August 3, 2004

[BY E-MAIL]{.underline}

The Honorable Donald L. Evans

United States Secretary of Commerce

14^th^ & Constitution Avenues, N.W.

Room 4039

Washington, D.C.

The Honorable Robert Zoellick

United States Trade Representative

600 17^th^ Street, N.W.

Room 207

Winder Building

Washington, D.C. 20503

Dear Secretary Evans and Ambassador Zoellick,

On behalf of ITAC -- 3 (Chemicals, Pharmaceuticals, Health/Science
Products & Services), I am writing to provide the comments of the
Advisory Group in response to the Federal Register notice published
Tuesday, June 18, 2004 (69 Fed. Reg. 42688 (2004)), soliciting input
regarding the effects of foreign government pharmaceutical price and
access controls on U.S. industry, U.S. consumers and the U.S. economy
more broadly.

Foreign government price and access controls are the single most
important trade barrier facing the pharmaceutical industry in most
developed countries of the world. These restrictions also severely
affect other U.S. health care products industries, such as the medical
device industry. In trade and other bilateral economic negotiations with
the countries that impose these measures, the Department of Commerce,
the Office of the U.S. Trade Representative and other trade agencies
should place a very high priority on obtaining commitments and actions
to reduce these barriers and their negative effects on critical U.S.
high-technology industries. These anti-innovation measures have already
resulted in the severe weakening of the pharmaceutical industry in
Europe, and represent a major threat to the future growth of the
industry in the United States.

In its study, the Commerce Department and other U.S. trade agencies
should examine closely the full ramifications of foreign price controls
in countries that are members of the Organization for Economic
Cooperation and Development (OECD). The extensive system of government
intervention in foreign pharmaceutical markets amounts to an unfair
trade practice about which Congress and the American public have
recently become increasingly and rightly concerned. The cost of
developing a new pharmaceutical product is enormous -- the science is
ever more complex. The failure rate for new compounds is high, and
government regulators are

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more demanding. Today, the process of bringing a drug to market takes
10 - 15 years. As a result, the average cost to develop a new drug has
grown from \$138 million in 1975 to over \$800 million. According to
data from the National Science Foundation (NSF), the pharmaceutical
industry is one of the most research intensive in the United States.

In addition to being expensive, the successful launch of products as a
result of pharmaceutical research and development is also extremely
risky. Of every 250 drugs that enter preclinical testing, only one is
approved by the FDA. Only 3 out of 10 marketed drugs produce revenues
that match or exceed average R&D costs.

American pharmaceutical companies have been willing to take on these
challenges, and their investment in research has paid off in the forms
of new drug therapies and new hope for patients with previously
untreatable conditions. According to a July 2002 report by the
Department of Health and Human Services, many scientists believe that we
are on the verge of another significant round of breakthroughs in
medical research due to the mapping of the human genome. (U.S. Dept. of
Health and Human Services, "*Securing the Benefits of Medical Innovation
for Seniors: The Role of Prescription Drugs* (July 2002). From the
industry perspective, the same report notes that robust investment in
research and development by the United States has resulted in the U.S.
being a leader in the global sales of new pharmaceuticals. This bright
future -- for both patients and the industry \-- is threatened, however,
by the prospect of increasingly stringent foreign price controls, and
continued efforts to import those price controls directly into the U.S.
market.

A growing number of countries around the world are content to hitch a
"free ride" from U.S. public and private sector investment in
health-related research and development. Many of them, quite
deliberately, operate their pharmaceutical reimbursement systems in ways
that systematically discriminate against innovative pharmaceutical
products. These governments, for example, establish price ceilings for
innovative new drugs at exactly the same level as the price of older
off-patent medicines. They set restrictive limits on the prices and
volumes for new innovative medicines below levels that would be set by a
competitive marketplace and delay the introduction of new, innovative
medicines by tying them up in bureaucratic regulatory and price approval
processes, significantly reducing the effective period of market
exclusivity.

These practices severely depress incentives for future innovation in the
industry. They certainly reduce the level of pharmaceutical research,
and thereby ultimately reduce the number of new medicines that are
discovered. People who are ill in the United States and around the world
are effectively denied treatments for conditions and diseases for which
no adequate or effective therapy currently exists.

Despite clear evidence that foreign price controls hurt patients and
negatively impact national economies in terms of lost R&D and increased
costs in other aspects of the health care system, these measures have
proven irresistible to most of America's major trading partners.
U.S-based and U.S-operated research pharmaceutical companies lead the
world in developing and manufacturing new medicines. As a result, in the
short-term, it is easy for foreign governments to balance budget
shortfalls by focusing on innovative pharmaceutical products, rather
than other participants in their health care systems.

Ultimately, however, foreign price controls harm patients in the United
States and abroad, harm U.S. exports, reduce good, high-quality U.S.
jobs, and are not

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sound economic policy even for the countries that employ them. As former
FDA Commissioner Mark McClellan once remarked, "We cannot carry the
lion's share of this burden for much longer."

For all of these reasons, ITAC-3 recommends that U.S. trade agencies
make the promotion of innovation and market-based health care reform a
top priority of U.S. trade policy. The Commerce Department report should
reflect a comprehensive review of foreign price controls, and serve as
the basis of trade actions that result in real and measurable
improvements to the discriminatory trade practices in which many OECD
countries engage with respect to innovate pharmaceuticals.

Sincerely,

Geoffrey Gamble

Chair

ITAC-3

Industry Trade Advisory Committee for Chemicals, Pharmaceuticals, and
Health/Science Products and Services

Cc: Kristie Mikus

Department of Commerce