Thursday, February 17, 2005

U.S. Senator Johnny Isakson (R-GA)
Hearing on Drug Importation
Health, Education, Labor, and Pensions Committee

Sen. Johnny Isakson (R-GA): Thank you, Mr. Chairman.

And at the risk of being very redundant -- because I apologize, sir, for being late. I really only ask one question, which hopefully won't be redundant, because it's somewhat personal.

As a member of the House, when given the occasion in the end, I did not support reimportation legislation. And that's a tough vote.

In the end, the reasons that compelled me, were first, what you've been discussing with Senator Burr, which was the safety factor, which is a real issue -- and there are plenty of anecdotal stories to bear that out.

Secondly, was I do believe the market works and I'm a believer in the free market. And I don't think we should directly or indirectly serve out price controls because it begins to mess everything up.

So the question I want to ask is on that second statement.

I believe that our system encourages the development and the research that brings about the breakthroughs in health care that everybody my age is enjoying.

I took two pills when I left this morning -- Zocor and Nexium. They've been wonderful for me.

Mr. Grant Aldonas: I took five. I just wanted to you know I'm right with you.

(LAUGHTER)

Sen. Isakson: Good.

And can you elaborate on that point for a second in terms of the benefits of our system, in terms of its encouragement of the development of new and meaningful breakthroughs, understanding that price is important, but it's important in the context of what you are able to buy and what you are able to buy can actually do for you?

Mr. Aldonas: Senator Isakson, I'm glad you asked that question.

Let me answer in two ways, one, that is with respect to the pharmaceutical industry and one that really froze from our analysis of the manufacturing sector in the United States generally.

First and most importantly, the market should tell us, because companies are moving to the United States to do their R&D and because we benefit from that innovation -- and those innovative medicines make it to the market in the United States much earlier than they do anywhere else as a consequence -- that consumers are benefiting from both the investment that our companies make as well as attracting investment, which I hate to say it, means disinvestment from our friends in Europe and Canada and elsewhere, but investment here, because we get the leading edge in terms of new and efficacious medicines much sooner than they do.

We also get the benefit of other products becoming generics much sooner than they do.

And so the system works in a way that should both drive innovation as well as set the limits on substitutability with more powerful generic competition.

So with respect to pharmaceuticals alone, you're really encouraging new products to get to the market quicker and new generics to get to the market quicker so that you're having an impact both with respect to the competition you get from new innovations and the competitions you get on price from generics or from off-patent branded products.

The more powerful point, to be honest with you is that you can't take pharmaceuticals, as far as I am concerned, out of the broader context of what we are trying to achieve in our economy. We looked at the manufacturing sector over the last couple of years because while there was a .5 percent reduction in the last recession economy-wide, there was a six percent reduction in manufacturing. And a lot of people wanted to know, well, why are you paying so much attention to manufacturing -- you know the old line that Michael Boskin had, so that we don't care whether it's potato chips or whether it's microchips.

Well, the fact of the matter is, the reason you look at manufacturing and pharmaceuticals within that is because manufacturing produces 90 percent of the innovations that raise productivity in this country, that increases the productivity in the workforce that's on the job, and that ultimately makes our economy more flexible and able to adjust to this new competition we're going to face from a global economy.

And so the reason you would want to work very, very hard at preserving the ability to provide that return to innovation is because that's what drives the economy and will continue to make us competitive, continue to give people jobs.

And when you're thinking about more retirees per worker, means that the only way we can raise our standard of living is by raising our productivity. And the key to that, at the end of the day, is innovation.

So pharmaceuticals -- you can see the impact alone. There's a much broader impact of every time, whether its pharmaceuticals or one of our other industries, you start to dent the incentive for innovation in this economy, because it's where we live and it's where we're going to compete.

Sen. Isakson: Would you amplify -- because I want to make sure I understood what you're talking about? You talked about bringing generics to the market in America faster. Would you amplify on that?

Mr. Aldonas: Yes, sure.

Actually, it's a result of some very valuable legislation that Congress passed that encourages the introduction of generics as soon as products go off patent. And that's something that has led to the current statistics we see where 50 percent of the drugs in the United States that are sold are generics whereas that percentage is far lower in every other OECD country, where there's not only less of an incentive to use generic medicines because of the price controls, but there's actual barriers to the generic firms providing information about efficacy and price to doctors and consumers.

Sen. Isakson: Is there a difference in patent protection times?

Mr. Aldonas: No.

With respect to our European counterparts, I think there is certainly comfort that the rules as written and as enforced on intellectual property live up to the WTO standards.

The concern more is that when you impose something like price controls that deny a patentholder the effective use of the rights that came with the patent, that you're diminishing the incentive, the investment and the power that can provide to the market.

Sen. Isakson: Thank you, Mr. Chairman.

***

Sen. Isakson: Thank you, Mr. Chairman.

I'll yield one minute to Dr. Goldberg, who had something to say a minute ago and got cut off.

Mr. Robert Goldberg: I just wanted to address this issue of transparency.

First of all, the issue of transparency is important and one of the principles -- the fact of the matter is there is ample public data on the cost and development of R&D.

The Federal Trade Commission just released a study saying that the estimate that it costs with the opportunity cost built in of $182 million to bring a new drug to market, not just adding another coat of paint to it, was wrong. It's probably more. It's probably $865 million.

But there's another element to transparency, Mr. Chairman and members of the committee, and that is why European governments restrict access to new medicines. The principal driving element of our negotiations with Australia and the free -- other European countries is they won't tell us. They won't tell us why they won't give people access to breakthrough drugs.

As Mr. Pollard says with the NICE commission, it's a black box.

Again, my daughter has an eating disorder. I looked at the NICE guidelines for treatment of bulimia. They are the Dark Ages. It is nasty.

If you have an eating disorder, you are given a pamphlet and then the only drugs that they use to treat eating disorders is an SSRI.

Now, I know that the standard of care for eating disorders is three different types of drugs, two of which are not on the formularies in West Virginia, which is part and parcel of their way of using the V.A. pricing and drug pricing in Canada.

Why is that happening?

There is ample amount of literature, the clinical literature which is peer reviewed, not paid for by drug companies. And to suggest that somehow that the Commerce Department study is a rigged study because it's just paid for by the drug industry is a -- is disrespectful to the fine work of the Commerce study, the fine work of many clinical researchers, and it denies, ultimately denies patients the best care possible now and in the future.

Sen. Isakson: Thank you.

I reclaim my time.

I wanted to ask Mr. Outterson to make sure I understood something correctly, because I was listening and writing and didn't have a chance to read.

I thought I heard you say it makes no difference what our price system is, ultimately the Europeans will bring the drug to the United States because of NIH or something to that effect.

Would you tell me what you meant by that?

Mr. Kevin Outterson: I was probably speaking a little fast at that moment seeing the clock tick on me.

But what I meant to say, if I did indeed misspeak, was that these companies do their research and development on a global basis. These are global companies. And they market in the markets that give them the highest prices first, and then they market more slowly into places like Greece and Italy, who have lower prices.

So that's why drug introductions are slower into those countries, because the price isn't quite as good. So they don't get around to introducing them right away, they wait a couple years.

But the decision about where the research happens is not based on how valuable the market is, because these pills are made in Ireland and Puerto Rico and shipped globally. The decision on where the research lab is, is based largely on the fact that we have NIH and we have a great human capital invest in the United States and the research in the institutions, the biotech companies, the universities, and they want to be near those people.

And so, if you want to increase more pharma research in our country, loosen the NIH budget a little bit and they'll put another research facility right next door.

Sen. Isakson: I just have to ask you -- thank you, but I just have to ask you, though, isn't that -- isn't your statement a ratification for a market-based system?

Because you just got through saying that most innovative drugs are going to go first to the markets where they can recover and last to those where they are so repressive, and I think you used Greece as an example.

And ultimately -- and price is a tremendously important factor for the constituents I represent, but so is life and health.

And so, how do you -- I just wanted to -- in that answer it made a pretty good statement for market forces to work.

Mr. Outterson: And I am in favor of market forces.

The thing about slow introductions into Greece and New Zealand and places like that is that is a company decision. It's not, you know, something given by chemistry.

Mr. Outterson: The company decides to introduce later in Greece because the process may be slower there, their version of the FDA, or they may not want those drugs to get on a truck and come to England.

So it's a company decision.

If we had more rationalized pricing, market pricing across the rich countries of the world, you'd eliminate that incentive to slow down and introduce drugs more slowly in certain countries of the world.

We should all be introducing these innovative, safe, effective drugs at the same time throughout the world. That would be best for the patients.

Sen. Isakson: My time has expired.