Download Importation of Prescription Drugs

Importation of Prescription Drugs
As the costs of prescription drugs have increased faster than inflation, many
people are looking for ways to make drugs more affordable. The California Health Care
Foundation estimates that drug prices rose by as much as 15 percent from 2001 to
2002.(Hinch) Especially hard hit by escalating drug costs are seniors, many of whom
live on fixed incomes based on social security payments and pensions and rely on
Medicare for health care coverage. Until just recently (January 2006) Medicare did not
include a prescription drug benefit, which placed many seniors in the precarious position
of choosing between paying for their prescription drugs and other expenses such as
groceries. Even at the time of the writing of this case study, Medicare had begun a
prescription drug benefit, but the effects of that on prescription drug prices was still a
matter of speculation.
Looking for alternatives to the high cost of prescription drugs, many seniors have
been purchasing drugs online from Canadian internet pharmacies or, especially in border
states, traveling by the busload to Canada to purchase prescriptions, where price controls
keep the costs of many drugs lower than in the US.(Bradley) They have also asked their
doctors and pharmacists to help them obtain prescription drugs at a lower cost from
foreign countries(Pickard, Fung), where it is estimated by the Congressional Budget
Office that prices of patented drugs are 35 percent to 55 percent lower than in the
US.(Baker) It isn’t just seniors who are concerned about the high cost of prescription
drugs. Some state governments, including Minnesota, worried about the cost of health
care for state employees and those on state assistance, have begun programs that help
those on the state prescription drug plan purchase prescription drugs through state
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inspected, Canadian Internet pharmacies. Besides instituting Medicare coverage for
prescription drugs, many Americans are lobbying for legislation allowing manufacturers
and individuals to import drugs from foreign countries as a way to increase competition
and keep costs lower. This case study will examine some of the issues surrounding
importation of prescription drugs and the potential effects of legalization of imporation.
High Cost of Prescription Drugs: R&D, taxes and patents
The development of one cancer drug provides an example of why some people
are eager to see a change in the US importation policy. The development of Avastin was
a cooperative effort between academia and industry. Judah Folkman, MD of Children’s
Hospital in Boston and Harvard Medical School first put forth the the theory of
angiogenesis, that tumors need blood flow in order to grow, in 1971. Over the next two
decades Dr. Folkman continued to research and publish his work through research funded
by the NIH and therefore by US taxpayers. It was because of Folkman’s work, that
Napoleone Ferrara, MD, a researcher at Genentech, was able to take Folkman’s theory
and turn it into a drug in 1989. In 2004, the FDA approved Avastin for treatment of
colorectal cancer after a human trial sponsored by Genentech. In addition to the work
funded by Genentech, the National Cancer Institute, one of the 27 institutes and centers
of the NIH, has been running clinical trials of bevacizumab (generic name of Avastin) for
more than 5 years and recently showed efficacy in treating advanced breast (Miller) and
lung cancer (Herbst) when combined with chemotherapy. Although Avastin is currently
only approved for treatment of colorectal cancer at a cost of about $50,000 per year, it is
expected that approval for breast and lung cancer the annual cost could be twice that.
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(Grieder) Roche, the parent company of Genentech, holds the patent for Avastin until
2019.(Current Patents Gazette)
Avastin is just one example of a treatment that was the result of both drug
company funding and public support. Data was not available specifically for the amount
of money spent by Genentech and taxpayers for the development of Avastin. However,
the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry
group, estimates that its members spent $40 billion in R&D in 2005. In 2003, the NIH
spent $8.4 billions on clinical research alone.(Grieder) This figure would not have
included the funding Dr. Folkman received for his basic science research on
angiogenesis, were it funded in 2003. It is because of examples like Avastin, where at
least a portion of the costs for development of a drug are paid for by taxes, that many
Americans feel they pay twice for drug development, through taxes and through higher
drug prices compared to other countries. In addition, it is the drug company that benefits
from patent protection on those drugs. This has many angry and pushing for legislation
to allow importation of drugs from foreign countries, where price controls often keep
drug costs lower.(Canadian Press)
The Role of the Food and Drug Administration
One of the reasons that prices in the US for drugs are so much higher than those
in other countries is the high cost of gaining approval from the Food and Drug
Administration (FDA). The FDA is the federal agency charged with safe guarding the
American public with respect to most food products (other than meat and poultry), human
and animal drugs, therapeutic agents of biological origin, medical devices, radiation-
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emitting products for consumer, medical, and occupational use, cosmetics, and animal
feed. Its role has expanded substantially since its beginnings as the Division of
Chemistry and then the Bureau of Chemistry when it was largely a scientific division of
the government. The first beginnings of the FDA’s regulatory role were formed in 1906
with the passage of the Food and Drugs Act which charged the Bureau of Chemistry with
regulating interstate transfer of unlawful food and drugs. The law was conceived out of
concern for product labeling. With respect to drugs and this law, drugs could not be sold
unless variations in the drug from set standards were clearly stated on the label. The
regulatory functions of the FDA with respect to drugs have progressed through a series of
laws including the 1938 Food, Drug and Cosmetic Act which required that the drug
manufacturers gain pre-market approval from FDA and authorized the FDA to inspect
factories. A series of amendments to the 1938 Act formalized the role that the FDA plays
today in certifying food and drug safety. That some drugs require the supervision of a
physician to be taken safely was recognized by the Durham-Humphrey Amendment of
1951, which mandated prescriptions from a doctor. The Kefauver-Harris Amendments of
the early 1960’s mandated that efficacy as well as safety be proven and charged the FDA
with greater control over drug trials. It also allowed the FDA greater access to company
production to verify good manufacturing practices. Many of the acts and others , under
which the FDA operates today, were the result of therapeutic disasters. One example is
the use of thalidomide, a sedative that was never approved for use in the US, resulted in
the birth of thousands of severely deformed newborns, and which resulted in the 1938
Food, Drug, and Cosmetic Act.(History of the FDA sources)
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All of these acts and amendments under which the FDA operates, have resulted in
a closed system by which drugs reach pharmacy shelves in the US. The FDA ensures the
safety, potency, and authenticity of drugs sold in the United States through tight controls
at all steps within the process of drug development, manufacturing, labeling, and sale.
First, drug companies must obtain FDA approval through a series of clinical trials to
ensure efficacy and safety. Once the drug is approved for use in the US, the FDA places
tight controls on the labeling and manufacturing of the drug to ensure that the drug is
produced with good manufacturing practices. Even in the US, drugs must be
manufactured at plants registered with the FDA. In the case of foreign manufacturers,
whether they manufacture the finished product or one ingredient, the FDA sends
inspectors to the plants. The FDA also monitors the distribution of drugs through
licensing of U.S. pharmacists and wholesalers and limits distribution.
The importation of drugs is also controlled by the FDA through the authority
granted by the Prescription Drug Marketing Act of 1987, which allows individuals to
import a small amount of prescription drugs into the country for personal use, but limits
the importation of large quantities to manufacturers.(Calfee) Importation by individuals
is generally limited to certain situations in which there is not an approved treatment
available in the United States. The FDA has wide authority to use the law as a guide for
when an individual may import drugs.
Safety
The primary concern of the FDA is consumer safety, especially when importation
of prescription drugs is considered. In 2000, Congress passes the Medicine Equity and
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Drug Safety Act (MEDS) which would have allowed manufacturers to import drugs from
developed nations. However, the MEDS Act stipulated that the secretary of the
Department of Health and Human Services had to certify that the law would cut prices
without jeopardizing patient safety before it could be implementated.(Calfee) Neither
Donna Shalala, outgoing Democrat Secretary of DHHS, nor Tommy Thompson, the new
incoming Republican Secretary, would certify that the safety of imported drugs could be
guaranteed. Secretary Thompson stated “I believe very strongly that seniors should have
access to affordable prescription drugs. However, I do not believe we should sacrifice
public safety for uncertain and speculative cost savings.” (HHS Press Office)
The primary concerns of the FDA with regard to importation of pharmaceuticals
from other countries are the potency and legitimacy of the drugs. Some of the problems
that the FDA has seen with drugs coming into the country through the mail have included
(FDA Crackdown):

Drugs approved in the US substituted with a similar product that is not approved
for use in the US.

Drugs requiring supervision of a doctor for dosing or interactions with other
drugs.

Inadequate labeling.

Inappropriately packaged drugs or drugs that are shipped under inappropriate
storage conditions. For example, insulin being shipped under inappropriate
temperatures.

Drugs that are approved in the US only for animal use packaged for human use.
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Overall, "if you buy drugs that come from outside the U.S., the FDA doesn't know
what you're getting, which means safety can't be assured" says Joe McCallion, a
consumer safety officer in the FDA's Office of Regulatory Affairs.(Meadows) Some
people in favor of allowing individuals and pharmacists to purchase drugs from other
countries state that comparing drugs imported from different countries is like comparing
apples and oranges when it comes to safety. They state that drugs coming from
developed countries are manufactured under strict controls. . This is different than drugs
coming from developing countries where controls are not as strict. Canada is the country
most often referenced in this case. Drugs for use in Canada are approved and registered
by Health Canada’s Health Products and Food Branch. This is a federal agency similar to
the US FDA. However, the FDA warns people that the drugs obtained in Canada may
not be produced there and that the safety of drugs coming even from developed countries
cannot be assured.
Economics of Importation and Patents
It is generally accepted that Americans pay higher prices for prescription drugs
than citizens of other countries because of price controls in those countries. What is
controversial is what effect allowing importation of prescription drugs would have on
prices. Many including Minnesota Representative Gil Gutknecht, say that allowing
pharmacies to stock their shelves with lower cost drugs from developed countries would
allow pharmacists to pass the savings onto consumers. Don McCanne, president of
Physicians for a National Health Program, goes a step further in advocating for price
controls in the US much like other countries. “In Medicare, we do that for physicians,
hospitals, laboratories and now that we’ve accepted prescription drugs as part of
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Medicare, we need to do that with the prescription drug industry as well” says
McCanne.(Thompson)
According to Nobel economist Milton Friedman, drug companies are “simply
engaging in price discrimination where they can to maximize their profit”.(Thompson)
In many foreign countries, prices are controlled by regulation, whereas in the US drug
companies may set prices as they wish with a few exceptions, such as when purchased by
the government.(Baker) According to Friedman, legalizing importation is not the cure
for high drug prices because it does not target the real reason that drug prices are higher
in the US than they are in other countries. The real culprits are FDA policies that make
the cost of bringing a drug to market high and the “government-granted monopoly” in the
form of patents awarded to drug-makers to compensate for the high cost of
R&D.(Thompson) The Office of Technology recently concluded that the average costs
of bringing a drug to market, including the costs of unsuccessful compounds, is $800
million in R&D.(Baker)
Others question whether allowing importation of drugs would really result in
lower aggregate costs to US consumers. Allowing international trade is assumed to
increase competition and result in a global price. However, the drug market is somewhat
different from other markets. Drug makers are protected by patents and are somewhat
shielded from direct competition. In addition, whereas in some industries lower costs
manufacturing can give a company a competitive advantage, drug manufacturers are
already able to take advantage of lower cost manufacturing in foreign countries. As a
result, the costs of drug manufacturing are unlikely to change due to importation. Also,
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there is nothing to prevent a drug maker from choosing a price that is high, thereby
closing out some price-sensitive consumers from the market.
Additionally, the worry exists that allowing importation will not result in an
increased volume of lower-cost drugs reaching the US.(Baker) Foreign countries could
enact legislation to limit exports of drugs from their own countries to protect the supply
for their own consumers. Canada made just such a move in June 2005 when Health
Minister, Ujjal Dosanjh, introduced legislation prohibiting bulk export of drugs if
shortages were anticipated in response to legislation pending in the US allowing
importation of drugs from Canada.(Eggertson) Therefore it is not clear what volume of
drug would be available for US consumers from foreign sources.
If importation were legalized drug companies could take a number of steps to
prevent the full cost savings from being realized by US consumers. One would be to
change the packaging, labeling, dosing or color of a drug marketed in a foreign country
such that the drug would be illegal for use in the US. In addition, drugs for use in the US
must be manufactured in FDA approved and registered facilities. Manufacturers could
simply shift production to facilities that lacked FDA approval. Drug makers could also
refuse to insure intermediaries from damages associated with the safety and integrity of
products, thereby causing intermediaries to incur additional liability costs, which would
erode the savings to consumers. Despite the various scenarios, because the difference in
prices can be so great between the US and foreign countries, the Congressional Budget
Office concluded in its report that the importation of drugs from foreign countries would
likely result in reductions in prices of prescription drugs in the US.(Baker)
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Conclusion
Despite that fact that the savings many Americans hope to attain through
importation of prescription drugs may not be as dramatic as many would hope, if the
safety and authenticity of imported drugs could be certified, it is a possibility that the US
could change its policy allowing importation of prescription drugs. With the impending
retirement of the baby boomers the number of seniors choosing between groceries and
prescription drugs could greatly increase. It could be difficult for legislators to ignore the
public pressure to “do something” about the high cost of prescription drugs in the US.
Legalization of importation is a real possibility for the pharmaceutical industry.
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Questions:
1. Is it ethical for drug companies to price drugs at whatever the market will accept?
2. Does your answer to question 1 change if the R&D to produce the drug were
supported by taxpayer funds such as NIH?
3. When taxpayer support helped to develop a new drug, should the patent rights be
shared by the drug company and the government?
4. Should drug makers set one world price for their product or should regional market
forces be taken into account?
5. Some drug companies have started their own programs for helping customers buy
drugs at reduced prices. Should drug companies feel obligated to offer such
programs?
6. If US legislation is changed to allow manufacturers to import drugs from foreign
countries, should pharmaceutical companies fight that legislation?
7. Would your answer to number 6 change, if importation was allowed only for drugs or
a certain type or purpose such as only lifesaving drugs, only chemotherapy, or only
drugs that provide pain relief at the end of life?
8. If importation is made legal should a drug makers who manufacture their product in
foreign countries engage in practices such as alternate packaging, labeling, and
manufacturing to prevent its drug from being imported to the US and sold at a lower
price?
9. Pharmacists, many of whom are business owners, are being approached by customers
to help them procure lower cost medications. Pharmacists are also health care
providers charged with safeguarding customer health. Currently, pharmacists are not
allowed to import drugs from foreign countries. Should pharmacists lobby for the
ability to import prescription drugs for their pharmacies?
10. Many successful companies are non-profit companies. If pharmaceutical companies
were non-profit they could choose to put the money that would have gone to
shareholders into R&D. Would it be possible to have drug companies operate as nonprofits and still produce treatments for human disease as they do now?
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Drug Spending?” Congressional Budget Office. 29 April 2004.
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Eggertson, L. “Federal Legislation to Limit Bulk Drug Exports.” Canadian Medical
Association Journal. 30 June 2005; 242.
“FDA Crackgown on Illegal Products” FDA Consumer Magazine. March-April 2004.
“FDA Operation Reveals Many Drugs Promoted as "Canadian" Products Really
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Meadows, Michelle. “Imported Drugs Raise Safety Concerns.” FDA Consumer
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