June 9, 2003

TO: Members of the Subcommittee on Human Rights and Wellness

House Committee on Government Reform

FROM: Dan Burton, Chairman

> SUBJECT: Subcommittee Hearing, entitled "Canadian Prescription Drug
> Re-importation: Is there a safety Issue?"

The Subcommittee on Human Rights and Wellness will hold an oversight
hearing on **[Thursday, June 12, 2003, in Room 2154 of the Rayburn House
Office Building at 2:00 p.m.]{.underline}**

# BACKGROUND 

This is a follow-up to the April 3, 2003 hearing entitled,
"International Prescription Drug Parity: Are Americans Being Protected
or Gouged?"

Drug costs have been the fastest growing component of healthcare
expenditures for the last several years, climbing more than 17 percent
annually from 1998 to 2001. That is twice the growth rate of health
costs in general, and 5 times the growth rate of inflation.

Americans pay higher prices for their prescription drugs than the
residents of any other country in the world. This is an increasingly
difficult burden for our aging population. Approximately 108 Million
older Americans manage at least one chronic health condition, such as
heart disease, diabetes, asthma, or high blood pressure. Many of them
suffer from multiple problems. Seventy-five percent of Americans age 50
to 64 are on at least one prescription drug, and fourteen percent of
women aged sixty-five or over are on five prescription drugs in any
given week.

Tragically, however, more than 1 in 5 American adults can't take their
drugs as prescribed because of the high financial cost. This figure is
as high as 40 percent for some groups, including many retired, disabled,
minority, and low-income Americans.

Far too many Americans must choose between filling their prescriptions
and buying food. No American should have to make that choice.

Because of the exorbitant U.S. prices, Americans increasingly seek safe
alternatives by purchasing affordable prescription drugs from Canada.
Price differences for the exact same pharmaceutical can be substantial,
ranging from 20% to 80%.

The Food and Drug Administration (FDA) estimates that over 2 Million
shipments of prescription drugs will cross the border from Canada to the
U.S. this year.[^1] Some estimates suggest that nearly 1 Million
American consumers now purchase between \$500 Million and \$1 Billion
dollars worth of prescription drugs from Canadian pharmacies annually.

In 2000, Congress overwhelmingly passed -- and the President signed into
law -- legislation that permits U.S. consumers, pharmacists and
wholesalers to purchase FDA-approved prescription drugs on the
international market (the "MEDS Act").[^2] However, the law has never
been implemented.[^3]

Although the FDA's official policy allows only the personal importation
of certain life-saving drugs, its practice for years has been to allow
individual consumers to import up to a 90-day supply of FDA-approved
drugs.[^4] However, recently the FDA seems to have changed its posture.
They have initiated enforcement action against American businesses that
facilitate the purchase of prescription drugs from the Canadian market,
citing safety concerns as the motivation.[^5]

Mr. William K. Hubbard, FDA Associate Commissioner of Policy and
Planning, appeared before the Subcommittee on April 3, 2003.
Unfortunately his participation was not helpful. Mr. Hubbard's testimony
focused on phony Internet drug sites and the danger they may pose to the
public. That issue might be a legitimate concern for the FDA, and it
likely should be addressed in another forum. But it did not pertain to
the focus of the hearing. The FDA focus on Internet sites ignored the
fact that many Americans already drive across the Canadian border or
travel in organized bus trips to get their prescriptions filled, and the
FDA offered no justification for cutting off more than a Million
Americans from their only affordable source of life saving prescription
drugs.

The FDA position is suspect because Mr. Hubbard was not able to cite a
single example of harm emanating from a Canadian pharmacy, whether
Internet-based or otherwise. While there is some concern about
counterfeiting or misbranded products being marketed in various
countries, this is not the case in Canada. The drug regulatory
environment in Canada is of a similar standard to the U.S. FDA. In the
May 8, 2003 edition of the Washington Post, Daniele Dionne, Health
Canada's Associate Director General said*: **"As soon as any drug
crosses the border into Canada, it has to meet all the regulations of
our laws."*** She described that as a clarification, not a new
policy.[^6] When interviewed by the Subcommittee staff, she said that
she firmly stands by that position.

Associate Director General Dionne also emphasized that Canadian
pharmacies, whether Internet or traditional, are licensed by the
provinces annually. If they sell adulterated, misbranded, or counterfeit
drugs, or drugs that are dangerous for any other reason, they will lose
their license. She said that if U.S. authorities, whether with the FDA
or Congress, report any such allegations to Health Canada or provincial
health authorities, the charges will be investigated, and, if found to
be true the pharmacy will lose its license. She said that to the best of
her knowledge she has received no such reports from U.S. officials.

To sum up Health Canada is responsible for prescription drugs while
within its borders, and it is willing and able to help punish pharmacies
that sell harmful drugs to U.S. residents. None of this is new
information, and all of it is, or at least should be, well-known to the
FDA.

In addition, two witnesses at the April 3^rd^ hearing advanced
common-sense suggestions for guaranteeing the safety of reimported
drugs. Mr. Andy Troszok testified on behalf of the Canadian
International Pharmacists Association. He described Canadian pharmacy
licensing procedures that assure a high degree of safety. Dr. Elizabeth
Wennar of the United Health Alliance recommended a counterfeit-proof
labeling system based on the same technology as the U.S. Treasury uses
in the \$20 bill.

The FDA offered no further constructive suggestions.

Although invited, GlaxoSmithKline failed to appear or submit written
testimony.

While it appears they are trying to cut-off seniors and low income
Americans, the drug industry has remained one of the most profitable
industries in the world for more than three decades. Through good times
and bad, the profits keep rolling in.

When confronted with the fact that an increasing number of Americans
either have to buy their drugs in Canada or go without, drug
manufacturers decided upon a course of action -- not one designed to
protect the health of their fixed or low-income customers -- but a
course of action designed only to protect the health of their enormous
profits.

After the "MEDS Act" was signed into law, some drug manufacturers began
requiring Canadian wholesalers and pharmacists to accept contract
provisions prohibiting them from selling their products on the U.S.
market or to Canadian pharmacists that sell to U.S. consumers.

Apparently, this anti-trade policy was not enforced until January of
this year, when GlaxoSmithKline threatened to enforce this provision by
cutting off the supply of Glaxo products to wholesalers and pharmacists
that sell its products to U.S. consumers. Unfortunately Glaxo has chosen
to follow through on its threat.

Furthermore, information that has reached the Subcommittee is that
several additional pharmaceutical companies intend to follow Glaxo's
example, including AstraZeneca.

And it won't stop there. A June 1^st^ article in the New York Times
reported some startling information about the drug industry's new public
relations efforts. A major drug industry trade association, the
Pharmaceutical Research and Manufacturers of America (PhRMA), plans to
increase their dues to pay for a substantial, multi-faceted expansion of
their lobbying activities.

Pharmaceutical companies already spend more on lobbying than any other
industry group. But they plan to ratchet-up their efforts by an
additional \$38 Million or so during the coming year, making their
projected lobbying expenditures in excess of \$150 Million. Some
expenditures levels that are being considered include:

-   \$72.7 Million for advocacy at the Federal level, mainly aimed at
    Congress.

-   \$48.7 Million for advocacy at the State level.

-   \$17.5 Million to fight price controls and protect patent rights in
    foreign countries and in trade negotiations.

-   \$15.8 Million to fight a union-driven get-out-the vote initiative
    in Ohio, which would lower drug prices for people who have no
    insurance to cover drug costs.

-   \$12.3 Million to develop coalitions and strategic alliances with
    doctors, patients, universities and influential members of minority
    groups.

-   \$9.4 Million for public relations, including \$1 Million for
    inside-the-beltway advertising.

-   \$4.9 Million to lobby the Food and Drug Administration.

-   \$3.1 Million to retain more than 60 lobbyists in the 50 states.

-   Several Million dollars to foster ties with groups like the National
    Black Caucus of State legislators, the National Hispanic Caucus of
    State Legislators, and the National Medical Association, which
    represents the interests of African-American doctors.

-   \$2 Million or more in payments to research and policy organizations
    to build intellectual capital and generate a higher volume of
    messages from credible sources sympathetic to the industry.

-   \$1.3 Million for local publicity.

-   \$1 Million to "change the Canadian health care system."

-   \$1 Million for an "intellectual echo chamber" of economists to
    speak against Federal price control regulations through articles and
    testimony.

-   \$500,000 for efforts to "educate and activate" Hispanic-Latino
    organizations on a State and Federal level.

-   \$550,000 for placement of op-ed pieces and articles by third
    parties.[^7]

It is unclear if any of those expenditures are designed to promote
safety. But it is very clear that formidable expenditures are designed
to eliminate the American consumers' freedom of choice, and to block
their access to lower-priced Canadian and European drugs, and to
increase drug manufacturers' profits.

PhRMA is quoted in the article as saying: ***"Unless we achieve
enactment this year of market-based Medicare drug coverage for seniors,
the industry's vulnerability will increase in the remainder of 2003 and
in the 2004 election year."***[^8]

"Market-based" is a wholesome sounding phrase. But in this context it
seems to mean that PhRMA wants the Federal government to enact a
prescription drug benefit for seniors that would obligate the taxpayers
of America to pick up the bill at the current, inflated U.S. prices --
the highest prices in the world.

The Congressional Budget Office (CBO) estimates that the American
taxpayers' bill for prescription drugs at these prices over a 10-year
projection period of 2003 through 2012 would be roughly \$1.8
Trillion.[^9] That is over and above the amounts that people who are
under the Medicare age would pay for their own drugs through their
insurance premiums and direct out-of-pocket expenditures.

A total of 58 cosponsors, including Chairman Burton and Representatives
Sanders and Crowley, have acted to preserve freedom of choice by the
introduction of the "Preserving Access to Safe, Affordable Canadian
Medicines Act of 2003" (H.R. 847). This bill would prohibit drug
manufacturers from discriminating against American consumers in the form
of contract provisions, limitations on supply, or any other measure that
has the effect of limiting U.S. consumers' access to safe, affordable
prescription drugs from the Canadian market - subjecting violators to
civil fines of up to \$1 Million.

In addition to supporting a Medicare prescription drug program,
representatives from GlaxoSmithKline insist that they are being fair to
Americans because economically disadvantaged people can participate in
one of several prescription drug discount programs. One example is
[Together Rx]{.underline}, which provides discounts for approximately
150 widely prescribed medicines. But in most cases, even after the
[Together Rx]{.underline} discount is applied, the cost to the consumer
still is higher than Canadian prices. Furthermore, many drugs are not
covered and many people are simply not eligible for the program.

Glaxo has told the Subcommittee that they spent \$2.9 Billion promoting
their products in the United States last year. By contrast, Glaxo and 6
other companies spent only \$24 Million combined to promote the
[Together Rx]{.underline} program. So Glaxo's share of that promotional
cost likely was in the \$3 Million to \$4 Million range; a dramatic
contrast to the \$2.9 Billion spent to promote their full-priced drugs.

In meetings with Chairman Burton, Glaxo representatives have admitted
that even with Canadian price caps, the Canadian market remains
profitable. They also make a profit in Europe, where prices are even
lower still than in Canada.

Many pharmaceutical industry representatives contend that Americans
should pay more for prescription drugs because U.S. profits support the
Research and Development programs of the industry. Explanations are
lacking as to why U. S. patients, and only U.S. patients, should bear
that research and development cost burden for the entire world, while
patients in other developed countries enjoy bargain prices.

The industry complains that because of high R & D costs and the lengthy
FDA approval process, it costs between \$500 Million and \$800 Million
to bring new drugs to market. They fail to mention the multiple
subsidies the industry receives, including massive research assistance
from the National Institutes of Health and other tax-supported health
agencies, tax deductions for the cost of doing business, and research
tax credits. The American people subsidize the drug companies a fourth
way by paying the world's highest prices.

The drugs under discussion are U.S. manufacturered, FDA approved,
subject to all the laws and regulations of the Canadian government while
in Canada, and are sold by highly regulated and licensed Canadian
pharmacies. While claiming that these purchases endanger Americans, the
drug companies and the FDA have failed to provide any proof whatsoever.
This hearing will give them the opportunity to provide documented,
verifiable proof of harm or adverse health effects.

The hearing also will review some of the safeguards that either are in
place, or can be put in place, to maintain the safety of FDA approved
prescription drugs that are reimported into the United States. Officials
of the Food and Drug Administration have been invited to gather
information from the other witnesses and to state their views.

The measure of a strong society is how it takes care of its weakest
members. Congress is an arm of our society that takes that
responsibility seriously. The U.S. FDA has been delegated the duty of
assuring that pharmaceuticals are safe and effective, and they need to
remember a simple fact: a prescription that a patient cannot afford to
buy is neither safe nor effective.

# PRICE COMPARISON

The Subcommittee compared the posted prices for prescription drugs
advertised from one U.S. online pharmacy to one Canadian online
pharmacy. The findings are listed below:

**Price Comparison on Commonly Prescribed Glaxo Drugs**

**(As of February 26, 2003)**

**All prices in U.S. Dollars (\$)**

+------------------+-----------+---------------------+----------------+
| **DRUG**         | **        | **CrossBorder**     | **Savings**    |
|                  | CVS.com** |                     |                |
|                  |           | **Pharmacy.com**    |                |
|                  | **(US)**  |                     |                |
|                  |           | **(Canada)**        |                |
+------------------+-----------+---------------------+----------------+
| Advair 100/50    | 121.99    | \$70.70             | \$51.29        |
| (60)             |           |                     |                |
+------------------+-----------+---------------------+----------------+
| Advair 250/50    | 151.99    | 83.41               | 68.50          |
|                  |           |                     |                |
| \(60\)           |           |                     |                |
+------------------+-----------+---------------------+----------------+
| Augmentin        | 84.59     | 32.88               | 51.71          |
| 500-125 Tablet   |           |                     |                |
|                  |           |                     |                |
| \(20\)           |           |                     |                |
+------------------+-----------+---------------------+----------------+
| Avandia 4 MG     | 83.59     | 58.20               | 25.39          |
|                  |           |                     |                |
| \(30\)           |           |                     |                |
+------------------+-----------+---------------------+----------------+
| Avandia 8 MG     | 148.99    | 78.93               | 70.06          |
+------------------+-----------+---------------------+----------------+
| Flonase 0.05%    | 63.99     | 32.97               | 31.02          |
| Nasal Spray      |           |                     |                |
+------------------+-----------+---------------------+----------------+
| Imitrex 50 MG    | 148.99    | 107.02              | 41.97          |
| Tablet (9)       |           |                     |                |
+------------------+-----------+---------------------+----------------+
| Paxil 10 MG      | 82.59     | 52.35               | 30.24          |
| tablet           |           |                     |                |
|                  |           |                     |                |
| \(30\)           |           |                     |                |
+------------------+-----------+---------------------+----------------+
| Requip 1 MG      | 131.99    | 104.36              | 27.63          |
| Tablet           |           |                     |                |
|                  |           |                     |                |
| \(100\)          |           |                     |                |
+------------------+-----------+---------------------+----------------+
| Wellbutrin 100   | 116.99    | 41.63               | 75.36          |
| MG Tab           |           |                     |                |
|                  |           |                     |                |
| \(60\)           |           |                     |                |
+------------------+-----------+---------------------+----------------+
| Wellbutrin 150   | 118.99    | 54.28               | 64.71          |
| MG Tab           |           |                     |                |
|                  |           |                     |                |
| \(60\)           |           |                     |                |
+------------------+-----------+---------------------+----------------+
| Zantac 15 MG/ML  | 236.99    | 56.54               | 180.45         |
| Syrup            |           |                     |                |
|                  |           |                     |                |
| 1 pint           |           |                     |                |
+------------------+-----------+---------------------+----------------+

\*CrosswayPharmacy.com charges \$14.95 shipping per package.

CVS Charges between \$1.95 and \$16.95 for shipping.

WITNESSES:

**[Panel one]{.underline}**

**Video Presentation by Dr. Andy Troszok, Vice President Standards**

**Canadian International Pharmacists Association**

**Calgary, Alberta, Canada**

**Video Presentation by Dr. Elizabeth Wennar, President and CEO**

**United Health Alliance**

**Bennington, VT**

**Mr. William K. Hubbard, Associate Commissioner for Policy, Planning,
and Legislation**

**U.S. Food and Drug Administration**

**Washington, DC**

**[Panel Two]{.underline}**

**Chris Viehbachen, President, U.S. Pharmaceuticals**

**GlaxoSmithKline**

**Philadelphia, PA**

**Mr. David Brennan, Executive Vice President for North America**

**AstraZeneca Pharmaceuticals, LP**

**Wilmington, DE**

**Staff Contact:** John Rowe, Professional Staff Member \-- (202)
226-7515.

[^1]: Testimony of William K. Hubbard before Subcommittee on Oversight
    and Investigations, Energy and Commerce Committee, June 7, 2001.

[^2]: Amendment to H.R. 4461, 106^th^ Congress, 2^nd^ Session,
    Agriculture Appropriations,
    [H.AMDT.964](../../../../../../../../cgi-lis/bdquery/z%3Fd106:HZ00964:)
    (consideration: CR
    [H5696-5700](../../../../../../../../cgi-lis/query/R%3Fr106:FLD001:H55697),
    [H5720-5721](../../../../../../../../cgi-lis/query/R%3Fr106:FLD001:H55721);
    text: CR
    [H5696](../../../../../../../../cgi-lis/query/R%3Fr106:FLD001:H55696)).

[^3]: December 26, 2000 letter from HHS Secretary Shalala to President
    Clinton, citing "significant flaws and loopholes" in the law; July
    10, 2001 letter from HHS Secretary Thompson to President Bush,
    citing safety concerns.

[^4]: Ibid.

[^5]: February 12, 2003 Letter from William K. Hubbard outlining FDA's
    position on reimportation:
    <http://www.fda.gov/ora/import/kullman.htm>; March 21, 2003
    Enforcement letter from David J. Horowitz, Esq., Director, FDA
    Office of Compliance:
    <http://www.fda.gov/foi/warning_letters/g3888d.htm>

[^6]: The Washington Post, Thursday, May 8, 2003, page A6.

[^7]: The New York Times, June 1, 2003, article entitled, "Drug
    Companies Increase Spending to Lobby Congress and Governments, by
    Robert Pear.

[^8]: Ib.

[^9]: CBO Testimony, Statement of Dan L. Crippen before the Committee on
    Finance, United States Senate, March 7, 2003, page 12.