[Senate Hearing 108-1011]
[From the U.S. Government Publishing Office]





                                                       S. Hrg. 108-1011

                    PRESCRIPTION DRUG REIMPORTATION

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION
                               __________

                           NOVEMBER 20, 2003
                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation





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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South 
CONRAD BURNS, Montana                    Carolina, Ranking
TRENT LOTT, Mississippi              DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          JOHN D. ROCKEFELLER IV, West 
OLYMPIA J. SNOWE, Maine                  Virginia
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois        BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  RON WYDEN, Oregon
GEORGE ALLEN, Virginia               BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
                                     MARIA CANTWELL, Washington
                                     FRANK R. LAUTENBERG, New Jersey
      Jeanne Bumpus, Republican Staff Director and General Counsel
             Robert W. Chamberlin, Republican Chief Counsel
      Kevin D. Kayes, Democratic Staff Director and Chief Counsel
                Gregg Elias, Democratic General Counsel
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on November 20, 2003................................     1
Statement of Senator Boxer.......................................    43
Statement of Senator Dorgan......................................     3
Statement of Senator Lautenberg..................................     5
Statement of Senator McCain......................................     1
    Prepared statement...........................................     2
Statement of Senator Snowe.......................................     7
Statement of Senator Wyden.......................................     4

                               Witnesses

Catizone, Carmen A., Executive Director, National Association of 
  Boards of Pharmacy.............................................    86
    Prepared statement...........................................    87
Funderburk, David, Legislative Counsel, TREA Senior Citizens 
  League.........................................................   113
    Prepared statement...........................................   114
Gutknecht, Hon. Gil, U.S. Representative from Minnesota..........    19
    Prepared statement...........................................    23
Lubka, Lewis, Senior Citizen, On Behalf of Alliance for Retired 
  Americans......................................................   110
    Prepared statement...........................................   112
MacArthur, Donald, Secretary General, European Association of 
  Euro-Pharmaceutical Companies..................................    97
    Prepared statement...........................................    99
Pawlenty, Hon. Tim, Governor, State of Minnesota.................    44
    Prepared statement...........................................    46
Sanders, Hon. Bernard, U.S. Representative from Vermont..........    33
Santorum, Hon. Rick, U.S. Senator from Pennsylvania..............     9
    Prepared statement...........................................    12
Stabenow, Hon. Debbie A., U.S. Senator from Michigan.............    15
    Prepared statement...........................................    17
Taylor III, John M., Associate Commissioner, Regulatory Affairs, 
  U.S. Food and Drug Administration..............................    48
    Prepared statement...........................................    51

                                Appendix

Lemoine, Representative David, Chair; and Cheryl Rivers, 
  Executive Director, National Legislative Association on 
  Prescription Drug Prices, prepared statement...................   119
 
                    PRESCRIPTION DRUG REIMPORTATION

                              ----------                              


                      THURSDAY, NOVEMBER 20, 2003

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:35 a.m. in room 
SR-253, Russell Senate Office Building, Hon. John McCain, 
Chairman of the Committee, presiding.

            OPENING STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    The Chairman. Good morning. Today's hearing focuses on the 
debate over prescription drug importation.
    This Committee held its last hearing on this issue just 
over 2 years ago. As I think back to that hearing, I must say, 
I'm disappointed that, to this day, our laws still do not give 
American consumers the right to import prescription drugs. To 
be clear, we're not talking today about just any drugs. Rather, 
we're talking about prescription drugs that have had their 
safety and effectiveness certified by the U.S. Food and Drug 
Administration. Nevertheless, FDA-approved prescription drugs 
remain an exception to the free flow of trade between the 
United States and the rest of the industrialized world.
    This trade problems is stoking the fire of America's 
prescription-drug price crisis. The prescription drug prices 
paid by our sick, elderly, and uninsured are significantly 
higher than those of other industrialized countries, like 
Australia, France, and Switzerland. As a result, millions of 
our citizens travel across the border to Canada each year to 
purchase prescription drugs. Others purchase imported 
pharmaceuticals over the Internet. In all, Americans spend 
hundreds of millions of dollars on imported pharmaceuticals, 
not because they don't want to buy prescription drugs in the 
U.S., but because they simply can't afford to.
    I fully agree that demand for lower prices should not lead 
us to sacrifice the health and safety of our citizens. That's 
why any legislation that permits the free importation of 
pharmaceuticals must contain safeguards that protect American 
consumers from tainted or counterfeit prescription drugs. But 
those who oppose importation must begin to engage in a dialogue 
to tell us what additional or alternative safety measures they 
believe will work. They must stop repeatedly telling us only 
that there's nothing we can do to implement an effective 
importation system that protects both the health and the 
pocketbooks of American consumers.
    Indeed, it seems to me that most Americans, and especially 
those in need of prescription drugs to treat serious illnesses, 
want us to stop listening to the naysayers and start working on 
a reasonable solution to the ever-growing problem of excessive 
prescription drug prices in this country. To that end, I have 
sponsored S. 1781--cosponsored--the Pharmaceutical Market 
Access Act of 2003, with several of my colleagues, including 
Senator Dorgan and Snowe.
    Though the Act is likely not the cure-all for problem of 
skyrocketing prescription drug prices in this country, it's the 
type of legislation that would allow our citizens greater 
access to the pharmaceutical markets of other industrialized 
countries, while still maintaining the safety of our 
prescription drug supply. The act would do so by permitting 
American consumers to import FDA-approved prescription drugs 
from Canada, European countries, and other industrialized 
nations, while requiring safety measures such as anti-
counterfeiting technology for prescription drug packaging that 
is virtually identical to the technology used to secure U.S. 
currency.
    I hope our witnesses today will engage in a constructive 
discussion about how best to strike a balance between 
affordable prescription drug prices and a safe prescription 
drug supply.
    Before we proceed any further, I want to note my 
disappointment, but not surprise, that the Pharmaceutical 
Research and Manufacturers of America, which has repeatedly 
spoken out against the liberalization of our prescription drug 
importation laws, and, by the way, has a very restrictive 
clause in the Medicare prescription drug benefit--they've 
succeeded again--declined to appear today. What a surprise. I 
find it extraordinary that an organization tasked with speaking 
for several major pharmaceutical manufacturers on this issue, 
and has spent roughly $8.5 million in lobbying expenses this 
year, couldn't make the time to share with us the views of the 
companies that it represents.
    [The prepared statement of Senator McCain follows:]

   Prepared Statement of Hon. John McCain, U.S. Senator from Arizona
    Good morning. Today's hearing focuses on the debate over 
prescription drug importation. This Committee held its last hearing on 
this issue just over two years ago. As I think back to that hearing, I 
must say that I am disappointed that, to this day, our laws still do 
not give American consumers the right to import prescription drugs. To 
be clear, we're not talking today about just any drugs. Rather, we're 
talking about prescription drugs that have had their safety and 
effectiveness certified by the U.S. Food and Drug Administration. 
Nevertheless, FDA-approved prescription drugs remain an exception to 
the free flow of trade between the United States and the rest of the 
industrialized world.
    This trade problem is stoking the fire of America's prescription 
drug price crisis. The prescription drug prices paid by our sick, 
elderly, and uninsured are significantly higher than those of other 
industrialized countries like Australia, France, and Switzerland. As a 
result, millions of our citizens travel across the border to Canada 
each year to purchase prescription drugs. Others purchase imported 
pharmaceuticals over the Internet. In all, Americans spend hundreds of 
millions of dollars on imported pharmaceuticals--not because they don't 
want to buy prescription drugs in the U.S., but because they simply 
can't afford to.
    I fully agree that demand for lower prices should not lead us to 
sacrifice the health and safety of our citizens. That is why any 
legislation that permits the freer importation of pharmaceuticals must 
contain safeguards that protect American consumers from tainted or 
counterfeit prescription drugs. But those who oppose importation must 
begin to engage in a dialogue to tell us what additional or alternative 
safety measures they believe will work. They must stop repeatedly 
telling us only that there is nothing we can do to implement an 
effective importation system that protects both the health and the 
pocketbooks of American consumers.
    Indeed, it seems to me that most Americans--and especially those in 
need of prescription drugs to treat serious illnesses--want us to stop 
listening to the naysayers and start working on a reasonable solution 
to the ever-growing problem of excessive prescription drug prices in 
this country. To that end, I have co-sponsored S. 1781, the 
Pharmaceutical Market Access Act of 2003, with several of my colleagues 
including Senators Dorgan and Snowe. Though the Act is likely not the 
cure-all for the problem of skyrocketing prescription drug prices in 
this country, it is this type of legislation that would allow our 
citizens greater access to the pharmaceutical markets of other 
industrialized countries while still maintaining the safety of our 
prescription drug supply. The Act would do so by permitting American 
consumers to import FDA-approved prescription drugs from Canada, 
European countries, and other industrialized nations, while requiring 
safety measures such as anti-counterfeiting technology for prescription 
drug packaging that is virtually identical to the technology used to 
secure U.S. currency.
    I hope that our witnesses today will engage in a constructive 
discussion about how best to strike a balance between affordable 
prescription drug prices and a safe prescription drug supply. Before we 
proceed any further, however, I want to note my disappointment that the 
Pharmaceutical Research and Manufacturers of America, which has 
repeatedly spoken out against the liberalization of our prescription 
drug importation laws, has declined our invitation to appear today. I 
find it extraordinary that an organization tasked with speaking for 
several major pharmaceutical manufacturers on this issue, and that has 
spent roughly $8.5 million in lobbying expenses this year, could not 
make the time to share with us the views of the companies it 
represents.
    I thank the witnesses who did accept our invitation and I look 
forward to hearing their testimony.

    The Chairman. I thank the witnesses who did accept our 
invitation, and I look forward to hearing their testimony. And 
first I'd like to hear from Senator Dorgan and Senator Wyden 
and Senator Lautenberg, if they have opening statements.

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, first of all, I know we have 
a lengthy hearing, so I will try to be brief, but I do want to 
make a couple of comments that are important to this subject.
    First of all, the subject is drug reimportation. The fact 
is, we import a substantial amount of prescription drugs in 
this country. It's done by the manufacturer of the prescription 
drug. Lipitor is manufactured in Ireland and shipped to this 
country. Prevacid is manufactured in Japan, Nexium in Sweden, 
and sent into this country. So there's a lot of importation of 
drugs going on. It is just that the pharmacists and the 
licensed wholesalers are prevented from reimporting, and 
consumers are allowed to reimport a personal amount for 
personal use, a very small amount.
    But the issue of safety has been raised, and I want to make 
a couple of points with some bottles here in which the same 
pill is put in the same bottle made by the same manufacturer 
and sent to two countries.
    And this perhaps demonstrates it better than any way I 
know. This is Celebrex. And you can see, the bottle is shaped 
the same, it's an identical bottle. They've reversed the 
coloring on it. But the only difference--this is an FDA-
approved drug produced at an FDA-approved facility, and it is 
the same pill in the same bottle made by the same company, 79 
cents per tablet in Canada, $2.22 in the United States. The 
only difference between these two tablets are the price. It is 
identical in every other way.
    Lipitor. As you can see, it is the same container, same 
pill made by the same company, put in the same bottle, sent to 
Canada for $1.01 per tablet, the U.S. $1.86 per tablet. Or 
Vioxx, same bottle, same shape, reverse the color just a bit, 
and it's the same pill, put in the same bottle, made by the 
same company, FDA-approved. The U.S. consumer pays $2.20 per 
tablet; the Canadian consumer, 78 cents per tablet. The only 
difference is the price. The U.S. consumer pays the highest 
prices in the world.
    Now, the pharmaceutical industry has aggressive supporters 
here on Capitol Hill, and we have an uphill battle. Let me 
compliment my colleague, Congressman Sanders and Congressman 
Gutknecht, for the aggressive fight they have waged in the 
Senate, and my partner here in the--in the House, I should 
say--and my partner in the Senate, Senator Stabenow, and 
Senator McCain and so many others who have worked on this 
issue. But it has proven to be a steep hill to climb.
    And we're going to have testimony today about this subject. 
One person who will present testimony is Lew Lubka, from Fargo, 
North Dakota. He is in the audience, and he actually went to 
Canada with me one Friday morning when it was snowing, and we 
went to a one-room pharmacy in Emerson, Canada, five miles 
north of the North Dakota border, and what we discovered is, 
the same pill five miles apart, between a Pemina, North Dakota, 
pharmacy and a pharmacy in Emerson, Canada. It was identical 
pills, but dramatically different prices. Unfair to the 
American consumer.
    So let me make one final point. I, along with my 
colleagues, including Senator McCain and Senator Stabenow, have 
introduced legislation that has passed the House of 
Representatives, and we are very disappointed by what it 
appears will be included in the Medicare prescription drug bill 
on the reimportation issue. It looks like the pharmaceutical 
industry wins there. So we will have to then try to move the 
bill that's already passed the House here in the Senate, and we 
are intending to try to do that, with all the aggressiveness we 
can, on behalf of the American consumer, who now pays the 
highest prices in the world for prescription drugs, and it is 
wrong, and it's unfair, and it has to change.
    I, too, Mr. Chairman, am terribly disappointed that the 
Commissioner of the FDA is not here to answer. He's been the 
biggest supporter the pharmaceutical manufacturers have to try 
to prevent the American consumers from accessing decent prices. 
And I'm also disappointed that PHRMA is not with us this 
morning.
    But, nonetheless, I appreciate the Chairman calling this 
hearing on this very important subject.
    The Chairman. But I've never been to a fundraiser that 
there isn't a PHRMA representative there. I'm sorry----
    [Laughter.]
    The Chairman. Senator Wyden?

                 STATEMENT OF HON. RON WYDEN, 
                    U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you, Mr. Chairman. And I, too, 
appreciate your holding the hearing.
    And you and Senator Dorgan and all of our colleagues at the 
table have done a lot of work in this area. And I think it's 
very timely that this hearing be held now, because my 
understanding is, with respect to drugs overseas now, we're 
starting to see the same problems there we've seen everywhere 
else, that the prices are starting to go up, the wait that 
seniors face for their medicine is increasing. And it seems to 
me that as we look at this issue of drug importation, and 
particularly the developments in recent days, we also focus on 
the fact that there really is no substitute for what's going to 
help seniors contain costs, and that is bargaining power. Until 
there are steps taken, either in this legislation that we're 
going to vote on in the next few days, or some other piece of 
legislation, to give seniors bargaining power in the 
marketplace, I don't think we're going to see any real change 
with respect to the price of pharmaceuticals.
    My understanding about the legislation that we're looking 
at now, not just in the area of drug reimportation, but with 
respect to what's done in managed-care plans, what's done in 
private plans, there still is not yet the bargaining power that 
seniors are going to need with respect to actually holding 
costs down.
    I think we understand what a disgrace it is that in the 
richest country in the world, with all of this talent in the 
healthcare arena, we have seniors traipsing throughout the 
world trying to find affordable medicine.
    So put me down on record as being for any kind of cost-
containment strategy that is safe and that promotes more 
affordable medicines for seniors. But I think we ought to be 
looking at this issue now, because my understanding, just in 
the last couple of days, from seniors is, when they are looking 
to Canada and other parts of the world in the last few days 
they have seen price increases in those areas, they have had to 
wait longer for their drugs, and I think this reinforces the 
question of doing this job right. And the way you're going to 
do it right is by creating bargaining power for seniors in the 
marketplace.
    And I wrap up by----
    The Chairman. Which is prohibited in the Medicare----
    Senator Wyden. Correct.
    The Chairman.--bill.
    Senator Wyden. I wrap up by way of saying, almost 30 years 
ago, Mr. Chairman, when I was co-director of the Oregon Gray 
Panthers, I did what Senator Dorgan is eloquently doing today, 
which is, I brought prescription drug bottles. And at that time 
we were working for generic drug pricing. And through your 
leadership and Senator Schumer's and others, we've made a 
little bit of headway there.
    But I think we ought to understand that we have a long, 
long way to go in this fight, and I look forward to hearing 
from our witnesses today.
    The Chairman. Senator Lautenberg?

            STATEMENT OF HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Thank you, Mr. Chairman.
    I look at the material that our friend from North Dakota 
produced, and it looks--the bottles look the same, and--apart 
from perhaps some coloration on one package or another. The 
question is exactly what's in the package. I would suggest 
that, just to be sure--because one of the concerns, one of the 
criticisms, is that there have been, in the past, incidents 
where a drug sold under one name does not have the same content 
or the same quality. And I would suggest to the Senator from 
North Dakota that, just to put a total cap on this, is perhaps 
to have a laboratory test these, make sure the ingredients are 
identical and to make sure that we get what we see.
    Senator Dorgan. If I might just say to the Senator from New 
Jersey, that was part of the Senate bill that was passed, and 
those protections are in the reimportation legislation.
    Senator Lautenberg. Well, they are now, but what we're 
looking at, at the moment, doesn't--hasn't passed the same 
quality test. It's required. But what--the bill is----
    The Chairman. We have witnesses, Senator Lautenberg. Would 
you complete your opening statement, and then Senator Snowe is 
here, so we can get to the witnesses?
    Senator Lautenberg. Listen, while all Americans are 
affected by the high cost of prescription drug, this burden 
falls largely on the senior citizen population, and nearly 14 
million seniors have no insurance that provides for them to get 
the prescription drug benefits. So they're forced to pay full 
freight.
    Additionally, 50 million Americans under the age of 65 also 
lack prescription drug coverage. With drug prices increasing 15 
percent in 2001, the seventh straight year of double-digit 
increases, seniors and working-class Americans are forced to 
make impossible choices between the medications they need and 
food and shelter.
    Now, I'm concerned, as the Chairman or anybody else is, 
about the fact that prices can be substantially lower in Canada 
for the same prescription drugs sold here in the United States. 
And we know the reason for this price. And I assume that my 
colleagues, who were, to use the expression used by the Senator 
from North Dakota, aggressive about this. And we should be 
aggressive. Included in that framework of aggression is price 
controls. Now, if that's what we're looking for here as a 
substitute for the free market, where most of the development 
of these new products is done, and with lots of failures along 
the way, then we have to step up boldly and say so.
    In Canada, the price of a newly patented prescription drug 
cannot exceed the highest price of an existing drug used to 
cure or treat the same disease. And drug price increases 
generally cannot exceed increases in the Canadian CPI.
    The system is good for Canadians, whom we are basically 
subsidizing. It's our drugs that they're taking. They develop 
few new drugs of their own. There's no economic incentive to do 
so. American pharmaceutical manufacturers develop 45 percent of 
all new drugs worldwide, and it can take up to 15 years, as 
much as $500 million, to get a new drug to market.
    I want to be clear here. I agree that drug prices in the 
United States are too high. The products are too good, the 
longevity has improved substantially. I'm one of those who's, I 
hope, a shining example. I don't think that it's the same 
prescription--I don't think it's right that the same 
prescription drug can be found for retail prices that are 30, 
40, even 50 percent less in some European countries.
    What's going on here is that these countries get a free 
ride. They benefit from the new drugs that are developed here, 
while they leave American consumers to bear the financial 
burden of developing and testing the drugs. But I don't think 
that the reimportation, even if it's limited to Canada, is 
necessarily the best way to reduce the burden on American 
consumers. What works for a country of 30 million people isn't 
necessarily the same prescription for a country of close to 
300. Canada simply doesn't have a system in place to handle 
large cross-border trade in pharmaceuticals and to be able to 
guarantee their safety.
    If we want to reduce prescription drug prices in this 
country, then Congress should develop the legislation, have an 
honest debate on the issue, instead of an ad hoc backdoor 
policy where the risks sometimes outweigh the benefits.
    As Wednesday's New York Times reported, ``Internet 
pharmacies have recently sprung up that claim to be based in 
Canada but do business from another country using a Canadian 
domain name.'' Now, I don't know whether there's a network of 
intrigue that we're looking at here, but I think we have to 
make sure that we ferret it out.
    Americans looking for cheaper drugs abroad should not be 
gambling with their health. We had an opportunity to fix the 
problem of high drug costs for seniors by expanding Medicare to 
include a prescription drug benefit and then using the enormous 
bargaining power of the Federal Government to negotiate volume 
discounts, but we didn't do that. Instead, Congress is poised 
to adopt a haphazard prescription drug plan that contains 
significant gaps in coverage and doesn't do an awful lot to 
bring the prices down, even though it will cost us $400 
billion.
    So I regret that we missed an opportunity to do something 
that would have made, perhaps, this hearing unnecessary. We 
must get on with the price differential, and I want to do 
something about it, as well.
    Thank you.
    The Chairman. Senator Snowe?

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. Thank you, Mr. Chairman. And I appreciate 
the fact that you're holding this hearing to focus on this most 
critical issue that's facing so many Americans. And it's a 
problem for which a solution is long overdue. And so I 
appreciate your leadership, and I think that the Congress does 
have a responsibility to address this issue, as I know Senator 
Dorgan has done so much in the past, Senator Wyden, on this 
issue, and passing this legislation for the last 3 years in two 
consecutive Congresses, and yet we have not been able to 
implement this legislation because it's predicated on the 
Secretary of Health and Human Services safety certification 
requirements. And as the prescription drug medication 
conference report is pending before the Senate, it'll include 
similar provisions. But we have yet to overcome the hurdles of 
those--safety certification. And I think it's unconscionable, I 
think it's unreasonable that we have been able to surmount 
these hurdles in order to make sure that our consumers, our 
seniors, have access to affordable medications.
    The fact of the matter is, our America's seniors are 
desperate enough to have to travel across the borders. That is 
true for Maine seniors, who have taken busload after busload to 
go to Canada to access affordable medications. Because, 
otherwise, they have no access to prescription drugs that they 
so desperately need, and otherwise would be out of reach. It's 
not only a matter of quality of life, it can be a matter of 
life and death.
    And it was interesting, in the papers the other day, as 
we're all familiar with the charts, but they showed a survey in 
Maine to low-cost providers, and they compared drugstores, one 
in Maine and a number in Canada, as well. For 15 drugs, it was 
$804,000. The lowest price in Canada was for $355,000, 50 
percent less, and that's the problem. And so albeit that we're 
going to have a prescription drug benefit as part of the 
Medicare program, it will do nothing to address the cost. So 
it's no wonder that more than 70 percent of Americans want 
reimportation, they want the ability to access those lower-
priced medications, because we now know the facts, that drugs 
sold in other industrialized nations are selling for far less 
than they're selling here in the United States. In fact, the 
National Institutes of Health did a survey on the top 21 most 
important drugs, and 15 were found to have been developed using 
knowledge and techniques from federally funded research.
    The fact of the matter is, America's investments in 
philanthropy has been shared worldwide. The one thing that 
hasn't been shared are lower-priced medications. We are paying 
the highest prices in the world. Americans are bearing a 
disproportionate burden for the research and the development 
making these new medications and innovative medications 
available to consumers worldwide, and yet they're bearing the 
highest price in prescription drugs.
    Now, people say importation--reimportation isn't safe. I 
cannot believe, in America, we can't develop innovative 
techniques to ascertain the safety standards that are necessary 
to meet the requirements under the legislation and the laws 
that have passed previously in the current pending legislation 
in the Medicare conference report. I cannot believe that the 
FDA cannot meet those standards or the challenges involved in 
that legislation.
    We can't develop anti-counterfeiting packaging? We 
mandated, in 1992, pedigree requirements so that you can have 
the bar codes to track the medication. I cannot believe that 
the FDA hasn't been working diligently and vigorously within 
the government, with consumers, to make sure that we could meet 
those standards when Congress has passed this legislation time 
and time again. Yet FDA is spending more time in Canada 
convincing the government not to sell medications here in the 
United States, and scaring seniors, essentially trying to shut 
down the borders, and yet they're not investing the appropriate 
time to meet the standards within the law and meet the intent 
of Congress that has passed this legislation on two different 
occasions, that has become law.
    So I think we do have a responsibility. Reimportation of 
drugs isn't a problem, it's one of a number of solutions, and I 
think we have to address not only the issue of providing a 
benefit to America's seniors, but we also have an obligation to 
address the costs that are associated with prescription drugs 
that can make all the difference for the life of a American 
senior and American consumer.
    So, Mr. Chairman, I appreciate your efforts here today, and 
hopefully this will be the beginning of developing, I think--
and facilitating a process by which we can solve this problem. 
Government should be helping to serve America's seniors, not 
being an impediment to preventing their access to something 
that they clearly depend on and need.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Snowe.
    We had a hearing a few weeks ago, you know, on these 
dietary supplements, and it's been 9 years since the passage of 
that bill, and the FDA still has not written the regulations 
associated with it. So placing our trust in the FDA is, I would 
say, somewhat misplaced.
    I want to welcome our colleagues from the House and the 
Senate here today. Senator Rick Santorum and Senator Debbie 
Stabenow and Representative Gil Gutknecht and Representative 
Bernie Sanders are here. We'll begin with Senator Santorum.
    Welcome, Senator Santorum.

               STATEMENT OF HON. RICK SANTORUM, 
                 U.S. SENATOR FROM PENNSYLVANIA

    Senator Santorum. Thank you, Mr. Chairman. I appreciate the 
opportunity to be here and to share my perspectives on this 
very, very important issue.
    I know a lot of people here believe that the reimportation 
of prescription drugs from Canada will solve what ails the 
American healthcare system. I would argue that you, by doing 
so, would be attempting to treat the symptoms. You will not 
cure the disease. And I would argue that you will kill many 
patients in the process.
    Foreign drug importation may seem like a straightforward 
and attractive remedy to prescription drug access. It, in fact, 
will create a host of serious healthcare consequences. Number 
one, it will import, potentially import, foreign price controls 
into this country. Two, it will decimate the research and 
development of pharmaceutical products in this country. And I 
know there are a lot of people on this panel who hate the 
tariffs that have been imposed on steel, and we do so much 
around here to help save an industry. We have an industry here 
in the pharmaceutical industry, which is one of the most 
competitive industries in the world, that imports--I mean, 
exports pharmaceutical products all over the world, and so the 
answer here is to try to somehow knock it on its heels. I don't 
think that's necessarily a good thing for this country or for 
our economy.
    Reimportation undermines the FDA's authority to regulate 
drugs and opens up U.S. borders to diverted and counterfeit 
drugs from foreign sources. That, to me, is not necessarily a 
prescription for better healthcare in this country. The side 
effects are all too predictable and much worse than the 
perceived disease itself.
    The proponents of foreign drug importation claim they have 
discovered a miracle cure for American healthcare, and what 
they're doing is basically selling snake oil to the American 
public. While the problem of affordable access to prescription 
drugs is real, particularly in the elderly, they are better and 
safer ways, and effective ways, to solve this problem, more so 
than simply opening up borders to cut-rate foreign drugs.
    In fact, the best way to do it is something that we're 
considering this week, which is to pass a Medicare drug 
benefit. This will assure seniors affordable access to safe and 
the best prescription drugs in the world. This means access to 
drug products that FDA has stamped with their approval, and it 
comes with the ironclad assurance that they're safe, authentic, 
and effective, which is something that reimported drugs could 
never be claimed to be.
    What Congress should focus its attention on, candidly, is 
the international drug price disparities that have given rise 
to this debate in the first place. I agree with everybody here 
that it's unfair for Americans to pay more for their medicines 
than the rest of the world, but the answer is not to adopt what 
the rest of the world has done, which is price controls, and 
import them into this country. What we should do is insist that 
other countries pay their fair share. This is a trade issue. 
And we should be out there aggressively trying to work, through 
our trade offices and through here in the Congress, to get the 
rest of the world to pony up and to bear their cost that we 
bear here in America, which has to do with the research and 
development of new drugs.
    While Canada is, by no means, a third-world country, many 
of the drugs that are funneled through Canada come from third-
world countries with significant counterfeit problems. A recent 
five-part series in the Washington Post, my favorite newspaper, 
highlights the threat posed by counterfeiters. And if you've 
not read this series, I urge you to do so. While America's drug 
supply remains the safest in the world, it is under constant 
attack from well-funded, highly organized and technologically 
savvy foreign and domestic counterfeiters, some connected to 
organized crime, and some connected, perhaps, to terrorist 
organizations. Under current law, these counterfeiters face 
significant getting their products into commerce. But if we 
open up the borders to Canadian drugs, we will, in fact, 
increase the risk of these counterfeit drugs coming into this 
country. Not a positive thing for the health and safety of our 
population.
    The lesson here is that we should be focused on 
strengthening protections, not opening up our borders to new 
assaults on the safety and health of the American people.
    We recently strengthened the protections regarding imported 
food, which I know some Members of this Committee were very 
strongly in favor of. It's inconceivable, while we're doing 
that, that we're going weaken our borders when it comes to 
something that is critically important and something that can 
be counterfeited and tainted very easily, which is prescription 
drugs.
    The price of drugs in Canada is lower than in the United 
States purely and simply because Canada has price controls. I 
find this an incredible argument that this is a fair trade or 
free trade issue, when what the free trade is, is to import 
drugs that have price controls on them. There hasn't been an 
increase in prices in Canadian drugs in 8 years. Eight years, 
they've controlled prices and haven't increased those levels. 
This is free trade? Allowing price-controlled drugs into this 
country? Manufacturers that refuse to meet these price 
controls, what happens to them? Well, they can have their 
license revoked to sell their product up there. In other words, 
they can have their product stolen, they can have a compulsory 
license, have their patent stolen, and have it produced in 
Canada. This is free trade? This is what we want to condone by 
the Canadian government and other governments by taking the 
drugs and having them reimported back into this country? I 
don't think this is a free trade argument. This is trying to 
use the bullying tactics of the Canadians to beat drug 
companies up in this country to lower their prices. Importing 
cheap prescription drugs from Canada means importing price 
controls and all that comes with it, long lines, drug 
shortages, and the decimation of research and development.
    The drug industry is the most vibrant, innovative, and 
productive in the world in this country, in part because the 
market-based system permits it to recoup its massive costs in 
research and development in spite of the subsidies that are 
received by getting research done through the Federal 
Government, which the gentlelady from Maine talked about. It 
costs roughly $1 billion to bring a new drug to market. Someone 
has to pay those costs, or those drugs are simply not going to 
be produced. And the fact is, the Canadians are not paying that 
cost, which is obviously one of the issues that we need to 
address.
    I would say two things in closing. Number one is the safety 
issue. And I know people seem to dismiss this, but the fact is, 
you have two Secretaries of Health and Human Services under two 
different Administrations that says it not safe, DEA, U.S. 
Customs--the FDA's described the present situation as ``buyer 
beware,'' and we want to make this more of a common thing in 
this country? I just find completely unacceptable for the 
health and safety of the people in this country.
    And, finally, I would just say that anyone who believes 
that the pharmaceutical industry, if reimportation were put in 
place to this small country of Canada--they sell drugs up to 
Canada basically in sufficient numbers to meet the demand in 
Canada. Now, if we're going to have reimportation, which means 
Americans are now going to be able to buy drugs in Canada, do 
you think the drug companies in the United States are going to 
produce enough drugs to supply all the drugs through Canada, 
back to the United States? Well, the answer to that is, of 
course they won't. They're going to produce enough drugs in 
America to sell to meet the market in Canada. Well, what will 
that meant to the--what drugs, then, will become--do you think 
the Canadian government is going to give these good quality 
American drugs to be sold back into the United States? Of 
course they won't. They'll save those for their own people. So 
what are we going to get reimported? Nothing will be reimported 
back to this country. We will get imported drugs from third-
world countries, because Canada simply doesn't have the ability 
to manufacture them in their country. So we'll get third-world 
counterfeit drugs coming through Canada with a stamp of 
approval from the Canadian government, when they haven't 
inspected them in the first place. This is not reform. This is 
a safety boondoggle for a lot of folks who are not necessarily 
looking out for the best interest of the American public, and 
something that we should not countenance and support.
    We should go out and aggressively go after countries who 
fix prices, who don't pay their fair share. That's the answer 
to the problem.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Santorum. I know 
you have other responsibilities, so I--I know that Senator 
Dorgan would love to----
    Senator Dorgan. Well, Mr. Chairman----
    The Chairman.--discuss this with you. But----
    Senator Dorgan. Mr. Chairman, surely Senator Santorum will 
not leave now. We do have questions.
    Senator Santorum. I'd be happy to stay for questions.
    Senator Dorgan. Yes, I would hope he would. I think he's 
talked about killing patients and so on, and I certainly want 
to ask him about ``killing many patients.'' So if he has the 
time, I think it would be helpful to our Committee to allow us 
to ask him a few questions.
    The Chairman. I would ask if it would be possible for 
Senator Santorum. Look, this is an emotional issue. I think we 
all realize it. But I think it would be fair to the other 
Members if they could give their statements. I know your time 
is limited, Senator Santorum, but I think it wouldn't be 
appropriate if we engaged in a debate with Senator Santorum and 
not allowed our other colleagues to make their statements. 
Would that be agreeable to you, Senator Santorum, or----
    Senator Santorum. If I could run, for a few minutes, while 
these folks--I have something I have to do, and I'll be--I can 
come back if that's----
    The Chairman. Thank you.
    Senator Santorum.--okay with the Chairman.
    [The prepared statement of Senator Santorum follows:]

      Prepared Statement of Hon. Rick Santorum, U.S. Senator from 
                              Pennsylvania
    Mr. Chairman, I appreciate the opportunity to lend my perspectives 
on legislative proposals to legalize the importation of prescription 
drugs from Canada. Some believe that this is the right prescription for 
all that ails the American health care system. You hear it in city 
hall; you hear it in the statehouses; and you even hear it by some here 
on Capitol Hill. They argue that the way to fix the problems of access 
to the miracle cures of the 21st century-and many of these medicines 
truly are miraculous -is to open up the floodgates to cut-rate, priced-
controlled medicines from Canada.
    Although the proponents of foreign drug importation have the best 
of intentions, unfortunately their solutions treat the symptoms instead 
of curing the disease. While foreign drug importation may seem like a 
straightforward and attractive remedy to the health care issues 
affecting this country, it will in fact create a host of serious 
healthcare problems that could plague the country for years to come. 
These include: (a) importing foreign price controls; (b) decimating the 
incentives for research and development; (c) undermining the FDA's 
authority to regulate drugs; and (d) opening the closed U.S. drug 
distribution system to diverted and counterfeit drugs from foreign 
sources. These ``side effects'' from foreign drug importation are all-
too-predictable and much worse than the original disease. The 
proponents of foreign drug importation claim they have discovered a 
miracle cure for the American healthcare system; in fact, they are 
selling nothing more than the legislative equivalent of snake oil.
    Before buying this foreign drug importation cure-all, we need to 
step back and get a second opinion. We need to ask ourselves why we are 
having this debate in the first place. Are we so desperate for 
solutions that we're willing to wager the health and safety of the 
American public on a risky, unproven foreign drug importation scheme?
    The answer has to be ``Absolutely Not!'' While the problem of 
affordable access to prescription medications is real, particularly for 
the elderly, there are better, safer and more effective ways to solve 
this problem than simply opening up our borders to cut-rate foreign 
drugs. In fact, the best way to solve this problem is for Congress to 
pass a Medicare drug benefit for our seniors. A Medicare drug benefit 
will ensure that seniors have affordable access to the best 
prescription drugs in the world, through private sector competition 
working in concert with the group purchasing power of social health 
insurance. This means drug products that have the FDA's stamp of 
approval; that come with an ironclad assurance of safety and 
effectiveness; that seniors know are authentic and will work.
    In addition to passage of a meaningful Medicare prescription drug 
benefit, improving affordable access to prescription drugs requires 
that we work aggressively to minimize international drug price 
disparities that have given rise to the idea of foreign drug 
importation in the first place. We all agree that it is unfair that 
Americans can pay more for their medicines than Canadians. The answer 
to this very real and legitimate concern lies in working to eliminate 
foreign price controls on drugs, not in importing them. We must also 
more stringently defend patent holders' intellectual property rights in 
our trade negotiations and other international policy initiatives. We 
can and should insist that other countries pay their ``fair share'' of 
the costs of developing new medicines, by working to open their markets 
so as to allow competition and free trade to work across borders. For 
far too long, the American public has been forced to shoulder the 
financial burden of researching and developing new drugs. It is high 
time that we bring to an end this ``free ride'' which directly results 
from foreign price controls.
    It's not good enough for Congress to say to our seniors: ``We'll 
give you access to prescription drugs--but only to drugs that have been 
funneled through Canada.'' While Canada is by no means a Third World 
country, many of the drugs that are funneled through Canada come from 
Third World countries or countries with significant counterfeiting 
problems. A study conducted by Prudential Financial, for instance, 
indicates that Canada recently increased its prescription drug imports 
from Pakistan by 196 percent; from Argentina by 171 percent; and from 
South Africa by 114 percent. In addition, studies have found that 
approximately one-third of the Internet websites claiming to be from 
Canada are not actually located in Canada. In many cases, the medicines 
are in fact from China, India, Mexico, Nigeria or Pakistan. Yet under 
the various foreign drug importation schemes now being considered, 
these are some of the drug products that very likely will be dispensed 
to our American seniors.
    Given the increased threat to the integrity of the American drug 
supply, now is not the time to open up a huge new supply channel for 
the counterfeiters. A recent five-part series in the Washington Post 
highlights the threat posed by counterfeiters, and if you have not read 
this series, I urge you to do so. While America's drug supply remains 
the safest in the world, it is under constant attack from well-funded, 
highly organized, and technologically savvy foreign and domestic 
counterfeiters, some connected to organized crime and some connected, 
perhaps, to terrorist organizations. These counterfeiters are ruthless, 
and prey upon the weakest and most vulnerable elements of society in 
order to make a quick buck. Because of the protections in current law 
and the unflagging efforts of the FDA and Federal and state law 
enforcement officials, these counterfeiters face significant hurdles 
getting their products into legitimate commerce. Yet if foreign drug 
importation is authorized, these counterfeiters will have a field day, 
and Canada will become a massive entry point for diverted and 
counterfeit drug products of all kinds. Indeed, if the counterfeiters 
had a trade organization, you can bet they would be pulling out all the 
stops lobbying for foreign drug importation.
    The lesson from the Washington Post series and the recent anti-
counterfeiting activities by FDA is that we should be focusing on 
strengthening the protections around our borders, not opening them up 
to new assaults. We recently strengthened the protections regarding 
imported foods. It is inconceivable that a few months later we would 
consider doing exactly the opposite with respect to imported drugs.
    This is all the more true given the realities we face in a post-
September 11th world and our ongoing war against terrorism. With the 
distribution of anthrax contaminated letters through the Postal Service 
to the U.S. Capitol complex and several news media offices in 2001, 
terrorist use of biological weapons has become a reality. It does not 
take a great leap of imagination to envision the increased potential 
for terrorist attacks on our pharmaceutical supply were we to let our 
guard down on drug safety: attacks that could cause catastrophic harm 
to patients, enormous economic damage our second-to-none health care 
industry, and could threaten confidence in our Nation's public health 
system.
    Some may argue that the critical difference between food and drugs 
is price, and that the lower prices charged in countries like Canada 
simply are too attractive to pass up. And if price really is the 
driver, we need to understand why the price of drugs in Canada is lower 
and what the ramifications of that are. And if we take a critical look 
at that, it becomes clear, I think, that the price of those low 
Canadian drug prices simply is too high for American patients to pay.
    The price of drugs in Canada is lower than in the United States 
because-pure and simply--Canada imposes price controls. Unlike the 
United States, Canada does not permit market-based pricing. Instead, 
Canadian authorities set a maximum price for each drug. Manufacturers 
that refuse to abide by the set maximum price face the threat of having 
their patent rights revoked. Thus, manufacturers have little or no 
recourse to fight Canadian price controls.
    But while Canadian patients may pay a marginally lower price for 
their prescription drugs than Americans, they pay a much higher 
societal cost. Price controls on prescription drugs have decimated the 
Canadian drug industry. Just a few years ago, Canada had a vibrant and 
innovative research-based prescription drug industry. Today, that 
industry is mostly gone and the research and development activities 
have dried up. The meager Canadian drug industry that remains mostly 
churns out generic copies of existing drugs.
    In addition, the Canadian health care system keeps a lid on costs 
by rationing goods and services. Long lines at the doctor's office are 
routine. Patients may wait months to see a specialist or for needed 
medical procedures. Many drug products that are available in the United 
States simply are not available in Canada.
    Consequently, when the foreign drug importation proponents talk 
about importing cheap prescription drugs from Canada, we must remember 
that that is not all we will be importing. We also will be importing 
Canadian price controls and all that comes with it, including long 
lines, drug shortages, and the decimation of research and development. 
The U.S. drug industry is the most vibrant, innovative and productive 
in the world, in part because market-based pricing permits it to recoup 
the massive costs of research and development. If we turn our back on 
the free market and instead seek to import Canadian price controls, we 
also undoubtedly will be importing not only the fate of the Canadian 
drug industry, but also the ``price'' that Canadian citizens pay in 
terms of diminished access to the newest and most effective medicines.
    Given these economic realities, it is curious that some proponents 
of foreign drug importation have characterized this as an issue of 
``free trade.'' In fact, foreign drug importation from countries with 
price controls is the antithesis of free trade.
    Finally, foreign drug importation is the wrong medicine for America 
because, plain and simply, it just is not safe. This is not just merely 
one opinion, but the consistent view of the FDA, two Secretaries of 
Health and Human Services from both Democratic and Republican 
administrations, the U.S. Customs Service, and the Drug Enforcement 
Administration. Moreover, the Canadian authorities have stated for the 
record that they cannot or will not ensure the safety of drug products 
exported to the United States. That, they claim, is not their job. And 
the FDA does not have the resources or manpower to police every 
shipment offered for import. Thus, drug importation presents a 
situation where nobody is minding the store. Or, as the FDA has 
described it, it presents a situation of ``Buyer Beware.'' While this 
may be an acceptable way to buy other goods and services, it is not an 
acceptable way to purchase prescription drugs. And it certainly should 
not be an acceptable policy for providing greater access to 
prescription drugs for American citizens.
    The most sensible, direct and safe method of ensuring that 
Americans have a fair deal on prescription drug prices is to pursue 
trade and other international policy initiatives aimed at tearing down 
foreign price controls. Clearly, it cannot be maintained that importing 
the price controls of other countries and removing the tools and 
authority that currently exist for the FDA to protect our medicine 
supply is a viable, long-term solution to achieving international drug 
price ``parity.''
    Some may have forgotten the fact that just over 20 years ago, a 
series of Tylenol cyanide murders in the Chicago area had consumers, 
pharmaceutical manufacturers and regulatory agencies in a state of 
national panic about the safety of over-the-counter drugs. Since then 
we have made great strides in strengthening the Federal drug safety 
standards that protect the American public from counterfeit and/or 
adulterated drugs. All Americans have come to depend on our current 
controls that assure the safety, strength, quality, and purity of 
medicines. We cannot afford to turn back the clock; now more than ever, 
we must stand strong and uphold the regulatory standards that have made 
our drug supply the safest in the world.
    As responsible elected officials, we have an obligation to focus on 
the real issues at hand, and resist the temptation to foist upon the 
American public short sighted, seemingly ``free lunch'' solutions to 
prescription drug access. Despite its noble purported intentions, 
foreign drug importation is, in the final analysis, a snake oil 
approach that raises more questions than it answers. We need a real 
cure for the problem of affordable access to prescription drugs. It 
should start with passing a meaningful Medicare drug benefit. And it 
should continue with a dogged resolve to eliminate foreign drug price 
controls, so that Americans do not continue to shoulder the burden of 
researching, developing, and bringing to market new, innovative and 
life-saving medicines.
    Thank you again for this opportunity.

    The Chairman. Obviously, we'd appreciate it.
    And I also would remind my colleagues, we have two other 
panels following this one.
    Senator Stabenow?

             STATEMENT OF HON. DEBBIE A. STABENOW, 
                   U.S. SENATOR FROM MICHIGAN

    Senator Stabenow. Well, thank you, Mr. Chairman. I very 
much appreciate the opportunity to be here, and I, too, would 
love the opportunity to debate Senator Santorum line by line, 
in terms of his testimony. And I realize that there are many 
opportunities for the Committee to ask questions today.
    I want to first thank you for your leadership as it relates 
to the issue of closing patents and putting more generic drugs 
onto the marketplace. I'm pleased to be a cosponsor of the 
legislation, that we originally passed in the Senate, that 
actually, on a bipartisan basis, would make a real difference. 
I'm very concerned about what appears to be watering down of 
that legislation in the final Medicare bill. But I thank you 
for your leadership and for all of my colleagues on the 
Committee who have been involved in the issue of reimportation, 
particularly Senator Dorgan, who has, I know, been a leader, 
far beyond my time in the Senate, and Senator Snowe. And I 
would only say that my first legislation, my first bill I 
introduced in coming to the Senate in 2001 was on this issue.
    I believe we have two important challenges in front of us. 
One is a real Medicare prescription drug benefit, and the other 
is lowering prices for everyone. And if we were to pick the one 
that would make the difference the quickest, it would be this 
issue. Even the bill in front of us on Medicare does not take 
effect til 2006, has a very large price tag, although I would 
argue it is nowhere near what our seniors deserve or need. But 
if we, frankly, instead of that, simply today pass the 
legislation that has already passed the House, we would be 
doing a major service for the people of this country. It would 
cost very little. It could help beef up the FDA to address the 
issues that Senator Snowe talked about, in terms of bringing 
the safety issues together. Certainly, in the United States of 
America, we have the capacity to design a system that, frankly, 
is already designed for the pharmaceutical industry, who brings 
back drugs every single day across the border. We just want 
others to have the same benefit from this.
    But if we simply took away this prohibition, we would not 
only help seniors in this country, we would help every 
business, large and small, every worker. When I sit down with 
those in my state who manufacture automobiles and look at their 
numbers, at least half the cost of their explosion in 
healthcare premiums is as a result of the explosion in 
prescription drug prices.
    So this is a real issue for business. It is a real issue 
for every senior and every consumer. And, in fact, this year, 
the Medco Health 2003 Drug Trend Report found that prescription 
prices will rise, this year, anywhere between 14 and 17 
percent. They predict next they will rise another 18 percent, 
and the next year another 18 percent. We are talking about an 
explosion in prices that businesses and seniors and any 
consumer cannot sustain. That's why I believe this issue is so 
critical.
    We know that if we simply pass the House bill that has 
already been passed by my colleagues on a bipartisan basis, 
that all taxpayers and consumers would save some $40 billion by 
doing that. I am very concerned that, not only in the 
legislation in front of us now coming to the floor on Medicare 
do we not see these provisions, but it's even worse, because 
they are prohibited from doing what Senator Wyden has talked 
about, which I totally agree with, which is the leverage, the 
group purchase, to be able to bring the price down. The bill in 
front of us doesn't allow that, has specific language to 
prohibit that kind of group leverage. So we have the worst of 
the worst in the bill coming before us, a poor benefit, and a 
new group of consumers, a new group of customers for the 
industry, locked into the highest prices possibly in the world. 
There is only one group that benefits by that, Mr. Chairman, 
and it's certainly not the seniors of this country.
    I've taken many bus trips. From Michigan to Canada, it's 
only 5 minutes across a bridge. It's astounding to see the 
differences. We all know the differences in prices. Senator 
Dorgan has already spoken about the differences. I would just 
share one thing. Last month, in the town of Howell, Michigan, 
which is about 60 miles away from Detroit in the border, the 
Senior Center took a group to Canada, and it was interesting to 
note that one couple flew up from South Carolina to visit their 
daughter, who lives in Howell, Michigan. And the savings from 
just one of the drugs that they purchased in Canada paid for 
their trip, their flight, to come up and be able to join their 
daughter and go to Canada.
    You know, there's a lot of talk about the free marketplace, 
and I want to mention just one of the price differences and why 
I don't think this holds water, when we talk about some of the 
comments of our colleague, Senator Santorum. Let me give an 
example of Tamoxifen. We've all heard this before. But right 
now Tamoxifen is one of the drugs to battle breast cancer. It's 
about $340.77 in the United States. When we took the seniors to 
Canada, they received it for $39.19. Now, eight times more 
expensive. Does the marketplace work for this? Can a breast 
cancer patient who's diagnosed today say, ``You know, I think 
I'll wait. I don't think I'll take Tamoxifen, which I need to 
possibly save my life. I think I'll wait and take it another 
time when the price is better''? Of course, they can't do that. 
This is not like buying an automobile or a pair of tennis shoes 
or a new shirt. You can't just say, ``I can't afford it today. 
I'll do it tomorrow.'' These are life-saving medicines, and the 
marketplace works differently. When someone says, ``You're got 
to pay $340.77 for your Tamoxifen, because you have breast 
cancer,'' you're going to do everything in your power to find 
that $340 a month, because it is critical for your health and 
possibly your life. So this is different, and I believe we need 
to look at it differently and have a sense of urgency about 
what it is we're talking about.
    I would simply add one more thing, and that relates to what 
we're really talking about here. And, Mr. Chairman, I will 
submit my full testimony for the record. I know we have other 
colleagues here. But let me say that this is not an issue about 
the Internet or about mail order. And I do think we have some 
issues with Internet and mail order that need to be address, in 
terms of where drugs are coming from.
    Reimportation is about allowing the local pharmacists at 
the local pharmacy to be able to do the same thing that the 
pharmaceutical companies do every single day, to bring back 
drugs, to have a business relationship with the pharmacist or 
the wholesaler in Canada. Right now, every single day, every 
single day, there are prescription drugs coming across the 
border from Canada into Michigan. The only difference is, 
they're being brought across by the industry and not by the 
licensed pharmacist. The FDA sends inspectors to the countries 
where these product lines are made. They inspect them, they 
make sure there's a closed supply chain, and they make sure 
it's safe. They can do exactly the same thing if we choose to 
give our seniors lower prices and licensed pharmacists the same 
ability to do that.
    We also know that there is ample technology available, both 
in the Senate bills that we have talked about, as well as the 
House, to address the issues of safety.
    Mr. Chairman, I would just say, in closing, this is not an 
issue of safety. This is an issue of competition and the fact 
that the prescription drug industry does not want to be in a 
position to have to lower their prices to American consumers. 
And shame on us if we can't get this right. We help subsidize 
making the drugs, we give tax credits and tax deductions for 
the development of the drugs, we give up to a 20-year patent in 
order to protect them so they can recover their costs, and what 
do we get at the end of that? The highest prices in the world. 
That is not a good deal for us, Mr. Chairman. And I hope, with 
your leadership and the leadership of the Committee, that we 
will change that.
    [The prepared statement of Senator Stabenow follows:]

            Prepared Statement of Hon. Debbie A. Stabenow, 
                       U.S. Senator from Michigan
    Chairman McCain, thank you for convening today's hearing on the 
rising cost of prescription drugs. I also want to thank my colleague 
and committee member, Senator Dorgan, for his work. You both have been 
leaders in trying to reign in the high cost of medication through 
generics reform and market access.
    The timing of this hearing is obviously fortuitous because Congress 
is considering whether to add a prescription drug benefit--a flawed 
benefit in my opinion--to Medicare.
    I am sure that we all agree that prescription drugs need to be more 
affordable and accessible--not just for Medicare beneficiaries but for 
all Americans. The Medco Health 2003 Drug Trend Report found that 
prescription drug costs will rise somewhere between 14 to 17 percent 
this year for health plans. And the report estimated that these costs 
will rise 18 percent in 2004 and again in 2005.
    Unfortunately, the Medicare conferees missed a great opportunity to 
bring prescription drug relief to American families. The nonpartisan 
Congressional Budget Office estimated that a reimportation provision 
similar to the House Bill HR 2427 would save all payers some $40 
billion.
    This failure is just one of the reasons why I oppose the present 
Medicare bill, and I urge the members of this Committee to do the same. 
If we defeat this conference report, we can start over and get a good 
Medicare RX benefit, more competition and lower prices for all 
Americans and continue our successful Medicare system.
    I know what a difference a reimportation provision would have on 
people's lives. For years, I organized several bus trips to Canada. As 
you know, Canada is just a short trip over a bridge or through a tunnel 
for many residents of Michigan. What I discovered on my bus trips was 
almost unbelievable.
    With just a short drive across the border, U.S. citizens can 
substantially reduce the cost of their medications by purchasing them 
in Canadian pharmacies. The difference in price for medications was 
absolutely shocking. A price study I conducted, comparing the price of 
several drugs purchased in the U.S. to the Canadian prices, confirmed 
what we saw happening on our bus trips--the price of the same drug 
purchased in Canada is substantially lower than the average U.S. price.
    Just last month, the City of Howell organized a bus trip to Canada, 
a trip that made national news. From Howell to Windsor is a distance of 
about 60 miles. Sixty miles for affordable FDA-approved prescription 
drugs.
    How much did people save? One couple from South Carolina had 
planned a visit to their daughter in Howell around this bus trip! They 
saved enough money on one of their prescriptions to pay for their 
airfare.
    How much are people saving? Here are a few price comparisons that 
the Alliance for Retired Americans put together in August of this year:

   Zocor: a drug to reduce cholesterol is $129.99 in the U.S. 
        and $67.72 in Canada. That is nearly a 50 percent savings.

   Prozac: a drug to treat depression $302.97 in the U.S. and 
        $140.60 in Canada, that's over 50 percent savings.

   Celebrex: a drug for arthritis pain is $85.99 in the U.S. 
        and only $44.76 in Canada. Vioxx: another arthritis drug is 
        $90.99 in the U.S. and only $44.16 in Canada. In both cases, 
        the arthritis drug is about half the price in Canada.

   Finally, Tamoxifen: an important drug in the battle against 
        breast cancer, is a $340.77 in the U.S. and only $39.19 in 
        Canada. Tamoxifen in the United States is eight times more 
        expensive than the same drug sold in Canada.

    People are desperate for affordable medications because they are 
rising two-and-a-half to three times the rate of inflation. There is no 
way that our health system, our citizens, and our Nation can continue 
to endure these double digit increases year after year.
    As many of the witnesses will agree, these cost escalations are a 
huge financial burden on all Americans: from our senior citizens on 
fixed incomes, to working families without insurance, to small 
businesses with high health plan costs, to hospitals struggling to stay 
afloat, to cities and states.
    States and cities are already leading the way in developing 
policies and strategies to safely reimport drugs: from New York City to 
Springfield, Massachusetts, from Maine to Minnesota. I am very excited 
by the work that Minnesota Governor Pawlenty (PAUL-lent-e) has done at 
looking at lowering prescription drugs, and I look forward to working 
with him in the future.
    It is unfortunate that the Federal Government has done little to 
help Americans with this growing problem. The Food and Drug 
Administration's recent about-face decision to consider legal action 
against states and localities that are trying to reduce their drug 
costs is mind-boggling. The FDA should be working toward affordability 
and accessibility, not bullying our citizens and our states.
    Opponents will tell you that Americans have to swallow the bitter 
pill of high prices if they want safety and innovation. This is a false 
choice for our Nation and our world--we can achieve both.
    Accomplishing our shared goal of affordability and accessibility is 
no easy task. Health care defies traditional economics of supply and 
demand. Unlike other economic goods, we do not choose when we need to 
purchase prescription medicine. Access to prescription drugs are very 
often a matter of life and death.
    Giving Americans access to FDA-approved prescription drugs--often 
American-made--that are sold for lower prices in other countries will 
reduce the price of drugs in the U.S.
    Note that pharmaceutical manufacturers are the only groups legally 
allowed to bring drugs from other countries into the U.S. Presently, 
the FDA sends out inspectors to countries all over the world to inspect 
and approve production lines that produce drugs that will be brought 
into the U.S.
    Such reimportation occurs now when either the drugs are 
manufactured only outside our Nation or the manufacturer cannot meet 
existing demand due to a domestic shortage. The drug manufacturers have 
a complete monopoly on the reimportation of prescription drugs. 
Doctors, pharmacists, patients, and employers should have the same 
opportunity to purchase FDA-approved drugs from other countries at 
lower prices just as pharmaceutical manufacturers do.
    We need to set up a system that allows pharmacists, patients, and 
providers to use the global marketplace to find the lowest priced 
drugs. Such a system should include only countries that have safety 
standards that are as strong as those set by the FDA as appropriate for 
reimportation. And there should be mechanisms in place to ensure the 
supply chain is closed and the authenticity of reimported drugs.
    Harnessing existing technology can help us address safety concerns 
and create such a system. In fact, there is technology already being 
implemented that tracks shipments, and this same technology can be used 
by the pharmaceutical industry. Anti-counterfeiting protection can be 
used on the seals and labels of drugs to guarantee authenticity.
    As aforementioned, pharmaceutical manufacturers are reimporting 
drugs now and able to ensure their safety and security through a closed 
supply chain. Surely, we can do the same by using existing--
technologies to protect drug shipments and help make prescription drugs 
available to everyone at lower prices.
    Thank you for your time and consideration. By working together, we 
can improve our Nation's health.

    The Chairman. Thank you very much, Senator Stabenow.
    Thank you, Congressman Gutknecht, and thank you for all of 
your hard work on this issue.

               STATEMENT OF HON. GIL GUTKNECHT, 
               U.S. REPRESENTATIVE FROM MINNESOTA

    Mr. Gutknecht. Well, thank you, Mr. Chairman. I am so happy 
to be here today, and I am so happy that you're having this 
hearing.
    One of my mentors in this subject is a gentleman by the 
name of Dr. Steve Schondelmeier, and he is a professor of 
pharmacology at the University of Minnesota, and he teachers 
pharmacology, he is a pharmacist, he has studied this issue for 
more than 15 years. And one of my favorite quotes from Dr. 
Schondelmeier is this, ``A drug that you cannot afford is 
neither safe nor effective.'' And what we have in America today 
is really the worst of all worlds for consumers. As my 
colleague from Michigan just said, literally what we do is we 
grant these long-term exclusive franchises, and then we hold 
American consumers captive, and the results are absolutely 
predictable.
    And I'm one who doesn't necessarily say shame on the 
pharmaceutical industry. It really is shame on us. Because 
ultimately the FDA works for us, and we have a responsibility 
and an obligation and, more importantly, an opportunity to do 
something about it.
    And I'm so glad that you have co-sponsored this bill. We 
hope that it will move through the Senate. Now, we are 
considering legislation, as has been mentioned, in the House 
and Senate that would essentially just transfer the 
responsibility of paying for most of these drugs from the 
consumers of the drugs to the taxpayers, and some say that 
that's the answer. Well, I'm not convinced it is, because I 
think we've asked the wrong question.
    I think from the very beginning on this debate about 
prescription drugs for seniors, we have framed the issue around 
coverage. Ladies and gentlemen, if you go out and meet with 
real seniors, and many of you have, you know that the issue 
isn't so much coverage, it's affordability.
    And Senator Stabenow pointed out Tamoxifen. I want to come 
back to that. But I also want to mention that I happen to 
believe that markets are more powerful than armies, and, at the 
end of the day, markets work. And the reason we have the 
situation today is because we don't allow markets to work.
    Now, it's interesting, because Representative Sanders and I 
agree on very few issues, but we agree on this. And what I have 
always said is that this is not a matter of right versus left, 
because we have some of the most conservative Members of the 
House and some of the more liberal Members of the House who 
both agree on this issue. So it's a matter of right versus 
left. It really is a matter of right versus wrong. And it is 
wrong to hold American consumers captive so that they have to 
pay, by far and away, the highest prices in the industrialized 
world.
    Now, the issue that's continuously raised by the FDA and 
the other critics is safety, but I hope you'll take an 
objective look at this basic issue of safety, because when you 
do, you will find out that it really is a bogus issue.
    Now, we know, for example, that the CDC and other 
government agencies keep incredibly good records. We know how 
many people have died from taking drugs from other countries. 
We also know from studies that at least a million Americans--in 
fact, that number may well exceed five million Americans--are 
currently buying their drugs from other countries. In some 
respects, that's a tragedy in and of itself. I represent 
Rochester, Minnesota, home of the Mayo Clinic. Every day, 
thousands of people come from all over the world to get their 
healthcare here in the United States. But, tragically, 
Americans must go to other countries to get affordable 
prescription drugs.
    When we talk about safety, though, we keep records. We know 
how many people have died from taking drugs from other 
countries. It's a nice round number. It's easy to remember. 
It's zero. We know that you are more likely to become seriously 
ill from eating raspberries from Guatemala, by the government's 
own statistics, than you are from taking prescription drugs 
from Canada. We know today that five people in Western 
Pennsylvania have died from green onions from Mexico. And yet 
we know of no one who has died from taking prescription drugs 
from Canada or Mexico. And so the safety argument, I think, is 
widely and wildly exaggerated.
    But the important part about the bill that you are 
cosponsoring is, it will make the safety even safer, because 
we're, for the first time, going to require counterfeit-proof, 
tamper-proof packaging. That technology exists today. And we 
have, and we can show you, some of that technology. And you've 
got some great witnesses that can talk about that, as well.
    One of the other arguments is about counterfeiting. But 
remember this, Members, no one counterfeits one dollar bills. 
The reason we have counterfeiting is because of the expense of 
the drug. And, interestingly enough, I think the FDA would 
admit that most of the counterfeiting that we see happening 
today is happening inside the United States. It's not happening 
somewhere else and being brought in.
    The other argument that was raised is about free trade, and 
these countries might steal patents. Well, Members, you need to 
understand that every country has to sign, before they're 
permitted into the WTO, what is called the TRIPS agreement, 
where they literally pledge that they will not steal 
intellectual property rights. And I'm one who believes in 
intellectual property rights.
    Finally, I want to talk a little bit about how we subsidize 
this industry. And I'm not here to bash the pharmaceutical 
industry. As I said earlier, it's not shame on them, it's shame 
on us. But do understand that we subsidize this industry in 
three separate ways. First of all, we subsidize them through 
the research that we do with taxpayers' dollars. This year, we 
will fund the NIH, the CDC, and other groups that do research 
in the United States, to the tune of about $27 billion. Much of 
that information is available to the pharmaceutical companies 
free of charge.
    The second way we subsidize them is in the tax code. The 
pharmaceutical companies who talk about how much they spend on 
research neglect to mention that they deduct every penny of 
that research from their Federal taxes. More importantly, they 
also quality, in many cases, for research and development tax 
credits. Over the last 10 years, they've taken advantage of $28 
billion in those tax credits.
    But, finally, we subsidize the pharmaceutical industry in a 
very important third way, and that is the price that we pay for 
prescription drugs. I have, and I think we've made available to 
you, and you've got all the charts, you can see this chart--
this is a chart of ten of the most commonly prescribed 
prescription drugs. And when I was in Germany, in May--in fact, 
we stopped at the Landstuhl Hospital there--but on our way 
home, we stopped at the Munich Airport pharmacy. And most of 
you travel quite a bit, and you probably realize that if you 
want a bargain, you don't go to the airport to buy things. But 
on our way out of town, we bought ten of the most commonly 
prescribed drugs. And I would invite you to look at that chart. 
And the total for those ten drugs bought in Germany was 
$373.30. We came back to the United States and priced those 
same ten drugs at a pharmacy here in Washington, D.C. The total 
was $1,039.65.
    [The chart referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Mr. Gutknecht. The one that really sticks out is the drug 
that Senator Stabenow mentioned, Tamoxifen, one of the most 
amazing drugs ever developed in the United States. But here's 
the interesting thing. That drug was developed at the expense 
of the American taxpayers. We literally took the development of 
that drug through Phase II trials, and the reward for the 
American consumer? Well, we pay about $360 for that drug. It's 
available in Germany for about $60.
    Now, I'm not saying that we shouldn't pay our fair share 
for the cost of research and development. Clearly, America is a 
blessed country. We ought to pay our fair share. We ought to 
pay more, for example, than the people in sub-Saharan Africa. 
But I don't think American consumers and taxpayers ought to 
have to subsidize the starving Swiss, and that is what is 
happening today.
    And one of the ways you can change the arithmetic and the 
entire pricing structure of these pharmaceuticals is to open 
markets. Now, let me say, it is not my vision that American 
consumers will go to Canada or Germany or wherever to buy their 
drugs. Because, ultimately, once you open markets, they will be 
forced to adjust their prices here in the United States 
downward.
    You're going to hear later from someone who's called a 
``parallel trader.'' And ultimately that's what we're looking 
for, is so that pharmacists, whether it be in Arizona or 
Montana or wherever, will be able to buy their prescription 
drugs wherever they can get them the cheapest. If they can buy 
them from a pharmaceutical supply house in Munich, Germany, 
cheaper, then they ought to have that right. That's called 
parallel trading. It happens every day in Europe. And let me 
just say something to you, Members. The Europeans are not 
intrinsically smarter than we are.
    So, again, this is not about shame on them, it's about 
shame on us, it's about basic fairness. It's not right versus 
left, it's right versus wrong. We have an opportunity to change 
it.
    I thank you very much for this hearing. I look forward to 
the hearing, and I will do everything in my power to help you 
get this bill passed through the Senate.
    Thank you very much.
    [The prepared statement of Mr. Gutknecht follows:]

               Prepared Statement of Hon. Gil Gutknecht, 
                   U.S. Representative from Minnesota
    Chairman McCain, committee members, thank you for the opportunity 
to speak this morning about what may become the greatest reform of 
healthcare in America. I believe in markets, Mr. Chairman, and the 
value of markets is what this committee will weigh throughout this 
hearing.
    I am the author of the Pharmaceutical Market Access Act, HR. 2427 
which passed the House of Representatives by a vote of 243-186. I am 
delighted at the introduction of S. 1781, the Senate companion bill. It 
is a pleasure to be with so many supporters today.
    In this testimony I want make a couple clear points about the 
legislation. First, and most fundamentally, Mr. Chairman, this bill is 
not about importation and it's not about re importation. This is about 
permitting free enterprise to function. This is about allowing 
Americans their basic right to access markets. Secondly, I will 
describe how this legislation is the greatest enhancement in 
pharmaceutical marketing safety in nearly a decade.
    Perhaps it is a surprise to many that I do not associate with the 
words importation or re importation. When I use the words, 
``pharmaceutical market access'', it is in order to best articulate the 
intent and affect of the proposal. If America's pharmaceutical supply 
were manufactured only within our national borders, I might use the 
term ``re-importation''. The nation's pharmaceuticals are not 
manufactured only within our borders. If the ultimate benefit from this 
bill would be greater opportunity for consumers to fill their scripts 
in foreign pharmacies, I might use the word ``importation''. That is 
not the ultimate benefit of the proposal.
    American pharmacists, wholesalers and individuals should be allowed 
to access pharmaceuticals markets. They should be allowed to seek the 
best price available. That is elemental to the practice of free 
enterprise. Yet such access is illegal for retailers, wholesalers and 
individual consumers of pharmaceuticals. That's right, the United 
States Congress explicitly prohibits Americans from seeking a product 
anywhere outside our borders. In other words, pharmaceutical 
manufacturers are saddled with absolutely no incentive to price their 
product competitively to American consumers. What incentive would any 
manufacturer have to competitively price their product if they existed 
in a government-sanctioned captive market? None. Indeed, such an 
environment exists for no other product in the American market. In a 
recent memo, the American Law Division of the Congressional Research 
Service confirms, no other statute exists restricting the importation 
of a product. Heavy chemicals? Americans may import them. Munitions? 
Americans may import them.
    Ironically, such market restrictions exist for all consumers of 
pharmaceuticals, but not manufacturers. Pharmaceutical manufacturers 
import billions and billions of dollars worth of their product every 
year. A senior can fill their scripts in an American pharmacy and 
receive drugs manufactured in China, India, Brazil, Turkey or at least 
61 other countries. Naturally, this fact nullifies the myth that 
Americans consume a medicinal product made within our borders--leading 
to the myth of ``reimportation''. These manufacturing facilities, 
approved by Food and Drug Administration (FDA) inspectors, allow 
manufacturers to reap the benefits of the global market place. In the 
form of cheap labor, technological specialization and other commercial 
concentrations, pharmaceutical manufacturers exercise their rights to 
free enterprise.
    Americans deserve access to markets. America deserves a government 
that is willing to deal with the complexities of permitting the 
practice of free enterprise. American consumers deserve the right to go 
to their local pharmacist for the best price. Consumers should not be 
driven to shopping in Canada or other countries. The Pharmaceutical 
Market Access Act makes way for a new era where consumers can find the 
best deal at the local pharmacist they trust.
    In creating a system of commerce, both interstate and global, 
governments must guard the safety of their citizens. Our country 
participates in global commerce on a scale and in a volume never 
imagined by any other society in history. The sheer tonnage of products 
imported into this country would defy the credulity of this committee. 
Nonetheless, we import everything from tomatoes to nuclear fuel rods 
and we do it safely.
    Many opponents of the Pharmaceutical Market Access Act, claim that 
it is a dangerous measure that will plunge America into a 
pharmaceutical safety crisis. The FDA Commissioner himself has often 
expressed concerns about the safety of the Act. He and other opponents 
observe that counterfeiting problems are on the rise. They recognize a 
problem but they offer no other solution than the status quo. 
Maintaining a status quo does not resolve the problems that plague a 
status quo. Irresistibly, such a response falls short of the fiduciary 
responsibility vested in opponents like Commissioner McClellan.
    In fact, the growing counterfeit problem has only been met by the 
FDA with, what I call ``malignant neglect''. Not since 1994 has the FDA 
implemented any rules or regulations for the marketing of prescription 
drugs. Rules issued in 1999 have been postponed every year since and 
are currently postponed until April of 2004. Moreover, to my knowledge, 
the FDA has not come to the Congress to request any change in statute. 
The Internet sales of pharmaceuticals, for instance, are completely 
unregulated. It is the wild west.
    FDA officers often site great cases of pharmaceutical fraud over 
the Internet. I am certain we will hear again from the FDA official 
here today. But the FDA has not regulated Internet pharmaceutical 
sales, nor has FDA requested any congressional action. Such actions 
illustrate why I view their stewardship of our pharmaceutical marketing 
regulations as ``malignant neglect.''
    Mr. Chairman, the Pharmaceutical Market Access Act sets forth a 
stout framework for allowing pharmacists, wholesalers and individuals 
to access 25 pharmaceutical markets abroad. Pharmacists and wholesalers 
must provide thorough paperwork to the Secretary of Health and Human 
Services for the imported product. The chain-of-custody is paramount to 
the security of all imported goods. The documentation of that chain is 
primary to this program for importing prescription drugs. According to 
the Act, the FDA may suspend the importation of any drug if it is 
suspected of violating requirements. Furthermore, anyone knowingly 
frauding the system may be criminally punished with 10 years in prison 
or fined $250,000. I recognize the problems in the pharmaceutical 
markets, and this legislation is packed with solutions.
    Perhaps the legislation's greatest addition to pharmaceutical 
marketing safety provisions is a requirement for anti-counterfeit 
packaging. Long used throughout the world and voluntarily used 
domestically by pharmaceutical manufacturers, such secure packaging 
acts at the core of safety concerns. The technology described in the 
bill must meet standards used by the U.S. Treasury for currency. And 
the Secretary of HHS may approve additional packaging technologies. 
This packaging provision again sets this legislation apart from the 
FDA's neglect. Though Congress has been working on pharmaceutical 
market access legislation for over five years, only last month, October 
of 2003, did the FDA hold a public meeting for packaging technology.
    The FDA can attain pharmaceutical marketing safety beginning with 
this legislation.
    Mr. Chairman, this proposal stands ready for the American people 
now. I pray that the Senate will debate this bill and help put it on 
the President's desk as soon as possible.
    The American people deserve their right to a market. All Americans 
deserve relief to sky-rocketing pharmaceutical costs. Access to markets 
works, Mr. Chairman. As Ronald Reagan said, ``Markets are more powerful 
than armies.''
                                 ______
                                 
News from U.S. Congressman Gil Gutknecht, First District, Minnesota

FOR IMMEDIATE RELEASE: November 5, 2003

                    CRS confirms Rx market concerns

Gutknecht says industry needs incentives to keep Rx pricing competitive
    Washington, DC--First District Congressman Gil Gutknecht today 
released a memorandum from the Congressional Research Service (CRS) 
confirming that pharmaceuticals are not subject to the same market 
standards as all other products.
    ``I must ask my colleagues why Congress has eliminated market 
incentives to keep pharmaceuticals affordable,'' Gutknecht said. ``In 
1988, Congress granted the pharmaceutical industry the right to price 
pharmaceuticals without the force of markets. Nobody wins when 
pharmacists are charged whatever manufacturers demand. And they have no 
choice but to pass the cost onto the consumer. American consumers and 
businesses are suffering the sad results of government-sanctioned 
monopoly pricing.''
    The CRS memorandum concludes that, ``Even other heavily regulated 
industries, such as chemicals, pollutants, and munitions are not 
apparently subject to statutory provisions. . .'' like those for 
pharmaceuticals which exclude the industry from international 
competition.
    ``Congressional lawyers have confirmed that this statutory 
favoritism is unprecedented in American law,'' Gutknecht concluded ``It 
is time for the Senate to pass H.R. 2427, the Pharmaceutical Market 
Access Act. Americans deserve access to world market pharmaceutical 
prices.''
    Gutknecht is Chairman of the House Agriculture Committee's 
Subcommittee on Department Operations, Oversight, Nutrition and 
Forestry, Vice Chair of the House Science Committee, and a Member of 
the House Budget Committee.
                                 ______
                                 
Memorandum October 30, 2003

TO: Honorable Gil Gutknecht
Attention: Brandon Lerch

FROM: Todd Tatelman
Legislative Attorney
American Law Division

SUBJECT: Re-importation of Products

    This memorandum is in response to your request regarding statutory 
language that expressly limits there-importation of products to the 
manufacturer of the product, as is the case with respect to 
pharmaceutical importation.\1\ We have been unable to locate any 
statutory provisions similar in language and structure to the one in 
the Food, Drug and Cosmetic Act. However, there does appear to be a 
trademark statute as well as a military firearms statute that have a 
similar effect on certain imported goods.
---------------------------------------------------------------------------
    \1\ 21 U.S.C. Sec. 381(d) (2000).
---------------------------------------------------------------------------
Statutory Language
    The Food, Drug and Cosmetic Act. Section 3 of the Prescription Drug 
Marketing Act, amended the Food, Drug and Cosmetic Act to expressly 
prohibit the importation of prescription drugs ``which [are] 
manufactured in a State and exported. . .'' unless the ``drug is 
imported by the manufacturer of the drug.'' \2\ The only exception to 
this rule provides that the Secretary of Health and Human Services may 
``authorize the importation of a drug. . .if the drug is required for 
emergency medical care'' \3\ This language was added to the Food, Drug 
and Cosmetic Act by Congress in 1987 to address two specifically 
articulated threats to American public health. The first concern was 
the emergence of ``foreign counterfeits, falsely described as re[-
]imported U.S.-produced products'' entering the drug distribution 
system.\4\ The second expressed concern was that the ``proper storage 
and handling of legitimate pharmaceuticals cannot be guaranteed by U.S. 
law once the drugs have left the boundaries of the United States.'' \5\ 
A general exception was given to drug manufacturers to protect existing 
business practices as they related to obtaining the return of their 
products for reasons such as recalls, damages, or general 
unsuitability.\6\ In addition, the Congress provided the limited 
emergency exception to be decided on a case-by-case basis.\7\
---------------------------------------------------------------------------
    \2\ Id.
    \3\ Id. at (d)(2).
    \4\ H.R. Rep. No. 100-76, at 2-3 (1988), reprinted in 1988 
U.S.C.C.A.N. 58.
    \5\ Id.
    \6\ Id. at 58.
    \7\ Id.
---------------------------------------------------------------------------
    Other Statutes. As indicated above, our research has uncovered no 
other statues that contain language similar to that of section 38l(d). 
Even other heavily regulated industries, such as chemicals, pollutants, 
and munitions are not apparently subject to statutory provisions 
limiting re-importation of the product to the original manufacturer. 
The only statute that even appears to produce the same result is found 
in section 42 of the Trademarks Registration and Protection Act, which 
prohibits the importation of merchandise that ``shall copy or simulate 
the name of [  ] any domestic manufacturer . . . or which shall copy or 
simulate a trademark registered . . . or shall bear a mark calculated 
to induce the public to believe that the article is manufactured in the 
United States. . . .'' \8\ The law is similar to section 3 of the 
Prescription Drug Marketing Act in the sense that it restricts the re 
importation of goods initially manufactured in the United States, 
however, unlike the re importation restriction on prescription drugs, 
the trademark statute does not contain an exception for the original 
manufacturer of the product. In addition, where the prescription drug 
statute was motivated by specific safety concerns, the trademark 
statute was designed in part to protect the investment of time, money 
and labor on the part of the trademark owner.\9\ In other words, the 
concerns of Congress in enacting the trademark statute were economic 
rather than rooted in public safety. Furthermore, the statutory 
language receives much of its force from judicial interpretations and 
the development of trademark case law.\10\
---------------------------------------------------------------------------
    \8\ 15 U.S.C. Sec. 1124 (2000).
    \9\ S. Rep. No. 1333 at 1 (1946), reprinted in 1946 U.S.C.C.A.N. 
1274.
    \10\ See, e.g., Summit Tech. Inc. v. High-Line Medical Instruments 
Co. Inc., 922 F.Supp. 299 (C.D. C.A. 1996) (citing in reference to 15 
U.S.C. Sec. 1124 Lever Bros. Co. v. United States, 877 F.2d 101 (D.C. 
Cir. 1989) and Societe Des Produits Nestle v. Casa Helvetia, 982 F.2d 
633 (1st Cir. 1992)).
---------------------------------------------------------------------------
    The other relevant statute is contained in the Arms Export Control 
Act. Section 38 of the Arms Export Control Act requires regulations to 
be promulgated that ``prohibit the return to the United States for sale 
in the United States of any military firearms or ammunition of United 
States manufacture furnished to foreign governments. . . .'' \11\ This 
provision is limited to military firearms and specifically does not 
apply to firearms that ``have been so substantially transformed as to 
become, in effect, articles of foreign manufacture.'' \12\ This 
statute, unlike the prescription drug statute, makes no mention of 
``re-importation,'' nor does it distinguish between re-importation by 
the product's original manufacturer and re importation by other 
citizens.
---------------------------------------------------------------------------
    \11\ 22 U.S.C. Sec. 2278(b)(l)(A) (2000).
    \12\ Id.
---------------------------------------------------------------------------
Conclusion
    Based on our research, it appears that there are no other statutory 
provisions that are similar in language, structure or intent to Section 
3 of the Prescription Drug Marketing Act. The closest are provisions in 
the Trademarks Registration and Protection Act and the Arms Export 
Control Act. Both these statutes, however, are substantively different 
from the strict prohibition against re-importation of prescription 
drugs and are similar only in the sense that they restrict the overall 
importation of trademarked goods and military firearms.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    The Chairman. Thank you, sir.
    Congressman Sanders?

              STATEMENT OF HON. BERNARD SANDERS, 
                U.S. REPRESENTATIVE FROM VERMONT

    Mr. Sanders. Mr. Chairman, thank you very much for holding 
this important hearing, and for your work and Senator Dorgan 
and Senator Snowe and Senator Stabenow. Thank you very, very 
much for all that you have done fighting for consumers in this 
country.
    Mr. Chairman, as the first Member of Congress to take 
American citizens over the Canadian border, this is an issue 
that has obviously concerned me for a very long time. Because 
the state of Vermont borders on Canada, many of our people, for 
years, have purchased safe, affordable medicine in Canada. And 
like many of my friends here, I will never forget the first 
trip that I took, where women who were fighting for their lives 
against the killer disease of breast cancer, women who do not 
have a lot of money, were able to purchase safe Tamoxifen at 
one-tenth the price that they were paying here in the United 
States of America.
    And I'm glad Senator Santorum is back. He used the word 
``killing people.'' Well, Senator, we have a study that we have 
asked the CRS to ask how many thousands of Americans have died 
because they cannot afford the outrageously high prices that 
the pharmaceutical industry is shoving down our throats. How 
many millions of Americans have seen a deterioration in their 
health? There are studies done by the Kaiser Foundation which 
suggest that 25 percent of senior citizens in the United States 
of America are either skipping doses or not taking the medicine 
that their doctors prescribed because of the outrageously high 
prices. You talk, Senator, about people dying. Well, I want to 
know, how many thousands of people are dying because they're 
being ripped off by the greediest industry in the United States 
of America?
    Now, one of the exciting aspects of this whole issue is, we 
have brought together a very strong tripartisan coalition in 
the House of Representatives, Gil Gutknecht, Dan Burton, Jo Ann 
Emerson, some of the Republicans who have played a great role, 
we have Democrats, I am in Independent. And we have stood up to 
the pharmaceutical industry. We have stood up to the hundreds 
of millions of dollars that this industry has thrown into 
Congress. We have stood up to the 650 paid lobbyists. We have 
stood up to their campaign contributions. And what we and the 
American people are asking the U.S. Senate, will you also have 
the courage to stand up to the most profitable, the most 
powerful lobby in the United States of America?
    Senator, I know that you have been concerned, in your years 
in the Senate, about the power that money has over the public 
process, and I applaud you for your efforts. I would like to 
introduce to the record some information by the Center for 
American Progress, which was prepared by the Center for 
Responsive Politics, talking about millions and millions and 
millions of dollars in campaign contributions that have gone 
into the people who are sitting in the conference committee 
right now on this Medicare conference, the people who have done 
the most outrageous act by putting language into a bill which 
says that the U.S. Government cannot negotiate lower prices on 
prescription drugs. Beyond belief.
    The question that we are dealing with, therefore, today, 
Senator, is not just a healthcare issue, and I agree with what 
these people have said. The issue even goes deeper than that. 
The issue is whether the U.S. Congress is any longer capable of 
standing up for ordinary people or whether it will continue to 
succumb to the power of big money.
    Now, let's deal with the two issues that the pharmaceutical 
industry so aptly represented by Senator Santorum today. You 
don't need the pharmaceutical industry here. Senator Santorum 
has given their line. Let's talk about the two issues.
    The issue of safety. We had, in our Subcommittee, William 
Hubbard, who is a senior official at the FDA and one of the 
leading critics of reimportation, working with the drug 
industry. And we asked Mr. Hubbard--we said, ``Well over one 
million Americans, over one million Americans, are purchasing 
their prescription drugs from Canada.'' That number is--you 
know, it is growing every day. ``How many of those people have 
they made sick or have died?'' And the answer was, to the best 
of his knowledge, he did not know of any.
    Senator Santorum and others, the industry, has said, 
``Price controls. We don't want to import price controls.'' 
Well, this is an amazing remark. As everybody in this room 
knows, we have lost millions of decent-paying manufacturing 
jobs in this country because China is selling us every product 
in the world. Now, we can't get safe, affordable, FDA-approved 
medicine from our neighbors in Canada because we're importing 
price controls, but we can import slave labor from China, we 
can import 20 cents-an-hour labor from China, we can import the 
fact that anybody who tries to form a union in China goes to 
jail, we can import billions and billions of dollars of those 
products, but somehow, as Senator Snowe indicated, we just 
cannot, through the United States of America, our government, 
the FDA, regulate a handful of factories and plants through the 
kinds of efforts that we have put into this legislation to make 
sure that that product is safe. I think anyone who looks at 
that for one moment understands that that is absurd.
    Senator Santorum said, ``Gee, those terrible Canadians. In 
8 years, they have not had to experience an increase in the 
cost of prescription drugs. What an awful country. How terrible 
can they be to their consumers?'' Well, I would suggest that if 
the American people would know that we had the courage to stand 
up to the industry--and, by the way, let's talk about this 
industry--this is the most profitable industry in the United 
States of America. This is an industry struggling, no doubt, 
that was able to pay $150 million in compensation to the CEO, I 
believe it was, of Bristol-Myers. This is an industry so 
struggling that it could spend hundreds of millions of dollars 
trying not only to bribe this institution, but legislatures all 
over the country.
    Senator we have an opportunity to do something important. 
Let's do it.
    Thank you.
    [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    The Chairman. I mentioned to my colleagues, I've been on 
this Committee for 17 years, and very rarely do we have opening 
statements that generate so much interest.
    [Laughter.]
    The Chairman. It's usually sort of a pro forma affair.
    [Laughter.]
    The Chairman. Could I--but not in this case. We do have two 
other panels waiting. We've already been in for an hour. All 
members of this first panel do have other things to do, but I 
know that there is a desire here for a back and forth. So could 
we compromise and say we could use 10 minutes for Q&A back and 
forth?
    We have--the Governor of Minnesota is waiting to testify, 
and I think it would be a bit discourteous for us to extend 
this too much longer. So if you'd set it for 10 minutes, and 
I'll ask Senator--first ask Senator Santorum if he's like to 
respond to any of the comments that were made, and then perhaps 
Senator Dorgan, Senator Wyden, and Senator Snowe would like to 
have an exchange with members of the panel.
    Senator Santorum?
    Senator Santorum. Well, Mr. Chairman, I know you're short 
on time. I would just say, in response to the Senator from 
Vermont, the point I was making is that--and to all the 
Senators and Congressmen--that I agree that we're paying too 
much for drugs here and that we are underwriting the world's 
cost of research and development. I admit that freely. The 
question is, what do we do about it? And I would suggest that 
what we need to do is to not import what the other countries 
have done, which is price fixing and price controls, which I 
can't imagine that--most Members here would recognize that we 
shouldn't go out and set price controls artificially low, below 
the reimbursement, to make these drugs, you know, profitable 
for any company to want to produce. In fact, the information I 
received, when it came to the question of all this underwriting 
that the Federal Government does for these pharmaceutical 
products, that, ``Scholars at Tufts examine 284 new medicine 
approved in the U.S. in the 1990s. They found that 93 percent 
originated from the pharmaceutical industry with no government 
support, 7 percent split between government, academic, and 
nonprofit sources.''
    So the idea that the government is funding all this 
research and that all we should be doing is recouping our 
money, I mean, it's just--the facts don't bear that out.
    There is an enormous amount of risk in producing new drugs. 
Most of them fail. Most of them don't come to market. And the 
question is, do we want to have a vibrant drug industry? I 
don't think a drug industry that's profitable is a bad thing. I 
think it's a good thing. It produces more drugs.
    I think we're all here for the same reason. We all want to 
have lower-cost drugs here, and we want the other people around 
the world to be able to, sort of, pay their fair share. The 
question is, how do we get there? I would argue this doesn't 
get us there.
    The Chairman. I would just make one comment, very quickly. 
We all know that the Veterans Administration and DOD currently 
use their market share to negotiate lower prices for drugs. Why 
in the world, if we're interested in lower prices for 
prescription drugs, would we put a prohibition in that Medicare 
can't use its market share to negotiate better prices for drug 
companies? I mean, it makes no sense. It authenticates 
Congressman Sanders' argument of the power of the 
pharmaceutical companies. There's no reason--if we're going to 
prohibit Medicare from doing it, then let's prohibit Department 
of Defense and the Veterans Administration from doing it. Why 
in the world would we do such a thing if we're interested in 
lower prices? Now, this has nothing to do with reimportation, 
it has to do with giving government the power to negotiate 
lower prices.
    Senator Santorum. Well, since I don't represent the 
pharmaceutical industry, contrary to what everybody says--I 
just what I think----
    Mr. Sanders. You could have fooled me, Senator.
    Senator Santorum.--is in the best interest of American 
consumers and an industry that I think is a very important 
industry in this country. I agree with you, I don't know why we 
did--I wasn't on the conference, so I can't speak for the 
conferees and why they did that.
    The Chairman. Thank you.
    Senator Dorgan, real quick?
    Senator Dorgan. Mr. Chairman, I'll just--I want to ask 
Senator Santorum a question, because as is usually the case, he 
has sparked my interest with his language. Two points, and both 
in the form of questions. I'll be very quick.
    One of the inconveniences of globalization is that when you 
trade with other countries, you inherit whatever those other 
countries are doing. In this case, with Canada price controls. 
And I won't ask the Senator from Pennsylvania to demonstrate 
today, but I will be that on his person, his shoes, his shirt, 
his necktie, his cuff links, or his handkerchief, somewhere he 
has something that he's purchased from China, and is, 
therefore, giving comfort in importing the retirement pay for 
Jung Ju Min, a noted communist leader. Does that make him 
uncomfortable? No. Part of globalization is, you inherit and 
import all that which other countries are involved in.
    So let me, finally, make this point. The Senator from 
Pennsylvania said that this will kill many patients. Quote/
unquote, ``kill many patients.'' We have millions of Americans 
who are now importing drugs. Name one patient that it has 
killed. Just one.
    Senator Santorum. When I say will ``kill many patients,'' I 
mean in the future, because new drugs will simply not be 
developed, and those cures that will save lives in the future 
simply won't be available for people to take. You list all 
these wonderful miracle drugs. Companies don't produce miracle 
drugs to lose money. I mean, let's just be honest about this. I 
mean, you make it sound like all we're going to is, we're going 
to beat back these horrible drug companies that produce life-
saving therapies, and we're going to make sure that they don't 
make any money, and they're going to go and continue to make 
drugs. I mean, this is just--I mean, it doesn't make any sense. 
Let's be honest about this.
    Senator Dorgan. Well, Mr. Chairman, if I--your support for 
the pricing strategy of the drug industry is eloquent, but 
wrong. The fact is, those manufacturers are not selling drugs 
at a loss in Canada. Would you agree with that? They're not 
selling drugs at a loss in Canada, because if it were a loss, 
they wouldn't sell in Canada. Because they're selling drugs in 
Canada at a fraction of the price here, but still making money 
in Canada, suggests to me they are overpricing prescription 
drugs in this country, and that's the issue.
    Senator Santorum. And I would be happy to respond to that. 
I would say that, first off, as you know, to sell a drug in 
Canada, you have to get approval to sell a drug in Canada. And 
you do know that. You have to get approval by the government. 
And, of course, if the government doesn't--if you don't accept 
the price the government is willing to pay, you can't sell your 
drug there. If you don't accept the price the government's 
going to pay, and you don't sell your drug there, the 
government has the ability to steal your patent and have that 
drug manufactured in that country. So it does provide a little 
incentive for you to cooperate when it comes to selling your 
drug.
    So I would agree with you that, no, they do not sell it at 
the price they do here, because they have certain extraordinary 
circumstances to deal with. But they probably do make a profit, 
in that they sell it for more than what it costs for them to 
manufacture it, and, therefore, it adds somewhat to the 
profitability. But it doesn't underwrite the billion dollar 
cost that it takes to research and develop this drug.
    And I agree with the Senator from--I mean, I--we're in 
agreement that we need to do something about that. Canadians 
should pay more, Germans should pay more, for underwriting the 
cost of research and development of new drugs. That's the 
issue. It's not that--they're not paying their fair share, and 
we are paying too much. I agree with you.
    The Chairman. Senator Snowe?
    Senator Stabenow. Mr. Chairman, I'd like to just add one 
comment.
    The Chairman. Could we just go to Senator Snowe and then 
Senator Wyden, and then we'll have responses--and Senator 
Boxer----
    Senator Snowe. I'll let Senator Stabenow----
    The Chairman.--who's short of stature, evaded my gaze.
    [Laughter.]
    The Chairman. And then we'll respond, real quick, if we 
could, because we really are--we're doing what we usually do on 
the floor, although perhaps not very well.
    Senator Snowe, real quick.
    Senator Snowe. I'll let Senator Stabenow respond.
    The Chairman. Senator Stabenow?
    Senator Stabelow. I just wanted to throw in one comment. We 
keep talking about research costs. According to the latest 
numbers, the industry is spending two and a half times more on 
advertising, marketing, and administration than research, and 
so it's very important to look at where they put their dollars. 
We can do this and not affect research in this country, I'm 
absolutely convinced.
    The Chairman. Congressman Sanders?
    Mr. Sanders. Senator----
    The Chairman. Briefly.
    Mr. Sanders. Senator Santorum, you said you just don't 
know, you can't understand how that language ended up in the 
bill which prohibits the government from negotiating. So I hope 
that you will----
    The Chairman. Congressman Sanders----
    Mr. Sanders. My question is, I hope that you will tell us 
now that you want to get that language out so the government 
can negotiate with the pharmaceutical industry.
    Senator?
    Senator Santorum. I haven't seen the language. I'll take a 
look at it, and if it's not--comports with what I think are 
best practices, then I would be for removing the language. But 
I haven't looked at it yet. I haven't seen the bill.
    The Chairman. Congressman Gutknecht, did you want to say 
anything? Real quick.
    Mr. Gutknecht. Well, just real quickly, Mr. Chairman. We 
have actually asked PHRMA, and we've asked all the experts at 
FDA, how many countries have ever expropriated a patent from a 
company for refusing to deal with their regimen of working on 
controlling prices. And the answer is zero. Its never happened.
    The Chairman. Senator Snowe?
    Senator Snowe. Thank you, Mr. Chairman.
    I want to thank all of the testimony from the witnesses 
here today. I think they made some excellent points. Senator 
Santorum was the one exception.
    [Laughter.]
    Senator Santorum. I thought you were complimenting me.
    Senator Snowe. I know.
    The Chairman. Aren't you glad you came this morning, 
Senator Santorum?
    Senator Snowe. Exactly. When you were referring to the 
counterfeiting, I mean, primarily that was focused here in this 
country in domestic distribution, I might add, with respect to 
the issues in a series that focused on that particular issue. 
There's no question, if we can do it with 20 dollar bills in 
preventing counterfeiting, I think we certainly can do it when 
it comes to life-saving medications.
    I think one of the issues here today--and Senator Stabenow 
raised the point about the rising prices of prescription drugs, 
16 to 18 percent a year. That's seven, eight times the rate of 
inflation. I mean, the cost of prescription drugs are not 
declining over time, which you expect would. But not. And 
that's the issue. Because they don't have any competition. And 
we would have competition by bringing those drugs across the 
border. There is competition, as we'll hear later from--about 
parallel trading and opening markets. But that's what we're 
facing in this country, 16 to 18 percent a year. And it's not 
just been 1 year. That's not an exception. It is the norm. That 
is the pattern. And what accounts for such skyrocketing 
increases when it comes to the cost of prescription drugs? I 
mean, how long can you recover your investments? So these 
prices normally should be declining over time, and are not.
    And I'd like to have you or other members of the panel to 
speak to that issue.
    Senator Santorum. Well, I would just say, with respect to 
competition, as you know the competition is--once the patent 
expires, you have generics who go in and compete, and that is 
one way. But the patent protection is----
    Senator Snowe. Making that more difficult, too.
    Senator Santorum. Actually, we've made it easier under this 
bill that--for generics to be able to compete. At least that's 
what I've been told is in the underlying Medicare bill. And I 
agree with that. I think that we should have competition. At 
the same time, patents are there for a reason. They're there 
for companies to be able to protect their intellectual property 
so they can get reimbursement and recoup the expense. I mean, 
generic manufacturers aren't inventing Tamoxifen. I mean, 
they're basically waiting til the patent expires, and then 
they're going to produce it and sell it a lot less. Why? Well, 
they can sell it a lot less, because they don't have any 
research and development costs into it, other than the fact of 
what it takes to make it, but not invent it.
    And so the question is, are we going to reward companies 
for doing what we want them to do, which is to invest in 
research and technology and develop new life-saving, quality-
enhancing drugs? And I would argue that we need to. At the same 
time, that cost should be borne, not just by Americans, but by 
the rest of the world, and that's the issue that I think we 
need to focus on, not trying to take the pricing structure, 
which is artificially low around the world, and impose it here 
in America. By doing so, I mean, just let me assure you, the 
number of drugs in this country that are going to be produced 
are going to dramatically decline. And that may be OK. I mean, 
that's a tradeoff, and it's a tradeoff that I know some people 
are willing to accept. And if you advocate for that, I have no 
problem advocating for that, if that's what you want to do, but 
understand the cost and the benefit that's going to be incurred 
when you do that.
    The Chairman. Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman.
    As you all heard me say, I think this ball game's about 
bargaining power for seniors, and that's what Senator Snowe and 
I had in our bill 4 years ago, to basically give seniors 
bargaining power, like Members of Congress have. And I want all 
of you, because you've been very eloquent, to kind of give me 
your response to an example of how the Canadian situation is 
going to affect bargaining power. And I want to be very 
specific.
    Somebody that I've used for a lot of years for counsel on 
prescription drugs told me yesterday that he ordered Lipitor, 
in the United States, from Canada on August 31. It arrived on 
October 17. He got a 90-day supply for $255, or about 2.83 a 
pill. But because the order took so long, he had to go out and 
buy a 60-day supply in the United States, at $259. So, in 
effect, he got a third more from Canada for roughly the same 
price.
    And my question for all of you is, Canada's got a pretty 
small population. If we have millions of people in the United 
States ordering their drugs from Canada, the Canadians are 
going to serve their citizens first. What is this going to do 
for our joint goal of trying to get more bargaining power for 
the consumer? That's what we've always felt this was about. 
That's what Senator Snowe and I have been trying to do for 4 
years. And because you all are the experts in it, just walk me 
through what the Canadian situation will do with respect to the 
key issue----
    The Chairman. And walk him through----
    Senator Wyden.--of bargaining power.
    The Chairman.--walk him through briefly, please, beginning 
with you, Congressman Sanders.
    Mr. Sanders. We understand--and Senator Santorum referred 
to it, in a different context--that the industry will do 
everything it can to sabotage our ability to lower prices in 
this country. And one way that they are doing it is trying to 
limit supplies to Canada. In our legislation, we are very clear 
that it is against the law for them to do that, that, in fact, 
they will have to not discriminate against American citizens. 
And if people in Canada, the pharmacists in Canada, want the 
medicine, they will get the medicine they need. So it would be 
against the law for them to sabotage the effort.
    The Chairman. Congressman Gutknecht?
    Mr. Gutknecht. Part of the reason that the bill we passed 
in the House and the bill before the Committee here includes 26 
countries--which, incidentally, we didn't make up; those were 
26 countries that was given to us by the FDA saying they had 
similar regimens to ours relative to the safety of drugs. And 
you will later hear, in this hearing, from a parallel trader. 
Ultimately, we're not--I don't believe we're talking just about 
Canada. And, more important long term, we're not talking about 
mail order. We want to open up markets so that your local 
pharmacist can get the same price.
    Can I come just briefly back to a point that Senator Snowe 
made, because I think it's very intuitive. Because you were 
really talking about intellectual property rights. And the 
argument that's made is, that if we open up markets and force 
competition here in the United States, they'll lose 
intellectual property rights, people won't do research. If you 
step back just for a moment and compare that to the technology 
industries, I mean, Intel lives and breathes on intellectual 
property rights, just like the pharmaceutical companies. We 
don't give them the same protections. They understand that if 
they don't invest in new technologies and new innovations, 
they're going to be out of business. But they don't get the 
same kind of protections that the pharmaceutical industry.
    Incidentally, and we've got the CRS report, no other 
industry gets the protections that the pharmaceutical industry 
does.
    The Chairman. Senator Stabenow?
    Senator Stabenow. Thank you, Mr. Chairman.
    I think that's a very important point. No one else gets the 
same protections that we're talking about here.
    Senator Wyden, I think that as we look at this, and 
particularly if it's beyond just Canada, as Representative 
Gutknecht was indicating, what we're going to see is a shift in 
the markets. I mean, if the pharmaceutical industry isn't just 
able to stop it by manipulating supply, what you will see is a 
shifting and a changing in all of this, in terms of prices. And 
the competition can't help but bring prices down in the United 
States.
    Again, we're not talking about mail order Internet, we're 
talking about going to the local pharmacy, having the 
pharmacist there be able to do business with pharmacists in 
other places for safe, FDA-approved drugs.
    One other quick point, and that is, we keep talking about, 
well, there's competition when the patent runs out and--from 
generic drugs. In the last 5 years, the FDA has approved 
patents, and over 65 percent of them have not been for new 
life-saving drugs. They have been for what's called a standard 
drug or often called a ``me-too drug,'' meaning the packaging 
is changed, the daily dose becomes a weekly dose, or some other 
change is made to keep the patent going to stop competition. So 
we have the industry--the most highly subsidized, most highly 
profitable in the world--doing everything they can to stop 
competition--by continuing patents, by stopping competition, 
and putting more than two and a half times more into aggressive 
marketing and advertising now for on purchasing rather than on 
life-saving research. I'm all for investing in research, doing 
everything we can to partner with the industry to do that, but 
we've seen an industry dramatically shift to a marketing and 
sales industry----
    The Chairman. Senator Santorum?
    Senator Stabenow.--as opposed to research.
    Senator Santorum. And I'd be happy to enter into the record 
for the Committee the numbers with respect to how much the 
industry spends on, quote, ``marketing and advertising'' versus 
research. Senator Stabenow and I have had a battle of charts on 
the floor many times on this, and----
    The Chairman. Without objection.
    Senator Santorum.--I would be happy to submit it to the 
record.
    [The information referred to follows:]

                                                  November 25, 2003

Hon. John McCain,
Chairman,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.

    Dear Senator McCain:

    Thank you again for the opportunity to offer testimony at your 
Committee's hearing on prescription drug importation on November 20, 
2003.
    During the question and answer segment of the hearing, one issue 
that was raised by Senator Debbie Stabenow with respect to the 
advertising of the pharmaceutical industry requires clarification.
    Senator Stabenow asserted that the annual promotional spending of 
pharmaceutical manufacturers in the United States exceeded that which 
it spends on research and development.
    In fact, pharmaceutical manufacturers spend significantly more on 
research and development than on all promotional activities combined.
    According to a 2002 General Accounting Office report, 
pharmaceutical manufacturers spent an estimated $19 billion on all 
promotional activities in 2001, including $2.7 billion on direct-to-
consumer (DTC) advertising. This remains considerably less than the 
estimated $30 billion it spent on research and development. (U.S. 
General Accounting Office, Prescription Drugs, FDA Oversight of Direct-
to-Consumer Advertising Has Limitations, GA0-03-177 [Washington, DC: 
GAO, October 2002])
    I hope this clarification is helpful to you and the Committee as 
you continue to examine improvements to our health care delivery 
system.
            Sincerely,
                                             Rick Santorum,
                                                  United States Senate.
RJS/ps
                               Attachment
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Senator Santorum. And just suffice it to say the vast 
majority of the advertising and marketing are free drug samples 
given to doctors that end up in the pockets of poor people who 
can't afford drugs. So that's number one.
    Number two, with respect to what's going to happen, in 
response to the Senator from Oregon's question, I do agree that 
I--as I said before, I think they will attempt, as I would 
think any industry would, to say, ``Look, we're only going to 
send as many drugs up to Canada as the Canadian market needs.'' 
If that is against the law, which I don't know how they do 
that, but if it's against the law, then my guess is, you'll see 
a lot of pharmaceutical companies pull out of Canada and simply 
not make those available, particularly if they're not getting 
very high reimbursements for their drugs and they're not making 
any money. If, in fact, it's going to be--they're going to sell 
basically all their drugs through Canada at this point at that 
low price, they simply won't sell the drug in Canada, and sell 
it here.
    If, as others have suggested, that if we broaden it beyond 
Canada, so they--to the rest of the world, then the ultimate 
consequence will be, you'll see a lot less drug research and a 
lot less new drugs.
    The Chairman. Senator Boxer?

               STATEMENT OF HON. BARBARA BOXER, 
                  U.S. SENATOR FROM CALIFORNIA

    Senator Boxer. Thanks. I'm not going to ask a question. I'm 
going to sum up what I think is happening here, in a minute and 
a half.
    Drug companies get the benefits of research paid for by 
American taxpayers. Don't forget it. Taxpayers pay a lot of 
money. And, by the way, I support that research, and I want to 
spend more on that research.
    Second, they get the R&D tax credits for what they do--or 
R&E, however you define it--and I support that. As a matter of 
fact, I want to make it permanent.
    They get patent protection. And if that isn't abused, I'm 
all for patent protection.
    They get to write off their advertising budget. There are 
some people that don't want that to be a writeoff. I think that 
would be a violation of free speech. I support them being able 
to write off their advertising budget.
    What I don't support is their turning their backs on the 
American people and using their clout to stop any kind of 
reform here. And this latest one--and the timing of this 
hearing is exquisite--you've got the conferees sitting over 
there--I trust they're all there--right now, and they're 
imposing, basically, a gag rule on Medicare, saying, ``You are 
prevented from bargaining for good prices, but the private 
sector, you can go out and bargain.'' What is that? That is 
outrageous. It's, on its face, beyond outrageous.
    We've also got a generic provision, that, although I 
haven't read the fine print, it looks to be weakened, from what 
I hear. And you have a importation situation where that will 
never happen.
    So what you've got is the pharmaceuticals, with a lot of 
help from around here, which I'm embarrassed to say is 
happening, just walking away with everything, and it's to the 
point where I think our people are going to be hurt eventually 
on this. And I'm just glad you have this hearing.
    Thank you.
    The Chairman. I thank the panel, and I thank you for being 
here, and this has been a very interesting and enlightening 
discussion, and I appreciate it very much.
    Thank you.
    The Chairman. Governor Pawlenty, we are not usually this 
rude to our visiting Governors. We appreciate your patience, 
and we thank you for your very significant involvement in this 
issue. I know it was a major issue when you campaigned for your 
present office, and I would like to say you are highly 
respected and regarded on this issue, and we thank you for 
being here.
    We'll begin with you, Governor.

            STATEMENT HON. TIM PAWLENTY, GOVERNOR, 
                       STATE OF MINNESOTA

    Governor Pawlenty. Mr. Chairman and Senators, thank you for 
the honor to be here today and present some thoughts about this 
important issue facing our country. And actually the panel 
before us was a great pleasure to listen to that testimony. We 
appreciate that. My formal testimony has been submitted. I know 
time is short, Mr. Chair, and you want to move things along, so 
I will cut to the chase.
    We have a healthcare crisis in America, as this Committee 
well knows. The crisis, in part, is a cost crisis. We have 
healthcare costs in the United States going up between 10 and 
25 percent a year. We can't keep up. Families can't keep up. 
Employers can't keep up. Employees can't keep up. Governments 
can't keep up. It is going to consume us, Mr. Chair, if we 
don't get our arms around this crisis. And it's about to get 
worse, as we experience the demographic shifts that we all know 
are coming with the graying of America.
    One component of that crisis is the prescription drug 
crisis and the costs associated with that. It's been eloquently 
discussed in your previous panel. One element of that crisis is 
that prescription medicines for too many Americans are out of 
reach because of cost. The Medicare bill that you may well pass 
in the coming days will help with respect to coverage, but as 
Senator Snowe so eloquently said earlier, extending coverage to 
more Americans, while helpful and is good progress, does not 
address the cost issue. And so we are going to continue to 
have--as governments, as families, and as individuals--cost 
pressures that are unacceptable that we're not going to be able 
to keep up with.
    Americans pay 20 to 80 percent more for their prescription 
medicines. The main justification for that, as you heard this 
morning, was that we need innovation. We need research and 
development. I will concede, Mr. Chair, that we should pay a 
premium for that world-leading innovation, but there's a 
difference between paying a premium and being a chump, and 
we're being played.
    [Laughter.]
    Governor Pawlenty. The American consumers are being played 
by this industry, and we're being chumps. And so I don't think 
that's a good thing for our country. I don't think it's a good 
thing for American consumers. And we need to take action.
    Franklin Delano Roosevelt said, ``We need to try things in 
the face of crisis. We need to try things.'' And so as we sit 
here--and it is ironic that not far from here they're perhaps 
closing up the Medicare conference report. But, as an aside, if 
they prohibit Medicare from using group purchasing power, I 
would be stunned and alarmed. That is an alarming development. 
I hope that's not the case.
    The Chairman. It would be a commentary on the way the 
system works here, as well as the specifics of the legislation, 
wouldn't you think, Governor?
    Governor Pawlenty. It would seem that way, Mr. Chair. It 
would seem that way.
    Importation from Canada and perhaps other developed 
countries is not the ideal solution. It is probably not the 
long-term solution, but it is in the spirit of trying 
something, it's in the spirit of trying to break the logjam and 
bringing awareness and pressure for change.
    I'll tell you briefly what our plan in Minnesota is. We 
hope that you make a Federal law change that allows importation 
to go forward. If you don't, we understand the current FDA's 
position to be that individuals can make purchases for personal 
use for up to 90-day prescriptions. We would like to facilitate 
those kinds of purchases by Minnesota, and we're actively 
developing this as we speak. We hope to have it up and running 
in a matter of a couple of months, a website that will list and 
feature those pharmacies in Canada that we've identified as 
established and credible and reputable and safe and accredited 
that are willing to provide prescription medicines to Minnesota 
consumers at a hopefully discounted price savings. That website 
will also feature generic alternatives and information 
regarding that. The individual who accesses the website will be 
able to download instructions, an order form, and a health 
questionnaire. They, the consumers, then will make the 
purchase. They will send the information to a Canadian 
pharmacy, the prescription as well as the health questionnaire. 
The Canadian pharmacy will then have that prescription reviewed 
by a doctor, a Canadian doctor, which is a step we don't even 
require, by the way, in the United States. These pharmacies--
we're not talking, Mr. Chair--and the press coverage gets 
lumped together and confused--we're not talking about rogue 
Internet sites or pharmacies, virtual pharmacies in the United 
States or elsewhere. We're talking about established, credible, 
reputable pharmacies in Canada that the State of Minnesota--
ideally, the Federal Government, but at least the State of 
Minnesota--has reviewed, has deemed appropriate for this 
purpose, and they have very substantial protocols that they 
follow.
    We were in Canada recently and received that information. 
We're in the process of verifying it. But there is no reason to 
believe that those types of pharmacies--established, credible, 
reputable, accredited pharmacies in Canada--present a safety 
threat at all to the American consumer. There is no evidence of 
that. In fact, the FDA was recently in Canada, meeting with 
Health Canada, and they made certain suggestions or claims 
previously about the safety of the distribution or pharmacy 
system in Canada. The day after the FDA left, the folks from 
Health Canada issued a clarifying press release saying, ``The 
FDA's concerns have been reviewed, they've been investigated, 
and they are, quote/unquote, `not substantiated.' '' Not 
substantiated.
    So we're asking, Mr. Chair, that the FDA, if they would be 
willing--the ideal would be to help us. You know, they're the 
organization that has the expertise, they're the organization 
that has the ability to help a system like this go forward. 
We'd love to have their help. In fact, we'll cut them in on the 
action. You know, we'll take some of our savings and we'll give 
it to the FDA. If they want to send up some staff and sit in 
these pharmacies and help us review and do the due diligence, 
we will help them.
    But we're going to go forward under the guise that current 
law allows individual purchases for personal use. The 
protocols, I'll be happy to talk to you about it in more 
detail. It's in my testimony. But they--we can be confident in 
the safety of these pharmacies that we will select.
    And I also want to just address quickly, if I could, Mr. 
Chair, this notion that, you know, the retaliation by the 
pharmaceutical companies, because that's a growing concern in 
Canada, in terms of the government and their consumers. I think 
the threat, on national television, by the CEOs and leaders of 
our pharmaceutical companies, that they are going to cutoff 
supply to their Canadian pharmacies, is reprehensible. And it 
may be, it may be, a violation of antitrust and trade laws, and 
I hope this Committee or other Federal authorities or state 
authorities will pursue that.
    In closing, Mr. Chair, let us try it. Let us try it. Even 
if you don't change Federal law, we just ask the Federal--the 
FDA to maintain their current posture, allow these personal 
purchases to go forward. Let us try it, we'll see if it works. 
If it doesn't work, we'll come back, we'll admit it frankly, 
and move on. But we need to try something different.
    Thank you for the time and chance to present a few thoughts 
this morning.
    [The prepared statement of Governor Pawlenty follows:]

 Prepared Statement of Hon. Tim Pawlenty, Governor, State of Minnesota
    Chairman McCain, Senator Hollings, and members of the Senate 
Commerce Committee, it is an honor to be with you today.
    Not far from here, along the banks of the Potomac, is our national 
memorial to President Franklin D. Roosevelt. During an earlier time of 
crisis, President Roosevelt pushed for innovation. He said, ``It is 
common sense to take a method and try it; if it fails, admit it frankly 
and try another. But above all, try something.''
    It's time to try something different in America's prescription drug 
crisis. This isn't about politics or ideology. It isn't about the New 
Deal. It's about getting a ``Better Deal'' for our people.
    Individuals, families, job providers, and units of government 
across the Nation are facing a health care crisis. Simply put, the cost 
of health care is rising faster than our ability to keep up. The 
current rate of cost increase is unsustainable. If we do not find 
effective ways to address this crisis, it will seriously undermine our 
economy, our ability to provide health care, and our ability to enhance 
our quality of life.
    It is one of the fundamental challenges of our time.
    Health care costs are escalating rapidly for a variety of reasons--
not just because of the costs of prescription medicines. However, 
prescription medicine prices are an increasingly significant 
contributor to the cost crisis.
    The tentative agreement regarding a Medicare prescription drug 
benefit is good progress, and I applaud the Congress for it. However, 
giving more people coverage addresses only part of the challenge. With 
or without coverage, costs simply cannot keep increasing at the current 
rate.
    We've all heard the arguments about why Americans pay more for 
prescription drugs than other countries. But the bottom line is 
Americans pay more than the rest of the world and the price 
differential puts prescription medicines out of reach for too many 
Americans. The current situation is unfair and untenable.
    That's why we're doing what we are in Minnesota. We're taking a 
method and trying it.
Minnesota's Plan
    The Minnesota Plan for Prescription Drugs has a very simple goal--
to get a better deal for Minnesotans. We are establishing a program to 
facilitate the purchase of prescription drugs from Canada by 
individuals.
    Through a website, all Minnesotans will be able to determine if 
their prescription is available at a lower cost from a Canadian 
pharmacy, and if so, how to order it. The site will focus on only 
maintenance drugs that can be shipped and are known to be cheaper in 
Canada. Only reputable Canadian pharmacies licensed by a Canadian 
province, willing to negotiate a discounted price and have their safety 
protocols reviewed by the Minnesota Department of Human Services will 
be used. The site will also let consumers know if there is a lower cost 
generic alternative about which they should see their doctor.
    Those individuals wishing to take advantage of the program will 
need to obtain a prescription from their own physician and send a copy 
of the prescription, an order form and a medical history questionnaire 
to the Canadian pharmacy. To comply with Canadian law, the prescription 
will be reviewed and countersigned by a Canadian physician. Assuming 
that all is in order, the pharmacy will ship the medication to the 
patient by mail and in the manufacturer's original, sealed container.
    The next step is to provide incentives, such as waiving co-payments 
or sharing savings, to our state employees so they also take advantage 
of this lower cost alternative.
    We recognize that these measures are not the ideal or long-term 
solution. They are, however, designed to provide short-term relief and 
to build pressure for long-term reform.
Ensuring Safety
    I'm pleased to be here today with Deputy Commissioner Taylor from 
the Food and Drug Administration, which is charged with ensuring the 
safety of the prescription drugs Americans use.
    Those who oppose reimportation often talk of great problems with 
safety. On this point, it is important to keep straight what we are 
proposing and what we are not proposing.
    We are proposing to reference services available from established, 
reputable, credible, accredited Canadian pharmacies. There is no 
evidence to suggest such pharmacies are unsafe. Canadians are not dying 
or at risk because of their system. Assertions that a plan like 
Minnesota's is unsafe suggests either the pharmacies we would choose 
are unsafe or they are too inept to properly mail or deliver medicines 
safely. Neither is true. Moreover many reputable, established 
pharmacies in the U.S. already use a mail order, Internet or phone 
order system. The FDA apparently thinks it works well for them. For 
example, the Veterans Hospital in Minneapolis mails out a large number 
of prescriptions to patients each week.
    Our proposal should not be confused with the questionable Internet 
pharmacy or ``storefront'' marketing entities that are currently 
offering their services to U.S. citizens with little or no oversight. 
We agree that such operations present an unreasonable safety risk to 
consumers.
    Our Department of Human Services conducted a review of Canadian 
practices, similar but independent of that done by the State of 
Illinois. We came to the same conclusion that they did: the Canadian 
system is comparable to ours in safety standards.
    There is a misperception that reimportation from Canada is some 
risky endeavor in which we give up safety to use a Third World 
apothecary just to save a dime. Canada's pharmaceutical regulatory 
system is strong and effective. At the state level, we're prepared to 
monitor and ensure that those pharmacies serving our citizens are held 
to the highest standards of safety.
    Let me briefly explain to you some of the safety and security 
protocols we will be using as part of our reimportation plan:

  1.  Any pharmacy associated with our website must be accredited by an 
        organization such as the Internet Mail order Pharmacy 
        Accreditation Commission, which uses 92 standards in their 
        process;

  2.  The pharmacy must agree to allow inspection of their facilities 
        and wholesalers that supply these pharmacies will also be 
        inspected;

  3.  Medications will only be dispensed in the manufacturer's 
        unopened, safety-sealed containers in dose-appropriate amounts;

  4.  Those medications shipped must be produced in an FDA-approved 
        manufacturing facility;

  5.  Medicines will be for maintenance drugs only and the patient will 
        likely be required to have been taking the medicine for at 
        least thirty days before the prescription is filled.
The Industry's Threats
    In recent weeks, as the prospects of reimportation facilitated by 
units of government gets closer to a reality, executives of the 
pharmaceutical industry have publicly threatened to withhold supplies 
of prescription drugs to those Canadian pharmacies who supply 
Americans.
    Their threats are reprehensible. I also believe these threats may 
be a violation of Federal and state antitrust laws and urge this 
committee to review the comments and actions of the companies involved.
Minnesota is Ready to Lead the Way
    The states are often called the ``laboratories of democracy.'' The 
State of Minnesota is proving that again by moving ahead in 
implementing this reimportation plan.
    As President Roosevelt advised, we have to try something.
    Let us be the experiment. Let us try it. Let us put the arguments 
to the test. If it doesn't work, we'll admit it. The current system is 
not ``safe'' because too many people can't afford their medicine.
    Thank you very much.

    The Chairman. Thank you, Governor.
    Mr. Taylor, welcome back.

                STATEMENT OF JOHN M. TAYLOR III,

         ASSOCIATE COMMISSIONER FOR REGULATORY AFFAIRS,

               U.S. FOOD AND DRUG ADMINISTRATION

    Mr. Taylor. Thank you very much.
    Before I start my oral testimony, I'd--we would be----
    The Chairman. You might want to move the microphone a 
little closer.
    Mr. Taylor. I'm sorry, sir.
    We'd be more than happy to meet with the Governor, either 
before or after the introduction of your plan, and we can 
discuss that.
    The Chairman. Thank you.
    Mr. Taylor. Mr. Chairman, I appreciate the opportunity to 
discuss the Food and Drug Administration's concerns related to 
the importation of drugs into the United States. FDA shares 
with Congress its great concern for senior citizens and other 
patients who have difficulty paying for prescription drugs. 
That is why the Administration has been working so closely with 
Congress to enact landmark legislation to provide millions of 
American seniors with coverage for prescription drugs under 
Medicare. As part of that legislation, the Administration 
supports provisions that build on FDA action earlier this year 
to expand access to more affordable generic drugs.
    FDA has also taken a number of other significant steps to 
provide greater access to affordable prescription medications 
without compromising safety, including unprecedented steps to 
lower drug costs by helping to speed the development and 
approval of low-cost generic drugs after legitimate patents 
have expired on branded products. This includes the biggest 
expansion in history of our generic drug program in a series of 
regulatory changes to make it easier for generic manufacturers 
to compete.
    However, FDA continues to have serious public-health 
concerns regarding legislation that will allow the importation 
of drugs from outside the current safety system established by 
Congress under the Federal Food, Drug, and Cosmetic Act. When 
it comes to buying drugs outside our existing regulatory 
protections, FDA has consistently concluded that the agency is 
unable to endorse a buyer-beware approach.
    Currently, new drugs marketed in the United States, 
regardless of whether they are manufactured in the United 
States or a foreign country, must be approved by FDA based on 
demonstrated safety and efficacy. They must be produced in FDA-
inspected manufacturing plants that meet FDA's good 
manufacturing practice regulations. Also, the shipment and 
storage of these drugs must be properly documented and, where 
necessary, inspected. Under the Food, Drug, and Cosmetic Act, 
unapproved, misbranded, and adulterated drugs cannot be 
imported into the United States. This includes foreign versions 
of U.S. approved medications, as well as drugs that are made in 
the United States, exported to other countries, and the 
subsequently reimported to the United States.
    Our safety concerns are heightened by the proliferation of 
websites, both domestic and foreign, that sell prescription 
drugs to consumers. The Internet has opened up vast new 
opportunities for commerce and exchange of information. 
However, as beneficial as this technology can be, it also 
creates a new marketplace place for activity that is already 
illegal. FDA is doing its best to stop the increasing flow of 
violative drugs in this country, but the task is daunting. 
While Regulatory Affairs has inspectors who work in the field, 
who perform investigational work pertaining to imported 
prescription drugs, a job that's not limited to inspections at 
ports of entry, but while the volume of imported drugs has 
increased enormously, FDA has not received additional resources 
or authorities to address these thousands of shipments, in 
contrast to the case for food security, where Congress, 2 years 
ago, approved substantial new funds and authorities for border 
protections.
    FDA has long taken the position that consumers are exposed 
to a number of risks when they purchase foreign drugs from 
Internet sites or from pharmacies that are not licensed and 
operated under state pharmacy law. These outlets may dispense 
expired, subpotent, contaminated, or counterfeit products, or 
medications unaccompanied by adequate directions for use. In 
addition, FDA cannot provide consumers with any assurance that 
these products or their active ingredients were manufactured 
under current good manufacturing practice standards or stored 
properly.
    Taking such unsafe or inappropriate medications put 
consumers at risk for dangerous drug interactions and other 
serious health consequences. Moreover, patients are at a 
greater potential risk, because there's far less certainty 
about what they are getting when they purchase drugs over the 
Internet.
    Although some purchasers of drugs from foreign sources may 
receive genuine product, others may unknowingly buy counterfeit 
copies that contain only inert ingredients, legitimate drugs 
that are outdated that have been diverted to unscrupulous 
resalers, or dangerous subpotent or superpotent products that 
are improperly manufactured. Also, in the case of foreign-based 
sources, if a consumer has an adverse drug reaction or any 
other problem, the consumer may have little or no recourse, 
either because the physical location of the manufacturer is 
unknown or because the operator of the pharmacy often is not 
known or that seller is beyond the consumer's reach. FDA has 
only limited ability to take action against these foreign 
operators.
    To help assess the extent of the problems posed by imported 
drugs, FDA and the United States Customs and Border Protection 
conducted import blitzes at four mail facilities this summer. 
The purpose of these blitzes was to obtain a representative 
picture of the type of drugs that were entering the United 
States through the mail, and to identify and stop counterfeit 
and potential unsafe products from entering the United States. 
Although many drugs obtained from foreign sources purport and/
or may appear to be the same as FDA-approved medications, in 
fact they are of unknown quality or origin, have not been 
approved in the U.S., and may pose potential serious safety 
concerns.
    Eighty percent of the drug products that were examined 
during the blitz were violative because they were unapproved 
drugs. The potentially hazardous products encountered during 
the blitz included drugs that FDA has never approved, drugs 
that require careful dosing, drugs with inadequate labeling, 
drugs inappropriately packaged, drugs withdrawn from the 
market, drugs with clinically significant drug interactions, 
drugs requiring initial screenings and/or periodic monitoring, 
and controlled substances. Clearly, many of these imported drug 
products may pose safety problems.
    Sixty-five years ago, Congress responded to widespread 
fears of unsafe, ineffective domestic drugs by directing FDA to 
create a system for assuring that Americans have a drug supply 
that they can trust. Fifteen years ago, Congress responded to 
serious safety problems created by imported drugs that were not 
tightly regulated by passing the Prescription Drug Marketing 
Act. Congress limited access to these foreign drugs because of 
safety concerns it identified with the importation of 
significant volumes of adulterated and counterfeit drugs.
    History has shown that this closed regulatory system has 
worked well. FDA, however, cannot offer the same assurance to 
the public about the safety and quality of drugs purchased from 
foreign sources that are outside our U.S. regulatory system.
    Unfortunately, the drug supply is under unprecedented 
attack from a variety of increasingly sophisticated threats. 
FDA has seen its number of counterfeit drug investigations 
increase fourfold since the late 1990s. Although counterfeiting 
was once a rare event, we are increasingly seeing large 
supplies of counterfeit versions of finished drugs being 
manufactured and distributed by well-funded and elaborately 
organized networks. At the same time, inadequately regulated 
foreign Internet sites have also become portals for unsafe and 
illegal drugs. Evidence strongly suggests that the volume of 
these drug--of these foreign drug importations is increasing 
steadily and presents a substantial challenge for the agency to 
adequately assess and process these parcels, resulting in a 
increased workload for agency field personnel, ports of entry, 
mail facilities, and international courier hubs. With the 
available resources and competing priority space in the agency, 
experience shows that we are unable to visually examine the 
large volume of parcels containing prescription drugs that 
arrive each day. The agency responded to this challenge by 
employing a risk-based enforcement strategy to target our 
existing enforcement resources effectively in the face of 
multiple priorities, including homeland security, food safety, 
and other important tasks. However, this system is already 
overwhelmed by the number of incoming mail packages that must 
be evaluated, and this state of affairs presents a significant 
on-going challenge for the agency.
    At a time when FDA faces more challenges than ever in 
keeping America's supply of prescription drugs safe and secure, 
legislation to liberalize drug importation could cause 
additional drug safety concerns. The volume of importation that 
could result from enactment of these bills could easily 
overwhelm our already heavily burdened regulatory system.
    In general, these bills fail to provide FDA with the 
adequate authority or resources to establish and regulate the 
distribution system for incoming foreign drugs. Some of these 
proposals would take away our existing authorities, creating 
unprecedented prohibitions on FDA's ability to inspect and test 
drugs, and FDA's authority to block the distribution of drugs 
that we think are unsafe. Perhaps most importantly, in addition 
to allowing in some drugs that might be safe, these bills 
create wide and poorly regulated channels through which 
counterfeit drugs, criminally diverted controlled substances, 
and other unsafe drugs could enter our drug supply.
    In closing, Mr. Chairman, FDA remains concerned about any 
possibility that unsafe drugs may find their way into the 
American drug supply. We appreciate the Committee's interest in 
assuring that the American public has access to safe and 
affordable medicines. We believe that this is an important goal 
to attain, but affordability must not come at the expense of 
safety.
    Thank you, again, for this opportunity to participate in 
today's hearing. I'll be happy to answer any questions.
    [The prepared statement of Mr. Taylor follows:]

   Prepared Statement of John M. Taylor III, Associate Commissioner, 
            Regulatory Affairs, Food and Drug Administration
Introduction
    Mr. Chairman and Members of the Committee, I am John M. Taylor, 
Associate Commissioner for Regulatory Affairs at the U.S. Food and Drug 
Administration (FDA or the Agency).
    I appreciate the opportunity to testify regarding the importation 
of prescription drugs into the United States. Let me begin by saying 
that the overall quality of drug products that consumers purchase from 
U.S. pharmacies remains high. The American public can be confident that 
these medications are safe and effective. FDA cannot, however, offer 
the same assurance to the public about the safety and quality of drugs 
purchased from foreign sources that are outside the regulatory system.
    My testimony will focus on FDA's efforts to assess and respond to 
the public health threats posed by the importation of unapproved, 
adulterated and misbranded drugs, as well as counterfeit drugs from 
foreign and domestic sources that pose a threat to the health and 
safety of U.S. consumers. I will also discuss the law governing drug 
imports, and the enforcement strategies used to prevent potentially 
unsafe drugs from reaching the American consumer.
Summary
    The Food and Drug Administration (FDA) shares with Congress its 
great concern for senior citizens and other patients who have 
difficulty paying for prescription drugs. That is why the 
Administration has been working so closely with Congress to enact 
landmark legislation to provide millions of America's seniors with 
coverage for prescription drugs under Medicare. As part of that 
legislation, the Administration supports provisions that build on FDA 
action earlier this year to expand access to more affordable generic 
drugs. FDA has also taken a number of other significant steps to 
provide greater access to affordable prescription medications without 
compromising safety, including unprecedented steps to lower drug costs 
by helping to speed the development and approval of low-cost generic 
drugs after legitimate patents have expired on branded drugs. This 
includes the biggest expansion in history of our generic drug program, 
and a series of regulatory changes to make it easier for generic 
manufacturers to compete.
    The Agency has also taken steps to help improve the development 
process to help lower the high cost of developing new drugs. And the 
Agency has taken steps to improve the process by which drugs are 
manufactured. FDA is also working to prevent adverse events through new 
rules that would require bar coding for drugs and better ways to track 
adverse events automatically--with the goal of preventing billions of 
dollars in unnecessary health care costs each year. In addition, FDA is 
striving to promote electronic prescribing, to improve quality and 
reduce prescription costs as well. And the Agency is taking additional 
steps to provide better information to health care professionals and 
patients alike, including new and better electronic product labels and 
Internet-based information, about the risks and benefits of medication 
choices available to treat a particular health problem.
    However, FDA continues to have serious public health concerns 
regarding legislation that would allow the importation of drugs from 
outside the current safety system established by Congress under the 
Federal Food Drug and Cosmetic Act. When it comes to buying drugs 
internationally, outside our existing regulatory protections, FDA has 
consistently concluded that the Agency is unable to endorse a ``buyer 
beware'' approach.
    All imported drugs are required to meet the same standards as 
domestic drugs, and thus must not be unapproved, misbranded, or 
adulterated. Drugs imported by individuals that are unapproved, 
misbranded, or adulterated, are prohibited by law. This includes drugs 
that are foreign versions of FDA-approved medications, and drugs that 
are dispensed without a prescription, because there is no assurance of 
their safety and effectiveness. FDA is doing its best to stop the 
increasing flow of violative drugs into this country but the task is 
daunting. Each day thousands of packages containing prescription drugs 
are imported illegally into the United States. Our Office of Regulatory 
Affairs has inspectors who work in the field who perform 
investigational work pertaining to imported prescription drugs, a job 
that is not limited to inspections at ports of entry. But while the 
volume of imported drugs has increased enormously, FDA has not received 
additional resources or authorities to address these shipments, in 
contrast to the case for food security at the border.
    Under the FD&C Act, a drug is subject to refusal of admission into 
the United States if it appears that it: (1) has been manufactured, 
processed or packed under unsanitary conditions, (2) is forbidden or 
restricted for sale in the country in which it was produced or from 
which it was exported, or (3) is adulterated, misbranded or in 
violation of section 505 of the FD&C Act, which relates to new drugs. 
To determine whether a product is in compliance, FDA may collect an 
analytical or documentary sample from the shipment for evaluation, and 
the shipment is held until the results of the examination are known. In 
some instances, a product may be detained as soon as it is offered for 
entry into the U.S. This procedure--detaining a product without 
physical examination--is based on past history and/or other information 
indicating the product may violate the FD&C Act. At mail facilities, 
Bureau of Customs and Border Patrol (BCBP) officials identify parcels 
that should be brought to FDA's attention. BCBP places these packages 
in a secure location that they maintain for FDA and other agencies. As 
with all imports, if it appears that the product may be subject to 
refusal, FDA will issue a notice to detain the product and provide the 
owner or consignee an opportunity to respond.
    Due to the huge volume of drug parcels entering the U.S. through 
the international mail and courier services, the requirements for 
notice and hearing, and our limited resources, it is difficult for FDA 
to detain and refuse mail imports for personal use. In addition, 
considerable storage space is needed to hold the large number of 
detained parcels while a notice, opportunity to respond, and Agency 
decision are pending.
    The recent rise Internet purchasing of drugs has significantly 
compounded this problem. During a recent drug importation survey at 
several mail facilities in the United States, FDA found that the vast 
majority of parcels (88 percent) contained unapproved drugs that could 
pose significant safety problems. These packages included drugs that 
have been withdrawn from the U.S. market for safety reasons; animal 
drugs sold illegally for human use; drugs improperly packaged in 
sandwich bags or tissue paper; drugs without English labeling or proper 
instructions for use; and drugs requiring precise dosing and monitoring 
by a physician.
    The Agency has responded to the challenge of importation by 
employing a risk-based enforcement strategy to target our existing 
enforcement resources effectively in the face of multiple priorities, 
including homeland security, food safety and counterfeit drugs. As an 
example, the Agency utilizes Import Alerts to identify particular 
shipments that may pose significant potential risk to public health, 
e.g., drugs that require careful risk management and products from 
shippers known to present significant safety problems. However, this 
system is already overwhelmed by the number of incoming mail packages 
that must be evaluated and this state of affairs presents a significant 
ongoing challenge for the Agency.
    Sixty-five years ago, Congress responded to widespread fears of 
unsafe and ineffective domestic drugs by directing FDA to create a 
system for assuring that Americans have a drug supply they can trust. 
Fifteen years ago, Congress responded to serious safety problems 
created by imported drugs that were not tightly regulated by passing 
the Prescription Drug Marketing Act. Congress limited access to these 
foreign drugs because of safety concerns it identified with the 
importation of significant volumes of adulterated and counterfeit 
drugs.
    Unfortunately, the drug supply is under unprecedented attack from a 
variety of increasingly sophisticated threats. This is evident in the 
recent significant increase in efforts to introduce counterfeit drugs 
into the U.S. market. FDA has seen its number of counterfeit drug 
investigations increase four-fold since the late 1990s. Although 
counterfeiting was once a rare event, we are increasingly seeing large 
supplies of counterfeit versions of finished drugs being manufactured 
and distributed by well-funded and elaborately organized networks. At 
the same time, inadequately regulated foreign Internet sites have also 
become portals for unsafe and illegal drugs. Evidence strongly suggests 
that the volume of these foreign drug importations is increasing 
steadily and presents a substantial challenge for the Agency to 
adequately assess and process these parcels, resulting in an increased 
workload for Agency field personnel at ports-of-entry, mail facilities, 
and international courier hubs.
    FDA remains concerned about the public health implications of 
personally imported prescription drugs and the introduction of 
counterfeit drugs into the stream of commerce. In our experience, many 
drugs obtained from foreign sources that either purport to be or appear 
to be the same as U.S.-approved prescription drugs are, in fact, of 
unknown quality. FDA cannot assure the American public that drugs 
imported from foreign countries are the same as products approved by 
FDA. The Agency has long taken the position that consumers are exposed 
to a number of potential risks when they purchase drugs from foreign 
sources or from sources that are not operated by pharmacies properly 
licensed under state pharmacy laws. These outlets may dispense expired, 
subpotent, contaminated or counterfeit product, the wrong or a 
contraindicated product, an incorrect dose, or medication unaccompanied 
by adequate directions for use. The labeling of the drug may not be in 
English and therefore important information regarding dosage and side 
effects may not be available to the consumer. The drugs may not have 
been packaged and stored under appropriate conditions to prevent 
against degradation, and there is no assurance that these products were 
manufactured under current good manufacturing practice standards. When 
consumers take such medications, they face risks of dangerous drug 
interactions and/or of suffering adverse events, some of which can be 
life threatening.
    Patients potentially are at greater risk because there is no 
certainty about what they are getting when they purchase some of these 
drugs. Although some purchasers of drugs from foreign sources may 
receive genuine product, others may unknowingly buy counterfeit copies 
that contain only inert ingredients, legitimate drugs that are outdated 
and have been diverted to unscrupulous resellers, or dangerous sub-
potent or super-potent products that were improperly manufactured. 
Furthermore, in the case of foreign-based sources, if a consumer has an 
adverse drug reaction or any other problem, the consumer may have 
little or no recourse either because the physical location of the 
manufacturer or because the operator of the pharmacy often is not known 
or the seller is beyond the consumer's reach. FDA has only limited 
ability to take action against these foreign operators.
    In recent weeks, several governors and mayors around the country 
have proposed to create systems whereby their employees and/or 
constituents could be directed to Canadian pharmacies for purchasing 
Canadian drugs. FDA has spoken with a number of such officials about 
our legal and safety concerns, and many have declined to proceed and, 
at this time, no state has put in place such an approach. In general, 
it is premature for FDA to predict any potential enforcement actions 
against cities and states. However, it is foreseeable that some 
jurisdictions may decide to implement such a program, despite the 
Agency's concerns. FDA has not threatened legal action against specific 
jurisdictions, but has signaled its safety concern about these 
proposals and about their potential illegality. FDA laid out these 
views in a letter to the Attorney General of the State of California in 
the summer. Under current law, it is fairly clear that states or cities 
would be encouraging the importation of unapproved (and thus illegal) 
prescription drugs if they created such programs.
    At a time when FDA faces more challenges than ever in keeping 
America's supply of prescription drugs safe and secure, legislation to 
liberalize drug importation could cause additional drug safety 
concerns. The volume of importation that could result from enactment of 
these bills could easily overwhelm our already heavily burdened 
regulatory system. In general, these bills fail to provide FDA with 
adequate authority or resources to establish and regulate the 
distribution system for incoming foreign drugs--manufactured, 
distributed, labeled, and handled outside of our regulatory system--or 
even to ensure their safety. Some of these proposals would take away 
our existing authorities, which are already being stretched. They would 
create unprecedented prohibitions on FDA's ability to inspect and test 
drugs, and FDA's authority to block the distribution of drugs we think 
are unsafe. The proposals offer no added resources to handle the flow 
of imported drugs into the United States; a flow that would likely 
become far larger than it is today. Perhaps most importantly, in 
addition to allowing in some drugs that might be safe, these bills 
create wide and poorly regulated channels through which counterfeit 
drugs, criminally diverted controlled narcotics, and otherwise unsafe 
drugs could enter our drug supply. By choosing affordability over 
safety rather than taking new steps to address both, such legislation 
is a dangerous solution to the twin challenges of safety and 
affordability.
    Today, FDA drug approvals are manufacturer-specific, product-
specific, and include many requirements relating to the product, such 
as manufacturing location, formulation, source and specifications of 
active ingredients, processing methods, manufacturing controls, 
container/closure system, and appearance. Under section 801 of the FD&C 
Act, only manufacturers may import drugs into the U.S. The drugs must 
be produced in FDA inspected facilities. These facilities and the drugs 
produced in them are currently covered by the U.S. regulatory system, 
and it is legal to import these drugs. But legislation allowing 
pharmacies or consumers to import drugs directly from foreign sources 
would bypass the protections provided by FDA's drug approval process 
and by state regulation of firms that dispense drugs within their 
jurisdictions.
    Some drug importation legislation would limit imports to only those 
drugs that are FDA-approved and made in FDA-inspected facilities, 
simply because the legislation states that it is limited to drugs that 
comply with sections 501 (adulteration), 502 (misbranding) and 505 
(marketing approval) of the FD&C Act. However, this approach fails to 
provide resources, authorities, or the procedural framework necessary 
for FDA to assure such compliance. As a practical consequence, the 
Agency would be forced in many instances to rely on visual examinations 
of incoming drug packages to determine whether a drug is FDA-approved 
and in compliance with the FD&C Act. A visual inspection, however, is 
not nearly sufficient to verify whether these drugs are FDA-approved, 
manufactured in FDA-inspected facilities or in compliance with the 
adulteration and misbranding provisions of the FD&C Act. This is no 
substitute for the existing FDA regulatory process, which tracks 
prescription from the acquisition of active and inactive ingredients to 
on-site inspection of manufacturing and distribution facilities, with 
documentation of appropriate product testing and handling.
    Even if a manufacturer has FDA approval for a drug, a version 
produced for foreign markets usually does not meet all of the 
requirements of the FDA approval, and is thus considered to be 
unapproved. Even if a drug bound for a foreign market is produced in 
the same plant as a similar drug approved for the U.S. market, FDA is 
not ability to track that drug in foreign commerce before it enters the 
U.S. Consequently, it is difficult for the Agency to determine that a 
drug appearing at a U.S. border is in fact the one produced in the FDA-
inspected plant, pursuant to FDA approval. Taken together, these 
practical problems create an unworkable system that may appear to 
provide consumers with safety protections, but in fact is hollowed by 
the inadequacy of resources and authorities needed for effective 
implementation to protect the U.S. drug supply.
    FDA firmly believes that we can and should do a much better job of 
making safe and innovative drugs more affordable in the United States, 
but to succeed we need to find safe and affordable solutions that, when 
implemented, do not put consumers at risk. We appreciate and support 
the commitment to making drugs more affordable for seniors and other 
consumers and are working hard to achieve this goal. However, the 
Agency continues to believe that we must focus on solutions that do not 
put at risk safety in an effort to achieve increased affordability.
Reducing Drug Costs
    The Administration believes that Americans should have access to 
safe, effective and affordable prescription drugs. The Administration 
is currently engaged in a number of actions to reduce the costs of 
prescription medications. These initiatives will result in more 
affordable prescription drugs and will reduce the incentive to look to 
foreign sources for cheaper medications.
    On June 18, 2003, FDA published its final rule to lower 
prescription drug costs for millions of Americans by improving access 
to generic drugs. These changes are expected to save Americans over $35 
billion in drug costs over the next 10 years. FDA's final rule provides 
the generic industry with enhanced predictability and certainty, while 
avoiding unnecessary and lengthy litigation, preserving intellectual 
property protections and protecting the process of developing new 
breakthrough drugs.
    Specifically, the proposed rule would allow only one 30-month stay 
for each generic drug application, clarify that certain patents cannot 
be listed, and improve the declaration that innovators must make about 
patents they submit to FDA for listing in the Agency's Orange Book 
publication that lists all drug products approved under section 505 of 
the FD&C Act.
    The President's 2004 budget proposes an unprecedented increase of 
$13 million in spending for FDA's generic drug program. This will be 
the largest infusion of resources into the generic drug program in 
history, increasing the program's size by about one-third. The proposed 
increase in FDA's generic drug budget will allow FDA to hire 40 experts 
to review generic drug applications more quickly and initiate targeted 
research to expand the range of generic drugs available to consumers. 
The improvements in the efficiency of review procedures are expected to 
save consumers billions more by generally reducing the time for 
approving new generic drugs.
    The Agency has also taken steps to help improve the development 
process to help lower the high cost of developing new drugs. And the 
Agency has taken steps to improve the process by which drugs are 
manufactured. FDA is also working to prevent adverse events through new 
rules that would require bar coding for drugs and better ways to track 
adverse events automatically--with the goal of preventing billions of 
dollars in unnecessary health care costs each year. In addition, FDA is 
striving to promote electronic prescribing, to improve quality and 
reduce prescription costs as well. And the Agency is taking additional 
steps to provide better information to health care professionals and 
patients alike, including new and better electronic product labels and 
Internet-based information, about the risks and benefits of medication 
choices available to treat a particular health problem.
    FDA is also taking steps to reduce the cost and regulatory 
uncertainties of developing and manufacturing drugs, especially generic 
drug alternatives. FDA initiatives in the Commissioner's Strategic 
Action Plan address important factors affecting the cost of new drug 
development and the cost of drug manufacturing.
    New drug development presents uncertainties that increase the 
business risk and costs to the innovator. Higher costs can create 
barriers to competition for new drugs and new innovators--those 
companies that don't have access to the capital available to more 
established drug companies. Although some scientific and technical 
uncertainties are inherent and unavoidable in drug innovation, others 
can be reduced or eliminated. Such reductions will help speed patient 
access to new drugs and reduce the cost of drug development. FDA has 
begun major initiatives to reduce some of those sources of uncertainty.
    FDA is continuing to improve the methods by which advice is 
provided to sponsors regarding what we believe are the best approaches 
to develop new therapies. These ongoing efforts are designed to provide 
sponsors with the best possible information, and thus increase the 
efficiency of the development process. FDA has identified several 
priority disease areas and new technologies that the Agency believes 
are good candidates for new work to clarify regulatory pathways and 
clinical endpoints. The targeted disease areas include cancer, diabetes 
and obesity. The targeted technologies include cell and gene therapy, 
pharmacogenomics and novel drug delivery systems.
    Another important step the Federal Government can take to respond 
to the need for affordable drugs is beyond FDA's reach. It requires 
legislation that the President and Congress on a bipartisan basis are 
close to achieving. The Administration believes that it is time for 
Congress to pass Medicare legislation that will make safe and effective 
drugs more affordable for seniors. The legislation would provide 
immediate discounts through Medicare-endorsed prescription drug cards. 
Beginning in 2006, Medicare beneficiaries would have access to a drug 
benefit, through which they would be able to take advantage of lower 
prices negotiated by private health plans.
    The Medicare legislation also contains two other provisions 
designed to lower prescription drug costs: generic drug reform and 
legislation approved by the House or Representatives that would open 
our borders to non-FDA approved drugs. One holds great promise, the 
other raises serious safety concerns.
Gregg-Schumer Generic Drug Provisions
    The Medicare legislation contains a bipartisan proposal sponsored 
by Senators Gregg and Schumer that would complement FDA rulemaking by 
providing greater access to more affordable generic drugs. The Senate 
bill would codify elements of FDA's June 18, 2003, final rule and add a 
provision limiting 180-day exclusivity to accelerate generic 
competition in the marketplace. These changes will enable consumers to 
save billions of dollars each year by making it easier for generic drug 
manufacturers to get safe and effective products on the market. The 
increased availability of lower-cost generic drugs will benefit all 
Americans, especially seniors.
Foreign Drug Imports
    Efforts in Congress to enact legislation to restructure the current 
drug import standard are inconsistent with the realities of drug 
safety. As any of our dedicated field investigators will attest, and as 
pharmacy regulators and major health professional organizations have 
warned, just because legislation declares drugs safe doesn't make them 
so.
    At a time when FDA faces more challenges than ever in keeping 
America's supply of prescription drugs safe and secure, legislation to 
liberalize drug importation could cause additional drug safety 
concerns. The volume of importation that could result from enactment of 
these bills could easily overwhelm our already heavily burdened 
regulatory system. In general, these bills fail to provide FDA with 
adequate authority or resources to establish and regulate the 
distribution system for incoming foreign drugs--manufactured, 
distributed, labeled, and handled outside of our regulatory system--or 
even to ensure their safety. Some of these proposals would take away 
our existing authorities, which are already being stretched. They would 
create unprecedented prohibitions on FDA's ability to inspect and test 
drugs, and FDA's authority to block the distribution of drugs we think 
are unsafe. The proposals offer no added resources to handle the flow 
of imported drugs into the United States; a flow that would likely 
become far larger than it is today. Perhaps most importantly, in 
addition to allowing in some drugs that might be safe, these bills 
create wide and poorly regulated channels through which counterfeit 
drugs, criminally diverted controlled narcotics, and otherwise unsafe 
drugs could enter our drug supply. By choosing affordability over 
safety rather than taking new steps to address both, such legislation 
is a dangerous solution to the twin challenges of safety and 
affordability.
    Today, FDA drug approvals are manufacturer-specific, product-
specific, and include many requirements relating to the product, such 
as manufacturing location, formulation, source and specifications of 
active ingredients, processing methods, manufacturing controls, 
container/closure system, and appearance. Under section 801 of the FD&C 
Act, only manufacturers may import drugs into the U.S. The drugs must 
be produced in FDA inspected facilities. These facilities and the drugs 
produced in them are currently covered by the U.S. regulatory system, 
and it is legal to import these drugs. But legislation allowing 
pharmacies or consumers to import drugs directly from foreign sources 
would bypass the protections provided by FDA's drug approval process 
and by state regulation of firms that dispense drugs within their 
jurisdictions.
    Some drug importation legislation would limit imports to only those 
drugs that are FDA-approved and made in FDA-inspected facilities, 
simply because the legislation states that it is limited to drugs that 
comply with sections 501 (adulteration), 502 (misbranding) and 505 
(marketing approval) of the FD&C Act. However, this approach fails to 
provide resources, authorities, or the procedural framework necessary 
for FDA to assure such compliance. As a practical consequence, the 
Agency would be forced in many instances to rely on visual examinations 
of incoming drug packages to determine whether a drug is FDA-approved 
and in compliance with the FD&C Act. A visual inspection, however, is 
not nearly sufficient to verify whether these drugs are FDA-approved, 
manufactured in FDA-inspected facilities or in compliance with the 
adulteration and misbranding provisions of the FD&C Act. This is no 
substitute for the existing FDA regulatory process, which tracks 
prescription from the acquisition of active and inactive ingredients to 
on-site inspection of manufacturing and distribution facilities, with 
documentation of appropriate product testing and handling.
    It is difficult for the Agency to reconcile the movement to allow 
consumers to purchase drugs from foreign sources with widespread 
understanding that the world has changed, that we now face more 
security concerns than ever, and that our vigilance over imports 
entering this country must reflect this reality. Just last year, 
Congress enacted legislation giving FDA an additional new authority to 
help protect imported food from deliberate or accidental contamination. 
As a result of this legislation, FDA has substantially boosted its food 
safety and security activities at the border, adding hundreds of new 
inspectors and support staff. For example, for the first time, FDA must 
be notified of essentially all commercial food shipments before they 
arrive. This will allow FDA to target our efforts to the riskiest 
products, before they enter the country. So thanks to Congress, we have 
new abilities to help us prevent the entry of foods that may be unsafe.
    Yet in the area of drugs, some in Congress want to move in the 
opposite direction. The evidence in my testimony today strongly 
suggests that it simply is not safe to throw open our borders and 
declare broad new classes of drugs to be ``legal.'' Despite well-
intentioned efforts to design safeguards for this proposed drug import 
regime, many unsafe drugs will enter if Congress establishes a new, 
wide ``legal'' avenue for imports.
    This approach would encourage the individuals who are currently 
trying hard to exploit weaknesses in our drug security system to make 
the most of any new paths that are opened into America's drug supply. 
The problems we are witnessing now will only multiply if current 
safeguards are weakened. The evidence that this will occur becomes 
stronger each day.
    For example, an 81-year-old U.S. consumer recently purchased 
Neurontin, an FDA-approved anti-seizure medication after watching a TV 
commercial that claimed consumers could save up to 70 percent on 
prescriptions by calling a 1-800 number. A brochure that was 
subsequently sent to the consumer after he called the toll free number 
led him to believe that any drugs he ordered would be FDA-approved, 
brand name drugs from Canada. The consumer subsequently purchased the 
Neurontin, along with two other pharmaceuticals. However, the Neurontin 
the consumer actually received was made in India and unapproved for any 
use in the United States. This is just one of many examples where 
consumers thought that they were getting FDA-approved products from 
Canada, only to find out that their products were coming from countries 
in Asia and Africa.
    International pharmaceutical peddlers are taking advantage of 
regulatory gaps to move millions of prescription drugs, including 
controlled substances, into the United States from Mexico, Canada, and 
elsewhere. Rogue medical merchants who have dubious or no medical 
background are selling potentially dangerous drugs to people who never 
see the prescribing doctor in person or undergo necessary tests. At 
best, these drugs are of unclear origins and safety. At worst, they are 
poorly manufactured, improperly repackaged, stored, and labeled, or 
out-and-out fakes. Weakening import restrictions will only compound 
these problems.
    The resources and authorities to assure drug safety that are 
available to FDA and our state partners must be commensurate with the 
scope and volume of the drug products that may legally be imported. It 
is important to remember why Congress made many drug imports illegal in 
the first place: FDA did not have the resources or authorities to 
assure their safety. Moreover, in recent years we have seen many more 
drugs that require ``risk management'' programs and regular monitoring 
to be sure they are used safely and effectively. We have also approved 
biologic and injectable drugs that have especially complex 
manufacturing and storage requirements. In both cases, the public 
health safeguards that FDA has imposed are being undermined by the 
illegal importation of these products. In addition, regulating 
controlled substances at our borders is an enduring challenge. These 
factors strongly argue for maintaining, not loosening, the current 
standards.
Promising Anti-Counterfeiting Technology
    Over time, it may be possible to assure drug safety through a 
multilayered strategy of modern anti-counterfeiting technologies. 
Promising developments such as ``track and trace'' technologies that 
cannot be faked like a paper drug pedigree, and verification 
technologies built not only into tamper-resistant drug packaging but 
also into the drugs themselves will make our job of verifying the 
legitimacy of drug products much easier. FDA is working to speed the 
availability of these anti-counterfeiting technologies, but they are 
months or years away.
    In the meantime, FDA needs all of the authorities it has now to 
assure the safety and effectiveness of legal prescription drugs. This 
includes the ability to require or conduct tests of product 
authenticity and potency, the ability to identify and, when necessary, 
inspect firms involved in the distribution of pharmaceuticals, and the 
authority to issue regulations and take decisive action to block the 
distribution of potentially unsafe drugs. Now is not the time to weaken 
these authorities, or to allow products into this country that 
circumvent these important public health protections.
Drug Imports: Health and Safety Concerns
    Sixty-five years ago, Congress responded to widespread fears of 
unsafe and ineffective drugs by directing FDA to create a system for 
assuring that Americans have a drug supply they can trust. FDA 
responded to this challenge by establishing a system that has become 
the gold standard that others strive to emulate. The FD&C Act prohibits 
the importation of unapproved, misbranded, or adulterated drugs into 
the U.S. Drugs imported by individuals generally fall into one of these 
prohibited categories. This includes foreign versions of U.S.-approved 
medications.
    More recently, in 1988, Congress enacted the Prescription Drug 
Marketing Act (PDMA) to establish additional safeguards to prevent 
substandard, ineffective, or counterfeit drugs from entering the U.S. 
Under PDMA, it is illegal for anyone other than the drug's original 
manufacturer to re-import a prescription drug into the U.S. that was 
manufactured in the U.S.
    At least two high-profile cases prompted the passage of PDMA. In 
one instance, over 2 million unapproved and potentially unsafe and 
ineffective Ovulen-21 ``birth control'' tablets from Panama were 
distributed throughout the U.S. They were falsely imported as 
``American goods returned.'' In another case, a counterfeit version of 
Ceclor, a widely used antibiotic at the time, found its way into the 
U.S. drug distribution from a foreign source. Over the years, our 
professional staff has employed PDMA and other pre-existing authorities 
to build a drug safety infrastructure to ensure that Americans enjoy 
the highest-quality drug supply in the world.
    Unfortunately, the drug supply that we work so hard to safeguard is 
under unprecedented attack from a variety of increasingly sophisticated 
threats. Today everything from product packaging to labeling and 
product containers can be readily purchased created or counterfeited 
and counterfeiters and diverters take advantage of this opportunity. 
Moreover, the skill and ingenuity demonstrated by counterfeiters and 
diverters have improved significantly. As a result, more than ever 
before, well-organized criminals have the ability to exploit our 
regulatory system and profit at the expense of public health.
    A large and growing volume of parcels containing foreign 
prescription drugs ordered by individuals from foreign sources is 
entering American commerce through U.S. Postal Service international 
mail facilities. Evidence strongly suggests that the volume of foreign 
drug imports is increasing steadily. The volume presents a substantial 
challenge for the Agency to adequately assess and process these 
parcels, resulting in an increased workload for Agency field personnel 
at ports-of-entry, mail facilities, and international courier hubs.
    FDA remains concerned about the public health implications of 
foreign prescription drugs imported by consumers and counterfeit drugs 
introduced into the stream of commerce. In our experience, many drugs 
obtained from foreign sources that either purport to be or appear to be 
the same as U.S.-approved prescription drugs are, in fact, of unknown 
quality. FDA cannot assure the American public that drugs imported from 
foreign countries are the same as products approved by FDA.
    FDA has long taken the position that consumers are exposed to a 
number of potential risks when they purchase drugs from foreign sources 
or from sources that are not operated by pharmacies properly licensed 
under state pharmacy laws. These outlets may dispense expired, 
subpotent, contaminated or counterfeit product, the wrong or a 
contraindicated product, an incorrect dose, or medication unaccompanied 
by adequate directions for use. The labeling of the drug may not be in 
English and therefore important information regarding dosage and side 
effects may not be available to the consumer. The drugs may not have 
been packaged and stored under appropriate conditions to prevent 
degradation, and there is no assurance that these products were 
manufactured under current good manufacturing practice (cGMP) 
standards. When consumers take such medications, they face risks of 
dangerous drug interactions and/or of suffering adverse events, some of 
which can be life threatening. These risks could include potential side 
effects from inappropriately prescribed medications or side effects due 
to drug contamination.
    Patients also potentially are at greater risk because there is no 
certainty about what they are getting when they purchase some of these 
drugs. Although some purchasers of drugs from foreign sources may 
receive genuine product, others may unknowingly buy counterfeit copies 
that contain only inert ingredients, legitimate drugs that are expired 
and have been diverted to unscrupulous resellers, or dangerous sub-
potent or super-potent products that were improperly manufactured. 
Moreover, consumers who are desperately seeking a cure for a serious 
medical problem may be more willing to accept a product of unknown 
origin.
    Furthermore, in the case of foreign-based sources, if a consumer 
has an adverse drug reaction or any other problem, the consumer may 
have little or no recourse either because the physical location of the 
manufacturer or the operator of the pharmacy is unknown the seller is 
beyond the consumer's reach. In addition, as a condition of doing 
business, many of these foreign operators require the U.S. consumer to 
sign a document releasing the operator from all potential liability. 
FDA has only limited ability to take action against these foreign 
operators since they operate outside if the United States.
    Due to the huge volume of drug parcels entering the U.S. through 
the international mail and courier services and the requirements under 
current law for notice and hearing if we detain an import, it is 
difficult for FDA to detain and refuse mail imports for personal use. 
The advent of the Internet and the proliferation of ``storefront 
pharmacies'' has significantly compounded this problem. As a 
consequence, tens of thousands of parcels that FDA is unable to review 
given the Agency's multiple competing enforcement priorities are 
released by the BCBP even though the products contained in these 
parcels may violate the FD&C Act and may pose a health risk to 
consumers. We acknowledge that this is not an optimal public health 
outcome and are working on strategies to better utilize our available 
resources to minimize potential public health risks.
    The Agency has responded to this challenge by employing a risk-
based enforcement strategy to deploy our existing enforcement resources 
in the face of multiple priorities, including homeland security, food 
safety and counterfeit drugs. As an example, the Agency utilizes Import 
Alerts to identify particular shipments that may pose significant 
potential risk to public health. In the case of the increased volume of 
certain unapproved drugs arriving at mail facilities throughout the 
country, the Agency has issued Import Alerts to instruct field 
personnel to work with BCBP to detain all such shipments from specific 
manufacturers, distributors and countries of origin.
FDA Response To Illegal Imports
    FDA is working on a number of fronts to address the influx of 
unapproved and counterfeit prescription drugs coming into the U.S. from 
foreign sources. These efforts include: (1) educating the public about 
the potential safety issues presented by the purchase of drugs from 
foreign countries, (2) working with professional groups to disseminate 
FDA's message on the potential dangers of Internet drug sales, (3) 
partnering with state governments and other Federal agencies to develop 
more effective enforcement strategies, and (4) enforcement activity 
directed at the most significant concerns. Recent high-profile 
regulatory actions send a strong message that FDA is actively working 
to take strong steps to protect the public from conduct that threatens 
the U.S. drug supply.
Public Outreach and Education
    Public outreach is an important tool that the Agency uses to inform 
consumers about potentially dangerous or ineffective drugs. FDA is 
expanding its public outreach to further educate consumers about 
potentially dangerous practices associated with some Internet drug 
sales. We also are conducting outreach to explain the nature of 
compliance and enforcement actions we already have taken. This effort 
includes FDA Talk Papers, articles in FDA Consumer magazine, and 
information on FDA's website to help educate consumers about safely 
purchasing drugs online. FDA's website also provides consumers with an 
opportunity to submit information to the Agency about sites that may 
violate the FD&C Act.
    FDA has also created public education brochures and posters 
entitled, ``Things you should know about purchasing medications outside 
the United States'' to alert consumers to the health risks of buying 
medications outside the U.S. Cross-border travelers at certain land 
border stations are provided with information regarding the potential 
risks of imported drugs and another brochure entitled, ``Looks Can be 
Deceiving,'' which describes the dangers of purchasing drugs directly 
at cross-border pharmacies. This information is also available on FDA's 
website.
    In October 2000, FDA's Center for Drug Evaluation and Research 
(CDER) launched an education campaign on the subject of buying 
prescription medicines online entitled, ``Shop Smart.'' This effort is 
part of FDA's ``Buying Rx Drugs Online'' education program. The 
centerpiece of this multi-media campaign is FDA's website: http://
www.fda.gov/oc/buyonline/default.htm that has information for 
consumers, including tips and warnings, how to spot health fraud, 
frequently asked questions and how to report suspect pharmacy sites. 
The website is one of the most frequently visited web pages on FDA's 
website.
    Another central piece of our campaign is a brochure entitled, 
``Buying Prescription Medicines Online: A Consumer Safety Guide,'' a 
brochure produced by the CybeRx-Smart Safety Coalition, a partnership 
of Internet companies, trade associations, health and consumer 
organizations and other government agencies. The brochure is available 
in hard copy from FDA, the Federal Consumer Information Center and the 
National Council for Patient Information and Education (member of 
CybeRx-Smart). It also is posted on FDA's website. The number of 
consumer inquiries FDA receives has grown steadily with the circulation 
of the brochure. In addition, a 30-second radio public service 
announcement was produced and distributed to stations throughout the 
U.S. The release has been broadcast on 233 radio stations in 46 
different states with an audience of almost 6 million. Two print public 
service announcements (one for medical devices and one for prescription 
medicines) were produced and sent to over 100 national magazines.
    The January/February 2001 issue of the FDA Consumer magazine 
included an article entitled, ``Buying Drugs Online: It's Convenient 
and Private, But Beware of `Rogue Sites.' '' The article is available 
online and thousands of reprints have been distributed at conferences 
and exhibits around the country.
Recall of Asthma Drug Sold in Canada
    On November 14, 2003, FDA issued a precautionary press release to 
alert the public to the recent recall of GlaxoSmithKline ``Diskus'' 
medicines sold in Canada to treat asthma and chronic obstructive 
pulmonary disease (COPD). In cases such as these, our ability to warn 
U.S. consumers about defective products may be compromised when 
patients purchase drugs from outlets in foreign countries.
    Asthma, COPD and related diseases can be serious and life 
threatening. The three asthma products--Ventolin Diskus, Flovent 
Diskus, and Serevent Diskus--were recalled in Canada on November 12, 
2003, because the products' drug delivery system may not function 
properly and may deliver too little of the drug, or none at all.
    FDA emphasized that FDA-approved Diskus products (Advair and 
Serevent) sold in the U.S. through legitimate marketing channels are 
not subject to this recall. But because some Americans are buying 
prescription drugs from Canada and elsewhere through on-line or 
storefront operations, U.S. patients may be using these potentially 
substandard and ineffective products.
    FDA urges any patients who bought these Diskus products from a 
foreign source to review the recall information on the manufacturer's 
website and check the lot numbers of Diskus products they have 
purchased. FDA advised U.S. patients with questions or concerns about 
these products to call their physician, pharmacist, or other 
knowledgeable care provider.
Partnering With Professional Organizations
    FDA continues to meet with organizations representing state 
regulatory and law enforcement bodies, consumers, health care 
practitioners and industry to address our concerns. The purpose of 
these meetings is to discuss and coordinate efforts to respond to 
issues relating to online drug sales, including who should regulate and 
how they should regulate, whether and what policy changes should be 
considered, and when to develop partnering arrangements. The 
organizations we regularly meet with include:

   The National Association of Boards of Pharmacy

   The Federation of State Medical Boards

   The National Association of Attorneys General

   The American Medical Association

   The American Pharmacists Association

   The National Consumers League

   AARP (formerly the American Association of Retired Persons)

   The American Society of Health-Systems Pharmacists

   The National Association of Chain Drug Stores

   The National Community Pharmacists Association

   The Pharmaceutical Research and Manufacturers Association

   Pharmaceutical Security Institute

   Healthcare Distribution Management Association

    In addition, we have Memoranda of Understanding (MOUs) with the 
National Association of Boards of Pharmacy (NABP) and the Federation of 
State Medical Boards (FSMB) that enhance our collaborative working 
relationship. State pharmacy boards have primary responsibility for the 
licensing of pharmacies and regulating the dispensing of drugs.
    FDA has been working with the states to address concerns regarding 
importation of foreign prescription drugs. In February 2003, FDA hosted 
a nationwide call with 38 state boards of pharmacy, other state 
regulatory agencies and consumer groups to discuss current Internet 
drug sale practices and the growth of storefront pharmacies. While some 
state laws are stronger than others, FDA has actively engaged with a 
number of states in jointly pursuing Internet sites that are engaged in 
illegal prescription drug sales. In some cases, the states have acted 
unilaterally. FDA is continuing to expand its cooperative activities 
with states in order to address effectively the many challenges in this 
area of electronic commerce. FDA also is continuing to work closely 
with our partners in the states in support of their efforts to curtail 
illegal and potentially dangerous operations, especially when they 
involve misleading claims about drug safety.
State-Federal Enforcement: Rx Depot
    On March 21, 2003, FDA issued a ``warning letter'' to a storefront 
operation known as Rx Depot. We commenced this action in conjunction 
with the Arkansas State Board of Pharmacy. Rx Depot generally obtained 
drugs from Canada for U.S. consumers, exposing the public to the 
significant potential risks associated with imported prescription 
medications. Rx Depot and similar companies have often incorrectly 
stated to consumers that FDA condones their activities and even that 
their prescription medications are ``FDA approved.'' This could lead 
consumers to the mistaken conclusion that the prescription drugs sold 
by the companies have the same assurance of safety as drugs actually 
regulated by FDA.
    While Rx Depot responded to FDA's ``warning letter,'' the response 
was inadequate. Therefore the U.S. Department of Justice and FDA filed 
an injunction on September 11, 2003, to stop Rx Depot Inc. from 
importing prescription drugs from Canada in violation of U.S. law. The 
Agency brought the suit because the storefront chain posed a risk to 
public health by importing unapproved prescription drugs and drugs that 
may only be imported by the U.S. manufacturer. These drugs posed a 
public health risk because they do not have the same assurance of 
safety and efficacy as drugs regulated by FDA
    On November 6, 2003, U.S. District Judge Claire Eagen granted the 
government's motion for a preliminary injunction and ordered Rx Depot 
to stop importing drugs and stop advertising and promoting any service 
that causes or facilitates drug imports. Judge Eagen also ruled that 
the firm had ten days to send a letter to its customers informing them 
that the company's business violated the law and that the safety and 
efficacy of drug products obtained through the firm could not be 
assured.
    FDA, and the District Court Judge, concluded that operations such 
as Rx Depot expose the public to significant potential risks associated 
with unregulated imported prescription medicines. FDA's decision to 
bring this action and the court's subsequent ruling sends a clear 
signal that FDA is committed to protecting the public health and 
challenging those who put profit before safety. This case also 
demonstrates FDA's commitment to protect the American public from 
illegal drugs that may be unsafe, ineffective, or substandard.
    As of November 10, 2003, twenty-two states have taken, or are 
prepared to take, regulatory actions against storefront pharmacies that 
facilitate illegal imports of prescription drugs from Canada. .
Federal Enforcement Actions
    Although the Rx Depot case is a recent prominent action, we have 
also taken action in other similar cases, discussed in more detail 
below.
CanaRx
    On September 16, 2003, FDA issued a ``warning letter'' to CanaRx 
notifying the firm of our concerns about supplying prescription drugs 
from unregulated sources and making unwarranted claims about these 
products. Specifically, FDA's ``warning letter'' stated that CanaRx 
runs an Internet website and mail operation that illegally causes the 
shipment of prescription drugs from a Canadian pharmacy into the U.S., 
thereby subjecting Americans to risky imported drug products. This 
potential risk is compounded by the fact that CanaRx makes misleading 
assurances to consumers about the safety of its drugs.
    An FDA investigation of this firm showed that CanaRx operates a 
drug purchasing arrangement that channels drugs through companies that 
are not licensed pharmacies and does not consistently use shipping 
practices necessary to ensure its drugs are safe and effective. For 
example, FDA has evidence demonstrating that CanaRx shipped insulin, a 
product that should be stored under refrigerated conditions, in a 
manner that did not satisfy the storage conditions specified in FDA 
approved labeling. This failure could genuinely compromise the safety 
and effectiveness of the insulin. CanaRx's response to the Agency's 
``warning letter'' was inadequate. Therefore, on November 6, 2003, FDA 
sent a second letter reiterating our concerns about the potential 
safety of the product, and the firm's business practices, which could 
expose the firm's customers to unnecessary risk.
Alliance Wholesale Distributors
    On September 15, 2003, FDA announced the seizure of all drug 
products labeled in a foreign language and/or labeled as repacked by 
Phil and Kathy's, Inc., dba Alliance Wholesale Distributor and/or Local 
Repack, Inc. (``Local Repack'') of Richton Park, Ill.
    FDA acted to prevent these drug products from entering the U.S. 
drug distribution system because there is no assurance that they are 
safe or effective. Many of the products received and repackaged at 
Local Repack are of unknown origin, and their storage and handling is 
unverifiable. Local Repack has repeatedly failed to comply with cGMP 
requirements. In addition, many drugs at Local Repack's facility are 
misbranded. These drugs may also pose a serious or even life-
threatening risk to patients who use them.
    FDA inspections conducted after an August 1999 ``warning letter'' 
to Local Repack revealed significant and continuing violations. A 
series of inspections and other recent evidence revealed numerous 
deficiencies including the failure to properly handle customer 
complaints, discrepancies surrounding the signatures of quality control 
employees, records indicating the review and approval of repackaging 
operations before the operations were completed, incomplete or missing 
repackaging records, duplicate and inconsistent repackaging records for 
the same batch, and unreliable receiving and distribution records for 
drugs.
    This September seizure follows the July 9, 2003, seizure of more 
than 4,500 bottles of prescription drugs that were being repackaged by 
Local Repack stemming from an investigation of counterfeit Lipitor. 
Many of the products seized in July were marked with expiration dates 
to permit them to be sold after similar U.S.-approved drugs would have 
expired. For example, Portuguese-labeled product that Local Repack 
labeled as Lipitor had expiration dates well beyond the two-year limit 
that is based on stability studies performed under the new drug 
application (NDA) approved in the U.S. for Lipitor. Furthermore, none 
of these products were shipped to Local Repack in authentic, original 
manufacturer's packaging with appropriate labeling. This case 
demonstrates the Agency's continued commitments to protect consumers 
from potentially dangerous drugs and the litigation is ongoing.
FDA/Customs' Import Blitz Exams
    This past summer, FDA and BCBP conducted a series of blitz 
examinations on mail shipments of foreign drugs destined for U.S. 
consumers. This joint operation was carried out to help FDA and BCBP 
target, identify, and stop counterfeit and potentially unsafe drugs 
from entering the U.S. from foreign countries via mail and common 
carriers. It was also designed to help FDA and BCBP assess the extent 
of this problem posed by imported drugs.
    These ``blitz'' exams were conducted in the Miami and New York 
(JFK) mail facilities from July 29-31, 2003, and the San Francisco, and 
Carson, California, mail facilities from August 5-7, 2003, and one of 
the goals was to obtain a representative picture of drug products 
entering the United States. In each location, the agencies examined 
packages shipped by international mail through U.S. Postal Service 
facilities over a 3-day time span.
    Approximately 100 parcels per day, per facility, were selected 
based upon their country of origin and historical experience. In some 
cases, packages contained multiple drug products.
    Although many drugs obtained from these foreign sources purport, 
and may even appear to be, the same as FDA-approved medications, these 
examinations showed that many foreign drug products are of unknown 
quality or origin; have not been approved in the U.S., and may pose 
potentially serious safety concerns. For example, potentially hazardous 
products encountered during the blitz exams included:

   Unapproved drugs such as Roaccutane, an unapproved version 
        of Accutane.

   The unapproved drug Taro-warfarin, an unapproved version of 
        Warfarin used to prevent blood clotting. This drug requires 
        careful blood monitoring during administration.

   Drugs such as Dilantin, Synthroid and Glucophage that 
        require individual titration and very careful dosing in order 
        to avoid serious and potentially life-threatening side effects.

   Drugs with missing dosage information and whose labeling was 
        not in English.

   Inappropriately packaged drugs that were shipped loose in 
        baggies, tissue paper or envelopes.

   Drugs that had been withdrawn from the U.S. market for 
        safety reasons such as Buscapina, which appears to be the drug 
        Dipyrone. This drug was removed from the market in 1977 because 
        of several reports of cases of agranulocytosis, some of which 
        were fatal.

   Animal drugs not approved for human use such as Clenbuterol, 
        a drug approved for the treatment of airway disease in horses 
        but which is also known as a substance of abuse in the ``body 
        building'' community and is banned by the International Olympic 
        Committee.

   Drugs that have the potential for clinically significant 
        interactions with other drugs a consumer may be taking.

   Drugs such as Lipitor and Pravachol that require initial 
        screening and/or periodic monitoring to assure safety.

   Controlled substances that are sedating, associated with 
        respiratory depression, or have abuse potential for abuse.

    These drugs arrived from many countries. For example, 15.8 percent 
(161) entered the U.S. from Canada; 14.3 percent (146) from India; 13.8 
percent (141) from Thailand, and 8.0 percent (82) from the Philippines. 
The remaining entries came from other countries. Overall, of the 1,153 
imported drug products examined, the overwhelming majority, 1,019 (88 
percent), contained unapproved drugs.
    The blitz results will assist the Agency in its efforts to:

   Employ its resources more strategically to focus on the 
        foreign sources of illegal, unsafe imported drugs.

   Identify shipping patterns so that it can target future 
        shipments and sources of such drugs.

   Seek out partnerships with other Federal and state agencies 
        to combat this problem. To continue to refine its efforts at 
        identifying and stopping potentially unsafe, imported drugs, 
        FDA will continue to conduct additional blitzes.
Import Entry Studies
    In addition to the import blitz exams described above, FDA 
conducted an informal study to screen and examine mail-entry drug 
samples from foreign countries, including Canada, during a six-week 
period in early summer, 2003. FDA's Buffalo and Detroit FDA import 
offices conducted the import entry studies. The study confirmed FDA's 
belief that an increasing number of U.S. citizens are choosing to fill 
their prescriptions through mail-order purchases from pharmacies 
located in Canada. During the course of this study, FDA reviewed 154 
entries from Canada representing 350 drug items. In terms of safety 
concerns, this study affirmed what FDA has learned to expect from 
imported pharmaceuticals. For example, it was not possible to verify 
where, or under what conditions, the drugs were manufactured for any of 
the pharmaceutical products that were offered for import. For those 
drugs that were apparently ordered from websites, the need for a valid 
prescription was not always specified, and if the sites identified a 
prescription requirement, it did not disqualify prescriptions coming 
from other countries. Moreover, some websites specifically solicited 
U.S. business by stating that their drug products' quality and 
manufacturing requirements were ``equivalent'' to those in the U.S.
    The following examples of imported drugs, although not specifically 
restricted to Canada, further illustrate the types of products and 
situations FDA has encountered since it started examining this issue. 
For example:

   Apo-Metformin, a drug used as a daily treatment for diabetic 
        patients to prevent high glucose levels, arrived with no 
        pharmacy label, no warnings of potential serious and life 
        threatening side effects, no specific directions for use or 
        instructions for proper storage, and no contact information 
        (such as phone number) in the event that the patient needed a 
        pharmacy or physician in the case of an emergency.

   Apo-Gabapentin, a drug used as a daily treatment for 
        seizures. 1,200 tablets were mailed to the patient, a 
        dangerously large volume. While the quantity could last for 
        years for a typical patient, the product began expiring within 
        one month of receipt.

   Lipitor, a drug used to treat elevated cholesterol, was 
        shipped to a U.S. consumer. The product was manufactured in 
        Germany for export to Ireland, but had been exported to 
        Thailand and forwarded to the consumer.

    The results of the July-August blitz and our import entry study 
concern FDA because the products we encountered move through many 
channels of commerce in many countries, and fall well outside 
established safety controls. Consequently, these products are 
especially vulnerable to abuses such as counterfeiting, diversion and 
degradation. These conditions represent safety threats to the American 
consumers who purchase them.
Summary Of Federal Enforcement Activity
    FDA's Office of Regulatory Affairs (ORA), including the Office of 
Criminal Investigations (OCI), works with state and Federal 
investigative agencies and prosecutors to uncover violations of the 
FD&C Act and other laws with respect to unapproved, misbranded, 
illegally imported, or otherwise unsafe or substandard drug products. 
This includes violations associated with drugs sold over the Internet.
    Recent criminal and civil cases involving drugs sold over the 
Internet provide insight into the seriousness of the risks these 
products pose to the public health. With respect to Internet drug 
sales, FDA to date has initiated the following actions:

   372 Internet-related drug criminal investigations;

   142 Internet-related drug prosecutions resulting to date, in 
        106 convictions;

   90 open Internet-related drug investigations;

   Nearly 200 cyber ``warning letters'' sent to domestic and 
        foreign online sellers;

   9 preliminary injunctions;

   19 product seizures;

   16 product recalls and the voluntary destruction of 19 
        illegal products; and

   1 Contempt Action.
Controlled Substances Cases
    As a part of its larger efforts to address the illegal sale of 
pharmaceuticals, the Agency has committed substantial resources to 
controlled substances cases, including controlled substances sold over 
the Internet. The Drug Enforcement Administration (DEA) is the lead 
Federal Agency responsible for regulating controlled substances and 
enforcing the Controlled Substances Act (CSA). FDA has also worked with 
the FBI on criminal investigations involving the illegal sale, use, and 
diversion of controlled substances, including illegal sales over the 
Internet. FDA's Office of Criminal Investigations (OCI), however, is 
responsible for managing and conducting the Agency's criminal 
investigations. OCI conducts these investigations with support from 
other Agency components. In some cases, illegal activity may involve 
both imported and domestic controlled and non-controlled prescription 
drugs, and thereby violate the FD&C Act and the CSA. Even though FDA 
does not initiate investigations where the sole violation is thought to 
be a CSA offense, OCI works closely with DEA on criminal investigations 
involving the illegal sale, use, and diversion of controlled 
substances, including illegal sales over the Internet. This close 
working relationship with DEA, as well as with local law enforcement 
agencies, has led to the successful prosecution of many criminal cases 
involving controlled substances. These cases show the extent to which 
criminal investigations involving controlled substances can quickly 
encumber the resources and finances of local and Federal law 
enforcement agencies in their attempts to combat the growing problem 
these drugs present.
    FDA has investigated drug diversion schemes and hundreds of illicit 
Internet sites by reassigning its criminal investigative staff from 
other priority efforts. Our goal is to reduce the illegal promotion, 
sale, and distribution of unlawful prescription drugs via the Internet 
and other channels and this can include controlled substances. These 
efforts have protected consumers from unsafe, ineffective, and 
fraudulent products that present a danger to the public health. Here 
are some of our most recent cases involving controlled substances:

   In August 2003, a doctor pled guilty and was sentenced to 30 
        months' imprisonment for conspiring to dispense Schedule III 
        and IV controlled substances. The conspiracy transpired via a 
        web-based pharmacy with an Internet address of 
        www.thepillbox.com and a physician referral service with the 
        Internet address of www.physicianreferral2000.com. From 1999 
        through early June 2001, customers in the U.S. and abroad who 
        accessed Pill Box's website would be referred to the physician 
        referral website to obtain prescriptions prior to placing their 
        orders. The doctor would prescribe drugs such as hydrocodone 
        and diazepam (Valium) to customers without establishing a 
        patient history or performing a mental/physical exam, and 
        despite the fact that he had no means to monitor the 
        medications' response. Moreover, whenever a prescription was 
        issued, the doctor and Pill Box would subsequently split a 
        ``fee'' for the service. Over the course of the conspiracy, the 
        doctor illegally prescribed, and Pill Box dispensed, over 
        4,214,945 dosage units of hydrocodone and 537,080 dosage units 
        of diazepam. This enterprise grossed more than $7.7 million 
        from Internet sales of these two drugs alone. This case was the 
        product of an 18-month investigation by the DEA, FDA, IRS and 
        the U.S. Attorney's Office.

   In August, 2003, an individual pled guilty to charges 
        relating to various counts of conspiracy, distribution, and 
        importation of controlled substances as a result of a case 
        initiated by OCI in July 2000 after the individual was 
        identified as the principal for Vinci-online and CFF Pharma 
        Consult. The website domain used by the defendant, Vinci-
        online.com, was found to be registered to CFF Pharma Consult at 
        an address in Germany. Vinci-online.com offered golf training 
        services and investments, along with pharmaceutical drug 
        products including controlled prescription drugs, antibiotics, 
        anti-allergenics, weight loss medications, steroids, and 
        hormones for sale via its website. Agents made several 
        undercover purchases of prescription drugs from the website 
        without providing prescriptions. Following the e-mail purchase 
        request, an invoice was generated instructing the purchaser to 
        send a money order or cashier's check to Vinci American Ltd. in 
        Las Vegas, NV. The products received as a result of these on-
        line purchases were sent from Germany and contained German 
        labeling.
Drug Counterfeiting Cases
    FDA takes very seriously any allegations or information regarding 
the counterfeiting or adulteration of drug products. As the drug 
manufacturing and distribution system has become more global in nature, 
the challenge of protecting against counterfeit, adulterated or 
substandard drugs has become more difficult. The Agency is concerned 
about a spate of drug counterfeiting and tampering cases that have 
occurred in recent months, and is aggressively pursuing these types of 
enforcement cases.
    FDA's OCI has opened 85 counterfeit drug cases since October 1996. 
Investigations have so far netted 44 arrests and 29 convictions. Fines 
and/or restitution have been imposed in excess of $250,000.
    Over this timeframe, however, FDA has witnessed a gradual, but 
troubling, increase in the incidence of finished dosage form 
counterfeit activity. Much of this activity has targeted high volume, 
high cost drugs where counterfeiters attempt to obtain the highest 
return possible in a short time period. Many of these drugs are used 
for treating cancer and AIDS patients. However, Viagra and Lipitor have 
also been counterfeited. The public perception of a more dramatic 
increase in counterfeit drug activity stems from the fact that the 
latest several counterfeits have appeared in the wholesale market and 
received wider distribution than has been the case historically.
FDA Counterfeit Drug Initiative
    In July 2003, Commissioner McClellan announced a major new 
initiative to more protect American consumers from drugs that have been 
counterfeited. The initiative includes creating an internal task force 
to explore modern technologies and other measures to make it more 
difficult for counterfeit drugs to be distributed with--or deliberately 
substituted for--safe and effective drugs.
    The task force submitted its initial findings in an interim report 
presented to the Commissioner in October 2003, and will issue a final 
report in early 2004, after opportunities to hear from the public. In 
addition, FDA plans to coordinate more closely with other Federal 
agencies and state and local governments that share the 
responsibilities with FDA for ensuring the safety of the U.S. drug 
supply and distribution system as well as with members of Congress who 
have worked closely with FDA in the past on these important public 
health issues.
    Counterfeit prescription drugs are not only illegal but also are 
also inherently unsafe. Many counterfeit drugs are visually 
indistinguishable from the authentic versions, and thus pose a 
potentially serious health threat to Americans.
    Although FDA believes domestic counterfeiting is not widespread, 
the Agency has recently seen an increase in counterfeiting activities 
as well as a more sophisticated ability to introduce finished dosage 
counterfeits into the otherwise legitimate drug distribution channels. 
FDA has likewise seen its counterfeit drug investigations increase to 
over 20 per year since 2000, after averaging only about 5 per year 
through the late 1990s.
    At the same time, worldwide counterfeiting of drugs is believed to 
be more commonplace. The World Health Organization has estimated that 
perhaps seven or eight percent of drugs worldwide are counterfeit, and 
reports from some countries suggest that as much as one-half of those 
countries' drugs are counterfeit.
    FDA's initiative is designed to better identify the risks and 
threats from counterfeit drugs, to coordinate public and private 
efforts to fight drug counterfeiting and distribution, and to develop 
new tools to aid in identifying, deterring and combating 
counterfeiting. Specifically, the FDA task force will:

   Develop a strategic action plan to decrease the risk of 
        counterfeit drugs entering the U.S. marketplace and to protect 
        consumers from potentially harmful effects of using these 
        products.

   Continue to strengthen FDA's collaborative relationships 
        with other Federal agencies, including the Bureau of 
        Immigration and Customs Enforcement (BICE), BCBP, and the U.S. 
        Secret Service in the Department of Homeland Security and 
        entities within the Department of Justice, as well as with 
        health professionals, industry, consumer, and other 
        stakeholders to gather information regarding the best practices 
        for dealing with drug counterfeiting.

   Identify mechanisms for strengthening the Nation's 
        protections against counterfeiting, including such 
        possibilities as developing state model practice acts, best 
        practices for those who sell and distribute prescription drugs, 
        and better education for patients, pharmacies, and others about 
        how to identify counterfeit drugs and alert others to their 
        existence.

   Assess the extent to which new technologies, e.g., 
        counterfeit-resistant packaging, product identifiers such as 
        chemical taggants, and implanted radio-frequency chips in 
        packaging can help assure the authenticity of drugs. Although 
        some of this technology is not currently mature enough to 
        adequately protect the drug supply, it may have great promise 
        as an added counter-measure against counterfeit pharmaceutical 
        products.

    FDA believes the increase and shift in this illicit activity has 
occurred for a number of reasons. These include:

   Better counterfeiting technology, including improved 
        technology to make labeling, packaging and products that appear 
        real.

   Better organized, more effective criminal groups attracted 
        by financial opportunities.

   The use of the Internet as a sales tool by unlicensed 
        pharmacies and/or foreign websites.

   Opportunities for introducing foreign-made counterfeit and 
        unapproved drugs into large and rapidly growing import flows.

   Weak spots in the domestic wholesale drug distribution 
        chain, including some wholesalers who acquire most of their 
        inventory from secondary sources, do not maintain effective due 
        diligence efforts on these sources and ignore warning signs 
        indicative of illegal or unethical behavior.

    The details of what we have cataloged so far in this initiative 
were released in an interim report dated October 2, 2003.
Reporting of Information on Counterfeit Drugs by Manufacturers
    In another move to respond to the increase in counterfeit drug 
cases and to strengthen the Agency's and industry's collaboration in 
those situations where counterfeit drugs are suspected, on April 22, 
2003, the Pharmaceutical Research and Manufacturers of America (PhRMA), 
which represents the country's major research-based pharmaceutical and 
biotechnology companies, announced the adoption of a voluntary program 
to report suspected instances of drug counterfeiting to FDA. The 
information provided by PhRMA members under this program will assist 
FDA in carrying out its responsibilities to protect the safety and 
integrity of the Nation's drug supply. It will enhance the Agency's 
ability to detect quickly and remove counterfeit drugs from the 
marketplace.
    Under this program, PhRMA member companies have agreed to notify 
FDA's OCI within five working days of determining that there is a 
reasonable basis to believe that a product has been counterfeited. The 
program also applies to counterfeits discovered in foreign countries if 
there is clear evidence that the counterfeits are intended for 
distribution in the U.S. Drug manufacturers already conduct their own 
investigations of suspected distribution of counterfeit drugs. This 
formal collaborative agreement will strengthen FDA's ability to assure 
the safety and effectiveness of drugs used by U.S. The reporting 
program went into effect on May 1, 2003 and has already led to some 
useful tips. The two most recent cases of counterfeit prescription 
drugs in which FDA has played a significant role are those involving 
the drugs Procrit and Lipitor.
Procrit
    On May 21, 2003, the U.S. Attorney's Office for the Southern 
District of Florida filed charges against Eddy Gorrin, William Chavez 
and Duviel Gonzalez for unlawful sale and wholesale distribution of 
counterfeit versions of Amgen, Inc.'s, prescription drug Procrit, a 
medication indicated mainly to help cancer, anemia and HIV patients 
increase their red blood cell count.
    Between January and February 2003, Gorrin intentionally engaged in 
the sale of counterfeit versions of Procrit. During that same time 
period, Chavez and Gonzalez also were engaged in unlawful wholesale 
distribution of counterfeit Procrit without a state license. The 
undercover operation and tests conducted by FDA's Forensic Chemistry 
Center revealed that the vials being distributed by all three men 
labelled as ``Procrit'' did not contain any active ingredient for 
Procrit, but instead, contained only bacteria-tainted water. In early 
June 2003 all three defendants plead guilty to criminal charges in the 
Southern District of Florida. Gorrin was sentenced to a 3-year, 1-month 
Federal prison term; Chavez was sentenced to 3 months in prison, and 
Gonzalez was sentenced to 6 months house arrest for their respective 
roles in this counterfeit operation.
Lipitor Investigation
    On May 23, 2003, FDA issued an alert on a counterfeit version of 
Pfizer, Inc.'s, prescription drug, Lipitor. The alert warned health 
care providers and others that three lots of counterfeit Lipitor 
represent a potentially significant risk to consumers. One in five 
people have high cholesterol that may lead to cardiovascular disease, 
such as heart disease and stroke. According to the American Heart 
Association (AHA), every 33 seconds, someone in the U.S. dies from 
cardiovascular disease. (Source: AHA 2002 Heart and Stroke Statistical 
Update) Lipitor is the number one prescribed cholesterol-lowering 
medication, and is currently used by more than 18 million people. 
Lipitor is proven to lower total cholesterol and decrease the risk of 
developing cardiovascular disease. FDA investigators have aggressively 
pursued a variety of leads all along the supply and distribution chain 
in an effort to identify the source of this counterfeit activity and to 
facilitate the recall of any counterfeit products.
    In conjunction with the manufacturer of this product, FDA also 
issued several press releases warning consumers and pharmacists about 
the counterfeit Lipitor and providing guidance to identify of any 
suspect product. For example, FDA published a list of lot numbers to 
identify the counterfeit product. We also urged health care providers 
and patients alike to check the packaging very carefully before using 
this product. Patients who had the product (labeled as ``Repackaged by 
MED-PRO, Inc.'') with the specified lot numbers were told not to 
consume it, and to return the product to their pharmacies. Because of 
the breadth of the distribution of counterfeit products, FDA issued 
several warnings.
    FDA's advice to health care providers and consumers remained the 
same as when the Agency issued its original alert on counterfeit 
Lipitor. They should check the packaging very carefully before using 
Lipitor. Patients who have any of the product with any of the lot 
numbers we identified should not take it, and they should return the 
product to their pharmacies.
    As part of the FDA's ongoing efforts to investigate and respond to 
unscrupulous counterfeiting activities, FDA's OCI is investigating this 
case of counterfeit Lipitor in carrying out its public health mission. 
The investigation is ongoing but it appears that some of the 
counterfeit product originated from overseas.
Other Counterfeit Cases
    Other counterfeit prescription drug cases in which FDA has had a 
central role include:

   Serostim (somatropin (rDNA origin)) for injection--In late 
        2000 and early 2001, FDA became aware of consumer complaints 
        about adverse effects, and a recall was initiated at the 
        distributor level for Serostim, a growth hormone often used to 
        treat AIDS wasting. After further investigation by the 
        manufacturer, Serono, Inc., and FDA, Serono issued press 
        releases regarding the apparent counterfeiting of two lots of 
        the product. In May 2002, Serono became aware that counterfeit 
        Serostim displaying a fake lot number again had been 
        distributed. Laboratory analysis by FDA showed that the product 
        contained no active ingredient, and that the product did not 
        originate from Serono.

   Neupogen (filgrastim) for injection--In the spring of 2001, 
        based on observations by a distributor about the appearance of 
        Neupogen, a colony stimulating factor used mostly in cancer 
        patients, the manufacturer, Amgen Inc., analyzed a suspect lot 
        and determined that the vials contained only saline solution. 
        Amgen issued Dear Health Care Professional letters nationwide 
        informing patients, physicians, pharmacies and wholesalers 
        about the counterfeiting of Neupogen. The counterfeit product 
        was labeled with fake lot numbers and/or wrong expiration 
        dates.

   Epogen (epoetin alfa) for injection--In May 2002, FDA, state 
        regulators and the manufacturer, Amgen Inc., became aware that 
        a potential counterfeit of Epogen was in commerce. Epogen is 
        used to stimulate red blood cell production in cancer and AIDS 
        patients. Amgen analysis indicated that certain vials of a 
        counterfeit product labeled as Epogen contained active 
        ingredient approximately 20 times lower than expected. Further 
        investigation revealed that a major wholesale distributor was 
        holding approximately 1,600 cartons of counterfeit product. 
        Later that month, Amgen warned health care professionals that 
        two additional counterfeit lots of Epogen had been discovered.

   Combivir (lamivudine plus zidovudine) tablets--In the spring 
        of 2002, the manufacturer, GlaxoSmithKline (GSK) received four 
        complaints that bottles containing 60 tablets of Combivir had 
        been replaced with Ziagen tablets. In addition, the firm 
        determined that counterfeit Combivir labels had been placed on 
        authentic bottles of Ziagen tablets, a different GSK product 
        with a label containing a black box warning about the dangers 
        of possible fatal hypersensitive reactions to Ziagen. A black 
        box warning placed at the beginning of an FDA-approved label is 
        the strongest warning to prescribing physicians, health care 
        professionals and consumers, that severe adverse reactions have 
        been experienced from use of the product. Both Combivir and 
        Ziagen can be used as part of a combination regimen to treat 
        HIV infection. The concern in this case was that if an 
        individual were to take the wrong tablet and is sensitive to 
        Ziagen, a potentially life-threatening hypersensitivity 
        reaction could occur. In May 2002 distributors were advised to 
        initiate a recall to their customers.

   Zyprexa (olanzapine) tablets--In the winter and spring of 
        2002, bottles of Zyprexa, an Eli Lilly and Company product, 
        indicated for the treatment of schizophrenia and acute bipolar 
        mania, had been emptied and replaced with white tablets labeled 
        as aspirin. The tampering situations occurred in two strengths 
        and in three different lots. In May 2002 Lilly issued a press 
        release and Dear Health Care Professional letter concerning the 
        tampering situation.
FDA Import Enforcement Efforts
    FDA has conducted numerous investigations and enforcement 
activities of imported products. The Agency has taken action when it 
believes imported products, including prescription drugs, pose a 
significant public health risk. FDA takes regulatory action in the 
import arena, which covers a wide range of products including foods, 
drugs, medical devices, human and animal drugs and biological products. 
If a situation appears to involve criminal activity, FDA's ORA has the 
option of referring the information to the Agency's OCI.
    FDA has a number of enforcement tools that can be used to regulate 
imported products. These include: (1) ``warning letters,'' (2) recalls, 
(3) seizures, (4) injunctions, or (5) prosecution. FDA may issue a 
``warning letter'' in a number of scenarios including when: (1) a party 
fails to hold its entry intact before FDA releases it, (2) a party 
consistently imports in violation of the FD&C Act, or (3) an importer 
presents misleading information, or (4) FDA informs an importer that 
the Agency has requested that BCBP deny immediate delivery privileges.
    FDA also may ask a firm to voluntarily recall an imported product 
if FDA deems it a potential health hazard or if there is some evidence 
of distribution of detained or refused merchandise. FDA may opt to 
seize a product if it: (1) represents a health hazard and has been or 
is likely to be distributed following detention or refusal, (2) has 
been previously refused, or (3) has been identified fraudulently in 
documents submitted to FDA.
    Injunction may become the action of choice when FDA sees a pattern 
of violations with some recognizable danger of reoccurrence. This is a 
judicial action that may result in quicker corrective action than a 
prosecution, and, if successful, it legally enjoins the defendants from 
continuing to violate the law. Prosecution may be used when 
conventional import enforcement approaches are determined inadequate to 
correct violations or the violation is sufficiently egregious to 
warrant punishment. Prosecution may be warranted when there is: (1) 
continued illegal distribution after receipt of a notification of 
detention, (2) submission of false or misleading entry documents, (3) 
repeated entry of previously refused products, or (4) evidence of 
fraud.
    None of the potential actions described above are mutually 
exclusive. In some cases, FDA may take complementary steps that involve 
a combination of these actions in order to protect the public health 
from drugs that violate the FD&C Act. Evidence of this type of mix of 
regulatory actions can be seen in FDA's ongoing work on counterfeit 
Lipitor.
    Many imported prescription drugs that are arriving at mail 
facilities are ordered over the Internet. FDA has increased its 
capability to monitor the Internet and identify sites that potentially 
violate the FD&C Act, through the use of various search tools and by 
upgrading its data handling capabilities. In some cases the Agency will 
conduct exercises to better understand the products that are coming in 
through specific ports-of-entry. As discussed above, the Agency is 
conducting import exercises to help the Agency to better understand the 
type and extent of unlawful conduct on the Internet and to more 
accurately assess whether its enforcement efforts have had an impact on 
illegal behavior. However, due to the ever increasing volume of 
imported drugs and multiple competing enforcement priorities, the 
Agency is working on focusing its resources more efficiently.
Improvements to FDA's Import Compliance Program
    FDA is re-evaluating, refining, and improving the programs and 
procedures that it is using to ensure the availability of safe and 
effective drugs to U.S. consumers. As part of our efforts to improve 
the programs and procedures that are used to ensure the availability of 
safe and effective drugs to U.S. consumers, FDA is considering several 
concepts that will improve the Agency's ability to target resources 
applied to regulation of imported drug products. As with all of FDA's 
activities, priorities are established based on benefit/risk to public 
health. In terms of prioritizing the Agency's domestic and import 
compliance workload, products that present a direct health hazard to 
the user are FDA's highest priority. Such products include those that 
have a reasonable potential for causing direct serious adverse effects, 
or where there is documentation of injury or death. Examples of such 
products include counterfeit Procrit and counterfeit Serostim. Products 
that are not themselves hazardous can still present an indirect health 
hazard in that the consumer may delay or forgo proven medical treatment 
and the use of approved therapies. These are also a top priority for 
the Agency. Examples include unapproved products that are promoted for 
the treatment of cancer, Alzheimer's disease, arthritis, heart disease, 
high cholesterol and high blood pressure.
ORA Enforcement Successes
AstraZeneca
    On June 20, 2003, officials from FDA's OCI joined with 
representatives of the U.S. Attorney's Office for the District of 
Delaware, the Department of Health and Human Services (DHHS), and the 
Defense Criminal Investigative Service (DCIS) to announce that 
AstraZeneca Pharmaceuticals LP had pleaded guilty to a large-scale 
health care crime. The firm agreed to pay $355 million to resolve the 
associated criminal charges and civil liabilities. The massive 
conspiracy involved illegitimate pricing and marketing of Zoladex, an 
AstraZeneca drug for the treatment of prostate cancer. The various 
schemes used by the firm caused multimillion-dollar losses to Federally 
and state-funded insurance programs and individual patients.
    FDA's OCI began investigating AstraZeneca's pricing and marketing 
practices after a private individual filed a civil False Claims Act 
suit. The broadly-based investigation, which also involved the Office 
of the Inspector General for the DHHS, the DCIS and the Federal Bureau 
of Investigation, discovered that AstraZeneca employees were using 
several illegal methods to stimulate the demand for Zoladex by enabling 
prescribers to reap illicit profits.
    The agreement included the following provisions:

    AstraZeneca pleaded guilty to criminal conspiracy to violate the 
Prescription Drug Marketing Act by causing Medicare, Medicaid and other 
Federal providers to be overcharged for Zoladex that had been provided 
as free samples to urologists. As part of the plea agreement, the 
company agreed to pay a $63,872,156 criminal fine.

   AstraZeneca also agreed to settle its civil liabilities and 
        to resolve allegations that its fraudulent drug pricing 
        schemes, and sales and marketing misconduct had caused false 
        and fraudulent claims to be filed with Federal and state health 
        care programs.

   AstraZeneca agreed to payments of $266,127,844 to the U.S. 
        Government for claims filed with the Medicare, TriCare, 
        Department of Defense and Railroad Retirement Board Medicare 
        programs, and $24,900,000 to the U.S. and state governments for 
        claims involving state Medicaid programs.

    The investigation, which is continuing, also resulted in charges 
against three physicians for conspiring with AstraZeneca to bill 
patients and third party payers for free Zoladex samples. Two of the 
prescribers have pleaded guilty.
Procrit
    As previously stated, on May 21, 2003, the U.S. Attorney's Office 
for the Southern District of Florida filed charges against Eddy Gorrin, 
William Chavez and Duviel Gonzalez for unlawful sale and wholesale 
distribution of counterfeit versions of the prescription drug Procrit. 
In early June 2003, all three defendants plead guilty to criminal 
charges in the Southern District of Florida. Subsequently, the 
defendants received sentences of 3 years, 1 month in prison; 3 months 
in prison; and 6 months' house arrest, respectively.
Lipitor
    As described in detail above, FDA's ORA is conducting a significant 
investigation to respond to unscrupulous counterfeiting activities 
involving Lipitor. FDA is conducting this activity in close cooperation 
with health professionals, particularly pharmacists and pharmacy 
associations and has issued statements to alert the public about this 
counterfeit product.
Kwikmed
    On October 1, 2002, a Federal Grand Jury in Arizona returned a 198 
count indictment against Kwikmed, Inc., Cymedic Health Group, Inc., 
four owners of these corporations, and two physicians associated with 
the corporations. The indictment alleges that defendants operated 
Internet websites, two of which include kwikmed.com and cymedic.com, 
through which they sold prescription drugs, including Viagra, Celebrex, 
Xenial, and Propecia. The websites did not require a consumer to have a 
prescription before receiving the drugs. Instead, the customers were 
required to complete a questionnaire, which the website told customers 
would be reviewed by a physician.
    Customers were charged a fee for this purported medical 
consultation. The indictment alleges that in the overwhelming majority 
of applications, no medical reviews, consultations, or physical 
examinations by a physician took place before drugs were shipped to 
customers. Defendants repackaged drugs obtained from a drug wholesaler, 
even though defendants were not a registered manufacturer or a licensed 
pharmacy and there was never a licensed pharmacist involved. The drugs 
dispensed were adulterated because of the defendants' failure to follow 
cGMP in packaging, holding, and labeling of the drugs.
    The indictment alleges that during the course of the conspiracy the 
defendants and others generated sales in excess of $28 million, which 
was billed to consumers as charges for prescription drugs, doctor 
consultations, and shipping. These sales resulted from the defendants' 
distribution of at least 48,816 new orders for prescription drugs and 
41,817 refills of those orders. The indictment charges defendants with 
several violations of the FD&C Act, as well as conspiracy, mail fraud, 
and money laundering. The charges were the result of an investigation 
by FDA and the U.S. Postal Inspection Service. In October 2003, one of 
the physicians entered a guilty plea. Legal proceedings against the 
other defendants are ongoing.
Norfolk Men's Clinic
    On February 16, 2002, a Federal jury in Alabama convicted Anton 
Pusztai and Anita Yates of charges arising out of the operation of an 
online pharmacy that illegally sold prescription drugs over the 
Internet to consumers. On June 18, Pusztai and Yates were sentenced 
respectively to more than 15 and 6.5 years. Pusztai, an Australian 
citizen, and Yates, a resident of Clanton, Alabama, were convicted of 
conspiracy to commit violations of the FD&C Act, conspiracy to commit 
money laundering, mail fraud, dispensing misbranded drugs, and 
operating a drug repackaging facility not registered with FDA. From 
fall 1998 to the summer of 2000, the defendants operated a website 
called Viagra.au.com, also known as Norfolk Men's Clinic, and related 
sites, that sold a variety of prescription medications.
    In September 1999, OCI received information regarding the Norfolk 
Men's Clinic and the website. Based on this information, several covert 
purchases were made via the Internet. Search warrants were executed in 
October 1999 that resulted in the seizure of prescription drugs and 
business records. Based on these purchases and information gathered 
through numerous interviews, several individuals were indicted. In 
addition to defendants Pusztai and Yates, the president of a 
prescription drug wholesaler located in Miami, Florida, plead guilty to 
five misdemeanor counts of dispensing drugs without a valid 
prescription (21 USC 331[k]). The company also plead guilty to 
obstruction of justice. In conjunction with the indictment, a second 
search warrant was executed in Clanton, Alabama, along with two search 
warrants in West Virginia. While most of the drugs sold in this 
operation were domestic product, some appeared to have been 
manufactured in New Zealand for distribution in Australia.
Medications Express
    On June 7, 2001, Gerald Bevins was convicted in U.S. District Court 
for the Southern District of California of conspiracy to defraud the 
U.S. and commit offenses against the U.S. by introducing misbranded 
drugs into interstate commerce and smuggling. On September 4, 2001, 
Bevins was sentenced to 2 years in prison. The case was initiated on 
information received from BCBP concerning an Internet website called 
Medications Express. Bevins sold Mexican prescription pharmaceuticals 
from this website and claimed that a doctor's prescription was not 
necessary. He continued to sell Mexican prescription pharmaceuticals 
through the mail from Sun City, California, even after discontinuing 
the Medications Express website. Bevins, his wife and daughter would 
receive orders via mail, travel to Tijuana, Mexico, to purchase the 
pharmaceuticals, and smuggle them back into the U.S. The three packaged 
the pharmaceuticals into commercial courier boxes and shipped them to 
customers around the U.S. The drugs supplied by Bevins were labeled in 
Spanish.
Dagoberto Paz-Tamez diet drug case
    This case involved the sale of unlabeled/adulterated diet drugs in 
Pasadena, Texas by an alleged medical doctor from Mexico. The alleged 
doctor, Dagoberto Paz-Tamez, is not licensed to practice medicine in 
the state of Texas or anywhere else within the U.S. This case was 
assembled in conjunction with the Harris County Precinct 6 Constable's 
Office, the Texas Department of Public Safety (DPS), and the U.S. 
Postal Inspection Service.
    Investigation revealed that Paz-Tamez had been selling unlabeled 
diet pills to patients for several years in the Pasadena, Texas area. A 
sample of the diet pills was submitted to the Harris County Precinct 6 
Constable's Office by a confidential informant. These samples were 
later submitted to FDA's Forensic Chemistry Center and were found to 
contain amphetamines and other dangerous substances.
    On August 22, 2002, Paz-Tamez was arrested in Pasadena, Texas. Law 
enforcement officials seized diet drugs and U.S. currency consisting of 
the following: $10,236 in U.S. currency, 4,350 tablets, 30,488 gelatin 
capsules, and 44.5 pounds total weight of unlabeled diet drugs. The 
diet pills and tablets seized were found to contain mazindol (an 
amphetamine discontinued in the U.S.), diethylpropion (an amphetamine), 
diazepam (generic for Valium), and hydrochlorothiazide (a diuretic).
    On March 16, 2002, Paz-Tamez was convicted of Possession of a 
Controlled Substance and Delivery of a Dangerous Drug. He was later 
sentenced to ten years of deferred probation.
Conclusion
    The standards for drug review and approval in the U.S. are the best 
in the world, and the safety of our drug supply mirrors these high 
standards. The employees of FDA constantly strive to maintain these 
high standards. However, a growing number of Americans are obtaining 
prescription medications from foreign sources. U.S. consumers often 
seek out Canadian suppliers, sources that purport to be Canadian, or 
other foreign sources that they believe to be reliable. While some 
foreign drug manufacturers submit their products to FDA for approval, 
the imported drugs arriving through the mail, through private express 
couriers, or by passengers arriving at ports of entry are often 
unapproved new drugs that may not be subject to any reliable regulatory 
oversight. FDA cannot assure the safety of drugs purchased from such 
sources.
    The vigilance of FDA and BCBP inspectors is an important tool in 
detecting imported products that violate the FD&C Act. Given the 
available resources and competing priorities facing these agencies, 
however, experience shows that inspectors are unable to visually 
examine many of the parcels containing prescription drug products that 
arrive through the mail and private courier services each day. Many of 
the packages that the Agency is able to examine appear to contain 
foreign versions of U.S.-approved products. The growing volume of 
unapproved imported drugs, which often are generated from sales via the 
Internet, presents a formidable enforcement challenge.
    The Agency has responded to the challenge of importation by 
employing a risk-based enforcement strategy to target our existing 
enforcement resources effectively in the face of multiple priorities, 
including homeland security, food safety and counterfeit drugs. As an 
example, the Agency utilizes Import Alerts to identify particular 
shipments that may pose significant potential risk to public health, 
e.g., drugs that require careful risk management and products from 
shippers known to present significant safety problems. However, this 
system is already overwhelmed by the number of incoming mail packages 
that must be evaluated and this state of affairs presents a significant 
ongoing challenge for the Agency. In sum, at this time the Agency 
cannot assure the American public that drugs purchased from foreign 
sources are the same as products approved by FDA, or that they are safe 
and effective.
    FDA firmly believes that we can and should do a much better job of 
making safe and innovative drugs more affordable in the United States, 
but to succeed we need to find safe and affordable solutions that, when 
implemented, do not put consumers at risk. We appreciate and support 
the commitment to making drugs more affordable for seniors and other 
consumers and are working hard to achieve this goal. However, the 
Agency continues to believe that we must focus on solutions that do not 
put at risk safety in an effort to achieve increased affordability.

    The Chairman. Thank you, sir.
    I think it might be important to enter in the record a 
Congressional resource memorandum that was given to Congressman 
Gutknecht, which is very interesting. It says, ``This 
memorandum is in response to your request regarding statutory 
language that expressly limits the reimportation of products to 
the manufacturer of the product, as is the case with respect to 
pharmaceutical importation.'' They go on to say, ``We've been 
unable to locate any statutory provisions similar in language 
and structure to the one in the Food, Drug, and Cosmetic Act.'' 
In other words, anything else can be reimported--chemicals, 
pollutants, munitions--anything else, except for drugs. And 
it's remarkable testimony to the power of the pharmaceutical 
industry in the legislative body.
    Governor, your Minnesota plan, now, has it been adopted by 
the legislature?
    Governor Pawlenty. Mr. Chairman, we don't believe we need 
legislative authority for it. We're pursuing it 
administratively, and we believe we can implement it without 
legislative approval.
    The Chairman. If you went to the legislature, could you get 
it?
    Governor Pawlenty. I believe so, yes.
    The Chairman. Let me suggest that you do, just so that you 
get that stamp of approval. What do you see as an impediment to 
the implementation? What do you foresee roadblocks are going to 
be in your way here?
    Governor Pawlenty. Mr. Chairman, it's mostly the 
allegations from the pharmaceutical industry, and, candidly, 
from the FDA, that this could raise safety concerns. And my 
first response to that is, show me the dead Canadians. You 
know, where are the dead Canadians? And we're not talking about 
rogue Internet sites in Malaysia or, you know, some third-world 
country. We're talking about established, credible, reputable, 
accredited pharmacies that we have identified.
    The Chairman. Do you think legal action will be taken to 
try to prevent you from implementing this plan?
    Governor Pawlenty. We hope not. Candidly, we've gotten some 
mixed signals. In a Boston newspaper, an FDA official was 
reported as saying they would unlikely go after a state or a 
government entity that tried an approach like ours. But, more 
recently, their comments have been more ambiguous, and they 
have said they are reserving their options. Now, if they sue 
me, I'm willing to be sued. If they want to throw me in prison, 
that's something I at least have to give some pause to.
    [Laughter.]
    Governor Pawlenty. And I'm hopeful that--it might not deter 
us, but I at least need to think about that. So I'd like to get 
some signals from them before they prosecute me.
    The Chairman. Well, Governor, given the threat that this 
really poses to the pharmaceutical industry, if I were you I'd 
be prepared for most anything, and that's why I suggest that 
you go to the legislature. These people will stop at nothing. 
Because if this works in Minnesota, it's going to work in every 
northern state, and sooner or later it's going to work in every 
other state. So stand by, sir, because I wouldn't be surprised 
at whatever they would do, including what's already been rolled 
out, and that is, of course, the needless deaths of so many 
citizens.
    Governor Pawlenty. I appreciate it. Mr. Chair, could I add 
one other quick thing?
    The Chairman. Sure.
    Governor Pawlenty. You've visited our Veterans Hospital in 
Minneapolis--and thank you for your leadership on that issue, 
as well--but at the Veterans Hospital in Minneapolis, it's 
federally regulated, federally funded, federally administered. 
They have a pharmacy there. Guess what? They mail out lots of 
prescriptions every day. And if you assume the pharmacies that 
we would contract with and identify in Canada are credible, we 
know--we already have in place the distribution mechanisms, 
because our Vets Hospital does it. So do lots of other 
approved, established pharmacies in Minnesota and elsewhere. It 
can be done, Mr. Chair. We're just asking for a chance to try.
    The Chairman. I have visited that facility. And another 
point about the pharmacy there, the drugs that they acquire are 
much less expensive than drugs that are acquired outside of the 
VA or DOD because they bargain the prices.
    Governor Pawlenty. Thank you, Mr. Chair.
    The Chairman. Thank you.
    Senator Dorgan?
    Senator Dorgan. Mr. Chairman, thank you very much.
    First of all, Governor Pawlenty, thank you for a refreshing 
approach to this issue. I have written you a letter, about 2 
weeks ago, actually a joint letter to you and the Governor of 
North Dakota, suggesting that we create an alliance and that 
both states move together on this. I think what you're doing is 
innovative and interesting, and I encourage you and am pleased 
that you're here to present testimony today.
    Mr. Taylor, I know that you are here on behalf of 
Commissioner McClellan, and I deeply regret that he is not 
here. I don't know the reason for that. But I must tell you 
that your testimony is extraordinarily disappointing to me. The 
behavior and the actions of the FDA have been very 
disappointing to me. They are not in the character, in my 
judgment, of an agency that is really interested in the safety 
and well-being of the American people. They seem almost too 
anxious to find a way not to help the American people on this 
issue of pricing.
    And I want to ask you a question. Do you know anything 
about meat inspection, Mr. Taylor?
    Mr. Taylor. A little bit, sir.
    Senator Dorgan. Do you know how we handle meat inspection 
with Canada?
    Mr. Taylor. My understand is that USDA actually has people 
stationed overseas and help----
    Senator Dorgan. I'm talking about Canada.
    Mr. Taylor. I mean, or Canada or----
    Senator Dorgan. There's no body of water in North Dakota.
    Mr. Taylor. In other countries. And they help ensure that 
before the product is imported, that the product meets 
standards here in the United States.
    Senator Dorgan. You know what we do? Let me tell you what 
we do, because if you were at Pemina, North Dakota, today at 
the border, you'd discover that there's a truckload of meat 
that comes from Canada into our marketplace. That meat has been 
inspected by the Canadians in a Canadian meat plant, and we say 
that we will allow reciprocal treatment with respect to 
inspections. We accept their inspections, and they accept our 
inspections as having represented the issue of safety for both 
people. And so we have decided that reciprocal treatment across 
the border with respect, for example, to inspecting meat--and 
so that meat comes across in a truck, we say, ``Inspected in a 
Canadian plant? Good enough for us,'' because we've taken a 
look at that.
    OK. So if that's the question with respect to meat, you're 
saying that drugs are different. And so let me ask this 
question. A pharmacist from Grand Forks, North Dakota, licensed 
by our state, studied in pharmacy, running a drugstore and 
practicing pharmacy in Grand Forks, goes to Winnipeg, Manitoba, 
and goes to a pharmacist in Winnipeg, Manitoba, licensed by 
that country, which I think you will admit has a nearly 
identical chain of supply and custody for their drugs. Would 
you tell me that in that circumstance there is any danger at 
all to the consumers in this country, when that Grand Forks, 
North Dakota, pharmacist acquires that Tamoxifen at the 
Winnipeg pharmacist and brings it back and passes the savings 
along to the consumers? Describe to me the danger to the 
consumer in that transaction.
    Mr. Taylor. Sure. And let me take a step back. We think 
that the--we think that the Canadian regulatory system is a 
good one, and we are by no means suggesting that Canadian drugs 
are not bad. The problem, though, is that the Canadian system, 
like the U.S. system, is essentially designed to afford 
protection to its citizens. And so the potential harm here--and 
the Canadian authorities have said this--is that their 
authorities are not really set up to ensure that products that 
are exported from Canada to the United States are safe and 
effective. And so there's a little bit of a regulatory gap 
between the Canadian regulatory system and the U.S. regulatory 
system. So when we are talking about our concern regarding 
products that are imported to the United States, it's because 
those products are being imported outside the U.S. regulatory 
system, and they also are being exported outside the Canadian 
regulatory system, which allows this gap and the potential for 
abuse and the introduction of products of unknown origin or 
quality.
    Senator Dorgan. Mr. Taylor----
    Mr. Taylor. So that's the concern.
    Senator Dorgan. Mr. Taylor, that is just not true. It's 
just--I mean, you can say it, but it is just not true that--if, 
in the circumstance that a U.S. pharmacist, who is licensed, or 
a U.S. distributor, licensed, accesses a supply of prescription 
drugs from a licensed pharmacist or distributor from Canada, it 
is not true that somehow that is outside of the established 
regulatory framework. You can say it, but it is not true.
    Mr. Taylor. With all due respect, Senator, it is true. 
Because at the end of the day, that--that example does not 
necessarily get to the quality or origin of the product that is 
being discussed and being passed between the two pharmacists. 
That is one of the potential risks. And we have tangible 
examples of that.
    Senator Dorgan. Mr. Taylor----
    Mr. Taylor. Yes.
    Senator Dorgan.--Vioxx. If you are a licensed pharmacist in 
this country and you drive to Canada today to buy Vioxx from a 
licensed pharmacist in Canada, and you pay not the $2.20 a 
tablet that you would pay as a U.S. consumer, but $.78 a 
tablet, because the same drug in the same bottle made by the 
same FDA-approved company is marketed in Canada for less than a 
third, there is no circumstance under which that is leaving the 
regulatory framework of the U.S. and Canada. The person that 
sold it to you in Canada is licensed and part of the chain of 
custody. And you, as a licensed pharmacist in this country, are 
part of the chain of custody. You're simply wrong when you say 
that somehow this is outside of the regulatory framework.
    Mr. Taylor. Sir, as I noted in my written testimony, there 
are certainly circumstances where an overseas manufacturing 
facility will manufacture a product for the American market, 
but they will also manufacture a product for other markets. For 
example, they might manufacture a product for Asian, Canadian, 
European market. In some cases, those products are very 
identical, but they do not have to undergo the same 
requirements as a product that is introduced here in the United 
States. So there still is a difference in those two products, 
albeit in some cases smaller than if the product was completely 
unapproved and had not undergone any type of testing for safety 
or efficacy.
    Senator Dorgan. Mr. Taylor, you know, look, I'm not trying 
to browbeat you here, but it is just too labored for you to get 
to that point and then find out you're wrong. I mean, you say 
``very identical.'' It's either identical or it isn't. And the 
fact is, Lipitor, which is sent to this country and to Canada 
from Ireland, and I assume produced in Ireland as a result of 
materials that are gathered from Asia and other parts of the 
world, producing a pill in Ireland, put in this bottle, and 
sent in identical form to a pharmacist in Canada and the U.S., 
the only thing that is not identical is the price. The U.S. 
consumer pays triple. And the Governor says that there is a way 
to access that supply without at all injuring his constituents, 
because it would still be within the chain of custody, 
especially with respect to pharmacists and licensed 
distributors.
    But let me make one other point, if I might. Mr. Taylor, 
you've heard testimony today that we have one-million-plus 
people who go across to Canada to buy those prescription drugs. 
Lewis Lubka is going to testify. Lewis is right over there. 
Lewis, would you wave? Lewis actually went to Canada with me to 
the one-room pharmacy in Emerson, Canada, and bought some 
prescription drugs. He knows what he bought. He bought the 
identical drug in the identical container made by the same 
company with exactly the same safety standards.
    Now, can you cite one instance--not a bunch--one instance 
in which a U.S. consumer has been harmed by accessing a 
prescription drug from Canada?
    Mr. Taylor. I do not have--I do not have any reports of 
death. However, based on the information, the blitzes that 
we've done, and the information that we've seen from products 
coming from Canada--for example, as part of our blitzes this 
summer, we noticed controlled substances coming from Canada, 
which are, per se, potentially harmful, we noticed products 
that did not have the requisite labeling, which is potentially 
harmful, we certainly know that there is a potential for harm 
that could befall some citizens who are----
    Senator Dorgan. Well----
    Mr. Taylor. And, if I may, Senator, going back to your 
Lipitor example--and you might not find this compelling, but 
it's illustrative of our concerns--in the context of Lipitor, 
this summer we had one of the biggest drug recalls ever in 
regards to a counterfeit product, and it involved Lipitor. One 
of the challenges for the FDA, and one of the challenges in 
terms of educating consumers, is that many of the bottles 
contained FDA-approved Lipitor for--Lipitor that was 
manufactured and approved for foreign countries, as well as 
purely counterfeit Lipitor. One of the difficulties that we had 
in protecting the public health was getting out a public-health 
message that explained to consumers why they need to be 
careful. And the reason that was so difficult was, when we did 
the testing there was very little difference, at times, between 
the foreign version, the FDA- approved version, and the 
counterfeit version. But that difference was enough so that it 
could negatively impact the benefits that patients were 
deriving.
    And so I'm just saying that that's a situation where 
ostensibly it looks somewhat innocuous, but, in this case, the 
counterfeiters used and introduced FDA-approved product, 
foreign-version product, and counterfeit product in the same 
bottles, which had a confounding effect. And so those are some 
of the situations that are of concern to us.
    Senator Dorgan. Mr. Taylor, I might just conclude by saying 
that that's not exclusive to prescription drugs. That could be 
Similac, baby food, couldn't it?
    Mr. Taylor. You're absolutely correct.
    Senator Dorgan. I've seen two cans of baby food--one 
counterfeit, one not.
    Mr. Taylor. You're absolutely correct.
    Senator Dorgan. So why don't we have a law banning the 
reimportation of baby food? I can think of a thousand items 
that we might want to do this to we start down that road.
    Our point is this. A piece of legislation that is 
protective of the interests, with respect to safety, and 
against counterfeiting, that allows a chain of custody in 
Canada to represent a connection to the chain of custody in 
this country, and, therefore, afford American consumers lower 
prices for prescription drugs, is something that I would hope 
the FDA would find a way to help us implement, instead of going 
out of his way--Mr. McClellan goes out of his way to see if he 
can't find a way to stop this stuff. It's almost as if he 
represents the prescription drug industry rather than has some 
interest in American consumers. I regret he's not here today, 
because I think he is creating a terrible record on behalf of 
the FDA.
    I don't mean to--you're here, I know, at his request, and 
your job is to represent what the FDA's current views are, 
according to Mr. McClellan.
    One final point. You know that the FDA even communicated 
with an insurance company in North Dakota to say, ``We demand 
that you not cover prescription drugs, even if you have a 
prescription drug piece in your insurance policy. We demand 
that you not cover it if they get it from Canada.'' I mean, 
that's the sort of nonsense that's going on with the FDA, and I 
regret it.
    Mr. Taylor. Sir, can I--and in regards to the insurance 
company, I remember your exchange with Dr. McClellan on that at 
the appropriations----
    Senator Dorgan. I was no happier that day, was I?
    [Laughter.]
    Mr. Taylor. No, sir, you were not. We, indeed, are going to 
address that concern, and then we are going to send you a 
letter by the end of the day. And what the letter is going to 
state is that for insurance companies that are merely 
reimbursing, it's not a concern for us.
    Senator Dorgan. But that exchange took place, I think, 
probably 8 months ago.
    Mr. Taylor. Fair point.
    The Chairman. Senator Snowe?
    Senator Snowe. I think I want to yield to Senator Wyden.
    The Chairman. Senator Wyden?
    Senator Wyden. I want to thank you my colleague, and I'll 
be real brief.
    I just have one question, Mr. Taylor. Dr. McClellan has 
been quoted in the financial press several times in the last 
couple of months, the last 60 days, talking about how the 
agency is going to put a new focus on trying to make medicine 
more affordable. And the interviews essentially say, ``Look, 
our obligation is safety and efficacy, but we also have a new 
focus on affordability.'' I cannot, however, find any 
initiatives that actually translate into something specific 
that the agency is doing to make medicine more affordable, and 
I wanted to give you a chance, on the record, to tell us what 
the agency specifically is doing to make medicine more 
affordable.
    Mr. Taylor. Sure. I will take a shot at it. As I stated in 
my oral testimony, one of our main focuses is to ensure that 
there is greater access to generic drugs, both in terms of the 
work with the Hill and the work on our own. We want to make 
sure that there is less legislation in regards to the 
introduction of generics so that more generics get on the 
market faster, and so people have greater access to it. We want 
to do more outreach and education of the American public 
regarding the benefits of generics.
    One of the things that's been discussed today was 
Tamoxifen. Well, the generic version of Tamoxifen was 
introduced in February of this year, and actually only cost 
$47, which is even cheaper--which is cheaper than any branded 
version either in Canada or the United States.
    We're also taking steps as part of--we have what is called 
a--it's called the Good Manufacturing Practice Initiative. What 
it really is, is an initiative to look at innovations in 
manufacturing to try and find a way to help industry reduce 
manufacturing costs without easing up on the oversight, the 
regulatory oversight, that we currently maintain over industry.
    We're also trying to improve our education outreach, in 
terms of making sure that--whether it be generic sponsors or 
sponsors of innovator products--that they have a better 
understanding of the agency's expectations in regards to the 
approval process--once again, to ensure that there are fewer 
delays that, again, will lead to more products being available 
to Americans.
    So I think those are some of the initiatives that form the 
basis of his statement.
    Senator Wyden. I'd like to hold the record open on this 
point, because, again, you know, it seems to me what the agency 
has always said is that they're going to try to delay red tape 
and bureaucracy, in terms of getting drugs out. I think that's 
good, but that hasn't translated into making medicine more 
affordable. And I can't see anything, other than these sort of 
outreach programs, and I was going--when I was director of the 
Gray Panthers, I was going to FDA outreach programs to tell 
people about medicine.
    And I don't want to take Senator Snowe's time, but I'd like 
to hold the record open and have you tell us exactly what these 
new initiatives are to make medicine more affordable that is 
being pursued at the agency.
    Senator Wyden. Because I will tell you, I cannot find 
anything specific that really is different.
    Thank you, Mr. Chairman.
    The Chairman. Senator Snowe?
    Senator Snowe. Thank you, Mr. Chairman.
    Governor Pawlenty, I want to commend you for your assertive 
and bold leadership. The people in Minnesota are being well 
served. And it's just regrettable that we haven't reached a 
point here in the Congress and with FDA to remove those hurdles 
and obstacles to give you a clear path toward doing what you 
need to do on behalf of the citizens of Minnesota.
    And, Mr. Taylor, I would like to ask you a particular 
question about what is preventing the FDA from seeking to ``do 
no harm'' when it comes to helping consumers? Because the point 
here is the safety certification under current law, and that is 
what's preventing us from implementing, because the Secretary 
of Health and Human Services has not implemented, hasn't made 
the safety certification a requirement under law. So it is that 
you need a new law without those safety certification 
requirements? Are there things that you could do now to assist 
in this process, like listing, you know, licensed websites of 
pharmacies, establishing a pedigree, because it would get to 
the point that you raised earlier about some of the problems in 
tracking medications coming across the border? That obviously 
would help. We obviously have FDA-approved labs in Canada. We 
have not discerned any problems with those medications, because 
they've been certified through the FDA-approved standards. They 
have the comparable safety requirements.
    So what is the issue here? Is it because we don't have the 
right law in place at this point to remove the safety 
certification, which we had hoped that Senator Dorgan's 
legislation would accomplish--what is it that will help you to 
do your job now?
    Mr. Taylor. Well, Senator, I--for the agency, I mean, our 
overarching concern is that the legislative proposals that have 
been brought to us so far, we feel, create loops in the FDA 
safety net and the states' safety net, and we have not--in 
light of the increasing number of products coming overseas, we 
just think that that is problematic, from a public-health 
standpoint.
    As I noted earlier, it's also in stark contrast to the 
situation that we're involved with in food, which is where we 
are actually taking steps to strengthen our ability to protect 
the food supply.
    So our overarching concern is that, so far, the proposals 
that have been forth are proposals that actually undermine a 
system. And, you know, I, right now, have people--I will 
acknowledge that my investigators are overwhelmed. I mean, 
you'll hear that there are various estimates as to the number 
of packages that are coming overseas. In some cases, it's as 
little as two million; in some cases, five, ten, or 20. But it 
doesn't really matter, the number, because we are completely 
overwhelmed. And even if, in the legislation, you set up a 
system that, you know, purports to introduce a product that is 
introduced in accordance with certain provisions of the Act, at 
the end of the day, we're the ones--my people are the ones who 
are going to have to make sure that those products do no harm 
to the American consumer. So our----
    Senator Snowe. What we've heard so far, according to 
William Hubbard, Senior Associate Commissioner of the FDA, in 
his testimony last June before a House Subcommittee is that 
there is no evidence that any Americans died from taking a 
legal drug from another country. While, at the same time, 
according to data tracked by the National Institutes of Health, 
it is reported that 5,000 Americans die year of foodborne 
illnesses, food imported from other countries that are 
monitored and inspected by the FDA. So I'm confused. I think 
we've got a problem. We want a solution.
    Mr. Taylor. Sure.
    Senator Snowe. Now, I'm not hearing any solutions from the 
FDA. You've had plenty of opportunities to develop solutions. 
OK? For example, in the pedigrees. That was mandated for 
prescriptions back in 1992 by Congress.
    Mr. Taylor. That's correct.
    Senator Snowe. I mean, that would take care of that 
problem, because you could easily monitor and track any 
medications coming across the border. Now, the FDA Commissioner 
acknowledged there's little risk in walking into a licensed 
Canadian pharmacy and filling a prescription.
    So what is the issue here that we need to solve 
immediately? We're not talking about something down the road 10 
years. It's already been 10 years since the pedigree tracking. 
What can we do right now, rather than threatening consumers? 
Why aren't we trying to solve the problem?
    Mr. Taylor. The problem, Senator--you just read the 
Commissioner's statement--it's as I described earlier. We think 
that the Canadian system obviously is a strong system that 
ensures that its citizens get safe and effective products. 
However, the Canadian government does not assure that the 
products that are coming to the United States are safe and 
effective. And so there's a gap between----
    Senator Snowe. But couldn't you not do it? I mean, 
seriously.
    Mr. Taylor. We currently----
    Senator Snowe. OK----
    Mr. Taylor. We currently----
    Senator Snowe.--let's go through a list of suggestions. 
Publish lists of licensed pharmacies and associated websites. 
Could you not do that now?
    Mr. Taylor. No, we can--I mean, no, we cannot--I mean, 
right now----
    Senator Snowe. Could you do that right now to help Governor 
Pawlenty in his job? I mean, could you do that?
    Mr. Taylor. List----
    Senator Snowe. What is difficult about doing that?
    Mr. Taylor. List pharmacies that--no.
    Senator Snowe. List pharmacies. You couldn't do that?
    Mr. Taylor. Well, to the extent that we have taken action 
against pharmacies or against manufacturers, we do post that on 
our website so that the American consumers can know what 
products to stay away from and what websites to stay away from.
    Senator Snowe. How about enforcing the requirement for all 
drug pedigree sales?
    Mr. Taylor. Right now, the pedigree----
    Senator Snowe. Could you do that?
    Mr. Taylor.--the pedigree requirement has been stayed, 
Senator. And what we did is, we sent a report to our house 
Appropriations Committee explaining the reason why it's been 
stayed and asking for their advice on that issue.
    Senator Snowe. What about require counterfeit-resistant 
packaging? How difficult is that? We do that with foreign 
currency and numerous other instances, so what is the 
difficulty there?
    Mr. Taylor. We currently, as part of our counterfeit 
initiative, we are looking at the different types of 
counterfeit technologies that are available. I think, however, 
we need to be cautious about relying on any one technology. One 
of the things that we've discovered as part of this initiative, 
one of the things we're exploring, is that there are going to 
need to be the use of multiple strategies to prevent 
counterfeiters from overriding the technology, but that's 
something that we are currently----
    Senator Snowe. You don't believe----
    Mr. Taylor.--looking at.
    Senator Snowe.--that 21st century America could develop 
that technology?
    Mr. Taylor. Well, Senator, just like the challenges of the 
Secret Service with the currency, over time there's enough of 
an incentive for people to try and override the technology, 
Senator, no matter how good they are. So there needs to be 
constant steps to develop new and stronger technologies. I 
mean----
    Senator Snowe. Many of the drugs sold, as I understand, in 
Canadian pharmacies were manufactured in the very same plants 
as those sold in the U.S. pharmacies. In fact, Dr. McClellan 
was quoted as saying, ``With regard to the safety of 
prescription drugs in Canada, they keep drugs safe within 
Canada, and I think they do a very good job of that.''
    So, again, it's getting back to the issue of, what can we 
do that's proactive? I mean, what I'm hearing from you, if we 
passed a different law without any safety certification 
requirements, you still wouldn't do the job.
    Mr. Taylor. Well----
    Senator Snowe. That's what I'm concerned about. That's what 
I'm hearing.
    Mr. Taylor. Well, let me try and answer the question to the 
best of my ability. Obviously, once again, our overarching 
concern is that we realize that affordability is important, but 
we want citizens to have products that are safe, effective, and 
affordable. And we understand that--that produce drugs that, as 
part of our steps--we've looked at generics and other ways to 
try and ensure that affordability. And as the head of my--as 
the Office of Regulatory Affairs, it's my job to ensure that to 
the extent that these products are coming across, that they're 
safe and effective.
    The decision really rests at the feet of Congress, in terms 
of how best to change the Act. Because it was Congress that 
decided that these safeguards needed to be in place. We 
recognize that whatever that change will be, if there's a 
change in place that's going to be used to facilitate the 
importation of drugs, we realize that change will be a 
fundamental change from the way that we've done things before. 
And what we need are steps that will help us, despite that 
fundamental change, still provide the American citizens with 
the same requisite level of safety and effectiveness, and that 
includes the need for the American citizens and my agency to go 
out and work together to inspect facilities to make sure that 
there's the requisite level of controls that are in place now 
that allow the system that we have in place to ensure that 
people are not being injured----
    Senator Snowe. And we know----
    Mr. Taylor.--and not being harmed.
    Senator Snowe.--they do, because they have FDA-approved 
facilities in Canada. We know that to the be case. And the 
reason why--and so the Secretary of Health and Human Services 
under the existing law is not meeting that safety 
certification. So is your agency charged with developing safety 
stance? Could you not do that?
    Mr. Taylor. Well, we----
    Senator Snowe. Would that not be possible?
    Mr. Taylor. Well, Senator, certainly every day we try and 
take steps to try and build on that safety. But, right now, we 
still have--we still are unable to say, based on that 
certification--this is a certification that was made by 
Secretary Shalala and Secretary Thompson--that that plan will 
ensure that American citizens are getting products that are 
safe and effective. We just cannot make that determination.
    Senator Snowe. That was several years ago. Now we're in 
2003, going into 2004.
    Mr. Taylor. That's correct.
    Senator Snowe. That's the point. I mean, this wouldn't be 
difficult, Mr. Taylor. And I realize, you know, you're not the 
Commissioner, but--you know, this would not be difficult. I 
mean, we're just, you know, complicating what could be a very 
simple situation. I mean, the counterfeiting that was referred 
to earlier was basically a domestic problem.
    Mr. Taylor. That's not exactly true. Some of the 
counterfeit cases that we've handled this year, including the 
Procrit case, which involved cancer and AIDS medications, 
indeed was domestic in nature, originated from the state of 
Florida. However, the Lipitor counterfeiting case, those 
products were introduced from overseas.
    Senator Snowe. But if you had the pedigree in place, that--
you would have been able to identify it, would you not?
    Mr. Taylor. I----
    The Chairman. Senator?
    Senator Snowe. OK.
    Mr. Taylor. Senator Snowe, I can't say--in light of the 
scheme, in light of that particular counterfeit scheme, it's 
not clear that the pedigree would have definitively stopped the 
spread of the product.
    The Chairman. Senator Boxer?
    Senator Boxer. Thank you.
    I want to thank you my colleagues for their questioning. 
This has been very enlightening.
    I want to say to Mr. Taylor, I've been in Congress for 21 
years, and I know a phoney trade barrier when I see it, and 
that's what's going on here. I mean, you could tell, from 
Senator Snowe's questioning--not you, personally--this 
Administration--and I might say, the one before--didn't want to 
do this, period. And it seems to me that you're saying you're 
overworked and understaffed, and I understand--then tell us 
what you need in order to identify a couple of places where the 
good Governor can go that you think would be safe. What would 
it take? I don't think much.
    I think, you know, you're reading a line that I've heard 
over the years, and the only people, I believe, who are hurting 
are the senior citizens who can't afford the medicine. It is a 
moral issue.
    Governor, I want to tell you something. I think you're 
terrific. I want to tell you that everything in this bill that 
I know of--this Medicare bill--and I withhold judgment, because 
it hasn't come out. I haven't read every line of it, but 
everything I've read so far, unless they change it----
    The Chairman. Not before we vote on it.
    Senator Boxer. We have to read it before we vote on it. But 
everything I know about it says to me, ``They're doing 
everything they can to stop our people from getting cheaper 
drugs,'' period, end of quote. They took a generic provision 
that was written by Schumer and some others, and weakened it. 
They took the importation measures that have been worked on for 
so long by folks in the House and Senate, including Senator 
Dorgan, who really brought this to my attention, and what they 
have done to that is essentially emasculated it, because you've 
got people like Mr. Taylor, sitting over there, who don't want 
to do anything, even if it didn't have a certification in it. 
So, you know, it's kind of a hopeless deal. They put a gag rule 
on Medicare, in terms of their ability to negotiate cheaper 
drug prices. The only thing they haven't done is stop you. They 
haven't stopped you yet.
    So my hope is that you'll listen to what Senator McCain is 
offering you as a suggestion. Get the broadest support you can 
back home, hold these open hearings, get your senators and your 
assembly people, or whatever they're called there, to go with 
you on this thing, and let's have you be a model for the rest 
of us. I mean, I know they're doing it in some other states, 
but I think you, it seems to me, are going to go forward. And 
in these days of the Internet, you'll be able to ID for the 
rest of the country Internet sites for our senior citizens so 
they can get a 90-day supply of drugs, so they won't have to 
make these horrible choices they are making, awful choices they 
are making, between living and eating and helping your kids and 
the rest of it.
    This is really a life-and-death type of deal, and to have a 
trade barrier, artificial one, put in place that is going to--
that's leading to people becoming impoverished--every penny 
they get in Social Security increase is gone before they even 
turn around. It's just awful.
    And so I guess that's all I wanted to say, Mr. Chairman. 
I'd like to hear from the Governor one more time, because I 
hope you'll make news all--I hope my Governor is listening, 
because I think that he, you know, should make a move on this 
situation. We have folks going to Mexico, day in and day out, 
to get cheaper drugs.
    The Chairman. So do we.
    Senator Boxer. You do, too, from Arizona. Day in and day 
out.
    I just don't believe it, that you can't, in the FDA, pick 
out four places in Canada, pick out two places in Mexico, pick 
out one place in Canada, pick out one place in Mexico, and say, 
``We have done due diligence on this,'' and help our Governors. 
Because, right now, our people are hurting, and it's our job to 
make life easier for people, not harder for people. The health 
and safety of our people, that's our number-one responsibility, 
whether it's military protection or whether--but this is our 
number-one. And, you know, we need to do it.
    So, Governor, tell us one more time, have you given a 
little thought to what Senator McCain said about making this, 
sort of, a whole united--Republicans, Democrats, Independents, 
farm labor, whatever you've got out there--kind of a move?
    Governor Pawlenty. Senator, thank you. And thank you for 
the chance to add a few closing thoughts.
    First of all, I think this is the prescription drug 
equivalent of the Boston Tea Party. People are fed up, they've 
had it, and whether it's this year in Congress, or next year in 
another state, or this year in Minnesota, the rebellion is 
underway, and we hope you join us, because the current 
structure cannot be sustained.
    The generalized concerns that you hear from the FDA and 
others always gets fogged up--you now, we've got our fingers in 
the dike from all over the world, we've got all these problems. 
That's not what I'm talking about. We're talking about 
establishing a relationship with experienced, credentialed, 
accredited, established, reputable pharmacies in Canada and 
maybe a few other countries as a second step.
    And as applied to those institutions and as applied to the 
mail mechanisms we know already exist, the system does not have 
the problems that are being suggested by the FDA. So please 
don't let the voices confuse the debate. Please narrow it to 
what we're actually talking about.
    And I would hope that the FDA, instead of finding a hundred 
reasons to say no and a hundred reasons why this can't work, 
would pull up alongside and say, ``We'll help you.'' I'll even 
pay them for it. You don't even have to do it. I'll find the 
money to get some people to come out and help us, if they'll do 
that. If they won't, the concerns about health, safety, and 
welfare are precisely what government is supposed to do. We 
can, in our own little Minnesota way, bring a Good Housekeeping 
seal of approval to these entities on our website and give 
people more assurance than they're getting now on these rogue 
sites that these are credible places.
    And then, last, it probably is fair to say that if 
everybody in the whole country moved to this all at once, we 
would overwhelm the FDA, we would overwhelm the Canadian 
pharmaceutical industry and infrastructure and their regulatory 
authorities. And so I have a suggestion for you. I hope we've 
demonstrated that this debate has crossed a threshold of 
credibility and it's at least worth a try. So, as a compromise, 
could the Senate say, ``We're going to authorize a certain 
number of pilot projects. We'll road test these theories, for 
or against, and in a year and a half, we'll evaluate it, or 2 
years we'll evaluate it.'' We're not afraid of the results. I 
hope the industry and the FDA isn't either. And then we can 
see.
    And then, last, to Senator McCain's point and your point, I 
would be delighted to lead the charge in Minnesota to not only 
have us do this administratively and unilaterally, but to get 
the legislature, on a bipartisan/tripartisan basis, to endorse 
it and come along with us. Please know, as you do know, that, 
you know, once you put it into the broader political arena of 
the legislature, all the forces, namely the industry, you know, 
comes down hard. And so we'll have a fight on our hands, and 
it's a fight I'm willing to fight. I mean, I'm happy to do it. 
I'll add some extra security, Senator, and away we'll go.
    [Laughter.]
    The Chairman. Well, there are some of us who would love to 
come up and help you, and I mean that. I mean that very 
sincerely. As you mentioned, this has passed a certain 
threshold, which is--the Secretary of Health and Human Services 
doesn't testify on this issue, the pharmaceutical industry 
doesn't show up. Mr. Taylor, you do, and I want to thank you 
for that. And your reward, I'm sure, will be in heaven, but I 
do appreciate it.
    [Laughter.]
    Mr. Taylor. I hope so.
    The Chairman. I do appreciate the fact that you have had 
the willingness to appear before this Committee.
    Your suggestion, Governor, we'll try it. We'll try it. But 
I've got to tell you, when they have the kind of power that's 
on this prescription drug bill, which is supposed to be saving 
not only individuals, but the government money, and they put in 
a provision that you can't--the government is not allowed to 
negotiate in a fashion to keep those cost of drugs the lowest, 
and they're able to get that as a provision in the bill, I'm 
sorry to tell you, I'm not optimistic. I will not deter us from 
fighting for it, but there's ever ample evidence of the 
incredible power of the pharmaceutical. And you know what 
you're going to see when they pass this bill, even though it'll 
have huge costs associated with it and it'll put a $600 billion 
cost on a collapsing Medicare system, which it cannot stand 
more than six or seven more years? Thank your Senator or 
Congressman for voting for this bill and prescription drugs 
paid for by--guess who?--the pharmaceutical association, who 
have been able to prevent--been able to prevent the cost of 
drugs from being lowered, by allowing the government to do what 
the Department of Defense and the VA----
    I'm sorry to make you cynical about the way we try to do 
the Lord's work in the City of Satan, Governor, but I did want 
to respond to----
    [Laughter.]
    Governor Pawlenty. Mr. Chair, I tell people in Minnesota 
that big change comes in one of three circumstances--war, 
crisis, and particularly gifted leadership. And we--in 
Minnesota--and we have a war, of course, internationally, but 
we have a war, we have a crisis, and--I don't know about the 
leadership, but we--the circumstances are such that change will 
come, and now it's just a matter of when and where and how.
    The Chairman. Well, it is an issue of--if I go to any town-
hall meeting with seniors in my state, and I'll tell you, it's 
a huge issue.
    Governor Pawlenty. Most of the seniors in your state are 
from my state.
    The Chairman. Yes, sir.
    [Laughter.]
    The Chairman. Yes, indeed. Many of them that I attend the 
town-hall meetings in Arizona are from your state, yes, indeed.
    Mr. Taylor. Mr. Chairman, for fear of continuing this, I 
just want to make a point, that we obviously--we, you know, 
respect the government's goals and wishes, and we do look 
forward to sitting down and talking to you and not putting you 
in jail and hoping that we can at least express and articulate 
our concerns. I mean, we obviously want to make sure that you 
know the source of your products, because we know that there--
at least in the press, there was some question about whether 
the pharmacies were getting--and just provide you other--you 
know, we can even provide you information on what we've seen 
today, and that, we think, will help you inform your decision 
and engage--allow us to engage in good give and take.
    So, as I said before, I just want to extend the offer to 
meet with you, before you introduce your plan, or afterwards, 
but, I mean, we're happy to do so.
    The Chairman. Thank you very much. Thank you.
    Our last panel is Mr. Carmen Catizone, who's the Executive 
Director of the National Association of Boards of Pharmacy; Mr. 
David Funderburk, who's the Legislative Counsel of TREA Senior 
Citizens League; Mr. Lewis Lubka, who's a Senior Citizen from 
Fargo, North Dakota, and Mr. Donald MacArthur, Secretary 
General, European Association of Euro-Pharmaceutical Companies.
    Welcome.
    Mr. Catizone--is that the proper pronunciation?
    Mr. Catizone. Yes, sir.
    The Chairman. Welcome. Please proceed.

 STATEMENT OF CARMEN A. CATIZONE, EXECUTIVE DIRECTOR, NATIONAL 
               ASSOCIATION OF BOARDS OF PHARMACY

    Mr. Catizone. Thank you. It's an honor to appear before the 
Committee today and share our thoughts on this very important 
issue.
    I am the Executive Director of the National Association of 
Boards of Pharmacy, which was founded in 1904 and consists of 
all the pharmacy regulatory and licensing jurisdictions in the 
United States, Guam, Puerto Rico, the Virgin Islands, eight 
provinces of Canada, the Australian states, New Zealand, and 
South Africa. Our association also maintains a list of 
pharmacies that operate on the Internet that are legal and 
safe, in response to questions from Senator Dorgan and also the 
Governor of Minnesota.
    The purchase and import of drugs from other countries 
places access to affordable medications squarely in opposition 
to preserving the safeguards of our drug approval process and 
state regulation. If allowed to proceed along the present 
course, it will remove the Food and Drug Administration's 
approval process in the dispensing of medications for chronic 
diseases from the U.S. to the country, territory, or back room 
with the lowest prescription drug prices, regardless of the 
standards or safeguards in place in those other countries or 
territories.
    NABP also understands that the pricing of pharmaceuticals 
in the U.S. differs from Canada and other parts of the world. 
We believe that the U.S. pharmaceutical industry must address 
this situation and propose meaningful changes to the pricing 
policies in place in the U.S. and the world. NABP has no 
affiliation with the pharmaceutical industry, nor do we receive 
any appreciable funding from the pharmaceutical industry.
    NABP acknowledges that appropriate safeguards exist within 
Canada's Federal and provincial regulatory systems to ensure 
that the dispensing of medications in Canada to Canadian 
patients is safe. Important to note, from information obtained 
directly from Canadian regulatory authorities, is that Health 
Canada prohibits the import of drugs for dispensing to Canadian 
patients, but it does not prohibit or regulate the distribution 
of drugs for import--imported for export to U.S. patients. This 
regulatory void and breach of the safety net for U.S. patients 
is significant and unknown to the overwhelming majority of 
patients ordering drugs from Canadian pharmacies.
    Shockingly, Internet operations in Canada are already 
providing U.S. patients with drugs unapproved in Canada or the 
U.S. Several newspapers have documented interviews with 
Canadian Internet pharmacists, who admit to freely purchasing 
and exporting to the U.S. medications from Pakistan, Bulgaria, 
and Latin America, that were not approved or regulated by 
Health Canada. The example given by Senator Dorgan of two 
licensed pharmacies and pharmacists interacting and exchanging 
medications would provide a safety net between the two 
countries. However, that system is not in place in all 
instances. And, in fact, the later situation is predominantly 
in place for those Internet operations.
    NABP and its counterpart in Canada, the National 
Association of Pharmacy Regulatory Authorities, will be 
launching a VIPPS program in Canada, which is a Verified 
Internet Pharmacy Practice Site program, to accredit, identify, 
and alert to Canadian patients which pharmacies are legal and 
safe to practice pharmacy and conduct business on the Internet.
    We are also working with NAPRA to discuss a regulatory 
framework for the inter-border regulation of the practice of 
pharmacy and dispensing of medications to patients in the U.S. 
and Canada. The framework will coordinate the regulatory 
efforts and resources of the Canadian provinces and the U.S. 
state boards of pharmacy, and look to the FDA for guidance and 
assistance.
    However, even if NABP and NAPRA successfully formulate the 
appropriate regulatory framework, neither NABP nor NAPRA can 
make any representations for safety when drugs are shipped to 
U.S. patients and originate outside of the U.S. and Canadian 
approval processes.
    In closing, NABP respectfully requests your support for a 
careful and thoughtful approach to resolving this complex 
issue, and a rejection of reactionary proposals fueled by 
populist rhetoric that irresponsibly casts aside valid concerns 
about patient safety.
    NABP requests further the Committee's assistance in 
preserving the sanctity of current laws and regulations so as 
to prevent any patient from being seriously injured by the 
illegal importation of medications from another country. NABP 
believes that no patient should suffer or be harmed as a 
consequence of disregarding Federal and state laws that assure 
the dispensing of safe and effective medications to U.S. 
patients.
    Thank you.
    [The prepared statement of Mr. Catizone follows:]

   Prepared Statement of Carmen A. Catizone, MS, RPh, DPh, Executive 
     Director/Secretary, National Association of Boards of Pharmacy
    Mr. Chairman and Members of the Committee:

    I am honored to be here today and discuss with you how the purchase 
and import of drugs from other countries affects the health and safety 
of U.S. patients. The purchase and import of drugs from other countries 
places access to affordable medications squarely in opposition to 
preserving the safeguards of our medication approval and state 
regulatory processes. NABP respectfully requests your support for a 
careful and thoughtful approach to resolving this complex issue and a 
rebuff of reactionary proposals fueled by populist rhetoric that 
irresponsibly cast aside valid concerns about patient safety.
    The National Association of Boards of Pharmacy (NABP), which I 
represent, was founded in 1904. Our members are the pharmacy regulatory 
and licensing jurisdictions in the United States, District of Columbia, 
Guam, Puerto Rico, and the Virgin Islands, eight provinces of Canada, 
three Australian States, New Zealand, and South Africa. Our purpose is 
to serve as the independent, international, and impartial Association 
that assists states and provinces in developing, implementing, and 
enforcing uniform standards for the purpose of protecting the public 
health. We have no affiliation with the pharmaceutical industry nor do 
we receive any appreciable funding from the pharmaceutical industry.
    As a charitable and educational organization, we do accept 
unrestricted, educational grants of no larger than $4,000 for 
educational programs at our Annual Meeting and Fall Conference. Among 
the sponsors for our educational sessions are some pharmaceutical 
manufacturers. NABP's primary revenue sources are examination fees from 
the development and administration of the national licensure 
examination (NAPLEX) and application fees for the licensure transfer 
and clearinghouse system (NABP Licensure Transfer and Clearinghouse 
Program), NABP maintains for the states. These fees are paid by the 
applicants for licensure and licensure transfer and not the states. The 
only fees paid to NABP by the states and provincial jurisdictions are 
annual membership fees of $250.
Collapse of the U.S. Drug Approval and Patient Dispensing Systems
    NABP's involvement with the distribution and dispensing of 
medications from pharmacies utilizing the Internet began in 1997. At 
that time NABP introduced our Verified Internet Pharmacy Practice Sites 
(VIPPS) program, to inform consumers of legal and safe Internet 
pharmacies. From the first awarding of a VIPPS certificate in 1999 to 
the present time, NABP has monitored the activities of Internet sites 
distributing medications. We have observed firsthand the birth, 
evolution, and revolution of an industry that holds promise for select 
populations of patients but, if allowed to proceed along the present 
course, will remove the Food and Drug Administration's (FDA) drug 
approval system and dispensing of maintenance medications for chronic 
diseases from the U.S. to the country, territory, or back room with the 
lowest prescription drug prices, regardless of the standards or 
safeguards in place in those other countries or territories.
    The facts of the situation are indisputably clear; the importation 
of prescription medications is illegal. This fact has been explicitly 
stated by the FDA and state boards of pharmacy. On November 6, the 
United States District Court for the Northern District of Oklahoma 
affirmed this fact by noting in its decision in the United States of 
America versus RX Depot, Inc. and RX of Canada that prescription 
medications imported into the U.S. violate Federal law. The Court noted 
further that individuals involved in this activity violated the law 
openly and notoriously.
    It is also a fact that the pricing of pharmaceuticals in the U.S. 
differs from Canada and other parts of the world. The difference in 
price is a primary incentive for individuals abandoning the safe and 
legal U.S. system to purchase and import drugs from other countries. 
NABP believes that the U.S. pharmaceutical industry must address this 
situation and propose meaningful changes to the pricing policies in 
place in the U.S. and the world.
Patient Harm and Compromise of the U.S. Regulatory System
    Critics of the regulatory actions of the state boards of pharmacy 
against entities distributing or assisting in the distribution of 
medications from other countries contend that there have been only a 
few reports of patient harm and injury. Although the number of reports 
may be low, the actual harm to patients is immeasurable and could be 
significant. NABP maintains that the number of reported patient 
injuries is low and immeasurable because patients may not be able to 
discern whether the drugs received from other countries are authentic 
or appropriate, injuries resulting from patients receiving wrong or 
counterfeit drugs may not manifest in the health care system until 
sometime later when the patient's condition worsens and requires 
emergency treatment or hospitalization, and consumers purchasing drugs 
from other countries are reluctant to report any adverse consequences 
because of the fear of prosecution for violating Federal and state 
laws. In recent correspondence to the State of Illinois,\1\ the FDA 
documented instances where patients suffered harm from the purchase and 
import of drugs from other countries. The letter also identified drugs 
purportedly shipped from Canada that were actually distributed from 
India and drugs being shipped that were unapproved generic versions or 
sub or super potent. NABP and its member boards are collecting data on 
incidences of patient harm caused by the purchase and import of drugs 
from other countries and will submit any information accumulated 
through this process to the Committee.
---------------------------------------------------------------------------
    \1\ November 6 letter to the State of Illinois' Special Advocates 
for Prescription Drugs.
---------------------------------------------------------------------------
    NABP is alarmed by the data collected by the FDA and recent reports 
of additional incidents of patient harm:

   A patient in Illinois ordered an inhaler to treat her 
        child's asthmatic condition from a Canadian pharmacy. After 
        using the inhaler, the child told her mother that the medicine 
        ``seemed different.'' Shortly after using the inhaler, the 
        child suffered an asthmatic episode, the first in a 
        considerable time. The mother only learned that the drug sent 
        to her by the Canadian pharmacy was wrong when she asked the 
        pharmacist at her local pharmacy to identify the medication.

   An Oregon patient being treated for breast cancer received 
        the wrong medication from a Canadian pharmacy. She continued to 
        take the wrong drug for three months as her condition worsened.

    NABP has also learned that the purchase and import of drugs from 
other countries is gravely compromising state laws and regulations by 
granting the authority to practice medicine and prescribe medications 
to unqualified, unlicensed individuals. Public officials who openly 
endorse violating Federal and state laws in order to obtain lower 
priced pharmaceuticals are supporting these transgressions and further 
damaging the regulatory system in the U.S.

   A U.S. entity affiliated with a Canadian pharmacy operation 
        is paying paramedics in the U.S. to conduct the physical 
        examination and diagnosis of patients. The paramedics' 
        examinations and diagnosis are then forwarded to a Canadian 
        pharmacy where prescriptions are issued by a Canadian doctor 
        and drugs shipped to U.S. patients. This activity contravenes 
        U.S. laws by allowing paramedics to practice medicine without 
        appropriate education, training, and licensure.

   A certification/purchasing program is providing the means 
        for psychologists to illegally order psychotropic drugs (e.g., 
        barbiturates, clozapine, haloperidol, etc.) for their patients 
        through a Canadian pharmacy. Again, the opportunity to obtain 
        prescription medications through foreign sources is directly 
        abrogating the U.S. regulatory system and allowing individuals 
        to practice medicine without the appropriate education, 
        training, and licensure.

   Within the last four months, a staggering number of websites 
        brazenly offering controlled substances without a valid 
        prescription (as required by Federal and state laws) and a 
        never before witnessed preponderance of spam e-mails offering 
        unrestricted and illegal access to controlled substances have 
        flooded the computers of U.S. citizens. Prior to the advocacy 
        for the purchase and import of drugs from other countries by 
        public officials in certain cities and states, such sites and 
        offerings did not exist.
Importation from Other Countries Places Patients Outside of Regulatory 
        Safeguards
    NABP acknowledges that appropriate safeguards exist within Canada's 
Federal and provincial regulatory systems to ensure that the dispensing 
of medications in Canada to Canadian patients is safe. Similarly, NABP 
attests that the dispensing of medications to U.S. patients within the 
U.S. regulated system is safe. In fact, the safety and regulatory 
standards in place in the U.S. are often regarded as the best in the 
world.
    Unfortunately, the same safeguards do not exist for patients 
purchasing and importing drugs from other countries. Although Health 
Canada prohibits the import of drugs for dispensing to Canadian 
patients, it does not prohibit or regulate the import of drugs for 
export to U.S. patients. The regulatory void and breach of the safety 
net for U.S. patients is significant and unknown to the overwhelming 
majority of patients ordering drugs from Canadian pharmacies. NABP 
learned first-hand from the president of an Internet pharmacy 
corporation based in Canada that drugs shipped to U.S. patients may not 
be approved by the Canadian drug approval process and may originate in 
New Zealand, Vietnam, or any country in the world where prescription 
drug prices are lower than those in the U.S. or Canada. In fact, there 
are no limitations as to where drugs will originate from for delivery 
to U.S. patients. Shockingly, Internet operations in Canada are already 
providing U.S. patients with drugs from other countries unapproved in 
Canada or the U.S.! A recent advertisement brought to NABP's attention 
offers to match the price of any medication from Canada by shipping 
drugs from Israel. Several newspapers have interviewed Canadian 
Internet pharmacies who admit to freely purchasing and exporting to the 
U.S. medications from Pakistan, Bulgaria, and Latin America.
    Allowing for the purchase and import of drugs from other countries 
essentially abolishes the FDA's drug approval process and circumvents 
state regulation. Advocating that it is acceptable to violate Federal 
and state laws because the price of pharmaceuticals is high, creates 
the opportunity for unscrupulous and dangerous individuals to operate 
Websites or distribution enterprises that will ship drugs to U.S. 
patients that may be nothing more than placebos, wrong, inappropriate, 
or even counterfeit. If the safeguards in place for drug approval and 
the regulation of pharmacies and wholesale distributors are 
deliberately compromised, U.S. patients will be placed in a ``buyers 
beware'' environment and left unprotected to gamble with their health 
and safety when purchasing and importing drugs from other countries.
Inter-border Regulatory Proposal
    NABP requests the Committee's support for the enforcement of 
current Federal and state laws concerning the illegal importation of 
medication from other countries and prosecution of individuals involved 
in these activities, whether they are private citizens or mayors or 
governors. In the interim, NABP and its counterpart in Canada, the 
National Association of Pharmacy Regulatory Authorities (NAPRA), 
recognize that a solution resolving the conflict of access versus 
safety must be developed to address the needs of U.S. patients and 
prevent irreparable damage to, if not the elimination of, the 
regulatory systems in the U.S. and Canada. To this end, NABP and NAPRA 
are in discussions to develop a regulatory framework that regulates the 
inter-border practice of pharmacy and dispensing of medications to 
patients in the U.S. and Canada and provides similar protections as 
those afforded U.S. patients who utilize pharmacies engaged in the 
interstate practice of pharmacy and dispensing of medications. The 
framework will coordinate the regulatory efforts and resources of 
Canadian provinces and U.S. state boards of pharmacy.
    NABP and NAPRA will also be launching the VIPPS program in Canada 
to identify for Canadian patients legal and safe Internet pharmacies. 
The combination of the VIPPS Canada program and inter-border regulatory 
framework between the U.S. and Canada will ensure for U.S. patients 
that the purchase and importation of medications from licensed Canadian 
pharmacies will be safe and legal.
    However, even if NABP and NAPRA successfully formulate the 
appropriate regulatory framework for the inter-border dispensing of 
prescription medications, neither NABP nor NAPRA can make any 
representations for safety when drugs are shipped to U.S. patients and 
originate outside of the U.S. and Canadian approval processes. NABP's 
concern with patients purchasing and importing medications from 
countries other than Canada will not be resolved unless this problem is 
addressed. In fact, NABP and NAPRA cannot move forward with the 
implementation of an inter-border regulatory framework until Health 
Canada takes decisive action to prohibit the importing of medications 
from other countries, outside of Canada's drug approval process, by 
Canadian pharmacies for dispensing or distribution to U.S. patients. 
NABP also believes it essential before the implementation of an inter-
border regulatory framework for the FDA and Health Canada to establish 
a means for mutual recognition of drug products.
    In closing, NABP respectfully requests that the Committee recognize 
that allowing and encouraging the purchase and importation of 
medications from other countries is a serious threat to our regulatory 
foundation and patient safety and may thrust the U.S. back in time to 
the days when snake oil salesmen and quack tonics threatened the well-
being of unknowing and unsuspecting patients. NABP requests further the 
Committee's assistance in preserving the sanctity of current 
regulations so as to prevent any patient from being seriously injured 
by the illegal importation of medications from other countries. NABP 
believes that no patient should suffer or be harmed as a consequence of 
disregarding Federal and state laws that ensure the dispensing of safe 
and effective medications to U.S. patients.
    Thank you for the opportunity to address this important issue.
                                 ______
                                 
       Prepared Statement of the American Pharmacists Association
    The American Pharmacists Association (APhA) appreciates this 
opportunity to provide our perspective to the Committee on the issue of 
expanding prescription drug importation. APhA, founded in 1852 as the 
American Pharmaceutical Association, represents more than 50,000 
practicing pharmacists, pharmaceutical scientists, student pharmacists, 
and pharmacy technicians. APhA, dedicated to improving medication use 
and advancing patient care, is the first-established and largest 
national association of pharmacists in the United States.
Access to Prescription Medications
    As you know, prescription medications have proven to be a valuable 
tool in our health care system. That value doesn't materialize, 
however, if patients do not have access to the medications they need. 
Clearly, as members of the profession which makes improving medication 
use and advancing patient care its priority on a daily basis, 
pharmacists are supportive of efforts to enhance patients' access to 
prescription medications. As pharmacists, we share the Committee's 
concerns that many patients--especially seniors--face challenges in 
accessing valuable, but sometimes unaffordable medications.
    Any pharmacist that has ever worked in a community pharmacy can 
vividly recount the dismay they feel when having to tell one of their 
patients--especially seniors on a fixed income--the cost of their 
medication, knowing that cost may be more than the patient can afford. 
Some pharmacists work with patients to solve that access problem by 
recommending lower-cost generic alternatives or even over-the-counter 
medications, providing the medication to the patient at no charge, or 
establishing a payment plan. Pharmacists also work with patients to 
assure that patients know how to make the best use of that medication--
to maximize their investment in the technology we call medication. 
While those stories illustrate pharmacists' first-hand experience with 
access problems and their compassion for their patients, patients need 
a Medicare drug benefit.
    Another so-called solution that has received a lot of attention 
from Congress and is now the subject of the hearing before this 
Committee is prescription drug importation. While APhA appreciates the 
Committee's commitment to exploring methods to increase access to 
valuable medications, we have significant concerns with expanding 
importation. Expanding importation would circumvent the United States 
regulatory structure--a system intended to help patients receive safe 
and effective medications. Undercutting the regulatory system that 
tries to assure patients receive safe and effective medications is not 
the way to address the access problem. Importation may offer short-term 
savings, but it creates the potential for long-term costs in patient 
harm. While pharmacists are supportive of efforts to enhance patients' 
access to prescription medications, expanding importation without 
sufficient oversight and involvement of regulators, pharmacists, and 
physicians is not the answer.
Patient Safety
    Patient safety is the one overriding reason for the many laws and 
regulations that help assure Americans receive safe and effective 
medications--medications that are ``what the doctor ordered.'' These 
controls not only guide what medications are available in the U.S. 
market and how those medications are manufactured, but also how they 
are labeled, packaged, shipped, stored, and dispensed. The current U.S. 
regulations were put in place after several critical incidents resulted 
in patient harm. When patients were harmed by contaminated or 
ineffective medications, Congress took action to protect patients, to 
provide patients with medications that do what's expected and nothing 
that's unexpected. By their very nature, medications are highly 
susceptible to counterfeiting: the products are expensive, necessary 
for our health, and difficult, if not impossible, to detect a fake 
product through visual inspection. Because of these challenges, 
Congress and state regulators established a closed system for 
pharmaceutical product approval and distribution. The current closed 
system protects American consumers from unsafe products.
    Our concern extends to the packaging and labeling of products as 
well. Prescription medications are powerful; that's why they work. But 
they ``work'' when patients understand how to use them, and how to use 
them appropriately. U.S. prescription labeling language and 
presentation goes through an intensive review process by manufacturers 
and the Food and Drug Administration (FDA). Different nations have 
different standards. Simply put, a medication is not just a tablet; 
it's the tablet, the labeling, and the packaging.
    Purchasing prescription medications outside of the U.S. means 
leaving our closed system. And efforts to facilitate this activity 
punch holes in our regulatory safety net. Those holes yield risks for 
patients, risks that they may receive a contaminated product, an 
inactive product, a product not recognizable by American pharmacists or 
doctors (possibly different strengths or name), a product that is not 
manufactured, packaged, labeled, distributed, or regulated in the 
country where they are purchasing the drug, or simply, the wrong 
product.
    Other regulatory systems are different, and that difference can 
create problems. For example, bisoprolol is a beta blocker used to 
treat hypertension (high blood pressure)--something we know better by 
its brand name is Zebeta in the United States. In Canada, however, 
bisoprolol goes by the brand name Monocor. Simply having a different 
name doesn't immediately create a problem, but in the U.S., the name 
Monocor sounds like the medication name Mevacor (a statin drug used 
to treat high cholesterol). The potential for error, then, appears when 
patients or health care providers confuse the U.S. product Mevacor 
with the international product Monocor.
    Additionally, when products are recalled in the U.S. because of 
manufacturing difficulties, or in rare instances when counterfeit 
products appear in the U.S. system, the FDA, pharmacists and physicians 
work in conjunction with each other to identify and notify patients who 
may have received such medications. Patients who go outside of the U.S. 
regulatory system risk not knowing if a prescription has been recalled 
in another country. We have seen this risk materialize. On November 12, 
2003, Canada recalled certain medications to treat asthma and chronic 
obstructive pulmonary disease (COPD) because the drug's delivery system 
may fail to provide patients with an adequate dose of the medication. 
Canadian patients were advised to return the product to the pharmacy or 
physician's office where it was obtained--but what happens to U.S. 
patients that ordered the medication over the Internet? Will they be 
informed about the recall? The outreach from Canadian regulators was 
not directed to patients in the U.S. And although the FDA re-issued the 
Canadian alert, the alert places U.S. pharmacists and physicians in a 
quandary--they know they did not prescribe or dispense the faulty 
product, but cannot be sure that their patients are not using it. Who 
should U.S. patients see? Because the medications were obtained outside 
the U.S. system, there is little that U.S. pharmacists and physicians 
can do to alert patients. And it raises the question: who is 
responsible for alerting the patients in those circumstances?
Opening the Closed System Means Opening the System beyond Canada
    The idea of opening our current closed system is critical to this 
discussion. It is true that some countries, such as Canada, may have a 
system to regulate medications that appears comparable to our system. 
However, ``opening the door'' to Canada opens the door--period. Our 
closed system is then open to products from other countries--countries 
without strong regulatory systems. Even if attempts are made to limit 
access to one country or just a few, opening the system creates 
incentives for unscrupulous providers to pretend that they operate in 
Canada. By adding a Canadian flag to their website, they purport to 
provide quality products and ``hide under the maple leaf.''
    By opening the door--and substituting a porous system for our 
closed system--we risk the introduction of counterfeit medications. The 
World Health Organization estimates that 5 percent to 8 percent of all 
pharmaceuticals are counterfeit. With our current system, few consumers 
perceive a threat from counterfeit medications, but that changes when 
the safety structure is damaged. And even with the comprehensive U.S. 
system, counterfeit products have penetrated our system. In February, 
2003, 11,000 boxes of counterfeit Epogen and Procrit (anemia drugs 
often given to cancer, AIDS and kidney failure patients) were found on 
pharmacy shelves and even in patients' homes. And earlier this year, 
the FDA announced the discovery of three lots of counterfeit Lipitor 
(cholesterol lowering medication). The FDA's continuing investigation 
found two additional lots of the same drug. These situations support 
the need for review and refinement of our existing safety net, not the 
expansion of efforts to circumvent or relax that system.
Impact on Patient Care
    Not only do imported medications directly impact patient health, 
but the circumvention of U.S. health care providers creates a situation 
that is best described as ``working in the dark.'' Because of the 
questions involved in importing medications, many patients do not tell 
their pharmacist about medications they're securing over the borders. 
This is understandable, but dangerous. Unless the patient provides this 
information, physicians and pharmacists have no way of knowing what a 
patient is taking. And it is important to recognize that products 
available in other countries may not be identical to the FDA-approved 
version available in the U.S. products available in other countries may 
differ in brand name, strength, form of release, or in a number of 
other ways. Because of these differences in foreign drugs, even 
providing the name of a product may not be enough. Pharmacists' ability 
to identify drug-to-drug interactions is hindered to the point of 
nonexistence without knowing about a patient's entire medication 
regimen or the content and strength of a particular drug. Consider the 
scenario where a patient is in need of a prescription medication in a 
hurry--such as an antibiotic for an infection or a pain medication to 
treat an injury. If that patient has been getting his or her 
medications from a different source, the pharmacist is unable to 
determine whether the new prescription will conflict with any other 
medications the patient takes, has ingredients that duplicate a current 
prescription, or whether its mere presence suggests other medical 
problems for the patient that should be followed-up with the patient's 
physicians. This virtual blindness compromises the ability of 
physicians to care for their patients and the ability of pharmacists to 
partner with patients to improve medication use and advance patient 
care.
    Many have asked for the evidence of harm caused by circumventing 
our safety net. One of the reasons we don't have more bodies in the 
streets is because of the way medications work. Consider a patient 
working with their local physician to take a medication to lower their 
blood pressure. This patient imports a faulty medication that has no, 
or little, active ingredient. It is unlikely that the patient will 
actually feel anything different, unlikely they would actually notice 
any difference in the product. When the patient visits their physician 
for a check-up, the blood-pressure reading will show that the 
medication isn't working--that the patients' blood pressure was not 
decreased by the medication. Because of our trust in the medication 
supply, it's highly unlikely that the physician would consider that 
there was a problem with the medication. Rather, the physician will 
likely assume that the medication just didn't work and consequently 
will either increase the dose or choose another medication. This sets 
the stage for using a stronger medication, one that they patient may 
not have needed if they had actually gotten what their doctor ordered. 
Modern medication management is already complex enough without plunging 
the process into darkness.
Concerned Allies
    The American Pharmacists Association is not alone in raising 
concerns about this practice. The export of medications from other 
countries is far from universally supported. Health care providers and 
regulators--including regulators in other countries--have similar 
concerns with prescription drug importation. In May 2003, the U.S. 
National Association of Boards of Pharmacy (NABP) and the Canadian 
National Association of Pharmacy Regulatory Authorities (NAPRA) 
announced an agreement documenting their commitment to ``work together 
to protect the citizens each are mandated to serve, and to promote 
compliance with the federal, state, and provincial laws and standards 
of Canada and the United States, to ensure the integrity of the 
prescription drug supply in their respective jurisdictions'' 
(Attachment A). APhA joined with the Canadian Pharmacists Association 
and 45 other pharmacist groups to support that agreement, and to pledge 
our commitment to protecting the integrity of the medication supply 
(Attachment B). NAPRA voiced its concern with importation last week, 
calling on the Canadian government to ban exports by Canadian 
pharmacies until governments can implement systems that will ensure the 
effective regulation of these practices to protect patient safety. And 
within the U.S., FDA and state boards of pharmacy have issued 
statements of concern or have taken action against entities that are 
facilitating importation and practicing pharmacy without a license.\1\
---------------------------------------------------------------------------
    \1\ The Boards of Pharmacy in Alabama, Arizona, Arkansas, Montana, 
North Carolina, Oregon, Oklahoma and Vermont, for example, have been 
involved in such activity.
---------------------------------------------------------------------------
    Other members of the health care team have expressed concern with 
illegal importation. The Canadian Medical Protective Association 
(CMPA), a mutual defense organization for Canadian physicians, has 
cautioned Canadian physicians about co-signing foreign prescriptions 
and warned of the potential for liability in the foreign jurisdiction 
resulting from an alleged doctor-patient relationship that could result 
from such an action. In the event of an American or other foreign 
lawsuit a physician may not be eligible for help from the CMPA. The 
Association advises its members not to participate in such activities. 
The CMPA's actions were recently amplified by the Coalition for 
Manitoba Pharmacy, a group of practicing pharmacists in Manitoba, who 
announced their opposition to exporting prescription drugs from Canada 
to the U.S.
    Medications have become a critical aspect of patient care. But 
prescription medications are only safe and effective when patients 
understand how to use them appropriately, and for what side effects 
they should watch. Direct interaction between the prescribers, 
pharmacists and patients is critical to ensuring appropriate medication 
use. Effective patient care is about real relationships--physician-
patient, pharmacist-physician, and pharmacist-patient relationships. 
Patients are not mechanisms into which you input ``pills'' and achieve 
uniform results. The practice of healthcare is both an art and a 
science. Direct observation and conversation with the patient tells 
healthcare providers much, as do diagnostic tests. But these are not 
effective alone. To remove such a basic protection of our health care 
delivery system's safety net seems diametrically opposed to the ``pro 
patient safety'' environment we are all working to achieve.
    There is an underlying fallacy that often is not raised in this 
debate. Patients are not mechanisms we adjust for better health--we are 
human beings. Medications are not inert objects that patients ingest, 
inhale, or inject. They are powerful compounds that affect the 
patient's body and being--that's why they work. Medications are subject 
to degradation due to contamination or even due to temperature 
fluctuations during shipping. And medications can be counterfeited. If 
your mother or father or child were consuming questionable food, you'd 
snatch it away as soon as you detected an unusual odor or color. Faulty 
medications can be many times more harmful to health than a rancid 
sandwich--but without the odor, who can identify the legitimate 
product? We are so careful of what we ingest when we call it food. 
Should we not be equally careful when we call it medicine?
Conclusion
    Importation can create safety hazards by circumventing the current 
medication safety net. We should allow the FDA to continue its work to 
keep patients safe by critically reviewing manufacturing and 
distribution practices that assure medications that American patients 
receive are safe, effective, and exactly ``what the doctor ordered.'' 
It is time for Medicare to meet the standard of other health benefit 
programs and help beneficiaries get the medications they need.
    APhA recommends direct, immediate action to help patients access 
medication through the U.S. healthcare system. Our country needs a 
pharmacy benefit in Medicare that provides access to the critical 
medications and pharmacist services patients need every day. We applaud 
Congressional action in this area and hope that a quality Medicare 
pharmacy benefit becomes law in the very near future. In the interim, 
consumers should work with their pharmacist and prescriber before 
making any changes in their drug therapy regimen. Generic medications 
are cost-effective alternatives to brand-name products--even brand-name 
products imported from other countries--and pharmacists can provide 
guidance on using generic medications as well as accessing patient 
assistance programs. The most expensive medication is the one that 
doesn't work--or worse, causes harm. Patients should use pharmacists as 
a valuable resource to make the best use of their medications and to 
get the most value from their money.
    APhA thanks you for the opportunity to provide comments on this 
important issue. We look forward to working with the Committee to 
develop a safe and effective system of providing prescription 
medications to all Americans.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 ______
                                 
                              Attachment B
 45 U.S. Pharmacist Groups Endorse Cross-Border Communique On Illegal 
                   Importation of Prescription Drugs
                          (as of May 13, 2003)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Alabama Pharmacy Association
Alaska Pharmacist's Association
Arizona Pharmacy Association
Arkansas Pharmacists Association
American Pharmacists Association (APhA)
American Society of Health-System Pharmacists (ASHP)
American Society of Consultant Pharmacists (ASCP)
California Pharmacists Association
Colorado Pharmacists Society
The University of Connecticut School of Pharmacy
Duquesne University Mylan School of Pharmacy
Florida Pharmacy Association
Georgia Pharmacy Association
Hawaii Pharmacists Association
Illinois Pharmacists Association
Iowa Pharmacy Association
Kansas Pharmacists Association
Kentucky Pharmacists Association
Maryland Pharmacists Association
Michigan Pharmacists Association
Minnesota Pharmacists Association
University of Missouri-Kansas City School of Pharmacy
Missouri Pharmacy Association
Montana Pharmacy Association
Nebraska Pharmacists Association
New Jersey Pharmacists Association
Pharmacists Society of the State of New York
North Carolina Association of Pharmacists
North Dakota Pharmaceutical Association
Ohio Pharmacists Association
Oklahoma Pharmacists Association
Oregon State Pharmacists Association
Pennsylvania Pharmacists Association
Rhode Island Pharmacists Association
University of Rhode Island College of Pharmacy
College of Pharmacy, Medical University of South Carolina
Tennessee Pharmacists Association
Texas Pharmacy Association
Utah Pharmaceutical Association
Vermont Pharmacists Association
Virginia Pharmacists Association
Washington DC Pharmaceutical Association
West Virginia Pharmacists Association
Pharmacy Society of Wisconsin
University of Wisconsin School of Pharmacy
Wyoming Pharmacy Association
Total: 45

    The Chairman. Thank you.
    Mr. MacArthur, welcome. Thank you for joining us, and would 
you take the microphone?
    Mr. MacArthur. Surely.

       STATEMENT OF DONALD MacARTHUR, SECRETARY GENERAL,

     EUROPEAN ASSOCIATION OF EURO-PHARMACEUTICAL COMPANIES

    Mr. MacArthur. Mr. Chairman, Senators, the European 
Association of Euro-Pharmaceutical Companies, which represents 
around 70 parallel traders in medicines across 15 European 
countries, is very grateful for the opportunity to contribute 
to this important debate.
    I think we can best do this by summarizing the experience 
gained over the past 25 years and more of parallel trade in 
medicines in Europe. Ours is an industry that, last year alone, 
moved 140 million packs of prescription drugs safely and 
efficiently across national borders within Europe. Given the 
opportunity, some of our members would undoubtedly also like to 
bring the benefits of parallel trade to the U.S.
    Listening to some of the remarks made today and to those 
I've read in the U.S. press provokes a feeling of deja vu. 
Fears of unsafe, substandard, or counterfeit products flooding 
the market, and that any savings from parallel trade would only 
pass to the middlemen, were made by drug manufacturers in 
Europe in the early 1980s. Both allegations are still made 
today. But the mere fact that they're repeated so often doesn't 
make them true. They are not.
    Our biggest battle has been with misinformation. The facts 
clearly show that parallel trade is safe. There have been no 
adverse consequences for public health. Parallel trade is 
thoroughly regulated. All of our importing members hold 
manufacturing authorizations. All of our importing members hold 
wholesale dealing authorizations. All of our members trade only 
in drugs which have European marketing approval in Europe to 
common standards.
    Every country, except one, in the EU has abbreviated 
procedures for double-checking parallel imports. The one 
country that doesn't have procedures for allowing incoming 
parallel trade is France. So it's interesting that, at least in 
one case, France and the U.S. have one thing in common, they 
don't allow parallel imports.
    [Laughter.]
    Mr. MacArthur. But parallel trade can be strictly regulated 
with relatively light touch legislation, and it allows only 
genuine products that have been approved for marketing 
elsewhere to common standards and produced by the same original 
brand manufacturers, often in the very same plants.
    Parallel trade is totally free of counterfeits, pirated, 
and substandard products. During the 25 years plus, 30 years, 
there has been not one confirmed case of a counterfeit drug 
ever reaching a patient in Europe as a parallel import. 
Furthermore, on no occasion has the substantial product 
liability insurance that parallel importers are required to 
maintain ever been needed.
    Parallel trade is the only form of price competition with 
patented drugs, the part of the market that generics can't 
reach. Its presence, or even just the threat of this, is 
sufficient to moderate launch prices by manufacturers and to 
curtail subsequent price increases.
    Parallel trade brings significant savings to payers and 
patients. A recent independent study from one of the world's 
leading academic centers for health economics, the University 
of York, shows that parallel trade in medicines directly saved 
payers and patients the equivalent of almost $750 million in 
2002--that's at current exchange rates--in just five EU 
countries--U.K., Germany, Netherlands, Denmark, and Sweden.
    Parallel trade fits in with the free-market principle. It's 
only when I come to the U.S. do I hear about drug prices being 
fixed. In Europe, they're not. We have controls through the 
reimbursement system, which I gather is the main method here. 
The minority of countries allow--have price fixing. The 
majority don't.
    Two of the countries that have total free markets for 
prescription drugs, U.K. and Germany, are able to allow free 
pricing because they allow and indeed incentivize parallel 
imports.
    Parallel trade has absolutely no impact on the ability of 
the pharmaceutical industry to invest in R&D. We're fully aware 
that the discussion in the U.S. is focused on personal 
importation by the Internet and other means, and that Canada is 
seen as the main source opportunity. However, parallel trade, 
unlike the Internet, can be effectively regulated. It's capable 
of handling high volumes of all types of products, benefiting 
all patients, rather than the favored few, and supports, rather 
than destroys, the local pharmacy and wholesaler 
infrastructure.
    While the quality of Canadian products is not in doubt, the 
same is true of products from the EU, with the EU having the 
advantage of much larger scale. At ex-factory prices, the U.S. 
drug market in 2002 was worth $196 billion, while Canada was 
only $8 billion, one-twenty-fifth of this amount. To achieve 
just 10 percent penetration of the U.S. retail drug market 
would require an impossible 262 percent of Canadian domestic 
sales. In contrast, next year the EU will expand to 25 member 
states, the population of almost 500 million, and a drug market 
of in excess of $100 billion. But, even more important than 
adequate volume and attractive prices, Europe is where proven 
expertise in all aspects of parallel trade lies, in sourcing, 
quality assurance, regulatory, legal, labeling, transport, and 
distribution.
    We believe that dialogue with the FDA should be started. We 
are already in regular dialogue with the European Medicines 
Evaluation Agency. In fact, we have a regular meeting with them 
next week. The EMEA, of course, is in dialogue with the FDA. 
Let's pool our expertise. We would welcome both members of the 
U.S. Congress and the FDA to visit our plants, to look them 
over and check our procedures.
    In closing, though, I believe that I should say that Europe 
has a lot to learn from the U.S., and not least from your 
democratic processes and openness. Never once in its existence 
has EAPC's views ever been sought out by a European policymaker 
in a forum like today. So I thank you for that.
    Thank you.
    [The prepared statement of Mr. MacArthur follows:]

  Prepared Statement of Donald MacArthur, Secretary General, European 
              Association of Euro-Pharmaceutical Companies
    Concern over rising prescription drug prices in the U.S. and in 
particular the heavy out-of-pocket financial demands placed on seniors 
to maintain regular drug treatment has led to a surge in cross-border 
purchases by patients via the Internet and other means. This in turn 
has triggered a debate as to whether parallel importation of 
prescription drugs from foreign countries should be legalised. The 
European Association of Euro-Pharmaceutical Companies (EAEPC) is 
delighted to be given this opportunity to contribute to this important 
debate. It can best do this by summarising the European experience of 
parallel trade with prescription drugs. This experience--gained over 
20+ years--clearly shows that parallel trade is

   safe,

   uses only genuine, regulatory-approved products from 
        original brand manufacturers,

   totally free of counterfeit, pirated and substandard 
        products,

   able to stimulate price competition among otherwise 
        monopolistic manufacturers,

   brings significant savings to payers and patients, and

   has no impact on the ability of the pharmaceutical industry 
        to invest in R&D

    It should be emphasised that parallel trade is very different from 
personal importation by individual patients, the main cross-border 
activity in the U.S. so far. Parallel trade is a large-scale industry, 
a highly-regulated and thoroughly professional business-to-business 
activity that requires considerable investment in qualified staff, 
state-of-the-art facilities and equipment, and rigorous quality 
assurance procedures. In 2002 alone, an estimated 140 million packs of 
medicines were traded across Europe's internal national borders.
    EAEPC member companies have more experience of parallel trade in 
prescription drugs than any in the world. They enjoy excellent 
relationships with national and EU regulatory authorities in Europe, 
and would welcome dialogue with the FDA, other U.S. authorities, as 
well as U.S. politicians, payer and consumer groups. Visits to EAEPC 
member company facilities across Europe can also be arranged.
EAEPC
    Established in 1998 with its registered office in Brussels, 
Belgium, EAEPC (www.eaepc.org) is the representative voice of 
pharmaceutical parallel trade in Europe. Through national association 
or individual company membership it encompasses over 70 firms from 15 
of the 18 countries in the European Economic Area (EEA*). 
Together these firms account for well over 90 percent of medicines 
parallel-traded in the region.
---------------------------------------------------------------------------
    \*\ The EEA consists of the current 15 EU member states (i.e., 
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, 
Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the 
United Kingdom) plus Iceland, Liechtenstein and Norway.
---------------------------------------------------------------------------
    All products handled by EAEPC members have either national or pan-
European regulatory approval, and are exclusively sourced from and sold 
to EEA countries using authorised trade channels. Some EAEPC member 
companies have been in business for 20 years and are amongst the top-10 
pharmaceutical suppliers to their national markets.
    EAEPC's primary aims are to safeguard the free movement of 
medicines within the EEA's Internal Market--a principle first laid down 
in Article 28 (formerly Article 30) of the European Community's 
founding Treaty of Rome and reaffirmed in subsequent Treaties--and to 
counteract any attempts to restrict the freedom of choice for the 
consumer through trading patterns in breach of EU competition rules 
(Articles 81 EC & 82 EC).
    The Association believes that free trade will lead to improvements 
in health standards through the provision of innovative medicines at 
lower cost, benefiting statutory healthcare systems, other third-party 
payers, and the public as both patients and taxpayers, as well as 
assisting the EU to achieve its objective of a single market.
Parallel Trade: The Basics
What is Parallel Trade?
    Parallel trade occurs when products are purchased in a country 
where they are cheaper and transported for resale to other countries 
where they are more expensive, in competition with the same product 
sold by the manufacturer or its local licensee. Parallel trade 
increases the effectiveness of the market and consumers enjoy lower 
prices as a result. It helps to restrain costs in markets that are not 
very price sensitive.
    Parallel trade will exist wherever there are price differentials. 
It has been ongoing worldwide since goods were first traded and is 
found across Europe today with a wide range of branded products, 
including such diverse items as motor cars/motor cycles, computers, 
cameras, pianos, compact disks, clothing, food and ski equipment (table 
1).

            Table 1.--Extent of parallel trade within the EU
------------------------------------------------------------------------
 
------------------------------------------------------------------------
footwear and leather goods           <5%
------------------------------------------------------------------------
musical recordings                   overall 5-10%, some releases up to
                                      20%
------------------------------------------------------------------------
motor cars                           estimates up to 5%
------------------------------------------------------------------------
consumer electronics                 around 5%
------------------------------------------------------------------------
domestic appliances                  <5%
------------------------------------------------------------------------
cosmetics and perfumes               around 13% for upper end of market
------------------------------------------------------------------------
Clothing                             5-10%
------------------------------------------------------------------------
soft drinks                          0-15%
------------------------------------------------------------------------
Confectionery                        <10%
------------------------------------------------------------------------
alcoholic drinks                     <5%
------------------------------------------------------------------------
Source: NERA & SJ Berwin, 1999\1\

    For parallel trade to be possible, four preconditions must be met:

   there must be unrestricted free trade between the countries 
        involved;

   there must be substantial differences between the prices of 
        identical goods in these countries;

   the costs of transport in relation to the cost of goods must 
        be low;

   the distribution of goods must be entirely separate from 
        their manufacture.

    All these conditions are found in the case of prescription 
medicines in the EEA. Yet, in the context of the penetration by 
parallel trade with other goods, the overall level with medicines is 
unremarkable. Various estimates by independent economic 
consultants2,3 on the share of the prescription 
pharmaceutical market in the EU taken by parallel-traded products from 
1990 through to 2000 have consistently arrived at a figure of 2 
percent. EFPIA estimates put the 2002 penetration at 4 percent.
Why Do Price Differences with Medicines Occur?
    Pricing of prescription medicines and controlling access to 
reimbursement via social health insurance schemes are purely national 
responsibilities throughout Europe. Today and for the foreseeable 
future, these tasks remain in the hands of individual member states, 
subject only to the condition that the methods they employ are 
transparent and to do not discriminate by country of origin.
    Willingness and ability to pay, medical and prescribing practices, 
the balance of supply-side versus demand-side cost containment 
interventions, and even value judgements in healthcare differ between 
countries, and therefore so do prices. Further important factors are 
inflation differences and currency fluctuations outside the euro-zone.
    An exacerbating issue is a proactive policy of price 
differentiation undertaken by many international pharmaceutical 
manufacturers. As commercial enterprises, companies naturally aim to 
obtain the highest price each national market will bear, and so 
discriminate between countries to reflect differences in the ability to 
pay. Price differentiation is known to yield higher profits than 
uniform pricing. Companies also control the sequence of launches across 
Europe so as to limit the opportunities for the authorities to depress 
these prices in major markets through application of international 
price referencing.
    A number of surveys, some repeated year-on-year, have shown 
considerable inter-state price differences for the same or very similar 
product. Such differences are found regardless whether comparisons are 
made at the price the manufacturer sells the medicine to wholesalers, 
or at the cost that social health insurance has to meet, which includes 
margins for the wholesaler and the pharmacy, plus, in most countries, 
value-added tax.
Is it Legal?
    Yes, parallel trade is completely legal. A core objective of the 
Treaty of Rome is the creation of a single, Internal Market through 
which goods, services, people and capital--the ``four freedoms''--can 
freely pass. Article 28 of the EC Treaty provides that:

        `Quantitative restrictions on imports and all measures having 
        equivalent effect shall be prohibited between member states.'

    A direct consequence of free movement is the classic Cassis de 
Dijon doctrine of the European Court of Justice (ECJ),\4\ that a 
product lawfully placed on the market of one member state must be 
allowed to circulate freely throughout the EU. This principle was later 
extended to the three European Free Trade Area countries--Iceland, 
Liechtenstein and Norway--that together with the present 15 EU member 
states makes up the EEA.
    Pharmaceutical parallel trade in Europe is strictly limited--in 
terms both of where the products are sourced and where they are finally 
sold--to within the EEA. Therefore the term ``parallel import'', in a 
European context anyway, is now redundant. Trade between EEA member 
states is no longer classified as imports or exports, rather it merely 
represents the free movement of goods within a single European 
marketplace having no internal borders.
    The products that are traded may be patented, or marked with the 
originator's trade mark or brand name. Such intellectual property 
rights attached to goods are regarded as having been exhausted. The 
principle of exhaustion of rights (sometimes referred to as `the first 
sale doctrine') is that once a product is legally placed on the market 
in a country within the EEA by the owner of the rights, or with the 
owner's consent, the owner cannot use these rights to hinder the 
further sale of the product elsewhere within the EEA, except in very 
exceptional circumstances.
    Pharmaceutical parallel trade has been supported by the European 
Commission since its outset and by an unbroken series of almost 30 ECJ 
judgements.\5\
How Does it Work?
    Parallel traders buy medicines from well-established, authorised 
pharmaceutical wholesalers in countries where the products are cheaper. 
If the parallel trader has obtained a specific authorisation from the 
government in the country of destination for the product concerned, it 
can be resold there to wholesalers or direct to pharmacies, in parallel 
with the same medicine sold by the manufacturer's subsidiary or its 
licensee.
    Parallel traders do not manufacture any medicines themselves, but 
merely adapt the labelling--and perhaps the packaging--to meet local 
requirements under government supervision according to national law. 
This adaptation process includes removing the original patient package 
inserts and replacing them with others giving the same information in 
the local language.
    Parallel traders do not deal directly with the public. All 
transactions are done through authorised trade channels, and the 
pharmacist--who effectively is in the position to buy the same product 
at two different prices--dispenses it to the patient in the normal way.
    Parallel traders take pride in being reliable, responsible and 
professional business partners for wholesalers and for pharmacists in 
community and hospital practice. Great importance is attached to 
consistently making available a broad range of products, in all package 
sizes and strengths, and to ensure that only the most up-to-date 
product information is supplied. In some cases, additional features 
beneficial to patients, such as Braille labelling, is added by parallel 
traders.
    The products that enter into parallel trade are surplus to local 
needs. Wholesalers in the supplying states are naturally obliged to 
meet domestic demand first; if they didn't, given the level of 
competition between wholesalers for pharmacy customers, they would not 
remain in business long. Most countries also impose, through national 
law or a voluntary code of conduct, a so-called `public service 
obligation'. This requires wholesalers to guarantee to keep an adequate 
range of medicines in stock and to deliver over the whole of their 
normal area of operation all supplies requested within a very short 
time period.
What are the Economics?
    It is impossible to generalise as to the level of price 
differential between member states sufficient to trigger parallel 
trade. To a trader, a small margin on a best-selling product may be 
equally acceptable to a larger margin on a low volume product. There 
are also other important considerations, especially availability and 
maintenance of supply. Parallel trade is constrained much more by 
supply than by demand.
    The gross margin for the parallel trader does not, of course, 
represent profit. He has first to meet costs associated with regulatory 
compliance, purchasing, transport, warehousing, insurance, repackaging, 
quality assurance, distribution and promotion.
    As with any other supplier, the parallel trader also has to cover 
the costs of the distribution chain and provide it with an appropriate 
level of profit. The margin structure of pharmacists in many member 
states is based on a linear scale. This provides a perverse financial 
disincentive to dispensing lower-cost products, and the impact of this 
has to be taken into account by parallel traders when negotiating terms 
with the trade.
    Patients throughout Europe expect to take a doctor's prescription 
for any one (or more) of literally thousands of products into their 
local community pharmacy and receive it (or them) with minimal delay. 
Modern medicines can be very costly and no pharmacy could either afford 
the funds or find the space to keep in stock the entire range. The 
wholesale network or the parallel trader's own distribution system acts 
as the vital intermediary, but maintaining multiple daily deliveries 
all year round to tens of thousands of pharmacies is itself associated 
with high costs.
    Finally, a large part of the price advantage that the parallel 
trader has achieved through prudent purchasing must be passed on to 
whosoever pays the bill--normally, the social health insurance system 
or national health service. The price charged for a parallel-traded 
product is always less than that for the domestic version. If this were 
not the case, the entire raison d'etre of parallel trade would cease to 
exist, as would the trade itself.
Just What the Physician Ordered
    It is accepted that a part of the medicines market in every member 
state--a part that makes a disproportionately large and growing 
contribution to overall costs--consists of branded preparations under 
patent, where there is either no therapeutic alternative at all or only 
limited interchangeability in respect of particular patients. Different 
active ingredients within the same therapeutic category often affect 
individuals in different ways. Moreover, doctors, if persuaded by the 
merits of a branded product, are reluctant to switch on cost grounds 
alone to even a closely similar variant because of the risk of lower 
efficacy, poorer tolerability or allergy. Patients, too, prefer the 
familiarity of their usual brand.
    A patent confers a monopoly and, by definition, a monopoly denies 
the right for the forces of competition to effectively work for the 
benefit of consumers. Parallel trade is the only form of competition to 
any specific medicine during the life of its patent.
    Parallel trade offers a real solution to the funding problem that 
all European healthcare systems increasingly face. It provides, along 
with guaranteed cost savings, the original products from innovative 
research-driven manufacturers, not substitutes or copies. It also 
minimises the implementation of other, more interventionist or market-
distorting cost-containment measures.
Which Countries are Involved?
    There are many decades of experience with incoming parallel trade 
in the Netherlands, the United Kingdom and Germany. Since the early 
1990s, Denmark followed by most of the other Nordic countries and 
Ireland have been added to the list, with a small number of parallel-
traded products appearing most recently on the markets of Austria, 
Belgium, Italy, Spain and Greece. As regards supplying states, no one 
source is dominant, either as a whole or where any individual product 
is concerned.
    No official figures on the trade are gathered and conjectures about 
its size in different member states vary widely. Estimates of the 
extent that parallel trade has penetrated national pharmaceutical 
markets, obtained from mainly manufacturer sources, are shown in table 
2.

    Table 2.--Approximate parallel trade retail pharmaceutical market
                       penetration by value, 2002
------------------------------------------------------------------------
        Country                  % share                  source
------------------------------------------------------------------------
Denmark                  10.2                     LIF \6\
------------------------------------------------------------------------
Germany                  7.1                      IMS
------------------------------------------------------------------------
Netherlands              13.3                     SFK \7\
------------------------------------------------------------------------
Norway                   6.3                      LMI \8\
------------------------------------------------------------------------
Sweden                   9.3 (2001 figure)        LIF \9\
------------------------------------------------------------------------
United Kingdom           16.5                     IMS
------------------------------------------------------------------------

    Some of the tougher recent cost-containment measures have been 
imposed in the traditional free markets of Denmark, Germany, the 
Netherlands and the UK. At the same time, some former low-price 
countries, like France, Italy and Spain, are now awarding higher prices 
than previously, due to the authorities referencing against prices in 
other countries and because of ``European price corridor'' strategies 
by multinational companies.
    The result is that some prices in a ``low-price'' country are 
higher than those for the same product in a ``high-price'' country. 
Prices are also relatively fluid, being affected by exchange rate 
variations and by subsequent price movements.
    What is certain is that parallel trade with medicines is no longer 
a simple south-north process, or even one-way. Almost all EEA countries 
are involved, as the product source or the product destination; indeed, 
many countries simultaneously act, with different products, as both 
source and destination. Attempts by some manufacturers to stifle the 
trade by applying supply quotas to wholesalers have, paradoxically, 
lead to its spread across Europe. Whereas five years ago a parallel 
trader in Germany, for example, might have sourced a particular brand 
from a single country, today the figure can be eight or more source 
countries.
    Parallel trade consequently boosts intra-Community trade. Indeed, 
the European Commission views it as decisive vehicle for the completion 
of the EU Internal Market in medicines:\10\

        `Parallel trade acts an important driving force for market 
        integration where there are important differences in prices 
        between Member States.'
Parallel Trade: The Safeguards
    As befits their special position with the maintenance of human 
health, all medicines--including parallel-traded ones--are strictly 
regulated in Europe by either national authorities or by the European 
Agency for the Evaluation of Medicinal Products (EMEA).
    A number of EU Directives and Regulations have been adopted over 
the years with the aim of removing barriers to trade in medicines while 
ensuring that public health was not endangered. None has dealt 
specifically with parallel trade. It was left instead to the European 
Court to play a key role in establishing and regulating this sector.
De Peijper Judgement
    The most important test case to establish the regulatory position 
arose in the Netherlands in the early 1970s. A Dutch parallel trader, 
Adriaan de Peijper of Centrafarm, was prosecuted for importing a 
medicinal product from a wholesaler in the UK without the approval of 
the Dutch authorities, and without possessing either the product 
marketing approval documents or the batch records. De Peijper argued 
that he was unable to adduce such evidence because the manufacturer 
would not give him access to the necessary data. The product was 
authorised in both the Netherlands and the UK, and the Dutch court 
referred the matter to the ECJ.
    The Court found in favour of the plaintiff; asking him to produce 
the records demanded by the Dutch authorities was held restrictive:\11\

        ``National rules or practices which make it possible for a 
        manufacturer of the pharmaceutical product in question and his 
        duly appointed representative, simply by refusing to produce 
        the documents relating to the medicinal preparation in general 
        or to a specific batch of that preparation, to enjoy a monopoly 
        of the importing and marketing of that product, must be 
        regarded as being unnecessarily restrictive.''

    The Court felt that as the relevant documentation was already held 
by one set of authorities, they should co-operate in making these 
available on a reciprocal basis, and that member states should develop 
a presumption of conformity. If the parallel-traded and the domestic 
versions were slightly different it was up to the authorities to 
investigate whether this was therapeutically significant.
    The only measures which a national regulatory authority were 
justified in taking as regards parallel trade, the Court said, were 
those intended to verify that such products were identical with the 
version already marketed in that country by the domestic trade mark 
owner, or that the difference had no therapeutic effect.

        ``Public health authorities should be encouraged `not' to place 
        parallel imports at a disadvantage, since the effective 
        protection of health and the like of humans also demands that 
        medicinal preparations should be sold at reasonable prices.'' 
        \11\

    This was to guard against unnecessary over-regulation as the 
products had all been previously approved by the regulatory 
authorities. Parallel trade makes modern, innovative medicines more 
affordable, while an unaffordable medicine is neither safe nor 
efficacious.
Commission Communication
    Following the de Peijper judgement, the European Commission 
produced a Communication outlining the basic principles for an 
abbreviated form of marketing authorisation for parallel-traded 
medicines.\12\
    The Commission recommended that the information supplied to the 
national authorities by the parallel trader should just be sufficient 
to ensure that the product concerned is effectively covered by an 
existing authorisation in the member state of destination.
    In relation to the product sold by the domestic holder of the full 
marketing authorisation, the parallel-traded version must therefore:

   contain the same active ingredient(s);

   be administered to patients through the same route;

   have the same therapeutic effects; and

   have a common origin (i.e., made by, or under licence to, 
        the same company, or a member of the same group of companies)

    Detailed information is obtained from the authorising authority in 
the country of origin to allow full comparison with the domestic 
version. The parallel trader is required to provide as a minimum:

   the product name and where it is sourced;

   the name and address of the holder of the full marketing 
        authorisation, both in the member state of origin and in the 
        member state of destination;

   the name and address of the parallel trader;

   the product's marketing authorisation number in the source 
        country;

   the product's summary of product characteristics;

   specimens or mock-ups of the product in the form in which it 
        will be sold in the member state of destination; and

   the appropriate fee.

    A ``reasonable period'' (a maximum of 45 days was suggested) after 
receipt of such information should be adequate to assess it, the 
Commission said. In practice, the assessment period facing parallel 
traders in several countries is often very much longer. All EEA 
countries--with the notable exception of France--that are actual or 
potential destinations for parallel trade now have national rules based 
on the Commission Communication in place. Every parallel-traded product 
is required to have its abbreviated marketing authorisation number 
issued by the national authority and the name of the owner of that 
authorisation clearly labelled on the pack. If the manufacturer makes 
any change to the product or its labelling, parallel traders have to 
quarantine any stock they hold until they obtain regulatory approval 
for the necessary variation. Pharmacists who supply unauthorised 
products are open to disciplinary action.
EMEA Approvals
    A compliance check is used by the EMEA on the request of a parallel 
trader for high-tech or biotech medicines that have already received 
centralised, pan-European marketing approval by the Agency.\13\ Such 
products are, by definition, identical in every respect across the EU, 
with the Community marketing authorisation covering all linguistic 
versions of the label and package insert. As a result no further 
regulatory approval is necessary before parallel distribution takes 
place.
What Other Regulations Apply?
    As one of the conditions for their abbreviated marketing 
authorisations, parallel traders are required to keep records of the 
origin, quantity and batch numbers of all products they sell, as well 
as to retain a sample from every issued lot. An authentic reference 
sample is also kept for every presentation against which every incoming 
batch is checked.
    If as is usual they are involved in modifying the outer packaging 
to enable the product to enter the local supply chain parallel 
importers need a manufacturing authorisation, with all the usual 
obligations this entails (e.g., employment of an EU Qualified Person, 
maintenance of Good Manufacturing Practice standards, periodic 
government inspection). Under manufacturer liability provisions, 
parallel traders in several countries are required to maintain 
substantial insurance cover, yet this has never once been needed.
    In most countries, it is also a requirement for parallel traders to 
hold a wholesale dealing authorisation, as well as a manufacturing 
authorisation, if pharmacies are supplied direct. Granting of such an 
authorisation is conditional upon compliance with a number of EU-set 
requirements and Good Distribution Practice guidelines, including:

   maintaining suitable premises for the storage of medicines;

   employment of an EU Responsible Person;

   restrictions upon the sources and supply of such products;

   maintenance of the cold chain for temperature-sensitive 
        products;

   establishment of approved product recall procedures;

   record keeping requirements, in addition to maintaining 
        measures to ensure an audit trail for product traceability
Parallel Trade: The Savings
    Parallel trade can only be realised in case of demand and demand 
would not exist if the parallel trader did not pass on a large part of 
the price differential to the payer. Across Europe, payers for 
prescription drugs are primarily national social health insurance 
schemes/national health services, though, except with the very young, 
the elderly, the unemployed and the chronically-ill, there is also 
usually an element of patient co-payment.
    Direct savings accrue in every member state with incoming parallel 
trade. The European Commission, in its 2003 Communication following the 
G10 process, described these savings as ``significant''. This is 
because national governments and/or their national health providers 
have introduced measures to incentivise the use of and guarantee 
savings from parallel trade. How these measures apply and how the 
savings are split between the statutory healthcare system and patient 
vary by country.

        ``The UK reimbursement system with fixed reimbursement fees and 
        its clawback system de facto provides an incentive for 
        intermediaries and pharmacies to purchase cheaper parallel-
        traded drugs. It has also been shown that other Member States 
        give more specific incentives to parallel trade, in order to 
        achieve cost savings for the healthcare budget. Denmark, 
        Germany and Sweden serve as an example.'' \14\

    An independent study by health economists at the UK's University of 
York estimated that direct savings accruing to payers and patients from 
pharmaceutical parallel trade in 2002 in the UK, Germany, Sweden, 
Netherlands and Denmark totalled the equivalent of $734 million (at 
current exchange rates).\15\ This figure does not include hospitals, 
the private sector, or other countries with incoming parallel trade 
like Norway, Finland, Ireland and Austria.
    In addition to direct savings in all countries that realise 
incoming parallel trade, there is also general price erosion, 
benefiting all buyers. This is because parallel trade brings an 
important competitive element to bear, especially in the notoriously 
price uncompetitive patent-protected segment, the part of the market 
that generics cannot reach.

        ``. . . parallel trade. . .that is the nearest to price 
        competition in drugs that Europe gets.'' Kenneth Clarke (former 
        UK Health Secretary), UniChem conference, Mauritius, 2002

        ``For a manufacturer to enjoy a monopoly of the importing and 
        marketing of the product must be regarded as unnecessarily 
        restrictive.''\12\

        ``Patented medicines enjoy patent protection for at least 20 
        years. In cases where only a few alternatives are available, 
        parallel trade will offer the only source of competition.''\15\

    The availability of parallel-traded products, or even just the 
threat of this, can result in lower prices for domestic equivalents 
than would otherwise be the case. Market prices are reduced and/or 
price rises forgone, and greater discounts or improved terms are 
offered to distributors in an attempt to buy their loyalty.

        ``Parallel trade also generates indirect savings by creating 
        competition, whereas otherwise there is none, and thus forcing 
        pharmaceutical manufacturers to reduce the prices of 
        domestically sourced products. These indirect savings are 
        difficult to quantify but they could be larger than direct 
        savings.''

    Governments which cap reimbursement for multisource products are 
also able to set lower reimbursement ceilings when parallel-traded 
versions are available.
What are the Benefits to the Patient?
    Patients as taxpayers or as members of health insurance funds have 
a clear interest in seeing their hard-earned contributions well spent 
by the statutory healthcare system.

        ``Ultimately, all patients pay for the national health system. 
        Public health systems are financed by contributions or by 
        general taxes. Any savings made by these schemes via the 
        purchase of cheaper parallel-traded drugs indirectly benefit 
        the schemes' members.''\15\

    In many European countries (e.g., Belgium, Denmark, Finland, 
France, Greece, Luxembourg, Norway, Portugal, Spain, Sweden), the 
majority of patients pay a share of the cost of prescribed medicines 
they consume, so use of cheaper parallel-traded products will mean 
lower out-of-pocket demands.

        ``Patients benefit directly from parallel trade either when 
        they have to pay the full amount of the purchase price 
        themselves or when reimbursement is only partial and is 
        expressed as a percentage of the actual purchase price (in 
        contrast with a flat fee).''\15\

    Some member states employ forms of reference pricing (similar to 
`maximum allowable cost' in the US), in which interchangeable products 
are grouped with the amount reimbursed by the statutory healthcare 
system capped at some predetermined amount per group. If a parallel-
traded product is dispensed the patient may avoid paying any excess 
payment that would otherwise be due.
    With the growing use of so-called ``lifestyle drugs'' (e.g., 
treatments for erectile dysfunction, smoking cessation aids, hair 
restoratives, slimming agents) as well as oral contraceptives--products 
that are not widely if at all reimbursed--the consumer makes a direct 
saving from the cash purchase of a parallel-traded medicine on private 
prescription.
Parallel Trade Myths & Reality
    Against an obvious background of commercial interests, it is the 
aim of some international pharmaceutical manufacturers to keep the 
market share of parallel-traded products as low as possible by 
obstructing inter-state movement. Initiatives taken include:

   supply quota-fixing measures

   price corridor strategies

   dual pricing strategies

   market segmentation practices

   variable pack size

   variable brand name

   variable form of administration

   different packaging

   selective distribution

   targeting with legal actions

    Such attempts are invariably in vain, for, as the Competition 
Directorate-General of the European Commission has said:\16\

        ``On several occasions the Court of Justice has ruled that 
        parallel imports should not be blocked, irrespective of the 
        factors that determine price differences. Hence, in the 
        pharmaceutical sector, the Commission has correctly applied the 
        competition rules to agreement or conduct which restrict 
        parallel trade in drugs.''

    The EAEPC believes that criticism and resistance from some quarters 
is based on a misunderstanding of the actual facts. This section aims 
to dispel some of the erroneous folklore that has developed around the 
topic.
    Myth: ``The dogma of free movement within the internal market is 
incompatible with price-fixing by national governments''
    Fact: The ECJ has stated quite clearly that existing inter-state 
price differences with medicines cannot justify a derogation from the 
principle of free movement, even if such differences result from price 
controls imposed by member states.\17\
    Despite this ruling, manufacturers continue to argue that a 
correctly working market entails not just the free movement of 
products, but also the freedom to set prices. This viewpoint ignores 
today's reality:

   Only a minority of member states still exert direct price 
        control on new prescription medicines at the level of the 
        factory gate. Instead, the preferred approach, adopted across 
        the entire EEA in various country-specific ways, is to limit 
        access to the public reimbursement system or curtail payments 
        made under it.

   Even where actual price control still exists, the 
        authorities no longer price by inflexible formulae, and allow 
        instead a true negotiation, by which a company's asking price 
        for its key brands is increasingly accepted, sometimes in 
        return for offsets elsewhere.

        ``. . . given the fact that companies actually negotiate the 
        prices with the Spanish government and manage to achieve price 
        increases by invoking one or more of the justifications set 
        forth in the relevant Royal Decree, it is too simplistic to 
        regard pharmaceutical companies as price takers because the 
        national competent authorities set maximum prices.'' \14\

    Payers are primarily concerned with keeping the growth in the total 
cost of the drugs bill under control and give considerable commercial 
freedom to companies to set individual product prices as long as 
overall budgetary limits are respected. Various types of `deals' 
concluded by multinational firms so as to achieve comparable prices for 
their new potential blockbusters with those in other countries have 
resulted. These may include, for example, provision of the results of a 
cost-effectiveness study, volume sales caps, prescribing or advertising 
restrictions, delayed price cuts, or immediate price cuts and/or 
reimbursement delistings with other, unrelated but ageing products in 
its portfolio.
    Other arrangements, agreed by national associations on behalf of 
their members, make provision for cash paybacks by industry as a whole 
if the growth in the drugs budget exceeds pre-set limits. These allow 
prices higher than otherwise on individual products to be agreed in an 
environment of cost containment. Such schemes are in place in Belgium, 
France, Portugal and Spain, and formerly applied in Italy.
    Myth: ``Patients will be frightened and confused by foreign 
language packs''
    Fact: Labelling of parallel-traded medicines is fully in accordance 
with EU and country-specific legislation. This includes provision of a 
label and a patient package insert in the local language, whose texts 
have been approved by the national regulatory authority.
    In some cases, one or more self-adhesive over-labels will be 
applied to the original cartons, though in other circumstances the 
parallel trader will totally replace the carton by a new one giving the 
required information only in the local language. This latter situation 
might occur, for example, when the manufacturer markets the product 
with different pack sizes in different countries, where the amount of 
information to be provided on the label is extensive, or to enhance 
patient compliance.
    Any repackaging done by the parallel trader is performed under 
strict GMP conditions and affects only the outer container; the actual 
dosage form is entirely untouched. Almost all solid dosage forms in 
Europe are blister or foil wrapped before inclusion by their 
manufacturer in patient packs; dispensing from bulk is very rare.
    The ECJ has laid down the circumstances under which repackaging can 
be undertaken:\18\

   the product inside the packaging must not be affected;

   the new packaging must clearly state who repackaged the 
        product and the name of the manufacturer;

   the reputation of the trade mark or its owner must not be 
        damaged; and

   the trade mark owner must be given adequate prior notice 
        before the repackaged product is put on sale and, on demand, be 
        supplied with a specimen of the repackaged product.

    Many parallel-traded dosage forms are identical in appearance with 
the domestic version. In other cases, as also happens quite frequently 
with generic medicines, the shape and colour may vary. In a very few 
cases the additives are different. This may require explanation by the 
pharmacist to the patient and checks for intolerance. Some patients may 
not be suitable to receive parallel-traded products. As the expert on 
medicines, the pharmacist is well qualified to conduct screening, and 
to give the necessary advice and reassurance.
    The considerable market shares, of well over 50 percent, achieved 
and maintained by certain individual parallel-traded products in 
certain countries, provide clear proof of their high level of 
acceptance by patients.
    Myth: ``Doctors would prefer their patients to receive locally-made 
rather than foreign products''
    Fact: Today, in the majority of EU member states, the source of 
production of most medicines is in other member states. To save costs, 
companies have consolidated manufacturing into a handful of sites to 
serve the entire continent. Several are situated outside the EU. Most 
specialise as ``centres of excellence'' for particular types of dosage 
forms. In such cases, ``parallel imports'' compete with `direct 
imports' The motivation for the manufacturer is the same as for the 
parallel trader--to exploit lower costs.
    Myth: ``Manufacturers will withhold new introductions from 
countries that supply parallel trade''
    Fact: There is no evidence of this. It seems unlikely, as the main 
supplying countries are typically high-volume users of medicines and 
hence attractive markets for industry.
    Myth: ``Parallel trade will deter the search for new cures''
    Fact: There is no link between parallel trade and investment in R&D
    European patients are best served not only by having access to the 
lowest possible prices for today's first-choice treatments but also by 
assuring that a stream of new innovations continues to emerge from 
research and development pipelines to tackle unmet medical needs. 
Diversion of sales from one European country to another with parallel 
trade has not, however, led to the research-based industry cutting back 
on R&D. In fact, just the opposite; spend on pharmaceutical R&D in 
Europe grew more than three-fold from 1985 to 1999.\19\
    With the market share of parallel trade in its peak year of 2002 
amounting to only 4 percent EU-wide, this cannot influence investment 
in R&D.

        `There does not appear to be any causal link between the losses 
        due to parallel trade and GlaxoWellcome's R&D investments. 
        Moreover, these losses are too insignificant to affect these 
        investments to a considerable extent. Finally, it must be 
        stressed that the R&D budget of pharmaceutical companies, while 
        important, only represents around 15 percent of their total 
        budget. Losses stemming from parallel trade could just as well 
        be deducted from the companies other budget items, such as 
        marketing costs.

        . . . Any savings they might hypothetically make by preventing 
        parallel trade would therefore not automatically lead to higher 
        R&D investments. It is conceivable that these savings might 
        merely be added to the companies' profits.'\14\

    An independent consultant \20\ has put total direct losses to 
manufacturers from parallel trade across Europe at about Euro 500 
million per year, roughly the same as one company's costs in 
discovering, developing and launching a single new active ingredient, 
he noted. Manufacturers also incur considerable self-inflicted costs 
(e.g., lower sales volume, loss of customer goodwill, legal costs) in 
their attempts to prevent parallel trade.
    There is no evidence that capital investment or competitiveness is 
affected either. Europe's pharmaceutical trade surplus with the rest of 
the world increased fourfold between 1985 and 1999.\19\
    Myth: ``It acts as a channel for counterfeit, pirated or 
substandard products''.
    Fact: Parallel traded medicines are the products of the original 
manufacturers, often from the very same plant that produces the 
domestic versions. They are either exactly identical, or with very 
small differences in colour or inert excipients, differences which the 
regulatory authorities verify have no therapeutic consequences. If a 
manufacturer criticises a parallel-traded product it amounts to 
criticism of its own product.
    Handling, transportation and storage of medicines by parallel 
traders are strictly in accordance with the conditions given in the 
product's marketing authorisation, and this includes adhering to any 
cold chain or narcotic requirements.
    Counterfeiting is a totally different subject to parallel trade. 
There is, in fact, very little evidence that counterfeit medicines are 
traded by any means in Europe. A 1999 survey published by the European 
Commission found the proportion actually on the market was, after the 
U.S., the lowest in the world.\21\ In 2001, the Medicines Control 
Agency described the level of pharmaceutical counterfeiting in the UK 
as ``virtually undetectable''.\22\ One of the main reasons is that the 
system works effectively in a closed loop: Authorised manufacturers 
sell only authorised product to authorised wholesalers, who sell only 
to authorised pharmacies, hospitals and dispensing doctors. Parallel 
traders use the same distribution channels used by domestic products.
    As far as can be ascertained there has never been a single, proven 
case of a counterfeit medicine leaving the parallel trade supply chain 
in Europe. Certainly, none has been reported in the two largest markets 
for incoming parallel trade--the UK and Germany; in the case of the 
latter, the government has recently verified this fact.\23\
    Parallel traders take the strictest precautions. For a start, they 
source only from authorised, reputable wholesalers/traders in other EEA 
countries with whom they have had business dealings for many years. All 
incoming batches are compared against authentic reference samples, and 
multiple checks against photos of authentic products, package texts and 
leaflets are made at different stages of the process. In addition to 
the quality assurance procedures agreed between the trader's local 
medicines inspectorate and its Qualified Person, voluntary ones are 
often instigated, e.g., UV detection of holograms on some packs from 
Greece, and re-assay of vaccines in Germany by the Paul Erlich 
Institute.
    It is not unknown for parallel traders during their routine checks 
to detect defects in products and to report these to the manufacturer 
and regulatory authority concerned. As the only checks made in practice 
on a medicine after it leaves the manufacturer are those conducted by 
parallel traders, the likelihood of a patient receiving a counterfeit 
product is actually less not more with parallel trade.
    Myth: ``Parallel trade will damage Europe's industrial base''
    Fact: For many years, leading manufacturers have predicted they 
will be damaged or even eliminated, not only by parallel trade, but by 
the likes of price controls, heavy-handed regulation and by generic 
competition, but the sector has not merely survived it has flourished.

        ``Conclusive information on the economic effect of this 
        (parallel) trade on the British pharmaceutical industry is not 
        available, given the uncertainty surrounding such factors as 
        the profits made on sales to the country which is the source of 
        imports and other discounts offered by manufacturers in the 
        United Kingdom.''\24\

    As well as offering competition to the domestic trade mark owner, 
the parallel trade sector is itself highly competitive, with up to 30 
active players per country, each offering different terms. Together 
they provide employment to thousands of staff. Management is highly 
qualified, with extensive experience often gained in large 
pharmaceutical companies or in community pharmacy.
    Many firms also have a strong platform to participate in the 
development of generic medicines, a sector that--with the active 
encouragement of several national governments--is forecast to grow 
strongly over the next decade, enhancing price competition with patent-
expired molecules to the benefit of payers and patients. To further 
extend the continuum, some parallel traders have evolved into fully-
fledged pharmaceutical companies, with a portfolio that includes 
original products and investment in R&D.
References
    1. NERA and SJ Berwin & Co: The Economic Consequences of the Choice 
of Regime of Exhaustion in the Area of Trademarks, Report for DG XV of 
European Commission, London, 1999
    2. Burstall M and Senior I: Undermining Innovation: Parallel Trade 
in Prescription Medicines, IEA Health and Welfare Unit, London, 1992
    3. Senior I: Parallel Importance, Pharmaceutical Marketing, 
September 2000, pp 44-46
    4. Cassis de Dijon ECJ case, 1979, ECR 649
    5. Macarthur D, Drawing the lines in parallel trade, Scrip 
Magazine, July/August 2002, pp 20-22
    6. Laegemiddel Industri Foreningen (LIF), the Danish Association of 
the Pharmaceutical Industry
    7. Stichting Farmaceutische Kengetallen (SFK): Facts and Figures 
2002
    8. Legemiddelindustriforeningen (LMI), the Norwegian Association of 
Pharmaceutical Manufacturers: Farmastat
    9. Lakemedelsindustriforeningen (LIF), the Swedish Association of 
the Pharmaceutical Industry
    10. Commission Communication on the Single Market in 
Pharmaceuticals, 25 November 1998
    11. Officer van Justite vs de Peijper, ECJ case C-104/75, 20 May 
1976, ECR 613
    12. Commission Communication on Parallel Imports of Proprietary 
Medicinal Products for which Marketing Authorisations have already been 
granted, C115/5, Official Journal of 6 May 1982
    13. Procedure for Notifications of Parallel Distribution of 
Centrally-authorised Medicinal Products, March 1999, EMEA, London
    14. Commission Decision of 8 May 2001 relating to a proceeding 
pursuant to Article 81 of the EC Treaty, IV/36.957/F3 Glaxo Wellcome 
(notification); IV/36.997/F3 Aseprofar & Fedifar (complaint); IV/
37.121/F3 Spain Pharma (complaint); IV/37.138/F3 BAI (complaint); IV/
37.380/F3 EAEPC (complaint)
    15. West P & Mahon J, Benefits to Payers and Patients from Parallel 
Trade, York Health Economics Consortium, May 2003 (www.yhec.co.uk).
    16. XXVth Report on Competition Policy, European Commission, COM 
[96]126 final
    17. Merck vs Primecrown, joined ECJ cases C-267/95 & C-268/95
    18. Joined ECJ cases C-427/93 (Bristol-Myers Squibb vs Paranova), 
C-429/93 (Boehringer Ingelheim vs Paranova) and C-436/93 (Bayer vs 
Paranova)
    19. The Pharmaceutical Industry in Figures, EFPIA, Brussels, 2001 
Edition
    20. Senior I, speaking at an open forum `Parallel Trade in European 
Pharmaceuticals', 6 September 2000, Vision in Business Conferences, 
London
    21. Communication on Counterfeiting and Piracy in the Single 
Market, 30 November 2000, European Commission, Brussels
    22. Dr Gordon Munro of Medicines Control Agency, quoted in 
`Inspection and Enforcement under the Medicines Act,' Pharmaceutical 
Journal, 20 January 2001, pp 85-88
    23. Deutsche Apotheker Zeitung, 6 November 2003, p 20
    24. Written reply to UK Parliament by Under Secretary for Health, 
David Lammy, 4 November 2002
Glossary of Abbreviations

EAEPC--European Association of Euro-Pharmaceutical Companies

EC--European Community

ECJ--European Court of Justice

EEA--European Economic Area

EMEA--European Agency for the Evaluation of Medicinal Products

EU--European Union

GMP--good manufacturing practice

R&D--research and development

    The Chairman. Thank you for coming, Mr. MacArthur. I think 
you've contributed a great deal and given us perhaps some 
avenues that we might pursue, and we thank you.
    And, from Fargo, North Dakota, Mr. Lubka. How cold is it in 
Fargo today?
    Mr. Lubka. It's like early spring.
    The Chairman. Oh, good.
    [Laughter.]
    Mr. Lubka. Global warming.
    [Laughter.]
    The Chairman. We're happy to see you here, sir. I think you 
have known Senator Dorgan in the past, so there are several 
things you don't want to reveal about him to the Committee.
    [Laughter.]
    Senator Dorgan. Mr. Chairman, if I might just say, again, 
that I went to Canada on a trip, and Mr. Lubka accompanied me 
and understands firsthand the differences in pricing between 
the U.S. and Canada on the identical prescription drug.
    The Chairman. Thank you.
    Mr. Lubka, you're welcome here, and we appreciate the input 
of people like yourself, who face these challenges on a day-to-
day basis. Please proceed.

STATEMENT OF LEWIS LUBKA, SENIOR CITIZEN, ON BEHALF OF ALLIANCE 
                     FOR RETIRED AMERICANS

    Mr. Lubka. Chairman McCain and Members of the Commerce, 
Science, and Transportation Committee, thank you for holding 
this hearing today on the impact of prescription drug 
importation on consumers.
    My name is Lewis Lubka. I live in Fargo, North Dakota. I am 
here today representing the Alliance for Retired Americans. The 
Alliance is a national organization of over three million 
members that works to create an America that protects the 
health and economic security of seniors, rewards work, 
strengthens families, and builds thriving communities. It was 
launched in January 2001, by a national coalition of labor 
unions and community-based organizations dedicated to improving 
the quality of life for retirees and older Americans.
    I'm 77 years of age, and take at least three prescriptions 
at any given time. Between Myocalcin and Fosamax for 
osteoporosis, and Synthroid for my thyroid, I spend well over 
2,000 a year on my prescriptions. I have purchased my drugs in 
Canada to help defray these costs. This was a trip that was 
organized by Senator Dorgan.
    I saw my doctor, in Fargo, who wrote out my prescriptions, 
brought them to a doctor in the City of Emerson, which is a 
little ways over the border. After I saw the Canadian doctor, I 
took the prescriptions to a Canadian pharmacy located in the 
same building. I brought $300 in cash. I wished I'd a brought a 
lot more. I came back with about $800 worth of prescriptions. 
And I never got sick or--I mean, it was just like what I had 
been taking right along.
    I feel completely safe in taking medications from Canada. 
The Alliance for Retired Americans has made more than 20 trips 
to Canada, from states stretching from coast to coast, serving 
hundreds of riders. No one has ever reported getting sick or 
had any adverse effects from taking these medications.
    I'm a veteran of World War II. I was a paratrooper in the 
82nd Airborne Division. As a former welder and then a 
professor, I am an ex-shipyard worker, ex-assembly line worker, 
and ex-steelworker, as well as retired member of the NEA, 
National Education Association. I have lived all over this 
country, seen many people, and witnessed a lot in my lifetime. 
I worked in a Hoboken, New Jersey, shipyards at Bethlehem Steel 
repairing the Stockholm after it collided with the Andrea 
Doria. I worked for General Electric, in Kentucky, before 
becoming a professor at North Dakota State University. I have 
always been a human rights activist, and was a part of Martin 
Luther King's civil rights movement. I'm still working for 
human rights.
    Senators, I know right from wrong. The bill that is coming 
out of the conference committee is not good for retirees. It 
does nothing to contain the skyrocketing prices of prescription 
drugs. In fact, it forbids Medicare from using the purchasing 
power of 40 million beneficiaries to negotiate the best drug 
prices.
    The Federal Government currently bargains for the best 
prices for the Department of Veteran Affairs, the Department of 
Defense, and the Indian Health Service Systems. There is no 
logic on why Congress would forbid Medicare from doing the 
same. Seniors and all taxpayers are the losers.
    This bill caters to the pharmaceutical industry by 
unnecessarily preventing American citizens from getting their 
drugs in Canada, where they are safe and affordable. I have 
never seen anyone get sick from taking a drug imported from 
Canada, but I have seen many people suffering from high drug 
prices that they cannot afford. Drugs from Canada are just as 
safe as American drugs. In fact, many of the drugs from Canada 
were made in the USA.
    Members of the Committee, I'm here today to ask that you 
enact a drug benefit that allows drugs to be imported from 
Canada, without loopholes that permit the Department of Health 
and Human Services to stop safe reimportation. To do anything 
else will make millions of seniors worse off.
    Thank you for inviting me here.
    [The prepared statement of Mr. Lubka follows:]

  Prepared Statement of Lewis Lubka, Senior Citizen, On behalf of the 
                     Alliance for Retired Americans
    Chairman McCain and Members of the Commerce, Science, and 
Transportation Committee, thank you for holding this hearing today on 
the impact of prescription drug importation on consumers.
    My name is Lewis Lubka and I live in Fargo, North Dakota. I am here 
today representing the Alliance for Retired Americans. The Alliance is 
a national organization of over three million members that works to 
create an America that protects the health and economic security of 
seniors, rewards work, strengthens families and builds thriving 
communities. It was launched in January 2001 by a national coalition of 
labor unions and community-based organizations dedicated to improving 
the quality of life for retirees and older Americans.
    I am seventy-seven years old and take at least three prescriptions 
at any given time. Between Myocalcin and Fosamax for osteoporosis, and 
Synthroid for my thyroid, I spend well over $2,000 a year on my 
prescriptions.
    I have purchased my drugs in Canada to help defray these costs. I 
saw an American doctor, filled a prescription in the United States, and 
brought it to a doctor in the City of Emerson, right over the border in 
Canada. After I saw the Canadian doctor, I took the new prescription to 
a Canadian pharmacy that was located in the same building. I brought 
$300 in cash with me and purchased $800 worth of medications with the 
money.
    I feel completely safe in taking Canadian medications. The Alliance 
for Retired Americans has made more than twenty trips to Canada from 
states stretching from coast to coast, serving hundreds of riders. No 
one has ever reported getting sick or had any adverse effects from 
taking those medications.
    I am a veteran of World War II. I was a paratrooper in the 82nd 
Airborne Division. As a former welder and then a professor, I am an ex-
shipyard worker, an ex-assembly-line worker, and an ex-steelworker, as 
well as a retired member of the National Education Association.
    I have lived all over this country, seen many people, and witnessed 
a lot in my lifetime. I worked in the Hoboken, New Jersey shipyards of 
Bethlehem Steel repairing the Stockholm after it collided with the 
Andrea Doria. I worked for General Electric in Kentucky before becoming 
a professor at North Dakota State University.
    I have always been a human rights activist and was a part of Martin 
Luther King's civil rights movement. I am still working for human 
rights.
    Senators, I know right from wrong. The bill that is coming out of 
the Conference Committee is not good for retirees. It does nothing to 
contain the skyrocketing prices of prescription drugs. In fact, it 
forbids Medicare from using the purchasing power of 40 million 
beneficiaries to negotiate the best drug prices.
    The Federal Government currently bargains for the best prices in 
the Department of Veterans Affairs, the Department of Defense, and the 
Indian Health Service systems. There is no logic on why Congress would 
forbid Medicare from doing the same. Seniors and all taxpayers are the 
losers.
    This bill caters to the pharmaceutical industry by unnecessarily 
preventing American citizens from getting their drugs in Canada where 
they are safe and affordable. I have never seen anyone get sick from 
taking a drug imported from Canada, but I have seen many people 
suffering from high drug prices that they cannot afford. Drugs from 
Canada are just as safe as American drugs--in fact many of the drugs 
from Canada were made in the U.S.A.!
    Members of the Committee, I am here today to ask that you enact a 
drug benefit that allows drugs to be imported from Canada without 
loopholes that permit the Department of Health and Human Services to 
stop safe re-importation. To do anything else will make millions of 
seniors worse off. Thank you for inviting me here.

    Senator Dorgan [presiding]. Mr. Lubka, thank you very much.
    And, finally, Dr. Funderburk, thank you for joining us. Why 
don't you proceed.

STATEMENT OF DAVID FUNDERBURK, LEGISLATIVE COUNSEL, TREA SENIOR 
                        CITIZENS LEAGUE

    Dr. Funderburk. Mr. Chairman, I want to thank you for the 
opportunity to testify on behalf of S. 1781.
    I serve as legislative counsel for the TREA Senior Citizens 
League, known as TSCL. It is a nationwide nonprofit education 
and lobbying organization with approximately 1.2 million 
members, which will be celebrating its 10th anniversary in a 
few months. TSCL's board of trustees is an all-volunteer group 
of retired military, headed up by its Chairman, George A. 
Smith. It sends out informative newsletters, stays in touch 
with its members via e-mail, publishes informational booklets, 
and it has an information-packed website, www.tscl.org.
    TSCL has nearly 23,700 members and supporters in the state 
of Arizona, and, in your state of North Dakota, several 
thousand members, Mr. Chairman.
    On the House side, TSCL has been working diligently in 
behalf of H.R. 2427, introduced by Congressman Gil Gutknecht, 
and is happy today to announce its support for S. 1781, your 
bill, the companion measure here in the Senate.
    In TSCL's annual survey, in February 2003, fully 87 percent 
of the membership responding voiced their support for drug 
importation. The current high cost of prescriptions is 
crippling our seniors. One of our members, Lillian F., told us, 
``I don't get enough Social Security for my medication, and I 
had to quit taking a couple of them. I have Parkinson's. I take 
medication for that. It's very expensive. Now my husband had a 
heart attack, and he has to take a lot of medications, too, so 
I might have to quit taking more of my medicine.'' 
Unfortunately, since Lillian F. wrote that e-mail to us in 
April of this year, her husband has passed away, and she has 
had to cut back further on her medications.
    It is on behalf of individuals such as Lillian that we 
support more affordable prescription drugs, and we believe S. 
1781 is a good place to start. TSCL is absolutely committed to 
this drug reimportation legislation.
    Prior to the vote in the House on H.R. 2427, TSCL ran a 
half-page ad in the Washington Times, urging Members of 
Congress to support passage of the bill. We also sent out e-
mail alerts to thousands of our supporters urging them to 
contact their elected representatives. And we continue our 
efforts through similar grassroots activities.
    As has been mentioned by many of those speaking previously, 
a drug that a senior or any American cannot afford and, 
therefore, cannot take is not a safe drug. TSCL Chairman, 
George Smith, wanted me to tell you that seniors especially ask 
to be treated like responsible men and women, and seniors 
should have the right to assume the minuscule risk of using a 
drug obtained from Canada, rather than suffer the risk of not 
having the prescription drug at all.
    William Hubbard, Associate Commissioner of the FDA, was 
quoted as saying, ``It's not OK for an individual to bring in 
drugs,'' referring to these bus trips of individuals going to 
Canada, ``but so much of the stuff is coming in, and it's so 
uncompassionate to go after patients.'' Well, should we then 
have compassion for Minnesotans who are able to make the trip, 
or North Dakotans, to Canada, but not for Mississippians and 
others who are not able to make such trips?
    I want to thank the distinguished Chairman for holding a 
hearing on this critical legislation. And on behalf of TSCL and 
its members, I urge the Senate to join the House and approve 
this important legislation.
    And, in closing, let me say, TSCL wants to work with you 
and the Committee on this issue and other issues of importance 
to seniors in the future, and I thank you for the opportunity 
to testify here today on behalf of TSCL and its members and 
supporters.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Funderburk follows:]

     Prepared Statement of David Funderburk, Legislative Counsel, 
                      TREA Senior Citizens League
    Mr. Chairman, Members of the Commerce Committee, I want to thank 
you for the opportunity to testify today on behalf of S.1781, which 
would allow Americans to have increased access to prescription drugs at 
reasonable prices. I would ask permission that my entire statement be 
included in the record.
    My name is David Funderburk, and I serve as Legislative Counsel for 
the TREA Senior Citizens League, known as TSCL. TSCL is a nationwide 
non-profit education and lobbying organization with approximately 1.2 
million members and supporters, which will be celebrating its Tenth 
Anniversary in a few months. TSCL's Board of Trustees is an all-
volunteer group of retired military headed up by its Chairman, George 
A. Smith. TSCL sends out an informative newsletter by mail and by e-
mail to hundreds of thousands of seniors 10 times per year. It stays in 
touch with its members via e-mail alerts. TSCL publishes informational 
booklets such as those that help seniors better understand Social 
Security and Medicare, and other issues. And, TSCL has an information-
packed website, www.tscl.org, with information on the drug re-import 
bill, and many other policy issues affecting seniors.
    TSCL has nearly 23,700 members and supporters in your state of 
Arizona, Mr. Chairman. (I remember the Chairman coming to my hometown 
not too many years ago to campaign for me when I was in Congress. It's 
always nice to be with you, Mr. Chairman.)
    On the House side, TSCL has been working diligently on behalf of 
H.R. 2427, introduced by Congressmen Gil Gutknecht (R-MN) and Rahm 
Emanuel (D-IL), and is happy to today announce its support for S.1781, 
the companion measure here in the Senate.
    In TSCL's annual survey in February 2003, fully 87 percent of the 
TSCL membership responding voiced their support for drug importation. 
The current high cost of prescriptions is crippling our seniors.
    One of our members, ``Lillian F,'' told us ``I don't get enough 
Social Security for my medication and had to quit taking a couple of 
them. . . . I have Parkinson's and I take medication for that and it is 
expensive. . . . Now my husband had a heart attack, and he has to take 
a lot of medications too, so I might have to quit taking more of my 
medicine.'' Unfortunately, since ``Lillian F.'' wrote that e-mail to us 
in April of this year, her husband has passed away and she has had to 
cut back further on her medicines. It is on behalf of individuals such 
as ``Lillian F'' that we support more affordable prescription drugs, 
and we believe that S.1781 is a good place to start.
    The disparity of drug costs in the United States, Canada and Europe 
is striking. In Canada, someone can purchase Zocor for $45.49; here in 
the U.S., the same prescription is $123.43. Pravachol purchased in 
Canada, 40.00; in the United States, $85.60. No wonder seniors like 
``Lillian F'' aren't able to afford the medicine they need!
    TSCL is absolutely committed to this drug re-import legislation. 
Prior to the vote in the House of Representatives on H.R. 2427, TSCL 
ran a half-page ad in the Washington Times, urging Members of Congress 
to support passage of the bill. We also sent out e-alerts to thousands 
of our supporters urging them to contact their elected Representatives. 
We continue our efforts through similar grassroots activities.
    We may not have the visibility and presence of the pharmaceutical 
industry, but there are fully 1.2 million seniors represented by TSCL. 
TSCL is funded with small contributions from its supporters and members 
and today I want to share with you the views of those members and 
supporters.
    Some who oppose S.1781 use the argument that measures such as 
S.1781 or H.R. 2427 will open the floodgates for unsafe drugs coming 
into the United States. But right now, some 1 million Americans buy 
medicines from Canada either through bus trips or via the Internet, 
according to the Manitoba International Pharmacists Association. There 
have been no reported deaths from those drugs, according to testimony 
provided from the U.S. Food and Drug Administration (``FDA'') at a 
House hearing.
    And as Katherine Greider wrote in her book, ``The Big Fix: How the 
Pharmaceutical Industry is Ripping Off American Consumers,'' some 29 
percent of seniors don't fill their prescriptions because they can't 
afford to. We see that in our own membership, as mentioned above. A 
drug that a senior--or any American--can't afford, and therefore can't 
take--is not a safe drug.
    Please don't accept the nonsense that if this law is passed seniors 
might make the wrong choice in buying prescription drugs. Seniors do 
not need such protection from government. TSCL Chairman George Smith 
wanted me to tell you that seniors especially ask to be treated like 
the responsible men and women they are. And seniors should have the 
right to assume the miniscule risk of using a drug obtained from 
Canada, rather than suffer the risk of not having the prescription drug 
to take at all. Everything we do, including getting out of bed in the 
morning entails risk, and it is not the business of the Federal 
Government to take away our freedom to make decisions like these for 
ourselves.
    Of course, the proposed legislation allows the importation of only 
FDA-approved drugs from FDA-approved facilities. Many drugs that 
Americans buy from Canada are actually made in New Jersey or Puerto 
Rico.
    There is no guarantee of safety in any drug that you take. However, 
S.1781 provides for state of the art technology to protect imported 
medicines--the same anti-counterfeiting measures used to protect our 
new currency. Right now, an American has a greater risk of getting sick 
by eating imported food than he or she does getting sick from a drug 
purchased in Canada or Germany.
    Americans over the age of 65 will spend some $1.8 trillion on 
prescriptions during the next 10 years, according to the Congressional 
Budget Office. Importing prescriptions could save them 35 percent, 
again according to CBO.
    States and localities, too, want to save dollars in these tight 
economic times. Minnesota, Iowa, Illinois, all are looking at drug 
importation. Closer to home, Montgomery County, Maryland is beginning 
to study the issue. Governor Blagojevich released a study that 
concluded imports from Canada were safe and could save his state of 
Illinois tens of millions of dollars a year.
    A study by Families USA found that marketing, advertising and 
administrative costs are much higher than what is currently spent on 
research and development, often twice as much. The pharmaceutical 
industry will still make a profit if S.1781 or H.R. 2427 were to pass, 
and pharmaceutical companies would still be able to devote sufficient 
funds to R&D if they chose to do so.
    According to a statement by Senator Chuck Grassley, as cited in the 
Washington Post, ``Imports create competition and keep domestic 
industry more responsive to consumers.'' (Washington Post, November 8, 
2003)
    The FDA has, in the past, looked the other way on Americans taking 
the bus to buy small personal supplies of medicines from Canada. This 
is changing. We have also recently seen a district judge grant an FDA 
request to shut down RxDepots in Oklahoma. The time to act is now.
    William Hubbard, Associate Commissioner of the FDA, was quoted in a 
September 16, 2003 article from the New York Times as saying, ``It's 
not O.K. for the individual to bring in drugs'' (referring to bus trips 
of individuals going to Canada), ``but so much of the stuff is coming 
in and it's so uncompassionate to go after patients.'' Should we then 
have compassion for Minnesotans who are able to make the trip to 
Canada, but not Mississippians who are not?
    I want to thank the distinguished Chairman for holding a hearing on 
this critical legislation, and on behalf of TSCL and its members, I 
urge the Senate to join the House and approve this important 
legislation.
    And in closing, let me say that TSCL wants to work with you and the 
Committee on this issue, and on other matters of importance to seniors 
in the future, and I thank you for the opportunity to testify here 
today on behalf of TSCL and its members and supporters.

    Senator Dorgan. Mr. Funderburk, thank you very much.
    Let me indicate, on behalf of Senator McCain, who had to 
leave for another engagement, that we very much appreciate the 
testimony of this panel. And I regret that the hearing took 
some long while this morning. As a result of that, my 
colleagues had other hearings to go to and other places to go.
    And so let me make a couple of comments, if I might, about 
your testimony. I'm not going to ask questions, because we need 
to adjourn the hearing.
    Mr. Catizone, I happen to feel very strongly that its very 
important to keep our Main Street pharmacists in the middle of 
patient healthcare, especially with respect to how prescription 
drugs act and interact. We have so many senior citizens who 
take multiple prescription drugs--four, six, sometimes 10 or 12 
different prescriptions drugs every day. And if there's not a 
pharmacist somewhere watching all of these drugs to find out 
how they interact--and they might say to the senior citizen, 
``These two are dangerous if you take them together. These two, 
if you take together, nullify each other, so you're wasting 
your money.'' It's important that that be the case. There is so 
much now--so many circumstances in which there's not a 
pharmacist involved, and someone's seeing four different 
specialists, and they're ordering medicine from four different 
directions.
    Our ultimate goal, my goal, is not to ask Americans to go 
elsewhere to buy prescription drugs. It is to force a repricing 
of prescription drugs in our country. But I value the role of 
the pharmacist. I feel very strongly about the viability and 
the need for Main Street pharmacists.
    Mr. MacArthur, you described the issue of parallel trading 
in Europe, and it is identical to that which, in my judgment, 
we should be doing. We have taken a slightly different 
approach. But your description of parallel trading describes to 
us that all of the nonsense we are hearing about safety issues 
is just that, nonsense. It is, apparently, by your testimony, 
and I have heard this previously, it is easy for the countries 
in Europe to engage in a regime in which you are able to 
certify the prescription drugs in each other's countries, and 
also to monitor the drugs that are moving country to country. 
And so all of these safety issues here, I think, are just 
raised on behalf of those who don't want to do anything to 
interrupt the pricing strategy in the U.S. But I think you have 
raised, as Senator McCain has said, some important issues for 
us to consider with respect to parallel trading, itself, which 
is slightly different than that which we've been proposing.
    And, Mr. Lubka, I've known you for some long while, and, as 
I indicated, on a snowy day in North Dakota, we rode in a van 
to Emerson, Canada. And, in a one-room pharmacy, you discovered 
what all of us know, and that is, five miles north of a U.S. 
pharmacy you can buy exactly the same prescription drugs, FDA-
approved, in the same bottle, the same pill, manufactured by 
the same company, for a dramatically lower price, and it 
describes what's wrong with this system and why we have these 
hearings. The U.S. consumer is paying the highest prices in the 
world for prescription drugs, and it's unfair.
    Mr. Lubka. Maybe I ought to make another run up to Canada. 
You think?
    Senator Dorgan. Well, we maybe ought to do that, Mr. Lubka.
    And Dr. Funderburk, I appreciate your organization's 
interest in this. I know that you make the case it ought not 
just be those who live contiguous to the border that have 
access to these lower-priced prescription drugs, and you're 
absolutely correct about that. Again, you heard me say, our 
ultimate goal is to force a repricing of prescription drugs in 
our country. There are no miracles from miracle drugs that 
people can't afford.
    And let me finish by telling you of one evening in a little 
town in northern North Dakota, at the end of a meeting, a woman 
close to 80 years of age came up to me when the meeting broke 
up, and she grabbed me by the elbow, and she said, ``Mr. 
Senator, can you help me?'' I said, ``I'll sure try. What's 
wrong?'' And she began to describe to me, as her eyes welled 
with tears and her chin began to quiver, she said, ``I have 
heart disease and diabetes, and my doctor says I have to take 
medicine to stay alive, and I can't afford it. I don't have any 
money. Can you help me?''
    And she, at near 80, a widow with very little income, 
understood the dilemma. She didn't have the money, but she 
needed to take these prescription drugs to control her diabetes 
and her heart disease. And that's why we have to do something 
about this. And, you know, we have to do it in a way that makes 
sense for the consumers of this country.
    Let me make one final point. This is not a search for 
villains. Our pharmaceutical industry is big, strong, and 
healthy. I want our pharmaceutical industry to do well. I want 
them to discover new medicines, and I want them to do research, 
but I also want from them fair pricing for the American 
consumers, and that is not the case today. And that's why we 
are pushing for legislation.
    Let me thank this panel for being here. This hearing is 
adjourned.
    [Whereupon, at 12:15 p.m., the hearing was adjourned.]

                            A P P E N D I X

 Prepared Statement of Representative David Lemoine, Chair and Cheryl 
    Rivers, Executive Director, National Legislative Association on 
                        Prescription Drug Prices
Mr. Chairman:

    The National Legislative Association on Prescription Drug Prices is 
a nonprofit bipartisan Legislative Association, which was formed in 
1999,s Our mission is to win fair prices and comprehensive prescription 
drug coverage for all Americans. Though several of our member states, 
including our own states of Maine and Vermont have made valiant efforts 
and passed innovative and creative pieces of legislation, the situation 
with prescription drug prices in America remains a National disgrace. 
Americans are asked to pay the highest prices in the world for drugs, 
which were often developed with taxpayer dollars through government-
funded research.
    The Medicare Prescription drug conference report is the latest 
evidence of the failure of Congress to act to bring some balance and 
basic fairness to drug prices in America. It is clear that neither the 
current administration nor a majority in Congress have the political 
will to stand up to the pharmaceutical industry on behalf of ordinary 
Americans. Not only will the legislation fail to improve on the status 
quo for states, and seniors, but also it will severely curtail state 
efforts to use our clout in the market to negotiate for fair prices for 
states, seniors, and the uninsured. We understand that the Medicare 
Prescription Drug Conference Report contains industry-favored language 
that means it will never be implemented. Without a strong instructive 
statute this administration will continue to do everything in its power 
to protect the pharmaceutical industry at the expense of ordinary 
Americans.
    Across America states, cities, businesses and individuals need your 
help. We need Legislation that allows businesses and individuals to 
freely acquire the prescription drugs they need in both the Canadian 
and European markets. This would allow a sufficient supply to thwart 
industry anticompetitive tactics currently being employed to try and 
limit the supply in Canada. Once before in American history there was a 
piece of legislation passed by the Congress known as the fugitive slave 
law. It was a bad law that Americans of conscience could not respect or 
follow. Thankfully it is a relic of history. A prohibition against 
letting people buy their medications in Canada and abroad endangers the 
life, liberty, and pursuit of happiness in the 21sr century just as 
that unjust and backward statute did in the 19th century. You have the 
power to eliminate this injustice and improve the health of millions of 
Americans in the process. It is past time to act.
    Thank you for the opportunity to submit testimony.

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