UNITED STATES OF AMERICA

DEPARTMENT OF HEALTH AND HUMAN SERVICES

TASK FORCE ON DRUG IMPORTATION

STAKEHOLDER MEETING:

INTERNATIONAL AND ACADEMIC PERSPECTIVES

TUESDAY,

APRIL 27, 2004

The meeting was held at 1:00 p.m. in Conference Room 1066 of the Food
and Drug Administration, 5630 Fishers Lane, Rockville, Maryland, Surgeon
General Richard H. Carmona, Task Force Chairman, presiding.

[PRESENT]{.underline}:

VADAM RICHARD H. CARMONA Chairman

JAYSON P. AHERN Member

LESTER M. CRAWFORD Member

ELIZABETH M. DUKE Member

TRACEY HARDIN Member

MARK B. McCLELLAN Member

MIKE OGRADY Member

WILLIAM RAUB Member

THOMAS REILLY Member

AMIT K. SACHDEV Member

ELIZABETH A. WILLIS Member

A G E N D A

OPENING STATEMENT: 4

Task Force Chair, VADM Carmona

[PANEL I]{.underline}: 5

Opening Remarks

Barbara Wells

National Association of Pharmacy Regulatory Authorities

Ronald Guse

The Manitoba Pharmaceutical Association

Jean-Yves Julien and Jocelyn Binet

The Quebec Order of Pharmacists

QUESTIONS & ANSWERS: 22

[PANEL II]{.underline}: 48

Opening Remarks

Patricia Danzon, Ph.D.

University of Pennsylvania

Frank Lichtenberg, Ph.D.

Columbia Business School

Iain Cockburn, Ph.D.

Boston University

Jeff Lemieux

Centrists.org

Jack Calfee, Ph.D.

American Enterprise Institute

QUESTIONS & ANSWERS: 72

[PANEL III]{.underline}: 104

Opening Remarks

Eric B. Sheinin, Ph.D.

United States Pharmacopeia

Alastair J. J. Wood, M.D.

Vanderbilt University

Marcus Reidenberg, M.D.

Cornell University

Carl C. Peck, M.D.

Georgetown University

Elena Rios, M.D.

National Hispanic Medical Association

QUESTIONS & ANSWERS: 130

CLOSING STATEMENT: 156

VADM Carmona

P R O C E E D I N G S

(1:42:54 p.m.)

CHAIRMAN CARMONA:  Ladies and gentlemen, good afternoon. I\'m Rich
Carmona. I\'m the Surgeon General. My apologies for keeping you waiting.
There were several scheduling difficulties that challenged me today, and
I just flew in from out of town, so my apologies. I know how important
your time is to you, and I did the best I could to expedite, but I thank
you for your patience, and I thank you for being willing to help my
colleagues and I, and the President and the Secretary shed some light on
this very complex situation.

Because of the lateness, I will waive the usual introductory remarks and
just say that we are striving to keep this as transparent and open a
process as possible. We desperately need all of the information that you
can provide to us to help us to make the recommendations to the
Secretary and the President and, ultimately, to our Congress as to how
to deal with this very complex problem of importation that is before us.
And I think we all recognize that as we move further along in the
process, we open the door for as many questions as we have answers. And
it is quite more complex than any of us, maybe except Dr. McClellan who
had to deal with it before me, really understood. So, once again, thank
you so much.

And why don\'t we just move onto our first panel member. We\'ll start
off on the left. Ms. Barbara Wells from NAPRA. Thank you, ma\'am.

MS. WELLS:  Chairman Carmona and members of the task force, I want to
first of all thank you for this opportunity to appear before you today.
And certainly I would echo the Chairman\'s remarks that this is a very
complex issue, and certainly Canada has just as many issues I think as
you do in grappling with this.

I represent the National Association of Pharmacy Regulatory Authorities
in Canada, and that\'s the umbrella voluntary organization of the
pharmacy licensing bodies in eight of our ten provinces, our two
territories, as well as the Pharmacy Services Division of our Department
of National Defense. And this issue has been on a front burner for us
for a number of years now.

In February of 2003, we held a forum with stakeholders from both the
U.S. and Canada to identify the issues with exportation of drugs to the
U.S., and this prompted us to develop a communique jointly with the
National Association of Boards of Pharmacy here in the U.S. to signal
publicly that we were concerned about the exportation and
re-importation, and that we needed to work together to protect the
citizens of both countries.

In October last year, you were aware that our Assistant Deputy Minister
of Health, Diane Gorman, issued a letter to Canadian stakeholders
alerting us to the potential for shortages of drugs in Canada due to the
export of drugs here, and also alluded to the fact there could be human
resource implications, health worker implications to this trade. And
that prompted my association last fall, last November to call upon the
Canadian government to ban the export of drugs to the U.S. until, first
of all, there could be a study done on the long-term effects of this
trade to the Canadian public. And pending that, that there was some
regulatory structures put in place to help us regulate it better. And I
want to very quickly just tell you some of the issues that prompted us
to call for this ban.

First of all, there are legal issues. Our licensing bodies find that
their investigations are somewhat hampered when you\'re investigating
complaints and situations when customers reside, patients reside in the
U.S. There are issues in terms of issuing subpoenas from Canada to the
U.S. if we need to  if our members need to call upon witnesses and so
on. And there\'s even  with this trade we find that you may have
physicians in one province co-signing prescriptions for patients of a
pharmacy in another province. And we\'ve heard that there are barriers
to sharing information between the pharmacy licensing bodies and the
medical licensing authorities from province to province in some cases.

We also have  we\'re troubled a little bit by some of the ethical
issues. We are concerned about Canadian pharmacists aiding and abetting
American citizens to, in effect, break the law by importing drugs. And
we also  there are issues with \-- a lot of our medical licensing
bodies have concerns and consider it to be malpractice or mispractice to
co-sign a prescription from a U.S. physician, unless that physician has
a personal relationship with the patient, has a bona fide professional
relationship with that patient. And some of our medical licensing bodies
have come out against physicians who do co-sign prescriptions, so we\'re
saying well, we have an issue with pharmacists honoring those
prescriptions if they know that the patient and the physician did not
have a true patient/physician relationship.

Obviously, if Canada gets less than 5 percent of the pharmaceuticals in
the world, and you folks get around 50 percent, obviously, this is
causing us some real supply issues, as well. We know that pharmacists
are now having trouble getting supplies. The supply issue hasn\'t quite
reached the public in Canada yet because pharmacists are scrambling to
come up with supplies for them, so it hasn\'t quite hit the public yet,
but it is taking time up for our pharmacists to secure these supplies.

I, myself, have had a call in the last week from a major drug company
asking about the chances of a product being exported to the U.S. They
are looking at releasing, launching a new drug in Canada that is
available in the States, and they\'re looking at not launching it in
Canada if there\'s a chance it could be re-imported into the U.S. So
we\'re seeing those kind of issues now.

With the increase in pressure to the exporters to get supplies of drugs
\-- because you know some of the drug companies have cut-off the
exporters \-- we see now that they are purchasing medications from
community pharmacies right across Canada, and they offer them a 10 or 20
percent premium to purchase their drug supplies. And that is keeping
these large amounts of drugs being ordered from being on the radar
screen to the Canadian companies.

And we also are seeing things where some of the websites have direct
links to pharmacies in other countries \-- in England and other places
\-- to obtain drugs. And, of course, there\'s allegations that some are
bringing drugs into the country illegally, unapproved drugs, to satisfy
the orders.

There\'s also  we have a shortage of pharmacists in Canada and, of
course, this is exacerbating that shortage, as well. So I think aside
from these issues that we have pointed out to our government, I think,
too, that my members could not condone this style of pharmacy service.
We feel that it\'s certainly not in your public\'s best interest to have
fragmented pharmacy care in this way, that they\'re getting drugs from
companies in Canada as well as their community pharmacies in the U.S.
And certainly, searching the Internet for drugs does not bode well for
optimal health. And I thank you again.

CHAIRMAN CARMONA:  Thank you, ma\'am. Let\'s move on to Mr. Ronald Guse
from the Manitoba Pharmaceutical Association. Thank you, sir.

MR. GUSE:  Thank you. And thank you to Chairman Carmona and the
committee for the opportunity to address this issue on drug importation
to the United States. And I bring greetings from my president, Gary
Cavanagh, and my past president, Lois Cantin.

The Manitoba Pharmaceutical Association has made a written submission,
and I believe it\'s before the committee, and I strongly encourage you
to refer to that submission. And just for clarification, the Manitoba
Pharmaceutical Association, although the name may seem to indicate that
we represent the drug industry, we do not. It also may indicate that
we\'re a self-interest group, and we certainly are not that either. The
association itself is the regulatory authority in the Province of
Manitoba, and it would be analogous to your boards of pharmacy that
exist in the United States.

The MPhA has been on the forefront, if not the chopping block, of this
issue for the past couple of years, and we have gained some experiences,
and I wish to share them with you today.

The two major concerns that we want to highlight for the committee, and
the report does that, is one issue that was stressed and re-stressed in
a presentation we heard just a couple of days ago by the former
Secretary, Donna Shalala. And the former Secretary strongly supports the
idea of watching patient safety in the issue of drug re-importation. In
our submission, that\'s one of the two principles we\'ve identified to
you; one is patient safety, and certainly the second one is product
quality and safety.

From our experiences, and any health care professional or board
protecting the public\'s safety, introducing more and cheaper drugs does
not necessarily equate to better or enhanced care, and that\'s important
for the community to remember.

I\'d also like to take you back briefly to prior to the year 2000 when
pharmacies in Canada in attempting to supply medications to Canadians
temporarily residing in the United States (some of our winters being a
little more aggressive than some of your winters), the pharmacies trying
to ship the medications to the Canadians had to make sure that there is
a certain amount of information in the package, as well as the
medication. And that information had to confirm that the patient was, in
fact, a Canadian, the medications were prescribed. There was some
information that was required from the medical practitioner, as well.
And even with all that information in those packages, frankly, there was
no guarantee that the product would move through U.S. customs.

Well, we\'ve gone from that to a system now where, with few exceptions,
the borders are pretty well wide open. And that\'s caused the Manitoba
Pharmaceutical Association to address what our pharmacists are doing
with regards to patient care.

Also as recent as yesterday, we had a presentation at the National
Association of Boards of Pharmacy conference from former Mayor Giuliani,
and he referred to information that he saw at Kennedy Airport where
40,000 packages of medications from all over the world come through that
customs location. It\'s his description that the staff only have the
resources to review 500 of those packages. His concern was to identify
the great potential for lack of safety, lack of security, and risk of
dangerous products, and perhaps even terrorism through that port.

Now this might be an oversimplification, but to me, if 500 packages are
the ones that are inspected and cleared, then 500 packages should go
through.

Also, there might be some solution through pre-authorization. Part of
our ten-point priorities that we have in the submission is the idea of
pre-authorized suppliers that might ship products into the United
States.

I have to admit that I\'m here presenting a bit of a schizophrenic
position to the task force. Increased importation or the current issue
of importation of drugs into the United States from Canada will harm and
has harmed the healthcare system in Canada. However, I have to
recognize, as well, there are a certain amount of pressures within our
country in certain areas for this commercial activity to continue.

As certain authorities within the United States and Canada appear to
want the cross-border industry to continue, the task force needs to
therefore consider the ten points identified in our written submission.
And I can explain these points further if that\'s requested by the
committee, but I\'d just like to take a few moments just to highlight
them for you, and it starts on page 3 of our submission.

It\'s important that there is a development of international standards
and agreements that conform and enforce patient care as a primary goal,
placed over commercial interest; the development of mutual international
recognition for licensing wholesalers, pharmacists, and pharmacies
located in Canada and the United States that choose to serve other
countries; and development of memoranda of understanding regarding which
laws are enforceable for the safety and benefit of the patient, as many
of the businesses require disclaimers, agreements, and powers of
attorney that basically remove the patient autonomy. Until such time as
the provincial and state pharmacy regulators can openly forward and
receive information and intelligence from the American Food and Drug
Administration, Health Canada, and the provincial and state prescribing
licensing authorities, cross-border pharmacy sales of drugs under the
authority of a prescription should be limited or temporarily suspended.

A review is required to identify the legal impediments and barriers of
investigation, complaint investigation, jurisdictional issues, powers of
subpoena, and the collection of evidence. As the international movement
of drugs is based heavily upon issues of access to cheaper drugs and
professional care, the flow of medication across the international
border through wholesale purchases ought to be permitted rather than, or
in addition to the pharmacy distribution pursuant to a prescription.

As confirmed by all parties knowledgeable in this industry, the Canadian
drug supply system cannot provide for all Americans requiring
catastrophic medications, nor the cost-saving needs of private and/or
state-run drug benefit programs. A plan is needed, therefore, to carve
out the cross-border movement of drugs that can initially benefit those
who need it the most, and ultimately address the needs of others.

The drug source needs to be confirmed, and only purchases directly from
licensed wholesalers to pharmacies would be permitted for international
sales on prescription. Our referral prescription programs to pharmacies
and businesses located outside the country of the pharmacy of first
contact must be approved by provincial or state licensing authorities
prior to implementing that program.

And, finally, all advertisements of pharmacies servicing other countries
must clearly indicate the jurisdiction of license, meet the requirements
of international license authorities based upon a program such as the
National Association of Boards of Pharmacy IPS program, and no other
pharmacy business would be allowed to advertise for international
shipment of medications or participate in that activity.

In closing, Chairman Carmona, I\'d like to again express appreciation
for the opportunity to address the task force. Your decisions will
affect Canada in the back-and-forth movement of drugs between the two
countries. The issue of cross-border movement of legal drugs is very
complex, as you\'ve already alluded to. It involves and entwines
professional, legal, and political jurisdictions; however, the overall
goal must remain clear: patient safety and product quality and safety.

We look forward to future opportunities for further discussions and
thank you for this opportunity again.

CHAIRMAN CARMONA:  Thank you, sir. Our next speaker, Mr. Jean-Yves
Julien from the Quebec Order of Pharmacists. Sir, thank you for being
here.

MR. JULIEN:  I thank you for the invitation, and I am accompanied by Mr.
Jocelyn Binet, who is responsible for investigations, so he could answer
some of the questions later on.

In the short period of time, I\'ll focus on some of the activities that
we have been running in order to prevent this situation from spreading
in the Quebec province.

The first message that we always give to people is to make the
distinction between the drugs and the prescription. And what has been
said, I share most of the comments to enforce the professional
legislation and control. That\'s the key message out of the paper that
I\'m presenting today.

So about the drug itself. You know it\'s like in the United States, the
jurisdiction. We don\'t have, in a province in Canada, the jurisdiction
over the drug itself, the moving of a drug. We have the jurisdiction
over the professional activities.

The Quebec Order of Pharmacists is the licensing body for the Province
of Quebec. The Quebec Pharmacy Law is unique in one sense in that it\'s
only a pharmacist that can own a pharmacy in Quebec. And this is
something that gives us a tool to act more easily than somewhere else in
Canada. You have a few of the references. I won\'t go through that, but
you can refer to it.

About the prescription dispensing: our pharmacies are allowed to
dispense or fill a prescription only if it\'s signed by a Canadian, or
especially a Quebec physician. So for myself, I cannot - I don\'t feel
I\'m authorized to fill a prescription coming from an American
physician. This is very important. That\'s what we are acting on to
prevent.

About the Internet: we are not against the use of the Internet as a tool
of communication. Everyone would be really surprised if we said that we
don\'t like to use the Internet. It\'s a common tool. But I\'d just like
to underline that we never experienced fax pharmacy, we never
experienced phone pharmacy, we never experienced delivery pharmacy, the
widespread use of this designation. But now with the Internet,
everything goes, and we feel because we use an Internet pharmacy, that
it\'s full pharmacy. It\'s not. We should make people aware of that.

Internet and the challenge across borders. I guess the main thing is
professional activities. Again, it\'s not because a prescription is
transiting through the Internet that it becomes a legal prescription in
Canada. We should stop that to move. That\'s what we do in our
jurisdiction.

Three steps that we have been trying to work on in order to prevent
that. First, disciplinary action against our member. Those who are
involved, we bring them in front of the disciplinary committee and stop
them from doing it. They are fined or other actions are taken against
them. Penal lawsuits for people who are not pharmacists and are
operating a website from the Quebec territory. We have been suing them.
It\'s not easy, as has been mentioned. We need help because it\'s a very
complicated situation. Mr. Binet can talk about it.

And the third type of action is public awareness, public information.
And when I say public information, I mean the public in general, but as
well, the authorities, because it\'s not always easy. It seems easy to
say that they\'re different, a prescription is not a drug, and the
opposite. But it\'s not always easy when I mention that to some
politician in Quebec or some civil servant. They say, oh, it\'s the
same. No, it\'s not the same, because it\'s the key to preventing that
situation from spreading more.

So disciplinary action. We have been acting for pharmacists and
non-pharmacists. Penal lawsuits. We simply do not have the important
financial resources needed to conduct all inquiries we would like to do.
But more importantly, we do need the support, technical and financially,
and collaboration of all jurisdictions that are implicated in that law
enforcement. That\'s what has been mentioned.

And a great example of that is drug importation itself. The Quebec Order
of Pharmacists cannot control what transits through the border. It\'s up
to other legislation, but we can stop, from the pharmacy, the sending of
messages or information to the Internet when it\'s not considered legal.

Public information. It is important to make the public informed about
that. Public protection. It\'s an issue on both sides of the border to
protect the people. When we stop pharmacists doing that, we know that
they are losing money. It has been mentioned that it is an important
issue. We know that they are losing money, but it\'s not the way to make
money. We feel that. And I think it\'s a protection for the U.S.
citizen, as well.

Canadian drugs. I don\'t think the quality of Canadian-made drugs are at
stake here, are an issue, but the problem is that if we allow an illegal
practice, why don\'t we allow, as well, counterfeit drugs. That\'s the
risk of mixing two types of illegal activities. That will increase.
That\'s what we find very threatening, so that\'s why counterfeit drug
is a real threat, as well, because if we let things go, everything will
come, like has been mentioned, from everywhere in the world.

The important distinction for the public in-between a service, that\'s
something that we continuously repeat. The loophole that helps to
facilitate that is the fact that if I cross the border with my personal
medication for 90 days, I will be allowed to do that. That\'s rational,
but not more than that. So then, it is complicated to control, as has
been mentioned.

Practice control. The important point is the fact that for a
prescription to be valid, it has to be issued by a physician in Quebec
or in Canada. And we should make the people aware of that. They are
putting themselves in danger if they are calling and getting services
from distance like that.

Negative impacts have been mentioned. We share that. Societal challenge
for the future. The key message there that we\'re trying to send is
it\'s unfortunate when we see a public person, mayor, other, in Canada,
politician in authority who says, Go and buy your cheapest prescription
through the Internet, for instance. I mentioned, in Quebec and Montreal,
that it\'s exactly like if the mayor in Montreal told the people, Go to
the reserve, buy your cigarettes. It\'s going to be cheaper. I think
it\'s a type of societal behavior that should be condemned publicly.
This is very important, because it\'s part of this issue.

And, finally, I do think that I would not like to be in a world where we
have pharmacy paradise like we have fiscal paradise. That\'s my
comments.

CHAIRMAN CARMONA:  Thank you, sir. I appreciate it. I understand Mr.
Binet is just here for questions and will not make a statement. Is that
correct?

MR. JULIEN:  Yes.

CHAIRMAN CARMONA:  Okay. Then I would open the questions to my fellow
task force members. Anybody have any questions of our panelists? Go
ahead, please.

DR. O\'GRADY:  Yes, just a couple of questions. One, in terms of both
what Monsieur Julien and Ms. Wells brought up, is the role of the
physician as sort of a co-signer of a prescription. I just wonder what
sort of liability is there under Canadian law for a physician \-- or if
there is any liability \-- a physician who sort of really doesn\'t ever
examine this patient, sees that an American colleague has signed, and
therefore, just goes ahead and signs a Canadian version of the same
script?

MS. WELLS:  Well, I can  as I mentioned in my presentation, there are
a lot of the licensing bodies now for physicians who have come out
against co-signing. And I know that the agency in Canada that covers
liability for physicians has also publicly stated that there would
probably be a problem if there was an error or a mishap with an American
patient who had received a prescription that was just co-signed. There
may not be coverage for that physician.

MR. JULIEN:  We are working with the College of Physicians, and they
have been acting on that. They have sanctioned their members who co-sign
prescriptions. Their public message is not to do that, and they are
acting against that.

DR. O\'GRADY:  Could I ask one more question?

CHAIRMAN CARMONA:  Please. Go ahead, Dr. O\'Grady.

DR. O\'GRADY:  Sure. Ms. Wells, you brought up a discussion that you had
either over the phone or whatever with a drug manufacturer who was
thinking of introducing a new drug into Canada but was hesitating in
some sense. Now can you just sort of expand for us a little bit, without
any confidences here, if I\'m a drug manufacturer and I\'ve already
introduced something in the States, and I\'d like to think about
introducing it in Canada, if there\'s not  I mean, much of what is
behind the whole importation thing has go to do with price differentials
between the two countries. So if I\'m a manufacturer, don\'t I just
offer it in Canada at the same price as I\'m asking for in the United
States, and then sort of the incentive to import or re-import goes away?
Or are there other limitations on that manufacturer\'s ability to simply
charge the same amount as they do in the States?

MS. WELLS:  Yes. We have the Patent Medicine Prices Review Board in
Canada. There are price controls on pharmaceuticals in Canada, so I\'m
presuming that would stop them from charging the same prices in the U.S.

DR. O\'GRADY:  I see. So if the Canadian Board basically allowed them to
charge the same prices, their incentive to not offer in Canada would go
away?

MS. WELLS:  Well, I mean the price differential is probably the main
driver.

DR. O\'GRADY:  Yes. I guess all I\'m thinking about, in terms of the
board and its responsibilities in terms of access to drugs for Canadian
citizens, that at some point there is that notion of price versus
gaining access to what you view are needed drugs. So that dynamic
between the manufacturer and the board in Canada seems to be somewhat
separate from either our world or your world, other than we\'re both
affected by the price differential and its effects.

MR. GUSE:  If I can add to that just briefly, what we\'re seeing in
recent history is that the introductory prices set by the board that Ms.
Wells described, the amount is pretty well on line with what the
American introductory prices are. One of the requirements under the
Patent Medicine Prices Review Board is that the price increases
thereafter, and your price increases are at a greater rate than what
our\'s is. So what the starting point might be, same or similar, the gap
grows as the years pursue.

CHAIRMAN CARMONA:  Thank you. Dr. McClellan.

DR. McCLELLAN:  Yes, thank you. This is actually for any of you. You all
expressed some concerns about safety on both sides of the border, with a
disconnected system, with us each going about our own ways of trying to
meet our medical needs. You all talked about a fragmented system for
filling prescriptions over here, with people going across the border and
having prescriptions written by doctors that hadn\'t seen patients, and
not being connected to our safety systems. And on the Canadian side
about potential problems in access to medicines, as well. They just
aren\'t marketed or there\'s not enough supply of them given the U.S.
demands for those medicines.

I clearly understand all the problems. I just wonder if you all have any
other suggestions on how we can work together to address them. In my
former job at FDA, I spent a good deal of time with Deputy Assistant
Minister Gorman on our new collaborations in some areas. We signed a
joint memorandum of understanding to work together on, not just
cross-border safety issues, but also drug manufacturing methods,
harmonizing regulatory approaches, steps that collectively might bring
down the costs of medicines in both countries. And I wonder if there are
other ways to do that, as well.

For example, in the United States there obviously are some real concerns
about the differences in the prices of brand-name medicines, and we\'d
like to find ways to bear less of the share of those costs, and reduce
our price burdens here. On the other hand, in Canada, as I understand
it, most generic medicines are significantly more expensive than in the
U.S., perhaps as a result of price regulation or other steps that maybe
got in the way of what should be a very competitive market, and they\'re
not used as widely as they are in the U.S., a significantly lower share
of generic prescriptions.

Well, maybe there\'s something we could learn from each other that would
reduce the price differences between the countries without having to
spend more on prescription drugs in Canada. Any thoughts like those
about how we could work together on this, because it seems like when
we\'re working separately it reinforces both higher costs, access
problems, and safety problems.

MR. GUSE:  Yes, thank you. And I think it\'s a great issue, and there\'s
some answers out there that we need to look at, for sure.

A couple of things on those points. The overall perception is, on even a
limited category of drugs, that Canadian prices are much better than the
American price. In fact, that\'s what driving the industries in some
regard. But there is differential pricing within your country, through
organized - I don\'t know if I\'m going to use the right term - but
organized purchase groups that get phenomenal prices, I\'m sure,
probably better than what some of the Canadian prices are.

However, the profile appears to be with the individuals that can least
afford to pay the higher prices. In fact, those are the ones. And when
you take that population, the prices they\'re paying, then the Canadian
price seems to be a great advantage, and obviously that\'s why they\'re
purchasing the product from Canada. So I think those issues are right
on.

The issue about generics, the thing you described is also correct, in
that our generic prices appear to be higher than they are in the United
States. And again, as much as we can look at the issues of price and
disparities, and why that\'s occurring, we can\'t lose sight of the
patient care. And if you boil this issue down to price differences, how
do we get the right price \-- and I don\'t mean disrespect \-- but you
also have to clearly roll into there is it the right drug, are they
being taken, is it the compliance. Because I think there\'s a lot of
cost savings when you look at patient compliance and the pharmacists
doing the care that they ought to be providing.

MR. JULIEN:  Yes, if I might comment. For the generic, we know that what
we see of the price, it\'s higher in Canada than in the United States.
We have to learn from you. For the original drugs, as has been
mentioned, it\'s not always  it\'s sometimes misleading for the
public, because the price that is paid that we see in general \-- we
have a buying group or we have, for instance, in Quebec the insurance
for all the population, so the price that we see is the price that the
government pays or the pharmacist will pay. So sharing information about
the real acquisition costs through different groups in the United States
would be useful in order to understand what is the real differential at
the end. It\'s certainly higher in the United States, but some action
means that it\'s higher for part of the population, but not for all. So
if we compare hospitals, for instance, they might be lower than in
Canada, or a bit higher, but it has  we need more information. And I
think people dealing with that need to share information that would be
helpful on that situation.

CHAIRMAN CARMONA:  Dr. Crawford, and then Dr. Raub after.

DR. CRAWFORD:  Monsieur Julien, you mentioned that it\'s not possible
under Quebec law for a prescription to be filled that\'s written by an
American physician unless the American physician is also licensed in
Quebec. Is that correct?

MR. JULIEN:  Yes, that\'s the situation that we are enforcing, the
interpretation - that the prescription  the pharmacist is authorized
to fill prescription by an authorized prescriber, meaning someone
authorized in Quebec, or in some circumstances from other provinces, but
it\'s mainly in Quebec. So a prescription I interpret \-- and that\'s
what we enforce, that a physician that signs a prescription from the
States is not authorized in Canada. If I receive it, it\'s not a legal
prescription, and it\'s illegal for me to fill it.

DR. CRAWFORD:  Whether or not the physician is licensed in Quebec?

MR. JULIEN:  If he is licensed in Quebec, then the other step that we
will look \-- it doesn\'t mean that we\'ll encourage that, to have a
physician in Florida that is authorized in Quebec and signs
prescriptions and that over the Internet, because we\'re going to look
at comprehensive pharmacy services. So will the patient get in touch
with his pharmacist and so on. So we\'re looking at another aspect. But
at the very first, most of the prescriptions that transit through the
border through the Internet are for us considered illegal prescriptions.
That\'s where we stop pharmacists from using it. And if a Quebec
physician countersigns, we even say that it\'s not allowed. It\'s not
good practice, and we don\'t consider it the thing to do, and we stop
that, as well.

DR. CRAWFORD:  Okay. Thank you.

DR. RAUB:  Thank you. This is a question for anyone or everyone on the
panel, and it\'s about capacity. If we had a satisfactory system for
importation of prescription drugs from Canada to the United States, and
if the pharmaceutical manufacturers were willing to sell to Canadian
pharmacies all the drugs that they wanted to buy, where does the strain
begin with the Canadian system? Would twice the current volume of
transactions break it? Three times? Five times? What is the capacity of
the infrastructure to go significantly beyond the volume of sales that
you handle now, especially pharmacists, facilities, and the like? It\'s
unfair to ask for any particular numbers. I don\'t mean that, but just
some attempt at a quantification.

MR. JULIEN:  If I may start and try, I don\'t think it will work like
that. It won\'t break, because if we open the door, we have a lot in the
United States that will come up to service our sales. So there\'s no 
they will have a problem, a short-term problem, but the fact is that
we\'re not going to authorize the moving of a drug. What we will do if
we allow the system to continue, we will, in fact, allow the
professional moving like free trade. Free trade does not include right
now the professional free moving in one country to another. When a mayor
from a city here said, Go buy your drug, I say he should say, Come, Mr.
Julien, to work in my city, because that\'s what he\'s saying. He\'s
saying to people the services offered up North are good. Why not bring
the professional here. So why do we stay there? Because of the product.
Then, I guess, what will happen is the price will go up and moving
across the border, and certainly we\'ll find American pharmacies wise
enough to try to send cheaper drug, cheaper prescription up in Canada,
even though there is a differential of price. We have seen a very big
transaction so far with pharmacies and people on both side of the
border, so I cannot say that it will break the system. It will reach a
point where other measures work, and probably some pharmacists will work
for Americans, and other will work for Canadians from the States, beside
the fact that there is a problem, but the price will go up in Canada,
certainly.

MR. GUSE:  Dr. Raub, if I can just add to that. Again, it comes down to
the idea of distribution. If we\'re talking about distribution pure and
simple, I think the likely alternative, rather than having the product
packaged and prepared in Canada, with due respect, it might very well be
to have the product shipped to the States through the wholesalers, for
example. And you have  I mean, our pharmacists, we\'ve done some
studies on how the pharmacists in the United States compare to the
pharmacists in Canada, and the competencies are right- on equivalent.
And you\'ve got some good practitioners there, I know, and they can
deliver the care. And if it comes down to where the product comes, it
might very well be the concept to have the wholesale ship to the
pharmacies in the United States and provide the care locally.

MR. SACHDEV:  This is a question for Ms. Wells and Mr. Guse. In your
testimony, each of you talked separately about, Ms. Wells, the need for
some study of the impact of importation and noted that your organization
had called for a ban on importation until such study could be done. And,
Mr. Guse, you mentioned the need for sort of an assessment or an
analysis of the legal impediments related to importation. Can you both
update us on what the status is of that, of your call to the government,
but also of the effort to do that type of analysis?

MS. WELLS:  I know there are groups in Canada right now looking at
collecting information on drug shortages, for instance. And we also know
that Health Canada has started to do some inspections in pharmacies
looking for breaches in, if they are purchasing drugs from other
pharmacies, they\'re acting as wholesalers. And if they don\'t have an
establishment license, that would be illegal, so they\'re looking for
that.

Health Canada is also looking for unapproved drugs being dispensed, so
that\'s going on right now, as well as studies on shortages of drugs,
and impact on pharmacist manpower, so it\'s going on right now.

MR. SACHDEV:  And in terms of your call for a ban, how has that been
received?

MS. WELLS:  Health Canada has pointed out that in terms of the
exportation of drugs to the U.S., there\'s nothing federally that
prevents that, so they\'re still sort of being watched right now by the
federal government. We actually have a meeting scheduled for next week.
The federal government is meeting with the regulators of pharmacy and
medicine just to discuss some of these issues, so it is certainly
something that\'s under study right now by the federal government.

MR. GUSE:  Thank you. And with regards to the legal issues \-- and I\'m
not a lawyer, I\'m a pharmacist. But the idea of our jurisdiction, our
public, if you will, is patients that receive medications from
pharmacies located in Manitoba, so we have an obligation, and in fact do
complaint investigations. The challenge around that is collecting
evidence when the evidence is not located in my province, or in my
country. The ability to subpoena witnesses has been a challenge, so
we\'re still exploring some of those challenges, and I don\'t have all
the answers for you, but I do have a lot of the questions, or the
challenges that we see.

MR. SACHDEV:  A follow-up question. Actually, in all of your statements
you note that it\'s not possible for any particular province or state
regulatory agency to possess the resources or expertise to go beyond its
borders. I think that was from Ms. Wells\' statement. From Mr. Guse\'s,
it\'s something to the effect of the provincial regulatory systems do
not  really are not designed to allow for the regulation of the
exportation of prescription drugs. And from yours, Mr. Julien, I think
you talked about the loosening of public protections as a result of
importation or exportation of prescription drugs where you think about
issues like liability concerns.

To the U.S. consumer who is purchasing drugs typically through an
Internet portal, what are you saying in terms of what they should expect
from the provincial pharmacy regulator in Canada in terms of their
oversight of the price coming into this country?

MR. GUSE:  Well, there are some challenges also in that regard because
first off, there\'s different businesses out there, and businesses,
pharmacies, in fact, that we do license, and they\'re required to
display that on their website if that\'s all they\'re advertising. But
there\'s also businesses out there that leave the consumer with the
impression that they are licensed in Canada, or they are Canadian, or in
fact, they\'re licensed by us. And we have some challenges around that,
where we try to convince them that they ought to remove that impression
from their website. And if they wish to participate in that, then we
have cooperation. We have a success. If they wish not to, and they\'re
not located in Manitoba, or they\'re not located in Canada, frankly, I
don\'t know what we do.

MS. WELLS:  We developed some model standards a couple of years ago, not
designed to speak to American citizens looking to buy from Canada, but
for folks across Canada looking to use websites to interact with their
pharmacies. And one of the requirements is that there be posted on the
opening page of the website sort of a warning that if there is a
problem, the consumer may not be able to find redress in the
jurisdiction of where the pharmacy is located. They might have to seek
some assistance from the licensing body where they\'re located. So when
you say what do you say to the American citizens, it\'s not clear how
much assistance a licensing body in Canada could give them if there was
a problem. They may have to go to their state board.

MR. JULIEN:  May I make a comment and then Mr. Binet. What I wrote in
the paper is that the public is losing. That\'s my opinion, and that\'s
what we promote. The public is losing its legal umbrella protection when
it deals with a pharmacist across the border for prescription drugs. In
most of the provinces and states, we have consumers law protection. It
works within this jurisdiction. Professional activities, it\'s about the
same, so if someone  I cannot guarantee to an American citizen, come
and buy through a pharmacist, that I will be able to protect him in case
of an error, for instance, because we are suing the pharmacist not to do
that. Since it\'s illegal, the pharmacist won\'t be protected by his
professional insurance. So then we are losing, and it will be the same
problem for someone in Canada buying from a distance. So this is very
important, and that\'s what we are explaining to people, that we are
losing this type of protection.

It\'s like if I buy a used car here today and drive up to Canada, I
won\'t have much protection with that car. So this is very important,
and that\'s what we say to people.

MR. BINET:  If I might just add, I\'m the investigator, the chief
investigator and director of the Order of Pharmacists, and you\'ve just
asked what would you say to one of our citizens. I had those complaints
before. Some people called from Illinois, Hawaii, wherever in the
States, and the answer is I can\'t help you. That\'s the problem, and
that\'s the reason why we are working hard in Quebec, as Mr. Julien told
you. We have a law that prevents anybody else not being a pharmacist to
own a pharmacy and sell drugs. And this is our main success because if
you have a website or a cyber pharmacy, it cannot be owned by other than
pharmacists in Quebec. And this is not a type of practice that we allow,
so we prevent this type of practice.

And those people who are buying the medication from a website that\'s in
Montreal, or in Quebec, anywhere in the Province of Quebec, because
it\'s illegal to practice this way, we don\'t have directly a sense or a
manner to work for their problem. The thing we have to work upon is to
go into court and have a penal lawsuit against those people. But because
they\'re practicing illegal pharmacy, not directly assessing the problem
of the patient who called us having a problem with the pharmacy or the
cyber pharmacy, so we\'re doing it generally to prevent this type of
practice in Quebec.

MR. JULIEN:  A final point on what we say to pharmacists: if you get
engaged in this type of what we call illegal activities, you may feel
protected because you are behind the U.S. border. But if you cross with
your car or if your plane stops in the United States and you get caught
there, you will have to answer a question from the patient then, and a
lawsuit is possible over there. So professional  we have to protect
our professionals who sometimes are led to get involved in that.

MR. SACHDEV:  One last question for any of you. We\'ve also read
recently of accounts of more limited supplies occurring in Canada
because of the restrictions that are being placed by U.S. pharmaceutical
companies on supplies to Canada. And we\'ve also read accounts of some
of the larger suppliers of the pharmaceuticals back in the United States
looking to alternative sources, sources where they hadn\'t previously
looked to identify supply, including over in Europe, the U.K., and the
like.

If, in fact, those operations of pharmacies in the various provinces do
decide to change their supply and start supplying product to the United
States from those European sources, or England, or Ireland, would that
be considered, under the provincial laws an acceptable practice in
Canada? Would it be a legal practice? Would it be a practice that you
all believe is an appropriate practice?

MS. WELLS:  Are you speaking about using unapproved drugs?

MR. SACHDEV:  Well, it\'s unclear. I mean, these are drugs that they
would be  what we\'ve read about in the recent articles is that these
pharmacies \-- whether it\'s the Internet website that\'s got a pharmacy
behind it or a pharmacy that\'s a cross-border pharmacy that\'s sending
drugs to the United States \-- as they run out of certain supplies,
perhaps they are looking elsewhere, including in Europe and the U.K. to
find additional supply. What that supply is an open question. The
question I\'m asking is what your view would be of the shipment of those
products into the United States if, in fact, they go from a pharmacy
that\'s located in one of the provinces?

MS. WELLS:  We would not condone pharmacists dispensing unapproved drugs
regardless of where the patient lived.

MR. SACHDEV:  And so your view is that the drug would be unapproved in
Canada when it came into your country.

MS. WELLS:  That\'s right.

MR. SACHDEV:  So the exportation of that product would not be something
that you would support.

MS. WELLS:  That\'s right, because one of the things that \-- there
seems to be a sort of a misconception that trans-shipment is allowed in
Canada. And we\'ve had it confirmed by Health Canada that that\'s not
the case. There is a section in the food and drug regulations that there
are some sort of misinterpretations of, but if our pharmacies were
dispensing unapproved drugs to anyone, regardless, that would not be
condoned.

MR. SACHDEV:  So any of the drugs coming from Europe  the so-called
trans-shipped drugs \-- would be not consistent with your
import-for-export provisions?

MS. WELLS:  If they weren\'t approved for use in Canada, right.

MR. SACHDEV:  Other folks want to comment on that?

MR. JULIEN:  Very briefly. For pharmacists, they are allowed to buy
drugs from authorized manufacturer or wholesalers. We recommend to do
that, so we assume that the drugs that they are selling have been
authorized by Health Canada. And what we say to Health Canada is we
should improve the supply, the security of the supply chain, and have a
better recognition and probably some type of standard and permit for the
wholesalers, a better framework with them in order to secure that, and
be sure that the drugs that are sold are authorized in Canada. That\'s
the main point about the product.

MR. SACHDEV:  And just a follow-up on that comment. I think each of you,
particularly Mr. Guse, you\'ve mentioned that you\'re seeing sort of
prescription brokers, pharmacy affiliates, prescription co-signers,
fulfillment centers, international prescription service pharmacies. I
guess the question I have for each of you that\'s a follow-on to this
is: In terms of the distribution chain that you\'re talking about, what
pressure are you already seeing in Canada as a result of the increased
importation into the United States of these drugs to the distribution
system, and what would you expect if Congress does - the U.S. Congress
decides to legalize importation?

MR. GUSE:  Thank you. The difficulty is that because this business is
again, a frontierism, gold- rush type of entrepreneurship \-- let\'s get
into it \-- we are seeing prescription brokers, we\'re seeing a lot of
intermediaries between the patient and the pharmacist or the pharmacy.
So the challenges are, from an investigation perspective, to follow the
drug, to follow the information, to follow the money - the challenges
are getting greater and greater, and frankly, beyond the expertise and
resources of any one provincial licensing authority to work on their
own. So the challenges that those types of situations present are very
grave, to say the least, because we have difficulties looking for the
chain, the connection between these businesses.

And I just wanted to clarify one point. In Canada, when people use the
term internet pharmacies, I just want to be certain that the task
force is aware that we really don\'t have virtual Internet pharmacies.
They would have to have a location. They would have to have a
traditional \-- if I can use that term \-- license, so there is a hard
and fast location. They just choose to service Americans or other
jurisdictions outside of that location.

MR. SACHDEV:  So would you expect, if the U.S. Congress were to provide
a broad legalization of importation, would you expect additional changes
in the way your distribution system in Canada operates?

MR. GUSE:  The distribution for Canadians?

MR. SACHDEV:  Yes.

MR. GUSE:  I\'m not certain. I guess, I don\'t  the impact that I
would see is if the Canadian government reflects what your decisions or
the American government has here, that not only is there a
north-to-south flow, but there\'s a south-to-north flow. And that, yes,
absolutely would have impact.

MR. SACHDEV:  And so you would expect to see more of these prescription
brokers and affiliates and fulfillment centers?

MR. GUSE:  Well, I think as we work together to set up a framework where
this can be done, and it doesn\'t have to be done in contravention of
some of your laws, and maybe some of our\'s, so the agreements are set
up, the standards are in place, and if it\'s going to be done, this is
how it\'s to be done. I think it would take those types of activities,
they would be diminished. And if pharmacies were involved in those types
of activities that maybe exploit the patient or take away the patient
autonomy, that those businesses would discontinue.

CHAIRMAN CARMONA:  Yes, Ms. Hardin.

MS. HARDIN:  I just want to clarify one point that just came up. Ms.
Wells, you mentioned that you\'ve confirmed with Health Canada that
trans-shipment is illegal in Canada. Do you know what penalties someone
would face if they did engage in trans-shipment?

MS. WELLS:  That would be, I guess, akin to illegal importation, and we
don\'t recognize trans-shipment at all. So once a shipment of
pharmaceuticals hits our shores, regardless of \-- like where it\'s
ending up is irrelevant, so I\'m not sure of the penalties, but it would
be considered to be illegal importation of drugs. But I don\'t know the
penalties.

MS. HARDIN:  So you don\'t have a sense of what kind of action either a
provincial government or your federal government could take against
someone who was engaging in that kind of activity?

MR. GUSE:  Well, the federal government would be responsible for the
product coming in and what type of activities, or not activity, what
laws that would contravene. If the pharmacy, for example, was using
those products, then it would be a provincial jurisdiction of the
regulatory authorities, and they could potentially lose their license
from a provincial activity. But in Canada, the product - as our Quebec
colleagues have said - the product is more so \-- the quality and safety
of the product is a federal jurisdiction. And if the product is coming
in illegally and being used illegally, then it would be federal
monitoring activity, and any fines and stuff would be the federal
government. We would then, if it involved a pharmacist or pharmacy, then
it would be up to the provincial licensing authorities to address that
issue.

MS. HARDIN:  And is the provincial authority to take away someone\'s
license, is that the same penalty someone would face for, for example,
filling prescriptions that were signed by a United States doctor or
someone who wasn\'t licensed in Canada? Is that the same penalty, or is
that the only penalty?

MR. BINET:  Well for us in Quebec, the penalty could be the same. It
depends on the disciplinary committee, but as it\'s written in our
comments, I think, there was one pharmacist who engaged in cyber
pharmacies, and his right to practice was suspended for 18 months. And
as I said before, to own a pharmacy in Quebec you need to be a
pharmacist, so when you are suspended as a pharmacist, you don\'t keep
your title pharmacist. So you cannot own your pharmacy, so you have to
sell it. So it\'s a big, big penalty for a pharmacist engaged in 
that\'s probably why we don\'t have a broad problem with cyber
pharmacies in Quebec regarding pharmacists, because we act quickly. The
problem is that those aren\'t pharmacists who are opening their sites.
So what the penalty would be for those people who are now in front of
the Superior Court for penal lawsuit for three companies, three cyber
pharmacies, the fine that we\'re seeking is more than \$150,000 for
engaging in those activities right now. So we\'re in front of the
Superior Court, so we don\'t know until maybe 2006 what will happen, but
this could be the penalty or the fine for this kind of practice.

CHAIRMAN CARMONA:  Thank you all for taking the time. Thank you for your
patience. We appreciate your input. I know some of you have to catch
some flights, so thank you for staying a little longer with us to answer
the panel\'s questions. We really do appreciate your input. We\'ll go
ahead and switch over to the next panel now. Thank you very much.

(Whereupon, the proceedings in the above-entitled matter went off the
record at 2:43:04 p.m. and went back on the record at 2:45:06 p.m.)

CHAIRMAN CARMONA:  All right. Ladies and gentlemen, we\'ll begin with
Panel II. And let\'s start at the other end this time with Dr. Jack
Calfee. Thank you, sir.

DR. CALFEE:  Okay. Thank you. I\'m honored to be here. I submitted some
written comments, and I would just summarize those briefly. I assume at
this point we should move along rapidly. I\'ll only look to two issues
of the long list that were published in connection with these hearings,
and that is Item 8 where the wording: \"Assess the potential short- and
long-run impacts on drug prices and prices for consumers associated with
importing drugs from other countries.\" And Item 9: \"Assess the impact
on drug research and development and the associated impact on consumers
and patients if importation were permitted.\"

On the first of those two items, which is the impact on drug prices, I
think that the impact depends very much on what kind of importation law
we have. If we have a simple law that essentially permits free
importation with some sort of reasonable safety standards to give people
reasonable assurance that they\'re getting safe drugs, and nothing much
more than that, then I think that the dynamics would be similar to some
of those that the earlier panel was referring to briefly; and that is
that the demand for drugs from Canada to be shipped to the U.S. would
quickly exceed any volumes that are available in Canada. The
manufacturers would restrict supplies to Canada. They would refuse to
undercut their profits by shipping drugs to Canada, or by arranging for
drugs to be shipped from Canada at Canadian prices.

The Canadian authorities would face some difficult problems. There would
be movement towards trans-shipment from other nations, which I\'ll
mention in a moment, but it\'s unlikely that the supplies that would
arrive in the U.S. would be sufficient to lower prices very
significantly.

If Congress passes a different kind of law, the kind of laws that are
now under active review, which more or less requires manufacturers to
satisfy demand from wholesalers in Canada at Canadian prices, then it\'s
possible that large supplies would arrive at the U.S. There is good
chance that there would be a mismatch between the kinds of drugs that
have been approved in Canada, specifically the dosages, et cetera, which
Dr. Danzon can tell you more about. But, nonetheless, at least for
certain of the more heavily used drugs, we could expect supplies to
arrive fairly rapidly. And the question then is what would happen to
prices. And if the manufacturers are literally required to sell to
wholesalers at Canadian prices, then we\'re going to get a supply of at
least quite a few drugs at Canadian prices, and we would be in a very
strange situation because there isn\'t just one price in Canada. The
PMPRB regulates prices in a general fashion, but then the provinces have
their own regulations, and those usually result in prices that are lower
than the PMPRB limits, and different provinces are different. We would
end up in a situation in which American prices are being linked to
certain specific Canadian prices, which would be a very strange
situation.

If Canada were to permit mass trans-shipment, then at some point U.S.
prices would be linked to prices in Greece or Portugal or Spain or some
place like that, again a very, very strange situation which I don\'t
think would be tenable politically.

On the question regarding research and development, I think the scenario
that commands attention is the second one that I just mentioned, in
which manufacturers are more or less forced to ship sufficient drugs so
that the shipments have an impact on U.S. prices, and U.S. prices are
pushed down towards Canadian prices. There, I think the analysis is
pretty straightforward. Drug development is conducted in order to
realize profits later on. If the expected profits are reduced,
manufacturers will rationally reduce their R&D, and more specifically,
they\'ll reorient their R&D, to the extent they pursue it, towards the
kind of development that\'s less risky, that produces drugs that have
less potential. And eventually, we would end up with some very serious
adverse effects on R&D incentives. And that summarizes my remarks.

CHAIRMAN CARMONA:  Thank you, sir. Our next speaker is Mr. Jeff Lemieux.

MR. LEMIEUX:  Thank you, Dr. Carmona, for the opportunity to comment. My
name is Jeff Lemieux. I\'m with a small group called Centrists.org. Our
mission is to help policymakers like you develop ideas that could
achieve lasting bipartisan support on some of the toughest national
issues, like health care. And I know the panel has already heard from
consumer advocates and elected officials talking about how important it
is to reduce prices and improve drug coverage for the uninsured and
people with low incomes, especially senior citizens, so I won\'t talk
about that. And I know you\'ve also heard from experts on security, and
from people with serious illnesses who are very concerned about the
safety of drugs imported, and so I won\'t talk about that either.

Instead, what I\'d like to do is offer a very broad and admittedly
simple economic analysis of globalization, and how medicines would be
priced around the world if unrestricted trade and pharmaceutical prices
became the norm. And this follows on the comments from Jack.

First, there\'s three characteristics that differentiate medicines from
trade and some other products, I think. The industry is extensively
involved with government. Governments sponsor basic research, monitor
safety, and act as the main purchasers and set prices in some countries.

Second, with medicines, there are strong moral issues and economic
externalities; that is, if some people don\'t take their medicine or get
vaccinated, other people will get sick, so we have a public health
issue.

And third, the main cost of medicines is in discovery and development.
This is similar to the software industry and in some respects to the
telecommunications industry. Usually, modern trade involves a search for
the lowest production costs. If computer programmers in India can do the
same job cheaper, companies all over the world will hire them. If toys
can be made cheaper in China, we\'ll import Chinese toys, and this is a
very good thing usually. Trade sometimes works in messy and disruptive
ways, but usually countries that open themselves up to trade prosper,
and countries that buy products at comparative advantage overseas
prosper, as well.

However, my impression of the prescription drug industry is that the
production costs are extremely low, and I believe they\'re fairly
uniform across the world. So instead, international trade in medicines
is essentially a search for the lowest pricing system.

I think, and I think this is consistent with what Jack said, that the
long-run impact of unrestricted trade in pharmaceutical prices would be
a new equilibrium with overall global prices not too different from
today\'s. However, the distribution of global prices would change, and
the process of getting to this new equilibrium could be very messy.

U.S. retail prices for people without insurance or group discounts could
fall, other developed countries with price controls could see some
upward pressure on their prices. The problem in my mind is what could
happen in the less-developed countries.

For most products, free trade leads to a long-run tendency toward one
world price. Economists sometimes call this the tendency for exchange
rates to change in a way that leads to purchasing power parity. Ten
dollars buys ten dollars worth of a certain tradable good anywhere in
the world if markets are relatively free. And the question is, do we
want that for medicines? In a world with unrestricted trade and drug
prices, companies will respond in their interest. They\'ll try and
estimate how much of their product is likely to be purchased for
in-country use, and not allow more supply into that country than is
needed. And those supply responses by producers in turn will lead
importers to search for better deals in poorer and countries. Because
prices for medicines currently vary widely from rich to poor countries,
this drug price arbitrage business will be so lucrative that they\'ll
have a hard time resisting that temptation.

When Canadian trade tops out, for example, importers will turn to other
rich countries with low government-set prices. When those sources run
low, in turn they\'ll begin to import from lower-priced developed
countries like Portugal or Greece or Taiwan. Ultimately, less developed
countries will be targets, and their prices would be forced up toward
world levels. And the question is do we really want Egypt or Thailand or
Brazil or Turkey to pay the same price for medicine as the U.S. and
Canada and Sweden. I mean, we may not be particularly concerned if
Canadian or German prices have to go up a little bit, but with some of
these other countries, there may be a compelling reason to be concerned.

Moreover, I certainly am not a safety expert, but imports from poorer
countries would clearly pose a greater risk of adulterated, improperly
handled, or counterfeit products.

Now the bills in Congress to make drug importation more widespread and
legal say we\'re not going to import from these less developed
countries. But over time without a great deal of international
cooperation, there would be tremendous pressure to do so, I think, and
we could expect a lot of leakage. And let me wrap up with two quick
recommendations.

First, it seems to me, I\'m not a lawyer but I think the FDA should
probably invest very heavily in tracking the production and
transportation and storage of imported drugs, regardless of whether or
not the legislation passes to make it legal. It\'s just too important. I
think the FDA shouldn\'t get hung up on legalities. If people are
importing drugs by various means regardless of the law, the FDA should
still do everything in its power, and the budget should permit the FDA
to do everything in its power, to make sure these things are as safe as
possible.

And second, I think the best forum to discuss local drug pricing, and
whether or not we really want to push toward one global price, or to
manage it differently might be an organization like the World Trade
Organization or other international forums. Perhaps less developed
countries could be induced to help the developed world monitor and
control counterfeiting in exchange for lower than equilibrium prices. To
some extent, markets are always going to tend toward one global price,
and no trade regime is going to be air-tight in preventing that
pressure. However, there may be some win-win outcomes where drug
companies and distributors can be confident that they can essentially
give away medicines in the poorest countries, and sell other medicines
for prices that are reasonable in less developed countries that aren\'t
so poor, but still not greatly undercut their prices in the richer
developed countries. Thank you.

CHAIRMAN CARMONA:  Thank you, sir. Our next speaker is Mr. Iain
Cockburn.

DR. COCKBURN:  Thank you. I\'ll briefly introduce myself. I\'m a
Professor of Finance and Economics at Boston University. I\'ve devoted
much of my professional career to researching competition pricing and
innovation in the pharmaceutical business. Thank you, Mr. Chairman and
task force members, for the opportunity to express my views on this
controversial and difficult issue.

To that extent, my remarks in my written submission will echo those that
have already been made. Let me highlight what I think are the most
important aspects here.

At present, importation into the United States is slightly larger than a
trickle, but it\'s not quite a flood. Legislative change to promote or
legitimize importation to the United States will surely have a dramatic
impact on at least two fronts.

The impact is surely going to be, and I think is intended by the
sponsors of this legislation, to lower U.S. prices, which will in turn
result in lower global revenues for the pharmaceutical industry. Let me
address how I believe this will affect incentives to do R&D.

I\'m sure the panel doesn\'t need to be reminded that pharmaceutical R&D
is notoriously costly, lengthy, and a risky process. Proponents of price
regulation or importation I think are unrealistically sanguine about the
impact of lower global revenues and profits.

We have little concrete evidence on this point, but in part that
reflects the fact that the United States has played an extraordinarily
important role in the global pharmaceutical market over the past 30 to
50 years. People have attempted to draw lessons from the experience of
Canada in the 60s and 70s and through into the 1980s with compulsory
licensing, or experiments by Italy in abolishing pharmaceutical patents.
The fact is that these are irrelevant largely to decision-making for a
business in which the United States constitutes 50 percent of the
market.

I think this is really a shot in the dark if the United States goes down
the road of substantially lowering prices. I think it\'s very difficult
to predict the outcome. My personal belief is that it will substantially
reduce incentives for R&D. There\'s a lot of uncertainty on this point.

A more subtle issue than simply the effect on the total amount of R&D, I
think, is the impact of trying to force U.S. prices into line with the
prices charged or realized in countries with more aggressive price
regulation scheme, as it will affect the composition, not just the
level, of research spending.

Jack Calfee mentioned this question of business will respond by trying
to please regulators rather than consumers, and we also need to
recognize the very important role of the United States market in sending
signals by market-determined prices to the industry about which projects
to work on.

Re-importation or importation on a large scale surely will have the
effect of substituting foreign price regulators\' relative valuation of
different drug products for market signals in the United States. That
will remove this important set of incentives and signals to the
industry. I find this deeply concerning.

My second set of comments relate to the global impact of pressures to
harmonize prices across countries. We should recognize, I think, the
role of the international patent system in supporting the previous
regime in which there have been significant price differences charged in
different countries. If the United States legalizes imports, and these
occur on a large scale, just imagine what will happen in Canada. I think
we\'re deluding ourselves if we believe the Canadians will respond
passively.

Canada has a number of options, one of which will be to, if they face
serious domestic shortages and upward pressure on prices, they have a
number of options. One is to ban export to the United States. Another,
something like Canada has done in the past, will be to announce a
national medical medicine supply emergency and take away patent rights
in Canada. Now I think this is quite a real possibility. Or they can
turn around and pass the buck on both of these fronts to some country
which is further down the income chain.

I think there\'s a very real danger of this spreading as a contagion if
the United States starts trying to absorb large amounts of production
supply from other countries. And I think it\'s going to lead to a
substantial weakening, if not a collapse of the international patent
system, which I would note the United States has worked very hard for
several decades to try to strengthen and harmonize.

The other issue where I think we\'re deluding ourselves is to suppose
that we can  the legislators can anticipate all of the actions that
the industry can take to respond to attempts to put Canadian prices in
place in the United States. As already mentioned, pharmaceutical
companies have the option, a number of ways to resegment the market if
patent rights and importation legislation are taken away. They can
reformulate products, they could choose not to introduce them in
different countries. Those are first guesses. I think we should be very
careful not to underestimate the ability of the industry to come up with
clever and effective ways to resegment the market, which will be
socially costly.

These considerations lead me to urge the task force to very cautious
about recommending moves which would substantially increase the level of
imports into the United States. Thank you.

CHAIRMAN CARMONA:  Thank you, Dr. Cockburn. Our next speaker is Dr.
Frank Lichtenberg from Columbia. Thank you, sir.

DR. LICHTENBERG:  Thank you. I appreciate the opportunity to address the
task force. I\'m going to be less ambitious than Jack Calfee, who chose
to address two of your issues. I\'m only going to address one, one of
the same ones that Jack and Iain did - the impact on pharmaceutical R&D.
I have prepared a set of slides labeled, The effects of re-importation
on new drug development. And if you could refer to those, that would be
helpful.

I\'d also like to say economists have a reputation for never being able
to agree with one another, but my sense is actually there\'s a fair
amount of agreement among the economists sitting here, at least.

So I begin with a hypothesis, and the hypothesis says that
re-importation will reduce incentives to develop new drugs which will
slow the rate of increase of longevity and quality of life. That\'s not
to say that there may not be some short-run benefits of re-importation,
so re-importation, suppose, does reduce prices and increase access. And
that would be of some benefit to consumers today. However, we have to
also bear in mind the long-run consequences, which in my view, and I
will try to provide some evidence of this, would be a reduction in
future drug development, which would not be a good thing for future
generations.

To sort of make this case, I have this very simple schematic
representation of new drug development, which again puts at the center
expected profits. Like or not, pharmaceutical innovation is a
profit-seeking business, and expected profits of drug development depend
primarily \-- depend on several things, the expected drug price, the
expected market size, and, of course, cost of drug development. And so
changes in either expected drug prices, or expected market size, will
affect expected profits and, therefore, affect the number of drugs
developed, hence patient outcomes.

I\'ve done a lot of research which tries to assess the effect of new
drug development on longevity, quality of life, and so forth. This is
sort of formalized a little bit in my fourth slide, which shows a very
simple equation where profits from drug development depend on the
expected price, the expected quantity and cost, both variable and fixed
costs of drug development.

Now basically, what this shows us is that given both variable and fixed
costs, profits of drug development are reduced when either price or
quantity is reduced. So if a drug company expects either a smaller price
or a smaller quantity, then the expected profitability of drug
development declines. Moreover, expected price and expected market size
have similar effects on innovation incentives. That is, suppose I\'m a
drug manufacturer, and I suddenly found out that there are going to be
half as many consumers of a product as I originally thought. Well, that
means my revenue is going to be reduced by 50 percent. That\'s going to
make the market much less attractive.

However, if there are 50 percent fewer consumers, at least I only have
to produce 50 percent as many pills. Whereas, suppose instead that the
price were reduced 50 percent, suppose that I thought the price was
going to be \$20, instead it\'s going to be \$10. Again, my revenue is
going to be reduced by 50 percent, but now I still have to produce the
same number of pills approximately as I did before. So a reduction in
price has a more negative effect on profits than a similar percentage
reduction in quantity. So, therefore, I think that evidence about the
effect of market size on drug development can provide insight into the
probable effect of re-importation or price controls on drug development,
so I\'m going to be a little less skeptical than Iain was. Iain said he
thought that it was going to be very, very difficult to assess the
impact of re-importation on pharmaceutical R&D. I\'m going to take a
stab at that. And here\'s how I\'m going to  what I\'m going to do is
try to provide some evidence about the sensitivity of the number of
drugs available to treat a disease to the prevalence of that disease,
the size of the market. This pertains, by the way, to that poster over
there on the wall that says \"1983.\" That\'s the Orphan Drug Act.
Congress passed the Orphan Drug Act because it recognized that there
were weak incentives of companies to develop drugs for rare diseases.
The market was too small, and the government explicitly created
incentives to develop drugs for rare diseases. And, in fact, industry
responded quite a lot to that.

So the illustration that I\'m going to give you looks at 14 different
kind of cancer. So I have a table which shows basically two columns of
numbers. It shows for different kinds of cancer, how many people have
that kind of cancer. For example, in the United States, the most
prevalent form of cancer is breast cancer, followed by prostate and lung
cancer. Those are the most prevalent forms of cancer. And guess what,
those are the forms of cancer that have a relatively large number of
drugs.

Whereas, if we look at relatively rare forms of cancer, like eye, bone,
and testicular cancer, there are very, very few drugs developed to treat
those forms of cancer. That\'s because the incentives aren\'t there.
And, in fact, when I do a very simple statistical analysis to try to
assess the sensitivity of the number of drugs to the prevalence of
cancer, I find that a ten percent increase in cancer incidence is
associated with about a ten percent decrease in the number of drugs. And
so what does that imply? That suggests that a ten percent decrease in
drug price would result in at least a ten percent decrease in the number
of drugs. If drug prices fall by ten percent in the United States, this
would suggest that we might expect to see something like a ten percent
reduction in the number of new drugs developed.

So if re-importation did, in fact, significantly reduce drug prices in
the United States, then I would predict that in the long-run this will
result in a significant reduction in number of new drugs developed, and
that this would, in turn, have adverse effect on the rate of longevity
increase, improvements in quality of life, and so forth.

This evidence is extremely preliminary, I would admit, and I think
further study is needed. But I think other evidence suggests that, in
fact, pharmaceutical R&D investment is very sensitive to incentives. I
read an article on the airplane coming down today about Bioterrorism,
and how, in fact, the response of the industry to developing
bioterrorism medication seems to be very poor, perhaps due to weak
incentives.

Also, there\'s a lot of evidence that the vaccine industry has
diminished in response to very low prices. So in conclusion, I think the
committee ought to keep in mind the distinct possibility that
re-importation will reduce incentives to develop new drugs, which will
slow the rate of increase of longevity and quality of life. Thank you.

CHAIRMAN CARMONA:  Thank you, Dr. Lichtenberg. Our next speaker is Dr.
Patricia Danzon from Penn. Thank you, ma\'am.

DR. DANZON:  Good afternoon, Mr. Chairman, and thank you for the
opportunity to address the task force. I\'m going to sound a bit like a
broken record, but I\'m going to plow ahead anyway.

I\'m going to try to reiterate certain points that my colleagues have
made on the effect on prices, and particularly draw on some of the
studies that I\'ve done that may be relevant to the likely impact.

Let me start off by stating my conclusions, which are that the precise
impact of an importation provision on drug prices in the U.S. are very
hard to predict, but what is certain is that the savings to U.S.
consumers would be less than appears simply by comparing say the prices
available to consumers in Canada versus the U.S. for specific drugs now.
And paradoxically, even though there would be little savings to U.S.
consumers from lower prices, the impact on R&D could be significant, I
think because of reduction in sales overseas. Let me give you the
reasons why I come to those conclusions, and I list four in the written
comments.

First, there\'s a difference, a mismatch in formulations. Second, the
withholding of supply. Third, the increase in prices abroad, and fourth,
the question of whether any savings at the manufacturer price level
would, in fact, be passed on to consumers. So let me take each one of
those in turn.

First, the heterogeneity of products. In a study that we recently
completed, we looked at a sample of 249 compounds in the U.S. that
accounted for about 60 percent of U.S. sales in 1999. These same
compounds accounted for about the same percent, 60 percent of sales in
Canada and the U.K. So Canada and the U.K. have very similar
pharmaceutical markets to the U.S. But for the other countries in our
study, the leading European countries, Japan, Mexico and Chile, these
products accounted for only about 30 to 40 percent. And when we restrict
the comparison to the matching formulation, or the same formulation, the
same strength which would be necessary for importation, the matching
share goes down by half, so we\'re really looking at a small fraction of
both U.S. sales and an even smaller fraction of foreign market sales
that are in the same formulations and the same compounds as the U.S.
That\'s even without controlling for same manufacturer and whether it\'s
on or off patent.

For those formulations that are the same, I would expect manufacturers
to restrict supply to foreign countries. And so then the question would
be, how willing are foreign wholesalers to divert some of the shipments
that go to their countries to the U.S., rather than satisfying their own
consumers. And again I think the conclusion has to be that because the
U.S. market is so large in terms of volume, relative to most foreign
markets, they would have to be willing to ship a very significant
fraction of their volume to us in order to make a dent on prices in the
U.S. So roughly, just as a back-of-the-envelope calculation, I\'d say
even if we had importation from Canada and all of Europe, so volumes
would be comparable to the U.S., if they were willing to ship say 20
percent of their sales to us for the formulations that match, that would
maybe make up 20 percent of our sales. Arguably, not enough to make a
dent on prices in the U.S.

In the longer-run, I would expect manufacturers to respond by trying to
move to a uniform pricing policy, and that would mean leveling up
foreign prices rather than leveling down U.S. prices. That comes out of
straight economics.

Some foreign countries might be willing to pay those higher prices, and
the drugs would be launched. There would probably be restricted
utilization in order to stay within their health care budgets. But a
significant number of foreign countries would probably not get those
drugs, and the drugs would simply not be launched. And again, for some
empirical evidence, I\'d refer you to a study that\'s on my website done
with Richard Wang and Liang Wang, in which we studied the launch of 80
NCEs in 25 countries in the 1990s. And we found that in the countries
with lower prices, and the countries that are significant parallel
exporter countries in Europe, the launch of drugs in those countries was
fewer, and they occurred with significant delay, so there\'s strong
evidence of delayed launch and non-launch.

Finally, the question of: Even if there were availability of foreign
product at lower prices, would those price differentials be passed on to
consumer? That requires enough supply and competition at the wholesaler
level for the lower prices to be passed on to pharmacies. And then an
ability for third-party payers and consumers to get those price savings.
I would submit that given the limited supply, the price, if there are
price differences, they\'re unlikely to be passed on to retail pharmacy.
And even if they were, it would take a sort of claw-back activity by
third-party payers to reduce the reimbursement to pharmacies to capture
the average savings. That sort of claw-back has occurred in the U.K. and
the Netherlands in trying to get savings from parallel trade there, but
if it were to occur in the U.S., I think it would really penalize those
pharmacies who were trying to dispense U.S.-sourced drugs for reasons of
safety, so there would be a lot of resistance to that.

For consumers who are paying out-of-pocket, there simply would not be
enough competition for any lower prices to be passed on. So the bottom
line conclusion is, I think that a broad importation policy would likely
harm foreign consumers significantly in terms of reduced access. It
would not result in significant savings to U.S. consumers, but there
would be reduction in R&D in the long-run simply because there would be
lower global revenues, and hence, reduced incentives for R&D.

CHAIRMAN CARMONA:  Thank you very much for your comments. Panel members,
questions for our guests? Dr. O\'Grady.

DR. O\'GRADY:  Yes. I\'d like to ask Dr. Calfee a question, please. I\'m
just trying to drill down a little bit in terms of the way you laid this
out in some of your testimony, both written and verbal, in terms of
thinking about how you get to an appropriate price in this area, and
sort of your concerns about administered prices, or however you want to
 formula-driven, or the way it\'s done in other countries. And I guess
I wanted to ask you kind of how you think in terms of relative terms to
the way that we set prices in this  clearly, we wouldn\'t be having
this discussion if there was not much of a price differential between
the United States and Canada, in particular. And I understand the
concerns about having the government set the price. Can you talk a
little bit about how you think that in terms of the market prices \-- I
mean are we at a point  I guess my concerns and my own thinking are,
with third-party payment involved, it\'s very hard to have the kind of
price sensitivity we would see in terms of this, as we do in other goods
and services. Jeff\'s discussion of Toyotas and world prices.

In terms of an area where we have third-party payers, an area where we
have fairly strong patent protections, how do you view the kind of
relative price settings between the two systems? And can you at least
discuss that a little bit more?

DR. CALFEE:  I\'ll take a shot at it. First of all, I would emphasize
the difference between drugs being purchased by third-parties, and being
purchased by consumers for themselves. My overall take on the U.S.
market is that most consumers are not very sensitive to drug prices
because they don\'t pay very much for the drugs. Most third-party payers
are quite sensitive to drug prices because they do have to pay for them,
and they have to compete with other organizations so they have an
incentive to minimize their costs, if they can.

There\'s a big difference between a therapeutic category, which is only
one effective drug which we sometimes have for a while, and a
therapeutic category in which we have two or three, or several effective
drugs. As soon as that second drug enters the market, these large
third-party payers get pretty aggressive in negotiating discounts. Some
of those discounts can be pretty substantial. When you get three, four,
or five different drugs like you do in the statin cholesterol-reducing
market, you get a lot of discounting. And in my own opinion, it works
pretty well. And then you get the FDA moving along rapidly to get
generics approved, and then you have a situation in which if you look
back at the total spent in the year 2000, the drugs accounting for that
spent are going generic at the rate of roughly ten percent of that
market per year. By the end of this year, or by the end of next year,
it\'s something like 50 percent of all the spending in the year 2000
will have been for drugs that have since gone generic. And so we\'re
getting  the prices here are much more dynamic than we realize.

As far as prices overseas are concerned, what I would emphasize there is
no one has a way to rationally regulate drug prices. There is no
consistent way. That\'s why countries differ so radically. That\'s why
it is that Canada relies mainly upon someone else\'s drug price controls
rather than their own.

And I would just mention one real problem that\'s faced by all price
controllers and where the foreign countries have completely failed, and
that lies in the fact that a lot of new drugs when they\'re approved,
you really don\'t know how valuable they\'re going to be. You often
learn much more about the value of a drug after it\'s approved than you
do before, partly because of how usage works out, and partly because of
how a drug does outside the controlled clinical environment in which it
was tested. But also because in many cases, the research that\'s
performed after approval can tell you more about the drug than the
research that was done before. The statin drugs are probably the leading
example right now. We know a lot more about the value of statins now
than we did five years ago, and that\'s all because of post-approval
research.

As far as I can tell, there is no regulatory regime that attempts to
take that into account. In a rational regime, if you do research that
shows that your drug is more valuable, or if you demonstrate that a drug
can be used effectively at one-half or one-tenth of the dosage, you\'d
want an adjustment in prices. That\'s the kind of thing that you would
need in order to provide some kind of R&D incentives. You don\'t get
that from price control regimes. They\'re very rigid on that kind of
thing. Once they have a price, once the drug starts to flow, they have
no reason to adjust those prices. So those are some of the reasons that,
as you mentioned, I described in my written testimony about how
difficult things get as soon you start to get into the business of
actually trying to control these prices.

DR. O\'GRADY:  As part of my job, I have to go out on the new Medicare
drug bill and do town halls with seniors, and it gets down to fairly
simplistic kind of simple statements that I have trouble answering. I
have a cousin in Toronto. She pays less for her Lipitor than I do. Why?

I understand perfectly the answer you gave, but what do you think I
should tell that little old lady in Buffalo next month when she asks
about her cousin in Toronto? I mean, I still have  I mean, I
understand perfectly the logic you\'ve laid out. At the same time, she
does know her cousin in Toronto is paying less than she is.

DR. CALFEE:  Well, I mean my short answer is that the Canadians are
indulging in a little bit of free riding on the rest of the world\'s
research. The Canadians are relying upon the fact that Pfizer is going
to continue to ship that drug.

But it\'s worth mentioning to some of these people that if you look back
five or ten years and look at the drugs that were being prescribed then,
those drugs are a lot different. A lot of the drugs that people are most
worried about right now, that they\'re most upset about paying money for
are drugs that didn\'t exist five or ten years ago. And those drugs are
very valuable. They were all created, as these others have emphasized,
they were all created with the expectation of making money out of those
drugs. It\'s purely profit-driven. But now they\'re all done, that\'s
one thing. But the truth is, if you look at these areas, heart attack
rates are way down, but we still have a lot of heart attacks. Diabetes
is still a big problem. We\'re just starting to get some drugs that
really work well for cancer. The most important thing is to stay with
the flow about the generics and certain prices going down. Zocor will be
generic within two years by the time the drug benefit gets going. And
then make sure that we maintain the R&D enterprise, so that we may have
more drugs, so that people can complain about higher prices later on for
miracle drugs we don\'t even have right now. But don\'t ask me to go
explain that to your town halls. DR. LICHTENBERG: Well, if I can just
say, I mean I think part of the ‑‑ we don\'t only want to listen to
seniors about this, although I know that\'s politically ‑‑ we want to
think about people who are today middle-aged or even children, that we
really want to think long term. Of course, once a patent exists, it\'s
always in the short run consumers are going to benefit if you basically
abrogate the patent, because access will improve. But the patent system
is very important in the long run, so I think it\'s ‑‑ you don\'t just
want to focus on today\'s consumers.

CHAIRMAN CARMONA: Dr. Cockburn.

DR. COCKBURN: Yes. I think it\'s a very simple response to these
questions you received, which is a lot of things are a different price
in Canada, including government-paid pensions, the salaries of elected
officials, public servants and professors. I think there\'s a tendency
in this debate for people to assume that lower prices in Canada reflect
government price regulation. To some extent they do, but they also
reflect ‑‑ and prices in other countries are the same ‑‑ they reflect
the decisions of pharmaceutical companies to charge what the market will
bear. People have less money to spend in Canada and sticking ‑‑ you
know, if we do the experiment of sticking Canadians with American
prices, you can expect consumption to go down a lot.

CHAIRMAN CARMONA: Dr. Danzon?

DR. DANZON: Yes. If I could follow up on that. In the study that we did
of international price comparisons, when we compared the price of this
market basket of product relative to income in different countries,
including Canada, the European countries and Canada were roughly in line
with income; in other words, the differential for drugs was similar to
the differentials in income. The two exceptions were the low-income
countries of Mexico and Chile where the prices are way too high for
their per capita income. And I would submit it\'s partly because of the
concern about importation and looking at prices in Canada that is
leading manufacturers to charge such high prices in countries like
Mexico, which are out of line relative to their per capita income, and
that has significantly reduced their ability to use those drugs. So
their volumes are very, very low. So that\'s one response ‑‑ incomes are
different.

The second is in the case of Canada, the exchange rate has played a very
significant role. So when we did the comparison but using the exchange
rate at which the drugs were launched, which factored out the exchange
rate changes, that wiped out 90 percent of the differential ‑‑ 19
percent of the differential with Canada, so it was ‑‑ more than half of
it was an exchange rate effect.

DR. O\'GRADY: Can I ask one follow up on this, actually, Dr. Danzon? In
terms of some of the other work you did, and Dr. Calfee brought up the
idea of the free rider, but we also know that in the United States
market we really see this fair amount of variation in terms of what
different subpopulations pay.

And Dr. McClellan brought up a notion before about this sort of mix of
generics versus brand name and how you\'re ‑‑ do you have a feel in
terms of the research you\'ve done of kind if you took that ‑‑ and
let\'s stick with the Canadian-U.S. comparison for a sec ‑‑ if you took
both what they took and how much they paid for it and the source of
their group discount, do we have a feel for ‑‑ I mean they\'re sort of
‑‑ when you see sort of the USA Today comparison of Buffalo to Toronto
or whatever, I\'m assuming ‑‑ and I don\'t want to speak poorly of USA
Today but they\'re talking full retail prices in the United States ‑‑ do
you have a feel for when we\'re talking about federal employees sitting
at this table or whatever, how much of a real price differential there
is between the two countries? And then when you take in the greater use
of generics among kind of American prescribing habits exactly ‑‑ kind of
how those ‑‑ once we control for the appropriate things to control for
kind of where we are on that comparison?

DR. DANZON: Yes. Well, essentially, the numbers I quoted you control for
that, because the comparison I gave you that said, \"Relative to income
Canada\'s about at the right level,\" that is looking at the overall
market basket including generics and on-patent products. And it\'s
taking into account the average discounts on the branded products in the
U.S. So it\'s not the retail comparison, which is the one that the
seniors sees going to the pharmacy. There probably are differences. But
it\'s looking at what something like a Federal Employee Health Plan
would pay.

DR. O\'GRADY: Or is the weighted average across all the different sort
of sources?

DR. DANZON: It\'s the weighted average across all different sources. So,
basically, when we applied the discounts, we made an assumption about
Medicaid, about paying with discounts, without, cash paying, et cetera.
So it\'s a weighted average of all those.

DR. O\'GRADY: Thank you.

CHAIRMAN CARMONA: I certainly appreciate the discussion. I want to have
a few more questions, but I think that Dr. O\'Grady hit the nail on the
head in a very direct and simple fashion. The practical aspects or the
paradox that\'s been created here of the individual who just sees the
need for medications today, an ill-informed or uninformed consumer who
doesn\'t understand the complexities of what your lifelong pursuits who
confronts us at meetings such as this to say, \"But my aunt across the
border buys it for X dollars less,\" versus the discussion of
implications of short-term gains for importation policy and then of
course the long-term implications of such policy which make it
extraordinarily complex as opposed to the Band-Aid fix for the short
haul that most people shrug their shoulders and say, \"Well, maybe it
won\'t be such a big deal.\" But, obviously, we have to consider all of
those.

My question to all of you is, though, in doing this, this task force is
here to serve the American public, to be able to give a recommendation
to Secretary Thompson and on to the President and hopefully to Congress
to decide on the implications for a policy for importation. How do we
keep the American public involved in this extraordinarily complex issue
so that they understand that it\'s not simply that Auntie Besse across
the border is getting this for a dollar less, that there are really huge
implications for our industry, for research and development, for
pricing, for global markets, for, again, all of the things that many of
you have researched throughout your career? And, please, any of you
please jump in.

DR. CALFEE: I was hoping the new head of CMS might make some wonderful
speeches.

(Laughter.)

DR. McCLELLAN: We\'re asking the questions up here.

(Laughter.)

CHAIRMAN CARMONA: Please, sir.

MR. LEMIEUX: I think that this is an industry where there is a fair
amount of price discrimination. As has been mentioned, full retail is a
lot higher than if you have a purchaser working on your behalf to get
discounts or a government working on behalf to get lower prices. And I
wonder if the discount card that has been enacted as part of the
Medicare bill will help take a little bit of the pressure off in terms
of at least making sure that senior citizens in particular could get, if
the discount cards work and have good discounts attached to them, which
I hope they will, a feeling that at least they\'re not being ripped off,
that they have somebody working on their behalf to get the best price
available or at least a better price than what they were able to get
when they were going out on their own.

I mean I think that one of the reasons politically that we\'re having
problems with drug prices in spite of passing a Medicare drug benefit is
there\'s skepticism about whether or not that benefit will work. But the
discount card that\'s supposed to come into effect this summer might
help a little bit to explain to people that if they have someone working
on their behalf, they won\'t have to pay the top dollar for drugs, and I
think it will prove to be pretty popular if the discounts are
substantial.

CHAIRMAN CARMONA: Thank you. Do we have other comments? Yes, Dr.
Cockburn.

DR. COCKBURN: Not to sound like a broken record but I really think that
this ‑‑ a lot of things are a different price in Canada. I\'m a Canadian
citizen, I lived and worked in Canada for ten years, and people should
understand if they want access to Aunt Besse\'s price in Toronto, then
they\'ve got to imagine living on Aunt Besse\'s income and paying Aunt
Besse\'s rent, gasoline, heating taxes and so forth. It\'s a very
complicated issue, which I think people ‑‑ I don\'t think this choice is
ever put to people like this.

Indeed, if you called Aunt Besse and asked her how she felt her price of
drugs was in Toronto, she would probably say, \"Well, they\'re very
expensive, and I can\'t afford them.\" It\'s not the Canadians are
somehow getting their Lipitor at five cents a pill; they\'re not.
Canadians feel like they\'re paying very high drug prices, and Canada
went through an extensive public policy debate in the 1990s about
reintroducing patent protection in exchange for increased R&D
expenditure in Canada by pharmaceutical companies.

Our guests in the earlier panel, I think, spoke to this. The City of
Springfield, Massachusetts can certainly save a lot of money of its drug
bill if it was able to purchase drugs at some of these prices advertised
by USA Today. They could probably save even more money if they paid
their employees Canadian salaries.

CHAIRMAN CARMONA: Yes, Dr. Danzon?

DR. DANZON: I think most people can understand that things would change
radically if importation became policy and we had Wal-Mart and
Walgreen\'s and Eckard and McKessen and the like all going to try and
buy all their drugs in Canada. Things would no longer be available at
those cheap prices.

I mean the difference between an individual consumer going and buying
some small fraction of the Canadian supply versus this becoming national
policy and the U.S. trying to buy their entire drug supply abroad,
people can understand, I think, that systems would adapt, and that as a
consequence foreign prices would be higher, supply would dry up and all
of the things that stop it making sense in the long run start to happen.

CHAIRMAN CARMONA: How do we explain that to the average citizen? I mean
I think we all agree with you, but, again, these are extraordinarily
complex issues that people are getting in sound bites in the media, and
what I\'m concerned with is is that the American public for decades has
been insulated from the true cost of their health care or
pharmaceuticals as part of that, and now all of a sudden as markets are
changing, they have found a fixed market across the border that they can
buy at a cheaper price, and really the consequences of all of these
other tangential issues that appear to be tangential issues that we
bring up are really inconsequential to them. I just wanted for this
amount because I can get it for that today or tomorrow and next week,
not considering the longer-term consequences. Dr. Lichtenberg?

DR. LICHTENBERG: Well, I mean I think you show that, you try to develop
compelling understandable evidence about the consequences of, you know,
\"I don\'t want to pay too much for this muffler,\" and you look at, for
example, the vaccine industry and that there were 50 vaccine
manufacturers in 1960 and now there are three or something like that,
because the government has driven the price extremely low. So I think,
in a sense, trying to document how responsive innovation and production
and so forth is to incentives might be a good way. And, in a sense ‑‑ so
when phrasing it to people at work, sort of letting them know, \"Well,
what if ‑‑ suppose that if the price did drop 50 percent, if U.S. drug
prices did drop 50 percent, that this would lead to a significant
reduction in future drugs, how do you feel about that?\" So I think
bringing that into the picture, but I agree it\'s subtle and it\'s
difficult.

CHAIRMAN CARMONA: Thank you. Other questions from the panel? Dr. Duke?

DR. DUKE: Just to follow up on that line of reasoning, you\'ve given the
reverse, that is how we would explain the negative impact when
individual incentives clash with societal incentives. Could you give me
an instance of a successful effort where the societal incentive had the
effect of changing individual incentives into a positive line? You\'ve
given me the negative on vaccines, is there an analogy here that we
could work from?

CHAIRMAN CARMONA: I think the orphan drug act is a very good example,
because you can go to the FDA web site, and you\'ll see a very
significant increase in the number of orphan drugs after 1983. There
were some before then, but I think that that\'s one of the better
examples around. And I mean the other evidence that I described showing
how market size affects innovation incentives is sort I think not ‑‑ I
think it is useful. It\'s not exactly the right thing, but I think it
goes in that direction.

DR. CALFEE: If I could add just one thing. I\'ve noticed that a lot of
patient groups, leaving aside for the moment that they often get funding
from the pharma industry, they seem to be quite sympathetic to the R&D
arguments and not at all sympathetic towards the notion of price
controls, and I think that\'s because most patient groups consist of
people who are waiting for cures. The people who are really cured
they\'re no longer in patient groups.

They understand the argument, and maybe it\'s worth reminding everyone
else, that we\'re all patients waiting for cures. The only difference is
we don\'t know which particular cures we\'re waiting for. But the entire
industry is looking forward, they\'re working on the things that we
don\'t have right now. It\'s too easy, it seems to me, for the AARP
members. It\'s too easy for them to think only in terms of how much they
want their drugs that we have right now, while forgetting that the drugs
they really, really want are the ones that we don\'t have yet.

CHAIRMAN CARMONA: Dr. Lichtenberg, I think that the vaccine example is a
very good one, and certainly my colleagues and I from our various
vantage points, from everything from prevention to preparedness, have
dealt with that issue. But the orphan drug one is interesting on the
positive side, but yet I think the public needs to remember that
there\'s a great deal of federal subsidy in that equalization for that,
providing the incentive, if you will, to move forward. Otherwise there
would be no market for that; it would have closed out long ago, most
likely. Any comments on that?

DR. LICHTENBERG: Well, that\'s true. I mean there is sort of deep
question about whether the Orphan Drug Act was really good policy. Do
you really want to spend enormous amounts of resources on drugs that are
not going to benefit very many people? I mean that\'s kind of a
philosophical question. But, you\'re right, certainly federal subsidies
or R&D tax credits played an important role in that.

CHAIRMAN CARMONA: Because I think with vaccines it\'s the same. If we
don\'t create the appropriate incentives, people aren\'t going to come
back into the vaccine market, and then we\'ll be talking about a
government-owned vaccine market, which will be extraordinarily expensive
and will just shift the payer to the taxpayer. So I mean, again, these
become very complex discussions that we\'re trying to figure out a way
to get in front of the American public so they can move along with this
discussion and be truly informed when they speak to their elected
leadership as to what they really want and they understand what they
really want.

Other comments or questions? Dr. Raub?

DR. RAUB: Is the status quo the best we can do? It seems that every
potential change from where we are is bad. Is there anything that can be
done that would in fact be better with respect to the problem of the
costs of drugs but without threatening the R&D or dealing with the real
or imagined free rider situations that the U.S. faces?

DR. DANZON: Well, one change that I think could be made to encourage
competition and discounting within the U.S. would be to eliminate the
best price provision in Medicaid. I think it\'s pretty well understood
that the provision that requires that manufacturers give their best
price to private buyers to Medicaid has put a floor underneath
willingness to discount. Not for all drugs, there are certainly some
discounts that go deeper than the 15.1 percent, but that it essentially
implies a tax on discounting. And so many economists believe that one
way of encouraging more vigorous competition within the U.S. would be to
change that best price provision. And in a sense it\'s become irrelevant
as more and more states have their own discount requirements.

CHAIRMAN CARMONA: Dr. Calfee or Mr. Lemieux, did you have a comment?
Please.

MR. LEMIEUX: I was going to say the idea that we would begin to address
international drug pricing in trade discussions would send a signal that
the government understands this important public health and public
policy issue here and that we are going to be using this in our
negotiations with the rest of the developed world and to some extent
with the developing countries, that that would be a signal that we
understand this issue and that we\'re working it out internationally.

DR. RAUB: Could you play a scenario through ‑‑ I mean suppose this got
brought up with our G-7 partners?

MR. LEMIEUX: Well, with other rich countries, the dispute would be how
much of the global research and development budget should be shared and
how ‑‑ between the rich countries and the poor countries, the issue is
can we find ways to drive down prices in poorer countries in exchange
for preventing counterfeiting, adulterated drugs and so on and so forth?
I mean those are discussions that are not easy, they\'re going to be
very messy and very difficult, but if it were part of the mix, and it
may be becoming part of the mix, I think, even regardless, that would be
helpful.

CHAIRMAN CARMONA: Dr. Calfee?

DR. CALFEE: Well, speaking of negotiating with our partners, the Senate
had hearings this morning on exactly that topic in which I was invited
to speak, although I didn\'t have a whole lot to add, but most of the
interesting comments actually came from either the Department of
Commerce people or from the senators on the Finance Committee, many of
whom have been talking to the Australians and others about this. And the
consensus seemed to be that it\'s not going to be easy to persuade any
of these countries to reassess any of their basic ‑‑ anything that
impacts strongly on their overall health care costs. But there are some
areas in which some progress could probably be made, and one of them is
on generic drugs, because a lot of these countries are very backwards in
the use of generic drugs. They don\'t have the equivalent of a
Hatch-Waxman Act, and so they\'re paying a lot more for generics than
they ought to be, and in some cases their generics are not significantly
cheaper than the branded drugs with which they compete.

Some of these countries also have very inefficient pharmacy retailing
sectors, heavily protected pharmacies, et cetera, and so they no
incentive to compete, they have no incentive to minimize costs. So in
some cases if you look at the retail price in some of these countries, a
surprising large proportion of those prices go to either generic drugs
or go unnecessarily to the retailer margins that are preserved by
competition.

On the other question about what can be done about overall drug prices,
et cetera, there\'s no easy way to get around the fact that R&D is
really expensive and that it takes a lot of experimentation to figure
out what new technologies work in research and development. But like a
lot of economists, I do think that one thing that would help is if we
reform health care generally so that consumers were in the position of
making a lot more decisions about their own money or more price
sensitive. And as long as all health care premiums are excluded from
being taxed, the premiums that are paid by the employers, that means
that almost all health care is going to run through insurance programs
and then the patient will pay premiums but they won\'t pay much
directly, which means when they buy their Celebrex they\'re not paying
very much for Celebrex or Viagra or something else.

If we moved at least just a little ways towards limiting the tax
exclusion for health insurance premiums, a lot more people would be
getting higher deductible insurance, they\'d be paying cash for more of
their drugs, like almost all of us used to do, they\'d be more
sensitive, and I think the pharmaceutical manufacturers would find that
they had to meet a tougher market test, at least for some of their
drugs, and in some cases that might make a significance difference.

CHAIRMAN CARMONA: Thank you. I want to thank ‑‑ this is a very, very
important discussion, and I appreciate your patience in staying with us.
I know we\'ve gone over a little longer than what we expected, but I
mean this really gets to the crux of a lot of the matters that we\'re
dealing with.

As the question was brought up regarding trade and using the tool of our
trade negotiations, G-7 and otherwise large countries of wealth and
those that are poor, I\'d like to maybe get Dr. Danzon, Lichtenberg and
Cockburn also to comment. Utilizing trade as a tool to further equate
some global equity, maybe eliminate some of the free riderism, if you
will, and other benefits of using that leverage, if you will, that tool
to try to equilibrate a global market, if there ever is going to be one.
Would you, any of you or all of you comment on what your thoughts are?

DR. LICHTENBERG: I can just ‑‑ my understanding that in Canada there\'s
a question if prices are very low in Canada and companies are worried
about essentially that undercutting the U.S. price, why do they bother
selling in Canada at all? It\'s such a small market, why not just write
it off? Well, I\'ve been told that, essentially, the reason why you
would not just decline to sell in Canada is because if you refuse to
sell your drug in Canada, they can essentially compulsorily license your
patent. And so that means that there\'s really no intellectual property
protection. It\'s not only that we dictate the price to you, but if you
won\'t sell it to us, we\'ll find somebody who will sell it to us at
that price even though you have a patent. That\'s a very serious issue
of intellectual property protection. So it\'s not just price regulation
but how that\'s connected to IP protection. I think that has been the
subject of trade negotiations and no doubt will continue to be in the
future, but I think that that\'s very important.

CHAIRMAN CARMONA: Thank you. Dr. Danzon?

DR. DANZON: I think it\'s very tricky to make drug prices an item of
trade negotiations just because there is so much variation across
products in the price differentials. So for some of the products, say
France is comparable to the U.S. for other products, it\'s much lower
for others, it\'s higher, and if one\'s talking about how much is each
country contributing to the cost of R&D, number one, you\'ve got to look
at over the whole life cycle of the product and take into account price
and volume, so that\'s much more difficult than anything anybody\'s
measured yet.

And, second, you\'ve then got to decide, well, what are fair
contributions? Should it be proportional to income? I mean that\'s what
people generally accept but there\'s nothing really firm that says it
should be that. So aside from the practical difficulties, I think, of
getting countries to change their health policies, I think that the
underlying sort of deciding what the appropriate contributions would be
and whether they are currently appropriate would be very hard to do. So
I think it\'s a very tricky are to go down.

CHAIRMAN CARMONA: Okay. Dr. Cockburn, any final comments on that?

DR. COCKBURN: Yes. If I may offer some remarks as a guest in this great
country. I think there\'s a very great danger here that whether it be
through trade policy or through passing importations legislation, you
have to, I think ‑‑ people should understand how this is going to be
perceived abroad. Canada I think is beginning to see drug shortages
coming in. I think it\'s just the tip of an iceberg. I think how this is
going to be perceived abroad is a question of can pay, won\'t pay. The
United States is a massively wealth and successful economy. Voters and
governments in other countries are going to view efforts to bully their
prices into line with the United States prices with very little
enthusiasm.

They have plenty of ways to respond. Again, it\'s getting a little
repetitious, but the immediate tool at hand is to abrogate patent
rights. If there\'s a contagion or a collapse of patent rights around
the world because countries declare health emergencies and ‑‑ I mean we
saw this with scares of bioterrorism not very long ago ‑‑ I think this
is one area where we can be very confident that there will be an
immediate and disastrous impact on R&D incentives.

You know, all the evidence I\'ve ever seen suggests that the
pharmaceutical industry is one where patent rights are absolutely
essential to supporting R&D and development of new products. If that
starts to collapse around the world, I think this is a very serious
outcome.

CHAIRMAN CARMONA: Thank you, sir. Other comments, questions? Dr.
Crawford?

DR. CRAWFORD: I\'m just thinking, as we progress through dismissing the
World Trade Organization and trade negotiations is a real possibility,
it sounds more and more like an OECD kind of thing to me where perhaps
‑‑ would any of you care to comment on whether the rich nations of the
world, through the Organization of Economic Cooperation and Development,
might undertaken an initiative like this that wouldn\'t be quite as
threatening as a WTO initiative, for example?

DR. CALFEE: There is at least a modest movement, not so much in OECD but
within the European Commission itself, amongst some other staffers,
especially the more economically oriented ones. Some of them are
reassessing pharmaceutical controls, price controls in Europe, because
they\'ve been discouraged about the decline of the pharma industry
there, and they\'re wondering whether the short-run gains they\'re
getting from the price controls may not be as great as the long-run
losses they\'re getting from losing such an important industry and
whether this is just another sector of the European economy in which
they haven\'t done very well for the last ten years. I mean the European
Union hasn\'t been growing very rapidly for several years now.

So I know at least there is some talk among some people that the member
countries, the wealthier ones, ought to be thinking about the impact of
their price controls on the pharma industry and pharmaceutical R&D, and
maybe they\'ll come around. It\'s not easy. They still have ‑‑ each
nation has their own self-interest in doing what they do, and right now
each nation is pretty independent of the European Union as a whole in
setting their prices.

CHAIRMAN CARMONA: Thank you, sir. Other questions or comments from Task
Force members? Dr. McClellan?

DR. McCLELLAN: This probably is going to be more of a comment but maybe
there\'s a question here at the end. You all talked about some of the
intuition behind, at least the economic intuition behind any kind
large-scale importation not leading to the kinds of impacts on prices
that many of its supporters have promised. I\'m not sure that\'s quite
so intuitive to the public. I mean what they see today is they walk into
a drug store here, many people, especially seniors without coverage, and
pay the highest prices in the world, and they see people and they talk
to people who order drugs over the Internet or friends they know in
Canada who are getting much lower prices, and it isn\'t intuitive to
them why the price differences should be so great or why it\'s not
possible to set up the same kind of safety system across our borders
that we have within each country to assure safety. And if that\'s not
the way they should be thinking about it, I\'m not sure that that\'s
come across to the general public. And I can tell you it\'s definitely
not intuitive to the public that that is a fair situation, that
Americans should be paying 50, 60 percent of the net revenues for
pharmaceuticals around the world.

You all talked about the difficulties in addressing this problem, but
I\'ve heard some potentially useful steps in addressing this beyond
importation out there, steps like trying to encourage the dollars that
we do spend, whether ‑‑ or the money that we do spend around the world,
whether it\'s proportional to national income or not, but spending that
money more wisely to encourage the development of new medicines and not
pay any more for medicines that have been around and whose patents have
expired than is necessary or taking steps in the United States, help
people band together more to get lower prices, which many seniors can\'t
do today, but that is about to change, or taking steps to reduce the
cost of developing new medicines. All these things can potentially help.

I just encourage all of you here who have thought very hard and very
deep about this issue to not give up. I don\'t think this is going away.
I think it is perceived by many Americans as an unfair situation. I
think that\'s extremely understandable given what look like very big
differences in prices that don\'t seem to be justified on the basis of
fairness. And I would like us to keep working hard to try to find ways
to address this, maybe building on some of the ideas here as well as
continuing to look at the importation issue itself.

CHAIRMAN CARMONA: Yes, please, Mr. Lemieux.

MR. LEMIEUX: Just very quickly, I mean this is the inevitable pressure
of globalization and information, and this is part of ‑‑ in every other
product, the products where we don\'t have significant safety concerns
and where there\'s not a lot of government involvement in the
marketplace, you simply buy where you can buy things the cheapest. And
people don\'t understand why it\'s not fair to do that in health care or
it might not be fair to do that in pharmaceuticals, and I think it\'s
just a question of having a very candid discussion about how this is a
case where globalization could lead to an impact on prices in poor
countries that we might not want, but it would take a lot of leadership.

CHAIRMAN CARMONA: Thanks very much. Panel, thank you so much for
spending the time with us. This has been a very, very illuminating
discussion for us. I would encourage you that if you have any
afterthoughts based on our comments, please submit them to the docket. I
assure you we will scrutinize them very closely. Thank you, once again,
for all your help.

We\'re going to take a very short break. We\'ll be in session in ten
minutes as we turn over for our last panel. So if anybody needs a break,
please step out now, and we\'ll start again in ten minutes.

(Whereupon, the foregoing matter went off

the record at 3:56 p.m. and went back on

the record at 4:05: p.m.)

CHAIRMAN CARMONA: Ladies and gentlemen, we\'ll reconvene. Again, thank
you for your patience. I know we\'ve run a little long, but we\'re
getting a lot of good information among the deliberations that we\'ve
been having. Many of the issues that have come up are the economic ones
and some of the very complex issues that you heard discussed. So thank
you for your patience.

We\'ll begin this afternoon\'s third panel, and that will be with Dr.
Eric Sheinin, from the U.S. Pharmacopeia, I believe.

DR. SHEININ: Yes. Thank you. Good afternoon. My name is Eric Sheinin,
and I\'m the Vice President for Information and Standards Development at
the United States Pharmacopeia. The USP welcomes the opportunity to
present our views on the important issue of drug importation. I
apologize for not being able to provide my comments in advance of
today\'s meeting due to the short notice regarding our participation
today. USP will provide a more detailed statement to the docket in the
near future.

The United States Pharmacopeia Convention, Incorporated is a
not-for-profit company that was created in 1820 by a group of 11
physicians interested in providing public standards for pharmaceutical
products being used in the U.S. at that point in time. The First
Pharmacopeia of the United States was published in 1820 and was
essentially a book of recipes for botanical products. Over the years,
UPS has evolved so that today our standards mainly are applicable to the
pharmaceutical industry and the Food and Drug Administration.

In 1975, USP acquired the national formulary from the American
Pharmaceutical Association, and the two pharmacopeias, the USP and the
NF, are now published in a single volume on an annual basis. These
compendia contain approximately 4,000 monographs for drug substances,
drug products, excipients, dietary supplements and other articles, as
well as approximately 220 general chapters that provide information for
the performance of many of the analytical procedures that are contained
in the monographs.

Both the USP and the NF are recognized as official in the Federal Food,
Drug and Cosmetic Act. So pharmaceuticals that are marketed in the U.S.
must comply with the standards established in the compendial monographs
where a monograph exists. And this can be important in terms of drug
importation then.

The development of monographs in general chapters is accomplished by
approximately 300 to 350 volunteers from the pharmaceutical community,
both industry, academia and the government. The compendial standards
that are developed are public standards whereas the standards approved
by FDA during the review process are private standards between the
company and the agency. It is USP\'s intent to have the public standard
be in agreement with the private standard to the extent possible.

USP has some concerns with drug importation for the following reasons
that are related to uncertainty regarding safety and efficacy of the
products that might be imported into the United States. One, the
reference listed drug is not the same in every country. In the U.S.,
generic drugs must be shown to be bioequivalent to the reference listed
drug. This generally refers to the innovator product that was approved
under the provisions of Section 505(b)(1) or (b)(2) of the Federal Food,
Drug and Cosmetic Act. Generic drugs are approved under the provisions
of Section 505(j) of the Act. Drugs being shipped to other countries and
then imported into the U.S. may or may not be bioequivalent to the U.S.
reference listed drug.

Second, presumably, generic drug products from other countries would be
among those being imported. Unless data were available in the source
country for imported generic drug, one would not know if it was
bioequivalent to the U.S. reference listed drug.

Third, as I indicated earlier, the compendial standard is a public
standard, while the FDA-approved standard is a private standard. These
are not always in agreement. The same situation presumably holds in
other countries with a competent regulatory authority and a
pharmacopeia. The United States patients and practitioners would have to
depend on the public standard in the pharmacopeia in the other country
since access to the private standard might not be readily available.
Without scientific scrutiny, it would be difficult to determine if the
public standard in the exporting country was equivalent to the USP
standard.

Fourth, drugs do not always have the same name in every country. For
example, in the U.S., the active ingredient in Tylenol is acetaminophen,
while in Europe it is parasetimol. I realize this is an over-the-counter
drug, but it carries over to prescription drugs as well. U.S.
pharmaceutical users and health care providers are familiar with the
USP-NF names and labeling. Therefore, the use of products labeled per
other pharmacopeias may be confusing. In many instances, the dosage
strengths are different as well, which may lead to additional confusion
on the part of the practitioner and the patient.

Fifth, the same dosage forms are not always available in all countries.
For example, in the U.S., a distinction is made between tablets and
capsules. This is not true in all other countries. A patient who has
been taking tablets might receive their drug in a capsule and be
concerned about taking the wrong medication. Similarly, the dyes used to
color solid oral dosage forms are not the same in all countries. Again,
this could lead to confusion on the part of the patient.

Sixth, and last, the situation becomes more complex for modified or
delayed release products. Depending on the exact formulation of the
product, the release characteristics may be different. This can lead to
the patient receiving the active ingredient at a different rate, which
may well affect the safety and the efficacy of that product.

In conclusion, UPS feels that it will be difficult to guarantee the
safety and efficacy of drugs imported from other countries, regardless
of the adequacy of the regulatory process in those countries. There are
many unknown variables and questions involved, and we do not have the
answers to all of these questions.

USP would be pleased to work with the Task Force and with the FDA on the
issue of importation of pharmaceuticals from other countries, and I
again thank you for your attention and for this opportunity.

CHAIRMAN CARMONA: Thank you, Dr. Sheinin. Our next speaker, Dr. Alastair
Wood from Vanderbilt. Thank you, sir.

DR. WOOD: Thank you. Dr. Carmona, ladies and gentlemen, I\'m Alastair
Wood from Vanderbilt School of Medicine. I\'m also the Drug Therapy
Editor of the New England Journal.

Let me begin by saying I certainly don\'t envy you your task. As we\'ve
heard this afternoon, importation is simultaneously ‑‑ every position on
drug importation is simultaneously wrong and right. And that makes this
an extraordinarily difficult circle to square. And given the hour, I
will try to summarize just my written comments.

But as you heard from the last group of speakers, consumers will search
for the lowest price, and that search has been helped by better pricing
information on the Internet. Once such price transparency exists,
consumers will not tolerate major pricing differentials. On the other
hand, pharmaceutical companies are entitled to a financial return that
adequately reflects the costs and risks of drug development. But they
will have to ensure that these costs of drug development are borne
equally and equitably by all consumers, whatever their nationality. Both
sides are right.

Safety is another example where both sides are right. Clearly, drugs
sold in Canada to Canadians, by Canadian pharmacies are of high quality
and are as safe and effective as those sold in the United States. To
suggest that such drugs are unsafe is simply foolish. However, when a
U.S. consumer orders drugs over the Internet purporting to be from
Canada, that consumer does not know from whence these drugs come. In
fact, these drugs may be from anywhere in the world, and they may be
mislabeled, adulterated or counterfeit and are clearly unsafe.

I could go through each of the arguments you will and have heard and
make the same point, that both sides are right, but frankly that would
not contribute much to your deliberations. Therefore, I want to try and
focus on solutions to the current problem.

In my view, the reimportation issue is really a symptom of a deeper
problem, and it is critical not to allow society to become distracted by
the illusionary quick fix of reimportation. Much of this controversy has
arisen because medical treatment has recently changed dramatically in
ways that will forever change the economics of prescription drugs.

Until very recently, patients were treated for discrete episodes of
disease usually for a limited period of time. Because of that, they
became accustomed to buying drugs for relatively short courses. Think of
the usual ten-day course of an antibiotic. But we\'re now in an age of
livable chronic disease, and we can now even prevent future disease by
treating patients with drugs, so-called primary and secondary
prevention.

Examples include lowering cholesterol or blood pressure. In these cases,
patients will take medications every day, month in and month out for the
rest of their lives. Although the financial implications may appear
negative, the long-term health implications are hugely positive.

The proportion of our health care dollars spent on drugs will increase
in the future. It should increase in the future. And that is good news
because much of that expenditure is going into prolonging our
disease-free lives.

Let me also address some of the other issues. It\'s estimated to cost
upwards of \$800 million to develop a new drug today. That cost is too
high. It\'s unsustainable and must be reduced. In spite of all the
scientific advances that we have made recently, the clinical drug
development process has changed little, except trials have become ever
larger and ever more expensive. Drugs to prevent or cure many common
diseases, such as Alzheimer\'s or osteoarthritis, are still
tantalizingly out of sight. It is therefore essential that we think
creatively to develop new and potentially radical drug development
paradigms.

We have learned that the patent extension offered by the Pediatric Rule
has encouraged drug studies in children. Perhaps, therefore, we need to
have drug approvals that can be staged. First, rapid approval for
surrogate endpoints, and hence smaller, cheaper trials with patent
extension offered for later studies that demonstrate efficacy and
clinical relevant meaningful endpoints.

Perhaps we need to offer longer patent life for truly novel therapies,
such as the first drug to prevent Alzheimer\'s disease. The introduction
of market-based financial incentives that reward the most risky and
innovative research is most likely to be successful.

Therefore, in conclusion, our future health, your and my future health,
is utterly dependent on the development and marketing of new drugs to
treat the many common diseases for which we currently have no effective
therapy. We need to make sure that we do not allow ourselves to become
distracted by reimportation as a solution rather than recognizing the
true issue, which is reducing the cost of drug development and spreading
that cost evenly across all consumers.

Thanks for the opportunity to present my views.

CHAIRMAN CARMONA: Thank you, Dr. Wood. Our next speaker, Dr. Reidenberg.

DR. REIDENBERG: Thank you, Mr. Chairman. I\'m Marcus Reidenberg. I\'m an
internist and a pharmacologist at Cornell, and I\'m going to address the
medical concerns about drug importation, focusing on the risk to
patients importing substandard products.

A substandard drug product can be unintentional or intentional.
Unintentionally, it\'s due to either incompetence or human error,
whereas an intentional one, a counterfeit product, is due to criminal
activity.

Counterfeiting is an activity involving production and distribution by
people who know what they are doing. While this is part of the illegal
drug trade, the lesser intensity of enforcement and the smaller degree
of punishment for being caught makes this a less dangerous part of the
illegal drug trade for the criminal than selling opiates or other hard
drugs.

The medical consequences of counterfeit drugs can be illustrated by
published examples of counterfeit antibiotics being marketed with no
antibiotic content in the tablet. These are described in my paper
submitted for your briefing material. Given the potentially fatal
consequences for sick people who take these, the criminals who make and
distribute counterfeit drugs without life-saving medicine in them should
be considered as if they have attempted murder or even committed murder,
and enforcement and punishment should be appropriate for the enormity of
the crime.

In considering counterfeit drugs, we usually ignore the second victim of
these crimes, the legitimate manufacturers whose products are
counterfeited. Manufacturers usually keep secret the information they
have about counterfeiting because they fear correctly that public
information that a particular product is counterfeited will lead to a
loss of sales of their product. Hence, public ignorance about a
counterfeit product is beneficial to the legitimate manufacturer.
Informing the public about a counterfeit to protect patients hurts the
manufacturer that fulfills this civic duty. This problem of the other
victim, the manufacturer, must be addressed because secrecy protects the
criminals and should not continue.

The more general problem of substandard drug products is a worldwide
problems that\'s been considered at length by the World Health
Organization. My experience with the WHO has been as a member of the WHO
Expert Panel on Drug Evaluation since 1989. I\'ve served on six expert
committees and as a temporary advisors to several WHO programs concerned
with medications. The WHO has various activities designed to inform the
purchaser of the sources in regulatory procedures of specific drugs
products to help the purchaser assess the quality of the products, and
this is all on a WHO web site in my written material.

The procedure described leads to a certificate of pharmaceutical
product. These certificates are only as good as the national authority
under which they\'re issued, and the quality of the product must be
evaluated from this point of view. The medical issues around
reimportation relate to the quality of the products. Products made by
companies for the U.S. market and shipped also to countries with legal
and regulatory environments equivalent to ours and then reimported into
the United States meet the U.S. standards of satisfactory quality.

Finally, the problems that concern doctors the most are that the product
does not contain the labeled amount of the drug or the product is not
bioequivalent or the product differs in some other way from the
FDA-approved product, such as with different excipients or contaminants
so that unexpected bad effects occur.

One can generalize that drug product testing laboratories can be
established to test samples from batch product to batch to see that it
meets all the USP or European pharmacopeia specifications for the
product. Organizations like state Medicaid or employee programs,
purchasing cooperatives and so on wanting to purchase medication from
sources not under FDA regulation have the responsibility to determine
that the product is so labeled. They also have the resources to arrange
for laboratory testing of the products.

The potential problems of bio-availability and of different excipients
or contaminants can only be addressed by being sure that the products
were made by manufacturers in countries with strong regulatory
authorities that are part of honest governments that do not tolerate
corrupt officials. Drug products must be made by manufacturers in
countries with laws, policies and implementation equivalent to those of
the United States for one to be sure the products will be equivalent to
those in the United States. And I\'d be happy to expand on any of these
points in the discussion.

CHAIRMAN CARMONA: Thank you, Doctor. Our next speaker, Dr. Peck.

DR. PECK: Thank you, Admiral Carmona and members of the panel. Thank you
for the opportunity to present my views on safety and effectiveness of
imported drugs.

I\'m Professor of Pharmacology and Director of the Center for Drug
Development Science at Georgetown University. I trained in medicine and
clinical pharmacology and have had more than 30 years experience in
testing drugs, research and regulation, including six years at Food and
Drug Administration as head of the Center for Drugs.

I think I can best contribute to your task by explaining, or reminding,
as the case may be, of the high standards that FDA applies to drugs
manufactured and distributed in our country, and I\'ll follow that with
three points to consider with respect to safety, quality and
effectiveness of drugs that would be imported.

We have confidence in FDA-approved drugs that are manufactured here
because of these high standards and extensive testing, even if they\'re
manufactured in a foreign country that we have approved the manufacture
of. As explained in more detail in my written statement, these standards
and procedures apply to both active and inactive ingredients in the
product as well as to the particular form of the product, the
formulation, whether it be a tablet, a capsule or a solution.

Very often the formulation itself, the capsule of the tablet, and the
storage conditions of the product influence the safety and effectiveness
of the drug product. They key safeguard that FDA affords is the conduct
of field inspections and audits for manufacturing facilities and
periodic reinspections and analyses of the sampled products in the
supply chain.

The test procedures employed include chemical analyses, evaluations of
the performance of the drug formulations themselves and human
bioequivalence tests. The chemical quality standards, as you would
imagine, related to identifying the active ingredients in the product
and affirming that the dose labeled is exactly or in the neighborhood of
what is purported, as well as an evaluation of the impurity profile.
These tests require advanced monitoring and analytical technologies and
are applied routinely during manufacturing, distribution and storage.

The formulation, the capsule or the tablet, is tested for size,
hardness, dissolution profiles in simulated gastric juice and so forth.
These storage tests sometimes involve many months of storage under
extreme conditions to confirm that the product would withstand those
kinds of variations in temperature and humidity.

The human bioequivalence testing is an approach to confirming the near
identical profile of the blood concentrations of the drug once it\'s
ingested by a human. The bioequivalence test, as you may know, is the
basis for confirming the expected safety and effectiveness of generic
drugs and is often applied also to new drugs under development.

Safety and effectiveness is affirmed in a particular disease by
extensive human clinical trials. But a key element in all of the trials
that are done is a knowledge of the manufacturer and the product
qualities of these test acceptances. And once that\'s settled, it
implies then that ‑‑ once the safety and effectiveness of a new drug has
been adequately proven, the continued safety and effectiveness is
assured by closely adhering to the just described strict chemical
manufacturing formulation and manufacturing and bioequivalence quality
standards.

Thus, as a result of the compliance with these requirements, Americans
have long enjoyed reliable safety and effectiveness in the approved
drugs that they obtain in their hospitals and pharmacies.

Now, a few points about imported drugs, their safety and effectiveness.
With respect to the current dialogue, I proposed in my written testimony
two categories. Category one I will call FDA-approved products. They\'re
manufactured in the United States or in an approved facility for which
there is full compliance, that approved could be in another country. But
that has been inspected and fully compliance records are available.
These may reenter the United States as an import.

The second category would be drug products, possibly with the same
active ingredient of an already approved drug in the United States but
the product itself would not be approved by the FDA. It could enter the
United States if permitted from foreign manufacturing sites, but it
would not have records of quality and performance testing or of
regulation by competent regulatory authorities or one might not even
know the transportation and storage conditions.

My points: The category one and two drugs differ significantly on the
potentially available information about their quality and performance
and therefore vary in the burden and cost of assuring safety and
effectiveness. Assuming that the full pedigree and history could be
confirmed for the category one drugs, the questions raised mainly would
be due to any deviations in the specifications for storage and
transportation. So if Lipitor, for example, were transported to Canada
and it sat in a warehouse in New Jersey in August without air
conditioning for two weeks, one could wonder whether the hardness of
that tablet had firmed up and that would not dissolve properly and would
not enter the body at the same rate or extent, thereby depriving the
patient of a sufficient amount of lipid-lowering action to be effective.
Perhaps the physician might increase the dose on another batch coming
through that had not had those storage conditions, might be getting a
higher dose, and then the patient would be at risk to the toxicity of
Lipitor, which could involve muscle breakdown and kidney damage or
hepatic damage. So there well may be some strategies for dealing with
these category one drugs that we could affirm to be safe.

The category two drugs, however, present the greatest challenge for
assurance of safety and effectiveness. Confidence enjoyed by Americans
with our domestically manufactured and approved drugs would be possible
were we to require the foreign source marketing organizations to meet
all of the basic requirements ‑‑ formulation, chemistry, bioequivalence
‑‑ but, of course, that\'s requiring a brand new drug application.
Indirectly, conceivably, we could enter into arrangements with competent
foreign regulatory authorities. In any case, implementation of such an
expansion of FDA involvement for collaboration with a foreign regulatory
agency would be daunting, massive and complex and expensive.

I end with two implications for your consideration that might accompany
relaxing these import restrictions. The first concerns an unintended
potential increase in counterfeit drugs. This problem of counterfeit
drugs has already been mentioned by Drs. Wood and Reidenberg. Permitting
category one drugs to be reimported freely may quickly result in a huge
seller\'s market across U.S. borders, strongly luring counterfeiters to
join the bonanza market that is created. Compliance efforts to counter
this threat would be costly and possibly imperfect, leading to the risk
of entry of unsafe or ineffective products.

The second concern relates to the effect on FDA resources but with
respect to the manpower drain if tasked to provide increased enforcement
activities. The full financial forecast is advised along with
consideration of perhaps collecting user fees from foreign distributors
and manufacturers who become part of the drug importation process to
support the increased FDA resource requirements. Thank you.

CHAIRMAN CARMONA: Thanks, Dr. Peck. And our last speaker, Dr. Elena
Rios. Dr. Rios, welcome, thank you.

DR. RIOS: Thank you. Sirs, General Carmona and Task Force members, it\'s
an honor to be here today representing the National Hispanic Medical
Association and the Hispanic-Serving Health Profession Schools, both
non-profit associations dedicated to improving the health of Hispanics
and other underserved in the U.S.

According to the census, we\'re now the largest group in the country,
ethnic group, and exist in nearly all major areas of the country.
Besides being the group with the least access to health insurance and
access to health care by many parameters, we also face many barriers to
health care services based on language, culture and the severe lack of
Hispanics in all levels of the health workforce. Indeed, in the IOM 2002
Unequal Treatment report, this report discussed specific recommendations
to facilitate the inclusion of more populations with cultural
backgrounds. Furthermore, the IOM report reported on quality, have
pointed to the need for a patient-centered approach in health policy in
2004.

Both Senator Frist and Senator Daschle have introduced legislation that
show us various pathways to eliminate health disparities in our health
system, and they include enhancing minority research and data
collection, promoting programs to increase minority health professionals
and strengthening the leadership of the Office of Minority Health and
cultural competence and curriculum development. I recommend that your
deliberations include these recommendations.

Drug importation discussions, we feel, require a review of the public
safety and feasibility as well as the cost-benefit analysis for the
pharmaceutical distribution chain, as you are doing. However, we are
interested in educating physicians and health providers about the
inclusion of cultural principles into any new public health activities.
You can provide an imported drug to a regional wholesaler, but the
eventual distribution to the local pharmacy in the Hispanic neighborhood
and moreover the awareness of that new service to the community requires
its own protocols of outreach and education and information sharing.

As the Unequal Treatment report demonstrates, a major effort is needed
on the part of both private and public partners to develop
linguistically and culturally appropriate services in a drug importation
process. At the federal level, we feel that the FDA should partner with
the Office of Minority Health and its regional minority health
consultants to develop those culturally appropriate messages, marketing
and product protocols.

We recognize the importance of the Center for Linguistic and Cultural
Competence at the OMH, which has developed class standards and other
projects. Just to mention, NCQA, Kaiser Permanente, JCAHO, lots of
institutions in the country have adopted these principles on their own
and voluntarily. There\'s a momentum that this Task Force cannot ignore
on the recognition that quality care is needed for our diverse
communities in order to improve the health of all America.

And we feel strongly that there should be demonstration projects and
research done by Hispanics with the community that they live in that
demonstrates the effectiveness of any new interventions that impact on
health care delivery. Lastly, you must consider including more diversity
in the leadership bodies created as critical to making any new program a
success.

Just a few examples of looking through the literature on prescription
drugs and Hispanics, and of course these come from the other border, the
U.S.-Mexico border. For example, there was a study done in Los Angeles
140 miles from the U.S.-Mexico border. Fourteen percent of the
respondents had crossed the border to seek medical care, 80 percent of
these respondents were uninsured, 23 percent reported purchasing
medications, antibiotics and pain medications being the highest. Other
studies have shown in Texas, in El Paso, a study on purchasing
prescription medications in Mexico that more than 80 percent of the
patients had purchased drugs available in the U.S. as prescription drugs
without a prescription.

In Los Angeles, in terms of issues of licensure, in our Hispanic
communities right now, the Department of Health, Accounting Department
of Health created a new office that increased law enforcement to curb
sale of ‑‑ illegal sale of pharmaceuticals by unlicensed vendors, which
included clinics run by foreign doctors without licenses as well as
pharmacies providing medications without prescription. They found 280
investigations, 121 arrests and \$4.5 million of drugs in the first 20
months of its operation. The Department has also started an educational
program in those communities most affected by this behavior.

And some of the answers to some of your questions include in terms of
scope and volume of imported drugs, we really feel that products need to
be subject to the same level of labeling, research and critical debate
as was mentioned here, and that we don\'t feel there should be drugs
divided in two groups, one that has lesser risk and could be more
acceptable to the public. The fear is that the lesser regulated product
will be faster to be given to the poor and minority groups.

Just a couple more points. Foreign health agencies\' role, I think,
again, just to consider for the Hispanic community that PAHO needs to be
involved for this hemisphere. And the limitations that may inhibit the
Secretary\'s ability to certify the safety of imported drugs, I think
that there is a definite inability to limit what we consider an
underground trade in our Hispanic communities that would develop even
faster when new distribution patterns are started by the importation of
these drugs. Better to have checks and balances in the registration and
inspection and recordkeeping and redundancies with oversight linked to
the federal government infrastructure and its contracting institutions.

And, of course, there needs to be a rapid feedback system linked to the
CDC with new information systems to relay information back to our
providers in our communities on a timely basis as well as to connect
with international points of contact.

In terms of new costs, we just ‑‑ again, just to emphasize that we would
need to see language and culturally appropriate services. And in terms
of impact on drug research and development, there really is a need to
continue R&D in the United States and to increase the focus not only on
drug development but the impact on Hispanics and Hispanic research
subjects and also the need to develop more physician practice networks
in Hispanic communities working with pharmacies. Thank you.

CHAIRMAN CARMONA: Thank you, Dr. Rios. Panel members, questions,
comments? Dr. Crawford?

DR. CRAWFORD: I appreciate all the testimony. It was very helpful to the
Committee. I\'d like to propose sort of an alternative scenario. I
believe everyone here and all of you and all the respondents we\'ve
heard from so far assume that there will be some sort of accommodation
at some point. We have drugs coming in from Canada, we have a lot of
political interest, we have the templates for solving those problems
laid forth in the form of at least two bills and perhaps several more in
the making, all of which would make us believe that there will be some
kind of accommodation, some kind of facilitation of exportation from
Canada.

What if the opposite happened? What if there was a bill or there was
some sort of action within the administration that absolutely prohibited
any more importation from Canada, if the borders were sealed? What harm
or what good would accrue from that? Would it be necessarily a bad thing
or is it something that is unthinkable or what?

DR. SHEININ: Are you saying that there would be no importation even if
it was an approved product by the FDA?

DR. CRAWFORD: Yes. Right now products allegedly go to Canada and then ‑‑

DR. SHEININ: No, no. I\'m saying right now we might approve a ‑‑ sorry,
I used to be ‑‑ I still say we ‑‑ FDA might approve a product by a
Canadian company for importation to the U.S.

DR. CRAWFORD: Yes, yes.

DR. SHEININ: That would be excluded from your plan?

DR. CRAWFORD: Yes.

DR. SHEININ: Okay.

DR. CRAWFORD: I\'m talking about the current package while we\'re here.

DR. SHEININ: If all the other importation was excluded, I don\'t see
from a safety and efficacy or quality standpoint that that would be a
problem. I think it would go a long way towards assuring that the
products that patients were receiving were of the highest quality and
were safe and effective.

DR. WOOD: Well, I think one of the issues is that we\'ve failed to
explain to the American people why the amount of money they\'re spending
of drugs has increased. And we\'ve allowed people to demonize the FDA,
to demonize pharmaceutical companies, and some of them have done a
pretty good job of helping that, and we\'ve failed to really grapple
with the issues, which, as I tried to illustrate to you, are that the
amount of money we spend out of our pocket on drugs is going to increase
in the future. You know, if you were designing the ideal medical model
today, you wouldn\'t have surgeons, you wouldn\'t have all these things
going on, you\'d have pills that treated people. If you watch Star Trek,
people didn\'t have surgery, they had pills that they got to treat what
ailed them.

So I mean the future model is going to shift hopefully towards more and
more medications and less and less of more primitive forms of therapy.
We need to do a better job of articulating that to both the public and
to legislators.

Now, I\'m originally from Scotland. I don\'t like to spend money anymore
than the next guy, but, clearly, patients will not tolerate vast
differences in prices of any product. Ferragamo shoes cost about the
same in Florence as they do in New York City, and the reason for that is
that they long ago recognized that they if didn\'t, people would buy
them there and not in New York. So we cannot, I think, sustain a system
that has vast differences in drug prices.

Now, what are we going to do about it? Well, one of the groups that
control this that have not been talked about very much are the drug
companies who do allow their products to be sold at less than they\'re
being sold for in this country. And, of course, drugs are unique amongst
all products practically that we sell because the incremental cost of
making one more pill is almost trivial. Most of the cost of drug
production comes from development and research and regulatory issues.
That\'s hard to explain to people. They think of a car being built of
steel and chairs and so on and engines. Drugs are different, and we\'re
going to have to explain that better to people, I think. I don\'t think
something terrible will befall if people have to get all their
medications from within the United States borders, I mean that\'s
clearly what most of us do right now.

DR. REIDENBERG: Basically, what you\'re describing is theoretically the
status quo, and that\'s fine.

DR. CRAWFORD: Well, no. The status quo ‑‑ we do have a reimportation
problem now.

DR. REIDENBERG: Well, a certain amount, yes. But you\'re saying that
drug products actually made in a plant in Switzerland by Ciba Geigy that
are designed for the American market and who\'ve been approved, that
would continue to be imported. We don\'t say it can only be made within
the continental United States.

DR. CRAWFORD: That\'s right.

DR. REIDENBERG: So that, conceptually, that\'s fine. I\'d like to
comment that when we talk about the prices that people know, we\'re
talking about the list prices, not the discounted prices. And that if
one really wanted to say that the total revenue for a drug from the
United States market should be stable, then if one reduced the list
prices and raised the discounted prices, one could even the playing
field within this country and with the circumstances of just having it
here. I\'ve written a paper on this, and I\'ll submit it for the docket
when I get home.

CHAIRMAN CARMONA: Thank you. Other comments? Questions from panel? Any
others? No? Yes, please, Dr. O\'Grady?

DR. O\'GRADY: I guess I\'d just like to ‑‑ because of Dr. Crawford\'s
question, I\'d just like to flip it around to a certain degree what
happens if Congress does pass a bill that says we will allow
reimportation under certain circumstances, and what would be your
position in terms of just ‑‑ I mean I think that Dr. Rios did talk about
sort of some of the things that would be involved in implementation, but
to the other members of the panel in terms of thinking about what that
suddenly mean in terms of reality. There is a bill passed, it\'s to be
implemented, it\'s to be done so while maximizing safety and efficacy or
safety anyway in this case, and can you talk a little bit about the
implications of that and what would be necessary steps?

DR. WOOD: Well, I actually address some of that in my written comments.
Clearly, one of the first things we need to know is the providence of
the drug that\'s being imported, so there needs to be some kind of
system to track the medication from manufacturer to final point of sale
by smart tags or radiofrequency and tagging or something. And some of
these could also track the storage conditions, as Carl talked about
earlier on. So, clearly, knowing that you\'re getting what you think
you\'re getting is critical.

Now, is that enough? I don\'t know. It depends on how innovative people
who try to game the system could be. And so it\'s hard to imagine,
perhaps with the exception of aircraft or something like that, something
in which it\'s more important to be able to track the medications that
are coming into this country. Now, nobody today that I\'ve heard has
actually talked about importing controlled substances, opiates and drugs
of abuse and so on. It seems to me that that\'s a different issue and
one that should not be on the table.

DR. SHEININ: As I indicated, I still would feel there would be a problem
of demonstration that the product being imported is bioequivalent. Does
the same amount get into the blood over the same period of time?
There\'s other issues as well. The synthetic route for the active
ingredient may be different, which in most cases then would introduce
different impurity profiles, as I believe it was mentioned earlier. You
don\'t know what the safety of those impurities are, and you would not
have any procedure for the control of those impurities if there was a
problem with the drug. Unless you knew what the impurities were, it
would be very difficult to develop an analytical procedure to test that
product that caused a problem that may or may not be due to a trace
impurity.

Now, granted, the probability of a very low level of an impurity causing
a safety problem is small, but there are well known examples of cases
where it was an impurity at a very, very low level that did cause a
safety problem that had not been seen prior to something being
introduced into the U.S. market.

DR. WOOD: Sorry. I thought your question related to identical product ‑‑
the same product produced by the same manufacturer on the same machine.

DR. O\'GRADY: Well, I think that we don\'t know is what a particular
piece of legislation might or might not have in it. And I think you\'ve
brought up the problems here, but in terms of the reality of
implementation, if something came in and you are faced with that sort of
thing and you were the Commissioner of the FDA or the Secretary of HHS
and you had to implement, I mean the implications of what you\'re saying
are, are we talking about a doubling of the resources of the Food and
Drug Administration to be able to do that sort of testing, to be able to
check for those sort of impurities to all of a sudden ‑‑ I mean how
would you ‑‑ I mean I\'m trying to think through the reality.

I mean you\'ve been persuasive in terms of you\'re not thrilled with
this idea, but at the same time the reality is is that often Congress
will do what it thinks is the right thing to do for the American people,
and if they move forward, part of what we have to think about is, well,
then what are the implications of that? Are we talking massive amounts
of resources? Are we talking about large sets of labs at the border and
at major, sort of, airport hubs and things like that? And that\'s what I
was hoping for to get in terms of your response.

DR. WOOD: I don\'t think we can possibly put enough resources in to do
what you\'re talking about. If you\'re talking about drugs that are made
that we know nothing about, they\'re coming from XYZ Pharmaceutical
Company in God knows where, then measuring the content of the active
compound in the pill at the border is almost valueless. So we cannot
determine whether that pill is equivalent to the pill on the market in
the U.S. from simplistic tests like that.

If we\'re talking about drugs that are made on the same machine, that\'s
a different issue, and that\'s what I was talking about.

DR. SHEININ: I agree. It would be a monumental task to try and control
the quality of all those products. One aspect that could go a ways
towards helping with that, you could have reduced amount of testing of
some type if there was a USP monograph for that product, in which case
you would have at least a standard that you know that the product has to
meet. The problem is there is somewhere on the order of 1,200 to 1,300
that are marketed in the U.S. that do not have a USP monograph today.
This is because we rely on companies to provide us with that
information. It\'s not releasable from FDA as to how a company controls
the product, and in most cases a company will not provide that
information until it gets close to patent expiring. So there are no
monographs for many of the newer, quote, unquote, \"miracle drugs,\"
that are on the market today that are so expensive. But there could be
at least some sort of screening if there was a USP monograph, and
anybody importing those drugs knew that it had to meet the quality set
forth in the monograph.

CHAIRMAN CARMONA: Dr. Reidenberg?

DR. REIDENBERG: Yes. If I can comment on the world that I live in. My
son is an academic, he\'s on sabbatical leave in France. His family is
with him. When they\'ve gotten sick this year, they\'ve bought medicines
in French pharmacies, and I\'ve had no concerns about their quality.

I think there are very clearly a number of countries that one could name
that have regulatory procedures and implementations essentially
equivalent to ours. And drug products that are acceptable for their
market that can be tracked so we know what comes into this country are
those drugs products and not a counterfeiters that got into the
distribution system I would have no worries about because if my
family\'s abroad or I\'m abroad in these countries, we buy them, we take
them, we\'re content. And I think that to me the biggest issue here is
making sure that the origin of the product is from a jurisdiction that
is equivalent to the United States and that it\'s this particular
product that gets into our distribution system so that it\'s not a
counterfeit.

And then from a medical standpoint, I don\'t perceive a problem when my
patients purchase their medicine when they\'re abroad in these places,
when my family does, and I don\'t perceive a problem if I were to
purchase this medicine here.

CHAIRMAN CARMONA: Dr. Peck?

DR. PECK: I\'m not quite as confident as my friend Marcus is with
regards to any other regulatory agency. We have standards here, for
example, for the dyes in tablets and capsules that are not shared by
virtually any other even Western advances regulatory agency. In other
words, dyes are included in their tablets that are on the
carcinogenicity list in the NCTR. So it\'s not so simple. Perhaps casual
use of a French drug might not be so bad, but I don\'t think I would
actually be comfortable with my family using any drug other than a
generic or brand name U.S.-approved manufactured drug.

On the other hand, I think as highlighted in my testimony, I think the
category one drugs offer an opportunity, assuming that the economic
challenges can be overcome. Those are drugs that are approved by FDA,
manufactured in the United States or in an FDA-approved manufacturing
source in another country and are either reimported or they come across
the border from the manufacturing. So for all intents and purposes they
are the same drugs that we distribute and approve for distribution in
this country.

The conditions for full confidence in those would include having an
absolutely bullet-proof record of the pedigree and transportation and
storage conditions of that. And I think that would do it. If there were
deviations from the specs, then in vitro, on-human dissolution testing
might be a pass-through test, an occasional random sampling with mass
spec evaluations to see if there are any impurities out of sync. So I
think we could limit ourselves to a particular reliable sourcing of
FDA-approved drugs that could run around the world, actually, and come
back to us. That doesn\'t solve the economic challenges that accompany
this, but I think from a safety and effectiveness point of view, if one
limited it.

And I think the resource requirements for that are attractable. I don\'t
think it would require doubling of the FDA resources. FDA regulates 25
cents on every consumer dollar, and that includes foods and medical
devices and animal drugs and a lot of other things, and so it would
require an increase in the field and compliance resources, and it should
be modeled. Our opinions, I think, are worthless. There should be some
econometricians actually getting out their spreadsheets and checking
this out to see what the resource implications are.

CHAIRMAN CARMONA: Thank you, Dr. Peck. Dr. Reidenberg, regarding your
comment, I guess we\'ve all had the experience of being stuck someplace
where it was not home, in another country and had to purchase a
medication for some reason or other. And I think we have found
ourselves, and those of us who have been discussing this before the
panel and after, as Dr. O\'Grady mentioned with the Medicare
transformation or modernization and the new pharmacy guidelines for our
seniors, we had the anecdotes all the time. But I went to Canada and
nothing happened to me. My friend went to Mexico and bought it and
nothing happened. We\'ve heard it from a dozen countries. But yet, as
you know, the absence of a complication doesn\'t necessarily dictate a
good system, one that\'s robust and will protect the American public.
And so we\'re obviously trying to get beyond the anecdote of survival
for any of us to one of how do we deal with this as a national policy
issue?

Prior to this panel and previous panel, we\'ve had experts in security
from some of the large drug manufacturers, others who came and suggested
that if importation was considered, there would be really no way to
ensure safety and efficacy. And in fact the state of technology today is
‑‑ they could not guarantee that we would be safe from subpotent or
knock-offs or any of the other classifications of drug that may get into
our pipeline. So although we don\'t have the exact cost, I think that
the experts who talked to us said they\'d be hard pressed even giving
almost an unlimited budget with the technology they have to be able to
guarantee.

So I want to throw that out to all of you, but, also, Dr. Reidenberg, I
understand your comment regarding your son in Paris, but I guess I\'m
trying to go beyond the anecdote really and look at national policy.

DR. REIDENBERG: Sure. If I can respond to that. A couple of
qualifications I had in the written testimony is that the drugs being
manufactured in countries that have the same laws and regulatory
implementation as we do, and I think that we can identify some advanced
industrialized countries that one would have to acknowledge that
they\'re as careful and as conscientious as we are. I don\'t know
anything about the technology of assuring security so that the product
that is in the pharmacy in New York City is the specific product that
was made in England or in Australia and brought in. If that can\'t be
done, then there\'s no way to assure safety. But if we\'re dealing with
products that are prepared under these particular jurisdictions, then if
would be very difficult for me to argue that there is a greater
likelihood that they will either be more hazardous or less effective
than products made under FDA jurisdiction where these others essentially
are equivalent to ours.

CHAIRMAN CARMONA: Another just brief comment on that, and then I\'ll ask
all of you to comment also. Assuming that we could identify a dozen
countries internationally that had the same requirements that we do,
let\'s say an equivalent FDA that was regulating and we felt safe, the
other question then bespeaks what we\'ve heard with the last panel of
economists and what are the long-term implications of the health policy
that has us shopping worldwide as far as research and development as
well as many other factors that we\'ve spoken about? And is that
something that we would recommend as policy, either short term or long
term, considering the significant input we\'ve had already from
economists and what we know from the literature?

DR. REIDENBERG: I think that the economic issues that were raised and
discussed are very important ones. I was addressing specifically the
clinical issue of efficacy and safety, and I think that it will be
difficult to argue efficacy and safety when we\'re really thinking about
support for long-term research. They\'re two different subplots.

CHAIRMAN CARMONA: Thank you, sir. Other comments? Okay. Dr. Peck?

DR. PECK: What you\'ve just challenged us with stimulates me to think
about a different world that I think we\'re actually seeing begin to
evolve in Europe. If you look at the history of drug regulation in
Europe over the last 20 years, you will understand that 20 years ago
there was a separate regulatory agency in each country that did not
recognize a drug approval in the neighboring country. And in the course
of the last two decades that has shifted now to a common regulatory
agency surrounded by individual country regulatory agencies and two
pathways for approval of a new drug in Europe. Increasingly,
manufacturers are taking the route of going through the EMEA, the
European Medications Evaluation Agency, which when they meet the
standards of testing and safety and effectiveness for that, they get all
at once approval for marketing in all 18 or 40 countries, depending upon
what the current status is.

So that has obviously huge economic implications. As far as I know, the
individual countries still determine the pricing policies for those, so
it\'s not perfected in terms of a global economic solution, but the
prospect of having mutual recognition or common drug approval across
countries would relax much in the area of safety and effectiveness, and
then the economic thing has still got to be solved, but that could
become an incentive to drug companies.

CHAIRMAN CARMONA: Thank you, sir. Let\'s see, Dr. Sheinin and then Dr.
Wood.

DR. SHEININ: Let me preface what I\'m going to say by saying if you
don\'t have good quality and you don\'t know what the quality is, you
can\'t really say anything about safety and efficacy. You must know the
quality of the products. And we\'ve been talking ‑‑ I was talking
earlier about doing testing to look at the quality, but you cannot test
quality into a product. Quality is part of the overall scheme. There
also has to be knowledge that the products are made under good
manufacturing practices.

Several years ago there was an effort to put into place a mutual
recognition agreement with Europe, with the European Union in terms of
inspections, FDA and the European Union. And as far as I know, that has
never come to fruition because of the fact that in the opinion of FDA
not every country in the European Union was equivalent in terms of how
they inspected to GMPs. So that would have to play into any sort of a
scheme that was put into place to allow mutual recognition of the review
and approval of a product from another country. What country actually
did the inspection? Is it the country where it\'s manufactured or was it
an investigator from another country within the European Union, and that
would just complicate the whole picture all together.

In my opinion, and a conclusion, I don\'t believe that there is a better
regulatory authority in the world than FDA. I worked there for 30 years,
I\'m proud it, and I think they are the best that there is anywhere in
the world. Given that, to do what we\'re asking, they would have to
tremendously increase their resources. They don\'t have the resources
today to inspect every facility every two years as the law requires, and
if you added additional sources of drugs coming in, not only is it the
testing, it\'s also the inspection of the facilities.

DR. CRAWFORD: Would you consider coming back to the Food and Drug
Administration?

DR. SHEININ: No. I\'m enjoying what I\'m doing at USP, but I really did
enjoy it, and I thought it was a very worthwhile part of my career, a
major part of my career.

CHAIRMAN CARMONA: Thank you, Dr. Sheinin. Dr. Wood, did you have a
comment?

THE WITNESS: Yes. I think it\'s important that we remember what we\'re
talking about here. The only drugs that people are going to be tempted
to import are ones that are currently under patent for protection. So
the idea that people are going to be out formulating their own drugs
somewhere else means either that we\'re going to abrogate patents, which
I think nobody is proposing, or that we\'re going to allow counterfeit
drugs in, which we\'re certainly against.

So the universe of drugs that we\'re talking about that people are going
to be tempted to import are those that are currently expensive and
almost by definition are ones that are currently under patent
protection. These drugs are currently being produced by multinational
pharmaceutical companies, frequently on the same machines and in the
same factory for use in multiple different countries. So controlling the
quality there is less of a problem than we might like to think.

But I want to pick up your second point, which was what will the effect
be on innovation, and I think that\'s really important. You know, we
don\'t have treatments for some of the major diseases in this country
and anywhere, I mean not just in this country. If we don\'t encourage
innovation, we\'re not going to have treatments for most of these
diseases in my lifetime, given the lifetime it takes to develop a drug.

And I\'m not talking about rare diseases or orphan diseases, we\'re
talking about things like osteoarthritis. We have nothing that prevents
osteoarthritis. We have nothing that prevents Alzheimer\'s which is
going to be a huge problem by the time I reach that age. These are
high-risk, high-cost research endeavors, and those who invest in that
need to be confident that their investment is going to be protected for
a time that allows them to recover their costs with some legitimate
level of profit. So I think that\'s an issue that we can\'t ‑‑ a circle
we can\'t square.

CHAIRMAN CARMONA: I think that, and I don\'t know the magnitude, but I
think we\'ve heard of cases ‑‑ first, let me preface my statement with I
agree with the premise that it\'s mostly the patented drugs and the
expensive drugs, but I think we\'ve heard of cases of generics being
imported, maybe because the public doesn\'t understand, for instance, in
Canada that our generics generally are cheaper and also from Mexico as
well as other countries. So I don\'t know that it\'s just only the
expensive. That may be the driver, but I think there\'s an undercurrent
there also of maybe just misunderstanding that people still look outside
the borders to get some of the less expensive drugs and those that are
not controlled on patent.

DR. CRAWFORD: I was just in Chicago yesterday at the mail detention
facility, and I spent all day looking through what\'s coming in. And Dr.
Wood is generally correct, but there are also controlled substances,
marijuana and all that kind of stuff, right there before you. But then
you go from the sublime to the infinitely bizarre, because if it\'s
anything that might increase even the muscle in your small finger, it\'s
there, and it\'s always injectable because it\'s better if it\'s
injectable. And the syringes come with them. And they come from Central
America and all over the world. And I\'m not talking about a small
volume, I\'m talking about 4,000 pieces a day coming right in there. But
you\'re right.

And the point I was going to make before I got waxed so ineloquent is
that there were almost no generics there, that we would call generics.

CHAIRMAN CARMONA: Thanks, Doctor. Other questions? Yes, Dr. O\'Grady?

DR. O\'GRADY: I guess in terms of trying to parse through exactly where
these different parameters when we try to think about this, it\'s a
tough one in terms of as we continue here, because I think it was very
compelling testimony that we heard about counterfeiting. At the same
time, while the security folks from the different manufacturers were
laying that out, I was thinking reimportation or no reimportation
you\'ve got a counterfeiting problem here, guys, and you\'ve got an
Internet problem here, guys, and this all could go away tomorrow, and
there\'s still going to be draw on resources, kind of public and
private, to do that.

So sort of trying to parse through what part of this challenge goes into
‑‑ I know I\'m struggling with it right now. I mean the doubling of FDA,
I mean it seems to me that when we look at that testimony, and luckily
it\'s something that Les has to worry about, not me, but I mean
counterfeiting, Internet, that\'s here, that\'s not going away.

Now, I can certainly see how importation-reimportation complicates that
matter even more, but I keep trying to keep in mind we\'ve got this
layer there that only looks like it\'s going to expand. So whatever we
do with importation is ‑‑ you know, you want to be careful not to make
matters worse, but it\'s still there for sure.

CHAIRMAN CARMONA: Thank you. Any other comments?

DR. DUKE: I just have one.

CHAIRMAN CARMONA: Dr. Duke, yes.

DR. DUKE: Just to build on two questions earlier, one Les proposed, Les
and Mike took the opposite on the issue of no importation or open the
doors wide. And I\'d sort of like to go at, all afternoon we\'ve been
sort of going back and forth without sort of precisely defining that
we\'re talking about two polar opposite approaches to importation. One
is sort of the individual importation by the Internet or a bus trip
across the border. That\'s one form of importation. And the second form
of importation is wholesale purchases which lend themselves to the
possibility for regulation and testing, and I\'d sort of like your
comments on how we wrap our minds around a problem that presents itself
with both of those extremes?

DR. WOOD: Can I respond?

CHAIRMAN CARMONA: Please, Doctor?

DR. WOOD: I don\'t see that there\'s a fundamental difference between
the FDA approving another generic drug with all of the requirements that
Eric talked about that are demanded of that and importing a drug. What I
mean by that is the idea that we should allow somebody to bring in a
drug that\'s not been approved because it\'s, quote, \"equivalent\" to
another drug but the legitimate manufacturer who tried to sell a generic
equivalent and through the stream of commerce in the U.S. has to go
through all the requirements to get approval by the FDA seems to me just
impossible to deal with. I mean you cannot have a parallel track where
legitimate people are going through the FDA to get approval for a
generic equivalent and simultaneously I can bring wholesale imports of a
drug in from Canada without going through that approval process. That
will just destroy our excellent drug approval process that we have in
this country. So I think that\'s untenable. I just can\'t see how that
can possibly be done, unless we abolish drug regulation, which I don\'t
think anyone seriously is proposing.

CHAIRMAN CARMONA: Thanks, Dr. Wood. Any other comments, questions? Yes,
Dr. Peck?

DR. PECK: Dr. Crawford can probably give more precision on this
situation, but for many years FDA and I think the Customs Department
have been relaxed about individual importation, so to speak, perhaps
partly because it would be sort of a messy problem to control but also
because it has less commercial and large-scale safety and effectiveness
and may even have something to do with individual freedoms and a right
to purchase.

But it does seem to me that at least some of the irrationality of that
when that that\'s the case could be affected by education and programs
to inform. I remember when I was at FDA I think the individual
importation issue came to a head when groups of AIDS patients and their
caregivers wished to import in larger quantities, and what they wanted
to import was sometimes pretty irrational, but it was a desperate effort
and it was a message of desperation. But many of those groups I recall
engaging with began advising their constituencies not to go forward when
they became informed about the situation. So I think that part of it
could be amenable to education and information.

DR. DUKE: I think that\'s what Les was talking about, though, with the
4,000 items a day at several major import sites in the country. And so I
often find in these discussions that the conversation waxes back and
forth between the sort of systemic issues around wholesale importation
and the issues of the economic concerns, the clinical concerns, and then
we switch sort of ‑‑ or sort of slide into the next discussion of
grandma who knows that Aunt Besse up in Canada\'s getting her medicine
cheaper.

And I think when we face the public, we are faced with both sets of
arguments, and I think that\'s one of those where I think we need some
intellectual rigor as we try to sort through it, because I think you\'re
getting into ‑‑ and I thought, Dr. Peck, you made the good point ‑‑ that
we then find ourselves faced with the issues of privacy and an assertion
of rights and so forth, despite the fact that we have laws on these
matters. But this is a distinction I think we need to articulate more
clearly in order to be able to more clearly identify the problem so that
we can put the resolutions with the right pieces of the problem.

CHAIRMAN CARMONA: I couldn\'t agree with you more. That\'s well said. I
really appreciate Dr. O\'Grady bringing up earlier today the
practicalness of those of us who have to speak in public about this,
that all of these very academic discussions fall by the wayside when
it\'s that one senior citizen in front of you saying, \"I want my
medication. Don\'t confuse me with all of that stuff.\" But I think
it\'s important, and hence the purpose of these hearings to get out all
of the contributing factors so that we can somehow synthesize that body
of information, as Dr. Duke says, to come out with a reasonable approach
to policy for our country as it relates to importation and anything else
that comes of this that we would put in the report, because, certainly,
we\'re not restricted but we need to meet those minimum requirements as
Congress has outlined for us.

Any other comments or questions from any of us? If not, let me just say
I\'d like to thank all of our presenters for coming here today. We had
some very good and valuable discussion. On that note, it\'s becoming
especially clear that the United States government would need
international cooperation in order to devise a structure to legally,
safely and effectively import prescription drugs from foreign nations.
To encourage that discussion the Task Force invited representatives from
Health Canada and the European Association of Europharmaceutical
companies to participate in today\'s listening session. However, both
organizations were unable to accept our invitation. So with the consent
of the rest of the Task Force, I would like to publicly invite these two
organizations to present at either of our two remaining listening
sessions on May 5 or May 14. And even the primary focus of those
listening sessions may be slightly different than today\'s, the Task
Force mission is the same no matter what the date, and I believe that
these two organizations are vital to hear from.

We are also encouraging more input from a wide diversity of economists.
We\'ve heard some today, but we know there\'s more out there that have
opinions, and we\'d like to get them to the table also. So I would ask
the Task Force to please let Health Canada and the European Association
of Europharmaceutical Companies have open invitations as well as any
economists that have diverse input and opinions on these complex issues
and any other stakeholders who we may have missed inadvertently, because
I assure you we have done our due diligence to find everybody that has
an opinion on this issue. If we\'ve missed the boat on any of those,
please, any of you let us know, and thank you so much for your time and
helping us through this very difficult dilemma. Good night.

(Whereupon, at 5:19 p.m., the Stakeholder meeting was concluded.)