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Drug Importation, Comments to the Joint Hearing of the Senate Finance Committee Subcommittee on International Trade and Subcommittee on Health Care

April 27, 2004

Comments to the Joint Hearing of the Senate Finance Committee Subcommittee on International Trade and Subcommittee on Health Care
GPhA President and CEO Kathleen Jaeger
April 27, 2004

The Generic Pharmaceutical Association (GPhA) appreciates the opportunity to comment on international pharmaceutical trade issues before the Subcommittee on International Trade of the Senate Finance Committee. GPHA represents manufacturers and distributors of finished generic pharmaceutical products, manufacturers and distributors of bulk active pharmaceutical chemicals, and suppliers of other goods and services to the generic pharmaceutical industry. Our products are used to fill more than one billion prescriptions every year. No other industry has made, nor continues to make, a greater contribution to affordable health care in this country than the generic pharmaceutical industry.

GPhA will set forth comments on two issues that are directly connected to international pharmaceutical trade: 1) Prescription Drug Importation, and 2) Trade Agreements.

I. Prescription Drug Importation

A. Introduction

In 1984, when the Hatch-Waxman Amendments became law, America faced a health care cost crisis similar to the one it faces today. Since that time, the generic pharmaceutical industry has matured and has provided billions of dollars in savings each year, while improving the health of millions of Americans.

GPhA shares the public’s concerns about access to affordable medicine, but we also know that any long-term solution to high costs must not sacrifice safety or quality of our medicines. These are assurances that can only be offered through the strict approval process and regulation of the U.S. Food and Drug Administration (FDA).

B. Consumer Safety Must Be Paramount

Today, FDA-approved generics account for more than 51% of all prescriptions filled in the United States. Yet, generics represent less than eight cents of every dollar consumers spend on prescription drugs. These savings are in no small part the result of our Nation’s commitment to free market principles. Indeed, our free market principles have been the major force in creating today’s robust and competitive U.S. generic pharmaceutical industry. However, importation without adequate safeguards could shred the fabric of FDA’s safety net that has protected consumers from the entry of unregulated drugs of questionable safety, potency and quality for more than 70 years.

Our industry’s success, and the resulting consumer savings, stand in stark contrast to the economic experiences of other countries, such as Germany, France and Italy, which undermine pharmaceutical competition by government regulation and, hence, competitive pricing. If we permit the unregulated importation of prescription drugs, we will in effect, abandon the free market principles that have been so instrumental in allowing the generic industry to provide cost-effective prescription drugs. In turn, this could disrupt this Nation’s balance between innovation and access in the prescription drug arena. In addition, unregulated importation could undermine the 180-day generic drug exclusivity period that provides the critical incentive for generic companies to challenge invalid patents and bring affordable medicines to the market years ahead of the expiration date of the invalid patent.

Today, the quality of America’s prescription medicines is by far the highest in the world. Importation of unregulated drug products could significantly undermine this quality standard that we have worked so hard to achieve. For instance, the Canadian regulatory system exempts from its health and safety standards, drugs manufactured for “export only.” As a result, there can be no assurance of the actual origin of the drugs that are imported from Canada unless there is FDA supervision.

Also, there is no current system to determine whether unregulated imported drugs meet basic quality standards, or whether they have long since passed their expiration date, or are sub-potent, improperly labeled, contaminated or counterfeit. Nor are there adequate enforcement tools to stop importers of identified adulterated, misbranded or counterfeit products from re-attempting entry into the United States. Simply put, unless and until FDA has sufficient oversight over all drug importations, this Nation’s drug supply chain is vulnerable to an influx of inferior and/or potentially dangerous medicines. Adequate patient safeguards therefore must first be in place to assure that unregulated imported products meet all applicable U.S. standards as a prerequisite of importation. Otherwise, inferior and potentially lethal products may be sold unknowingly to American consumers at local pharmacies, and manufacturers of FDA-regulated imported products may be discriminated against in the U.S. marketplace.

In testimony before the HHS Task Force on Drug Importation recently, several panelists reviewed the severity of the prescription drug counterfeit issue facing multinational brand manufacturers. Counterfeiting is not a problem found only in developing countries; it has become a growing problem all over the world. Counterfeit prescription drugs have been repackaged and reformulated in foreign countries and then introduced into legitimate distribution channels. Counterfeiting activities are well-orchestrated business enterprises, with the intention of diverting products for robust markets, such as the U.S. and Australia.1 Given the gravity and breadth of the worldwide counterfeiting epidemic that plagues the pharmaceutical industry even under the current system, adequate safeguards must remain intact.

Another critical issue for consideration is whether the FDA will have the requisite resources to oversee a comprehensive import program. Without adequate resources and the time to train the requisite number of specialists to oversee such a critical program, the agency will be hard pressed to implement the necessary safeguards, provide the requisite oversight, and take appropriate enforcement actions to ensure that this Nation’s drug supply system remains secure.

C. Cost Savings Is Questionable

Given the necessity of developing a costly regulatory program to govern importation to ensure consumer safety as well as distribution and liability costs, the purported cost savings of importation may never be realized. Importation ignores the potential costs associated with medical treatment for consumers who have obtained poor quality drugs that don’t work. It ignores the costs associated with treating consumers of unregulated drugs that are contaminated or contain harmful ingredients. It ignores the cost of treating consumers taking unregulated imported drugs that are improperly labeled. The costs of restoring America’s healthcare system after importation opens the floodgate to questionable medicines must be calculated and seriously considered before any action is taken.

In addition, with importation, consumers unknowingly may end up paying more than they would if they bought an equivalent FDA-approved generic pharmaceutical here in the United States. In fact, several reports suggest that, on average, U.S. generic drugs are more affordable than Canadian generics.2 Given the additional costs of unregulated importation, an assessment of the scope of potential products for importation seems prudent. Such an assessment would provide a means of ensuring consumer cost savings. Indeed, it seems counterintuitive to permit importation of unregulated imports if there is a less expensive generic already available to consumers here at home. At a minimum, unregulated prescription drug importers should be required to establish that the proposed imported product has no lower cost generic equivalent approved in the United States. Moreover, cost savings from importation should be required to be passed along to the consumer. Without this additional requirement, commercial entities could take much of the difference in prices for themselves, leaving little or no cost savings for the U.S. consumer, all the while increasing risk, adding additional costs to the government, and potentially enhancing manufacturer liability.

More importantly, unregulated importation will destroy the 180-day generic exclusivity incentive, causing our healthcare system to forfeit substantial future cost savings. This critical healthcare provision plays a significant cost containment role because it provides generic manufacturers with an incentive to challenge questionable and invalid patents. The 180-day provision has been instrumental in bringing consumers affordable medicines in an accelerated fashion, while saving billions of dollars in pharmaceutical costs. For example, 11 successful generic challenges provided over $27 billion in savings.

D. Immediate and Available Solutions for Lowering Prescription Drug Costs

GPhA believes that the solution to high prescription drug costs will not be found in unregulated foreign imports but rather with greater utilization of FDA-approved generic prescriptions. Generic pharmaceuticals are a safe, reliable solution to the problem of increased costs of prescription drugs. While a limited program of importing drugs from selected countries would potentially lower some drug costs for those without prescription drug coverage, increasing access to generic drugs would benefit all consumers, businesses, and government purchasers, through lower out-of-pocket and insurance costs.

There are tools available that help immediately increase generic drug utilization and savings: (1) educating consumers, physicians and states about the generic availability; 2) encouraging generic substitution; (3) employing benefit designs that incentivize the use of generics; and (4) ensuring their timely market entry.

Every 1% increase in generic utilization will result in nearly a 1% increase in savings for prescription drug payers. GPhA believes one answer to lowering prescription drug costs will be found in removing obstacles to improve access to generic medicines that already have FDA scrutiny, and already save consumers more than $10 billion each year.

E. Prescription Drug Importation Summary

Without FDA oversight of unregulated drug importation, which at best will be expensive to implement and difficult to ensure, the U.S. drug supply chain would be particularly vulnerable to abuse. The result of importation could be an influx of adulterated, misbranded, unapproved or counterfeit medicines into this Nation’s drug supply chain. While it is understandable that consumers facing high costs for prescription drugs are seeking relief, sacrificing safety for affordability is shortsighted, dangerous and unnecessary.

As Congress and state governments consider legislation and proposals to allow importation of unregulated drugs, GPhA strongly encourages these parties to look for immediate solutions in increased usage of generic medicines. We also encourage individuals to be smart consumers, and take advantage of the immediate cost savings on safe and effective, FDA-approved generic medicines.

II. Trade Agreements

Introduction

GPhA is committed to a balance between innovation and access. To that end, we also are committed to innovation in medicines and the preservation of intellectual property protections both in the United States and abroad. With balance our main concern, we believe it is essential that new trade agreements maintain parity between existing U.S. standards and requirements and those included in new trade agreements.

The generic pharmaceutical sector is uniquely impacted by the harmonization of agreements on intellectual property protections for pharmaceuticals -- particularly insofar as they increase market exclusivity periods or remove necessary access provisions (e.g., the Declaratory Judgment actions). New trade agreements thus could potentially affect American consumers’ access to affordable drugs as well as the business interests of the U.S. generic pharmaceutical industry. The important role that generic drugs play in providing American consumers with affordable medicines can be expanded into other nations, but only if parity exists to maintain the integrity of U.S. standards and requirements.

Unfortunately, recent trade negotiations have failed to put the interests of American consumers first. For example, in the just-concluded U.S.-Australia Free Trade agreement, fails to require the Bolar provision -- which ensures that generic medicines enter the market immediately after patent expiry to improve access and encourage competition. The U.S.-Australia FTA also provides for market exclusivity that extends slightly beyond the U.S. provisions of 5 years of market exclusivity for new chemical moieties and 3 years of market exclusivity for new products. (See Article 17.10 (1) (c)) “at least five years”). At a minimum, GPhA believes that the concept of 5 year market exclusivity within trade agreements be accompanied by the Bolar Provision, without accruing any additional market exclusivity or patent extension benefits. Moreover, if linkage between patents and product approvals is to be embraced, that it be done in the context of the entire construct of U.S. law, including recent statutory changes enacted in Title VII of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. GPhA accordingly supports a balanced trade approach. One that includes the following key access issues:

1. Market Exclusivity

U.S. law establishes that a generic applicant cannot submit an abbreviated new drug application for a product that contains the same active moiety as in the new chemical entity for a period of 5 years from the date of the approval of the first approved new drug application. Art. 39.3 of TRIPS establishes that “Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products, which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves considerable effort, shall protect such data against unfair commercial use.” However, it does not establish any specific period for such market exclusivity.

Access to such data is necessary for generic companies to be able to submit early applications for the marketing approval of much needed generic drugs. Market exclusivity extensions could result in unnecessary delays of the application for marketing approval of generic companies. Such delays result in increased pharmaceutical costs for consumers.

GPhA strongly opposes any extension to market exclusivity concepts beyond what it is currently in the U.S. law. Last November, we also expressed our opposition to the language that was proposed in the draft of the Free Trade Area of the Americas (FTAA) (Section 10. Article [1.2], [1.4], to establish “at least” five years of data protection). We have seen with great concern that the text of the FTA that was recently concluded with Australia states “at least 5 years.” GPhA strongly opposes inclusion of similar language for all future agreements as such language can potentially delay consumer access to more affordable medicines both in the United States as well as in its trading partners. It is essential that consumers have access to affordable drugs immediately after the expiration of a patent.

2. Bolar Provision

The “Bolar” provision is a critical U.S. provision that allows for the development, testing and experimental work required for the registration of a generic medicine during the patent period of the original product. The purpose of this provision is to ensure that generic medicines enter the market immediately after patent expiry to improve access and encourage competition. This provision has been upheld by the World Trade Organization (WTO) as conforming to the Trade Related Aspects of Intellectual Property Rights Agreement (TRIPS) in a WTO dispute ruling. In its report adopted on April 7, 2000, a WTO dispute settlement panel said Canadian law conforms to the TRIPS Agreement in allowing manufacturers to develop the necessary registration information and test data. (The case was titled “Canada-Patent Protection for Pharmaceutical Products”).

Recent FTAs do not specifically state that that the Bolar Provision should be included in the legislation or regulations of the Parties. Clearly, the omission of the Bolar Provision is of grave concern to GPhA. This provision is essential to ensure that consumers have access to more affordable drugs as soon as a patent expires and has proven to be an effective measure in the United States that could also be of benefit to other nations. We believe that it is essential that future trade agreements include specific language to ensure its inclusion in the laws of the Parties.

3. Linkage

U.S. regulations establish an intellectual property-based abbreviated approval process. Simply put, it includes a linkage between certain types of patents and abbreviated product approvals. The end result is that the U.S. government is precluded from approving a generic pharmaceutical if certain patents are deemed valid and infringed by the generic product. Linkage in the United States was intended to promote pharmaceutical innovation while at the same time allowing access to affordable medicines.

However, linkage has, in some cases, led to unnecessary delays in generic competition stemming from patents improperly listed with the U.S. government. GPhA is concerned that the U.S. government may be requesting other countries to include an “automatic” linkage, despite no such parallel system components in current U.S. law. For example, under the U.S. approval system, the linkage is not automatic. A possible delay by the FDA in its analysis and approval of a generic drug due to an existing patent only occurs after the patent owner brings suit for patent infringement within 45 days of receipt by the patent owner of the notice of certification of the ANDA at the FDA. Failure of the patent owner to act within that time frame allows the FDA to proceed with the approval process of the drug (Title 21, Chapter 1, Part 314.107(b)(3)). Moreover, only certain types of patents are subject to that linkage.

GPhA opposes the inclusion of automatic linkage in trade agreements as we believe that it has resulted in unnecessary delays to the entry of generic drugs into the market. In addition, GPhA believes that if the concept of linkage is adopted in trade agreements, it must be done in the context of the entire construct of U.S. law, including recent statutory changes enacted in Title VII of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. These changes include among other things: (1) the elimination of multiple 30-month stays of FDA approval of a generic drug application with a paragraph IV certification while the courts determine whether the patent has been infringed; and (2) permit a generic applicant to pursue a court challenge to the listing of a patent in the Orange Book under a declaratory judgment concept.

Conclusion

As the trade association representing a major industry in a key industrial sector, GPhA supports efforts to negotiate trade agreements with other nations. We believe that such agreements can be beneficial both to global consumers and our member companies if their content reflects parity with established U.S. laws, standards and regulations governing the marketing of generic pharmaceuticals. Without such parity, American consumers -- who have come to depend on affordable generic medicines to help them lead longer, healthier and more productive lives -- are at risk of delayed access to the substantial savings created by generic competition.

1 John Theriault, Testimony before the HHS Task Force on Drug Importation, April 5, 2004.
2 Palmer D’Angelo Consulting Inc. Report Series, “Generic Drug Prices: A Canada-U.S. Comparison,” August 2002. John R. Graham and Beverly A. Robson, The Fraser Insitute, “Prescription Drug Prices in Canada and the United States -- Part I: A Comparative Survey,” Public Policy Sources, No. 42 (2000) pp. 3-5