if

18   some     people    don't        take       their     medicine    or    get

19   vaccinated, other people will get sick, so we have a

20   public health issue.

21                    And third, the main cost of medicines is

22   in discovery and development.                      This is similar to

23   the software industry and in some respects to the

24   telecommunications industry.                  Usually, modern trade

25   involves a search for the lowest production costs.

26   If computer programmers in India can do the same job

27   cheaper,       companies       all   over     the    world     will    hire
                                                                                   52
1    them.      If toys can be made cheaper in China, we'll

2    import Chinese toys, and this is a very good thing

3    usually.           Trade     sometimes        works       in     messy      and

4    disruptive       ways,      but     usually       countries         that   open

5    themselves up to trade prosper, and countries that

6    buy     products       at     comparative          advantage         overseas

7    prosper, as well.

8                       However,          my      impression              of      the

9    prescription drug industry is that the production

10   costs      are   extremely         low,     and    I     believe       they're

11   fairly      uniform        across     the     world.           So    instead,

12   international trade in medicines is essentially a

13   search for the lowest pricing system.

14                      I think, and I think this is consistent

15   with what Jack said, that the long-run impact of

16   unrestricted trade in pharmaceutical prices would be

17   a new equilibrium with overall global prices not too

18   different from today's.                   However, the distribution

19   of global prices would change, and the process of

20   getting to this new equilibrium could be very messy.

21                      U.S.     retail    prices       for    people       without

22   insurance        or    group       discounts       could       fall,       other

23   developed countries with price controls could see

24   some upward pressure on their prices.                           The problem

25   in    my    mind      is    what    could     happen       in       the    less-

26   developed countries.

27                      For most products, free trade leads to a
                                                                          53
1    long-run        tendency     toward        one      world     price.

2    Economists      sometimes    call     this    the    tendency       for

3    exchange rates to change in a way that leads to

4    purchasing      power   parity.       Ten     dollars       buys    ten

5    dollars worth of a certain tradable good anywhere in

6    the world if markets are relatively free.                    And the

7    question is, do we want that for medicines?                        In a

8    world    with    unrestricted       trade     and    drug    prices,

9    companies will respond in their interest.                     They'll

10   try and estimate how much of their product is likely

11   to be purchased for in-country use, and not allow

12   more supply into that country than is needed.                       And

13   those supply responses by producers in turn will

14   lead importers to search for better deals in poorer

15   and     countries.         Because    prices        for     medicines

16   currently vary widely from rich to poor countries,

17   this    drug    price   arbitrage      business       will    be     so

18   lucrative that they'll have a hard time resisting

19   that temptation.

20                   When    Canadian      trade      tops     out,      for

21   example, importers will turn to other rich countries

22   with low government-set prices.               When those sources

23   run low, in turn they'll begin to import from lower-

24   priced developed countries like Portugal or Greece

25   or    Taiwan.      Ultimately,      less     developed      countries

26   will be targets, and their prices would be forced up

27   toward world levels.           And the question is do we
                                                                                      54
1    really want Egypt or Thailand or Brazil or Turkey to

2    pay the same price for medicine as the U.S. and

3    Canada      and       Sweden.           I      mean,       we     may     not    be

4    particularly concerned if Canadian or German prices

5    have to go up a little bit, but with some of these

6    other countries, there may be a compelling reason to

7    be concerned.

8                       Moreover, I certainly am not a safety

9    expert,      but      imports       from       poorer      countries        would

10   clearly       pose       a     greater          risk       of     adulterated,

11   improperly handled, or counterfeit products.

12                      Now the bills in Congress to make drug

13   importation more widespread and legal say we're not

14   going to import from these less developed countries.

15   But over time without a great deal of international

16   cooperation, there would be tremendous pressure to

17   do    so,    I     think,     and       we    could       expect    a     lot    of

18   leakage.           And      let    me        wrap    up    with     two     quick

19   recommendations.

20                      First, it seems to me, I'm not a lawyer

21   but   I     think     the    FDA    should          probably      invest        very

22   heavily          in      tracking              the         production           and

23   transportation           and       storage          of     imported        drugs,

24   regardless of whether or not the legislation passes

25   to make it legal.             It's just too important.                    I think

26   the FDA shouldn't get hung up on legalities.                                     If

27   people       are      importing          drugs        by        various     means
                                                                         55
1    regardless      of   the   law,   the    FDA   should      still    do

2    everything      in   its   power,      and   the   budget       should

3    permit the FDA to do everything in its power, to

4    make sure these things are as safe as possible.

5                    And second, I think the best forum to

6    discuss local drug pricing, and whether or not we

7    really want to push toward one global price, or to

8    manage it differently might be an organization like

9    the World Trade Organization or other international

10   forums.   Perhaps less developed countries could be

11   induced   to    help    the    developed     world      monitor    and

12   control counterfeiting in exchange for lower than

13   equilibrium prices.            To some extent, markets are

14   always going to tend toward one global price, and no

15   trade regime is going to be air-tight in preventing

16   that pressure.         However, there may be some win-win

17   outcomes where drug companies and distributors can

18   be confident that they can essentially give away

19   medicines in the poorest countries, and sell other

20   medicines for prices that are reasonable                       in less

21   developed countries that aren't so poor, but still

22   not   greatly    undercut      their    prices     in    the    richer

23   developed countries.          Thank you.

24                   CHAIRMAN CARMONA:        Thank you, sir.           Our

25   next speaker is Mr. Iain Cockburn.

26                   DR. COCKBURN:       Thank you.          I'll briefly

27   introduce myself.          I'm a Professor of Finance and
                                                                                 56
1    Economics at Boston University.                    I've devoted much

2    of my professional career to researching competition

3    pricing        and       innovation       in      the    pharmaceutical

4    business.        Thank you, Mr. Chairman and task force

5    members, for the opportunity to express my views on

6    this controversial and difficult issue.

7                     To that extent, my remarks in my written

8    submission will echo those that have already been

9    made.     Let me highlight what I think are the most

10   important aspects here.

11                    At present, importation into the United

12   States is slightly larger than a trickle, but it's

13   not quite a flood.            Legislative change to promote or

14   legitimize       importation        to    the     United      States    will

15   surely    have       a     dramatic      impact    on    at     least   two

16   fronts.

17                    The impact is surely going to be, and I

18   think     is      intended         by    the      sponsors       of     this

19   legislation, to lower U.S. prices, which will in

20   turn     result       in    lower       global     revenues      for    the

21   pharmaceutical           industry.        Let     me    address       how   I

22   believe this will affect incentives to do R&D.

23                    I'm sure the panel doesn't need to be

24   reminded       that      pharmaceutical          R&D    is     notoriously

25   costly, lengthy, and a risky process.                        Proponents of

26   price     regulation          or    importation         I      think    are

27   unrealistically sanguine about the impact of lower
                                                                               57
1    global revenues and profits.

2                   We have little concrete evidence on this

3    point, but in part that reflects the fact that the

4    United   States           has     played      an     extraordinarily

5    important role in the global pharmaceutical market

6    over the past 30 to 50 years.                People have attempted

7    to draw lessons           from the experience of Canada in

8    the 60s and 70s and through into the 1980s with

9    compulsory     licensing,         or     experiments       by    Italy   in

10   abolishing pharmaceutical patents.                  The fact is that

11   these are irrelevant largely to decision-making for

12   a business in which the United States constitutes 50

13   percent of the market.

14                  I think this is really a shot in the

15   dark if the United States goes down the road of

16   substantially lowering prices.                    I think it's very

17   difficult     to    predict       the     outcome.         My    personal

18   belief   is        that    it      will      substantially         reduce

19   incentives for R&D.             There's a lot of uncertainty on

20   this point.

21                  A    more        subtle    issue     than    simply       the

22   effect on the total amount of R&D, I think, is the

23   impact of trying to force U.S. prices into line with

24   the prices charged or realized in countries with

25   more aggressive price regulation scheme, as it will

26   affect   the    composition,           not   just    the        level,   of

27   research spending.
                                                                             58
1                     Jack Calfee mentioned this question of

2    business will respond by trying to please regulators

3    rather than consumers, and we also need to recognize

4    the very important role of the United States market

5    in sending signals by market-determined prices to

6    the industry about which projects to work on.

7                     Re-importation or importation on a large

8    scale surely will have the effect of substituting

9    foreign       price    regulators'        relative        valuation    of

10   different drug products for market signals in the

11   United States.          That will remove this important set

12   of incentives and signals to the industry.                      I find

13   this deeply concerning.

14                    My second set of comments relate to the

15   global     impact      of     pressures      to    harmonize     prices

16   across countries.            We should recognize, I think, the

17   role     of     the     international            patent     system     in

18   supporting the previous regime in which there have

19   been     significant          price    differences         charged      in

20   different countries.            If the United States legalizes

21   imports,      and     these    occur   on    a    large    scale,     just

22   imagine what will happen in Canada.                   I think we're

23   deluding ourselves if we believe the Canadians will

24   respond passively.

25                    Canada has a number of options, one of

26   which    will    be    to,    if   they     face   serious     domestic

27   shortages and upward pressure on prices, they have a
                                                                              59
1    number of options.               One is to ban export to the

2    United States. Another, something like Canada has

3    done in the past, will be to announce a national

4    medical       medicine       supply    emergency    and    take      away

5    patent rights in Canada.               Now I think this is quite

6    a real possibility.              Or they can turn around and

7    pass    the     buck    on    both     of   these   fronts      to   some

8    country which is further down the income chain.

9                     I think there's a very real danger of

10   this spreading as a contagion if the United States

11   starts trying to absorb large amounts of production

12   supply from other countries.                And I think it's going

13   to     lead    to   a    substantial        weakening,     if     not     a

14   collapse of the international patent system, which I

15   would note the United States has worked very hard

16   for     several     decades       to    try    to   strengthen          and

17   harmonize.

18                    The     other    issue     where   I     think      we're

19   deluding ourselves is to suppose that we can                            the

20   legislators can anticipate all of the actions that

21   the industry can take to respond to attempts to put

22   Canadian prices in place in the United States.                          As

23   already mentioned, pharmaceutical companies have the

24   option, a number of ways to resegment the market if

25   patent rights and importation legislation are taken

26   away.         They can reformulate products, they could

27   choose not to introduce them in different countries.
                                                                               60
1    Those are first guesses.             I think we should be very

2    careful    not    to     underestimate        the    ability       of    the

3    industry to come up with clever and effective ways

4    to   resegment     the     market,      which      will   be    socially

5    costly.

6                     These considerations lead me to urge the

7    task force to very cautious about recommending moves

8    which    would    substantially         increase      the      level      of

9    imports into the United States.                 Thank you.

10                    CHAIRMAN       CARMONA:          Thank     you,         Dr.

11   Cockburn.       Our next speaker is Dr. Frank Lichtenberg

12   from Columbia.         Thank you, sir.

13                    DR.     LICHTENBERG:             Thank     you.           I

14   appreciate       the    opportunity        to     address      the      task

15   force.    I'm    going    to    be   less     ambitious        than     Jack

16   Calfee, who chose to address two of your issues.

17   I'm only going to address one, one of the same ones

18   that     Jack     and      Iain      did      -     the     impact        on

19   pharmaceutical R&D.            I have prepared a set of slides

20   labeled,       The effects of re-importation on new drug

21   development.           And if you could refer to those, that

22   would be helpful.

23                    I'd also like to say economists have a

24   reputation for never being able to agree with one

25   another, but my sense is actually there's a fair

26   amount    of    agreement       among   the       economists     sitting

27   here, at least.
                                                                                  61
1                       So I begin with a hypothesis, and the

2    hypothesis         says     that     re-importation            will    reduce

3    incentives to develop new drugs which will slow the

4    rate of increase of longevity and quality of life.

5    That's not to say that there may not be some short-

6    run benefits of re-importation, so re-importation,

7    suppose,       does    reduce      prices       and    increase       access.

8    And    that    would       be   of    some      benefit      to    consumers

9    today.     However, we have to also bear in mind the

10   long-run consequences, which in my view, and I will

11   try to provide some evidence of this, would be a

12   reduction in future drug development, which would

13   not be a good thing for future generations.

14                      To sort of make this case, I have this

15   very    simple      schematic        representation          of    new     drug

16   development, which again puts at the center expected

17   profits.       Like or not, pharmaceutical innovation is

18   a profit-seeking business, and expected profits of

19   drug     development         depend       primarily       --      depend    on

20   several       things,       the      expected         drug     price,      the

21   expected market size, and, of course, cost of drug

22   development.          And so changes in either expected drug

23   prices,       or      expected       market      size,       will     affect

24   expected profits and, therefore, affect the number

25   of drugs developed, hence patient outcomes.

26                      I've done a lot of research which tries

27   to    assess    the       effect     of   new    drug    development        on
                                                                                     62
1    longevity, quality of life, and so forth.                              This is

2    sort of formalized a little bit in my fourth slide,

3    which shows a very simple equation where profits

4    from drug development depend on the expected price,

5    the expected quantity and cost, both variable and

6    fixed costs of drug development.

7                       Now    basically,      what       this    shows         us   is

8    that given both variable and fixed costs, profits of

9    drug development are reduced when either price or

10   quantity is reduced.               So if a drug company expects

11   either a smaller price or a smaller quantity, then

12   the       expected       profitability         of     drug       development

13   declines.          Moreover,       expected         price    and      expected

14   market      size       have    similar     effects          on    innovation

15   incentives.              That      is,     suppose          I'm        a    drug

16   manufacturer, and I suddenly found out that there

17   are going to be half as many consumers of a product

18   as    I    originally         thought.         Well,    that          means     my

19   revenue      is    going      to   be    reduced       by        50   percent.

20   That's       going       to      make    the        market        much      less

21   attractive.

22                      However, if there are 50 percent fewer

23   consumers,        at     least     I    only   have     to       produce        50

24   percent as many pills.                   Whereas, suppose instead

25   that the price were reduced 50 percent, suppose that

26   I thought the price was going to be $20, instead

27   it's going to be $10.              Again, my revenue is going to
                                                                             63
1    be reduced by 50 percent, but now I still have to

2    produce the same number of pills approximately as I

3    did before.        So a reduction in price has a more

4    negative effect on profits than a similar percentage

5    reduction in quantity.            So, therefore, I think that

6    evidence about the effect of market size on drug

7    development can provide insight into the probable

8    effect of re-importation or price controls on drug

9    development,      so     I'm    going     to    be    a     little    less

10   skeptical than Iain was.                  Iain       said    he    thought

11   that it was going to be very, very difficult to

12   assess      the         impact      of         re-importation          on

13   pharmaceutical R&D.             I'm going to take a stab at

14   that.     And here's how I'm going to                     what I'm going

15   to do is try to provide some evidence about the

16   sensitivity      of    the     number    of    drugs       available   to

17   treat a disease to the prevalence of that disease,

18   the size of the market.            This pertains, by the way,

19   to that poster over there on the wall that says

20   "1983."      That's      the     Orphan    Drug      Act.         Congress

21   passed the Orphan Drug Act because it recognized

22   that    there    were    weak    incentives          of    companies   to

23   develop drugs for rare diseases.                 The market was too

24   small,     and     the       government        explicitly         created

25   incentives to develop drugs for rare diseases.                       And,

26   in fact, industry responded quite a lot to that.

27                    So the illustration that I'm going to
                                                                                    64
1    give you looks at 14 different kind of cancer.                               So I

2    have a table which shows basically two columns of

3    numbers.        It shows for different kinds of cancer,

4    how    many    people    have       that       kind    of    cancer.          For

5    example, in the United States, the most prevalent

6    form     of    cancer     is     breast         cancer,         followed       by

7    prostate       and    lung     cancer.           Those      are     the      most

8    prevalent forms of cancer.                     And guess what, those

9    are the forms of cancer that have a relatively large

10   number of drugs.

11                       Whereas, if we look at relatively rare

12   forms    of    cancer,       like       eye,    bone,       and    testicular

13   cancer, there are very, very few drugs developed to

14   treat those forms of cancer.                      That's because the

15   incentives aren't there.                 And, in fact, when I do a

16   very simple statistical analysis to try to assess

17   the    sensitivity       of    the       number       of    drugs       to    the

18   prevalence      of     cancer,      I    find    that       a     ten   percent

19   increase       in    cancer    incidence          is    associated           with

20   about a ten percent decrease in the number of drugs.

21   And so what does that imply?                     That suggests that a

22   ten percent decrease in drug price would result in

23   at least a ten percent decrease in the number of

24   drugs.        If drug prices fall by ten percent in the

25   United    States,       this     would     suggest          that    we    might

26   expect to see something like a ten percent reduction

27   in the number of new drugs developed.
                                                                                  65
1                   So       if     re-importation           did,       in     fact,

2    significantly       reduce         drug    prices       in     the      United

3    States, then I would predict that in the long-run

4    this    will   result         in   a    significant          reduction      in

5    number of new drugs developed, and that this would,

6    in     turn,   have      adverse        effect     on       the     rate    of

7    longevity increase, improvements in quality of life,

8    and so forth.

9                   This evidence is extremely preliminary,

10   I would admit, and I think further study is needed.

11   But I think other evidence suggests that, in fact,

12   pharmaceutical R&D investment is very sensitive to

13   incentives.         I    read      an    article      on     the     airplane

14   coming down today about Bioterrorism, and how, in

15   fact, the response of the industry to developing

16   bioterrorism      medication            seems    to     be     very       poor,

17   perhaps due to weak incentives.

18                  Also, there's a lot of evidence that the

19   vaccine industry has diminished in response to very

20   low prices.       So in conclusion, I think the committee

21   ought to keep in mind the distinct possibility that

22   re-importation will reduce incentives to develop new

23   drugs,    which     will       slow     the   rate     of     increase      of

24   longevity and quality of life.                  Thank you.

25                  CHAIRMAN            CARMONA:        Thank           you,     Dr.

26   Lichtenberg.            Our    next     speaker       is     Dr.     Patricia

27   Danzon from Penn.             Thank you, ma'am.
                                                                               66
1                   DR.         DANZON:       Good        afternoon,          Mr.

2    Chairman,    and     thank      you     for    the    opportunity        to

3    address the task force.               I'm going to sound a bit

4    like a broken record, but I'm going to plow ahead

5    anyway.

6                   I'm going to try to reiterate certain

7    points that my colleagues have made on the effect on

8    prices, and particularly draw on some of the studies

9    that I've done that may be relevant to the likely

10   impact.

11                  Let       me     start     off        by   stating        my

12   conclusions, which are that the precise impact of an

13   importation provision on drug prices in the U.S. are

14   very hard to predict, but what is certain is that

15   the savings to U.S. consumers would be less than

16   appears simply by comparing say the prices available

17   to consumers in Canada versus the U.S. for specific

18   drugs now.         And paradoxically, even though there

19   would be little savings to U.S. consumers from lower

20   prices, the impact on R&D could be significant, I

21   think because of reduction in sales overseas.                           Let

22   me   give   you      the      reasons    why    I     come      to     those

23   conclusions,       and      I   list     four        in   the        written

24   comments.

25                  First, there's a difference, a mismatch

26   in formulations.           Second, the withholding of supply.

27   Third, the increase in prices abroad, and fourth,
                                                                               67
1    the     question        of    whether       any    savings       at      the

2    manufacturer price level would, in fact, be passed

3    on to consumers.             So let me take each one of those

4    in turn.

5                      First,      the   heterogeneity         of    products.

6    In a study that we recently completed, we looked at

7    a sample of 249 compounds in the U.S. that accounted

8    for about 60 percent of U.S. sales in 1999.                            These

9    same compounds accounted for about the same percent,

10   60 percent of sales in Canada and the U.K.                               So

11   Canada and the U.K. have very similar pharmaceutical

12   markets to the U.S.            But for the other countries in

13   our study, the leading European countries, Japan,

14   Mexico and Chile, these products accounted for only

15   about 30 to 40 percent.               And when we restrict the

16   comparison to the matching formulation, or the same

17   formulation,        the      same    strength       which       would     be

18   necessary for importation, the matching share goes

19   down by half, so we're really looking at a small

20   fraction     of    both      U.S.   sales    and    an    even       smaller

21   fraction of foreign market sales that are in the

22   same formulations and the same compounds as the U.S.

23   That's         even       without       controlling            for      same

24   manufacturer and whether it's on or off patent.

25                     For     those     formulations         that    are     the

26   same,    I     would      expect     manufacturers         to    restrict

27   supply    to      foreign     countries.           And    so    then    the
                                                                                           68
1    question      would         be,        how        willing        are         foreign

2    wholesalers to divert some of the shipments that go

3    to    their      countries         to        the        U.S.,    rather          than

4    satisfying their own consumers.                          And again I think

5    the   conclusion        has       to    be       that     because          the   U.S.

6    market is so large in terms of volume, relative to

7    most foreign markets, they would have to be willing

8    to ship a very significant fraction of their volume

9    to us in order to make a dent on prices in the U.S.

10   So     roughly,            just        as     a     back-of-the-envelope

11   calculation, I'd say even if we had importation from

12   Canada     and    all      of     Europe,          so    volumes           would      be

13   comparable to the U.S., if they were willing to ship

14   say   20    percent         of    their          sales     to        us    for     the

15   formulations that match, that would maybe make up 20

16   percent of our sales.                  Arguably, not enough to make

17   a dent on prices in the U.S.

18                    In     the       longer-run,             I     would         expect

19   manufacturers         to    respond         by     trying       to    move       to   a

20   uniform pricing policy, and that would mean leveling

21   up foreign prices rather than leveling down U.S.

22   prices.    That comes out of straight economics.

23                    Some foreign countries might be willing

24   to pay those higher prices, and the drugs would be

25   launched.         There          would       probably           be        restricted

26   utilization in order to stay within their health

27   care budgets.           But a significant number of foreign
                                                                                  69
1    countries would probably not get those drugs, and

2    the drugs would simply not be launched.                        And again,

3    for    some    empirical      evidence,         I'd    refer    you     to   a

4    study that's on my website done with Richard Wang

5    and Liang Wang, in which we studied the launch of 80

6    NCEs in 25 countries in the 1990s.                          And we found

7    that in the countries with lower prices, and the

8    countries      that     are    significant          parallel      exporter

9    countries in Europe, the launch of drugs in those

10   countries       was     fewer,       and      they      occurred        with

11   significant       delay,      so    there's      strong       evidence       of

12   delayed launch and non-launch.

13                    Finally, the question of:                  Even if there

14   were     availability         of     foreign       product      at      lower

15   prices, would those price differentials be passed on

16   to     consumer?        That       requires        enough      supply    and

17   competition at the wholesaler level for the lower

18   prices to be passed on to pharmacies.                         And then an

19   ability for third-party payers and consumers to get

20   those price savings.               I would submit that given the

21   limited       supply,    the       price,     if      there    are      price

22   differences, they're unlikely to be passed on to

23   retail pharmacy.           And even if they were, it would

24   take a sort of claw-back activity by third-party

25   payers to reduce the reimbursement to pharmacies to

26   capture the average savings.                That sort of claw-back

27   has    occurred    in    the       U.K.   and    the    Netherlands          in
                                                                        70
1    trying to get savings from parallel trade there, but

2    if it were to occur in the U.S., I think it would

3    really penalize those pharmacies who were trying to

4    dispense U.S.-sourced drugs for reasons of safety,

5    so there would be a lot of resistance to that.

6                  For       consumers    who   are    paying    out-of-

7    pocket, there simply would not be enough competition

8    for any lower prices to be passed on.                 So the bottom

9    line conclusion is, I think that a broad importation

10   policy     would        likely      harm      foreign     consumers

11   significantly in terms of reduced access.                  It would

12   not result in significant savings to U.S. consumers,

13   but there would be reduction in R&D in the long-run

14   simply because there would be lower global revenues,

15   and hence, reduced incentives for R&D.

16                 CHAIRMAN CARMONA:            Thank you very much

17   for your comments.         Panel members, questions for our

18   guests?    Dr. O'Grady.

19                 DR. O'GRADY:          Yes.   I'd like to ask Dr.

20   Calfee a question, please.           I'm just trying to drill

21   down a little bit in terms of the way you laid this

22   out   in   some    of   your     testimony,    both     written   and

23   verbal, in terms of thinking about how you get to an

24   appropriate price in this area, and sort of your

25   concerns about administered prices, or however you

26   want to       formula-driven, or the way it's done in

27   other countries.          And I guess I wanted to ask you
                                                                                    71
1    kind of how you think in terms of relative terms to

2    the way that we set prices in this                               clearly, we

3    wouldn't be having this discussion if there was not

4    much    of    a    price       differential         between      the     United

5    States and Canada, in particular.                      And I understand

6    the concerns about having the government set the

7    price.        Can you talk a little bit about how you

8    think that in terms of the market prices -- I mean

9    are we at a point                 I guess my concerns and my own

10   thinking      are,       with     third-party        payment        involved,

11   it's very hard to have the kind of price sensitivity

12   we would see in terms of this, as we do in other

13   goods and services.                  Jeff's discussion of Toyotas

14   and world prices.

15                      In terms of an area where we have third-

16   party payers, an area where we have fairly strong

17   patent    protections,           how    do    you    view     the       kind   of

18   relative      price       settings      between       the    two    systems?

19   And can you at least discuss that a little bit more?

20                      DR. CALFEE:           I'll take a shot at it.

21   First    of       all,    I     would    emphasize      the       difference

22   between drugs being purchased by third-parties, and

23   being purchased by consumers for themselves.                                   My

24   overall       take       on    the     U.S.    market       is    that     most

25   consumers         are    not    very    sensitive       to       drug    prices

26   because      they       don't    pay    very    much    for       the    drugs.

27   Most third-party payers are quite sensitive to drug
                                                                               72
1    prices because they do have to pay for them, and

2    they have to compete with other organizations so

3    they have an incentive to minimize their costs, if

4    they can.

5                      There's       a    big     difference       between      a

6    therapeutic category, which is only one effective

7    drug which we sometimes have for a while, and a

8    therapeutic category in which we have two or three,

9    or several effective drugs.                  As soon as that second

10   drug    enters     the    market,          these    large    third-party

11   payers      get     pretty           aggressive       in     negotiating

12   discounts.        Some of those discounts can be pretty

13   substantial.           When    you     get   three,    four,      or    five

14   different        drugs        like     you    do     in     the      statin

15   cholesterol-reducing            market,       you     get    a    lot     of

16   discounting.       And in my own opinion, it works pretty

17   well.      And then you get the FDA moving along rapidly

18   to   get    generics      approved,          and    then    you   have    a

19   situation in which if you look back at the total

20   spent in the year 2000, the drugs accounting for

21   that spent are going generic at the rate of roughly

22   ten percent of that market per year.                       By the end of

23   this     year,    or     by    the     end    of    next     year,      it's

24   something like 50 percent of all the spending in the

25   year 2000 will have been for drugs that have since

26   gone generic.          And so we're getting                   the prices

27   here are much more dynamic than we realize.
                                                                                      73
1                      As far as prices overseas are concerned,

2    what I would emphasize there is no one has a way to

3    rationally    regulate           drug        prices.         There        is    no

4    consistent    way.             That's     why       countries       differ      so

5    radically.         That's       why     it    is     that    Canada       relies

6    mainly     upon        someone       else's        drug     price    controls

7    rather than their own.

8                      And     I     would        just     mention       one        real

9    problem that's faced by all price controllers and

10   where the foreign countries have completely failed,

11   and that lies in the fact that a lot of new drugs

12   when they're approved, you really don't know how

13   valuable they're going to be.                       You often learn much

14   more about the value of a drug after it's approved

15   than   you   do        before,    partly        because      of     how    usage

16   works out, and partly because of how a drug does

17   outside the controlled clinical environment in which

18   it was tested.           But also because in many cases, the

19   research that's performed after approval can tell

20   you more about the drug than the research that was

21   done   before.           The    statin       drugs     are    probably         the

22   leading example right now.                   We know a lot more about

23   the value of statins now than we did five years ago,

24   and that's all because of post-approval research.

25                     As    far     as    I      can    tell,     there       is    no

26   regulatory regime that attempts to take that into

27   account.     In a rational regime, if you do research
                                                                                    74
1    that shows that your drug is more valuable, or if

2    you demonstrate that a drug can be used effectively

3    at one-half or one-tenth of the dosage, you'd want

4    an adjustment in prices.                  That's the kind of thing

5    that you would need in order to provide some kind of

6    R&D    incentives.           You    don't        get    that     from    price

7    control regimes.         They're very rigid on that kind of

8    thing.    Once they have a price, once the drug starts

9    to flow, they have no reason to adjust those prices.

10   So     those    are    some    of        the   reasons     that,        as   you

11   mentioned, I described in my written testimony about

12   how difficult things get as soon you start to get

13   into    the    business       of    actually          trying     to   control

14   these prices.

15                   DR. O'GRADY:             As part of my job, I have

16   to go out on the new Medicare drug bill and do town

17   halls    with    seniors,          and    it     gets    down    to     fairly

18   simplistic kind of simple statements that I have

19   trouble answering.           I have a cousin in Toronto.                     She

20   pays less for her Lipitor than I do.                      Why?

21                   I     understand         perfectly        the    answer       you

22   gave,    but    what    do    you        think    I     should    tell       that

23   little old lady in Buffalo next month when she asks

24   about her cousin in Toronto?                     I mean, I still have

25         I mean, I understand perfectly the logic you've

26   laid out.        At the same time, she does know her

27   cousin in Toronto is paying less than she is.
                                                                           75
1                     DR.    CALFEE:     Well,     I   mean    my     short

2    answer   is   that      the    Canadians    are   indulging      in   a

3    little bit of free riding on the rest of the world's

4    research.     The Canadians are relying upon the fact

5    that Pfizer is going to continue to ship that drug.

6                     But   it's     worth   mentioning   to    some       of

7    these people that if you look back five or ten years

8    and look at the drugs that were being prescribed

9    then, those drugs are a lot different.               A lot of the

10   drugs that people are most worried about right now,

11   that they're most upset about paying money for are

12   drugs that didn't exist five or ten years ago.                     And

13   those    drugs    are    very     valuable.       They    were     all

14   created, as these others have emphasized, they were

15   all created with the expectation of making money out

16   of those drugs.         It's purely profit-driven.             But now

17   they're all done, that's one thing.                But the truth

18   is, if you look at these areas, heart attack rates

19   are way down, but we still have a lot of heart

20   attacks.      Diabetes is still a big problem.                   We're

21   just starting to get some drugs that really work

22   well for cancer.          The most important thing is to

23   stay with the flow about the generics and certain

24   prices going down.            Zocor will be generic within two

25   years by the time the drug benefit gets going.                     And

26   then make sure that we maintain the R&D enterprise,

27   so that we may have more drugs, so that people can
                                                                          76
1    complain about higher prices later on for miracle

2    drugs we don't even have right now.                  But don't ask

3    me to go explain that to your town halls.

4             DR. LICHTENBERG:         Well, if I can just say, I

5    mean I think part of the -- we don't only want to

6    listen to seniors about this, although I know that's

7    politically -- we want to think about people who are

8    today middle-aged or even children, that we really

9    want to think long term.               Of course, once a patent

10   exists, it's always in the short run consumers are

11   going    to    benefit      if   you    basically     abrogate     the

12   patent, because access will improve.                 But the patent

13   system is very important in the long run, so I think

14   it's -- you don't just want to focus on today's

15   consumers.

16                   CHAIRMAN CARMONA:          Dr. Cockburn.

17                   DR. COCKBURN:          Yes.   I think it's a very

18   simple    response     to    these     questions     you     received,

19   which is a lot of things are a different price in

20   Canada,       including     government-paid          pensions,      the

21   salaries of elected officials, public servants and

22   professors.        I   think     there's      a   tendency    in   this

23   debate for people to assume that lower prices in

24   Canada reflect government price regulation.                   To some

25   extent they do, but they also reflect -- and prices

26   in other countries are the same -- they reflect the

27   decisions of pharmaceutical companies to charge what
                                                                            77
1    the market will bear.             People have less money to

2    spend in Canada and sticking -- you know, if we do

3    the experiment of sticking Canadians with American

4    prices, you can expect consumption to go down a lot.

5                     CHAIRMAN CARMONA:        Dr. Danzon?

6                     DR. DANZON:      Yes.      If I could follow up

7    on that.     In the study that we did of international

8    price comparisons, when we compared the price of

9    this market basket of product relative to income in

10   different countries, including Canada, the European

11   countries    and    Canada     were      roughly    in     line     with

12   income; in other words, the differential for drugs

13   was similar to the differentials in income.                     The two

14   exceptions were the low-income countries of Mexico

15   and Chile where the prices are way too high for

16   their per capita income.              And I would submit it's

17   partly because of the concern about importation and

18   looking     at    prices     in     Canada    that        is    leading

19   manufacturers       to     charge      such    high       prices      in

20   countries    like     Mexico,       which     are    out       of   line

21   relative to their per capita income, and that has

22   significantly      reduced     their     ability     to    use      those

23   drugs.     So their volumes are very, very low.                        So

24   that's one response -- incomes are different.

25                    The second is in the case of Canada, the

26   exchange rate has played a very significant role.

27   So when we did the comparison but using the exchange
                                                                    78
1    rate    at   which     the   drugs     were   launched,   which

2    factored out the exchange rate changes, that wiped

3    out 90 percent of the differential -- 19 percent of

4    the differential with Canada, so it was -- more than

5    half of it was an exchange rate effect.

6                  DR. O'GRADY:       Can I ask one follow up on

7    this, actually, Dr. Danzon?            In terms of some of the

8    other work you did, and Dr. Calfee brought up the

9    idea of the free rider, but we also know that in the

10   United States market we really see this fair amount

11   of      variation      in    terms      of    what    different

12   subpopulations pay.

13                 And Dr. McClellan brought up a notion

14   before about this sort of mix of generics versus

15   brand name and how you're -- do you have a feel in

16   terms of the research you've done of kind if you

17   took that -- and let's stick with the Canadian-U.S.

18   comparison for a sec -- if you took both what they

19   took and how much they paid for it and the source of

20   their group discount, do we have a feel for -- I

21   mean they're sort of -- when you see sort of the USA

22   Today comparison of Buffalo to Toronto or whatever,

23   I'm assuming -- and I don't want to speak poorly of

24   USA Today but they're talking full retail prices in

25   the United States -- do you have a feel for when

26   we're    talking     about   federal    employees    sitting   at

27   this table or whatever, how much of a real price
                                                                                    79
1    differential         there       is   between       the     two   countries?

2    And    then     when       you    take    in       the     greater      use   of

3    generics among kind of American prescribing habits

4    exactly -- kind of how those -- once we control for

5    the appropriate things to control for kind of where

6    we are on that comparison?

7                        DR. DANZON:          Yes.        Well, essentially,

8    the numbers I quoted you control for that, because

9    the comparison I gave you that said, "Relative to

10   income Canada's about at the right level," that is

11   looking       at     the    overall       market         basket    including

12   generics and on-patent products.                          And it's taking

13   into account the average discounts on the branded

14   products       in    the     U.S.        So    it's        not    the   retail

15   comparison, which is the one that the seniors sees

16   going     to        the     pharmacy.              There     probably         are

17   differences.              But it's looking at what something

18   like a Federal Employee Health Plan would pay.

19                       DR. O'GRADY:         Or is the weighted average

20   across all the different sort of sources?

21                       DR. DANZON:          It's the weighted average

22   across all different sources.                       So, basically, when

23   we    applied       the    discounts,         we    made     an   assumption

24   about     Medicaid,          about        paying         with     discounts,

25   without, cash paying, et cetera.                     So it's a weighted

26   average of all those.

27                       DR. O'GRADY:         Thank you.
                                                                            80
1                   CHAIRMAN         CARMONA:               I     certainly

2    appreciate the discussion.                I want to have a few

3    more questions, but I think that Dr. O'Grady hit the

4    nail   on   the   head     in    a   very    direct        and    simple

5    fashion.       The     practical     aspects      or       the    paradox

6    that's been created here of the individual who just

7    sees the need for medications today, an ill-informed

8    or uninformed consumer who doesn't understand the

9    complexities      of    what    your   lifelong        pursuits      who

10   confronts us at meetings such as this to say, "But

11   my aunt across the border buys it for X dollars

12   less,"   versus      the   discussion       of    implications        of

13   short-term gains for importation policy and then of

14   course   the   long-term        implications      of       such    policy

15   which make it extraordinarily complex as opposed to

16   the Band-Aid fix for the short haul that most people

17   shrug their shoulders and say, "Well, maybe it won't

18   be such a big deal."             But, obviously, we have to

19   consider all of those.

20                  My question to all of you is, though, in

21   doing this, this task force is here to serve the

22   American public, to be able to give a recommendation

23   to Secretary Thompson and on to the President and

24   hopefully to Congress to decide on the implications

25   for a policy for importation.               How do we keep the

26   American    public      involved     in    this   extraordinarily

27   complex issue so that they understand that it's not
                                                                                  81
1    simply      that     Auntie        Besse       across    the      border    is

2    getting     this     for      a    dollar      less,     that     there     are

3    really      huge     implications          for     our       industry,     for

4    research and development, for pricing, for global

5    markets, for, again, all of the things that many of

6    you have researched throughout your career?                                And,

7    please, any of you please jump in.

8                       DR. CALFEE:           I was hoping the new head

9    of CMS might make some wonderful speeches.

10                      (Laughter.)

11                      DR.     McCLELLAN:             We're        asking       the

12   questions up here.

13                      (Laughter.)

14                      CHAIRMAN CARMONA:            Please, sir.

15                      MR. LEMIEUX:            I think that this is an

16   industry     where       there      is     a   fair     amount     of    price

17   discrimination.          As has been mentioned, full retail

18   is a lot higher than if you have a purchaser working

19   on   your    behalf      to       get    discounts      or    a   government

20   working on behalf to get lower prices.                         And I wonder

21   if the discount card that has been enacted as part

22   of the Medicare bill will help take a little bit of

23   the pressure off in terms of at least making sure

24   that senior citizens in particular could get, if the

25   discount cards work and have good discounts attached

26   to them, which I hope they will, a feeling that at

27   least they're not being ripped off, that they have
                                                                               82
1    somebody working on their behalf to get the best

2    price available or at least a better price than what

3    they were able to get when they were going out on

4    their own.

5                    I mean I think that one of the reasons

6    politically         that    we're     having      problems     with     drug

7    prices in spite of passing a Medicare drug benefit

8    is    there's       skepticism      about    whether      or     not    that

9    benefit will work.              But the discount card that's

10   supposed to come into effect this summer might help

11   a little bit to explain to people that if they have

12   someone working on their behalf, they won't have to

13   pay the top dollar for drugs, and I think it will

14   prove    to    be    pretty    popular      if     the   discounts       are

15   substantial.

16                   CHAIRMAN CARMONA:                 Thank you.           Do we

17   have other comments?           Yes, Dr. Cockburn.

18                   DR.        COCKBURN:        Not    to    sound    like     a

19   broken record but I really think that this -- a lot

20   of things are a different price in Canada.                             I'm a

21   Canadian citizen, I lived and worked in Canada for

22   ten years, and people should understand if they want

23   access    to    Aunt        Besse's     price      in    Toronto,       then

24   they've got to imagine living on Aunt Besse's income

25   and    paying       Aunt    Besse's     rent,      gasoline,      heating

26   taxes and so forth.            It's a very complicated issue,

27   which I think people -- I don't think this choice is
                                                                       83
1    ever put to people like this.

2                   Indeed,    if    you    called   Aunt    Besse    and

3    asked her how she felt her price of drugs was in

4    Toronto, she would probably say, "Well, they're very

5    expensive, and I can't afford them."                 It's not the

6    Canadians are somehow getting their Lipitor at five

7    cents    a   pill;    they're   not.     Canadians      feel    like

8    they're paying very high drug prices, and Canada

9    went through an extensive public policy debate in

10   the 1990s about reintroducing patent protection in

11   exchange for increased R&D expenditure in Canada by

12   pharmaceutical companies.

13                  Our     guests   in     the   earlier    panel,    I

14   think,    spoke   to   this.     The    City    of   Springfield,

15   Massachusetts can certainly save a lot of money of

16   its drug bill if it was able to purchase drugs at

17   some of these prices advertised by USA Today.                   They

18   could probably save even more money if they paid

19   their employees Canadian salaries.

20                  CHAIRMAN CARMONA:        Yes, Dr. Danzon?

21                  DR. DANZON:        I think most people can

22   understand     that    things   would    change      radically    if

23   importation became policy and we had Wal-Mart and

24   Walgreen's and Eckard and McKessen and the like all

25   going to try and buy all their drugs in Canada.

26   Things would no longer be available at those cheap

27   prices.
                                                                                              84
1                     I     mean         the        difference                 between        an

2    individual       consumer       going          and     buying              some    small

3    fraction of the Canadian supply versus this becoming

4    national policy and the U.S. trying to buy their

5    entire drug supply abroad, people can understand, I

6    think,    that       systems        would          adapt,       and        that     as   a

7    consequence foreign prices would be higher, supply

8    would dry up and all of the things that stop it

9    making sense in the long run start to happen.

10                    CHAIRMAN       CARMONA:               How       do        we   explain

11   that to the average citizen?                        I mean I think we all

12   agree      with         you,         but,            again,               these        are

13   extraordinarily          complex          issues           that           people       are

14   getting in sound bites in the media, and what I'm

15   concerned with is is that the American public for

16   decades has been insulated from the true cost of

17   their    health       care     or    pharmaceuticals                      as    part     of

18   that,    and     now    all     of        a    sudden           as        markets      are

19   changing, they have found a fixed market across the

20   border that they can buy at a cheaper price, and

21   really    the        consequences             of     all        of    these        other

22   tangential       issues       that        appear           to        be    tangential

23   issues that we bring up are really inconsequential

24   to them.        I just wanted for this amount because I

25   can get it for that today or tomorrow and next week,

26   not considering the longer-term consequences.                                          Dr.

27   Lichtenberg?
                                                                         85
1                  DR. LICHTENBERG:              Well, I mean I think

2    you   show    that,    you      try    to     develop       compelling

3    understandable evidence about the consequences of,

4    you know, "I don't want to pay too much for this

5    muffler," and you look at, for example, the vaccine

6    industry      and     that      there         were     50     vaccine

7    manufacturers in 1960 and now there are three or

8    something    like     that,    because       the     government    has

9    driven the price extremely low.                 So I think, in a

10   sense, trying to document how responsive innovation

11   and production and so forth is to incentives might

12   be a good way.        And, in a sense -- so when phrasing

13   it to people at work, sort of letting them know,

14   "Well, what if -- suppose that if the price did drop

15   50 percent, if U.S. drug prices did drop 50 percent,

16   that this would lead to a significant reduction in

17   future drugs, how do you feel about that?"                        So I

18   think bringing that into the picture, but I agree

19   it's subtle and it's difficult.

20                 CHAIRMAN        CARMONA:        Thank    you.      Other

21   questions from the panel?          Dr. Duke?

22                 DR. DUKE:         Just to follow up on that

23   line of reasoning, you've given the reverse, that is

24   how   we    would    explain     the     negative       impact    when

25   individual      incentives            clash        with       societal

26   incentives.         Could you give me an instance of a

27   successful effort where the societal incentive had
                                                                            86
1    the effect of changing individual incentives into a

2    positive     line?       You've   given    me   the    negative       on

3    vaccines, is there an analogy here that we could

4    work from?

5                   CHAIRMAN CARMONA:           I think the orphan

6    drug act is a very good example, because you can go

7    to    the   FDA    web    site,     and    you'll      see      a   very

8    significant increase in the number of orphan drugs

9    after 1983.          There were some before then, but I

10   think that that's one of the better examples around.

11   And    I    mean   the   other    evidence      that   I     described

12   showing      how      market      size     affects         innovation

13   incentives is sort I think not -- I think it is

14   useful.      It's not exactly the right thing, but I

15   think it goes in that direction.

16                  DR. CALFEE:          If I could add just one

17   thing.      I've noticed that a lot of patient groups,

18   leaving aside for the moment that they often get

19   funding from the pharma industry, they seem to be

20   quite sympathetic to the R&D arguments and not at

21   all    sympathetic        towards    the     notion        of       price

22   controls, and I think that's because most patient

23   groups consist of people who are waiting for cures.

24   The people who are really cured they're no longer

25   in patient groups.

26                  They understand the argument, and maybe

27   it's worth reminding everyone else, that we're all
                                                                  87
1    patients waiting for cures.         The only difference is

2    we don't know which particular cures we're waiting

3    for.   But the entire industry is looking forward,

4    they're working on the things that we don't have

5    right now.     It's too easy, it seems to me, for the

6    AARP members.     It's too easy for them to think only

7    in terms of how much they want their drugs that we

8    have right now, while forgetting that the drugs they

9    really, really want are the ones that we don't have

10   yet.

11                 CHAIRMAN   CARMONA:      Dr.   Lichtenberg,    I

12   think that the vaccine example is a very good one,

13   and certainly my colleagues and I from our various

14   vantage points, from everything from prevention to

15   preparedness, have dealt with that issue.             But the

16   orphan drug one is interesting on the positive side,

17   but yet I think the public needs to remember that

18   there's   a   great   deal   of   federal   subsidy   in   that

19   equalization for that, providing the incentive, if

20   you will, to move forward.        Otherwise there would be

21   no market for that; it would have closed out long

22   ago, most likely.     Any comments on that?

23                 DR. LICHTENBERG:       Well, that's true.      I

24   mean there is sort of deep question about whether

25   the Orphan Drug Act was really good policy.            Do you

26   really want to spend enormous amounts of resources

27   on drugs that are not going to benefit very many
                                                                                  88
1    people?        I    mean      that's      kind     of    a    philosophical

2    question.          But,       you're     right,     certainly         federal

3    subsidies or R&D tax credits played an important

4    role in that.

5                       CHAIRMAN CARMONA:              Because I think with

6    vaccines it's the same.                    If we don't create the

7    appropriate incentives, people aren't going to come

8    back    into    the      vaccine        market,    and       then    we'll   be

9    talking    about         a    government-owned           vaccine      market,

10   which    will      be    extraordinarily           expensive         and   will

11   just shift the payer to the taxpayer.                           So I mean,

12   again, these become very complex discussions that

13   we're trying to figure out a way to get in front of

14   the American public so they can move along with this

15   discussion and be truly informed when they speak to

16   their elected leadership as to what they really want

17   and they understand what they really want.

18                      Other comments or questions?                 Dr. Raub?

19                      DR. RAUB:        Is the status quo the best we

20   can do?        It seems that every potential change from

21   where we are is bad.               Is there anything that can be

22   done that would in fact be better with respect to

23   the    problem      of       the   costs    of     drugs       but    without

24   threatening        the       R&D   or   dealing     with       the    real   or

25   imagined free rider situations that the U.S. faces?

26                      DR. DANZON:            Well, one change that I

27   think could be made to encourage competition and
                                                                                 89
1    discounting within the U.S. would be to eliminate

2    the best price provision in Medicaid.                     I think it's

3    pretty    well       understood         that     the   provision          that

4    requires that manufacturers give their best price to

5    private       buyers       to    Medicaid        has     put     a    floor

6    underneath willingness to discount.                       Not for all

7    drugs, there are certainly some discounts that go

8    deeper    than        the       15.1     percent,      but       that       it

9    essentially implies a tax on discounting.                            And so

10   many economists believe that one way of encouraging

11   more vigorous competition within the U.S. would be

12   to change that best price provision.                     And in a sense

13   it's become irrelevant as more and more states have

14   their own discount requirements.

15                    CHAIRMAN       CARMONA:         Dr.   Calfee        or    Mr.

16   Lemieux, did you have a comment?                  Please.

17                    MR. LEMIEUX:            I was going to say the

18   idea that we would begin to address international

19   drug    pricing      in     trade      discussions       would       send   a

20   signal        that     the      government         understands            this

21   important public health and public policy issue here

22   and    that    we    are     going     to   be   using    this       in   our

23   negotiations with the rest of the developed world

24   and to some extent with the developing countries,

25   that that would be a signal that we understand this

26   issue and that we're working it out internationally.

27                    DR. RAUB:             Could you play a scenario
                                                                            90
1    through -- I mean suppose this got brought up with

2    our G-7 partners?

3                   MR.    LEMIEUX:         Well,      with     other      rich

4    countries,     the    dispute      would   be     how    much    of   the

5    global   research      and   development          budget    should     be

6    shared and how -- between the rich countries and the

7    poor countries, the issue is can we find ways to

8    drive down prices in poorer countries in exchange

9    for preventing counterfeiting, adulterated drugs and

10   so on and so forth?            I mean those are discussions

11   that are not easy, they're going to be very messy

12   and very difficult, but if it were part of the mix,

13   and it may be becoming part of the mix, I think,

14   even regardless, that would be helpful.

15                  CHAIRMAN CARMONA:           Dr. Calfee?

16                  DR.     CALFEE:             Well,         speaking      of

17   negotiating     with     our       partners,       the     Senate     had

18   hearings this morning on exactly that topic in which

19   I was invited to speak, although I didn't have a

20   whole    lot   to    add,    but    most     of    the     interesting

21   comments actually came from either the Department of

22   Commerce people or from the senators on the Finance

23   Committee, many of whom have been talking to the

24   Australians     and     others       about      this.           And   the

25   consensus seemed to be that it's not going to be

26   easy to persuade any of these countries to reassess

27   any of their basic -- anything that impacts strongly
                                                                         91
1    on their overall health care costs.                  But there are

2    some areas in which some progress could probably be

3    made, and one of them is on generic drugs, because a

4    lot of these countries are very backwards in the use

5    of generic drugs.       They don't have the equivalent of

6    a Hatch-Waxman Act, and so they're paying a lot more

7    for generics than they ought to be, and in some

8    cases their generics are not significantly cheaper

9    than the branded drugs with which they compete.

10                 Some of these countries also have very

11   inefficient      pharmacy     retailing        sectors,     heavily

12   protected   pharmacies,       et   cetera,      and    so   they   no

13   incentive   to    compete,    they      have    no    incentive     to

14   minimize costs.     So in some cases if you look at the

15   retail   price     in    some      of    these       countries,     a

16   surprising large proportion of those prices go to

17   either   generic    drugs     or   go   unnecessarily       to     the

18   retailer margins that are preserved by competition.

19                 On the other question about what can be

20   done about overall drug prices, et cetera, there's

21   no easy way to get around the fact that R&D is

22   really   expensive      and     that    it     takes    a   lot    of

23   experimentation to figure out what new technologies

24   work in research and development.              But like a lot of

25   economists, I do think that one thing that would

26   help is if we reform health care generally so that

27   consumers were in the position of making a lot more
                                                                       92
1    decisions      about    their   own   money    or   more       price

2    sensitive.       And as long as all health care premiums

3    are excluded from being taxed, the premiums that are

4    paid by the employers, that means that almost all

5    health    care     is   going   to    run    through    insurance

6    programs and then the patient will pay premiums but

7    they won't pay much directly, which means when they

8    buy their Celebrex they're not paying very much for

9    Celebrex or Viagra or something else.

10                    If we moved at least just a little ways

11   towards     limiting     the    tax   exclusion     for    health

12   insurance      premiums,    a   lot   more    people    would     be

13   getting     higher      deductible    insurance,       they'd    be

14   paying cash for more of their drugs, like almost all

15   of us used to do, they'd be more sensitive, and I

16   think    the   pharmaceutical     manufacturers        would    find

17   that they had to meet a tougher market test, at

18   least for some of their drugs, and in some cases

19   that might make a significance difference.

20                    CHAIRMAN CARMONA:     Thank you.       I want to

21   thank -- this is a very, very important discussion,

22   and I appreciate your patience in staying with us.

23   I know we've gone over a little longer than what we

24   expected, but I mean this really gets to the crux of

25   a lot of the matters that we're dealing with.

26                    As the question was brought up regarding

27   trade and using the tool of our trade negotiations,
                                                                                  93
1    G-7    and   otherwise      large      countries         of    wealth       and

2    those    that   are    poor,     I'd    like       to    maybe       get   Dr.

3    Danzon, Lichtenberg and Cockburn also to comment.

4    Utilizing trade as a tool to further equate some

5    global    equity,      maybe    eliminate          some    of    the       free

6    riderism, if you will, and other benefits of using

7    that leverage, if you will, that tool to try to

8    equilibrate a global market, if there ever is going

9    to be one.          Would you, any of you or all of you

10   comment on what your thoughts are?

11                   DR.    LICHTENBERG:            I    can       just    --     my

12   understanding that in Canada there's a question if

13   prices    are   very      low   in   Canada        and    companies        are

14   worried about essentially that undercutting the U.S.

15   price, why do they bother selling in Canada at all?

16   It's such a small market, why not just write it

17   off?     Well, I've been told that, essentially, the

18   reason why you would not just decline to sell in

19   Canada is because if you refuse to sell your drug in

20   Canada,      they   can    essentially     compulsorily              license

21   your patent.        And so that means that there's really

22   no intellectual property protection.                      It's not only

23   that we dictate the price to you, but if you won't

24   sell it to us, we'll find somebody who will sell it

25   to us at that price even though you have a patent.

26   That's a very serious issue of intellectual property

27   protection.         So it's not just price regulation but
                                                                              94
1    how that's connected to IP protection.                     I think that

2    has been the subject of trade negotiations and no

3    doubt will continue to be in the future, but I think

4    that that's very important.

5                     CHAIRMAN      CARMONA:           Thank     you.        Dr.

6    Danzon?

7                     DR. DANZON:      I think it's very tricky to

8    make drug prices an item of trade negotiations just

9    because there is so much variation across products

10   in the price differentials.                     So for some of the

11   products, say France is comparable to the U.S. for

12   other products, it's much lower for others, it's

13   higher, and if one's talking about how much is each

14   country contributing to the cost of R&D, number one,

15   you've got to look at over the whole life cycle of

16   the product and take into account price and volume,

17   so     that's     much    more     difficult             than    anything

18   anybody's measured yet.

19                    And, second, you've then got to decide,

20   well, what are fair contributions?                        Should it be

21   proportional to income?            I mean that's what people

22   generally       accept   but    there's         nothing    really      firm

23   that says it should be that.                      So aside from the

24   practical        difficulties,         I        think,     of      getting

25   countries to change their health policies, I think

26   that    the     underlying      sort       of    deciding       what   the

27   appropriate contributions would be and whether they
                                                                               95
1    are currently appropriate would be very hard to do.

2    So I think it's a very tricky are to go down.

3                       CHAIRMAN CARMONA:            Okay.     Dr. Cockburn,

4    any final comments on that?

5                       DR. COCKBURN:      Yes.        If I may offer some

6    remarks as a guest in this great country.                            I think

7    there's a very great danger here that whether it be

8    through trade policy or through passing importations

9    legislation, you have to, I think -- people should

10   understand how this is going to be perceived abroad.

11   Canada I think is beginning to see drug shortages

12   coming in.         I think it's just the tip of an iceberg.

13   I think how this is going to be perceived abroad is

14   a question of can pay, won't pay.                   The United States

15   is    a    massively        wealth    and       successful       economy.

16   Voters and governments in other countries are going

17   to view efforts to bully their prices into line with

18   the       United        States    prices        with      very        little

19   enthusiasm.

20                      They    have   plenty     of    ways    to    respond.

21   Again, it's getting a little repetitious, but the

22   immediate tool at hand is to abrogate patent rights.

23   If    there's       a     contagion   or    a    collapse       of    patent

24   rights around the world because countries declare

25   health emergencies and -- I mean we saw this with

26   scares of bioterrorism not very long ago -- I think

27   this is one area where we can be very confident that
                                                                                96
1    there will be an immediate and disastrous impact on

2    R&D incentives.

3                    You    know,       all    the    evidence        I've   ever

4    seen suggests that the pharmaceutical industry is

5    one where patent rights are absolutely essential to

6    supporting R&D and development of new products.                           If

7    that starts to collapse around the world, I think

8    this is a very serious outcome.

9                    CHAIRMAN          CARMONA:          Thank       you,     sir.

10   Other comments, questions?                Dr. Crawford?

11                   DR. CRAWFORD:             I'm just thinking, as we

12   progress     through         dismissing          the       World        Trade

13   Organization         and    trade        negotiations       is     a     real

14   possibility, it sounds more and more like an OECD

15   kind of thing to me where perhaps -- would any of

16   you care to comment on whether the rich nations of

17   the   world,    through       the        Organization       of    Economic

18   Cooperation     and        Development,         might   undertaken         an

19   initiative     like        this    that     wouldn't       be    quite    as

20   threatening as a WTO initiative, for example?

21                   DR. CALFEE:          There is at least a modest

22   movement,      not    so     much    in      OECD    but    within       the

23   European     Commission           itself,       amongst     some        other

24   staffers, especially the more economically oriented

25   ones.   Some of them are reassessing pharmaceutical

26   controls, price controls in Europe, because they've

27   been discouraged about the decline of the pharma
                                                                                   97
1    industry there, and they're wondering whether the

2    short-run      gains    they're           getting       from        the   price

3    controls may not be as great as the long-run losses

4    they're     getting      from        losing       such        an     important

5    industry and whether this is just another sector of

6    the European economy in which they haven't done very

7    well for the last ten years.                     I mean the European

8    Union hasn't been growing very rapidly for several

9    years now.

10                   So I know at least there is some talk

11   among some people that the member countries, the

12   wealthier      ones,    ought        to    be    thinking           about    the

13   impact    of    their        price        controls       on        the    pharma

14   industry and pharmaceutical R&D, and maybe they'll

15   come around.         It's not easy.               They still have --

16   each nation has their own self-interest in doing

17   what they do, and right now each nation is pretty

18   independent     of     the    European          Union    as    a     whole    in

19   setting their prices.

20                   CHAIRMAN       CARMONA:              Thank         you,     sir.

21   Other questions or comments from Task Force members?

22   Dr. McClellan?

23                   DR. McCLELLAN:              This probably is going

24   to be more of a comment but maybe there's a question

25   here at the end.         You all talked about some of the

26   intuition behind, at least the economic intuition

27   behind any kind large-scale importation not leading
                                                                        98
1    to the kinds of impacts on prices that many of its

2    supporters have promised.          I'm not sure that's quite

3    so intuitive to the public.             I mean what they see

4    today is they walk into a drug store here, many

5    people, especially seniors without coverage, and pay

6    the highest prices in the world, and they see people

7    and they talk to people who order drugs over the

8    Internet   or    friends   they    know      in   Canada   who    are

9    getting much lower prices, and it isn't intuitive to

10   them why the price differences should be so great or

11   why it's not possible to set up the same kind of

12   safety system across our borders that we have within

13   each country to assure safety.               And if that's not

14   the way they should be thinking about it, I'm not

15   sure that that's come across to the general public.

16   And I can tell you it's definitely not intuitive to

17   the   public    that   that   is   a    fair      situation,     that

18   Americans should be paying 50, 60 percent of the net

19   revenues for pharmaceuticals around the world.

20                   You all talked about the difficulties in

21   addressing      this   problem,        but    I've    heard      some

22   potentially useful steps in addressing this beyond

23   importation      out   there,      steps       like    trying     to

24   encourage the dollars that we do spend, whether --

25   or the money that we do spend around the world,

26   whether it's proportional to national income or not,

27   but spending that money more wisely to encourage the
                                                                                  99
1    development of new medicines and not pay any more

2    for     medicines      that    have        been     around      and      whose

3    patents have expired than is necessary or taking

4    steps     in    the     United       States,       help     people         band

5    together       more    to     get    lower        prices,      which       many

6    seniors can't do today, but that is about to change,

7    or taking steps to reduce the cost of developing new

8    medicines.      All these things can potentially help.

9                     I just encourage all of you here who

10   have    thought       very   hard    and     very    deep      about       this

11   issue to not give up.               I don't think this is going

12   away.     I think it is perceived by many Americans as

13   an    unfair    situation.           I     think     that's       extremely

14   understandable         given        what     look       like      very     big

15   differences       in     prices       that        don't     seem      to    be

16   justified on the basis of fairness.                          And I would

17   like us to keep working hard to try to find ways to

18   address this, maybe building on some of the ideas

19   here     as    well     as     continuing          to      look    at      the

20   importation issue itself.

21                    CHAIRMAN      CARMONA:             Yes,     please,        Mr.

22   Lemieux.

23                    MR. LEMIEUX:         Just very quickly, I mean

24   this is the inevitable pressure of globalization and

25   information, and this is part of -- in every other

26   product,       the      products         where       we      don't         have

27   significant safety concerns and where there's not a
                                                                           100
1    lot of government involvement in the marketplace,

2    you    simply    buy   where       you    can    buy     things       the

3    cheapest.       And people don't understand why it's not

4    fair to do that in health care or it might not be

5    fair to do that in pharmaceuticals, and I think it's

6    just a question of having a very candid discussion

7    about how this is a case where globalization could

8    lead to an impact on prices in poor countries that

9    we    might   not   want,   but     it   would    take    a     lot   of

10   leadership.

11                   CHAIRMAN    CARMONA:        Thanks       very     much.

12   Panel, thank you so much for spending the time with

13   us.      This    has   been    a    very,       very   illuminating

14   discussion for us.          I would encourage you that if

15   you have any afterthoughts based on our comments,

16   please submit them to the docket.                 I assure you we

17   will scrutinize them very closely.                Thank you, once

18   again, for all your help.

19                   We're going to take a very short break.

20   We'll be in session in ten minutes as we turn over

21   for our last panel.           So if anybody needs a break,

22   please step out now, and we'll start again in ten

23   minutes.

24                   (Whereupon,     the      foregoing     matter     went

25   off

26                   the record at 3:56 p.m. and went back on

27                   the record at 4:05: p.m.)
                                                                              101
1                     CHAIRMAN CARMONA:              Ladies and gentlemen,

2    we'll     reconvene.             Again,     thank       you     for    your

3    patience.        I know we've run a little long, but we're

4    getting      a     lot    of     good     information          among    the

5    deliberations that we've been having.                         Many of the

6    issues that have come up are the economic ones and

7    some    of   the    very       complex    issues     that      you     heard

8    discussed.       So thank you for your patience.

9                     We'll      begin        this     afternoon's          third

10   panel, and that will be with Dr. Eric Sheinin, from

11   the U.S. Pharmacopeia, I believe.

12                    DR. SHEININ:            Yes.      Thank you.           Good

13   afternoon.         My name is Eric Sheinin, and I'm the

14   Vice     President        for      Information          and     Standards

15   Development at the United States Pharmacopeia.                          The

16   USP welcomes the opportunity to present our views on

17   the     important        issue     of     drug     importation.            I

18   apologize for not being able to provide my comments

19   in    advance     of     today's    meeting       due    to    the     short

20   notice regarding our participation today.                        USP will

21   provide a more detailed statement to the docket in

22   the near future.

23                    The        United         States         Pharmacopeia

24   Convention, Incorporated is a not-for-profit company

25   that was created in 1820 by a group of 11 physicians

26   interested         in    providing        public        standards       for

27   pharmaceutical products being used in the U.S. at
                                                                           102
1    that point in time.             The First Pharmacopeia of the

2    United     States       was    published        in     1820    and   was

3    essentially      a      book        of     recipes     for     botanical

4    products.       Over the years, UPS has evolved so that

5    today our standards mainly are applicable to the

6    pharmaceutical        industry           and   the     Food    and   Drug

7    Administration.

8                    In    1975,         USP     acquired     the    national

9    formulary        from         the         American      Pharmaceutical

10   Association, and the two pharmacopeias, the USP and

11   the NF, are now published in a single volume on an

12   annual basis.        These compendia contain approximately

13   4,000 monographs for drug substances, drug products,

14   excipients, dietary supplements and other articles,

15   as well as approximately 220 general chapters that

16   provide information for the performance of many of

17   the analytical procedures that are contained in the

18   monographs.

19                   Both the USP and the NF are recognized

20   as official in the Federal Food, Drug and Cosmetic

21   Act.     So pharmaceuticals that are marketed in the

22   U.S. must comply with the standards established in

23   the compendial monographs where a monograph exists.

24   And      this   can     be     important        in     terms    of   drug

25   importation then.

26                   The development of monographs in general

27   chapters is accomplished by approximately 300 to 350
                                                                                 103
1    volunteers from the pharmaceutical community, both

2    industry,         academia         and   the        government.            The

3    compendial standards that are developed are public

4    standards         whereas    the     standards        approved    by       FDA

5    during      the    review     process         are    private    standards

6    between the company and the agency.                        It is USP's

7    intent to have the public standard be in agreement

8    with the private standard to the extent possible.

9                       USP      has     some       concerns        with        drug

10   importation         for     the     following        reasons    that       are

11   related to uncertainty regarding safety and efficacy

12   of   the    products        that    might      be   imported     into      the

13   United States.            One, the reference listed drug is

14   not the same in every country.                  In the U.S., generic

15   drugs      must    be     shown     to   be    bioequivalent          to   the

16   reference listed drug.               This generally refers to the

17   innovator         product     that       was    approved       under       the

18   provisions of Section 505(b)(1) or (b)(2) of the

19   Federal Food, Drug and Cosmetic Act.                      Generic drugs

20   are approved under the provisions of Section 505(j)

21   of the Act.         Drugs being shipped to other countries

22   and then imported into the U.S. may or may not be

23   bioequivalent to the U.S. reference listed drug.

24                      Second,         presumably,          generic            drug

25   products from other countries would be among those

26   being imported.             Unless data were available in the

27   source country for imported generic drug, one would
                                                                               104
1    not     know    if    it   was      bioequivalent            to   the    U.S.

2    reference listed drug.

3                    Third,        as    I      indicated         earlier,     the

4    compendial standard is a public standard, while the

5    FDA-approved standard is a private standard.                            These

6    are not always in agreement.                       The same situation

7    presumably holds in other countries with a competent

8    regulatory           authority       and     a    pharmacopeia.           The

9    United States patients and practitioners would have

10   to depend on the public standard in the pharmacopeia

11   in the other country since access to the private

12   standard might not be readily available.                            Without

13   scientific       scrutiny,         it      would       be    difficult     to

14   determine if the public standard in the exporting

15   country was equivalent to the USP standard.

16                   Fourth,       drugs     do       not    always    have    the

17   same name in every country.                      For example, in the

18   U.S.,     the        active        ingredient          in     Tylenol     is

19   acetaminophen, while in Europe it is parasetimol.                          I

20   realize this is an over-the-counter drug, but it

21   carries over to prescription drugs as well.                              U.S.

22   pharmaceutical users and health care providers are

23   familiar       with     the    USP-NF        names          and   labeling.

24   Therefore, the use of products labeled per other

25   pharmacopeias may be confusing.                    In many instances,

26   the dosage strengths are different as well, which

27   may lead to additional confusion on the part of the
                                                                            105
1    practitioner and the patient.

2                     Fifth,       the    same   dosage     forms    are    not

3    always available in all countries.                    For example, in

4    the U.S., a distinction is made between tablets and

5    capsules.       This is not true in all other countries.

6    A patient who has been taking tablets might receive

7    their    drug    in     a    capsule    and    be    concerned       about

8    taking the wrong medication.                  Similarly, the dyes

9    used to color solid oral dosage forms are not the

10   same in all countries.                Again, this could lead to

11   confusion on the part of the patient.

12                    Sixth, and last, the situation becomes

13   more    complex        for     modified       or     delayed    release

14   products.       Depending on the exact formulation of the

15   product,        the        release     characteristics         may     be

16   different.       This can lead to the patient receiving

17   the active ingredient at a different rate, which may

18   well    affect    the       safety    and   the     efficacy    of    that

19   product.

20                    In conclusion, UPS feels that it will be

21   difficult to guarantee the safety and efficacy of

22   drugs imported from other countries, regardless of

23   the    adequacy       of    the     regulatory      process    in    those

24   countries.        There are many unknown variables                     and

25   questions involved, and we do not have the answers

26   to all of these questions.

27                    USP would be pleased to work with the
                                                                                    106
1    Task     Force     and    with     the        FDA    on     the       issue       of

2    importation of pharmaceuticals from other countries,

3    and I again thank you for your attention and for

4    this opportunity.

5                      CHAIRMAN       CARMONA:             Thank           you,     Dr.

6    Sheinin.     Our next speaker, Dr. Alastair Wood from

7    Vanderbilt.       Thank you, sir.

8                      DR.    WOOD:      Thank       you.            Dr.     Carmona,

9    ladies     and     gentlemen,           I'm     Alastair          Wood        from

10   Vanderbilt School of Medicine.                       I'm also the Drug

11   Therapy Editor of the New England Journal.

12                     Let me begin by saying I certainly don't

13   envy you your task.              As we've heard this afternoon,

14   importation is simultaneously -- every position on

15   drug importation is simultaneously wrong and right.

16   And that makes this an extraordinarily difficult

17   circle to square.          And given the hour, I will try to

18   summarize just my written comments.

19                     But as you heard from the last group of

20   speakers,        consumers       will    search           for     the    lowest

21   price, and that search has been helped by better

22   pricing    information       on     the       Internet.            Once       such

23   price     transparency           exists,        consumers             will    not

24   tolerate major pricing differentials.                           On the other

25   hand,    pharmaceutical          companies          are    entitled          to   a

26   financial return that adequately reflects the costs

27   and risks of drug development.                      But they will have
                                                                              107
1    to ensure that these costs of drug development are

2    borne    equally     and     equitably         by    all        consumers,

3    whatever their nationality.                Both sides are right.

4                   Safety      is    another       example       where      both

5    sides are right.        Clearly, drugs sold in Canada to

6    Canadians,     by    Canadian         pharmacies          are     of    high

7    quality and are as safe and effective as those sold

8    in the United States.             To suggest that such drugs

9    are unsafe is simply foolish.                 However, when a U.S.

10   consumer orders drugs over the Internet purporting

11   to be from Canada, that consumer does not know from

12   whence these drugs come.               In fact, these drugs may

13   be    from   anywhere   in      the    world,       and    they    may   be

14   mislabeled,     adulterated           or     counterfeit          and    are

15   clearly unsafe.

16                  I could go through each of the arguments

17   you will and have heard and make the same point,

18   that both sides are right, but frankly that would

19   not     contribute      much          to      your        deliberations.

20   Therefore, I want to try and focus on solutions to

21   the current problem.

22                  In my view, the reimportation issue is

23   really a symptom of a deeper problem, and it is

24   critical not to allow society to become distracted

25   by the illusionary quick fix of reimportation.                          Much

26   of    this   controversy        has        arisen    because       medical

27   treatment has recently changed dramatically in ways
                                                                           108
1    that     will    forever         change        the     economics      of

2    prescription drugs.

3                    Until     very     recently,           patients      were

4    treated for discrete episodes of disease usually for

5    a limited period of time.                 Because of that, they

6    became    accustomed     to   buying      drugs        for   relatively

7    short courses.        Think of the usual ten-day course of

8    an antibiotic.        But we're now in an age of livable

9    chronic disease, and we can now even prevent future

10   disease by treating patients with drugs, so-called

11   primary and secondary prevention.

12                   Examples include lowering cholesterol or

13   blood pressure.         In these cases, patients will take

14   medications every day, month in and month out for

15   the rest of their lives.                 Although the financial

16   implications     may     appear     negative,          the     long-term

17   health implications are hugely positive.

18                   The     proportion        of     our     health      care

19   dollars spent on drugs will increase in the future.

20   It should increase in the future.                    And that is good

21   news because much of that expenditure is going into

22   prolonging our disease-free lives.

23                   Let me also address some of the other

24   issues.     It's      estimated     to    cost       upwards    of   $800

25   million to develop a new drug today.                     That cost is

26   too high.       It's unsustainable and must be reduced.

27   In spite of all the scientific advances that we have
                                                                                    109
1    made recently, the clinical drug development process

2    has changed little, except trials have become ever

3    larger and ever more expensive.                        Drugs to prevent or

4    cure many common diseases, such as Alzheimer's or

5    osteoarthritis,             are        still       tantalizingly        out     of

6    sight.        It     is    therefore          essential       that     we   think

7    creatively to develop new and potentially radical

8    drug development paradigms.

9                       We      have         learned        that      the        patent

10   extension          offered        by      the        Pediatric       Rule     has

11   encouraged         drug         studies      in      children.         Perhaps,

12   therefore, we need to have drug approvals that can

13   be   staged.            First,      rapid       approval      for     surrogate

14   endpoints, and hence smaller, cheaper trials with

15   patent    extension             offered        for    later     studies       that

16   demonstrate             efficacy             and      clinical         relevant

17   meaningful endpoints.

18                      Perhaps we need to offer longer patent

19   life for truly novel therapies, such as the first

20   drug     to        prevent         Alzheimer's           disease.             The

21   introduction         of     market-based             financial       incentives

22   that reward the most risky and innovative research

23   is most likely to be successful.

24                      Therefore,           in     conclusion,       our        future

25   health,       your        and     my    future        health,    is     utterly

26   dependent on the development and marketing of new

27   drugs to treat the many common diseases for which we
                                                                        110
1    currently have no effective therapy.                   We need to

2    make sure that we do not allow ourselves to become

3    distracted   by     reimportation      as    a    solution    rather

4    than recognizing the true issue, which is reducing

5    the cost of drug development and spreading that cost

6    evenly across all consumers.

7                  Thanks for the opportunity to present my

8    views.

9                  CHAIRMAN CARMONA:         Thank you, Dr. Wood.

10   Our next speaker, Dr. Reidenberg.

11                 DR.     REIDENBERG:            Thank         you,    Mr.

12   Chairman.    I'm Marcus Reidenberg.              I'm an internist

13   and a pharmacologist at Cornell, and I'm going to

14   address the medical concerns about drug importation,

15   focusing     on     the   risk    to        patients       importing

16   substandard products.

17                 A     substandard     drug         product     can   be

18   unintentional or intentional.           Unintentionally, it's

19   due to either incompetence or human error, whereas

20   an intentional one, a counterfeit product, is due to

21   criminal activity.

22                 Counterfeiting is an activity involving

23   production and distribution by people who know what

24   they are doing.       While this is part of the illegal

25   drug trade, the lesser intensity of enforcement and

26   the smaller degree of punishment for being caught

27   makes this a less dangerous part of the illegal drug
                                                                   111
1    trade for the criminal than selling opiates or other

2    hard drugs.

3                  The medical consequences of counterfeit

4    drugs can be illustrated by published examples of

5    counterfeit     antibiotics    being     marketed     with    no

6    antibiotic    content    in   the     tablet.       These    are

7    described in my paper submitted for your briefing

8    material.     Given the potentially fatal consequences

9    for sick people who take these, the criminals who

10   make and distribute counterfeit drugs without life-

11   saving medicine in them should be considered as if

12   they have attempted murder or even committed murder,

13   and enforcement and punishment should be appropriate

14   for the enormity of the crime.

15                 In    considering      counterfeit    drugs,     we

16   usually ignore the second victim of these crimes,

17   the    legitimate    manufacturers     whose     products    are

18   counterfeited.       Manufacturers     usually     keep    secret

19   the    information    they    have    about     counterfeiting

20   because they fear correctly that public information

21   that a particular product is counterfeited will lead

22   to a loss of sales of their product.             Hence, public

23   ignorance about a counterfeit product is beneficial

24   to    the   legitimate   manufacturer.          Informing    the

25   public about a counterfeit to protect patients hurts

26   the   manufacturer    that    fulfills    this     civic    duty.

27   This problem of the other victim, the manufacturer,
                                                                                        112
1    must       be     addressed       because          secrecy        protects         the

2    criminals and should not continue.

3                       The more general problem of substandard

4    drug products is a worldwide problems that's been

5    considered           at        length        by      the         World        Health

6    Organization.              My experience with the WHO has been

7    as     a    member        of    the     WHO       Expert        Panel    on    Drug

8    Evaluation since 1989.                      I've served on six expert

9    committees and as a temporary advisors to several

10   WHO programs concerned with medications.                                  The WHO

11   has        various     activities           designed        to     inform          the

12   purchaser of the sources in regulatory procedures of

13   specific drugs products to help the purchaser assess

14   the quality of the products, and this is all on a

15   WHO web site in my written material.

16                      The         procedure      described           leads       to    a

17   certificate           of       pharmaceutical            product.              These

18   certificates          are       only    as        good     as     the    national

19   authority          under        which       they're      issued,         and       the

20   quality of the product must be evaluated from this

21   point        of      view.            The     medical           issues        around

22   reimportation relate to the quality of the products.

23   Products made by companies for the U.S. market and

24   shipped also to countries with legal and regulatory

25   environments equivalent to ours and then reimported

26   into the United States meet the U.S. standards of

27   satisfactory quality.
                                                                                       113
1                        Finally,          the     problems           that       concern

2    doctors       the    most       are    that        the    product       does     not

3    contain       the    labeled          amount       of     the    drug       or   the

4    product is not bioequivalent or the product differs

5    in some other way from the FDA-approved product,

6    such as with different excipients or contaminants so

7    that unexpected bad effects occur.

8                        One    can    generalize             that    drug       product

9    testing       laboratories            can    be     established          to      test

10   samples from batch product to batch to see that it

11   meets     all        the        USP     or         European          pharmacopeia

12   specifications for the product.                           Organizations like

13   state     Medicaid         or     employee          programs,         purchasing

14   cooperatives          and        so     on         wanting       to      purchase

15   medication      from       sources          not     under       FDA   regulation

16   have    the     responsibility                to     determine          that     the

17   product is so labeled.                 They also have the resources

18   to arrange for laboratory testing of the products.

19                       The      potential              problems           of        bio-

20   availability          and        of         different        excipients           or

21   contaminants can only be addressed by being sure

22   that    the    products          were       made     by    manufacturers          in

23   countries      with       strong       regulatory          authorities           that

24   are part of honest governments that do not tolerate

25   corrupt officials.                Drug products must be made by

26   manufacturers in countries with laws, policies and

27   implementation            equivalent         to     those       of    the   United
                                                                                   114
1    States    for    one       to    be    sure    the    products         will   be

2    equivalent to those in the United States.                              And I'd

3    be happy to expand on any of these points in the

4    discussion.

5                     CHAIRMAN        CARMONA:           Thank       you,   Doctor.

6    Our next speaker, Dr. Peck.

7                     DR. PECK:             Thank you, Admiral Carmona

8    and   members         of   the    panel.            Thank       you    for    the

9    opportunity       to       present      my     views       on    safety       and

10   effectiveness of imported drugs.

11                    I'm       Professor          of      Pharmacology            and

12   Director of the Center for Drug Development Science

13   at Georgetown University.                   I trained in medicine and

14   clinical    pharmacology              and    have    had    more       than   30

15   years    experience         in    testing       drugs,          research      and

16   regulation, including six years at Food and Drug

17   Administration as head of the Center for Drugs.

18                    I think I can best contribute to your

19   task by explaining, or reminding, as the case may

20   be, of the high standards that FDA applies to drugs

21   manufactured      and       distributed        in     our       country,      and

22   I'll follow that with three points to consider with

23   respect    to     safety,        quality       and     effectiveness          of

24   drugs that would be imported.

25                    We have confidence in FDA-approved drugs

26   that are manufactured here because of these high

27   standards       and    extensive        testing,       even       if   they're
                                                                               115
1    manufactured       in    a    foreign        country     that      we    have

2    approved the manufacture of.                   As explained in more

3    detail in my written statement, these standards and

4    procedures       apply        to     both     active       and     inactive

5    ingredients       in    the        product    as     well    as    to    the

6    particular       form    of    the    product,       the    formulation,

7    whether it be a tablet, a capsule or a solution.

8                     Very often the formulation itself, the

9    capsule of the tablet, and the storage conditions of

10   the product influence the safety and effectiveness

11   of the drug product.                They key safeguard that FDA

12   affords    is    the     conduct       of    field     inspections       and

13   audits    for     manufacturing         facilities          and    periodic

14   reinspections and analyses of the sampled products

15   in the supply chain.

16                    The    test        procedures       employed       include

17   chemical analyses, evaluations of the performance of

18   the      drug     formulations              themselves       and        human

19   bioequivalence          tests.              The    chemical        quality

20   standards,       as     you        would      imagine,       related      to

21   identifying the active ingredients in the product

22   and affirming that the dose labeled is exactly or in

23   the neighborhood of what is purported, as well as an

24   evaluation of the impurity profile.                          These tests

25   require         advanced           monitoring        and         analytical

26   technologies       and        are     applied        routinely      during

27   manufacturing, distribution and storage.
                                                                               116
1                    The     formulation,           the    capsule      or     the

2    tablet, is tested for size, hardness, dissolution

3    profiles in simulated gastric juice and so forth.

4    These storage tests sometimes involve many months of

5    storage under extreme conditions to confirm that the

6    product would withstand those kinds of variations in

7    temperature and humidity.

8                    The human bioequivalence testing is an

9    approach to confirming the near identical profile of

10   the    blood    concentrations           of    the        drug   once   it's

11   ingested by a human.                The bioequivalence test, as

12   you    may    know,     is    the      basis    for       confirming     the

13   expected safety and effectiveness of generic drugs

14   and    is     often     applied        also    to     new    drugs      under

15   development.

16                   Safety and effectiveness is affirmed in

17   a   particular        disease     by    extensive          human   clinical

18   trials.      But a key element in all of the trials that

19   are done is a knowledge of the manufacturer and the

20   product qualities of these test acceptances.                             And

21   once that's settled, it implies then that -- once

22   the safety and effectiveness of a new drug has been

23   adequately       proven,        the       continued           safety     and

24   effectiveness is assured by closely adhering to the

25   just        described        strict       chemical          manufacturing

26   formulation      and      manufacturing             and     bioequivalence

27   quality standards.
                                                                           117
1                   Thus, as a result of the compliance with

2    these   requirements,        Americans      have        long    enjoyed

3    reliable safety and effectiveness in the approved

4    drugs   that    they    obtain      in   their      hospitals        and

5    pharmacies.

6                   Now, a few points about imported drugs,

7    their safety and effectiveness.             With respect to the

8    current dialogue, I proposed in my written testimony

9    two   categories.        Category    one      I   will     call      FDA-

10   approved   products.         They're       manufactured         in   the

11   United States or in an approved facility for which

12   there is full compliance, that approved could be in

13   another country.        But that has been inspected and

14   fully compliance records are available.                    These may

15   reenter the United States as an import.

16                  The     second    category         would        be    drug

17   products, possibly with the same active ingredient

18   of an already approved drug in the United States but

19   the product itself would not be approved by the FDA.

20   It could enter the United States if permitted from

21   foreign manufacturing sites, but it would not have

22   records of quality and performance testing or of

23   regulation     by    competent   regulatory        authorities        or

24   one   might    not    even   know    the      transportation         and

25   storage conditions.

26                  My points:        The category one and two

27   drugs   differ       significantly       on       the     potentially
                                                                      118
1    available      information     about    their        quality    and

2    performance and therefore vary in the burden and

3    cost of assuring safety and effectiveness.               Assuming

4    that     the   full    pedigree   and        history    could    be

5    confirmed for the category one drugs, the questions

6    raised mainly would be due to any deviations in the

7    specifications for storage and transportation.                   So

8    if Lipitor, for example, were transported to Canada

9    and it sat in a warehouse in New Jersey in August

10   without air conditioning for two weeks, one could

11   wonder    whether     the   hardness    of    that     tablet   had

12   firmed up and that would not dissolve properly and

13   would not enter the body at the same rate or extent,

14   thereby depriving the patient of a sufficient amount

15   of lipid-lowering action to be effective.                 Perhaps

16   the physician might increase the dose on another

17   batch coming through that had not had those storage

18   conditions, might be getting a higher dose, and then

19   the patient would be at risk to the toxicity of

20   Lipitor, which could involve muscle breakdown and

21   kidney damage or hepatic damage.              So there well may

22   be some strategies for dealing with these category

23   one drugs that we could affirm to be safe.

24                  The category two drugs, however, present

25   the greatest challenge for assurance of safety and

26   effectiveness.        Confidence enjoyed by Americans with

27   our    domestically     manufactured     and    approved       drugs
                                                                              119
1    would be possible were we to require the foreign

2    source marketing organizations to meet all of the

3    basic     requirements             --     formulation,         chemistry,

4    bioequivalence -- but, of course, that's requiring a

5    brand      new        drug         application.              Indirectly,

6    conceivably, we could enter into arrangements with

7    competent foreign regulatory authorities.                            In any

8    case, implementation of such an expansion of FDA

9    involvement          for     collaboration           with    a    foreign

10   regulatory       agency      would       be     daunting,   massive     and

11   complex and expensive.

12                    I    end    with       two     implications     for   your

13   consideration        that        might    accompany       relaxing     these

14   import     restrictions.                  The     first     concerns     an

15   unintended potential increase in counterfeit drugs.

16   This problem of counterfeit drugs has already been

17   mentioned by Drs. Wood and Reidenberg.                         Permitting

18   category      one     drugs       to     be   reimported     freely     may

19   quickly result in a huge seller's market across U.S.

20   borders, strongly luring counterfeiters to join the

21   bonanza market that is created.                     Compliance efforts

22   to counter this threat would be costly and possibly

23   imperfect, leading to the risk of entry of unsafe or

24   ineffective products.

25                    The second concern relates to the effect

26   on FDA resources but with respect to the manpower

27   drain    if   tasked        to    provide       increased    enforcement
                                                                          120
1    activities.          The full financial forecast is advised

2    along with consideration of perhaps collecting user

3    fees from foreign distributors and manufacturers who

4    become    part        of    the    drug    importation     process    to

5    support       the     increased      FDA    resource     requirements.

6    Thank you.

7                        CHAIRMAN      CARMONA:       Thanks,     Dr.   Peck.

8    And our last speaker, Dr. Elena Rios.                          Dr. Rios,

9    welcome, thank you.

10                       DR. RIOS:        Thank you.          Sirs, General

11   Carmona and Task Force members, it's an honor to be

12   here     today        representing         the   National       Hispanic

13   Medical Association and the Hispanic-Serving Health

14   Profession          Schools,      both     non-profit     associations

15   dedicated to improving the health of Hispanics and

16   other underserved in the U.S.

17                       According to the census, we're now the

18   largest       group    in    the     country,    ethnic    group,    and

19   exist    in    nearly       all    major    areas   of   the    country.

20   Besides being the group with the least access to

21   health insurance and access to health care by many

22   parameters, we also face many barriers to health

23   care services based on language, culture and the

24   severe lack of Hispanics in all levels of the health

25   workforce.            Indeed,        in    the   IOM     2002    Unequal

26   Treatment       report,       this    report     discussed      specific

27   recommendations to facilitate the inclusion of more
                                                                            121
1    populations with cultural backgrounds.                    Furthermore,

2    the IOM report reported on quality, have pointed to

3    the need for a patient-centered approach in health

4    policy in 2004.

5                    Both Senator Frist and Senator Daschle

6    have   introduced       legislation         that   show     us   various

7    pathways   to    eliminate          health    disparities        in   our

8    health system, and they include enhancing minority

9    research and data collection, promoting programs to

10   increase       minority         health        professionals           and

11   strengthening      the     leadership         of    the     Office     of

12   Minority       Health     and       cultural       competence         and

13   curriculum      development.           I     recommend      that      your

14   deliberations include these recommendations.

15                   Drug importation discussions, we feel,

16   require    a     review        of     the     public      safety      and

17   feasibility as well as the cost-benefit analysis for

18   the pharmaceutical distribution chain, as you are

19   doing.     However,       we    are    interested      in    educating

20   physicians and health providers about the inclusion

21   of cultural principles into any new public health

22   activities.      You can provide an imported drug to a

23   regional wholesaler, but the eventual distribution

24   to the local pharmacy in the Hispanic neighborhood

25   and moreover the awareness of that new service to

26   the community requires its own protocols of outreach

27   and education and information sharing.
                                                                                  122
1                      As      the        Unequal          Treatment          report

2    demonstrates, a major effort is needed on the part

3    of   both    private          and    public     partners       to     develop

4    linguistically          and    culturally appropriate services

5    in   a   drug     importation         process.          At     the    federal

6    level, we feel that the FDA should partner with the

7    Office of Minority Health and its regional minority

8    health      consultants         to       develop       those       culturally

9    appropriate            messages,         marketing           and      product

10   protocols.

11                     We     recognize        the        importance      of      the

12   Center for Linguistic and Cultural Competence at the

13   OMH, which has developed class standards and other

14   projects.       Just to mention, NCQA, Kaiser Permanente,

15   JCAHO,     lots    of     institutions          in    the    country        have

16   adopted      these        principles            on     their        own     and

17   voluntarily.            There's      a    momentum      that       this     Task

18   Force cannot ignore on the recognition that quality

19   care is needed for our diverse communities in order

20   to improve the health of all America.

21                     And we feel strongly that there should

22   be   demonstration            projects      and       research       done    by

23   Hispanics with the community that they live in that

24   demonstrates           the      effectiveness            of        any      new

25   interventions that impact on health care delivery.

26   Lastly, you must consider including more diversity

27   in   the    leadership         bodies      created      as     critical      to
                                                                                 123
1    making any new program a success.

2                      Just a few examples of looking through

3    the literature on prescription drugs and Hispanics,

4    and of course these come from the other border, the

5    U.S.-Mexico border.            For example, there was a study

6    done in Los Angeles 140 miles from the U.S.-Mexico

7    border.      Fourteen percent of the respondents had

8    crossed the border to seek medical care, 80 percent

9    of   these    respondents        were      uninsured,           23   percent

10   reported     purchasing         medications,           antibiotics          and

11   pain medications being the highest.                      Other studies

12   have     shown     in   Texas,       in    El    Paso,      a    study      on

13   purchasing prescription medications in Mexico that

14   more than 80 percent of the patients had purchased

15   drugs available in the U.S. as prescription drugs

16   without a prescription.

17                     In Los Angeles, in terms of issues of

18   licensure, in our Hispanic communities right now,

19   the Department of Health, Accounting Department of

20   Health       created     a     new   office      that    increased          law

21   enforcement       to    curb    sale      of    --   illegal         sale    of

22   pharmaceuticals          by      unlicensed            vendors,        which

23   included     clinics      run    by       foreign      doctors       without

24   licenses as well as pharmacies providing medications

25   without          prescription.                  They        found           280

26   investigations,         121    arrests         and   $4.5       million      of

27   drugs in the first 20 months of its operation.                              The
                                                                       124
1    Department has also started an educational program

2    in those communities most affected by this behavior.

3                   And some of the answers to some of your

4    questions include in terms of scope and volume of

5    imported drugs, we really feel that products need to

6    be subject to the same level of labeling, research

7    and critical debate as was mentioned here, and that

8    we don't feel there should be drugs divided in two

9    groups, one that has lesser risk and could be more

10   acceptable to the public.               The fear is that the

11   lesser regulated product will be faster to be given

12   to the poor and minority groups.

13                  Just    a    couple     more    points.      Foreign

14   health     agencies'    role,     I   think,    again,     just   to

15   consider for the Hispanic community that PAHO needs

16   to    be   involved    for    this     hemisphere.         And    the

17   limitations that may inhibit the Secretary's ability

18   to certify the safety of imported drugs, I think

19   that there is a definite inability to limit what we

20   consider     an   underground         trade    in   our    Hispanic

21   communities that would develop even faster when new

22   distribution patterns are started by the importation

23   of these drugs.        Better to have checks and balances

24   in the registration and inspection and recordkeeping

25   and    redundancies        with    oversight     linked     to    the

26   federal      government           infrastructure          and     its

27   contracting institutions.
                                                                                  125
1                      And,     of    course,           there    needs    to    be   a

2    rapid feedback system linked to the CDC with new

3    information systems to relay information back to our

4    providers in our communities on a timely basis as

5    well   as    to    connect           with    international          points      of

6    contact.

7                      In terms of new costs, we just -- again,

8    just to emphasize that we would need to see language

9    and culturally appropriate services.                             And in terms

10   of impact on drug research and development, there

11   really   is    a    need        to    continue       R&D     in    the    United

12   States and to increase the focus not only on drug

13   development but the impact on Hispanics and Hispanic

14   research subjects and also the need to develop more

15   physician practice networks in Hispanic communities

16   working with pharmacies.                Thank you.

17                     CHAIRMAN CARMONA:                 Thank you, Dr. Rios.

18   Panel members, questions, comments?                         Dr. Crawford?

19                     DR.    CRAWFORD:             I     appreciate      all     the

20   testimony.         It was very helpful to the Committee.

21   I'd like to propose sort of an alternative scenario.

22   I believe everyone here and all of you and all the

23   respondents        we've    heard           from    so     far    assume   that

24   there will be some sort of accommodation at some

25   point.      We have drugs coming in from Canada, we have

26   a lot of political interest, we have the templates

27   for solving those problems laid forth in the form of
                                                                     126
1    at least two bills and perhaps several more in the

2    making,   all    of    which   would    make   us    believe   that

3    there will be some kind of accommodation, some kind

4    of facilitation of exportation from Canada.

5                    What if the opposite happened?            What if

6    there was a bill or there was some sort of action

7    within the administration that absolutely prohibited

8    any more importation from Canada, if the borders

9    were sealed?          What harm or what good would accrue

10   from that?      Would it be necessarily a bad thing or

11   is it something that is unthinkable or what?

12                   DR. SHEININ:       Are you saying that there

13   would be no importation even if it was an approved

14   product by the FDA?

15                   DR. CRAWFORD:       Yes.     Right now products

16   allegedly go to Canada and then --

17                   DR. SHEININ:       No, no.     I'm saying right

18   now we might approve a -- sorry, I used to be -- I

19   still say we -- FDA might approve a product by a

20   Canadian company for importation to the U.S.

21                   DR. CRAWFORD:      Yes, yes.

22                   DR.    SHEININ:      That    would   be   excluded

23   from your plan?

24                   DR. CRAWFORD:      Yes.

25                   DR. SHEININ:       Okay.

26                   DR.    CRAWFORD:       I'm   talking   about    the

27   current package while we're here.
                                                                                        127
1                          DR.         SHEININ:          If      all        the     other

2    importation was excluded, I don't see from a safety

3    and efficacy or quality standpoint that that would

4    be    a    problem.            I think it would go a long way

5    towards      assuring             that   the      products       that    patients

6    were receiving were of the highest quality and were

7    safe and effective.

8                          DR. WOOD:             Well, I think one of the

9    issues      is        that     we've       failed    to     explain          to    the

10   American         people        why    the    amount       of     money       they're

11   spending of drugs has increased.                          And we've allowed

12   people           to         demonize        the      FDA,         to     demonize

13   pharmaceutical companies, and some of them have done

14   a pretty good job of helping that, and we've failed

15   to really grapple with the issues, which, as I tried

16   to illustrate to you, are that the amount of money

17   we spend out of our pocket on drugs is going to

18   increase         in     the       future.      You       know,    if     you      were

19   designing             the     ideal      medical         model     today,          you

20   wouldn't have surgeons, you wouldn't have all these

21   things      going           on,    you'd     have    pills        that       treated

22   people.          If you watch Star Trek, people didn't have

23   surgery, they had pills that they got to treat what

24   ailed them.

25                         So I mean the future model is going to

26   shift hopefully towards more and more medications

27   and       less    and        less     of     more    primitive          forms      of
                                                                              128
1    therapy.         We need to do a better job of articulating

2    that to both the public and to legislators.

3                      Now, I'm originally from Scotland.                      I

4    don't like to spend money anymore than the next guy,

5    but,    clearly,       patients       will      not      tolerate      vast

6    differences in prices of any product.                           Ferragamo

7    shoes cost about the same in Florence as they do in

8    New York City, and the reason for that is that they

9    long   ago       recognized    that    they      if    didn't,        people

10   would buy them there and not in New York.                             So we

11   cannot,      I    think,   sustain     a    system       that   has    vast

12   differences in drug prices.

13                     Now, what are we going to do about it?

14   Well, one of the groups that control this that have

15   not    been       talked   about     very       much     are    the    drug

16   companies who do allow their products to be sold at

17   less than they're being sold for in this country.

18   And,    of       course,   drugs      are       unique     amongst      all

19   products         practically    that       we    sell      because      the

20   incremental cost of making one more pill is almost

21   trivial.         Most of the cost of drug production comes

22   from development and research and regulatory issues.

23   That's hard to explain to people.                      They think of a

24   car being built of steel and chairs and so on and

25   engines.         Drugs are different, and we're going to

26   have to explain that better to people, I think.                           I

27   don't think something terrible will befall if people
                                                                        129
1    have to get all their medications from within the

2    United States borders, I mean that's clearly what

3    most of us do right now.

4                   DR. REIDENBERG:         Basically, what you're

5    describing     is    theoretically      the    status      quo,   and

6    that's fine.

7                   DR. CRAWFORD:         Well, no.        The status quo

8    -- we do have a reimportation problem now.

9                   DR. REIDENBERG:         Well, a certain amount,

10   yes.     But you're saying that drug products actually

11   made in a plant in Switzerland by Ciba Geigy that

12   are designed for the American market and who've been

13   approved, that would continue to be imported.                      We

14   don't say it can only be made within the continental

15   United States.

16                  DR. CRAWFORD:     That's right.

17                  DR. REIDENBERG:         So that, conceptually,

18   that's fine.        I'd like to comment that when we talk

19   about the prices that people know, we're talking

20   about the list prices, not the discounted prices.

21   And that if one really wanted to say that the total

22   revenue for a drug from the United States market

23   should    be   stable,    then   if    one     reduced     the    list

24   prices and raised the discounted prices, one could

25   even the playing field within this country and with

26   the    circumstances     of   just    having     it    here.      I've

27   written a paper on this, and I'll submit it for the
                                                                 130
1    docket when I get home.

2                CHAIRMAN     CARMONA:    Thank    you.      Other

3    comments?   Questions from panel?      Any others?          No?

4    Yes, please, Dr. O'Grady?

5                DR. O'GRADY:      I guess I'd just like to

6    -- because of Dr. Crawford's question, I'd just like

7    to flip it around to a certain degree what happens

8    if Congress does pass a bill that says we will allow

9    reimportation under certain circumstances, and what

10   would be your position in terms of just -- I mean I

11   think that Dr. Rios did talk about sort of some of

12   the things that would be involved in implementation,

13   but to the other members of the panel in terms of

14   thinking about what that suddenly mean in terms of

15   reality.    There   is   a   bill   passed,   it's     to   be

16   implemented, it's to be done so while maximizing

17   safety and efficacy or safety anyway in this case,

18   and can you talk a little bit about the implications

19   of that and what would be necessary steps?

20               DR. WOOD:     Well, I actually address some

21   of that in my written comments.      Clearly, one of the

22   first things we need to know is the providence of

23   the drug that's being imported, so there needs to be

24   some kind of system to track the medication from

25   manufacturer to final point of sale by smart tags or

26   radiofrequency and tagging or something.             And some

27   of these could also track the storage conditions, as
                                                                           131
1    Carl talked about earlier on.                So, clearly, knowing

2    that you're getting what you think you're getting is

3    critical.

4                   Now, is that enough?            I don't know.          It

5    depends on how innovative people who try to game the

6    system    could     be.    And   so    it's    hard     to    imagine,

7    perhaps with the exception of aircraft or something

8    like that, something in which it's more important to

9    be able to track the medications that are coming

10   into    this   country.      Now,     nobody    today        that    I've

11   heard has actually talked about importing controlled

12   substances, opiates and drugs of abuse and so on.

13   It seems to me that that's a different issue and one

14   that should not be on the table.

15                  DR. SHEININ:         As I indicated, I still

16   would feel there would be a problem of demonstration

17   that the product being imported is bioequivalent.

18   Does the same amount get into the blood over the

19   same period of time?         There's other issues as well.

20   The synthetic route for the active ingredient may

21   be     different,    which   in       most    cases     then        would

22   introduce different impurity profiles, as I believe

23   it was mentioned earlier.             You don't know what the

24   safety of those impurities are, and you would not

25   have     any   procedure     for      the     control        of     those

26   impurities if there was a problem with the drug.

27   Unless you knew what the impurities were, it would
                                                                                 132
1    be very difficult to develop an analytical procedure

2    to test that product that caused a problem that may

3    or may not be due to a trace impurity.

4                    Now, granted, the probability of a very

5    low level of an impurity causing a safety problem is

6    small, but there are well known examples of cases

7    where it was an impurity at a very, very low level

8    that did cause a safety problem that had not been

9    seen prior to something being introduced into the

10   U.S. market.

11                   DR.    WOOD:          Sorry.            I    thought       your

12   question related to identical product -- the same

13   product produced by the same manufacturer on the

14   same machine.

15                   DR.    O'GRADY:          Well,     I        think    that   we

16   don't know is what a particular piece of legislation

17   might or might not have in it.                   And I think you've

18   brought up the problems here, but in terms of the

19   reality of implementation, if something came in and

20   you are faced with that sort of thing and you were

21   the Commissioner of the FDA or the Secretary of HHS

22   and you had to implement, I mean the implications of

23   what   you're    saying       are,    are     we    talking         about    a

24   doubling   of    the       resources     of      the        Food    and    Drug

25   Administration        to    be    able      to     do       that    sort    of

26   testing,   to    be    able      to   check      for        those    sort   of

27   impurities to all of a sudden -- I mean how would
                                                                          133
1    you    --   I   mean    I'm   trying      to   think   through       the

2    reality.

3                    I mean you've been persuasive in terms

4    of you're not thrilled with this idea, but at the

5    same time the reality is is that often Congress will

6    do what it thinks is the right thing to do for the

7    American people, and if they move forward, part of

8    what we have to think about is, well, then what are

9    the implications of that?                Are we talking massive

10   amounts of resources?              Are we talking about large

11   sets of labs at the border and at major, sort of,

12   airport hubs and things like that?                 And that's what

13   I was hoping for to get in terms of your response.

14                   DR. WOOD:        I don't think we can possibly

15   put enough resources in to do what you're talking

16   about.      If you're talking about drugs that are made

17   that we know nothing about, they're coming from XYZ

18   Pharmaceutical         Company     in    God   knows   where,    then

19   measuring the content of the active compound in the

20   pill   at    the   border     is   almost      valueless.       So   we

21   cannot determine whether that pill is equivalent to

22   the pill on the market in the U.S. from simplistic

23   tests like that.

24                   If we're talking about drugs that are

25   made on the same machine, that's a different issue,

26   and that's what I was talking about.

27                   DR. SHEININ:            I agree.    It would be a
                                                                               134
1    monumental task to try and control the quality of

2    all those products.           One aspect that could go a ways

3    towards helping with that, you could have reduced

4    amount of testing of some type if there was a USP

5    monograph for that product, in which case you would

6    have at least a standard that you know that the

7    product    has      to     meet.     The     problem      is    there     is

8    somewhere on the order of 1,200 to 1,300 that are

9    marketed      in    the     U.S.     that    do     not    have     a    USP

10   monograph      today.         This     is    because       we     rely    on

11   companies to provide us with that information.                           It's

12   not releasable from FDA as to how a company controls

13   the product, and in most cases a company will not

14   provide    that      information       until       it   gets    close     to

15   patent expiring.             So there are no monographs for

16   many of the newer, quote, unquote, "miracle drugs,"

17   that are on the market today that are so expensive.

18   But there could be at least some sort of screening

19   if there was a USP monograph, and anybody importing

20   those drugs knew that it had to meet the quality set

21   forth in the monograph.

22                      CHAIRMAN CARMONA:         Dr. Reidenberg?

23                      DR. REIDENBERG:          Yes.    If I can comment

24   on the world that I live in.                My son is an academic,

25   he's on sabbatical leave in France.                       His family is

26   with   him.         When    they've    gotten       sick    this        year,

27   they've bought medicines in French pharmacies, and
                                                                           135
1    I've had no concerns about their quality.

2                   I think there are very clearly a number

3    of    countries    that       one       could     name      that     have

4    regulatory        procedures             and          implementations

5    essentially equivalent to ours.                  And drug products

6    that are acceptable for their market that can be

7    tracked so we know what comes into this country are

8    those drugs products and not a counterfeiters that

9    got into the distribution system I would have no

10   worries about because if my family's abroad or I'm

11   abroad   in    these    countries,       we     buy   them,   we     take

12   them, we're content.            And I think that to me the

13   biggest issue here is making sure that the origin of

14   the    product    is     from       a    jurisdiction         that    is

15   equivalent to the United States and that it's this

16   particular product that gets into our distribution

17   system so that it's not a counterfeit.

18                  And then from a medical standpoint, I

19   don't perceive a problem when my patients purchase

20   their medicine when they're abroad in these places,

21   when my family does, and I don't perceive a problem

22   if I were to purchase this medicine here.

23                  CHAIRMAN CARMONA:           Dr. Peck?

24                  DR. PECK:      I'm not quite as confident as

25   my    friend   Marcus    is     with     regards       to   any    other

26   regulatory     agency.        We    have      standards     here,    for

27   example, for the dyes in tablets and capsules that
                                                                              136
1    are not shared by virtually any other even Western

2    advances regulatory agency.                   In other words, dyes

3    are   included        in    their      tablets     that       are   on   the

4    carcinogenicity list in the NCTR.                        So it's not so

5    simple.      Perhaps casual use of a French drug might

6    not be so bad, but I don't think I would actually be

7    comfortable with my family using any drug other than

8    a generic or brand name U.S.-approved manufactured

9    drug.

10                    On        the    other       hand,       I     think     as

11   highlighted in my testimony, I think the category

12   one drugs offer an opportunity, assuming that the

13   economic     challenges          can   be    overcome.          Those    are

14   drugs that are approved by FDA, manufactured in the

15   United States or in an FDA-approved manufacturing

16   source in another country and are either reimported

17   or    they       come       across      the       border       from      the

18   manufacturing.          So for all intents and purposes they

19   are the same drugs that we distribute and approve

20   for distribution in this country.

21                    The    conditions          for   full    confidence      in

22   those    would    include        having      an   absolutely        bullet-

23   proof record of the pedigree and transportation and

24   storage conditions of that.                  And I think that would

25   do it.       If there were deviations from the specs,

26   then in vitro, on-human dissolution testing might be

27   a pass-through test, an occasional random sampling
                                                                               137
1    with mass spec evaluations to see if there are any

2    impurities out of sync.               So I think we could limit

3    ourselves to a particular reliable sourcing of FDA-

4    approved     drugs     that      could   run       around    the       world,

5    actually, and come back to us.                     That doesn't solve

6    the economic challenges that accompany this, but I

7    think from a safety and effectiveness point of view,

8    if one limited it.

9                     And   I    think     the    resource       requirements

10   for that are attractable.                I don't think it would

11   require      doubling       of    the       FDA     resources.           FDA

12   regulates 25 cents on every consumer dollar, and

13   that includes foods and medical devices and animal

14   drugs and a lot of other things, and so it would

15   require    an    increase        in   the    field     and    compliance

16   resources, and it should be modeled.                      Our opinions,

17   I   think,      are    worthless.           There    should        be    some

18   econometricians            actually          getting         out        their

19   spreadsheets and checking this out to see what the

20   resource implications are.

21                    CHAIRMAN CARMONA:            Thank you, Dr. Peck.

22   Dr.     Reidenberg,        regarding        your    comment,       I    guess

23   we've     all    had       the    experience         of     being       stuck

24   someplace where it was not home, in another country

25   and had to purchase a medication for some reason or

26   other.       And I think we have found ourselves, and

27   those of us who have been discussing this before the
                                                                  138
1    panel and after, as Dr. O'Grady mentioned with the

2    Medicare transformation or modernization and the new

3    pharmacy    guidelines    for   our   seniors,    we   had   the

4    anecdotes all the time.         But I went to Canada and

5    nothing happened to me.         My friend went to Mexico

6    and bought it and nothing happened.          We've heard it

7    from a dozen countries.         But yet, as you know, the

8    absence    of    a   complication      doesn't    necessarily

9    dictate a good system, one that's robust and will

10   protect the American public.          And so we're obviously

11   trying to get beyond the anecdote of survival for

12   any of us to one of how do we deal with this as a

13   national policy issue?

14                   Prior to this panel and previous panel,

15   we've had experts in security from some of the large

16   drug manufacturers, others who came and suggested

17   that if importation was considered, there would be

18   really no way to ensure safety and efficacy.            And in

19   fact the state of technology today is -- they could

20   not guarantee that we would be safe from subpotent

21   or knock-offs or any of the other classifications of

22   drug that may get into our pipeline.          So although we

23   don't have the exact cost, I think that the experts

24   who talked to us said they'd be hard pressed even

25   giving     almost    an   unlimited      budget    with      the

26   technology they have to be able to guarantee.

27                   So I want to throw that out to all of
                                                                  139
1    you, but, also, Dr. Reidenberg, I understand your

2    comment regarding your son in Paris, but I guess I'm

3    trying to go beyond the anecdote really and look at

4    national policy.

5                    DR. REIDENBERG:     Sure.    If I can respond

6    to that.        A couple of qualifications I had in the

7    written       testimony     is    that    the     drugs    being

8    manufactured in countries that have the same laws

9    and regulatory implementation as we do, and I think

10   that we can identify some advanced industrialized

11   countries that one would have to acknowledge that

12   they're as careful and as conscientious as we are.

13   I     don't   know   anything    about    the   technology   of

14   assuring security so that the product that is in the

15   pharmacy in New York City is the specific product

16   that was made in England or in Australia and brought

17   in.     If that can't be done, then there's no way to

18   assure safety.        But if we're dealing with products

19   that      are      prepared      under    these     particular

20   jurisdictions, then if would be very difficult for

21   me to argue that there is a greater likelihood that

22   they will either be more hazardous or less effective

23   than    products     made   under   FDA   jurisdiction     where

24   these others essentially are equivalent to ours.

25                   CHAIRMAN    CARMONA:      Another   just   brief

26   comment on that, and then I'll ask all of you to

27   comment also.        Assuming that we could identify a
                                                                             140
1    dozen countries internationally that had the same

2    requirements that we do, let's say an equivalent FDA

3    that   was   regulating      and    we     felt       safe,   the     other

4    question then bespeaks what we've heard with the

5    last panel of economists and what are the long-term

6    implications    of     the    health       policy        that    has    us

7    shopping     worldwide        as     far         as     research       and

8    development as well as many other factors that we've

9    spoken about?        And is that something that we would

10   recommend as policy, either short term or long term,

11   considering the significant input we've had already

12   from    economists      and        what     we        know    from     the

13   literature?

14                  DR.    REIDENBERG:            I        think    that     the

15   economic issues that were raised and discussed are

16   very important ones.          I was addressing specifically

17   the clinical issue of efficacy and safety, and I

18   think that it will be difficult to argue efficacy

19   and safety when we're really thinking about support

20   for    long-term     research.            They're       two     different

21   subplots.

22                  CHAIRMAN       CARMONA:            Thank       you,     sir.

23   Other comments?      Okay.     Dr. Peck?

24                  DR. PECK:        What you've just challenged

25   us with stimulates me to think about a different

26   world that I think we're actually seeing begin to

27   evolve in Europe.         If you look at the history of
                                                                                    141
1    drug regulation in Europe over the last 20 years,

2    you will understand that 20 years ago there was a

3    separate regulatory agency in each country that did

4    not recognize a drug approval in the neighboring

5    country.       And in the course of the last two decades

6    that has shifted now to a common regulatory agency

7    surrounded by individual country regulatory agencies

8    and   two      pathways      for       approval      of    a     new    drug   in

9    Europe.        Increasingly, manufacturers are taking the

10   route     of    going       through         the    EMEA,        the     European

11   Medications Evaluation Agency, which when they meet

12   the     standards            of        testing       and         safety        and

13   effectiveness         for      that,        they     get        all     at   once

14   approval for marketing in all 18 or 40 countries,

15   depending upon what the current status is.

16                    So     that       has      obviously          huge     economic

17   implications.           As    far      as     I   know,    the        individual

18   countries still determine the pricing policies for

19   those, so it's not perfected in terms of a global

20   economic solution, but the prospect of having mutual

21   recognition or common drug approval across countries

22   would     relax       much        in    the       area     of     safety       and

23   effectiveness, and then the economic thing has still

24   got to be solved, but that could become an incentive

25   to drug companies.

26                    CHAIRMAN          CARMONA:              Thank        you,   sir.

27   Let's see, Dr. Sheinin and then Dr. Wood.
                                                                               142
1                    DR. SHEININ:            Let me preface what I'm

2    going    to    say    by     saying    if    you   don't       have      good

3    quality and you don't know what the quality is, you

4    can't really say anything about safety and efficacy.

5    You must know the quality of the products.                               And

6    we've been talking -- I was talking earlier about

7    doing testing to look at the quality, but you cannot

8    test quality into a product.                Quality is part of the

9    overall scheme.            There also has to be knowledge that

10   the     products      are       made   under     good       manufacturing

11   practices.

12                   Several years ago there was an effort to

13   put into place a mutual recognition agreement with

14   Europe,       with     the      European       Union    in     terms      of

15   inspections, FDA and the European Union.                       And as far

16   as I know, that has never come to fruition because

17   of the fact that in the opinion of FDA not every

18   country    in    the       European    Union     was    equivalent        in

19   terms of how they inspected to GMPs.                        So that would

20   have to play into any sort of a scheme that was put

21   into place to allow mutual recognition of the review

22   and   approval        of    a   product     from   another         country.

23   What country actually did the inspection?                       Is it the

24   country       where    it's       manufactured         or    was    it    an

25   investigator          from       another     country         within      the

26   European Union, and that would just complicate the

27   whole picture all together.
                                                                               143
1                      In my opinion, and a conclusion, I don't

2    believe that there is a better regulatory authority

3    in the world than FDA.            I worked there for 30 years,

4    I'm proud it, and I think they are the best that

5    there is anywhere in the world.                   Given that, to do

6    what we're asking, they would have to tremendously

7    increase        their   resources.         They       don't    have      the

8    resources today to inspect every facility every two

9    years      as    the    law     requires,       and    if     you    added

10   additional sources of drugs coming in, not only is

11   it   the    testing,     it's     also    the    inspection         of   the

12   facilities.

13                     DR. CRAWFORD:      Would you consider coming

14   back to the Food and Drug Administration?

15                     DR. SHEININ:      No.     I'm enjoying what I'm

16   doing at USP, but I really did enjoy it, and I

17   thought it was a very worthwhile part of my career,

18   a major part of my career.

19                     CHAIRMAN      CARMONA:           Thank      you,        Dr.

20   Sheinin.        Dr. Wood, did you have a comment?

21                     THE    WITNESS:         Yes.         I    think        it's

22   important that we remember what we're talking about

23   here.      The only drugs that people are going to be

24   tempted to import are ones that are currently under

25   patent for protection.            So the idea that people are

26   going      to    be     out   formulating         their       own    drugs

27   somewhere       else    means    either     that      we're    going      to
                                                                       144
1    abrogate patents, which I think nobody is proposing,

2    or that we're going to allow counterfeit drugs in,

3    which we're certainly against.

4                   So   the      universe    of    drugs     that   we're

5    talking about that people are going to be tempted to

6    import are those that are currently expensive and

7    almost by definition are ones that are currently

8    under patent protection.            These drugs are currently

9    being   produced        by       multinational      pharmaceutical

10   companies, frequently on the same machines and in

11   the   same    factory      for    use   in    multiple     different

12   countries.     So controlling the quality there is less

13   of a problem than we might like to think.

14                  But I want to pick up your second point,

15   which was what will the effect be on innovation, and

16   I think that's really important.               You know, we don't

17   have treatments for some of the major diseases in

18   this country and anywhere, I mean not just in this

19   country.      If we don't encourage innovation, we're

20   not   going   to    have       treatments     for   most   of   these

21   diseases in my lifetime, given the lifetime it takes

22   to develop a drug.

23                  And I'm not talking about rare diseases

24   or orphan diseases, we're talking about things like

25   osteoarthritis.           We     have   nothing     that    prevents

26   osteoarthritis.           We     have   nothing     that   prevents

27   Alzheimer's which is going to be a huge problem by
                                                                       145
1    the time I reach that age.                 These are high-risk,

2    high-cost research endeavors, and those who invest

3    in that need to be confident that their investment

4    is going to be protected for a time that allows them

5    to recover their costs with some legitimate level of

6    profit.      So I think that's an issue that we can't --

7    a circle we can't square.

8                   CHAIRMAN CARMONA:           I think that, and I

9    don't know the magnitude, but I think we've heard of

10   cases -- first, let me preface my statement with I

11   agree with the premise that it's mostly the patented

12   drugs and the expensive drugs, but I think we've

13   heard of cases of generics being imported, maybe

14   because the public doesn't understand, for instance,

15   in Canada that our generics generally are cheaper

16   and also from Mexico as well as other countries.                   So

17   I   don't    know   that    it's    just   only   the   expensive.

18   That   may    be    the   driver,    but   I   think    there's    an

19   undercurrent         there         also     of      maybe     just

20   misunderstanding that people still look outside the

21   borders to get some of the less expensive drugs and

22   those that are not controlled on patent.

23                  DR. CRAWFORD:          I was just in Chicago

24   yesterday     at    the    mail    detention     facility,   and    I

25   spent all day looking through what's coming in.                   And

26   Dr. Wood is generally correct, but there are also

27   controlled substances, marijuana and all that kind
                                                                          146
1    of stuff, right there before you.                   But then you go

2    from the sublime to the infinitely bizarre, because

3    if it's anything that might increase even the muscle

4    in your small finger, it's there, and it's always

5    injectable because it's better if it's injectable.

6    And the syringes come with them.                  And they come from

7    Central America and all over the world.                    And I'm not

8    talking   about       a    small    volume,       I'm    talking   about

9    4,000   pieces    a       day    coming     right   in    there.     But

10   you're right.

11                 And the point I was going to make before

12   I got waxed so ineloquent is that there were almost

13   no generics there, that we would call generics.

14                 CHAIRMAN            CARMONA:          Thanks,     Doctor.

15   Other questions?          Yes, Dr. O'Grady?

16                 DR. O'GRADY:              I guess in terms of trying

17   to   parse    through           exactly     where   these     different

18   parameters when we try to think about this, it's a

19   tough one in terms of as we continue here, because I

20   think it was very compelling testimony that we heard

21   about counterfeiting.              At the same time, while the

22   security folks from the different manufacturers were

23   laying that out, I was thinking reimportation or no

24   reimportation     you've          got   a   counterfeiting      problem

25   here, guys, and you've got an Internet problem here,

26   guys,   and   this        all    could      go   away    tomorrow,   and

27   there's still going to be draw on resources, kind of
                                                                               147
1    public and private, to do that.

2                    So sort of trying to parse through what

3    part    of   this     challenge      goes       into   --   I   know     I'm

4    struggling with it right now.                    I mean the doubling

5    of FDA, I mean it seems to me that when we look at

6    that testimony, and luckily it's something that Les

7    has     to    worry      about,          not     me,    but        I    mean

8    counterfeiting,        Internet,         that's    here,     that's      not

9    going away.

10                   Now,         I     can         certainly        see      how

11   importation-reimportation                complicates        that       matter

12   even more, but I keep trying to keep in mind we've

13   got this layer there that only looks like it's going

14   to expand.      So whatever we do with importation is --

15   you know, you want to be careful not to make matters

16   worse, but it's still there for sure.

17                   CHAIRMAN CARMONA:               Thank you.      Any other

18   comments?

19                   DR. DUKE:         I just have one.

20                   CHAIRMAN CARMONA:              Dr. Duke, yes.

21                   DR.     DUKE:            Just     to   build       on    two

22   questions earlier, one Les proposed, Les and Mike

23   took the opposite on the issue of no importation or

24   open the doors wide.             And I'd sort of like to go at,

25   all    afternoon      we've      been    sort     of   going    back     and

26   forth without sort of precisely defining that we're

27   talking      about     two       polar    opposite      approaches        to
                                                                               148
1    importation.           One     is     sort     of        the    individual

2    importation by the Internet or a bus trip across the

3    border.     That's one form of importation.                        And the

4    second form of importation is wholesale purchases

5    which     lend    themselves         to      the     possibility         for

6    regulation and testing, and I'd sort of like your

7    comments on how we wrap our minds around a problem

8    that presents itself with both of those extremes?

9                     DR. WOOD:      Can I respond?

10                    CHAIRMAN CARMONA:           Please, Doctor?

11                    DR. WOOD:          I don't see that there's a

12   fundamental       difference        between        the    FDA    approving

13   another generic drug with all of the requirements

14   that Eric talked about that are demanded of that and

15   importing a drug.            What I mean by that is the idea

16   that we should allow somebody to bring in a drug

17   that's     not    been       approved       because        it's,       quote,

18   "equivalent"      to     another      drug    but        the    legitimate

19   manufacturer who tried to sell a generic equivalent

20   and through the stream of commerce in the U.S. has

21   to go through all the requirements to get approval

22   by the FDA seems to me just impossible to deal with.

23   I   mean    you    cannot      have     a    parallel          track   where

24   legitimate people are going through the FDA to get

25   approval for a generic equivalent and simultaneously

26   I can bring wholesale imports of a drug in from

27   Canada without going through that approval process.
                                                                              149
1    That will just destroy our excellent drug approval

2    process that we have in this country.                       So I think

3    that's untenable.              I just can't see how that can

4    possibly be done, unless we abolish drug regulation,

5    which I don't think anyone seriously is proposing.

6                     CHAIRMAN       CARMONA:        Thanks,      Dr.     Wood.

7    Any other comments, questions?              Yes, Dr. Peck?

8                     DR.    PECK:       Dr.    Crawford     can    probably

9    give more precision on this situation, but for many

10   years FDA and I think the Customs Department have

11   been       relaxed   about     individual       importation,        so   to

12   speak, perhaps partly because it would be sort of a

13   messy problem to control but also because it has

14   less        commercial       and    large-scale            safety        and

15   effectiveness and may even have something to do with

16   individual freedoms and a right to purchase.

17                    But it does seem to me that at least

18   some of the irrationality of that when that that's

19   the case could be affected by education and programs

20   to inform.       I remember when I was at FDA I think the

21   individual importation issue came to a head when

22   groups of AIDS         patients and their caregivers wished

23   to import in larger quantities, and what they wanted

24   to import was sometimes pretty irrational, but it

25   was    a    desperate    effort     and    it    was   a    message      of

26   desperation.           But   many   of    those    groups     I     recall

27   engaging      with     began    advising    their      constituencies
                                                                                   150
1    not to go forward when they became informed about

2    the situation.           So I think that part of it could be

3    amenable to education and information.

4                       DR. DUKE:      I think that's what Les was

5    talking about, though, with the 4,000 items a day at

6    several major import sites in the country.                        And so I

7    often       find        in    these      discussions             that         the

8    conversation waxes back and forth between the sort

9    of systemic issues around wholesale importation and

10   the issues of the economic concerns, the clinical

11   concerns, and then we switch sort of -- or sort of

12   slide into the next discussion of grandma who knows

13   that Aunt Besse up in Canada's getting her medicine

14   cheaper.

15                      And I think when we face the public, we

16   are faced with both sets of arguments, and I think

17   that's      one    of    those   where     I       think    we   need     some

18   intellectual rigor as we try to sort through it,

19   because      I     think     you're    getting        into       --     and     I

20   thought, Dr. Peck, you made the good point -- that

21   we   then    find       ourselves     faced        with    the   issues       of

22   privacy and an assertion of rights and so forth,

23   despite the fact that we have laws on these matters.

24   But     this      is    a    distinction       I    think    we       need    to

25   articulate more clearly in order to be able to more

26   clearly identify the problem so that we can put the

27   resolutions with the right pieces of the problem.
                                                                                 151
1                     CHAIRMAN CARMONA:               I couldn't agree with

2    you more.        That's well said.                   I really appreciate

3    Dr.     O'Grady        bringing        up        earlier          today     the

4    practicalness of those of us who have to speak in

5    public about this, that all of these very academic

6    discussions fall by the wayside when it's that one

7    senior citizen in front of you saying, "I want my

8    medication.           Don't   confuse           me    with      all   of   that

9    stuff."       But I think it's important, and hence the

10   purpose of these hearings to get out all of the

11   contributing          factors     so       that        we       can   somehow

12   synthesize that body of information, as Dr. Duke

13   says,    to    come    out    with     a    reasonable           approach   to

14   policy for our country as it relates to importation

15   and anything else that comes of this that we would

16   put in the report, because, certainly, we're not

17   restricted       but    we      need       to    meet         those   minimum

18   requirements as Congress has outlined for us.

19                    Any other comments or questions from any

20   of us?        If not, let me just say I'd like to thank

21   all of our presenters for coming here today.                           We had

22   some very good and valuable discussion.                               On that

23   note, it's becoming especially clear that the United

24   States        government         would           need          international

25   cooperation       in    order     to       devise         a    structure    to

26   legally, safely and effectively import prescription

27   drugs    from    foreign        nations.             To       encourage    that
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1    discussion      the    Task      Force    invited     representatives

2    from Health Canada and the European Association of

3    Europharmaceutical              companies      to     participate     in

4    today's        listening          session.            However,       both

5    organizations were unable to accept our invitation.

6    So with the consent of the rest of the Task Force,

7    I     would     like       to     publicly      invite       these   two

8    organizations         to    present      at    either    of    our    two

9    remaining listening sessions on May 5 or May 14.

10   And     even   the     primary         focus    of   those    listening

11   sessions may be slightly different than today's, the

12   Task Force mission is the same no matter what the

13   date, and I believe that these two organizations are

14   vital to hear from.

15                   We are also encouraging more input from

16   a wide diversity of economists.                      We've heard some

17   today, but we know there's more out there that have

18   opinions, and we'd like to get them to the table

19   also.     So I would ask the Task Force to please let

20   Health     Canada      and       the    European      Association     of

21   Europharmaceutical           Companies        have open invitations

22   as well as any economists that have diverse input

23   and opinions on these complex issues and any other

24   stakeholders who we may have missed inadvertently,

25   because I assure you we have done our due diligence

26   to find everybody that has an opinion on this issue.

27   If we've missed the boat on any of those, please,
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1    any of you let us know, and thank you so much for

2    your time and helping us through this very difficult

3    dilemma.   Good night.

4                 (Whereupon,   at    5:19   p.m.,    the

5    Stakeholder meeting was concluded.)

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