BIO Testimony Against Importation

TESTIMONY OF THE
BIOTECHNOLOGY INDUSTRY ORGANIZATION

BEFORE
THE JUDICIARY COMMITTEE
OF THE
UNITED STATES SENATE

IMPORTATION OF PRESCRIPTION DRUGS

JULY 14, 2004

The Biotechnology Industry Organization (BIO) appreciates the opportunity to present the views of the industry and our members on the issue of legalizing prescription drug importation. BIO represents more than 1,000 biotechnology companies, academic institutions, state biotechnology centers and related organizations in all 50 U.S. states. BIO members are involved in the research and development of health care, agricultural, industrial, and environmental biotechnology products. BIO looks forward to working with Congress to help patients access the prescription drugs they need - including the life-saving products developed by our members.

BIO supported expanding the Medicare program to include a prescription drug benefit and continues to believe that when the prescription drug benefit is fully implemented it will improve the lives of millions of Medicare beneficiaries. Should future program changes be warranted, BIO stands ready to assist Congress to develop these modifications. However, we do not agree that enacting legislation authorizing Medicare beneficiaries and other patients to import prescription drugs will create safe and effective access to our products.

Currently, patients feel secure when taking their medications because they know that this country has the highest safety standards in the world for drugs and biological products. The Food and Drug Administration's (FDA) approval of a new product signifies that the product meets the FDA's gold standard for safety and effectiveness. Legislative proposals that authorize prescription drug importation will place patients at risk of obtaining products that do not meet FDA's gold standard. The wholesale importation of prescription drugs across American borders will jeopardize all U.S. consumers, regardless of whether they have chosen to obtain their prescription drugs from a foreign source because of the commingling of foreign and domestic products that will result from importing drugs.

Moreover, drug importation will stifle innovation in the U.S. biotechnology industry by imposing price controls and jeopardizing intellectual property rights. Stifling innovation hurts patients who are counting on advances in research and medicine to treat debilitating and often life-threatening illnesses. Whether they support prescription drug importation or not, many members of Congress insist that they oppose price controls, because price controls do not work to lower prices and, when they have been tried, often have resulted in policies and business consequences that have been harmful over the long run. But allowing wholesale importing of prescription drugs is tantamount to imposing price controls because the underlying intention is to import foreign prices and, thus, the foreign government-imposed price controls. Not only will this do little to level drug costs over the long term, but it also will seriously threaten continued innovation in the U.S. biotechnology industry.

In addition, expanding prescription drug importation and the definitions of who may import a manufacturer's products legally has serious implications for protection of intellectual property. As this Committee is aware, international disagreements abound over the obligations of foreign governments to protect the intellectual property of drug and biological product manufacturers, and differences are rampant among countries about the extent to which they are willing to allow the breach of these protections. Those differences of policy and practice have affected international trade negotiations, international policy on access to drug products for serious diseases, international trade and tariff policy, and other areas. For the U.S. Congress to sanction and, indeed, encourage the importation without consequence of foreign drug products that have not been directly associated with a "normal" FDA approval, by individuals or wholesalers who are not directly licensed by the product's manufacturer or owner, raises all of these issues in our own country and calls into question the U.S. policy regarding protection of intellectual property. It is tantamount to placing this country on a par with countries that routinely disregard patents and other intellectual property protections. If the United States makes this kind of choice for prescription drugs - that they are no longer entitled to be protected under the laws of our own country - the government will compromise its ability to contest violations of intellectual property in other arenas and for all of the other kinds of products about which this country and its manufacturers are concerned.

Prescription Drug Importation Is Unsafe

BIO strongly opposes the legalization of prescription drug importation, notwithstanding the exemption of many biological and biotechnology products. Legalized importation will open the floodgates to a variety of unsafe prescription products.

For example, the FDA has testified on multiple occasions that the U.S. prescription drug supply already is under attack from a variety of increasingly sophisticated threats. Opening our borders, the FDA has asserted, would enable unscrupulous entities to circumvent the agency's safety and effectiveness standards and peddle unapproved and perhaps dangerous products to U.S. consumers. Even if biologics and certain biotech products are exempt, counterfeiters and other criminals likely will find a way to ship dangerous versions of our products across the border.

Biological/Biotechnology Products Are Unique

Many biologics and other biotechnology-derived medicines are particularly susceptible to adulteration, degradation and virtually undetectable counterfeiting. Moreover, many of our products cannot be administered safely by a patient and require the intervention and/or supervision of a health-care provider. As a result, our products are often not available in the U.S. through outpatient prescriptions, nor available at the local pharmacy.

Yet patients and the FDA, through its sting operations, have been able to acquire biological and biotechnology products through Internet sites and through other questionable means. In many of these cases, the products were packaged improperly, maintained at temperatures that hastened their degradation or completely destroyed their effectiveness, or were diluted, concentrated or otherwise dangerously adulterated. Obviously, the illegality of the transactions did not prevent them from occurring. To legalize importation for virtually all prescription drugs will do little to protect against further entry of unsafe medicines and likely will increase the availability of unsafe or, at the very least, ineffective biotechnology medicines.

Wholesale Importation Is Not Individual Importation

Questions about the safety and integrity of the prescription drug supply are real and valid. The Congressional Budget Office recently issued a report on prescription drug importation, noting, with respect to cost savings, that although one patient filling a prescription in a foreign pharmacy may realize savings, the same would not necessarily be true for the entire health-care system.

This finding also can be extrapolated to safety concerns. If an individual chooses to travel to a foreign country to fill a prescription or to order prescription drugs from an unknown source via an Internet site, that individual is making a decision to accept the risk associated with that transaction. But wholesale importation will result in an intermingling of foreign drug products with those that have been approved as safe and effective through the FDA's gold-standard approval process. This means that every person filling a prescription will face the possibility of receiving a "second class" drug. Whether a consumer chooses to take the risk of filling a prescription from a foreign source will be irrelevant: we all will be forced to take the risk that our prescriptions are second-tier medicines.

Legalizing Importation Devalues the FDA Approval System

Drug importation will call into question the value and the viability of the FDA approval process. Recently introduced importation legislation essentially deems that products are FDA approved, whether their sponsors actually have provided the data needed for a true FDA approval or not. For example, some legislative proposals would require prescription drug manufacturers with foreign-approved drugs to submit an FDA application for approval, stating the differences between the foreign-made product and any U.S. counterpart. Based on this scant information, FDA is expected to determine whether the product can receive agency approval. Technically, supporters argue, FDA can deny approval, but this is hardly a realistic expectation. The legislation's clear message is an expectation of FDA approval. Indeed, since FDA, when it receives such an "application," would be required to make it public, the same pressure driving this legislation will come to bear - making it extremely difficult to deny the presumptive "FDA approval." Patients deserve better than titular FDA approval, but under this system, that is what they will get. The FDA will be required essentially to approve drugs for distribution in the United States that have not undergone the same safety and efficacy tests as their U.S. counterparts. Importation legislation will allow foreign-approved drugs to circumvent the FDA approval process completely. The result will be that patients will no longer have confidence that the medicines are proved to be safe and effective prior to reaching the market.

Unrealistic Expectations for FDA Make Enforcement Impossible

Creating numerous new requirements and voluminous paperwork for FDA under a new importation program will not and cannot make an inherently bad system safe. It would be impossible for the FDA to register, monitor and regulate importers and exporters; ensure that all incoming drug products are in accord with proper prescriptions; and inspect parcels, products and facilities to ensure product safety with the intensity required under such a program. Small and legislatively limited user fees assessed from importers will be insufficient to ensure that FDA can enforce the myriad new requirements. The agency itself has testified to this effect, reminding Congress of the significant and continuing resources - including more than 1,500 new inspectors - it chose to appropriate to assure control of imported foods. Concerns about attacks on the nation's food supply led to a decision by Congress to increase FDA's authority.

Those who will benefit most from the unenforceability of drug importation requirements will be those who least intend to abide by them - criminals, counterfeiters, smugglers and others whose only goal is to make the most money in the easiest fashion without regard to whether the so-called prescription products they peddle are safe or effective.

Prescription Drug Importation Will Hurt the Economy and Biotechnology Innovation

In addition to threatening the safety and integrity of the U.S. prescription drug supply, there are also valid economic reasons to oppose drug importation.

The biotechnology industry is a growing creative force on the U.S. economic landscape. The industry provides many jobs and a thriving tax base for communities throughout the country. National and state policies that encourage biotechnology innovation and foster the growth of the industry will provide not only an economic boost but also fertile ground for the development of treatments and cures. Biotech innovation has led to the development and FDA approval of more than 190 products that have helped at least 325 million people worldwide. Policies and legislation that discourage innovation will slow or end this progress.

Importation Will Have a Negative Impact on Investment

Investment in the U.S. biotechnology industry is based on an expectation that a product's success will reap benefits not only for patients but also for future industry projects and investors. That expectation can be fulfilled if a successful product remains in a favorable competitive environment for a reasonable period of time. Investors will not look favorably on the possibility of imported products quickly becoming competitors of FDA-approved products, nor will they look favorably on what will become, essentially, a system of foreign-imposed price controls on FDA-approved products.

The vast majority of biotechnology companies across the United States are small companies with no products on the market and without significant revenue or profits. To fund costly and lengthy periods of research and development, biotechnology companies rely heavily on three primary sources of capital: (1) private (i.e., institutional or venture investors); (2) public (i.e., the stock markets - mutual fund investors and individual investors); and (3) capital obtained from partnerships with other companies.

The capital markets are acutely sensitive to factors that threaten to limit current or future profitability for any company or industry sector. We see examples of this on a daily basis: if a public company unexpectedly announces an event that could adversely impact future earnings, the stock price plummets, resulting in millions, sometimes billions, in lost market value. Frequently, depending on the nature of the event, an announcement by one company also will have a negative effect on other stocks in the same sector, because of the fear that something similar could happen to those companies. Broader pronouncements that threaten to limit the profitability of an entire sector have even greater significant adverse consequences.

To illustrate this phenomenon, one need only recall the early nineties, when the call for widespread health-care reform with government price controls caused a precipitous decline in health-care stocks, in aggregate valuations, and in the subsequent flow of investment capital into the health-care sector. It is worth remembering that this tide was reversed only when the threat of price controls subsided. Another example of the capital markets' quick response to a perceived threat to future profitability was the Clinton-Blair gene patent pronouncement, when a misstatement by a White House press secretary caused the immediate loss of billions of dollars in market value for the biotech industry. There was no policy change, yet the bottom fell out of the biotechnology market as stock prices plunged within a few hours.

Broadening legal prescription drug importation will have at least the same desultory impact and probably a greater one. The question is whether Congress and patients want to take the chance that prescription drug importation - which is arguably not even a long-term solution to the identified problem of escalating drug costs - will have an adverse impact on biopharmaceutical innovation. BIO is certain that it will affect biotechnology innovation in a way that could slow the development of new products, or perhaps stop such development in its tracks.

Biotechnology development is an extremely high-risk venture. Of the many wonderful ideas this creative industry generates, only a small handful result in FDA-approved new products. Our member companies are dedicated to finding the next biologically based treatment or cure. They are willing to devote enormous energy, creativity, and resources to this endeavor, even though they know success is difficult and elusive. This research and development cannot be undertaken without the commitment of substantial financial resources, most of which come from the highly sensitive capital market. Some may argue that the pro-forma (and we believe unenforceable) exemption of biotechnology products from importation legislative proposals will resolve these economic concerns. However, it is important to remember that many BIO member companies use the fruits of biotechnology as part of their drug discovery and development efforts, although the products themselves may not be manufactured using biotechnology processes. Such companies would be severely adversely affected by the legalization of drug importation regardless of whether biological products are exempted.

The unrestricted importation of drugs that are sold to foreign suppliers under foreign government-imposed (or "negotiated") price controls will reduce the profitability of the companies that developed the drugs. In fact, that is precisely the objective of importation advocates - to use importation as a mechanism to reduce prices for consumers artificially, and thereby reduce company profits as a result. The immediate and unavoidable impact of reducing economic profitability is a reduction in investment in an industry that requires capital to fund further innovation. Quite simply, reduced profits (via price controls or any other mechanism) mean less investment capital to support drug research and development.

De facto implementation of price controls via importation will not create a corresponding reduction in drug development costs. It will still cost the same to discover, test, validate through clinical trials, manufacture and ultimately sell a new product. The failure rates experienced during the product development process will still be the same. The costs and risks will remain the same, but the potential return will be greatly diminished. As a result, companies will have no choice but to limit their development efforts to only those drugs that have the highest potential profitability in the face of price controls. Drug candidates that could potentially help many patients and that were once considered viable opportunities under a free-market pricing system will be abandoned because they will no longer be sufficiently profitable in a world of de facto price controls.

Prescription Drug Importation Imports Foreign Government Price Controls

The importation issue is not just about the importation of drugs - it's about the importation of price controls. Importation would not even be a topic of discussion today were it not for the fact that foreign governments have arbitrarily imposed pricing restrictions on companies that develop new, safer and innovative medicines. That is a global trade issue that must be addressed. Why should foreign countries be allowed to force U.S. consumers and companies to subsidize their health-care costs? Without the innovations provided by the U.S. biotechnology and pharmaceutical industry, their health-care costs would surely be far higher, and the quality of life experienced by many patients far less, than they are today.

The U.S. leads the way in biotechnology innovation. This country is without peer in terms of understanding disease and developing the most appropriate ways to treat disease. The reason we are so successful, and the reason our patients have the best chance at the latest and best medicine, is that our national policies foster innovation. We do not have prescription price controls because such controls hinder and discourage innovation. We do not have international parallel trade because those trade policies stifle innovation. We have strong protections for intellectual property because such protections foster innovation. Biotechnology innovation will deliver on its promise if the country delivers on policies that allow it to thrive.

Importation Proposals Threaten Patent Law

Prescription drug importation legislation also erodes intellectual property rights. One bill that has been introduced would prevent United States manufacturers from enforcing their patents against foreign products that, if marketed in the U.S. under current law, would violate the patents on the U.S. products. In other words, even though a foreign product would be imported into the U.S. market in direct competition with a patented FDA-approved drug, the manufacturer would be denied any recourse under U.S. patent laws. The impact on the biotechnology industry of such a change to patent rights would be enormous. In many cases, companies in this industry own very little except their intellectual property. The entire value of the company may hinge on intellectual property rights to a material or a means to achieve specific activity from certain kinds of biological agents. The message of such legislation is loud and clear: the United States is not willing to protect patent rights associated with pharmaceutical innovation. This message alone is enough to discourage investment and smother innovation.

Every week, the public and the Congress hear about a policy debate during which the United States argues that intellectual property protection is critical and other countries argue that it is not. These debates occur during discussions of trade policy, treaties, international health policy and other issues. The United States often finds itself in the unenviable position of being right on a policy that some critics say hurts people in other countries. While this stance has made for negative headlines, it also has continued to reinforce U.S. policies that preserve and promote our country's preeminence in technology, and particularly in biological science, medicine and biotechnology. This promotion of policies that ensure our scientists and innovative manufacturers remain at the cutting edge of their fields benefits our citizens. The benefit is especially obvious in the case of pharmaceutical biotechnology innovation, the source of the next treatment or cure for a disease that today has no hope of cure. To allow intellectual property protection to erode, or deliberately to say that it is irrelevant, as some importation legislation advocates, is tantamount to saying "no" to patients. That is unacceptable policy.

Prescription Drug Importation Does Not Guarantee Cost Savings

Although prescription drug importation legislation is intended to lower prescription drug prices, the Congressional Budget Office and numerous other economists have challenged the assumptions of significant savings, noting both the unique features of the world pharmaceutical marketplace and the substantial costs that would be incurred by middlepersons in the import/export scheme -costs that certainly would be passed along to patients. Recently introduced bills would impose many additional requirements that were not even envisioned by the economists who looked at earlier legislation, so these transaction costs would be significantly higher. Additionally, examination by economists of European parallel imports shows that the expected significant savings for consumers have not materialized, although tidy profits have been made by the traders. Finally, no proposal guarantees that the cost differential obtained by the importer/exporter is actually passed along to the consumer.

Conclusion

BIO strongly opposes legalized prescription drug importation. We believe existing proposals will harm both our industry and, more importantly, the patients we are dedicated to helping. No exemption is fail-safe and the ingenuity of criminals should not be underestimated. They will find ways around the myriad requirements proposed by these bills, and no on-paper "exemption" for biologics will stop them from dealing in whatever product they believe will be the most lucrative.

There can be no doubt that incursions into trade policy, intellectual property protection, and economic incentives for U.S. business - all of which are part of this legislation - will have unintended consequences. The benefits of a free-market economy for U.S. citizens and for this country's economic well-being are well-accepted. There will be harm when legislative policy attempts to distort the free market by imposing requirements and penalties designed to perturb what the market otherwise achieves on its own. This is particularly true when the incursions and perturbations are directed at one, and only one, industry and at one set of products.

BIO agrees with those who believe that patients need access to our life-saving and life-enhancing products. Health coverage helps this happen, and we encourage the Congress to take action to reduce the number of uninsured Americans and increase prescription purchasing assistance to those in need. We also support the new entitlement under Medicare, which will help all Medicare beneficiaries - most of whom are our senior citizens - with their prescription drug needs. Until that prescription benefit takes full effect, the Medicare discount card will help many. Whether one supports the new Medicare benefit or not, or believes the discount card is sufficient or not, both of these mechanisms at least do no harm to the future of innovation and the future possibility that treatments and cures will be available for those who need them. Legalizing prescription drug importation is not the answer to prescription drug access. Its promise is false and its dangers are real.