Dockets ManagementBranch (HFA-305) Food and Drug Administration 5630 Fishers Lane Rm 1061 Rockville MD 20852 Re: Prescription

Drug Importation; Docket No. 2004N-0115,69 Fed. Reg. 12810 (March 18,2004)

The PharmaceuticalResearchand Manufacturersof America (PhRMA) is pleasedto submit commentsregardingprescription drug importation to the Task Force convenedby the Secretaryof Health and Human Services(HHS) in accordance with section 1122 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. No. 108-173. PhRMA representsthe country’ leading researchs basedpharmaceuticaland biotechnology companies,which are devoted to inventing medicines that allow patients to lead longer, healthier, and more productive lives. Investing more than $33 billion annually in discovering and developing new medicines, PhRMA companiesare leading the way in the searchfor cures. PhRMA believes that opening the U.S. drug supply to widespreadforeign importation, while politically expedient,is ill-conceived and dangerousand will put thousandsof American consumersat risk. PhRMA thus opposessuch efforts for the following reasons,as elaboratedin the body of our comments:

Importation schemesare unsafe. At a time when we are struggling to combat counterfeit drugs and tighten security at our borders, we should be searchingfor ways to close existing loopholes in the drug distribution chain, not creating new ones by opening up the borders to foreign imports. While some believe importation can be done safely, even FDA recognizesthat there is no technological “magic bullet” or inspection processthat can protect against adulteratedor counterfeit foreign drugs. Consequently,implementing importation would jeopardize the safety of millions of American consumers.


Impotiation would not result in cost savings. There is no indication that implementing a responsibleimportation scheme(assumingone even exists) would result in cost savings. The costs of counterfeit-resistanttechnologiesand industry and government testing and inspectionslikely would run billions of dollars each year, and the costs of defending against unmeritorious product liability claims would add substantially to that number. Even if there were cost savings,the law does not require that these get passedon to consumers. If the experiencein Europe is any guide, any cost savings resulting from foreign importation will be capturedby the parallel traders rather than passedon to consumers.

0 Importation is badpublic policy. Importation of foreign drugs is nothing more than an endorsementof, and attempt to import, foreign price control practices. These have been a disasterin foreign countries, limiting patient accessto new medicines and significantly restricting researchand developmentactivities in foreign countries. American patients deservebetter. For individuals who lack prescription drug coverageand cannot afford their medicines,there are better and safer ways to obtain neededmedications,including company patient assistance programs,discount card programs,“‘ shoppingaround,”and, most significantly, the new Medicare drug benefit. SUMMARY For several years now, public policy makers have looked for ways to addressrising health care costs in the United States. Prescription drugs are the best value in health care - saving lives, reducing pain and suffering, keeping people out of hospitals and nursing,homes,and reducing other forms of health care spending. Nevertheless, prescription.drugs play a steadily increasingrole in the maintenanceof health and the treatment of illness. Spendingon prescription drugs has, therefore, increasedin recent years. The growth in prescription drug spendingshould be placed within the larger context of health care expenditures. Notwithstanding growth in use of and spendingon medicines,prescription medicines account for only a small proportion of health care spendingand growth in health care spending, According to the Centersfor ii

Medicare & Medicaid Services(CMS), of every health dollar spent in the U.S., only about 10.5 cents is spent on outpatient prescription medic5nes.r In addition, according to a report issuedby the Kaiser Family Foundation,prescription drug spendingincreases have begun to moderatesomewhat,and today hospital spendingis rising faster than spendingon prescription medicines.2 Until December,Medicare - unlike nearly all private health insurance plans - did not cover most prescription medicines usedby its 40 million elderly and disabled beneficiaries,despite the growing role of medicinesin maintaining health and treating illness. Other state and federal programs (like Medicaid) did cover prescription drugs, but payors (both public and private) chafed at the prospectof seemingly high short-term expenditureson medicine, even when those costs would ultimately defray longer-term costs to the health care system. Although membersof Congress- both Democrat and Republican- sought for yearsto enact a Medicare prescription drug benefit, that law would not take final shapeuntil the summer of 2003. On December8,2003, PresidentBush signed into law the most ambitious reform of Medicare in the program’ 3%year history. All Medicare s beneficiaries are eligible this June for a Medicare-endorsed discount card that offers discountson prescription medicines.The lowest income seniorsare eligible for $600 (per individual, or $1200 per couple) this year, and again next year, to help them afford their prescription.medicinesuntil the full Medicare prescription drug benefit begins in 2006. In 2006, all Medicare beneficiarieswill be able to enroll in plans that cover prescription Centersfor Medicare & Medicaid Services, “National Health Expenditures,”8 January2004, httn:// 2 “Trends and Indicators in the Changing Health Care Marketplace, 2004 Update,” Kaiser Family Foundation (May 2004).
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drugs. Plans may vary somewhat,but in general,individuals can choosea prescription drug plan and pay a premium of about $35 a month. They will pay the first $250 of their prescription drug costs, and Medicare will pay 75 percent of the costs (and individuals the remaining 25 percent)between $250 and $2,250. Once an individual has reached $3,600 in out-of-pocket spending,Medicare will pay 95 percent of the costs, and individuals will be responsiblefor the remaining 5 percent. Individuals with low incomes and low assetswill not have to pay premiums or deductiblesand will only pay a small copayment for eachprescription needed. Other people with low incomes and limited assets will get help paying the premiums and deductible, and the amount they pay for each prescription will be limited. Negotiation of a workable prescription drug benefit took several years. In the meantime,policymakers looking for a “quick fix” to rising health care costs beganto look favorably at the foreign practice of imposing price controls on medicines. The result was section 804 of the FederalFood, Drug, and Cosmetic Act (FDCA) - initially enacted in 2000 and then revised in 2003 and tacked onto the back of the Medicare law. This provision, in its current form, would allow the commercial importation of pricecontrolled drugs from Canada- despite a steadily increasingvolume of counterfeit medicines in the global market, despitegrowing evidencethat drugs from third world countries are shippedthrough Canadato the United States,and despite the dangerto American patients from medicines that have been stored, shipped,and handled by third parties outside the jurisdiction of the U.S. Food and Drug Administration (FDA). The new law does not take effect unlessthe Secretaryof HHS determines that importation would not raise safety issuesand would produce cost savings for


American consumers. These commentsexplain PhRMA’ position that prescription drug s importation is unsafe,will not lead to any significant cost savings,and would be bad public policy. The U.S. regulatory system governing development,approval, and marketing of new drugs is the most complex and comprehensivein the world. The U.S. does not recognizeany other drug approvalsas equivalent to a full new drug application (NDA) approvalby the FDA, and we have not enteredinto a working Mutual Recognition Agreement with respectto any other country’ version of “good s manufacturingpractices.” Further, foreign health agenciesare neither willing nor able to ensurethe safety of drugs exported from their countries to the United States. Indeed, even fully-developed countries decline to prohibit transshipmentof medicines through their borders, and some - like Canada- explicitly exempt those drugs from their laws. Even today, with our closed distribution system and “gold standard”of approval, tens of thousandsof unapproveddrugs - often counterfeit, sometimes ineffective and unsafe, always unapprovedand outside FDA’ jurisdiction - enter the s United Statesthrough the mail. FDA’ inability to effectively implement the Prescription s Drug Marketing Act of 1987 has contributed to the problem, but FDA and U.S. Customs have also repeatedlyconfirmed that they lack the resourcesto monitor the influx of these illegal drug imports at the border. The solution thereforeis to strengthenour border and law enforcementcapabilities to enforce current law, not to throw up our hands and repeal the law altogether. Despite the safety threat - which has been documentedby FDA, law enforcement,and the media - proponentsof legislation arguethat importation can be


made both ,safeand cost-effective. Importation cannot, however, be made safe with creative legislative alternativesto a system of full FDA approval and oversight, compliancewith Good Manufacturing Practice (GMP) and Good Distribution Practice (GDP) requirements,and completely closedborders. Among other reasons,importation directly contradicts a core principle in the FDCA: that a medicine’ safety must be proven s rather thanassumed. Furthermore,end-producttesting is contrary to the concept of GMPs, which is premised on the notion that a product’ integrity can be assuredonly if s the process. which it is manufactured,packaged,labeled, stored, and shipped is fully by under control and capableof audit at any time by FDA. Counterfeit-resistanttechnology available today is not a “silver bullet” for preventing the distribution of counterfeit products imported from foreign nations. A closed distribution systemfeaturing electronic “track and u-ace” technology will not be ready for deploymentfor severalmore years. None of these%olutions” - technology, testing, resources- addresses fundamental the problem with importation: that it provides the opportunity for the criminal, and the merely sloppy, to endangerAmerican patients,whether intentionally or inadvertently. America’ research-based s pharmaceuticalmanufacturershave long been held to the most rigorous pre-clinical and clinical product testing requirements,manufacturingprocess validation requirements,and pre- and post-approvalGMP requirementsin the world. American patients deservenothing less. Further, implementing importation will not lead to lower consumerdrug prices. Neither section 804 nor any of the pending importation bills requirescost savings to be passedon to consumers. Experiencein the EuropeanUnion, where parallel trade is legal, demonstrates the savings from inter-country price differentials are capturedby that


parallel importers and not passedon to consumers. Many of the “safety” measures describedby prescription drug importation advocates- such as implementation of a track and trace pedigreesystem or universal deployment of counterfeit-resistanttechnology would have the counter-productiveeffect of substantially raising costs to the healthcare system in the United States. Appropriating adequatefunds for FDA, U.S. Customs, and law enforcementagenciesto inspect all imports and enforce the law would seriously strain the federal healthcarebudget. A prescription drug importation schemewould lead to an explosion in unmeritorious tort litigation againstinnocent parties, while injured consumerswould be challengedto find, and bring to justice, counterfeiters,foreign importers and other bad actors who truly might be at fault. This, too, would result in additional costs to the system. Finally, prescription drug importation is bad policy. Most importantly, a decision to implement prescription drug importation is a decision to import foreign price controls. Pharmaceuticalprice controls inevitably deny patients accessto important new medicines. They also discourageresearchand developmentof new medicines,depress and distort international trade in pharmaceuticals,and affect U.S. jobs. Foreign pharmaceuticalprice controls force Americans to subsidizemedical researchand developmentfor the rest of the world. Importing price-controlled drugs will support and encouragethe foreign practice of price-controls, undermining one of the only free markets for medicines in the world, and effectively endorsetheseoutcomes. Importation of prescription drugs from abroadcould also violate U.S. intellectual property rights, upsetting the careful balancebetween encouragement innovation and ensuring patient of accessto new medical discoveries.


While importation is often hailed as the only solution for individuals who lack prescription drug coverageand cannot afford their medicines, in fact there are better, safer ways to ensurethat patientshave accessto affordable medicines. As noted, all Medicare beneficiariesare eligible for a Medicare-endorsed discount card that will offer discounts on prescription medicines.Further, in 2006, all Medicare beneficiarieswill be able to enroll in plans that cover prescription drugs. Patient assistance programs sponsoredby pharmaceuticalcompaniesare available to all uninsuredAmericans who meet income eligibility requirements. Pharmaceuticalcompany discount card programs are anotherway for seniors and the disabled to save money on prescription medicines. In addition, many statesoperateprescription assistance programsfor lower income Medicare beneficiaries. Shopping around among pharmaciescan also yield savings for consumers. Finally, generic drugs available in the U.S. are often considerablyless expensivethan foreign, non-FDA approveddrugs, and they offer a solution for many who cannot< afford their medicine.



TABLE OF CONTENTS I. BACKGROUND ......................................................................... ........................... 1 A. The U.S. regulatory system governing development,approval, and marketing of new drugs is the most complex and comprehensivein the world . ............................................. .............. ....... ................................. 1 Respondingto constituent pressurestemming largely from the lack of Medicare coveragefor prescription drugs, Congressin 2000 enacted - and in 2003 revised- legislation permitting commercial reimportation of prescription drugs that have been outside the control of the manufacturerand beyond the oversight of FDA. ................ 6



COMMENTS .................................................~...........~.......................................... 10 A. Implementing importation would jeopardize the safety of millions of . ................... 10 American consumers... ................... ........................... .. .........‘ 1. Even today, with our closed distribution system,tens of thousandsof unapproveddrugs - often counterfeit, sometimesineffective and unsafe,always unapproved 10 - enter the United Statesthrough the mail . ...a.................*............ FDA and U.S. Customshave repeatedlyconfirmed that they lack the resourceseffectively to monitor the influx 16 of illegal drug imports. ........................~....*....................*............... Congressand FIBS should tighten the pharmaceutical distribution chain in the United Statesrather than open 23 the bordersto foreign products. ..,.,........f...........,..........................




Importation cannot be “made safe”with creative legislative alternatives to the current gold-standardsystem,with full FDA approval and oversight, GMP and GDP compliance,and completely closed borders... 29 1. Importation directly contradicts a core principle in the FDCA: that a medicine’ safety must be proven rather than s 29 assumed. ..................... ............~...........‘ . ......................................... Safety and quality cannot be “tested into” a product. . ............. ..... 33 Counterfeit-resistanttechnology available today cannot, by itself, prevent the distribution of counterfeit products 39 imported from foreign nations. ..~.................................................

2. 3.



A closed distribution system featuring electronic “track and trace”technology, though essentialto the fight against counterfeiting and diversion, will not be ready for deploymentfor several more years. ...*...*..................*............s...... 48 Foreign health agenciesare neither willing nor able to ensurethe safety of drugs exported from their countries to the United States ..................*.................................................. . 50 Parallel trade in Europe has raised safety issues,led to consumerconfusion, and increasedcounterfeiting operations..... 59


6. 6.

A prescription drug importation schemewould lead to an explosion in unmeritorious tort litigation against innocent parties, while injured consumerswould lack any real recoursefor their injuries ................. ...... . 68 Importation will not lead to lower consumerdrug prices. ..................... ... 76 1. 2. Neither the MMA nor any of the pending importation bills requirescost savings to be passedon to consumers..................... 76 The savings from inter-country price differentials are captured by parallel importers, and not passedon to consumers................ 76



Importation of foreign drugs is an endorsement and attempt to of, import, foreign price control practices-which are bad for patients, 81 harmful to innovation, and poor public policy *.e......*................................ 1. 2. 3. 4. A decision to implement prescription drug importation would be tantamountto a decision to import foreign price controls. ...... 81 Prescription drug price controls in foreign countries have had a detrimental impact on patient accessto new medicines. .............. 83 Prescription drug price controls have a negative impact on 87 . researchand development .....................*...................................... Foreign pharmaceuticalprice controls force Americans to subsidizemedical researchand developmentfor the rest 93 of the world . ........ ......f........................................~.......................... Importation of prescription drugs would harm consumersand undermineinnovation through its impact on U.S. intellectual 94 property rights. .................... ................~.........................................



97 CONCLUSION *......t...............*..........................~..........,............*..........................


BACKGROUND A. The U.S. regulatory system governing development, approval, and marketing of new drugs is the most complex and comprehensive in the world. The United Statesregulatory system governing development,approval,

and marketing of new drug products is nearly a century old. It has becomemore comprehensiveand more rigorous over time. In 1938, the FederalFood, Drug, and Cosmetic Act (FDCA>p which remainsin place today, prohibited the marketing of any drug not shown to be “safe for use under the conditions prescribed,recommended, or suggested” its labeling.4 Beginning in 1962, FDA gained explicit authority to demand in proof that a drug is effective and to prescribethe tests that a manufacturermust perform before its product can be approvedfor marketing? Over the last half century, numerous amendments have expanded,strengthened, refined the regulatory scheme.6These and amendments include the Prescription Drug Marketing Act of 1987 (PDMA), which closed the medicine supply to products that have circulated overseas,beyond the jurisdiction of FDA and outside the control of the manufacturer. FDA now regulates virtually every stagein the life of a prescription drug sold in the U.S., from pre-clinical Pub. L. No. 75717,52 Stat 1040 (1938). 21 U.S.C. 0 355(d)(l). 5 Act of October 10, 1962, Pub. L No. 87-781,76 Stat 780, codified at 21 U.S.C. 5 355(d)(5). 6 See,,e.g.,the Durham-HumphreyAct, Pub. L. No. 82-21565 Stat. 648 (1951) (concerningprescription requirement);the Drug Listing Act of 1972, Pub. L. No. 92-387, 86 Stat. 559 (1972); the Orphan Drug Act, Pub. L. No. 97-414,96 Stat. 2049 (1983) (subsequentlyamended);the Drug Price Competition and Patent Term RestorationAct of 1984, Pub. L. No. 98-417,98 Stat. 1585 (1984); the Drug Export Amendmentsof 1986, Pub. L, No. 99-660,100 Stat. 3743 (1986), the Prescription Drug Marketing Act of 1987, Pub. L. No. lOO-293,102 Stat. 95 (1988) (subsequentlyamended);the Generic Drug EnforcementAct of 1992, Pub. L. No. 102-282,106 Stat. 149 (1992); and the Prescription,DrugUser Fee Act, Pub. L. No. 102-571,106 Stat. 4491(1992).
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testing in aSnimals human clinical trials before the drug can be marketed, to and manufacturing,labeling, packaging, and advertising when the drug is marketed,to monitoring actual experiencewith the drug after its sale to consumers. The FDCA prohibits the introduction into interstatecommerceof any “new drug” (which includes virtually all prescription drugs) that is not the subject of a new drug application @ IDA) or abbreviatednew drug application (ANDA) that has been approvedby FDA.7 Importation of a prescription drug constitutes introduction of that drug into interstatecommerceand thus is subject to the FDA approval requirement.* A drug product manufacturedin a plant that is not listed in the NDA or ANDA or manufacturedaccording to specifications differing from those in the approved application, even if made by the same company holding the approval, is an unapproved drug that cannot be imported or otherwise introduced into interstatecommerce.’ Foreign versions of drugs that are approvedin the United Statesoften are manufactured by companiesthat do not hold an approvedNDA or ANDA. Even if the foreign version is made by a company with a U.S. approval, the foreign version often does not comply with the terms of the approvedNDA or AMlA and thus is unapproved. For these reasons,the importation of a drug purchasedin a foreign country will usually violate the statutory requirementfor FDA approval. Some drugs available overseasare manufacturedin the United Statesand then exported. The FDCA prohibits the importation (sometimescalled the ‘ “reimportation”) of thesedrugs, even if they are manufacturedin full compliancewith the approved
7 8 9

See21 U.S.C. $3 331(d), 355(a). See21 U.S.C. 9 321(b). 21 U.S.C. 95 331(d) & 355. 2

NDA.1° Congressaddedthis prohibition on reimportation to the law in the PDMA, after a seriesof hearingsdocumentedadulteratedand counterfeit drugs entering the country. In 1984, for instance,nearly two million counterfeits of G. D. Searle’ Ovulen 21 birth s control pills were found to have been shippedto Miami and New York from Panama. In 198S,1800z bottles of Eli Lilly’ antibiotic Ceclor capsulesenteredMiami and Boston s from Singapore. The products containedEli Lilly’ active ingredient, but the capsules, s labels, lot numbers,and packagingwere all fake. The Energy and CommerceCommittee concludedthat permitting reimportation of U.S.-origin goods “prevents effective control or even routine knowledge of the true sourcesof merchandisein a significant number of cases,“lr As a result, “pharmaceuticalswhich have been mislabeled,misbranded, improperly stored or shipped,have exceededtheir expiration dates,or are bald counterfeits, are injected into the national distribution system for ultimate sale to consumers.~‘ Further, “the very existenceof the market for reimported goods provides lz the perfect cover for foreign counterfeits.“13After finding that “[llarge amountsof drugs are being reimported to the United Statesas American goods returned”; that “[t]hese imports are a health and safety risk to American consumersbecausethey may have becomesubpotentor adulteratedduring foreign handling and shipping”; and that “[tlhe ready market for prescription drug reimports has been the catalyst for a continuing series of frauds againstAmerican manufacturersand has provided the cover for the importation

21 U.S.C. 9 381(d). H.R, Rep. No. 76,100th Cong., 1st Sess.6-7 (1987). 12 Id. 13 Dangerous Medicine: The Risk to American Consumers from Prescription Drug Diversion and Counterfeiting, 99th Cong., 2d Sess.22 (Comm. Print 99-2 1986).



of foreign counterfeit drugs,“r4 Congressprohibited the reimportation of approveddrugs that have left the United States.” There is an exception to this prohibition ~forthe original manufacturer, who is part of a closed system and subject at all times to FDA authority and oversight.16 The manufacturer’ own importation of drugs that have never been outside its control is s comparableto shipmentsbetween its manufacturingplants and warehouses within the United States. It is completely different from the importation of drugs that have been

Pub. L. No. lOO-293,s 2. 15 The record supporting the PDMA was extensive and unambiguous,and the prohibitionjon reimportation was not controversial. In June 1985, the staff of the Subcommitteeon Oversight and Investigations of the House Committee on Energy and Commercepublished its first report on the drug diversion problem. Staff of Subcommitteeon Oversight and Investigations of the House Committee on Energy and Commerce,99th Cong., Report on Prescription Drug Diversion and the American Consumer:What You Think You SeeMay Not Be What You Get (Comm. Print 99-R 1985). This report discussedthe Ovulen 21 incident and laid the groundwork for the PDMA provision prohibiting reimportation. The subcommitteeconvenedthe first of eight public hearingson drug diversion and counterfeiting on July 10, 1985. Over two years, the committee would hear from state and federal law enforcementofftcers, private investigators,state drug and narcotic agents,Customs officials, FDA officials, pharmacists,diverters, U.S. attorneys,pharmacy and pharmaceuticaltrade associations, pharmaceuticalsalesrepresentatives, senior enforcementofficials from state and regulatory agencies. Two more Subcommitteereports were released,“Dangerous Medicine: The Risk to American Consumersfrom Prescription Drug Diversion and Counterfeiting,”99th Cong., 2d Sess.(Comm. Print 99-2 1986), and “Uncertain Returns: The Multimillion Dollar Market in ReimportedPharmaceuticals,” 99th 2nd. Cong., Sess. (Comm. Print 99-GG 1985). Final legislation passedin early 1987. As Mr. Waxman pointed out on the day it passedthe House, the PDMA “is a very important public health measure. It will provide additional assurances American consumersthat drugs they to purchasewill always be safe and effective. . . The bill was developedafter one of the most extensive investigationsthe Energy and CommerceCommittee has conductedon a health-relatedmatter. . . . [The Subcommittee]discoveredthat all the efforts of the FDA to approvedrugs for safety and effectivenesscould be for naught if the wholesale distribution system didn’ handle drugs properly or allowed counterfeit drugs to be passed t along to consumers.” 133 Cong. Rec. 10962 (May 4,1987). He added,“[tlhe bill is not controversial and has enjoyed bipartisan support.” 16 21 U.S.C. 0 381(d)(l). 4


placed into: the wholesale and retail distribution systemsof foreign countries, where they are no longer subject to FDA jurisdiction. Notwithstanding the statutory prohibition on importation of unapproved drugs, in the early 1990sFDA articulated a policy of “enforcement discretion”with respectto personalimportation of certain unapproveddrugs.17Under this policy, FDA personnelmay permit the importation of a drug if: (1) it is clearly intended for personal use; (2) then intendeduse of the drug is clearly identified; (3) the drug is intendedfor treatmentof a serious condition for which satisfactory treatmentis not available in the U.S.; (4) the drug is not known to presenta significant health risk; and (5) the drug is not approvedin the U.S. FDA officials will presumecommercial use, rather than personal use, if the supply exceedswhat one personmight take in three months. FDA guidelines direct agencypersonnelto look for either: (a) the inclusion of the name and addressof a doctor licensed in the U.S. and responsiblefor the patient’ treatmentwith the product, or s (b) evidenci= the product is intendedfor the continuation of treatmentbegun in the that foreign country. The personaluse policy does not apply to the importation of unapprovedforeign versions of drugs available in the United States,or to reimportation of drugs in violation of the PDMA. It applies only to the personalimportation of drugs for which there is no approvedU.S. source. Importantly, importation within the four corners of this policy remains technically illegal. The policy representsa limited exercise of enforcementdiscretion in the interest of individual patient treatment.‘ *

SeePDA Regulatory ProceduresManual, “Coverage of PersonalImportations.” 18 FDA has repeatedlyexpressedconcernsabout the safety of mail-order personal imports, and in 2001 the agencyrecommendedthat the policy be rescinded. SeeLetter from Food and Drug Administration Acting Principal Deputy Commissionerto Secretary of Health and Human Services(requestingthat HHS Secretaryrevoke the personal 5



Responding to constituent pressure stemming largely from the lack of Medicare coverage for prescription drugs, Congress in 2000 enacted and in 2003 revised - legislation permitting commercial reimportatiou of prescription drugs that have been outside the control of the manufacturer aad beyond the oversight of FDA. In 2000, Congressauthorizedan additional exception to the prohibition on

reimportation. The Medicine Equity and Drug Safety Act (MEDS Act) addeda new section 804 to the FDCA under which pharmacistsand wholesalerswould be permitted to import drugs from a list of designatedcountries, including Canadaand the countries of the EuropeanUnion.rg During the debateon the MEDS Act, however, concernswere voiced that section 804 would be ineffective (at reducing consumerprices) and unsafe (by allowing the influx of counterfeit and adulteratedproducts). Congressrespondedto theseconcernsin part by delaying implementationuntil the Secretaryof HHS could “demonstrate”that the law would pose no additional risk to public health and safety and that it would result in a significant reduction in the cost of coveredproducts. Secretary Donna Shalalaconcludedon December26,2000, that it was “impossible . . . to demonstratethat [importation] is safe and cost effective.“2o Similarly, SecretaryTommy Thompson,citing an analysisby FDA on the safety issuesand an analysisby his planning

importation:mail policy) (May 24,200l); see also Examining Prescription Drug Importation; A Review of a Proposalto Allow Third Partiesto Reimport Prescription Drugs, Hearing before the Subcommitteeon Health of the Committee on Energy and Commerceof the U.S. House of Representatives, 10th Cong. 2d Sess.40 (July 25,2002) (“[W]e standby that recommendationand believe that we should work with the Congress to develop legislation that would indeed give FDA the ability to screenthesedrugs and turn them back.“) (William K. Hubbard, Senior Associate Commissioner); Continuing Concernsover Imported Pharmaceuticals, Hearing before the Subcommitteeon Oversight and Investigations of the Committee on Energy and Commerceof the U.S. House of Representatives, 107th Cong. 1st Sess.48,62,72,76 (June 7,200l) (Hubbard). 19 Pub. I. No. 106-387,114 Stat. 1549,1549A-35 (2000). 20 Letter from SecretaryDonna Shalalato the Hon. William J. Clinton (December26,200O). 6

office on the cost issues,decidednot to “sacrifice public safety for uncertain and speculativecost savings.“21 In the recently enactedMedicare drug benefit legislation, Congress replacedthe MEDS Act with a new section 804. Reimportation languagewas included in the drug benefit legislation - despiteenactmentof a prescription drug benefit for Medicare beneficiaries- primarily becauseproponentsof importation were working separatelyfrom the Medicare confereesto addressaccessissues. As explainedbelow (page 98), the new Medicare discount card, fully operationalon June 1, and the drug benefit that will be available on January 1,2006, provide safe and effective ways for lowincome Americans to accessaffordable medicines. Company and state patient assistant programs,as well, are available to help the uninsured. Theseoptions are all safer than the importation of foreign products. The new language,in section 1121 of the MMA, would permit reimportation only from Canada,and it would not permit the reimportation of controlled substances, :biological products, infused drugs (including peritoneal dialysis solutions), intravenously injected drugs, drugs inhaled during surgery, or parenteraldrugs that the Secretaryfinds pose a threat to public safety.22Under the new provisions, reimported drugs must still comply with sections501,502, and 505 of the FDCA. That is, they must not be adulterated,misbranded,or unapprovednew drugs.23


Letter from SecretaryTommy G. Thompson to SenatorJamesJeffords (July 9, 2001). ’ 22 21 U.S.C. 3 384(a)(3). 23 21 U.S.C. 3 384(c). 7

The MMA permits reimportation by pharmacistsand wholesalersthat registerwith FDA and provide the name of a registeredagent.% For each shipment, the importer must submit information and documentationto FDA. Besidesbasic information such as the”quantity of drug shipped,the date shipped,and the origin and destination of the shipment, the importer must documentthe lot number and sourceof the drug and establishthe drug’ chain of custody. The importer must also test samplesof the drug for s authenticity and degradation.” The importer must certify that the drug is approvedfor U.S. marketing and is not adulteratedor misbranded,and must provide recordsfrom a qualified laboratory showing the drug complies with establishedspecifications and

Congressagain included a requirementthat the Secretarydetermine importation would be safe. Thus none of theseprovisions takes effect, and no new imports arelauthorized,unless and until the Secretarycertifies that importation will not raise safetyissues and will lead to savings for consumers. In order to make any such certification, the Secretarymust conduct a careful and thorough factual investigation.” The contours of this factual investigation will necessarilyoverlap those of the study 21 U.S.C. 8 384(a)(l) & (f). 2.5 21 U.S.C. 8 384(d)(l)(J)(III)(aa). Somewhatmore lenient sampling rules apply where the import is shipped directly from the first foreign recipient of the drug. In contrast, much more lenient pedigree(chain-of-custody)rules apply where the import is not shipped from the first foreign recipient. In other words, when a product has been shippedthrough multiple foreign locales, the law substitutesslightly more rigorous testing (testing of a statistically valid samplefrom eachbatch in all shipments,rather than testing a statistically valid sample of the shipmentsthemselves),but it abandonsany pretenceof documentinga chain of custody. 26 21 U.S.C. 5 384(d)(l). 27 FDA has been unambiguousand unwavering in its position that importation is unsafe. A complete list of FDA statementsto this effect since 2000 can be found in the Appendix. Any certification under the MMA that importation can be done safely would need to explain the basis for a complete reversal in position. 8

required under section 1122 of the MMA, which directs the Secretaryto “conduct a study on the importation of drugs into the United Statespursuantto section 804 of the Federal Food, Drug, and Cosmetic Act (as addedby section 1121 of this Act).” The ConferenceReport issuedon November 21,2003, elaborateseleven topics that should be addressed the study report2* Those are: in 1. the limitations, including limitations in resourcesand in current legal authorities that may inhibit the Secretary’ ability to certify the safety of s imported drugs (addressed pages23-39 and 59-68 of thesecomments); on 2. the pharmaceuticaldistribution chain and the need for, and feasibility of, modifications in order to assurethe safety of imported products (addressed on pages23-39 of thesecomments); 3. whether anti-counterfeiting technologiescould improve the safety of products in the domestic market as well as products that may be imported (addressed pages23-29,39-50 and 59-68 of thesecomments); on 4. the costs borne by entities within the distribution chain to use anticounterfeiting technologiesthat may be required to provide import security (addressed pages42-44 of thesecomments); on 5. the scope,volume and safety of unapproveddrugs, including controlled substances, entering the United Statesvia mail shipment (addressed on pageslo-16 of thesecomments); 6. the extent to which foreign health agenciesare willing and able to ensure the safety of drugs being exportedfrom their countries to the United States (addressed pages50-59 of thesecomments); on 7. the potential short- and long-term impacts on drug prices and prices for consumersassociatedwith importing drugs from other countries (addressed pages76-97 of thesecomments); on 8. the impact on drug researchand development,and the associatedimpact on consumersand patients, if importation were permitted (addressed on pages81-97 of thesecomments); 9. the agencyresources,including additional field personnel,neededto adequatelyinspect the current amount of pharmaceuticalsentering the country (addressed pages16-23 of thesecomments); on

SeeEL Rep. No. 108-391, at 833-834. 9

10. the liability protections, if any, that should be in place if importation is permitted for entities within the pharmaceuticaldistribution chain (addressed pages68-75 of thesecomments);and on 11. ways in which importation could violate U.S. and international intellectual property rights and additional legal protectionsand agencyresourcesthat would be neededto protect those rights (addressed pages81-97 of these on comments). The Departmentof HHS conveneda Task Force on Drug Importation to compile information and assist in respondingto the eleven issues. As part of this effort, HHS has openeda public docket and is requestingpublic comment. PhRMA’ comments s follow. For each section of our comments,we indicate the issue in the House Report on which we are offering comment. II. comNTs A. Implementing importation would jeopardize the safety of millions of American consumers. 1. Even today, with our closed distribution system, tens of thousands of unapproved drugs - often counterfeit, sometimes ineffective and unsafe, always unapproved - enter the United States through the mailF9

According to testimony provided in June 2003 by Elizabeth Durant, Executive Director of Trade Compliance and Facilitation at the U.S. Bureau of Customs and Border Srotection, “[m]illions of packagescome through mail and expresscourier facilities each year. Thousandsof packages,particularly in the mail, are found to contain illegal and unapprovedpharmaceuticals.‘ Further, Customs estimatesthat “10 million “0

This section of our commentsrespondsto item 5 on page 9 (the requestfor information about the scope,volume, and safety of unapproveddrugs, including controlled substances, entering the United Statesvia mail shipment). 30 Testimony of Elizabeth Durant, Executive Director of Trade Compliance and Facilitation at the Bureau of Customs and Border Protection, before the House Energy and CommerceSubcommitteeon Oversight and Investigations (June 24,2003). 10


people cross the land border annually carrying the sameunapprovedproducts.“31 Other publicly-available data corroboratetheseestimates. For example, according to Juniper Research,a businessand market researchcompany in Darien, Connecticut, U.S. consumers spent $700 million in 2002 on prescription drugs from foreign online pharmacies,and were estimatedto spendapproximately $1.4 billion in 2003.3’ According to IMS Health Consulting, a pharmaceuticalinformation company,Americans spent $695,million on prescription drugs from Canadain 2003, comparedwith $414 million in 2002.33A poll conductedin June 2002 identified over 1 million U.S. consumersusing the Internet as a meansto accessprescription medicines from Canadian pharmacies,34 This figure was also reportedby the Kansas City Star and the Toronto Star in July 2003.35 Theseillegal prescription medicine imports come from all over the world. In the first of two seriesof “blitz” exams conductedby FDA and Customs in 2003,1153 imported drug products were examined.36 The overwhelming majority of theseproducts

31 32


Jodi S. Cohen, “Defiant StoresOffer Rx for Rising Cost of Drugs; Businesses Help SeniorsBuy CheaperMedicine from Canada;U.S. Suit Says the Drugs Aren’ t Safe,”Chic&go Tribune (September12,2003). 33 Bob,Tedeshi,“Looking to CanadianWeb Pharmaciesfor Savings,”New York Times (March 8,2004). 34 Testimony of Elizabeth A. Wennar, M.P.H., D.H.A, Presidentand CEO, United Health Alliance Bennington, Vermont, and Principle, Healthfnova, Manchester,Vermont, before the House GovernmentReform Subcommitteeon Human Rights and Wellness (April 3,2003). 35 SeeDavid Olive, “Big PharmaBlames Canada,”The Toronto Star (July 17, 2003); Matt Stems, “Demand PushesDrugs via Canada;Illegal or Not, Salesto U.S. Thriving,” Kansas City Star (July 30,2003). 36 The first blitz exams were conductedin the Miami and New York (JFK) mail facilities from July 29-31,2003, and in the San Francisco and Carson,California mail facilities from August 5-7,2003. The secondblitz exams were conductedin the Buffalo, 11

- 1019 or 88 percent-were illegal unapproveddrugs.37 Of the drugs examined, 15.8 percent (161) enteredthe U.S. from Canada;14.3 percent (146) from India; 13.8 percent (141) from:Thailand; and 8.0 percent (83) from the Phihppines. The remaining drugs came from other countries. In a secondseriesof blitz exams,FDA and Customs examined 1006 packages. FDA determinedthat 80 percenthad been exportedfrom Canada,16 percent from Mexico, and 4 percentfrom Japan,the Netherlands,Taiwan, Thailand and the United Kingdom.38 Further, as explained below (page55), many of the drugs shippedfrom Canadaclearly originated in a third country. The prescription medicines entering the United Statesvia illegal importation,include dangerous,unapproved,and counterfeit medicines. For example, they include: ? Drags that are improperly labeled. Many of the drugs that were examinedby FDA and Customs during the import blitzes did not contain adequatelabeling or instructions for proper and safe use. Some products containedforeign labeling, some containeddual labeling (labelmg in English and anotherforeign language),and several containedno labeling whatsoeverand were offered in loose plastic bags or tissue paper. Others were shippedin containersthat appearedto be intendedfor pharmacists, without U.S.-approvedpatient labels. * Controlled substames. Examiners discoveredover 25 different controlled substances, including: Ratio-Lenoltec with codeine,codeine,Valium ; (diazepam),Ativan (lorazepam),Tylenol 3 (containing codeine),Xanax, anabolic steroids,and clonazepam,all of which are controlled substances with potential for abuseand all of which can be dangerousif taken inappropriately or without a doctor’ supervision. Thesecontrolled s substances came from Canada,Costa Rica, Guatemala,Malaysia, New

Chicago, Dallas and Seattlemail facilities and the Memphis and Cincinnati courier hubs, in November 2003. 37 “FDA/U.S. Customs Import Blitz Exams Reveal Hundredsof Potentially DangerousImported Drug Shipments,”PressRelease,U.S. Food and Drug Administration, PO3-73(September29,2003). 38 SeeFDA PressRelease,January27,2004. 12

Zealand,Peru, the Philippines, Taiwan, Thailand, and the United Kingdom. Q Potentially-recalled drags. Blitz exam results revealedthat American consumerswere sent SereventDiskus and Flovent Diskus from Canada. Both medicines are used to treat asthmaand chronic obstructive pulmonary disease(COPD). Flovent Diskus is approved,but not currently marketed,in the United States. Shortly after the secondseriesof blitz exams, certain lots of the Canadianversions of thesemedicineswere recalled in Canadabecausethere were concernsthat their delivery systems might not function properly and might deliver too little of the drugs, or none at ah. The FDA-approved version ,of SereventDiskus, sold in the U.S. through legitimate marketing channels,did not have the delivery system problem and was not subject to the recall. In the United States, FDA issueda consumeralert about the illegally-imported Canadian products, but it is possible that American consumersnever learnedof the recall. 0 Unapprovedforeign versions of FDA-approved drags. Every aspectof an FDA-approved drug has been reviewed by FDA. Drugs approvedby foreign regulatorsare different from U.S. drugs, and the differencescan be ) significant. Due to foreign regulatory requirements,a foreign version may contain different excipients, for example,or different coloring. Foreign variations from the U.S. standardsin potency and purity may raise concernsrelating to both safety and effectiveness. Sometimesuse of the FDA-approved version will require the supervision of a health care professional. Examples of the foreign versions found by FDA and Customs in the blitzes include:

APO-Tamox - an unapproved,foreign version of the anti-cancerdrug Tamoxifen. APO-Warfarin - an unapproved,foreign version of the blood thinner Warfarin. According to the FDA, the potency of war-far-in vary may dependingon how it is manufactured,and the drug must be carefully administeredand monitored by a health professionalin order to prevent seriousbleeding complications. APO-Carbamazapine an unapproved,foreign version of the anticonvulsant drug carbamazapine, which requiresinitial screeningand monthly monitoring of blood and platelet counts to ensureits safe use. APO-Allopurinal - an unapproved,foreign version of a drug used in the managementof various types of cancer. This drug requires periodic monitoring of kidney function during the first few months of treatment and can causekidney failure with underlying renal disease. 13




0 Al&azathioprine - an unapproved,foreign version of an immunosuppressant drug. This drug can causeseverebone marrow depressionand can be associatedwith increasedrisk of infection and cancerdevelopment. The FDA-approved version of this drug requires close monitoring of blood counts. 0 Human growth hormone -- a widely-used drug indicated for a number of conditions in both children and adults. It can have serious side effects (for example,it can unmask or worsen diabetesand cause elevation of pressurein the brain) if used inappropriately or in excessivedoses. * Drugs requiring tisk managementand/or resti’ cted distribution programs. Canadian-manufactured isotretinoin, a drug used to treat severeacne,was shippedwithout any assurance its use would be monitored by a physician. that In the U.S., isotretinoin is subject to a stringent risk management plan, under which providers are required to screen,educate,and monitor patients to avoid seriousrisks, such as birth defects that may occur following its use. U.S. prescribersare also expectedto attest,prior to prescribing the drug, that pregnancytesting has been done to confirm the patient is not pregnant.

e Drugs that require initial screening or periodic monitoring of patients. Some that were discoveredduring the import blitzes include: 0 Casodex,usedfor the treatment of prostatecancer. A medical professionalmust rule out baselineliver diseaseprior to treatment initiation and must monitor liver function tests periodically during treatment.

Warfarin, an anticoagulantthat requiresinitial and periodic monitoring of blood parametersto avoid bleeding problems. Clomid, used to treat ovulatory dysfunction. A medical professional must rule out liver, thyroid, and adrenaldysfunction and should also perform monitoring during treatmentto avoid ovarian hyperstimulation. Metformin, an oral hypoglycemic that requiresregular monitoring of blood parameters,as well as ongoing assessments kidney function of to reducethe risk of lactic acidosis. Tarnoxifen, a drug for which a medical professionalmust rule out uterine malignancy prior to and regularly during treatment. Elavil (amitriptyline), an anti-depressant which cardiovascular for disordersmust be ruled out before treatmentbegins. 14



* *


Lithium carbonate,an anti-psychotic used to treat manic depression. Individualized dosing and careful monitoring of serum levels are required to avoid life-threatening toxicity.


Drugs with clinically-significant drug-drug interactions. Unapproved versions of Zocor (simvastatin), imipramine, ketoconazole,Viagra (sildenafil citrate), and tramadol were discoveredduring the import blitzes. Thesemedicines are associatedwith clinically-significant interactionswith other drugs that a purchasermay be taking.

7 Biological products that should be administered by a health care professional and that are not licensed by FDA. Influenza Virus Vaccine is approvedin Canadabut not licensedby FDA. This vaccine was discoveredduring one of the blitzes. e Animal drugs not approvedfor human use. Clenbuterool, drug a approvedfor the treatmentof airway diseasein horses,was shippedfrom Costa Rica and China. This drug, which is used illicitly by athletesas a performance-enhancing drug, has not been approvedfor human use by the FDA and has been bannedby the International Olympic Committee. * Drugs withdrawn @onathe market. Consumersalso import drugs that have been withdrawn from the U.S. market. For example, FDA and Customs found a shipment of Buscapinafrom Mexico. This appeared to be a foreign version of the drug Dipyrone, which was removedfrom the U.S. market in 1977 after reports that U.S. patients had developedsevere blood disorders,some fatal. In testimony before the House GovernmentReform Subcommitteeon Human Rights and Wellness, and later before the House GovernmentReform Committee, FDA’ s Associate Commissionerfor Policy and Planning has provided additional descriptionsof the medicines that are illegally imported. * Drugs that should be dispensedonly in small amounts. Mr. Hubbard said, “A secondexample I will give, this is an anti-depressant drug. It should only be dispensedin very small amounts,about 30. This is several hundred. This drug is prescribedfor a relatively high-risk population for overdose. This drug should not be given in large amountsto patients. The Canadianpharmacy sent this individual about ten months worth of that drug.” He addeda secondexample: “The next individual apparentlyhad epilepsy and bought a drug called Gabapentin,which is usually dispensed in 30-day increments. This is what the Canadianpharmacysent this gentleman. This is about four yearsworth of the drug. Thesedrugs start 15

expiring in six weeks. So most of the time this patient takes thesedrugs, they will have been expired and ineffective.‘ y39 a Drugs that require refrigeration. Hubbard also noted “drugs for osteoporosis,for glaucoma,and insulin for diabetics.”He explained “[tlhey are required to be refrigerated.If they’ not refrigerated,they’ re re very complex proteins that break down and becomeineffective . . . . I’ ll even note that in the caseof one pharmacy,the place where it says, ‘ keep refrigerated’ where they put their label. So that is a dangerously is ineffective drug. In all three cases,those came from Canadaorderedover an Internet site, we believe.“40 * Counterfeit products lacking active ingredient. On February 4,2004, Z FDA issued a warning to the public about a foreign Internet site selling counterfeit contraceptivepatches.Thesecounterfeit patchescontainedno active ingredient and thereforeprovided no protection againstpregnancy. The Internet site,, apparentlywas operatedby American Style Productsof New Delhi, Jndia.41 2. FDA and U.S. Customs have repeatedly confirmed that they lack the resources effectively to monitor the influx of illegal drug in~port.s.~~

While proponentsof importation have arguedthat importation can be done safely, regulatorshave statedtime and time again that resourceconstraintshampertheir ability effectively to enforce current law and to handle the increasingstream of drugs Testimony of William K. Hubbard,Associate Commissionerfor Policy and Planning, U.S. Food and Drug Administration, House GovernmentReform Committee (June 12,2003). 40 Id. 41 Testimony of William K. Hubbard, Associate Commissionerfor Policy and Planning, D.S. Food and Drug Administration, House GovernmentReform Committee Hearing (March 18,2004). On February 12, the FDA took action againstthree additional Internet sites associatedwith the sale of counterfeit contraceptivepatches (www.usarxstore,com,, The and counterfeit contraceptivepatcheswere purported to be an FDA-approved product. Instead, customersreceivedpackagesof patcheswithout the active ingredient necessary to make the:patcheseffective. The counterfeits were sent in plastic zip-lock bags without identifying materials, lot numbers,expiration dates,or any other labeling information. 42 This section of our commentsrespondsto item 9 on page 9 (the requestfor information,about “the agencyresources,including additional field personnel,neededto adequatelyinspect the current amount of pharmaceuticalsentering the country”). 16

being illegally imported into the U.S. If they cannot adequatelyenforce current law, they clearly could not protect the public safety if importation were legalized. In March 2004, for example, SecretaryThompson told SenatorCochran that FDA is “‘ strapped” that it does not have enoughresourcesto ensurethat imported and drugs are safe: ve SenatorCochmn: Mr. Secretary,we’ had some debates and votes on amendmentshere in the Senaterelating to importation of pharmaceuticalproducts from other countries. Are there sufficient funds in this budget request to deal with the problem of counterfeit or unsafe pharmaceuticalproducts that may enter the United States from other countries? SecretaryThompson: I don’ think so, Senator. I think it’ t s a growing problem, and we are doing the best job possible. As you know, I requestedof this Congressearly on when I came on to get enoughinspectorsto deal with some things, with food. We have increasedit, but overall, I still think that there’ a good chanceof having counterfeit drugs. And s we seethat every time we stop. We had, as you know, some inspectionsat the border not too long ago, one in July and in Septemberand October of this year. And about 87 percentof the drugs that came in were either mislabeled or mispackaged. Some were counterfeit, some were not certified by FDA or approvedby FDA. So there are a lot of drugs that still are coming into America that are not regulatedby FDA. Sen. Cochran: Are we making an effort to bring this to the attention of our friends around the world and try to get help there in those countries? SecretaryThompson: We are. We have a very strong, aggressiveoutreachprogram to other countries, especially to Canada. But Canadahas pretty much indicated that it’ s not their problem, and it’ our problem and that we should s addressit ourselves. We have startedhearings. Last Friday was the first hearing. I set up a commission, headedup by SurgeonGeneralCarmona,to take a look at reimportation, importation, as well as ways in which we can develop. We’ also set up a task force on counterfeit drugs. And ve we announcedthat a couple of weeks ago. We’ working re with the FederalTrade Commission and the Departmentof 17

Justice in regardsto that. We are quite aggressive. But your questionwas: Is there enoughresources? don’ think I t there is, becauseFDA is very strappedwith all of its demands. And this is a huge problem, and if, in fact, we are going to have reimportation, we’ going to have to re have more resourcesin order to make sure that those [sic] reimportation of drugs are [sic] safe.43 Earlier the samemonth, the Commissionerof FDA (now the Administrator of CMS and a member of this Task Force), Dr. Mark McClellan, testified before the SenateCommittee on Commerce,Science,and Transportationthat FDA and Customs face competing priorities and are “‘ unableto visually examine many of the parcels containing prescription drug products that arrive through the mail and private courier serviceseach day.“@ He addedthat although FDA “works hard to inspect many legitimate manufacturing facilities selling drugs to Americans through legitimate FDAregulatedchannels,including facilities located in the United Statesand abroad,”the agencyhas L’ neitherthe legal authority nor the resourcesto assurethe safety of drugs from outside the federal and state system of regulating drugs.‘ Administrator A5 McClellan made similar commentsin 2003 in a letter to Representative Tauzin regarding one of the importation bills introduced that year. In this letter, he wrote that the “sheer volume of importation that could result from enactmentof this bill would easily overwhelm our alreadyheavily burdenedregulatory system.“46

Testimony of Tommy G. Thompson, Secretaryof Health and Human Services, SenateAppropriations Committee, Subcommitteeon Labor, Health and Human Services and Education (March 25,2004). 44 Testimony of Dr. Mark B. McClellan, Commissionerof Food and Drugs, Hearing before the Committee on Commerce,Scienceand Transportation,United StatesSenate (March 11,2004).
45 46


Letter from Mark B. McClellan, M.D., Ph.D., Commissioner,Food and Drug Administration to the HonorableW.J. “Billy” Tauzin (July 18,2003) (re H.R. 2427). 18

Other FDA officials have made the samepoint. In November 2003, for example, the Associate Commissionerfor Regulatory Affairs, John Taylor, told the SenateCommittee on Commerce,Science,and Transportationthat the agencywas “doing its best to stop the increasingflow of violative drugs into this country,” but that the task was “daunting,“47 He addedthat “[elach day thousandsof packagescontaining prescription drugs are imported illegally into the United States’and noted that “while the ” volume of imported drugs has increasedenormously,FDA has not received additional resourcesor authority to addressthese shipments,in contrastto the casefor food security at the border.“48 Further, FDA’ risk-basedenforcementstrategyis “overwhelmed by the s number of incoming packagesthat must be evaluated”which “presentsa significant ongoing challengefor the Agency.“4g The volume of importation that could result from enactmentof a bill to legalize importation ‘ “could easily overwhelm our already heavily burdenedregulatory system.‘ “’ In June 2003, Mr. Taylor told a subcommitteeof the House Energy and CommerceCommittee that “[wlith the available resourcesand competing priorities facing the agency,experienceshows that we are unable to visually examine the large volume of parcels containing prescription drugs that arrive in the mail and courier

Testimony of John M. Taylor, III, Associate Commissionerfor Regulatory Affairs, Food and Drug Administration, before the Committee on Commerce,Science and Transportation,United StatesSenate(November 20,2003).
48 49 50


Id. Id. Id.


serviceseach day.‘ When askedby Representative “r Davis about the solution, he expresseddoubt whether any amount of increasein resourceswould ever be sufficient: Mr. Davis: What exactly would you suggestthat Congress needsto do to be a part of the solution here? We are spendingmost of the day talking about the problem so far, and it is easyto sit here and criticize you, but what we are entitled to and what the public is entitled to, [sic] for you to be painfully direct for us as to exactly what Congressneeds to do to be part of the solution here because,if you are not part of the solution on this, you are part of the problem. Mr. Taylor: I, quite frankly - I guessas a starting point, looking at some comprehensivesolution that just doesn’ t focus at providing additional resourcesbecause,as I stated earlier, providing us additional investigatorsdoesn’ seem t to be the answers,and no matter how many investigators you provide us, it seemsthat basedon the numbers,we would still struggle to look at all thesepackagesand prevent their entry into the United States. Mr. Davis: Mr. Chairman, if I could just finish this last question, and I will stop there. What else besides resources? Mr. Taylor: Well, I guesswhat I am saying is that resourcesaren’the answer. It is some type of t comprehensivesolution that focuseson why people are purchasingtheseproducts and importing them into the United Statesseemsto be the answer.52 The agency’ Senior Associate Commissionerfor Policy and Planning, s William Hubbard, told the samecommittee that simply providing FDA more resources would not fii the fundamentalsafety problem. ChairmanGreenwoodasked,“if you use this current system that you have in place, the number of personnelthat you would need to really have a pretty foolproof systemwould be unrealistic. . . . So isn’ it the casethat t



Testimony of John M. Taylor, III, Associate Commissionerfor Regulatory Affairs, Food and Drug Administration, before the House Energy and Commerce, Subcommitteeon Oversight and Investigations (June 24,2003).
Id. 20


we really need to changethe system that we use to approachthis problem rather than simply cahfor more resources?”Mr. Hubbard responded, ‘ think that is correct. . . . I “I have 537 investigational FTEs devotedto this task, and those bodies don’ just handle t pharmaceuticalproducts. They handle foods, biologics. They are involved in preventing the spreadof BSE to this country. They are involved in taking stepsto prevent the monkeypox outbreak from growing. They are involved in homelandsecurity and food safety. So those Xl-some-odd people are vested with a large job, and it is simply not one that the resources- increasingthe resourceswill not really causea big dent. We really needto changethe system.‘ In 2001, Mr. Hubbard commentedin a letter to “53 Representative Tauzin on an amendmentoffered by Representative Gutknecht to allow personalimportation: “[t]he increasedvolume of potentially dangerousimported drugs would place an additional strain on an already compromisedU.S. regulatory approachto protecting consumersfrom unsafepersonalimportations.‘ And in a hearing before the “4 Oversight and Investigations Subcommitteeof the House CommerceCommittee in 2001, he commentedthat FDA does not have the resourcesto look at “small packages.‘ 55 Representatives U.S. Customs agreethat the task of monitoring of imported drugs is already overwhelming. One official commentedat the same hearing in 2001 that “[dletecting prohibited pharmaceuticalsamong the tens of millions of parcels Testimony of William Hubbard,Associate Commissionerfor Policy and Planning, Food and Drug Administration, before the House Energy and Commerce, Subcommitteeon Oversight and Investigations (June24,2003). 54 Letter from William Hubbard, Senior Associate Commissionerfor Policy, Planning and Legislation to The Honorable W.J. “Billy” Tauzin, Chairman, House Energy and CommerceCommittee and The Honorable John Dingell, Ranking Member, House Energy and CommerceCommittee (July 17,200l). 55 Testimony of William Hubbard, Senior Associate Commissionerfor Policy and Planning, before the House Committee on Commerce,Subcommitteeon Oversight and Investigations (June 7,200l). 21

passingthrough our mail facilities each year presentsa massive challenge.“56She explained, “[o]ur limited resourcesrequire a risk managementapproachwith which we utilize advanceintelligence, records of past seizures,and other factors to locate packages s that presentthe most significant threat.“57 The government’ inability to inspect imports was amplified in an exchangewith Representative Dingell: Mr. Dingell: Ms. Durant, two questions. A simple yes or no answer I think will suffice. In your CarsonCity project, in 4 or 5 weeks Customs inspectorscould have stopped approximately 16,000parcels containing pharmaceuticals or somethingthat appearedto be a pharmaceutical. Is that correct? Ms. Durant: That is correct. Mr. Dingell: It is also true that FDA could processonly a tiny fraction of these,approximately 30 a day? Is that right? Ms. Durant: That is also correct. Mr. Dingell: So they could only then have reviewed a minute portion of this? Ms. Durant: That is correct. If FDA and Customs lack the resourcesnow to inspect the millions of packagesthat cross the border annually, when drug importation is illegal, they would surely be helplessif ten or twenty times that volume crossedthe borders under a legalized drug importation scheme. Further, paradoxically, as Congressbuilds more and more socalled safety provisions into an importation scheme,the crushing burden on FDA and Customswill increase. If biologics are to be excluded,for example, and if unapproved

Testimony of Betsy Durant, Office of Trade Programs,United StatesCustoms Service, Before the House Committee on Commerce,Subcommitteeon Oversight and Investigations (June 7,200l). 57 Id. Seealso Testimony of Betsy Durant, Office of Trade Programs,United States Customs Service, Before the House Committee on Commerce,Subcommitteeon Oversight and Investigations (May 25,200O). 22

and misbrandeddrugs are to be exchrded,then someonemust check each of the millions of packagescrossing the border. Cost-savingsand safety, in a sense,may be flip-sides of the samecoin. Just as the Secretaryneedsto determinewhether importation can be done in a way that will guaranteethe safety of the patient, he will also needto consider the fiscal impact of increasingthe FDA and Customsbudgetsby several orders of magnitude in order to implement “safety” provisions. 3. Congress and HHS should tighten the pharmaceutical distribution chain in the United States rather than open the borders to foreign products?*


FDA’ inability to fully implement the PDMA has s contributed to the domestic diversion and counterfeiting problem that endangers American consumers.

One basic tool for helping to preservethe safety of our country’ drug s supply is the maintenanceof a closed distribution system. This objective is not always met, but where there are deviations, safety issuesinevitably arise, and the integrity of the drug compromised. In a closed distribution system, the manufacturerships drug product to a distributor, who in turn ships to the pharmacy for dispensingto the patient. Mqltiple distributors may becomeinvolved, but the key is that each transaction in the supply chain is documentedand tracked, so that the pedigreeof the product involved can be traced and verified by lot at any point in the chain of distribution. The drug distribution chain in U.S. commerceis not entirely closed, in part due to limitations in the law. Counterfeit and tainted products surfacefrom time to This?section our commentsrespondsto the items 1,2, and 3 on page 9 (the of limitations in resourcesand in current legal authorities that may inhibit the Seeretary’ s ability to certify the safety of imported drugs; the pharmaceuticaldistribution chain and the need for, and feasibility of, modifications in order to assurethe safety of imported products; and whether anti-counterfeiting technologiescould improve the safety of products in the domestic market as well as products that may be imported). 23

time, and the public health is put at risk. Domestic challengesthus remain great. These challengeswould, however, be multiplied significantly by the addedcomplexities and burdensof an expandedinternational supply of drugs from various wholesalersand pharmacies. The PDMA and the Prescription Drug Amendments of 19925g amended the FDCA to establishrequirementsfor the distribution of prescription drugs that are designedto:promote integrity in the pharmaceuticaldistribution system. These provisions require secondarywholesale drug distributors to provide purchasersa statement,also called a “pedigree,”that identifies eachprior sale, purchase,or trade of the drug.@ FDA published regulationsthat would require that the pedigreealso include the proprietary and establishednamesof the drug, its dosage,the container size, the number of containers,lot or control numbersof the drug being distributed, the businessname and addressof all parties to each prior transactioninvolving the drug (starting with the manufacturer),and the date of eachprevious transaction!l However, FDA has repeatedlystayedtheseregulations and refusedto implement the pedigree requirementsof the PDMA, due to concernsthat it would not be feasible for secondary wholesalers, obtain the information necessaryto provide the required pedigrees. Most to recently, FDA stayed the regulationsuntil December1,2006, in order to permit industry


Pub.!L. No. 102-353,106 Stat. 941(1992). 60 21 U.S.C. 3 353(e)(l)(A). 61 21 C.F.R. 8 208.50. The requirementthat the pedigreeinclude the namesand addresses all parties involved in each prior transactioncomes directly from section of 503(e)(l)(A) of the FDCA. 24

to develop and implement a track-and-tracesystem that it is hoped will “accomplish and surpassthe:goalsof PDMA.“62 Pendingdevelopmentand adoption of new technology to track drug sales and other transfersthrough the distribution chain, the absenceof an establishedpaper pedigreeis a seriousweaknessin current law that would be greatly exacerbated new by drug imports. No easy fix is in sight. FDA’ inability to put the full pedigree s requirementsof the PDMA into effect is part of the problem.63However, the PDMA itself has critical limitations. In particular, the PDMA doesnot require that authorized distributorsof record provide the inforrnation to secondarywholesalersneededto create a completepedigreefor each drug. In a 2001 Report to Congress,FDA noted that in order to enablesecondarywholesalersto achieve full compliancewith the PDMA’ pedigree s requirement,Congresswould have to amendsection 503(e) of the PDMA to enable secondarywholesalersto obtain pedigreeinformation from all prior purchasers,including authorizeddistributors.64Although Congresshas consideredthe issue,it has not yet acted on FDA’ recommendationto amendthe PDMA. s Without a pedigreefrom secondarywholesalers,there is no legallyrequired documentthat ensurestraceability back to the drug manufacturerand guards against drugs that are counterfeit or that are stored in an inappropriatemanner, This createsa major obstacleto full traceability, and it may permit unscrupulousparties to 69 Fed. Reg. 8105,8107 (February23,2004). See,e.g., First Interim Report of the Seventeenth Statewide Grand Jury, No. SCO2-2645 (Fla. 2003) (http;// (“IW]e canclude that both FDA and [Florida] DGH have failed to aggressivelyenforce their respectivepaper pedigreelaws. We believe that strict enforcementof our pedigreepaper law is essential to protecting the public from drug counterfeiters.“). 64 The Prescription Drug Marketing Act: Report to Congress,June 2001, at 22-23.


“launder” counterfeit or diverted drug products through unknowing distributors and break the recordedchain of custody. This loophole in the PDMA, exacerbated FDA’ by s inability toimplement its regulations,already createsa weaknessin the strong protections afforded American consumers. This weaknesswould be greatly compoundedif the pharmaceuticaldistribution chain were expandedto accommodate legal imports of prescription drugs.


Congress should impose tougher penalties for counterfeiting and other violations.

The inadequatepenaltiesavailable for violations of the PDMA and statutesprohibiting counterfeiting drug products presentanotherobstacleto protection of the public from unsafe imports. The maximum penalty for a felony drug counterfeiting violation isthree years imprisonment and/or a $10,000 fine. That penalty can be imposed only upon a finding that the counterfeiter actedwith intent to defraud or mislead.65 Compareti far more stringent penalty for counterfeiting anotherproduct, such as currency, and the penalties for distributing illicit drugs.* This disparity underscores leniency in the prescription drug the counterfeiting laws, and weakensthe ability of the law to deter wrongdoers. In addition, the statutory schemedoes not adequatelypunish those who have some indication that they are receiving counterfeit drug products and deliberately fail to act upon that knowledge,“forexample by failing to conduct basic due diligence to ensurethe product’ s

21 U.S.C. 8 333(a)(2). The fine may be subject to enhancement pursuantto 18 U.S.C. $$3571. 66 See 18 USC. 0 485 (providing for fine and/or up to E-year term of imprisonment for the act of counterfeiting U.S. currency); 21 U.S.C. $841 (establishing terms of imprisonment for distribution of controlled substances, ranging up to life in prison for seriousviolations). 26


pedigreeis; accurate,or by overlooking obvious red flags such as deeply discounted prices or suspiciouspackaging. In short, the statutory schemedoes not permit FDA to seek adequate penaltiesfor parties that counterfeit pharmaceuticalproducts or that otherwise knowingly underminethe safety of the U.S. drug distribution system. Becausethe penalties are imposed by statute,FDA and prosecutorsmay not unilaterally impose greaterfines or seek a longer prison term for violators, although in some circumstancesprosecutorscan allege additional legal violations, such as mail fraud and conspiracy. The net result is inadequate.deterrence, a further limitation on the ability of current legal authorities to and ensurethe safety of drug imports.


Congress should impose stricter wholesaler licensing requirements.

Drug wholesalersare subject to a variety of state laws with differing standardsof enforcement,permitting unscrupulouswholesalersto establish operations where they:will face the least regulation. All 50 statesrequire wholesaledrug distributors to be licensed, and some states- notably Florida and Nevada -have instituted stricter regulatory oversight. Typically, statesrequire backgroundchecks of wholesalersfor felony convictions before issuing a license, establish drug storageand handling requirements,and require record keeping. Requirementsvary, however, and wholesalers have an incentive to locate their operationsin the states‘ with the least stringent rules. FDA has published Guidelines for State Licensing of Wholesale Prescription Drug Dealers, set forth in 21 C.F.R. part 205. FDA’ regulationsestablish s minimum standardsfor state licensing authorities, ensuring at least a basic level of regulatory consistencyacrossthe 50 states. FDA has not, however, audited each state’ s 27

regulations, related enforcementoperationsto ensurethat they actually comply with and FDA standards. FDA can begin to close the loopholesin the distribution system by drafting strongerminimum standardsfor licensing and oversight of wholesale operations, and by ensuringthat statesimplement the tighter standards. This would be one step toward raismg the level of state oversight of wholesaledistributors acrossthe country. However, until FDA has addressed issue of inconsistent,often lax, state licensure and the regulation of wholesale operations,this will remain a major weaknessin the distribution chain. Thelresult is a diminished ability to ensurethat tainted imports will not flow over the borders,into the wholesalerdistribution system, and to patients,without appropriate regulatory control and oversight.


Congress should more strictly regulate repackaging.

Drug repackagingoperationsmay also createan opportunity for subpotent, adulterated,or otherwise problematic drug products to enter the market. Drug products are routinely repackagedafter shipment from the manufacturingfacility. Certain repackagingis performed, for example, when health maintenanceorganizations(HMOs) or hospitals:repackagedrugs for internal distribution; such practicesrarely createthe opportunity’ distribution of counterfeit or diverted drugs. However, repackagingis for also undertakenby other entities in the distribution chain and may pose a threat to public health. For example, an unscrupulousrepackagermay dilute the drug before packagingit in new containers,to give the appearance greaterquantity, or drugs may of be adulteratedduring the repackagingprocess. Drugs may also be repackagedusing inferior or substandard materials,which may result in product quality deterioration. Repackaginginterferes with tamper-resistant featuresand counterfeit-resistant 28

technologiesthat manufacturersbuild into original product packaging,thereby undermining the effectivenessof such innovations. Impiementation of the PDMA pedigreerequirementis the best meansof limiting repackagingoperations. The threat to the system posedby repackagingcan also be addressed increasedFDA surveillanceover relevant entities in the drug distribution by chain, including frequent inspectionsof repackagingfacilities to ensurecompliance with GMPs and record keeping requirements. However, until the pedigreerequirementis in place and PDA has increasedits facility inspections,the practice of drug repackagingwill remain a significant weaknessin the distribution chain and will continue to pose a threat to public safety. This threat would grow if an expandedvolume of imports were to begin to flow to repackagers further distribution. for B. Importation cannot be “made safe” with creative legislative alternatives to the current gold-standard system, with full F’ DA approval and oversight, GMP and GDP compliance, and completely closed borders. 1. Importation directly contradicts a core principle in the F’ DCA: that a medicine% safety must be proven rather than assumed.67

Inherent in the federal regulatory schemegoverning development, approval, and marketing of new drug products is the requirementthat a manufacturer prove to FDA that its drug is safe and effective. The burden of proof falls on the manufacturer,and the processof developing the data to meet this burden takes many years. In the pre-clinical testing stage,for example,a manufacturerconducts laboratory and animal tests to evaluatethe safety of its new compound. In the secondstage,before performing any clinical trials in humans,the manufacturersubmits an investigational new This section of our commentsrespondsto item 1 on page 9 (limitations that may inhibit the Secretary’ ability to certify the safety of imported drugs). s 29

drug application @ND) to FDA!” Every IND must contain sufficient pharmacological and toxicological data to show that it would be reasonablysafe to conduct clinical trials in humans6’ An IND must also detail the drug’ chemical composition, structural s formula, proposeddosageform, and proposedroute of administration; the investigative plan and proposedclinical trial protocols; any prior human experience(including foreign data); and prior withdrawals from investigation or marketing.70If FDA is satisfied that the pre-clinical animal data do not demonstratean unacceptablesafety risk to humans,the drug sponsormay begin clinical studies in humans.71 During the clinical program, the sponsortests the drug for safety and efficacy in small dosesand multiple doses,in healthy volunteers and patients, and in varying demographicgroups. Following the clinical trials, the drug sponsorprepares and submits an NDA, seekingFDA’ permission to manufacture,distribute, and market s the drug in the United States. Among other things, the NDA must include the preclinical data, such as laboratory and animal studies,evaluatingthe drug’ pharmacologyand s toxicology;i2 data on the mannerin which the drug is absorbed,distributed, metabolized, and excretegin humans(pharmacokineticand bioavailability data);73 clinical data obtained from administering the drug to humans,including data demonstratingthe drug is a safe under the proposedconditions of use;74 description of the proposedmethodsby
68 69 70 71 72 73 74

21 C.F.R. 0 312.40. 21 C.F.R. 8 312.23(a)($). 21 C.F.R. $312.23. 21 C.F.R. Q 312.21,312.40. 21 U.S.C. § 355(b)(l)(A); 21 C.F.R. 8 314.50(d)(2). 21 C.F.R. 0 314.50(d)(3). 21 U.S.C. 0 355(d)(5); 21 C.F.R. 0 314.50(d)(5). 30

which the drug will be manufactured,processed,and packed;” a detailed chemical descriptionof the drug and its active ingredient;76 list pf eachpatent claiming the drug, a drug product, or method of use, or a statementthat there are no relevant patentsmaking s such claims;77and the drug’ proposedlabeling.78 In order to permit marketing, FDA reviewers must find that the drug satisfies two fundamentalrequirementsof the FDCA - that it is ‘ Leffective”and “safe.” The sponsormust have “substantial evidence”that the drug will have the effect it purports to have, under the indicated conditions of use?’ “Substantial evidence”means evidencefrom adequateand well-controlled clinical studies.80The drug also may not be approvedumessthere are “adequatetests by all methodsreasonablyapplicableto show whether or not such drug is safe for use under the conditions prescribed,recommended, or suggestedin the labeling thereof.“81 Approval of an NDA can take anywherefrom six months to three years.82 In short, the FDCA createsa systemwhere a drug must be proven safe before it may enter the drug supply. Importation would flip this system on its head. The World Health OrganizationQVEIO)has found, and FDA has repeatedlytold Congress

21 U.S.C. 8 355(b)(l)(D); 21 C.F.R. 0 314.50(d)(l)(i)-(iii). 21 U.S.C. 8 355(b)(l)(B)-(C); 21 C.F.R. 8 314,50(d)(l)(i)-(iii), 77 21 C.F.R. 3 314.50(h)-(i). 78 21 U.S.C. 0 355(b)(l)(F), 21 C.F.R. 13 314.50(e). 79 21 U.S.C. 0 355(d), 21 C.F.R. 5 314.105(c). 80 21 U.S.C. 0 355(d). 81 21 U.S.C. 6 355(d)(l). 82 “NDA Approval Rates for NDAs Received FY 1993-2002and Approved within 36 Months”:< NLifeTable2NDA.htm> (visited February 18,2004).
75 76


and the public, that the drug supply circulating in commerceoutside the United States contains a high percentageof counterfeits and cannot be assumedsafe. The rising volume of counterfeit and adulteratedmedicines have been describedin the press and documentedby FDA.83 And still, proponentsof importation would open the borders. A “show us the bodies” approachto the U.S. bordersis fundamentally inconsistentwith the

See;e.g., “Counterfeit Drugs Becoming a Big and DangerousBusiness,”CBN NEWS (April 16,2004); “‘ Online Drugs Raise Warning,” SeattEe Post (April 15,2004); “Pharmacy,BossJailed, Fined For Smuggling In Bogus Viagra,” The Straits Times (April 14,2004); “Scramble Is On To Fight Fake Drug Market,”Associate Press Newswires (April 12,2004); “Health Experts Warn About Growing Danger of Counterfeit Drugs,” The Partnership for SafeMedicines (April 82004); “‘ Drug Firms Decry Importation,” Los Angeles Times (April 6,2004); Joyce Primo-Carpenter, “A Matrix of Drug Quality Reports on :USAID-Assisted Countriesby the U.S. Pharmacopeia Drug Quality and Information (USP DQI) Program,”USP Global Assistant Initiatives (March 30,2004); “The menaceof fake drugs in Nigeria,” (March 22,2004); “16year old receivescounterfeit Epogen,”Fox 5 Navs (March 1,2004); “Drug regulators study global treaty to tackle counterfeit drugs,”The British Medical Journal (February 28,2004); FDA, “Combating Counterfeit Drugs” (February 18,2004); “Counterfeit drugs and the dangerto Westchester,” Journal 16,2004); “‘ The Fake drugs, real threat: Seizuresof counterfeit prescription medicines and arrestsare on the rise, causing new concerns. The FDA insists the country’ supply of pharmaceuticals s is safe,”Los Angeles Times (February9,2004); “‘ Drugs: Rising Arrests Over Rx CounterfeitsExamined,“American Health Line (February9,2004); “FDA Deems Some Birth Control PatchesFake,” TheAssociated Press (February4,2004); “Despite U.S. Crackdown Cities Still Offer Imported Meds,” ConnecticutPost (January30,2004); FDA NEWS, “Recent FDA/U.S. Customs Import Blitz Exams Continue to Reveal Potentially DangerousIllegally Imported Drug Shipments”(January27,2004); “On the trail of the world-wide web of fake lifestyle drugs,”Independenton Sunday (January 18, 2004); “ExPosCof company selling bogus Viagra forces British-owned website to close,” Independenton Sunday (January l&2004); “‘ Anti-Counterfeit Stepsby Drugmakers Sought; Legislators’Goal Is to Halt Illegal Sales,”The WashingtonPost (January 17, 2004); “U.S. panel probesway to fight fake medicines,”Reuters (January 16,2004); “The growing problem of counterfeit prescription drugs,”NBC Nightly Nays (January l&2004); ‘ Exposed - the fake Viagra racket,”Independenton Sunday (January 11, 2004); “Drug WholesalersFace StateEfforts To Tighten Rules,”The Wall StreetJournal (January8,2004); “Business & Innovation Life Sciences: Pharmaceuticals; Feeling Lucky? That Drug You’ Counting on May Not Be What It Appears. As Counterfeiters re Become More Sophisticatedat Copying Drugs Like Viagra, Above, The Industry Is ScramblingFor Ways To Protect Its Wares,”The Boston Globe (January5,2004). These arejust the examplesfrom the first four months of 2004. 32


premiseof the FDCA that a medicine must be affirmatively proven safe before FDA will permit it toibe sold to consumers.84 2. Safety and quality cannot be ‘ “tested into” a product.85


End-product, or terminal, testing is contrary to the concept of GMP embodied in the F’ DCA.

FDA’ GMP regulations are basedon the fundamentalquality assurance s principle that quality, safety, and effectiveness“cannot be inspectedor tested into a finished product,”but instead must be designedand built into a product.86FDA has reiteratedthis bedrock principle on numerousoccasions,most recently in connectionwith its 2003 initiative to modernizethe GMP regulations.87 GMP is a systemsapproachthat requiresa company to build quality directly into the entire mauufacturing operation,in order to ensurethat the processitself

The requirement that a medicine be proven safe was crafted by Congressin responseto ia tragic incident involving an unproven product. In September1937, more Elixir than 100 people - many of them children - died after taking a product called “‘ Sulfanilamide,”a sulfa-basedproduct used to treat infections like strep throat, The manufacturerhad used diethylene glycol (now known as antifreeze)as a solvent, without performing safety testing. Congressrespondedin 1938 by requiring “premarket notification” for new drugs. Before a new drug could be marketed,it was required to be testedon humansin accordance with investigational new drug (IND) regulations promulgatedby FDA. When sufficient data were obtained under the IND to demonstrate the safety of the drug, the manufacturerwas required to submit a new drug application (NDA) for the drug to FDA. If FDA did not disapprovethe NDA within sixty days after filing, the NDA becameeffective and the drug could be marketed. FDA now servesas a gatekeeper, ensuring that any drug sold to American patients has beenproven safe. If the supportersof importation prevail, however, Congresswill essentiallyturn back the clock to 1937, when products were marketeduntil proven dangerous,and public health measures came only after tragedy struck. 85 Thissection of our commentsrespondsto item 1 on page 9 (limitations that may inhibit the Secretary’ ability to certify the safety of imported drugs). s 86 61 Fed. Reg. 20104,20105 (May 3,1996). 87 SeeDraft Guidancefor Industry: PAT - A Framework for Innovative PharmaceuticalManufacturing and Quality Assurance(August 2003); see alsa Guideline on GeneralPrinciples of ProcessValidation (May 1987). 33


is under control and thereforewill consistently produce a drug product that meets designatedspecifications. The GMP regulationsimpose strict controls on every aspect of the manufacturingprocess,including: (1) the qualifications and responsibilities of employeesand consultants;(2) the design and maintenanceof manufacturingfacilities; (3) the design, construction, cleaning, and maintenanceof manufacturing equipment; (4) the receipt, storage,testing, and acceptance pharmaceuticalraw materials and of components,including containersand closure systems;(5) the manufacturing process itself, including reprocessing procedures;(6) the packagingand labeling of finished drug products; (7) the storageand distribution of final products; (8) required laboratory testing procedures;and (9) recordkeepingrequirements.88 Failure to satisfy any of theseGMP requirementsrendersthe affected drug product “adulterated”and thus illegal in the United States- even if testing fails to reveal any obvious deficienciesin the product.89 The GMP requirementof the FDCA - which is part of the approval processand;continuesto apply when a drug is marketed- embodiesthe theory that a product’ integrity can be assuredonly if the processby which it is manufactured, s packaged,labeled, stored, and shipped is fully under control and capableof audit at any time by FDA. Importation - which would permit an unapproveddrug to enter the medicine supply upon end-producttesting (not even necessarilyof the drug, perhaps merely of a sampling from eachlot) at the point of entry - flips this theory on its end. As the GMP regulationssuggest,end-producttesting is inherently limited and cannot be relied upon to ensurethe quality and safety of drug products. Many endproduct tests have limited sensitivity and may fail to detect substances, such as impurities
88 89

See21 C.F.R. Part 211. 21 U.S.C. (5351(a)(2)(B). 34

or degradants, are presentin a drug product at low levels.go If thesesubstances that are dangerousat low levels or have an adverseeffect on product quality (e.g., they accelerate degradationof active ingredient), the end-stagetesting will fail to reveal that the drug product may be unsafe,unstable,or ineffective. In essence, such testing would yield an unacceptablyhigh rate of “false negatives,”i.e., finding no quality or safety problems when such problems actually exist. Also, drug products often are extremely complex, and end-producttesting does not reveal all variations that may affect safety and effectiveness. Even seemingly minor changesin manufacturingprocessor storageconditions may introduce variations in the product, such as new impurities, that cannot be predicted or easily tested. These variations can have a significant impact on safety and effectiveness. For example, testing might be conductedto demonstratethat a drug product contains the proper strengthof a specific active ingredient; however, such testing would not detect other variations in the product causedby manufacturing changes,such as increasedpill hardnessor :contaminationwith cleaning chemicals,that could have a significant impact on safety and effectiveness. While dissolution and impurity testing might be addedto the battery of tests conductedon the drug product, such testing still would not detect meaningful variations in the drug product, such as new or different impurities or changes in the drug’ stability profile. Becauseof the complexity of drug products, end-product s testing simply cannot measureall of the possible variations that could affect safety and effectiveness.


SeeGuideline on GeneralPrinciples of ProcessValidation, supra note 87, at 3. 35

Becauseof thesesignificant limitations, FDA does not rely upon terminal testing alone to assurethe safety and quality of drug products. Instead,through the GMP regulations$nd guidancedocuments,which implement the GMP requirementin the FDCA, FDA seeksto minimize the variability in the manufacturingprocessitself. Safety and quality cannot be inspectedor tested“into” a drug product; they must be built into the productthrough rigorous approval requirementsand strict controls over the conditions under which drugs are manufacturedand distributed.


There are technological and practical impediments to the use of end-product testing to assure the authenticity, safety, and quality of imported prescription drugs.

End-producttesting is inadequateto assurethe authenticity of imported drugs. While random sampling and inspection may be helpful in the manufacturing context, it will never be sufficient to detect counterfeit drugs entering the U.S. from abroad. This is because“counterfeits can easily be commingled with authentic product, either by the case,by the bottle, or by the pi11.“91Therefore,as FDA concludes,“[n]o random sampling plan will be able to detect and protect againstsuch criminal conduct since the threat does not dependupon the nature of the reimportedproduct, but upon the integrity of those handling it.y7g2 follows that, in order to identify counterfeit imports, It an inspection and testing program would needto authenticateall-drug products offered for importa&on. This would be cumbersomeand prohibitively expensive. Large shipmentsTould need to be removed from shipping containersand broken down into individual units, and each individual unit would needto be inspectedor analyzed

Letter from Lester M. Crawford, D.V.M., Ph.D., Deputy Commissionerof FDA, to the Honorable Thad Cochran (July 17,2002).
Id. 36


separatelybefore being repackaged, Not surprisingly, therefore,in its final report detailing new strategiesfor keeping counterfeit drug products out of the U.S. drug supply, FDA did not cite end-producttesting as a sufficient, or even significant, weapon in the fight against counterfeiting.g3 Even if a 100 percent inspection program (whether visual inspection or chemical testing) were economically feasible, it would not be sufficient to ensurethe authenticity of imported products. Visual inspection of drug packaging and labeling, for example, is not a workable meansof identifying counterfeits. Drug packagingand labeling - and the overt counterfeit-resistantfeaturesincorporatedtherein (color-shifting inks, for example, and holograms)- are too varied and numerousto permit real-time verification,of drug products. It is not realistic to expect inspectors(let alone pharmacies and patients) to be familiar with the wide variety of overt featuresused on the thousands of different drug products likely to be imported. This problem will be exacerbated the by need to rotate overt featureson a regular basis to stay one step aheadof counterfeiters. Further, ev& counterfeit-resistanttechnologiescan be themselvescounterfeited,often within 18 to)24 months.g4Finally, visual inspection is of little or no value when a drug product has,beenrepackaged.Repackagingremovesor destroysa drug’ original s packaging and labeling, as well as any counterfeit-resistanttechnologiesincorporatedby the manufacturer. Virtually all drugs that are imported will have been repackagedto


Combating Counterfeit Drugs: A Report of the Food and Drug Administration, at 04.html (February 18,2004) (“Final Counterfeit Report”). 94 In one situation, counterfeitersreplicated the Pfizer logo, blister card, foil backing on the pill pack, and hologram of Pfizer’ product. In anothersituation, counterfeiters s offered a purported Lilly product over the internet even though the drug had not yet been approvedin the United Statesor anywhereelse in the world. 37

substitute U.S. packagingand labeling for foreign packagingand labeling. A visual inspection after repackagingwould be pointless. Visual inspectionsthereforecan not ,be expectedto reliably detect counterfeit products destinedfor import. Examinations of products for covert features,and chemical analysis of products, are more accurateways to authenticateimported drug products, but they too have limitations. First, they do not allow real-time verification of a drug’ authenticity. s Authentication by meansof covert featuresand chemical taggantstypically requires specializediequipmentand testing methods. Thesetests often cannotbe performed onsite. Tests for taggants,in particular, may take severaldays to conclude. Second,as noted above, random sampling methodscannot be used to eliminate the presenceof counterfeit drugs; chemical analysiswould thereforeneedto be performed on every drug product offered for importation. This would be prohibitively expensive. It would also be counterproductive,becauseit likely would destroy the very products being tested. Further, covert features,chemical taggants,and authenticationtesting methods are - for good reason- secretsclosely held by the manufacturers. Authenticity testing would need to be performed by the manufacturer,or by a third party to whom the manufacturerhas disclosedthis sensitive information. While there are significant legal impedimentsto requiring such disclosure,there are also practical ones: sensitive information could fall into the wrong hands. Finally, not every drug product includes chemical taggantsand covert features. As to thesedrugs, no laboratory test would verify authenticity. Safety testing of imported pharmaceuticalssuffers from many of the same limitations as does authenticity testing, and it has some additional limitations. Visual inspectionsfor safety issues,for example,would be even less effective at identifying


safety problems than at identifying counterfeits. Most safety problems leave no visual clues. Visual inspection would not detect dangerousimpurities in a drug product, stability problems causedby improper storageconditions, or degradationof the active ingredient, to give a few examples. It is likely to reveal only the most obvious safety problems, such as openedor water-damaged products. Chemical testing for safety issues has significant limitations becauseof the complexity of many drug products and the lack of sensitivity of many tests. Just as in the manufacturingcontext, end-producttesting in the importation context cannot measureall of the possiblevariations in a product that could affect its safety and effectiveness. Moreover, this testing would be extremely expensiveand, like authenticity testing, would in many casesrequire the manufacturerto divulge trade secrets. 3. Counterfeit-resistant technology available today cannot, by itself, prevent the distribution of counterfeit products imported from foreign nations.95


Although a number of counterfeit-resistant technologies are available today to de’ and deter counterfeiting tect these teclmologies are inherently limited.

Counterfeit-resistanttechnologiesavailable to detect and deter counterfeiting include overt and covert featuresincorporatedinto the packagingand/or labeling of a product, as well as chemical taggantsincorporatedinto the drug product. Overt featuresinclude holographic images,special stickers, inks of gradatedcolors, and threadsin the container label, all of which can be used to verify that a container is authentic. Covert featuresinclude special inks, threads,and materials that are known


Thissection of our commentsrespondsto items 3 and 4 on page 9 (whether anticounterfeiting technologiescould improve the safety of products in the domestic market as well as products that may be imported). 39

only to the ~manufacturer require special equipment, example, a UV light source) and (for to identify.. Covert featuresalso include small amountsof a chemical taggant incorporatedinto the pharmaceuticalpreparation. Chemicalscan be part of the bulk formulation of the active ingredient or can be incorporatedinto the gel capsuleor film coating of the pill. A company can also use the known analytical composition of the formulation for authenticationpurposes. For example,defmed impurity profiles and/or amountsof different inactive ingredientsas well as dissolution patternscan be tested to determinea drug’ authenticity. Thesetechnologiesare all limited, however, as s explained in the paragraphsthat follow. First, thesetechnologiesare merely resistantto counterfeiting; they are not counterfeit-proof. Experts believe that counterfeit-resistantfeaturesmust be changed regularly, as counterfeiterswill reliably duplicate them.g6The experienceof the Bureau of Printing and Engraving, with respectto U.S. currency, demonstrates point. The the U.S. governmentusesa number of different counterfeit-resistanttechnologiesin its bank notes, including color-shifting inks, embeddedthreads,and micro-printing. At the same time, in order to stay aheadof counterfeiters,the governmentredesignsthe notes and, specifically; the counterfeit-resistantfeatures,every sevento ten years. Despite this, new U.S. currency is counterfeitedquickly. The governmentrecently introduced the third new $20 bill in ten years- completewith a watermark image engrainedinto the paper, an embeddedvertical plastic strip, and color-shifting ink (the appearance which changes of in hue from copper to green as the bill is tilted) - and three weeks later, the pressreported


FDA Counterfeit Drug Task Force, Interim Report, U.S. Departmentof Health and Human Services,Food and Drug Administration (October 2003), at 17. 40

that “a bunch of computer-generated phonies have turned up.9997 According to an October 2003 CNN*report, counterfeit bills were found in and aroundBrockton, Massachusetts, and Elkhart, Indiana.98 Moreover, as technology improves, counterfeiting gets easier. According to a report to Congresspreparedby the Secretaryof the Treasury, “the Secret Service suspectsthat the counterfeiting of U.S. currency may becomeprogressively easieras the generally available technology improves and the cost of computer equipment (including printers and scanners)decreases.” For example, “[e]ounterfeiting with laser color ” printers is likely to increasewith the affordability of the printers. Similarly, the growing use of the Internet is expectedto aid counterfeiting.“loo “Once a currency note is scanned and the resulting electronic image is enhanced,” report explains, “the image can be the transmitted:electronically,including over the Internet, and printed in batchesof any size by individuals who would be unable to make the image themselves.‘ Criminals who Y1o1 counterfeit labeling and packagingfor prescription medicinesrely on similar computer and laser print technology. Second,as explainedearlier, counterfeit-resistanttechnologiesdo not provide real time verification of a drug’ authenticity. Covert featureswill require offs site testing and time. It is not realistic to expect Customs inspectors,distributors, pharmacistsiand patients to be familiar with the wide variety of overt featuresused on
97 98

“New $20 Not So Counterfeit-Proof,”MSNBC Report (October 30,2003). “Bogus Bills: Counterfeit New $20 Bills Starting to Appear,” CNN Daybreak (October 31,2003). 99 Report to the Congressby the Secretaryof the Treasury, “The Use and Counterfeiting of United StatesCurrency Abroad, Part 2” (March 2003). loo Id.



the thousandof drug products avai1able.i” Furthermore,unlessevery foreign country simultaneouslyapprovedthe use of identical overt and covert counterfeit-resistant features- which is unlikely - some imported drugs will always be unprotected.1o3 Third, as explained earlier, counterfeit-resistanttechnologiesare rendered uselessif a .drugproduct is repackaged. Repackagingis common in the industry and becauseforeign versions of drugs approvedin the United Stateswill have foreign packaging and labeling - may be an inevitable part of a drug importation scheme.lo4The practice is subject to only minimal oversight, and it has been implicated in recent counterfeiting incidents, including one that led to a recall of 200,000bottles of counterfeit Lipitor in early 2003.105 Fourth, effective counterfeit-resistanttechnology would be prohibitively expensive. ‘ Estimatesfrom FDA and the Congressional‘ Budgetoffice (CBO) suggesta counterfeit-resistanttechnology mandatecould substantially increasethe cost of any importation:scheme. For example, after initial discussionswith the Bureau of Printing It is not clear whether it would be appropriateor feasible to establisha centralized electronic database solve this problem. Since using such a database to would be time consuming,.pharmacists probably would not use it on a routine basis for authentication purposes. I& addition, it is not clear who would maintain this database, have accessto it, or updateit., Becausecounterfeit-resistantfeatureswill needto be changedregularly, the database would need multiple entries for the samepackage,significantly complicating efforts to authenticateparticular drug products. If the database were publicly available, counterfeiterswould have easy accessto all of the measurescurrently being used. A centralizeddatabase could thus serve as a more valuable resourcefor counterfeitersthan for pharmacistsand patients. 103 If some foreign regulatory authorities required counterfeit-resistantpackaging for their domestic markets to deviate, even in some minor way, from the packaging approved by FDA, the number of legitimate counterfeit-resistantpresentationswould exponentially increase,leading to even more pharmacistand consumerconfusion. 104 Both the Grassleybill (S. 2307) and the Dorgan bill (S. 2328) contemplatethe importation of unapprovedforeign versions of U.S.-approveddrugs. 105 SeeDavid Schwab,“Clamping Down on Counterfeits- Fed Report to Outline Ways to Control Fake Medicines,” The Star-Ledger (September25,2003). 42

and Engraving, FDA estimatedthe counterfeit-resistanttechnology mandatein the PharmaceuticalMarket Access Act of 2003 (H.R. 2427) could “raise the cost of prescription drugs by as much as $2 billion in the first year.“r06 In a cost estimateof the samebill, CBO statedthat the cost of the provision mandatingthe use of anticounterfeitmg technology would be “signif”rcant.“1o7 According to CBO, “the cost of this requirementto the affected entities would exceedthe annual threshold specified in UMRA [Unfunded MandatesReform Act] ($120 million in 2003, adjustedannually for inflation) in each of the first five yearsfor which the mandatewould be effective.““’ Further, “the requirementsfor counterfeit-resistantpackagingwould increasethe cost of producing prescription drugs, and some or all of those costs would be passedthrough to the consumer.“1o9 The high cost of counterfeit-resistanttechnologiescould ultimately underminethe very purposeof any foreign drug importation scheme. In its analysis comparing the prescription drug importation provisions of H.R. 2427, the Medicare reform bills (H.R. 1 and S.l as they enteredconference),and prior importation law (with the MEDS Act not implemented),the CongressionalResearchService (CRS) noted that the pharmaceuticalindustry would face the cost of the development,manufacture,and ongoing mgntenance of the packagingtechnologiesto deter tamper and counterfeiting. According to CRS, the “U.S. consumerwill likely end up bearing a significant portion of

Letter from FDA CommissionerMark McClellan, M.D., Ph.D. to Chairman W.J. “Billy” Tauzin (July l&2003). 107 CBO, Cost Estimate, H.R. 2427, The PharmaceuticalMarket Access Act of 2003 (November 19,2003).
108 109


Id. Id. 43

all of thesecosts through taxes and increasedprices.“r’ The Secretary’ evaluation of * s the supposedcost-savingsassociated with importation must take this cost into account. W Unit-of-use packaging will not eliminate the counterfeiting problem.

Although some have suggested pharmaceuticalmanufacturersadopt that “unit-of-us@’ packaging to addressthe counterfeiting problem, there are legal, economic and practical impedimentsto its widespreadadoption in the United States,and in any event it can still be counterfeited. Unit-of-use packagingis %ny container closure system designedto hold a specific quantity of drug product for a specific use and dispensedto a patient without any modification [by the pharmacist] except for the addition of appropriatelabeling.“l’ 4 l “unit of use:’ be packagedin bottles (for example, a 30-pill bottle, sold to and sold by can the pharmacistas such, with nothing more than the addition of appropriatelabeling) or in blister packaging (for example, a blister card of seven days worth of a particular product). Most non-solid oral dosagepharmaceuticalproducts (e.g., ophthalmic drops, nasal sprays,inhalers, creams,and ointments) are packagedin unit of use, but very few solid oral dosage,forms(e.g., tablets and capsules)are packagedin this format. Increaseduse of unit-of-use packagingcould help combat counterfeiting by reducing (but not eliminating) repackaging,thereby ensuring that counterfeit-resistant technologiesemployed by the original manufacturerremain intact throughout the

CRS, CRS Report for Congress,“Importing Prescription Drugs - Comparisonof the Drug Import Provisions in the Medicare Reform Bibs, H.R. 2427, and Current Law” (October 8,>003). 111 Final Counterfeit Report, supranote 93, at 4. 44


distribution chain all the way to the patient. There are, however, significant impediments to widespreadadoption of unit-of-use packaging. First, even with a generalmove to unit-of-use packaging, companiesmay needto continue producing a variety of packagesizes. Decisions on packagingformat are typically driven by market demandand vary from product to product. The dispensing system in the United Statesis heterogeneous, with over 80,000 dispensingsites including chain and independentpharmacies,hospital pharmacies,managedcare organizations, mail order pharmacies,clinics, and doctor’ offices. Each of thesecustomersmay have a s different preferencedependingon its dispensingpractice. While many pharmacieshave adjustedinventory control proceduresand moved to “just in time” inventory (where inventory is restockedautomatically basedon salesand $herefore more marketresponsive),this may not be universal practice. Where it is not the practice, of course,a pharmacymay need to have a variety of packagesizes on hand. A proliferation of unit-of-use packagingpresentationsmight also be requiredby virtue of the product’ dosing regimen and safety profile. For pills where the s dosageregimen is one pill a day, it is economicalto design blister packs that will hold the requisite amount. For dosing regimensof two or more per day, small bottles are a more economicalpackaging unit. Further, any move to unit-of-use packaging must accommodatte medicineswhere there may be various dosing regimens. It is common for anti-infectives to have variable dosing regimens(e.g., 7,10,14, or 21 days; in the caseof some oral ar@fungals, or two pills could constitute a full dosing regimen). A one proliferation of unit-of-use packagingoptions for each drug could take up considerable


pharmacy shelf spaceand causeconfusion in filling prescriptionswhen the appropriate packageun# is not available. 1 Second,the ConsumerProductsSafety Commission (CPSC) regulations implementmg the Poison PreventionPackagingAct (PPPA)ri2 createa disincentive for manufacturersto use unit-of-use packaging. Current regulationsrequire testing of packaging formats. In the caseof a cap or vial closure system, CPSC regulationsdefine a clear pass/fail standard- “test failure” occurs if a child removesthe cap. (Packagingis deemedchild-resistant if there are no test failures in a certain percentageof tests.) In the caseof unit-of-use packaging, CPSC regulationsestablisha subjective standard- a test failure occurs if a child “opens or gains accessto the number of individual units which constitute the amount that may produce seriouspersonalinjury or serious illness.y7113 Therefore,before adopting unit-of-use packaging, a sponsormust determinethe amount that may causea somewhatvaguely defined “serious personalinjury or serious illness” in a child, submit toxicological data to CPSC, wait for CPSC confirmation of its conclusion as to the number of units the opening of which would constitute failure, and then test the package. If the packagefails, the investment of time and money cannot be recovered. This discouragesuse of unit-of-use packaging. It is unclear under current law whether the CPSC will permit “type testing”for unit dose formats (a practice whereby a package type that has successfullypassedprotocol testing may be used for other products without

112 113

15 U.S.C. 8 1471 et seq. 16 C.F.R. Cs 1700.2O(a)(2)(ii). 46

additional testing), and the lack of clarity compoundsthe disincentive to adopt this method of packaging.‘ Many manufacturersthereforeopt for bottles. 14 In any event, from a technological standpoint,unit-of-use packaging is not difficult to counterfeit. For instance,while unit of use packaging is generally prevalent in Europe, as explained below (page 66), a number of pharmaceuticalcompanieshave discovered,counterfeitpackaging in ED member states. Indeed, in its final report on counterfeiting, FDA recognizedthat unit-of-use packaging“does not createa sufficiently high level of security to justify its use as a stand-aloneanti-counterfeiting measure.“‘ rs 4 Tamper-evident packaging will not defeat counterfeiters.

Nor will tamper-evidentpackagingprovide the magic bullet to defeat counterfeiters. To be sure, tamper-evidentpackagingmay provide some marginal protection against counterfeit drugs. Examples of tamper-evidentpackaginginclude: film wrappers,blister packaging,heat shrink bandsor wrappers,bottle mouth inner seals, tape seals,Qreakable caps, and sealedtubes. Over-the-counter(OTC) mediciaes have been required to have tamper-evidentpackagingfor a number of years, and many prescription drugs incorporatesimilar features. Like u&-of-use packaging,however,

The Healthcare CompliancePackagingCouncil (HCPC) filed a petition with the CPSC in March 2003 requestingthat the Commission permit type-testingof unit dose formats. In “May, the Commission declined to docket the petition on the grounds that “current CPSC regulationsimplementing the PPPA do not restrict a company from relying on Child resistanttest data generatedby the packagemanufactureror from testing of similar packagesfor a different substance.”Letter from StephenLumberg, Assistant GeneralCounsel, CPSC, to Peter G. Mayberry, Executive Director, HCPC (May 27, 2003). Nots&hstanding this helpful clarification, there is still considerableuncertainty about the use of type testing. The establishmentof performanceand design standardsfor example through an establishedstandardsorganization- would facilitate type testing and reducethis hurdle to unit-of-use packaging. 11s Finaf Counterfeit Report, supra note 93 at 4. 47


tamper-evidentpackagingis not difficult to counterfeit. And like overt counterfeitresistantfeatures,tamper-evidentpackaging is rendereduselessby repackaging. Tamperevident packagingis therefore only moderatelyuseful as an anti-counterfeiting technologyY FDA has thus concludedthat it should not be used as a “stand alone” and anti-counterfeiting technology.l16 4. A closed distribution system featuring electronic Yrack and trace” technology, though essential to the fight against counterfeiting and diversion, will not be ready for deployment for several more years.ll’

A closed distribution system is the best way to assurethe integrity of the U.S. pharmaceuticalsupply. As discussedabove, a closed system is one where product is shipped directly from the manufacturerto the distributor and then on to the pharmacy and finally, the patient. Each businesstransactionin the supply chain is recordedand a pedigree,ultimately tracing each lot back to the manufacturer,is maintained. Ideally, this pedigreewould be generatedand maintainedelectronically in order to permit the authenticationof drug products in real time at any point in the distribution system. An electronic “track and trace”system - which can track drug products in real time throughout the distribution system from manufacturerto patient and provide an electronic pedigreevouching for the authenticity of distributed drug products - is critical to a truly closed distribution system.r”

Final Counterfeit Report, supranote 93 at 5. 117 This section of our commentsrespondsto item 3 on page 9 (whether anticounterfeiting technologiescould improve the safety of products in the domestic market as well as prcducts that may be imported). 118 Simply coding packaging at the pallet or caselevel, as some have suggested, will not fully assureauthenticity down to the individual packagingunit. In fact, it may lead to a false senseof security as countlessindividual packagia;g units coming from different 48


Constructing a national electronic pedigreesystem, however, is a daunting task that will take considerabletime and resources. Before such a system can be implement&d,complex technological,legal, regulatory, and fmancial issuesneedto be resolvedby and among FDA and all interestedstakeholdersthroughout the distribution chain, including manufacturers,primary wholesalers,secondarywholesalers,hospitals, and pharmacies. Stakeholdershave not yet agreed,for example, on the optimal technology for track and trace. Bar code technology has been employedfor a munber of years to control inventory and for product identification. Within the UCC/EAN standardssystem there is a Global Individual Asset Identifier that incorporatesserialized identification of individual packageunits. This lends itself to automatedtrack and trace. Unfortunately, bar codes require packagingto be actively scanned,and at some distribution levels this could be prohibitively labor intensive. BecauseRadio FrequencyIdentification (RFID) chips emit a signal permitting passivereading, this may be more suited to an automated system. Rl?ID is not yet, however, a fully-validated technology. As the technology becomesmore robust, it may be the better substitutefor printed bar codes. Even after a technology has been selectedand validated, there remain significant hurdles to implementing a national track-and-tracesystem. Decisions must be made about construction, management,and ownership of the database databases or used to maintain jandupdatethe code on each drug, as it passesthrough the distribution chain. It is not clear, for example,whether there will be one centralized database many or manufacturer-specificdatabases.Ownership of the data and accessto the data need to be casesin the same lot or different lots are bundled together and shipped. At this point, the ability to track and trace is lost. 49

resolved. @ Ithe caseof multiple databases there will have to be a centralized routing system so that information on eachproduct will get to the appropriatemanufacturer’ s database.Also, eachpackagingunit must be labeled with a unique serial identification (whether a;bar code or RFID). Each manufacturerwould have to have its own assigned list of numberswith a leading prefix to assurethat there are no duplicate numberswithin the overall system. The National Drug Code (NDC) number is suitable to this task as it identifies both the product and the manufacturer. The remainderof the data field can be used for the serial number. Since each transactionwill have to be registered,all distributors, pharmacies,and other dispensingsites will, needequipmentto read the serialized information. Manufacturerpackaginglines will have to be modified to print serializedbar codes or incorporateRF‘ chips. ID The full cost of constructing,validating, and implementing a track-andtrace system is unknown, but it will likely take at least five years to select a technology, validate it, resolve theselegal and practical issues,and construct a system. 5. Foreign health agenciesare neither willing nor able to ensure the safety of drugs exported fmm their countries to the United States.ll


The Canadian government is neither willing nor able to ensure the safety of drugs exported from Canada to tie United States,

Although some proponentsof drug importation arguethat importation would be safe if limited to drugs imported from Canada,the Canadiangovernmentis neither willing nor able to ensurethe safety of drugs exporte from Canadato the United

Thissection of our commentsrespondsto item 6 on page 9 (the extent to which foreign health agenciesare willing and able to ensurethe safety of drugs being exported from their countries to the United States). 50


States. Under Canadianlaw, drug products that are not manufacturedfor consumptionin Canadaor sold for consumptionin Canada- and drugs that were, but have since been repackagedand relabeled- fall outside the scopeof the CanadianFood and Drugs Act, provided they are labeled for “export” and bear an export certificate. With evidence mounting of transshipmentof pharmaceuticalsthrough Canadato American customers, the Canadiangovernmenthas statedthat it will not guaranteethe safety and effectiveness of drugs exported from Canadato the United States. Health Canada’ TherapeuticProductsDirectorate regulatesmedicinal s products under the Food and Drugs Act and its implementing regulations. The scheme generally prohibits the sale of any drug product unlessthe transactionfalls within a listed exception. ‘ example,one exception permits sale if - (1) the drug is the subject of a For Notice of Compliance (NOC) issuedby the relevant Minister, and (2) the patient presents a valid prescription to a pharmacist.120 addition to imposing a premarketapproval In requirement,Canadianlaw prohibits the fabrication, packaging,labeling, distribution, import, and:wholesaleof a drug except in accordance with an “establishmentZicense.“121 Further, all drug establishmentsinvolved in theseactivities must comply with Canadian Finally, the Health Productsand Food Branch Inspectorateregularly GMP regulations.122 inspectsall establishmentlicense applicantsand holders for compliancewith GMP

An NOC issuesafter the sponsorsubmits a New Drug Submission(NDS), which is the Canadianequivalent of an NDA. An NOC is issuedpursuantto Regulation C.OS.O04(l)i(a). 121 Regulation C.OlA.004. 122 Regulation C.02.003. 51


regulations,and it has considerableenforcementauthority over establishmentlicense holders for:violations of the Act and regulations.123 Health Canadaregulationsstate that “no personshall import into Canada for sale a food or drug the sale of which in Canadawould constitute a violation of the#Act or theseRegulations.“124 agency interprets this to require that all imported products The comply with all requirementsof the Act, whether or not intendedfor re-export.125 The Act neither expresslypermits nor expresslyprohibits the export of drug products that have been imported, manufactured,or sold for the Canadianmarket. Nor is there an exception from the generalNOC requirementfor exportedproducts. Notwithstanding the preceding,Section 37 of the Act provides that the Act as a whole does not apnlv to products for export, if the exporter notifies the Health Products and Food Branch Inspectorateand signs an export certificate, indicating that (1) the drug products are labeled for export, (2) the drug products were not manufactured for consumptionin Canadaand are not sold for consumptionin Canada,and (3) the drug products do+ contraveneany known requirementof law in the country to which they not are being shipped. Section 37 thus seemsto significantly limit the power of the Canadian governmentto regulateproducts purchasedin a third country and transshippedthrough Canadafor sale to Americans even if it wanted to regulatesuch products. According to this provision, a party who manufactures,packages,distributes, or exports theseproducts need not obtain Canadianmarketing approval, need not comply with Canada’ s See,e.g., www.hc-sc-gc.ea/bpfb-dgpsa/inspectorate/pol-001 l-tc-e.html (inspection policy). 124 Regulation A.01.040. 125 imuort e.html (importation and exportation policy). 52

establishmentlicensing requirements,need not comply with Canadiangood manufacturingpractice requirements,and is not subject to the Canadiangovernment’ s inspection or enforcementauthority. Further, if a Canadianentity obtains a product intendedfor the Canadian market, and repackages relabels)it for the American market, intending to sell the (or product to Americans rather than Canadians,it may invoke the sameexemption. Health Canadahas taken the position that the safety and quality of products exported from Canadaare!mattersfor the drug regulator in the destinationcountry.126In Health Canada’ view, theseproducts fall outside its mandateand its jurisdiction. Again, then, if s the exporter identifies the product as intended for export, signs an export certificate, and notifies the Inspectorate,its activities will fall outside Health Canada’jurisdiotion. s In recent years, there has been an explosion in pharmaceutical transshipmentthrough Canada. According to FDA, while 80 percent of the parcels in its secondseriesof blitz exams (discussedabove,page 11) were exportedfrom Canada,not all of theseproducts originated in Canada. Some had been imported into Canadaand then exported into the United States. For example, FDA Commissioner(now CMS Administrator) McClellan noted that “at the Dallas, Seattle, and Buffalo mail facilities, imported drugs were encountered which were manufacturedin Canada,Mexico, Costa Rica, India, Sakistan, New Zealand,Taiwan, Thailand, and a host of other countries. However, in some cases,the drugs that had obviously been manufacturedin other countries were exported from Canada.“127 testimony last year, FDA’ Associate In s Commissionerfor Policy and Planning, William Hubbard, gave an additional example.
126 127

“Taking Responsibility for Drug Safety,” The Washington Post (May 21,2003). SeeFDA PressRelease,January27,2004.

He describedan 82-year-old man who bought two drugs from a web site basedin Arizona that offers to sell Canadiandrugs. The patient instead received drugs “made in India.” Agording to Hubbard, “this gentlemanapparentlyhad prostateenlargementand epilepsy, but what he receivedwas a Tupperwarecontainer,and in that Tupperware container..i were drugs for prostateenlargementwith no labeling, no warnings or anything and the drug for epilepsy. But the really unique thing about this story is that it had a funny return addresson it - India. And in fact, it says on the package,made in India. He was told on that web site and when he made the phone call that he was getting a U.S. produceddrug, sold in Canada,and sold back to him. He got Indian drugs that are not approved,have no labeling, no information and he called the FDA and was outraged why are we letting this stuff in.“12s Data from Industry Canada,a departmentof the CanadianFederal government,corroboratethe evidenceof transshipmentfound by FDA. According to Industry Canadadata, between September2002 and September2003, there was a significant increasein Canadianimports of pharmaceuticalsfrom countries such as Singapore,Ecuador, China, Argentina, South Africa, and Thailand, to name a few.12’ The Industry Canadadata are presentedin the table that follows. The majority of these countries have documentedcounterfeiting problems, and none has a Mutual Recognition Agreement (MRA) with Canadaon good manufacturingpractices (GMP) for prescription medicines. According to a recent report by Prudential Financial, which relied on the Industry Canadadata, Internet drug sellers appearto be increasingly obtaining their Testimony of William K. Hubbard, Senior Assodate Commissionerfor Policy, Planning and Legislation, U.S. Food and Drug Administration, before the House GovernmentReform Subcommitteeon Human Rights and Wellness (June 12, ‘ 2003). 129 Industry Canada,Trade Data Online, at>. 54

product (for shipment into the U.S.) from countries such as Bulgaria, Singapore, Argentina, South Africa, and Pakistan.13o

Source:Industry Canada, Trade Data Online,>(20 November2003)

With proponentsof importation pointing to Canadianexports as the solution, and with evidenceof transshipmentmounting, the Assistant Deputy Minister of Health Canadarecently wrote to the Washington Post to state her government’ position s on the safety and quality of products exported from, or through, Canadato the United States.‘ She explained that Health Canadacould not guaranteethe safety and “’ effectivenessof drugs exported to the United Statesand noted that the Canadian governmenthad not agreedto assumeany responsibility for the safety of these drugs. Importing countries, alone, are responsiblefor ensuringthe quality, safety, and effectivenessof drugs intendedfor their markets. In short, therefore,the Canadiangovernmentis neither willing nor able to ensurethe safety of the rapidly increasingnumber of pharmaceuticalsexported from, and Diane Duston and Tim Anderson, “Importation of Drugs into the U.S. Appears Difficult to Stop - Puts Low Pressureon EPS,”Prudential Financial Equity Research (October 8,2003). 131 “Taking Responsibility for Drug Safety,”The W;Zshington Post (May 21,2003). 55

through, Canadato patients in the United States. Although the new section 804 is limited on its face to drugs imported from Canada,Canada’ failure to prohibit transshipment s through its ‘ borders- and its refusal to regulatethose products- meansthat, in fact, section 804 permits importation of drugs from anywherein the world. There is no assurance theseproducts will be safe, effective, or - indeed- even what they purport that to be.


Other developed countries also do not apply the same strict regulatory standards to products shipped through their borders to the United States as to products intended for their own citizens.

Although section 804 of the FDCA nominally limits importation to drugs from Canada,its predecessor MEDS Act) permitted importation from the countries (the listed in section 802@)(1)(A).132Severalpending importation bills would permit importation from more countries than just Canada.133 this reason,and because- as For

When the MEDS Act was enacted,these countrieswere: Australia, Austria, Belgium, Canada,Denmark, Finland, France,Germany, Greece,Iceland, Ireland, Israel, Italy, Japan,Liechtenstein,Luxembourg, the Netherlands,New Zealand,Norway, Portugal, South Africa, Spain, Sweden,Switzerland, and the United Kingdom. When section 802@)(1)(A) was enacted,thesecountries were deemed- though not without controversy. to have sophisticateddrug approval systems“comparableto” that of FDA. See,e.g., Sen. Rep. 99-225 at 2 (“Under the bill, drugs coveredby the amendments may only be exportedto certain countries and under certain conditions. The drugs may be shippedto three categoriesor tiers of countries . . . [including] [dleveloped countries with sophisticateddrug approval systemscomparableto that of the Food and Drug Administration.“) Rather than listing the countries in the EuropeanUnion by name, however, section 802@)(l)(A) refers to “the EuropeanUnion or a country in the EuropeanEconomic Area.” On May 1,2004, the EU expandedto include the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. 133 S. 2307 (Grassley)would permit importation from Canadaand then, two years later, from Australia, the EuropeanUnion (EU) and EuropeanEconomic Area (EEA) countries, Japan,and New Zealand (i.e., unlike the MEDS Act, not Israel, Switzerland, or South Africa). The EEA includes, in addition to the EU member states,Norway, Iceland, and Liechtenstein. S. 2328 (Dorgan) would permit importation from Canada,Xinitially, 56


explained in the prior section - the limitation in section 804 is illusory, the Task Force must considerwhether a broader rangeof countries regulateexported and transshipped products as rigorously as they do products intendedfor their domestic markets. The 25 countries listed in footnote 132 generally require that pharmaceuticalproducts intendedfor domestic distribution be pre-authorizedfor marketing. They typically also require manufacturersto hold manufacturer’ s authorizationsand distributors to hold distributor authorizations. They impose some version of “good manufacturingpractices,”although GMP requirementsvary from country to country, and they often impose “‘ good distribution practice”(GDP) requirementson distributors. Some require import licenses,some require export licenses, and most inspect manufacturersand sometimesalso importers and exporters. Products intendedsolely for export, however, are usually subject to fewer regulatory requirements and less scrutiny than products intendedfor domestic consumption. Further, like Canada, most of thesecountries do not regulateproducts merely transshippedthrough their bordersfor’ another destination,such as the United States. In nearly every one of these25 countries,pharmaceuticalsimported or manufactureddomestically for a foreign market are @ subject to the samerigorous regulatory requirementsas pharmaceuticalsintendedfor domestic distribution. Most jurisdictions do not apply the full rangeof their laws (marketing authorization,

and then from Australia, Canada,membersof the EU on January1,2003, Japan,New Zealand,and Switzerland (i.e., unlike the MEDS Act, not Switzerland, South Africa, or EA countries). It is unclear whether the restriction to countries that were member of the EU prior to its recent expansionwould be enforceable,in light of the practice of parallel trade within the EU. 57

manufacturer’ license, GMP, distributor’ license, and GDP) to products that are s s imported or manufacturedsolely for export. With one exception (Norway), every country expressly or implicitly excludes some transshippedproducts from its laws. These products, which may be destinedfor the United States,do not have to meet the samestandardsas do products intendedfor domestic use. Some countries (like Canada)explicitly exempt transshipped products from local law. In other countries- Australia, Greece,Iceland, and the United Kingdom, for example-there is an exemption for transshippedproducts if certain conditions are met. For example, in Australia, transshippedproducts are not regulatedif there is no manufacturing in the country, the goods are continuously within the control of a single person, and the goods do not clear customs. In Greece,transshippedproducts are not regulatedif they are not subject to a LCmanufacturing alteration.” Similarly in Iceland, transshipmentis not subject to licensing or oversight unlessproducts are subject to manufacturing. In other countries- like Luxembourg, the Netherlands,and South Africa - the exemption is available provided the products are stored in customswarehouses. (By way of contrast, Switzerland does not regulatetransshippedproducts, but takes the position that products storedin customswarehouseshave been imported and are subject to local law-) In some countries, the standardsfor the transshippedproducts are expressly lower; in Japan,for example,it is lawful to import expired medicine, repackageit as a new product, and export it to a foreign destination. The practice is prohibited only if the Japanese governmentdeemsthe products “decomposed”or otherwise harmful. In short, then, a rule that would permit importation of pharmaceuticals from the EuropeanUnion and other developedcountries like Japanand Australia would


not ensurethe safety of imported products. Nearly every country subjectsexported products to a lower level of regulation than domestic products, none prohibits transshipment,and many exempt transshipped products from their laws. This meansthat the importation of drugs from thesecountries is tantamountto the importation of drugs from anywherein the world. There is no assurance theseproducts are safe, effective, that or - indeed- even what they purport to be. 6. Parallel trade in Europe has raised safety issues,led to consumer confusion, and increased counterfeiting operations.134

Parallel trade in the EU/EEA is different from the importation contemplatedby section 804 or the bills presently pending in Congress. First, the principles governing parallel trade within the EU/EEA are basedon Article 28 of the EuropeanCommunity Treaty, which provides that goods may circulate freely between all This principle sets asideregulatory and intellectual property member states.13’ constraintsthat otherwise would prevent or restrict parallel trade in medicines. Second, Article 28 does not apply to imports from third countries into the EU/EEA and as a practical matter there is little parallel importation of medicinesfrom countries outside the EEA, becauseregulatory and intellectual property considerationsgenerally preclude this. This section of our commentsrespondsgenerally to the questionwhether importation can be done safely, as well as to items 1 and 3 on page 9 (limitations that may inhibit the Secretary’ ability to certify the safety of imported drugs, and whether s anti-counterfeiting technology could improve the safety of products in the domestic market as well as products that may be imported). 135 Article 28 of the EC Treaty prohibits quantitative restrictions on imports and exports and all measureshaving equivalent effect betweenmember states. A direct consequence this principle of free movement is the classic “‘Cassis de Dijon” doctrine of of the EuropeanCourt of Justice that a product lawfully on the market in one member state must be able to circulate freely within the whole of the EU, subject to objectively justifiable exceptions. The sameprinciple is containedin Article 11 of the Agreement on the EuropeanEconomic Area (EEA).

Third, under EU rules, products placed anywhereon the EU/EEA market are the subject of marketing authorizations,basedon harmonizeddata requirements,and they are manufacturedand distributed in accordance with harmonizedrules and standards. Regulatorsand consumersin the importing member state can therefore generally be confident that the rules in the exporting and intermediatemember statesare sufficient to ensurethe safety, quality and efficacy of imported product. None of thesefacts would be true in the United States,if section 804 (or alternative importation legislation) were implemented. Despite thesedifferences,which both obviate some legal impedimentsto importation and moderatethe safety concerns,a number of safety issueshave arisen in the EU due to parallel trade. These issuesshould be a warning to American policymakers consideringthe implementation of section 804 or the enactmentof alternative importation legislation.‘Specifically, EU member stateshave struggledwith (1) safety issuesarising from improper storageand handling, (2) safety issuesarising out of repackagingand rehandling, (3) parallel import of drugs withdrawn from the market, (4) counterfeit drugs, and (5) diversion of drugs from developing countries. First, significant health issuesare associatedwith inappropriatestorageof goods during transit. Parallel imported goods must passthrough the handsof various international trading organizations,and it is not always possible for regulatory authorities to ensuresufficient physical monitoring and sampling of theseproducts. A final The WHO/WTG Workshop Paperdiscussesthis issue.136 report commentsthat “what is Guy Woods, Lacuna ResearchLimited, “Session V - Market Segmentation: techniques,actors, and incentives; GovernmentalMeasures:Role of regulatory authorities” <httn:// e/t&s ekosbior presentations el26woods e.udf>.

not known, especially where parallel imported goods have passedthrough the handsof various international trading organisations,as they most certainly will have done, is how material has been handledwhilst in transit.” It points out that products passthrough “countries having high temperaturesand humidity -where not all warehousesare climate controlled’ and that goods are exchanged“en route to local retail outlets within ” equatorial and tropical climates.” Thus, it adds,“inevitably products will be affected by external environmentalconditions and somewill inevitably reachpatients out of assay.” For some products shipped in this manner,“it is not enoughfor it simply to be dispensed and consumedwithin its expiry date.” The report adds,“while parallel importers may themselvesbe required to comply locally with stringent drug wholesaleregulations,there are many ways to circumvent drug regulations.” For example,“[kleeping goods in transit at the warehouse of a third party freight forwarder or courier” is one techniqueused “to ensurethat material of marginal, or dubious, quality is physically kept well away from the licensed wholesalerand out of reach of the regulatory authorities.” The report explains, “[flrom theseoff site locations dealerscan safely offer samplesto prospectivecustomersand can both neutralise shipmentsand break bulk - all without breaking national medicine control regulations.” The report concludesthat “regulatory authorities can really only tackle this problem by physical monitoring and sampling.” This solution is limited, however; “sampling cannot be done on all products in all locations, all the time: most nations simply do not possessthe border control and chemical analysis resourcesneeded methodically to check incoming consignments.”


Second,parallel trade requiresboth repackagingand re-labeling,which can introduce a variety of safety problems. For example,to ensurethat a product is suitable for the destinationmarket, the parallel trader will needto modify product labeling and packageinserts to ensurethat they conform to the linguistic requirementsin the destination country. There is a risk of generatingerrors during translation of both the product labeling and packageinsert, which in turn may confuse the pharmacistor consumer. Errors in the translation of key information could result in seriousinjury. Further, implanting linguistic changesinevitably requiresrepackagingand relabeling, and hencemanipulation of the product.137 Any manipulation has the potential to result in a deteriorationin quality of the product. Also, parallel tradersoften discard the anticounterfeit measuresthat some packagingnow incorporates. They can also theoretically discard temperaturecontrol printing or devices on packaging. One member state medicines agencyrecently commentedon a safety problem with parallel imports, which it attributed to relabeling. In its report for the years 1998-2002,the German Medicines Agency (BfArM) states: Events worth mentioning in connectionwith parallel trade: 2001-2002: Complaints from consumersand diabetics associations related to reducedactivity of imported insulin preparations; Results of the investigation: insulin content of the checked products,which are to be administeredby meansof a pen, is in order, but possibly the functionality of the pens is affected by inappropriaterelabeling of the vials; In essence products that are centrally approvedin the EU are involved;

Parallel tradershave generally found that the use of (translated)labels affixed to the innovator’ original primary and secondarypackaging makesthe resulting products s unappealingto consumersin the destination country. Tradersthereforestrongly prefer to repackageproducts. 62


Consequence parallel import approval procedure: for directions for proper labeling.13s Parallel tradersmay also need to modify an imported product to conform it to presentationrequirementsin the destination country. For example, it is common practice for tradersto repackagetablets to take into accountnational variations in pack sixes. They may also separateor combine blister packs to meet local requirements,which can result in the break-up or combination of product batches. It has also become common for parallel traders to cut up blister packs, where this is necessaryto comply with local requirements. Not only can this practice result in the separationof product batches,but it has been known to result in the deletion of batch numbers. In the Paranovu case,13’ example, the parallel trader repackaged for medicines in new external packagingwith a uniform appearance in the trader’ own and s style - albeit bearing the innovator’ trademarksand the statementthat the products had s been manufacturedrespectively by “Bristol-Myers Squibb,”“Boehringer Ingelheim,” and “Bayer,” togetherwith the indication “imported and repackaged Pamnova.” Also, in by order to parallel trade the Bayer product Adalat from Greeceto Denmark, Paranova repackagedthe Greek product (originally sold as packagesof three blister packs of 10 tablets) into 10 blister packs of 10 tablets. In order to trade in Vepesid and Vumon, the samecompany removed the vials and ampoulesfrom their surroundingpadding, and attachedto :eacha new self adhesivelabel. The vials and ampouleswere then replacedin the original padding and put in the new external packaging. In the caseof Mycostatin, BfArM report on the activities for the years 1998-2002on page 39 (See: http://www! Bericht BdOP,ndf>). 139 Joined CasesBristol-Myers Squibb v. Paranova A/S (C-427/93), C. H. Boehringer Sohn,Boehringer Ingelheim KG and Boehringer Ingelheim AIS v. Paranova AIS (C429/93), and Bayer Aktiengesellschaftand Bayer Denmark A/S v. Paranova A/S (C436/93), 1996 E.C.R. I-3457. 63

Atrovent, Berodual and Berotec, the importer also coveredthe original labels of the flasks or inhalers with its own labels. In the packagingof Mycostatin, Paranovareplaced the spray in the original packagingfor the inhaler with a spray from a sourceother than Bristol-Myers Squibb. In the &rim-Pharm case,l’ m order to import pharmaceuticalproducts O’

into Germanyfrom France,Portugal, and Spain, the trader repackagedthe products to comply with local Germansizes. In some cases,blister packs were cut into smaller sizes. This occasionally resultedin loss of batch numbers,in which casethe number was reprinted by the trader. Cutting sometimesalso resultedin the loss of days from week indicators on the back of blister packs. The EuropeanCourt of Justice has found that a trademarkowner may opposerepackagingwhen it “involve[es] a risk of the product inside the packagebeing exposedto tampering or to influences affecting its original condition.” In particular, the court consideredthat the condition of the product could be affected if “the external or inner packagingof the repackagedproduct, or a new set of user instructions or information, omits certain important information or gives inaccurateinformation concerningthe nature, composition, effect, use or storageof the product,” or if “the packagingof the repackaged product is not such as to give the product adequate protection.“141In one casein the United Kingdom, Mr. Justice Laddie identified

Joined casesC-71/94, C-72194 and C-73194, Eurim-Pharm Arzneimittel GmbH v Beiersdorf AG, Boehringer Ingelheim KG and Farmitalia Carlo Erba GmbH, 1996 E.C.R. I-3603. 141 Id. ln Paranova, supra note 139, the Court referred also to the insertion by the parallel importer of an extra article designedfor the ingestion and dosageof the product that does not comply with the method of use and the dosesenvisagedby the manufacturer.


instanceswhen it would be relatively easy to show prejudice to a product’ quality due to s repackaging.142 Theseinclude: damageto, or removal of product from, blister packs, or removal of.pre-filled syringes from sterile packaging. Absent prejudice to product quality, he found no fault with doing whatever is necessaryto commercialize a product including re-boxing and relabeling and use of an importer’ own livery (e.g., use of the s importer’ marks and different colors). He added,however, that repackagingmay lead to s confusion, and that the potential exists for an increasein the mis-dispensationof products. For example,a busy pharmacistmight select the wrong product for a patient owing to a changein a product’ box color. s In addition to pharmacistconfusion, relabeling and repackagingmay result in a decrease consumerconfidence in the products. This might be true of medicines in not in the languageof the destination country, or medicines in re-stickeredboxes. A decline in consumerconfidencemay have economic repercussions, the European but courts have also suggested it could affect product efficacy.‘ that 43 Third, in some cases,parallel trade rules in the EU have resultedin the continued availability of products in somejurisdictions despitetheir withdrawal by the
Rorer case,for example, a UK marketing authorization holder. In the Rh&e-PouZenc’

parallel importer was granteda marketing authorization to parallel trade a gel cap formulation of the Rhone-PoulencRorer (RPR) product Zimovane (INN zoplicone), a


Glaxo Group Limited and Others v. Dowelhurst Limited and Others [2003], 2

C.M.L.R. 8. 143 In joined casesC-266187 and C-267/87, The Queen v Royal Pharmaceutical Society, 1989 E.C.R. 1295, the ECJ suggested that, becauseof “psychosomatic”reasons, the use of a parallel imported product may have a negative impact on treatment.

hypnotic used for the short-term treatmentof insomnia.144The company had withdrawn the product from the UK market when abuseof the product becamecommon in Scotland, and had replacedit with a powder tablet formulation. Since abusehad not occurred in other member states,the gel formulation remainedon sale in most continental countries. RPR soughtjudicial review and the matter was referred to the ECJ. Although the court concededthat formulation differencescan have significant safety implications, it ruled in favor of the UK regulator’ decision to maintain in force the parallel import licensesfor s the original gel cap formulation, despite the apparentpublic health concerns. Its judgment was contrary to the views of the EuropeanCommission and of the French government. Fourth, parallel trade in Europe has also facilitated the introduction of counterfeit medicines in the destination countries. Numerous studiesof parallel trade have confirmed this fact. In a survey of parallel trade in five countries - Denmark, the United Kingdom, the Netherlands,Ireland, and Germany- from 1990 to 1997, the National Economic ResearchAssociatesfound that five pharmaceuticalcompanies operating in Europe and participating in the study cited instanceswhere the cptality of their product had been compromisedduring the parallel import process,and three companies,cited instanceswhere counterfeit product had reachedpharmaciststhrough parallel trade.145A recent article noted that in 2002, Swiss customsofficers uncovered evidenceof possible deliveries of around 22,000 counterfeit Viagra tablets with a market value of SwFr 500,000 ($410,000). According to the article, “[t]he Swiss experience SeeCaseC-94198,The Queenv. The Medicines Control Agency, exparte Rh&nePoulenc Rarer Ltd and May & Baker Ltd., 1999 E.C.R. I-8789. 145 N/E/R/A, Survey of Parallel Trade (1997) (conductedfor Interpharma). 66

with counterfeit medicines is that they are almost never passeddirectly to doctors or pharmaciesbut are smuggledthrough importers and wholesalerswho are often unable to tell whether the medicines are counterfeit or not.“146A blue-ribbon panel chaired by the Israeli Ministry of Health Director GeneralDr. YehoshuaShemerreviewed proposed importation legislation and found that it highly probable that some of the parallel imported drugs would be unsafe. Specifically, accordingto the study, there was a risk of counterfeit drugs that would not meet the quality requirementsof the western world. The report concludedthat parallel importation of drugs to Israel would involve “potential risks to public health.7’ 147 Finally, although the EC treaty (and the EEA treaty) enablesparallel trade only among member states,the EU/EEA have struggledwith the import of pharmaceuticalproducts from third countries. For instance,concernsabout the illegal import of HIV, malaria, and tuberculosisproducts from developing countries into the EU have (also in the context of the Doha developments)resultedin the adoption of Council Regulation.(EC) No. 953/2003.r4* This Regulationprohibits re-importation of certain listed products from designatedcountries and is aimed at ensuringthat theseproducts exported to developing countries at cheapprices are not re-importedby parallel traders into the Community. The Regulation requiresthat a permanentlogo is affixed on any “EP to ConsiderAnti-Counterfeit Measures,” Scripp Pharma (January 14,2004). 147 Commission to InvestigateParallel Importation of Drugs to Israel, Final Report, Israeli Ministry of Health Director GeneralDr. YehoshuaShemer(December 1997). The Governmentof Israel withheld the report from the legislature when the proposal was under consideration,and the legislation was adoptedin early 1999. The report was finally releasedin the summer of 2000, when Israel’ SupremeCourt orderedthe s governmentto releaseit. 148 Council Regulation (EC) No 953/2003 of May 26,2003 to avoid trade diversion into the EuropeanUnion of certain key medicines,2003 O.J. (L135) 5. 67

packaging or product and any document used in connectionwith the approvedproduct sold at tiered prices. At the time the Commission proposedthis Regulation, regulatory authorities were taking action againstthe illegal imports of HJY treatmentproducts from third countries. C. A prescription drug importation schemewould lead to an explosion in unmeritorious tort litigation against Lmocent parties, while injured consumers would lack any real recourse for their iqjuries.14g As the discussionof safety issuesin Section A of thesecomments explained, patients could be harmedby imported drugs in a variety of ways. Harm could occur, for example, if a legitimate FDA-approved product is counterfeited,and the imported counterfeit contains the wrong amount of active ingredient, no active ingredient, or a toxic substitute. Harm could occur if a legitimate product has been stored, shipped,or handledby third parties in a way that introduced contaminantsor affected its stability and purity. Harm could occur where the potency of a foreign drug is not the same as that of the FDA-approved drug for which it is intendedto substitute, resulting in an over- or under-dose,or where the imported product causesside effects or drug-to-drug interactions that would not be expectedwith the FDA-approved version. Consumerconfusion resulting from labeling differencesor dosing differencesbetween U.S. and foreign products could result in medication errors. Many of the parties associatedwith the drug’ manufacture,import, distribution, and delivery to the patient s (or, in the caseof a dangerouscounterfeit, with the manufactureof legitimate product) would be entirely innocent of wrongdoing and unable to prevent the injury. Nonetheless,

This section of our commentsrespondsto item 10 on page 10 (liability protections,thatshould be in place if importation is permitted). 68


in eachcasetheseparties could face the burden of defending suits alleging injury arising from the imported products. First, parties in the distribution chain could expect negligenceclaims. Negligence is the failure of a responsiblepersonto exercisethe degreeof care required to dischargethe duty resting on him. The elementsof a negligenceaction under state law are a legal duty of reasonablecare owed by defendantto plaintiff, a breach of that duty, and injury proximately causedby that breach. A defendantis held to the standardof care that a reasonable personwould exerciseunder similar circumstances. Whether that standardof care createsa legal duty turns on a number of considerations,including the foreseeability and likelihood of injury, the burden of guarding against injury, and the consequences placing that burden on the defendant. Plaintiffs sometimesseek to of impose a duty of care on a defendantwhen a product is used as intended, and sometimes when a product is used in a mannerthat is not intendedbut that is foreseeable. Plaintiffs could try to invoke negligenceagainstmanufacturers,importers, other distributors, physicians, or pharmacies. A plaintiff might attempt to establish,for example,that given FDA’ longstandinginsistencethat imported drugs are unsafe,injury s to patientswho take imported drugs is foreseeableand perhapseven likely, thus creating in the “reasonablemanufacturer/importer/distributor/doctor/pharmacy”duty of care to a potential patients. Once imports are legalized, plaintiffs might allege that knowledge of the risks presentedby imports createsa duty for theseentities and individuals to take stepsto prevent the foreseeable dangers,for example by warning the patient of the potential risks.


Plaintiffs could conceivably seek to assertadditional negligencetheories againstimporters, distributors, pharmacies,and others more directly involved in the imports. FFr example, a plaintiff might arguethat importers and distributors negligently transporteddrugs into and throughoutthe United States,subsequentlyleading to patient harm. Importers and distributors are particularly susceptibleto a claim that they were negligent in failing to recognizeand investigateproblemswith the drugs at their source, such as improper handling and storageand incomplete recordkeepingpractices. Pharmacies,also, might face negligenceclaims. A plaintiff injured by an imported drug sold by a bricks-and-mortarpharmacymight try to attribute the harm he suffered to the pharmacywhere he purchasedthe drug, on the ground that a pharmacy has an obligation to ensureit provides only safe drugs (i.e., unadulterated, properly labeled drugs of the correct potency). To the extent imported drugs pose a known risk to patients, a plaintiff might allege that a pharmacywas negligent if it failed to take adequatestepsto ensurethe quality and integrity of the drugs it dispenses. Similarly, plaintiffs might arguethat pharmacieshave a duty to identify any differencesbetween the foreign import version of the drug and the version in U.S. commerce. To minimize these risks, pharmaciesmay have to devote significant resourcesto due diligence activities. Thesebroad and malleable negligencetheoriescould createsubstantial exposureto suits from personalinjury attorneysagainstthose involved in importing drugs. Even where the linkage betweenlegitimate salesoverseasand eventual harm to a plaintiff in the U.S. is attenuated,manufacturersand other commercial entities in the distribution,chain might presentattractive targets and would thus be required to defend


againstsuch claims, however speculative. The burden of mounting a defensein court againsteven speculativechargescan be substantial. Second,plaintiffs may bring suit under the tort theory of strict liability, or the nearly identical contract theory of breach of implied warranty of merchantability. Each theory may be premisedupon an inherent defect in a product or upon the defendant’ failure to warn. s Plaintiffs could seek to hold eachparty that plays a role in delivering pharmaceuticalsto the ultimate consumerstrictly liable if that consumeris injured by a defective drug. A plaintiff might arguethat the dangerousconditions presentedby foreign drugs, for example,were inherent in the foreign distribution and U.S. import scheme,and thus existed and were known at the time the manufacturerintroduced the drugs into that schemeor a downstreamparty purchasedthe drugs for resale. Consequently,either party might at least face a strict liability lawsuit from patients injured by foreign drugs, regardlessof the actual causeof the injury (e.g., improper handling by an importer that renderedthe drug subpotentafter it left the manufacturer’ s control). A plaintiff might also arguethat a distributor or retail pharmacy should have recognized,thesafety flaws in a distribution chain that flows through foreign sources. Again, although we expect theseclaims ultimately would fail, innocent U.S.-based defendantscould still face considerableexpensesin defending against the lawsuits in the first instance. Downstreamparties in the pharmaceuticaldistribution chain face an even greaterpotential risk of liability under an implied warranty of merchantability theory, becausethey more neatly fit the definition of a “merchant.” Pharmaciesmay face claims


under this theory; they are extensively regulatedby governmentalentities, staffed by highly qualified, licensed professionalswho hold themselvesout to the public as having specializedknowledge and skills, and sell drugs directly to their ultimate consumers. Even if such a claim ultimately proves unsupportable,the defendantmay bear substantial expensein defending against it. Third, plaintiffs might bring suit under the tort theory of “failure to warn.” The failure to warn of a product’ dangerouspropensitiescan give rise to a claim of strict s liability, breach of implied warranty of merchantability, or negligence. The purposeof a warning is to apprisepeople coming into contact with a product of dangersof which they may be unawareso that they may take appropriateprecautionsto protect themselves. Particularly with respectto imported drugs that FDA has specifically identified as potentially dangerous,plaintiffs could seek to make out an argumentfor failure to warn with regardto pharmacies. In general,the ‘ learned intermediary’ doctrine relieves pharmacistsof the duty to warn about possible dangersof prescription drugs, for the patient’ physician is deemedto be in the best position to provide any s applicablewarnings to the patient about the drug. IIowever, courts in a number of states have refusedto extend the protections of the learnedintermediary doctrine to pharmacists who had specific knowledge of a particular dangerto the patient. Doctors and other health care professionalsmay similarly face liability claims. A court may conclude that a health care provider acted negligently in failing to warn patients about the dangersof filling prescriptionsthrough non-traditional sources, including Internet pharmacies. Medical professionalsare generally not held strictly liable in tort, but are expectedto apply a reasonable standardof medical care under the


circumstances. Given the level of attention devoted to this issue by the federal government,media, and professional associations,a court may conclude that “ordinary care”by a doctor or other health care provider includes giving adequate warnings to patients about the potential risks of imported drugs. A plaintiff might also argue that the manufacturerwas aware of the danger posedby imported drugs and failed to respondadequately,for example by changing the labeling of foreign drugs to include a warning to eventualAmerican purchasersabout the dangerof importation or by issuing a “Dear Doctor” letter to alert health care providers. Again, although we would expect theseargumentsultimately to fail (in part because foreign hegth agenciesmay not permit the inclusion of warnings in English to Americans on products intendedfor their local market, and in part becauseimporters are likely to repackagein any event), the burden of mounting a defenseis substantial. Fourth, although thesetheorieswould be even more attenuatedthan the prior claims, parties in the pharmaceuticaldistribution chain could conceivably face claims of common law fraud or misrepresentation claims of violations of state unfair or trade practices acts for reasonssimilar to those discussedabovewith respectto failure to warn. While the elementsof thesecausesof action vary somewhat,they can all be fairly describedas requiring a plaintiff to prove that the defendantmade a false representation of a material fact with knowledge of its falsity for the purposeof inducing the plaintiff to act thereon,and that the plaintiff relied upon the representationas true and acted upon it to his damage. An omission as well as an affirmative representation may give rise to a claim of fraud, although in some statesthe concealmentmust have been done,with an intent to deceive. Other statesdo not require an intent to deceive.


A patient might allege that a pharmacydispensingdrugs obtained from a Canadiansourcehas committed fraud on the consumerif it fails to disclose that source and thereby give the patient the option of filling his prescription elsewhere. A distributor or wholesaler that does not fully disclose that a drug has a non-U.S. origin, or that it was transshippedthrough anothercountry at some point, may face a complaint of deceptive practices. At the sametime, those who are truly responsiblefor consumerinjuries likely would escapeliability altogetherbecausethey are unknown, located in a foreign country or have forced U.S. consumersto sign a liability waiver. For the most part, foreign counterfeitersand their accomplices(e.g., unscrupulousforeign wholesalers)who are directly responsiblefor injecting dangerousdrugs into the U.S. drug supply will be immune from suit becausethey either are unknown or are located in a foreign country and thus, at least as a practical matter, are beyond the reach of most injured consumers. Other responsibleparties, such as the cross-borderInternet pharmacies,also will have insulated themselvesfrom liability by forcing American citizens to waive their right to the protection of the U.S. product liability laws. Indeed, this is a standardpractice among many Canadianinternet sellers and even among the few websites establishedby state governmentsthat facilitate Canadianintemet sales. Consequently,injured consumers will lack any real recoursefor their injuries. In sum, the distribution chain that supplies drugs that could be imported into the United Statesfrom foreign countries contains a wide range of parties that could be exposedto liability claims under a number of tort theories. Most such claims could be expectedto fail on the merits. However, eachparty would face substantiallitigation


risks. These suits would also burden the court system. Both would reducethe amount of any “savings” from legalized drug imports. At the sametime, the truly responsible parties would avoid liability, and injured American patients would have little true recourse. From the manufacturer’ perspective,without liability protections for s parties in the distribution stream,liability and litigation may depressinnovation and skew drug developmentdecisions in undesirableways. The challengesof discovering and develop&new pharmaceuticalcompoundshave never been higher. The American public cannot afford for manufacturersto divert resourcesfrom researchand developmentto non-productiveusessuch as defending frivolous lawsuits, as inevitably would happen. Further, as companiesconsider competing researchprojects, they would be required to weigh the relative risks of tort liability, and vital investment decisions might thus be adverselyinfluenced. From the perspectiveof others in the distribution chain, the risk of liability will make additional insuranceand contractualindemnification provisions essential. The costs of such protection will undoubtedlybe passedalong to patients, the ultimate consumersin this streamof commerce. Partiesunable to secure adequate insurancemay be forced to ceasetheir operations,thereby reducing market competition and patient choice, The need for liability protections is thereforegreat. At the sametime, it is difficult to imagine any protections that will be effective in practice.



Importation will not lead to lower consumer drug prices.15’ 1. Neither the MMA nor any of the pending importation bills requires cost savings to be passedon to consumers.

Although proponentsof legalized importation arguethat it will lead to lower consumerdrug prices in the United States,nothing in the new section 804 of the FDCA actually requiresimporters to pass along their savings. This is puzzling in light of the fact that the drafters of the MMA took stepsto ensurethat lower prices would be passedalong to Medicare beneficiaries. The new benefit will be provided by private plans that negotiatewith manufacturerson behalf of patients. Negotiatedprices - prices after taking into account all discounts,direct or indirect subsidies,rebates,and other price concessions must be disclosedto beneficiaries,and beneficiariesmust receive the benefit of those prices, even if actual benefits are not payable. Similarly, beneficiaries who chooseto enroll in a discount card program must have accessto drug prices negotiatedby the card sponsor. The drafters of the MMA ensuredthat consumerswould obtain the benefit of lower prices available to intermediaries. Importation schemeslack this assurance. 2. The savings from inter-country price differentials are captured by parallel importers, and not passed on to consumers.

Although proponentsof legalized importation arguethat it will lead to lower consumerdrug prices in the United States,in fact, it likely will not. If importation is implemented,commercial exportersin Canadaand commercial importers in the United Stateswill be able to purchaseproducts at artificially low prices in price-controlled jurisdictions like Canada,and then resell them at - or just below - market price in the This section of our commentsrespondsto item 7 on page 9 (potential short- and long-term impacts on drug prices and prices for consumersassociatedwith importing drugs from other countries). 76

United States. This practice would be the equivalent of parallel trade in Europe, where a supplier purchasesdrugs in SouthernEurope (where drug prices tend to be lower) and resells them in Northern Europe (where drug prices tend to be higher). The European experienceis that the parallel traderscapturethe benefit of this arbitrage,and consumer prices in thk destination country drop very little, if at all. Studies unequivocally establishthat parallel trade has little impact on prescription drug prices in the destinationcountries. For example,prices in the United Kingdom have droppedby less than two percent since parallel trade began,and in Swedenthey fell by only four percent.rsl A paper releasedin September2002 by the GermanAssociation of Research-Based PharmaceuticalCompanies(WA) showed that importers set their prices to competewith prices in the importing country. In Germany, pharmaciesare given parallel import dispensingtargetsto meet. The quota for 2003 was 7 percent of the pharmacy’ total dispensedpharmaceuticals. Pharmaciesthat do not s meet their quota do not receive full reimbursementfrom the State for the pharmaceuticals they have dispensed. Pharmaciesthat exceedtheir quota receive a credit that can be rolled over to future reporting periods. In the past, parallel imported products had to carry a price differential of at least 10 percent off the normal pharmacy sale price in order to count toward the quota. VFA found that importers increasedtheir prices by this exact difference in price and capturedany remaining difference in price as profit. Subsequent regulationseliminated the requirementthat parallel imported products have a minimum price difference; any parallel imported product may now count toward a pharmacy’ s quota. As a result, over time, the differences in price betweenimported products and

“E.U, Parallel Drug Trade Cited in U.S. Reimportation Debate,”Drug Industry

Daily (November 12,2003).

original products have shrunk. In a comparisonof local prices to imported prices for eight commonly-imported drugs, the maximum difference in price was six percent,but half of the products had a difference of only three percentor less. In addition, the authors noted that the increasesin price by the importers “lie without exception above the increasesin price by the manufacturer.“152 In Europe, the benefit of pharmaceuticalarbitrage accruesalmost entirely to the parallel trader.ls3 Trade normally increaseseconomic welfare by permitting consumersin importing countries to benefit from lower prices in exporting countries. In the caseof innovative pharmaceuticals, however, the lower prices in exporting countries generally reflect more aggressiveregulation, not lower real production costs.154 There is no “free trade”benefit, therefore, and parallel traderssimply capturethe pricing difference causedby the aggressivepricing regulation in the sourcecountry. For example, a study releasedin March 2001 examinedthe effects of parallel trade on the pharmaceuticalindustry by reviewing data from the Swedish market from 1995 to 1998. The Swedish market provided a natural test for the study’ authors,since before 1995 s Swedenprohibited parallel imports of pharmaceuticalproducts. Swedenenteredthe EuropeanUnion on January 1,1995, and thereforewas required to allow parallel imports. The study found that the price of goods subject to import competition, including the parallel-tradedproducts themselves,fell only four percentin the import market. According to the authors,the data “fail to support the hypothesisthat prices for products GermanAssociation of Research-based PharmaceuticalCompanies(VFA), Parallel Imports and Reimportation in the PharmaceuticalMarket: Misguided Health Policy (September2002). 153 Patricia M. Danzon, The Economics of Parallel Trade, PharmacoEconomics (1998).
1.54 152

Id. 78

subject to parallel trade convergebetween the exporting and importing countries.” Further the study results “suggest that parallel-importing firms exploit a price difference betweenthesemarkets of approximately 21 percent of the original manufacturer’ price s In in Sweden,“155 other words, the parallel-importing firms had a margin of approximately 21 percent, and the price reduction to consumerswas only 4 percent. To give anotherexample,in a survey of parallel trade in five countriesDenmark, the United Kingdom, the Netherlands,Ireland, and Germany- from 1990 to 1997, the National Economic ResearchAssociatesfound that parallel importers took, on average,a markup of 68 percentprior to sale in the destinationcountry, still allowing them to undercut normal route wholesalersby an averageof 22 percent. The report noted that differences in retail prices betweenparallel import and normal route products are “much less marked,”indicating a substantialportion of the gain from parallel trade accruesto the distributors, rather than the final purchasers.156 more recent study from A the London School of Economics and Political Science’ reached sameconclusion: that the profits from parallel trade accruemostly to the benefit of the middlemen or parallel The importers.157 study analyzedthe impact of cross-borderbrand name prescription trade within the EU by taking a sample of products from six product categories(proton pump inhibitors, HMG CoA reductaseinhibitors (statins), ACE I inhibitors, ACE II Mattias Ganslandtand Keith Maskus, Parallel Imports of PharmaceuticalProducts in the EuropeanUnion (March 2001). 156 N/E/R/A, Survey of Parallel Trade (1997) (conductedfor Interpharma). 157 P. Kanavos et al., “The Economic Impact of PharmaceuticalParallel Trade in EuropeanUnion Member States:A Shareholder Analysis,” LSE Health and Social Care, London School of Economics and Political Science,January2004. Seealso Press Release,“New LSE Study ContradictsAccepted Benefits of EU PharmaceuticalParallel Trade,”The London School of Economics and Political Science(November 2003). The author of this study, PanosKanavos, gave a presentationto the Task Force at ‘ April 14 the public heating and has submitted commentsto this docket. 79

inhibitors, serotonin selective re-uptakeinhibitors, and atypical antipsychotic) acrossall study countries. Thesecategorieswere chosensince they are used to treat a wide range of disordersand have significant impact on patient health, as well as health care budgets. The study found that parallel imports for 2002 salesto the six major destination countries within the EU accountedfor only 0.3 percent to 2 percentof national medicine budgets, representinga total savings of just $43.1 million over locally-developedand manufacturedproducts. In contrast,the parallel importers who bought these same medicines Bcrossthe EU made profits of 2622 million. According to the study, “[wlith regardsto patients, no clear benefits through lower prices were found.” As the chart that follows indicates,the study found extremely modest direct savings to insurance organizations.

arallel Trader l+rkup



Importation of foreign drugs is an endorsement and attempt to of, import, foreign price control practices- which are bad for*patients, harmful to innovation, and poor public polic~.~~~ 1. A decisionto implement presctiption drug importat$onwould be tantamount to a decisionto import foreign price controls.

Legislation authorizing importation of foreign prescription drugs essentially attempts to import foreign government price controls into the United States.15’ Most governmentsoutside the United Statesoffer some kind of national health insurance that covers the vast majority of the population. These governmentsdominate the health care marketplace and operate as monopsonistic purchasersof pharmaceuticalproducts. Many of these governmentstake unfair advantageof this near-total control of the health This section of our comments respondsto items’ 7,8, and 11 on pages9 and 10 (potential short- and long-term impacts on drug prices and prices for consumers associatedwith importing drugs from other countries, the impact on drug researchand development, and the associatedimpact on consumersassociatedwith importing drugs from other countries, and ways in which importation could violate intellectual property rights). 159 See, e.g., John E. Calfee, “The High Price of Cheap Drugs,” The Weekly Standard (July 21,203) (“Congress should dismiss all possibility of these scenariosby rejecting the drug importation legislation. It should not fall into the trap of thinking that as long as controls over U.S. prices were introduced by the government of a foreign country, we would still have a free market. We wouldn’ have a free market, and we wouldn’ get the t t benefits of one.“); Doug Bandow, “Reimportation: Trojan Horse, Not Free Trade,” Institute for Policy Innovation Publication (June 2003) (“Most important, however, reimportation, no less than attempting to equalize prices internationally by legislative fiat, would effectively apply foreign price controls on the American market. This is, in fact, the policy’ objective.“); JamesK. Lassman& John R. Lott, Jr., “The Drug World’ Easy s s Riders,” Commentary, The WuZZ Street Journal (July,23,2003) (“In effect, reimportation of drugs would import something else to the U.S.: price controls, where the lack of such practices isthe oxygen that allows pharmaceuticalresearchto thrive. Drug price controls are pernicious. While controls on oil and other products tend to be short-lived, as voters eventually object to the resulting shortages,the effects of drug regulations aresmore difficult to observe,since they mainly affect medicines that haven’ been invented yet.“); t David B. Kendall, ‘ cDon’ Import Foreign Price Controls on Prescription Drugs,” t ProgressivePolicy Institute (July 21,2003) (“Republicans have rightly opposed U.S. price controls for Medicare prescription drugs, but they are wrong to consider:importing foreign price controls. The Gutknecht legislation, which has 36 Republican co-sponsors and 14 Democratic co-sponsors,runs contrary to a view held by a wide variety of membersof Congress- including Democrats ranging from Sens.Edward Kennedy (MA) to John Breaux (LA) - that price controls should be kept out of the Medicare debate.“). 81

care market to obtain drugs at below-market prices and avoid paying for the researchand developmentcosts of those drugs. Their power is only magnified in many countriesby compulsory licensing laws that permit the governmentto abrogatea company’ patent s rights if it doesnot accedeto the government’ pricing demands. s Foreign governmentintervention in the pharmaceuticalmarket takes a wide variety of forms. Europeangovernments,for example, employ measuresthat include: referencepricing systems(Belgium, Germany,Norway, Spain, and others); profit control schemes(the United Kingdom); across-the-board price cuts (Italy, Hungary, Japan,and many other countries over the last decade);price freezes(Canada); and product-by-productprice controls (all Europeancountries). Referencepricing systemsvary considerablyaccording to the countries and products to which referenceis made, the calculation method used to determinethe referenceprices, and the reimbursementrules applicable. Some countries have formally adopted pharmacoeconomic evaluationsas a mandatorystep in the price-setting process(Finland and Australia) or as a prerequisitefor reimbursement(Belgium and Norway). Essentially every country fixes an overall budget for public pharmaceuticalspendingor imposes percentagelimits on growth in pharmaceuticalspending. In some countries (Austria, Belgium, Italy, Germany, and France),the industry is responsiblefor budget overruns and forced ‘ “rebate”or “pay back” to the governmentthe amount of public to expenditureson pharmaceuticalsthat exceedgovernmenttargets. Foreign countries often impose price controls through measuresthat discriminate againstimports and favor local producers. Countrieswithout a local pharmaceuticalindustry tend to rely particularly heavily on pharmaceuticalprice controls


to balancetheir health care budgets. Local interests- such as generic producers, wholesalers,and pharmacists- generally occupy a favored position within the system. For example, Italy passeda law in 2002 imposing a blanket 7 percentprice decrease for all pharmaceuticalspriced above a certain threshold. The impact of the price decrease fell overwhelmingly on the research-based pharmaceuticalindustry that produceshighervalue medicines and is, not coincidentally, largely foreign-based. In Australia, the prices paid by the government’ PharmaceuticalBenefits Schemeto local pharmacistsare s indexed for inflation and rise every year. The Australian governmenthas adamantly opposedallowing a comparableadjustmentfor inflation for pharmaceuticalproducts which, again, are largely developedabroadand imported into the country. 2. Prescription drug price controls in foreign countries have had a detrimental impact on patient accessto new medicines.

Foreign price control mechanismsoperateto deny patients accessin the marketplaceto U.S.-madepharmaceuticalproducts. They do so first, by delaying the availability of new products, and second,by denying the availability of new products. First, since foreign national health insuranceschemestypically dominate the domestic market for pharmaceuticals, product effectively cannot be marketedin a a country until the national authorities have determinedits reimbursementprice. The price control bureaucracyin almost every country is opaque,and the processof obtaining a government-approved price can be lengthy. Delay can happenat any point: between the date a company submits its pricing application and the date price approval was granted, betweenthe date the company submits an application for reimbursementand the date the company is informed about a reimbursementdecision, or betweenthe date the company


is informed of the reimbursementdecision and the date that decision is published in official national reimbursementlists.16’ Delays are a problem in many countrieswithin the Organization for Economic Cooperationand Development (OECD). In some markets, patients must wait more than two yearsbefore they gain accessto new medicines.161 example, For EuropeanDirective 89/105 requiresthat applicationsto the competing authorities to securea price or reimbursementfor a new medicine must be decidedwithin 90 days (or 180 days %hereit is necessaryto agreeto a price before applying for reimbursement). Nevertheless,in all EU countries with formal pricing and/or reimbursementapproval systems- with the exception of Ireland, Sweden,and Denmark - the responsible regulatory bodies significantly exceedthe 90-day and 180-daydeadlines.‘ A 2002 ” survey found that in Belgium, it took an averageof 671 days for the governmentto grant reimbursementand pricing statusto new medicines.163 Austria, Finland, France, In Greece,and Portugal, it took on averagebetween332 and 415 days.164 GlO The Medicines Group of the EuropeanCommission recently concludedthat the “price negotiating.systemsand reimbursementstructuresin a number of [EU] Member states

The? time to publication can vary from 5 days in Franceto 76 days in Italy to 90 days in Belgium. CambridgePharmaConsultancy(a unit of IMS Health), “Delays in Market Access”(December2002).
161 162 163 164


Id. Id. Id. Id. 84

can lead to significant delays.“165In China, the situation is even worse: not a single new product has been addedto the national governmentreimbursementlist for over 4 years. Second,many governmentsuse highly restrictive formularies or other policies (for example, limiting a drug to hospital use, or to use after failure of a first or secondtreatment)to control accessto new medicines. Such an approachis bad policy and bad medicine. A patient’ reaction to a medicine is highly individual, and the effects s of a drug can vary acrossa population. Nevertheless,some governmentsare willing to substitutetheir judgments for the judgments of medical professionals,and they impose a one-size-fits-all approachwith respectto medical needsby approving only one (or very few) pharmaceuticalproducts to treat particular conditions. New Zealand,for example, has long had one of the most restrictive formulary systemsin the world. The government directly controls 75 percent of the market in New Zealand and indirectly controls the rest. It typically permits very few medicinesper therapeuticclass. Market accessfor many competing products that treat the samecondition is effectively and completely denied. In Europe, as.aBusiness Weekwriter recently commented,“negotiations”between manufacturersand the national health systemsover accessand the deepdiscounts requestedon price “can drag on for several years”and “‘ a result of price controls, [a]s Europeanconsumersare headingtoward second-class citizenship when it comes to accessto medicines.“166

EuropeanCommission, ‘ “High Level Group on Innovation and Provision of Medicines,‘ Recommendations Action,” GlO Medicines Report (Brussels,Belgium: for EuropeanCommission, May 7,2002). 166 Kerry Capell, ““EuropePays a High Price for CheapDrugs,”Business Week (February 17,2003). 85


Pricing controls and restrictive formularies in Canadasimilarly result in reducedpatient accessto medicines. One recent study found that the Canadianfederal new drug approval processtakes 13 percentlonger than the American new drug approval process. A new Canadiandrug then faces more hurdles: the ten provinces. “Each province has a review committee that must approvethe drug for its own formulary,” the study author noted.167 quantified the delay: “[o]f 99 new drugs approvedby the He federal governmentin 1998 and 1999, only 25 were listed on the Ontario formulary.y’ 168 Moreover, i“the provincial approval times vary greatly from province to province. The wait time for approval in Ontario is nearly 500 days.“169 A study conductedfor the EuropeanFederationof Pharmaceutical Industries and Associations (EFPIA) in 2002 identified specific diseasestatesas to which pricing policies and cost containmentstrategiesin Europe have resultedin suboptimal medical care for patients: * Cardiovascular disease. In Germany,87 percent of all patientswith coronary heart diseasedid not receive modem lipid-lowering drugs. In Italy, 83 percent did not receive statins.

o Diabetes. In Germany, 30 percentof the at least 4 million diabetes patients are not treatedwith drugs at all. 0 lMulti@‘ sclerosis. In France,less than 50 percent of patients with e multiple sclerosiswho are eligible for treatmentwith beta interferon actually receive the medicine.

Schizophrenia. In France,there are 4.4 schizophreniasufferersper 1000 peoplebetween the agesof 31 and 50. Only 2.4, however, are treated. For the treatedpatients, the level of use of innovative second generationdrugs continuesto be at a low level.

William McArthur, “Prescription Drug Costs: Has CanadaFound the Answer?” National Center for Policy Analysis - Brief Analysis No. 323 (May 19,200O).
168 169


Id. Id. 86


Depression. Across Europe, only 18 percent of patients with severe depressionreceive treatmentwith anti-depressants.In Germany, 12 percent of patientswith severedepressionreceive treatmentwith antidepressants.In France, 50 to 70 percentof patients with symptomatic depressionare not treatedat all, whether psychotherapy or medication or both.17’ Prescription drug price controk have a negative impact on research and deveIopment.


Price controls diminish the value of pharmaceuticalpatents. A patent right that gives the patent holder the exclusive right to sell his invention in a market, but that is limited by a requirementthat the product be sold at a significantly reducedprice, is of little commercial value to the right holder. A country cannot be said to adequatelyand effectively protect intellectual property if that country puts in place regulationsthat diminish the value of the patent rights granted.171As explained above (page82), many countries practice referencepricing. This meansthat the price of a new drug is tied, by law, to the Price of older and often off-patent medicines. By design, thesesystemsare set up to compensate innovative products at the samerate as generic products and undermine the value of pharmaceuticalpatentsin that market. The delays causedby the bureaucraticpricing process,also underminethe value of pharmaceuticalintellectual property. By delaying market access,theseregimes depletepotentially valuable patent

0. Schiiffski, “Diffusion of Medicines in Europe,”preparedfor the European Federationof PharmaceuticalIndustries and Associations (EFPIA) (September2002). 171 Becausethey diminish the value of intellectual property, foreign price controls are a trade issue. The United Statesroutinely treats weak foreign patent laws as a major trade issue. Indeed, the entire rationale for the WTO TRIPS Agreement was that rampant international free-riding on innovation is a kind of trade barrier. Allowing copycat manufacturersto pirate U.S. intellectual property, whether it is embodiedin software, sound recordingsor medicines,underminesthe export possibilities of those industries. Foreign laws that allow free-riding through other means- i.e., price controls - equally diminish the value of U.S. intellectual property rights and hurt U.S. exportersthat rely on intellectual property protection. 87


term that cannot be recoveredby the patent holder. Under Australia’ system, for s example,prices for new medicines are often set by referenceto existing medicines in a therapeuticclass, regardlessof whether those other medicines are generic products. The link with theseolder drugs continuesyear after year, so that when a referenceddrug goes off-patent and its price falls, the price of the newer drug that is still on patent is significantly diminished as well. The end result is that there is little reward for innovation.172 For most of the past century, Europe led the world in pharmaceutical innovation, In 1997, however, the United Statesovertook Europe for the first time both in terms ofinvestment and in terms of the output of its innovative activity (i.e., new molecular entities).173The latest data on new chemical and biological entities for the period between 1998 and 2002 show that the U.S. leads all other countries in invention of new molecules. Between theseyears, the U.S. pharmaceuticalindustry led the world as the inventor of 77 new chemical and biological entities. The U.S. was followed by Europe, which had 68, and Japan,which had 29. All other countries, combined, invented just 4 new chemical and biological entities.174Over the past 10 years,R&D investments have doubled in Europe to reach 17 billion in 2000, but they have multiplied nearly five Various studiesconfirm that price controls discouragepharmaceuticalinnovation. See,e.g., JacobArfwedson / CNE Health, Parallel Trade in Pharmaceuticals (July 2003) (warning of “significant long run harms to innovation” if parallel trade continues in Europe indefinitely); Patricia Danzon, The Economics of Parallel Trade, Pharmacueconomics(March 1998) (finding that parallel trade reduceseconomic welfare by undermining price differentials between markets. In the long run, “even high income countries are likely to be worse off with uniform prices, becausefewer drugs will be developed.“) 173 EuropeanFederationof PharmaceuticalIndustries and Associations, The Pharmaceutical Industry in Figures (Brussels,Belgium: EFPIA, 2003) (“EFPW Figures”). 174 Id. at 16. 88

times in the U.S. to reach24 billion in 2000.175 Further, the Europeanshareof the world pharmaceuticalmarket has decreased from 32 percent to 22 percent over the past decade, while the U.S. shareincreasedfrom 31 percentto 43 percent.176 American companies now file over 60 percentof pharmaceuticalpatent applications in Europe.‘ Of the top ” ten worldwide products (rankedby salesvolume), six originated in the U.S., while only three originated in Europe. In 1990, major Europeanresearch-based companiesspent 73 percentof their worldwide R&D expendituresin the EU territory, whereasin 1999, they spent only 59 percent in the EU territory. The U.S. was the main beneficiary of this transfer of R&D investment.17* The exodus from Europe results in part from the hospitablebusiness climate in the U.S. - for example,the scienceand technology base in the U.S. and the opportunity for public-private researchpartnerships. The Europeanpharmaceutical industry and the EuropeanCommission have, however, concludedthat the exodus results primarily from the price control policies and cost-containmentmeasuresthat lead to a lack of competition in the Europeanmarket. Price controls compromisethe value of patent rights, which in turn discouragesinnovation. EFPIA has explained that the “European pharmaceuticalindustry has lost its competitivenessbecausethere is a problem of price - and innovation is not compensated.Y7’ EFPIA adds,“Europe lacks a 79 climate which favours and rewards innovation. . . . Comparedto the U.S., Europe is “Pfixer LeaderCalls for a New Relationship Between PharmaceuticalInnovation and Europe:Governments,” Newswire European (February 11,2002). P! 176 Id. 177 Id. 178 Id. 179 EFPIA Figures, supra note 173. 89

seenas a less attractive R&D investment location in terms of market size and incentives for the creation of new biotech companies.“18o In a November 2000 report, the Directorate GeneralEnterprise of the EuropeanCommission found that “the relative position of the U.S. as a locus of innovationin pharmaceuticals increasedover the past decadecomparedto has Europe.7’ The authorsnoted that U.S. pharmaceuticalcompaniesare now the dominant 1s1 source of innovation and innovative drugs in the world, As a result, American patients benefit greatly by getting early accessto the best and newest treatmentsthat pharmaceuticalcompaniescan offer. Not only are the newest drugs sold to Americans, but more and more of the drug developmentis being done by U.S.-basedcompanies.‘ 82 One market newsletter paraphrased analystsat SG Cowen thus: “[mlajor drug companies are being left with little choice but to cut investmentsand managethe businessto maintain returns. This meansreducedR&D and fewer new drugs in Europe than in the U.S.A.“183 Not surprisingly, the mere threat of price controls in the United Stateshas had a negative impact on the market value of pharmaceuticalfirms. During consideration of the Heath Care Reform Act of 1993, when pharmaceuticalprice controls were

Id. F. Pammolli et al., “Global Competitivenessin Pharmaceuticals: European A Perspective,” preparedfor the Directorate GeneralEnterpriseof the European Commission (November 2000). 1x2 Id. 183 “Govt drug price controls continue to threatenEurope’ pharma industry,” s Pharma m&k&letter (December23,2002).



proposed,firm market values dropped.“84 Venture capital in biotechnology similarly dropped considerablyin 1994 and 1995, reflecting concern about proposedgovernment regulation of health care spending. An analysisby Arthur D. Little of the annual growth rate in biotechnology venture capital funding from 1993 to 2000 indicated declines of 6 and 16 percentin 1994 and 1995 respectively,before expandingagain in 1996.185 A survey by the Gordon Public Policy Center of Brandeis University, conductedduring the Clinton Health Care Reform debate,found that more than 70 percent of U.S. biotechnology firms feared that they would have to delay or curtail researchbecauseof the negative impact of health care reform on capital markets.186According to a survey conductedat that time by the trade associationBIO, nearly 40 percent of biotech companiesworking to find treatmentsfor HIV/AIDS, cancer,and diseasesof the aging delayed or cancelledresearchbecauseof capital shortfalls attributed to the health care reform debate.ls7 Had the legislation actually passed,ProfessorsGrabowski (Duke) and Vernon (Duke) hypothesizethat a substantialdecline in R&D and innovative activity would have occurred.‘ In short, as ProfessorFrank Lichtenberg of Columbia University ** has argued,perception of future profits greatly influences R&D spending,and “policies

SeeS. Ellison and W. Mullin, “Gradual Incorporation of Information: PharmaceuticalStocks and the Evolution of PresidentClinton’ Health Care Reform,” s Journal of f;aw and Economics, Vol. XLIV (April 2001). 185 “Arthur D. Little Bio-PharmaceuticalStudy Finds Significant Link Between Innovation and Market-BasedDrug Pricing,” PressRelease,Arthur D. Little (May 9, 2002). 186 “BIO Airlifts Scientists, CEOs into D.C. for Lobbying Push,”BiotechnoZogy Newswutch.(August1,1994). 187 Id. 188 H.G. Grabowski and J.M. Vernon, “Returns to R&D on New Drug Introductions in the 1980%,” Journal of Health Economics, Vol. 13: 383-406. 91


that threatento diminish future profits will reduceR&D investment today, even if they do not affect current profits.“18g Real world modeling by economistshas confirmed the link betweenprice controls and reducedinnovation. ProfessorJohn A. Vernon (University of Connecticut) recently demonstrated, example, that regulation of pharmaceuticalprices in the U.S. for could have a “precipitous effect on pharmaceuticalinnovation in the long run.“1g0 Vernon’ objective was to examine, using simulation techniques,how pharmaceutical s price regulation would affect future drug innovation. Simulation experimentswere run under multiple price-control scenariosto determinehow theseregulationswould affect and alter the time path of new product innovation (relative to the baselinemodel without price control regulation). ProfessorVernon found that under a cost-basedapproachto regulating the top-performing drugs (i.e., drugs in the top three decileswith respectto presentvalue, after-tax returns), over a 50-year time horizon that was considered,total industry output would be reducedby between30 percent and 37 percent,relative to innovative output in the absence price regulation. Under less extreme assumptions of about the effect of price regulation, the estimatewas found to rangebetween 6 percent and 24 percent.1g1 Vernon pointed out that the simulation experimentsprovide insight into the potential consequences a pharmaceuticalprice control policy in the U.S. of In anotherstudy, researchers examinedaggregatedata for the major pharmaceuticalcompaniesin the U.S. to study the rate of growth in pharmaceuticalR&D F.R, Lichtenberg, “Probing the Link Between Gross Profitability and R&D Spending,” Health Affaairs,September/October 2001: 221-222. 190 John A. Vernon, “Simulating the Impact of Price Regulation on Pharmaceutical Innovation,”Pham Dev Rep2 (2003). 191 Id. 92

from 1952 to 2001. The paperinvestigated the impact of real drug prices on the R&D spendingof major U.S. pharmaceuticalcompanies. The researchers hypothesizedthat drug prices’ directly influence R&D spending. Their findings supportedthis expected direct effect. Specifically, the findings suggestthat a 10 percent increasein real drug prices results in nearly a 6 percentincreasein pharmaceuticalR&D spending, Simulations basedon theseresults indicate that the value of pharmaceuticalR&D spendingwould have been about 30 percentlower if the federal governmenthad limited drug prices ,to the same rate of growth as the generalconsumerprice index price increases during the period 1980 to 2001. Moreover, drug price controls would have resulted in 330 to 365 fewer new drugs being brought to market during that sameperiod of time.rg2 4. Foreign pharmaceutical price contriAs force Americans to subsidize medical research and development for the rest of the world.

The processof discovering and developing a new medicine is long and complex. Today, the processof bringing a drug to market takes up to 15 years.lg3As a result, the averagecost to develop a new drug has grown from $138 million in 1975 to over $800 million today.lg4 The risks involved in the new drug developmentand approval processesare also substantial. Of every 250 drugs that enter preclinical testing,

C. Giaccotoo, R. Santerre,and J. Vernon, “Explaining PharmaceuticalR&D Growth Ratesat the Industry Level: New Perspectivesand Insights,“AEI-Brookiplgs Joint Centerfor Regulatory Studies,Publication 03-31 (December2003). 193 J.A. DiMasi, “New Drug Development in U.S. 1’ 963-1999,” Clinical Pharmacology & Therapeutics69(s) (2001). 194 J.A. DiMasi, R.W. Hansenand H.G. Grabowski, “The Price of Innovation: New Estimate oftDrug Development Costs,”Journal of Health Economics 22 (2003): 151-185. 93


only 1 is approvedby the FDA.l” Only 3 out of 10 marketeddrugs produce revenues that match or exceedaverageR&D costs.1g6 The pharmaceuticalindustry is a key componentto America’ high tech s economy. The pharmaceuticalsector contributed $229.2 billion in sales,$75.4 billion in labor income, and nearly 1.1 million employeesto the U.S. economy in 1999 al0ne.l” The averagewage in the industry is over $18 per hour. The industry is among the top U.S. exporting industries, and ranks with the semiconductor,aerospace, computer and industry in ‘ value of its exports. the By impeding the ability of the pharmaceuticalindustry to accessforeign markets in a meaningful way, foreign governmentseffectively force U.S. consumersto bear an unfair burden of the cost of researchingand developing new medicines. As former FDA CommissionerMark McClellan recently remarked,‘ We cannot carry the lion’ shareof this burden for much longer.771g8 researchjobs and U.S. s U.S. manufacturingjobs are at stake. 5. Importation of prescription drugs would harm consumers and undermine innovation through its impact on U.S. intellectual property rights.

Importation under section 804 would also implicate the intellectual property rights of pharmaceuticalmanufacturers,particularly with respectto trademarks

PhRMA, Based on data from the Center for the Study of Drug Development, Tufts University, 1995. 196 H.G. Grabowski and J.M. Vernon, “Returns to R&D on New Drug Introductions in the 198Os,” Journal of Health Economics 13 (1999). 197 Examining the Relationship betweenMarket-BasedPricing and BioPharmaceuticalInnovation, study by Arthur D. Little (2002), at 24. 198 Mark McClellan, Speechbefore the First International Colloquium on Generic Medicine (September25,2003). 94


and patents. Theseintellectual property rights, which are independentof government standards,promote the public interest in distinct but equally important ways, specifically by preventlng consumerdeceptionin the caseof trademarks,and promoting pharmaceuticalinnovation in the caseof patents. Trademarkrights serve, in part, to prevent potentially confusing or deceptiveusesof a mark in connectionwith goods that ‘ consumerexpectationsof defy sourceor quality. In today’ global economy, the quality assurance s function of the trademarkIs of paramountimportance. Consumersrecognizethe trademarkas a seal of consistentand predictable quality. Without exception, all PhRMA membershave developedrigorous quality control standardsto ensurethat brand-nameproducts consistently meet consumerexpectationsof high quality associatedwith American prescription drugs. These standardsmeet and typically exceedthe FDA’ regulatory s requirementsand encompassall phasesof product testing, manufacturing, shipping, handling, storage,packaging,marketing, tracking and authentication. As owners of registeredtrademarks,PhRMA’ member companieshave s an exclusive right under federal trademarklaw to prevent the use of their marks in connectionwith unauthorizedimports that fail to meet quality control standardsor differ in other material respectsfrom authorizedbrand-nameproducts sold in the U.S. (such as outright counterfeits or foreign versions of a manufacturer’ product that have been s improperly handled by others). As a matter of trademarklaw, theseunauthorizedimports are deemed.tobe “non-genuine”and infringing becauseof the likelihood of consumer confusion and deceptionthat arisesfrom material differencesin quality control or other characteristics.


By facilitating the importation of foreign-sourcedcounterfeit and adulterateddrug products, Section 804 not only would pose significant safety risks but also would open the door to a large volume of infringing imports. As discussedin Section 1I.B below, theseinfringing imports would be difficult or impossible to detect. Consequently,by facilitating the use of famous trademarksin connectionwith infringing imports, Section 804 will dilute the valuable goodwill associatedwith pharmaceutical trademarksand potentially undermineconsumerconfidencein the integrity of U.S. brand-namepharmaceuticals. Our system of patent rights servesthe important purposeof promoting innovation, Patentsprovide a time-limited incentive for companiesto invest in risky and expensiveresearchand developmentactivities, while also providing for public disclosure of novel inventions so that they add to the body of available scientific and technical knowledge. Patentsare particularly critical to pharmaceuticalinnovation, given the enormousexpenseand time neededto develop safe and effective drugs. The vast majority of experimentaldrugs never make it to market, and even successfultherapies require years of research,developmentand testing before meeting the FDA’ rigorous s approval process. Drug importation presentspatent concernsbecauseU.S. patent rights typically are not exhaustedthrough foreign sales. Patent rights, however, are difficult and expensiveto enforce. The decision whether to bring an infringement action in the first place is made on a case-by-case basis, and even those actions that are filed present many uncertaintiesin terms of the availability, timing, and effectivenessof any relief. The certification of importation under section 804 would likely increasethe extent of


infringing activity and thereby as a practical matter weaken the protections provided under our patent laws to encourageinnovation. Many advocatesof importation have publicly acknowledgedas their ultimate goal a distribution systemthat would totally abrogateintellectual property rights as applied to imported drugs. For example, one bill currently pending is plainly intended to override existing patent rights specifically with respectto drug importation.1gg Legislation of this type would have far-reaching effects on the pharmaceuticalindustry and its ability to maintain leadershipin developing innovative life-saving and lifeextending medicines. Such measuresalso raise substantiallegal concerns,including under the Constitution. III. CONCLUSION While importation is often hailed as the only solution for individuals who lack prescription drug coverageand cannot afford their medicines,in fact there are better, safer ways to ensurethat patients have accessto affordable medicines. Patient assistance programssponsoredby pharmaceuticalcompaniesare available to all uninsuredAmericans who meet income eligibility requirements. Roughly 65 percentof the uninsuredhave income levels at or below 200 percentof poverty, and theseindividuals are eligible for many of the patient assistance programsthat provide medicinesfree of charge. Information on theseprogramscan be found at,an interactive Web site maintainedby PhRMA and 48 of its member companies. This online service, which is free and completely confidential, is

lgg PharmaceuticalMarket Access and Drug Safety Act of 2004, S. 2328, 108th Cong. (2004) (proposing to amendfederal patent laws to require exhaustionof patent right upon the first sale;by the patentee). 97

designedto help individuals find patient assistance programsfor which they may qualify. Last year alone, PhRMA membersprovided free prescription medicines to more than 6.2 million patients in the United States. Pharmaceuticalcompany discount card programs are anotherway for seniors and the disabled to save money on prescription medicines. Seniorswith income levels at or below 200 percent of poverty, who lack prescription drug coverage,can accessmedicines made by two PhRMA member companiesat a fixed monthly cost of $12 to $15. Other company discount card programs offer seniors and the disabledwith income levels at or below 300 percentof poverty discounts that rangefrom 20 to 40 percentoff retail prices. Also, this June, all Medicare beneficiarieswill be eligible for a Medicareendorseddiscount card that will offer discounts on prescription medicines.The lowest income seniorswill be eligible for $600 (‘ individual, or $1200 per couple) ‘ year, per this and again next year, to help them afford their prescription medicines until the full Medicare prescription drug benefit begins in 2006. Once individuals have exhaustedthe $600, threePhRMA member companieshave publicly statedthey will offer their medicines free of chargeto theseindividuals. Further, in 2006, all Medicare beneficiarieswill be able to enroll in plans that cover prescription drugs. Plans may vary somewhat,but in general,individuals can choosea prescription drug plan and pay a premium of about $35 a month. They will pay the first $250 of their prescription drug costs, and Medicare will pay 75 percentof the costs (and individuals the remaining 25 percent)between$250 and $2,250. Once an individual has reached$3,600 in out-of-pocket spending,Medicare will pay 95 percent of


the costs, a;ndindividuals will be responsiblefor the remaining 5 percent. Individuals with low incomes and low assetswill not have to pay premiums or deductiblesand will only pay a small co-paymentfor eachprescription needed. Other people with low incomes and limited assetswill get help paying the premiums and deductible and the amount they pay for eachprescription will be limited. In addition, many statesoperateprescription assistance programsfor lower income Medicare beneficiaries. For instance,the State of Wisconsin offers a program for Medicare beneficiaries,which is typically a much better deal for Wisconsin seniorsthan any Canadianweb site. According to a letter from FDA to Wisconsin Governor Doyle, a patient taking the five most commonly-prescribeddrugs for seniors (Detrol, Lipitor, Accupril, Aricept, and Prevacid) for 112 days would pay only $277.50under the Senior Care Program in Wisconsin. If that samepatient bought the drugs from any of the Canadianpharmaciesthat the Governor of Wisconsin identified for its citizens, he would pay over six times that amount. In other words, a patient would pay $14.25 per day for the Canadiandrugs, and only $2.35 for safe, FDA-regulated American drugs from his local pharmacy.200 Shopping around among pharmaciescan also yield savings for consumers. According &I John Graham,the author of a study by the.FraserInstitute, Canada’ leading s economic think tank, “We hear about Americans who claim that they save money, some say up to 60 percent,by filling their prescriptions in Canada. That is very misleading becausein some casesa consumercan save as much by bargain hunting at home as he


Letter from FDA, Associate Commissionerfor Policy and Planning, William K. Hubbard to Wisconsin Governor Doyle (March 18,2004). 99

can by crossing the border,‘ Numeroussurveys have been done by statesand cities “203 acrossthat country that show consumerscan and do save money by shopping”around. For example, a survey by the Maine Bureau of Elder and Adult Servicesof prescription drug prices within the State of Maine found that the retail price of 10 drugs commonly used by seniorsvaried by as much as 60 percentin the 100 storesacrossthe statethey

Finally, generic drugs available in the U.S. are often considerablyless expensivethan foreign, non-FDA approveddrugs, and they offer a solution for many who cannot afford their medicine. The solutions detailed aboveprovide practical options for many individuals to accessaffordable medicinesthat will not risk their health and safety.


Me&ia Release,FraserInstitute, August 30,2001,>. “State Survey RevealsWide Rangeof Prescription Drug Prices,”Maine Times lzebruary 8,200l). 100