UNITED STATES OF AMERICA

DEPARTMENT OF HEALTH AND HUMAN SERVICES

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STAKEHOLDER MEETING

HHS IMPORTATION TASK FORCE

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INDUSTRY: DEVELOPMENT & DISTRIBUTION

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Monday, April 5, 2004

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The above-entitled matter was held at 2:00 p.m. in Parklawn Conference
Room E, 5600 Fishers Lane, Rockville, Maryland, VADM Richard Carmona,
Task Force Chair, presiding.

[TASK FORCE MEMBERS PRESENT:]{.underline}

VADM RICHARD CARMONA, Chairman

MR. JAYSON P. AHERN

MR. ALEX M. AZAR, II

MS. JOSEFINA CARBONELL

DR. LESTER M. CRAWFORD

DR. BETTY JAMES DUKE

DR. MARK B. McCLELLAN

DR. MIKE O\'GRADY

[TASK FORCE MEMBERS PRESENT (Continued):]{.underline}

DR. WILLIAM RAUB

MR. TOM REILLY

MR. AMIT K. SACHDEV

DR. ELIZABETH A. WILLIS

[PRESENTERS:]{.underline}

[Panel 1:]{.underline}

Healthcare Distribution Management Association

Mark Parrish, President of Cardinal Health, Inc.

McKesson Corporation

Paul Julian, Chief Operating Officer

Pharmaceutical Distributors Association

John M. Stinson, Partner, Law Firm of Forsay & Stinson, PLLC

National Association of Chain Drug Stores

Larry Kocot, Senior Vice-President of Policy Programs and Legal

Massachusetts Institute of Technology Auto-ID Lab

Dr. Robin Koh

Department of the Treasury

Thomas Ferguson, Director, Bureau of Engraving and Printing

United Parcel Service

Robert Bergman, Vice President Public Affairs

[PRESENTERS (Continued):]{.underline}

[Panel 2:]{.underline}

Barr Laboratories

Bruce Downey, Chairman and CEO

Eli Lilly & Company

Dillard W. \"Buz\" Howell, II, Director of Global Product Protection

Pfizer

John Theriault, Vice President of Global Security

Johnson & Johnson

John Dempsey, Executive Director of Trade Relations and Brand Security
for Ortho Biotech

Serono Laboratories, Inc.

Pamela Williamson, Vice President of Regulatory Affairs

Generic Pharmaceutical Association

Gordon Johnston, Vice President of Regulatory Affairs for GPhA

[C O N T E N T S]{.underline}

[PRESENTATION BY:]{.underline} [PAGE]{.underline}

[Panel 1]{.underline}:

Mark Parrish 8

Paul Julian 13

John Stinson 18

Dr. Robin Koh 22

Larry Kocot 26

Thomas Ferguson 33

Robert Bergman 35

[Panel 2]{.underline}:

Dillard W. \"Buz\" Howell, II 59

Bruce Downey 64

John Theriault 69

Pamela Williamson 84

Gordon Johnston 91

[P R O C E E D I N G S]{.underline}

(2:06 p.m.)

CHAIRMAN CARMONA: Thank you all for being here.

I\'m Dr. Richard Carmona. I\'m the U.S. Surgeon General.

I\'d like to welcome you to the second listening session of the Task
Force on Drug Importation. Today we will hear from representatives to
discuss pharmaceutical development and distribution.

As you know, the safety and efficacy questions related to importing
prescription drugs into our country are very important to public health.
Secretary Thompson formed this Task Force to explore whether and how
drug importation might be conducted safely and its potential impact on
the health of American patients, medical costs, and the development of
new medicines.

Together this Task Force and the stakeholders we are consulting will
research and explore whether prescription drug importation can be done
safely and effectively, and if so, what resources are needed.

Our mission outlined in the Medicare Prescription Drug Improvement and
Modernization Act of 2003 is to determine whether there is a safe
structure for prescription drug importation.

I was again reassured this week that we have the full support of the
White House and the Secretary to take any steps necessary to fulfill
that mission.

Our first listening session on March 19th was with consumer and advocacy
groups. Those presenters offered useful background and suggestions, and
I thank them not only for their thoughtful presentations, but also for
their responses to our follow-up questions.

As I did at our first session, I want to promise all of the presenters
today and in the future listening sessions the opportunity to be heard.
I expect this process to be completely transparent with frank, open, and
honest discussion about the health implications of drug importation. I
expect that the diverse ideas will be presented and I ask everyone to be
respectful of that diversity.

This Task Force is, first and foremost, about the facts and the science,
and we will go as far as the facts and the science lead us. I thank
everyone in advance for keeping this in mind.

These listening sessions will be conducted in an organized manner in an
effort to produce the best information possible. Each presenter will
have up to five minutes for opening remarks. After all presenters on the
panel have concluded their statements, the Task Force members may follow
up with some questions.

I ask each presenter to please be mindful of the five minute limit for
presentations so that we can insure that everyone has equal opportunity
to be heard.

In addition, the Task Force will welcome all written and supporting
materials that parties would like to submit. Those materials, along with
the transcript of each listening session, will be available to the
public.

The Department of Health and Human Services has developed a Web site for
the Task Force that can be reached through www.hhs.gov. We have received
good response at that site from individuals who want to make
presentations at the Task Force meeting on April 14th, which is the
public meeting, and HHS extended the deadline for registration through
April 6th.

With that, let\'s get going with today\'s business, and I\'d like to
welcome the first panel of presenters, and why don\'t we start from my
left then with Mr. Mark Parrish.

MR. PARRISH: Good afternoon, Mr. Chairman and members of the Task Force.
I thank you for inviting me to participate in today\'s important round
table.

My name is Mark Parrish, and I\'m the Executive Vice President of
Cardinal Health, a health care products services and distribution
company. However, I am here today in my role as a member of the Board of
Directors and Executive Committee of the Healthcare Distributors
Management Association.

HDMA is a national trade association representing full service
distribution companies responsible for insuring that billions of units
of medication safely make their way to tens of thousands of retail
pharmacies, hospitals, nursing homes, clinics, and other provider sites
across the United States.

Since product integrity and patient safety are HDMA\'s most important
priorities, I\'m honored to have this opportunity to highlight our
perspectives on this extremely important study. When considering
importation, I think we can all agree that the most important
consideration is to insure patient safety.

With that shared goal in mind, we believe that there are three key areas
that any approach to importation must address.

First is product authentication. When our citizens order their
medication, it must be assured that they receive the drug in the exact
specification their physician requires. This sounds simple; yet products
are produced differently for different markets based on differing
standards, in addition to legal differences in same brand name
pharmaceuticals. We know that counterfeiting is a much more pervasive
criminal activity outside the United States, and we must protect against
the effects of this insidious practice.

The second area is product integrity. When a patient is in need of
medication, there should never be a question about the strength or
safety it possesses. We cannot allow a system to be developed that does
not properly address the multitude of factors that cause degradation of
pharmaceuticals.

The third issue is the availability of supply. There are significant
challenges to insure proper authentication and integrity of imported
pharmaceuticals. Base on our experience, we would like to highlight
several issues to be considered by this Task Force.

First, authentication. It must be assured that any imported drug is the
U.S. formulation of the product made in a U.S. approved manufacturing
facility. To avoid any chance that an imported product is counterfeit,
substandard or otherwise unsuitable for U.S. patients, it is imperative
to determine these two critical factors.

Product testing has been identified as a means to verify authenticity,
but this method will fall short if tests don\'t consider both the active
and inactive ingredients which make up the total formulation of the
drug. To insure that imported drug is the U.S. approved formulation made
in a U.S. approved plant requires either certification from the
manufacturer or analytical testing for all of the inactive ingredients.

Similarly, the active ingredient would need to be certified, which would
require a comprehensive profiling of the imported product or
certification from the manufacturer.

In addition, since we know that counterfeiting is a random event, to
totally protect against counterfeit drugs from entering the U.S. market,
every lot from every shipment would have to be tested, not just random
samples.

Considering the sophistication of the testing and the frequency with
which it would have to be done, this would prove to be costly. While the
challenge of authenticating imported supply is significant, the second
area to address, product integrity, is perhaps even more complex and
multifaceted. The supply chain both inside the U.S. and outside the U.S.
would need to be linear. This means that product would have to flow from
manufacturer to exporter to importer to pharmacy in order to verify the
authenticity.

Moreover, there must be rigorous regulatory standards, registration
requirements, and inspection programs specifically designed to insure
all those engaged in exporting and importing pharmaceuticals, including
Internet pharmacy, are suitably qualified and possess the skills,
infrastructure, and the interest to protect the integrity of the supply
chain.

Climate control, safe handling practices, and strict adherence to the
manufacturer\'s specifications are just a few of the important ways that
wholesalers protect the integrity of the U.S. drug supply.

In addition to product efficacy, the third issue that must be addressed
is product supply and demand. There will likely not be enough products
to meet the domestic demand under importation. For example, U.S.
pharmacists fill about ten times the number of prescriptions as are
filled by their counterparts in Canada.

An environment of strong demand with low supply from Canada or other
approved exporting countries would open the door for transshipment of
prescription drugs from other areas of the world and likely attract
diverted, counterfeit, subpotent, or adulterated products.

In summary, with patient safety as our paramount goal, if a decision to
move forward with importation is made, wholesalers with systems and
infrastructures in place to protect product integrity and detect and
deter counterfeit drugs would be best equipped to maintain the safety
and security of the national drug supply.

As I\'ve said during my remarks, there are significant challenges that
must be addressed to insure the broad safety of imported products, while
maintaining the desired cost benefits for consumers. Should the FDA
pursue importation, the three areas that I have outlined today, product
authentication, product integrity, and availability, must be thoroughly
addressed.

There are many other factors that will also need evaluation. I have
focused my comments on the most significant today.

CHAIRMAN CARMONA: Thank you very much, sir.

Next we have Mr. Paul Julian from McKesson.

MR. JULIAN: Mr. Chairman and members of the Task Force on Importation,
my name is Paul Julian, and I am President of McKesson Supply Solutions.

McKesson commends the agency for undertaking a study of drug
importation, and we appreciate the opportunity to share our perspective.

McKesson is the largest pharmaceutical supply, management, and health
information technology company in the world. We are also the largest
pharmaceutical distributor in North America through our ownership of
McKesson Canada, the leading wholesale distributor in Canada, and our
equity holding in Nadro, a leading distributor in Mexico.

McKesson has strict policies and procedures in place that both insure
the safety of the products we distribute and exceed the safety
requirements of the countries in which we operate. We source 99.5
percent of our products in the U.S. and 100 percent of our products in
Canada directly from the manufacturers.

McKesson has serious concerns that a broad based importation system may
not assure both product safety and cost savings to the American
consumer. However, it is possible that these issues could be addressed
through a narrow, closed distribution system.

Under such a system, pharmaceutical distributors with appropriate
technology experience and distribution networks on both sides of the
border could safely transfer products between their distribution centers
in Canada and their distribution centers in the United States.

To assure safety, these distributors must source 100 percent of their
products directly from the manufacturers. Clearly, such a system would
depend on the availability of product in Canada, the cooperation of key
members of the supply chain, and the development of an allocation system
to insure equitable distribution to the American public.

Of course, from our perspective, any system that is developed has to be
compatible with our commercial agreements.

It is important to recognize the U.S. demand for lower priced
pharmaceuticals will always exceed the available supply from Canada or
from any other exporting country. This imbalance in demand will require
an allocation system to insure equitable distribution of the available
imported pharmaceutical products.

McKesson recognizes that any allocation policy will be highly
controversial and will require government intervention.

If an importation system is devised, we believe there are significant
challenges that may make it difficult to safely provide an adequate
supply of lower priced product.

To insure a secure and cost effective supply chain, the Task Force must
address the following issues. The Canadian government has stated that it
cannot guarantee the safety of drugs shipped to the United States. At
the same time, the U.S. lacks the resources to adequately monitor
products shipped directly to patients over the border.

Actual or alleged transshipment of product through Canada could result
in the development of a gray market that is difficult to monitor.
Adequate regulations, criminal penalties and supporting resources are
needed to prevent the shipment through Canada of pharmaceutical products
that are improperly stored or handled, subpotent, expired, adulterated,
or counterfeit.

Appropriate testing of imported products may be required to insure
safety and potency. Should patient or product safety concerns
necessitate relabeling or repackaging of imported products, additional
costs will ensue.

The use of electronic technology to track products in foreign countries
would help to insure that products are sourced in FDA approved
facilities and shipped through legitimate wholesale channels prior to
the sale in the United States.

The effective implementation of such a system for importation, however,
poses significant challenges. Pharmaceutical manufacturers must agree to
tag products globally at the time of manufacture and our intermediaries
must adopt the electronic reading technology.

Product recalls are currently initiated by the manufacturer and
facilitated by wholesalers and pharmacies. Most recalls are national in
scope, not global.

It will be necessary to establish a process for recalls in the absence
of a single governing body that has jurisdictions on both sides of the
border.

There are also additional costs associated with imported products.
Canadian price controls exist for Canadian citizens, not for the export
market. In a legalized importation environment between the U.S. and
Canada, we expect the prices at which Canadian entities sell to the U.S.
to rise as demand exceeds available supply.

Generic pharmaceuticals are generally less expensive in the United
States than in Canada and account for approximately 45 percent of the
unit volume of drugs consumed in the United States. Under legalized
importation, consumers may ultimately pay more to import a branded
product than they would for a domestic generic product that is readily
available.

Reimbursement for pharmaceutical products by third party payers will
need to be thoughtfully addressed in any importation system. It remains
unclear as to what extent health insurance and government payers,
including CMS, would reimburse pharmacies and patients for foreign
secured product.

The importation of pharmaceutical products is also likely to entail the
assumption of additional liability. Without regulations governing
liability for imported product, it is unclear who would bear liability
for any adverse drug events associated with products sold outside their
country of intended use.

In conclusion, given our unique capabilities in Canada and the U.S., we
stand ready to share our expertise to help the Task Force better
understand safety and cost issues associated with drug importation.
McKesson is committed to removing unnecessary costs from the health care
system as we insure the timely delivery of safe, cost effective
products.

We remain concerned about the safety, cost, and allocation issues which
we believe could present significant barriers to the successful
implementation of any importation system.

Again, thank you for providing us with the opportunity to testify today,
and I would be happy to respond to any questions.

CHAIRMAN CARMONA: Thank you, sir.

Our next speaker, Mr. John Stinson.

MR. STINSON: Thank you, sir.

Mr. Chairman, members of the Task Force, my name is John Stinson, and
I\'m here today representing the Pharmaceutical Distributors
Association.

PDA is an association of small prescription drug wholesalers. The three
major wholesalers, national wholesalers represented here, distribute 90
percent of the pharmaceuticals in the United States. PDA represents the
interests of smaller wholesalers who distribute regionally to
pharmacies, to specialty markets, and to other distributors.

Small wholesalers are an essential part of the nation\'s pharmaceutical
supply system and are critical to competitive and efficient drug
distribution in the United States.

While PDA has never taken an aggressive posture on the issues of drug
importation, our members believe that small wholesalers should be
involved in the developments and any evolution of such changes in the
law which will create a market.

We are concerned that the current safety nets are not compromised, and
utmost, the needs of the patient safety is considered.

Because most manufacturers make the same color, shape and dosage drug
for the world market, those who attempt to import drugs in the United
States must exercise substantial due diligence to assure that the drugs
they\'re importing are the drugs manufactured and labeled pursuant to
new drug applications.

In this regard, importers must assure that the drug being provided is
the NDA approved drug with appropriate labeling, and not labeling
intended for non-U.S. customers.

In addition, importers must assure that the drug packaging size, lot,
and lot numbers coincide with sizes and lot numbers packaged and labeled
by manufacturers for the U.S. market.

Because importers do not usually buy directly from manufacturers, it is
often difficult to assure that the drug they are buying has not been
repackaged from unapproved U.S. labeling into U.S. labeling.

In addition, because the transaction history of the drug may not be
ascertainable, it is difficult to assure that the drug is the approved
new drug and not a counterfeit.

When prescriptions are imported into the United States in wholesale
quantities, it is our understanding that FDA, working with U.S. Customs
checks to determine that the products are not altered or misbranded.

In this regard, FDA may ascertain whether there is an NDA for the drug.
What we believe FDA does not do is ascertain whether there is assurance
that the drugs being imported are the approved new drugs, as discussed
above.

Therefore, such drugs have been repackaged from foreign labeling. They
may not be identified as unapproved new drugs as the drugs are imported.
The overall issues are complicated, at best.

Against this background, the wholesale importation of prescription drugs
in the United States is presently a perilous exercise. Any changes to
the current drug safety should be taken with maximum care. PDA believes
that any policy decision to change the law to facilitate the importation
or reimportation of prescription drugs must involve licensed
prescription drug wholesalers and must require a controlled and
regulated environment where the integrity of imported drugs can be
confirmed and maintained.

PDA appreciates the opportunity to be here today, and we look forward to
discussing these issues with you.

CHAIRMAN CARMONA: Thank you, sir.

Our next speaker, Dr. Robin Koh, MIT.

DR. KOH: Thank you.

Mr. Chairman and members of the Task Force on Importation, thank you for
the opportunity to brief you on a new automatic identification and data
capture technology called Auto ID.

My name is Robin Koh, and I\'m here in the capacity of Director of
Applications Research at Auto ID Labs at MIT.

The Auto ID Center was opened at MIT in October, 1999, to develop the
infrastructure and standards for a new generation of automatic
identification and data capture technology to replace the bar code. The
center has designed, built, tested, and deployed a global infrastructure
layered on top of the Internet which makes it possible to identify,
track, and trace objects around the world.

The Auto ID system is an intelligent, ubiquitous infrastructure that
automatically and seamlessly links physical objects to the global
Internet. This system networks physical objects without human
intervention or manipulation by automated machines.

This is accomplished by integrating an electronic radio frequency
identification tag, otherwise known as RFID, into the object. A network
of tag readers and local data collection and control systems, called
Savants (phonetic), are used to automatically communicate with the
physical objects and automate control applications.

The ubiquitous nature of the Auto ID system requires that it be
inexpensive to implement relative to the benefits achieved by
applications that utilize the systems, such as supply chain management.
The extreme low cost required to actually implement the system has been
an overriding constraint in the design of the auto ID system. The cost
of tags for millions of objects is the dominant cost of the system.

Consequently, the tag costs and, therefore, its functionality was
minimized. The resulting cheap tag stores only a unique identifier, the
electronic product code known as EPC, for a particular object.

The unique object identifier is global in scope and acts as a pointer to
information stored about the object somewhere over the information
network. A redirection service, the object name service, is used in
conjunction with the electronic product code to identify the location of
information and related services for a particular object. The object
name service allows for the location or locally available information,
as well as globally available information.

The information must be stored in a standard language to enable true
automation, which is required in supply chains. The Auto ID system
utilizes an XML based language called the physical mark-up language to
standardize the description of physical objects and their properties.

Therefore, there are three major components of the auto ID system: the
radio frequency identification tags, the software backbone of the system
and the standards of the technology.

Securing the pharmaceutical supply chain. Auto ID technology enables two
fundamental supply chain-wide approaches to deal with counterfeit drugs
and drugs not fit for consumption. Both of these approaches complement
the current anti-counterfeit overt and covert technologies employed by
the pharmaceutical industry.

First, Auto ID technology allows the possibility of instant
authentication for any drug at any location. This authentication process
is possible through an information technology infrastructure that spans
the complete supply chain. During the authentication process we would be
able to find out the most current status of the product, for example,
whether it has been expired, been recalled, or discarded.

Second, Auto ID technology allows the ability to do robust track and
trace. Tracking is defined as the control of a product as it moves
through the supply chain while tracing is the building of a history
behind a particular product. Tracing is also commonly known as product
pedigree.

In tracking product is accounted for and passed on from one supply chain
partner to the next on a real time basis. This insures that goods are
accounted for throughout the supply chain and end up where they are
supposed to go. Deviations can be accounted for quickly and acted upon.

In tracing, the Auto ID system can be used to systematically access
databases of all companies or entities that have handled the product.
This helps us build an electronic pedigree for that particular product.

The authentication track and trace approach, as mentioned above, depend
heavily on the capability to uniquely identify individual drugs within
the supply chain at the primary package level.

The electronic product code is applied to each primary package unit, and
this is the basis for mass serialization of pharmaceutical product.
Using bar code systems to read and account for billions of unique
identifiers is laborious, and RFID holds out the promise holds out the
promise of a more efficient technology to execute this mass
serialization in the supply chain.

In conclusion, the Auto ID system holds promise of making pharmaceutical
products in the supply chain much more secure than they are today. The
EPC community and Auto ID labs are committed to doing all that is
possible to remove the barriers to the widespread global adoption of
this technology.

Thank you, and we appreciate your interest in auto ID.

CHAIRMAN CARMONA: Thank you, Doctor.

Let\'s drop back now to Mr. Larry Kocot. Thank you very much, sir.

MR. KOCOT: Thank you.

And I apologize for being late.

Mr. Chairman and members of the Task Force, my name is Larry Kocot, and
I\'m Senior Vice President and General Counsel with the National
Association of Chain Drug Stores (NACDS).

NACDS appreciates the opportunity to be with you today to participate in
this forum on importation. NACDS is a national trade association
representing more than 207 chain pharmacy companies operating nearly
32,000 community retail pharmacies. Our members dispense more than 70
percent of all out-patient retail prescriptions in the United States.

The Medicare Prescription Drug Improvement and Modernization Act gives
the Secretary the authority to implement a system for the importation of
Canadian prescription drugs, but only if he\'s first able to certify to
the Congress that it would be safe and cost effective. The act
contemplates two different methods of importation prescription drugs
that should be distinguished and evaluated separately in terms of their
safety and their cost effectiveness.

First, the act directs the Secretary to consider certain factors in
enforcing prohibitions on individuals importing prescription drugs and
allows the Secretary to grant waivers to individuals to allow
importation for personal use.

While NACDS supports access to low cost prescription drugs, NACDS is
opposed to proposals that would encourage or facilitate the importation
of prescription drugs by individuals.

Simply put, there\'s no realistic way right now for consumers to know
whether the imported prescription medications are adulterated,
counterfeit, or even approved for use in the United States. As recent
federal reports have shown and the investigations have shown, millions
of packages containing pharmaceutical products, many mislabeled,
contaminated, adulterated, counterfeit or harmful controlled substances
are being shipped into the United States each year.

Patients assume an incredible risk when they shop internationally for
drugs. As we have found, many Canadian or so-called Canadian pharmacies
are not what they advertise, and the drugs are from questionable
sources.

If the drug is subpotent, adulterated, or otherwise ineffective, any
savings that someone thinks that they may have received is lost, and the
money is wasted.

Additionally, individual importation of prescription drugs often
eliminates a patient\'s interaction with the pharmacist. This
interaction is important to insure that the patient understands how to
take the medication appropriately, and with no knowledge of a patient\'s
foreign purchases, a patient\'s pharmacist cannot protect the patient
from a harmful drug interaction or reaction.

The cost of hospitalization for a drug event far exceeds any savings
that a patient may have realized on the purchase of a prescription drug.
Importantly, patients in pursuit of cheaper prescription drugs from
Canada may miss altogether the fact that generic drugs are still much
less expensive on this side of the border.

Finally, there is broad economic cost that must be considered when we
send patients to foreign countries for prescriptions. Importation
schemes promote unfair competition against American pharmacies. For
example, foreign pharmacies don\'t pay U.S. taxes. Foreign pharmacies
are not subject to federal or state consumer protection laws. Foreign
pharmacies don\'t have to comply with stringent federal and state
licensure requirements and U.S. safety standards. Foreign pharmacies
don\'t face the frequent lawsuits that are an ever growing threat in the
United States to U.S. businesses. Indeed, they often require customers
to waive all liability, which we in American companies cannot do and
certainly wouldn\'t do.

Foreign pharmacies do not comply with the thousands of laws and
regulations that apply to U.S. pharmacies, such as the stringent HIPAA
privacy rules that protect patients against the improper use and
disclosure of their personal health information. Indeed, HHS recently
told NACDS that many Canadian storefronts facilitating importation are
not even subject to HIPAA.

As a result, no United States citizen should have the false expectation
that their private medical records will not be sold or traded on the
international market to unscrupulous marketers.

The act also contemplates a system of importation by pharmacists to
wholesalers. We believe there are significant challenges to implementing
a program of importation of prescription drugs by pharmacists and
wholesalers.

For example, which parties will bear the liability if imported drugs
result in harm to individuals? Pharmacists may not be able to accept the
liability that comes with a program of importation.

We are concerned that the testing, tracking, and paper work requirements
of this law could outweigh any cost savings. Some of this testing and
record keeping information may be difficult or impossible for an
importer to obtain or validate.

Moreover, establishing the infrastructure necessary to effectively and
efficiently operate an importation program would impose significant
start-up costs on the entire pharmaceutical distribution system.

The bottom line is that once the cost of importation is factored into
the overall pricing equation, we can\'t be certain that the price of
imported medications would be significantly less expensive than prices
for prescription medications in the United States. After all, the supply
of available drugs from Canada is relatively small. IMS Health reports
dollar sales for prescription drugs in the United States totaled
approximately \$214 billion in 2003. According to IMS, Canadian drug
sales totaled about nine billion in 2003.

Therefore, assuming we\'d leave the Canadians with some drug supply for
their own population, the theoretically available cheaper drug supply
from Canada approximates the number substantially less than nine
billion.

To put this in perspective, CVS alone could purchase all of the Canadian
drug supply and still not satisfy its prescription drug inventory needs
for one year.

Basic laws of supply and demand dictate one of two things will happen
with the Canadian drug supply if the United States implements a system
of drug importation by American wholesalers and pharmacists. Either
prices will rise dramatically in Canada or Canadian supplies will turn
to alternative foreign suppliers that would likely be unacceptable to
the United States and its purchasers.

In either case, implementation of a successful United States importation
program would likely be more costly than any theoretical savings we
could derive from buying up the entire Canadian drug supply.

It\'s unrealistic for U.S. policy makers to expect that the Canadian
marketplace will not react to and adjust to formal expansion of
importation from this country. It\'s our guess that Canadians would take
steps that would further protect their drug supply to avoid shortages
and excessive price increases.

NACDS does not believe that legalizing importation is the answer.
However, we\'re committing to working with Congress, the Department of
Health and Human Services, the Food and Drug Administration, and this
Task Force to fully explore the issues associated with the importation
of prescription drugs.

Thank you, Mr. Chairman.

CHAIRMAN CARMONA: Thank you, sir.

Our next speaker would be Mr. Thomas Ferguson from Treasury.

MR. FERGUSON: Thank you, Mr. Chairman.

I\'m Tom Ferguson, Director of the Bureau of Engraving and Printing.

I\'m not exactly sure why I\'m here.

(Laughter.)

MR. FERGUSON: My level of expertise or area is in prevention of
counterfeiting of United States currency.

There is though a great parallel between the two products. Any product
which has value, which is seen as an area that can be exploited, will,
in fact, be exploited. International counterfeiting of U.S. currency, as
well as international counterfeiting of pharmaceuticals is a growing
business.

The other area that has a great parallel between the two is that as with
currency, it is sometimes easy to provide systems that will protect the
government or the large commercial establishments, but the goal remains
to protect the individual, the consumer, to provide that feature or that
ability for the consumer to easily and quickly authenticate the product
without having to rely on outside technologies.

That goal, that challenge is one that is very difficult to meet. There
is no single panacea out there that will provide tremendous total
protection every time, in every case.

The other thing that is greatly required if you\'re going to put in
counterfeit deterrent features into product labeling, as with currency,
is public education. Putting in great features that are difficult to
counterfeit provide very little value if the general public and, in
fact, the people in wholesale establishments, as with banks or
commercial stores don\'t know how to use the feature.

The best features are of no value if people don\'t use them.

I\'ll be here to answer any questions, but again, anything I can
provide, anything we can provide from our experience with U.S. currency
is at your disposal.

Thank you.

CHAIRMAN CARMONA: Thank you, sir. Appreciate it.

Next Mr. Robert Bergman from UPS.

MR. BERGMAN: Thank you, Mr. Chairman and members of the Task Force.

My name is Bob Bergman, and I\'m with UPS here in Washington in the
Government Affairs Office.

As you know, UPS is the largest package delivery company in the world,
and we\'re a major global leader in supply chain services.

I think I\'m here because a number of questions have come up about the
role of express delivery companies and transportation companies in this
issue, and I would say at the outset, as to the fundamental issue that
the Task Force is interested in, namely, whether and under what
circumstances drug importation could be conducted safely and what its
likely consequences would be for the health, medical costs, and
development of new medicines for American patients is, frankly, not
something that we have a position on or we\'re going to have a position
on.

We\'re a common carrier, and you know, maybe to will oversimplify, our
job is to pick up and deliver packages. Clearly, it\'s a matter of
interest, and we don\'t, by the way, you know, carry a lot of
pharmaceuticals in terms of our overall business. We pick up and deliver
13 and a half million packages a day worldwide, and pharmaceuticals are
not a major part of that.

But we do have an interest, clearly, in this discussion, and any way we
can help the Task Force and government regulatory agencies understand
how the supply chain works.

Clearly, it is our company\'s policy not to pick up and deliver illegal
products, and we work with law enforcement to insure that our system is
not used for illegal purposes. We work on a regular basis with
government agencies in their role of screening imports. So we present
information to Customs, to FDA, DEA, and any other regulatory agencies,
as appropriate.

And just to us as an example, with Customs we have in our major hub in
Louisville a state-of-the-art system that we developed for the use of
Customs that better enables them to pick out the packages that they want
to subject to further screening when they arrive.

We have also, on the related question of Internet pharmacies, have
worked with congressional investigators, as well as the DEA and the FDA,
in really trying to identify what is or what should be the role or
express carriers in enforcing laws against illegitimate Internet
pharmacies.

And in these discussions, we emphasize that we don\'t have the ability
to determine the legitimacy of pharmacies, to determine the legitimacy
of a prescription or to judge, you know, the purity of the
pharmaceutical itself. Those are simply things that we don\'t know.

But we have put in place and have had in place for a while a program to
monitor Internet sites to make sure that our logo and our name are not
being used in conjunction with illegitimate pharmacies. So that\'s
something we do. We take legal action against those where our logo is
being used improperly, and we have had discussions, again, with DEA and
FDA and will continue to do that in terms of sharing that information.

Clearly, in terms of law enforcement, we have privacy policies that
prohibit us from sharing information, but of course, upon proper request
and subpoena, we can provide information to help law enforcement
agencies identify, you know, whom they need to go after.

I would say in conclusion, and I\'d be happy to answer any further
questions, I think our concern in developing any system for importation
of pharmaceuticals, that we will clearly comply or develop systems to
comply with any conditions that are attached to that, but would caution
against trying to put companies like ours in an enforcement role.

We can assist law enforcement, again, but in the part of the chain that
we\'re in, we really have limitations on what we can do in terms of
actually being the enforcement agent.

So with that I would be happy to answer any questions.

CHAIRMAN CARMONA: Thank you, sir.

At this point, Panel 1 is concluded. I would like to open the floor to
questions from our Task Force members.

Mike, please, go ahead.

DR. O\'GRADY: Excuse me.

Mr. Parrish, you talked about the idea of counterfeiting and the
relative difficulty of counterfeiting in the United States and outside
the United States, and I wondered if you had any further data on what
sort of estimates you have in terms of the idea of how big a problem
counterfeiting is within the United States, outside the United States,
the United States versus Canada, the United States versus OECD, that
sort, so that we can get this feel for the relative level of difficulty.

MR. PARRISH: The specific numbers I don\'t have with me at this point,
Dr. O\'Grady, but I have been informed of information FDA has published
that indicates that there is an increase in the number of counterfeit
activity that has been detected in the United States in recent years.

Similarly, information has been published relative to the counterfeit
activity outside the United States and on a relative basis, it has been
identified to be greater.

I could bring that information or provide that information to the panel
directly, but did not bring that today.

DR. O\'GRADY: That would be great. I guess, you know, part of the
feeling is the idea that clearly counterfeiting is a serious problem,
and it\'s something that no one wants to ignore, and I just don\'t have
a good feel for the relative, where the United States or Canada. Do the
Canadians have a more serious problem than we do, you know, or Third
World countries, etc, etc?

One other question. You laid out kind of I think it was three different
kind of key points that would be necessary to be assured of if a notion
of importation or reimportation was to be advanced.

Does that mean that if those three were actually accomplished you would
be supportive of some notion of importation?

MR. PARRISH: No. Those are the three primary areas that we have concern
over. As I stated at the end of my comments, there are additional
concerns as well, but I wanted to focus in the limited period of time on
the most important issues that we have.

DR. O\'GRADY: Okay. Can I ask a question? It\'s kind of a dual question
to both you and to Mr. Stinson as distributors. In terms of even if the
difficulties of importation were able to be \-- those hurdles were able
to be gotten over, do you have any feel for what the kind of net price
effect to U.S. consumers would be?

MR. STINSON: I have no direct knowledge of that, but it would be my
impression that the price would seek a competitive world market price,
and I think that it\'s going to be a supply and demand situation, and
what you\'re going to find is significant price increases in the
imported product, and probably maybe some reductions, but I think most
of it is going to come from the other side. That would be my impression.

DR. O\'GRADY: Mr. Parrish, any thoughts?

MR. PARRISH: I believe the answer really would lie in the details of how
a system would be laid out. It\'s a question of the regulatory climate,
the legal hurdles, and the economic hurdles that are involved to try to
determine what that exact number would be, and at this point I don\'t
think there\'s enough details available as to how a system would work to
be able to give you a number that had credibility.

DR. O\'GRADY: Okay. Mr. Julian, I\'m very happy to see you here today,
given the very unique role that you hold in terms of kind of doing
business in this country and Canada and Mexico, and I guess just given
that unique situation, do you have a feel of the different products that
you distribute through those in all three countries sort of what the
overlap is in terms of the kind of dosage and labeling and sort of what
is, I guess, the low hanging fruit if one was to think about the
importation question, how much that differs between the three countries,
or is there a substantial amount of correlation between the three?

MR. JULIAN: I don\'t have that type of information just off the top of
my head. What I could share with the panel is that what is required in
the United States is not necessarily what is required by Health Canada
nor the Mexican Health Ministry in terms of the dosages.

So what you would get in Canada is not necessarily for the same product
what you would receive in the United States. There are some differences
there from a therapeutic standpoint.

DR. O\'GRADY: Okay. One last question. Sorry. Also in terms of thinking
about your somewhat unique situation, do you have a feel for \-- I mean,
we normally think of importation as being individuals crossing the
border and now a move towards Web based approaches. But given your
dealings with large PBMs, large health plans, do you see, do you have
any feel for what their reaction would be if all of a sudden there was
an opportunity to import drugs from either Canada or Mexico, OECD, any
number of different countries?

MR. JULIAN: You know, I think generally speaking, the constituents here
in the United States have the same concerns that this panel has
expressed in terms of product safety and ultimate cost savings that
could be generated, not to mention just the supply and demand issue. You
know, I don\'t think the Canadian government is going to sit still while
they are a tenth of our size and, you know, most of the medications flow
back here into the United States.

So I would say that most of the constituents that I talked to here in
the United States have similar concerns as everyone here has expressed
today.

DR. O\'GRADY: Thank you.

MR. JULIAN: You\'re welcome.

CHAIRMAN CARMONA: Yes, please, Mr. Crawford.

DR. CRAWFORD: Yes. Mr. Julian, you talked about distribution centers on
both sides of the border. I assume those would be approved distribution
centers, and if so, how would they be designated, in your view?

MR. JULIAN: Well, what I was referring to is I believe for any system to
work today you would have to have, due to the supply and demand issues
that we will face and we do face today is that you would have to have
some sort of closed distribution network that would transfer a product
between Canada and the United States. Otherwise I think the opposition
is the borders are so porous it would create a very difficult situation
for any of us effectively monitor and then guarantee product safety here
in the United States.

DR. CRAWFORD: To follow up, if I may.

CHAIRMAN CARMONA: Please.

DR. CRAWFORD: Who would close the system?

MR. JULIAN: Well, I mean, that is to be determined by you all, I guess,
who would close the system if, in fact, you employ a closed distribution
system. Our only suggestion is I don\'t think it can be an open, porous
border as it is today and have it be guaranteed patient safety and
ultimately some sustainable cost effectiveness that would get to a
patient population that is most needy for these types of medications, if
in fact savings is generated at all in the final analysis.

DR. CRAWFORD: Thank you.

CHAIRMAN CARMONA: Other questions? Mark.

DR. McCLELLAN: There has been some discussion about supply and demand
maybe limiting the extent of savings, of price savings if you could
through a large scale importation system, but you all also noted some
additional cost that could be imposed both on the government and on
those involved in bringing drugs into the country that might also have
an impact on any resulting price savings.

You know, in going back over some of the comments from representatives
here who have experience throughout the whole distribution chain for
pharmaceuticals, you all brought up issues like making sure that the
drugs are FDA approved or somehow equivalent to FDA approved drugs, that
there\'s a track and trace system in place to help assure that the drugs
reaching patients in the United States are the legitimate article
manufactured by a legitimate manufacturer, and then also issues related
to the integrity of the product, that it\'s stored properly, labeled
properly, no other opportunities to introduce safety problems because
the medication was okay to begin with. If it\'s not labeled package, you
know, and so forth for consumers properly, then that could introduce
safety problems.

Mr. Kocot, you talked about some issues in pharmacy safety practices
themselves. So even if the drug reaches a pharmacy intact, making sure
that those good pharmacy practices that are required under state laws
and regulations in the United States or followed in these contexts could
add costs as well.

None of you put numbers on this though, and one of the things that
we\'re struggling with here is to try to understand, as Congress has
directed us to do how much it would cost to set up a system like this,
and I wondered if you all cared to add any more detail about the
magnitude of the cost impacts or any thoughts on how we could better
develop more quantitative estimates of just what it would take to
address these kinds of safety issues, issues that are required to make
sure that these drugs meet the same standards as U.S. drugs.

MR. JULIAN: Well, I\'ll take a stab at that, I guess. I think, let me
start by just saying that I think it was alluded to in a couple of the
remarks here, is that, you know, 45 percent of all prescriptions today
in the United States are generics, and the generics in the United States
are typically less expensive than they are in Canada.

So that\'s a huge population of drugs and medications that are already
available at a pretty cost effective price.

In addition to that, which you know we should commend the administration
today with the Medicare drug bill. We believe that is even going to
enhance the savings that\'s available in the United States too much of
the patient population that is requiring more affordable medications.

Yet in addition to that, I would tell you that foreign manufacturers
today offer a variety of programs, patient assistance programs that
people that are actually indigent or cannot afford medications are
provided to them absolutely free, and they just don\'t get enough
visibility, I think.

And then finally, over the last couple of years, some of the foreign
manufacturers have really collaborated and brought out a number of
different savings cards programs, like Together Rx and others that,
again, have impacted the availability of affordable medications.

Now, going back to your question, I would say that it\'s very difficult
for private industry to speculate on what the actual costs or cost
savings would be when there isn\'t an official model that has been
built. It would be purely speculative until, you know, the government in
this case would be providing us the guidelines, the rules, the
regulations in order that we could go out and build a business model so
that we could, you know, clearly articulate to you what the potential
savings might be so that a decision that would be made would be made
with facts and not some of the emotion that I think is surrounding this
issue today.

CHAIRMAN CARMONA: Other questions? Yes.

MS. CARBONELL: Yes. Mr. Julian \--

CHAIRMAN CARMONA: Excuse me.

Mr. Kocot, did you have something?

MR. KOCOT: Yeah, I just wanted to add I don\'t know exactly what it
would cost, but the testing factor that is included in the legislation
would be incredibly expensive. Not only that; testing cannot be done in
any meaningful way very quickly.

I know the government themselves have gone through testing periods in
seizures and have not been able to get tests back for weeks. So to think
that we could test and validate lots and supplies of drugs on a regular
basis without a lot of cost and the time involved is just going to be
absolutely incredible.

I know the manufacturers do have the technology. They do the testing of
their own drugs. By and large pharmacies don\'t. I don\'t think
wholesalers do. Many aspects of the government don\'t have testing
capabilities.

Testing for drugs, you\'re looking at really the adulteration. You\'re
looking at impurity. You\'re looking at strengths. You\'re looking at
storage conditions. You\'re looking in testing for a variety of
different things.

When law enforcement tests, they\'re looking really at a baseline, as I
understand it. Some of you could answer this better than I could, but
the point is that there\'s a lot involved here, and a lot has not been
put into practice. So the expenses, as some of my colleagues have said,
until you put out a model there and lay a little more specifics on it,
legislation has been clear on who would test.

So who has to have this equipment? Who has to put drugs through the
rigors? Who has to bear the expense? Those are all questions that we
have of you.

CHAIRMAN CARMONA: Thank you.

Josefina.

MS. CARBONELL: You mentioned drug discount cards, Mr. Julian. How would
importation impact your Together Rx discount card for seniors?

MR. JULIAN: Well, at this point today, we haven\'t had any discussions
relative to how importation would affect the drug discount cards. You
know, the one that McKesson administers today is the Together Rx
program, and at this point that consortium is going to continue to
support the Together Rx card through 2006 when the Medicare drug benefit
becomes available.

CHAIRMAN CARMONA: Dr. Raub.

DR. RAUB: I have a question for Mr. Bergman.

You mentioned some collaboration with Customs with respect to helping it
carry out its regulatory role. Could you elaborate on that?

MR. BERGMAN: Yeah. I mean, we have present in major import facilities,
we have a Customs presence. For example, in our major air hub,
international air hub, in Louisville, Kentucky, we have on premises
Customs Service, and they have always been there to process or to check
packages and cargo coming in.

We now have an automated system that we\'ve developed with them to
better enable them to check packages that are coming in.

DR. RAUB: Do I assume correctly they\'re providing the indicia of
concerns that\'s some characteristic of the package?

MR. BERGMAN: Exactly. I mean, the system that we developed, it really is
up to Customs \-- I still call them the Customs Services \-- it\'s still
up to Customs to plug in any characteristic or indicia. It could be the
name of a product or a consignee, consignor, name of a country from
which it is shipped, whatever indication, and so plugging it into the
system, we can pull out any packages that come from that country or meet
that description for further inspection.

DR. RAUB: So by extension, if there were a drug importation schema of
some kind and one could provide the indicators about packages that would
raise a flag, would it be fair to say that UPS would be able to
facilitate that in the same way?

MR. BERGMAN: Yeah. I mean, I think that\'s right. Assuming, and again,
it\'s all based on how they are identified or labeled, what\'s declared;
what\'s not declared is clearly a different problem, but whatever is
declared can be cranked into the system, and it\'s now almost completely
automated, and so that can just automatically separate out a package and
have that go for inspection.

DR. RAUB: Thank you.

CHAIRMAN CARMONA: Yes, Doctor.

DR. WILLIS: Mr. Kocot, you mentioned the importation of individuals of
drugs from Canada. Do you have an idea as to the impact on the Canadian
pharmacy business as to the extent of the importation currently ongoing?
And do you have an estimate as to how it would be impacted both in
Canada and in the United States if we did allow an importation of drugs?

MR. KOCOT: IMS has estimated that about four percent of the Canadian
market is coming to this country. However, we\'ve seen a lot more
evidence that that number is even greater than that. We\'re seeing more
and more businesses springing up. The thing that scares us most is that
many of those businesses purport to be Canadian businesses, but they\'re
either not operating in Canada or they are selling drugs that are not
from the Canadian system.

Last Friday, a group in Manitoba exposed two such sites that were
selling drugs through Canada from Mexico and the other one was selling
them in Vancouver through the U.K.

Right now estimates are that in Manitoba alone about 40 percent of the
drugs are being diverted to the United States. Manitoba is probably the
largest diversion point, but that\'s substantial for one province.

We understand that that number may be as high for some categories of
drugs. For example, it could be as high as 60 percent for heart
medication. The numbers are astounding when you look at what is
happening in parts of Canada.

CHAIRMAN CARMONA: Alex.

MR. AZAR: Sorry to bother Mr. Julian again, but I think given the nature
of your business with its international scope you might be best able to
help on this, but any of the others who might have knowledge of the
chains of distribution in other countries I\'d appreciate your thoughts.

The question really is what is your sense in terms of managing the risk
of importation, what the factors are that we should be looking at and
what the differences are, for instance, in \-- the risk factors among
different countries of origin for importation, different systems of
distribution in other countries, how safe they are, whether some present
greater risk, some lesser risk; the issue of manufacturing facilities in
different countries, which are safer, which are less safe; and also
whether the type of product, biologic, pharmaceutical, do they present
different risk profiles for an importation question?

MR. JULIAN: Well, you know, I can only speak for North America, and I
would say that the United States\' health care system is by far and away
the safest. I would say also I believe the Canadian health care system
is a very safe system, yet I would say it is geared for the Canadian
marketplace. It is not to address exported material to the United States
or anywhere else.

Since we have a presence in Mexico, I think Mexico has a long way to go
to catch up to either the United States or Canada in terms of their
safety and regulations.

I would also just add that the more complicated the product, the more
difficult it is in order for you to make sure that you\'ve got the right
product with the right dosage, therapeutic equivalency and everything
else made in other parts of the world.

CHAIRMAN CARMONA: I\'d just like to ask a general question, especially
to those involved with the importation, but all of you please feel free
to ask.

Your sense on how sustainable a national health policy of importation
would be to remedy the problem both in the short term and in the long
term.

MR. PARRISH: I think that\'s a very difficult question to answer. I
would think that it\'s going to be driven primarily by unfortunately
many economic concerns as well as public policy concerns. The
availability of supply will be in many ways the major issue from the
standpoint of how sustainable this particular type of activity will be.

And contained within that availability of supply issue is the question
of the length of period that the spread, if you will, continues to exist
between the countries. I think even if a system is able to be put
together, and there certainly are issues that can be addressed to put a
system together in the short term, that system will have to be
responsive to the longer term changes in the costs between the different
countries to be able to continue to offer benefit to the consumers for
whom the product is available.

It\'s very much a moving target and a very difficult situation to deal
with, but I think the spread is a very important piece to keep in mind
as you address this issue.

CHAIRMAN CARMONA: Thank you.

Anybody else care to comment?

MR. SACHDEV: I had some questions.

CHAIRMAN CARMONA: Do you have a question as well? Please.

MR. SACHDEV: I did. It\'s for Mr. Parrish.

Mr. Parrish, your testimony focused on some key points in terms of
authentication and integrity of drugs. My question relates to your
points about testing because that\'s an issue we thought about. If you
really want to do authentication and look at integrity, one way to do
that is testing, but if you look at your recommendation, it seems like
it would be fairly expensive to test every product, every batch, every
lot, which is, I think, what I heard you saying.

Do you have any estimates of what that might cost, putting aside whether
it is the government that would be paying that or a distributor or the
manufacturer?

MR. PARRISH: Speaking on behalf of, in answer to this question, Cardinal
because we do have contract testing and analysis companies as part of
our portfolio companies, I can get you some specific information, and we
would be happy to provide that to the panel relative to the cost of
testing.

My comments refer to the need to test each lot for every individual
product. I\'d like to just clarify that. We\'re not talking about
testing every single bottle. That would be absolutely cost prohibitive.

We\'re talking about samples from within each lot that comes through.
But, again, the issue with counterfeiting, the issue with adulterated
product is it tends to be very random, and the people who engage in this
type of behavior, once they understand what the testing protocols are,
will more than likely find ways to work around them.

So the testing will be effective, but it will not be a guarantee.

MR. SACHDEV: Another question for both Mr. Julian and Mr. Parrish.

You both spoke about the need, in considering importation, to restrict
importation or limit importation to essentially the FDA formulation or
the FDA approved product. That\'s certainly something that we\'ve been
tasked to look at as we consider legislation that actually potentially
goes beyond that.

You\'ve both talked about the need for good authentication. Are there
particular authentication technologies that you guys are currently
looking into as distributors? And in fact, can you tell us about their
feasibility with respect to drug importation?

MR. PARRISH: I\'ll take the initial crack at that.

From the association\'s standpoint, we have been very vocal in favor of
the Auto ID testing and the EPC product code identification. However,
that is a technology that is still in its infancy. It is a technology
that has great promise. We are involved in many tests and demonstration
projects right now, attempting to show the efficacy of this type of
identification technology, and it\'s a little too early to tell just how
well it will work, but again, it shows great promise.

And it is far too early to tell what the cost of this technology will
be.

MR. JULIAN: I would just echo everything that Mark just said. The only
point I would add is that we\'re extremely hopeful that the track and
trace technology of the auto ID EPC technology will work. There is
tremendous momentum regarding track and trace technology with worldwide
manufacturers, and quite frankly, in order for it to work, it has to
emanate with the manufacturer.

CHAIRMAN CARMONA: Any other questions from the Task Force members?

(No response.)

CHAIRMAN CARMONA: If not, I\'d like to thank the panel for coming and
joining us today and providing us with the information.

We will turn over to the second panel right now. So everybody just take
a quick stretch break, and we\'re going to keep moving right through.

Thank you.

(Whereupon, the foregoing matter went off the record at 3:08 p.m. and
went back on the record at 3:14 p.m.)

CHAIRMAN CARMONA: Hi, ladies and gentlemen. Thank you for joining us.

And we will begin first with Mr. Bruce Downey from Barr Labs. Is he
here? No? I saw papers.

Okay. Well, let me move then over to Mr. Howell and we\'ll come back.
Okay. Thank you, sir.

MR. HOWELL: Thank you, sir. Thank you for having us today.

My name is D.W. Howell, II. I\'m the Director of Global Product
Protection for Eli Lilly & Company.

The Global Product Protection Office of Lilly was formed in January of
2003 to intensify our ongoing anti-counterfeiting efforts regarding
Lilly products.

Prior to 2003, I was Lilly\'s Director of Global Security for 20 years.
Before that I was an FBI agent for 11 years in various field
assignments. My testimony before your Task Force is focused on the
increasingly sophisticated activities of counterfeit pharmaceutical
networks that pertain to Eli Lilly & Company products, but let me be
clear. By \"sophistication,\" I\'m not referring to the quality of the
knock-off ingredients, but instead the highly developed packaging and
printing replication capabilities used to mimic the approved product,
their increasing anonymity afforded by the Internet, and their intricate
and quick responding distribution networks.

In the last several years, we have noticed an increase in the
counterfeiting of Lilly products. Counterfeits today are being sold
through complex distribution networks with packaging that is often
indistinguishable from our own even by experts.

With the advent of the Internet, a whole new era of counterfeiting has
begun for us. It is now feasible to rapidly distribute counterfeit
products with relative anonymity. We have identified several criminal
syndicates who now manufacture, package, and distribute counterfeits on
a global basis. These syndicates deal in illicit drugs and receive
funding from identified organized criminal elements.

We have been advised by law enforcement entities that in some instances
these syndicates are linked to terrorist organizations in the Middle
East, Afghanistan, Pakistan, and to some drug cartels in Mexico.

In many cases, counterfeits are produced in facilities in China and then
distributed to Korea, Taiwan, and surrounding countries for packaging
and distribution. These syndicates often manufacture knock-offs in
filthy, unsanitary conditions. Importantly, these products don\'t stay
in Asia. They travel to major Western pharmaceutical markets. We\'ve
bought with us some photographs of these conditions.

As part of our investigative process, we have tested these knock-offs,
and we find a range of potential safety concerns. In some cases the
product is subpotent. In others it\'s super potent or mixed with other
active ingredients or with unknown substances.

In other cases these counterfeits contain no active ingredient at all.
In some cases the chemical composition is similar to our own.

We believe all of these scenarios raise significant safety issues
because the counterfeits are produced in unsanitary conditions with
absolutely no regulatory oversight.

I\'d like to walk through some recent counterfeit investigations of
Lilly products that we\'ve recently encountered.

In one case, with the cooperation of Taiwanese authorities, we
identified an illicit drug ring in Taiwan that was producing counterfeit
Lilly product on the same machines they were producing counterfeit
methamphetamines or methamphetamines. Excuse me. We have photographs of
some of these products.

In a different case, counterfeit Lilly product originated in China and
was moved through Korea and into the Middle East. In this instance,
Israel authorities discovered the operation.

Subsequent raids occurred in Israel locations in the last several weeks
that were producing counterfeit packaging to contain these Chinese
originated counterfeit tablets for distribution within Israel.

In another case, we recently detected Lilly product coming in from
China. It was moving through Belgium disguised as a shipment of computer
parts destined for the U.K.

In 2003, we along with other companies, federal and local law
enforcement participated in some raids in the Los Angeles area of a
Vietnam based organization that was importing counterfeit pharmaceutical
products from Canada into the U.S., including Zyprexa, a Lilly product
for schizophrenia and bipolar disorder.

In this case, the counterfeiting was twofold. This operation stripped
our Zyprexa out of its legitimate packaging, filling the original bottle
with iron tablets, and distributing these bottles for consumption
outside the U.S.

As a second step, they placed legitimate Zyprexa tablets into
counterfeit bottles for consumption in the U.S. marketplace. The
counterfeiters mixed multiple strengths of Zyprexa in the same bottle
before sending them out to secondary U.S. distributors.

As you can see from these examples and the type of activities I\'ve
described, we have significant concerns regarding counterfeit syndicates
and the flow of product into the U.S. from Canada, the Internet, and
other illegal and unsafe distribution channels.

Finally, I can also report that our company has received patient or
physician initiated reports in the U.S. of instances where a drug
alleged to be Lilly product was purchased from Canada and resulted in
patient harm. In one case, a diabetic patient experienced adverse events
after taking insulin that was improperly stored and shipped or was past
the expiration date. This patient ended up in a coma.

Keeping in mind my testimony is based on today\'s environment, which is
relatively closed in the U.S., our supply is FDA approved and the
distribution channels are straightforward and transparent. We can only
imagine the impact of these highly involved counterfeiting rings, the
impact they could have in a world where drug importation was legalized.

Thank you.

CHAIRMAN CARMONA: Thank you, sir.

Our next speaker will be Mr. Bruce Downey.

Thank you, sir.

MR. DOWNEY: Thank you, Mr. Chairman, and thanks to the members of the
Commission for inviting me to testify today.

I have submitted a written statement that covers more comprehensively
the subjects I would like to take up in my remarks, but I do want to
emphasize a few of the points that are in my written testimony and
respond to some of the questions I heard asked to the first panel, to
the best of my ability.

I am Bruce Downey. I am the Chairman and CEO of Barr Laboratories. We
manufacture and distribute over 100 pharmaceutical products, mostly
generic, but a few brand products as well, and I\'m happy to give you
the reasons why we oppose relaxation of the importation standards of
products into the United States.

Our market here is a very dynamic one, and it is really defined by four
public policy decisions that have been made by the Congress and the
regulators in this country. The first is a comprehensive system of
regulation to insure the safety of pharmaceutical products.

Second, strong patent protection to stimulate innovation of
pharmaceutical products.

Third, a set of additional exclusivities beyond the patent laws that
reward companies for pediatric research or for introducing a new
chemical entity in the United States, doesn\'t have patent protection or
restore market exclusivity lost in FDA review time, again, to insure
adequate incentives for innovation in the pharmaceutical industry.

And, finally, although there has been a great deal of debate, we have a
free market in this country, one that is not defined by price controls.
Price controls have been specifically rejected, and we believe that
these fundamental principles which have been established in wide public
policy debate shouldn\'t be compromised in any way by importation of
products into the United States.

If companies want to compete here, they should live by our rules, and
they should be welcome to compete on that basis. Anyone who really
suggests that we modify these rules is arguing that we should compromise
these very significant principles. In essence, we would be exporting our
public policy decision making to Canada or to some other country, and
importing the results of that decision.

We think if we want to change the rules, it should be done in the United
States in our open society, and a debate before the Congress or the
appropriate regulatory officials where we would do straight up what we
don\'t want to do by importing something from another country that is
someone else\'s decision.

I also think that the benefits that people have argued for this
importation rule have greatly been overstated. We point out some
examples in our written testimony, but let me just give you a couple of
them.

The proponents of the principal House and Senate bill that would
establish this importation policy contend through enactment of the
legislation with, say, \$560 billion a year, that\'s a very interesting
number considering the entire U.S. market is only \$214 billion a year.
I think that sort of exposes the kind of thinking that\'s going into
some of the proposals that have been advanced.

We also point out in our written testimony some of the studies used to
support the legislation that impose importation rules are flawed. For
example, in suggesting the price of ciprofloxacin, a very important
product in Germany, they ignore the 16 percent value added tax in that
country. They ignore the cost of having the product sent from Germany to
the United States, and there are similar flaws in a lot of the examples
that were used in these different studies.

Also it\'s important to know that importation in my judgment would very
much harm the generic industry, which is the strongest cost cutting
instrument available in the United States. If you look at countries that
have price controls, you find that the generic industries in those
countries aren\'t nearly as robust as they are here. There\'s very
diminished incentive to be the first to the market, and our generic
industry has resulted in enormous cost savings to the United States that
some of the prior panelists said our costs in the United States were
much lower than they are in Canada.

And I think that any decision that would reduce the incentive to go into
the generic business would reduce the generic R&D programs just as it
would the brand R&D programs.

In addition to the overstatement of the benefits of an importation bill,
I think the safety concerns haven\'t been adequately addressed. We have
heard some of the concerns about non-NDA, non-ANDA products. Again, I
think that\'s the gold standard in the world. We shouldn\'t compromise
our system by allowing products that don\'t meet those standards to be
introduced in the commerce of the United States.

And it\'s also true that as you allow more importation, you increase the
opportunities for counterfeiting. Mr. Howell pointed out that\'s a very
serious problem and one that I think would be exacerbated by reducing
the barriers from bringing products in from Canada from other countries,
and I would, again, on the basis of safety think that would be very
unwise.

And finally, I think for the overall public health effect it would
reduce innovation and reduce the incentive to pour billions of dollars
into research and development with an uncertain opportunity to recover
those investments. Again, over a long period of time that reduction in
R&D, I think, would have a very negative impact on the health care
system of the United States and one that we should be very careful
before we do anything about it.

CHAIRMAN CARMONA: Thank you, sir.

Our next speaker from Pfizer, Mr. John Theriault.

MR. THERIAULT: Thank you, Mr. Chairman and distinguished members of the
Task Force.

My name is John Theriault. I\'m Vice President of Global Security at
Pfizer, and it\'s a pleasure to appear before you today to discuss an
issue of critical importance, protecting the U.S. pharmaceutical supply
from contamination by counterfeit and unapproved generic products.

Prior to joining Pfizer, I spent 25 years as a special agent of the FBI.
During my FBI career, I had substantial experience in international law
enforcement, having served for a number of years as the legal attaché in
Ottawa, Canada, and in London, England.

I retired in 1995 as a member of the Bureau\'s Senior Executive Service.

Pfizer is a diversified global health care company and the world\'s
largest pharmaceutical company. Our annual pharmaceutical sales are more
than \$40 billion, and we have 122,000 employees around the world. Our
core business is the discovery, development and marketing of innovative
pharmaceuticals for human and animal health, and we are committed to
insuring the integrity of those products when they reach the market.

Mr. Chairman, while my testimony today focuses on our experience with
counterfeit Pfizer products, I wish to impress upon the Task Force that
these problems are not limited to Pfizer. They threaten the entire
research based pharmaceutical industry and the U.S. consumers who depend
upon that industry.

I\'d like to start by addressing the issue of counterfeit pharmaceutical
products and the scope of the problem. It\'s wide accepted that China
and India are major sources of counterfeit pharmaceutical products found
throughout the world. Prior to 1998, relatively few of those
counterfeits found their way into the United States or other countries
with strong pharmaceutical regulatory systems.

It was commonly believed that counterfeits were a problem primarily for
less developed countries. However, in 1998, we discovered counterfeit
Pfizer products in the United Kingdom. The problem has grown
consistently since then, and today we see counterfeit Pfizer products
throughout Europe, the Middle East, Asia, Africa, and the Americas.

Pfizer counterfeit products have been found in each of the EU member
countries, as well as in eight of the 15 candidate countries. Australia,
Israel, Japan, New Zealand, Norway, Switzerland, and South Africa are
also among the countries where counterfeit Pfizer products have been
detected. Seizures in the Asia Pacific region have included counterfeit
packaging not intended for local markets, but rather for export to the
U.S. and Australia.

A disturbing trend has emerged in Asia. While seizures of counterfeit
Viagra tablets dropped from more than 1.8 million in 2002 to about
760,000 in 2003, seizures of counterfeit Norvasc, a major cardiovascular
medicine increased from fewer than 4,000 tablets to more than 1.5
million during the same period.

Even with the realization that counterfeits are so widely available,
there\'s a tendency to believe that they\'re distributed only by illicit
brokers or the unregulated pharmacies that have become so common with
the Internet. The implication is that legitimate channels of
distribution in countries like the United States are largely immune to
the dangers of counterfeits.

Unfortunately, the facts are otherwise. A case in point, counterfeit
Lipitor. Lipitor is indicated for high cholesterol and is the most
prescribed medicine in the world. During 2003, almost 69 million
prescriptions for Lipitor were written in the United States alone.

Any notion that even the current strict regulations in the United States
provide adequate safeguards against the importation of counterfeit and
unapproved pharmaceuticals should have been dispelled with the recall
over more than 18 million Lipitor tablets beginning in May of 2003.
Those tablets, a combination of counterfeits and legitimate product of
undetermined origin, had been repackaged by a company called Med-Pro
located in Nebraska and distributed primarily by Albers Medical of
Missouri.

The counterfeits first came to light as a result of a consumer complaint
that the tablets tasted better and dissolved too quickly in the mouth.
Tablets provided by those consumers were tested and found to be
counterfeits containing Lipitor\'s active pharmaceutical ingredient.

The FDA was notified in April and launched an investigation of both
Med-Pro and Albers. Pfizer continued to notify the FDA as more
counterfeits were confirmed.

In May and June of 2003, Albers issued three recalls of Lipitor,
ultimately recalling all of the Lipitor that had been repackaged by
Med-Pro. According to the Commissioner of the FDA at the time, those
recalls totaled more than 18 million tablets.

To put that number into perspective, more than 600,000 U.S. residents,
after visiting their local pharmacy or placing an order with their
health plan either by phone, mail, or on the Internet, may have received
a 30-day supply of Lipitor that contained counterfeits.

While the Med-Pro/Albers recall was the largest, it was unfortunately
not the only incidence in which counterfeit Lipitor was repackaged and
introduced into legitimate distribution channels. There were at least
two other instances in which firms that had repackaged authentic Lipitor
that they had illegally diverted from foreign markets, began the far
more lucrative practice of repackaging counterfeits.

In one such case, Lipitor tablets repackaged by a company called AQ
Pharmaceutical of California were found to be counterfeits matching the
same Med-Pro formulation. As a result of an investigation jointly
conducted by the FDA and the Los Angeles County Sheriff\'s Office, it
was determined that AQ and two related companies were importing
authentic Pfizer products from foreign markets, repackaging them, and
then illegally selling them in the United States. The principal Pfizer
product being repackaged was Lipitor obtained primarily from Canada.

When search warrants were executed at those firms in February of 2003,
authorities seized large quantities of Pfizer products, including
Lipitor. While some of those products were still in their original
packaging, others were in zip-locked bags with handwritten notes
identifying the product, lot number and expiree dates.

One of the companies affiliated with AQ was licensed and registered to
import pharmaceuticals for export, as well as to repackage
pharmaceuticals. It was later discovered that that company, in order to
create the appearance that the products it had imported actually has
been exported, filled the empty pharmaceutical bottles with vitamins and
then exported those misbranded bottles to a hospital in Vietnam.

Investigation into these cases revealed that the counterfeit Lipitor in
question had been manufactured in Costa Rica with API imported from
Switzerland and excipients and tooling imported from the United States.

It is generally accepted that product diversion and counterfeiting often
go hand in hand. The simple fact is that the more times a product
changes hands, the more difficult it is to authenticate its pedigree and
the easier it is to introduce counterfeits. These are particularly
illustrative of that fact.

The FDA\'s finding in these investigations as disclosed in the affidavit
filed in support of a criminal complaint against one of the subjects was
that each bottle tested from a particular lot was found to contain a
commingling of both legitimate and counterfeit tablets.

Cross-border sales. The facts today indicate that the major threat to
the U.S. pharmaceutical supply is not from within the U.S., but rather
from other countries, including our neighbor to the north. An incident
recently reported to my office demonstrates our concern with the
integrity of the pharmaceuticals available through Canadian Internet
sites.

An elderly woman in California living on a fixed income placed an order
with a Canadian Internet site, Rx Value Canada. Although the site
offered several generic and unapproved alternatives to Norvasc, she
chose a product that was specifically identified on the Web site as
Pfizer Norvasc produced in the United States.

When her order arrived, however, it had been filed with Norvasc in
Russian packaging. Although the product was tested and found to be
authentic Norvasc, it demonstrates that those who order pharmaceuticals
from Canadian Web sites do not necessarily receive products that have
been manufactured in Canada or in any other country from which
importation would be authorized.

In this instance, the consumer was fortunate, but the question remains
whether other consumers placing orders from Canadian pharmacies unable
to meet the increasing U.S. demand would be so lucky.

CHAIRMAN CARMONA: Would you sum up, please, sir?

MR. THERIAULT: Yes, sir.

Clearly, there is already importation of counterfeit and diverted
products into the United States through the mail, courier service, and
unethical repackagers and wholesalers. The existing strict regulations
are ineffective in preventing it, and the issue right now should not be,
in my opinion, discussing ways to deregulate the current safety system,
but rather to discuss ways in which the current system can be improved
and better equipped to deal with this growing threat.

Thank you, Mr. Chairman.

CHAIRMAN CARMONA: Thank you, sir.

Our next speaker will be Mr. John Dempsey from Johnson & Johnson.

MR. DEMPSEY: Mr. Chairman, members of the Task Force, Mr. McGinnis,
thank you for giving Johnson & Johnson the opportunity to participate in
the review of this critical issue of whether drug importation in the
United States can be conducted safely.

I\'m here to talk about Johnson & Johnson\'s experience with counterfeit
drug in the marketplace because we believe that any drug importation
program would greatly increase the number of such counterfeit products
putting Americans at unacceptable risk.

From all indications, the problem of counterfeit health care products is
growing. According to the FDA, its counterfeit drug investigations have
increased from over 20 a year, sine the year 2000, a sharp increase from
the average five per year in prior years.

FDA has initiated 73 counterfeit drug investigations sine October of
1996, the majority in the last two and a half years, netting 44 arrests,
27 convictions, with the number of criminal investigations still
ongoing.

The Pharmaceutical Security Institute\'s 2003 situation report states
that there was a 60 percent increase in the incidence of prescription
drug counterfeiting in 2003. They have documented 264 incidents of
counterfeiting in 2003.

Unfortunately, like several other health care companies, we experience
the impact of counterfeit drug in the marketplace. The first known
instance was Procrit. The second was a medical device, and that was the
first time a medical device had been counterfeited in the marketplace
today, and it was a surgical mesh product whose origin was from outside
the United States, but entered into the ethical supply chain within the
United States.

Our widely prescribed amnesia drug, Procrit, which is used by patients
with cancer and also patients with HIV disease, has been the target of
counterfeiters and patient safety was put at risk.

The information we present here today is informed by the experience of
having had to deal directly with threats to the health and safety of the
people who depend on the integrity of our products and the ability of
the FDA to monitor the manufacture and development of such products.

The counterfeit drug labeled as Procrit was first discovered in May 2002
at a large drug wholesaler. Sine that initial discovery, investigators
found the counterfeit product was shipped from two of the three largest
national wholesalers and was also found at various retailers across the
country.

Two separate operations were uncovered. One operation relabeled
2,000-unit product as 40,000-unit product. The counterfeit product
looked identical to the real product. Vulnerable cancer patients being
treated for anemia could have received the product that was 20 times
less potent than what was prescribed for them originally.

The second operation produced counterfeit product vials filled with
distilled water that contained bacteria. Again, the vials looked
identical to the authentic product. In this case, patients could have
received contaminated water instead of the drug that had been prescribed
to treat their anemia. It is believed that the FDA and the Office of
Criminal Investigation was able to stop this operation before any of the
product reached patients.

As a result of these incidents, we have taken significant measures to
increase our efforts to prevent counterfeiting, taking steps to
safeguard the distribution chain and using state-of-the-art technology
in our packaging to make it more difficult to copy.

Legislative proposals that would throw open our borders to drugs that
vary in any way to FDA approved drugs and that would require partial or
no FDA inspection of foreign production and packaging lines would simply
enable counterfeiters to contaminate our drug supply earlier in the
process, not just at the distribution chain level, which would further
undermine any anti-counterfeiting technology we invent.

We have enough challenges with the closed regulatory system today at the
distribution chain level in terms of counterfeiters infiltrating our
system. The solution is not to further open our system to foreign lines
of production and packaging that is outside of FDA\'s oversight
inspection and enforcement authority.

Johnson & Johnson\'s pharmaceutical group has been investigating and
implementing any counterfeiting technology for several years now. These
technologies fall into two broad areas. Authentication technology builds
certain overt and covert features into the packaging to enable
identification of counterfeit product. Track and trace technology, which
has been the subject brought up by many of the previous panel members,
allows for electronic tracing of shipments and even individual product
units.

Authentication technologies fall into three groups: overt, which is
visible to the naked eye; covert, which is not visible to the naked eye
and has to have some type of hand-held reader; and then forensic, which
requires a sophisticated lab to authenticate built in
anti-counterfeiting technologies into the packaging.

The track and trace technology that has received the most attention is
radio frequency identification attacks. Johnson & Johnson is studying
the use of RFID technology as part of its total anti-counterfeiting
arsenal. To that end, we have been active in the Accenture Jump Start
Initiative to test the feasibility of RFID technology.

And the technology has two separate applications. The first is an
anti-counterfeiting mechanism. The second is a broader application for
use within the supply chain.

From an anti-counterfeiting perspective, this technology, we hope, would
allow us to get ahead of the counterfeiters somewhere between 12 to 18
months. Authentication could be done with hand-held readers by
field-based personnel, but the technology is at least, at least 18 to 24
months away from full implementation. It does not protect us from
product entering from outside the United States over the Internet. In
fact, in order to completely safeguard our system, we\'d literally have
to put readers in the hands of every end user. As long as there\'s an
opportunity to make money, counterfeit drug will continue to be an
issue.

RFID would make our current regulated system safer, but it\'s not
failsafe. It doesn\'t provide safeguards for product purchased over the
Internet or product ordered overseas and shipped through the mail.

The second application of RFID within the supply chain is at least five
to ten years away from full implementation, and only if the price comes
down on the chips and the antenna.

We have taken a number of steps in the packaging of pharmaceutical
products that will enable us and our customers to more easily detect
counterfeit products. By the end of this year, all of our major
pharmaceutical brands representing approximately 80 percent of sales
will have one or more anti-counterfeiting features built into the
packaging.

In conclusion, we believe that importation is neither a panacea nor a
long-term solution to our country\'s need for meaningful and affordable
prescription drug coverage within health insurance. We look to Congress
and the FDA to continue to devise appropriate solutions to insure that
any medicinal products brought into the U.S. continue to pass the same
stringent safety requirements of products currently made and approved
for distribution here.

I guess I\'d like to close with one final statement. You certainly can
listen and take in everything that the panel members say and provide you
with the information about the different technologies that are
available.

I think it\'s also important that you poll the people that work for you
in the Office of Criminal Investigation and ask them what their opinion
would be if we were to open our borders up to 25 industrialized
countries across the world. I think that their comments would be in line
with our comments in that it would strike great fear in our abilities to
be able to protect the American public.

Thank you.

CHAIRMAN CARMONA: Thank you, sir.

Our next speaker, Ms. Pamela Williamson from Serono Labs.

MS. WILLIAMSON: Good afternoon. My name is Pamela Williamson-Joyce, and
I\'m Vice President of Regulatory Affairs and Quality Assurance for
Serono.

Serono appreciates the opportunity to provide comments to the Task Force
on Drug Importation.

Serono is a global biotechnology leader, and in addition to being the
world leader in reproductive health, Serono also has strong market
positions in neurology, metabolism, and growth. The company\'s research
programs are focused on growing fees, businesses, and on establishing
new therapeutic areas.

You\'ll hear some similar themes to my comments as you have from my
colleagues here at the table this afternoon.

Serono believes that changes to regulations governing drug importation
or reimportation have a significant potential to increase safety risks
for patients and consumers due to the increased drug diversion and entry
of drugs that are counterfeit into the U.S. market.

Any perceived or potential cost of savings for U.S. consumers would be
far outweighed by the potential cost to patient safety, product
integrity, and confidence in the U.S. drug distribution system.

During 2000, Serono detected what was confirmed later to be a
counterfeited version of one of its products, Serostim. Serostim is a
recombinant human growth hormone indicated for the treatment of HIV
patients with wasting cachexia (phonetic), and it\'s administered by
subcutaneous injection. As part of its usual product support services,
Serono has a quality assurance group that, among other responsibilities,
receives, processes, and initiates investigations of any technical
complaints regarding its products.

It\'s this group that in late 2000 received the first calls that alerted
the company to the potential existence of counterfeit product. Callers
reported that the vials of diluted, which is the sterile water for
injection that is mixed with the active drug ingredient, appeared to be
slightly under filled. A few of the callers also reported some stinging
and burning at the injection site for one particular lot number.

Per our usual procedures, replacement product was provided to the
patients through their pharmacies, and we asked that the suspect product
be sent to us.

Upon receipt and visual inspection of this material, it was determined
that the questionable product was not Serono\'s product at all, but
rather a counterfeit product labeled and packaged to appear as Serostim.
The counterfeit material made its way into the U.S. retail drug
distribution system, including your neighborhood pharmacies.

Serono immediately notified the FDA\'s Office of Criminal investigations
and numerous discussions with various offices with FDA at the local,
regional, and federal levels followed.

Serono also on its own initiative alerted pharmacists and drug
wholesalers to the counterfeit material and recommended that they
examine Serostim prior to dispensing to see if it had a particular lot
number or expiration date or other identifying features of the
counterfeit material.

We also informed physicians prescribing Serostim and AIDS services
organizations. We also included press release on our Web site, as well
as FDA\'s Web site.

But because individual patient information is not available to
companies, we could not conduct any outreach to patients directly.

In total, Serono has experienced three discoveries of counterfeit
Serostim material. The unusual circumstance with this product prompted
the company to design a program that would secure the integrity of
Serostim without jeopardizing patient access.

The system is designed to tighten control of distribution, to detect the
entry into our distribution system of counterfeit or diverted product,
and to allow for the tracking and tracing of each individual box.

Serono undertook an intensive process of designing what is known today
as the Serostim secured distribution program, making changes within
manufacturing to add an additional bar code to the product, including a
unique numbering system for each and every box of Serostim.

In October 2002, this program was rolled out through the distribution
chains and to increase assurance that consumers who were prescribed
Serostim received the genuine FDA approved product. With its tracking of
each prescription size packet of Serostim through a controlled smaller
network of pharmacies, the program provides deterrence and valuable
intelligence for use in prosecution of those individuals who may attempt
to misuse or misdirect the product.

Serono has, in fact, responded to many requests from law enforcement to
utilize the tracking and tracing capabilities, to provide information
for use in ongoing investigations.

Serono also periodically monitors the Internet for Web sites mentioning
Serono products. From time to time we have identified illicit Internet
activity related to our drugs where on-line pharmacies are not
appropriately licensed and are not in compliance with state and federal
pharmacy laws. Various of these Internet pharmacies claim to offer
Serono products. Yet they are outside of our distribution system and
often these products are not what they are purported to be.

We have issued cease and desist orders and have alerted the FDA Office
of Criminal Investigations as to our concerns about these particular Web
sites. In one example of illicit Internet activity in 2003, Serono
discovered that Serono products were being offered for sale on eBay. It
is not possible to confirm whether products are genuine based on
information posted.

Serono contacted eBay\'s General Counsel to request the immediate
removal of the posting. eBay removed the listing for violation of their
own policy prohibiting the sale of prescription drugs, and ultimately
agreed to use technology filters to prefer further posting of Serono
products.

Serono does everything within its reasonable span of control to assure
patient safety and product integrity and these additional steps have
been taken at our own initiative.

However, no such programs can be considered foolproof. Serono believes
that loosening restrictions on drug importation from foreign sources
would hinder our ability to carry out track and trace programs, such as
the one that we now have in place for Serostim.

Our program is focused on safety and security within the U.S. Opening
the borders to importation of products intended for distribution
elsewhere would render the program ineffective. Change in current
practice also changes the dynamics of drug distribution and raises new
incentives for illegal activities.

The American public relies on the U.S. Food and Drug Administration
(FDA) to insure that the drug products in the U.S. are proven to be both
safe and effective. The subsequent maintenance of these drugs,
monitoring and post marketing reporting, as well as security of the
distribution and supply chain are also of critical importance.

FDA\'s standards for demonstration of safety and effectiveness are
rigorous, with numerous regulations covering the vast aspects of drug
development and registration, including the conduct of clinical trials
in humans, processes and facilities for product manufacture and testing,
product storage and therapeutic labeling claims, and instructions to
physicians and patients which provide important information on the
risks, benefits, and use of any particular drug.

Such standards for product approval and maintenance differ from country
to country, as do the mechanisms for distribution of product through the
respective supply chains.

Although attempts are underway to harmonize certain technical components
of product registrations through the International Conference of
Harmonization, the reality is that there is no common standard for
judging the safety and effectiveness of products on a worldwide basis.

In fact, it is not uncommon for major health authorities to disagree on
the approvability and/or labeling or drugs. We urge Congress and the
administration to maintain current policy and take steps to increase
surveillance of commerce and prescription drugs originating from foreign
sources.

I\'d like to thank the Task Force for the opportunity to provide these
comments, which we hope will be helpful in your deliberations.

CHAIRMAN CARMONA: Thank you very much.

Our next speaker, Captain Gordon Johnston. Welcome.

MR. JOHNSTON: Thank you, Mr. Chairman and members of the Task Force.

My name is Gordon Johnston, and I\'m the Vice President of Regulatory
Affairs for the Generic Pharmaceutical Association, and I\'m the former
Deputy Director of FDA\'s Office of Generic Drugs.

On behalf of GPHA and its more than 140 members, I thank you for the
opportunity to speak today.

GPHA is here today because we share in the public\'s concern about
access to affordable medicine. FDA approved generics account for more
than 51 percent of all prescriptions filled in the United States. Yet
generics represent less than eight cents of every dollar consumers spend
on prescription drugs.

We believe that any long-term solution to high prescription drug costs
must not sacrifice safety or quality of our medicines. Thus, GPHA
opposes the importation of pharmaceuticals that have not been under the
regulatory oversight of FDA. If we permit the importation of unregulated
prescription drugs, drugs that have not been FDA approved, we will, in
effect, abandon the free market principles that we have been so
instrumental in allowing the generic industry to provide cost effective
prescription drugs.

More importantly, importation without adequate safeguards could shred
the fabric of FDA\'s safety net that has protected consumers from the
entry of unregulated drugs of questionable safety, potency, and quality
for more than 70 years.

Today there\'s no system to determine whether imported drugs that are
not FDA approved meet the basic quality standards or whether they are
subpotent, improperly labeled, contaminated or counterfeit.

Simply put, unless and until FDA has sufficient oversight over all drug
importations and the necessary resources to enforce such oversight, the
nation\'s drug supply is vulnerable to the influx of inferior and/or
potentially dangerous medications.

Furthermore, the cost savings the proponents suggest will come from
importation of drugs that are not FDA approved are questionable at best.
Several reports suggest that on average U.S. generic drugs are more
affordable than Canadian generics. Indeed, it seems counterintuitive to
permit the entry of unregulated imports if there is a less expensive
generic already available to consumers here at home.

At a minimum, unregulated prescription drug importers should be required
to establish that the proposed imported product has no lower cost
generic equivalent approved in the United States.

Equally important, unregulated importation ignores the cost to consumers
of undermining the 180-day generic exclusivity incentive, an incentive
that is key to bringing consumers accelerated access to affordable
medicines.

In addition, importation ignores the potential costs associated with the
medical treatment of consumers who have obtained poor qualities that
don\'t work or subpotent or toxic. It also ignores the cost of treating
consumers taking unregulated and imported drugs that are improperly
labeled or not stored under proper conditions during shipment. And one
of our other speakers mentioned that as an example today.

Lastly, we have yet to determine the costs to FDA approved imported
drugs of implementing an import program for the non-FDA approved drugs,
whether an importation system would impose additional needless
requirements or result in a negative impact on the availability of FDA
approved imported drug products.

Additionally, we cannot predict how the cost of such an oversight
program will impact the future availability of FDA approved generic
drugs or the generic drug industry in the United States.

GPHA believes that the solution to high prescription drug costs will not
be found in unregulated foreign imports, but rather greater utilization
of FDA approved generic prescriptions. There are tools available that
help immediately increase generic utilizations and savings, such as
educating consumers, physicians, and states about generic availability,
encouraging generic substitution, employing benefit designs to
incentivize the use of generics and insuring their timely market entry.

FDA plays an important role in assuring that American consumers have
access to generics. Yet its Office of Generic Drugs will receive no
additional funding this year. Meanwhile the number of generic drug
application continue to grow.

Congress and the administration need to increase the resources necessary
to approve generic drugs more efficiently and make generic approvals a
priority rather than creating an expensive new regulatory scheme to
monitor the importation of unregulated drugs.

Congress and the administration must also focus on establishing a
definitive approval process for generic versions of biopharmaceuticals.
Last year biopharmaceuticals cost payers more than \$21 billion. Generic
versions of these products would save billions of dollars each year.

As Congress and the administration consider importation of unregulated
drugs, GPHA strongly encourages these parties to look for immediate
solution in increased use of generic medicines and continue to assure
the safety of our national drug supply.

Thank you to the members of the committee.

CHAIRMAN CARMONA: Thank you, sir.

I\'ll open the floor now for questions from the Task Force to our
guests. Alex Azar?

MR. AZAR: Mr. Downey and Mr. Johnston, you both touched on this a bit,
but I\'d like to see if you could help us by elaborating on the issue of
exclusivity and protection of innovation under the Hatch-Waxman
amendment to the Food, Drug and Cosmetic Act.

As you know and as you spoke about a bit, the Hatch-Waxman amendment set
up a very delicate balance between protecting innovation and also
allowing the entry of generic drugs and competition into the market, and
so there are exclusivities, given the patent life. There are extensions
of patent. There\'s orphan drug exclusivity, pediatric drug exclusivity
to foster certain types of innovation and research that the Congress has
found to be socially desirable.

There also are incentives to encourage the first to file to get generics
onto the market here in America, the 180-day exclusivity for the first
to file, the first to get approved.

If we have an importation system from other countries, how do you think
that importation system would or should take account of these balances
of intellectual property and protections of innovation that we have here
in the United States?

MR. DOWNEY: Well, I think we have in the United States enacted laws that
provide these incentives for innovation, and I don\'t think that we
should abandon them by inference by allowing imported products to
eviscerate what\'s been promised in terms of the incentives.

Now, you have mentioned several of them. I think one of the problems is
I don\'t believe there is a private right of action to enforce these
various exclusivities. So it would have to be, if you were to have
importation, it would have to be through the structure that the
government would impose. There would be no way that individual companies
could assert those exclusivities.

So I think if you were to go that route, you would have to very
carefully honor the congressional decision to provide the patent term
restoration, the pediatric exclusivity, the 180 days of exclusivity, the
data exclusivity for conducting clinical trials, the exclusivity for
orphan drugs, the exclusivity for new chemical entity that doesn\'t have
patent protection.

So all of these are important incentives to innovation, and to throw
them out on the promise that the importation would somehow serve us
better I think is unwise.

MR. JOHNSTON: Yeah, I think the clear message with importation would be
a disincentive to challenge patents and bring generic products to market
earlier, and as you mentioned there has been this delicate balance set
up in the construct of Hatch-Waxman. This would certainly change the
dynamics, and I think much to the disadvantage of the generic industry.

MR. AZAR: I think you and Mr. Downey had both mentioned that in Canada
the generic industry is not as robust as it is here in the United
States. The use of generics is not as prevalent, and the pricing is not
as competitive as here in the United States.

Could you talk a bit about to what extent \-- what causes that? Is it
the Canadian pricing system? Is it how they negotiate the prices and set
the prices for brand and generic drugs? Is it intellectual property
structures that the Canadian system has?

What leads to this?

MR. DOWNEY: Well, there are several things. One, the way prices are set
for generics in Canada, the first generic in the market is to be on the
Ontario formulary. There is no national system. So Ontario takes the
lead. It has to be priced at least seven or no more than 70 percent of
the brand.

After a second generic comes to the market, that price level goes to 63
percent. They call it the 70-90 rule. It\'s 70 percent off, 70 percent
of the original brand, and then 90 percent of the 70 percent.

And really, there are only two or three generic companies that are
active in Canada, as contrasted to the United States where there are,
you know, dozens of us, much more market entry, very much faster here
than you do in Canada. So the dynamics of the suppliers is different.
The price setting structure by the Canadian government is different, and
the consequence of both of those factors, generics end up less expensive
here than in Canada.

MR. AZAR: So is it fair to say that the Canadian government suppression
of brand drug prices creates less of an incentive for generics to get
into the market and hence less competition?

MR. DOWNEY: Absolutely.

MR. AZAR: And hence higher prices because of less competition amongst
generics?

MR. DOWNEY: Absolutely.

MR. AZAR: If I could bother Mr. Downey one more time, excuse me.

You mentioned also liability. Could you talk from a CEO perspective
running a pharmaceutical company what your concerns are about liability
with any importation scheme?

And I think our other experts here who spoke about counterfeit, you have
issues of counterfeit drugs being brought in and obviously when a
citizen takes their drug they don\'t always retain the packaging and
retain a sample of the product for counterfeit testing after the fact,
and also the labeling. We heard the story about the Russian labeling
coming into the country.

You have a duty to warn under American common law, to warn the patient
and warn the doctor of the side effects, and it has to be in English and
has to be FDA approved.

MR. DOWNEY: Right, right.

MR. AZAR: With importation, could you talk a little about the liability
concerns and the impact they could have on the pharmaceutical industry
and on citizens?

MR. DOWNEY: Well, somewhat speculative because we don\'t have that
situation, but it would be a very significant concern to us particularly
if the labeling in countries other that the United States was by law
required to be different there than it is here, and so you could have
product. The product itself might be fine, but it wouldn\'t be properly
labeled for the United States, and that could very well cause liability.

I would hate to think we had to defend cases where someone\'s
counterfeit product harmed a patient and we were held accountable for
that fact, but it\'s not impossible for me to envision having to defend
such a case. I would hope it wouldn\'t come to pass, it very well could.

And I don\'t know whether that\'s covered under our liability insurance,
but I think I\'ll check when I get back to the office.

(Laughter.)

CHAIRMAN CARMONA: Other questions from Task Force? Dr. Duke.

DR. DUKE: For Mr. Howell and Mr. Theriault.

When you\'re describing the number of instances in which you tracked
counterfeit drugs across international lines several times in those
cases, could you describe the cooperation and help you got from opposite
member agencies in other countries along this line?

MR. HOWELL: Most of our work in one of our newest products has been
outside the United States because it was just recently approved in the
United States last fall. We have had sporadic cooperation from various
law enforcement and regulatory bodies around the world. Basically it has
been a mixed bag.

We have had excellent cooperation with FDA and OCI. They have even
looked outside the United States, but I would say that you\'re hit and
miss overseas, and these groups purposely set themselves up in certain
countries where it may take you two years to even have your case heard
if you\'re able to bring a legal action.

So it is very difficult dealing in the world scheme with the
international.

MR. THERIAULT: And our experience has been similar to that. In fact, we
had a major case about three years ago where we purchased an amount of
counterfeit Viagra over the Internet, and as it turned out, although the
Web site appeared to be in the U.S., the guy was actually in Thailand,
and we made a number of purchases. We documented the counterfeit nature
of the product.

And we went to the Thai national police over there, and got very good
cooperation from them. They actually arrested about a half a dozen
people, and in addition to seizing a fairly substantial amount of
counterfeit Pfizer products, seized over two million counterfeit Valium
tablets in a raid on one of their warehouses.

But it\'s very spotty. One of the things that we\'ve done recently is
sign a memorandum of understanding with the Agency for Industry and
Commerce in Shanghai, and we\'ve gotten good cooperation both at the
national and provincial level in China in trying to deal with some of
the source producing and distributing organizations over there.

CHAIRMAN CARMONA: Other questions? Dr. McClellan.

DR. McCLELLAN: I understand about the concerns regarding counterfeit
drugs and steps that you all have outlined to deal with these
counterfeit threats, but several of you also made the point that there
are \-- even if counterfeit can be prevented, there are differences in
the drug products approved in different countries. As one of you said,
there\'s not an international standard for either the chemical
composition or the bioequivalence testing or the labeling for drugs
approved in different countries.

Could you all comment a little further on the extent to which that\'s a
prevalent issue, where the drug approved in one country may not be the
same as the drug approved in another?

I know we have certainly some examples of where drugs approved in other
countries are the same as FDA approved drugs, but there are a number
where that\'s not the case, too, I take it.

MR. DOWNEY: I can give a great example. We have tried to bring a generic
Premarin to market in the United States for ten years, and finally the
agency has decided it has to be made from a naturally occurring source.
In Canada, there is synthetic generic Premarin available and has been
for 20 years.

So there is a case where our standard has precluded a generic entry
where it\'s permitted in Canada.

There are other differences in Canada. There\'s a difference in how you
supplement your application to change raw material suppliers. There are
differences in standards which you can implement unilaterally as opposed
to what can be implemented with preapproval in Canada versus the United
States. There are quite significant differences.

CHAIRMAN CARMONA: Other questions from the Task Force? Yes, Dr.
Crawford.

DR. CRAWFORD: I was going to ask Ms. Williamson.

You had talked about, pursuant to Dr. McClellan\'s question, you had
talked about ICH developing standards. If you could speculate, how would
those be adopted by member countries? Would that require some sort of
formal process or would simply the ICH standards be advisory?

MS. WILLIAMSON: Well, I think it\'s important to note that when we talk
about ICH, we\'re talking about a series of guidances. So they don\'t
replace the regulations that are set in the United States or in any
other region.

So essentially they are guidances that are specific to very certain
aspects of drug registration and what is required to review those
registrations.

However, the discretion still lies within the specific region, whether
it\'s the FDA or the European health community or Japan for making the
ultimate judgment based on the totality of the information as to whether
or not the standard has been met for safety and efficacy in their area.

So it\'s important to note that I think in terms of insuring the least
amount of redundancy in some level of common standards, whether it\'s in
developing a particular assay or whatnot, but it is helpful to have
these guidances, but they don\'t replace the regulations that are
rigorous here or the judgment of the members of the reviewers of the
Food and Drug Administration.

CHAIRMAN CARMONA: Questions? Oh, let me see. We\'ll get Dr. O\'Grady now
and then we\'ll get Dr. Duke.

DR. O\'GRADY: I had a couple of questions.

Mr. Dempsey, you said in your testimony that you\'re getting at least
close, if you\'re not already there, with about 80 percent of your sales
will have some form of anti-counterfeiting measures going on. I guess
two questions related to that.

What did that end up costing you? And what percentage of the problem do
you think you covered by taking those steps?

MR. DEMPSEY: In terms of cost, we don\'t put that number out. We don\'t
quantify that number. When we first looked at the issue in the
marketplace it was decided that we would move whatever the costs were
going to be. So our implementation of our short-term brand security
program, which included both overt and covert features moved forward and
cost.

To date we have never sat down and quantified the entire cost of putting
the security measures in place, although I will say they are sizable.

In terms of the short-term anti-counterfeiting technology, and I believe
your question was how much of that would it \--

DR. O\'GRADY: Yeah. I mean, given how much you\'ve invested at this
point to get to 80 percent of your products or of your sales, what
percentage of the problem do you think you\'ve covered? How much do you
think you\'ve been successful at offsetting 50 percent of the
counterfeiting, 25, 75 percent? Do you have a feel for effectiveness of
the measures?

MR. DEMPSEY: I think it\'s important to note that when you look at
anti-counterfeiting technology, you have both a short-term plan and a
long-term plan, and our short term was what was currently available in
the marketplace, whether it be color shifting ink that\'s used by the
Treasury Department, tag-ins in the Security Inc.\'s, watermarks,
holograms, carton closure seals. Those are all short-term things that
you have to change on a periodic basis in order to keep your plan
effective, the long term being radio frequency identification tags,
which I have to really emphasize that that\'s further off than was
presented by the earlier panel from our perspective.

So in terms of did it cover the problem and how much did it eliminate,
it\'s hard for me to answer that because my fear is that tomorrow I\'ll
get the phone call from the Office of Criminal Investigation, from Dave
Bourn down in Miami, and he says, \"John, we\'ve got a problem. We found
some product that we think is questionable.\"

So I\'d like to think that we\'ve made our product very secure, but I\'m
also well aware that I could get a phone call tomorrow that would
indicate that there has been an issue that has been uncovered that we
have to investigate.

The folks that are out there doing this counterfeiting are very
sophisticated. They\'re oftentimes tied to organized crime, and where
there\'s money to be made, they\'ll invest as much as they can as long
as there\'s a return on their investment.

And certainly the penalties in the United States to date are minimal
compared to penalties involved with the sale or production of illegal
drugs.

So I\'m very concerned on a daily basis that I\'ll get that phone call.

DR. O\'GRADY: Mr. Theriault?

MR. THERIAULT: Yeah. If I might comment on that one, when you reviewed
the Lipitor case I cited, 18 million tablets recalled, regardless of how
much anti-tampering or anti-counterfeiting technology Pfizer might have
put into its packaging and products, it would have been entirely
defeated because repackagers were allowed to discard the original
packaging and repackage the product.

So whatever your investment is, as long as repackaging is allowed can be
defeated.

DR. O\'GRADY: Got you. All of you make a fairly compelling case about
the problem of counterfeiting and how serious it can actually be. At the
same time I\'m not so sure that consumers are particularly aware of
this. Can any of you or all of you give me a feel for what your
companies are doing to make the general public aware of the sort of
horror stories that you\'ve told us today?

MR. DEMPSEY: From our standpoint, when counterfeit product label with
Procrit was first identified, we worked in conjunction with FDA and up
on our Web site immediately put out the distinguishing features between
authentic product versus counterfeit product, and above and beyond that,
linked to the FDA\'s Web site so that the consumers who weren\'t aware
of our Web site could at least go to the FDA\'s Web site.

In addition, we put together a, for lack of a better word, a brochure, a
Slim Jim that our sales force carried out to physicians, nurses, case
managers, retail pharmacists that talked about the issue of counterfeit
drug in the marketplace, what we as Ortho-Biotech did in order to
prevent it, and we found that to be very effective.

But in terms of how much the general public is aware of it, I think as
long as you receive the solicitations to purchase drugs over the
Internet, the general public is going to purchase those products.

We recently had an issue where a woman purchased Ortho Evra, which is a
contraceptive patch, over the Internet, and when she got it, she
fortunately saw that it didn\'t look like the authentic patch that she
had been using, and she notified authorities.

And as it turns out, that product was sourced from India and was
purchased over an Internet site that was labeled as a Canadian Internet
site. So no matter what you do, you can do as much as you can with
education, but as long as these Internet solicitations continue to come
in, people are going to purchase.

MS. WILLIAMSON: If I could just add a couple of comments onto that, I
think it\'s an important, very important observation because unless you
personally have been involved in instances where you\'ve had to manage
or deal with counterfeiting, the consumer \-- and we\'re all consumers;
let\'s face it \-- go into our neighborhood pharmacies believing that
what we get prescribed by our physicians is what we will be receiving.

In terms of consumer awareness, we certainly have gone through the
things that I outlined earlier in terms of posting things to Web sites,
outreach to the community, press releases, direct letters to
pharmacists, wholesalers, and whatnot.

But we also take the opportunity, such as instances that we\'ve got here
today where, whether it\'s testifying on the part of a prosecution
that\'s being developed or providing comments that are publicly
available, we also do that.

DR. O\'GRADY: I guess I would only as follow-up say that certainly you
represent an industry that is leading in terms of communication to the
public, and this seems a fairly important topic to add to your
communication plans.

Could I ask a question of Mr. Johnston, please, having to do with a
number of things you brought up?

I mean, this whole discussion of importation probably wouldn\'t even be
going on if prices between different countries were a little more
similar. Do you see that in terms of when we think about generics and
some of the discussion that went on about price differentials that if
there was an importation scheme that was sort of fully implemented at
this point that there would \-- given how much generic substitution goes
on in current American health plans and whatnot, would you expect there
to be much of an effect of importation in terms of the use of generics
in the United States?

MR. JOHNSTON: Let me clarify that. You\'re suggesting that if generics
from outside the country were permitted to be imported, what impact that
would have?

DR. O\'GRADY: Or even \-- and I don\'t want to put words in the mouth of
the discussion that went on before, but the thread of what I got where
you have a price control over a brand name, that there\'s less
sensitivity, I mean, that there\'s not much in it for the consumer to
shop for generics and whatnot if the price has been suppressed on the
brand name drug.

And there are some examples, I think, from Mr. Downey\'s where he looks
at German prices and they are fairly close.

So I guess what I\'m wondering about is when we think about the things
that can go on to reduce the average American\'s spending on
prescription drugs, one of the things that certainly American health
plans currently turn to is generics and the use of generic substitution
in their benefit design and other issues like that.

So I guess one of my questions was if we thought you went to something
that was an importation scheme, given health plans\' current heavy
encouragement of generics, what would we see in terms of \-- I mean, how
much savings would we actually see or would things \-- we\'re already
talking about domestic generics that are cheaper than imported generics,
and sort of where are \-- are there savings involved in importation if
we\'re already talking about \-- I forget. Someone else used the
percentage of what percentage of drug spend is in generics at this
point.

MR. DOWNEY: Eight percent.

DR. O\'GRADY: Eight percent?

MR. DOWNEY: No, more than that

PARTICIPANT: Fifty percent of the scripts.

DR. O\'GRADY: More than half of prescriptions.

MR. DOWNEY: Right.

DR. O\'GRADY: But it\'s less \--

MR. DOWNEY: Than ten percent of dollars.

DR. O\'GRADY: Of dollars.

MR. DOWNEY: So there\'s very substantial savings, as you can see.

MR. JOHNSTON: Yeah, I think the competition in the U.S. marketplace
among generics will certainly drive the cost of any eligible generic
product down substantially. FDA typically approves for a blockbuster
brand drug eight, ten, 12 products when the patent expires. So there is
very significant price erosion.

The one thing that we didn\'t touch on though that I would like to just
bring out is that the U.S. has a very strict scheme for approving
generic drugs. They have to follow a very rigid approval process and
demonstrate bioequivalence to the U.S. marketed brand product.

Now, I think that\'s very important when we think about a more wide-open
scheme. If you bring in a generic from England, from Germany, from
India, those aren\'t tested against the U.S. marketed product. So if you
bring in the brand, I think, patients and health care practitioners
might assume that they are bioequivalent and can be readily interchanged
brand from England for the U.S. brand, brand from India.

Well, in fact, they may have different characteristics, and when you
think about it in terms of anticoagulant or other narrow therapeutic
drug, you certainly will have wide variation and potentially cause the
patient harm because of this type of interchangeability that is not
controlled as we have now in the U.S.

MR. DOWNEY: In some places it\'s not even proven. The same standards
don\'t apply.

DR. O\'GRADY: Okay. You bring up a point in your testimony about \$21
billion in biotech right now.

MR. DOWNEY: Yes.

DR. O\'GRADY: And I guess I was wondering can you be any more specific
of if there was a generic parallel there of what you think those savings
would be?

MR. JOHNSTON: Well, I think right now it\'s speculation because we
don\'t have that abbreviated process, but clearly if the Hatch-Waxman
paradigm is any indicator, we would have to believe there would be
significant savings in the biopharmaceuticals as well.

MS. WILLIAMSON: May I add a comment to that?

DR. O\'GRADY: Sure.

MS. WILLIAMSON: I would just like to add that with respect to the
biotech products, what was mentioned earlier in terms of testing and the
difficulties in testing, that\'s compounded when you\'re talking about
biologics and proteins that are manufactured using recombinant DNA
technology. So it becomes even more of a challenge to demonstrate
comparability or bioequivalence.

CHAIRMAN CARMONA: Mr. Azar?

MR. AZAR: I just had one additional question for Mr. Downey. One thing
that I was struck by at the last hearing that we had where the consumer
groups testified before us was that everybody seemed to be in agreement
that any drugs that come into this country under a legal importation
scheme should meet the FDA\'s gold standard, the comprehensive
regulatory regime that you referred to in your remarks, and that
includes manufacturing, good manufacturing practices at the
manufacturer\'s site, which includes the distribution, control over the
distribution mechanism, and the labeling and the product composition.

To what extent, if a regime is set up by Congress for the legal
importation of drugs, to what extent does the success of that depend on
the voluntary cooperation of manufacturers in their foreign
manufacturing facilities, the cooperation of foreign distributors,
foreign pharmacies in complying with this domestic regulatory regime in
order to insure that whatever would be imported would meet the FDA gold
standard?

MR. DOWNEY: Well, I think the way to do that is what we\'re doing now,
directly require foreign companies that want to compete in the United
States to undergo an NDA/ANDA process. Absent that review and the
control over that entity, I don\'t see how the agency can regulate it.

MR. AZAR: But I think that we have seen from some of the drug companies
that have actually restricted the sale of drugs into Canada and from the
remarks of many of you today, that the importation into the United
States of Canadian price controlled drugs \-- I\'m just using Canada as
one example \-- is not something that you necessarily would want to be
\-- that you\'re saying you\'re in favor of and would want to support.

So to what extent would it require that companies like yours, United
States companies, that you essentially be co-opted and cooperate in a
system to import price controlled drugs into the United States?

MR. DOWNEY: Well, we do very little business in Canada, and I don\'t
think we would expand it if I thought that price controls would be
exported back to the United States.

I don\'t know if that answers your question, but I think it\'s
legitimate for companies in the United States to say, \"We aren\'t going
to play in that game.\"

I actually think that what we should be doing as a country is urging
other countries to eliminate their price controls so they pay their fair
share of the R&D budget in the United States. It should be going the
other way.

MR. AZAR: Do the representatives of any of the other companies that have
maybe a large international presence, if you\'d like to chime in there
in terms of if you\'re at Pfizer, for instance and you\'ve got a foreign
manufacturing facility? Presumably you\'d need to consent to let our FDA
inspectors go in currently for drugs that you might manufacture abroad
and send to the United States under an NDA.

You agree to have us come into your facility for inspection. You
manufacture according to good manufacturing practices. You get it back
into the country through very tightly controlled distribution systems.
Presumably it would require that you all agree to an expansion of our
regulatory reach within your manufacturing facilities and that you\'d
have to cooperate, right?

MR. DEMPSEY: Yes, I believe that\'s correct.

MR. AZAR: Is that something you all would do?

MR. DEMPSEY: It\'s being my area of responsibility.

MR. SACHDEV: Coming back to the theme of counterfeit because it\'s
clearly something that\'s prevalent in all of your testimony, Mr.
Theriault, you mentioned in your testimony that you had many examples of
counterfeits of the Pfizer products including Viagra and Lipitor from
countries all over the world, including I think you said Thailand and
China with schemes where the active ingredients are being produce in one
country, the labeling is being produced in another country.

That seems to indicate that there\'s a pretty sophisticated operation
going on.

We have heard from some others that this is primarily a problem overseas
and not necessarily a problem. I think in your written statement you
talk about counterfeiting in Canada in particularly with regard to
Viagra in a case that you uncovered last year.

Can you elaborate on that case, in particular?

MR. DEMPSEY: We did develop one case in Canada. In fact, the RCMP and
the Drug Enforcement Administration together located a Viagra
manufacturing facility in Quebec.

But that was a fairly small operation. What I think we\'d like to convey
with the testimony is that this is not really a scheme anymore. This is
not a small activity that\'s being engaged in pockets here and there.
This has become a very, very big business involving organized crime,
involving international distribution networks, and yes, the Lipitor case
is a good example.

You know, you had API that was imported into Costa Rica from
Switzerland, probably originated in India. You had punches and dies that
came from the United States, and you had the product manufactured in the
Caribbean and distributed throughout the United States, 18 million
tablets.

We see similar operations in Asia where the product is produced in
China. The packaging is out of Korea in some cases. The distribution
comes out of Hong Kong and Taiwan. You\'re not dealing with small,
little pockets of criminal activity. You\'re dealing with real serious
organized crime.

MR. SACHDEV: Putting aside whether or not we recommend or Congress
decides to legalize importation, when you have a situation or you have
bought Lipitor that has commingled product, some of it with active
ingredient, some of it completely counterfeit, and some of it actual
product, what kind of steps are your companies taking to try to combat
that type of counterfeiting?

MR. DEMPSEY: Well, we\'re doing all of the anti-counterfeiting things in
packaging and in the product that, you know, my Johnson & Johnson
colleague mentioned. We\'re at a disadvantage if you will when you can
take our packaging, discard it, take our product, commingle it with
counterfeits, put it in your own package, and then distribute it.

And there was a question to the previous panel about testing and the
cost of testing and that sort of thing. You think about this. Six
hundred thousand, 30 count Lipitor bottles distributed in the United
States. If you wanted to be 100 percent sure that there was no
counterfeit in there, you would have to test every one of those 18
million tablets.

You know, it\'s a complex problem, and I think the companies are doing
everything they possibly can to combat it, but I think the current
system is being played by people who are making a lot of money on
counterfeit and diverted product right now.

MR. SACHDEV: Just one more follow-up question on that. Several of you,
including Ms. Williamson, mentioned the Internet and I think you
mentioned the eBay site. Can any of you characterize the extent to which
you think counterfeiting is being facilitated by the Internet operations
versus maybe other, more traditional outlets?

MR. HOWELL: Well, in our experience the distribution via the Internet
negates any anti-counterfeiting technology a company would choose to
apply. It\'s a direct distribution into the country, and it\'s
unregulated.

A very great concern. So we all are participating in the various
anti-counterfeiting technologies and looking for the future, both
short-term and long-term as we have heard here today, but there are
elements of this distribution by design to reach consumers without going
through anyone with a scanner, a wand, or any way to authenticate the
product.

MS. WILLIAMSON: I would just like to add since you mentioned that
example that consumers more and more these days are using the Internet
for an abundance of things, and I think it\'s very important to really
put out the buyer beware message because as some of the people at the
panel here mentioned, what may appear to be a Web site that\'s in the
United States or American product, you can find could be something
that\'s actually located 5,000 miles away in circumstances for which
can\'t be controlled, and at the point where the consumer realizes that
might be before they take the product or it might be after they take the
product, and at that point it\'s a little too late.

CHAIRMAN CARMONA: thank you.

CHAIRMAN CARMONA: I have just a quick question more globally. You know,
the premise is that we have the most sophisticated, robust system in the
world to insure integrity of our products and authentication of those
products, and yet it seems that very learned individuals, both with the
science technology, those in law enforcement backgrounds and such, are
challenged every day to stay abreast with our adversaries who continue
to provide countermeasures against everything we do because of the level
of sophistication that they have.

So in chasing the Holy Grail of importation and whether we could every
do it safely, the question I would pose to you is: is it reasonable to
think that we could get to the point where we would have a cost
effective system developed that would insure the protection of all
products that would be imported and ultimately go to the American
public?

MS. WILLIAMSON: Based on the information that we have available today, I
think it would be difficult to imagine that without the varied issues
that have come up, all being addressed. And in doing so, certainly it
would be extremely challenging to insure that you could do that 100
percent.

MR. DEMPSEY: I would just add to that that we have a controlled,
regulated system now in the United States, and look at where we\'re at.

CHAIRMAN CARMONA: Exactly.

MR. DEMPSEY: I don\'t know how we could do it. RFID is appealing, but it
took us 18 months to put a chip and antenna on a vial. In order for RFID
to be effective you\'d have to put it on each individual unit of use.
We\'re a ways away.

CHAIRMAN CARMONA: Well, I appreciate your candor. Any other comments to
that?

I mean, it\'s certainly a concern of mine that we are pushing the limits
of technology, and even with technology considering the potential use
cost of trying to implement such a system and then with all of that
being done, can we step back and have the Secretary in our case at HHS
be able to insure the American public that all products are now safe?

Okay. Other questions from our Task Force members?

(No response.)

CHAIRMAN CARMONA: If not, that will conclude our deliberations today.
Thank you so much for coming to us and educating us and spending the
time with us. We really appreciate that.

Thank you.

We\'ll stand adjourned.

(Whereupon, at 4:30 p.m., the meeting in the above-entitled matter was
concluded.)