International trade negotiations alone are not sufficient to address global pricing differences for pharmaceuticals, Sen. Gorton (R-Wash.) said April 26.

"I regard it as a constructive proposal, but not as a solution to the problem standing alone," Gorton said in describing a bill (S 2466) that would instruct the U.S. Trade Representative to seek to eliminate foreign pharmaceutical price controls via negotiations or sanctions.

Gorton introduced S 2466 April 26 along with the "Prescription Drug Fairness Act" (S 2464), which would forbid the sale of pharmaceuticals at higher prices in the U.S. than in other countries.

The trade bill would direct the USTR to enter into negotiations with Canada, France, Germany, Great Britain, Italy, Japan and Russia "in order to achieve the agreement of those governments to eliminate price controls on innovative medicines and the unfair trade practices that result from the application of price controls," bill language states.

The bill would give the USTR one year to achieve an agreement on elimination of price controls. If an agreement has not been met in that time, the agency is directed to report to Congress with recommendations on how to remedy the problem, including the possibility of trade sanctions.

"This is a proposal the drug companies themselves suggested to me," Gorton said. "It is a tangible result of the course I have already charted, and one that came as a result of my communication with drug companies and the earlier draft of the [pricing] bill I am introducing today."

The Pharmaceutical Research & Manufacturers of America has been meeting with Gorton over the past month in the hopes of heading off introduction of the international price equalization bill.

The trade legislation clearly reflects the input of PhRMA in the discussions with Gorton.

"The use of price controls by foreign governments on innovative medicines distorts trade, disadvantages Americans and constitutes an unjustifiable, unreasonable and discriminatory practice that burdens or restricts U.S. commerce," the bill states.

"The price controls maintained by foreign governments on innovative medicines undermine the value of intellectual property rights held by American research institutions and pioneer pharmaceutical manufacturers."

The Prescription Drug Fairness Act, in contrast, reflects the cross-border pricing arguments that are becoming prominent in border state elections this year.

The bill would add a section to the 1936 Robinson-Patman price discrimination statute to state that, if wholesalers within the U.S. are charged more for prescription drugs than wholesalers abroad, the transaction would be considered anti-competitive.

The Gorton bill would not require any showing of consumer harm in court. Any discrimination in price "shall be deemed to substantially injure, destroy or prevent wholesalers within the U.S. from competition...to the detriment of customers of wholesalers within the U.S.," the bill states.

According to a legal analysis of the bill prepared for PhRMA by former Federal Trade Commission Bureau of Competition Assistant Director David Roll (Steptoe & Johnson), the bill "raises serious constitutional questions as well as profound economic, international trade and antitrust policy issues."

"The conclusive and irrefutable presumption in the legislation that any difference in price between a wholesaler in the U.S. and a wholesaler outside the U.S. be deemed to harm competition is irrational and would place this legislation completely outside the realm of the Robinson-Patman Act or any other antitrust law that has ever been enacted in the U.S.," Roll's analysis maintains.

"Since 1890, our antitrust laws have always required that there be a substantial effect on competition in order to trigger liability," Roll continued. "Here, the Prescription Drug Fairness Act eliminates the need to prove or even infer any anticompetitive effect. It has no place in the Robinson-Patman Act or any other antitrust law."

Another legal analysis provided to PhRMA by Covington & Burling Partner Charles Rule maintains that, instead of reducing prices, the bill would have the effect of raising U.S. drug prices while shutting off drug flow to some countries.

When given the choice between reducing U.S. prices to the lowest international price or refusing to sell in that market, Rule maintained, "the manufacturer will choose to cease selling in most or all low price countries and may well increase the price in the U.S. in an attempt partially to offset the incremental revenue that the manufacturer loses as a result of foregoing sales."

Rule raises another practical objection: "it would probably be practically impossible to constantly monitor exchange rates 24 hours a day around the entire world to prevent price differences from developing as foreign currencies rise and fall against the dollar."

PhRMA is joined in opposing the bill by the National Association of Manufacturers. "While we appreciate Sen. Gorton's support of U.S. manufacturers in a wide variety of other areas, we think his bill takes the wrong approach on prescription drug coverage," NAM said.

NAM has also sent a letter directly to members of Congress asking them not to support the bill.

The opposition of the manufacturing sector could be a strong deterrent for some border state Republicans who have been eyeing the drug pricing disparity as a reelection campaign issue, such as Michigan Republican Sen. Abraham.

At an April 26 press briefing, Gorton said he is "not wedded to this approach" but is hoping introduction of the bill will stimulate the pharmaceutical industry and other members of Congress to develop alternatives.

Other border state Republicans have addressed the pricing issue through reimportation bills, but none have aligned themselves with Gorton's bill as cosponsors.

Maine Republican Sens. Snowe and Collins signed on with Gorton to an April 20 letter to Banking Committee Chairman Gramm (R-Tex.) requesting a hearing on the Canadian price disparity (¹ Also see "Snowe Rains On PhRMA, Signs On To Gorton International Pricing Bill" - Pink Sheet, 24 April, 2000.).

[Editor's note: Based on incorrect information provided by her office, Sen. Snowe (R-Maine) was cited in "The Pink Sheet" (April 24, p. 23) as an original cosponsor of the Gorton bill. Snowe is a cosponsor of the Dorgan/Wellstone International Drug Parity Act, which allows prescription drug reimportation.]

Gorton suggested that reimportation bills "would allow the bizarre situation where the drugstore in the U.S. could purchase an American-manufactured drug in Canada for less than it could buy it for in the U.S."

Nevertheless, "I think that solution may very well be the direction in which we ought to go."

The Gorton bill has been referred to the Judiciary Committee, chaired by Sen. Hatch (R-Utah).

Hatch, while maintaining his preference for free market pricing, expressed sympathy for Gorton's efforts in an April 17 speech to a generic drug trade association. Hatch focused on the difficulty of explaining to constituents the cross-border price differences.

Support for free market pricing "is eroding at an alarming pace, and the time has come to ring the alarm bell loudly in the pharmaceutical marketplace that the security of a competitive marketplace is now in serious jeopardy," Hatch declared (¹ Also see "Snowe Rains On PhRMA, Signs On To Gorton International Pricing Bill" - Pink Sheet, 24 April, 2000.).

Gorton's discussion of the bill has resembled the rhetoric more usually employed by liberal Democrats when discussing pharmaceutical profits, including the argument that most R&D is taxpayer funded.

"The American citizen pays the price [for foreign price controls] more than once because the American citizen has already paid roughly 50% of the cost of developing that drug through our tax system, either through direct appropriations at the National Institutes of Health or through various R&D tax credits," Gorton said.

Gorton also cited Fortune magazine's listing of pharmaceuticals as the most profitable industry in the U.S. as part of its April 17 "Fortune 500" issue.

In contrast to Gorton, initial responses from key Senate Democrats to the pricing bill have focused on the potential impact on research. More significantly, President Clinton continues to tie discussion of drug pricing to the need for prescription drug coverage under the Medicare program - and a public disavowal of price controls.

At the PhRMA annual meeting, however, former Rep. Vic Fazio warned that it will be easy for Democrats to align themselves with the Gorton bill as a bipartisan measure that "really makes acceptable and legitimate price controls" (³ Also see "PhRMA Image Must Be Sharpened For Pricing Debate, Coats And Fazio Advise" - Pink Sheet, 24 April, 2000.).

Rx Trade Negotiations Tied To International Pricing Bill By Sen. Gorton

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