Rx Import Bills Could Violate Takings Clause Of Constitution – Sen. Hatch

A prescription drug importation law could violate the Takings Clause of the U.S. Constitution if it requires manufacturers to sell products to exporters in other countries at below-market prices, Senate Judiciary Committee Chairman Orrin Hatch (R-Utah) said at a July 14 hearing.

Hatch said his committee would be "vigilant" in the process to legalize importation, especially regarding "patent issues and other matters under our jurisdiction such as any potential antitrust and Takings Clause issues."

He singled out the bill introduced by Sen. Byron Dorgan (D-N.D.) for raising Takings Clause concerns.

"For example, the extent to which the Dorgan legislation appears to preclude manufacturers from charging exporters market-based prices for drugs, if they are higher than the lowest price-controlled price of the exporting country, deserves the close scrutiny of our committee," Hatch said in his ¹ opening statement.

"The forced sales provision also demands further attention," he added.

"As a defender of, and believer in, property rights, including intellectual property rights, I am always leery of systems that impose government-mandated prices, sales or licenses."

Under the Dorgan bill, manufacturers working to avoid having their drugs imported into the U.S. would be subject to penalties under the Clayton Act (² (Also see "Senate Drug Import Bill Would Require Notice Of Manufacturing Changes" - Pink Sheet, 26 Apr, 2004.), p. 19). Dorgan testified at the hearing in support of his bill.

Importation Could Alter Patent Law

In addition to expressing concerns about safety of the drug supply under a drug importation system, Hatch said another "complex" issue relates to patent protection.

"Concerns have been raised about the manner in which Sen. Dorgan's bill, S 2328, affects patent and antitrust law," he said. "The bill appears to alter current law with respect to domestic patent rights once overseas sales occur."

"One of the areas that this Committee should explore as this debate moves forward is how the Doctrine of International Exhaustion of patent rights might be altered by the Dorgan legislation."

The U.S./Australia Free Trade Agreement, which cleared the House July 14 and the Senate the next day, includes provisions supporting the right of manufacturers to control the resale of their products across international borders (³ (Also see "Rx Import Laws Would Not Be Blocked By Australia Trade Deal, USTR Says" - Pink Sheet, 12 Jul, 2004.), p. 18).

Hatch noted that his committee offered important input for generic drug regulatory reforms made through provisions in the Medicare prescription drug law.

Effect On Waxman/Hatch Incentives

The incentives provided by the Waxman/Hatch legislation to encourage firms to develop generic versions of drugs could be undermined by importation, Generic Pharmaceutical Association CEO Kathleen Jaeger told the committee.

While GPhA opposes importation, ⁴ Jaeger's written testimony says if Congress does pass legislation, it "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."

GPhA testified in April before the HHS drug importation task force on the potential for importation to undermine Waxman/Hatch (⁵ (Also see "Drug Importation Would Undermine Waxman/Hatch, Generic Industry Says" - Pink Sheet, 12 Apr, 2004.), p. 21).

Jaeger recommended that importation be limited to brand-name drugs with no generic alternatives.

Generic Imports "Counterintuitive"

"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 generic competition," Jaeger's testimony says.

"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." She said it would be a waste of FDA resources to have the agency inspecting generic as well as brand imports.

Jaeger added that "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."

Senate Bills Lack Resources

Jaeger also urged Congress to provide FDA with adequate resources to ensure the safety of the drug supply.

FDA, however, told the committee that none of the bills before the Senate provide adequate authority and resources for FDA to set up a safe import program.

Asked by Hatch how FDA could assure the public that drugs purchased abroad would be safe and effective if importation is legalized, FDA Associate Commissioner for Policy & Planning Bill Hubbard responded: "Unfortunately...the bills that are before Congress now will not solve that problem, will not give adequate authority to assure the safety of those products."

"So we would not be able to give the consumer the level of confidence that they would get" with an American product, he said.

It Takes An Army

Responding to the question of what resources FDA would need to be able to assure the safety of imported drugs, Hubbard quipped that "you could give us the U.S. Army, us and Customs, to look at this stuff, and it probably would be inadequate, because you've got to literally open millions of small packages and then you've got a bottle of pills in your hand," which "doesn't tell you much."

"If Congress gave FDA the authority and the resources to set up a drug importation program, we would implement that as well as we could," Hubbard added.

"Our concern is that the bills that have been introduced do not go far enough. They do not really solve the problem."

Asked to comment specifically on the Dorgan bill, Hubbard said "we're concerned about its very broad scope."

"It allows drugs in that we don't think should be allowed in, and it allows drugs in from many countries that just make it difficult for FDA to set up a meaningful program to screen those drugs."

Although limiting importation to Canada would be more manageable, he added, "that still raises serious concerns for us."

A bill by Senate Health Committee Chairman Judd Gregg (R-N.H.) would allow importation from Canada and give FDA authority to determine which other countries could export drugs to the U.S.

Import Measures Moving Forward

Hatch advocated waiting to vote on importation legislation until the intellectual property implications could be analyzed. He added that it would also be prudent to wait for the HHS drug importation task force to complete its report, which is due in December.

However, the Senate Health Committee has already made plans to move forward with importation legislation. Gregg has scheduled a Health Committee mark-up of his bill (S 2493) for July 21.

Gregg claimed that his bill had been vetted and approved by FDA. The agency said its input into the Gregg proposal was minimal (⁶ , p. 19).

On July 13 the House passed an FDA appropriations bill that includes a provision prohibiting the agency from using its funds to block drug imports. The provision was added during a subcommittee mark-up; a similar provision included in last year's appropriations bill was removed in conference (⁷ 'The Pink Sheet' June 21, 2004, In Brief).

Another amendment affecting funding of the FDA chief counsel's office was added on the House floor.