[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





    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


                                 ______

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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma              C.A. ``DUTCH'' RUPPERSBERGER, 
NATHAN DEAL, Georgia                     Maryland
CANDICE S. MILLER, Michigan          ELEANOR HOLMES NORTON, District of 
TIM MURPHY, Pennsylvania                 Columbia
MICHAEL R. TURNER, Ohio              JIM COOPER, Tennessee
JOHN R. CARTER, Texas                CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota                 ------
MARSHA BLACKBURN, Tennessee          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                   DIANE E. WATSON, California
CHRISTOPHER SHAYS, Connecticut       BERNARD SANDERS, Vermont 
ILEANA ROS-LEHTINEN, Florida             (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


                            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

 
    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.
    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 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 CRS research 
memo deg. follows:]

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[GRAPHIC] [TIFF OMITTED] T9719.009

[GRAPHIC] [TIFF OMITTED] T9719.010

[GRAPHIC] [TIFF OMITTED] T9719.011

    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.
    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 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 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.
    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 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.
    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?
    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.
    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 pro-
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 Washington Post 
article deg. follows:]

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[GRAPHIC] [TIFF OMITTED] T9719.038

    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?
    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?
    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 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 expired 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 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?
    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 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 
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.
    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.
    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.
    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.
    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.
    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 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 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 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.
    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 $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 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.
    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 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 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.
    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?
    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 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.
    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.
    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.
    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 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. 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 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 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 product 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.
    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 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.
    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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