[Ip-health] CPTech on Maryland parallel trade bill - SB 167

[Mike Palmedo]

Consumer Project on Technology
P.O . Box 19367
Washington, DC 20036
http://www.cptech.org
+1.202.387.8030, fax +1.202.234.5176



To: Senator Paul Pinsky
Via fax: +1-301-858-3144

From: James Love, Director
Michael Palmedo, Research Analyst

Date: 3 March 2004

RE: Comments on Maryland State Senate Bill 167

The Consumer Project on Technology is a nonprofit organization
based in Washington DC focusing on the consumer or public
perspective on intellectual property policy disputes. Our work
on access to healthcare and intellectual property rights =96
including the area of parallel imports of pharmaceuticals =96 is
extensively documented at www.cptech.org. We appreciate the
opportunity to submit written testimony on SB 167, which would
implement a Canadian Mail Order Plan for prescription drugs.

We support the efforts by state governments to control their drug
expenditures. One such mechanism is to engage in parallel trade
by importing pharmaceuticals from Canada, but also other
countries. In particular, parallel trade is appropriate between
the United States and countries that are (1) classified as high
income by the World Bank, and (2) which have sound regulatory
systems.

There are two major objections to expanded parallel trade.
First, companies argue that medicines obtained in parallel trade
are not safe. Second, parallel trade is said to undermine R&D on
new medicines. We address both points:

1. Quality of parallel imported pharmaceutical drugs.

Concerns over the safety of imported pharmaceuticals are
misplaced. It is clearly possible to address the issue of quality
for parallel imports of medicines. In the European Union,
parallel trade in medicines is not only legal, but in many
respects encouraged, as a mechanism to create a more efficient
European market. In some regions of Europe, parallel trade
accounts for almost 20% of products utilized.

IMS is the leading source of statistics on pharmaceutical sales
worldwide, and offers a number of consulting services. In an
October 30, 2002 report on parallel trade in Europe,1 IMS made
the following observations:

The belief that parallel traded goods are of poorer quality
is actively encouraged by the pharmaceutical industry. . .
But for the most part, parallel traded products are as good
as the local product because they are identical - the only
difference is that they were packaged in a box of a
different design to appeal to the needs of a different
European market, a market which has exactly the same high
quality requirements. Parallel traded products are high
quality, well-packaged and well-distributed and cannot be
criticized for their inferior quality compared with branded
products. The market is growing.

Much of the controversy relating to the safety of Canadian drugs
has been intentionally misleading. But to the degree that there
are concerns over the quality of parallel traded goods, a state
can follow the European example, and regulate companies that sell
parallel traded medicines. The FDA has demonstrated an
unwillingness to implement such regulatory measures. But this
need not be a complex or onerous procedure, and could be
implemented at the State levels, and financed by user fees on the
parallel traders. It is certainly a common practice in Europe.
One could even begin by licensing European parallel trading
companies to do business in Maryland, taking advantage of
existing regulatory structures in Europe. Certainly Maryland
citizens could tolerate the same quality measures that are in
place in Denmark, the Netherlands, Germany, France the UK.

2. Parallel Trade and R&D.

Opponents of parallel trade also say that as innovator profits
decline, the pharmaceutical industry will reduce R&D outlays,
slowing the development of new drugs. This issue can be
addressed constructively in the following manner. Maryland could
require that firms that engage in parallel trade of
pharmaceuticals report the price they pay for the drug in the
foreign market, and pay a fee of 10 to 15 percent of the
difference between the manufacturer=92s US price and the foreign
price, into a transparent R&D fund. The 10 to 15 percent
represents the percentage of sales that companies now invest in
R&D (according to the IRS or PhRMA).

Funding research and development in this way would have certain
advantages over the current situation. When Maryland pays very
high prices to private firms, a portion of the money is spent on
private-sector research. Of this portion, much is spent on drugs
with little therapeutic gain over existing medicines. According
to the US FDA, about 70 percent of new drug approvals offer no
therapeutic benefits over existing medicines, and data suggests
R&D outlays on the =93me too=94 drugs are significantly higher that
for the more innovative products.

If Maryland required parallel traders to contribute to an R&D
fund, the money could be spent in Maryland, on projects that
address public health priorities. The state would have enormous
flexibility in how the money would be spent and how the fund
would be run. We have outlined some options for such a fund in
recent petitions to Tommy Thompson, the Secretary of the US
Department of Health and Human Services (DHHS), in connection
with =93March-In=94 proceedings on Xalatan, a drug for glaucoma, and
Norvir, a drug for AIDS. The Pfizer price for Xalatan is 2 to 5
times more in the United State than in Canada or Europe. The
Abbott price for Norvir is 400 percent higher in the United
States than in Canada or Europe. Both drugs were invented on US
government governments. In both cases, the big drug companies
defend the high US prices on the grounds that this is needed for
R&D. The March-In petitions proposes that an R&D fund be created
and funded by generic suppliers of Xalatan or Norvir, to address
more efficiently, transparently and fairly the cost to the
consumer of funding R&D.

3. Final thoughts

Finally, we note that the issue of price differential in
medicines is important for several reasons. Certainly high drug
prices are a barrier for access to medicines, and unfairly hurt
the poor. And, by tolerating higher prices for medicines in the
United States, employers are hurt, because employees pay for
medicines; either directly or through taxes, and higher drug
prices here undermine US competitiveness.

More generally, the existing global system for financing R&D on
new medicines is broken. We need to replace the often irrational
and counter-productive multilateral and bilateral trade
agreements on patents and medicines with a new global framework
for medicinal R&D.2 To this end, we were disappointed when the
US government recently told the World Health Organization (WHO)
that it opposed discussions in the WHO on health care R&D
treaties. Ultimately we need to think of new ways to improvement
the efficiency and fairness of the systems for financing R&D, and
to make sure that citizens have the best mechanisms to ensure
both innovation and access at fair prices.

_______________________________
1 http://open.imshealth.com/IMSinclude/i_article_20021030.asp
2 Tim Hubbard , James Love, =93A New Trade Framework for Global
Healthcare R&D,=94 February 2004, 10.1371/journal.pbio,
http://www.plosbiology.org/plosonline/?request=3Dgetdocument&doi=3D10
.1371%2Fjournal.pbio.0020052