[Senate Hearing 109-143]
[From the U.S. Government Publishing Office]



 
                                                        S. Hrg. 109-143

                S. 334: AN APPROACH TO DRUG IMPORTATION

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

                                HEARING

                                 of the

          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                                   ON

  EXAMINING S. 334, TO AMEND THE FEDERAL FOOD, DRUG, AND COSMETIC ACT 
         WITH RESPECT TO THE IMPORTATION OF PRESCRIPTION DRUGS

                               __________

                             APRIL 19, 2005

                               __________

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                                Pensions






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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                   MICHAEL B. ENZI, Wyoming, Chairman
JUDD GREGG, New Hampshire            EDWARD M. KENNEDY, Massachusetts
BILL FRIST, Tennessee                CHRISTOPHER J. DODD, Connecticut
LAMAR ALEXANDER, Tennessee           TOM HARKIN, Iowa
RICHARD BURR, North Carolina         BARBARA A. MIKULSKI, Maryland
JOHNNY ISAKSON, Georgia              JAMES M. JEFFORDS (I), Vermont
MIKE DeWINE, Ohio                    JEFF BINGAMAN, New Mexico
JOHN ENSIGN, Nevada                  PATTY MURRAY, Washington
ORRIN G. HATCH, Utah                 JACK REED, Rhode Island
JEFF SESSIONS, Alabama               HILLARY RODHAM CLINTON, New York
PAT ROBERTS, Kansas
               Katherine Brunett McGuire, Staff Director
      J. Michael Myers, Minority Staff Director and Chief Counsel



                            C O N T E N T S

                              ----------                              

                               STATEMENTS
                             APRIL 19, 2005

                                                                   Page

Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming, 
  opening statement..............................................     1
Kennedy, Hon. Edward M., a U.S. Senator from the State of 
  Massachusetts, opening statement...............................     3
Dorgan, Hon. Byron L., a U.S. Senator from the State of North 
  Dakota.........................................................     5
    Prepared statement...........................................     7
Snowe, Hon. Olympia J., a U.S. Senator from the State of Maine...    10
Stabenow, Hon. Debbie, a U.S. Senator from the State of Michigan.    13
Vitter, Hon. David, a U.S. Senator from the State of Louisiana...    15
Murray, Hon. Patty, a U.S. Senator from the State of Washington, 
  opening statement..............................................    20
Gregg, Hon. Judd, a U.S. Senator from the State of New Hampshire, 
  opening statement..............................................    21
Isakson, Hon. Johnny, a U.S. Senator from the State of Georgia...    26
Burr, Hon. Richard M., a U.S. Senator from the State of North 
  Carolina, opening statement....................................    28
Satchwell, Graham, Managing Director, Proco Solutions, London, 
  United Kingdom.................................................    31
    Prepared statement...........................................    33
Cecil, Todd, Vice President of Standards Development, United 
  States Pharmacopeia, Rockville, MD.............................    38
    Prepared statement...........................................    40
Arthur, Thomas C., Dean, Emory University School of Law, Atlanta, 
  GA.............................................................    48
    Prepared statement...........................................    50
Kessler, David A., M.D., Dean, University of California, San 
  Francisco School of Medicine, San Francisco, CA................    53
    Prepared statement...........................................    54

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Letters of Dr. Kessler.......................................    56
    Senator Gregg--S. 334: A Different FDA Standard for Imported 
      Drugs That Would Compromise the Safety, Effectiveness, and 
      Quality of the American Prescription Drug Supply...........    63


                S. 334: AN APPROACH TO DRUG IMPORTATION

                              ----------                              


                        TUESDAY, APRIL 19, 2005

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:03 a.m., in 
room SD-430, Dirksen Senate Office Building, Senator Michael B. 
Enzi (chairman of the committee) presiding.
    Present: Senators Enzi, Hatch, Gregg, Isakson, Ensign, 
Burr, Kennedy, and Murray.

                   Opening Statement of Senator Enzi

    The Chairman. I call the hearing to order on ``An Approach 
to Drug Importation.'' Welcome to today's hearing.
    Let me begin by saying I believe it may be possible to 
import prescription drugs from other countries and do so 
safely, but we do need to answer a lot of questions before we 
can open our borders to imported drugs without endangering 
consumers or jeopardizing research and development of new, 
lifesaving products.
    Earlier in the year, I promised that we would have a 
hearing within 90 days. I would like everyone to note that it 
is within 90 days by a few days. This is the third hearing this 
committee has held on drug importation this year in an effort 
to ask and answer the important questions.
    In February, I chaired two hearings on the subject. We 
focused on two reports released last December by the Department 
of Health and Human Services Task Force on Drug Importation. We 
heard from the Surgeon General about safety and security issues 
and we heard from the Department of Commerce on the global 
pricing and international trade dynamics of drug importation. I 
want to commend the members of the task force and the scores of 
witnesses from whom the task force heard for identifying and 
wrestling with the challenges that we must address if we are 
serious about creating a system for safe drug importation.
    Today, I am pleased to welcome Senators Dorgan and Snowe 
and other colleagues of ours to discuss S. 334, the 
Pharmaceutical Market Access and Drug Safety Act of 2005.
    Senator Dorgan, when you introduced your bill this year, 
you made the statement that, ``miracle drugs provide no 
miracles for those who can't afford them.'' I couldn't agree 
with you more. Most Americans who turn to imported drugs do so 
because of the cost.
    But I am sure that you and all of the witnesses would agree 
that a counterfeit or tainted drug is unsafe at any price. As 
we consider the issue of drug importation, the safety of our 
citizens must be our primary concern. As chairman of the 
committee charged with public health, it certainly is mine.
    Each of us takes a risk every time we take a drug. But 
Americans who buy prescription drugs in Canada and other 
countries or purchase drugs from Internet pharmacies that 
operate outside the United States are taking an even greater 
risk by obtaining their prescription medicines from pharmacies 
and Internet sites that don't always meet the high standards 
that we require here at home, and here is where my concern 
lies.
    We already have a problem with counterfeit and substandard 
drugs here in the United States. Last year, the Washington Post 
published a week-long series about this problem. In addition, 
concern about the quickly growing counterfeit market is not 
just limited to the United States, as one of our witnesses 
today will tell us. In Europe, dangerous counterfeit drugs are 
already a problem, and the problem is growing as the European 
Union expands. In addition, we have little or no knowledge of 
the extent of counterfeiting in the Asian markets.
    Prior to legalizing an untested drug importation program on 
a large scale across our Nation, we must consider any new 
vulnerabilities in our drug distribution system, especially 
since those vulnerabilities could be massive in size. S. 334 
would allow drug importation from more than 20 countries 
worldwide. A program as envisioned by S. 334 has never been 
undertaken, so a cautious approach to drug importation is 
required.
    We will also hear perspectives about other drug safety and 
security issues, such as the importance of limiting imported 
drugs only to those that have been approved by the FDA. It is 
important for this committee to understand how small 
differences between drugs can make differences in the health of 
patients.
    In addition, we will hear a perspective about the effect 
that drug importation legislation might have on patent rights 
and international law, and possible Constitutional limitations, 
as well.
    And last, but certainly not least, and actually first, we 
will hear from our colleagues who support S. 334 or another 
approach to drug importation. I appreciate your willingness to 
take the time to be here today and I look forward to hearing 
from all of you.
    As we know, this committee has jurisdiction over any 
legislation that would amend the Food, Drug, and Cosmetic Act 
to remove the restrictions against importing prescription 
drugs. As chairman of the HELP Committee, I fully intend to 
work with my fellow committee members, any interested members, 
and various stakeholders to develop a bill that will allow for 
safe drug importation.
    I know that we all share the same goals. We all want to 
ensure that drugs that are imported are safe, effective, and 
will not compromise the integrity of our Nation's prescription 
drug supply or our world-leading pharmaceutical research.
    Like many Americans, I am concerned about the high and 
rising cost of prescription drugs. However, I doubt that 
importation of drugs from other countries will solve this 
problem all by itself. That is why I believe that if we are 
going to open our borders to imported drugs, we had better be 
certain about exactly what we are doing and how we are going to 
do it. We should not tell companies with whom they must do 
business, how they must sell, and at what price, mandates what 
I strongly believe will ultimately limit consumer access to new 
drugs.
    So I look forward to this spirited discussion. I think it 
will answer my questions about this legislation and will 
hopefully inform us all of the best direction for us to take 
from here.
    I will now recognize Senator Kennedy for his opening 
statement. As is the tradition on this committee, only the 
Chairman and Ranking Member are recognized to deliver opening 
statements so that we can spend more time with the witnesses 
and the questions. I do ask unanimous consent that the opening 
statements of all of my colleagues on the committee be entered 
into the record. Without objection, so ordered.
    Senator Kennedy.

                  Opening Statement of Senator Kennedy

    Senator Kennedy. Thank you very much, Mr. Chairman, and 
thank you for meeting the commitment to having this hearing. We 
have had additional hearings, as well. None of us are really 
surprised. Once you make a commitment, as we know on this 
committee and know otherwise, you are a person of your word and 
we are very grateful for your attention to the hearing that we 
are having today on this issue.
    We live in the period of the life sciences. This is the 
life science century. And the breakthroughs that we are seeing 
across the world are breathtaking and the possibilities are 
unlimited. I think the Congress has recognized that with the 
doubling of the NIH budget. We are having challenges at the 
present time, and that is another issue for another time. But 
when we see the sequencing of the gene, the mapping of the 
human genome, the potential in terms of stem cell research, it 
is virtually unlimited.
    I think the great challenge that we have is to try to make 
sure that those miracles which are out there are going to 
actually reach and benefit the families in this country, and 
really families around the world. To a great extent, this 
debate and discussion is very much a part of that public policy 
issue, and I thank my colleagues for their interest, Senator 
Stabenow, Senator Dorgan, Senator Snowe, Senator Vitter, and 
all those who are strongly committed to trying to meet this 
particular challenge.
    Often, these drugs can prevent diseases from spiraling out 
of control and from causing enormous suffering. Yet for 
millions of Americans, the breakthroughs are far out of reach. 
Today, the respected medical journal, Health Affairs, published 
a major study showing that over a quarter of American seniors 
went without needed prescriptions or split pills due to the 
high cost of medicine. One in 20 illegally imported drugs from 
Canada.
    This issue is as relevant as today's Washington Post 
article, ``Drug Benefit Disparities Cited.'' The first 
paragraph states,

          ``The Medicare prescription drug benefit available next year 
        will cost senior citizens an average of $722 annually. But 
        retirees with chronic conditions such as diabetes and heart 
        disease can expect to pay about double that amount and will 
        face gaps in their coverage for as long as 5 months, according 
        to projections being published today.''

    So we have a real crisis for real people and real families. 
Drug importation isn't going to mean the end of the crisis, but 
it does provide an enormous opportunity to make progress.
    Sadly, the administration feels that it is more important 
to protect drug company profits than to help Americans to 
afford the medical miracles that their tax dollars helped to 
discover, and it is tragic that the only way for millions of 
our fellow citizens to afford the prescription that their taxes 
pay to develop is to attempt to purchase them from Canada or 
other nations where their prices are more reasonable. It is 
legal for drug companies to bring their products into America 
from overseas and should be legal for patients to do so, too, 
and it is the responsibility of Congress to see that it can be 
done safely, just as it is the responsibility of Congress to 
see that U.S. drug manufacturers do so safely when their 
products are manufactured overseas.
    So Americans, as we know, Mr. Chairman, now pay almost 
double the price charged for identical drugs in other developed 
countries. Year after year, the costs of drugs in the United 
States continues to skyrocket in a way that is unfair and 
unsustainable, and year after year, the pharmaceutical industry 
is among the most highly profitable industries in America. And 
with the enormous difference in price between the drug sold in 
the United States and the same drug sold across the border in 
Canada, it is no surprise that innovative senior citizens 
discovered the opportunity for instant relief that was 
available in Canada and began organizing the bus trips to 
Canada that we have heard about before.
    In Massachusetts, the City of Springfield began using 
Canadian pharmacies to provide prescription drugs for its city 
employees and retirees, and Springfield's example led the way 
for other cities, such as Boston, to do the same. Whole States 
are now involved, as well. And the legislation that Senators 
Dorgan, Snowe, Grassley, McCain, Stabenow, Jeffords, Clinton, 
Bingaman, many others, and I have introduced will allow the 
importation of safe FDA-approved drugs manufactured in plants 
inspected by FDA. It would allow American patients to buy safe 
drugs at the fair prices that Canadians and Europeans pay, not 
the exorbitant prices that seniors and the uninsured are forced 
to pay in the United States.
    The place of manufacture and the name of the importer will 
also appear on the label of imported drugs, as will differences 
in inactive ingredients, if any, that may affect patients, such 
as a person with particular allergies.
    In short, under our bill, a large number of Americans who 
cannot afford their medicines today will have safe access to 
less expensive drugs.
    So I welcome our colleagues here this morning. I also 
welcome former FDA head David Kessler, who is an old friend of 
this committee, and other witnesses today, and I look forward 
to their testimony. I thank you again for this hearing.
    The Chairman. Thank you. I would like to welcome this first 
panel of distinguished colleagues to the committee today. We 
have Senator Byron Dorgan of North Dakota and Senator Olympia 
Snowe of Maine, who have spent a great deal of time putting 
together the bill that we are having the hearing on today. We 
have Senator Debbie Stabenow of Michigan, who has been working 
on drug reimportation since before she got to the Senate. And 
we have Senator David Vitter of Louisiana, who has another 
version of drug reimportation that he has been working on 
diligently with a number of people.
    I welcome you all, and Senator Dorgan.

                      Statement of Senator Dorgan

    Senator Dorgan. Mr. Chairman, thank you very much, and 
indeed, you have kept your word and this hearing is on time and 
we deeply appreciate it.
    Mr. Chairman, the reason I and my colleagues feel so 
strongly about this issue is probably best described by just a 
short story. I was on a North Dakota farmstead a while back and 
there was a fellow there in his 80s. His wife was with him. She 
was in her 80s. We were sitting around talking and he said, 
``Well, you know, it has been a tough several years. We have 
spent most of the time driving to the doctors and driving to 
Canada.'' I said, ``Why is that?'' He said, ``Well, my wife has 
suffered from breast cancer and,'' he said, ``We spend a lot of 
time driving to the doctors.'' This is in a rather remote area, 
so they had a long drive to the doctors. Then he said, ``We had 
to drive to Canada in order to afford the medicine she needed, 
to buy the Tamoxifen, and we bought it at an 80 percent 
discount in Canada, and so over the years that she has been 
treated, we have had to continue to make that drive in order to 
be able to afford her treatment.''
    It is not surprising. We all know this story. Here is the 
story told in a pill bottle. This is Lipitor. We all know that 
Lipitor is one of the most popular drugs for controlling 
cholesterol. As you can see, this is an identical bottle, same 
coloring, same size, same cap. This is a bottle that contains 
tablets made by the same company, the same pill made by the 
same company, put in the same bottle. The difference? This one 
was sold in Canada. This one was sold in the United States. The 
difference? Price, $1.81 per tablet in the United States, $1.01 
per tablet in Canada.
    Now, why are the U.S. consumers charged nearly double? What 
is the justification for that, that they are charged nearly 
double for this prescription drug, incidentally, which is made 
in Ireland. A prescription drug made in Ireland, imported by 
both Canada and the United States, except the U.S. consumer is 
charged nearly double.
    Well, the answer is in the drug price controls that exist 
in the United States. As you know, we do have price controls in 
the United States on pharmaceutical drugs. Those controls are 
handled by the pharmaceutical industry themselves and they have 
decided to charge the highest prices in the world to the U.S. 
consumer. I and my colleagues think that is patently unfair and 
we believe the U.S. consumer ought to have access to the world 
trade market, with proper safety precautions, and use that 
approach to drive down prices and force a repricing here in the 
United States.
    I am very proud to be a part of a group of 31 Senators that 
have put together a broad bipartisan piece of legislation that 
is very carefully constructed. This legislation can hardly be 
called speeding. The first bill that I and some others 
introduced in the Senate was in 1999. That is 6 years ago. 
Seldom has the U.S. Senate been accused of speeding, and that 
is not the case here. We are talking about an issue that is 
getting worse, not better, one that cries out for Senate 
action, and I think we are finally at the precipice where such 
action will be taken and this hearing is an important first 
step.
    Let me just say that the Dorgan-Snowe bill that we are all 
talking about here today creates a closed system of commercial 
drug importation that ensures the safety of imported drugs from 
the point of manufacture to the drug stores shelf. And S. 334 
includes a wide range of safety features. Mr. Chairman, you 
talked about safety and counterfeiting and so on. This bill is 
the solution to that.
    First of all, only FDA-approved drugs made in FDA-inspected 
facilities can be imported under this bill. Moreover, 
commercial importation by pharmacists and wholesalers could 
only occur from a limited number of countries--Canada, some 
European countries--and they have drug regulatory systems 
comparable to our own. That is why these countries are eligible 
under this bill. Only U.S.-licensed pharmacies and drug 
wholesalers that register with the FDA can import these 
prescription drugs. Registered pharmacies and wholesalers would 
be required to maintain the pedigree of imported medicines all 
the way back to the FDA-inspected manufacturing plant. Finally, 
registered importers would be subject to frequent random FDA 
inspection and could have their registration suspended or 
terminated if they don't comply with the bill's requirements.
    Most importantly, I think, this bipartisan bill will allow 
safe reimportation and enable American consumers to stay at 
home and use their local pharmacy, who can then access these 
lower-priced FDA-approved medicines, and they will still 
benefit from lower drug prices, but also from the involvement 
of their local pharmacist in their health care, which I think 
is so important. Pharmacists then can coordinate their 
patients' pharmaceutical care and help prevent adverse drug 
reactions.
    There are so many other provisions of this bill, and I 
think I will have my colleague, or my colleagues, I should say, 
respond to some of them, as well, but I want to just make this 
point. You all know, because we have had testimony before the 
Congress--I don't know that that testimony has been before this 
committee, but in the Commerce Committee, it has--you know that 
Europe has done this routinely. If you are in Germany and want 
to buy a prescription drug from Spain, no problem. If you are 
in Italy and you want to buy a prescription drug from France, 
no problem.
    There is something called parallel trading. It has been 
going on for over 2 decades and parallel trading that the 
Europeans do, by which the European consumers can access a 
lower-price drug by importing it from another country, has 
worked, worked very successfully. There are no safety issues. I 
would encourage, if there are still questions about that, I 
would encourage you to invite the people involved in the 
parallel trading system in Europe to testify.
    But clearly, we can do this. There are some who say we 
can't do what Europe does. Nonsense. This is not a safety issue 
any longer. The issue is, who are we going to stand with? Are 
we going to stand with the American consumers, who are the 
victims of unfair pricing strategies, or with the 
pharmaceutical industry, who hides behind this current law that 
prohibits reimportation by anyone except themselves and then 
imposes their own set of price controls in this country in our 
marketplace in a manner that is patently unfair in my judgment?
    Mr. Chairman, there are other features of the bill. I will 
allow my colleague, Senator Snowe, to deal with some of those, 
as well. This is a broad-based bipartisan coalition of nearly 
one-third of the United States Senate. I hope and expect that 
we will be able to make progress to get a bill to the 
President's desk this year. America is waiting, and this 
Congress ought to take action.
    Mr. Chairman, thank you very much for allowing us to hold 
this hearing.
    The Chairman. Thank you.
    [The prepared statement of Senator Dorgan follows:]

                  Prepared Statement of Senator Dorgan

    Chairman Enzi, Ranking Member Kennedy, and other Members of 
the HELP Committee, I want to thank you for having this 
legislative hearing on S. 334, the bipartisan prescription drug 
importation bill that I have sponsored along with Senators 
Snowe, Grassley, Kennedy, McCain, Stabenow, and many others. I 
especially want to express my appreciation to Majority Leader 
Frist and Chairman Enzi for meeting the commitment they made to 
Senator Snowe and me to hold this hearing specifically on our 
bill.
    As my colleagues know, this is an issue that I have been 
working on for quite some time. In fact, I introduced the very 
first prescription drug re-importation legislation in the 
Senate back in 1999, and the first Senate vote on this issue 
was way back in 2000 on an amendment Senator Jeffords and I 
offered to an Agriculture Appropriations bill.
    Most recently, I have introduced S. 334, the Pharmaceutical 
Market Access and Drug Safety Act. This bill currently has 31 
cosponsors from across the political spectrum, including, I'm 
pleased to note, a number of members of this committee.
    In short, my bipartisan bill would allow American 
consumers, pharmacies and drug wholesalers to import FDA-
approved prescription drugs at the substantially lower prices 
available on the world market. Many studies have confirmed what 
millions of Americans already know--the same prescription drugs 
cost significantly less in Canada, Europe, and other developed 
countries than they do here in the United States. And in fact, 
the Congressional Budget Office has confirmed that brand-name 
drugs cost, on average, 35 to 55 percent less in other 
industrialized nations than they do in the United States.
    Unfortunately, the price discrepancy for prescription drugs 
between the United States only continues to get worse, even 
despite the weakening of the American dollar. Drug prices 
continue to rise at a rate much higher than inflation--a study 
released just last week by AARP has found that brand-name 
prescription drug prices went up an average of 7 percent just 
in the last year. Clearly, Congress must act to inject some 
competition into the pharmaceutical marketplace in order to put 
downward pressure on drug prices.

                     CONFRONTING THE SAFETY ISSUES

    I have worked very hard with Senators Snowe, Kennedy, 
Grassley, McCain and others to assure the safety of drugs 
imported under our legislation.
    Unfortunately, there exists in the United States a 
situation today whereby American citizens are resorting to 
potentially unsafe measures in order to afford their 
medicines--including cutting pills in half, skipping doses, and 
ordering drugs from possibly rogue foreign and domestic 
Internet pharmacies. In fact, the amount of potentially unsafe 
drugs coming into the country has exploded because people who 
can't afford high U.S. prices have been buying their 
medications over the Internet under a system that is virtually 
unregulated by the Food and Drug Administration (FDA).
    Mr. Chairman, not acting on drug importation legislation is 
a far greater safety hazard than acting on this bill would be. 
S. 334 will empower consumers to purchase safe, approved 
prescription medicines from Canadian pharmacies via mail-order 
or the Internet under a regulated program. Consumers who choose 
this option will be assured that they are dealing with a 
legitimate, licensed Canadian pharmacy that is registered and 
inspected by the FDA. The FDA will post the list of approved 
Canadian pharmacies on its Web site and through a toll-free 
number, so Americans can readily check to see if they are 
dealing with a legitimate pharmacy and not a rogue Web site.
    The Dorgan-Snowe bill also creates a closed system of 
commercial drug importation that ensures the safety of imported 
drugs from the point of manufacture to the drugstore shelf. 
Again, S. 334 includes a range of safety features. First of 
all, only FDA-approved drugs made in FDA-inspected facilities 
can be imported under the Dorgan-Snowe bill. Moreover, 
commercial importation by pharmacists and wholesalers could 
only occur from a limited number of countries--Canada, some 
European countries, Japan, Australia, New Zealand, and 
Switzerland--that have drug regulatory systems comparable to 
our own. And only U.S.-licensed pharmacies and drug wholesalers 
that register with the FDA can import prescription drugs. 
Registered pharmacies and drug wholesalers would be required to 
maintain the pedigree of imported medicines all the way back to 
the FDA-inspected manufacturing plant. Finally, registered 
importers would be subject to frequent, random FDA inspection 
and could have their registration suspended or terminated if 
they don't comply with the bill's requirements.
    Perhaps most importantly, the bipartisan bill enables 
American consumers to stay at home and use their local 
pharmacy, while still benefiting from lower drug prices. This 
would ensure that pharmacists could coordinate their patients' 
pharmaceutical care and help to prevent adverse drug 
interactions.
    Let me make one final point about safety: Some have 
suggested that we should rely on a requirement that the Health 
and Human Services Secretary should certify to the safety of 
imported medicines before importation legislation be 
implemented. As I mentioned earlier, we currently have an 
unsafe system whereby as many as 5 million packages containing 
drugs come into the United States with virtually no regulation. 
We cannot allow this unsafe situation to continue, and that is 
what a Secretarial certification requirement would cause.

                           CLOSING LOOPHOLES

    It is also very important that drug importation legislation 
include provisions that would prevent drug companies from 
exploiting loopholes to shut down drug importation and prevent 
consumers from saving money. The Dorgan-Snowe bill includes a 
number of necessary provisions to close these loopholes.
    The situation in Canada is evidence that the provisions in 
the bipartisan bill are vitally needed to ensure real savings 
for American consumers. The drug companies have already 
demonstrated in Canada that, if they cannot shut down 
importation by lobbying Congress, they will take steps to do so 
by backdoor methods.
    More specifically, our bill:
     Prevents drug companies from taking actions, such 
as discriminating against a foreign pharmacy or wholesaler that 
exports drugs to the United States by shutting off their drug 
supply, that would thwart drug importation. Such an action 
would be an unfair and discriminatory practice, subject to 
treble economic damages.
     Prevents a drug manufacturer from blocking 
importation of drugs in more subtle ways, such as by changing 
the color, an inactive ingredient, or place of manufacture of 
the drug so that it is no longer FDA-approved. Drug 
manufacturers that make these kinds of changes would be 
required to notify the FDA, and the FDA would be given the 
authority to approve these changes, if approval is warranted. 
In other words, our bill ensures that all imported drugs will 
be FDA-approved, while also ensuring there will be drugs to 
import.
     Protects pharmacies, wholesalers, and individuals 
from patent damages arising from the importation of drugs.
    Opponents of drug importation have alleged that some of the 
provisions in the Dorgan-Snowe bill may be unconstitutional. 
Most of these claims seem to be based on a notion that our non-
discrimination provisions would somehow force a drug company to 
sell a drug for a price that it doesn't want to accept in a 
country where it doesn't want to sell it. Our bill language 
specifically makes clear, on page 78, that nothing ``shall be 
construed to compel the manufacturer of a drug to distribute or 
sell the drug in a country.'' Moreover, our bill only allows 
importation from other major industrialized nations, and I 
don't think any of us believe the drug industry is actually 
selling its products for a loss in these countries. In other 
words, the drug companies have already voluntarily sold their 
medicines for a profit once, so importing them for the benefit 
of American consumers does not in any way violate the drug 
industry's Constitutional rights.
    Regrettably, it is not terribly surprising that the drug 
industry would make this claim--the drug industry always argues 
that legislation to reduce the cost of medicines for consumers 
violates the Constitution. However, objective legal authorities 
tell me the bipartisan bill is constitutional.

                               CONCLUSION

    Let me make one final point: Within the Europe Union, they 
have had a thriving trade in prescription drugs called 
``parallel trade'' for the past 2 decades. We have heard 
testimony previously before other hearings that this trade 
occurs routinely with no safety problems whatsoever and with 
substantial savings to European governments and consumers. As 
Dr. Peter Rost, a pharmaceutical company executive who has 
endorsed S. 334 has pointed out: ``During my time responsible 
for a region in northern Europe, I never once--not once--heard 
the drug industry, regulatory agencies, the government, or 
anyone else saying that this practice was unsafe. And 
personally, I think it is outright derogatory to claim that 
Americans would not be able to handle reimportation of drugs, 
when the rest of the educated world can do this.''
    In closing, the Senate must--and I hope will--act promptly 
to pass the bipartisan Dorgan-Snowe bill. This hearing is an 
important step toward Senate passage of strong, beneficial drug 
importation legislation, and I thank the Chairman once again 
for holding it. I have no doubt that we have the votes in the 
Senate to pass my bill, and I intend to push aggressively for a 
vote on it soon.
    I'd be pleased to answer any questions the committee 
members may have.

    The Chairman. Senator Snowe.

                       Statement of Senator Snowe

    Senator Snowe. Thank you, Mr. Chairman. First, I do want to 
thank you for your prompt and timely response to this hearing. 
Hopefully, we can reach a resolution as a result of your 
leadership in this committee. To all members of the committee 
and to Senator Kennedy as Ranking Member of this committee, as 
well, we truly thank you.
    I am very pleased to be with my colleagues. Senator Dorgan 
has been a longstanding champion and advocate, as he indicated, 
introducing the first bill back in 1999, along with Senator 
Stabenow, who has been a leader, and Senator Vitter. So I am 
very pleased to be here today. As Senator Dorgan indicated, we 
have a broad bipartisan coalition in support of our 
legislation, echoing those 7 out of 10 Americans who favor safe 
importation.
    I don't think anybody needs to be told here in this 
committee that Americans are paying the highest prices in the 
world for prescription drugs that are available in other 
industrialized countries at a fraction of the price. As the 
Government Accountability Office recently reported to Senator 
Wyden and myself in a report regarding the cost, prescription 
drugs most commonly used by seniors are increasing two to three 
times the rate of inflation, as indicated here in this chart, 
the degree to which the prices are rising, just on those used 
by seniors.
    The outcome of those relentless price increases make access 
to life-saving drugs, as we know, more and more difficult for 
consumers, and we all know that a drug that is not affordable 
is one that is neither safe nor effective.
    There are two key issues that our legislation attempts to 
address. One, of course, is the issue, first and foremost, is 
it safe? Second, will it be effective in delivering real 
savings to consumers, and I believe and we believe that our 
legislation will accomplish both of those goals.
    Opponents claim importation will cause harm, but they fail 
to observe that the greatest threat to the security of 
Americans and to their health and well-being is the fact that 
they are not able to fill a prescription. That exacts a toll on 
thousands and thousands of American lives every year.
    Thanks to the attentive reporting of health professionals, 
we are seeing more evidence of the cost of unaffordability. In 
my own State of Maine, for example, one physician recently 
reported that two of his patients had to be hospitalized for 
dangerous conditions, such as heart rhythm, simply because they 
could not afford to refill a prescription.
    Our constituents, and certainly that has been true in 
Maine, have taken busloads and busloads of seniors to Canada 
repeatedly over the years to access affordable medications, and 
they have demonstrated that importation can be safe. In fact, 
the former Secretary General of the European Trade Organization 
indicated in 2003, 12 million prescriptions were brought in 
from Canada and there was no evidence of harm. In Europe, as 
Senator Dorgan indicated, where over 30 years of parallel 
trading of pharmaceuticals, no death or injury has ever been 
documented. They have known it to be safe.
    Dr. Rost, in fact, who is the Vice President of Marketing 
at Pfizer, said this,

          ``During my time responsible for a region in northern Europe, 
        I never once, not once heard the drug industry, regulatory 
        agencies, the government, or anyone else saying that this 
        practice was unsafe.''

    And personally, I think it is outright derogatory to claim 
that Americans would not be able to handle reimportation of 
drugs when the rest of the educated world can do this.
    Under our legislation, Mr. Chairman, Americans will receive 
imported drugs from over 30 countries. In most cases, Americans 
will purchase an imported prescription drug from their local 
pharmacist. Pharmacists will receive these drugs from U.S. 
wholesalers which import them. These wholesalers will be 
registered, they will be inspected, they will be monitored by 
the FDA. The highest level of safety is a first step in 
establishing the highest standards possible for handling of 
prescription drugs in the United States. This bill will be a 
model for domestic drug safety in America.
    Our legislation also allows individuals to directly order 
medications from outside the United States when using an FDA-
registered and approved Canadian pharmacy. It will be 
restricted to Canadian pharmacists. And again, just as with 
wholesalers handling prescription drugs, the FDA will examine 
these pharmacies, register them, inspect them on a frequent 
basis.
    FDA will assure the highest standards for such essential 
functions as recording medical history, verifying the 
prescriptions, tracking shipments. But regardless of whether 
one purchases these drugs from your local pharmacies that are 
imported or uses a Canadian pharmacy--the bottom line in this 
legislation is that we assure that a legitimate prescription 
and a qualified pharmacist will be vital ingredients in 
assuring safety.
    The bottom line is, we are importing drugs from countries 
that have comparable regulatory regimes to that of the United 
States. That is the bottom line.
    Now, for those who say that consumers could unwittingly 
purchase an unapproved or suspect drug, our legislation once 
again assures that the drug received will always be FDA 
approved. If any difference exists in a foreign drug, even a 
trivial one, our legislation assures the FDA will evaluate the 
product and determine the acceptability.
    For those who say that counterfeiting is a threat, our 
legislation requires the use of anti-counterfeiting 
technologies, exactly the type that is used today for the new 
$20 bills. In fact, our legislation requires the development of 
future anti-counterfeiting and track-and-trace technologies, 
which we hope will protect our drugs. The fact is, the serious 
incidents of counterfeiting that are occurring within our 
borders and it is a problem that needs to be addressed and our 
legislation does just that.
    Now, for those who say that consumers won't know who has 
handled an imported prescription drug, our bill requires a 
pedigree, a chain of custody be maintained and inspected to 
help ensure the integrity of imported drugs. A pedigree, by the 
way, for prescription drugs was required in legislation that 
was passed in Congress back in 1988 and the FDA has yet to 
implement it. The fact is, today, consumers in America do not 
know where their drugs are coming from, Mr. Chairman, but they 
will under this legislation. They will not only know where they 
are coming from, they will know who has handled these 
medications.
    Now, some have even attempted to alarm Americans about the 
countries from which we import drugs, citing Latvia, Estonia, 
and Slovakia, members of the European Union. So, too, is 
Ireland, as Senator Dorgan indicated, where Lipitor is made, 
what we use here in America. Now in this chart here, Mr. 
Chairman, it indicates the European Union and other countries 
from which we import appear in blue. We import drugs from there 
today, used here in America. These countries meet our 
standards. That is what our legislation would do.
    In contrast, the chart shows those countries in red. Well, 
here again, we have many additional countries in which FDA 
inspects pharmaceutical plants manufacturing the medications. 
These include China, India, Bulgaria, Jordan, and others with 
lower standards, Mr. Chairman. I think what this demonstrates 
is that we are importing medications from all around the world 
for use. That is the point. So many manufacturing plants that 
FDA has to inspect.
    Now, unfortunately, over the years, manufacturing 
inspections have declined by the FDA over the last 20 years. 
But the fact is, they are required to do it. We have seen 
charges made, well, you know, Canadian drugs come from foreign 
countries. Well, I think the point is, so do ours, and that is 
the point. It says, take a wild guess where your Canadian 
medicine is actually coming from, and demonstrating that it 
comes from foreign countries. Well, so do our medicines. They 
are manufactured from all over the world.
    So I think the point is, for those who say importation is 
safe, we show a way to make it safe absolutely. We share that 
concern. We have set a standard in this legislation. We create 
a high level of monitoring. Consumers can achieve significant 
savings and we create a comparative analysis in our 
legislation, because the drugs will be labeled imported drugs 
so they will be able to make a side-by-side comparison.
    Some say that we won't have the resources. We impose a fee 
of 1 percent of the value of imported drugs so FDA has the 
resources. Because of this high-deficit climate, Mr. Chairman, 
we have to do something, and this is the option that we have 
determined in the final analysis to finance this legislation, 
and it is fiscally responsible, it is doable and provides the 
adequate resources.
    Finally, one other issue. Some say importation will 
threaten research and development. Well, as we know, the 
taxpayer has been a partner. It has been a public-private 
partnership in research and development in America and 
taxpayers provided more than $30 billion to basic science and 
applied research at the National Institutes of Health on an 
annual basis. Well, it is interesting to note that Americans 
pay 35 to 55 percent more for their drugs than their 
counterparts around the globe, 35 to 55 percent. That means 
Americans are spending $87 billion more than people in other 
countries because they are paying the highest prices in the 
world.
    And yet, what is the differential in research and 
development? Research and development spent in Europe by 
companies is $26 billion. In America, it is $32 billion. So 
they are only paying $5.6 billion more in research and 
development here than in Europe, and yet we are spending $87 
billion more because of higher prices than people around the 
world.
    So, Mr. Chairman, I appreciate this opportunity to be here 
today to share with you our thoughts. I hope that we can work 
it out. I think that there is a way. Our legislation at least 
demonstrates it. And obviously, we are open to suggestions on 
this part, but I think that we are addressing the major issues 
that we think are important to overcome the hurdles to 
achieving this ultimate goal. Thank you.
    The Chairman. Thank you.
    Senator Stabenow.

                     Statement of Senator Stabenow

    Senator Stabenow. Thank you, Mr. Chairman. I want to thank 
you for convening this hearing today. I want to thank my 
colleagues, Senator Dorgan and Senator Snowe, for their 
eloquent statements. Senator Vitter, we will welcome him to 
this bipartisan effort that shows that there is strong support 
in the United States Senate, and that is also reflected in the 
U.S. House of Representatives, to finally do something about 
prices in a safe way to be able to address one of the largest 
concerns that not only individuals have, but businesses have.
    Every business that I know in Michigan is concerned about 
health insurance costs, the explosion in health costs for them, 
and we know that prescription drug price increases are a major 
part of that. So this is important for business, for 
individuals, for seniors, for families.
    I also want to, first, before talking about S. 334, though, 
Mr. Chairman, thank you for joining me when we offered a 
successful amendment to the Senate budget resolution which laid 
the foundation for our discussion today and the groundwork for 
passing drug reimportation. Last year, my amendment passed 13 
to 8. This year, it passed unanimously. That shows the power of 
your cosponsorship, so I want to thank you for your being a 
part of that important effort.
    You are right, Mr. Chairman, I go back a long way on this 
issue. When I was in the U.S. House, I played a major role 
there in bringing this to the forefront, and also, this was the 
first issue that I brought to the Senate in the form of a bill 
as a United States Senator, so I very much appreciate 
everyone's involvement in this issue.
    We all agree that prescription drugs need to be more 
affordable and accessible. I know that we all agree with that, 
not just for Medicare, but for everybody.
    AARP reported last week that wholesale price drug costs 
rose an average of 7.1 percent last year. We can't sustain 
that. When we look at the inflation for prescription drugs, 
costs going up 3 times the average rate of inflation--for the 
top brand-name drugs it is as much as 10 times the rate of 
inflation--businesses can't sustain that in their costs and 
certainly our seniors who are without help can't sustain that.
    Rising drug costs place a huge financial burden on all 
Americans, and there is no way that our health system, our 
citizens and our Nation can continue to endure these kinds of 
increases every year. So there is a great sense of urgency 
about getting this bill passed.
    The rising costs have enormous health consequences for us. 
Prescription drugs aren't like other products. They can do 
wonderful and amazing things, but only if you can afford them, 
and we might be able to make do and not buy a new pair of shoes 
or a new automobile--although I would hope everyone would buy a 
new one every year made in Michigan--
    [Laughter.]
    But the reality is that we can't afford, without 
consequences to ourselves and our families, putting off the 
purchase of needed medicine.
    Opponents tell us 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 for the world. We can achieve 
both. Drug makers are already bringing in drugs from other 
countries into the United States, as has already been stated. 
FDA inspectors go all over the world to inspect manufacturing 
lines that will produce drugs that ultimately will be brought 
to the United States. I think many Americans would be surprised 
to learn that their drugs might be from China, India, or 
Slovakia right now.
    Drug makers have a complete monopoly on those prescription 
drugs. No one else--doctors, pharmacists, patients, employers--
has the same opportunity to purchase those FDA-approved drugs 
at low prices. Again, only the drug makers.
    Mr. Chairman, in my State, you can go to Detroit or Port 
Huron or Sault St. Marie and literally look across the river or 
look across a bridge, 5 minutes across a bridge or tunnel, and 
you can see where your prescription drug prices can be dropped 
as much as 50 percent, or in the case of drugs like Tamoxifen, 
70 or 80 percent. My pharmacists say, why is it the drug makers 
can bring those drugs back and forth safely but I can't do 
business? My business is prohibited from doing business with 
businesses, pharmacies in Canada. It makes no sense.
    We can create a safe, fair system that allows our 
pharmacists, patients, and providers to use the global 
marketplace to find the lowest-price drugs. Our bill does 
provide the framework to allow our government to help our 
citizens and businesses lower their health costs and our bill 
will only allow reimportation from nations that have strong 
safety standards, as Senator Snowe spoke about so eloquently.
    Again, I don't believe that Americans need to make a 
tradeoff between innovation and affordability. We make a 
commitment to research in this Nation through tax subsidies for 
R&D costs and funding for the National Institutes of Health. 
Last year, Congress appropriated nearly $29 billion to NIH, 
money that is used to develop the basic building blocks that 
lead to the next generation of medical breakthroughs.
    We are also losing out on great opportunities to keep our 
Nation as a leader in scientific innovation. According to PhRMA 
trade association Web site, PhRMA companies in 2003 invested an 
estimated $33.2 billion on research to develop new treatments 
for diseases. I might add that we helped to support that 
through tax deductions and tax credits, as American taxpayers.
    For the same period, the European Federation of 
Pharmaceutical Industries and Associations invested about $28 
billion, not far behind. The number of biotech companies in 
Europe increased dramatically in recent years. In 2001, there 
were more companies in the E.U. than in the United States--more 
companies in the E.U. than in the United States. Those are jobs 
and opportunities we are losing here in the United States.
    When drug makers spend more than two-and-a-half times as 
much on advertising and marketing as R&D, it makes you wonder 
what cures, what breakthroughs we have missed.
    I think the bottom line, Mr. Chairman, is that we can work 
together to make a major difference, to lower prices, to do so 
safely, to address what I believe is one of the great moral 
issues of our time, the explosion in the prices of medicine in 
our country that are affecting businesses large and small and 
our families and our seniors, and I look forward to working 
with you on this important issue. Thank you.
    The Chairman. Thank you.
    Senator Vitter.

                      Statement of Senator Vitter

    Senator Vitter. Mr. Chairman, Senator Kennedy, members of 
the committee, thank you for the opportunity to discuss this 
vitally important issue, and I am certainly pleased to be 
testifying today with my colleagues, leaders on this issue, 
Senators Dorgan, Snowe, and Stabenow.
    It is an issue I feel very strongly about. My first 
legislative action as a U.S. Senator was to introduce the 
Pharmaceutical Market Access Act of 2005, S. 109, with Senator 
Salazar and others, and that bill has an identical companion in 
the U.S. House of Representatives by Congressman Gill Gutknecht 
and a bipartisan roster of cosponsors, 80 in total so far. A 
prior version of that House bill passed that chamber 2 years 
ago, and is the only bill on the subject to pass either body.
    I want to make clear at the beginning, while I have a 
slightly different bill with a slightly different approach in 
some ways, I stand shoulder to shoulder on the broad issue with 
all of my colleagues here and my other colleagues in the Senate 
who care passionately about this issue, and certainly want to 
say up front if their bill was on the Senate floor for final 
passage right now, I would enthusiastically speak for it, vote 
for it, and I believe vice-versa.
    Why is this so important? Well, two fundamental reasons, 
one of which is obvious, one of which is perhaps less obvious, 
maybe even counterintuitive, but very important.
    The first obvious reason prescription drug prices are much 
higher in the United States than in all other countries, and we 
have talked about this, but let me make a few points about it. 
As I traveled Louisiana particularly last year, I heard 
countless seniors tell similar stories about the outrageous 
costs of their prescription drugs and how it burdens their 
lives. They noted correctly that the United States is the 
world's largest market for pharmaceuticals, and yet we pay the 
world's highest prices.
    Senator Dorgan had a great example with Lipitor, a very 
common drug. As he noted, a 90-day supply costs about $320 in 
the United States, but only $180 in Canada. As noted by the 
Congressional Research Service, the price discrepancy for this 
one drug is not unique. A general CRS comparison of United 
States and Canadian prices revealed that, on average, brand 
name drug prices in the United States were 70 percent higher, 
and this is not limited to Canada. This is a much broader 
problem and a much broader issue. Citizens in virtually every 
other industrialized country pay significantly lower prices for 
patented drugs than Americans, lower by 30 percent or more, and 
this figure includes many countries that are not dominated by 
old-fashioned status price control regimes.
    So why is that? In my opinion, the reason is simple. This 
country does not have a global free market for prescription 
drugs. We have a closed market, and that leads to disparate 
pricing, including the highest prices worldwide in this 
country, and we deliberately block American consumers' access 
to the same drugs at much cheaper costs from other sources.
    Now, this price issue is very important to real seniors, 
real people, real families, but it also has very important and 
broad social and government program implications. According to 
the Congressional Budget Office, spending on prescription drugs 
grew at a real average annual rate--that is adjusted for 
inflation--of 14.5 percent from 1997 to 2002, reaching $162 
billion in 2002. That explosive growth raised prescription drug 
spending's share of the total health expenditure to 10.5 
percent in 2002, compared to just 5.8 percent a decade earlier.
    As noted by CBO, in 1999, prescription drugs surpassed 
nursing homes as the third-largest category of personal health 
care expenditures after hospitals and physicians' services. 
Now, this has enormous implications for programs and challenges 
we worry about and try to face every day, particularly Medicaid 
and Medicare.
    Let me now move on to the second big reason I, along with 
my colleagues, believe we need to take action in this area of 
prescription drug importation. It is because prescription drug 
importation is already occurring right now by American 
consumers without the proper safeguards. And so, in fact, I 
would argue strongly that safety is a huge reason we must pass 
legislation like this. It is not a reason we should fail to 
act.
    Two scenarios, very simple. The first scenario is getting 
more and more common every day. Millions of Americans are 
refusing to shoulder the increasingly heavy burden of prices 
and they are defying law and they are purchasing their 
prescription drugs elsewhere. By one estimate, over 6 million 
Americans have purchased their medication from online Canadian 
pharmacies. According to CRS, in 2003 alone, Americans bought 
over $1 billion of prescription drugs that way, twice as much 
as the year before. When American consumers buy unapproved 
prescription drugs from other countries without equivalent 
regulatory safeguards, they run a real risk that those drugs 
could be of poor quality. So unless we act on this sort of 
legislation, we are allowing a major safety problem to grow and 
grow and grow.
    The other scenario is just as concerning to me. Take the 
Americans who do live by the law, and they are on a limited 
budget, so they choose the alternative, to comply with the law, 
buy their prescription drugs here. What happens? We all know 
what happens. They may be forced to choose between medication 
and other necessities. We have all heard accounts where they 
cut pills in half or take their medication every other day 
instead of daily because they cannot afford the cost of their 
prescription drugs. To quote my friend and House colleague, 
Congressman Gil Gutknecht, an unaffordable drug is neither safe 
nor effective.
    So those are the two real scenarios that I believe make 
action in this area imperative, specifically for safety 
reasons. Safety is not a reason not to act. It is the most 
compelling reason to act with clarity and with care.
    We can, I certainly agree with my colleagues, we can 
address these safety concerns, and in doing so, we can make 
present circumstances much more secure and safer. There are a 
lot of provisions in both of our bills. Let me mention some of 
the most important specific provisions.
    First, the requirement of tamper-resistant packaging. That 
is spelled out in a lot of detail in the Vitter-Salazar bill. 
It requires a new requirement that drugs be either packaged and 
shipped using state-of-the-art tamper-resistant anti-
counterfeit technologies, or if that doesn't happen, be 
carefully tested for authenticity when entering the market in 
this country. And by the way, at least under the Vitter-Salazar 
bill, that requirement applies to most drugs in this country, 
as well, so it could, with new technology, help address the 
growing problem in this country that you noted in your opening 
remarks.
    Second, limitation on participating countries. My 
colleagues have spoken directly to that.
    Third, limitation on the types of drugs covered. At least 
in the Vitter-Salazar bill, we are not talking about drugs 
requiring refrigeration. We are not talking about drugs 
requiring biotechnology processes or photoreactive drugs or 
intravenously injected drugs or inhaled drugs during surgery or 
bioequivalents.
    Fourth, major safeguards against adulteration and 
misbranding. As my colleagues have said, we are talking about 
asking, or requiring these importers to meet the very same FDA 
safety and efficacy standards as drugs currently sold in this 
country.
    Fifth, unannounced inspections of foreign sellers, 
completely unannounced and random.
    Sixth, registration requirements for importers so that 
domestic entities that will distribute drugs directly to 
American consumers would have to provide information to the FDA 
to ensure safety.
    Seventh, registration requirements for foreign sellers.
    And eighth, a catch-all safety provision in the Vitter-
Salazar bill to give the FDA significant very broad authority 
to do whatever it determines is necessary to protect all of 
these safety concerns.
    Let me end on one final topic, and that is something I feel 
strongly about. Drug importation should not be limited to 
Canada. Canada's methods of ensuring the safety of prescription 
drugs are comparable to those of the United States, and so we 
clearly should allow that importation from Canada. Our own GAO 
in June 2004 found very few problems with prescription drugs 
obtained from Canadian Web sites. But I do feel it would be a 
mistake to completely limit the importation program to just one 
country.
    Not long ago, a team of specialists appointed by the 
Governor of Illinois researched the question of whether 
Americans can safely and effectively purchase prescription 
drugs from industrialized countries other than Canada and their 
findings are described in a significant report issued last 
summer entitled, ``Can Illinois Residents and Businesses Safely 
and Effectively Purchase Prescription Drugs From Europe?'' The 
authors of this major report concluded that it is both possible 
and desirable to allow these purchases from approved facilities 
in Europe. Again, as my colleagues have pointed out, we are 
talking about industrialized countries with a pharmaceutical 
infrastructure comparable in every way to that of the United 
States.
    In closing, Mr. Chairman and members, let me say that this 
issue is not a conservative or liberal issue. It is not a 
Democratic or Republican issue. It is a universal issue, a 
challenge to provide our Nation's consumers access to safe and 
affordable drugs. That is why I have worked to assemble a 
coalition of Senators and Representatives from across the 
political spectrum in support of this, and that is why I also 
strongly support the efforts of my colleagues on the Dorgan-
Snowe approach.
    I look forward to working with all of my new Senate 
colleagues to advance this very important cause, and, of 
course, my door is always open to those who want to join our 
effort or who have any other ideas of how we can do this safe 
and effectively and bring prices down for all American 
consumers.
    Thank you very much, Mr. Chairman.
    The Chairman. Thank you.
    I want to thank all of you for your testimony. I share your 
concern, and I am sure everyone does, for the high cost of 
health care in this country. I appreciate how much work all of 
you have put in on this issue and even did some research on 
prior work that you have done on this issue.
    In one of the previous hearings, on the reports that we 
received, one of the concerns was that, yes, it will save 
money, but the cost of providing the protection will cost as 
much money as what will be saved. Now, it is a cost shifting 
because it would be the United States picking up the cost of 
doing the checking as opposed to the people buying the imported 
drugs.
    But a number of States have started outlining some pilot 
projects where they would take the responsibility on the 
importation of the drugs, and in fact, I want to commend you, 
Senator Dorgan, for a thoughtful proposal that you made to 
Secretary Thompson just last year, the Prairie Prescriptions 
Pilot Project. Your idea was a 2-year importation project that 
would allow pharmacists and wholesalers in North Dakota to 
purchase FDA-approved prescription drugs from licensed Canadian 
pharmacies and wholesalers.
    Now, I know some other States have also petitioned HHS to 
do similar projects. I think Vermont, Oregon, and Illinois have 
done so, though your proposal was the most detailed of any that 
I read. I like the idea of having States work together with the 
FDA on a limited basis at first. Then we can see what kind of 
problems there would be, kind of as a local laboratory as 
opposed to a national laboratory. I would ask if you would be 
willing to work with me to create a proposal that would permit 
your Prairie Prescriptions Project and others like it.
    Senator Dorgan. Mr. Chairman, I proposed that only because 
we were unable to make any progress with the Administration on 
a broader approach. In fact, I believe I am still waiting for a 
response from Secretary Thompson down at HHS. He is, of course, 
long gone. But I went down and made a presentation to the 
Secretary and to the Surgeon General and they indicated they 
would be making a formal response. I have yet to receive that 
formal response.
    My goal would be to have an action by the Congress that 
broadly allows, with proper safeguards, and I think those 
safeguards are described in our legislation, allows the 
American people to reimport prescription drugs.
    Now, if, for example, the Congress, if there are votes in 
the Congress and the President would veto a bill and we are 
stymied and stopped dead in our tracks, would I then agree to 
some pilot project or pilot program? Yes. Yes, I would. But 
that is not the case. I believe we have the votes to pass this 
legislation in the House and in the Senate. I believe when 
presented to the President--he has not yet been presented with 
legislation of this type--I think he would be hard-pressed to 
veto it.
    So my feeling is that we ought to proceed. This hearing is 
an important first step. Let us proceed to move these kinds of 
plans or some derivation of these plans to the floor of the 
Senate, get a vote, do the same in the House, and get a bill to 
the President, and I believe the consumers would be advantaged 
by that all across America.
    The Chairman. I just wanted to comment that your Prairie 
Prescriptions Project is even more detailed than what you have 
in your bill and, I think, provides some safeguards that aren't 
in the bill.
    But my question for the panel, when commercial importation 
is legalized, who would bear the legal liability if the patient 
was injured by imported drugs? Would it be the manufacturers or 
the wholesalers or the pharmacies or the pharmacists, Internet 
providers, or does no one bear the liability? If it is a 
foreign wholesaler, pharmacy, or pharmacist, how would that 
liability be enforced for patients in the United States?
    Senator Dorgan. Well, the premise of that question, the 
premise of the allegations by some that there would be 
prescription drugs imported that were less safe and less 
effective than prescription drugs now taken by the American 
people is just a false premise, in my judgment. The drugs under 
the bipartisan bill that we have described will have to meet 
exactly the same standards of safety and effectiveness because 
importers will have to document the chain of custody from the 
point of manufacture to the drug store itself. That, in fact, 
is a requirement that drugs sold domestically in the United 
States do not even now meet. So I think the proposition that 
there is some liability issue that is extraordinary or above 
that which now exists is not accurate.
    Senator Stabenow. Mr. Chairman, if I might just say, one 
question I would have is who is responsible now? Lipitor is 
made in Ireland. We send FDA inspectors there to inspect the 
plant. There is a closed supply chain. It comes back to this 
country. Who is responsible in terms of liability now for a 
product, as for example, made in Ireland?
    From my perspective, the legislation that we have does more 
to protect people than current law because I am concerned about 
Internet pharmacies. There is a lot of attempt to confuse 
Internet pharmacies with what we are talking about, the 
pharmacy being able to do business with another pharmacy. Right 
now, I think it is possible for someone to go to the Internet, 
not to know where the drugs are coming from.
    And, in fact, we need to fix that and this legislation 
would go a long way to address really what is happening for 
people right now out of desperation. I mean, I know people that 
are doing things that are not as safe as they should be out of 
desperation because we can't--we aren't acting. We aren't 
giving them a safe alternative, and that is what this 
legislation would do.
    The Chairman. Of course, with the legislation we are 
actually opening it up considerably. I know we had the chart 
that showed the importation from other countries, but that is 
the manufacture, manufacturing it in the other country, sending 
it to the United States to their own entity and then having a 
distribution system from here in the United States, which more 
clearly defines the liability situation.
    My time has expired.
    Senator Murray.

                  Opening Statement of Senator Murray

    Senator Murray. Mr. Chairman, thank you very much. Thank 
you for the hearing and thank all of you for testifying today.
    I think all of us recognize that the cost of drugs in this 
country is a real challenge and I think you are looking at one 
way to deal with that. I would hope at some point we look at 
how we lower costs here in the United States with the drugs 
that are made and sold here in the United States.
    I do have a couple of questions. I think that all of us are 
really concerned about safety. We all want prices reduced. We 
all want safety to be a consideration. It seems to me that part 
of what we have to recognize with reimportation is the new 
burdens on FDA to make sure that we have safety as a strong 
consideration. None of us want a point where we can't trust our 
own systems.
    Is there anything within the bill that if we are unable to 
realize the costs for FDA, if the new user fees are not 
sufficient or not allocated by Congress, that there will be any 
suspending of the reimportation, or will it just be a cost to 
FDA that they will have to find from somewhere else if the real 
costs don't become realized?
    Senator Snowe. Based on our estimates and everything that 
we have gotten for information, we think that it will. I don't 
think that--obviously, we would want to adjust that if that was 
not the case with the 1 percent of the value of imported drugs 
wasn't sufficient to accommodate the resources. But from what 
we expect--even like Canadian pharmacies, I mean, the 
appropriate based on that alone would be $200,000 per Canadian 
pharmacist for inspections, monitoring, and everything else. We 
think that it is pretty generous in that sense in covering the 
cost of this legislation, but obviously, that can be adjusted 
based on the estimates. But we think it is pretty well covered.
    Senator Murray. I think it is an important consideration, 
because as we have seen with the medical device user fee, if 
the funds aren't appropriated or allocated or sufficient, it 
does create problems, so I just want to make sure that we are 
aware of that and hopefully----
    Senator Snowe. Hopefully, the former Commissioner, David 
Kessler, will be testifying to these points, as well, and he 
has indicated that it is, but we would certainly welcome any 
additional input if someone suggested it wouldn't be the case. 
I mean, we would be raising $1 billion from importers and $1 
billion from exporters in 2006 alone under this legislation.
    Senator Murray. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Gregg.

                   Opening Statement of Senator Gregg

    Senator Gregg. Thank you, Mr. Chairman. This is a 
complicated issue. Although it has been postured in political 
terms, the practical implications are whether or not people 
will be benefitted by it through purchasing drugs which will 
help them. If you buy a pill, you want it to cure you, not kill 
you. The essence of our system in this country has been that 
the FDA has protected Americans. You walk into a pharmacy. You 
expect to get a drug that is going to be good. And we have a 
system that works, and when you open it up to the world for 
people to purchase from, you want to make sure that people 
buying from wherever, whether it is Canada or Greece or 
Portugal or Luxembourg, that the pill they purchase will cure 
them and not kill them.
    And thus, to step into this area requires that we make sure 
that we do it correctly, and that is why I have some very 
serious reservations about the bill that is sponsored by 
Senator Dorgan and Senator Snowe, especially. The problem I 
have, I guess, with your bill is--well, there are a variety of 
issues. I will submit for the record about 20 pages of specific 
representations as to how the bill specifically changes the 
present FDA regime.
    Senator Dorgan has represented that the safety issues will 
be the same standards of safe and effectiveness that presently 
the FDA pursues, which is not, in my opinion, accurate. In 
fact, under the bill, you essentially replace Section 501, 
which deals with adulteration, Section 502, which deals with 
labeling, Section 506, which deals with manufacturing 
standards, and Section 505, which deals with clinical 
examinations, with a brand new regime. You have got about 40 
pages. The essence of that regime that you set up is something 
called manufacturing changes. It is a new term, new 
definitional term. It is what the FDA is to look to relative to 
its standards.
    So I would ask you, Senator Snowe, what does manufacturing 
changes mean in Section 506, as it applies to Section 506?
    Senator Snowe. I think the point is I would expect, first 
of all, that there would be a change in regimes because 
obviously the current system isn't working. I mean, even with 
respect to----
    Senator Gregg. So you don't subscribe to Senator Dorgan's 
view that your safety and efficacy standards are the same as 
the FDA presently has for American drugs?
    Senator Snowe. Well, yes, but yes, but we are also talking 
about creating a higher standard in this legislation.
    Senator Gregg. And is that defined by manufacturing 
changes?
    Senator Snowe. Obviously, we wouldn't expect----
    Senator Gregg. Is there any chance you are going to answer 
the question, Senator? What is the definition of manufacturing 
changes? What is its implication?
    Senator Snowe. The implication is to make sure that we have 
the highest standard.
    Senator Gregg. What is manufacturing changes, Senator?
    Senator Snowe. What?
    Senator Gregg. What are manufacturing changes? This is your 
new standard. This is the standard which changes Section 501, 
Section 505. These are critical issues for the consumers of 
America. You are setting up a new standard. What is 
manufacturing changes? What does the FDA mean?
    Senator Snowe [continuing]. Have an inspection and FDA-
approved and FDA-inspected medications. Frankly, Senator Gregg, 
we send men and women to space every day. We cannot figure this 
out? I mean, seriously.
    Senator Gregg. Senator----
    Senator Snowe. FDA-approved and----
    Senator Gregg. Senator, I am reclaiming my time.
    Senator Snowe. Well, what----
    Senator Gregg. You are obviously not going to answer the 
question.
    Senator Snowe. I am answering the question, but you don't 
like the answer.
    Senator Gregg. No, you are not.
    Senator Snowe. I mean, the point----
    Senator Gregg. Senator, manufacturing changes, just explain 
to us what the FDA is looking to under this new standard.
    Senator Snowe. Manufacturing changes is establishing a new 
standard, because it is a new regime. It is a new process----
    Senator Gregg. And what is the standard?
    Senator Snowe [continuing]. Because we are not importing, 
which is to be approved and inspected, registered, and 
monitored. That is what it is all about. And so----
    Senator Gregg. Actually, Senator, it is inspected, not 
approved.
    Senator Snowe. Let me just say one other point here, 
because I think that we need to understand what we are dealing 
with in terms of reality----
    Senator Gregg. All I want to understand is how you are 
going to change the FDA rules.
    Senator Snowe. Well, I am. I am trying to explain the 
realities, because in explaining the rules, because they 
obviously do need to be changed. I mean, we are creating a new 
regime to begin with because it isn't allowed. We do----
    Senator Gregg. I am going to reclaim my time, Senator, 
because----
    Senator Snowe. Well, can I just make one point?
    Senator Gregg. No, Senator. Let me reclaim my time. It is 
my time, Senator. I only have 5 minutes. You had your 5 
minutes. Let me point out the problem here. There is a 
manufacturing facility in India, hypothetically. That 
manufacturing facility under your proposal ships a product to 
Portugal, ships a product to Luxembourg, ships a product to 
Italy. That product is then transshipped to the United States.
    There is no requirement in your bill--in fact, it is 
basically replaced that that product be subject to clinical 
review in one or more clinical investigations. All that is 
required in your bill is that that facility had been inspected 
in India. It doesn't even require in your bill that that 
facility be approved, just inspected. In fact, the FDA could go 
into that facility under your new standard, look at that 
facility and determine that the vats weren't at the right 
temperature, that the binding agents were different and might 
cause problems, that the labeling process was inaccurate, and 
the approval process would not be conditioned--the inspection 
process would not be conditioned on an approval which would be 
effective against that facility. In other words, the FDA would 
have no enforcement capability against that facility compared 
to present law.
    In addition, if the product came to the United States and 
created harm, the question has been asked by the Chairman, who 
would be liable? That Indian facility would not necessarily be 
liable under your bill. Your bill has taken 100 years of law 
under 501, 100 years of law under 502, and a significant amount 
of history under 506 and 505 and essentially replaced it with 
40 pages of new regulation which you won't explain because you 
don't have an explanation for it. ``Manufacturing changes'' is 
not a standard of health care in this country which the FDA 
understands or recognizes.
    And the simple fact is that if you want to create a brand 
new regime, you say you want to create a brand new regime, you 
are going to put a lot of people at risk in this country. You 
are creating a Russian roulette regime for the American 
consumer in the name of politics, and that is the difference we 
have on this issue.
    Senator Dorgan. Mr. Chairman, would you let me respond to 
his questions?
    The Chairman. The Senator's time has expired.
    Senator Dorgan. Mr. Chairman, does he want a response to 
the questions that he has asked?
    Senator Gregg. I will be happy to take response, and then I 
would like to respond to your response, but I don't suspect 
this panel wants to pursue that in that framework. But we are 
going to have plenty of time to discuss this in significant 
depth.
    Senator Dorgan. Well, this would be a good time to have 
plenty of time, wouldn't it?
    Senator Gregg. It certainly would be. I would be happy to 
pursue it right now.
    Senator Dorgan. Mr. Chairman, if this is the time, then let 
us go ahead and discuss this.
    The Chairman. I will hear your response and then the 
Senator's response.
    Senator Dorgan. Mr. Chairman, first of all, let me commend 
the Senator for 20 pages of questions. That is some amount of 
homework for a Senator. But I appreciate----
    Senator Gregg. I didn't say I had 20 pages of questions. I 
have 20 pages of points as to the problems----
    Senator Dorgan. It is still a great deal of homework----
    Senator Gregg [continuing]. As to the difference with your 
bill----
    Senator Dorgan. It is still a great deal of homework and I 
admire that.
    Senator Gregg. You represent that your bill is exactly the 
same as the standards of safety and effectiveness.
    Senator Dorgan. Mr. Chairman, did you recognize me at this 
point?
    Senator Gregg. No, he is not recognized to--he is 
recognized to respond to my questions.
    The Chairman. It is part of his time, the Senator from 
North Dakota.
    Senator Dorgan. Mr. Chairman, I will wait until it is 
appropriate for the responses to the questions that have been 
posed by Senator Gregg.
    The Chairman. The Senator from North Dakota.
    Senator Dorgan. Well, first of all, I was attempting to 
compliment the Senator for the amount of work that he has done 
here. I must say that the description of the Senator misses a 
couple of key points.
    Number one, we are talking about a closed system and only 
FDA-approved drugs approved in an FDA-approved facility. So 
that is not any different than what now exists with respect to 
prescription drugs that the Senator from New Hampshire may take 
this evening or tomorrow morning, if he takes prescription 
drugs. He purchased them at a pharmacy and they may come from 
anyplace in the world and they will be FDA-approved drugs made 
in an FDA-approved facility. So this is a closed system. We 
don't propose to change any of that.
    But with respect to the standards issues, if a manufacturer 
decides, for example, well, there is a way around all of this. 
What we will simply do is we will change the color of the 
prescription drug. We will make some slight difference, slight 
change in the drug in a way to claim that it is a different 
drug. If we simply give the FDA the authority to take a look at 
that and decide whether that difference is germane and 
important or whether it is an irrelevant difference and that 
drug still should be able to be sold to a consumer. If a 
difference in a drug causes a difference in the bioequivalence, 
the FDA would apply the exact same standards for approval as it 
already applies to drug manufacturers that want to make a 
change to a previously approved prescription drug.
    That is what this is about. Look, I respect differences of 
opinion. I understand the Senator feels very strongly about 
this. But I must say, this is a circumstance where we are 
talking about a closed system of FDA-approved drugs produced 
from FDA-approved facilities, sold to an American consumer in a 
closed system, and that is all it is.
    Senator Gregg. Mr. Chairman, let me respond to the 
incomplete response by the Senator, because the point I was 
making was that it is not the same system. You have replaced 
the system that the FDA presently uses for approving drugs in 
this country with a brand new set of standards, a brand new set 
of standards. You have replaced 501. You have replaced 502. And 
you have replaced the requirements under 505, and 506, for that 
matter.
    And these new standards appear to be linchpinned off 
something called ``manufacturing change,'' which the FDA is 
supposed to look at, and I don't know what that means and the 
FDA doesn't know what it means. I was hoping you would know 
what it means, because it is going to have a huge impact on the 
safety of drugs coming into this country.
    The simple fact is that you cannot create a new set of 
standards for drugs coming into this country simply because 
they are reimported versus drugs which are traditionally sold 
in this country under a--through a closed system, which is what 
you are doing.
    Why do you have 20 pages of new legislation replacing the 
501 section and the 502 section? Why do we have a new standard 
which replaces the ability of the FDA to review these drugs 
before they reach the market? Under your bill, a drug could be 
on the market in the United States through reimportation and 
the FDA would still be investigating whether or not the 
labeling is correct, the binding is correct, and the coloring 
is correct.
    Senator Snowe. That is not----
    Senator Dorgan. That is not accurate, Senator.
    Senator Gregg. That is correct.
    Senator Snowe. Mr. Chairman.
    Senator Gregg. In addition, why do you say to the facility, 
it has to be inspected and not approved in the foreign country?
    So if we are going to continue this discussion, explain to 
me the definition of manufacturing change, and if I am 
inaccurate on this issue of whether or not a drug can be on the 
market here in the United States and have received a complaint 
about labeling, coloring, and binding agencies prior to the FDA 
having made the decision as to whether or not labeling, 
coloring, and binding is correct, it can be sold here, and that 
could happen under your reimportation. And second and third, 
whether or not the facility in the foreign country has to be 
not only inspected, but actually approved by the FDA.
    The Chairman. The Senator's time has expired----
    Senator Snowe. But can I just answer?
    The Chairman. The purpose of a hearing is to gather as much 
information as possible. It doesn't all have to be said in the 
meeting. So all of you will be allowed to expand on your 
comments. Full testimony will be in the record as well as the 
oral comments that you made----
    Senator Snowe. Mr. Chairman----
    The Chairman [continuing]. But I have other people that 
have been here quite a while that deserve a chance to ask their 
questions, so Senator Isakson.
    Senator Isakson. Thank you, Mr. Chairman.
    Senator Dorgan, in your first part of your remarks, you 
made a comment, and I was making notes here, so if I missed it, 
you can correct me, but you said in the United States, the 
pharmaceutical companies set the U.S. price. Forgetting about--
assuming your--I don't want to get into what we just got out 
of, but assuming that your inspection procedure and approval 
procedure is identically the same as it is today, isn't all you 
are doing here is turning over the control of the price of U.S. 
pharmaceuticals to another country, in particular, Canada? And 
if that is the case, why don't you just set up price controls 
in the United States?
    If you assume your inspection, safety, and security are 
equivalent to what they are today, and that is not an argument 
which I am not saying is or isn't true, I just don't want to 
get him stirred up again--[Laughter.]--then isn't it true--then 
why not just establish price controls in the United States 
rather than, in effect, abdicating them to Canada?
    Senator Dorgan. Senator Isakson, in the global economy, 
when you import anything, you import all of these circumstances 
of that production in the country from which it is imported. If 
you happen to be wearing a Chinese silk tie, you may well be 
paying this morning for the retirement costs of Zung Zu Minh 
and the Communist government of China, but that is the way the 
global system works.
    So if you are asking the question, if we import a 
prescription drug from Canada, are we importing price controls? 
No. We are importing a prescription drug from Canada.
    Senator Isakson. That has price controls.
    Senator Dorgan. Canada does have price controls, 
absolutely. If we import a prescription drug from Germany or 
Italy or Spain or England, we will import whatever the 
circumstances exist there. It is the case, I am sure, however, 
that the pharmaceutical industry sells in all of these 
countries because they make a profit under whatever pricing 
scheme they develop in those countries, at least relative to 
the laws that exist in that country.
    Senator Isakson. My only point on that is this, that a 
necktie won't kill you unless you tie it awfully tight--
[Laughter.]--but a bad pharmaceutical will, and there is a lot 
of difference between neckties and pharmaceuticals. And I do 
think the question is a valid question. But, I am not taking a 
side right now. I am trying to make a point, that if you wipe 
out all this other stuff we were talking about, you are 
advocating price controls to another country versus being for 
price controls in the United States.
    My second question is to Ms. Stabenow from Michigan. You 
made a statement that we are giving Americans a false choice of 
higher costs in return for safer and newer drugs. Don't you 
believe that there is some value to recovery of R&D and 
incentives on that to develop drugs versus being in a stagnant 
situation where you don't have that incentive?
    Senator Stabenow. Absolutely, Senator----
    Senator Isakson. Then why is that a false choice?
    Senator Stabenow [continuing]. What I am saying is that 
what we hear from the other side is that somehow to lower price 
means that we won't have research, where, in fact, we know that 
the industry is spending much, much more on advertising and 
marketing today than they are on research and that all you have 
to do is turn on your television set and you see it.
    And in addition to that, we as taxpayers in America are 
spending close to $30 billion this last year for basic research 
that we then give to the companies at no charge because it is 
so important that they continue to develop these breakthrough 
drugs.
    So this is just already something that American taxpayers 
are helping to pay for, and yet we, in return for doing that 
and all the tax credits and incentives, which I support, the 
gift that we get back are the highest prices in the world. It 
is not a good deal.
    Senator Vitter. Senator, could I respond very quickly, too, 
to the two questions----
    Senator Isakson. Quickly.
    Senator Vitter [continuing]. Because this goes to the heart 
of this issue. I only speak for myself. I am strongly for these 
proposals not because I want to support and import price 
control, but because I believe if we establish a true worldwide 
free market through measures like this, we will break down 
disparate pricing around the world and make it extremely 
difficult to have these different pricing regimes, including 
old-fashioned price control regimes. That is why I am for this 
proposal, to break through that disparate global pricing and to 
make it difficult or impossible for other countries to do what 
they are doing now, which is to push all of their R&D costs 
onto us and us alone as American consumers.
    Senator Isakson. That is a noble goal, because my question 
is rooted in my serious concern that we have abdicated to our 
country the total responsibility for pharmaceutical development 
and breakthrough, and yet putting a disincentive on the entire 
system to turn around and import, in whole or in part, price 
controls, which is a double-whammy.
    Now, since you all abused your time, I am going to abuse 
mine. I will have to tell you, now, your thing on advertising 
is right on. I still don't understand all those ads. I don't 
know if they spend more on ads than they do on R&D, but they 
spend more on ads than they probably ought to, in my judgment, 
and it ought to be going into R&D.
    But we can't--I am sure your goals are noble. I hope, and 
Senator Vitter has said it in a very eloquent way, we have to 
protect what we have in this country in terms of a safe and 
innovative and a breakthrough pharmaceutical climate and do so 
because that is as healthy for our consumers and our 
constituents as is anything else that we can do. So I just 
wanted to make that comment and I appreciate David's remark.
    I yield, Mr. Chair.
    Senator Snowe. Mr. Chairman.
    The Chairman. Senator Burr.

                   Opening Statement of Senator Burr

    Senator Burr. Thank you, Mr. Chairman, and I will tell the 
witnesses I am not going to ask questions. I am going to save 
them for Dr. Kessler and others later on. I just want to make a 
statement for the propose of my colleagues.
    In 1997, we passed the Food and Drug Modernization Act. I 
was one of the co-authors of that legislation. I worked with 
Dr. Kessler on it. Details do matter. Details are important as 
it relates to how we instruct the FDA to proceed, all the way 
down to the smallest details. I can remember months in a room 
with FDA officials and the wrong word implies something 
different.
    Let me just share with everybody the titles that Judd Gregg 
was just talking about. Section 501, Adulterated Drugs and 
Devices. Section 502, Misbranded Drugs and Devices. Section 
505, New Drugs. Section 506, Fast-Track Products. This is an 
extremely delicate area that we talk about the potential of a 
wholesale change, all in the quest of trying to reimport drugs.
    I am not here raising questions about it. I think that 
working with individuals at the FDA, with staff on the Hill 
looking at specific language, working with each other, trying 
to both know what the impact of any change, even just a change 
in words--I mean, if this were so easy, the United States of 
America would have harmonized our drug laws with the E.U. 
already.
    And the fact is, we found out we couldn't do it because we 
couldn't accept their standards and we wouldn't accept the 
paper trail that existed between E.U. countries. And I won't 
name any of the countries in the E.U., but there are some that 
the standard--it is so low that I am sure that if they weren't 
part of a group, nobody would accept it. But we are here 
talking about us accepting it. And if, in fact, this body or 
any body accepted legislation that put us on that pathway, then 
we had better make sure that we have minimized the effects on 
the American people.
    I believe to suggest to do this is, in fact, to bring a 
higher level of safety is misguided. But I do appreciate the 
time that all of the sponsors have put into it. I am sure that 
this will receive the debate that I believe it deserves, and I 
believe at the end of the process, we will not be experts, but 
we will certainly be smarter for having gone through it. I 
thank the Chairman.
    Senator Snowe. Mr. Chairman. Mr. Chairman. I will answer--
Mr. Chairman.
    The Chairman. Did the Senator ask the question?
    Senator Burr. I yielded back.
    The Chairman. He yielded back his time.
    Senator Snowe. Mr. Chairman, could I just answer a 
question, because I really didn't have the opportunity to 
respond and I think it is important before we depart that 
certain misrepresentations do not occur with respect to our 
legislation. We may have differences on the legislative 
language, and that is legitimate. Agencies have been doing that 
for centuries. I don't think there is any question. But we have 
put a great deal of time and input in drafting this legislation 
for a very serious approach.
    Now, you may have differences over the language, but first 
and foremost, understand that the European Union has 
comparatively the same regulatory standards as we do in 
America. What I was showing you in my earlier display were 
countries where we import drugs today that are used by 
Americans from countries that have lower standards, and I think 
that is important to indicate.
    Now, to the question that Senator Gregg was raising, as 
Senator Dorgan indicated, we created a different standard for 
looking at drugs that have changes. It is not replacing the 
existing standard, but those that may have changes so that 
there is a system in place. Today, that isn't the case, 
frankly, and that is what we indicated.
    And third, let me just indicate something else. FDA has 
reduced its factory inspections over the last 20 years. I 
mentioned that in my earlier statement. They have reduced them 
from 4,300 in 1980 to 1,600 in 2001. Fewer inspections. That 
map that I had up here earlier that showed all the countries 
from which we are importing drugs that have lower standards 
than the United States, I got that information from the FDA's 
own report showing that, Mr. Chairman. And on the blue, the 
European Union and the other countries from which we would 
import have the same standards as the United States. And we 
have testimony from the former Secretary General of the 
European Trade Organization, there has been not one problem in 
30 years of parallel trading among the European countries.
    So I think it is important to establish that. We may have 
differences over legislative language and approach. Yes, I 
would hope we would have a different standard because we have 
none now on the importation. That is a problem. And so we need 
change, and hopefully it would be to supercede the status quo 
and examine any changes in medications coming across the border 
so that we have a process in place by FDA.
    If there is a better suggestion, we welcome it. I think we 
all would work to welcome change. After 6 years since Senator 
Dorgan first introduced this legislation, I think America can 
do better.
    The Chairman. Each of you will have an opportunity to 
expand on your remarks, and all of the members of the 
committee, as well. The record will stand open for 10 days and 
there will be an opportunity for some written questions to also 
increase it, because I actually have more questions now than 
when I started on this--
    [Laughter.]
    And we had a whole series of hearings on the FDA and how 
they operate and concerns that we have with safety within the 
present operation and we have about 40 suggestions for how we 
need to change the FDA, and I am mentally trying to figure out 
how we work that into the entire world.
    I appreciate the effort that you have put into this. We 
will do something on drug importation. I hope that all of you 
will work with me on it. The amendment that went on the budget 
bill was an amendment that I submitted and I appreciate the co-
sponsorships of a number of people and the unanimous way in 
which it passed, and one of the key parts of it was that it 
would go through regular order in the committee. And, of 
course, the only way it can go through in regular order in the 
committee is if we are doing something on it. I will be doing 
something on it and would like to be doing something on it in 
conjunction with all of the people that have an interest in 
importation, including the pharmaceutical companies who 
probably from today have gotten the message that it would be a 
good idea to have a little lower prices in the United States.
    I thank all of you for being on this panel and we will move 
to the next panel because we have a vote in just a few minutes 
and we will have to work around that. Thank you.
    If I can have the next panel take their place, we will put 
some name tags there. I will go ahead with the introductions. 
While I am doing this, I will ask the panel, who I know have 
already looked at being able to summarize the information that 
they have, to concentrate on summarizing the information. We 
have two votes that will take place at 11:45, which means it 
will be about 12:30 before we can get anybody back, if we can 
get anybody back, because that then runs into policy lunches, 
which is where we get to find out what is going to happen the 
rest of the week as it affects our lives, so that is usually 
pretty well attended.
    Mr. Graham Satchwell is the Managing Director of Proco 
Solutions, a consultancy in London, the United Kingdom, 
specializing in brand protection. Mr. Satchwell is a former 
detective superintendent and has held senior security executive 
positions within several global corporations. He has recently 
published a book, A Sick Business: Counterfeit Medicines and 
Organized Crime on parallel trade, counterfeiting, and 
diversion of prescription drugs in the E.U. He will discuss the 
security implications of the list of permitted countries in the 
Dorgan legislation and how this list may not be sufficient to 
protect against counterfeiting and diversion of pharmaceuticals 
destined for the U.S. market under a legalized importation 
scheme.
    Dr. Todd Cecil is the Vice President of Standards 
Development at the United States Pharmacopeia, or USP. USP is a 
nonprofit, nongovernmental standard-setting organization that 
advances public health by ensuring the quality and consistency 
of medicines, promoting the safe and proper use of medications, 
and verifying the ingredients in dietary supplements. Mr. Cecil 
will discuss the qualifying drugs provision in S. 334 which 
allows imported drugs that are not bioequivalent to be 
substituted for prescribed U.S. label drugs, potentially with 
very harmful consequences to the patient.
    I will invite Senator Isakson to introduce Mr. Thomas 
Arthur.
    Senator Isakson. Thank you, Mr. Chairman. It is a pleasure 
for me to welcome the Dean of the Emory University School of 
Law, Dean Thomas Arthur, to be with us today. Dean Arthur 
graduated from the Yale Law School and from Duke University 
before coming to Emory and he practiced law for 11 years in 
Washington, D.C. at Kirkland and Ellis. Dean Arthur teaches 
antitrust, civil procedure, administrative law at Emory 
University. He has been published in the California Law Review, 
the Tulane Law Review, and the New York University Law Review.
    His testimony today will focus on constitutional, 
intellectual property, and international law, and having 
realized we were pressing in time, I read it before hearing it 
and it is awfully good. I commend it to the Chairman.
    The Chairman. Thank you. I have also read the testimony of 
all of these people and appreciate it.
    Dr. David Kessler is the fourth presenter. He is the Dean 
and Vice Chancellor for Medical Affairs at the University of 
California, San Francisco School of Medicine. Before joining 
UCSF in the fall of 2003, Dr. Kessler had been the Dean of the 
Yale University School of Medicine since July of 1997. Dr. 
Kessler served as Commissioner of the United States Food and 
Drug Administration from November 1990 until March 1997. He was 
appointed by President Bush and reappointed by President 
Clinton. Dr. Kessler will discuss the implementation of a safe 
drug importation system.
    Mr. Satchwell, you can begin.

    STATEMENT OF GRAHAM SATCHWELL, MANAGING DIRECTOR, PROCO 
               SOLUTIONS, LONDON, UNITED KINGDOM

    Mr. Satchwell. Mr. Chairman and members of the committee, 
thank you for inviting me to speak here. As you know, I am 
trying to give a European perspective on these things.
    I would like to say this, though, that----
    The Chairman. I don't believe your microphone is on. Sorry. 
There is a little button there.
    Mr. Satchwell. Is that better? Can you hear me now okay? 
Okay now?
    The Chairman. Thank you.
    Mr. Satchwell. This morning, there was reference to whether 
you support pharmaceutical companies or the U.S. public on this 
issue. I can say that from my perspective, I know there are 
many patient safety groups in the UK that would be advising you 
in the way that I would, and clearly, they would not be doing 
that on behalf of pharmaceutical companies.
    There was also reference made this morning to what goes on 
outside of Europe, and Asia was mentioned in particular. China 
suffered 100,000 deaths from counterfeit medicines the year 
before last, and about the same number, I think, last year. 
There are particular initiatives, major initiatives because of 
public safety fears going on in the Philippines, India, 
Thailand, Malaysia, and elsewhere in Asia, and in Africa, it is 
an endemic problem, as you are probably aware.
    Turning back to Europe, the UK receives more, far more 
parallel traded medicine than any other European country 
because the prices in the UK are so much higher than elsewhere 
in Europe. But the U.S.A., by comparison, is an even more 
attractive market to those who would cheat the parallel trading 
system. So you would be a prime target, just as the UK is now.
    Parallel trade has three great pitfalls. First, it provides 
a perfect way to smuggle counterfeit product into the 
legitimate chain.
    Second, it necessitates repackaging and there is powerful 
statistical and anecdotal evidence to show that repacking in 
itself has caused problems, counterfeiting aside.
    Third, parallel trade is particularly difficult to police.
    Currently, a UK dealer might receive an unsolicited e-mail 
from a business elsewhere in Europe offering a drug at a 
particularly attractive price. The UK dealer should ensure that 
the seller is licensed and ask for evidence of that. The seller 
will then fax a document that purports to be a license to 
conduct that business. That is it. There is no one European 
body that the British dealer can check with to make sure that 
that is a bona fide license or not, and the UK regulatory 
agency doesn't see it as their role to do so. In fact, for the 
UK dealer to accurately be able to check a license that is 
faxed from Greece or one of the other many European countries 
and verify its accuracy would mean that each UK trader would 
need to speak every European language. It is impossible for a 
UK dealer--oh, I want to stop here.
    There is something I wanted to say right up front, and it 
is very blunt, forgive me, but Dr. Rost, who has been referred 
to this morning, is provably wrong in his contentions, provably 
wrong. I want that to go on the record, please, because it can 
be supported by regulatory agencies, patient safety groups, my 
own experiences, and so on. Now I will press on, if I might.
    A UK dealer doesn't know where the products in his 
warehouse have come from. They may purport to have come from 
Greece, but, in fact, they could have come from India or China, 
Eastern Europe, or elsewhere. There is just no way of his 
knowing.
    It is extremely easy for anyone to find a foreign party 
willing to counterfeit medicines. I have done it myself on many 
occasions. It is very easy. And then present those medicines as 
genuine--that, of course, I have not done--especially when 
those medicines are repackaged.
    The recent Lipitor case is a perfect example of when you 
import product that you can also import problems. You know, of 
course, that the Lipitor matter involved drawing in fake 
Lipitor from other countries, and you all know better than I 
where those drugs originated. In the U.S.A., there are already 
real problems and injuries as a result of counterfeit product 
despite, the achievements of the FDA.
    In relation to what has gone on in Europe and the provable 
evidence that Mr. Rost is wrong, the FDA, of course, can access 
that evidence themselves.
    Parallel trade in Europe has led to a situation where 
medicines often change hands more than 20 times in the 
distribution chain. Parallel trade can make fast and thorough 
product recall practically impossible.
    I agree entirely with Senator Burr that the standards that 
apply in Europe in relation to regulatory control often leave 
much to be desired and they are not good. There is not standard 
good practice across Europe when it comes to regulatory 
control.
    The harm that can be caused by a dishonest exporter of 
pharmaceuticals is extreme. Proper regulation and enforcement 
are both needed if parallel trade in medicines is to be safe 
and a clear distinction needs to be made between the writing of 
legislation and the practical enforcement of those regulations.
    I can say this. It is clear that some of those who are 
actively seeking to supply, and indeed are now supplying, the 
U.S. market are dealing with foreign entities that are, known 
or unknown to them, at least very questionable. Of that, I have 
evidence.
    Some cases of harm have already been recorded in the UK and 
in the United States. On record, you have cases that involve 
organized crime in the UK and organized crime in the United 
States, and I talked about an explosion in the UK of organized 
crime. The cases that you will see, in fact, only involve 
international organized crime and some link the UK to the 
U.S.A. in that regard.
    The UK's National Criminal Intelligence Service recognizes 
the threat--and has done so for 2 or 3 years--that comes from 
pharmaceutical counterfeiting, and that is reflected also, 
actually, in the most recent reports of Interpol. So both 
Interpol and the UK's own National Criminal Intelligence 
Service recognize the threats.
    There have been cases last year in the UK of Cialis and 
Reductil both being counterfeited and smuggled into the 
legitimate chain. The method of getting those products into the 
innocent hands of distributors in the UK was via parallel 
trade. In fact, we can go back a number of years. I can go back 
7 or 8 years to cases involving parallel trade in Italy, where 
certain GlaxoSmithKline products were actually counterfeited by 
members of the Cammora, a Naples crime gang, and then smuggled 
on more than one occasion into UK for distribution.
    So there have been a number of significant cases over the 
years, but it is true to say that there has been a great deal 
of reluctance to put those cases into the public eye. I don't 
know why that is, but they are there on the record if you 
looked for them.
    The Chairman. Thank you.
    [The prepared statement of Mr. Satchwell follows:]
                 Prepared Statement of Graham Satchwell
    Mr. Chairman and members of the committee, I have been asked to 
comment on the safety of the drug supply from what has been termed, 
``permitted countries'' (as defined) and whether it is possible, given 
the experience of parallel trade within the EU, to truly limit 
importation to these ``permitted countries.''
    I understand that under the Bill importation will be allowed, 
subject to the importation of drugs to the United States not adversely 
affecting public health.
    Perhaps I should first tell you why I think I have been asked to 
contribute to this discussion. I have been involved in the business of 
investigating counterfeiting and other intellectual property crime, and 
its links to organised crime for many years.
    In addition--
     In 2004, on behalf of the Stockholm Network, a European 
based organisation, I completed the writing of a book entitled ``A Sick 
Business--Counterfeit Medicines & Organised Crime.'' It has been widely 
reported upon and Interpol have asked to link it to their Internet 
site.
     I am a member of UK Government's Patent Office 
Investigative Strategy Group.
     For several years to 1999, I was the official spokesperson 
(on counterfeiting of branded goods) for Association of Chief Police 
Officers (ACPO) England & Wales.
     Prior to leaving the Police Service I received personal 
thanks from four HMG Ministers. I was a detective superintendent for 
many years in the UK; those thanks included comments from the UK Trade 
& Industry Secretary in relation to work in anti-counterfeiting of 
branded goods.
     During my investigative work I have been officially 
commended by HM Judges, chief constables, the Director of Public 
Prosecutions and The Lord Lieutenant of London for successful major 
investigations.
     I have successfully led international and politically 
sensitive major corporate investigations into counterfeiting, illegal 
diversion and fraud including the massive re-importation of anti-
retroviral drugs from Africa to Europe.
     I was the chief architect and author of the 1999 UK 
``Memorandum of Understanding`` between all police forces in UK, 
Customs authorities and other law enforcement agencies, brand-owners 
and industry groups on the investigation of counterfeiting of branded 
goods.
     For 3 years I was Director of Security (Europe, Middle 
East & Africa) for GlaxoSmithKline and took the lead on anti-
counterfeiting and unlawful diversion.
     Three years ago I created and led an anti-counterfeiting 
investigative forum in Europe involving the world's leading 
pharmaceutical companies.
     Between 1994 & 1999 I was the Metropolitan Police ``Joint 
Action Group'' leader in relation to counterfeiting of branded goods.
     I am currently providing both anti-counterfeiting and 
diversion strategic input and operational results to several major 
corporations and doing research into these subjects for another book on 
the same subject.
     I have had items published on counterfeiting, diversion 
and other crime issues in UK and U.S.A.
    I should also mention that I am an Honours Law Graduate.
    It is about 10 years since the first case involving counterfeit 
pharmaceuticals came my way. I have specialised in that area for the 
last 4 years.
    It was about 3 years ago that I first developed an interest in the 
supplies of pharmaceutical products being advertised on the Internet 
and purporting to come from Canada primarily to serve the U.S market.
    I would like to preface my comments by saying that I am in favour 
of parallel trade. It seems to me right and fair that those who suffer 
from the highest prices (U.S.A. and Northern Europe) should be able to 
enter into free-trade with those in less developed countries, to the 
benefit of both parties and as a result of the differentiation in 
pricing structures which are imposed.
    However, it seems to me to be abundantly clear that in matters such 
as medicine, special care needs to be taken. It is one thing to buy 
substandard footwear but quite another to take substandard and 
potentially life-threatening or life-damaging medicines.
    I have read from time to time comments such as, ``it can be 
difficult for the layman to identify counterfeit drugs'' or ``it would 
need a trained doctor to examine the package to know whether the drugs 
were genuine.'' Such comments completely miss the point and show a lack 
of experience in handling counterfeit medicines.
    The truth is that counterfeit medicines often appear so like the 
genuine product that no one, not the best specialist can tell the 
genuine packaging from the counterfeit. And no one, not the best 
specialist can tell the genuine product from the counterfeit unless the 
product is subjected to chemical analysis. The result is that everyone, 
poor, ignorant, rich and smart, all are at risk from counterfeit or 
substandard products--and they probably won't recognise them when they 
and if they see them.
    Counterfeiters and dealers in substandard medicines do not target 
particular medicines that we might call ``life-style drugs'' (such as 
``erectile dysfunction,'' or ``slimming'' products or ``steroids'') 
they simply act in their own best commercial interests--they target big 
selling drugs. A little research into the proportion of the world's top 
selling drugs illustrates the point perfectly--most have been 
counterfeited. The threat is therefore neither restricted to those of a 
certain income, intelligence, nor illness suffered.
    The Internet provides an unstoppable market that can, and is, taken 
advantage of by private and commercial purchasers of firearms, 
narcotics, pornography, fraudulent deals and all sorts of consumer 
goods. It cannot be stopped nor easily regulated. Governments make 
increasing resources available to control the adverse elements of 
online trading and given that individuals in the U.S.A., UK and 
elsewhere will buy access to goods and services that are harmful to 
themselves and others, it is apparent that the Internet market needs to 
be regulated like any conventional one. Of course such regulation must 
be commensurate with the level of harm that the particular transaction 
could be expected to cause.
    I have read the draft bill and there are many aspects that I am not 
competent to comment upon. However, I notice that an important 
distinction is made between the private individual buyer and the 
commercial importer; the former risks harming himself, the latter risks 
harming many others. It seems obvious that regulations on business-to-
business transactions should be much more tightly controlled. Thus it 
is surprising that S. 334 attempts to build a regulatory framework for 
commercial drug importation via domestic importers and their contracts 
with foreign companies.
    You have invited my specific comments on the safety of the drug 
supply from those ``permitted'' countries and whether it is possible, 
given parallel trade within the EU, to truly limit importation to these 
``permitted countries.'' Based on my experience, I have concluded that 
the regulatory framework as described in this proposal will not afford 
your citizens the protections they currently enjoy. As it stands, S. 
334 does not afford confidence that a drug from a ``permitted country'' 
will have originated there or have been subject to appropriate 
regulation.
    It seems to me that there are two particular issues that this 
committee will be considering that I might be able to assist with; the 
experience gained from parallel train of medicines within the Europe 
Community; and second, what this experience tells us about how the 
supply from countries outside of the EEC impacts on this more highly 
regulated community.
    The UK now receives some 140 million parallel traded medicines per 
annum. This is more than 20 percent of the entire consumption of the 
British National Health Service. The UK receives much more parallel 
traded product than any other European country; the reason is obvious--
the UK is an expensive market in which parallel traded goods offer the 
best return for any European importer.
    Have there been any problems as a result of this trade? There have 
been many, and there is now a growing awareness of their significance. 
Currently the UK Serious Fraud Office (A British Government Agency) is 
conducting a truly massive investigation into the activities of those 
responsible for the sale of generics to the UK National Health Service, 
some of those are involved in parallel trade.
    The MHRA has recently admitted a problem with counterfeit 
medicines. Parallel traded medicines are a proven method of introducing 
counterfeit and other sub-standard medicines into the distribution 
chain.
    The difficulties surrounding parallel trade arise as a result of 
several factors:
     The very necessary requirements that medicines marketed in 
Britain must be packaged in the English language and contain a patient 
information leaflet in English language--the repackaging of branded 
goods that follows that requirement (Parallel traded goods will be 
printed in Spanish or Greek or other language).
     Repackaging standards are not uniformly high and Patient 
Safety Groups in UK provide many examples of patients being dispensed 
medicines that ``don't look right'' or have accompanying patient 
information that is incomplete, dangerously translated or otherwise 
different in effect.
     Repackaging is often conducted in the exporting country or 
some intermediate country. In such cases the UK regulators are blind to 
the conditions under which these processes are conducted.
     Repackaging is labour intensive. It is often not a 
mechanised process. The result is that repackaging is often done in 
those countries with the cheapest labour. It is just such countries of 
course that often cannot afford proper regulatory control, spend least 
on hygiene, and frankly, worry least about U.S. or UK concerns.
     Wrappings are taken off, blister packs emptied by hand or 
cut up (A month's supply in Continental Europe is usually 30 days 
worth, in UK a month's supply is 28 days worth, traders regularly 
manually remove 2 days supply from each 30 and put them by to create 
further packs).
     One survey in 2004 revealed that of 300 parallel traded 
medicines examined, 25 percent should have failed on ``safety 
reasons,'' 50 percent because of poor quality of product. In addition, 
80 percent failed on legal grounds such as IPR infringement.
     Part of the repackaging process involves the removal of 
the product from the brand owners packaging including batch numbering 
and anti-counterfeiting features. This in itself provides an ideal 
opportunity for sub-standard medicine, counterfeit or otherwise to 
enter the chain.
     Of course much parallel trade and repackaging is conducted 
in properly, according to the law. However, in reality, those who 
choose to buy out of date, counterfeit or otherwise substandard 
medicines and to have them repackaged or stored in totally 
inappropriate conditions, can do so in Europe with very low risk of 
detection.
     One potential risk that has not been adequately researched 
on either side of the Atlantic, is the potential for counterfeiters to 
copy lawfully repackaged product. This is a low cost and perhaps the 
most anonymous method of introducing counterfeit in the chain with 
lowest risk of detection.
    Another very serious concern is to establish that drugs have been 
distributed legitimately from verified sources.
    First and foremost, how can a parallel trader trust the bona fides 
of the trader from whom he purchased his product? If a UK parallel 
trader wishes to buy from another European dealer then he must first 
ensure that that foreign dealer is licensed within his own country. The 
mechanism for doing so is sloppy. It is not sloppy only in UK but 
elsewhere in Europe.
    Currently the UK dealer might receive an unsolicited e-mail from a 
business which advertises a particular drug at an attractive price. The 
UK dealer might e-mail back and a price be agreed. The UK dealer should 
then ensure that the seller is licensed. He will therefore ask for 
evidence from the seller. The seller will then fax or post a document 
that purports to be a licence to conduct such trade. There is no one 
European body with which the UK dealer can verify his sellers' 
credentials, and the UK regulatory authority do not see it as their 
duty.
    It should be no surprise that this is seen as something of a 
loophole. It is impossible for a UK dealer to be aware of the origin of 
the product in his warehouse. He might have been told that it 
originated from Greece, but in Greece it could easily have been 
repackaged from India or Pakistan or China.
    In the course of my work I have myself negotiated to buy 
counterfeit medicines from China, Germany, Poland, India, Pakistan and 
other countries. It is extremely easy for anyone to find a foreign 
party willing to counterfeit medicines (without active ingredients) and 
present those medicines in packaging that will easily pass as genuine.
    This is not hypothetical. There have been well-publicised cases in 
U.S.A. and UK to illustrate the point. In the U.S.A. the recent Lipitor 
case is but one example amongst many. You will recall that one of the 
several defendants in that case was a convicted cocaine dealer. 
Parallel trade in its current form provides ideal opportunities for the 
unscrupulous. In the UK in 2004 there were several counterfeiting cases 
but the most informative were those involving the medicines Reductil 
and Cialis. Counterfeited products entered the legitimate distribution 
chain in Holland and were shipped to UK dealers for onward sale into 
the (innocent) market.
    Parallel trade in Europe has led to a situation where medicines 
often change hands more than 20 times before reaching the dispensary. 
They are manufactured in one country, shipped to the country in which 
they were intended to be marketed, bought and sold from there by 
wholesalers and then into the parallel trade market where they 
typically pass through many hands into the more expensive markets and 
then frequently moved on again.
    No doubt the creation and use of such a long distribution chain is 
often in itself innocent, but it makes product recall extremely 
difficult; the manufacturer and regulatory authorities do not and 
cannot know where the relevant batch is. In addition, such long and 
convoluted distribution exposes medicines to the increased likelihood 
of inappropriate storage, provides anonymity for those at the top of 
the chain, and gives an easy excuse for those downstream should the 
goods prove substandard (they claim not to know of their origin and 
movements).
    Product recall is of course a vital patient safety issue. In the UK 
it is currently not working properly and I have no reason to think that 
things are much better elsewhere in Europe. Apart from the problems 
that arise from repackaging, we simply do not have a system that can 
cope with having so many different bodies holding medicines from so 
many other bodies. Currently, if there is a product recall then a 
notice is faxed by the MHRA to amongst others primary health trusts, to 
those listed as having imported the batch if indeed it is a batch 
rather than whole product issue. However, the overwhelming number of 
wholesalers and parallel traders are not advised. In a very fluid 
market such as has been created in pharmaceuticals, this means that 
those who are in possession of what has become ``unsaleable'' stock are 
able, innocently or otherwise, to sell it forward to innocent 
recipients. Following a product recall in UK last year, incidents 
occurred where chemists attempted to sell products that had been 
subject to official recall.
    Like any profession, lawyer, policeman, stevedore, parallel trader, 
there is a dishonest element. The harm that can be caused by a 
dishonest importer of pharmaceuticals is extreme. Proper regulation and 
enforcement are both needed if parallel trade in medicines is to be 
safe. But a clear distinction needs to be made between the writing of 
legislation (and regulations) and the practical enforcement of the 
same.
    In the UK there are adequate regulations, these are more or less 
mirrored across the E.U. However, the matter of enforcement of those 
regulations is another matter. It must be extremely difficult to 
adequately ``police'' parallel trade, and the movement of such products 
within the UK, when the number of licences issued has increased tenfold 
in 10 years (from 300 to 3000) without any corresponding increase in 
staff. It currently takes about 18 months to obtain a parallel trade 
licence. You can imagine the opportunity that this small regulatory 
agency has to conduct audits on premises (without notice).
    Your much larger country will I believe, because of the 
attractiveness of the U.S. market (both size and cost), face an even 
more formidable challenge. Without a good number of regulators and 
inspectors on European soil, it is impossible to conclude that the 
United States will be able to do any meaningful verifications of drug 
pedigree, much less in Japan, Australia, New Zealand, or other 
``permitted countries.''
    Before the commercial importation is permitted, I strongly urge you 
to weigh your confidence that you have created and funded a system that 
not only provides adequate measures to restrict the type of person who 
can be involved in the supply of those drugs, restricts involvement of 
particular businesses (by providing criteria for licensing and minimum 
operating standards), the country of origin of drugs, but also provides 
adequate inspection and enforcement provisions. Simply relying on the 
fact that the drugs have come from a European (or permitted country) 
dealer will not do that.
    There is of course great difficulty in relation to enforcement. 
Importers in U.S.A., should they receive counterfeit or substandard 
product will no doubt (honestly or otherwise) claim that they had no 
idea that the goods were other than genuine. It will be for the public 
authorities to show a guilty mind. The same defence will be offered by 
those who export from abroad, out of reach of U.S. regulators. Reliance 
on the law of contract will only extend to ``parties to the contract.'' 
That is hardly sufficient within a complex and lengthy distribution 
chain, abroad.
    In many countries, including the UK, the involvement of major law 
enforcement agencies (as opposed to regulatory ones) is something that 
can be achieved--though it has been only rarely and invariably after 
the fact. The setting up of thorough investigations after 
counterfeiting incidents is not a satisfactory means to protect public 
health, neither will the law of contract (with foreign companies) 
enforce public safety in the U.S.A. Stronger measures are needed to 
prevent counterfeiting incidents.
    Of course it is impossible to consider the issue of S. 334 without 
thinking about ``Online'' sales from Canada. It is a vital experience 
upon which to call. The opportunities to make a fast buck from the 
Canadian online pharmaceutical business were quickly pursued by both 
legitimate businessmen and others. More than 2 years ago advertisements 
were placed on the Web purporting to come from Canada and yet when 
drugs were ordered they frequently came from Malaysia, Vanuatu or 
Eastern Europe. Rates of counterfeiting in such places are high, but 
that aside, the likelihood of drugs being time-expired or incorrectly 
stored are extremely high.
    I have maintained an interest in this issue and it is clear that 
some of those who are actively seeking to supply, and indeed now 
actively supplying the U.S. market are dealing with foreign entities 
that are, known or unknown to them, at the very least questionable. Of 
that I have clear evidence.
    Even now some Online Canadian business to business traders are 
actively advertising to supply pharmaceuticals from India and 
elsewhere.
    The pharmaceuticals market is of course a huge one and will no 
doubt continue to increase. There are fortunes to be made, and I can 
understand why there is a push toward this type of legislation in order 
to reduce the cost of drugs to the U.S. consumer.
    I have often been asked, Why should the industrialized world worry 
about drug distribution issues when so few people appear to be hurt by 
them? To an increasing extent the developed world is becoming more 
aware of the dangers that counterfeit and other substandard medicines. 
Cases of harm in the U.S.A. have been recorded. However, if one looks 
at the global picture it is clear that tens of thousands of people die 
annually from using such medicines. Those who perpetrate such crime do 
so for one reason--money. Providing substandard medicines is not a race 
crime, there is no reason to believe that those who kill those in the 
developing world by these means would think any more of taking American 
or European lives, indeed the opposite might be true.
    Very often counterfeit drugs contain some active ingredient but in 
lower dosage, or contain an alternative active, in both cases the user 
of those drugs might suffer gradual deterioration of health as the 
disease overcomes the lesser treatment. The results might be simply 
greater suffering or death. No one knows, and there is little chance of 
finding out.
    The UK's Criminal Intelligence Service recognises these threats, so 
too does Interpol.
    It has only been 5 months since I published (via the Stockholm 
Network) my book on this subject, and there has been a great deal of 
interest since. Still however, despite all the evidence some people 
fail to see the potential for widespread harm. For those who wish to 
see the dangers, they are clear. Those who call upon Europe in support 
of allowing easier access to the U.S. market ignore the evidence most 
blatantly.
    Before legislation is introduced in the U.S.A., given the potential 
for serious public harm, it is fundamentally important that the risks 
are fully understood and weighed, and then an importation system 
designed and properly policed in order to achieve and maintain 
compliance. I would most strenuously recommend that you consider 
establishing an international framework with regulators, law 
enforcement, and public health officials of the ``permitted countries'' 
in order to establish a system that affords adequate protection.

    The Chairman. Dr. Cecil.

     STATEMENT OF TODD CECIL, VICE PRESIDENT OF STANDARDS 
     DEVELOPMENT, UNITED STATES PHARMACOPEIA, ROCKVILLE, MD

    Mr. Cecil. Good morning, Mr. Chairman and members of the 
committee. I am Dr. Cecil. I am a chemist, and I am the Vice 
President of Standards Development, USP----
    The Chairman. Microphone again. Is the little light on? If 
the light is on, then you have it on.
    Mr. Cecil. It is on.
    The Chairman. Thank you.
    Mr. Cecil. In consideration of time, I will be brief. USP 
is a not-for-profit group that develops standards, chemical 
standards, for comparison and control of drug substances and 
drug products in the United States and is written into law in a 
number of different places. We want to talk about three major 
key principle components that we want you to look at. One is 
public standards. The second is pharmaceutical equivalents. And 
the third is bioequivalents, and let me skip on.
    Based on USP's experience and long history ensuring 
consistency and quality of drugs, we have the following 
observations.
    First, USP believes that any medicine imported without the 
benefit of the submission of a New Drug Application, or BLA, 
Biologics Licensing Application, or an ANDA, an Abbreviated New 
Drug Application, to FDA and subsequent agency review must 
conform to a USP-NF monograph. Lacking this conformity, the 
imported medicine should indicate where it differs from the 
public standard and should state so clearly on the label. The 
science and regulatory basis for these requirements is the 
foundation for ensuring quality drugs in the United States and 
has been for over 185 years.
    USP believes that the success of any drug importation 
program implemented in the United States must recognize the 
critical role of public standards and required adherence to the 
official U.S. compendia, that is the USP-NF. Adherence to the 
public standard in the USP-NF can achieve, via testing to the 
standard of a monograph or the use of USP reference standards, 
the consistency and uniformity sought by the initial founders 
of USP in 1820 and equally critical today in ensuring good 
quality pharmaceutical care.
    Second, through intense science-based deliberations on the 
part of the USP, the FDA, and the manufacturers, the United 
States has led the world in considering various issues of 
bioequivalence for over 50 years. This consideration has many 
origins, but it certainly began in part to the failure of 
tablets containing cardiac glycosides, digitalis and its 
congeners, in the early 1970s. These issues led to national 
efforts to better define bioequivalence and determine 
appropriate procedures for assessment.
    In the United States, the Congressional Office of 
Technology Assessment, or OTA, issued a key report in 1974. 
Many recommendations of the OTA report were subsequently 
adopted by the FDA and were published in 1977 as regulation. 
These regulations set the stage for passage of the 1984 Drug 
Price Competition and Patent Term Restoration Amendments to the 
FDCA, which established the comprehensive system of 
interchangeable, multi-source products in the United States.
    Following these major scientific and legislative advances, 
FDA published a number of guidances that further addressed the 
many and various complicated bioanalytical and bioequivalent 
studies that may be needed for both the pioneer and certainly 
for the generic manufacturers to allow market access. The end 
result of these science and legal endeavors is a coherent 
system of interchangeable pharmaceutical dosage forms.
    The USP requests that Congress consider carefully whether 
this multi-decade effort, beginning through substantial 
marketplace problems and moving to Congressional action through 
the OTA, can be assumed to have occurred in other countries. 
The U.S. regulatory, academic, and manufacturing communities 
have worked to great mutual benefit with their counterparts in 
other countries. However, these collaborative efforts, no 
matter how successful, do not guarantee the regulatory systems 
of other countries will impose the same rigor of bioequivalence 
that does the FDA.
    And third, the USP believes that drug importation programs 
should carefully consider public health impact of allowing 
dosage forms from other markets in the treatment of patients 
and consumers in the United States. Bioequivalence is a 
concept. It is not just a single clinical study performed by a 
generic applicant as part of documentation required for an 
ANDA. Rather, it is a complicated science and policy approach 
that requires equivalent performance between multiple 
iterations of both the pioneer and, at the appropriate time, 
interchangeable multi-source generic products. Both pioneer and 
generic manufacturers are required under law to initially 
establish bioequivalence and then assure continuing 
bioequivalence through careful post-approval changes--change 
control, pardon me.
    USP wishes to emphasize the importance of the pre- and 
post-approval change control to patient health. In today's 
environment, where appropriate health care cost control is 
critical, substantiation of therapeutically equivalent dose 
forms can occur frequently as health care systems and 
practitioners try to achieve the most efficient treatment at 
the lowest cost.
    Given the strength of the FDA regulatory system, patients 
and their practitioners can be reasonably assured that the 
patient is getting the same medication time after time and dose 
after dose. Introducing a dosage form for another market has 
the possibility of substantially disturbing the finely tuned 
equilibrium, so that without some assurance of bioequivalence, 
the participating patient would have no way of knowing that the 
patient is receiving a therapeutically equivalent dosage form.
    USP looks forward to working with Congress and other 
stakeholders in ongoing work in this area, and I would like to 
thank Mr. Chairman and members of the committee for allowing us 
this opportunity to speak to you.
    The Chairman. Thank you.
    [The prepared statement of Mr. Cecil follows:]
                Prepared Statement of Todd Cecil, Ph.D.

I. Introduction

    The United States Pharmacopeia (USP) is a private not-for-profit 
organization whose mission is to promote the public health by 
establishing and disseminating officially recognized standards to 
ensure the quality of medicines and other health care products. USP 
achieves its mission through the contribution of volunteers 
representing, pharmacy, medicine, and other health care professions, as 
well as science, academia, the U.S. Government, the pharmaceutical 
industry, and consumer organizations.
    USP was created in 1820 by practitioners who wished to promote the 
quality of therapeutic products. The first pharmacopeia was published 
in 1820 and began as a ``recipe'' book to promote uniformity in drugs 
(a drug includes its active ingredient(s) and excipients) that were 
generally available in the United States at that time. Prior to the 
publication of the first pharmacopeia, the quality of drugs varied 
between cities and regions. The practitioners recognized that by 
setting public standards for drug products, they would help ensure the 
consistency and quality of drugs used in this country.
    Ensuring drug quality through public standards remains USP's core 
mission. Today, USP's drug standards are developed by its Council of 
Experts and Expert Committees, a group of 650 nationally and 
internationally recognized scientists and practitioners in medicine, 
pharmacy, the pharmaceutical sciences and many other healthcare 
professions. USP's standards are widely recognized in the United States 
and elsewhere because they are authoritative, science-based and 
developed through a transparent and credible process with established 
integrity.
    USP's standards are made public through the United States 
Pharmacopeia (USP) and the National Formulary (NF). Together the two 
compendia are published as a combined text annually (USP-NF) with two 
Supplements. Originally a book of process standards (recipes for 
preparations), USP-NF evolved over time into compendia containing 
primarily product standards. These standards are expressed in public 
monographs for drug substances, excipients, dosage forms and other 
articles, and in General Chapters, which are dedicated to procedures 
widely used throughout the compendia. The USP-NF monographs contain 
specifications (tests, procedures, and acceptance criteria) that help 
ensure the strength, quality, and purity of the named items. The 
purpose of the USP-NF is to provide a single standard for medicines 
used in the United States to ensure product uniformity and quality.
    Closely allied with public monographs in USP-NF, and equally 
important in many respects, is the availability of an official USP 
Reference Standard. USP Reference Standards are chemical substances 
used by the pharmaceutical industry to test conformity to the USP-NF. 
USP Reference Standards are highly characterized chemical materials 
used in quality control laboratories to carry out tests for strength, 
quality, and purity described in the USP-NF. USP Reference Standards 
and USP-NF monographs are complementary tools to ensure these critical 
attributes for pharmaceutical substances and products.
    Over the years, Congress has relied on USP on many occasions and 
has repeatedly recognized USP's expertise as a standard-setting 
organization. Initially, in the Import Drug Act of 1848, Congress 
turned to USP for public standards for imported medicines. Today, 
principal recognition occurs as a result of Congress' recognition of 
the USP-NF as official compendia of the United States. The Federal 
Food, Drug, and Cosmetic Act (FDCA) makes the official compendia, the 
USP-NF, enforceable by the Food and Drug Administration (FDA).
    For over 185 years, USP's activities have supported the 
availability of safe, effective, good quality therapeutic products for 
patients and consumers. USP believes it can play a leading and helpful 
role, working with this committee and Congress, the Federal Government, 
and other relevant organizations and stakeholders, in evaluating the 
scientific issues surrounding drug importation and continuing to help 
ensure the availability of safe, effective, good quality therapeutic 
products.

II. Science Issues

    USP commends Congress for its efforts in attempting to address the 
issues of drug importation and acknowledging the important role science 
has in helping ensure that the importation of drugs to the United 
States will not adversely affect public health. The issue surrounding 
drug importation calls into question many scientific issues that merit 
full consideration. This testimony will discuss two science issues--
pharmaceutical equivalence and bioequivalence--that USP believes are 
key considerations in allowing importation of drugs into the United 
States. USP will also address the need for public standards and the 
public health impact that imported drugs may have on patients and 
consumers.
A. Public Monographs in USP-NF and Official USP Reference Standards
    USP believes that any medicine imported without benefit of 
submission of a New Drug Application (NDA), Biologics Licensing 
Application (BLA), or Abbreviated New Drug Application (ANDA) to FDA 
and subsequent Agency review must conform to a USP-NF monograph both 
for its ingredients, including and most importantly the drug substance 
and the dosage form. Lacking this conformity, the imported medicine 
should indicate how it differs and should so state clearly on the 
label. The general approach accords with the FDCA, which states that a 
drug shall be deemed to be adulterated if it purports to be or is 
represented as a drug, the name of which is recognized in an official 
compendium and its strength differs from, or its quality or purity 
falls below, the standards set forth in such compendium. Such 
determination regarding strength, quality, or purity shall be made in 
accordance with the tests or methods of assay set forth in such 
compendium.
    The science and regulatory basis for these requirements is the 
foundation for ensuring quality drugs in the United States and has been 
for over 185 years. Specifically, in the Import Drug Act of 1848, the 
U.S. Government turned to the United States Pharmacopeia for public 
standards for imported medicines. With passage of the Pure Food and 
Drug Act in 1906 and in the following almost 100 years, USP has 
provided public monographs for ingredients and dosage forms, working 
collaboratively with the FDA and manufacturers of medicines legally 
marketed in the United States. With passage of the Federal Food, Drug 
and Cosmetic Act in 1938, USP and subsequently NF were named as 
official compendia of the United States.
    The USP science-based and public process for developing an official 
monograph for the USP-NF and official USP Reference Standards is a well 
evolved system that works in concert with efforts of U.S. manufacturers 
and the FDA to assure the public trust. Speaking simply, the public 
monograph in the USP-NF for a dosage form and its ingredients is the 
public Quality document, which allies with the Safety and Efficacy 
information expressed in product labeling. In offering a USP-NF 
monograph and, where needed, official USP Reference Standard, USP is 
part of a comprehensive quality system that helps assure practitioners 
and patients--and the public at large--that a medicine is ``fit for 
purpose,'' i.e., is safe and/or effective in the maintenance of health 
and treatment of disease. Testing to a public monograph in USP-NF 
supports the Nation's historical objective, through many laws and 
through actions of FDA itself, in ensuring the identity of an article 
via the test procedures and other standards of the monograph, 
regardless of who is manufacturing the article, who is testing it, and 
when or where it is tested.
    In establishing a drug importation program, it is critical for the 
U.S. Government and other independent testing laboratories to have the 
capability to test the medicine and its ingredients. The most 
transparent and effective way this testing can be achieved is via a 
public monograph in USP-NF, allied with an official USP Reference 
Standard when needed. Without this capability, the U.S. will ultimately 
be relying on testimonials from manufacturers vending their products in 
other countries or on private and/or public specifications that have 
not undergone the stringent analytical processes conducted either by 
FDA or USP.
    The USP-NF has for 185 years provided public standards for 
medicines. These standards provide information on the quality, 
strength, and purity of the ingredient or product and ensure 
consistency in the medicines taken by the public. USP feels strongly 
that the success of any drug importation program implemented in the 
United States must recognize the critical role of public standards and 
require adherence to the official U.S. compendia--the USP-NF. Adherence 
to the public standards in the USP-NF can achieve, via testing to the 
standards of a monograph and with the use of USP Reference Standards, 
the consistency and uniformity sought by the initial founders of USP in 
1820. The failure of such recognition will result in the lack of 
consistency and uniformity that existed prior to 1820.
B. Pharmaceutical Equivalence
    A critical part of the legislation speaks to the definition of 
pharmaceutical equivalence (PE). The definition alludes to when the 
drug substance in two duplicate dosage forms is the same or not. 
Assurance of ``sameness'' can be readily demonstrated through 
conformance to a modern monograph in USP-NF. Thus, if the drug 
substance meets the specification (tests, analytical procedures, and 
acceptance criteria) specified in the monograph, its identity is 
established, irrespective of the source of the drug substance, and 
pharmaceutical equivalence for this specific substance is established.
    A modern monograph in USP-NF must account for important 
characteristics of the drug substance and its impact on safety and 
efficacy. The drug substance includes impurities and physical 
characteristics such as particle size. The active pharmaceutical 
ingredient (API) is itself only one component in the drug substance. 
Furthermore, the API can take on many forms that at times affect--
``dramatically''--the safety and efficacy of the dosage form containing 
the drug substance. The active pharmaceutical ingredient may differ in 
terms of crystalline form (different arrangements and/or conformations 
of the molecules in the crystal lattice), amorphous forms (disordered 
arrangements of molecules that do not possess a distinguishable crystal 
lattice), and solvates (crystal forms containing either stoichiometric 
or nonstoichiometric amounts of a solvent, such as water). Critical 
risks to public health have arisen based on U.S. experience for 
virtually all these important characteristics of the drug substance. 
These risks have related to both sub- and super-potency, risk from 
impurities, risk from changes in polymorphic form, and risk from change 
in particle size. Although less well studied, many of these risks are 
likely to extend to a dosage form's excipients, given that these 
ingredients frequently form the major part of a dosage form.
C. Bioequivalence
    Through intense science-based deliberations on the part of USP, 
FDA, and manufacturers, the United States has led the world in 
considering the various issues of bioequivalence (BE) for over 50 
years. This consideration has many origins, but it began in part with 
failure of tablets containing cardiac glycosides (digitalis and its 
congeners) in the early 1970's. These issues led to national efforts to 
define BE and to determine appropriate procedures for assessment. In 
the United States, the Congressional Office of Technology Assessment 
issued a key report on July 15, 1974 (OTA Report). The OTA Report 
recommended the importance of bioavailability and bioequivalence 
studies and indicated further steps to ensure that this information 
became part of the drug development and regulatory processes. Many 
recommendations of the OTA Report were subsequently adopted by FDA and 
were published in 1977 as regulations entitled Part 320-Bioavailability 
and Bioequivalence Requirements, which contain Subparts A (General 
Provisions) and B (Procedures for Determining the Bioavailability or 
Bioequivalence of Drug Products). These regulations were themselves a 
seminal event and have stood the test of time, with only minor 
revisions, and have established firmly the general approach to assuring 
PE and BE for all dosage forms over time. The regulations set the stage 
for the passage of the 1984 Drug Price Competition and Patent Term 
Restoration amendments to the FDCA, which established a comprehensive 
system of interchangeable multi-source products in the U.S. This 
legislation has also stood the test of time, again undergoing only 
relatively minor revisions.
    Following on to these major scientific and legislative advances, 
FDA expended considerable energies in the 1990's and thereafter to come 
to a better understanding of how to document interchangeability for 
many different types of ingredients and dosage forms. The general 
approach is established in FDA guidances that address the many and 
various complicated bioavailability and bioequivalence studies that may 
be needed both for the pioneer and certainly for the generic 
manufacturer to allow market access. They ally with the scale up and 
post approval change (SUPAC) documents created by FDA in the same 
timeframe. While this work is incomplete, it remains a beacon to the 
world on the information needed to assure a system of fully 
interchangeable pioneer and generic dosage forms.
    The end result of both these seminal scientific and legislative 
endeavors discussed above is a coherent system of interchangeable 
pharmaceutical dosage forms. This system has worked to great success, 
based on sound legislative, regulatory, and scientific approaches 
involving a broad constellation of stakeholders. USP requests Congress 
to consider carefully whether this multi-decade effort, beginning with 
substantial marketplace problems and moving to Congressional action 
through the Office of Technology Assessment, can be assumed to have 
occurred in other countries. The U.S. regulatory, academic, and 
manufacturing communities have worked to great mutual benefit with 
their counterparts in other countries. However, these collaborative 
efforts, no matter how successful, do not guarantee that regulatory 
systems in other countries impose the same rigor for bioequivalence as 
does the FDA.
D. Patient Care Issues
    USP believes that any drug importation program should carefully 
consider the public impact of allowing dosage forms from other markets 
in the treatment of U.S. patients and consumers. Bioequivalence as a 
concept is not just a single clinical study performed by a generic 
applicant as part of the documentation required in an ANDA. Rather it 
is a complicated science and policy approach that requires equivalent 
performance between multiple iterations of both a pioneer and, at the 
appropriate time, interchangeable multi-source generic products. Thus, 
bioequivalence per se exists as a challenge that must be documented for 
dosage form continuously throughout the life of any medicine 
irrespective of the company that is manufacturing it. To gain a glimpse 
of the general challenge, USP wishes to review briefly an entire and 
comprehensive series of pre- and post-market series of regulatory and 
compendial controls.
            (i) Pre- and Post-Market Change Control
    For the first-entry pioneer manufacturer, a careful series of 
approaches are needed to assure that the clinical trial material on 
which safety and efficacy are based is equivalent to the to-be-marketed 
dosage form. This is a highly resource intensive enterprise executed by 
U.S. innovator companies who must satisfy FDA requirements for careful 
product development in a regulatory filing. Many laws, regulations, and 
guidances provide specific and detailed requirements and 
recommendations for a pioneer manufacturer in this endeavor. It is a 
risk based approach that can intensify even for relatively simple, 
orally administered dosage forms, depending on the complexity of the 
drug substance--the active pharmaceutic ingredient, excipients, and the 
dosage form itself.
    After approval, the NDA holder must provide continuing assurance to 
FDA that the approved dosage form remains both pharmaceutically 
equivalent and bioequivalent to the originally marketed dosage form--
even in the presence of multiple changes in method of manufacturing, 
components, and composition. These same approaches are also critical 
for U.S. generic manufacturers who have, in principle, the same 
requirements to initially establish bioequivalence and then assure 
continuing bioequivalence through careful post-approval change control. 
Compliance with the general requirements for both pioneer and generic 
manufacturers over time is a daunting task. The general manufacturing 
and regulatory set of approaches even now, after many years of study, 
is not fully resolved for all dosage forms. Below is a chart that sets 
forth the science and regulatory process for drug approval (Figure 
One).




    While much remains to be done in this area, USP commends FDA and 
the U.S. pharmaceutical industry for coming to a much clearer 
understanding of how to assure, in the presence of pre- and post-
approval change, stable quality and performance characteristics of a 
dosage form and its ingredients over time. These tasks are critical to 
the U.S. patient and the consumer. The U.S. Congress itself emphasized 
the importance of post-approval change control with passage of the Food 
and Drug Administration Modernization Act in 1997, which legislates 
three types of changes and the need for associated filing requirements. 
This legislation was subsequently adopted by FDA in changes in 
regulation at 21 CFR 314.70 and associated regulatory guidance. This 
important legislation followed on to the FDA's careful delineation of 
the types of information needed by dosage form in the presence of 
certain changes (SUPAC documents). Again while much more work needs to 
be done, the SUPAC documents and the FDA's subsequent revisions of both 
regulation and guidance put the United States and FDA and its regulated 
industry in the forefront of post-approval change control.
    USP has a long and honorable history of supporting approaches that 
assure optimal dosage form performance. This is expressed most 
prominently in the USP dosage form monograph, which frequently includes 
a performance test such as dissolution or disintegration. Dissolution 
acceptance criteria are usually set in private negotiations between an 
applicant and a regulatory agency. These subsequently can enter the 
public dosage form monograph in USP-NF based on decisions of the USP 
Council of Experts. Based on the relationship between the regulatory 
decisions and information voluntarily submitted by a pharmaceutical 
manufacturer to USP, the USP dissolution procedure links to the 
regulatory judgment about bioavailability and bioequivalence and, 
ultimately, to a judgment about safety and efficacy. For imported 
medicines, conformance to a USP dissolution test would be critical to 
an understanding of product performance.
            (ii) Importance to the Patient
    USP wishes to emphasize the importance of pre- and post-approval 
change control to the patient and consumer. The U.S. system generally 
allows interchangeability based on the ratings set forth in FDA's 
Approved Drug Products with Therapeutic Equivalence (also known as the 
``Orange Book''). The Orange Book identifies drug products approved on 
the basis of safety and effectiveness by the FDA under the FDCA and 
provides guidance on drug interchangability. This means that in all 50 
states and territories, substitution of appropriately rated (e.g., AB 
rated oral dosage forms) may occur at the pharmacy level. In today's 
environment, where appropriate healthcare cost control is critical, 
substitution of therapeutically equivalent dosage forms from one 
manufacturer to another can occur frequently, as healthcare systems and 
practitioners try to achieve the most effective treatment at the lowest 
cost. In practice, this might mean that a patient would receive a 
dosage form from many different manufacturers over the course of a 
year's treatment. Given the strength of the U.S. system, this patient--
and his/her practitioner team--can be reasonably assured that the 
patient is getting the same medication time after time and dose after 
dose. But this assurance is based on FDA's rigorous control of both 
pharmaceutical equivalence and bioequivalence through careful pre- and 
post-approval change. Introducing a dosage form from another market has 
the possibility of substantially disturbing this finely tuned 
equilibrium so that, without some assurance of bioequivalence, the 
practitioner and patient would have essentially no assurance that at 
any point in time they were receiving a therapeutically equivalent 
dosage form. For both the patient and practitioner, this is an 
especially critical point. Health and disease have their own inherent 
progression. Medicines are not like cars, where breakdowns are usually 
readily apparent but rather may be attributed to the course of a 
disease or other factors. This challenge in assessing causality impedes 
understanding that absence of progress or unexpected toxicity may in 
fact be attributed to the failure of a medicine.
    Through careful safety, efficacy, and quality pre-market studies, 
the U.S. system requires a pioneer to gain some understanding of the 
dose/response relationship for a medicine. This dose/response 
relationship allows the concept of a therapeutic window, as 
demonstrated by the following figure (Figure Two).




    The therapeutic window refers to the point at which efficacy begins 
to be lost, if the dose administered is too low or too high or is 
unacceptably toxic. A dosage form should deliver the same amount of 
drug at the same rate to a patient with each dose time after time to 
maintain optimal safety and efficacy. If a dosage form under- or over-
performs, as may happen with bioinequivalent products, then the optimal 
safety/efficacy profile may be lost. It is important also to note that 
concepts of bioequivalence and therapeutic equivalence are applicable 
to the individual. Thus a patient/consumer must receive a dosage form 
that reliably delivers the right amount of the drug at the right time, 
day after day, in order to assure optimal safety and efficacy over 
time.
    Furthermore, while all regulatory systems produce drugs based on 
population studies, the concept of generic substitution relates also to 
the therapeutic window for a single patient. At this time we have 
little or no understanding of this therapeutic window in an individual 
or how it might change in different populations such as the elderly, 
children, women, or the infirm. As a specific example, the therapeutic 
window for a narrow therapeutic range drug such as warfarin might range 
between 2 and 10 or more milligrams/day in the population. But in an 
individual, such a wide dose range would produce intolerable loss of 
efficacy, manifested in excessive coagulation, or unacceptable 
toxicity, manifested by bleeding. Careful attention to bioequivalence 
both within and between manufacturers is designed to prevent such 
occurrences. Even small differences between bioinequivalent dosage 
forms--in terms of amount of drug delivered and the rate at which is 
delivered--can thus produce dangerous outcomes in individual patients.
    Congress, FDA, USP, the pharmaceutical industry, and many other 
stakeholders have been addressing the issue of bioequivalence and its 
impact on patients for over 50 years in the United States. The result 
is a vigorous regulatory process that provides reasonable assurances to 
patients and practitioners. Any drug importation program must provide 
patients and practitioners in the United States the equivalent 
assurance in order to not to adversely impact public health. USP 
believe that adherence to public standards in the USP-NF is one 
mechanism to help achieve such assurances.

III. Conclusion

    USP commends Congress for its efforts in attempting to address the 
issues surrounding drug importation. USP looks forward to working with 
Congress and other stakeholders in the ongoing effort to ensure that 
patients and consumers are not adversely affected by the importation of 
drugs into the United States. USP is ready to assist you by making 
available our scientific expertise and experience. Specifically, USP 
believes it can play a leading and helpful role, working with this 
committee and Congress, the Federal Government, and other relevant 
organizations and stakeholders, in evaluating the scientific issues 
surrounding drug importation.
    Thank you Mr. Chairman and members of the committee for providing 
USP the opportunity to provide input on the scientific issues 
surrounding drug importation.
                                 ______
                                 
              Annex 1.--USP and its Public Health Mission
                               1. history
    USP is a not-for-profit organization that was created in 1820 by 11 
practitioners who wanted to promote the quality of therapeutic 
products. The first pharmacopeia was published in the United States in 
1820 and began as a ``recipe'' book to promote uniformity in drugs (a 
drug includes its active ingredient(s) and excipients) that were 
generally available in the United States at that time. Prior to the 
publication of the first pharmacopeia, the quality of drugs varied 
between cities and regions. The practitioners recognized that by 
setting public standards for drug products, they would help ensure the 
consistency and quality of drugs. Ensuring drug quality through public 
standards remains USP's core mission.
                    2. volunteer based organization
    USP's governing bodies include its Convention, which meets every 5 
years, and a Board of Trustees, which provides direction to staff in 
the years between Convention meetings. Standards-setting activities are 
conducted by the USP Council of Experts. Membership in the Convention 
(representing approximately 400 associations), on the Board (11 members 
representing Convention constituencies), and on the Council and its 
Expert Committees (approximately 650 members) is entirely voluntary. To 
support the activities of these bodies, USP maintains a staff of 
approximately 350 in its Rockville offices.
 3. public monograph in the usp-nf and official usp reference standards
    USP's drug standards are developed by its Council of Experts and 
Expert Committees, a group of 650 nationally and internationally 
recognized scientists and practitioners in medicine, pharmacy, the 
pharmaceutical sciences and many other healthcare professions. USP's 
standards are widely recognized in the United States and elsewhere 
because they are authoritative, science-based and developed through a 
transparent and credible process with established integrity.
    USP provides standards for more than 4,000 prescription and non-
prescription drugs, dietary supplements, veterinary drugs, health care 
product, and excipients. These standards are presented in a combined 
text consisting of two compendia--the United States Pharmacopeia (USP), 
to which the National Formulary (NF) was added in 1975. Together the 
two compendia are published as a combined text annually (USP-NF) with 
two Supplements.
    USP's standards, which are presented in monograph form, contain 
specifications (tests, procedures, and acceptance criteria) that help 
ensure the strength, quality, and purity of the named articles. Closely 
allied with public monograph in the USP-NF, and equally important in 
many respects, is the availability of official USP Reference Standards. 
USP Reference Standards (chemical specimens) are used in the 
pharmaceutical industry to test conformity to such monograph standards. 
USP provides approximately 1,750 USP Reference Standards that are 
specifically required in many Pharmacopeial assays and tests.
    USP's official Reference Standards are highly characterized 
materials used in a quality control laboratory to carry out tests for 
strength, quality, and purity described in the USP-NF. Such tests help 
to determine whether a batch being released to the market conforms to 
its USP-NF specification as required by law and will continue to 
conform throughout its shelf life. The Reference Standards are 
typically used to conduct the analytical procedures set forth in the 
USP-NF.
    USP Reference Standards also are used as calibrators--for 
dissolution, particle count, melting point, and standardization of 
titrants and as blanks and controls (negative control plastic, lanolin, 
and methylcellulose). Reference Standards are used for measurements 
required to obtain accurate and reproducible results in chromatographic 
and spectrophotometric procedures. USP has Reference Standards for drug 
substances, dosage forms, dietary supplements, excipients, impurities, 
and degradation products, as well as performance calibrators.
               4. reference standards development process
    When USP identifies the need for a new Reference Standard (based on 
monographs in the USP-NF that require its use), it requests bulk 
materials from pharmaceutical manufacturers. USP subjects the candidate 
materials it receives from manufacturers to rigorous analysis and 
review. USP tests the materials in its own laboratories, and requests 
collaborative testing by FDA and independent laboratories. The goal of 
the collaborative testing is to confirm the identity and assess the 
purity of the material, to confirm its homogeneity, to determine its 
suitability for use in the official applications, to provide the user 
with all the necessary information and directions for use, and to 
acquire time-zero information for future continued-suitability-for-use 
studies. USP compares and analyzes the results of this collaborative 
testing and prepares a report for its Reference Standards Expert 
Committee (RS-EC). The RS-EC comprises experts from industry, 
government agencies, and academia from the United States and from 
abroad. The RS-EC determines whether the candidate material is suitable 
to be established as an official USP Reference Standard. USP Reference 
Standards are established and released under the authority of the USP 
Board of Trustees upon recommendation of the USP RS-EC.
                           5. public process
    During the past 185 years, USP has played an important role in 
developing standards for medicines, including drugs, devices, 
biologicals, and dietary supplements. USP standards are developed and 
continuously revised by a unique public process, involving expert 
volunteers from academia, industry, government, trade associations, and 
consumers, and are subject to public comment.
    USP's public comment process occurs via the Pharmacopeial Forum 
(PF) and is similar to the Federal Government's Federal Register. The 
PF is the working vehicle of the USP Council of Experts (CoE). The PF 
provides interested parties the opportunity to review and comment as 
the CoE develop and/or revise standards for the USP-NF.
                          6. legal recognition
    The USP-NF is recognized in Federal laws regulating drugs, food, 
devices, and dietary supplements. Initially, in the Import Drug Act of 
1848, Congress turned to USP for public standards for imported 
medicines. Thereafter, the USP was incorporated in the 1906 Pure Food 
and Drug Act, which stated that drugs included all those medicines and 
preparations in the USP and stated that a drug was considered 
adulterated if it differed from the standard of strength, quality, or 
purity described in the USP. The current law, the Federal Food, Drug, 
and Cosmetic Act (FDCA), was enacted in 1938 and recognizes the USP-NF 
in several sections. The FDCA defines the USP-NF as official compendia, 
specifically stating that ``official compendium'' includes the United 
States Pharmacopeia, the National Formulary or any supplement to any of 
them. The FDCA also incorporates the 1906 adulteration provision, by 
stating that a drug is adulterated if it is recognized in the USP-NF 
and fails to meet the strength, quality, or purity set forth by 
compendial standards. In addition, the FDCA integrates USP-NF standards 
in the misbranding provisions for drug products, saying that drugs are 
considered misbranded if they fail to adhere to USP-NF standards for 
packaging and labeling. Section 502(e) requires that the established 
name of a drug appear on the label and states that the established name 
of a drug or ingredient is the one designated by the Secretary of the 
Health and Human Services or the name appearing in the USP-NF.
    Congress also has recognized USP-NF standards for dietary 
supplements but has made adherence to them voluntary. Specifically, 
Sec. 402(s)(2)(D) provides that a dietary supplement is considered 
misbranded if it states conformance to an USP-NF monograph and fails to 
so conform. Thus, if a dietary supplement manufacturer asserts 
conformance to the USP-NF monograph, the product must conform to the 
monograph requirements or the product will be deemed misbranded.
    The Social Security Act (SSA) recognizes the USP-NF in the 
provisions regarding Medicare. According to the SSA, Medicare provides 
reimbursement for drugs that cannot be self-administered, such as those 
drugs administered in a physician's office. The SSA then defines drugs 
to be those that are included or approved for inclusion in the USP, NF, 
United States Homeopathic Pharmacopeia, or in New Drugs or Accepted 
Dental Remedies or approved by the pharmacy and drug therapeutics 
committee. As a practical matter, drugs administered in a physician's 
office are generally not subject to approval by a pharmacy and drug 
therapeutics committee so the drugs must be in the USP-NF or approved 
for inclusion in them. USP has a process whereby a drug can be readily 
approved for inclusion into the pharmacopeia.
    Most recently, under the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003, the Secretary of the Department of 
Health and Human Services is required to request USP to develop, in 
consultation with pharmaceutical benefit managers and other interested 
parties, a list of categories and classes that may be used by 
prescription drug plans in developing their formularies. USP is to 
revise this classification from time to time to reflect changes in 
therapeutic uses of covered drugs and addition of new covered drugs. In 
December 2004, USP provided the Centers for Medicare and Medicaid 
Services (CMS) the USP Model Guidelines as set forth under the MMA. USP 
is working with CMS to determine the revision process for the USP Model 
Guidelines.
                    7. other related usp activities
a. USP--International
    The international market for manufactured pharmaceuticals is 
changing at a rapid pace, leading to an especially challenging global 
environment where the likelihood of counterfeit and substandard drugs 
is of increasing concern. Like early practitioners in the United 
States, modern practitioners in many parts of the world beyond the 
United States may confront a bewildering array of poorly named 
therapeutic ingredients and products, with uncertain safety, efficacy, 
and quality. In a recent publication, USP proposed the creation of a 
separate official USP compendium, clearly distinguished from USP-NF, to 
support international needs and, as feasible, national interests as 
well. The approach allows availability of useful public analytical 
information to all constituencies of USP throughout the world. USP 
believes this general approach to assure optimal quality of medicines 
irrespective of their market sphere of authority might be especially 
useful in considering issues of importation.
b. USP's Verification Programs
    USP has established a Dietary Supplement Ingredient and Product 
verification program. USP is considering expansion of the approach to 
excipients, drug substances and perhaps even dosage forms. USP believes 
that this type of program could be used by the Federal Government to 
help assure the quality of medicines entering the U.S. market from 
another country or region. USP has enclosed additional information on 
its Verification Programs.

    The Chairman. And again, I will reiterate that all of your 
testimony will be a part of the record and I really do 
appreciate all the work you went through. There are more pages 
there than we could possibly handle in a hearing, but there is 
a lot of good information. I have been through it all.
    Mr. Arthur.

STATEMENT OF THOMAS C. ARTHUR, DEAN, EMORY UNIVERSITY SCHOOL OF 
                        LAW, ATLANTA, GA

    Mr. Arthur. Thank you, Mr. Chairman. Mr. Chairman, members 
of the committee, I am honored to be asked to come before you 
today to discuss some of the issues with the statute. The 
issues that I would like to discuss haven't been discussed so 
far, except that they have been alluded to by Senator Isakson.
    This is not just a bill to provide--to permit imports by 
people who wish to import drugs into this country. It also 
contains provisions to coerce people to import drugs into this 
country that do not wish to, and along with that, it has 
provisions which are intended not just to permit free 
importation and free trade, but also to create by indirection 
foreign price controls over American drugs and have them 
imported into the United States.
    Now, the way the bill does this is it requires U.S. 
manufacturers selling abroad and foreign manufacturers who sell 
drugs in the United States to make available in the 
quantities--at unlimited quantities and at prices regulated by 
foreign price controls supplies to be imported back into the 
United States, or in the case of American producers, reimported 
back into the United States. It also has provisions which 
regulate the prices at which these companies can sell drugs to 
exporters, even drugs that are not intended to be sent back to 
the United States, and other various regulatory provisions for 
companies overseas.
    Now, that presents four problems. The first problem is that 
it raises questions with the appropriate constitutional scope 
of foreign commerce. The power to pass this bill and these 
provisions regulating what foreign nationals do in their own 
countries comes from the power of the Congress over foreign 
commerce. This power, according to the Supreme Court, also 
extends to acts taken abroad that affect U.S. commerce.
    Now, in one sense, any act, even a decision not to trade 
with the United States, arguably can affect the foreign 
commerce of the United States. For example, we have learned 
recently that oil consumption in China affects American gas 
prices. But if effects of that indirect sort can justify 
American regulation of foreign economies, it proves too much. 
It would allow the Congress to regulate the entire world.
    Second, it raises a question about international law. 
International law permits countries to regulate 
extraterritorially to protect their own interest. But again, 
that is a matter of whether there are direct effects intended 
to cause effects in the United States, not whether there are 
intentions not to affect the United States which may indirectly 
affect it.
    Now, this is a two-way street. To the extent that we can 
say that decisions not to sell in the United States authorize 
us to regulate and coerce people to do so, it would also under 
international law allow other countries to regulate our 
citizens for their benefit. It is a two-way street. And because 
intrusive extraterritorial regulation can be such a problem, 
nations have voluntarily imposed what is known as the rule of 
comity in which they stay their hands. They voluntarily write 
statutes which regulate extraterritorially only to the extent 
absolutely necessary. The Supreme Court has announced that it 
interprets statutes with a canon of construction to suggest 
that they read statutes narrowly, as Justice Breyer wrote for 
the unanimous Court last year in the Empagran case, to ensure 
that we intrude as little as possible in the ability of other 
countries to run their own affairs. Now, we don't do this just 
to be nice. We do this because what goes around comes around. 
If we can regulate other countries' activities, then they can 
regulate ours.
     Therefore, it leads me into my third point, which is this 
point made by Senator Isakson. If regulating drug prices is a 
good idea in the United States, why don't we do it directly in 
the United States? If we do it directly in the United States 
instead of importing other countries' drug and price controls, 
we don't interfere with their business. We don't try to give 
command and control regulations to foreign companies. We don't 
raise any of these issues. But in addition, we would have a 
regulatory regime which would be produced by an American 
Congress and responsive to American needs for the benefit of 
American consumers, done to be imposed by an American 
regulatory agency using American processes and procedures, 
which are not the same as they are in the rest of the world, as 
we have learned sometimes to our dismay, and subject to 
Congressional oversight and judicial review in American courts.
    By importing regulations of drug prices that are done by 
other countries for the benefit of their consumers and their 
voters, regulated and overseen by their legislative committees 
and reviewed in their courts, I don't understand why we would 
want to import their sovereignty into our country rather than 
doing it ourselves, which leads to my fourth point, and I will 
conclude, sir.
    I think the reason we haven't done it directly is it is not 
probably a good idea. There has been a lot of discussion about 
whether drug prices are too high and so forth and so on, but 
nonetheless, American policy through the patent laws, which 
have been visited time and again by this Congress, has been to 
provide the incentives to the patent system for the development 
of new drugs, and that is something which the Congress could 
change if it wants to, but so far, it has not seen that to be a 
good idea.
    The Chairman. Thank you.
    [The prepared statement of Mr. Arthur follows:]
             Prepared Statement of Thomas C. Arthur, L.Q.C.
    Mr. Chairman and members of the committee, I am pleased to be here 
today to discuss with you the important constitutional, international 
law and public policy issues raised by S. 334. The views expressed 
herein, of course, are strictly my own and not those of Emory 
University or its School of Law.
    To summarize my views at the outset, I have four objections to S. 
334 (the Dorgan Bill). First, to the extent that it seeks to regulate 
the exclusively foreign operations of foreign drug manufacturers in 
foreign markets, the Dorgan Bill may be unconstitutional. Second, even 
if assumed to be constitutional, the bill's extensive and heavy handed 
regulation of foreign drug manufacturers in foreign markets threatens 
to raise drug prices abroad and otherwise violate the fundamental 
principle of comity by undermining the policies of other countries. Not 
only will this violate principles of international law and create 
animosity toward the United States, it will also invite other countries 
to regulate conduct in the United States for the benefit of their 
economies, regardless of adverse effects on American interests. Third, 
the purpose of the bill's intrusive provisions is to impose other 
countries' drug price controls on drugs consumed in the United States. 
But if drug price controls were a good idea, they could be imposed 
directly in this country without interfering with other countries' 
regulation of their own pharmaceutical markets. In that case, they 
would not be imposed by foreign governments under foreign legal 
standards unchecked by either Congressional oversight or judicial 
review. Instead, they could be imposed by an American regulator under 
American legal standards, subject to oversight by the Congress and 
review in the courts. Fourth, drug price controls are not a good idea, 
whether imposed directly by new legislation or indirectly by the Dorgan 
Bill. If the bill operates as its sponsors hope, it will seriously 
undermine the incentives to innovation in the drug industry that the 
patent laws currently provide.
                         constitutional issues
    Congress' Constitutional authority to enact the Dorgan Bill must 
come from the Commerce Clause, particularly the ``Power . . . To 
regulate Commerce with Foreign Nations.'' U.S. Const. Art. I, Sec. 8. 
cl. 3. This provision empowers Congress to regulate our international 
trade. Several provisions of S. 334 seek to coerce foreign 
manufacturers which produce drugs that are not for sale in the United 
States to supply those products for export to the U.S. against their 
will. See S. 334, Sec. (n)(1) at 72-86. These provisions also impose a 
duty to supply exporters with other drugs that will not be exported to 
America, but rather consumed abroad, and regulate the prices for those 
coerced sales. See S. 334, Sec. Sec. (n)(1)(A), (C), & (D). But when 
foreign manufacturers choose not to ship certain products to this 
country or agree with third parties to stay out of that trade, it is 
hard to see how Congress can legitimately regulate those decisions 
under the guise of regulating the foreign commerce of the United 
States.
    One can argue that their decision not to export to the United 
States affects the foreign commerce of this country. As globalization 
proceeds, output and consumption decisions in other countries will 
increasingly have some economic effects on the prices and quantities of 
goods exported to the United States. For example, it has been reported 
in the press that the growing demand for petroleum products in China 
and other developing nations has diverted supplies from the United 
States, causing higher gasoline prices here and around the world. In a 
manner of speaking, then, the consumption decisions of Chinese 
industries and consumers are affecting petroleum exports to the United 
States, a part of our ``foreign commerce.''
    But this argument proves too much. It would provide a rationale for 
Congress to regulate the entire world economy. This certainly was not 
intended by the Framers, nor can it be justified as a reasonable 
expansion of Congressional power to fit modern conditions. The 
provisions of the Constitution must be given a reasonable 
interpretation. A reading of the commerce clause extending the 
legislative jurisdiction of the United States to virtually the entire 
world economy cannot be reasonable.
                  international law and comity issues
    Under current international law a nation may regulate conduct 
outside its territory that has significant effects within its 
territory. This is the principle that justifies, e.g., the 
extraterritorial application of our antitrust laws to foreign nationals 
for conduct in their own countries and, as most dramatically seen in 
the EU's prohibition of the GE/Honeywell merger, the extraterritorial 
application of other countries' laws to the activities of Americans 
taken in the United States.
    To the extent that provisions of the Dorgan Bill would attempt to 
coerce foreign manufacturers, who are directly or indirectly engaged in 
commerce, to export to the United States and to sell in their own 
countries other drugs, which will not be exported to the U.S., at 
controlled prices to exporters, the legislation's extraterritorial 
effect would violate international law.
    The ``significant effects'' test permits very intrusive 
extraterritorial regulation, as the GE/Honeywell decision illustrated. 
To moderate such effects, nations traditionally have voluntarily 
followed the principle of prescriptive comity, which counsels against 
regulation that unreasonably interferes with other countries' efforts 
to regulate their own affairs. Thus legislatures and courts have 
foregone opportunities to regulate within other countries to avoid 
undue interference with those countries' self-governance. For example, 
the Supreme Court ``ordinarily construes ambiguous statutes to avoid 
unreasonable interference with the sovereign authority of other 
nations.'' F. Hoffman-LaRoche Ltd. v. Empagran S. A., 159 L.Ed. 2d 226, 
236 (2004) (Breyer, J.); see also Hartford Fire Ins. Co. v. California, 
509 U.S. 764, 812-19 (1993) (Scalia, J., dissenting) (discussing use of 
prescriptive comity to construe statutes). Indeed, the statute 
construed in Empagran, the Foreign Trade Antitrust Improvements Act of 
1982, was passed in 1982 to ensure that the Sherman Act would not be 
unreasonably applied extraterritorially. Empagran, 159 L.Ed. 2d at 240.
    Nations do not follow the comity principle just to be nice. They do 
so as a matter of enlightened self-interest, in the realization that 
extraterritorial regulation is a two-way street. A nation that extends 
the extraterritorial reach of its laws unreasonably can expect the same 
treatment in return. Legislatures and courts around the world have 
exercised self-restraint as a matter of mutual self-interest.
    The provisions of S. 334, even if assumed to be constitutional and 
valid under international law, violate these principles of prescriptive 
comity. In essence, the bill intrusively regulates drug manufacturers 
in other countries, both as described above and in a myriad of other 
ways. These provisions are remarkably intrusive into other countries' 
affairs. At the least, they will stir up resentment toward the United 
States. It is hard to believe that the presence of FDA inspectors 
abroad will not be seen as a slur against other countries' drug 
regulations and yet another example of American exceptionalism and 
``imperialism.'' Other provisions add injury to this insult and may 
provoke more than mere resentment. The most glaring example is the 
requirement to sell for export to the United States at local prices. In 
many cases companies that sell both in this country and abroad, the 
primary targets of the bill, will raise foreign prices or even forego 
sales in other countries altogether rather than lose U.S. revenues.
    In response to these injuries, other countries will be tempted to 
retaliate against the American interests by adopting similar 
requirements where their products are sold for less in this country 
than at home. For example, Japan could require its camera and 
electronics firms to sell in the United States at (higher) Japanese 
domestic prices.
    Even if other countries do not retaliate in kind, the Dorgan Bill 
would set a bad precedent that erodes the principle of comity, to the 
detriment of American sovereignty and interests. In today's 
interdependent global economy many nations can justify extraterritorial 
regulation of American conduct under the effects test used in 
international law. If the United States aggressively and insensitively 
promotes its own interests via the extraterritorial application of its 
laws, it can hardly expect other countries to exercise self-restraint. 
This is already a serious problem in antitrust, as the confusion and 
conflict caused by the worldwide application of over 100 countries' 
competition laws has led to calls, in America as well as abroad, for a 
supranational competition law under the auspices of, e.g., the WTO.
                form of drug price control regime issues
    The bill is clearly aimed at drug companies that sell in both the 
United States and in other countries, most notably Canada, where 
foreign price controls force them to charge lower prices. By forcing 
these companies or their foreign affiliates and licensees to supply the 
American market from abroad, especially from Canada, the bill seeks to 
import these foreign price controls into the United States.
    But if drug price controls are a good idea, they should be directly 
imposed by our Government in a straightforward manner, rather than in 
this backdoor, Rube Goldberg fashion. Under the Dorgan Bill the price 
controls of any of the foreign governments in the bill's list of 
``permitted countries'' may be imposed indirectly on American 
manufacturers. These controlled prices will be imposed by foreign 
governments which do not answer to American voters. They will be 
imposed under foreign legal standards by foreign regulatory bodies 
using foreign administrative procedure. If subject to judicial review 
at all, it would be available only in foreign courts. These agencies 
and their regulations will be beyond the checks and balances of 
Congressional oversight and judicial review in American courts.
    By contrast, direct controls under a regulatory regime adopted by 
our Congress would be authorized by a statue enacted under the 
constitutional and political constraints of our system of government, 
by the U.S. Congress responding to the policy preferences of American 
voters. It would be implemented by an agency of the U.S. Government, 
pursuant to U.S. statutory standards, under the procedural and judicial 
review procedures contained in the enabling legislation, the 
Administrative Procedure Act and the Constitution.
    In short, an American price control system would be an action of 
the U.S. Government, operating for the sole benefit of American 
consumers under American legal and constitutional principles, subject 
to American political and legal controls. These are the benefits of any 
regulatory regime created by our sovereign Government. If drug price 
controls are a good idea, why would we delegate this task to foreign 
governments, rather than to our own?
                           innovation issues
    If the Dorgan Bill operates as its sponsors intend, it might well 
remove the incentives to innovation, provided by U.S. patent policy, 
that have made the American drug industry the leading provider of new 
medications. This is why there has been no serious move for drug price 
controls. Instead, public policy has gone in the exact opposite 
direction, giving the creators of new drugs patent rights that protect 
them from competitive pressures for a limited statutory period. This 
patent protection is justified as a reasonable inducement for 
innovation.
    The economic theory of the Dorgan Bill appears to be that the 
profit incentives currently provided by drug patents are excessive, not 
necessary to induce the research and development of new drugs. This 
thesis is based on the fact that drug companies make enough in Canada 
and other price controlling countries to justify production and sales 
there.
    This theory is wrong. Once a new drug has been developed, the 
expenses of developing it have already been incurred. They are what 
economists call sunk costs. A rational seller will sell, if need be, at 
a low price that does not allow it to recover these sunk costs, so long 
as the sales do permit it to cover the current costs of production. 
This is especially true if the seller can charge enough in other 
markets to recover its sunk costs.
    We see this all the time in the travel industry, as hotels rent 
rooms and airlines sell seats at very low prices rather than see them 
go empty. As long as the hotel or airline recovers its immediate out of 
pocket costs, the low price makes sense. But as we are now seeing in 
the airline industry, a carrier cannot survive if too many of its seats 
go at these low prices.
    A similar principle applies to the drug industry. It makes business 
sense to sell in Canada as long as the controlled prices cover the out 
of pocket costs of producing and distributing the drugs there. But this 
does not mean that Canadian price levels would be sufficient to induce 
the research and development necessary to produce new medications.
    This is not just a theoretical argument. If Canadian and European 
drug prices are sufficient to induce innovation, why do those countries 
depend on the American drug industry for new drugs? Why don't their 
domestic drug companies match ours? Canadians may argue their 
population and GDP are too small to support a domestic drug industry, 
but Europeans cannot. The European Union's population and GDP are as 
large as our own. Yet most new drugs continue to be developed in the 
United States.
    In sum, the Dorgan Bill raises serious issues of constitutional and 
international law, would subject American interests to foreign 
regulatory regimes, and would threaten the incentives that make this 
country the leading developer of lifesaving new medications. It should 
not be adopted.

    The Chairman. Dr. Kessler.

   STATEMENT OF DAVID A. KESSLER, M.D., DEAN, UNIVERSITY OF 
CALIFORNIA, SAN FRANCISCO SCHOOL OF MEDICINE, SAN FRANCISCO, CA

    Dr. Kessler. Mr. Chairman, I am pleased to be here to 
address the important issue of the safety of our drug supply.
    During my more than 25 years as a physician and 
particularly in my role at FDA, assuring the safety of 
prescription drugs has been one of my greatest concerns. I am 
here today to ask you to take important steps to protect 
American consumers from our current system of unregulated drug 
importation. The current system presents uncontrolled risks to 
the American public.
    With the explosion in shipments from Canada in the last 
several years, FDA has seen a growing number of counterfeit and 
questionable drugs. The current system is out of control. There 
is virtually no reliable way for consumers to know whether an 
Internet pharmacy outside the United States is legitimate and 
sells authentic, safe, and effective drugs.
    FDA currently lacks the jurisdiction and resources to 
verify that legitimate pharmacies in Canada or elsewhere are 
delivering safe and effective drugs to people here in the 
United States. The existing framework in Section 801(a) of the 
Federal Food, Drug, and Cosmetic Act effectively ties FDA's 
hands.
    Mr. Chairman, the choice before you is not the choice of 
imports or no imports. We already have a system of importation 
of drugs that jeopardizes public health. Congress, I believe, 
has a responsibility to fix this serious problem.
    The Pharmaceutical Marketing Access and Drug Safety Act of 
2005 includes provisions that would address these problems. 
This legislation goes farther than previous attempts at 
addressing this issue. The bill would allow FDA to implement 
safeguards to stop dangerous imports that currently reach 
American consumers. The bill gives FDA a way to assess whether 
drugs distributed in other countries meet FDA standards and it 
assures that FDA reviews drugs before they are imported. The 
bill gives FDA authority to verify that imported drugs are made 
in legitimate, FDA-inspected plants.
    And yes, today in the United States, manufacturers submit 
manufacturing changes every day. If you change a color of a 
capsule or the capsule supplier, that is a manufacturing 
change. FDA has a long history of handling these kind of 
changes.
    The bill anticipates and accommodates various anti-
counterfeiting technologies that are now or will become 
practical. This bill, through user fees, gives FDA the 
resources it needs to inspect facilities and verify their 
product. The bill assures that imported drugs will be labeled 
appropriately for patients. The bill gives FDA and other 
agencies better authority to police the importation of drugs 
from dangerous, illegitimate, and scrupulous Internet sites and 
suppliers overseas.
    The bill also addresses domestic Internet pharmacies. 
American citizens who choose to buy their drugs from another 
country or via the Internet can have confidence that they are 
getting FDA-approved drugs from FDA-inspected manufacturing 
plants if they work within the safety system created by this 
legislation.
    Mr. Chairman, as Congress debates this legislation, there 
are some important points I would ask you to keep in mind. The 
proposed regulatory system that would permit importation of 
safe and effective prescription drugs should be implemented in 
a carefully phased manner. S. 334, in effect, creates a safe 
system, a validated system for drug importation. I commend the 
bill's sponsors for including provisions to limit the number of 
authorized pharmacy wholesalers and drugs in the first 2 years. 
Congress should consider whether similar limits should be 
included in the legislation in subsequent years in order to 
keep the program manageable and of the highest quality.
    Mr. Chairman, I believe that implementing these provisions 
in a phased manner and with sufficient resources would be an 
important step to protect the public from the uncontrolled risk 
of imported drugs that exists today. The American public will 
be safer with a regulated system than with the current system 
of uncontrollable risk.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    [The prepared statement of Dr. Kessler follows:]
              Prepared Statement of David A. Kessler, M.D.
                           executive summary
    The recent exponential increase in unregulated prescription imports 
amounts to uncontrolled risk to American consumers. The existing 
framework in section 801(a) of the Federal Food, Drug and Cosmetic Act 
effectively ties the FDA's hands so that it cannot halt packages 
containing questionable drugs on their way to U.S. consumers. Congress 
must act to protect the public from dangerous imports. S. 334 would 
allow FDA to implement safeguards to effectively and efficiently stop 
dangerous imports currently reaching American consumers and to assess 
the manufacturing source of imported drugs according to the same 
standards used for domestic drugs. Implementing these provisions in a 
phased manner and with sufficient resources would be an important step 
to protect the public from the uncontrolled risk of imported drugs that 
exists today.
                                 ______
                                 
    Mr. Chairman, members of the committee, my name is David Kessler. I 
was Commissioner of the Food and Drug Administration from 1990 until 
1997. Currently, I am vice chancellor of medical affairs and dean of 
the School of Medicine at the University of California, San Francisco. 
I am pleased to be here today to address the important issue of the 
safety of our drug supply.
    During my more than 25 years as a physician and particularly in my 
role at FDA, protecting the public health and assuring the safety of 
prescription drugs has been one of my greatest concerns. I am here 
today to ask you to take important steps to protect American consumers 
from our current system of unregulated drug importation that presents 
uncontrolled risks to the American public.
    In the past couple of years, there has been an exponential increase 
in the number of prescriptions brought into the United States from 
Canada and other countries. The Department of Health and Human Services 
has estimated that the number of shipments has grown from 2 million 
packages in 2001 to 10 million in 2004. With this explosion in 
shipments, FDA has seen a growing number of counterfeit and 
questionable drugs. Currently, FDA is unable to adequately assure that 
the imported drugs reaching American consumers are safe and effective 
because the agency lacks both the resources and an effective statutory 
framework to regulate or stop the shipments. The continued increase in 
prescription drug prices, the ease of setting up what looks like a 
legitimate pharmacy on the Internet, and the absence of regulation all 
contribute to this worrisome trend.
    I am sure that most American consumers making these purchases truly 
believe they are getting the drugs that their doctors prescribed to 
keep them healthy. And the low prices offered on Web sites and by e-
mail may be hard to resist.
    But the current system amounts to uncontrolled risk. Consumers have 
no way to verify whether the drugs they receive measure up to U.S. 
standards for efficacy and safety. Even worse, the FDA lacks the 
regulatory structure to efficiently police the marketplace.
    The current system is out of control.
    There is no reliable way to know whether an Internet pharmacy 
outside the United States is legitimate and sells authentic, safe and 
effective drugs, although some cities and States have identified 
legitimate Canadian pharmacies from which consumers can order Canadian 
drugs.
    The existing framework in section 801(a) of the Federal Food, Drug 
and Cosmetic Act effectively ties the FDA's hands so that it cannot 
halt packages containing questionable drugs on their way to U.S. 
consumers. Currently, if an FDA inspector identifies a questionable 
drug shipment, the agency must conduct a detailed inspection and send a 
specific notice to the addressee detailing the violations before it can 
take final action.
    FDA currently lacks the jurisdiction and resources to verify that 
legitimate pharmacies in Canada or elsewhere are delivering safe and 
effective drugs to people here in the United States. The FDA does not 
have the authority or the resources to inspect pharmacies, wholesalers 
or manufacturers in Canada or anywhere else outside the United States. 
The agency's current ability to inspect manufacturing plants producing 
drugs for the U.S. market does not extend to facilities manufacturing 
drugs for Canada or anywhere else.
    Mr. Chairman, the choice before you is not the choice of imports or 
no imports. We already have a system of importation of drugs that 
jeopardizes public health. Congress has the responsibility to fix this 
serious problem.
    The risk to consumers in the current scenario is not just 
theoretical. FDA investigators ordered prescriptions from one Web site 
purporting to be selling approved drugs. Although the site advertised 
what it said were Canadian generic versions of Viagra, Ambien, and 
Lipitor, none of the drugs that were delivered measured up to the 
minimum U.S. standards. All three of the drugs had the wrong amount of 
active ingredients; the Lipitor and Viagra pills also were contaminated 
and failed dissolution tests. Simply put, these prescriptions were not 
safe and not effective.
    While that Web site may no longer operate, there are literally 
hundreds of other Web sites that exist today without any regulatory 
oversight whatsoever.
    As I understand it, the Pharmaceutical Market Access and Drug 
Safety Act of 2005 includes provisions that would address these 
problems. This legislation goes farther than previous attempts at 
addressing this issue. This bill would allow FDA to implement 
safeguards to effectively and efficiently stop dangerous imports that 
currently reach American consumers. American citizens who choose to buy 
their drugs from another country or via the Internet will have 
confidence they are getting drugs that are indeed safe and effective, 
if they work within the confines of the safety system created by this 
legislation. The health benefits of modern pharmaceuticals are possible 
only if patients get the right doses of the right medication.
    S. 334 would enable FDA to determine where a drug comes from and 
whether it truly is the drug that the seller claims. By requiring FDA 
inspection and approval of both the manufacturing source of the drug 
and the chain of custody of the drug, the act allows consumers and 
commercial entities to buy prescription drugs from Canada and certain 
other countries with reasonable assurance that the drugs are safe and 
effective.
    S. 334 gives the FDA the authority to assess the manufacturing 
source of drugs according to the same standards used for domestic drugs 
and to ban the importation of any drug it finds inadequate. Furthermore 
the bill gives the FDA the authority to inspect and verify the ``chain 
of custody'' of the drugs all the way back to the source of 
manufacture.
    It also bars imports from countries known to be major sources of 
counterfeit pharmaceuticals.
    In addition to assuring the safety and efficacy of the supply of 
imported drugs, S. 334 would increase the safety of drugs purchased via 
domestic Internet sites. Legitimate pharmacies require a doctor's 
prescription. This bill makes that rule apply to online pharmacies, and 
it authorizes State Attorneys General to go to Federal court to shut 
down rogue pharmacies.
    The provisions of S. 334 make it possible for consumers to safely 
import drugs for their own use and enables American pharmacies to 
obtain safe and effective drugs from other countries for the benefit of 
consumers here. It also anticipates and accommodates anti-
counterfeiting technology that is now or may become practical.
    Mr. Chairman, as Congress debates this legislation, there are some 
important points I would ask you to keep in mind.
    First, the proposed regulatory system that would permit importation 
of safe and effective prescription drugs should be implemented in a 
carefully phased manner. S. 334, in effect, creates a safe system for 
drug importation. I commend the bill for its provisions that limit the 
number of authorized pharmacies, wholesalers and drugs in the first 2 
years. Let me suggest that Congress consider whether similar limits 
should be included in the legislation for subsequent years, in order to 
keep the program manageable and of the highest quality.
    Second, creating a safe environment for drug importation also means 
giving the FDA clear jurisdiction and sufficient resources to do its 
job effectively. S. 334 gives FDA the authority to take strong 
regulatory action against questionable imported prescription drugs, 
while at the same time, creating a program for safe and effective 
imports.
    Implementing this program will require significant resources. The 
bill provides funding through user fees, but these should be 
periodically evaluated to make sure this funding is sufficient to 
assure the safety of the drug supply.
    Mr. Chairman, I believe that the American public will be safer with 
a regulated system than with the system of uncontrolled risk that we 
allow today.

    The Chairman. I appreciate the brevity of all of the 
members of this panel. I apologize again that we are more than 
halfway through a vote, so we won't have much time, but since 
you have testified, I hope you will be open to written 
questions that any member of the committee may submit, and many 
were planning on doing that anyway, and we would appreciate 
your quick response on those. The record will stay open for 
another 10 days. You can expand on anything that you get in 
questions or anything in addition to the statement that you 
have given.
    I do have from Dr. Kessler a couple of letters that he 
wrote, one that he wrote in 1999 and one in 2000, as well as 
his letter last year supporting the Dorgan legislation, and I 
would ask unanimous consent that all three of those letters be 
a part of the record preliminary to some of the questions that 
I will need to ask. I do appreciate your comments, Dr. Kessler, 
about a phased-in implementation of S. 334.
    [The letters of Dr. Kessler follow:]
                                                      May 19, 2004.
Hon. Edward M. Kennedy,
U.S. Senate,
Washington, D.C. 20510.

    Dear Senator Kennedy: Thank you for the opportunity to respond to 
your questions about S. 2328, the Pharmaceutical Market Access and Drug 
Safety Act of 2004. As a former Commissioner of Food and Drugs, and a 
current leader of one of the Nation's leading centers for medical 
research and treatment, I share your concern over the affordability of 
prescription drugs, and support your efforts to ensure that less costly 
prescription drugs purchased overseas are safe and effective.

    Question 1. Does S. 2328 ensure the safety of drugs imported to the 
United States? In particular, are there adequate assurances that drugs 
imported by registered pharmacies and wholesalers and exported to 
individuals from registered pharmacies in Canada will not be 
counterfeit and will meet the conditions of approval of the Food and 
Drug Administration?
    Answer 1. It is essential that prescription drugs purchased by 
Americans are safe and effective. I am certain that FDA, given the 
proper authority, mandate, and support can ensure the safety of drugs 
imported into the United States. S. 2328 provides a sound framework for 
assuring that imported drugs are safe and effective. Most notably, it 
provides additional resources to the agency to run such a program, 
oversight by FDA of the chain of custody of imported drugs back to FDA-
inspected plants, a mechanism to review imported drugs to ensure that 
they meet FDA's approval standards, and the registration and oversight 
of importers and exporters to assure that imported drugs meet these 
standards and are not counterfeit. As the legislation progresses, I'm 
sure that adjustments to this sound framework can be made to 
accommodate legitimate concerns of FDA or other experts and ensure that 
the legislation works as intended.

    Question 2. Will the user fees provided for in S. 2328 provide 
adequate resources for FDA to police the importation of drugs under the 
bill?
    Answer 2. FDA must be given new and adequate resources to carry out 
the responsibilities it would have under S. 2328. As commissioner, I 
oversaw the implementation of the 1992 Prescription Drug User Fee Act 
(PDUFA). PDUFA has proven that users fees can be an effective means of 
funding critical agency programs. User fees capped at 1 percent of the 
value of imported drugs as provided in S. 2328 would give substantial 
resources to FDA to police drug imports. For example, using CBO 
projections that 10-15 percent of drugs used in the United States might 
come in through imports, and assuming that the drugs will be half the 
price of domestic drugs, the user fee proposal in S. 2328 could result 
in up to $100 million in new resources for FDA, which would enable FDA 
to double the center for drugs field budget. It will be important, 
however, that the Congress work with FDA to ensure that as the drug 
import program evolves that FDA receives adequate, new funds to support 
the program.

    Question 3. Does S. 2328 provide adequate protections against 
efforts by drug companies to stop drug importation, such as cutting of 
supply of drugs to those entities that export drugs to the United 
States or changing drugs distributed overseas so that they do not meet 
the conditions of approval of FDA?
    Answer 3. U.S. prescription drug companies have made their products 
available at substantially less cost in highly developed countries such 
as Canada, but have then acted to prevent U.S. citizens from importing 
these less costly versions of their products. The steps you have taken 
in S. 2328 are effective tools to prevent some of the industry 
practices that have been documented to date.

    Question 4. Do you believe that innovation in the pharmaceutical 
industry will cease because of drug importation? How will it be 
affected?
    Answer 4. Research and development funding is an expense that 
should be shared equally by the citizens of wealthy countries 
throughout the world. Innovation is the heart of the prescription drug 
industry. The leaders of the industry, its stockholders, and the 
continuing enormous investment in biomedical research that is occurring 
at leading institutions around the world will ensure that drug 
innovation not only continue but accelerates.
    Again, thank you for the opportunity to assist you with this 
important endeavor.
            Sincerely,
                                       David Kessler, M.D.,
                                     Dean, UCSF School of Medicine.
                                 ______
                                 
                                                September 13, 2000.
Hon. Byron Dorgan,
719 Hart Senate Office Building,
Washington, D.C. 20510.

    Dear Senator Dorgan: Thank you very much for your letter of 
September 12, 2000. I very much applaud the effort that you and your 
colleagues are making to assure that the American people have access to 
the highest quality medicines. As you know, my concerns about the re-
importation of prescription drugs center around the issues of assuring 
quality products. The Senate bill which allows only the importation of 
FDA approved drugs, manufactured in approved FDA facilities, and for 
which the chain of custody has been maintained, addresses my 
fundamental concerns. The requirement that the importer maintain a 
written record of the chain of custody and batch testing to assure the 
product is both authentic and unadulterated provides an important 
safety net for consumers.
    Let me address your specific questions. First, I believe U.S. 
licensed pharmacists and wholesalers--who know how drugs need to be 
stored and handled and who would be importing them under the strict 
oversight of the FDA are well positioned to safely import quality 
products rather than having American consumers do this on their own. 
Second, if the FDA is given the resources necessary to ensure that 
imported, FDA-approved prescription drugs are the authentic product, 
made in an FDA-approved manufacturing facility, l believe the 
importation of these products could be done without causing a greater 
health risk to American consumers that currently exists. Finally, as a 
nation we have the best medical armamentarium in the world. Over the 
years FDA and the Congress have worked hard to assure that the American 
public has access to important medicine as soon as possible. But 
developing life saving medications doesn't do any good unless Americans 
can afford to buy the drugs their doctors prescribe. The price of 
prescription drugs poses a major public health challenge, While we 
should do nothing that compromises the safety and quality of our 
medicine it is important to take steps to make prescription drugs more 
affordable.
    I applaud your efforts to provide American consumers with both safe 
and affordable medicine.
            Sincerely,
                                             David A. Kessler, M.D.
                                 ______
                                 
                                                     June 29, 1999.
Hon. John D. Dingell,
2328 Rayburn House Office Building,
U.S. House of Representatives,
Washington, D.C. 20515.

    Dear Representative Dingell: You may recall that there has been a 
continuing controversy about the reimportation into the United States 
of prescription drugs manufactured here and exported abroad (so-called 
``American Goods Returned''). As you know the Prescription Drug 
Marketing Act of 1987 (the PDMA), P.L. 100-293 (Apr. 22, 1988), of 
which you were the principal sponsor in the House prohibits such 
reimportation. As the former FDA Commissioner who oversaw the 
implementation of many of the provisions of the PDMA, I wanted you to 
know of my concerns about this issue.
    I believe the prohibition on reimporting exported drugs serves two 
critical public health purposes: (1) preventing the introduction into 
U.S. commerce of prescription drugs that may have been improperly 
stored, handled, and shipped overseas, and (2) reducing the 
opportunities for importation of counterfeit and unapproved 
prescription drugs. I know you will recall that the Energy and Commerce 
Committee described these purposes in its report accompanying the bill 
that became the PDMA.
    Specifically, the existence and method of operation of a wholesale 
submarket, herein referred to as the ``diversion market,'' prevents 
effective control over or even routine knowledge of the true sources of 
merchandise in a significant number of cases. As a result, 
pharmaceuticals which have been mislabeled, misbranded, improperly 
stored or shipped, have exceeded their expiration dates, or are bald 
counterfeits, are injected into the national distribution system for 
ultimate sale to consumers. . . .
    A significant volume of pharmaceuticals is being reimported to the 
United States as American Goods Returned. These goods present a health 
and safety risk to American consumers because they may have become 
subpotent or adulterated during foreign handling and shipping. The 
ready market for reimports has also been a catalyst for the 
perpetration of a continuing series of frauds against American 
manufacturers, and has provided the cover for the importation of 
counterfeit pharmaceuticals in several cases. Moreover, the hazards 
associated with reimports have forced the Food and Drug Administration 
and U.S. Customs Service to spend inspectional and other resources that 
are solely needed in other areas.

    H.R. Rep. No. 76, 100th Cong., 1st Seas. 6-7 (1987).

    In 1986, the Oversight and Investigations Subcommittee of the 
Energy and Commerce Committee, which you chaired, described the public 
health and safety concerns of allowing ``American Goods Returned'' as 
follows:
    [T]he clear and present danger to the public health from reimported 
pharmaceuticals is the threat that subpotent, superpotent, impotent or 
even toxic substances labeled as U.S.-produced legend drugs will enter 
the distribution system. The foremost danger comes from so-called 
``generic'' drugs produced in developing countries that do not provide 
product patent protection for pharmaceuticals.
    Uncertain Returns: The Multimillion Dollar Market in Reimported 
Pharmaceuticals, 99th Cong., 2nd Sass. 23 (Comm. Print 99-GG 1986). One 
well-publicized example involved importation of more than 1 million 
counterfeit birth control pills, complete with counterfeit packaging 
and labeling. Id.; Dangerous Medicine: The Risk to American Consumers 
From Prescription Drug Diversion and Counterfeiting, 99th Cong., 2nd 
Sess. 22 (Comm. Print 99-Z 1986).
    In my view, the dangers of allowing reimportation of prescription 
drugs may be even greater today than they were in 1986. For example, 
with the rise of Internet pharmacies, the opportunities for illicit 
distribution of adulterated and counterfeit products have grown well 
beyond those available in prior years. Repealing the prohibition on 
reimportation of drugs would remove one of the principal statutory 
tools for dealing with this growing issue.
    I know one argument now being made for allowing reimportation is 
that this would make lower priced prescription drugs available to U.S. 
consumers. But, your committee effectively rebutted that argument in 
1986, in terms that seem to me to be equally applicable today.
    Pharmaceuticals reimported by diverters displace full price sales 
in the wholesale market. Moreover, prices to ultimate consumers are 
generally not lowered as a result of diversion. Rather, the profits go 
to the various middlemen, here and abroad, while consumers bear the 
risk.
    Uncertain Returns, supra, at 32 (emphasis added). See also 
Dangerous Medicine, supra, at 25-26 (``there is little or no 
significant benefit to consumers from pharmaceutical reimportation, and 
there are obvious costs in terms of health and safety risks and the 
utilization of scarce FDA resources'').
    I know of no changed circumstances that require either a shift in 
FDA policy or the passage of legislation to repeal PDMA's prohibition 
on reimporting drugs. Furthermore, I believe that such a repeal or 
change in policy would re-create the substantial public health risks 
PDMA was designed to eliminate, I would welcome your analysis and 
comments on this matter.
            Sincerely,
                                             David A. Kessler, M.D.
                               __________

    The Chairman. Senator Burr.
    Senator Burr. Thank you, Mr. Chairman. Let me thank this 
panel for your willingness to be here, but more importantly, 
for your expertise, your interest, and your passion for this.
    Mr. Satchwell, I can't thank you enough for your 
willingness to point out, hey, we have tried some of this. It 
doesn't work. I think listening to people who have either 
willingly or unwillingly become part of something is important. 
That you look up and say those that claimed that this would 
happen, in fact, were wrong. It does create a nightmare when 
you try to blend together a group of individual regulatory 
regimes into one where you haven't changed the regulations, you 
have just said, we will ignore ours and accept yours because 
there has to be some greater good, and I think that the 
European Union will revisit that at some point. I think that is 
enough of a warning that we shouldn't join into it as a full-
fledged partner and blindly accept the standards of other 
countries. I know that shortly after we did FDAMA, that was an 
issue that was on the table for the United States as it related 
to harmonization.
    Mr. Cecil, the labeling issue is quite important. Labeling 
should clearly state differences in equivalencies. The problem 
is that these bills that are on the table inject bulk 
purchasing into the United States for the first time. This is 
not an individual prescription that is being accessed from 
Canada. This is opening up the United States to a bulk market 
of foreign products. We have to hope that labels follow these 
products.
    Mr. Arthur, I think that this proposal ignores U.S. code in 
total as it relates to patent protection, and intellectual 
property rights. Now, I understand that the Dorgan bill 
surgically opens the Code up and says, in this particular case, 
reimportation of drugs is ok. Will you address the precedent 
that we are setting by doing that?
    Mr. Arthur. Well, Senator, I agree with you. It seems to me 
it is completely opposite from the provisions of the patent 
laws, particularly the ones that appertain to drugs, because 
there is a very careful statutory scheme that provides patent 
protection for people who actually come up with new drugs which 
have never been made before and which are not obvious and all 
the other protections of the patent code to make sure there has 
been real innovation, and the whole basis of that system is one 
of incentives. That is, it allows you to, for a limited term of 
years set by the statute and authored to deal with the problems 
of getting it through the FDA, a period in which you can be the 
exclusive seller.
    Now, it is intended, in other words, to take ordinary 
business incentives, and that incentive basically is the one to 
make money, to use it as an incentive to get companies to 
innovate and produce new drugs and invest into a risky system, 
because prices of drugs don't only represent the price of the 
actual drug, its manufacture, or even its R&D, but also the 
ones that fail.
    Senator Burr. Well, the authors of this bill might suggest 
that their intent is not to eliminate patent protection for new 
therapies. They are not here and that may be a question that we 
need to ask them, because they know that you need that 
incentive for those new therapies to be developed. The problem 
that we have today is that we are not overpriced on generic 
drugs. As a matter of fact, the U.S. market is underneath all 
foreign markets as it relates to the price of generics. So if 
they kept the patent protection for the new therapies, they 
haven't done anything. So I have got to think that their intent 
is to eliminate the patent protection, the incentive for 
research and development for new therapies as well as those 
that still have some patent life in them.
    Mr. Arthur. Oh, absolutely. I mean, what it would do, if I 
understand the bill, I think the key is reimportation. It is 
interesting, we have only heard that word reimportation during 
this hearing without anybody talking very much about it. A 
normal trade matter, a normal trade law would be one that 
applies to importation, voluntary importation. Reimportation 
suggests that a drug be made in the United States, sent to 
Canada, and then sent right back again. The only thing that is 
imported is the Canadian price----
    Senator Burr. And we----
    Mr. Arthur [continuing]. As a way to, in effect, 
artificially lower the price. It is almost--it is like driving 
your car with one foot on the accelerator and one foot on the 
brake.
    The patent law gives American companies, and European 
companies, for that matter, any company that innovates and gets 
an American patent, the right to set the price at what it 
chooses to. Price controls go in the opposite direction. So to 
say on the one hand, you can charge whatever you want to in the 
United States. That is your reward for innovation. But you are 
under legal obligation, if you sell in any one of these other 
countries, to provide enough to any exporter in that country to 
resupply the United States market at a lower price. It 
basically gives with one hand, takes away with the other.
    Senator Burr. The Chairman and I have to leave, and I 
apologize, but I do want to ask Dr. Kessler one or two 
questions. You said in your testimony that you were glad to see 
that the legislation initially limits the number of pharmacies, 
the number of wholesalers, and the number of drugs 
participating in reimportation. Can you envision how that is 
going to happen, how we are going to limit the number of 
pharmacies, the number of wholesalers, the number of drugs?
    Dr. Kessler. Certainly, Senator. I strongly support that. 
As the Chairman said, I think a phased approach makes sense.
    Senator Burr. But understand, we can't determine whether 
something is adulterated today at Dulles Airport without 
bringing a biologist in and going through some type of process 
where we can determine the active ingredients because the 
knock-off is so good. Are we now going to ask these individuals 
to only let the blue pills in, but not the red ones, and only 
if they come from this pharmacy and not that one, and only if 
it came through this wholesaler and not the 12 other ones that 
we excluded?
    Dr. Kessler. I think what S. 334 does is create, in 
essence, a safe environment. It tries to create a safe 
environment by dealing with 50 to 100 pharmacies, the top 
selling drugs. And, in fact, I think by keeping it small and 
keeping it focused on those drugs that are the most important, 
we have the greatest ability to assure the American people that 
their drugs would be safe----
    Senator Burr. And we rely on a paper trail, a paper chain 
to assure us that it went through the right wholesaler, that it 
came from the right manufacturer. Now, let me just ask you 
this. In the 7 years that you were at the FDA, you were an 
advocate for safety. You understood the letter of the law as it 
related to the FDA process. Would the FDA have ever accepted a 
regulatory scheme in the United States where companies weren't 
inspected, they just had to have paperwork that said that they 
met the FDA standard, paperwork that said that the ingredients 
that they got were, in fact, from where they said they were and 
not necessarily tested?
    Dr. Kessler. Senator, it is an excellent question, and, of 
course, FDA would not only require the paperwork, but as S. 334 
contemplates, FDA would have to be able to go in and inspect. 
So it is paperwork and inspection. I think if you ask career 
officials at FDA today, they would much prefer the ability to 
have jurisdiction and the resources to be able to have the 
paperwork and the ability to inspect rather than have the 
uncontrolled system that they are currently dealing with----
    Senator Burr. We have had U.S. drugs manufactured abroad 
for well over a decade. When you were FDA Commissioner, were 
there facilities from which we brought drugs into the United 
States that were not inspected by the FDA?
    Dr. Kessler. We inspected facilities all around----
    Senator Burr. Were there any that were not inspected by the 
FDA that manufactured drugs for U.S. consumption?
    Dr. Kessler. For counterfeit? There were certainly 
counterfeit. There have always been counterfeit. There will 
continue to be counterfeit.
    Senator Burr. I am talking about authorized manufacturers. 
Did we get to every manufacturer in the world----
    Dr. Kessler. We did not have--it is an excellent point, 
Senator. We did not have the resources in order to be able to 
do foreign inspections as much as we would like. That is why S. 
334 requires the user fees to do those inspections and 
requires--in some ways, it is ironic. The inspections would be 
every 12 months.
    Senator Burr. You were required before.
    Dr. Kessler. You didn't give us the--I mean, not you, 
Senator--[Laughter.]--but the resources weren't there. I 
apologize.
    The Chairman. The Senator's time----
    Dr. Kessler. You always did. You were the friend of the 
agency.
    Senator Burr. But my point is this.
    Dr. Kessler. It is a good point.
    Senator Burr. You had it in law. It said it had to be done, 
and the resources meant that you couldn't do it. What blind 
faith should we leap into this with a new bill that proposes a 
whole new regulatory acceptance on our part and say, well, we 
just have to trust that it is going to work?
    Dr. Kessler. No blind faith, Senator.
    Senator Burr. So we have to trust----
    Dr. Kessler. Set up the right system. Give the agency the 
right resources. Give the FDA the right jurisdiction, as this 
bill tries to do, and then I think you can have the assurances.
    Senator Burr. David, in the absence of----
    The Chairman. The Senator's time has expired and so has the 
vote.
    [Laughter.]
    Senator Burr. Last one. In the absence of the next 
Congress, who may or may not fund, and you know how the budget 
process goes up here, everything that the FDA wants, have we 
not set up a regime then that allows inspections not to happen 
because somebody says, we didn't get funding, and the American 
consumer is then the recipient of adulterated, counterfeit, 
illicit drugs, and FDA just says, well, we didn't have the 
money. You didn't give it to us.
    I think we have always erred on the side of making sure 
that didn't happen. You did it when you were there. I think the 
Congress, since I have been involved, wouldn't have done it. 
There is an easy way out. That is, give everybody what they 
want. But we make decisions based upon the safety of the entire 
population.
    I thank you for your service. I thank all of you for your 
time. I yield back.
    The Chairman. I will allow each of you to answer that last 
one in writing and him to submit other questions, as well as 
everybody else.
    This hearing is adjourned.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

    S. 334: A Different FDA Standard for Imported Drugs That Would 
   Compromise the Safety, Effectiveness, and Quality of the American 
                        Prescription Drug Supply
    On February 9, 2005, Senator Dorgan introduced S. 334, the 
Pharmaceutical Market Access and Drug Safety Act of 2005. This bill 
legalizes commercial and personal importation of unapproved 
prescription drugs from foreign countries, thereby opening a closed 
system designed to protect the health and safety of the American 
public. S. 334 makes sweeping changes to the Federal Food, Drug, and 
Cosmetic Act (FDCA). It creates an entirely new statutory regime to 
govern the importation of ``qualifying'' prescription drugs from 
``permitted countries.'' It exempts imported drugs from sections 501 
and 502 of the FDCA, which set forth the prohibitions on adulteration 
and misbranding that apply to domestic products. Moreover, imported 
foreign drugs are not subject to the rigorous ``gold standard'' 
approval mechanisms/requirements of section 505 of the FDCA. Rather, 
the bill creates a new standard of ``approval,'' a ``manufacturing 
changes'' standard, for these foreign products. Under this approach, 
manufacturers would be mandated to submit ``notices'' describing the 
differences between their foreign product and domestic product as 
though they were making a change in the manufacturing process and 
thereby removing one product from the marketplace. But in fact, this 
process would result in the availability of both products in the United 
States. The bill would require an order from the Food and Drug 
Administration (FDA) to ensure that importation of unapproved foreign 
products will not begin. This inverts the rule applicable to domestic 
products that distribution of the new version of the product is 
prohibited until FDA issues an approval. Finally, the bill replaces the 
refusal-to-admit mandate in section 801 of the FDCA with a permissive 
authority. Other provisions of the bill are fundamentally flawed, as 
well. These include, for example, the attempt to exclude imports from 
certain European countries and the lack of any effective funding 
mechanism. The sweeping changes S. 334 makes to the FDCA, will put 
American patients at serious risk of receiving dangerous and 
counterfeit prescription drugs.
     i. the current system ensures the safety and effectiveness of 
            prescription drugs marketed in the united states
    Since 1938, section 505(d)(1) of the FDCA has prohibited the 
marketing of any new drug unless it has been shown to be ``safe for use 
under the conditions prescribed, recommended, or suggested'' in its 
labeling. In 1962, Congress amended the FDCA and section 505(d)(5) now 
requires proof of the effectiveness of marketed drugs and gives FDA 
authority to stipulate the specific tests required before the agency 
will approve the drug for marketing. Since that time, FDA's authority 
has been expanded, strengthened, and refined by the Hatch-Waxman Act of 
1984 and the Prescription Drug Marketing Act of 1987 (PDMA). As a 
result of these enactments, FDA now regulates virtually every stage in 
the life of a prescription drug, from pre-clinical testing in animals 
and human clinical trials before the drug can be marketed, to 
manufacturing, labeling, packaging, and advertising when the drug is 
marketed, as well as to monitoring the safety of a drug after its sale 
to consumers.
    The key to FDA's ability to protect the safety, effectiveness, and 
quality of prescription drugs is its authority to review and approve 
new drug applications before a new drug may be sold. A new drug 
application (NDA), filed under section 505(b), must contain full 
reports establishing with substantial evidence the safety and 
effectiveness of the proposed product. An abbreviated new drug 
application (ANDA), filed under section 505(j), does not contain data 
on safety and effectiveness. Instead, an ANDA applicant may 
``piggyback'' on the safety and effectiveness data which has been 
previously submitted to the FDA by the innovator of the product. 
However, an ANDA applicant must submit data described in section 
505(j)(2) which establishes--among other things--that a proposed 
generic drug must have the same active ingredient as and be 
bioequivalent to the innovator drug. When FDA approves an application 
under section 505, the approval is specific to the product formulation 
and labeling, as well as the manufacturing process and facilities, 
described in the application.
    After approval as stated in section 506(A), FDA retains regulatory 
authority over both the manufacturer and the drug product. For example, 
the holder of an approved application must validate any change to any 
aspect of the approved product (including changes in the manufacturing 
process) and must notify FDA of that change. Further, it must submit a 
supplemental application to FDA for all but the most minor changes. And 
it must seek prior approval of significant changes with the potential 
to affect safety, effectiveness, or quality. The manufacturer must 
continue to ensure that the drug, and the methods used in, as well as 
the facilities and controls used for, its manufacture, processing, 
packing, and holding comply with current good manufacturing practice 
(GMP) as described in section 501(a). Section 502(n) of the FDCA 
mandates that the drug not be misbranded, so--for example--the 
manufacturer and distributor must include in their advertisements for 
the product a ``brief summary'' of the product's side effects, 
contraindications, and effectiveness.
    In short, sections 501, 502, and 505 form the foundation of FDA's 
regulation of pharmaceuticals in the United States by prohibiting the 
introduction into interstate commerce of an adulterated, misbranded, or 
unapproved new drug. Importation of a prescription drug results in the 
introduction of that drug into interstate commerce and therefore 
imported drug products are subject to sections 501, 502, and 505. A 
drug manufactured in a facility not listed in the approved application, 
and a drug that is not manufactured according to the specifications 
described in the approved application, is unapproved--even if made by 
the NDA or ANDA holder. It cannot be imported or otherwise introduced 
into interstate commerce. Moreover, section 801--added by the PDMA--
prohibits the importation (sometimes called ``reimportation'') of a 
drug manufactured in the United States in full compliance with the 
approved application and then exported abroad. There is an exception 
(section 801(d) for the original manufacturer, who is an integral part 
of this closed regulatory system and subject to FDA authority and 
oversight at all times.
 ii. unsafe products.--s. 334 writes sections 501, 502, and 505 out of 
the fdca, creating for unapproved foreign products a new regime that is 
             fundamentally inconsistent with u.s. drug law
    S. 334 permits the importation of foreign products that do not 
comply with any approved NDA and that are not bioequivalent to any 
approved U.S. drug. It also exempts these products from most of the 
adulteration and misbranding provisions that apply to domestic 
products. In sum, it writes sections 501, 502, and 505 out of the 
statute ending decades of consumer protection. It also effectively 
exempts imported drugs from section 506A, which governs manufacturing 
changes made to products approved under sections 505. And it eliminates 
the tough refusal-to-admit standard that applies to imports under 
section 801(a). Finally, it repeals the PDMA, amending section 801(d) 
to permit the ``reimportation'' of approved drug products that have 
been outside the jurisdiction of the FDA and beyond the control of the 
manufacturer.
A. S. 334 Writes the Section 505 Approval Process Out of the FDCA
    FDA's ability to protect American patients from unsafe and 
ineffective drugs depends on its authority under section 505 of the 
FDCA to review and approve new medicines prior to their distribution in 
commerce. The Dorgan bill, however, creates an alternative route to 
market for foreign drugs, one that wholly bypasses section 505. It 
expressly permits the importation of foreign drugs that are different 
from and not bioequivalent to any FDA-approved drug, raising serious 
safety concerns. It permits these products to enter the United States 
pursuant to FDA review of a ``notice'' (rather than an application) 
using the ``manufacturing changes'' standard of section 506A. In 
addition the new pathway to market contained in S. 334 threatens the 
balance between encouraging innovation, on the one hand, and ensuring 
timely generic competition, on the other hand.
            1. S. 334 Replaces the Uncompromising Approval Standard in 
                    Section 505 with Speculation About a Hypothetical 
                    ``Manufacturing Changes'' Submission
    Proposed section 804(g)(2)(A) of S. 334 provides that an imported 
drug must ``comply with the conditions established in the approved 
application under section 505(b) for the U.S. label drug as described 
under this subsection.'' Subsection 804(g) of S. 334, however, does not 
really require the foreign drug to comply with either section 505 or 
the approved NDA. Rather, it requires the manufacturer of any 
``qualifying'' drug to submit a ``notice'' to FDA.
    A product is a ``qualifying'' drug if it is a drug for which there 
is a ``corresponding U.S. label drug.'' This, in turn, is a 
``prescription drug'' that (1) has the same active ingredient or 
ingredients, route of administration, dosage form, and strength as the 
qualifying drug, (2) is manufactured by or for the person that 
manufactures the qualifying drug, (3) is approved under section 505(c) 
of the FDCA, and (4) is not a controlled substance, biological product, 
infused drug, inhaled drug, or drug for which there are two marketed 
generics. The ``notice'' must identify each difference in the 
qualifying drug from a ``condition established in the approved 
application'' for the corresponding U.S. label drug. (The notice need 
not identify variations provided for in the U.S. drug's labeling or 
differences in the labeling, except ingredient labeling.)
    It must include ``the information that the Secretary may require 
under section 506A,'' although section 506A applies only to ``a drug 
for which there is in effect an approved application under section 505 
or 512 or a license under section 351 of the Public Health Service 
Act'' (i.e., not an import), so this requirement may be meaningless. It 
must also include ``any additional information the Secretary may 
require,'' which in turn may--but need not--include data on 
bioequivalence. Finally, the notice must include (1) the date on which 
the qualifying drug was or will be introduced for commercial 
distribution in the foreign country, (2) a demonstration that the 
manufacturer has notified the foreign government about the notice to 
FDA, (3) the foreign marketing application in original and in 
translation, and (4) various certifications as well as a filing fee in 
many cases.
    This ``notice'' submitted to FDA is nothing like a new drug 
application. FDA regulations and dozens of FDA guidance documents, lay 
out the content and format requirements for any new drug application 
filed with FDA. Among other things, the NDA must include a chemistry, 
manufacturing, and controls (CMC) section that describes the 
composition, manufacture, and specifications of the drug substance and 
drug product, including its physical and chemical characteristics; its 
stability; the process and controls used during manufacturing and 
packaging; and analytical methods to assure its identity, strength, 
quality, and purity. Every step in the manufacturing process must be 
described in exhaustive detail, and the entire process must be 
``validated'' (i.e., the company must document that it consistently 
produces a product meeting pre-determined specifications and quality 
attributes). The NDA also includes a nonclinical pharmacology and 
toxicology section, a human pharmacokinetic and bioavailability 
section, a microbiology section (if the product is an anti-infective 
drug), a clinical data section, a statistical section, labeling, case 
report forms, and patent information. An NDA can exceed a hundred 
thousand pages in length. The CMC section itself can exceed thousands 
of pages in length. Although proposed section 804(g) would require 
manufacturers to provide FDA with English translations of the relevant 
foreign marketing applications, these applications will not comply with 
21 CFR Sec. 314.50 or with accompanying agency guidance documents. The 
foreign regulator may have required different information, in a 
different format, and in a different order.
    Under S. 334, the Secretary must treat the difference described in 
the notice as a ``manufacturing change to the U.S. label drug under 
section 506A.'' He must ``review and approve or disapprove the 
difference . . . using the safe and effective standard for approving or 
disapproving a manufacturing change under section 506A.'' If FDA 
concludes that it would approve a supplement for the U.S. drug if the 
difference were presented as a manufacturing change to the NDA for the 
FDA-approved product, it must allow the foreign product to be imported. 
There would be no such supplement, however, and it is not clear how FDA 
could determine what data this non-existent supplement would contain 
and whether the supplement would be approvable under ``the safe and 
effective standard'' of section 506A of the FDCA. When an NDA-holder 
makes a manufacturing change, it supplements an existing document (the 
NDA) that is both highly detailed and very specific to the FDA-approved 
drug. The ``difference'' between two drugs, one that is the subject of 
this document and one that is not, cannot plausibly be reviewed as a 
``change'' to that document--any more than the edits to one piece of 
legislation can be grafted onto a different piece of legislation. So 
while the Dorgan bill purports to apply the ``safe and effective 
standard'' in section 506A, the standard is meaningless in this 
context: it in essence lowers the existing standards.
    The new ``notice'' provisions also reverse the presumption in 
section 505. Under current law, the burden is on the manufacturer--
whether innovator or generic manufacturer--to satisfy the legal 
standards of section 505. Absent approval of an application filed under 
section 505(b) or 505(j), the new drug in question cannot be 
distributed. If the Dorgan bill became law, however, the FDCA would not 
automatically prohibit the distribution of qualifying foreign drugs, 
even if they were significantly different from FDA-approved drugs. 
Instead, FDA would have to affirmatively issue an order that 
importation not begin until the agency's review of the manufacturer's 
notice was complete.
            2. Eliminates the Bioequivalence Standard.--S. 334 Permits 
                    the Importation of Non-Bioequivalent Drugs for 
                    Which There Would be No Assurance of Safety or 
                    Effectiveness
    While the Dorgan bill putatively incorporates the sameness 
requirements of section 505(j) by requiring that imported drugs have 
the same active ingredient, route of administration, dosage form, and 
strength as the corresponding FDA-approved drug , it does not require 
that these unapproved drugs be bioequivalent to any FDA-approved 
product. Nor does it require pre-market submission of detailed 
manufacturing information. So in addition to exempting imported drugs 
from the NDA requirement, it exempts them from the alternate 
requirement of bioequivalence applicable to generic drugs in the United 
States. The risk to patients from nonbioequivalent therapies would be 
amplified for certain classes and categories of drugs, including those 
with a narrow therapeutic index. The Surgeon General's Task Force 
concluded that, ``even slight changes in the dose and/or amount of drug 
in the blood could potentially have dangerous effects'' for persons 
taking drugs with a narrow therapeutic index such as digoxin, lithium, 
phenytoin, theophylline, and warfarin. If a patient switches from a 
U.S. drug to a nonbioequivalent foreign drug, the change could cause 
his clinical condition to recur or lead to toxicity.
    Currently under section 505(j) of the FDCA, when an applicant seeks 
to market a ``generic version'' of an innovator product, the applicant 
must establish that the product is the same as, and bioequivalent to, 
the innovator drug which has already been approved through the NDA 
process before it can be presumed to be as safe and effective as that 
innovator product. A sponsor must also provide as required in 505(j) 
full chemistry, manufacturing, and controls information regarding the 
``generic'' drug and product manufacturing. Bioequivalence concerns are 
real and the lack of equivalence has prompted the FDA and the World 
Health Organization (WHO) to remove a number of drugs from the 
marketplace and its list of pre-qualified medications respectively. 
(See WHO, ``Removal of Antiretroviral Products from the WHO List of 
Prequalified Medicines,'' at <>).
    If S. 334 were adopted there would then be three pathways to the 
U.S. prescription drug market--a new drug application under 505(b), an 
abbreviated new drug application under 505(j), and a ``notice of 
manufacturing change'' under the Dorgan bill. This eviscerates the 
important balance struck by Congress in 1984 and in 2003, when it 
drafted and then amended the Hatch-Waxman amendments to the FDCA. Under 
S. 334 a foreign drug product might be permitted on the U.S. market on 
the strength of the U.S. innovator product's NDA safety and efficacy 
data, even if the products are different, made differently, and not 
bioequivalent. The Dorgan bill authorizes the Secretary to exclude non-
bioequivalent foreign drugs if he determines that the availability of 
both versions ``would pose a threat to the public health.'' But the 
Secretary could not make this determination in time to exclude the 
foreign drug entry into the United States market: it would require 
clinical data assessing the effect of a switch or post-approval data 
from a country in which both were approved and marketed. Such drugs are 
not eligible for approval through the ANDA process, and they should not 
be eligible for import into this country.
    The likely result is a glut of non-bioequivalent foreign drug 
products will enter the U.S. market. The FDA has expressed concern 
about this ``needless proliferation of pharmaceutical alternative drug 
products.'' For each FDA-approved drug product, there could be dozens 
of nonbioequivalent foreign versions. Such an influx of non-
bioequivalent drugs will be confusing to both patients and 
practitioners. The Secretary may--but is not required to--add to the 
U.S. labeling (which, of course, is specific to a different product) an 
advisory that the drug is ``safe and effective'' but ``not 
bioequivalent'' to the FDA-approved product. When the product is 
dispensed to a consumer, the pharmacist must include that advisory. The 
advisory is likely to be meaningless to consumers, however. And nothing 
requires that this information be provided to the healthcare provider 
who prescribed the drug. A physician will thus have no way of knowing 
that his patient has received a non-bioequivalent drug. Even if the 
advisory is provided to the physician, it will be meaningless without 
an explanation of how the imported product differs from the approved 
product, i.e., is it super potent as the result of greater 
bioavailability or sub potent due to poor bioavailability.
B. S. 334 Exempts Imported Foreign Drugs From Adulteration Provisions 
        in Section 501
    Section 501 of the FDCA defines the situations in which a drug is 
deemed ``adulterated'' and its distribution therefore a prohibited act. 
Among other things as stated in section 501(a)(1) & (a)(2), a drug is 
adulterated if it ``consists in whole or in part of any filthy, putrid, 
or decomposed substance'' or if it ``has been prepared, packed, or held 
under unsanitary conditions.'' It is also adulterated, according to 
section 501(a)(3) if its ``container is composed, in whole or in part, 
of any poisonous or deleterious substance which may render the contents 
injurious to health.'' Finally a drug can be considered to be 
adulterated if the ``methods used in, or the facilities or controls 
used for, its manufacture, processing, packing, or holding do not 
conform to or are not operated or administered in conformity with 
current good manufacturing practice.''
    Rather than requiring that imported drugs comply with section 501 
of the FDCA, however, S. 334 writes that provision and the associated 
hundreds of pages of Federal regulations and code out of the existence. 
Under proposed section 804(g)(4), an imported drug is ``considered to 
be in compliance with section 501 if the drug is in compliance with'' 
proposed section 804(c). In turn, section 804(c) requires merely that 
the following be true: (1) the drug was manufactured in an 
establishment required to register under the FDCA and inspected either 
by FDA or by a permitted country whose regulatory system FDA recognizes 
as equivalent under a mutual recognition agreement; (2) the 
establishment manufactured the drug for distribution in the United 
States or one or more permitted countries; (3) the drug meets minimal 
chain-of-custody and paper pedigree requirements; (4) the drug is 
imported from a permitted country; (5) if ever outside a permitted 
country, the drug was under the control of the manufacturer; and (6) 
the registered importer or, in the case of personal importation the 
registered exporter, retains a sample of each lot sufficient for 
testing. Provided these minimal requirements are met, the drug is 
deemed to comply with section 501.
    This means, in short, that an imported drug may consist ``in whole 
or in part of any filthy, putrid, or decomposed substance.'' Its 
container may be composed of a ``poisonous or deleterious substance'' 
that renders the contents injurious to health. It may contain an unsafe 
color additive. As discussed more fully below, FDA will no longer be 
instructed to interdict such a drug at the border. And because the drug 
will be exempt from the adulteration provisions of section 501 that 
apply to domestic products, FDA may be without authority to seize it 
once it enters the stream of commerce. Indeed, even if the drug becomes 
adulterated after entering the country (for example because it is held 
in unsanitary conditions, causing it to become contaminated with 
filth), FDA will arguably be powerless to seize it under section 304.
C. S. 334 Effectively Writes the Misbranding Provisions of Section 502 
        Out of the FDCA
    The Dorgan bill exempts unapproved foreign drugs from 8 of the 12 
basic misbranding provisions that apply under section 502 to brand and 
generic drugs currently authorized for distribution in the United 
States. Specifically, the bill provides in proposed section 804(g)(3) 
that a commercially-imported drug will be considered ``in compliance 
with section 502'' if it bears (1) a copy of the labeling approved for 
the corresponding U.S. drug, (2) the name and location of the 
manufacturer, (3) the lot number assigned by the manufacturer, (4) the 
name, location, and registration number of the registered importer, and 
(5) the National Drug Code (NDC) number assigned to the drug by the 
Secretary. A personally imported drug will be considered ``in 
compliance with section 502'' if its packaging and labeling comply with 
all applicable regulations promulgated under sections 3 and 4 of the 
Poison Prevention Packaging Act, and if its labeling includes (1) 
directions for use by the consumer, (2) the lot number assigned by the 
manufacturer, (3) the name and registration number of the registered 
exporter, (4) if required by the Secretary, an advisory that the 
product is safe and effective but not bioequivalent to the U.S. label 
drug, (5) if the inactive ingredients are different from those in the 
U.S. label drug, an advisory regarding allergies and a list of those 
ingredients, and (6) a copy of any ``special labeling'' that would be 
required by the Secretary if the U.S. label drug were dispensed in the 
United States. Section 502 itself, however will not apply.
    Not only does the Dorgan bill exempt foreign drugs from the 
misbranding provisions of section 502, but it affirmatively requires 
that these products bear inaccurate labeling.
    Specifically, it requires that the FDA-approved labeling for the 
corresponding U.S. drug accompany any commercially imported unapproved 
foreign drug--even though the foreign drug may not be bioequivalent and 
even though some of the information in the labeling may be incorrect. 
Although the labeling may be amended to include a brief statement if 
the drugs are not bioequivalent and must include information about 
variations in inactive ingredient, the rest of the labeling will 
pertain to a different drug and could be inaccurate. The foreign drug, 
for example, may have been studied in different clinical trials than 
those summarized in the FDA-approved labeling. As a result of a change 
in the inactive ingredients, information on storage conditions and 
stability may be inaccurate. FDA-approved labeling distills the 
mountain of data submitted to FDA about a particular drug, including 
data from all clinical and pre-clinical studies, into a set of 
instructions that permits physicians to use the drug product safely and 
effectively. The Dorgan bill slaps this carefully crafted labeling onto 
a different drug, undermining the FDA-approved labeling and interfering 
with the ability of physicians to make thoughtful prescribing 
decisions.
D. S. 334 Repeals the PDMA Prohibition on Reimportation
    Congress amended the FDCA in 1988 to prohibit the reimportation of 
FDA-approved drug products that have circulated overseas outside the 
control of the manufacturer and beyond the jurisdiction of the FDA. 
Congress added this provision to seal a dangerous hole that had allowed 
the introduction of counterfeit medicines in the 1980s.
    In 1984, nearly 2 million counterfeits of G.D. Searle's Ovulen 21 
birth control pills were found to have been shipped to Miami and New 
York from Panama. In June 1985, the staff of the Subcommittee on 
Oversight and Investigations of the House Committee on Energy and 
Commerce published a report discussing the incident and launching the 
legislative effort that would culminate in the PDMA provision 
prohibiting reimportation of American-made and FDA-approved goods that 
have circulated overseas. In 1985, 1,800 bottles of Eli Lilly's 
antibiotic Ceclor capsules entered Miami and Boston from Singapore. The 
products contained Eli Lilly's active ingredient, but the capsules, 
labels, lot numbers, and packaging were all fake. The subcommittee 
convened the first of eight public hearings on drug diversion and 
counterfeiting on July 10, 1985. Over 2 years, the Energy and Commerce 
Committee heard from State and Federal law enforcement officers, 
private investigators, State drug and narcotic agents, Customs 
officials, Food and Drug Administration (FDA) officials, pharmacists, 
diverters, U.S. attorneys, pharmacy and pharmaceutical trade 
associations, pharmaceutical sales representatives, and senior 
enforcement officials from State regulatory agencies.
    After this elaborate investigation, the House Energy and Commerce 
Committee concluded that permitting reimportation of U.S.-origin goods 
``prevents effective control or even routine knowledge of the true 
sources of merchandise in a significant number of cases.'' As a result, 
``pharmaceuticals which have been mislabeled, misbranded, improperly 
stored or shipped, have exceeded their expiration dates, or are bald 
counterfeits, are injected into the national distribution system for 
ultimate sale to consumers.'' Congress amended the FDCA to prohibit the 
reimportation of approved drugs that have left the United States. The 
prohibition was not controversial, and it has been a significant 
component of our country's defense against the surfeit of counterfeit 
medicines on the global market.
    The Dorgan bill reopens the American drug supply to drugs sent 
overseas, shipped from country to country, passed from party to party, 
and then imported to the United States by third parties that are not 
affiliated with the manufacturer. If it becomes law, the Dorgan bill 
will return us to a time when counterfeits entered this country under 
the guise of ``American goods returned'' and jeopardized the health of 
American patients.
E. S. 334 Eviscerates the Tough ``Refuse to Admit'' Rule That Applies 
        to Obviously Dangerous Drugs at the Border
    Under section 801(a) of the FDCA, FDA must refuse entry to a drug 
at the border if it appears from examination or otherwise that: (1) the 
drug ``has been manufactured, processed, or packed under unsanitary 
conditions,'' (2) the drug is ``forbidden or restricted in sale in the 
country in which it was produced or from which it was exported,'' or 
(3) the drug is ``adulterated, misbranded, or in violation of section 
505.'' By mandating that FDA refuse admission to obviously violative 
drug products, this provision too is an important element in the 
defense of our drug supply. Yet the Dorgan bill effectively repeals it.
    First, proposed section 804(g)(1) states that an imported drug must 
comply with the standards in section 801(a) ``subject to paragraphs 
(2), (3), and (4).'' These paragraphs, in turn, effectively delete the 
requirement of approval (paragraph 2), prohibition of misbranding 
(paragraph 3), and prohibition of adulteration (paragraph 4). Second, 
proposed section 804(g)(5) states that an import ``may'' (but need not) 
be refused admission if--among other things--the drug does not comply 
with the substitute-501 or the substitute-502 provision, or the 
Secretary ``becomes aware'' that the drug (1) may be counterfeit, (2) 
may have been prepared, packed, or held under unsanitary conditions, or 
(3) may have been manufactured, processed, packed, or held in 
facilities that do not conform to GMP. Additional permissive grounds 
are listed, although some make no sense. For example, the Secretary 
``may'' refuse the drug admission if he has ordered that its 
importation cease after review of the manufacturer's notice. 
Inexplicably, it appears he may instead choose to permit that drug to 
enter the country. To give another example, the Secretary may refuse 
the drug admission if he has ``withdrawn approval'' of the drug under 
section 505(e). Since imported foreign drugs are not ``approved'' under 
section 505 in the first place, this provision may be meaningless.
    In short, every ground listed in the new ``refuse to admit'' 
provision is permissive. The Secretary may choose--or perhaps by virtue 
of resource limitations may be forced--to permit a foreign drug into 
U.S. commerce even if it has been recalled, its markings appear 
counterfeit, or he is aware that it was not manufactured in accordance 
with GMP. Moreover, the Secretary lacks even permissive authority to 
refuse admission of a drug that violates the provisions of section 501 
that apply to domestic products. He thus lacks authority to stop a 
product clearly composed of a ``filthy, putrid, or decomposed 
substance'' or held in a container composed of a ``poisonous'' 
substance. And, as discussed above, because this product would be 
exempt from the adulteration and misbranding provisions of sections 501 
and 502, FDA may lack authority to seize the product under section 304 
after it enters the stream of commerce.
  iii. unsafe sources of prescription drugs.--s. 334 is fundamentally 
 flawed, and its implementation would put the american drug supply at 
                                  risk
    The Dorgan bill creates a significant risk that poor-quality and 
counterfeit drugs will be imported into this country and sold to 
American consumers. First, in an apparent effort to limit importation 
from the newest members of the European Union (EU), the bill draws 
unworkable and unenforceable distinctions between EU member states. 
Second, the bill's distribution safeguards--intended so FDA may 
document and monitor the chain of custody and ensure the authenticity 
of imported drugs--are inadequate. And third, the bill does not provide 
FDA with enough time or money to implement its provisions safely.
A. The Dorgan Bill Draws an Unworkable and Unenforceable Distinction 
        Between EU Member Countries in its Definition of ``Permitted 
        Countries''
    S. 334 authorizes commercial and personal importation of qualifying 
drugs from ``permitted countries.'' It defines ``permitted country'' to 
mean Australia, Canada, Japan, New Zealand, Switzerland, and any member 
of the European Union except those operating under 2003 accession 
treaties that include ``a transitional measure for the regulation of 
human pharmaceutical products that has not expired.'' Five of the ten 
countries that joined the EU on May 1, 2004, have transitional measures 
of this sort in their accession treaties: Cyprus, Lithuania, Malta, 
Poland, and Slovenia. The bill's definition of ``permitted country'' 
therefore includes the 15 ``old'' EU member states (Austria, Belgium, 
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, 
Netherlands, Portugal, Spain, Sweden, and the United Kingdom) and five 
of the ten ``new'' EU member states (Estonia, Latvia, Hungary, 
Slovakia, and Czech Republic). It does not include Cyprus, Lithuania, 
Malta, Poland, or Slovenia. At the expiration of the relevant treaty 
provision, the last in 2008, imports from these last five countries 
also will be permitted.
    This distinction between EU members, however, does not fully 
overlap with the EU regime, and it draws distinctions between EU 
products that are contrary to EU law and policy, including a founding 
principle that goods should move freely between member countries. The 
accession treaties for the five member states excluded by S. 334 limit 
the movement of only certain drug products approved for sale prior to 
accession. Other drugs approved by those members may move freely 
throughout the EU. These include drugs cleared by those countries after 
May 1, 2004, as well as drugs approved prior and then reapproved under 
a regulatory regime that complies with EU-requirements. In contrast, 
the Dorgan bill prohibits importation of all drugs from each of these 
five countries until the expiration of that country's transition 
period. In other words, the EU draws distinctions that the Dorgan bill 
does not, and the Dorgan bill draws a distinction that the EU does not.
    This fundamental asymmetry makes the Dorgan approach unworkable. 
For example, even if a drug is approved throughout the European Union, 
section 804(c)(2) of the Dorgan bill prohibits its import if it was 
actually manufactured for distribution solely in an excluded member 
state (i.e., and not also a ``permitted'' member state). While section 
804(c)(5) of the Dorgan bill prohibits the importation of a drug that 
has passed through an excluded member state, unless it was within the 
manufacturer's control at the time. A drug may thus be imported into 
the United States if it was manufactured for and exported from a 
permitted country, even if it was manufactured in an excluded member 
state. A product may also be imported if the manufacturer shipped the 
drug to a distributor in a permitted country by way of an excluded 
member state. If, however, the distributor shipped the product through 
an excluded member state, the drug is no longer eligible for export to 
this country. This effectively imposes tracking and chain-of-custody 
requirements that do not exist under EU law.
B. S. 334 Does Not Adequately Protect the American Drug Supply From 
        Counterfeit and Damaged Pharmaceuticals
    The Dorgan bill provisions intended to ensure that imported drugs 
are both authentic and traced from manufacturer to patient are 
inadequate and unrealistic. As a result, with the newly opened border, 
the resulting glut of imports, and FDA's longstanding resource 
constraints, the volume of counterfeit and damaged medicines that enter 
the U.S. drug supply will undoubtedly increase.
    In section 804(c)(3) of S. 334 registered importers and registered 
exporters are required to obtain drugs directly from the manufacturer 
or from an entity that agrees in a contract with the registered party 
to meet certain chain-of-custody requirements. Specifically, the 
contracting party must (1) provide a statement that identifies each 
prior sale, purchase, or trade of the drug, (2) permit FDA to inspect 
those statements and related records to confirm their accuracy, (3) 
permit FDA to inspect its warehouses and other facilities, including 
records, to determine whether the facilities comply with FDCA standards 
applicable ``to facilities of that type in the United States,'' and (4) 
ensure, through contracts if necessary, that the Secretary has the same 
inspectional authority with respect to prior parties in the chain of 
custody.
    The bill does not give FDA regulatory authority or jurisdiction 
over foreign parties in the chain of custody. The bill instead relies 
upon the contractual assurances from those foreign parties that they 
will honor chain-of-custody statements and permit to the Secretary to 
inspect records, facilities, and warehouses. This contractual right, 
presumably, would be enforced by the registered importer or exporter, 
possibly only under foreign contract law. It is unclear how FDA could 
enforce the requirement that a registered party ``enforce'' the 
contract, under those circumstances. If a foreign party in the chain of 
custody refused inspection, presumably the registered party could sue 
for breach of contract. When could HHS deem the registered party to 
have violated the statutory requirement to enforce the contract? For 
example, if the foreign court agreed that there had been a breach but 
ordered money damages instead of specific performance, perhaps then HHS 
could terminate the registration--or perhaps the registrant could argue 
it had adequately ``enforced'' the contract. In any event, in this 
situation, there is no way for FDA to assert rights directly over the 
foreign parties in the chain of custody and no recourse for U.S. 
consumers who may be injured while the registrant and its 
subcontractors bicker over contract terms and while FDA's hands are 
tied.
    The process outlined in S. 334 does not require the identification 
of any repackaging or relabeling firm that had the drug product in 
their custody after the product left the custody of the manufacturer, 
even though these practices may increase the risk of adulteration and 
the risk of contamination with counterfeits. Further, nothing in the 
chain-of-custody provision addresses the risks inherent in 
transshipment. During movement from permitted country to permitted 
country, these drugs are out of the manufacturer's control, beyond 
FDA's jurisdiction, and often exempt from local government regulation. 
Lax storage, handling, and shipping could degrade the products and 
endanger the patients who eventually take them.
    FDA's lack of authority over foreign parties is exacerbated by the 
bill's exemption of foreign commercial exporters from its registration 
requirements. The bill requires two categories of entity to register: 
(1) licensed pharmacies and wholesalers in the United States who import 
commercial quantities of drugs ``registered importers,'' and (2) 
entities in Canada ``registered exporters'' who ship medicine directly 
to individuals in the United States. It does not, however, require 
registered importers to purchase their supplies from registered 
exporters. In other words, wholesalers and pharmacies will purchase 
foreign drugs from foreign companies that are not regulated under the 
FDCA and may not be regulated under foreign law.
    Elsewhere the bill relies on unrealistic requirements to ensure 
that the medicine supply will be protected. For example, it provides 
that the Secretary must inspect registered exporters and registered 
importers, and during this inspection ``verify the chain of custody'' 
from the manufacturer to that entity. Simply stating that the Secretary 
must ``verify'' the chain, however, will not ensure that he has the 
resources or information necessary to do so. While the bill calls for 
the use of anti-counterfeiting and track-and-trace technology, it 
admits that some drugs will lack these features, and it adds that these 
drugs may not be excluded from the import chain simply because they 
lack these features. A drug without such features, and with a forged 
pedigree paper, may be incorrectly deemed ``verified'' even if 
fraudulent and dangerous. And although the bill requires the retention 
of samples, it does not require that products actually be tested--
whether for authenticity or for adulteration. Random sampling and 
testing will never allow FDA to identify all counterfeit or dangerous 
drugs. But it would be one means to identify some compromised drugs. 
Without accompanying testing requirements, the sample retention 
provision is simply a housekeeping provision in the guise of a safety 
measure.
C. S. 334 Does Not Provide FDA With Sufficient Resources or Time for 
        Its Implementation
    HHS and Customs officials have repeatedly testified to Congress 
that they lack the personnel and resources to adequately enforce 
existing law. The Dorgan bill would open the borders to a flood of 
foreign products, without providing HHS with adequate funding to 
enforce its provisions. Although the bill requires registered importers 
to pay a one-time registration fee of $10,000 and thereafter inspection 
fees assessed twice annually, the latter are capped at 1 percent of the 
total price of the drugs imported annually under the law. (A matching 
provision applies to registered exporters.) A fund consisting of 1 
percent will be insufficient for FDA to undertake all the tasks 
assigned to it under the bill. To give just a few examples of new tasks 
to be undertaken by FDA: the agency must assign personnel to review 
registration forms and changes to those forms; maintain the Web site 
and staff the toll-free number that lists registered exporters and 
lists notices filed by manufacturers; monitor importer and exporter 
compliance with registration conditions; conduct hearings related to 
suspension of registrations; conduct hearings related to termination of 
registrations; conduct onsite inspections of exporters and importers at 
least 12 times per year per registered party; review notices of import 
shipments; verify chains of custody; inspect the facilities and records 
of foreign parties in the chain of custody; inspect shipments to 
determine whether they should be refused admission; calculate, assess, 
and adjust inspection fees throughout the year; inspect foreign 
manufacturing establishments when notices are submitted under section 
804(g); undertake consumer education activities; verify that registered 
exporters are authorized to dispense drugs under the law of the 
permitted country in which they are located; and monitor the affixing 
of markings to imported drugs. If the agency lacks sufficient resources 
to police illegal imports now, how will a 1-percent user fee possibly 
fund a program of this magnitude?
    The bill also fails to provide FDA with adequate time to draft 
implementing regulations. Under S. 334, regardless of the status of 
implementing regulations, personal importation from Canada may begin 90 
days after enactment. Even if FDA has not finalized implementing 
regulations, commercial importation from Canada and other permitted 
countries may begin 1 year after enactment. The Dorgan bill authorizes 
personal importation from Canada 90 days after enactment, regardless of 
whether FDA has issued implementing regulations. Commercial importation 
from Canada and other permitted countries may begin 1 year after 
enactment, again even if FDA has not concluded a rulemaking. This is 
not enough time for the agency to complete notice and comment 
rulemaking or to establish the infrastructure necessary to implement 
the complex drug importation scheme embodied in S. 334. Even the 
Bioterrorism law for food security provided 18 months for many parts of 
the final regulations to be issued, and FDA already had food 
importation authority and inspection infrastructure in place.
iv. other concerns.--s. 334 disturbs the balance between innovation and 
     generic entry struck by congress in 1984 and affirmed in 2003
    The Hatch-Waxman Act was the culmination of years of legislative 
consideration as to the proper balance between making available lower 
cost generic drugs and creating an incentive for pharmaceuticals 
innovation. The result was a compromise between the research-based and 
generic industries whereby generic manufacturers obtained the ability 
to gain approval based upon proprietary innovator data and to infringe 
patents prior to expiration in order to conduct tests necessary for FDA 
approval. In return, pioneers were promised the restoration of a 
portion of the patent term lost to FDA review, a meaningful opportunity 
to vindicate patent rights prior to generic approval and market entry, 
and limitations on generic companies' use of their proprietary data. 
Congress affirmed this compromise in 2003 in the Medicare Modernization 
Act (MMA). The Dorgan bill threatens to destroy it.
    S. 334 undercuts the very incentive to innovate that Congress 
sought to provide in the Hatch-Waxman Act and preserve in the MMA. The 
bill adds a new provision to the Patent Act that would adversely affect 
patent rights that are an important incentive for innovation. Under the 
provision, it is not an act of patent infringement to use, offer to 
sell, sell within the United States, or import into the United States 
any patented invention under section 804 that was first sold abroad by 
or under the authority of the owner or licensee of such patent. This 
overturns settled law. And only the pharmaceutical industry is singled 
out for this treatment. Indeed, the very concept of foreign drug 
importation threatens U.S. innovation. Following approval of an 
innovative new drug in the United States, there will be immediate 
market penetration by a price-controlled foreign import. This will 
eviscerate the market for the innovator product, effectively 
eliminating the intellectual property protection that otherwise allows 
innovators to recoup their investment in research and development.
 v. unsafe internet pharmacies.--s. 334's internet pharmacy provisions 
 create an illusion of safety without fully addressing rogue internet 
                               pharmacies
    As the Surgeon General's task force pointed out in December, many 
drugs sold over the Internet are sold by ``rogue'' pharmacies, which 
claim that their products are ``FDA-approved drugs,'' even though the 
drugs are not. Further, as FDA witnesses testified before Congress last 
year, some sites falsely purport to be ``Canadian'' pharmacies. The 
drugs they sell--which could be counterfeits or even toxic--may in fact 
be shipped from countries with very ineffective pharmaceutical 
regulatory systems. The Dorgan bill requires that domestic Internet 
pharmacies have a ``qualifying medical relationship'' with their 
patients and include certain identifying information on their Web 
sites. But these provisions are inadequate to assure the safety of 
consumers. The bill does not require Internet pharmacies to be 
certified as legitimate businesses--let alone require them to register 
with or seek the approval of the government before operating. It does 
not ensure adequate tracking of adverse events linked to drugs 
dispensed over the Internet. It does not require Internet pharmacies to 
establish systems for addressing consumer complaints. It does not 
establish a mechanism for effective recalls of drugs distributed 
through the Internet. It does not address the problematic practice of 
Internet pharmacies requiring a waiver of liability from purchasers. 
This timid step toward regulating Internet pharmacy may create the 
illusion of safety without actually reforming the Internet pharmacy 
industry and protecting American consumers from unsafe and/or 
ineffective prescription drugs.
vi. the dorgan bill should be rejected for failure to ensure the safety 
                          of american patients
    The Dorgan bill lacks provisions that would allow HHS to stop 
importation if it proves dangerous. For example, the bill does not 
instruct HHS, or anyone else, to evaluate the impact of the importation 
program on patient safety or drug costs. It appears to be permanent; 
there is no sunset or opportunity for Congress to assess, modify, and 
reauthorize its provisions in the light of experience. There is no 
provision for suspension of the program if patients begin to die. In 
fact, although the Secretary may impose ``other'' requirements on 
registered importers and registered exporters in order to protect ``the 
public health,'' the bill expressly provides that he must still permit 
both personal and commercial importation. In other words, even if a 
particular requirement or standard is essential to protect the public 
from an imminent danger, if importers and exporters are unable to meet 
it, the Secretary may not impose it. The Dorgan bill does not even 
contemplate a pilot program, which might allow HHS to test the impact 
of importation in a controlled setting before throwing open the borders 
nationwide. Indeed, even if personal importation from Canada proves 
unsafe in the first year, the Secretary may not limit the number of 
permitted countries from which commercial importation begins in the 
second year.
    In light of the evidence in the preceding pages, it is difficult to 
understand why Congress would even consider passing the Dorgan bill.

    [Whereupon, at 12:10 p.m., the hearing was adjourned.]
      

                                    
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