Ms. Kathleen Jaeger

President and CEO
Generic Pharmaceutical Association
July 14, 2004

Testimony to the
Senate Judiciary Committee
July 14, 2004
EXAMINING THE IMPLICATIONS OF DRUG
IMPORTATION
Kathleen D. Jaeger
President & CEO
2300 Clarendon Boulevard Arlington, VA 22201
Ph. 703-647-2480 f. 703-647-2481
www.gphaonline.org
GPhA Testimony: Senate Judiciary Committee Hearing on Drug Importation
July 14, 2004
Testimony of Kathleen Jaeger
President & CEO
Generic Pharmaceutical Association
Mr. Chairman, I am Kathleen Jaeger and I serve as President and CEO of the Generic
Pharmaceutical Association. On behalf of GPHA and its members, I thank you for the
opportunity to testify on the issue of drug importation.
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, producing countless billions of dollars in savings
for consumers, businesses, and government. Patients rely on generics to improve their lives, and
the nation relies on generics to help keep U.S. healthcare affordable.
I. INTRODUCTION
For more than two decades, FDA-approved generic pharmaceuticals have played a critical
role in the effort to contain rising prescription drug costs. In the early 1980's, when you and
Congressman Waxman wrote the Hatch-Waxman reforms, the nation faced a health care cost
crisis similar to the one it faces today. Since that time, with your help, the generic
pharmaceutical industry has matured and has provided tens of billions of dollars in savings each
year, while improving the health of millions of Americans.
Mr. Chairman, GPhA and all of our members are proud of our commitment
to--and our success at--helping Americans access less expensive, high quality medications.
Today, FDA-approved generics account for more than 51 percent of all prescriptions filled in the
United States. Yet, generics represent less than eight cents of every dollar consumers spend on
prescription drugs. Clearly, the existence of a healthy generic drug industry has enhanced access
to affordable medications - something all purchasers should want to continue to encourage.
Nonetheless, we well understand the frustration that consumers, businesses, and health plans
have with ever-increasing drug costs. As Members of Congress struggle to respond to this
frustration, it is critical to make certain that any policy option considered does not inadvertently
undermine incentives for generic competition OR sacrifice safety or quality of our medicines.
Unfortunately, as currently drafted, we believe that the legislation before Congress on
reimportation has the potential for these unintended consequences.
2
Many of the Members of Congress we have worked most closely with in assuring greater
access to more affordable generics are now seeking to develop a workable approach to import
less expensive prescription drugs from abroad. We have great respect for this bipartisan effort -
whether it be initiatives drafted by Senators Dorgan, Snowe, Kennedy and McCain, by Chairman
Gregg of the HELP Committee, or by Chairman Grassley of the Finance Committee.
II. RECOMMENDATIONS
However, as I will describe in my testimony, GPhA has concerns about safety, and the
impact of drug importation on maintaining and assuring the continuation of: a safe and secure
drug supply system; a healthy generic drug industry; and the availability of affordable generics.
Because of these concerns that have not yet been addressed, GPhA has taken a position opposing
reimportation. However, if Congress believes it is necessary to pursue legislation in this area, we
believe the following issues need to be addressed to limit unintended and negative impacts the
proposals would have on cost and quality:
First and foremost, the Food and Drug Administration (FDA) must be provided with
adequate resources to ensure the safety of this nation's drug supply. GPhA would recommend
that oversight of safety issues related to importing drugs should be the responsibility of the FDA,
and that Congress should ensure that any importation bill is accompanied by the necessary
agency funding to do this effectively. 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.
Consumers should be confident that the same strict standards that the regulators require for
domestic brand and generic drugs will be in place for imported drugs as well. We believe that
FDA must have sufficient oversight over all drug importations in order to prevent this nation's
drug supply chain being 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.
In testimony before the HHS Task Force on Drug Importation earlier this year, 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 United States 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 at, a minimum, remain intact.
Secondly, GPhA would recommend that the importation program should be limited to those
drugs that will actually provide cost savings to health care consumers--brand drugs with no
3
1 John Theriault, Testimony before the HHS Task Force on Drug Importation, April 5, 2004.
generic competition. Permitting the importation of generic drugs has great potential to be
counter-productive. U.S. generic drugs are not only cheaper than potential imported brand
drugs, but as several reports suggest, U.S. generic drugs are generally more affordable than
generics in Canada and other industrialized countries.2 Thus, it seems counterintuitive to permit
entry of branded and generic imports if there is a less expensive generic already available to
consumers here at home. Accordingly, any proposal to loosen the restrictions on imports should
take into consideration the cost savings already available through U.S. generic drugs.
Additionally, the resources given to the FDA to inspect and regulate imported drugs would better
utilized on a limited sample of the drug market to minimize safety concerns and administrative
burdens. If we permit the importation of generic drugs and their brand counterparts, we will in
effect, be encouraging the use of prescription drugs which may be more costly than the generic
drugs available in this country while substantially adding to the burden placed on FDA by
importation.
Thirdly, while we would prefer that the imported drugs be required to be therapeutically
equivalent, we strongly recommend that if an imported drug is therapeutically inequivalent to the
FDA-approved domestic brand drug, consumers should be made aware of the difference through
product labeling. To be therapeutically equivalent, the drug must not only have the same active
ingredient or ingredients, route of administration, dosage form, and strength as its counterpart, it
must also be bioequivalent. Generic drugs are required to be therapeutically equivalent to the
referenced brand drug before they can be considered by FDA to be interchangeable for their
FDA-approved domestic brand counterparts. Being therapeutically equivalent allows the generic
to be substituted with the brand without any adverse effects to the patient. Thus, if an imported
brand is not considered to be therapeutically equivalent to its domestic alternative, FDA should
be provided the authority to label drug products accordingly to ensure that health care
professionals and consumers are empowered to make well-informed decision before switching
between medication products.
Lastly, any importation program should protect the important balance between innovation
and access to generics by prohibiting importation during the 180-day exclusivity period for
generic companies. By allowing importation during this vital period, current importation
proposals could undermine the well-crafted compromise 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. The 180-day period has been an
extremely important reason why the generic industry has thrived over the past 20 years by
bringing consumers accelerated access to affordable medicines. Changes enacted under last
year's Medicare Modernization Act were designed to restore its original value and effectiveness.
Through patent challenges, generic drugs have bought billions of dollars of savings to
consumers. For example, in just one case, Prozac, a challenge brought generic competition to
the market three years early, saving $2.5 billion on that drug alone. However, if the importation
of foreign drugs (which may not be therapeutically equivalent) is permitted during the 180-day
2 Palmer D'Angelo Consulting Inc. Report Series, "Generic Drug Prices: A Canada-US Comparison," August 2002
4
John R. Graham and Beverly A. Robson, The Fraser Institute, "Prescription Drug Prices in Canada and the United
States - Part I: A Comparative Survey," Public Policy Sources, No. 42 (2000) pp. 3-5
period, it will undo the carefully crafted balance between innovation and access that Congress
has worked so hard to achieve.
III. IMMEDIATE AND AVAILABLE SOLUTIONS FOR LOWERING
PRESCRIPTION DRUG COSTS
Although the debate about importation continues, there are steps that can be taken now to
immediately reduce prescription drug costs. Generic pharmaceuticals are a safe, reliable solution
to the problem of increased costs of prescription drugs. Increasing access to and utilization of
generic drugs would benefit all consumers, businesses, and government purchasers, through
lower out-of-pocket and insurance costs.
The tools to immediately increase generic drug utilization and the savings it provides include,
but are not limited to: (1) solidifying a definitive, efficient pathway for affordable
biopharmaceuticals; (2) mandating the use of therapeutically equivalent generics in all federal
and state programs; (3) removing all needless generic substitution carve outs in federal and state
programs; (4) having generic approvals be an Administration priority, which provide for agency
consults, legal and scientific issues resolved in a timely fashion; (5) conducting scientific
research to support the approval of nonsystematic generic medicines; (6) substantially improve
the funding for and staffing of the FDA's office of generic drugs; and (7) educating consumers of
the value of generic medicines.
FDA plays an important role in ensuring that American consumers have access to generics
through its generic drug review and approval process. Yet, the Office of Generic Drugs, which
is responsible for the approval of generic medicines, does not receive adequate funding. This is
significant given that the number of generic drug applications continues to rise significantly,
while the number of new drug applications is declining. Equally important is the fact that the
review and approval of generic applications currently takes longer, on average, than the approval
of new drugs, potentially delaying consumer access and savings. We urge the Senate to include
a similar increase in funding for the OGD that was included by Representative Emerson in the
House Agriculture appropriations bill. Congress and the Administration need to address the
issues of increasing the resources necessary to approve generic drugs more efficiently, and of
making generic approvals a priority, rather than creating an expensive new regulatory
mechanism to monitor the importation of unregulated drugs.
Additionally, as Senator Hatch and the Senate Judiciary Committee recognized last month
when discussing generic biopharmaceuticals, Congress and the Administration must focus
attention on establishing a definitive process pursuant to which generic versions of expensive
biopharmaceuticals can receive FDA approval. Last year, biopharmaceuticals cost payers more
than $21 billion. Generic versions of these important, but expensive drugs would contribute
additional billions of dollars a year in prescription drug savings.
5
Lastly, the Administration and states also could work together to ensure that aggressive
generic substitution tools are employed in state Medicaid programs. States could garner
additional savings by implementing aggressive generic substitution tools to other state senior
supplemental programs and employee health programs.
IV. AUTHORIZED GENERICS
Finally, Congress and the Administration need to address the issue of "authorized generics"
because they undermine the 180-day generic exclusivity period which encourages generic
manufacturers to challenge weak and questionable patents. Successful patent challenges
significantly accelerate consumer access to affordable medicines. The practice of "authorized
generics" involves brand companies licensing the distribution rights of their product, which has
been the subject of a patent challenge, to generic companies that then can market the product
during a 180-day generic exclusivity period that has been won by the first generic company
challenging the patent. This could effectively remove the economic incentive for the company
undertaking the patent challenge. GPhA urges Congress to explore and consider this issue.
V. INTERNATIONAL TRADE AGREEMENTS
GPhA is committed to a balance between innovation and access. To that end, we are
committed to innovation in medicines and the preservation of intellectual property protections
both in the United States and abroad. With this fragile balance as our main concern, we strongly
believe that it is essential that new trade agreements take into consideration existing U.S.
measures relating to the accessibility of affordable pharmaceuticals. New trade agreements, such
as the one currently being considered with Australia, could potentially affect American
consumers' access to affordable drugs as well as the business interests of the U.S. generic
pharmaceutical industry. As evidence to support our concern, we need only look at the fall-out
of the harmonization efforts relating to TRIPS. A study conducted by University of Minnesota
Professor Stephen Schondelmeyer concluded that the cost of the TRIPS harmonization efforts
would "exceed six billion over the next two decades." The study also suggested that "[t]he
annual generic savings lost by American consumers due to delayed generic entry [as a result of
TRIPS] will range from $200 million in some years to over $500 million in other years."3
Accordingly, if trade agreements contain certain provisions that promote innovation, yet are
devoid of other essential provisions that foster access to generics, or contain export prohibitions
that restrict access to bulk pharmaceuticals and other materials used to manufacture U.S. generic
pharmaceutical products, American's access to affordable medicines could be severely harmed
as a result of future harmonization measures.
VI. SUMMARY
In summary, GPhA believes that the debate around reimportation legislation is the logical
conclusion of a continued frustration with rising brand name drug prices and utilization in this
6
3 S. Schondelmeyer, "Economic Impact of GATT Patent Extension on Currently Marketed Drugs," PRIME Institute,
University of Minnesota, March 1995.
7
country. We question whether pursuing such a policy would most effectively address the
underlying problems the nation faces in this area. We believe there are a number of policies
worthy of Congressional and Administration consideration, including policies that incentivize
generic utilization, which would make a substantial contribution to our shared goal of assuring
affordable quality medications for the American consumer. If Congress is to pursue
reimportation legislation, however, we strongly believe that it must address some of the flaws of
the current pending bills. We look forward to working with you and all interested Members
from both parties in this regard.