Presentation to the

**HHS Task Force on Drug Importation**

## April 5, 2004

More Generic Pharmaceutical Utilization, Not Unregulated Drug
Importation, Answers America's Drug Cost Crisis

## Kathleen D. Jaeger 

**President & CEO**

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### GPhA Testimony: HHS Task Force on Drug Importation

April 5, 2004

Testimony of Kathleen Jaeger

President & CEO

Generic Pharmaceutical Association

My name is Kathleen Jaeger, and I am President and CEO of the Generic
Pharmaceutical Association. On behalf of GPHA and its more than 140
members, I thank you for the opportunity to provide comments on the
issue of drug importation.

GPHA represents manufacturers and distributors of finished generic
pharmaceutical products, manufacturers and distributors of bulk active
pharmaceutical chemicals, and suppliers of other goods and services to
the generic pharmaceutical industry. Our products are used to fill more
than one billion prescriptions every year. No other industry has made,
nor continues to make, a greater contribution to affordable health care
in this country than the generic pharmaceutical industry.

***[Introduction:]{.underline}***

GPhA and its members recognize the significant burden that
pharmaceutical and healthcare costs impose on American consumers,
healthcare providers and public policy makers at the federal, state and
local level.

For more than two decades, FDA-approved generic pharmaceuticals have
played a critical role in the effort to contain rising prescription drug
costs. In 1984, when the Hatch-Waxman Amendments became law, America
faced a health care cost crisis similar to the one it faces today. Since
that time, the generic pharmaceutical industry has matured and has
provided billions of dollars in savings each year, while improving the
health of millions of Americans.

We are testifying before this Task Force because we share the public's
concerns about access to affordable medicine, but we also know that any
long-term solution to high costs must not sacrifice safety or quality of
our medicines. These are assurances that can only be offered through the
strict approval process and regulation of the U.S. Food and Drug
Administration (FDA).

Accordingly, GPhA opposes the importation of pharmaceuticals that have
not been under the continuous regulatory oversight of FDA. We strongly
believe that because of their uncertain safety and efficacy, unregulated
foreign imports are not a viable solution to high prescription drug
costs. Rather, GPhA believes that the solution to this important issue
starts with regulated, FDA-approved generic pharmaceuticals. We believe
federal and state governments could immediately and substantially lower
prescription drug costs for all Americans by taking steps to increase
the timely introduction and utilization of FDA-approved generic
medicines.

Today, FDA-approved generics account for more than 51% of all
prescriptions filled in the United States. Yet, generics represent less
than eight cents of every dollar consumers spend on prescription drugs.
These savings are in no small part the result of our Nation's commitment
to free market principles. Indeed, our free market principles have been
the major force in creating today's robust and competitive U.S. generic
pharmaceutical industry.

Our industry's success, and the resulting consumer savings, stand in
stark contrast to the economic experiences of other countries, such as
Germany, France and Italy, which undermine pharmaceutical competition by
government regulation and, hence, competitive pricing. If we permit the
unregulated importation of prescription drugs, we will in effect,
abandon the free market principles that have been so instrumental in
allowing the generic industry to provide cost-effective prescription
drugs. In turn, this could disrupt this Nation's balance between
innovation and access in the prescription drug arena. In addition,
unregulated importation could undermine the 180-day generic drug
exclusivity period that provides the critical incentive for generic
companies to challenge invalid patents and bring affordable medicines to
the market years ahead of the expiration date of the invalid patent.

Finally, importation without adequate safeguards could shred the fabric
of FDA's safety net that has protected consumers from the importation of
unregulated drugs of questionable safety, potency and quality for more
than 70 years. Opening our Nation's borders, without a comprehensive
system of FDA oversight and enforcement likely will allow counterfeit,
adulterated, misbranded and unapproved drugs into this Nation's secure
drug supply and ultimately into consumer medicine cabinets.

# 

# *[Consumer Safety Must be Paramount]{.underline}:*

U.S. product approval and manufacturing standards have evolved over the
past 65 years in an effort to protect the health and welfare of
Americans. Today, the quality of America's prescription medicines is by
far the highest in the world. Importation of unregulated drug products
could significantly undermine this quality standard that we have worked
so hard to achieve. For instance, the Canadian regulatory system exempts
from its health and safety standards, drugs manufactured for "export
only." As a result, there can be no assurance of the actual origin of
the drugs that are imported from Canada unless there is FDA supervision.

Also, there is no current system to determine whether unregulated
imported drugs meet basic quality standards, or whether they have long
since passed their expiration date, or are sub-potent, improperly
labeled, contaminated or counterfeit. Nor are there adequate enforcement
tools to stop importers of identified adulterated, misbranded or
counterfeit products from re-attempting entry into the United States.
Simply put, unless and until FDA has sufficient oversight over all drug
importations, this Nation's drug supply chain is vulnerable to an influx
of inferior and/or potentially dangerous medicines. Adequate patient
safeguards therefore must first be in place to assure that unregulated
imported products meet all applicable U.S. standards as a prerequisite
of importation. *Otherwise, inferior and potentially lethal products may
be sold unknowingly to American consumers at local pharmacies, and
manufacturers of FDA-regulated imported products may be discriminated
against in the U.S. marketplace.*

Another critical issue for consideration is whether FDA will have the
requisite resources to oversee a comprehensive import program. Without
adequate resources and the time to train the requisite number of
specialists to oversee such a critical program, the agency will be hard
pressed to implement the necessary safeguards, provide the requisite
oversight, and take appropriate enforcement actions to ensure that this
Nation's drug supply system remains secure. Given the necessity of
developing a costly regulatory program to govern importation to ensure
consumer safety, the purported cost savings of importation may never be
realized.

# *[Cost Savings Questionable]{.underline}:*

The cost savings that proponents suggest will result from unregulated
importation are questionable at best.

With importation, consumers unknowingly may end up paying more than they
would if they bought an equivalent FDA-approved generic pharmaceutical
here in the United States. In fact, several reports suggest that, on
average, U.S. generic drugs are more affordable than Canadian
generics.[^1] Given the additional costs of unregulated importation, an
assessment of the scope of potential products for importation seems
prudent. Such an assessment would provide a means of ensuring consumer
cost savings. Indeed, it seems counterintuitive to permit importation 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. Moreover, cost savings from importation should be
required to be passed along to the consumer. Without this additional
requirement, commercial entities could take much of the difference in
prices for themselves, leaving little or no cost savings for the U.S.
consumer, all the while increasing risk, adding additional costs to the
government, and potentially enhancing manufacturer liability.

More importantly, unregulated importation will destroy the 180-day
generic exclusivity incentive, causing our healthcare system to forfeit
substantial future cost savings. This critical healthcare provision
plays a significant cost containment role because it provides generic
manufacturers with an incentive to challenge questionable and invalid
patents. The 180-day provision has been instrumental in bringing
consumers affordable medicines in an accelerated fashion, while saving
billions of dollars in pharmaceutical costs. For example, 11 successful
generic challenges provided over \$27 billion in savings.

In addition, with no mechanism in place to ensure consumer safety, the
potential cost savings, if any, would be seriously diminished by
distribution and liability costs. Importation ignores the potential
costs associated with medical treatment for consumers who have obtained
poor quality drugs that don't work. It ignores the costs associated with
treating consumers of unregulated drugs that are contaminated or contain
harmful ingredients. It ignores the cost of treating consumers taking
unregulated imported drugs that are improperly labeled. The costs of
restoring America's healthcare system after importation opens the
floodgate to questionable medicines must be calculated and seriously
considered before any action is taken.

The current push towards importation also ignores potential liability
issues and the complexity of these issues. Policymakers must explore the
question of who should assume the risk in a system without the same
assurances ([i.e]{.underline}., should liability be placed on the
importer or end-user rather than the original manufacturer or the
manufacturer believed to have produced the drug). Lastly, we have yet to
determine the costs to regulated imported drugs as a result of
implementing an import program for unregulated drugs. Whether an
importation system would impose additional needless requirements on, or
result in a negative impact to, the availability of regulated imported
drug products or their continued manufacture in the United States also
is a question that must be addressed. For example, our industry imports
many of our products and raw materials. These are safe, regulated
medicines available at a lower cost. Timely access to these products
should not be inadvertently hindered by additional requirements intended
to address previously unregulated products. Additional questions must be
asked, and resolved, before importation is permitted. What would be the
additional costs to consumers ... to our healthcare system? Would these
costs outweigh the potential savings derived from importation? All of
these issues should be factored into any savings projections on this
issue.

***[Immediate and Available Solutions for Lowering\
Prescription Drug Costs]{.underline}:***

GPhA recognizes that many policymakers are searching for proposals to
make prescription drugs more affordable. GPhA believes that the solution
to high prescription drug costs will not be found in unregulated foreign
imports. Rather, Americans can have safe and affordable prescription
drugs through greater utilization of FDA-approved generic prescriptions.

Generic pharmaceuticals are a safe, reliable solution to the problem of
increased costs of prescription drugs. While a limited program of
importing drugs from selected countries would potentially lower some
drug costs for those without prescription drug coverage, increasing
access to generic drugs would benefit all consumers, businesses, and
government purchasers, through lower out-of-pocket and insurance costs.

The tools to immediately increase generic drug utilization and the
savings it provides include: (1) educating consumers, physicians and
states about the availability of affordable generic alternatives; (2)
encouraging substitution of less expensive and equivalent generics; (3)
employing benefit designs that incentivize the use of generics; and (4)
ensuring the timely entry of generics into the marketplace.

Every 1% increase in generic utilization will result in nearly a 1%
increase in savings for prescription drug payers. GPhA believes one
answer to lowering prescription drug costs will be found in removing
obstacles to improve access to generic medicines that already have FDA
scrutiny, and already save consumers more than \$10 billion each year.

FDA plays an important role in ensuring that American consumers have
access to generics through its generic drug review and approval process.
Yet, the Office of Generic Drugs, which is responsible for the approval
of generic medicines, is receiving no additional funding this year. This
is significant given that the number of generic drug applications
continues to rise significantly, while the number of new drug
applications is declining. Equally important is the fact that the review
and approval of generic applications currently takes longer, on average,
than the approval of new drugs, potentially delaying consumer access and
savings. Congress and the Administration need to address the issues of
increasing the resources necessary to approve generic drugs more
efficiently, and of making generic approvals a priority, rather than
creating an expensive new regulatory mechanism to monitor the
importation of unregulated drugs.

Congress and the Administration also must focus attention on
establishing a definitive process pursuant to which generic versions of
expensive bio-pharmaceuticals can receive approval. Last year,
bio-pharmaceuticals cost payers more than \$21 billion. Generic versions
of these important, but expensive drugs would contribute additional
billions of dollars a year in prescription drug savings.

The Administration and states also could work together to ensure that
aggressive generic substitution tools are employed in state Medicaid
programs. States could garner additional savings by implementing
aggressive generic substitution tools to other state senior supplemental
programs and employee health programs.

***[Summary]{.underline}:***

At a time when federal, state and local governments are working
vigorously to bolster homeland security, it is the position of the GPhA
that it is unwise to adopt any proposal that would strip FDA of its
ability to assure the safety and efficacy of prescription drugs. Without
FDA oversight of unregulated drug importation, which at best will be
expensive to implement and difficult to ensure, the U.S. drug supply
chain would be particularly vulnerable to abuse. The result of
importation could be an influx of adulterated, misbranded, unapproved or
counterfeit medicines into this Nation's drug supply chain. While it is
understandable that consumers facing high costs for prescription drugs
are seeking relief, sacrificing safety for affordability is
shortsighted, dangerous and unnecessary.

As Congress and the Administration consider importation of unregulated
drugs, GPhA strongly encourages these parties to look for immediate
solutions in increased usage of generic medicines. We also encourage
individuals to be smart consumers, and take advantage of the immediate
cost savings on safe and effective, FDA-approved generic medicines. To
this end, GPhA is committed to developing a Web site to alert consumers
on affordable, FDA-approved generic alternatives are available in the
United States.

[^1]: Palmer D'Angelo Consulting Inc. Report Series, "Generic Drug
    Prices: A Canada-US Comparison," August 2002

    John R. Graham and Beverly A. Robson, The Fraser Insitute,
    "Prescription Drug Prices in Canada and the United States -- Part I:
    A Comparative Survey," Public Policy Sources, No. 42 (2000) pp. 3-5