UNITED STATES OF AMERICA
DEPARTMENT OF HEALTH AND HUMAN SERVICES
TASK FORCE ON DRUG IMPORTATION
INTERNATIONAL AND ACADEMIC PERSPECTIVES
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.
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
A G E N D A
OPENING STATEMENT: ................................. 4
Task Force Chair, VADM Carmona
PANEL I: .......................................... 5
National Association of Pharmacy Regulatory
The Manitoba Pharmaceutical Association
Jean-Yves Julien and Jocelyn Binet
The Quebec Order of Pharmacists
QUESTIONS & ANSWERS: ............................. 22
PANEL II: ........................................ 48
Patricia Danzon, Ph.D.
University of Pennsylvania
Frank Lichtenberg, Ph.D.
Columbia Business School
Iain Cockburn, Ph.D.
Jack Calfee, Ph.D.
American Enterprise Institute
QUESTIONS & ANSWERS: ............................. 72
PANEL III: ...................................... 104
Eric B. Sheinin, Ph.D.
United States Pharmacopeia
Alastair J. J. Wood, M.D.
Marcus Reidenberg, M.D.
Carl C. Peck, M.D.
Elena Rios, M.D.
National Hispanic Medical Association
QUESTIONS & ANSWERS: ............................ 130
CLOSING STATEMENT: .............................. 156
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
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
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
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
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
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
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
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.
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.
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
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
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
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
1 our pharmacists are doing with regards to patient
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
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
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
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
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,
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
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;
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
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
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
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
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
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
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
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
1 are calling and getting services from distance like
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
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
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
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
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.
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.
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
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
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
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
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
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
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
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
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.
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.
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
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
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
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
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
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
26 And those people who are buying the
27 medication from a website that's in Montreal, or in
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
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
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
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
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
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
26 MS. WELLS: If they weren't approved for
27 use in Canada, right.
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
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
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
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
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
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
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
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
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
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
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.
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
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,
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
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
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
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
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
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
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
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
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
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
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
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
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.
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
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
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.
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
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.
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
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
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
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
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.
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.
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
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
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
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,
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
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
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
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
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
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.
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
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.
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
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
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
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
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
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.
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
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.
11 DR. McCLELLAN: We're asking the
12 questions up here.
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
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
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
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
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.
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
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
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
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
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
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
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
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
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,
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
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.
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
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
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
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
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
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
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.
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
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
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
24 (Whereupon, the foregoing matter went
26 the record at 3:56 p.m. and went back on
27 the record at 4:05: p.m.)
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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,
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.
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
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
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
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.
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
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.
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
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
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
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
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
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.
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
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
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
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.
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
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
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.
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
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
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
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
1 Carl talked about earlier on. So, clearly, knowing
2 that you're getting what you think you're getting is
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
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
1 you -- I mean I'm trying to think through the
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
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
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
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
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
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
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
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
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
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
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
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.
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
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.
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
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
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
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
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
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
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
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.
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
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
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.
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
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,
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.)