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CANADIAN PRESCRIPTION DRUG IMPORTATION: IS

THERE A SAFETY ISSUE?

HEARING

BEFORE THE

SUBCOMMITTEE ON HUMAN RIGHTS AND

WELLNESS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

JUNE 12, 2003

Serial No. 108–59

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpo.gov/congress/house

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

JOHN SULLIVAN, Oklahoma

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

WILLIAM J. JANKLOW, South Dakota

MARSHA BLACKBURN, Tennessee

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

CHRIS BELL, Texas

———

BERNARD SANDERS, Vermont

(Independent)

PETER SIRH, Staff Director

MELISSA WOJCIAK, Deputy Staff Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHILIP M. SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON HUMAN RIGHTS AND WELLNESS

DAN BURTON, Indiana, Chairman

CHRIS CANNON, Utah

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

DIANE E. WATSON, California

BERNARD SANDERS, Vermont

(Independent)

ELIJAH E. CUMMINGS, Maryland

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

MARK WALKER, Staff Director

JOHN ROWE, Professional Staff Member

MINDI WALKER, Clerk

TONY HAYWOOD, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on June 12, 2003 ............................................................................... 1

Statement of:

Hubbard, William K., Senior Associate Commissioner, Food and Drug

Administration .............................................................................................. 19

Viehbacher, Chris, president, U.S. pharmaceuticals, GlaxoSmithKline

Pharmaceuticals; and David Brennan, executive vice president for

North America, Astrazeneca Pharmaceuticals ........................................... 71

Letters, statements, etc., submitted for the record by:

Brennan, David, executive vice president for North America, Astrazeneca

Pharmaceuticals, prepared statement of .................................................... 84

Cannon, Hon. Chris, a Representative in Congress from the State of

Utah, prepared statement of ........................................................................ 107

Davis, Hon. Tom, a Representative in Congress from the State of Virginia:

Prepared statement of ............................................................................... 39

Prepared statement of Anthony Lordon and letter dated June 11,

2003 ......................................................................................................... 47

Hubbard, William K., Senior Associate Commissioner, Food and Drug

Administration, prepared statement of ....................................................... 22

Sanders, Hon. Bernard, a Representative in Congress from the State

of Vermont:

CRS research memo .................................................................................. 4

Washington Post article ............................................................................ 53

Viehbacher, Chris, president, U.S. pharmaceuticals, GlaxoSmithKline

Pharmaceuticals, prepared statement of .................................................... 74

(1)

CANADIAN PRESCRIPTION DRUG

IMPORTATION: IS THERE A SAFETY ISSUE?

THURSDAY, JUNE 12, 2003

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HUMAN RIGHTS AND WELLNESS, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 2:06 p.m., in room

2157, Rayburn House Office Building, Hon. Dan Burton (chairman

of the subcommittee) presiding.

Present: Representatives Burton, Sanders, Cannon, Watson,

Allen, Maloney, Crowley, Gutknecht, Duncan, Janklow, and Tom

Davis of Virginia [ex officio].

Staff present: Mark Walker, staff director; Mindi Walker, professional staff member and clerk; Nick Mutton, press secretary; John

Rowe, Brian Fauls, and Liz Birt, professional staff members; Rob

Rubenstein, Will Drinkwater, Tiara Wuethrich, and Allison Ket, interns; Tony Haywood, minority counsel; and Jean Gosa, minority

clerk.

Mr. BURTON. We have to be on the floor in just a few minutes,

so I would like to go ahead and get some of the technical things

out of the way so when we leave, we won’t have to deal with that

when we come back.

I will apologize in advance for the time we are going to have to

be away from the people who are going to be testifying today.

Please accept our apology but we are going to have votes I don’t

have much control over.

A quorum being present, the Subcommittee on Human Rights

and Wellness will come to order.

I ask unanimous consent that all Members’ and witnesses’ written and opening statements be included in the record and without

objection, so ordered.

I ask unanimous consent that all articles, exhibits and extraneous or tabular material referred to be included in the record and

without objection, so ordered.

I ask unanimous consent that the following Congressmen and

Congresswomen be allowed to serve as members of the subcommittee for today’s hearing because of such interest in it: Congressman

Gutknecht of Minnesota, Congressman Duncan of Tennessee, Congressman Janklow of South Dakota, Congressman LaTourette of

Ohio, Congressman Allen of Maine, Congressman Tierney of Massachusetts, Congresswoman Kaptur of Ohio, Congresswoman

Maloney of New York, Congressman Brown of Ohio and Congressman Miller of Michigan. Without objection, so ordered.

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I also want to welcome the gentleman from Virginia who I believe will be here when we get back, Congressman Davis, the chairman of the full committee, to today’s hearing and we will thank

him for being here.

I will make an opening statement after Congresswoman Watson

does when we get back from the vote.

I would like to ask all Members to put their statements in the

record, however, Congressman Sanders has been working on this

issue for a long time and I will be happy to yield to him briefly if

he would like to make a few comments.

Mr. SANDERS. Thank you very much, Mr. Chairman, and I want

to thank you for calling this very important hearing to address one

simple question. Are prescription drugs from Canada any less safe

for American consumers than those they buy here in the United

States?

I am sure every Member of Congress shares your desire, Mr.

Chairman, to address the safety of the prescription drugs purchased by American consumers and you are to be commended for

calling such a timely hearing. I would like to make a very brief

comment, if I might. I would like to put the issue of safety in some

context.

The pharmaceutical industry provided $30 million to candidates

in last year’s election cycle, three-quarters of it, as it happens, to

Republican candidates. Having spent $500 million on elections and

lobbying in the last 6 years and as you mentioned earlier at the

previous hearing, planning for its trade group alone to spend approximately $150 million next year, nobody in this room, in this

country should be naive about the enormous power of the pharmaceutical industry which the New York Times documented is going

to spend $150 million this year trying to make sure the American

people pay the highest prices in the world for prescription drugs.

No one should be naive about the fact that the pharmaceutical

industry has 600 paid lobbyists trying to influence Congress so that

we don’t do anything to protect consumers.

Mr. Chairman, I consider safety to be an enormous issue and I

know you do also. All of us want to make sure that every medicine

the American people take is safe but I will tell you about another

safety issue which has to be addressed. That is that there are millions of senior citizens in this country who are suffering and who

are dying in some cases because they cannot afford the astronomically high prices the pharmaceutical industry is forcing them to

pay. That my friends, is a safety issue. Congress has to lower the

cost of prescription drugs for all Americans, pass a strong prescription drug benefit under Medicare, but until that day comes, and I

don’t think you are going to allow that day to come in the immediate future, we have to make sure Americans have the right to

purchase safe and affordable medicine abroad.

Mr. Chairman, I am very happy to release to the public today a

research memo prepared at my request by the Congressional Research Service. This study analyzes in detail the Canadian regulatory system for prescription drugs and puts to light to industry

and FDA attempts to paint the Canadian prescription drug market

as some kind of provincial backwater. CRS has convinced me and

3

I think will convince you that nothing can be further from the

truth.

Mr. Chairman, thank you again for calling this important hearing. It is time that Congress and the American people stood up to

the juggernaut of the most powerful lobby in this country and that

is the pharmaceutical industry. I think we are going to make some

progress today.

Thank you very much for calling this hearing.

[The information referred to follows:]

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Mr. BURTON. Thank you, Mr. Sanders. I appreciate your remarks.

We are going to have five votes on the floor which is going to

take an hour I am sure. Do any of my colleagues have any comments they want to make before we head to the floor? Mr. Gutknecht, I would be happy to recognize you.

Mr. GUTKNECHT. Just briefly. I would like to introduce in the audience a brave patriot. Her name is Kate Stahl who is 84 years old

from Minnesota, and she got involved in the fight to get lower drug

prices a number of years ago.

Recently, if any of you saw the latest issue of U.S. News and

World Report, there is a picture of Kate and the caption below is,

‘‘I hope they will arrest me. I hope they will put me in jail.’’ This

is a patriot. This is somebody who is willing to risk going to jail

so that she can help seniors in Minnesota save a few dollars on

their prescription drugs.

I think the question before this Congress and this committee is

will we stand with people, brave American patriots like Kate Stahl,

or will we stand with the pharmaceutical industry. That is a very

important question. I think in the next several weeks, the American people like Kate Stahl are going to get an answer to that question.

I thank you for allowing me to introduce her. She is one of my

heroes.

Mr. BURTON. I don’t know that we ought to start the hearing

with the votes already in progress. I think we will recess and come

back immediately after the fifth vote.

Let me just say to Kate out there, she is not unlike thousands

and thousands, in fact, over a million Americans that get their

pharmaceutical products from Canada right now. I think a lot of

those people feel as she does that they would rather risk being arrested and possibly put in jail by the Food and Drug Administration for buying their products from Canada rather than have their

health be jeopardized by not getting the pharmaceutical products

at a price they can afford.

When it comes down to whether or not a person gets their pharmaceutical products at a price they can afford instead of losing food

or rent or whatever it happens to be, or running the risk of violating a regulation by one of the governmental agencies, I can understand why they are willing to make that risk.

Congress passed a law allowing the reimportation of pharmaceutical products but there was a provision in there that said if the

Food and Drug Administration thought there might be a safety

risk, and they couldn’t guarantee the safety of them, then they

could stop them.

With the help of the pharmaceutical companies, the FDA has

been able to block reimportation for some time and putting a lot

of individual citizens at risk of being arrested if that is how far the

FDA wants to go.

In any event, did you have a comment before we break? We have

about 5 minutes if you would like to make a brief comment?

Mr. ALLEN. I will be very brief.

16

First of all, I appreciate very much your allowing Members like

me and Mr. Gutknecht who are not members of the committee anymore to be back for this hearing.

I just wanted to mention that I rode part way in Maine with a

group of 17 seniors going up to Canada a couple of weeks ago to

get medication. These people were wealthy enough, and I use that

term advisedly, to be able to buy whatever it was, 90 days or 6

months of their medicine in advance. There are lots of people who

cannot. Those 17 senior citizens saved $18,000 on that one bus trip.

Something is wrong in this country when our seniors, people on

Medicare, people on the largest health care plan in the country,

pay the highest prices in the world for medications they have to

take.

I just can’t thank you enough for your leadership in bringing this

forward.

Mr. BURTON. Congressman Gutknecht has been the driving force

on most of this but I appreciate your comments.

We will stand in recess. I apologize to all our witnesses and the

people in the audience. We have to go with the floor and vote on

these five votes and we will be back. I think that will be it and we

will be able to stick with you for the rest of the day until we complete our hearing.

We stand in recess until the call of the gavel.

[Recess.]

Mr. BURTON. Mr. Hubbard, do you have anybody with you that

might want to testify or be a part of the testimony?

Mr. HUBBARD. I have no co-witness at the moment, although I

would like to have some people available, counsel, if a question

comes up we need to bring them up for.

Mr. BURTON. Why don’t we have them stand and be sworn in as

well.

[Witnesses sworn.]

Mr. BURTON. Congressman Davis, the chairman of the full committee, will be with us shortly. I think what I will do is go ahead

and proceed with my statement and what I have to go through and

if he and Ms. Watson arrive, we will yield to them.

I would like to start off my remarks with a slide presentation.

The first slide deals with FDA safety concerns. Slide two, FDA’s assertion is the FDA cannot assure the American public that drugs

imported from foreign countries are the same as the products approved by the FDA. I would like you to roll the videotape of Dr.

Wennar, a witness at our April 3 hearing. Unfortunately, the FDA

had left so I would like Mr. Hubbard to see that.

Mr. Janklow, in the interim, did you have any comments you

want to make?

Mr. JANKLOW. No.

Mr. BURTON. The FDA stated they cannot assure the American

public that drugs imported from foreign countries are the same as

products approved by the FDA. Now can you run the tape? This is

Dr. Wennar who was here at the last hearing and you didn’t get

to hear.

[Video presentation.]

Mr. BURTON. Let us get to slide No. 3 where FDA Commissioner

McClellan says reimportation is possible once a tracking system is

17

in place. Here is what it says, ‘‘They keep drugs safe within Canada and I think they do a very good job of that, FDA Commissioner

McClellan told FDA last week but they stopped short of saying

they can assure the safety of drugs exported to the United States

but since we can only assure the safety of drugs within our own

regulatory system, there is a risk.’’

Put up slide four, please. This is a quote from Commissioner

McClellan, ‘‘There are some steps we can potentially take to improve the technology used in monitoring the distribution of drugs

in the entire distribution chain. If we can work that out, maybe

there is a way we can work beyond the borders in that effort as

well.’’

Would you put up slide No. 5? The Canadian health officials said,

‘‘There is little evidence of counterfeit drug problems in their country at this time. As for the United States, the FDA has anecdotal

evidence but little quantitative data on the number of counterfeit

drugs being produced or imported into this country.’’ That was the

Congressional Research Service report to Congressman Sanders on

May 28 of this year.

The reason there is a counterfeit problem is because drugs are

so outrageously expensive. ‘‘U.S. prescription drug costs have been

the fastest growing component of health care expenditures for the

last several years, climbing more than 17 percent a year since

1998, twice the growth rate of health costs in general and five

times the growth rate of inflation.’’ Look at some of the price comparison charts. These price differences are outrageous. We won’t go

into all those but it is pretty obvious.

Please go to slide No. 5. ‘‘Canadian health officials said there is

little evidence of a counterfeit drug problem in their country at this

time. As for the United States, the FDA has anecdotal evidence but

little quantitative data on the number of counterfeit drugs being

produced or imported into this country.’’

Slide No. 6, please. Here is the FDA assertion. ‘‘When purchasing

drugs on the Internet, American consumers cannot be certain the

drugs they receive are actually dispensed by the person from whom

they are ordered.’’ This is Mr. Hubbard and what he said in our

last hearing.

Would you roll the videotape of Andy Troszok, a witness at the

April 3 hearing.

[Video presentation.]

Mr. BURTON. Would you put up slide No. 7, please?

This is testimony we took from April 3 when Mr. Troszok spoke

before the committee, after you left, Mr. Hubbard. He said, ‘‘So

what we did was mirrored our Canadian International Pharmacy

Association certification behind the verified, Internet pharmacy

practice sites which issues a non-government seal of approval for

U.S. Internet pharmacy site certification.’’

Let us go to slide No. 8. ‘‘IMPAC is the Internet and Mail Order

Pharmacy Accreditation Commission made up of pharmacists and

physicians from Canada, the United States and Mexico. IMPAC is

an accreditation process much like the Joint Commission on Accreditation of Health Care Organizations.’’

Let us go to slide No. 9. The FDA and Mr. Hubbard assert, ‘‘Consumers who buy prescription drugs from foreign countries are at

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risk of suffering adverse events, some of which can be

lifethreatening.’’

Go to slide No. 10. This is FDA Commissioner McClellan’s speech

before the Commonwealth Club in San Francisco on June 9, 2003,

‘‘These approved products, while safe and effective, to the best of

our knowledge, when used as intended are involved too often in

costly and potentially preventable adverse events.’’ We will continue on slide 11 with his comments. ‘‘This includes medical errors.

As many as 20 percent of Americans have experienced some kind

of significant medical error. Preventable errors and complications

involving prescription drugs alone are responsible for thousands of

deaths, millions of emergency room visits and hospitalizations and

billions of dollars in additional health care costs each year, in addition to all of the unnecessary suffering.’’ So far we have found from

Internet sales of pharmaceuticals from Canada no adverse events.

None. Perhaps today, Mr. Hubbard will have some of those.

Let us go to slide 12. This is the conclusion of Mr. McClellan’s

quote. ‘‘There is too much wasted money that would be better spent

on care that actually makes people healthier.’’

Let us go to slide 13. This is a quote from the Institute of Medical Press Release on November 29, 1999. The subject is ‘‘Preventing

Death and Injury from Medical Errors Requires Dramatic Systemwide Changes.’’ ‘‘The human cost of medical errors is high. Based

on the findings of one major study, medical errors kill some 44,000

people in U.S. hospitals each year. Another study puts the number

much higher at 98,000.’’

If you go to slide 14, it says, ‘‘Even using a lower estimate, more

people die from medical mistakes each year than from highway accidents, breast cancer, or AIDS.’’ That I think shows we have a severe problem in the health care area but we have not found any

problems with the reimportation of pharmaceutical products as far

as adverse events are concerned.

Slide 16, the FDA asserts, ‘‘It is illegal under the Federal Food,

Drug and Cosmetic Act to import unapproved, misbranded and

adulterated drugs into the U.S.’’

Let us go to slide 17. This is the Meds Act, Public Law 106–387,

Section 1, Conditions, ‘‘This section shall become effective only if

the Secretary of Health and Human Services demonstrates to the

Congress that the implementation of this section will pose an additional risk to the public health and safety and result in a significant reduction in the cost of covered products to the American consumer.’’

As I have said time and again, we have found no adverse events

or problems posed by the reimportation of pharmaceutical products

from Canada. The only time, according to the law, that the head

of HHS can stop these pharmaceuticals from coming back into the

country is if they pose an additional risk to the public’s health and

safety or result in a significant reduction in the cost of covered

products to the American consumer.

Slide 18, this is the letter from Secretary Thompson. We wrote

to Secretary Thompson asking for a response. We have not yet received a response.

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You have to excuse us because we rushed to get all this together

so we could refute some of the arguments that have been made by

the FDA in the past.

With that, Mr. Hubbard, we have tried to respond to some of the

statements you made in your first appearance before the committee

regarding the safety of bringing pharmaceutical products back into

the United States. We had a lady who was a doctor talk about the

new technology we use on the $20 bill that is on this package here.

It shows if there is any tampering with this package, it will be

shown very clearly because the colors change as you move the

package around. If there is a seal on the package that uses this

technology, if anybody tampers with it, it will be very clearly seen.

So we can repackage them and bring them back into the country

safely from Canada if that is a concern.

The pharmacists we had speak before our committee in the past

stated again that they adhere to the same pharmaceutical requirements that we do here in the United States as far as Internet selling and that our Government, working with them, can make sure

that only those Internet pharmacists up there are licensed to sell

to the United States and are qualified and certified so that they are

not dealing in counterfeit pharmaceuticals. They also work with

the Canadian Government in that regard.

With that, if you have any comments, we would like to hear

them.

STATEMENT OF WILLIAM K. HUBBARD, SENIOR ASSOCIATE

COMMISSIONER, FOOD AND DRUG ADMINISTRATION

Mr. HUBBARD. Yes, Mr. Chairman. I have an opening statement

prepared for the record but I won’t read that. I will just respond

to your question in the last hearing that we come back with examples of our concerns. So today I have for you some specific examples

of the concerns we have raised if I may show those to the committee.

The first example is some drugs that are coming from Canada,

typical of drugs coming in from Canada representing in many cases

what we are actually seeing. These first three examples are drugs

for osteoporosis, glaucoma and insulin for diabetics. They are required to be refrigerated. If they are not refrigerated, they are very

complex proteins that break down and become ineffective. This is

the way we took them from the mail.

I will even note in the case of one pharmacy, the place where it

says ‘‘keep refrigerated’’ is where they put their label. That is a

dangerously ineffective drug in all three cases and those came from

Canada, ordered over an Internet site we believe.

A second example is an antidepressant drug and should only be

dispensed in very small amounts, about 30. This is several hundred. This drug is prescribed for a relatively high risk population

for overdose. This drug should not be given in large amounts to patients. The Canadian pharmacy sent this individual about 10

months worth of that drug.

The next individual apparently had epilepsy and bought a drug

usually dispensed in 30 days increments. This is what the Canadian pharmacy sent this gentleman. This is about 4 year’s worth

of the drug. These drugs start expiring in 6 weeks, so most of the

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time this patient takes these drugs, they will have been expired

and ineffective.

The next drug is a diuretic for someone with high blood pressure. The interesting fact about this drug is the patient paid $32 for it

and you can get in the United States for $20. It has a generic version in the United States, so this patient actually lost quite a bit

of money in buying that drug.

This next drug is very, very commonly seen in these Internet

sales. It is Lopressor, a high blood pressure drug. When any of us

go to the drug store and get drugs from our pharmacist, we get

them in the bottle, with the name of the doctor and the pharmacist.

It says take before bedtime or with food or how many a day, whatever it is you need to know that your doctor has told you to do is

on that bottle. The pharmacist has dispensed that. This is the manufacturer’s bottle. This person apparently ordered 30 and he got

the standard bottle of 100, so he got too much. All it has is the

French and English label and it says what it is in it, no warnings,

no labeling. This drug needs to be taken very carefully. You

shouldn’t drive with this drug, you shouldn’t use alcohol. It causes

headaches and dizziness and a number of side effects you should

report to your doctor. This drug came with none of that. This drug

misses all of the standard medical protections that the Congress

put into place 50 years ago for medications. It is just a bottle of

pills with the manufacturer’s name on it.

I also have three drugs that someone bought over the Internet.

They are unapproved. We don’t know what they are. I think this

one may be a Canadian version of Lipitor because it is Lipidil. We

are not sure what it is but the person might have thought they

were buying Lipitor and they got this other drug. Whatever it is,

it is not approved for use in the United States and there is no labeling or information on it as well.

Here is another drug. This one did not come from Canada but I

will give you an example of what some folks are getting from these

Internet sites. This is a travel book, it has been carved out and the

pills are on the inside. These sites say the drugs are safe and effective, FDA approved and all legal, and I don’t think they would be

carving out travel books to hide them in there in that case. We are

concerned about that drug.

Last, we have an example of an 82 year old gentleman who

bought two drugs from a Web site that I am going to show you

now. I think we can put it on the screen. It is a site based in Arizona which offers to sell you Canadian drugs that are all legal and

safe and perfect at a great savings. This gentleman apparently had

prostate enlargement and epilepsy.

What he received was a Tupperware container. In that

Tupperware container is the drug for prostate enlargement with no

labeling, no warnings or anything and the drug for epilepsy. The

unique thing about this drug is it had a funny return address on

it of India. In fact it says on the package, ‘‘Made in India.’’ He was

told on that Web site and when he made the phone call that he

was getting a U.S.-produced drug sold in Canada and sold back to

him. He got Indian drugs that are not approved, have no labeling,

no information, and he called the FDA and was outraged, why were

we letting this stuff in.

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I will also mention phenesteride, a drug that is so dangerous if

a pregnant woman even touches it with her hand, it could cause

birth defect in her child. It is that dangerous. No warnings of any

kind to that effect, so if this gentleman’s wife or daughter or someone else handled this drug, just opened the mail not realizing what

they were doing, they would be subjecting themselves to serious potential injury.

In summary, we have come back today with the real examples

you asked for of drugs that refrigerated that must be, that have no

instructions or warnings that should, that are unapproved in the

United States, but should be, that are smuggled in, that have no

cost savings for the actual consumer and indeed, in some cases, are

even made in developing countries where there is no FDA regulation and no assurance of quality and real doubts about what they

even are.

With that, Mr. Chairman, I will conclude my remarks but these

are the sorts of drugs actually coming in every day at Detroit and

Buffalo and the various mail facilities around the country at Americans are buying on Web sites like this that are promising safe and

effective, U.S.-produced drugs that are sold in Canada.

[The prepared statement of Mr. Hubbard follows:]

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Mr. BURTON. Let me make a few comments and I will yield to

my colleagues.

The IRM report in 1999 said there is between 44,000 and 98,000

deaths in the United States due to errors in this country. You have

talked about a lot of these things and I appreciate your going to

all the trouble you have to bring in these examples. We asked you

to bring a list of adverse events where people were hurt.

I would like to ask you, were any of these products and these violations reported to the Canadian or the provincial government in

charge?

Mr. HUBBARD. We certainly have communicated at the highest

levels in the Canadian Government including the head of the Canadian FDA about our concerns. We have not shown them these actual examples.

Mr. BURTON. You saw the pharmacist from Canada and he clearly said that they are getting a stamp of approval, they are going

to be regulating themselves, they are going to make sure that only

those pharmacies there with the stamp of approval will be the ones

we would want to buy Internet products from. That seems to me,

along with the packaging which would prove they were sealed

properly and they couldn’t be counterfeited, would eliminate almost

every one of the problems you pointed out.

As far as adverse events where people have been harmed by Canadian drugs coming across the border, did you bring any examples

for us?

Mr. HUBBARD. We have very little evidence. We only have anecdotes as your earlier report mentioned, for instance, a lady with

breast cancer who bought Taxol from Canada and got something

else and a few other isolated examples. We believe people would

tend not to report these sort of adverse events, plus the system is

not set up to track adverse events from drugs like this.

The IOM report you referred to about hospital dispensing errors

where the doctor prescribes one drug and the nurse mistakenly

gives say an infant an adult dose, those are principally based medical errors, not the kinds of errors you see from people buying drugs

this way.

Mr. BURTON. Obviously mistakes are made here in the United

States, that is why 44,000 and 98,000 people got the wrong pharmaceutical product and died. You can’t give me one example where

somebody other than this one lady that got the wrong prescription

has been hurt by getting pharmaceutical products from Canada.

That one required refrigeration and it shouldn’t have been sent

and some of them got an oversupply and they may not have come

from a registered, approved pharmacy in Canada. That is why that

should be policed by not only the Canadian Government, which

they are doing, but as well as the FDA.

The problem is as this older lady said she was willing to go to

jail to get her pharmaceutical products from Canada because they

cost so much less, the same product, the same pharmaceutical

product in Canada in many cases costs 10 times, 5 times, twice as

much here in the States as it does up there. Why should Americans

bear the brunt of these additional costs here in this country when

in Canada it costs so much less?

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The argument was made, what was the one in the paper yesterday that Representative Gutknecht talked about, was that Taxol.

What was the name of the pharmaceutical company?

Mr. GUTKNECHT. Smith-Kline-Beecham.

Mr. BURTON. Smith-Kline-Beecham had a patent on Taxol and made $9 billion last year?

Mr. GUTKNECHT. Since the drug was introduced.

Mr. BURTON. Since the drug was introduced, they have made $9

billion. Almost all of the research and development was paid for by

the Federal Government of the United States which was $484 million. We gave them the patent and they were supposed to give us

royalties. They made $9 billion and the Federal Government got

$35 million back and Medicare paid $687 million for that product

which we paid for as taxpayers to be developed. Yet it could have

been purchased for a lot less in Canada if it was for sale up there.

These are things that really concern us and the American people

should not be bearing the brunt of that. I won’t belabor that point

any further.

The chairman of the full committee is here, Chairman Davis, and

he has a statement he would like to make. Then I will start yielding to my colleagues for questions.

Chairman TOM DAVIS. Thank you, Mr. Chairman.

I want to thank our witnesses for being here today and say to

the chairman, I think we all want more affordable prescription

drugs. That is the purpose of the hearing. Obviously it is more

complicated than meets the eye. I think you have just shown some

of the pitfalls we face when we just approach this thing willy-nilly.

U.S. consumers experience a high level of confidence when we

purchase prescription drugs with our country, thanks to the efforts

of the FDA. The FDA will only approve a prescription drug after

a thorough investigation into the safety and effectiveness of the

medication which includes inspecting the manufacturer’s facilities.

Proponents of importation from Canada argue that Health Canada, the Canadian version of the FDA, has health and safety standards similar to those in the United States. However, the FDA

which has the responsibility and expertise could not conclude that

imported drugs would be safe. In fact, the HHS under the Clinton

and Bush administrations declined to certify that drugs from Canada are safe under the Meds Act passed in 2000.

While importation supporters focus on the lack of evidence that

importation has contributed to the deaths of American consumers,

there are important risks we have to address as we evaluate the

issue of importation. My colleagues have highlighted a growing

trend of seniors traveling over the border to Canada in order to

purchase prescription drug medications from Canadian pharmacies

but the bulk of American seniors like those in my districts, don’t

have the option of traveling to Canada in person to purchase prescription drugs. This has led to the use of Canadian Internet pharmacy sites. Seniors who may not be computer savvy have children

and grandchildren to assist in utilizing these Internet sites.

There are multiple challenges to ensuring prescription drug purchase over the Internet from allegedly Canadian sources via the

Internet are safe. A patient loses the safeguards of receiving a prescription for an FDA-approved source.

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Some Canadian pharmacy Web sites advertise they sell FDA-approved drugs and that they are FDA-approved pharmacies but

these statements are false. The FDA does not approve foreign pharmacy and doesn’t approve drugs that are resold or not manufactured for use in the United States.

Additionally, not all Canadian pharmacy Web sites are actual

pharmacies. Some of these Web sites are simply prescription drug

warehouses with no affiliation to a Canadian pharmacy or doctor.

When purchasing prescription drug medication from a Canadian

Web site, an American consumer has no guarantee that he or she

is actually receiving medication from the address provided. The

FDA has uncovered Web sites that provide consumers with a Canadian address but are actually located in foreign countries. Unknowingly purchasing drugs from countries other than Canada takes

even Health Canada safety guarantees completely out of the picture.

Consumers may receive counterfeit or adulterated medications

from countries with little or no drug guidelines. The effectiveness

and safety of a drug can be compromised from purchase from Canadian pharmacy Web sites. Drugs like food have expiration dates. In

addition, the effectiveness of certain medications can be reduced

when exposed to heat or cold or in shipping.

In U.S. pharmacies, consumers are provided with a medication

label that lists specific warnings as to how to take and the possible

side effects of the medication. Prescription drugs purchased from

Canadian Internet sites may arrive to the consumer in the manufacturer’s original container as we say, particularly if they are

shipped from a drug warehouse. This poses a significant risk to

consumers who may not be privy to a drug’s side effects or interaction with other medications.

In addition to the testimony of Mr. Hubbard of the FDA, I would

be interested to hear from officials with the DEA and Customs. I

would like a better understanding as to how the FDA, Customs and

DEA would address the problems of adulterated, counterfeited or

mislabeled drugs that might enter the United States through reimportation.

Do these law enforcement agencies have the proper tools to resolve the issues that reimportation may present to American consumers? Congress must have a complete record on these issues to

ensure drug safety.

We should also be concerned about both the safety of drugs imported into this country and the impact on drug development that

such importation might have. Importing price controls of lower Canadian drugs may be beneficial to consumers in the short run and

in fact, buy today’s medications cheaper but we may not see tomorrow’s medications developed that offer further cures. We have to be

cognizant of that balance.

Competition from the lower prices in Canada that reduce investment in drug companies could diminish drug development in this

country which is also a large employer and has in many cases proVerDate 11-MAY-2000 10:57 Oct 21, 2003 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 D:\DOCS\89719.TXT HGOVREF1 PsN: HGOVREF1
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duced some of the miracle drugs we see sold today. It could delay

some drugs from coming to the market permanently.

The American Pharmacists Association has a statement I would

like to enter into the record along with other related materials.

[The prepared statement of Chairman Tom Davis follows:]

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Chairman TOM DAVIS. The American Pharmacists Association

has significant concerns regarding the effect importation would

have on patient safety and care.

In addition, I have two letters I would like to enter into the

record. The first is from Dr. Anthony Lorton, a Canadian physician

who shares his views on how Canada’s price control on prescription

drugs has negatively effected elderly Canadian patients by delaying

the introduction of new drugs and restricting patient’s choices on

prescription medicines.

The second letter is from Better Pharmacare Coalition located in

British Columbia, a collection of national and provincial health professional and consumer advocacy groups. The Coalition discusses

how the Canadian health system has placed numerous limits on allowing patients access to new medications in a timely manner.

[The information referred to follows:]

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Chairman TOM DAVIS. Making prescription drugs safe and affordable for Americans is an important issue facing Congress. I applaud the chairman for highlighting one of the aspects of that here

today. This is an important issue and we need to understand all

aspects of it. It is a complicated issue but I think the chairman in

holding this hearing can highlight some of the issues and some of

the problems we face here in America where we do seem to pay

higher drug prices on balance than we see across the border.

Providing a prescription drug benefit through Medicare will enable seniors to buy safe and effective drugs in the United States

at affordable prices and perhaps therein lies part of the solution.

The buying power that will result from such a benefit would also

reduce the cost of drugs in America ensuring that the high cost of

drugs isn’t simply shifted to the taxpayer. As a result, seniors will

no longer need to seek lower cost drugs from Canada at a potentially greater risk to their health and safety.

Again, Mr. Chairman, thank you for holding the hearing to try

to get to these questions. I think there are a lot of issues we need

to understand in their entirety before we proceed but I congratulate you on that and look forward to witness testimony.

Mr. BURTON. Thank you, Mr. Chairman.

Mr. Sanders.

Mr. SANDERS. Thank you.

Let me be very blunt. Let me start off by mentioning an article

that appeared in the Washington Post a little while ago, July 2002.

According to the Washington Post, in July 2002, the Republican

National Committee hosted a fundraiser that brought in over $30

million in one night. The chief operating officer of drug giant,

GlaxoSmithKline, Robert Ingram, was the chief corporate fundraiser of the event. His firm contributed $250,000 as did the drug

company’s trade group, Pharma; Pfizer contributed $100,000, blah,

blah, blah.

[The informatin referred to follows:]

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Mr. SANDERS. In the last two election cycles, the Republican

Party and candidates received over $31 million in campaign contributions from the pharmaceutical manufacturers. In the last two

election cycles, the chairman of the House Commerce Committee

received over $125,000. In the last election cycle, the chairman of

the House Ways and Means Committee received over $180,000 in

campaign contributions from the pharmaceutical industry. Not to

be partisan, the ranking member of the Commerce Committee received $131,000.

In other words, Mr. Chairman, this institution is afloat with

money and lobbyists that come from the most powerful industry in

the United States of America. Their goal is not about safety; their

goal is profits, profits, profits, and paying their CEOs exorbitant

compensation packages. If they were concerned about safety and

the well being of the American people, they would not force a million Americans to go to Canada to buy the same prescription drug

sold in this country for substantially lower prices.

Mr. Hubbard, in a very theatrical display shows us some of the

problems that exist but I did not hear you say one word, Mr. Hubbard, about the senior citizens in this country who die because they

cannot afford the outrageously high prices they are forced to pay.

I did not hear you say one word about the thousands of senior citizens, 1 in 5 senior citizens cannot afford to purchase the medicine

their doctors prescribe. They are suffering, they are dying. I didn’t

hear you say one word about that.

Mr. Hubbard, let me ask you this. On April 22, the FDA sent out

a press release, ‘‘FDA commends drug industry commitment to report counterfeit drugs. Food and Drug Administration commends

Pharma, the Nation’s largest representative of the drug industry’’

and by the way the group which will spend $150 million to make

sure Congress and State legislatures do nothing but you commend

Pharma for ‘‘its commitment to actively help FDA identify and remove counterfeit drugs from the United States market.’’

Mr. Hubbard, you are under oath. Did you in preparation for

your presentation today coordinate with the drug companies about

today’s hearings?

Mr. HUBBARD. No.

Mr. SANDERS. Would you tell this committee the details of any

conversations you have had with representatives of the drug companies, Pharma or any other affiliated groups including the date

and location of the communication whether it was in person, by

phone or in writing, the people involved and the substance of the

communication?

Mr. HUBBARD. I would be happy to. It has been very, very limited.

Mr. SANDERS. How limited? To whom did you talk?

Mr. HUBBARD. I had a conversation with a Pharma representative last week about some joint efforts to combat counterfeiting.

Mr. SANDERS. Would that include their help in your presentation? Did you talk to any representatives of public organizations

that are trying to fight for lower prices and help people get safe

medicine from Canada?

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Mr. CANNON. Would the gentleman yield? Is the gentleman talking about in preparation for this hearing in both the last question

and the current question?

Mr. SANDERS. We can start off with preparation for this hearing

and go beyond that.

Mr. HUBBARD. Almost no contact on this hearing if that is your

question.

Mr. SANDERS. What does almost mean?

Mr. HUBBARD. Glaxo was nice enough yesterday to e-mail me

their testimony for today which I have not read but I do have a

copy somewhere in my brief case. I believe that was pretty much

the limit of that.

Mr. SANDERS. Did you have any discussions with representatives

of the drug industry?

Mr. HUBBARD. Not in preparation for this hearing, no.

Mr. SANDERS. When is the last time you spoke to representatives

of the drug industry?

Mr. HUBBARD. I spoke to a Pharma representative last week

about joint efforts with them and other groups on combating counterfeiting.

Mr. SANDERS. Which includes very much the same material that

your talking about today?

Mr. HUBBARD. It is not really this issue.

Mr. SANDERS. It sounds to me like it is this issue.

Mr. HUBBARD. It is related because counterfeiting is a related

issue.

Mr. SANDERS. Let me ask you this. Are you aware of any communications between other FDA personnel, the Department of HHS or

any other member of the Bush administration with representatives

of the pharmaceutical industry?

Mr. HUBBARD. I have no knowledge of any such contact. I would

not likely have such knowledge.

Mr. SANDERS. Have you had any communications with anyone

else in the FDA, the Department of HHS or any other department

or agency about the subject of reimportation of prescription drugs?

Mr. HUBBARD. Certainly in the past we have had conversations

with Secretary Thompson and his staff and before that with Secretary Shalala and her staff.

Mr. SANDERS. I am out of time and I yield back.

Mr. BURTON. Thank you, Mr. Sanders.

I think Mr. Gutknecht was next.

Mr. GUTKNECHT. Thank you. I really appreciate this hearing. Mr.

Hubbard, I appreciate your being here.

We may differ on our view of this but we do agree that we do

want safety for American consumers.

With regard to the large stack of drugs, is it not possible that

the individual who ordered those drugs was ordering on behalf of

other people because earlier we had an 84 year old young lady who

described herself as a drug runner and who regularly goes to Canada to help other seniors get drugs. I would not be surprised if

from time to time she brings back more than a month’s supply.

Would that surprise you?

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Mr. HUBBARD. No. The vast majority of these imports are small

shipments such as this obviously intended for one patient. This was

apparently intended for one patient.

Mr. GUTKNECHT. But we don’t know and the fact of the matter

is we know it was addressed to one individual but may or may not

have been for one individual.

I want to come back to the basic issue of safety. It is the Food

and Drug Administration, is it not?

Mr. HUBBARD. Yes, it is.

Mr. GUTKNECHT. So you are also responsible for the food supply

of all the foods that come into the United States. Are you aware

of how much food comes into the United States every day?

Mr. HUBBARD. Quite a bit.

Mr. GUTKNECHT. What do we do about that?

Mr. HUBBARD. There is an entirely different statutory structure

over food but we do have authority to examine all imported food.

Mr. GUTKNECHT. How much do you examine?

Mr. HUBBARD. Less than 1 percent.

Mr. GUTKNECHT. Let me give you some numbers. For the benefit

of the committee, according to the NIH, each year they estimate 76

million Americans suffer foodborne illnesses and according to them,

325,000 of those are hospitalized and 5,000 die.

You were asked earlier about anecdotal evidence versus facts and

so far what I have learned from the FDA, and I could be wrong,

there is no evidence of any American yet who is taking a legal,

FDA-approved drug from another country who has died. Am I correct in that? Yes or no, either there is evidence or there isn’t.

Mr. HUBBARD. If I may, you wouldn’t know.

Mr. GUTKNECHT. I only have 5 minutes.

Mr. HUBBARD. When this drug doesn’t work, it is not that you

die, it is you are not cured, not treated.

Mr. GUTKNECHT. I understand but the bottom line is there is no

evidence of anyone who has died from taking a legal drug from

Canada, isn’t that a fact?

Mr. HUBBARD. I have on evidence of that, correct.

Mr. GUTKNECHT. That is all I asked you was yes or no.

Let me talk about the numbers in terms of foods and vegetables

and the FDA is responsible for fruits and vegetables. You are not

responsible for meat for the most part. Fruits and vegetables last

year we imported $1.1 billion worth of bananas. Do we certify that

all those bananas are safe?

Mr. HUBBARD. No, we do not.

Mr. GUTKNECHT. If you go down the list, the countries that we

import from, let me give you some examples of numbers we do

know of fruits and vegetables coming into the country.

According to a report done by your agency, in 1996, 1,469 people

became seriously ill from eating raspberries from Guatemala. What

did you do about it?

Mr. HUBBARD. We banned raspberries from Guatemala in that

case.

Mr. GUTKNECHT. You didn’t ban them for very long because the

very next year, 1,012 people got sick from raspberries from Guatemala. This is not your fault and I am not trying to badger you but

I think the members of the committee and the Congress need to

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understand that yes, we are concerned about safety but let me say

this. It is not the statute of security sitting in New York harbor.

Americans take risks every day.

I don’t want Americans to take any unnecessary risks whether

they are buying Coumadin from Munich, Germany or raspberries

from Guatemala. I have a long list and would be happy to share

with members of the committee of the thousands and thousands of

tons of fruits and vegetables that we bring into this country every

day and blithely eat them and by the FDA’s own admission, less

than 1 percent are ever inspected.

One of the arguments we are hearing some critics of reimportation is that somehow terrorists are going to use the drug supply.

I find that almost amazing that it is easier for a terrorist to open

a Fed-Ex box package coming in from Munich, Germany, open the

sealed package, put in some kind of poison, reseal it and somehow

reseal the Fed-Ex package and affect the life of one American.

It seems to me if they are really serious about using that kind

of terrorism, wouldn’t it be easier to put strychnine in orange juice?

Don’t we import millions of gallons of orange juice every day?

Mr. HUBBARD. And FDA is very concerned about the safety of

food in that way, yes.

Mr. GUTKNECHT. But you are not doing anything about it.

Mr. HUBBARD. In fact, we are but many of those we cannot talk

about.

Mr. GUTKNECHT. Relative to what you do with prescription

drugs, is it fair to say the effort by the FDA on reimportation of

drugs is enormous and all we do in the thousands and thousands

of tons of fruits and vegetables that come into this country every

day is almost nonexistent? Isn’t that a fact?

Mr. HUBBARD. Yes, but the regulatory structure is very different

for Food and Drug. Drugs are supposed to be shown to be safe and

effective but that is under a congressional requirement going back

to 1938.

Foods are presumed to be safe unless they are shown to be unsafe. It is very different.

Mr. GUTKNECHT. I understand there is a different standard but

for those 5,000 people who died of food borne pathogens, the result

is worse, isn’t it? They are still dead, aren’t they?

Mr. HUBBARD. If they are dead, they are dead.

Mr. GUTKNECHT. All I am saying is if the logic and rationale is

the same, shouldn’t we make the standard for imported fruits and

vegetables the same for imported drugs? If the idea is the purpose

of the FDA is to help secure the safety of Americans, it seems to

me you are a lot more likely to die of eating an imported strawberry than you are from taking Coumadin from Munich, Germany.

Isn’t that a fact?

Mr. HUBBARD. The way you describe it is, but I would argue differently that in fact what is happening is people that take these

drugs are not having their treatment occur and they are getting no

treatment. They are spending money on ineffective treatment and

therefore that hurts them in two ways. It hurts both their health

and their pocketbook.

Mr. GUTKNECHT. That is true and we don’t want that to happen.

Let me come back to one last point. I know my time has about exVerDate 11-MAY-2000 10:57 Oct 21, 2003 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 D:\DOCS\89719.TXT HGOVREF1 PsN: HGOVREF1
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pired but the reason you are seeing more of this coming in, I understand there are people in Miami who are experts at importing

drugs. They import $10 million worth of cocaine every week. We do

all we can to try and stop them but it still comes in. These are

business people. They have started to figure out that you can make

as much money on Glucophage as you can on cocaine so why

wouldn’t they get into that business? It is only rational. It is just

a rational business decision.

More importantly, they are not amateurs, they are professionals.

They know how to import drugs. We are going to see more and

more of it, and this is not your responsibility, this is our responsibility, if we don’t do something to level the prices we pay versus

the rest of the world, you are going to see more and more of these

illegal drugs coming into this country. That is a fact, an absolutely

predictable fact.

Mr. Hubbard, I appreciate your coming. I am not here just to

badger you but it seems to me we have to have an equal standard

for safety whether it is food or drugs. It seems to me we have a

responsibility to American consumers but at the end of the day I

don’t think, and you probably saw the article of the lady who was

here earlier who says in the article, I would like nothing better

than to be thrown in jail.

You may think she is a lawbreaker but I think she is a patriot.

I think she stands on the shoulders of the patriots and those like

the sons of liberty who began throwing tea in Boston Harbor. They

are mad as hell and they are not going to take it anymore.

Thank you.

Mr. BURTON. Ms. Watson.

Ms. WATSON. Thank you. Let me apologize. We were downstairs

hosting POW Shoshana Johnson. I was looking forward to the testimony of this committee and I am very impressed at the work ethic

of our subcommittee and the timeliness of this issue.

Medicare reform is right around the corner and a proscriptive

drug benefit is at the center of the solution. I commend your efforts

toward good public policy and the education of the American people.

We all must agree that Americans pay higher prices for their

prescription drugs than the residents of any other country in the

world. When you strip pharmaceutical controversy to the core, the

bottom line is that prescription drug prices are way too high. We

spend twice as much as any other country in the world for health

care, yet we are ranked 39th in the world for health care delivery

according to the WHO.

Restricted access to prescription drug markets is one major factor

in this anomaly. Unprecedented medical knowledge creates a domestic quality of life issue for the United States. Seniors, low income families, working class families, parents with children, are all

segments of America that should be included in the access to prescriptive drugs.

Lower drug prices abroad have led many Americans to purchase

drugs from foreign sources. Our neighbor to the north, Canada, has

a long affiliation with the United States and business relations

with the same pharmaceutical manufacturers that sell products

here. I cannot in good conscience discourage any constituent from

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going across the border to save 40 to 70 percent on the same drugs

that are offered here.

Until recently, the FDA stood by the long-standing personal use

policy by which the agency exercised its enforcement discretion to

allow individuals to import a 90-day supply for personal use. Now,

under pressure from the industry, the FDA is threatening prosecution of my most needy constituents plus the Canadian wholesalers

and pharmacists who sell products to them.

I want you to correct me if I misinform. I cannot find, and I have

asked my staff to search, one documented case of harm attributed

to prescription drugs obtained in Canada. Research has also revealed that only cases of prescription drug counterfeiting are either

domestic or from Third World countries. In most Canadian situations, prescription drugs are placed in the same packaging, retain

the same name and are made by the same manufacturer.

Americans pay substantially more for prescription drugs than

purchasers in other countries. The problem is particularly acute for

our Nation’s uninsured seniors. So I applaud efforts to offer programs such as Together RX and the Orange Card but I stress those

efforts simply are not enough. These programs are well intentioned

and well thought out but they do not reach the entire target population and do not address the fundamental problem. Prescription

drug prices are just too high.

Pharmaceutical companies make billions in profits, spend millions to advertise to potential consumers and spend hundreds of

thousands of dollars here in Washington, DC. Many of the patents

used today are derived from Federal research facilities. American

taxpayers paid for much of this research and they deserve to be

able to afford the benefits of the results of this research.

Mr. Chairman, despite incessant pharmaceutical industry complaints to the contrary, research by the committee staff demonstrates that international pricing disparities are not explained either by the duration and the cost of the FDA approval process or

by disproportionate U.S. research and development costs.

It is within our power to correct this problem but it will require

a public/private partnership and a fierce resolve to value American

quality of life. I look forward to the testimony and to being convinced that we are doing something wrong in terms of public policy

and you are right, but I think that we are right because our policy

will do no harm and will give the best benefit for the largest number of Americans.

Thank you and I yield the balance of my time.

Mr. BURTON. Thank you, Ms. Watson.

Mr. Janklow, I think you were next.

Mr. JANKLOW. Thank you.

Mr. Hubbard, I too appreciated the dramatic display but can you

order those diabetic drugs through American Internet?

Mr. HUBBARD. Absolutely.

Mr. JANKLOW. Do they come refrigerated?

Mr. HUBBARD. They come in a thing called an ice pak.

Mr. JANKLOW. They come in an ice pak but in the event it were

to take an extra day or two for you to get it from the post office,

it would end up about the same temperature as that stuff on your

desk, wouldn’t it?

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Mr. HUBBARD. If that happened, the drug should be thrown away

at that point.

Mr. JANKLOW. We allow that though, don’t we?

Mr. HUBBARD. I believe we would require it to be handled properly.

Mr. JANKLOW. If there was a day or two delay in the post office,

if it is mailed on say Friday or Saturday and there is no Sunday

movement, it will come at that same temperature sometimes, won’t

it?

Mr. HUBBARD. I think very little refrigerated product is sold over

the mail but it would certainly be shipped in a way that it would

arrive while it was still cold.

Mr. JANKLOW. My second question, you told us about the diuretic

that cost $32 that sells for $20 in America. Are you familiar with

some of the other drugs sold in Canada versus the United States,

drugs like Zantac?

Mr. HUBBARD. Generally, Mr. Janklow.

Mr. JANKLOW. No, are you familiar with Zantac is my question?

Mr. HUBBARD. I know of it.

Mr. JANKLOW. Are you aware you can buy Zantac from CVS.com

for $236.99 in this country and CrossBorder Pharmacy.com in Canada for $56.54, a difference of $180.45. Are you aware of that?

Mr. HUBBARD. That sounds consistent with price differentials I

have heard.

Mr. JANKLOW. Are you aware also that Paxil, 10 mg tablets, you can get at CVS.com for $82.59 in this country through the Internet,

through Canada’s Internet, $52.35, a difference of $30.24?

Mr. HUBBARD. Again, that sounds consistent with price differentials I have heard.

Mr. JANKLOW. So the example you used, you had to kind of

search to find one where it was actually more expensive in Canada,

didn’t you?

Mr. HUBBARD. The example I was trying to give was this was a

generic drug.

Mr. JANKLOW. Did you or didn’t you have to search to find one

that was more expensive in Canada, yes or no?

Mr. HUBBARD. I think every generic drug.

Mr. JANKLOW. My question calls for a yes or no, did you or didn’t

you have to search to find one more expensive in Canada?

Mr. HUBBARD. This was randomly pulled out. I would suspect

that every generic drug would be cheaper in the United States.

Mr. JANKLOW. By not answering, you have answered it. Thank

you.

All the examples you use are Internet sales, correct?

Mr. HUBBARD. Yes.

Mr. JANKLOW. For Americans that go to Canada to buy their

drugs, tens of thousands of them if they are fortunate enough to

live in the border States, do you have any examples of where they

are buying the bad product with the ability to do that under Canadian regulatory operations?

Mr. HUBBARD. My own view is it is somewhat safer to go across

the border that way.

Mr. JANKLOW. I didn’t ask for your view, I asked you if you had

any evidence of the fact that anybody who has gone to Canada to

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buy drugs as opposed to getting them through the Internet has had

any problem pursuant to Canadian regulatory climate?

Mr. HUBBARD. What I was trying to say, Mr. Janklow, was if you

personally go there you are more likely.

Mr. JANKLOW. Do you or don’t you have evidence? The question

is do you or don’t you have evidence?

Mr. HUBBARD. I have no evidence about anything that happens

in Canada if that is your question.

Mr. JANKLOW. You are familiar with the way the Canadian regulatory scheme works, aren’t you, given the fact you are the Senior

Associate Commissioner of our Food and Drug Administration?

Mr. HUBBARD. Not particularly.

Mr. JANKLOW. How familiar are you with Canada’s scheme, sir,

for regulatory control of drugs?

Mr. HUBBARD. I have talked to Canadian health officials a half

a dozen times to try to get an understanding of their system, I

have not visited Canada, I have not done an examination, nor has

anyone at the FDA to my knowledge.

Mr. JANKLOW. Have you ever been briefed by anybody in the

FDA about the Canadian regulatory scheme?

Mr. HUBBARD. I don’t think anyone at FDA is capable of briefing

me because we don’t have a need to know that.

Mr. JANKLOW. If you don’t understand my question, I will try

and restate it.

Mr. HUBBARD. The answer is no.

Mr. JANKLOW. Have you ever been briefed by anyone at the FDA

about the Canadian regulatory scheme?

Mr. HUBBARD. No, Mr. Janklow. I have only talked to Canadians.

Mr. JANKLOW. Have you ever read any materials about the Canadian regulatory scheme?

Mr. HUBBARD. I have read some limited material the Canadians

have given me.

Mr. JANKLOW. How many materials have the Canadians given

you, sir?

Mr. HUBBARD. Two or three different little packets.

Mr. JANKLOW. Have you read them?

Mr. HUBBARD. Yes.

Mr. JANKLOW. Is there anything about them that you would disagree with, dispute or find of concern?

Mr. HUBBARD. There were a lot of things I didn’t understand and

in trying to understand them, we talked to them orally to try to

understand the extent to which they would protect the drugs coming into this country.

Mr. JANKLOW. I am talking about their regulatory scheme?

Mr. HUBBARD. They have described a scheme that is analogous

to that of the FDA.

Mr. JANKLOW. If it were to be a requirement, would the FDA be

opposed to a system whereby an American pharmacist could bring

in the drugs from Canada and resell them in the United States?

Would that be the kind of scheme around which you would be willing to work if someone could try to design a scheme like that?

Mr. HUBBARD. That was the precept behind the Meds Act that

Mr. Sanders and others referred to that was enacted by Congress

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in 2000. We gave some technical assistance to the drafters of that

bill.

Mr. JANKLOW. Is it something about which you think you could

effectively regulate if it was sold through pharmacists in the

United States based on imported drugs from Canada?

Mr. HUBBARD. Secretaries Shalala and Thompson determined

that the standards set up by that statute required there be no loss

of safety protections and they determined they could not certify no

loss of safety protections, so they did not certify that bill could be

safely implemented.

Mr. JANKLOW. Did you concur in that and if the answer is yes,

what was your basis for concurring in their decision?

Mr. HUBBARD. I did because it required certain testing and pedigree requirements or documentation that we did not believe could

be successfully implemented.

Mr. JANKLOW. My time is up. Thank you.

Mr. SANDERS. Would the gentleman yield for one brief second?

Mr. JANKLOW. Sure.

Mr. SANDERS. I appreciate his line of questioning. I happen to be

the chief author of that legislation, so let us get the facts straight.

FDA sat in our office and the offices of other Members of Congress,

Republican, Democrat, Independent, to make sure the standards

for safety were very, very strong. They signed off on those. They

helped us write the legislation.

When you had quoting Shalala and others, what they are saying

is we built into it, we said it is going to take a certain amount of

money to implement and for a variety of reasons, there was a concern that money might not be available but will you deny today

that the FDA actively participated in developing the safety standards of that legislation and signed off on them?

Mr. HUBBARD. I will agree with the first half and disagree with

the second half of your statement. We did participate, we gave

technical assistance, we did not agree with the end result of that

bill, that it could be safely done.

Mr. SANDERS. That is not accurate to the best of my knowledge,

sir.

Mr. BURTON. The gentleman’s time has expired.

Mr. Crowley.

Mr. CROWLEY. Thank you for letting me sit in as someone who

is not a member of the committee.

Mr. Hubbard, I wasn’t here earlier. Do you have any evidence of

any American citizen being harmed or sickened by drugs reimported from Canada?

Mr. HUBBARD. As I explained earlier, we have only very limited

anecdotal examples of that. Our answer is really more that when

people get these drugs, you don’t have the sort of frank harm you

might get where someone would immediately die or be seriously injured. You have failure to treat the individual.

Mr. CROWLEY. But you have no evidence of anyone dying from

this?

Mr. HUBBARD. We have a couple of examples of allegations that

I would not want to put a great deal of strength behind.

Mr. CROWLEY. We would like to see some of that if you do.

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How often does the FDA actually apprehend counterfeit drugs

coming over the border?

Mr. HUBBARD. Fairly rarely. Counterfeiting is fairly common

around the world. Some estimates are that in many countries, it

is over half the drugs sold. In the United States, it is very, very

rare, however, fortunately.

Mr. CROWLEY. Do you know of any counterfeit operations in Canada actually creating drugs?

Mr. HUBBARD. The Royal Canadian Mounted Police seized several thousand Viagra pills in April that were counterfeit.

Mr. CROWLEY. Couldn’t that have been created in Canada?

Mr. HUBBARD. These were Canadian-produced, counterfeit

Viagra intended we believe for export to the United States.

Mr. CROWLEY. The false drug, the counterfeit drug, was produced

in Canada?

Mr. HUBBARD. According to the RCMP sources yes, but this was

not our case, so I can’t give you much information about that.

Mr. CROWLEY. Are counterfeit drugs produced in the United

States?

Mr. HUBBARD. Yes. The few cases we have seen have tended to

be domestic.

Mr. CROWLEY. Is there a great deal of emphasis on going after

them?

Mr. HUBBARD. Absolutely. We are very aggressive in that because it presents a very frank health risk.

Mr. CROWLEY. One looks at the fact that the cost of prescription

drugs in Canada is considerably less, as pointed out by Congressman Janklow, than in the United States. There doesn’t really seem

to be much of a market for striving counterfeit drugs as one would

imagine in the United States. Obviously if the cost of drugs in the

United States is a great deal higher, that you would see more counterfeit production here in the United States. I just wanted to point

out the market itself doesn’t say to me that is what is going to happen in Canada. Obviously people in the business of selling drugs

in Canada are going to make a great deal of profit if that drug is

sold to the United States.

Let me point out for your edification, Mr. Hubbard, and that of

my colleagues, I am going to be dropping a bill known as the NATA

Drug Act. It stands for the New Aid for Trustworthy Affordable

Drugs Act. Under this bill, under the auspices of NAFTA allow prescription drug importation and exportation among NAFTA nations

provided drugs meet strict importation standards, standards which

would be set by the U.S. Trade Representatives working with HHS,

FDA and their counterparts in the NAFTA countries.

Pharmacies that achieve these standards will be registered and

would receive counterfeit resistant seals for their drugs. Only drugs

with these seals would be allowed to be received in the United

States under this bill.

It prevents drug companies or registered pharmacies within

NAFTA nations from hindering customers from purchasing any approved drug based on customer residence. I am really recalling that

GlaxoSmithKline had threatened to cutoff the supply to Canadian

pharmacies supplying Americans.

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This bill only covers FDA approved drugs. The bill is paid for by

requiring drug companies to reimburse HHS for the National Institute of Health research that benefits all drug companies.

I am just letting my colleagues know we will be dropping off that

bill. If anyone is interested in joining that, we would be happy to

put them on as a co-sponsor.

I yield back.

Mr. BURTON. The gentleman yields back his time.

Representative Duncan.

Mr. DUNCAN. Thank you, Mr. Chairman, and thank you for continuing to call attention to this very serious, nationwide problem.

Mr. Gutknecht brought in this article from last week’s U.S. News

and World Report called, ‘‘Health on the Borders, Elderly Americans head north and south to find drugs they can afford.’’ The first

paragraph says, ‘‘It has become something of a joke along the main

Canada border that so many busloads of retired people crisscross

the line looking for affordable drugs that the roadside stands

should advertise lobsters, blueberries, Lipitor, Coumadin, except

that such a market in prescription drugs would be illegal.’’

I can tell you that as most of you know, I represent a district in

Tennessee. My senior citizens are unable to go to Canada or Mexico

and yet I can tell you they are just as concerned as anybody else

because they read and hear about how much more we are paying

for these drugs than people in other countries.

Mr. Gutknecht has a comparison here of the total that people

pay for certain listed drugs. The most common drug in Munich,

Germany, a developed country, $373; $1,039 for the same drugs in

the United States, almost three times as much. This is a problem

people are not going to stand for. With all due respect to my friend

Mr. Sanders, this is not a partisan issue. There are more Republicans here today than Democrats and we are all concerned about

this. This is the third hearing I have participated in on this and

at the last hearing, Howard Biehls, the Director of the Bureau of

Consumer Protection at the FTC was one of the main witnesses.

I asked, ‘‘How many people are buying drugs over the Internet as

best you can tell and has the FTC received complaints about these

drugs being fake in some way or can you tell us do you know of

anybody who has been hurt by any of these drugs? I am wondering

about the scope of the problem.’’ Mr. Biehls’ answer, ‘‘We don’t

know of particular instances of cases where somebody has tried to

buy a drug that turned out not to work or to be the wrong thing.

We don’t know of specific instances in prescription drugs.’’ Not one

instance could he cite.

For the young people here, I will tell you until the FDA became

so big and bureaucratic, we didn’t have this problem and 35, 40

and 50 years ago we didn’t have this problem. You heard nothing

about this. Because we have allowed the Government to get so big

and so bureaucratic, we have seen articles and I am not blaming

this on Mr. Hubbard, but I can tell you I have seen all kinds of

articles in the Wall Street Journal and many other publications,

where we have reached the point, and I think the FDA has been

trying desperately to correct this in the last year or two, where it

was taking an average of 10 years to get a drug to market and

costing between $650 million and $850 million.

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That means if somebody came up with a pill that would cure cancer and went to someone and said let us go into business, you

would have to find somebody that would loan you $1 billion a speculative venture and that would be impossible.

Like any highly regulated industry, the drug industry ended up

in the hands of a few big giants because of big government. I can

tell you I am a pro business conservative but these pharmaceutical

companies are going to kill the goose that has laid the golden eggs.

The way it works is this. In every industry big companies hire

former high ranking employees of whatever agency they are dealing with to go to work for them or the lobbying firms who lobby

for those businesses hire these former high ranking employees and

every big government contract goes to these companies that hire

these former employees. What happens is the big keep getting bigger and the small go by the wayside.

I will give you one example of that. Several years ago I read

about a small company in Bloomington, IL that had come out with

these breast cancer detection pads. They got approved within

months in every country, in Europe, Canada and everyplace else

they wanted to be approved. It was 9 years later and they still

hadn’t been approved when I read this article and they had all

kinds of medical evidence saying thousands of women had died

from breast cancer because the FDA had not allowed these pads to

be approved in the United States. The reason was it was a small

company that didn’t have the lobbyists, didn’t have the connections

in Washington and hadn’t hired former FDA employees, so it is big

government that has caused this problem.

People are going to come in and demand the government regulate it even more and that would be a terrible mistake. Unless we

decrease the size and cost of the FDA, unless the FDA purposely

starts working closer with some of the smaller companies and

changes the whole culture, this problem is going to get worse instead of better.

I will say again, these big giants that control the industry now

are going to kill the goose that laid the golden egg if they keep

going the way they are because everybody in this country is concerned about it.

I have run out of time. Thank you.

Mr. BURTON. Thank you, Mr. Duncan.

Mr. Allen.

Mr. ALLEN. Thank you and thank you for holding this hearing.

Mr. Hubbard, I heard you describe a problem and regrettably I

wasn’t here for much of your testimony. I have heard several people say the FDA is concerned about the quality of drugs coming

across the border from Canada and you have been challenged over

and over on that. Like others, I don’t know of any such cases. It

seems to me a very small risk at the moment, very small risk.

On the other hand, back home in Maine, every single day, someone doesn’t take prescription drugs because they can’t afford them

and you talk to people who deal with lower income people and we

have a very good low income program in Maine for prescription

drugs and still many people are going through tremendous emotional stress, not taking the prescription drugs they really need because they simply can’t afford them.

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I can give you a long history of phone calls to my office and meetings I have had with constituents. For example, the couple that

both need a fair number of prescription drugs and the way they

solve the problem is the wife takes them for 1 month and the husband takes his for the next month and they rotate like that or

break their pills in half or do whatever. This is a huge national

problem.

My question is why does the FDA focus on what is a relatively

small, social problem today, itty bitty problem to use a current

phrase, compared to this enormous challenge that we face. Is it

simply because one, the little bitty problem is in your jurisdiction

and the other is not and if that is the case, is there any hope for

leadership from your organization on the larger issue?

Mr. HUBBARD. I think you have said it right, Mr. Allen. Safety,

we were created to enforce a drug standard that the Congress created that worked very well. It has caused us to have the safest and

most effective drug supply in the world but you point out it is also

an expensive drug supply. The expensive part is just not our job

and we don’t have any particular expertise in that area and can’t

really play on that field. All we can do is say to you if Congress

wants to let these drugs in, that is Congress’ policy decision to

make but we believe there will be a diminution of safety and then

Congress has to decide whether that diminution of safety, whatever

it is, whether 1 percent or 90 percent, is worth the savings that

would accrue.

We are saying these examples, which are ordinary drugs coming

in every day at the mail centers, typical examples, not special order

ones we found, all the drugs in my view are dangerous.

Mr. BURTON. Would the gentleman yield briefly?

Mr. ALLEN. Absolutely.

Mr. BURTON. Canada’s right north of us, it is not halfway around

the world like France, Germany or Spain. They have a health agency just like ours up there. Why in the world can’t you coordinate

with them to make sure the same safety standards apply? I talked

to them this past week and if the same safety standards apply,

then it is just a matter of being able to transport these same pharmaceutical products back and forth which shouldn’t be that difficult a problem.

The problem is profit. That is the problem. You guys don’t say

that. You say we don’t have anything to do with that but the fact

is by virtue of the fact you are blocking these products from coming

into the country, you are guaranteeing the huge profits the pharmaceutical companies are making because you are not letting the

lower price, same product into the United States. Don’t tell us

when you come here, we don’t have anything to do with that because you are the problem. You are the one blocking the American

consumer from getting lower priced pharmaceutical products because you say there is a question of safety when one has not been

proven. There is no proof. You keep saying there is a safety concern

but you can’t give us one iota of evidence there is a problem. Yet

you are the one blocking, like a lineman blocking for a quarterback,

saying my gosh, we can’t let them in because there is a safety concern when in fact the only real concern is the profit of the pharmaceutical companies because you can’t show us anything else.

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I thank the gentleman.

Mr. HUBBARD. May I respond?

Mr. BURTON. Sure.

Mr. HUBBARD. May I just read from Congress’ latest direction to

us that ‘‘Drugs being reimported into the United States pose a

health and safety risk to American consumers because they may

have become subpotent or adulterated during foreign handling and

shipping. The effect of practices and conditions is to create an unacceptable risk that counterfeit, adulterated, misprinted, subpotent

or expired drugs will be sold to American consumers.’’ This is the

congressional direction to us, Mr. Chairman. This is the Prescription Drug Marketing Act of 1988. This is what you told us to do.

Mr. BURTON. We passed a law subsequent to that which allows

for the reimportation. You didn’t mention that law and that law

says we can reimport these drugs into the United States unless you

have a safety concern and you haven’t found a safety concern. You

have been here twice and you have not once shown us where someone has been hurt by these pharmaceutical products. So you are

blocking American congressional legislation that says we want to

allow reimportation unless there is a safety concern. You cannot

show us a safety concern and yet you are blocking the reimportation. I am saying why don’t you work with the Canadians to make

sure we don’t have that problem but you don’t want to do that because you are blocking for the pharmaceutical companies making

billions.

Mr. ALLEN. If I could have one concluding comment. I can’t say

it any better than the chairman did. Do you understand, Mr. Hubbard, the risk to your agency? Your agency has a long and distinguished history. By your action on this issue, you are destroying

that reputation. You are creating the impression in Congress and

across this country that you are in the grip of the most powerful

lobby in this country, the pharmaceutical industry, a lobby which

just the other day did a $150 million budget for Pharma. In one

line of that budget, they set aside $1 million to lobby to change the

Canadian health care system.

There is a lot people in this country don’t understand about the

Canadian health care system but one thing they don’t understand

is they have better cancer survival rates than we do because at the

lower third of the economic strata in Canada, there are a couple

of studies which show this, people get health care. At the lower

third of the economic strata in the United States, they don’t. Early

detection works. I am just giving you one example but it is time

for the FDA to live up to a broader responsibility than just dealing

with itty bitty problems that you may feel fall within your jurisdiction.

Thank you, Mr. Chairman.

Mr. BURTON. Mr. Cannon.

Mr. CANNON. Thank you. I appreciate the recognition.

This is obviously a very intense issue. You have been here before,

Mr. Hubbard, and I take it you have been a bit prepared for this

today. Let me point out while there is a great deal of concern about

this issue, you just said the FDA provides the safest and most secure drug supply in the world. You used those terms because that

is the brief the FDA has. Isn’t it true there is another thing that

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goes with that which is quite important to this debate and that is

we have the most innovative drug supply sources in the world.

I had a PhD molecular biologist in my office today and we were

talking about some of these things. He said 80 percent of referenced drug patents are American. I don’t know what the total

number of patents are in the world but the ones that are important

because they are referenced in other drug patents, 80 percent come

from America. That is not your brief but isn’t that an important

factor in this debate?

Mr. HUBBARD. Yes, I think the evidence does show that so-called

breakthrough drugs, the really important drugs that treat diseases

that didn’t exist before tend in the vast majority of cases to come

to the United States first. That innovation has been a benefit to patients. However, the costs are there.

Mr. CANNON. Why is that?

Mr. HUBBARD. We like to think it is because FDA creates a higher standard and the manufacturers see both a regulatory climate

and an economic climate here.

Mr. CANNON. And that economic climate is a free market?

Mr. HUBBARD. That is correct.

Mr. CANNON. Part of that free market includes a patent period.

In that regard, you were asked a question earlier about generics

and you were trying to answer a question a little different but were

you going to say there is a difference in pricing on generic drugs

between the United States and Canada, and if so, which way does

that pricing cut?

Mr. HUBBARD. In fact, there is. Generic drugs are cheaper in the

United States on average by one recent study by about 7 percent.

Mr. CANNON. Why is that, is there some kind of dynamic here

that causes that to happen?

Mr. HUBBARD. Presumably when drugs go generic in the United

States, competition takes over, several manufacturers step in and

make them and the price drops fairly dramatically.

Mr. CANNON. As compared with Europe and Canada, what percentage of drugs in America are generic and what are patented?

Mr. HUBBARD. It depends on the condition and patient populations but generally about half of drugs can have generic competition.

Mr. CANNON. In America?

Mr. HUBBARD. Yes.

Mr. CANNON. Isn’t it true that in Canada and Europe where

prices tend to be lower, prices are controlled by the State, that you

end up with similar prices for generics and for patented drugs and

therefore, people have no incentive to buy generic drugs?

Mr. HUBBARD. I have heard that but I am not familiar enough

with the Canadian system to give you a definitive answer on that.

Mr. CANNON. I think that we have had a discussion here about

safety and assuring safety versus proving injury. Those are significantly different things. Do you want to comment on that for a moment?

Mr. HUBBARD. Yes. The question we often get is show us people

that are injured, show us people that take a drug and fall over ill

or dead. That doesn’t happen in the cases we are describing. We

are talking about drugs that don’t have proper information for how

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to use them so the patient might use it improperly, drugs that are

ineffective or expired and therefore, the patient is not being treated. The individual, for instance, that has high blood pressure, his

blood pressure is not being treated or instead of coming down 40

points, it is only coming down 10 or 15 points. He is at danger of

a stroke. You won’t know that from any reporting system.

Mr. CANNON. So there is a distinction in your mind between injury and safety in the system?

Mr. HUBBARD. I am talking more the safety issue of failed treatment or ineffective drugs which many of these are that we have

brought today.

Mr. CANNON. Would the use of counterfeit proof seals and labels

on each pack of drugs imported from Canada to the United States

as proposed by Dr. Wennar satisfy the FDA’s concern about safety?

If so, would it be possible for the Medicine and Drug Safety Equity

Act just passed in the 106th Congress to be finally and fully implemented?

Mr. HUBBARD. Mr. Gutknecht and Mr. Burton asked us to look

at that and we had already been looking somewhat at this issue

of technology. We agree with you that is a very fruitful area for examination.

Mr. CANNON. If I can get in one more question before my time

ends. Ms. Watson said the World Health Organization, not the

same as our free market to world conception, has ranked America

as 39th in delivery of medical care. Would you like to comment on

why that would be the case?

Mr. HUBBARD. I am afraid I wouldn’t be qualified to comment.

Mr. CANNON. Thank you. I think America is the best in the

world.

Mr. HUBBARD. That is what I would suspect but I am not familiar with that data.

Mr. CANNON. Thank you, Mr. Chairman. I yield back.

Ms. WATSON. Mr. Chairman, if I could take 1 second to followup

on that comment.

Mr. BURTON. While you are doing that, let me check and find out

where we stand on the vote so I can inform the committee.

Ms. WATSON. Maybe I can light on why we are ranked No. 39.

It has to do with access to health care as well. In talking to some

of the pharmaceutical companies prior to today’s meeting, they

have wonderful programs but the outreach has not been extensive

enough to cover Americans. We have 40 million uninsured, 8 million are in my State, the State of California. So when we look at

health care delivery and the quality of health care, our outreach

has not been effective and successful.

Mr. CANNON. Would the gentlelady yield?

Ms. WATSON. Yes.

Mr. CANNON. What we are dealing with here from the policy perspective of our level is how do we create a system that improves

health care in the best way over the longest period of time so that

ultimately everyone gets the best health care. Since no other country is innovating like America, no other country is in the ballpark.

Certainly we could have some benefit in the way we distribute, but

the fact is we have drug companies that have these two programs

you mentioned that are beginning and expanding their outreach

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and maybe some of our focus ought to be to help them expand that

outreach so that with their profits they can help people who are

poor but not change the system in a way that would crimp this incredible innovative machine we have that is making the world so

much better for everyone. I might just point out America has now

taken the absolute moral lead in the world with the commitment

of $15 billion to fighting AIDS. That is a function, as the President

pointed out when he spoke, of the amount of dollars and the technological process that has resulted in the ability to treat AIDS

worldwide. That allows America to be the leader but I think it is

really important we consider that as we deal with these difficult

issues.

I yield back.

Mr. BURTON. Thank you, Mr. Cannon.

We have three votes and I want to apologize to those who are

representatives of the pharmaceutical industry who are here. We

will be able to conclude as soon as we return. We have three votes

and it will probably take us about half a hour and we should be

back. I would all the members of the committee to get back as

quickly as possible so we can get to the members of the industry

because I am sure we have a lot of questions.

Thank you, Mr. Hubbard. We appreciate your testimony.

With that, we will stand in recess until the call of the gavel

which should take about 30 minutes.

[Recess.]

Mr. BURTON. Mr. Viehbacher is president, U.S. Pharmaceuticals,

GlaxoSmithKline?

Mr. VIEHBACHER. Correct.

Mr. BURTON. You are here in place of David Stout whose father

passed away?

Mr. VIEHBACHER. That is correct.

Mr. BURTON. Would you please extend to him our sympathy? I

had an opportunity to meet with him and he seems like a very nice

fellow.

Mr. VIEHBACHER. I will pass that on.

Mr. BURTON. I am sure it has been a very difficult time for him.

David Brennan, you are the executive vice president for North

America, AstraZeneca?

Mr. BRENNAN. That is correct.

[Witnesses sworn.]

Mr. BURTON. Do you have opening statements, either of you?

Mr. VIEHBACHER. I do.

Mr. BURTON. Proceed.

STATEMENT OF CHRIS VIEHBACHER, PRESIDENT, U.S. PHARMACEUTICALS, GLAXOSMITHKLINE PHARMACEUTICALS;

AND DAVID BRENNAN, EXECUTIVE VICE PRESIDENT FOR

NORTH AMERICA, ASTRAZENECA PHARMACEUTICALS

Mr. VIEHBACHER. Mr. Chairman and members of the committee,

I am Chris Viehbacher, president, U.S. pharmaceuticals for

GlaxoSmithKline. I appreciate the opportunity to be here today to

address your concerns about an issue that is important to all of us,

ensuring that all Americans have access to safe and effective prescription medicines.

72

At the outset, let me say that I do not think that importing either pharmaceuticals or price controls from foreign countries is the

best solution for the problem. Let me explain why.

There are a number of misconceptions underpinning discussions

about cross border sales of prescription medicines. People are being

led to believe that medicines sold across the border from Canada

are made in the United States. The reality is that of the approximately 230 products GSK sells in Canada, well over 200 are supplied from non-U.S. sources. The Canadian version of the GSK antibiotic Augmentin, which is often cited as being the same as the

U.S. version, is not manufactured in the United States and is not

made in the same plant as the U.S. product.

A second often quoted myth is that cross border sales of medicines are regulated by Health Canada. In a recent letter to the

Washington Post to correct an erroneous article, Health Canada

stated, ‘‘The Government of Canada has never stated that it would

be responsible for the safety and quality of prescription drugs exported from Canada into the United States.’’ The letter further

clarifies that drugs imported to or manufactured in Canada but not

intended for sale to Canadians are not subject to Health Canada’s

approval standards.

Myth No. 3, drugs sold in Canada are FDA approved. The reality

is that none of the medicines on pharmacy shelves in Canada are

approved by the FDA. There are differences between medicines in

the United States and Canada and they can be significant. One example is Flovent which is an asthma inhaler. The form used in

Canada differs from the FDA-approved version and as a consequence the spray delivered to U.S. patients would feel softer and

not as strong as they are used to, although the same amount of

medication would actually be delivered.

Without proper advice about the difference, a U.S. patient taking

this medication might be confused and overmedicate which brings

me to Myth No. 4, cross border sales are managed by licensed, reputable pharmacies. As the executive director of the Canadian Pharmacists Association has said, ‘‘With the Internet, it is definitely a

buyer beware situation. Some of the Web sites may not be pharmacies at all because there is no licensed pharmacist at the helm.’’

Let me give you an example.

A Google listing of Canadian Internet pharmacies earlier this

year identified one of the following URLs, bedouinbellydance.com.

The description said patients could get not only the lowest price on

Combavir, a life saving drug for the treatment of AIDS, but also

bellydance tapes, tips, workshops, photos and performance information. This description no longer exists on Google but we can share

with the committee a copy of the display we saw. This site and

many others are registered in Barbados. What that means, we

don’t know but that is not the point. The origins and reliability of

prescription drugs Americans take should not be a mystery.

Mr. Chairman, sending seniors across the border to get their prescription medicines is not the way to address concerns over costs

in excess here in the United States. I would urge any American

who believes he must choose between food and medicines to contact

GlaxoSmithKline and the other pharmaceutical companies for help.

Last year, GlaxoSmithKline gave away medicines worth almost

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$168 million through our patient assistance programs. Through the

GSK Orange Card and Together RX Card, close to 1 million people

have made savings of about $117 million. These programs do make

a difference and one of the many patient letters we received said,

‘‘I utilized your patient assistance program for my mother for a

number of years working with her physicians to obtain the needed

medications. She did not have to choose meds versus living expenses on her fixed income. I felt you should know what a blessing

this program is.’’

As valuable as these programs are, they are only a stop gap, Mr.

Chairman. I am a Canadian citizen and have lived in various European countries over the last 15 years. I have had the privilege of

living in the United States for the past 5 months. From my perspective, the United States has the best quality health care in the

entire world. On top of that, other countries benchmark against the

United States for its ability to generate investment, jobs and R&D.

We must find a way to provide access and preserve innovation

which is why the current deliberations over Medicare reform in

Congress are so important. A Medicare drug benefit that provides

affordable drug coverage to all American seniors while preserving

the market-based system that drives innovation will ensure that

we maintain the highest quality health care in the world.

I look forward to your questions. Thank you.

[The prepared statement of Mr. Viehbacher follows:]

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Mr. BURTON. Mr. Brennan.

Mr. BRENNAN. Mr. Chairman and members of the committee, my

name is David Brennan. I am the executive vice president for

North America of AstraZeneca with responsibility for United States

and Canadian operations.

AstraZeneca is a global, research-based pharmaceutical company

employing 58,000 people. We provide a wide range of medicines for

cancer, heart disease, mental illness, and other diseases. I am here

today in response to your letter of June 3 to address the safety

issues surrounding drug importation to the United States and to

discuss the steps AstraZeneca Canada has recently taken to ensure

the availability of our products for Canadian patients.

Let me start by saying we believe the fundamental issue confronting millions of Americans is lack of access to prescription

drugs. Timely access to today’s increasingly innovative medications

improves health and saves lives, thereby reducing the health system costs of hospitalization, emergency care and long-term illness.

A meaningful first step to solving this problem is the enactment

of a Medicare prescription drug benefit not drug importation legislation. Congress must pass a reasonable Medicare drug benefit this

year. For 25 years, AstraZeneca has been doing its part to help individuals without coverage obtain the medicines they need. We are

a founding member and active participant in Together RX, an industry drug savings program servicing more than 800,000 Americans. In 2002 alone, AstraZeneca gave more than $1 million Americans medicines worth over $400 million through our various patient assistance programs.

You asked me to testify today about the safety of pharmaceuticals imported to the United States by someone other than the

manufacturer. To answer this question, it is important to clarify

what safety means in the pharmaceutical industry. When it comes

to medicines, safety involves many factors, the patient, product,

packaging, storage and handling, transportation, labeling and shelf

life among other things.

There are provisions in place to help ensure the safety of our

products being sold through AstraZeneca in Canada for use by patients in Canada. However, the safety of product that leaves Canada outside of our distribution chain cannot be assured. The truth

is there is little regulation of drugs exported from Canada. The Canadian Government itself has stated it cannot assure the safety of

medications exported to the United States. That is why the FDA,

including the agency’s current leadership and 10 former commissioners, 2 Secretaries of Health and Human Services, the U.S. Customs Service and the Drug Enforcement Administration are on

record as stating that importation of drugs from Canada or any foreign country would make it impossible to assure the safety of the

American prescription drug supply.

As Secretary of Health and Human Services Tommy Thompson

said in 2002, ‘‘Opening our borders to reimported drugs potentially

could increase the flow of counterfeit drugs, expired and contaminated drugs, and drugs stored under inappropriate and unsafe conditions. That is a risk we simply cannot take.’’

The opening of U.S. borders to products from other countries including Canada would undoubtedly increase the risks of counterfeit

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and contaminated medications circulating through our system. We

are aware of previous testimony before Congress that included

video of machines that counterfeiters utilize to mimic blister packs

used by legitimate manufacturers. We believe that neither blister

packaging nor any other technology solution will outwit counterfeiters and protect public safety.

It is in this context that AstraZeneca Canada has taken steps

with respect to drug distribution in Canada to uphold the laws of

the United States that provide a very important protection for our

citizens.

Another important element of this decision was to ensure that

the company had sufficient inventory of our products for citizens of

Canada. No Canadian supplier has been precluded from purchasing

the products necessary to meet the needs of Canadian patients.

AstraZeneca is actively participating in the debate about how to

improve our health care system. What we do know is we should not

put at risk a system that provides Americans with a continuing

supply of safe, effective and innovative medicines that often make

dramatic improvements in the health and lives of people of all

ages.

Thank you.

[The prepared statement of Mr. Brennan follows:]

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Mr. BURTON. Thank you, Mr. Brennan.

Mr. Viehbacher, do you see those charts over there? We have

them up on the screen too. Flonase, do you make Flonase?

Mr. VIEHBACHER. We do.

Mr. BURTON. Do you see that blue part of the graph?

Mr. VIEHBACHER. Yes, sir.

Mr. BURTON. That is what you charge Americans for Flonase.

You see the red part there?

Mr. VIEHBACHER. Yes.

Mr. BURTON. That is what you charge in Canada. Do you see the

yellow part?

Mr. VIEHBACHER. Yes.

Mr. BURTON. That is what you charge in the UK. Can you tell

me why the difference?

Mr. VIEHBACHER. Basically, pricing outside the United States is

controlled by governments. I would say that the pricing comparisons are actually difficult to make because the way the U.S. system

works means we often negotiate rebates with managed care organizations, also as you know Medicaid prescriptions.

Mr. BURTON. I understand that but if you go to a pharmacy in

the United States and you buy Flonase, the blue graph is accurate

and the same thing is true for the Canadian price and the UK

price.

We have a very difficult time, as do most Americans, understanding why it costs three, four or five times as much for the very same

product 50 miles apart. You can’t explain that, can you?

Mr. VIEHBACHER. I can actually. I explained the price controls.

Mr. BURTON. Are you making a profit in Canada?

Mr. VIEHBACHER. We are.

Mr. BURTON. Are you making a profit in Great Britain?

Mr. VIEHBACHER. We are.

Mr. BURTON. You make a hell of a profit here.

Mr. VIEHBACHER. We make a profit in the United States as well.

Mr. BURTON. Where do you make the biggest profits? Any country in the world where you do business, where do you make the

biggest profit?

Mr. VIEHBACHER. I can’t speak for all the countries. We make a

significant profit in the United States.

Mr. BURTON. Wouldn’t you say you make the biggest profit by far

in the United States?

Mr. VIEHBACHER. I don’t have the profit numbers for all the

countries in my head, Mr. Chairman.

Mr. BURTON. You do for Flonase, don’t you?

Mr. VIEHBACHER. Yes.

Mr. BURTON. Let us look at that other graph we have up there,

the other chart. That other chart is Pfizer. I can’t go into Pfizer because you wouldn’t be conversant with that.

Your plants in Canada that produce products sold here in the

United States, are they inspected by the Food and Drug Administration?

Mr. VIEHBACHER. If we have a plant in Canada that produces for

the United States, it would be normally inspected by the FDA.

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Mr. BURTON. If you are producing a product in Canada that is

approved by the FDA and sold in Canada, why does it cost so much

less there than here because of the price controls in Canada?

Mr. VIEHBACHER. Yes.

Mr. BURTON. What kind of profit margin do you have in Canada?

Mr. VIEHBACHER. I couldn’t tell you that off the top of my head.

Mr. BURTON. But it is a lot smaller than it is in the United

States?

Mr. VIEHBACHER. It would be smaller, yes.

Mr. BURTON. Why is it that you make more money here in the

United States than you do in Canada?

Mr. VIEHBACHER. The price is higher.

Mr. BURTON. Why is the price higher? If you are making a profit

in Canada, why is it that it costs so much more here in the United

States?

Mr. VIEHBACHER. Could I explain a bit about how international

drug pricing works? With your indulgence, perhaps I could show a

little bit about how we operate internationally and what the benefits are.

Mr. BURTON. I don’t think we need to go into it in great detail.

I think we pretty much have an idea how it works. If there are

price controls, you have to negotiate with the government in question to sell your product and you agree upon a price, and that is

the price charged.

In a free market like the United States, you charge whatever the

market will bear. If it is a pharmaceutical product that is under

patent, you have complete control over the pricing of that product.

Mr. VIEHBACHER. Subject to negotiation with managed care.

Mr. BURTON. I understand but you have the complete control

over the price of that product because you have a patent for 16 or

17 years?

Mr. VIEHBACHER. We have an effective life of about 10 to 11

years.

Mr. BURTON. So 10 to 11 years, you have complete control over

the patent price of that product and you negotiate with it used to

be HMOs, not so much them anymore but hospitals, Wal-Mart and

all those, but you set the wholesale price. You know what the

wholesale price is. The wholesale price is kind of an arbitrary figure, isn’t it? You come up with it, you have the patent, who knows

what the wholesale price is.

Mr. VIEHBACHER. Pricing is basically based on competitive forces

within the United States.

Mr. BURTON. Tell me about competitive forces. If you have a

pharmaceutical product that is under patent, how do they compete

against that? Tell me about competitive forces?

Mr. VIEHBACHER. Because managed care will look at the cost of

therapy, there are alternative therapies. You may have a patent on

a product but there may be comparable products.

Mr. BURTON. But there are drugs of choice. If a physician says

this is the drug that is going to help my wife with breast cancer,

Tomoxaphen, pretty much that is what she is going to use. She is

not going to be shopping around saying my gosh, I am not going

to go in the face of my doctor, she is going to use Tomoxaphen. So

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you have pretty much a captive market if that is the drug of

choice?

Mr. VIEHBACHER. If you think about Paxil, the antidepressant,

basically managed care will look at the daily cost of therapy of

Paxil, and there are other SSRIs on the marketplace. If that price

were out of line, you can bet managed care would suddenly say to

doctors, we will move this to a third tier co-pay for example.

Mr. BURTON. Sure, but what about a drug that deals with breast

cancer that is the drug of choice?

Mr. VIEHBACHER. There again, we try to find out what the competitive forces are and look at the market.

Mr. BURTON. What competitive forces are you talking about in

this particular case?

Mr. VIEHBACHER. Again, there are always various therapies. It is

very rare that you have the only drug available.

Mr. BURTON. But if you do, you set the price?

Mr. VIEHBACHER. Yes.

Mr. BURTON. Wholesale, retail, whatever?

Mr. VIEHBACHER. Yes.

Mr. BURTON. Do you guys take doctors out to lunch and dinner

and go into their offices with lunches for the people on the staffs?

Mr. VIEHBACHER. No. You may be aware there is a new voluntary code adopted by Pharma last year and basically things like

that we don’t invite doctors for dinners or things like that.

Mr. BURTON. My son-in-law is a doctor and he went to four dinners last week. Don’t tell me that doesn’t happen. Of course it happens, and he gets invited to golf courses and outings where they

pay him $100 to go. You don’t know about that? Does your company do anything like that?

Mr. VIEHBACHER. If we have an event organized on speaker program.

Mr. BURTON. A speaker comes in and shows a slide show about

your product?

Mr. VIEHBACHER. Yes. We do invite doctors to that.

Mr. BURTON. I have gone to them. They don’t want me to go anymore but I have gone to them. Can you guess why they don’t want

me to go?

To make a long stab in the dark, the fact of the matter is a lot

of money is spent by the pharmaceutical companies to get the doctors to tout their products and to prescribe their products and that

is understandable because in a free market, you do that, but if you

have a captive product or a product in competition and the doctor

prescribes it, and you charge a huge profit margin like you do in

the United States and the doctor says, you can get that a lot less

in Canada, it is to your benefit for them to buy it here in the

United States, isn’t it?

Mr. VIEHBACHER. The pricing is basically there on a patent life

to make a return on your investment on the big risk we take on

research and innovation.

Mr. BURTON. Let us talk about the big risk you take on research

and development. The Boston Globe article of April 5, 1998 said ‘‘45

of the top 50 selling drugs got Government subsidies of $175 million. The average net profit on these drugs was 14 percent. NIH

spent at least $1 billion on drug and vaccine development in fiscal

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year 1996 but got $27 million in royalties. They spent $1 billion

and got $27 million back in royalties. NIH is supposed to protect

the public’s investment by monitoring the drugs that have developed but in most cases, they can’t even tell if the agency contributed to the development of the drug.

‘‘The research and experimentation, the R&E tax credit, has

never been a permanent component of the Federal Tax Code although it has been in effect almost continuously since 1981.’’ Both

your companies benefit from that. ‘‘The R&E tax credit was enacted

only to help the economy recover during the recession of the early

1980’s. Currently it assists pharmaceutical companies with as

much as 20 percent of their research and development costs. According to the National Institutes of Health, they have assisted to

subsidize the research and development of at least drugs recently

that profited at least $500 million a year. In addition, the NIH

granted almost $1 trillion, 1,000 thousand million, to for profit entities such as pharmaceutical companies for their research. The

Joint Committee on Taxation estimates that the revenue lost from

a permanent extension of the credit alone would total $56.4 billion

from fiscal year 2004 through fiscal year 2013 on top of the nearly

$1 trillion they already give.’’

So the pharmaceutical companies are getting all kinds of tax

breaks and incentives and in many cases, the NIH is fully subsidizing the research and development you benefit from. Isn’t that correct?

Mr. VIEHBACHER. No, sir.

Mr. BURTON. It is not correct? Let me give you an article in the

paper yesterday.

Mr. VIEHBACHER. Could I quote another study, sir?

Mr. BURTON. On Taxol, who produces Taxol? Squibb. This is just

one example. Squibb spent $1 billion but they have gotten $9 billion in worldwide sales. The NIH spent $484 million over 25 years

to develop Taxol for research and development. The NIH received

$35 million in royalties while Squibb got $9 billion and $684 million from beneficiaries over 5 years from Medicare. This was almost

all the research and development money or the vast majority of it

paid for by the taxpayers of this country and yet they made $9 billion worldwide and only paid royalties of $35 million.

Mr. VIEHBACHER. I can’t comment on one specific.

Mr. BURTON. Has this happened to your company at all?

Mr. VIEHBACHER. Not to my knowledge. I can quote an NIH

study which looked at the 47 top selling drugs in the United

States. Only four of them were developed in part with technologies

created by the NIH.

Mr. BURTON. Four of the top 47?

Mr. VIEHBACHER. Yes, sir.

Mr. BURTON. Who gave you that information?

Mr. VIEHBACHER. That is a study from the NIH. I can provide

the committee with a copy of that.

Mr. BURTON. I guess it depends on who you are listening to because here the information I have is that 45 of the top 50 selling

drugs got government subsidies of $175 million.

Mr. JANKLOW. Will the chairman yield for a moment?

Mr. BURTON. Sure. I will be happy to yield to my colleague.

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Mr. JANKLOW. I would ask one quick question.

Sir, do you know Janey Kenney?

Mr. VIEHBACHER. Yes.

Mr. JANKLOW. I received a letter from her on February 28 of this

year. It says, ‘‘Because of the great investment in R&D in the

United States, approximately $24 billion through the National Institutes of Health and more than $30 billion from the pharmaceutical industry, the U.S. is the source of most of the innovative

drugs in the world.’’ Do you agree with the fact that Janey sent

myself and other congressional people a letter that said ‘‘of $54 billion in investment in R&D for drugs, $24 billion came from the

Federal Government and about $30 billion from the drug industry?’’

Mr. VIEHBACHER. I am not actually familiar with that letter but

if it is from Janey Kenney.

Mr. JANKLOW. I would like to put it in the record.

Mr. BURTON. Let us put it up on the board because I would like

you to be able to read it. You said you know who she is.

Mr. JANKLOW. She is here, I believe.

Mr. BURTON. Oh, you are here. Come on up, we would love to

hear from you. Would you like to join us here?

Let me read to you what she said. ‘‘Question: Why should American consumers and only American consumers bear the cost of

pharmaceutical industry research and development.’’

Mr. VIEHBACHER. Mr. Chairman, we spent $4.3 billion.

Mr. BURTON. Let me finish and then you can comment.

Ms. Kenney said, ‘‘The fact is that the U.S. is one of the few relatively free markets in the world and Americans do subsidize the

discovery and development of new medicines for the rest.’’ Why

don’t they spread that around a little bit? Why is it that we in the

United States have to pay for all this instead of spreading it

around to Spain, France, Canada and Germany?

Mr. VIEHBACHER. As I explained, price controls exist in other

countries, but because of the innovative nature and the free market, most of the R&D and most of the important R&D is actually

being done in the United States. I believe it was Congressman

Cannon who earlier mentioned that 80 percent of the referenced

patents are filed in the United States.

Mr. BURTON. But why? You didn’t answer my question. Why

should the American consumer, a little old lady who is buying a

product that will save her life or Flonase or something to make her

life better, why should she pay four or five times as much as she

could pay for it in Canada? Why should she, especially when it says

we are subsidizing the research and development of new medicines

for the rest of the world?

You say it is a shame but we are negotiating the contracts with

these other countries who have price controls. When you are negotiating, why don’t you throw that into the formula? Why should we

bear the huge on Flonase?

Mr. VIEHBACHER. Mr. Chairman, the pricing is actually fixed by

law. We have no opportunity to negotiate.

Mr. BURTON. You don’t have to sell to them, do you?

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Mr. VIEHBACHER. If you don’t, we have seen in the past Canada

has had compulsory licensing and you can imagine the price we

would have if we withheld treatment from other countries.

Mr. BURTON. I don’t want to monopolize this but the fact of the

matter is we are paying for the rest of the world according to what

you are saying. When we try to allow American citizens to buy either through the Internet or to go to Canada to buy these products

at the lower price they might be able to afford, and a lot of these

people can’t afford to eat and pay for their pharmaceutical products, then you guys try to stop them by saying there is a safety

issue. I think that is a red herring you guys keep hanging onto

along with your supporters at the Food and Drug Administration.

Mr. Sanders.

Mr. SANDERS. Thank you.

Mr. Viehbacher, my understanding is that your company’s reported profits grew 8 percent to nearly $27 billion in 2002 and your

net profit before tax was $9.7 billion in pre-tax profit. The United

States, which represents 54 percent of your company’s total business, sales grew by 13 percent. Does that sound roughly right?

Mr. VIEHBACHER. Yes, sir, the net profit is about 18.5 percent for

our company.

Mr. SANDERS. 18.5 percent. That is pretty good.

Mr. VIEHBACHER. That compares to Coca Cola at 22.5, Weight

Watchers at 18.1, and Microsoft at 36.6.

Mr. SANDERS. But the difference between Coca Cola and that is

a good point. Let us deal with that, two issues. One, year after

year, the pharmaceutical industry, not just your company, leads all

other industries in the profits they make. When you talk about the

difference between Coca Cola and prescription drugs, what you are

talking about are products that keep people alive, ease suffering as

opposed to quenching our thirst on a hot day. So the issue here is

why is it that year after year, your industry leads all other industries in profits. I know Bristol-Myers-Squibb is not here but it is

important to place on the record former chairman and CEO Mr.

Heinboldt made $75 million in compensation, actually $150 million,

in 1 year.

Mr. Chairman, what you are talking about is an industry that

has incredible sums of money because they make incredible profits

and provide huge amounts of compensation to their CEOs. The

other thing they are able to do is with all these profits, buy the

U.S. Congress and the White House through huge campaign contributions.

I would ask Mr. Viehbacher maybe you can explain to some who

might not know the answer but last year, above and beyond the

money you put into Pharma which will spend $150 million this

year trying to influence us not to lower the cost of medicine but

Glaxo spent $4 million on lobbying in the 2002 election cycle, fielding 36 paid lobbyists.

The chairman of your company, Robert Ingram?

Mr. VIEHBACHER. No, he was the chief operating officer. He is

now vice chairman of pharmaceuticals.

Mr. SANDERS. Headed a fundraiser which raised $30 million for

the Republican Party in one night. What do you expect? Why would

Glaxo presumably involved in producing drugs for the American

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people, spend so much money on campaign contributions and lobbying? Does it have anything to do with the fact you want the American people to continue to pay by far the highest prices in the

world?

Mr. VIEHBACHER. Mr. Sanders, we are the most regulated industry on the Earth.

Mr. SANDERS. You are the most regulated industry on Earth?

You just told the chairman that in the United States you can do

anything you want in terms of your prices. How are you regulated?

Mr. VIEHBACHER. In terms of the quality, which products we can

sell, how they are used.

Mr. SANDERS. But not in terms of price.

Mr. VIEHBACHER. Sorry, you are right. I didn’t mean that in

terms of price. Yes, we have lobbyists. My understanding is we

have seven lobbyists on staff. We may work with some outside.

Mr. SANDERS. But you hire other lobbyists when you need them?

Mr. VIEHBACHER. The thing about the United States is, unlike

some countries, everything is transparent. All the lobbyists are actually registered, all the amounts of money we spend are publicly

known. There are hundreds, there are thousands of lobbyists in

Washington. We believe it is important that we participate in the

democratic process that our side of the story is heard because if it

isn’t, the very things that make this industry so important to the

United States, risks being eroded and lost.

Mr. SANDERS. Your side of the story is being heard. We cannot

turn on radio or television without hearing your side of the story

because with all of your profits, you are able to spend hundreds

and hundreds and hundreds of millions of dollars a year defending

your point of view. In fact, there are negative ads against Members

of Congress who are trying to lower the cost of prescription drugs

in this country and stand up for consumers. Do you want to comment on that?

Mr. VIEHBACHER. Mr. Sanders, first, when we pay for advertising, it has to do with our products, not for policy issues and to the

best of my knowledge, we have never specifically paid for ads

against candidates.

Mr. SANDERS. But Farmer(?) has?

Mr. VIEHBACHER. I can’t answer that.

Mr. SANDERS. Trust me, they have.

Let me ask Mr. Brennan a question. You manufacture a product

called Tomoxaphen, is that correct?

Mr. BRENNAN. Yes, we do.

Mr. SANDERS. Three or 4 years ago, I was the first Member of

Congress to take constituents over the Canadian border to buy

medicine that was less expensive. On that trip, we went with a

number of women who were struggling with breast cancer. When

they realized that they could buy Tomoxaphen, here is the latest

chart I saw in American dollars, in the United States you charge

for Tomoxaphen, which is a widely prescribed breast cancer drug

which saves lives of women in this country, $233 and in Canada

the charge is $29, a savings of 87 percent. When we took women

over the border, they could not believe it. They were really in a

state of shock to believe they could get such a discount.

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My questions to you are, how many women in America have died

because they cannot afford the outrageously high price at which

you sell Tomoxaphen in this country which is about 10 times higher in Canada? How many children do you think are orphans in this

country because of your pricing practice?

Mr. BRENNAN. I can’t answer that question.

Mr. SANDERS. I understand it is a hard question to answer. Mr.

Burton and I have asked for a GAO report to help us get this information. I would suspect that there are many women who have died

in this country because you are charging them 10 times more for

an antibreast cancer drug than our Canadian friends.

Mr. Burton asked a very important question.

Chairman TOM DAVIS. Would the gentleman yield? Your time

has expired and we have indulged you. Would the gentleman yield,

I haven’t had an opportunity to ask questions. The chairman took

25 minutes and I wonder if the gentleman would yield on that

point so I could also ask a question?

Mr. SANDERS. I would be happy to yield in 1 second. My question

is you don’t know how many women have died and my second question is, how do you sleep at night knowing that women in this

country are suffering because they can’t afford a product to keep

them alive?

Mr. BRENNAN. We have made Tomoxaphen available in our Together RX Program for hundreds of thousands of people and we

have given away for 25 years in our Patient Assistance Program

Tomoxaphen to tens of thousands of women manufactured by us.

Right now, the Tomoxaphen and the Together RX Program is less

expensive than the generic version from Canada or is about the

same price, about $11 or $13.

Chairman TOM DAVIS. Mr. Chairman.

Mr. BURTON. We are going to give you the time, Mr. Chairman.

Chairman TOM DAVIS. Let me ask you this.

How many lives have you saved because you developed this drug

under a system that allows you to invest your money in research

and development, not Federal tax dollars, but your money? Do you

have any equation of that?

Mr. BRENNAN. I don’t know the answer to that. It is tens of thousands of women who have benefited from this product.

Chairman TOM DAVIS. This is, in fact, a complicated equation,

isn’t it?

Mr. BRENNAN. Yes, it is very complicated.

Chairman TOM DAVIS. The difficulty with Mr. Sanders’ perspective and the others, in my opinion, is that you can get today’s drugs

cheaper because we can pass a law and be heroes but tomorrow’s

drugs may save hundreds of thousands of lives would never be developed under a system where there are no rewards for sinking billions of dollars of private dollars in investment. Isn’t that the

issue?

Mr. BRENNAN. That is correct, Mr. Davis. The other point I

would make is that the product Tomoxaphen was available generically in Canada and the patent had not yet expired in the United

States, so we are comparing the price of a branded product with

a generic product.

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Chairman TOM DAVIS. Isn’t it also a fact that there are HMOs

and other groups that buy in bulk, that these products are available to Americans at much cheaper rates than the rates quoted by

Mr. Sanders?

Mr. BRENNAN. That is correct. The prices that are handled

through managed care and other contracting as Mr. Viehbacher

said, are significantly less than the retail prices charged at pharmacy by people paying cash.

Chairman TOM DAVIS. I applaud Mr. Burton for highlighting the

fact that in many cases, because Canada has price controls, their

consumers get drugs cheaper than Americans and none of us up

here feel very good about that. We feel that in some ways Americans are subsidizing the world. We create the jobs in America, the

products and everything and none of us are comfortable with that.

I am sure you aren’t either. The question is what do we do about

it?

The problem is that the solutions they are coming forward with

also raise a number of concerns raised by the FDA which no PAC

influences to my knowledge, and the professional scientists and so

on that look at this raise concerns. I think instead of sitting and

pointing fingers and worry about someone making a profit, we need

to look at ways we can make these drugs more available on a

cheaper basis to Americans. To the extent that our questions and

concerns focus on that, we are going to come up with something

good, not just a press release back home. That is my concern about

this.

When the chairman and I talked about this, I think there are

some legitimate issues we need to explore on the Canadian front

because of what we discussed. Aren’t there laws right now that

make it difficult to reimport drugs even if we wanted to or maybe

within Congress’ control but not within your control, correct?

Mr. VIEHBACHER. Yes, it is illegal to import medicines which are

not FDA approved into the United States. So medicines sold in

Canada are not FDA approved so it is illegal to bring those into

the country.

Chairman TOM DAVIS. So beating up on your, or your position on

it, doesn’t do us any good. We ought to beat up ourselves if we

don’t like that or the FDA. I think this is a complex issue. I think

sometimes with the questions and rhetoric, we make this appear

too simple. We heard the previous speaker talk about some of his

concerns raised by the FDA. I am with the chairman, we want to

try to meet the concerns they raise, not to use those as an excuse.

I am concerned the line of questioning doesn’t go in that direction.

Those are the questions I have right now, Mr. Chairman. I just

wanted to make my position clear on this. I appreciate the witnesses being here today voluntarily. I would say on the political

front, Mr. Sanders, they give large amounts of Democrats, they

used to give more, they give to both parties. Your highlighting of

the fact they gave a lot to the Republican Party last time hides the

fact that a lot of Democrats have received and solicited money

through the years and they have been active in the political process

as have people on the other side of this issue.

Mr. SANDERS. Would the gentleman yield?

Chairman TOM DAVIS. I would be happy to.

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Mr. SANDERS. I agree with them. I think they are buying both

political parties. I think it is quite nonpartisan.

Chairman TOM DAVIS. It is called free speech.

Mr. SANDERS. Right now the Republicans are in control, so that

is where the money is going. If the Democrats were in power, that

is where the money would go.

Chairman TOM DAVIS. The soft money, the difficulty under campaign finance reform now, they can’t give the parties soft money,

so they will spend their own soft money, run their own ads and it

won’t be within the ambient of the two political parties. We have

in effect under campaign finance reform, created a monster.

Mr. SANDERS. That is another issue.

Chairman TOM DAVIS. Right and left.

Mr. SANDERS. I would be interested in asking, since I know you

have experience and background in this area, is this the most powerful industry in the United States of America in terms of their lobbying capabilities?

Chairman TOM DAVIS. No. I think it would be the trial lawyers

or the AFL–CIO, in my opinion.

Mr. SANDERS. Not in terms of the money.

Chairman TOM DAVIS. In my opinion, Mr. Sanders, but you know

more about them than I do because you have been on the receiving

end of tens of thousands or hundreds of thousands from those

groups.

Mr. SANDERS. That is right.

Mr. BURTON. Who is next? Mr. Allen.

Mr. ALLEN. Thank you, Mr. Chairman.

Let me say a couple of things by way of introduction. You are not

the tobacco industry, you don’t make a product which used as directed kills you or kills others. On the other hand, the concern that

Mr. Sanders has expressed about the effect on our democracy is

terribly worrying because your industry is, as you said, regulated

in certain ways. The Government is fundamental to the success of

your industry. You are not just another industry out there selling

widgets. A lot of the basic research is federally funded.

When you bring a product to market, it is highly regulated, has

to go through the FDA, and you are dependent on your patents.

When your patents run out, you are in trouble. That is obviously

true. So the entire structure of the industry is very dependent both

on Federal dollars initially and on the structure of Federal laws.

That is why it is so troubling to see that your industry as a

whole is always the most profitable industry in the country and at

the same time the largest participant in terms of dollars than any

other industry in terms of campaign contributions, lobbying expenses and independent television ads. So it looks to many of us

like what has occurred here in this democracy that we all value is

a combination of political and economic power that feeds off each

other. The political power is dependent on the economic power and

the economic power allows you to have political power. It is very

alarming to many of us, particularly because we have so many constituents who would be helped by your products if they could only

afford them.

You mentioned the Together RX card. I had one of my staff members try to get her mother registered for that Together RX card. It

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was a challenge. There are very few people in Maine who know

about it, it is not being advertised. She worked on the phone for

a very long period of time in order to finally, it took months, to get

registered. We tend to think from experience that is more of a PR

function than something that is readily available to a lot of seniors.

I am just saying that was our experience as she tried to go through

this.

Mr. BURTON. Would the gentleman yield for just a second because I think this is relevant?

Mr. ALLEN. Yes.

Mr. BURTON. Glaxo spent $2.9 billion last year promoting their full price drugs and only $3-$4 million to promote the Together RX

Program, so a lot of that was under the radar screen while they

spent almost $3 billion on the regular full-priced program.

Mr. VIEHBACHER. Could I respond to that?

Mr. CANNON. Would the gentleman yield for a clarification? You

said you’re concerned about the domino effect of this industry on

our political system which is founded on the Madisonian idea of

factions. We believe that factions ought to compete pretty aggressively. Are you suggesting this industry is so powerful it overwhelms all the other factions in America?

Mr. ALLEN. On these issues, absolutely.

Mr. CANNON. On these issues? This is their business, their industry.

Mr. ALLEN. This is their business, but reclaiming my time, we

are not talking about widgets or automobiles or toasters, we are

talking about public health. That is why public health is both a

public and private enterprise. In other aspect of the health system

in this country, the Government exercises some leverage over price

through reimbursement rates. The people come here, the doctors

come here, the hospitals come here, the nursing homes come here

and say we are not getting enough reimbursement from Medicare

or Medicaid. Only the pharmaceutical industry runs free, only you

can charge what you want.

Mr. Brennan, it might have been you or Mr. Viehbacher, one of

you said that cash prices are much higher than what the insurance

companies pay and that is true, we all know that. It is all about

market power. So my question to you is what is wrong, what is so

terribly wrong about Medicare, the largest health care plan in the

country exercising the market power of those 40 million people who

belong to Medicare like Aetna, CIGNA and the Blue Cross plans

do for their beneficiaries? What is so terribly wrong about having

them negotiate as a block, Medicare prices with your industry?

Mr. VIEHBACHER. Mr. Allen, I would say first of all I think that

is exactly why a prescription benefit within Medicare is so important because that is a population that is largely uncovered today.

We fully support efforts to try to get a prescription benefit passed.

Mr. ALLEN. Do you support a provision in that Medicare package

which would authorize the Secretary of Health and Human Services to negotiate prices with pharmaceutical companies for Medicare beneficiaries?

Mr. VIEHBACHER. Mr. Allen, we believe that actually price controls and this has been demonstrated in many other countries, and

I have personal experience with this, will damage overall the U.S.

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economy because all of these things are interlinked. We tend to

look at price but we can’t ignore the fact that the quality of health

care and the extensiveness of the research and development investment done here which generates so many jobs, if you look at the

biotechnology industry, there are more people employed here than

in Europe. I personally served on something called the High Level

Working Group in Europe, invited personally by two European

commissioners, to address the eroding competitiveness of research

and development in Europe. Why? Because price controls kills the

return for necessary innovation.

If we bring in too much price controls, we are going to have exactly the same level of R&D done in Canada. The PMPRB which

is the Canadian agency that controls pricing also evaluates research and development done in Canada. It gave extremely low and

critical marks to Canada for its failure to generate any kind of investment in R&D. So for the people waiting for the cures of things

we can’t invest in today, we will kill our ability to invest. The

American people benefit from the fact they get first crack at the

most innovative medicines in the world.

To give you an illustration of that, when Premiere Bourassa of

Quebec suffered form leukemia, he came to the United States for

treatment. When Gianni Angelli, the patriarch of the Fiat family,

suffered from prostate cancer, he didn’t rely on the Italian health

care system, he came to the United States because the most innovative and most recent therapies are available here. We must not

put that at risk.

Mr. ALLEN. Mr. Chairman, may I make one final comment?

Mr. BURTON. Sure.

Mr. ALLEN. I wish I could remember the name of the company

because I rode from Europe to the United States about a year and

a half ago with someone who worked for one of the European pharmaceutical companies. He gave me a different story, a very different story. I asked him specifically was there more research and

development going on in the United States than in Europe, assuming there was, because of price controls present in Europe. He said,

no, that is not it. He said the difference is to do your research, you

have to go where the talent is. He said, in the United States, it is

much easier to get someone from Texas to move to Delaware or

Pennsylvania than it is in Europe to get a German to move to

France or to Britain. He said, it is getting the talent that is the

critical component. That is what he told me. I know the spin and

I have heard it over and over again but it was someone who was

a high official in one of the European companies who was directly

involved in research.

With that, Mr. Chairman, I yield and I thank you.

Mr. BURTON. Mr. Gutknecht.

Mr. GUTKNECHT. Thank you.

I want to thank the witnesses for coming. It takes courage to

come before this group and talk about this issue because it is so

controversial and there is an awful lot of emotion built into this.

I want to come back to some of the issues. Let me say, first of

all, I am a Republican and I don’t think the word profit is a dirty

word but I think there is something wrong with the word profiteer.

I think we have seen such a dynamic change in this entire industry

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in the last 5 years. For your people to even admit that you will use

$2.9 billion promoting your full priced drugs this year, that is a

phenomenal number. That makes Coca Cola look like small potatoes. I just think the nature of this business has changed.

I want to come back to the issue of the differentials in prices and

the way different countries operate because this is a mystery. In

fact, it is a bigger mystery than the average wholesale prices. You

referred to that. Would you be willing to share with us what your

average wholesale prices actually are on some of your various products or is that public information?

Mr. BRENNAN. Our average wholesale prices?

Mr. GUTKNECHT. Yes.

Mr. BRENNAN. Yes. I think that is public information. It should

be readily available.

Mr. GUTKNECHT. For example, how are the prices for patent

drugs set in Germany? It is my understanding there are no price

controls on patented drugs in Germany.

Mr. VIEHBACHER. There are actually. Most of the health care in

Germany is financed through quasi-public insurance companies.

There is something called the BKK with whom you have to negotiate. It is not actually a free pricing environment as we sometimes

think.

Mr. GUTKNECHT. But if I walk into a pharmacy in Munich, Germany, are those prices set by the government? I understand they

are not.

Mr. VIEHBACHER. The price is basically not in competition. There

isn’t negotiation like you would have in France but there are basically negotiated limits and you won’t be able to get your product

reimbursed if you exceed certain levels.

Mr. GUTKNECHT. No, we are not talking about reimbursement. I

am talking about an average American who happens to be in Munich, Germany and goes in and buys drugs. Those prices aren’t set,

are they? Here is the real issue. We bought 10 of what we think

are the largest selling drugs in the United States and some are

from each of your companies. The total in Munich, Germany came

to $373.30 American. We priced those same drugs here in the

United States, again cash prices, but remember a large chunk of

America pays cash price, not just seniors, there are 41 million uninsured Americans, what do you think they pay and there are lots

of Americans who have insurance with perhaps modest prescription

drug coverage. So we are not talking about just a handful of people

who pay cash price. It is actually a pretty good sized number but

the total here in the United States was $1,039. How do we explain

that difference to our constituents, especially based on what I know

and what I have been told, they really don’t have price controls in

Germany?

Mr. VIEHBACHER. You will not be able to launch a product at the

American price, I can assure you of that. I have to say there is no

question that prices in the United States are somewhat higher.

There are a number of factors and we have talked about those. One

economist has clearly shown that tort costs are actually substantially at risk. About a third of the price difference according to this

economist is explainable by our tort system here. To give you an

example, if you have a product liability case in Europe or Germany

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for example, $100,000 would be a big settlement. This is a cost to

the system that is in there.

Even if we take out the rebates and even if we do this, yes,

prices are higher in the United States. That does mean that some

countries are getting a free ride in terms of R&D because it is paid

for here. But we are also getting the benefit of having the R&D

here.

Mr. GUTKNECHT. But you are getting the benefit too. I want to

come back to this because I am also the vice chairman of the

Science Committee. We will spend this year, American taxpayers,

over $29 billion on basic research, about $24 billion of which companies like yours will benefit. For example Tomoxaphen, and there

are a number of examples, we can argue which examples are which

but I have a Senate report from a couple of years ago that essentially says, the National Cancer Institute, part of the NIH, sponsored 140 clinical trials of Tomoxaphen. The story we have is a big

chunk of the research was paid for by the taxpayers on

Tomoxaphen. Are we wrong in that?

Mr. BRENNAN. I don’t know the specifics of how much was spent

by the Government or by the company, but the company spent a

lot of money discovering and developing Tomoxaphen along with

the Government as we do with other cancer products and the NCI.

Mr. GUTKNECHT. We don’t begrudge that but let me come back

to the point. Would you be willing to allow us to audit your books

to find out exactly how much you do spend on research?

Mr. BRENNAN. No. I don’t think it is appropriate. I think we can

provide you with the information we have for Tomoxaphen.

Mr. GUTKNECHT. Let me say this. We contract with defense contractors but in every defense contract we put in there that we have

the right to audit them. Last week you may have seen that one of

the defense contractors, we are going after them for $191 million

in what we believe are excess profits.

Mr. BRENNAN. I just want to say that I think the arrangements

we have entered with the National Cancer Institute by way of example are cooperative arrangements that advance science and they

want to be very actively involved and we want them involved. We

spend a lot more money on research in our company than we get

from the Government to develop products.

Mr. GUTKNECHT. I have with you guys on tort reform and I am

with you on research. I am glad we spend as much on research as

we do but I don’t know if we can continue to go back to our constituents and say we need to continue to subsidize the starving

Swiss. It is time for them to pay their fair share. My solution may

not be the best solution, but at least it is an answer.

If I could, Mr. Chairman, I want to put in the record, I don’t

know if you are familiar with some of the new technology coming

out but in my hand I have a little vial and we will put it on the

screen so you can see and in this little vial there are 150 computer

chips. This is the new UPC code. This is going to change everything in terms of distribution of products. This combined with

counterfeit proof, bubble pack packages is going to make it virtually impossible for imposters because we will be able to pass this

through a detecting door and it will tell us exactly what that prodVerDate 11-MAY-2000 10:57 Oct 21, 2003 Jkt 000000 PO 00000 Frm 00106 Fmt 6633 Sfmt 6633 D:\DOCS\89719.TXT HGOVREF1 PsN: HGOVREF1
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uct is, where it was made, when it was made, everything you need

to know.

You said earlier you didn’t think technology was going to be able

to deal with the potential problems of reimportation. Are you folks

working with counterfeit proof packaging and are you familiar with

these new computer chips that replace the UPCs?

Mr. VIEHBACHER. First, I fully agree with you that counterfeiting

is a major problem and we try to spend a lot of time figuring out

these new technologies. It is a particular problem for us in some

international areas. Thus far, we have not found any technology

that actually works. The counterfeiters always manage to stay just

right behind us.

Mr. BURTON. This product, and the gentleman’s time has expired, this is the same technology we use on the $20 bill which

works pretty well as far as counterfeiting is concerned.

We have two people left. Mr. Janklow.

Mr. CANNON. Mr. Chairman, I am willing to forego my time because I don’t think we have time before the vote to get both of us

in.

Mr. BURTON. Mr. Janklow, go ahead.

Mr. JANKLOW. I appreciate it and I will try and be brief.

You gave examples of other companies’ rate of return, Microsoft,

Coca Cola and yours. The fact of the matter is you are not aware

of much taxpayers’ money that has gone into research for Coca

Cola, are you?

Mr. VIEHBACHER. I am not aware we are getting any more government money than Microsoft.

Mr. JANKLOW. You probably misunderstood me. Even though it

is late, I will try and repeat it. Are you aware of any Government

money that has gone into research at Coca Cola?

Mr. VIEHBACHER. No, sir.

Mr. JANKLOW. I want you to understand, I have gotten no money

from the AFL–CIO nor either of your two companies and I love

profit, I think it is a clean word. I am not accusing you of profiteering, I think most of your problems have been Government created.

You are both aware of the Hatch, Waxman laws, aren’t you?

Mr. VIEHBACHER. Yes.

Mr. BRENNAN. Yes.

Mr. JANKLOW. You are aware there have been a lot of accusations where people have figured out how to legally game the Hatch,

Waxman laws, isn’t that correct? Haven’t those allegations been

made?

Mr. VIEHBACHER. There have been allegations made.

Mr. JANKLOW. As a matter of fact, on some subsequent patents

files, there have been attempts to protect for 30 additional months,

there has actually been litigation with respect to some of those,

hasn’t there?

Mr. VIEHBACHER. There may be some. I am not aware.

Mr. JANKLOW. Are there any with your company?

Mr. VIEHBACHER. Specific litigation on which patents?

Mr. JANKLOW. On any patents where you sought a 30-month extension under the Hatch-Waxman law?

Mr. VIEHBACHER. Yes, we have sought a 30-month extension

under Hatch-Waxman.

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Mr. JANKLOW. Has there been any litigation with respect to your

company where they have actually litigated the 30-month extension?

Mr. VIEHBACHER. Yes.

Mr. JANKLOW. Was your company successful or unsuccessful in

that litigation?

Mr. BRENNAN. I believe we demonstrated the validity of our patents with four of the five companies that we were involved with.

Mr. JANKLOW. Are you familiar with the FTC study of 2002

called ‘‘The Generic Drug Entry Prior to Patent Expiration,’’ July

2002, the FTC report? Are you gentlemen aware of that?

Mr. BRENNAN. Yes, I have heard of it. I am aware of some of the

facts. I don’t know if I know them all.

Mr. JANKLOW. That study reports of the four cases that actually

went to court on the 30-month extension, the drug companies were

unsuccessful in all four of those pieces of litigation. Would that be

incorrect, sir?

Mr. BRENNAN. I am not sure I know the specific answer.

Mr. JANKLOW. With respect to the pricing, the fact of the matter

is, you are both aware, aren’t you, that nonprofit corporations in

the United States cannot be held in violation of the Robinson-Patman price fixing laws, correct?

Mr. BRENNAN. Nonprofit companies?

Mr. JANKLOW. Yes.

Mr. BRENNAN. I take your word for it.

Mr. JANKLOW. Let me ask it this way. When your companies sell

to hospitals through wholesalers, they get the cheapest price of all,

don’t they?

Mr. BRENNAN. No, that is not the case.

Mr. JANKLOW. Can you tell me who gets a cheaper price than a

hospital?

Mr. BRENNAN. The Government through FFS pricing and

through Medicaid.

Mr. JANKLOW. THS and the Indian Health Service.

Mr. VIEHBACHER. Medicaid by law gets the lowest price.

Mr. JANKLOW. Medicaid is matching. Don’t you give a rebate to

the States on Title 19 Medicaid based on the lowest price you sell

someplace else. That is the way Medicaid works, isn’t it?

Mr. VIEHBACHER. We have to provide Medicaid with our best possible price, so no one can get a lower price than Medicaid.

Mr. JANKLOW. The only reason a Medicaid price is set is because

it is set at what you sold to somebody else at a price?

Mr. BRENNAN. Not necessarily.

Mr. JANKLOW. I believe the law says when it comes to Medicaid

reimbursement by State and local governments, you have to rebate

to the State and local governments, whoever is the Medicaid provider, the equivalent of the lowest price that you sell to someone

else. That is where the rebate program comes in.

Mr. BRENNAN. Or a minimum of 15 percent, so if we are selling

it to everyone else at a rate that is above the 15 percent discount,

Medicaid gets the difference.

Mr. JANKLOW. With respect to the sales you make to hospitals,

am I incorrect that say in South Dakota a wholesaler sells a drug

they would sell at a particular price to a drug company and at the

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end of a month they would send a billing to your company who

would give them their mark up plus the difference between the

price they are supposed to charge the hospital and the price they

charge others?

Mr. BRENNAN. I am not familiar with any products we have

where the hospitals operate that way.

Mr. JANKLOW. Are you sure with respect to Glaxo?

Mr. VIEHBACHER. I am not aware of those either.

Mr. JANKLOW. Do you know whether or not your companies do

it? You both may not be aware and I realize you are senior executives, but are you aware whether or not your companies do that?

Mr. BRENNAN. We work through group purchasing organizations

who sell to hospitals but the prices are strictly controlled. We are

audited for Medicaid and we know our Medicaid best prices and I

am certain that best price is offered to Medicaid even if the hospital is getting a better price.

Mr. JANKLOW. Quickly, if I could. With respect to the pricing for

your products, based on negotiation you sell to a national chain

pharmaceutical house, like Walgrens which gets a better price than

a sole proprietor druggist in Timbuktu, America, don’t you?

Mr. BRENNAN. In the case of AstraZeneca, the small pharmacies

in those places in America buy from wholesalers, so we sell through

wholesalers primarily.

Mr. JANKLOW. They can’t buy from your direct, can they?

Mr. BRENNAN. We have a minimum amount of purchase.

Mr. JANKLOW. Walgrens meets it and they don’t?

Mr. BRENNAN. That is correct.

Mr. JANKLOW. Is that also the way it is with Glaxo?

Mr. VIEHBACHER. That is my understanding.

Mr. JANKLOW. The teldrugs, the giant mail order operations, operate the same way, don’t they?

Mr. VIEHBACHER. I couldn’t say, sir.

Mr. BRENNAN. I don’t know.

Mr. JANKLOW. Neither one of you know?

Mr. BRENNAN. Mail order operations.

Mr. JANKLOW. Large purchasers of drugs sent in mail order get

preferential pricing based on the volume, as you said?

Mr. BRENNAN. Pharmacy benefit managing companies?

Mr. JANKLOW. No, just a plain mail order pharmacy like Teldrug,

for example?

Mr. BRENNAN. I believe if they didn’t meet our minimum purchasing requirements, they would get their product from the wholesaler and the wholesaler position price.

Mr. JANKLOW. The price you charge in America to the various

purchasers is not based upon the cost of doing the individual sales

transaction, there is more to it than that? The savings you have

by selling 100,000 to a Walgrens as opposed to 5,000 to an individual pharmacy or to a wholesaler based on 5,000, the break is more

than just the incremental savings there is in volume purchasing,

isn’t it?

Mr. BURTON. We have 4 minutes on the clock on the floor. Thank

you, Mr. Janklow.

Mr. JANKLOW. Thank you, Mr. Chairman, for your indulgence.

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Mr. BURTON. One thing I would like to point out is GlaxoSmithKline agreed to pay $87.6 million to settle civil charges

it had overcharged the Medicaid Program for Paxil, an

antidepressant and Flonase, an allergy spray. The deal also involved relabeling medicines for Kaiser. Let me ask one question because we have to run.

‘‘GlaxoSmithKline will stop providing our products to those pharmacies and other wholesalers who distribute the products to them

if they continue selling to other countries.’’ That is correct? You

have said that, right?

Mr. VIEHBACHER. Our Canadian affiliate will not provide product

to Internet pharmacies.

Mr. BURTON. Are either one of your companies going to cut sales

to Canadian pharmacies if they continue to sell to other countries?

Mr. VIEHBACHER. That is our intention.

Mr. BURTON. Is that your intention as well?

Mr. BRENNAN. We distribute through wholesales there and we

are on an allotment program, so the wholesalers make the decision

about who gets product but we are allocating the product within

Canada.

Mr. BURTON. So if they sell to America or any other country, you

are going to cut back on production of supply you send there which

would be a burden on the Canadian people?

Mr. BRENNAN. We are not knowingly going to facilitate the violation of U.S. law if we think the products are going out.

Mr. BURTON. So the FDA is saying it is illegal to sell to the

United States because of safety reasons and you are backing them?

Mr. BRENNAN. The law is in place to ensure the safety of our

products here.

Mr. BURTON. And that is the only reason? It is not because of the

excessive prices you are charging in America? It has nothing to do

with these prices?

Mr. VIEHBACHER. The amount of product coming across the border from Canada is less than 1 day’s sales in the United States.

It is an unsafe practice. Products are not the same. Here is one.

Mr. BURTON. I understand but the long-term concerns you have

is there might be a flood of people, not just a million buying up

there, but tens or hundreds of millions of people that might start

buying from Canada instead of through the U.S. system.

Thank you very much for being here. We stand adjourned.

[Whereupon, at 6:37 p.m., the subcommittee was adjourned, to

reconvene at the call of the Chair.]

[The prepared statement of Hon. Chris Cannon and additional

information submitted for the hearing record follows:]

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