PAGENO="0001" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY / I~ `~( )~i?~/ (j ~ HEARINGS BEFORE THE SUBCOMMITTEE ON MONOPOLY OF THE SELECT COMMITTEE ON SMALL BUSINESS UNITED STATES SENATE NINETY-FIRST CONGRESS SECOND SESSION ON PRESENT STATUS OF COMPETITION IN THE PHARMACEUTICAL INDUSTRY PART 18 AUGUST 6, 11, 17, AND 18, 1970 GOVERNMENT PROCUREMENT (VOL. 1) 0 Printed for the use of the Select Committee on Small Business U.S. GOVERNMENT PRINTING OFFICE 40-471 0 WASHINGTON: 1970 0 ~/1~;c ~c For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 - Price $1.75 PAGENO="0002" SELECT COMMITTEE ON SMALL BUSINESS [Created pursuant to S. Res. 58, 81st Cong.) ALAN BIBLE, Nevada, Chairman JOHN SPARKMAN, Alabama RUSSELL B. LONG, Louisiana JENNINGS RANDOLPH, West Virginia HARRISON A, WILLIAMS, JR., New Jersey GAYLORD NELSON, Wisconsin JOSEPH M. MONTOYA, New Mexico FRED R. HARRIS, Oklahoma THOMAS J. McINTYRE, New Hampshire MIKE GRAVEL, Alaska CHESTER H. SMITH, Staff Director and General Counsel KEITH A. JONES, Minority Counsel SUBCOMMITTEE ON MONOPOLY GAYLORD NELSON, Wisconsin, Chairman JOHN SPARKMAN, Alabama MARK 0. HATFIELD, Oregon RUSSELL B. LONG, Louisiana ROBERT DOLE, Kansas THOMAS J. McINTYRE, New Hampshire MARLOW W. COOK, Kentucky ALAN BIBLE,* Nevada JACOB K. JAVITS,~ New York BENJAMIN GORDON, Staff Economist ELAINE C. DYE, Clerical Assistant *Ex officio member. JACOB K. JAVITS, New York PETER H. DOMINICK, Colorado HOWARD H. BAKER, JR., Tennessee MARK 0. HATFIELD, Oregon ROBERT DOLE, Kansas MARLOW W. COOK, Kentucky TED STEVENS, Alaska II PAGENO="0003" CONTENTS Statement of- Barondes, Seymour, Chief, Commodity Eligibility and Price Branch, Office of the Controller, Agency for International Development, Department of State; accompanied Gov. Lane Dwinell, Assistant Page Administrator for Administration, AID 7326 Brands, Allen J., Pharmacy Liaison Representative, Public Health Service, Department of Health, Education, and Welfare; accom- panied Dr.~ Jesse L. Steinfeld, Surgeon General, Public Health Service 7671 Bronaugh, Alfred T., Associate General Counsel, Veterans' Administra- tion; accompanied Hon. Donald E. Johnson, Administrator, VA~. 7425 Bryant, Dr. Thomas E., Associate Director for Health Affairs, Office of Economic Opportunity; accompanied by Donald Pugliese, Chief of Operations, Comprehensive Health Services, OEO; and Dr. Stephen Paul, Chief Pharmacy Consultant, OEO 7717 Clark, Col. E. J., MC, USAF, Office of the Surgeon General, Depart- ment of the Air Force; accompanied Rear Adm. H. S. Etter, MC, USN, Chairman, Defense Medical Materiel Board, and Assistant Chief for Planning and Logistics, Bureau of Medicine and Surgery. 7543 Cook, Clyde C., Deputy Director, Supply Service, Veterans' Administra- tion; accompanied Hon. Donald E. Johnson, Administrator, VA~. 7425 Corcoran, John J., General Counsel, Veterans' Administration; accom- panied Hon. Donald E. Johnson, Administrator, VA 7425 Dwinell, Gov. Lane, Assistant Administrator for Administration, Agency for International Development, Department of State; accom- panied by Nathan Salant, Resources Policy Adviser, Office of Pro- curement; Mattaniah Eytan, Assistant General Counsel for Pro- curement and Transportation; and Seymour Barondes, Chief of the Commodity Eligibility and Price Branch, Office of the Controller 7326 Etter, Rear Adm. Harry S., MC, USN, Chairman, Defense Medical Materiel Board, and Assistant Chief for Planning and Logistics, Bureau of Medicine and Surgery; accompanied by Col. M. E. McCabe, MC, USA, Office of the Surgeon General, Department of the Army; Capt. L. M. Fox, MC, USN, Chief of Medicine, Naval Hospital, National Naval Medical Center; Col. E. J. Clark, MC, USAF, Office of the Surgeon General, Department of the Air Force; Col. J. P. Fairchild, MC, USA, Deputy Com- mander, Walter Reed General Hospital, and Chairman, Thera- peutic Agents Board; Captain S. C. Pflag, MSC, USN, Chief, Field Branch, Bureau of Medicine and Surgery, Navy Department; and Col. A. J. Snyder, MSC, USA, Chief, Medical Procurement Divi- sion, Directorate of Procurement and Production, Defense Person- nel Support Center 7543 Eytan, Mattaniah, Assistant General Counsel for Procurement and. Transportation, Agency for International Development, Depart- ment of State; accompanied Gov. Lane Dwinell, Assistant Admin- istrator for Administration, AID 7326 Fairchild, Col. J. P., MC, USA, Deputy Commander, Walter Reed General Hospital, and Chairman, Therapeutic Agents Board; ac- companied Rear Adm. H. S. Etter, MC, TJSN, Chairman, Defense Medical Materiel Board, and Assistant Chief for Planning and Logistics, Bureau of Medicine and Surgery 7543 In PAGENO="0004" IV CONTENTS Statement of-Continued Fox, Capt. L. M., MC, USN, Chief of Medicine, Naval Hospital, National Naval Medical Center; accompanied Rear Adm. H. S. Etter MC USN Chairman, Defense Medical Materiel Board, and Assistant Chief for Planning and Logistics, Bureau of Medicine Page and Surgery 7543 Haber, Dr. Paul A. L., Director, Extended Care Service, Veterans' Administration accompanied Hon. Donald E. Johnson, Adminis- trator, VA 7425 Harding, Roland F., Chief, Drugs and Pharmaceuticals Division, Veterans' Administration; accompanied Hon. Donald E. Johnson, Administrator, VA 7425 Johnson, Hon. Donald E., Administrator of Veterans' Affairs; ac- companied by John J. Corcoran, General Counsel; Alfred T.. Bro- naugh, Associate General Counsel; Dr. Benjamin B. Wells, Deputy Chief Medical Director; Dr. Paul A. L. Haber, Director, Extended Care Service; Donald P. Whitworth, Director, Supply Service; Clyde C. Cook, Deputy Director, Supply Service; Robert A. Statler, Director, Pharmacy Service; and Roland F Harding, Chief, Drugs and Pharmaceuticals Division 7425 McCabe, Col. M. E., MC, USA, Office of the Surgeon General, Department of the Army; accompanied Rear Adm. H. S. Etter, MC, USN, Chairman, Defense Medical Materiel Board, anct Assistant Chief for Planning and Logistics, Bureau of Medicine andSurgery 7543 Paul, Dr. Stephen, Chief Pharmacy Consultant, Office of Economic Opportunity; accompanied Dr. Thomas E. Bryant, Associate Director for Health Affairs, OEO 7717 Pfiag, Capt. S. C., MSC, USN, Chief, Field Branch, Bureau of Medicine and Surgery; accompanied Rear Admiral H. S. Etter, MC, USN, Chairman, Defense Medical Materiel Board, and Assistant Chief for Planning and Logistics, Bureau of Medicine and Surgery 7543 Pugliese, Donald, Chief of Operations, Comprehensive Health Services, Office of Economic Opportunity; accompanied Dr. Thomas E. Bryant, Associate Director for Health Affairs, OEO - - - 7717 Rankin, Winton B., Special Assistant to Assistant Secretary for Health and Scientific Affairs, Department of Health, Education, and Welfare; accompanied Dr. Jesse L. Steinfeld, Surgeon General, Public Health Service 7671 Salant, Nathan, Resources Policy Adviser, Office of Procurement, Agency for International Development, Department of State; accompanied Gov. Lane Dwinell, Assistant Administrator for Administration, AID 7326 Snyder, Col. A. J., MSC, USA, Chief, Medical Procurement Division, Directorate of Procurement and Production, Defense Personnel Support Center; accompanied Rear Adm. H. S. Etter, MC, USN, Chairman, Defense Medical Materiel Board, and Assistant Chief for Planning and Logistics, Bureau of Medicine and Surgery 7543 Statler, Robert A., Director, Pharmacy Service, Veterans' Adminis- tration; accompanied Hon. Donald E. Johnson, Administrator, VA~ 7425 Steinfeld, Dr. Jesse L., Surgeon General, Public Health Service, Deputy Assistant Secretary for Health and Scientific Affairs, Department of Health, Education, and Welfare; accompanied by Allen J. Brands, Pharmacy Liaison *Representative, Public Health Service; and Winton B. Rankin, Special Assistant to Assist- ant Secretary for Health and Scientific Affairs 7671 Wells, Dr. Benjamin B., Deputy Chief Medical Director, Veterans' Administration; accompanied Hon. Donald E. Johnson, Adminis- trator, VA 7425 Whitworth, Donald P., Director, Supply Service, Veterans' Adminis- tration; accompanied Hon. Donald E. Johnson, Administrator, VA 7425 PAGENO="0005" CONTENTS V EXHIBITS Chart, comparison of Agency for International Development and European Page bulk prices, 1968-69 7330 Memorandum dated July 23, 1970, from TA/POP/P GD, Irene B. Walker, to A/PROC, Patrick M. O'Leary, re prices paid by AID for oral contra- ceptives 7353 Financing of pharmaceuticals under program assistance, a small business memo dated November 27, 1968, issued by the Agency for International Development, Department of State 7368 Republication of AID commodity procurement source-origin policy and amendments, a small business memo dated April 3, 1970, issued by the Agency for International Development, Department of State 7369 Agency waiver application under section 201.24(c) (1) of Agency for Inter- national Development Regulation 1 7385 Waivers of publication requirements for procurement under certain special supplier importer relationships, a small business memo dated March 1, 1965, issued by the Agency for International Development, Department of State 7386 Agency waivers of small business notification requirement issued to sup- pliers on behalf of importers of medicinals and pharmaceuticals as of July 28, 1970, submitted by the Agency for International Development_ 7388 Agency for International Development expenditures: Total commodities and pharmaceuticals, fiscal years 1968 and 1969 7389 Refund claims asserted by Agency for International Development against pharmaceutical suppliers 7390 Examples of guidance and instructions regarding selected pharmaceuticals, submitted by the Agency for International Development 7392 Sales moving from parent to subsidiary and number of small businesses, submitted by the Agency for International Development 7393 Press release dated June 20, 1969, "Former New Hampshire Governor Joins AID Agency" 7393 Letter dated June 18, 1970, from Matthew J. Harvey, Director, Congres- sional Liaison, Agency for International Development, Department of State, to Senator Gaylord Nelson, with accompanying attachments - - - 7394 Letter dated September 24, 1970, from Senator Gaylord Nelson, to Gov. Lane Dwinell, Assistant Administrator for Administration, Agency for International Development, Department of State, with accompanying reply 7398 Letter dated November 13, 1970, from Gov. Lane Dwinell, Assistant Administrator for Administration, Agency for International Develop- ment, Department of State, to Senator Gaylord Nelson, with accom- panying enclosures 7399 Article, "Pharmaceutical Companies in Maharashtra-Financial Structure and Ownership," by R. K. Hazari and H. G. Lakhani, reprinted from Economics & Political Weekly, vol. II, No. 26, July 1, 1967 7405 Article, "Special Communication-White Paper on the Therapeutic Equivalence of Chemically Equivalent Drugs," by W. B. Castle, M.D., E. B. Astwood, M.D., M. Finland, M.D., and C. S. Keefer, M.D., from the Journal of the American Medical Association, vol. 208, No. 7, May 19, 1969, pages 1171-1172 7435 List of l~ids reported to the Department of Justice as identical, 1964-66, submitted by the Veterans' Administration 7444 Chart, Veterans' Administration-Competitive bidding, fiscal years 1968 and 1969 7460 Chart, purchases of drugs by major therapeutic categories for fiscal years 1968 and 1969 7462 Items obtained sole source during fiscal year 1968 and fiscal year 1969 where only one source was available 7462 Items obtained sole source during fiscal year 1968 and fiscal year 1969 where more than one supplier existed~ 7465 Chart, combination products purchased during fiscal year 1968 and fiscal year 1969 7468 Chart, Veterans' Administration-Combination drug products purchased, fiscal years 1968 and 1969 7469 Chart, Veterans' Administration-Competitive bidding, fiscal year 1969 - 7470 PAGENO="0006" VI CONTENTS Chart, Veterans' Administration-Drug procurements from large corn- Page panies by DSA, GSA, and VA, fiscal years 1968 and 1969 7471 Veterans' Administration-Sole source procurement 7472 Excerpt, Task Force on Prescription Drugs-Report and Recommenda- tions, committee print, 90th Congress, second session, Subcommittee on Monopoly of the Select Committee on Small Business, U.S. Senate, prepared by the U.S. Department of Health, Education, and Welfare, August 30, 1968, page 24 7472 Article, "Treatment of the Acute Alcohol Withdrawal State: A Comparison of Four Drugs," by S. C. Kaim, M.D., C. J. Klett, Ph. D., and Benjamin Rothfeld, M.D., from the American Journal of Psychiatry, June 1969 - 7478 Article, "Drug Treatment of Schizophrenic Reactions-VA Cooperative Studies of Chemotherapy in Psychiatry," by L. E. Hollister, M.D., C. J. Klett, Ph. D., E. Caffey, Jr., M.D., and S. C. Kaim, M.D 7486 Article, "Treatment of the Acute Alcohol Withdrawal State: Development of Delirium Tremens and Convulsions," by S. C. Kaim, M.D., C. J. Klett, Ph. D., and Benjamin Rothfeld, M.D 7494 Bibliography of references submitted by Hon. Donald E. Johnson, Admin- istrator, Veterans' Administration 7498 Article, "Drug Therapy in Schizophrenia-A Controlled Study of the Rela- tive Effectiveness of Chlorpromazine, Promazine, Phenobarbital, and Placebo," by J. F. Casey, M.D., I. F. Bennett, M.D., C. J. Lindley, M.A., L. E. Hollister, M.D., M. H. Gordon, Ph. D., and N. N. Springer, Ph. D., reprinted from the AMA Archives of General Psychiatry, February 1960, volume 2, pages 210-220 7499 Article, "Treatment of Schizophrenic Reactions With Phenothiazine Deriv- atives-A Comparative Study of Chlorprornazine, Trifiupromazine, Mepazine, Prochiorperazine, Perphenazine, and Phenobarbital," by J. F. Casey, M.D., J. J. Lasky, Ph. D., C. J. Klett, Ph. D., and L. E. Hollister, M.D., reprinted from the American Journal of Psychiatry, volume 117, No. 2, August 1960 7510 Article, "Abnormal Symptoms, Signs, and Laboratory Tests During Treat- ment With Phenothiazine Derivatives," by L. E. Hollister, M.D., E. M. Caffey, Jr., M.D., and C. J. Klett, Ph. D., reprinted from Clinical Pharmacology and Therapeutics, volume 1, No. 3, May-June 1960, pages284-293 7520 Article, "A Clinical Trial of Five Phenothiazines Using Sequential Anal- ysis," by C. J. Klett, Ph. D., and J. J. Lasky, Ph. D., reprinted from Journal of Clinical and Experimental Psychopathology & Quarterly Review of Psychiatry and Neurology, volume XXI, No. 2, April-June 1960 7531 Department of Defense Medical Materiel Board Type classification/user test action request forms 7588 Item review report of the Department of Defense Medical Materiel Board 7591 Organization chart of the Department of Defense Personnel Support Center 7592 Chart, calcium carbonate and aminoacetic acid tablets, 500's, bottle, 1968-1969 7593 Extract from an American Diabetes Association letter to members, dated June 17, 1970, and distributed following the 30th annual meeting of the American Diabetes Association, which ended on June 14, 1970 7594 Memorandum dated January 27, 1969, from A. J. Snyder, Lt. Col., U.S.A., Chief, Division of Medical Materiel, Defense Supply Agency, to pros- pective medical bidders, with accompanying partial listing of drug items. 7595 Drug bidders list of the Defense Personnel Support Center, Defense Supply Agency, as of July 1970 7622 Typical flow chart depicting an Army request to standardize a drug product in the Department of Defense Supply system 7651 List of drugs designated limited (sole) source by Defense Medical Materiel Board 7652 List of items removed from `Sole source 7654 List of items where E/CS were revised and single source broken 7655 List of items now being procured from multiple sources after being single source 7656 Chart showing shift from noncompetitive to competitive, 1967-70, sub- mitted by the Defense Medical Materiel Board 7657 PAGENO="0007" CONTENTS VII Small business allocation of the Defense Personnel Support Center, Dc- Page fense Supply Agency, 1968-69 7659 List of companies converting from small business to large business, fiscal years 1968, 1969, and 1970 7660 Ten-point quality assurance program of the Defense Personnel Support Center, Defense Supply Agency 7662 Other support of the Defense Personnel Support Center, Defense Supply Agency 7665 Quality assurance program of the Defense Personnel Support Center, Dc- fenseSupplyAgency 7666 Department of Defense policies and procedures for preparation of specifi- cations to insure acquisition of quality medical material 7667 Chart, total drug expenditures and breakdown by major therapeutic cate- gories,fiscalyearsl968andl969 7668 Chart, Defense Supply Agency-Distribution of total pharmaceutical purchases by source of procurement, fiscal years 1968-69 7668 Chart, Defense Supply Agency-Combination drugs procurements: Dis- tribution of smaller company contracts secured under negotiation, fiscalyears 1968-69 7669 Chart, Defense Supply Agency-Distribution of sole source drugs pro- cured by brandname, fiscalyears 1968-69 7670 List of drugs rejected by Public Health Service Supply Service Center for noncompliance with specifications, fiscal years 1968 and 1969 7683 Charts, Public Health Service price comparisons with Veterans' AdminLs- tration and Defense Supply Agency 7685, 7686 Biographical sketch of Dr. Jesse L. Steinfeld, Surgeon General, Public Health Service, Deputy Assistant Secretary for Health and Scientific Affairs, Department of Health, Education, and Welfare 7688 Biographical sketch of Allen J. Brands, Pharmacy Liaison Representative, Public Health Service, Department of Health, Education, and Welfare~ 7689 Biographical sketch of Winton B. Rankin, Special Assistant to the Assistant Secretary for Health and Scientific Affairs, Department of Health, Education, and Welfare 7690 Memorandum dated June 9, 1966, from G. P. Ferrazzano, M.D., Assistant Surgeon General, Chief, Division of Hospitals, Public Health Service, to medical officers in charge, U.S. Public Health Service hospitals and out- patient clinics, with accompanying enclosures 7690 Letter dated September 9, 1970, from Dr. Stephen H. Paul, Chief Pharmacy Consultant, Office of Economic Opportunity, to Benjamin Gordon, staff economist, Select Committee on Small Business, U.S. Senate, re drug chlordiazepoxide (Librium) 7729 Chart, inhouse pharmacy drug purchases, fiscal years 1968, 1969, and 1970 7729 Chart, community pharmacy charges to neighborhood health centers, fiscal years 1968, 1969, and 1970 729 Chart, inhouse drug costs for selected drug products 7729 Chart, community pharmacy charges for selected drug products 7736 APPENDIX I. Article, "Effects of Chlordiazepoxide and Secobarbital on Film-Induced Anxiety," by Richard C. Pillard, M.D., and Seymour Fisher, M.D., from Psychopharmacologia (Ben.) 12, 18-23, 1967 7740 HEARING DATES August 6, 1970: Morning session 7325 August 11, 1970: Morning session 7425 August 17, 1970: Morning session 7543 August 18, 1970: Morning session 7671 PAGENO="0008" PAGENO="0009" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY (Preseilt Status of Competitioll in the Pharmaceutical IllthIStry) TUESDAY, AUGUST 6, 1970 U.S. SENATE, SUBCOMMITTEE ON MONOPOLY OP THE SELECT CoMMIrrn~ ON SMALL BUSINESS, Wa~shington, D.C. The subcommittee met, pursuant to recess, at 10:10 a.m., in room 318, Old Senate Office Building, the Honorable Gaylord Nelson (chairman of the subcommittee) presiding. Present: Senators Nelson and McIntyre. Also present: Benjamin Gordon, staff economist; Elaine C. Dye, clerical assistant; Keith A. Jones, minority counsel; and Dennison Young, Jr., associate minority counsel. Senator NELSON. The hearing will come to order. Senator MCINTYRE. Will the chairman yield? Senator NELSON. Yes. Be glad to, Senator McIntyre. Senator MCINTYRE. Mr. Chairman, I would like to point out that our witness today is one of my most distinguished constituents. Governor Dwinell served as Governor of the State of New Hamp- shire for two terms, 1955 through 1959. He served previously as As- sistant Secretary of State for Administration during the Administra- tion of President Eisenhower. Lane Dwinell has been prominent in the New Hampshire and national business world, serving as presi- dent of the New Hampshire Manufacturers Association and director of the National Association of Manufacturers. He has had as varied a wealth of public service in my State as anyone that I can think of, as president of the State Senate, speaker of the State House of Representatives, and member of the State Board of Education. Statesman, banker, manufacturer, and public servant-my State is proud of his record and I am delighted to wel- come him here and introduce him to you on this committee. Senator NELSON. Governor, I am pleased to have you here. If you decide to run again, I see whom you can get for campaign manager. Governor, the committee is pleased to welcome you and your as- sociates from the Department. Why don't you present your state- ment however you wish, and it will be printed in full in the record. I trust that if we have questions as you go along, you will not ob- ject to interruptions. 7325 PAGENO="0010" 7326 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY STATEMENT OP GOV. LANE DWINELL, ASSISTANT ADMINISTRATOR FOR ADMINISTRATION, AGENCY FOR INTERNATIONAL DEVELOP- MENT, DEPARTMENT OF STATE; ACCOMPANIED BY NATHAN SALANT, RESOURCES POLICY ADVISER IN THE OFFICE OF PRO- CUREMENT; MATTANIAR EYTAN, ASSISTANT GENERAL COUN- SEL FOR PROCUREMENT AND TRANSPORTATION; AND SEYMOUR BARONDES, CHIEF OF THE COMMODITY ELIGIBILITY AND PRICE BRANCH, OPFICE OF THE CONTROLLER Mr. Dwn~LL. Thank you, Mr. Chairman. May I thank your col- league for his gracious introduction. I have a statement which has been submitted to the committee, which I would like to read, if the Chair would permit.' Senator NELSON. Of course, Governor. Mr. DWINELL. I appreciate this opportunity to discuss AID pro- grams which involve the procurement of pharmaceutical products. I have with me several colleagues who are prepared to discuss in detail specific aspects of our program, which have been of special interest to this committee. On my right is Mr. Nathan Salant, Resources Policy Adviser in the Office of Procurement; on my immediate left is Mr. Mattaniah Eytan, Assistant General Counsel for Procurement and Transpor- tation; on his left, Mr. Seymour Barondes, the Chief of Commodity Eligibility and Price Branch in the Office of the Controller. But before delving into details of such procurement, I would like tc~ describe, in general terms and without specific regard to pharma- ceuticals, why we have different types of programs and how they are conducted. We conduct three basic programs under which commodities are financed with AID funds. Pharmaceutical products may be pur- chased in two of these programs-technical assistance programs and commercial import programs. The third activity, capital project as- sistance, is not of concern in our discussion today. The first type of program mentioned, technical assistance, en- compasses educational and training activities Included are projects in various fields such as health, disease prevention and family plan- ning. Possible programs are developed in the field by our mission specialists working in close collaboration with cooperating country officials and possibly with TIN or other international agency experts. Gradually, their ideas gain substance, scope, and specificity and a definite program takes form-goals to be achieved, facilities to be established, technical services to be recruited, material to be as- sembled, supplies to be procured. Feasibility studies are made and time frames for performance prepared. Analyses of resource availabilities and needs are of course essential and figure significantly both in regard to project initiation and continuation. Ultimately, the proposed program is presented by the mission to Washington for consideration. We appraise each proposal in the context of its suitability for AID participation, of its essentiality to the development of the aid-receiving country, and of its priority relative to other project options. 1 See information beginning at p. 7364. PAGENO="0011" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7327 The Agency seeks to confine approvals to carefully formulated, high priority proposals that promise meaningful achievements. Funds authorized in approved projects thus are earmarked for pre- scribed technical services and for specific commodities. In other words, when a technical assistance project is authorized, we have considerable knowledge regarding the commodities to be financed, including knowledge as to what will be bought and what procurement procedures will be employed. The second type of program is the AID commercial import pro- gram. This has two major complementary objectives: First, it provides foreign exchange to finance private sector im- ports of commodities needed by industry and agriculture as well as to finance imports of essential consumer goods. Second, it supplements the revenue of the aid-receiving country and thus enables that government to meet the local currency costs of its development activities. Senator NELSON. May I interrupt a moment, Governor? Mr. DWINELL. Yes. Senator NELSON. That sentence, "First, it provides foreign ex- change to finance private sector imports of commodities needed by industry and agriculture as well as to finance imports of essential consumer goods," you are talking about the aided country here? Mr.. DWINELL. The aidedcountry, yes, Mr. Chairman. Senator NELSON. When you say "foreign exchange," how is for- eign exchange involved? Mr. DWINELL. It provides foreign exchange credits, Mr. Chairman. It provides dollars for the procurement of commodities in this coun- try for import by a lesser developed country, which does not have adequate foreign exchange capability. Senator NELSON. I do not know the best time to discuss this so that I understand it. Will you discuss it in some detail later on? Mr. DWINELL. Yes, I do develop this point further, Mr. Chairman. Senator NELSON. What is meant, then, is that AID, in this case, will pay in American dollars a given amount of money to an Ameri- can company for a certain amount of product. Then the foreign com- pany-and I note a substantial percentage are subsidiaries of domes- tic companies-gets the product, so if it is $100,000 worth of Ameri- can dollars paid to an American company for American products, those products are going to go to the foreign importer, in many cases, the subsidiary. The subsidiary then transfers from its holdings in that foreign country $100,000 worth of that country's domestic currency to that particular country's bank. Is that correct? Mr. DWINELL. That is correct. Senator NELSON. Then the American company that received the $100,000 sends the product over to the importing subsidiary (if it is a subsidiary). The subsidiary, then, transfers from its private hold- ings the equivalent of $100,000 in local currency to its Government, then sells the drugs it receives or the products it receives in the open market in the country in which it is located. Is that a correct analysis of what happens? Mr. DWINELL. That is correct. But to complete the cycle, the local currency is deposited in the national bank of the aided country and the Government of that country repays the loan to us in dollars, under the terms of the loan. PAGENO="0012" 7328 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON. In dollars? Mr. DWINELL. In dollars. These are all dollar loans, Mr. Chairman. Senator NELSON. We do not send any dollars over? Mr. DWINELL. No. Senator NELSON. The subsidiary in the foreign country transfers local currency which they have to the receiving country's bank. This constitutes a loan and must be paid back in the equivalent of dollars; is that right? Mr. DWINELL. The country with whom we make the loan agree- ment, undertakes as a condition of that loan to repay us in dollars at some future time. Senator NELSON. One hundred percent repayment? Mr. DWINELL. Yes. We do not make loans which are repayable to us under the commercial import program in local currencies; they are repaid to us in dollars. Senator NELSON. At what interest rate? Mr. DWINELL. That depends on the terms of individual loans. Every loan actually is negotiated separately with the different coun- tries and different loans with the same country, and the terms would vary. Senator NELSON. What is the usual period of time over which the loan extends? Mr. DWINELL. The typical one at this point might be a loan at 3.5 percent interest for 30 or 40 years. They are long-term, low-interest loans, but they are dollar loans. Senator NELSON. For 30 or 40 years. Tinder the terms of the loan, does the receiving country pay back principal and interest annually? Mr. DWINELL After a grace period. Senator NELSON. How long is the grace period? Mr. DWINELL. It is a few years, sometimes as lo~ g as 10 years. Senator NELSON. How long has this particular loan program been in effect? This specific aspect of the program? Mr. DWINELL. We have had, as I understand it, the commodity import programs going back to Marshall plan days. But I refer to the history of AID in its present form, which goes back to 1961, the Foreign Assistance Act of 1961. Loans made for the commodity im- port program since then have been dollar repayable. Senator NELSON. Do I understand that normally interest is paid annually, or is there a grace period on interest, too? Mr. DWINELL. There is a short grace period on interest and then it is paid annually. Senator NELSON. And the interest is paid in American dollars? Mr. DWJNELL. In dollars. Senator NELSON. Are there any countries that default on their interest, or are behind? Mr. DWINELL. I am informed that the United Arab Republic has been in default on some loans, both as to principal and interest, and there have been possibly a few delinquencies. But the record which we can submit for the record has been exceptionally good. Senator NELSON. How many countries are involved in this kind of a loan program? Mr. DWINELL. Of course, the number of countries has varied over the years, but at the present time there are approximately 1'2 countries. PAGENO="0013" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7329 Senator NELSON. Are any of them in default on principal? Apart from the United Arab Republic? Mr. DwINEI~L. No, Mr. Chairman. Senator NELSON. Please continue. Mr. DWINELL. Development projects involve substantial local cur- rency expenditures to defray costs such as land purchase, rentals, labor, indigenous materials and services. For many developing coun- tries, these items cost a great deal more money than their financial resources can provide. The commercial import program offers a par- tial solution. It creates a channel through which imported commodi- ties, purchased with American dollars, can be converted into local currency accruals to the Government of the importing country. This local currency is then available to support joint economic and, where necessary, defense programs. The mechanics of the system explain how this is done. This addresses itself to the point which we were discussing, Mr. Chairman, but I think this gives the details which may be of interest; to the committee. The commercial import program works through commercial bank- ing channels and is dependent upon the activities of private business- men. A firm which sees an opportunity for profit in the importation and resale of particular goods eligible for AID financing obtains an import license if it is required, consumates an "exchange contract" with the local bank, arranges for the procurement and transportation of the goods, pays to his local bank the total cost of the goods in local currency, pays customs duty to his government on arrival of the goods, warehouses. and then processes or sells the goods on the open market. The risk inherent in this transaction falls to the importer, the profit or loss also goes to him. Senator NELSON. May I interrupt a moment? Mr. DWINELL. Yes. Senator NELSON. I do not see the risk involved when it is a case of the parent company dealing with its own subsidiary in a foreign country. Can you explain to me where the risk is? Mr. DWINELL. Yes. Mr. Chairman. The business risk is on the part of the subsidiary, in this instance in the foreign country, as to whether or not it can sell the product commercially at a profit. There is a normal business risk undertaken here. This process only finances the importation in the case of pharma- ceuticals, the raw materials, if you will; and the drug company takes a normal business risk as to whether or not it can sell the product. Senator NELSON. That is the part that puzzles me in looking at the prices. I cannot understand where the risk is. The subsidiary is not going to import the drug unless there is a market. Mr. DWrNELL. Well, may I say, Mr. Chairman, that any importer takes a risk in importing something for resale, as to whether or not his market still exists by the time he is ready to make his sale. And may I add, Mr. Chairman, he has competition within the importing country. Senator NELSON. Do you have a copy of the chart which the staff made up? (The chart above-referred to, follows:) PAGENO="0014" European competitive price of same Product and AID supplier, 1969 Foreign recipient AID price 1968-69 product or therapeutic equivalent Tetracycline HCL (antibiotic): American cyanamid Cyanamid, Pakistan $270 per kilogram $24 to $29 per kilogram Do Cyanamid, Colombia $100 per kilogram do Bristol Bristol, Colombia $250 per kilogram do Do Bristol, Pakistan $190 per kilogram do Chlortetracycline (antibiotic): American cyanamid Cyanamid Colombia $100 per kilogram $25 to $30 per kilogram Do do $250 per kilogram Do do $150 per kilogram Do Blemco Import Co $17 per kilogram I 66 cents to $1.35 per kilogram Doxycycllne (Vibramycin) (antibiotic): Pfizer Pfizer, Colombia $1,750 per kilogram Tetracycline, $24 to $29 per kilogram 2 Do do $2,250 per kilogram Do Pfizer, Pakistan $1,750 per kilogram Methacycline HCL (Rondomycin) (antibiotic): Pfizer Pfizer, Colombia $450 per kilogram Tetracycline, $24 to $29 per kilogram Do Pfizer, Pakistan $350 per kilogram Demethylchlortetracycline (Declomycin) (antibiotic): American cyanamid Cyanamid, Colombia $400 per kilogram Tetracycline, $24 to $29 per kilogram Do do $350 per kilogram Do do $250 per kilogram Do Cyanamid, Pakistan $405 per kilogram Do do $450 per kilogram Rolitetracycline (Bristacin) (antibiotic): Bristol Bristol, Colombia $550 per kilogram Tetracycline, $24 to $29 per kilogram Oxytetracycline HCL (Terramycin): Pfizer Pfizer, Pakistan $100 per kilogram $30 per kilogram Pfizer, Colombia do Ampicillin trihydrate (antibiotic): Bristol Bristol, Colombia $420 per kilogram $150 per kilogram Benzathazine penicillin (Bicillin) (antibiotic): Wyeth Wyeth, Colombia $160 per kilogram $31 to $32 per kilogram Wyeth, Chile $215.75 per kilogram Wyeth, Pakistan $44.10 per kilogram Chiordiazepoxide granulate (Libruim) (tranquilizer): American Roche Merck, Pakistan $245 per kilogram $21.50 to $25 er kilogram Diazepam granulate (Valium) (tranquilizer): American Roche do $182.90 per kilogram $49 per kilogram COMPARISON OF AID AND EUROPEAN BULK PRICES Percent of AID priceto C~ European 0 competitive ~ price ~d t~j I-~3 i, 123 1-4 416 <1 1,041 ~ 792 400 1,000 ~ 600 2,576 ~ 7,292 9,375 CI) 7,292 ,_~ 1,875 1,458 ,~3 1,667 1,458 1,042 ~ 1,688 ~ 1,875 ~ 2,292 333 280 516 ~ 696 141 1,114 373 PAGENO="0015" Chiorcyclizine (antihistamine): Abbott Abbott, Turkey $155 per kilogram $30 per kilogram Cyproheptedine HCL (Periactin) (antihistamine): Merck Merck, Colombia $1,800 per kilogram Chlorpheniramine, $20.50 per kilogram 3~ 8, 780 Merck, Pakistan $1,600 per kilogram 7,805 Dexchlorpheniramine maleate (Polaramine (anti- n'aleate) histamine): Schering Laboratories, Undra, Colombia $650 per kilogram Chlorpheniramine, $20.50 per kilogram 4.._ Dibenzccycloheptatrien piperdine (antihistamine): Merck Merck, India $1,060 per kilogram Not included in USP or NF Merck, Pakistan do Chlorphemiramine, $20.50 per kilogram -- - Ethoheptazinecitrate (Zactane Citrate) (analgesic): Wyeth Wyeth, Colombia $150 per kilogram Aspirin, $1.32 per kilogram Triamcinolcne (glucocorticoid): American Cyanimid Cyanamid Brazil $8 000 per kilogram Prednisone $550 to $580 per kilogram Cyanamid, Colombia $12,000 per kilogram Cyanamid, Pakistan $13,930 per kilogram Cyanamid, India $7,960 per kilogram Dexamethesone (glucocorticoid): Merck Merck, Colombia $27.50 per gram $7.30 per gram Merck, Pakistan do Prednisone sells at 38 cents per gram Dexaniethasone (Decadron Phosphate) (glucocorticoid): Merck Merck, Pakistan $31.90 per gram $7.75 per gram Dc' Merck, Colombia - do .do Price of prednisone, 58 cents per gram. Methylprednisolone (glucocorticoid) Upjohn Upjohn, Colombia - - - $5.10 per gram Prednisolone, 55 cents per gram Prednisone, 58 cents per gram 879 Trihexyphendyl Hydrochloride (Artane) (antispas- matic:) ArrenciçcYanatmid C~anamide Pakistan ~:°i~r~ } No European c:m~ttve price Note differ Nalidixic ad antibacterial): Winthrc,_.._._ Sydney Ross, Colombia $94 per kilogram $70 per kilogram 134 Do Sydney Ross, Brazil do 134 Chlormethazone (Fenarol) (tranquilizer): Winthrop Ross, Colombia $70 per kilogram $22.50 per kilogram 311 Do Ross, Brazil I Feed grade. 2 Medical Letter, July 25, 1969. No difference among tetracyclines. 3 See Medical Letter, vol. 9, No. 7, p. 28. See Burack, p. 89. See Medical Letter, vol. 9, No. 11, pp. 42-43. Oxazepam (Serax) (tranquilizer): Wyeth Wyeth, Colombia $800 per kilogram Diazepam $49 per kilogram 1, 632 Wyeth, Chile $187.50 per kilogram 383 3,171 5,171 5,171 11,364 t~'El 1,454 2,182 O~ 2,533 ~ 1,447 377 ~ 4,741 cr~ 411 411 3500 I. PAGENO="0016" 7332 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. DWINELL. I have it before me now, Mr. Chairman. I had not seen it before, but I have it now. Senator NELSON. With regard to the question of risk, the first item on the chart is tetracycline HCL. American Cyanamid is the sup- plier and Cyanamid, Pakistan, is the foreign recipient. Now, AID pays American Cyanamid $270 for a kilogram of tetracycline HCL. The world price is $24 to $29 a kilogram. AID finances this product at about 11 times the price at which it is available in the world market. Suppose American Cyanamid buys it at the world price, $24 to $29 a kilogram, and then AID pays them $270, which is over 11 times as much, and then it is shipped to Cyanamid, Pakistan, and Cyanamid, Pakistan, sells it in the market over there. Where is the risk? I do not see how in heaven's name any businessman could ever conceivably lose money by selling something at 11 times as much as he can buy it, which is a tremendous profit, and then turn it over to Cyanamid, Pakistan, who would not ask for the importation in the first place unless it had the market. Where is the risk? Mr. DwINELL. Well, the risk is on the part of the importer- Senator NELSON. The importer is owned by the exporter. Mr. DWINELL. If I understand your question, Mr. Chairman, you are indicating that this pharmaceutical was purchased on the world market. Senator NELSON. Tetracycline is available in the world market at $24 to $29 a kilogram. AID is paying American Cyanamid $270 a kilogram. So then the company with its subsidiary-after all, the subsidiary is the same outfit-has already made a profit, 1,125 per- cent markup, and then Pakistan Cyanamid has a market over there and obviously they will sell at a markup from what the American parent company paid. They will not import it unless it is needed, and they can send it back if it is not used. I wonder where the risk is. Mr. DWINELL. Mr. Chairman, I think you are assuming that AID is financing pharmaceuticals which are purchased in the. world mar- ket AID only finances pharmaceutic'tls which are purchased in the United States and manufactured in the United States. Senator NELSON What is the domestic price for tetracycline manu factured in this country? Mr. DWINELL. I think, Mr. Chairman, to put this in further per- spective, I should indicate that these prices are carefully audited and we make sure that we finance these transactions at a price that does not exceed the prevailing market price in the United States, as we are enjoined to do. Senator NELSON. However, lots of tetracycline is imported. Do you require some certificate from American Cyanamid. saying that they have not imported this tetracycline at $24, that, in fact, they bought it frOm within the United States and certify the price they~ paid to the domestic producer? Mr. DWINELL. Mr. Chairman, we require a certification that the pharmaceutical which we finance is of American origin. PAGENO="0017" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7333 Senator NELSON. Tetracycline is imported by some domestic com- panies, as are lots of other compounds that are sold in the domestic market. Are you saying that AID requires some certification in writing from the company that the drug for which they are receiving payment from AID and then shipping to a foreign country is, in fact, produced in the United States? Mr. DWINELL. Yes; that is correct, Mr. Chairman, we do. Senator NELSON. That certification is required of every company with which AID deals? Mr. DWINELL. Yes. Senator NELSON. If you will look at the next row on the chart you will see that American Cyanamid was paid $100 a kilogram on ex- ports to Columbia. That is $170 less than received for shipping to Pakistan. How do you explain that dramatic difference in the amount AID pays to American Cyanamid for shipment to Columbia versus shipment to Pakistan? Mr. DWINELL. Mr. Chairman, the practice of our agency in its post audit is to take what is considei ed to be the proper prevailing price, rather than any exceptional price which may show up with respect to individual transactions with `t particular country Senator NELSON. Well, let me recite the dates for you. On October 8, last year, 1969, AID paid American Cyanamid $100 a kilogram for the shipment of this tetracycline to Cyanamid, Colombia. Then just about 21 or 22 days later, AID paid American Cyanamid $270 a kilo- gram for the shipment of tetracycline to Cyanarnid, Pakistan. Now, are you saying that the domestic price went up from $100 to $270 a kilogram in 22 days? Mr. DWINELL. Mr. Chairman, I would like to ask Mr! Eytan, who is more familiar with that point th'in I, if he might answer that question for you. Mr. EYTAN. Mr. Chairman, any comparison between two prices taken without looking at the larger picture which consists of all prices for comparable commodities moving during a similar period, tends to be misleading. The Congress has enjoined AID not to finance commodities ~t prices which exceed in the relevant c'~se- Senator NET SON Exceed what ~ Mr EYTAN Exceed the m'Lrket price prevailing in the United States for export shipments Th~~t means th~it we look at the range Senator NELSON. The prevailing price for export shipments or the prevailing price for the product in the domestic market? Mr. EYTAN. The market price prevailing in the United States for export shipments. That means that we are enjoined to look at a broad range of prices to determine what is the prevailing market price for export shipments. Senator NELSON. Are you saying there are two price structures here; that there may be a domestic price that is charged to any company or anybody buying in the United States and another price if you are a foreign buyer? Mr. EYTAN. That is possible. I am not saying that a two-price structure does actually exist with respect to any particular com- modity, but it may well be that a price. structure exists for domestic sales, a sale by a seller to somebody in Pittsburgh; and another price 40-471 O-71--pt. 18-2 PAGENO="0018" 7334 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY structure for sales in export. After all, the competitive conditions in export can differ more radically than the competitive conditions in this local market. But the emphasis which we are putting on this test is that a mere comparison of any two prices tells you nothing about the ranges of prices in other sales which would determine the price that is pre- vailing. In fact, a prevailing price really connotes a range of prices. It may well be that a price of $100 per kilogram would be below the level of prices prevailing for that particular time. Senator NELSON. Prevailing where? Mr. EYTAN. Prevailing in the United States for export shipments. Senator NELsoN. Well, you can see, can you not, that there is cer- tainly `~ very dr'imatic difference in 22 d'iys between `~ price paid by AID at $100 a kilogram, versus $270 a kilogram. What happened to ch'inge that price so dr'~m'thcally ~ Mr. EYTAN. Mr. Chairman, we finance each year upward of ~0,O00 separate transactions covering a wide range of commodities and some years the number is closer to 100,000. We have 43 auditors. full- time auditors, who work through this mountain of paper material to develop a case fully on post audit to determine whether AID has overpaid. It invariably takes longer than 6 months. One has to survey the market~ one has to see whether there were, in f'~ct speci'il re'tsons to iustifv the difference in price We de termine whether the two s'iles th'Et we `ire comp'i ring `ire `ictirdly comparable. There are different formulations. different classes of end-use customers. We secure commercial information from all sources available. We put the company upon its metal to explain to us the discrepancy. We hold them to a high standard. After 6 months or longer, when we have the facts down, we apply the test to which the supplier receiving AID financing is certifying and then we demand a refund payment if we have indeed overpaid. Senator NELSON. Was there a refund in this particular case? Mr. EYTAN. I cannot tell you whether this case, this particular case, has been completed in our post audit process. Senator NELSON. Well. one was October 31. 1969. and the other was October 8 1969 So th'it h'is been post `indited I tike it? Mr EYTAN I c'tn assure the committee th'Lt if `in excessive price was paid under our rules, the AID post audit system will catch it. We pst audit nearly every sale of pharmaceutical products. Now, there is, of course, a time lag between the date of sale- actually. the date of shipment is not the day on which we begin the post audit. Senator NELSON. Have there been any cases in which von have gone back to the company on drugs and said von charged too much? Mr. FJYTAN. A large number of cases, and Mr. Barondes, on my left, can give von the figures. Senator NELSON. Can you submit for the record those specific instances? Mr. BARONDES. Yes, Mr. Chairman.1 We do spend actually an in- ordinate amount of time on pharmaceuticals compared to many other products. We have submitted a large tabulation of the prices 15eep. 7390. PAGENO="0019" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7335 to you, and in some instances the prices shown exceed the prevailing market prices eligible for financing under our rules. We have col- lected refunds just withm the last year of approximately $1 million We have about $2 million in claims outstanding, of which $1.5 million are in the Department of Justice and about half a million are still being worked on. We have issued these claims and we are in the process of discussion with the companies against whom these claims have been issued. We expect that we will get paid on those claims. Senator NELSON. As I understand it, the American company must assert that this is the domestic price. These two payments were made by AID 22 days apart. There are some more dramatic examples here but this is quite a dramatic change from $100 to $270 a kilogram. What evidence did American Cyanamid submit that the domestic price had changed that dramatically in that 22-day period? Mr. BARONDES. First, of course, we are talking about the export price, and in looking at these prices we look at it with the same eye that you look at it. Where we see a variation in prices of this nature, we dig further. We do not know at this point whether this price was excessive. As I said, we have issued a large number of claims. We have not issued any claim on this particular item, but I can assure you that if we find this price exceeded prevailing market prices, then we will do the same with American Cyanamid that we have done with a good number of other companies. This information was made available to you rather quickly for the simple reason we had all of these documents available-because they were in the process of re- view at the time. These are not closed cases. Most~ of our claims, by the time they are issued, cover transactions running about 2 years after the day of shipment. Senator NELSON. Does AID have a listing of domestic prices of the drugs on the marketplace, that is, the wholesale price? Mr. BARONDES. We do obtain price lists from pharmaceutical com- panies. We do have, of course, standard publications. Many of these items are intermediate products and might not have a domestic list- ing. We are concerned with the export price and from my own ex- perience we find that more often than not the export price is lower than the domestic price. Senator NELSON. Lower than the domestic price? Mr. BARONDES. Very often, yes. We found that in items sold by the pharmaceutical industry as well. I am talking about the Ameri- can export price now, as against the American domestic price. Senator NELSON. It appears to me that this whole arrangement is very beneficial to the United States, and very beneficial to the Ameri- can company. In other words, if we are going to be paid back and are paid back in American dollars, 10 to 20 times as much as the value of the drug, we are getting back a tremendous lot of American dollars for a drug that is available to that company for one-tenth or one-twentieth the price any place else in the world. Isn't there a very serious moral question, in that we are taking back from Pakistan $270 a kilogram in American dollars and are PAGENO="0020" 7336 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY transferring to them their own soft currency? This seems to be very beneficial to us; it is a good hard Yankee bargain. Although the American company is getting a very handsome price, the poor consumer over there is paying on a base of $270 a kilogram when, in fact, his Government could be buying it at the world price for $24. Mr. EYTAN. Mr. Chairman, if I could respond to that. Senator NELSON. Yes. Mr. EYTAN. The Congress has pointedly required AID to em- phasize procurement from the United States. It is not peculiar to the U.S. drug industry, in that many items from the United States are priced higher than the price which a European competitor might charge for a similar or identical commodity. In the steel business, for example, the U.S. price has notoriously been higher than foreign prices. There are many commodities in which the American price is simply not competitive. On the moral issue with which you preface your comment, we feel keenly that a foreign aid dollar should not be spent by an AID re- cipient country to pay a price which is higher than the country would pay for the same item with a non-AID dollar. That is, the price which we finance for the pharmaceutical product under AID financing must not be higher than the price which the same buyer would have to pay if he were using his own funds, free foreign ex- change funds of the host AID recipient country, to buy the same product in the United States. The moral consideration is that AID funds not carry a premium- not carry a higher price on sales from the TJnited States. If the Con- gress had wished or had felt that it was in the interest of the foreign aid program, notwithstanding the balance-of-payment position of the United States, to open up procurement on a worldwide basis, then American suppliers competing for the AID export dollar would be faced with competition from European and other foreign suppliers. But as the situation now is, American suppliers are insulated from foreign competition and the only standard that we hold them to is that their prices in AID sales not exceed prices in non-AID export sales. Senator NELsoN. But it is still correct, is it not, that if the United States is able to pay an American company 20 times or 10 times as much as the world price, that that produces money for the American company, itkeeps the American dollar in America, it helps the for- eign exchange? In many of the countries overseas, there are limita- tions on the amount of dollars that can be taken out. So the foreign subsidiaries sit there with a surplus of soft foreign currency, perhaps piasters or the like: they transfer that over to the foreign government, who in turn must pay us back in hard dollars, which helps our foreign exchange. It is a very good deal for us. We get $270 plus interest back for a product that cost $24 on the world market and we pay the domestic company $270. When the poor consumer goes to buy it, however, after it is processed, he must pay 20 to 30 times as much as he would have to pay if it were coming from another country. Mr. EYTAN. Mr. Chairman, things rarely work in the marketplace PAGENO="0021" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7337 with that type of wide profit margin being enjoyed by a company for a significant period of time. The importing company, the subsidiary in your hypothetical, competes with other importers. If indeed the product-let us say tetracycline-is available at one-tenth or one- eleventh of the U.S. price in Europe, then the competitor of the im- porter buying the American product will press his government for permission to buy the tetracycline from the European seller at one- tenth the price, using the free foreign exchange, that is, the non-AID foreign exchange of a country. When this importer buys from, let us say, Italy at $24 per kilo- gram, he can then sell the product locally and enjoy a vast profit, which would make it impossible for the overseas subsidiary buying from the American parent to resell at a profit. The point of this example which I am trying to suggest is that there are powerful forces within each country which make certain that no one is going to enjoy a lock oil the market. If there is no competition from Europe at low prices, then goods will be bought from other sources where prices are low. Of course, Mr. Chairman, as the committee knows, tetracycline is something of a special case, in any event. Senator NELSON. Special in what way? Mr. EYTAN. It has had a notorious history in the past decade. Tetracycline has been involved, as you know, in some serious con- spiracy charges; the price in the United States may have been main- tained, I say may have been maintained at artificially high levels; cases affecting tetracycline have been dragging through the courts now for over a decade. We may also point out-I think we really want to emphasize the point-that especially with respect to tetracycline, the Congress put a provision into the Foreign Assistance Act, section 606 (c); that pro- vision had one eye cocked at tetracycline, we believe, since that provi- sion prohibits any government agency from purchasing drug prod- ucts outside of the United States when a U.S. company holds a valid patent over that product. In looking at section 606(c) and its legislative history, we note this discrepancy which you have pointed out, namely, that U.S. prices for tetracycline were much higher than prices at which the same product was offered by certain. European suppliers. This dis- crepancy served as a special impetus for insertion of 606(c). Senator NELSON. I have taken one of the least dramatic examples of the discrepancy. I will give you an 8,000 percent difference be- tween the price charged by the American company and the world mar- ket price in a few moments. But let us get back to your one p0mb- that there is tough competition. If there is any competition at all, why would anybody be able to sell 1 kilogram of tetracycline for $270, when it could be purchased by any competitor for $24? It seems to me that if there were competition, he would not sell any of this drug. I think that sounds ideal in the marketplace where everybody knows what is going on, everybody knows the drug and there is genuine competition. But if there were competition, how would your company outsell any other company in Pakistan, if you are paying $270 and another company is paying $24 PAGENO="0022" 7338 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. EYTAN. The availability of the product from a European source is not a constant thing. Moreover, the drug has to be reduced into a finished dosage form. The American companies frequently in- vest in establishing or acquiring local subsidiaries, who then buy the bulk product from the United States, and then finish off the product into tablets, pills, and other forms. There is a further processing required and a comparison of a price from the Italian, Portugese source, or whatever source it is, fre- quently does not tell the whole story. In emphasizing the analysis of competition within the local market I call the attention of the Com- mittee to the fact that there are pressures in the local economy and that if it is not profitable to purchase the bulk product from the United States, using AID dollars, it will not be done. Senator NELSON. I still do not quite follow it. If there is competition over there and there are other companies with the capacity to make a firnshed product out of a kilogram of bulk tetracycline, how does American Cyanamid compete at $270 a kilogram versus $24. Can you name any companies that compete with American Cyanamid over there producing finished products out of tetracycline bulk? Mr. EYTAN. I can say in most of these countries the privilege of securing an import license is extended to many importers. We do not have a situation in a country which I am familiar with in which licenses are issued to a very small and selective group. Therefore, the subsidiary abroad must always take into account that any other drug importer can compete with it by securing free foreign exchange to buy from Europe~ It is because of this open licensing that we feel it is proper to say that the American price can make economic sense in the local market, because otherwise the AlT) funds would not be spent for this product. Senator NELSON. Let me ask another question. In the purchasing of drugs by AID, do Europeans make any evaluation of therapeutic equivalency? For example, the Medical Letter takes the position that the drug of choice is tetracycline HCL. Prices vary dramatically. There are many kinds of tetracyclines and the very distinguished Medical Letter said that the different tetra- cyclines have similar clinical effectiveness. It also states that the oral tetracycline of choice is tetracycline hydrochloride capsules. And for parental administration, the tetracycline of choice is tetracycline hydrochloride. In the tetracycline family we have Pfizer's doxycycline (Vibramy- cm) at $2,250 a kilogram; American Cyanamid's demethyichlortetra- cycline (Declomycin) at $400 a kilogram. And yet the best medical experts say that tetracycline HCL is the drug of choice. Why do you buy a major brand name "me-too" drug that costs several times as much as just plain tetracycline, when the Medical Letter says they are therapeutically equivalent? Mr. DWINELL. Mr. Chairman, I would like to have Mr. Salant answer that question, if I might. But first, may I say with regard to AID purchasing these pharmaceuticals under the commodity import program, AID does not purchase, AID finances. Senator NELSON. I am sorry- Mr. DWTNELL. Such purchases, such imports of a lesser developed country as that country desires by its own policy. PAGENO="0023" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7339 I think it is clear, probably, to the committee, but I would like to emphasize this. Senator NELSON. I do not see that Uncle Sam is losing anything. I think he is coming out very well. I think the American manu- facturers of drugs are coming out very well. I think, on the other hand, the poor consumer and poor undeveloped countries that we claim we are helping are coming out very poorly. Mr. DWINELL. May I only say this, Mr. Chairman, that AID does not, in any sense, dictate to its client country what it shall buy. In other words, under a program loan, it is the choice of the host coirn- try or the lesser developed country, to whom we make this loan, to use the foi eign exchange which is made available by this loan for a wide range of commodities. So if the country, by its own policy, decided that it did not want pharmaceuticals imported from the United States, if it felt that the interest of the country would be better served by using those dollars for some other product or commodity, it has a choice to do so. Senator NELSON. But are we not dealing with a situation in which there is no sophisticated pharmaceutical expertise in any developing country in the world? Most of these countries rely upon our stand- ards, FDA, or European, so you are dealing with a developing coun- try in which the local subsidiary decides the particular drug to be purchased. Who is going to make the judgment over there as to whether or not it is wise for them to buy an expensive, duplicative type of tetra- cycline for several times as much as plain tetracycline IHCL would cost, while the Medical Letter claims they are all therapeutically equivalent. So we are dealing with a country that has no qualifications to make a judgment, simply because they do not have a sophisticated pharmaceutical industry comparable to ours, or pharmaceutical ex- pertise. Do we not have some obligation to say to them, don't pay $2,200 a kilogram, pay $100, because the Medical Letter says they are all therapeutically equivalent and, in fact, tetracycline is the drug of choice among all of these? Why don't we so inform them? Mr. EYTAN. Mr. Chairman, when a foreign government receiving AID funds buys drugs for public purposes, we require that govern ment to advertise its needs in terms of a generic description of the drug, not in terms of brand name. When a private importer adver- tises for offers from American suppliers, we also require him to state his needs in generic terms A further category of cases exists, however, in which importers are not required to buy under formal competitive bid procedures, or to advertise, but can buy directly from American suppliers. Now, in such a situation, the importer is left to his own private negotiating standards, and he may choose. Senator NELSON. Private. importer-whom is he negotiating with? Mr. ETTAN. Well, if he is not related with the American supplier, he advertises his requirements by generic name in the AID Financed Export Opportumties circular, he chooses the supplier he wishes, he bargains over the price, he decides whether to buy by brand name or some other basis Of corn se, if you are talking `~bout a subsidiary of PAGENO="0024" 7340 COMPETITIVE PROI{LEMS IN THE DRUG INDUSTRY an American firm, that subsidiary will quite naturally buy the prod- uct of its parent. Senator NELSON. In the list which AID submitted, it appears that most are American companies dealing with their own subsidiaries. Mr. EYTAN. Well, in such cases the subsidiaries naturally will deal with the parent; and the question you further touched upon then arises-where does the demand for a particular brand item arise in the local country? Well, the demand for product X, for brand name X, will arise in the foreign country the same way that it arises here. Sums of money are spent to promote certain brand names and doc- tors write prescriptions for certain brand-named items. A demand~ thus arises for brand X as opposed to brand Y. Senator NELSON. It puzzles me a little bit. In our AID program, we send over a group of experts. They work with the foreign govern- ment on a development plan. That government accepts the judgment and advice of our experts and we do not give them money unless we approve their development plan. We must be satisfied there is a de- velopment plan which is beneficial to that particular country. We are there advising them as to what the development plan ought to be. Why then don't we advise them-since they do not have the commerce, the engineers, the business managerial expertise-why should we not advise them on what they ought to pay for drugs? Mr. EYTAN. We do more than that. We actually direct them by means of our regulations and loan agreements, that when they pur- chase for public purposes, for their municipal and state-run hos- pitals, for their own public facilities, that they not get trapped by the brand-name hangup. But one of the things we impress when they buy for- Senator NELSON. With their own money? Mr. EYTAN. No; with our money. We say you must buy by generic description. We advertise by generics. Senator NELSON. Could you give me any examples where they get any particular drug dramatically cheaper by that process than by this one? Mr. ETTAN. I cannot give you specific instances in which a country has purchased drugs by formal competitive bidding describing the broad generic term and what the price was. If you would like, we will prepare something for you for a subsequent submission to indi- cate our experience with financing drugs for public purposes in for- eign countries under competitive bidding where the product is described generically. But the second point to be made here is that we emphasize in each country the importance of the private sector of the economy. We re- sist having the AID program routed entirely into the public sector of the economy. We try to emphasize the importance of private im- porters dealing privately, both with American suppliers and with end-use suppliers. This aspect, this emphasis on commercial aspects of the program, the commercial import program, really forces us in large measure to accept the private sector of the economy as it really is. And it is the same way in the United States. Doctors do write prescriptions on certain brand-named items, and it would be extremely difficult for PAGENO="0025" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7341 AID to tell private buyers in Pakistan that they should not buy brand X, they should buy brand Y because brand Y is equivalent and much cheaper. It would be impossible for us to tell the importer you should buy the product generically and then resell it locally on a generic basis when that importer knows there is a particular de- mand for brand X. Senator NE1~soN. I do not quite follow the difficulty. The difficulty is easily resolved by AID saying we won't pay that price. It is American doll ars and we are paying it directly to an American company, with a foreign subsidiary, so they just do not have to pay the price. Mr. EYTAN. The importer will only purchase an item which he be- lieves he can resell at a profit. If AID tells a private importer he may not buy brand X, which he believes he can resell, but we insist he buy only brtnd Y, the impoiter who h'~s no f'uth in his `thility to resell brand Y, will simply not purchase brand Y. AID could very well tell countries-we will nOt make our funds available to finance drug products in the private sector Countries are very insistent on. spending a portion of AID funds for drugs. The desire of countries to promote the health of their citizens leads them to press for AID financing for drugs, and that is quite understandable. Senator NELSON. Well, take a look at the prices paid on competitive bids for the same drugs by New York City and the Defense Supply Agency. I think you will find quite a dramatic difference. I do not quite follow the reasoning that we should not insist that the country we are trying to help get a high-quality drug at a reasonable price. This puzzles me very much P'Lrt of the program, as you explain, is to get private foreign money in the importing country into the hands of its government, so that government can carry on certain developmental programs Right9 Mr DWINELL Correct Senator NELSON. Then, on the other hand, we are paying American companies dramatically excessive prices for all kinds of drugs which are going to be sold overseas, extracting from those poor people, their piasters or other local currency, far in excess of wh'it they would have to pay if it were being bought at the world price or at least a somewhat more competitive price. Mr. ETTAN. I believe that it is fair for me to say AID as a whole would-and cert'unly this is my personal view-that AID would welcome the impact of foreign competition, thit is, non U S compe tition on AID financed s'des from the United States We do not be lieve tMt AID overp'iys for drug products or other products, be cause inevit'tbly `~t `i certain period of time after a s'tle takes place, AID carefully i evie~ s the ti `insaction under the st'indards handed to us by the Congress and if thei e h'is been overpricing as measured against U.S. pricing in both AID and non-AID sales, we secure a refund. The chairman is returning to the issue that American prices tend to be higher for some items than prices charged by foreign com- petitors To brmg American prices down it would certainly be im perative that foreign suppliers become eligible to compete with American suppliers. PAGENO="0026" 7342 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON. The point I want to make is that you have a special case here where competition is for all practical purposes limited. Cyproheptadine, on page 3 of the chart, is an antihistamine, sold by Merck to Colombia, at $1,800 a kilogram, while the price for chlorpheniramine is $20.50 and the Medical Letter is unable to find any record of well -controlled trials showing cyproheptadine is supe- rior to other antihistamines, including chlorpheniramine, for such use. Most Medical Letter consultants believe the antihistamine * * * effects are due mainly to their sedative properties. I get back to the question of allowing a developing country and its consumers in the open marketplace to pay dramatic'tlly high prices while our own Government would not buy it on an~ hid at all New York City would not pay such prices-'tnv well controlled purchasing system in this country would not p'ty them-and yet we are, in fact, subsidizing at an exorbitant price a drug for which there is an equivalent at a fraction of the cost. Mr. DWTNELL. Mr. Chairman, the particular case you are citing has been reviewed and Mr. Barondes has comments on it. Mr. BARONDES. We have reviewed, as I indicated, a good number of transactions that we have submitted to you. We have gone through many transactions of the Merck Co. A gain, keep in mind that we look at the prevailing export price. And it happens that this item has been reviewed and we find that this company in its sales, worldwide, generally sells at this price. We do not feel we can develop a refund claim on this particular item. If you had picked some other items on this list, we might be able to tell you a substantially different story. Senator NELSON. No, this is a monopoly price. A well-informed pharmacologist or physician is not going to use it because the Medi- cal Letter concludes that it does not do anything that another anti- histamine would not do. All I am saying is, we are not dealing with a sophisticated medical and pharm~ceutic'tl community we `Lre de'tling with ~ developing country which does not have any sophistic'ttion to spe'ik of-in in- dustry. business, management. finance, medicine. pharmacy. or any- thing else. It seems to me we have an obligation to protect that poor buying public from a fantastically high price. Mr. BARONDES. I could say to that, in looking at most of these items, it is quite true that a substantial portion~ the great majority of the sales are to affiliates. However, almost invariably we will find that these companies are selling not only to affiliates in less developed nations, they are also selling to affiliates in Great Britain, West Germany, or France, where they have to compete with affiliates of German companies, and so forth. Senator NELSON. If that is the case, how can they compete~ espec- ially if these products are available to everyone at world prices~ which are dramatically lower than the price, the subsidiary is payin~? Mr. T3ARONDES. That is what I am getting to. They make a stantial number of sales in many instances to third parties-arms length sales. We had one case where-you will not find it in your PAGENO="0027" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7343 tabulation because these are non-AID cases-a substantial amount of sales was made to a third party in Japan. Japan was the biggest customer. We look at all of those sales and take all of these other factors into account. We find that these companies are selling to West Europe, they are selling to third parties, they are selling to subsidiaries who often have substantial minority interests-subsidi- aries who are very much concerned that they do not overpay. We think we get a reasonably fair price. That is why we have obtained substantial price reductions in many of these cases, and if you wish to go down this list, we could indicate where we have gotten them. Senator NELSON. You mean we will find a buyer in an industrially developed country willing to buy tetracycline at $270 a kilogram when it is available in England at $24? Mr. BARONDES. I doubt whether you will find that. Senator NELSON. I doubt it, too, and if you do, that buyer is not going to be in business very long. Mr. BARONDES. And if we find it happened after our review is completed and if our doubts are confirmed, we will take the neces- sary action, as we have done in many of the cases you have before you, as I said before. Senator NELSON. At the bottom of page 3 of your prepared state- ment on this same issue, I understand your response, even though I do not think I agree with it- Mr. BARONDES. May I interrupt for a moment. I just received some information on that one item. We have, for example, a sale by the Merck Co., truly arms' length sales, to an independent buyer in Europe-Spain-at $2,990 a kilo. Senator NELSON. For what? Mr. BARONDES. For the item you mentioned, cyproheptadine- also a sale to Uruguay and another to Yugoslavia at $3,550. Senator NELSON. Yugoslavia? Mr. BARONDES. Not under an AID program. These are non-AID sales. Senator NELSON. It is nice to get the best of the Iron Curtain once in a while. Mr. BARONDES. We have to live with what they' are getting. In other words, we do not control their prices. If that is what they get, we have to live with it. Senator NELSON. I am concerned about `what these developing countries are paying in sales that just are not arms' length. Look at the glucocorticoids at the bottom of page 3 of the chart. Merck sells dexamethesone to Merck Colombia at $27.50 a gram. It is available at the world price of $7.30 a gram. But more importantly, prednisone is i~v'ul'i,ble tt 58 cents ~ gr'~m The Medical Letter says it knows of no disorder requiring the use of a glucocorticoid for its pharmacological effect, in which prednisone cannot be used as suc- cessfully as any other glucocorticoid, especially for long-term therapy. ` Therefore, there seems to be no reason not to prescribe a low- priced predrnsone. This is the price they are giving to all of the doctors in the country, and yet we are paying Merck $27.50 a gram while prednisone can be purchased in this country at 58 cents a gram. PAGENO="0028" 7344 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY It seems to me that we have some obligations because we have all the necessary information on drugs to protect the buyer on the private market in the developing country against this kind of ex- ploitation. I am not raising the question about how well we do. I repeat, I think the United States does great under this system, better than the country we are trying to help, and I think the Ameri- can companies do great under it. I just think the poor consumer is taking an awful licking when he ought to be buying prednisone at 58 cents a gram instead of a duplicative drug like dexamethesone at $27.50 a gram. Mr. EYTAN. Mr. Chairman, I would like to comment on that, if I might, for just one minute. There is a category of drugs where the effectiveness of the drugs is called into question. There is a second category where different drugs carrying different prices are thought to be of special effective- ness, or one among them might be slightly bett.er than the others, but none of them are really harmful or deleterious to health. In the first category of cases, where new information comes out in the United States through the FDA especially, where a certam drug that has been on the market is ineffective, not efficacious or harmful, we move very quickly to make certain that from that date no AID funds are expended for the importation of that product. Senator NELSON. That is what the law is. If the FDA says it is ineffective, it is supposed to go off the market, because under the law, as you know, you have to prove efficacy as well as safety. I am glad to know that you act expeditiously in such a situation. Mr. EYTAN. I believe the FDA administers an act which refers to sales in interstate commerce. The FDA does not by itself ban sales for export. AID moves under its own authority and piggybacks im- mediately and very frequently even predates final FDA action do- mestically in withdrawing a product from export financing by AID. Senator NELSON. May I ask a question at this point. Are you aware of any drugs that have been declared to be unsafe or not efficacious and prohibited for sale in the American market- place which are manufactured by American companies and sold to foreign countries? Mr. ETTAN. I cannot answer yes to that. What happens, though, is that certain drugs are on the market and they are withdrawn from interstate sales by the FDA, and the question then arises whether those commodities which henceforth cannot be sold domestically can be sold in export, and it is AID's action, action which it takes, which makes certain that drugs already manufactured and available some- where in the United States, being stored or even on the druggist's shelves, do not move under AID financing in export. The second issue, the one you raise with respect to this Medical Letter, is a far more difficult issue for us. This involves drugs not harmful in and of themselves, but all performing the same function. They are equivalent, yet one product costs more than the other. AID attempts to meet this issue by minimizing sales of finished dosage form. We rarely finance- Senator NELSON. By minimizing? Mr. EYTAN. Financing of drugs in finished form. PAGENO="0029" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7345 Senator NELsoN. How do you control that at all, when a kilogram of some compound goes to a foreign subsidiary of an American com- pany? You have no control over what they charge on the domestic market for the finished product, do you? Mr. EYTAN. Their resale is a sale for local currency which is not the sale AID finances. AID finances the dollar export sale. Senator NELSON. I understand. Mr. EYTAN. The second level is purely a local, internal currency sale. Senator NELSON. You say you tried to minimize the possibility of explOited prices by not financing finished products, just the com- pound. My query is, how do you minimize it when you are paying the local domestic producer for the compound and the domestic American producer is going to get the compound produced in fin- ished product and charge whatever price he desires in the foreign market? How could you minimize that? Mr. EYTAN. In the days when KID was financing finished dosage forms, the types of variation, pricing, manipulation, exploitation, brand-name preferences, the particular abuses that were then possi- ble were far greater than those which are now possible. We admit that even financing bulk items lends itself to a situation in which some bulk products can be preferred over others. But it is simply not within AID's ability to transmit the latest information emerging in the United States concerning the relative merit of certain pricing patterns and thus affect the demand for products immediately. The demand by the consumer in the foreign countries is shaped over a period of time, in part through promotional activities. This demand expresses itself in requests for import licenses or in import requirements. It takes some time for a feedback to develop from the foreign doctor, who~ ultimately creates the demand for a particular product, as a result of something like a Medical Letter issued in the United States. Senator NELSON. This is a very small percentage of AID's opera- tion. I suppose it would not be very practical for you to have a group of pharmacologists assay the drugs. Would it make more sense if it were done centrally by the Go7ernment? In addition, shouldn't drugs bc purchased by competitive bids on a generic basis in accordance with the best practices of some of our Federal and municipal government agencies? Why can't the drugs be bought from the lowest qualified bidder and then shipped to the country which is to receive American assistance? Mr. EYTAN. We completely agree with you that it would be de- sirable to maximize purchases by generic name, and we do emphasize this form of ordering. It is only in those areas where private buyers purchase under less strict marketplace considerations that we have had difficulty in encouraging and insisting upon competitive generic procurement. The answers and reasons for that have been de- veloped-they go back to demand for certain products. Senator NELSON. As I look over a list of some of these foreign countries we are dealing with, you would not have to convince but o~e or two, or half a dozen of the people in one of those countries where their best interests lie. PAGENO="0030" 7346 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. EYTAN. We agree, and the officials of all countries agree-for public purposes, procurement should be by generic name and, when feasible, under competitive bidding procedures; that is the way the item should be procured. Senator NELSON. Could you submit for the committee the lowest domestic price for each of t.he drugs listed on the summary of four sheets that we gave you, recognizing, of course, when you are dealing with a brand name that there is no competitor with that same brand name? But I would like to know what is the lowest domestic price of tetracycline, as well as the rest of them, for the record. Mr. BARONDES. Are you referring to the price of items sold do- mestically or the domestic price for exports? Senator NELSON. I wouTd like to have them both. I do not under- stand why it ought to cost more for export. Mr. BARONDES. I think it does not, but this is just an off-the-cuff reaction. We do not have too much information. It is hard for us to get information on domestic prices for unfinished forms-and also, we do not really need those prices for finished products. We are pri- marily concerned with the export price of unfinished products. But we could attempt to get the domestic prices.' Senator NELSON. Are you saying again there is a difference be- tween the domestic price, wholesale price, and the overseas price? Mr. BARONDES. We do not know. In the few instances I know about, I find the export price very often has been lower. I know it has been lower in some cases for the finished dosage form we have financed in the previous years. I do not really know. Senator NELSON. It is dramatically lower in the finished product. We have loads of testimony showing that domestic price charges for finished products in this country may be four or five times as high as in foreign countries, even though it is manufactured, finished, pack- aged, shipped to countries in Europe, where they have to compete on a more competitive basis. We have had considerable testimony to that effect. Prednisone is an example which at the time it was being sold by trade name here at $17.90 a 100, in Bern, Switzerland, it was $4.25, even though it was manufactured here and shipped over there. So that does not tell us anything. It just tells us the prices here are exorbitant. Mr. BARONDES. rfhe problem in talking about bulk pharmaceuti- cals-this, again, I am not too expert on-is that in many cases there is no domestic price. This is because the integrated concerns who produce the bulk material also produce the finished dosage. We may only be able to obtain a smattering of domestic prices; I do not know. Senator NELSON. If an American company has a patent or an ex- clusive license for a drug developed in Europe, the domestic price is a monopoly price but we can compare it with the foreign prices of the same drug if the drug is being made in the foreign country. Mr. GORDON. Governor, in section 8 of the Small Business Act of 1958, there is the following passage: It shall be the duty of the Secretary of Commerce, and he is hereby em- powered, to obtain notice of all proposed . . . actions of $10,000 or above, and 1 See p. 7399. PAGENO="0031" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7347 all civilian procurement actions of $5,000 and above, from any Federal De- partment, establishment, or agency engaged in procurement of supplies and services of the United States; and to publicize such notices in the daily publi- cation, U.S. Department of Commerce . . . and the United States Government proposal This is designed to give smali business an opportunity to bid and participate in procurement programs of the U.S. Government. Is there anything in the AID law or regulations which prevents you from doing this, that is, notifying the Secretary of Corrimerce? Or is it just the practice of buying from the parent company that pre- vents you from doing it? Mr. DWINELL. In the Foreign Assistance Act, there is a provision that participation opportuiiities under AID financing shall be brought to the attention of small business. We do have in our agency, in the Office of Procurement, a Special Assistant for Small Business, and we take every step that is possible, we believe, to see that the interests of small business are protected and that opportunities are given to small business to participate. Senator NELSON. Do you have a set-aside provision which applies to domestic small business in competitive bidding to the Federal Government? Is there such a provision? Mr. DWINELL. There is not a set-aside program for AID-financed procurement by the private foreign importer. I would indicate, Mr. Chairman, that because of congressional interest in increased par- ticipation by small business in procurement financed by AID, we have at the present time a study underway in which the Department of Commerce and the Small Business Administration are collaborat- ing with us in trying to determine the fcasibility of a set-aside pro- gram for AID-financed procurement. That study is now underway. Senator NELSON. Do you have any examples of small business win- ning any bids for these programs we are talking about here, supply- ing drugs to foreign countries? Mr. DWINELL. Yes, we do; both in pharmaceuticals and in other commodities. I think Mr. Barondes can explain. Mr. BARONDES. When we get away from the broad spectrum anti- biotics, we find a number of small businesses who are successfully getting bids. In the last year, between three-quarters and a million dollars of sales went to what we think are small business. We find it difficult to get a definition of what small business is. But I think we knockM out all of the big ones we knew about. Senator NELSON. Could you submit that information for the record? Mr. BARONDES. Yes.' Mr. GORDON. Incidentally, Mr. Chairman, I have gone through the data given to us by AID on AID-financed drugs in 1968 and 1969. I find it very difficult to find the names of more than a couple of small businesses. Is it not true, though, that given the present system of purchasing by subsidiaries from parent companies, that small busi- nesses really do not have much of an opportunity? How can small businesses participate in this type of program? Mr. DWINELL. It is fair to say, Mr. Chairman, that the pharma- 1 See p. 7399. PAGENO="0032" 7348 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ceutical industry does not lend itself to substantial participation by small business. That is true in certain other fields as well. That is true particularly, of course, since we gave up financing pharma- ceuticals in finished dosage form. Mr. GORDON. Why did you stop doing that? Mr. DWINELL. My colleagues who have been with the Agency longer and have had experience with the financing in finished dosage form, I think, can speak to that ~better than I. Mr. Salant? Mr. SALANT. I think Mr. Eytan has already mentioned some of the problems with respect to the financing of the finished-dosage-form pharmaceuticals that were encountered by the Agency. Mr. GoRDoN. I do not recall any of the explanations. Mr. SALANT. I am sorry, I will repeat some of them and perhaps add a few others. First, there was a problem of identific'ttion of pharmaceutic'iis trade names givefl to finished dosage products made it~ extremely difficult to identify precisely what each product was. The second thing was the virtual impossibility- Senator NELSON. I dO not follow that first answer. What is so diffi- cult about identifying what the finished dosage form is? Mr. SALANT. At the time we financed private sector purchases of finished-dosage-form pharmaceuticals, we could not identify many of the generic designations from non-U.S. suppliers who were then eligible sources of supply. Senator NEr~sON. That would make it very difficult. Mr. SALANT. So it was difficult to compare one pharmaceutical with another. It was also extremely difficult to evaluate prices as between pharmaceuticals, as between one product and another. Senator NELSON. What is so difficult about that? Mr. SALANT. I beg pardon? Senator NELSON. What is difficult about that? Mr. SALANT. We can, of course, see the prices, but whether the prices are or are not justified constituted a real problem for our price review people. Senator NELSON. ,Just so I have it clear in my mind, if you are going to take the bid on prednisone-everyone knows what it is-and you set the specifications on its contents and characteristics in accord- ance with USP or NF standards. You would then get bids from perhaps 10 or 15 companies, some of which sell it by brand names. But I do not understand the difficulty. Mr. SALANT. I fully agree with you-in connection with any formal bid procurement, it is possible to do that. I was addressing myself to the private sector, to which I thought Mr. Gordon was posing his question. And in private sector procurement under the commercial import program, our rules now state that we do not finance pharma- ceuticals in finishefi dosage form. So if I may amend the statement and bring~ it down to that par- ticular aspect, agreeing with you that for the public procurement we can, we do, currently and effectively, purchase financed dosage form pursuant to formal bid procedures. Senator NELSON. When you say "private sector," you are referring to the programs we are talking about now- PAGENO="0033" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7349 Mr. SALANT. Exactly, sir. Senator NELSON (Continuing). That is not exclusively private sec- tor, really. Mr. SALANT. The commercial import program is the sale of com- modities by a private seller to a private importer. Senator NELSON. There is a very dramatic addition, however, and that is that AID is furiiishing American dollars from our Treasury to pay the supplying company. Mr. SALANT. `~es; we are providing the, foreign exchange through loans to finance these particular transactions. That is quite true. Senator NELSON. Two questions occur to me. One, what is so diffi- cult about requiring competitive bidding; and two, how do you know you are really assisting the developing country by financing bulk purchases when you do not have any knowledge as to what the for- eign subsidiary is charging for its finished product? You may be much worse off than you were before. Mr. SALANT. Let us take the first question-can it be done? What is so difficult about doing itin the private sector? It can theoretically be done in the private sector. It is not a common method of doing business in the private sector, and the Foreign Assistance Act, does enjoin us to use commercial channels of trade and also to follow commercial practices. So we do not deny an importer the privilege of purchasing by formal bids, but we do not require it. We attempt, to the extent that we possibly can, to follow the standard commercial practices of international tra.de. Formal bids are not customary. Therefore, we do not require it. It can be done in theory. We question its practicality. Now, the second question, sir, if you would repeat it. Senator NELSON. I had understood in the testimony earlier that there was some problem controlling exorbitant prices being charged when the AID program financed shipments of finished' products., How do you know the situation is not even much worse `iiow since you have no way of knowing what the subsidiary who gets the bulk charges for the product when it is in finished form? Mr. SALANT. We were concerned about this very aspect at the time that we decided not to finance finished dosage pharmaceuticals for the commercial import program. Our initial thought was not to fi- nance any pharmaceuticals at all. Various countries beseeched us not to make them ineligible. They felt that they needed to import such pharmaceuticals, at least in raw form, for , further processing. And since it is possible to avoid some of the pitfalls of negotiated pro- curement when we finance raw drugs, we decided to continue to authorize such purchases in those countries wishing to expend their loans for that purpose. We do have rules, though, in connection with these. Certain com- modities are ineligible, pursuant to the FDA's findings as soon as a determinatiOn is made and frequently a year or more in advance of its actual application to the U.S. industry in, interstate commerce. \Ve also have certain pharmaceuticals which are prior review pharmaceuticals. Here we are concerned very much with the manner in which they will be used-the formulations that will be made from the unfinished product, the instructions that will go with the product. 40-471 0-71--pt. 18-3 PAGENO="0034" 7350 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Only if we are completely satisfied, pursuant to advice from medical experts here in the United States, that the end use is, in fact, some- thing that will achieve a beneficial result without adverse side ef- fects and that there is a complete understanding of any dangers that * may be connected with the finished product, only in those instances will we authorize the financing of these bulk pharmaceuticals and combination drugs. Senator NELSON. What followup do you have to insure that the drug is promoted for the limited purposes that the FDA authorizes and that the finished product is provided with the same package in- sert as it has here, describing the indications for use, side effects, and contraindications? Mr. SALANT. Part of our agreement with the importing government is that they will monitor and follow through on our recommenda- tions. Senator NELSON. What recommendations do you actually give? Suppose that you finance purchases of tetracycline or one of its numerous brand named duplicates. Do you supply the foreign gov- ernment with the FDA's package insert that must go to every pharmacist who buys it, and do you also advise the foreign govern- ment as to the limited purposes for which that drug may be used in this country? Mr. SALANT. Yes, that information is provided. Agreement is reached with the individual governments as to the types of informa- tion that will affect the proposed finished product and also the uses to which the final dosage will be employed. Senator NELSON. I would appreciate having in the record the in~ structions that you send, to whom you send them, the Government as well as the foreign subsidiary.' Mr. SALANT. The information is submitted by our agency to our missions in the country concerned. Our mission transmits that infor- matioii to the health department of the cooperating country and to the importer of the drug product. Senator NELSON. What information, specifically, do you submit? All of the FDA requirements? Mr. SALANT. The basic FDA requirements, not necessarily all of the requirements; but we follow closely the FDA requirements as published in the Federal Register. Senator NELSON. The package insert which lists all of the indica- tions and contraindications, does that go with it? Mr. SALANT. The package insert would be inserted if required by the government of the importing country. We finance, of course, the bulk material; we provide the information with respect to it. If the country wishes to have that information inserted, it will so stipulate. I might indicate in this connection that in financing these raw drugs, the ingredients for further processing, we are helping to establish industries in these countries, thus providing to them the ability to gain the technical skills in the field of pharmaceuticals. We are likewise offering them a possibility to conserve foreign ex- change to the extent there may be savings between cost of ingredients 1 See p. 7392. PAGENO="0035" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7351 and the cost of the finished dosage pharmaceuticals resulting from such ingredients. Senator NELSON. Do you have proof of any such savings? It ap- pears to me there is no savings at all. They are paying many times more than they ought to pay. Mr. SALANT. I am not discussing whether they are paying more than they ought to pay, based upon comparison with non-U.S. prices. I say they are paying less for ingredients than they would pay for the finished form made from those ingredients, assuming both were pro- cured in the United States as required under our present rule. Senator NELSON. Could you do this for the Committee. A year or two ago, when we were comparing domestic prices of finished prod- ucts manufactured in this country and sold overseas, we made up a list of drugs and asked the State Department to check with our Em- bassies in the foreign countries. For example, we checked London; Bern, Switzerland; Berlin; Rome; Paris; Mexico City; Australia; Canada; and a couple of South American countries. We compared the finished product prices to the pharmacist and to the consumer in foreign countries with those prices charged here. Would you mind checking these through your agency to determine what the finished product price in the marketplace is, what the name of the drug is, its dosage form, and submit it for the record, so we would see what those foreign subsidiaries are charging the pharmacist or whoever dispenses the finished product? Would you do that? Mr. DWINELL. We will, Mr. Chairman. Senator NELSON. Then can you also ask for the markup price to the consumer, so that we can compare what happens in this country with the situation in these foreign countries. Mr. EYTAN. Mr. Chairman, these,, of course, would be local cur- rency prices. Would you want us to convert them at the official rate of exchange? Senator NELSON. Just give them both to us, the local currency and its conversion into American terms. A U.S. company is paid $100,000 for X amount of compound, then the foreign subsidiary trausfers the equivalent in exchange money of the local domestic currency with the government there, don't they? Mr. EYTAN. Yes, they do. But your question relates to `the next stage when the importer sells the product to' a druggist or to some further wholesaler, or perhaps even a retailer. When you received information from the State Department, you were talking about European countries where no exchange problem exists. And here it may require some adjustment in a price for an item in New Delhi expressed in rupees, and before you reduce that to a dollar equivalent, you might have to keep in mind this is a rupee price and there might be a half dozen different exchange rates, depending upon the pur- pose of the manipulation, the purpose for which you want the in- formation. Senator NELSON. What method do you use for determining how much the foreign subsidiary should turn over to the foreign govern- ment after AID has paid dollars to the U.S. supplier? Mr. EYTAN. There is an exchange rate agreed upon between AID and the country. PAGENO="0036" 7352 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON. There is? Mr. EYTAN. There is an exchange rate which AID agrees* upon with the country, the Foreigii Assistance Act provides us some guidance here. It speaks. about proceeds concept but we note that there may be multiple exchange rates in many countries. Senator NELSON. Yes. Give us the best you can. `I realize there are some problems with it, but I think it might be helpful for the record to try to find out just what the subsidiaries are charging in the retail market for certain formulations so they can be compared with prices here' Mr SALANT I did want to indic'tte, Senator, that while in our commercial import programs we generally are not too . much con- cerned with the elements that you have raised at the session this morning- Senator NELSON. Who is not too much concerned? Mr. SALANT. The Agency is not too much concerned in the case of commercial import programs as to what most imported products might be sold for on the domestic market, since the basic purpose for having a commercial import program is not directly related to the consumption of the end item. In the case of pharmaceuticals, we do express this concern. We are concerned that there be quality prod- ucts imported, we are concerned that they meet the highest standards in the United States. We are concerned that they comply with the FDA requirements throughout. We are concerned that the product be used to manufacture finished dosage items that are efficacious, nondangerous, useful. This does not apply to other commodities to the degree that we apply it here in the case of pharmaceuticals. Senator NELSON. I realize it is a complicated question, but I wOuld just point out that a lot of tetracycline is imported into this country and made into the finished product by American companies. NOw Cyanamid, I think, is paid $270 a kilogram and you and I agree that Cyanamid does not have a base cost anywhere near that if they are going to sell any tetracycline in this country in the face of competition from a domestic firm which imports the bulk at $24 to $29 a kilogram. Please proceed. You may wish to skip the testimony we~ have al- ready covered. At the `~ppropriate place in the record I would pl'tce this four page sheet entitled, "Comparison of AID and European Bulk Prices." Let me say, in looking at the prices paid by AID under technical assistance programs, AID does a superb job. With respect to the price; of oral contraceptives for fiscal year 1970, I note that AID is paying 171/4 to 173% cents per cycle;, which is about one-tenth of what the pharmacist has to pay and perhaps one-fifteenth to one-twentieth of what the American consumer pays. So with regard to your technical program, where you have total control because you purchase directly from the manufacturer, I think the AID is to be commended for getting an excellent price. I 1 See p. 7399. PAGENO="0037" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7353 would just hope somehow or other we could do that well by these foreign countries in furnishing them reasonably priced drugs for their own retail market. Mr. IDWINELL. Thank you for that comment, Mr. Chairman. Senator NELSON. I ask that that be printed in the record. (The information above-referred to, follows:) [ITS. Government memoranclum} JULY 23, 1970. From: TA/POP/PGD, Irene B. Walker. Subject: Response to Your Request for Information from the Nelson Committee. A.I.D.-financed oral contraceptives purchase orders under projects funded from Title X of the FAA were as follows including freight: tIn thousandsj : Cost including transportation Monthly cycles Fiscal year: 1968 1969 1970 Total $562 756 $2,252 2, 845 3,823 11,394 $3,570 18,062 COMMODITY COST PER CYCLE Cents per cycle 21's 28/P 28/FE Fiscal year: 1968 . 18 . 197 1969 .1625 .1675 .1675 1970 1725 1775 . 1775 Note: All project procurement was made through GSA; in FY 1969 and FY 1970 under GS CONTRACEPTIVE PURCHASE ORDERS July 1, 1967, to June 30, 1968 A term contracts. Contraceptive type Commodity Quantity costs Estimated transport cost Total cost Orals 2,845,000 mc $499, 000 $63, 000 $562, 000 Condoms 20,003,616 ea 319,618 24,578 344, 196 IUD's Aerosol foam 1,150,000 ct 97, 750 7, 516 105, 266 Total 916,368 95,094 1,011,462 July 1, 1968, to June 30, 1969 . Orals 3,823,000 mc Condoms 102,195,648 ea IUD's 412,000 Aerosol foam 1,266,819 ct Other 1 various $671, 000 1,771,941 12,360 256,972 26, 957 $85, 000 598, 384 247 19,761 3, 087 $756, 000 2,370,325 12,607 276,733 30, 044 Total 2,739,230 706,479 3,445,709 I Diaphragms, foaming tablets, vaginal creams and jellies. . PAGENO="0038" 7354 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. DWINELL. Of course, the point you just made illustrates prob- ably better than I can illustrate or have tried to in my statement, the difference between our technical assistance program and the commodity import program. In other words, in the technical as- sistance program, purchases are made by the GSA or the Defense Supply Agency, or by ourselves, in extreme cases of emergency, such as earthquakes or floods, where we need a quick action for relief purposes, not only of pharmaceuticals, but of other commodities as well, by competitive bidding according to Government purchasing regulations. Senator NELSON. These transactions are not purely commercial, be- cause we are paying all of the dollars at this end. So we do have some influence over what happens. We do not have to pay it at all. And I would just go on to say that I think that the foreign coun- tries are paying a tremendously exorbitant price because in those countries they do not have the expertise to make a judgment of their own. I think we ought to be much more vigorous in advising those countries as to what are the best drugs at the most reasonable prices. Mr. DWINELL. Mr. Chairman, to continue with my statement, I think I might resume at that point where I was putting our pro- curement activities into perspective with respect to the volume of transactions. During fiscal year 1969, AID-financed commodity expenditures totaled $1.02 billion. Pharmaceutical products accounted for $20.6 million, or about 2 perce~t of that total. The figures for fiscal year 1968 showed a higher ratio for pharmaceuticals with expenditures of $31.7 million or 2.7 percent of the $1.06 billion expended for commodities. Detailing these figures further, commodity expenditures for specific technical assistance projects totaled $5 million in fiscal year 1969 and $13 millioii in fiscal year 1968. These were respectively, 24 and 41 percent Of total expenditures for pharmaceuticals. I have already referred to the fact, as I point out on the top of page 5 of my statement, that the. purchases financed under technical assistance for project use, for the most part, were purchased by other U.S. Government agencies, such as GSA or Defense Supply Agency of the Department of Defense. The procurement practices and procedures followed by GSA are those set forth in the Federal procurement regulations, supple- mented by "Additional Program Bidding Terms and Contract Pro- visions" developed expressly by GSA for its procurement on behalf of AID. These additional terms and provisions cover such items as eligible source, bidding terms, taxes and duties, shipping, labeling, and other requirements peculiar to AID. The Defense Supply Agency in its procurement for AID follows rules of the armed services procurement regulation. Purchases made directly by AID conform to requirements of the AID procurement regulations. Those by a borrower-grantee or its private sector agent, must comply with the rules in AID Regulation 1, usually with an added requirement that the formal invitation for bid procedure be used. We spent most of our time this morning on the commercial trans- actions. The amount involved with respect to pharmaceuticals was valued at $15.6 million in fiscal year 1969 and $18.7 million in fiscal year 1968. And it has been already pointed out that under these PAGENO="0039" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7355 commercial import programs, only unfinished pharmaceuticals may be purchased, except that contraceptives in finished dosage form are authorized. Transactions involving commercial imports must comply with the provisions of AID Regulation 1 as supplemented by special require- ments that the Agency applies to pharmaceutical products. AID Regulation 1 prescribes the basic rules that govern AID-financed transactions. It covers conditions of eligibility of commodities and services, the responsibilities of importers and suppliers, the payment and reimbursement requisites, and the price rules for commodities and commodity-related services. These provisions apply uniformly to all commodities financed by AID under a commercial import program. There are, however, special requirements that apply only to phar- maceutical products. These relate to commodity eligibility, com- modity quality, and commodity certification. As already indicated, pharmaceuticals in finished dosage form are not eligible for financing under our commercial import programs. In addition, drug sub- stances and drug products must meet all requirements prescribed by the Federal Food, Drug, and Cosmetic Act for interstate shipments. Biologics for human use must have been manufactured at an es- tablishment holding a product license issued under the Biological Control Provisions of the Public Health Service Act for such prod- ucts; veterinary biologics must meet requirements of the Veterinary Biologics Division of the U.S. Department of Agriculture; oral contraceptives must comply with the Food and Drug Administration requirements relating to their marketing in the United States. Antibiotics, biologics, contraceptives and several other drugs must be approved in advance by AID on an individual transaction basis. This prior approval requirement was established for several reasons: first, to assure that AID-financed purchases reflect Food and Drug Administration actions pursuant to studies by the Drug Efficacy Study Group of the National *Research Council of the National Academy of Sciences; second, to assure that importers have ade- quate storage and distribution facilities to handle perishable prod- ucts such as vaccines ; and, third, to assure that significant findings pertaining to proposed end products are transmitted to the importing government. These prior approval requirements wei~e instituted for biologics several years ago, for antibiotics on June 6, 1969, and for oral contraceptives on May 4, 1967, when they first became eligible for AID financing. Ingredients for contraceptives were made sub- ject to prior approval on January 1, 1970. We now have an extensive list of medicinal chemicals that are eligible for AID financing if they are included in the list of com- modities authorized under a given agreement and if they meet the special provision requirements established by AID. We have pub- lished and released to the trade, through our small business memos, listings of both eligible and ineligible pharmaceuticals as well as other information regarding pharmaceutical requirements. `We also have a series of internal manual order issuances dealing with pharmaceutical policies and procedures. Copies of pertinent releases were supplied to the subcommittee.1 1 See information beginning at p. 736S. PAGENO="0040" 7356 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Most commercial import program purchases are made by negotia- tion and not by formal bid procedures. This is standard commercial pra.ctice-in fact, procurement by formal bid procedures would be the exception rather than the rule. However, we still expect im- porters to canvass the market whenever possible and to place orders so as to obtain optimum economic advantage. Mr. GORDON. May I ask a question at this point? You say you require importers to canvass the market whenever possible and to place orders. I would think it is impossible to do this in the case of drugs, since subsidiaries buy from parent com- panies. Is that not correct? Mr. DWINELL. I was referring, of course, to commercial import pro- gram purchases in general. When it comes to pharmaceuticals, that would be the case in some instances. This is indicated by the fact not all of our AID-financed pharmaceutical purchases are by sub- sidiaries. Mr. GORDON. But most of them are. Mr. DWINELL. It is true that a large percentage is. Senator NELSON. Just for clarification, a question I should have asked earlier. If you took one of the tetracyclines like Bristol's Rolitetracycline, it is at the bottom of page 1 of the chart, or any one of those above it, how does it come about that Rolitetracychine or any one of those above ends up in being the drug that is imported? Is it because the foreign subsidiary asks for this particular drug by brand name? Mr. EYTAN. There is, of course, a competition among importers to secure import licenses. Senator NELSON. You mean import license for each import ship- ment? Mr. EYTAN. Yes. It is shipment-by-shipment, generally. Senator NELSON. Explain to me how that works, would you? Mr. EYTAN. AID begiiis the process by making a loan to country X, with which eligible' commodities `may be purchased. Senator NELSON. The loan is the payment they make to the coun- try? Mr. EYTAN. The loan does not result in any dollar funds actually changing hands between AID and the foreign government. AID negotiates and concludes' a loan agreement with country X for $10 million- Senator NELSON. For drugs? Mr. EYTAN. Product items will be mentioned in the loan or in the supplement to the loan and, let us say. drugs are eligible. At that point, the country tinder its own internal procedures will apportion the $10 million of `AID loan funds among importers. It will require applicants for import licenses to describe the commodity which they seek to import with great specificity. It will require them to provide detailed commercial information concerning the l)roduct; then the relev'mt ministry in the foreign go~ ernment w ill `~1loc'Lte the $10 million, and some of that money in this hypothetical will go for the purchase of drugs. The overseas subsidiary of the American firm will attempt to se- ~cure a portion of this $10 million, with which it may then issue a PAGENO="0041" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7357 purchase order or even enter into some other agreement with its parent, to accomplish the importation. The transaction itself on the commercial side begins after the importer has his license from his government, by having the importer go to a commercial bank. He goes to a commercial bank with respect to a proposed AID- financed import in exactly the same way that he would go to the same bank in his country in a non-AID sale. He goes to the bank with a request that that bank open a letter of credit to pay for goods to be purchased from a foreign country-in our case, from the United States-a letter of credit to be issued in the name of the designated supplier. In our case, let us say, the parent company~ Senator NELSON. Let me ask a question at this stage. There is a purchasing agent, of course, for the foreign country and they decide that of their $10 million of loan, they need to buy $1 million of drugs, let us say. Right? Mr. ETTAN. With respect to the commercial sector- Senator NELSON. No, I am just talking about getting an import license- Mr. EYTAN. If you are talking about a $10 million loan with the commercial sector, there really is no- Senator NELSON. Let us say, some part of it is allocated for im- port licenses for drugs; right? Mr. EYTAN. Right. Senator NELSON. How is it decided that some particular type of tetracycline gets the import license? How do they decide that? Do they have a bid on different tetracyclines or negotiate, or what do they do? Mr. EYTAN. The Government determines how to apportion the money for drugs. Senator NELSON. We have already passed that. They apportioned some money for drugs. Mr. EYTAN. At that point, the various applicants come in, each one seeking a license to import a particular bulk product. It is going to be a very rare situation where the total dollar sum involved in the application does not vastly exceed the amount of money available. The country then will require under its own pro- cedures, its applicants for import licenses to make out the best case that they can-why they should be gr'tnted the import license in the amount they seek or a portion of that amount, as opposed to others competing for licenses for similar or different drugs. Senator NELSON. Who would be the other competitors? Other American subsidiaries? Mr. EYTAN. Not necessarily. Any importer. Senator NELSON. Do you have a list of drug importers of the various countries which have been getting drugs under this program? Mr. EYTAN. Our mission abroad, that is, the AID mission in a par- ticular country, would have or could secure the names of importers in any area. And if you would like us to do so, to solicit our overseas missions for names of importers of drugs, both AID and non-AID, we could do so. Senator NELSON. Who are the competitors for AID imports? PAGENO="0042" 7358 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. EYTAN. There are importers in nearly every country who are not subsidiaries of American firms. Senator NELSON. There do not seem to be any of them who have succeeded under this program except American subsidiaries. Mr. EYTAN. Just a few minutes ago, we mentioned that over three- quarters of a million dollars was financed by AID for drugs in fiscal 1969 for small business on sales by small business concerns from the United States. We have a list here of some 30 or 40 small business concerns and we doubt that any of these have overseas subsidiaries. So we do not believe it is correct to say that all AID sales in the drug area take place between parents and subsidiaries. At least with respect to this three-quarters of a million dollars- those were sales between private importers aiid private U.S. com- panies having no relationship to each other at all. Senator NELSON. All of these duplicative brand name tetracyclines have no competitors except tetracycline hydrochloride which is the drug of choice. It would be considered irrational prescribing and purchasing by medical experts to take anything other than tetracy- cline hydrochloride at the lowest price according to the Medical Let- ter. I wonder how a company that has a brand name is charging a price many times more, some 1,000 or 2,000 percent more than the world price and much more thaii the cheapest of the available tetracyclines. How do they get the foreign government to give them an im- porter's license, even though it is going to cost 2,000 percent of the world price, and it is no better than tetracycline hydrochloride and you have no competitor because you are the only one who makes this brand name drug? I am puzzled about how this works. Mr. ETTAN. You have, of course, described the situation quite ac- curately when you say that an American company who controls the product by brand name or otherwise, or who has an overseas subsidiary in that particular country, is really going to try to maximize its sales to that country through its subsidiary. And when that subsidiary competes with other importers in that country, it could point out to the license-issuing authority that it is the sub- sidiaiy of the American producer of the product And if it makes out a case with the licensing authority that there is a strong need or demand, which may be the same thmi? in the country for this particular item, the country will usually issue licenses to it. Senator NELSON. Please proceed. Mr. GoRDoN. Could you give us for our record the percentage of sales moving from parent to subsidiary under the commercial im- port program for drugs? Mr. EYTAN. Percentage of sales of all pharmaceutical products? Mr. DWINELL. Just pharmaceuticals? Mr. GORDON. That is right. Percentage of sales going from parents to subsidiaries. Mr. EYTAN. It will be a considerable job but we caii do it, of course. Mr. GORDON. And the number of small businesses. Mr. EYTAN. Yes, we have the list prepared on small businesses.1 1 See p. 7393. PAGENO="0043" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7359 Mr. BARONDES. I would like to add one point on the question of sales to subsidiaries. I am sure you realize that it is not unique in the drug industry that a substantial proportion of all American ex- ports moves from parent corporations to overseas affiliates. To men- tion a few: much of our oil exports, petroleum exports, are going to subsidiaries; synthetic rubber and tire cord are moving from U.S. corporations to their overseas tire plants; many of the large auto- mobile companies have assembly plants overseas. So to that degree, pharmaceutical producers are not entirely unique. Senator NELsON. Go ahead. Mr. DWINELL. I was at this point in my statement indicating com- mercial import program purchases are made by negotiation and not by formal bid procedure. This is the standard commercial practice. And I referred to the canvassing of the market which was affected. Under the regulation 1 notification requirement, importers must, unless exempted for reasons stated in the. regulation, advertise pro- posed purchases in the "AID-Financed Export Opportunities" bulle- tin, published by our Office of Small Business. We require importers to identify proposed purchases of pharmaceuticals by generic terms rather than by trade name, as we have already indicated. This widens the range of potential competitive offers and alerts interested U.S. firms to possible trade opportunities, both for the immediate purchase and for future market explorations. Advertising by generic name enables importers to learn of competitive product availabilities. For AID, in addition to its impact on price, generic designation permits routine determination of commodity eligibility or ineligibility when notice is first received regarding a proposed pharmaceutical purchase. But whether or not an intended pharmaceutical purchase is ad- vertised in the "AID-Financed Export Opportunities" bulletin, we are alerted to all proposed shipments made under regulation 1 rules, by the "Application for Approval of Commodity Eligibility"- form AID-li--that every commodity supplier must submit to AID/ Washington for approval. This prior approval procedure, which was developed in response to Section 604(f) of the Foreign Assistance Act of 1961, enables us to reject in advance shipments of any phar- maceuticals on our ineligible list or of pharmaceuticals not authorized in the specific commercial import program concerned. We also require suppliers to list in their invoices, opposite each item billed, the established generic name and the quantities of active ingredients in each item supplied. This offers an opportunity at the post-audit stage for a final check on commodity eligibility and for more effective determination of compliance with the Agency's price rules. I have already indicated that notification of proposed procurement is not always required, and may be modified or waived under cer- tain conditions. For example, publication of individual purchase intentions is not required under the so-called "Colombia Plan", of notification. In- stead, our Office of Small Business publishes general information regarding the commodities authorized under each program, together with the names and addresses of importers of such commodities. U.S. PAGENO="0044" 7360 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY suppliers can then determine whether to explore the market for their specific products. The Colombia system is considered for countries whose impoit and foreign exchange controls preclude individual importer notifi- cations or for countries w here the st'indard system of ad\ ei tismg is disadvantageous to program objectives. It is now authorized for Brazil, Chile, Colombia, Dominican Republic, Uruguay, and Indo- nesia As a second example, the Small Busiiiess notification requirement may be waived on `in individual company b'tsis when special con tractual relationships exist between importer and supplier which render advertising me'iningless In such c'tses, the supplier may ap ply for an "Agency W'wver" on behalf of his importing d1stributor or manufacturing licensee Th'tt t~ pe of waiver is gr'inted only when our analysis indicates that the importer has `i contractual obligation to refrain from handling competitive products The validity period of an Agency waiver is determined by the conditions of the con- trolling agreements, with `t m'tximum of 3 ye'irs As of now waivers of small business notification requirements for pharmaceuticals are effective for 27 importers located in Ghana, India, Moiocco, Pakistan, aiid Turkey I wish to stress th'it transactions conducted under "Agency W'tivers" of the sm'tll business notthc'ition requirements `ire sub ject to careful post audit examinations Prices are tested `igainst those charged in comparable expoi t sales th'it are fin'inced by AID and those sales that are not financed by AID Briefly, our rules pro vide that a supplier's price may not exceed the prevailing export market price for comparable sales of all exporters nor may it ex ceed the price generally charged by the seller in his comparable sales Posting of the generic nomenclature for each 1tem invoiced facili tates that comparison Audits made under these rules provide rea sonable assurance that cases of excessive pricing will be uncovered when goods `ire sold under agency an angements As `iresult of these examinations, significant iefunds h'ive been obt'uned from suppliers whose prices were found to exceed those permitted under AID regulations. I think it well to emphasize a point I already made-namely, that purchases under the commercial import program are made by private firms These firms buy foreign exchange credits made avail able by our loans or grants They buy these credits with their own local currency-the only form of currency that is generally available to them Barring peculiar situations that may give rise to currency manipulations or other irregularities, `in importer st'inds to profit when he buys properly at a fair price, he will inevitably fail if he buys imprudently without regard to price. I would like to summarize my statement in this way: we ad- minister our commercial import program for pharmaceuticals in a manner designed to reduce the potential for irregularities. We do this by excluding from financing commodities for which irregularities are most difficult to detect-the dosage form ph'irm'tceuticals-'ind by monitoring the requirement that pharmaceuticals be identified by PAGENO="0045" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7361 generic name. This strips away the brand name cloak under which product similarity may be concealed and price escalation practiced without restraint. Senator NELSON. I do not quite follow how it works. What do you mean that you are monitoring the requirements that pharmaceuticals be identified by generic name? Where do you do that? In what part of the process? Mr. DWINELL. On the invoices which are subject to our audit. Senator NELSON. I don't see that that reveals anything. Mr. DWINELL. And any advertising for procurement by the im- porter. Senator NELSON. As I pointed out before, we have a whole series of brand name products here. Our list does not include all of them. They end up ordering a brand name duplicative product that is very expensive. Does carrying the generic name on the invoice do anything about stripping away the brand name cloak? Mr. EYTAN. What we are saying in the statement is that we al- ways know precisely what it is that we are financing. It is not possi- ble for a company to give a mumbo-jumbo description on its invoice. After all, the American seller deals privately with the foreign firm so that by insisting that alongside any special nomenclature the generic description of the drug appears on the invoice, and along- side any mumbo-jumbo description of the drug in its advertised solicitation, which the importer engages in before concluding his contract, a generic description of the drug also would appear. We assure to ourselves that on post audit we will know exactly what the item is so that no one can push on us an argument that this drug is really different, it is an exotic something. We know exactly how to proceed in our post audit efforts. Mr. BARONDES. May I elaborate on that? Senator NELSON. All I would say is that they do not fool you in that way, but they do foist off on you some rather exotic prices. That is the problem, and that is as clear as a bell all the way through. Mr. BARONDES. Senator, this is in a difficult area. There are ap- parently generic names and generic names. There are certain generic drugs which are apparently pretty widely recognized-I am not an expert on drugs-let us say penicillin, or some other product which most of the companies will be selling. We will then, in these cases, compare the prices, regardless of brand names, with the sale of other products of the same generic nature. But then you get into other areas where each company has its own generic cubicle. These types of products are more difficult to compare. Senator NELSON. They each have a trade or brand name, but all of these products are different tetracyclines and the price ranges from $100 to $2,200, yet the Medical Letter, which has great prestige in this country, evaluates tetracycline hydrochloride as the drug of choice. They consulted with expert physicians around the country and concluded that all the tetracyclines are therapeutically equiva- lent. If the purchaser knew this, he would buy the cheapest one of the tetracyclines. He would be buying it at $24 a kilogram instead of $2,200. Ac- PAGENO="0046" 7362 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY tuafly, you do no favor to the developing country. All I can see is that you have a program where we get some hard dollars back and a whole lot more than we ought to get back where a domestic com- pany gets a chance to sell drugs at an exorbitant price. And instead of doing a favor to the country, we are damaging the consumer and the country. We would be better off if we just bought tetracycline hydrochloride for $24 to $29 per kilogram in the foreign market- place. It may cost you a million instead of $15 million, and you would help the developing country a lot more. We are hurting the country with this drug and I think it is ob- vious. You are stuck with the law, I guess, but I would hate to have anybody do any favors like this for me. I think it is an outrage. The law is contrived in such a way that justice could not con- ceivably be done to those people in those countries-neither the government nor the consumer. I would think at least we ought to just give them every month the bid prices of New York City, Defense Supply Agency, telling them what they are paying for the finished product. `We are bring- ing them all kinds of expertise on how to get businesses going. Let's give them some expertise on how to keep from being cheated. They ought at least to look at and say-"we are paying 10, 20, 50, a hun- dred times as much as we ought to be paying." Give them the facts. If they are foolish enough to do it after that, you might have some suspicion as to how the money is being used over there. Mr. DWINELL. Mr. Chairman, I am glad you recognize the fact that we are complying with the statute- Senator NELSON. I think you are. Mr. DWINELL (Continuing). Or we are attempting to do so, and trying to monitor these transactions to the best of our ability. Senator NELSON. It is a case of Uncle Sam exploiting a foreign country on the pretense we are doing them some good. I am not blaming you for that. I say when you have an opportunity to operate the program the way it should be operated, you have handled the program very well. Mr. DWINELL. `We encourage also the use of quality raw and intermediate ingredients and bulk compounds of demonstrated effi- cacy that are produced in the United States to recognized standards and that are available under the programs at competitive prices ançl~ at savings in the foreign exchange positions of the importing coun- tries Pharmaceutical purchases are relatively small as compared to overall expenditures of AID funds for commodities, to repeat. They represented 2 percent of total commodity expenditures in fiscal year 1969 and 2.7 percent in fiscal year 1968. However, those 1?harrnnceuticn1s that are purchased with AID funds must conform to strict eligibility requirements, to rigid quality standards, and to permitted price schedules. I am grateful to the subcommittee for allowing me to present this broad view of our commodity financing programs, particularly as they relate to pharmaceuticals. I will be glad to elaborate on any other areas which the subcommittee may wish to examine. Thank you very much, Mr. Chairman. PAGENO="0047" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7363 Senator NELSON. You are operating under the law, and as I stated, Uncle Sam is doing very well under it, and so are the private com- panies. I do think it is worthwhile taking a look at giving the foreign countries a little more information. At least the government over there could understand the difference in the pricing structure, and it might be very helpful to them. Mr. DWINELL. Mr. Chairman, the only point I would make there, even though our client countries are lesser developed and undevel- oped countries, my own experience in visiting some of them is that they are not completely unsophisticated countries. Communications today, interchange of information, the accessibility of information on a worldwide basis is available at least to the officials of govern- ments of lesser developed countries. Senator NELSON. We have a hard time getting our~ own medical community to prescribe rationally and they cannot do it over here. The testimony here from the experts continually is that all of these countries around the world are relying upon the United States and its expertise. They are very limited. You can be a fine doctor practicing in a developing country and if you are, I might say you are probably ten times as busy as it is conceivable to be here. No one can keep up on drugs. We have trouble with our own physicians keeping up on drugs. I think these exotic prices are so exotic that the foreign countries ought to be informed. And we are buying them all of the time. I think we might find they would be amazed. They might even think of going back to the finished product and letting them see what they can buy. Take prednisone running from $17.90 per hundred to the pharma- cist at the time of our hearing, to 59 cents a hundred, with the Medical Letter saying they are all equivalent. So I do not know how you expect those poor souls over there to make a better judgment than was being made in this country. I guess the minority counsel has a question. Mr. JONES. One brief question. Could you give me the total sales volume of the drug sales financed by AID in the last 2 years? Mr. DWINELL. That was in the statement, but I may have skipped it-in the commodity import program, pharmaceuticals were valued at $15.6 million in fiscal year 1969, a reduction from $18.7 million in fiscal year 1968. Mr. JONES. I understand each year these sales amount to less than 3 percent of the total commodity import loan program. Mr. DWINELL. Yes; that would be even less than 2 percent, be- cause our total pharmaceutical procurement, including the technical assistanceportion, was 2 percent in 1969 and 2.7 percent in 1968. So that the CIP, as we call it, would have been less than 2 per- cent in 1969, last year. Mr. JONES. Mr. Chairman, with your permission, I would simply like to state it is my understanding th'tt the questions raised tod'Ly imply no criticism whatsoever of the commodity import loan pro- gram in general, and pertain only to the small fraction of that program which relates to pharmaceutical sales. Senator NELSON. There has been no testimony today on any matter other than pharmaceuticals, has there? PAGENO="0048" 7364 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Mr. JONES. No, sir. Senator NELSON. Thank you very much. We appreciate your com- ing. (The complete prepared statement and supplemental information submitted by Mr. Uwinell follows:) STATEMENT BY LANE DWINELL, ASSISTANT ADMINISTRATOR FOR ADMINISTRATION, AGENCY FOR iNTERNATIONAL DEVELOPMENT, DEPARTMENT OF STATE I appreciate this opportunity to discuss the AID programs which involve the procurement of pharmaceutical products. But before delving into details of such procurement, I would like to describe, in general terms and without specific regard to pharmaceuticals, why we have different types of programs and how they are conducted. We conduct three basic programs under which commodities are financed with AID funds. Pharmaceutical products may be purchased in two of these pro- grams-technical assistance programs and commercial import programs. The third activity, capital project assistance, is not of concern in our discussion today. The first type of program mentioned, Technical Assistance, encompasses edu- cational and training activities. included are projects in various fleids such as health, disease prevention and family planning. Possible programs are devel- oped in the field by our Mission specialists working in close collaboration with cooperating country officials and possibly with UN or other international agency experts. Gradually, their ideas gain substance, scope, and specificity and a definite program takes form-goals to be achieved, facilities to be established, technical services to be recruited, material to be assembled, supplies to be pro- cured. Feasibility studies are made and time frames for performance prepared. Analyses of resource availabilities and needs are of course essential and figure significantly both in regard to project initiation and continuation. Ultimately, the proposed program is presented by the Mission to Washington for considera- tion. We appraise each proposal in the context of its suitability for AID participation, of its essentiality to the development of the aid-receiving coun- try, and of its priority relative to other project options. The Agency seeks to confine approvals to carefully formulated, high priority proposals that promise meaningful achievements. Funds authorized in approved projects thus are ear- marked for prescribed technical services and for specific commodities. In other words, when a Technical Assistance project is authorized, we have considerable knowledge regarding the commodities to be financed, including knowledge as to what will be bought and what procurement procedures will be employed. The second type of program is the AID commercial import program. This has two major complementary objectives: First, it provides foreign exchange to finance private sector imports of com- modities needed by industry and agriculture as well as to finance imports of essential consumer goods. Second, it supplements the revenue of the aid-receiving country and thus enables that government to meet the local currency costs of its development activities. Development projects involve substantial local currency expenditures to de- fray costs such as land purchase, rentals, labor, indigenous materials and serv- ices. For many developing countries, these items cost a great deal more money than their financial resources can provide. The commercial import program offers a partial solution. It creates a channel through which imported corn- modities, purchased with American dollars, can be converted into local cur- rency accruals to the government of the importing country. This local currency is then available to support joint economic and, where necessary, defense pro- grams. The mechanics of tl1e system explain how this is done The commercial import program works through commercial banking channels and is dependent upon the activities of private businessmen. A firm which sees an opportunity for profit in the importation and resale of particular goods eligible for AID financing obtains an import license if it is required, con- summates an "exchange contract" with the local bank, arranges for the procure- mnen and tvan~portation of the goods, pays to his local bank the total cost of the goods in local currency, pays customs duty to his government on arrival of the goods, warehouses, and then processes or sells the goods on the open PAGENO="0049" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7365 market. The risk inherent in this transaction falls to the importer, the profit or loss also goes to him. The dollar cost of the commodities and of transportation, if on U.S. flag vessel, is paid to the supplier against documents he submits to a U.S. bank, out of funds ear-marked for the program. The importer's bank pays the local currency equivalent into a special account at the National bank. Through this mechanism, local currency is in effect trans- ferred from the private sector to the government for uses jointly agreed to by the U.S. and the aid receiving country. All this is by way of prologue to pharmaceutical procurement with AID funds. It explains to a degree why we authorize the expenditure of dollars to buy commodities, inciuding pharmaceuticals, that are at times directly related and at other times indirectly related to approved economic development pro- grams. But perhaps it would be well to bring the pharmaceutical segment of our procurement activities into perspective. During fiscal year 1069, AID-financed commodity expenditures totaled $1.02 billion. Pharmaceutical products ac- counted for $20.6 million or about 2.0 percent of that total. The figures for fiscal year 1968 showed a higher ratio for pharmaceuticals with expenditures of $31.7 million or 2.7 percent of the $1.06 billion expended for commodities. Detailing these figures further, commodity expenditures for specific Technical Assistance projects totaled $5 million in fiscal year 1969 and $13 million in fiscal year 1968. These were respectively, 24 percent and 41 percent of total ex- penditures for pharmaceuticals. In the case of Technical Assistance, pharmaceutical requirements are devel- oped by the technical experts assigned to the respective projects, stated in generic terms, and procured in accordance with government regulations. This procedure was followed in buying project pharmaceuticals valued at $5 million in FY 1969 and $13 million in FY 1968. Purchases financed under Technical Assistance for project use are for the most part purchased on behalf of AID by other U.S. government agencies, specifically the General Services Administration or the Defense Supply Agency of the Department of Defense. ln rare instances-notably of emergency nature, such as earthquakes, epidemics and other disasters-AID may itself under- take to purchase pharmaceuticals. In still less frequent cases, where there is demonstrated ability to handle transactions effectively, the borrower-grantee is permitted to buy directly or through a purchasing agency that it selects. The procurement practices and procedures followed by GSA are those set forth in the Federal Procurement Regulations, supplemented by "Additional Program Bidding Terms and Contract Provisions" developed expressly by GSA for its procurement on behalf of AID. These additional terms and provisions cover such items as eligible source, bidding terms, taxes and duties, shipping, labeling, and other requirements peculiar to AID. The Defense Supply Agency in its procurement for AID follows rules of the Armed Services Procurement Regulation. Purchases made directly by AID conform to requirements of the AID Procurement Regulations. Those by a borrower-grantee or its private sector agent, must comply with the rules in AID Regulation 1, usually with an added requirement that the formal invitation for bid procedure be used. I turn now to activities where AID finances commercial transactions- programs under which we financed pharmaceuticals valued at $15.6 million in FY 1969 and $18.7 million in FY 1968. In these Commercial Import Programs only unfinished pharmaceuticals may be purchased, except that contraceptives in finished dosage form are authorized. Transactions involving commercial imports must comply with the provisions of AID Regulation 1 as supplemented by special requirements that the Agency applies to pharmaceutical products. AID Regulation 1 prescribes the basic rules that govern AiD financed transactions. It covers conditions of eligibility of commodities and services, tIme responsibilities of importers and suppliers, the payment and reimbursement requisites, and the price rules for commodities and commodity related services. These provisions apply- uniformly to all com- modities financed by AID under a commercial import program. There are, however, special requirements that apply only to pharmaceutical products. These relate to commodity eligibility, commodity quality, and com- modity certification As `ilreadv indicated ph'irmnaceuticah, in finished dosage form are not eligible for financing under our Commercial Import Programs. In addition, drug substances and drug products must meet all requirements 40-471 0-71-pt. 18--4 - - PAGENO="0050" 7366 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY prescribed by the Federal Food, Drug, and Cosmetic Act for interstate ship- ments. Biologics for human use must have been manufactured at an establishment holding a product license issued under the Biological Control Provisions of the Public Health Service Act for such products; Veterinary Biologics must meet requirements of the Veterinary Biologics Division of the U.S. Department of Agriculture; Oral Contraceptives must comply with the Food and Drug Ad- ministration requirements relating to their marketing in the U.S. Antibiotics, biologics, contraceptives and several other drugs must be ap- proved in advance by AID on an individual transaction basis. This prior approval requirement was established for several reasons: First, to assure that AID financed purchases reflect Food and Drug Administration actions pursuant to studies by the Drug Efficacy Study Group of the National Research Council of the National Academy of Sciences; second, to assure that importers have adequate storage and distribution facilities to handle perishable products such as vaccines; and third, to assure that significant findings pertaining to proposed end products are transmitted to the importing government. We now have an extensive list of medicinal chemicals that are eligible for AID financing if they are included in the list of commodities authorized under a given agreement and if they meet the special provision requirements established by AID. We have published and released to the trade, through our Small Business Memos, listings of both eligible and ineligible pharmaceuticals as well as other information~ regarding pharmaceutical requirements. We also have a series of internal manual order issuances dealing with phar- maceutical policies and procedures. Copies of pertinent releases were supplied to the Subcommittee. Most Commercial Import Program purchases are made by negotiation and not by formal bid procedures. This is standard commercial practice-in fact; procurement by formal bid procedures would be the exception rather than the rule. However, we still expect importers to canvass the market whenever pos- sible and to place orders so as to obtain optimum economic advantage. Our system of notification prescribed in AID Regulation 1 was devised to keep U.S. small business informed of sales opportunities arising out of our Com- mercial Import Programs. Concurrently, however, it makes it possible for importers to solicit competition. Under the Regulation 1 notification requirement, importers must, unless exempted for reasons stated in the regulation, advertise proposed purchases in the "AID Financed Export Opportunities" bulletin, published by our Office of Small Business. We require importers to identify proposed purchases of pharmaceuticals by generic terms rather than by trade name. This widens the range of potential competitive offers and alerts interested U.S. firms to possible trade opportunities, both for the immediate purchase and for future market explorations. Advertising by generic name enables importers to learn of corn- petitive product availabilities. For AiD in addition to its impact on price, generic designation permits routine determination of commodity eligibility or ineligibility when notice is first received regarding a proposed pharmaceutical purchase. But whether or not an intended pharmaceutical purchase is advertised in the "AID Financed Export Opportunities" bulletin, we are alerted to all proposed shipments made under Regulation 1 rules, by the "Application for Approval of Commodity Eligibility" (Form AID-li) that every commodity supplier must submit to AID/Washington for approval. This prior approval procedure, which was developed in response to Section 604 (f) of the Foreign Assistance Act of 1961, enables us to reject in advance shipments of any~ pharmaceuticals on our ineligible list or of pharmaceuticals not authorized in the specific commercial import program concerned. We also require suppliers to list in their invoices, opposite each item billed, the established generic name and the quantities of active ingredients in each item supplied. This offers an opportunity at the post-audit stage for a final check on commodity eligibility and for more effective determination of com- pliance with the Agency's price rules. I have already indicated that notification of proposed procurement is not always required, and may~ be modified or waived under certain conditions. For example, publication of individual purchase intentions is not required* under the so-called "Colombia Plan", of notification. Instead, our Office of Small Business publishes general information regarding the commodities au- thorized under each program, together with the names and addresses of im- PAGENO="0051" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7367 porters of such commodities. U.S. suppliers can then determine whether to explore the market for their specific products. The Colombia system is considered for `countries whose import and foreign exchange controls preclude individual importer, notifications or for countries where the standard system of advertising is disadvantageous to program ob- jectives. It is now authorized for Brazil, Chile, Colombia, Dominican Republic, Uruguay, and lndonesia. As a second example, the Small Business notification requirement may be waived on a individual company basis when special contractual relationships exist' between importer and supplier which render advertising meaningless. In such cases, the supplier may apply for an "Agency Waiver" on behalf of his importing distributor or manufacturing licensee. That type of waiver is granted only when our analysis indicates that the importer has a contractual obligation to refrain from handling competitive products. The validity period of an ~Agency Waiver is determined by the conditions of the controlling agree- ments, with a maximum of three years. As of now waivers of small business notification requirements for pharma- ceuticals are effective for 27 importers located in Ghana, India, Morocco, Pakistan, and Turkey. I wish to stress that transactions conducted under "agency `waivers" of the small business notification requirements are subject to careful post-audit examinations. Prices are tested against those charged in comparable export sales that are financed by AID and those sales that are not financed by AID. Briefly, our rules provide that a supplier's price may not exceed the prevailing export market price for comparable sales of all exporters nor may it exceed the price generally charged by the seller in his comparable sales. Posting of the generic nomenclature for, each item invoiced facilitates that comparison. Audits made under these rules provide reasonable assurance that cases of excessive pricing will be uncovered when goods are sold under agency arrangements. As a result of these examinations, significant refunds have been obtained from suppliers whose prices were found to exceed those permitted under AID regulations. I think it well to emphasize a point I already made-namely, that purchases under the commercial import program are made by private firms. These firms buy foreign exchange credits made available by our loans or grants. They buy these credits with their own local currency-the only form of currency that is generally available to them. Barring peculiar situations that may give rise to currency manipulations or other irregularities, an importer stands to profit when he buys properly at a' fair price; he will inevitably fail if he buys im- prudently without regard to price. `I would like to summarize my statement in this way: We administer our commercial import program for pharmaceuticals in a manner designed to re- duce the potential for irregularities. We do this by excluding from financing commodities for which irregularities are most difficult to detect-the dosage form pharmaceuticals-and by monitoring the requirements that pharmaceuti- cals be identified by generic name. This strips away the brand name cloak under which product similarity may be concealed and price escalation prac- ticed without restraint. As a concurrent consequence of these administrative policies and actions, we encourage participating countries to develop their own pharmaceutical laboratories to formulate dosage drugs. We encourage also the use of quality raw and intermediate ingredients and bulk compounds of demonstrated efficacy that are produced in the U.S. to recognized standards and that are available under our programs at competi- tive prices and at savings in the foreign exchange positions of the importing countries. Pharmaceutical purchases are relatively sniall as compared to over-all ex- penditures of AID funds for commodities. They represented 2.0 percent of total commodity expenditure in FY 1969 and 2.7 percent in FY 196S. How- ever, those pharmaceuticals that are purchased with AID funds must con- form to strict eligibility requirements, to rigid quality standards, and to permitted price schedules. I am grateful to the Subcommittee for allowing me to present this broad view of our commodity financing programs, particularly as they relate to pharmaceuticals. I will be glad to elaborate on any areas which the Subcom- mittee may wish to examine. PAGENO="0052" 7368 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Aifi Small Business Memo Trade Information for American Suppliers - ~fl~P ksuedBy DEPARTMENT OF STATE Agency for International Development, Office of Sma Washington, D. C. 20523 Area Code 202 II Business 383-666l~ . . . SBMNo. 68-21L (sTTFEI?sErEs SBMNo. 68-8) November 27, 1968 (M/L: Entire OSH List) FINARCING OF PHARMACEUTICALS UNDER PROGRAM ASSISTANCE I. Pharnaceuticals in finished dosage fern have been excluded from A.I.D. financing under commodity import program agreements entered into since March i1~, 1967, except: i. When A.I.D. determines that such financing is necessary for the attainment of program objectives, e.g., where A.I.D. financing is needed and sufficient facilities for "finishing" do not exist in the import- ing country; or ii. When the procurement is to be made on a competitive basis by a government agency of the cooperating country or its designated purchasing agent (including any agency of the United States Government so designated). II. Finished dosage form is the finished pharmaceutical, such as tablet, capsule, ointment, elixir, syrup, injectable, or other such form, which requires no further processing before packaging and labeling to be suitable for administration. Packaging, bottling, steriJ-Lzing, and/or labeling do not constitute processing operations which produce finished dosage forms. However, amtibio~4cq.~9.~ ~tio~ are eligible for A.I.D. financing when shipped in bulk for sterilizing and/or bottling in the importing country. This definition supersedes the one given in Snail Business Memo 68-8 dated April 17, 1968. PAGENO="0053" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7369 AID Small Business Memo Trade Information for American Suppliers `Illip issu.d By DEPARTMENT OF STATE Ageacy for international Dov.lopm.nt, Offic. of Small Businsu Washington, D. C. ~~O523 Area Code 202 63-20237 . . ` SBM No. 70-6 April 3, 1970 (M/L: Entire OSB List) REPUBLICATION OF A. 1.0. COMMDDITY PROCURE~4ENT SOURCE-ORIGIN POLICY AND AMENLI4ENTS This Small Business Memo supersedes the SBN 69-4 series in its entirety. It contains the Agency source-origin policy and individual commodity componentry rulings issued to date in the SBM 69-4 series. Future rulings will be issued in the SBM 70-6 series. A.I.D. CO~)DITY PROCUR~XENT SOURCE-ORIGIN POLICY A commodity, even though produced through manufa'cturing, processing or assembly in, and shipped to the cooperating country from, an authorized source country, will not be eligible for A.I.D. financing if: (i) it contains any component from countries other than free world countries, as listed in A.I.D. geographic code 899'; or (ii) it contains components which were imported into the country of production from such free world countries other than authorized source countries and (a) such components were acquired by the producer in the form in which they were imported and (b) the total cost of such components (delivered at the point of production) ampunts to more than 10 percent, or such other percentage asA.I.D. may prescribe, of the lowest price (excluding the cost of ocean transportation and marine insurance) at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). A I 0 may from time to time waive or modify this 10 percent limitation if in its view such action is necessary to achieve A.I.D.'s objective of conformity with normal industry practices. Requests for waivers or modification should be addressed to Industrial Resources Division, Agency for International Development, Washington, 0. C. 20523. Listed herein are the commodity source rulings, modifying or waiving the 10 percent componentry limitation, which are currently in eFfect. Separate rulings applicable to Latin America are contained in SB.'4 70-7. `A.I.D. Geographic Code 899 includes any area or country in the world except the U.S.S.R., Eastern Europe, Poland, North Vietnam, North Korea, China (Mainland) and other Chinese Communist controlled areas, Outer Mongolia, and Cuba. PAGENO="0054" 7370 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY SOURCE RULINGS SR.']. TEXTILE FABRICS Schedule B Numbers - 652.1100 - 652.2976(P); 653.2110 - 653.2200(P); 653.5110 - 653.6l~0O(P); 653~.8olo - 653.8p21(P); 65L0110 - 65I~.0120(P); 651~.0l30(P); 655.t~llO - 655.1~l27(P); 655.~s2l0 - 655.l~62O(P) Textile fabrics snist be manufactured and processed within the area of source specified in the authorization document. Manufacturing and processing of textile fabrics is interpreted as being all steps required in the manufacture of the finished prociuct, including spinning, weaving, felting, knitting, and finishing as applicable. The foreign componentry. percentage limitation is waived as long as the above requirement is met. (Note: This ruling is not applicable to ya'~ns, thread, and man-made textile fibers). M-X-X-K K-S S S S C SR-2 MOTOR VEHICLES Schedule B Numbers - 732.0120 - 732.0150; 732.O20~c -732.0256; 732.0310 - 732,03156; 732.01520 - 732.01430 If authorized by A.I.D./Washington on a case-by-case basis, knocked-down units of automotive equipment, to be assembled in the recipient country, may include up to 10 percent of foreign manufactured components from Free World countries other than the United States; this applies even though th~ knocked-down unit is not complete and needs the addition of indigenously manu- factured unIts to make a complete vehicle. The foreign components so included must, however, be sh{pped from the United States on a single Bill of Lading with the other components. A. I.D./Washington will consider authorizing componentry modifications of this type only on the basis of individual supplier applications supported by adequate justification. (See also SR-28, SR-53 and SR-55) _________ x-xxxsKxS-e-X .555555555 SR-3 AUTOMOTIVE E~J~NT Superseded by SR-28. _________ 1-X-X-S-XSSXXC - X-S-XS-SXXSLC SR-15 IRON PND STEEL MILL ~0DUCTS Schedule B Numbers - 671.1000 - 674.4445; 674.4460 - 674.7010; 674.7030; 674.7060 - 676.1020; 676.2010 - 678.4000; 678.5010 - 679.3030; 691.1015; 691.1030; 691.1035; 691.1045; 691.1060; 691.1080; 692.1110(P); 692.1120; 693.1100; 693.2010 - 693.3120; 694.1110 - 694.1120; 694.2110 - 694.2130; 698.8710 - 698.8720; 698.9110; 698.9130; 731.7010 - 731.7020 Foreign ores from Free World countries, used in the production of iron and steel by United States producers, need not be included when computing the 10 percent componentry limitation. xisexsxxxs a sxxsxxxxx SR-S DIAMOND DRILL BITS, WHEELS, AND TOOLS Schedule B Numbers - 663.1110; 663.1200(P); 695.2350(P); 695.21c50; 695.21s70(P); 695.21590(P); 695.21495(P);718.5118(P); 718.5125(P); 718.5138(P); 7l8.5l1s5(P); 861.7125(P) Drill bits, wheels, and tools which normally contain industrial diamonds or bortz cutting edges must be wholly manufactured within the area specified in the A. I.D. authorizing document as an eligible source of supply. The term "manufactured" means all processes necessary to produce the basic bit, wheel, or tool, including the setting of industrial diamonds or bortz cutting edges. The foreign componentry percentage limitation is waived as long as the above requirement is met. L5-CXXSKSC* XXSSXXXS-S-1F SR-6 TIRES AND IUBES Cancelled. _________ ___________ S S-XIS xx xc SR-7 TEXTILE FABRICS SEE SR-l. x-x-ss 5-555 SC 5555 55 5555 PAGENO="0055" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7371 SOURCE RULINGS SR-8 APPLICAB~ITY OF COMIONENTRY RULE TO COMPLETE INSTALLATIONS The question of whether the 10 percent componentry rule applies to a complete installation rather than to the elements making up the installation is decided on the basis of the cir- cumstances involved in each case. Factors involved include such things as the particular elements of the installation to be imported and whether the source of financing would restrict the competition t.~ U.S. firms or allow foreign competition as well. sexxex-x-x-x~ *xyxxxxxxx SR-9 ASBESTOS CEMENT PIPE Schedule B Number - 661.8320(P) Asbestos cement pipe produced in the United States may include asbestos fibers imported from Free World countries provided the total cost of such asbestos fibers (delivered at the point of production) does not exceed 20 percent of the lowest price (excluding the cost of ocean* transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). *5-555544(4 5555555555 SR-lO DIESEL ELECTRIC GENERATORS Schedule B Numbers - 722.1052 - 722.1054(P) Diesel engine driven electric generators manufactured in the United States, up to and including 15 KW (18.75 EVA) capacity, may contain diesel engines of foreign manufacture from Free World countries, provided the total cost of such engines C delivered at the point of production) does not exceed 50 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). *-K*5-5-5-5 XXX ________ ~ ELECTROLYTIC !WIGANESE DIOXIDE Schedule B Number - 513.5220 Electrolytic Manganese Dioxide, produced in the United States, may contain Manganese ore imported from Free World countries, provided the total cost of such ore (delivered at the point of pro- duction) does not exceed 20 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier m~kes the commodity available for export sale (whether or not financed by A.I.D.). *xx-esxxxex Mxsxxxsx-x-e SR-l2 1OTORCYCLES Schedule B Number - 732.9100(P) If authorized by A.I.D. /Washington on a case-by-case basis, lightweight motorcycles manufactured in the United States may contain engines and other miscellaneous components from Free World countries provided that (1) the total cost of such components (delivered at the point of production) does not exceed 50 percent of the lowest price (excluding the ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.) and (2) provided further that such components are shipped from the United States on the sane Bill of Lading with the finished iroduct. This ruling does not extend to parts or components intended for use as spare or replacement parts. (See SR-55.) A.I.D./ Washington will consider authorizing componentry modifications of this type only on the basis of individual supplier applications supported by adequate justification. ~e xxxssxxs xexxxxxxxs PAGENO="0056" 7372 COMPETITIVE PROBLEMS iN THE DRUG INDUSTRY SOURCE RULINGS SR-13 TITANIUM DIOXIDE Superseded by SR-157. _________ x-x-Kxexs*xe 1KKxxxax*~ SR-l1~ REFINED COPE~R Schedule B Number - 682.1200 Foreign copper ores, copper concentrates, black copper, and blister copper from Free World countries, used in the production of refined copper by United States producers need not be included when computing the 10 percent componentry limitation. xxxx-x-x-x-x-x-* xx-xx,xxxKx SR-l5 ELECTROLYTIC MANGANESE METAL Schedule B Number - 689.50l~5(P) Electrolytic Manganese metal produced in the United States may contain manganese ore im- ported from Free World countries, provided the total cost of such ore (delivered at the point of production) does not exceed 15 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). xxxxxxxxxx sxxxxxxxxx SR-l6 AGRICULTURAL TRACTORS AND IMPLEMENTS Cancelled. xx xxxxxxxx exxxxxxx-x~ SR-l7 BASIS FOR COMHJTING COST OF COMPONENTS The cost of imported foreign components is computed on the basis of cost as of the time of delivery to the point of production. The cost should not be calculated on a net basis to reflect an anticipated rebate or drawback of import duty. xxxxxxxxxx xxxxxxxxxx SR-18 ANTHROSOL BLUE, INC Schedule B Number - 531.0100(2) Anthrosol Blue, IBC, produced in the United States, may contain 2 Acetyl Amino, 3 Chloro Anthraquinone imported from Free World countries, provided the total cost of such raw material (delivered at the point of production) does not exceed 33 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). xxx xx xx xxx xxx x xxx xxx SR-19 NATURAL CRYOLITE Schedule B Number - 276.5500(P) Processed Natural Cryolite produced in the United States may contain raw material imported from Free World countries, provided that the total Oost of such raw material (delivered at the point of production) does not exceed 25 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). xxxxxxxxxx xxxxxxxxxx - PAGENO="0057" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7373 SOURCE RULINGS SR-20 SPARE PARTS Superseded by SR-55. XxXXe~X-eXx 555-53 5-5-5-5-5- SR-21 SIIAER NITRATE Schedule B Number - 511e.7O50(P) Any silver metal obtained from the U.S. Treasury Department and used in the production of Silver Nitrate by the United States producers is exempt from the 10 percent componentry rule. ese-x-e-e-e-x-x-s ~xexxxxexx SR-22 FULLY REFINED PETROLEUM WAXES Superseded by SR-25. *55555555-5 XXXXX 55555 SR-23 GALVANIZED IRON AND STEEL PRODUCTS FOR VIETNAM Obsolete xxexxeex-xs XXXXXXX5-XX SR-2~ HYDROUS TRIBASIC LEAD SULFATE Schedule B Number - 5115.7050(p) Lead imported from Free World countries and used in the production of Hydrous Tribasic Lead Sulfate by U.S. smnufacturers need net be included when computing the 10 percent corn- ponentry rule. 5155555555 -s-sews sexes SR-25 FULLY REFINED PETROLEUM WAXES Superseded by SR~i42. 5-5943-5-5-5- _____________ SR-26 GALVANIZED IRON AND STEEL PRODUCTS FOR VIETNAM Obsolete. ~ ~ xxxxxxxxxx SR-27 HYDRAULIC TURBINES Schedule B Number - 711.8120 Non-U.S. product engineering services associated with the design, testing,fabrication, and installation of hydraulic turbines are relevant computable items within the 10 percent corn- ponentry limitation. As used below, the following terms have meanings indicated: 1. "Non-U.S, product engineering" means product engineering services which are performed by other than a U.S. firm. 2. "U.S. firm" means an entity which: - a. Is incorporated or legally domiciled in the United States; b. Has its principal place of business in the United States; and c. Is more than 50 percent beneficially owned by a U.S. firm or firms and/or U.S. citizens. (SR-27 continued on page 6) PAGENO="0058" 7374 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY SOURCE RULINGS ~R~7 HYDRAULIC TURBINES (Continued): In cases involving the procurement of hydraulic turbines the following procedures apply: 1. Bids for one or more turbines shall be taken separately from all other equipment. Turbines shall not be bid with generators as one package. (A request for a waiver of this requirement may be submitted to A. I.D./Washington by the borrower/grantee. Requests shall be in writing and shall include a detailed justification for the combined procurement). 2. The bidder shall submit (preferably with his bid documents), for review and approval by the borrower/grantee or his agent, evidence of all non-U.S. product engineering as- ~ociated with the hydraulic turbine being offered. Such evidence shall be in the form of a binding subcontract, or other equivalent documentation, and shall include: a. A clear description and a detailed account of all non-U.S. product engineering which was (or will be) performed as part of the turbine sale; and b. An estimate based on the total bid price for the hydraulic turbine, reflecting: (1) The percentage of price attributable to expenditures relating to the non-U.S. product engineering, and (2) The total percentage of price for all non-U.S. component cost (including the non-U.S. product-engineering element). xsxxxxxsxx ,ssxxxxxsx SR-28 M)TOR VEHICLES, ThUC}~ AND BUSES (Supersedes SR-3) Schedule B Numbers - 732.O2OL~ - 732.0234; 732.0236 - 732.0256; 732.0310 - 732.O31~6; 732.0~42O; 732.0Z~3O; 732.9100(P) If authorized by A.I.D. on a case-by-case basis, trucks manufactured in the United States may contain diesel engines or gasoline engines of foreign manufacture from Free World countries provided that (1) the total cost of all foreign components (delivered at the point of pro- duction) does not exceed 30 percent or 15 percent respectively of the lowest price (excluding the cost of ocean transportation and marine insurance) at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.) and (2) provided further that any vehicle equipped with tires and/or tubes from other than authorized sources shall be eligible for A.I.D. financing only if the vehicles conform to the componentry limitation of 10 percent as stated in A.I.D. Regulation 1, Section 20l.ll(b)(2)(ii)(b). The ruling applies whether the trucks are shipped assembled or completely knocked down, provided the shipment is from the United States on a single Bill of Lading. The ruling does not extend to parts or components shipped separately for use as spare or replace parts. (See also SR-53 and SR-55.) A.I.D./Washington will consider authorizing componentry modifications of this type only on the basis of individual supplier applications supported by adequate justification. exxsexxxex ____________ SB-29 NICKEL CADMIUM BATTERIES (IEDUSTRIAL TYI~) Superseded by SR-36. **XXXXXXXX MXX5KXX XXX PAGENO="0059" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7375 SOURCE RULINGS SR-30 MANGANESE DIOXIDE, MANGANESE HYDRATE 25x Schedule B Numbers - 513.5220; 513.6932(P) Manganese Dioxide, Manganese Hydrate 25x, produced in the United States, may contain pre- cipitated Manganese Dioxide and Manganese ore imported from Free World countries, provided the total cost of such material (delivered at the point of production) does not exceed 28 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). ~x-xxxxxx-x-x- ~xxxxx-x-x-x-x SR-3l GALVANIZED IRON AND STEEL PRODUCTS FOR VIETNAM Obsolete. xx ax-a a-a-wa-a ax-a-a-a ~j~32 CHLORTEIRACYCLINE HYDROCHLORIDE See SR-31x. xxaxxxa-x-x-a SR-33 GALVANIZED IRON AND STEEL SHEETS FOR VIETNAM Obsolete. *x-xaxx-x-a-a-a xaaaxxa-x-x-x SR-31a MEDICINAL AND PHARMACEUTICAL PREPARATIONS Schedule B Numbers 512.0310 - 512.0325; 512.0730; 51x.8000; 5~al.lOlO - 51a1.9932 Medicinal and pharmaceutical preparations produced in the United States may contain com- ponents imported from Free-World countries provided the total .cost of such components (delivered at the point of production) does not exceed 25 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D,). *x-xxxxaxa-a *-a-a-a-a-a-x-xxx SR-35 NICKEL CHEMICALS Superseded by SR-38. *-a-a-a-x-x-a-x-a-a- a-a xxx ax-a-a-a SR-36 NICKEL CAI}IIUM BATTERIES (INDUSTRIAL TYPE) Superseded by SR-39 a-a-a a a a-a-a-a-a- wax-a-a-a-a-a-a ~~37 ALUMINUM PRODUCTS Schedule B Numbers - 681x.O130 - 6813.2600 Aluminum ingots imported from Free World countries and used by U.S. producers in the pro- duction of aluminum products may-be considered as of U.S. source when the manufacturer of such products agrees to purchase at least an equivalent quantity of aluminum ingots from the U.S. Government stockpile. a-a-a-a-ax-a-a-a-a- -a-a-a-a-a ax-a-a-a- PAGENO="0060" 7376 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY SOURCE RULINGS SR-38 N]0I~L CHEMICAlS (Supersedes SR-35) Schedule B Numbers - 512.0999(P); 514.7050U') 599.9910(P) Nickel imported from Free World countries may be considered as of indigenous source when used by U.S. producers in the manufacture of nickel sulfate, nickel carbonate, nickel acetate, nickel chloride, nickel formate, nickel nitrate, and nickel catalysts. xsxxxexx-x-x eexxsesees SR-j~ i~i~z~ei. CADMIUM BATTERES (INDUSTRIAL ¶ff FE) Superseded by SR-50. xxsxxxx Ks, SR-lb CONTRACEPTIVES Schedule B Numbers - 5141.50140(P); 5141.7010(P); 629.3000(P); 861.7150(P) Contraceptives in ftnished-dosage form produced in the United States may contain components from Free World countries provided the tOtal cost of such components (delivered at the point of production) does not exceed 25 percent of the lowest price (excluding the cost of ocean transportation and marine insurance) at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). xsxxseeses ssexessssx 55-141 ALUMINA AND ALUMINUM INGOTS Schedule B Numbers - 513.6510 - 513.6600 Alumina,produced in the United States, may contain bauxite imported from Free World countries, provided the total cost of such bauxite (delivered at the point of production) does not exceed 20 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). Schedule B Numbers - 6814.0110 - 6814.0120 Aluminum ingots, produced in the United States, may contain alumina imported from Free World countries, provided the total cost of such alumina (delivered at the point of production) does not exceed 25 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). ________ -x-xx-xexxxx~ 15X5555554 SR-42 PARAFFIN WAXES * FULLY REFINED AND 55241-REFINED (Supersedes SR-25) Schedule B Numbers - 332.6220 - 332.6230 Crude oils imported from Free World countries may be considered as of indigenous source when used by U.S. producers in the production of fully refined or semi-refined paraffin waxes. PAGENO="0061" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7377 SOURCE RULINGS ~~43 MAGNESITE-CHRONE REFRACTORIES Schedule B Number -662.3260 Magnesite-chrome refractories, produced in the United States may contain magnesite and chrome ore imported from Free World countries provided the total cost of such materials (delivered at the point of production) does not exceed 25 percent of the lowest price (excluding the cost of ocean transportation and marine insurance) at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). )(*XX5XXXX)~ -X-XSXXXX-XX-X SR-l~ PHOTOGRAPHIC AND CINEMATOGRAPHIC SUPPLIES Schedule B Numbers - 862.3000 - 862.i~670 Photographic and cinematographic supplies must be manufactured within the United States (A.I.D. Geographic Code 000). This is interpreted as requiring that all steps in the manufacture of the finished product must have been performed within the United States. The foreign componentry percentage limitation is waived as long as the above requirement is met. XXX X~-X-X-~ ~*X-X-X X X-X-X-)X SR_LX5 ACETATE CIGARETTE TOW AND ACETATE YARNS AND FIBERS Cancelled, CXXX (-*-X--X-X-X- X*eXXXXX-X~( SR-46 ALUMINUM FLUORIDE Schedule B Number - 511i.5020(P) Aluminum Fluoride produced in the United States may contain acid grade fluoride (calcium fluoride) and. alumina derived from bauxite imported from Free World countries, provided the total cost of such materials (delivered atthe point of production) does not excOed 36 percent of the lowest price (excluding the cost of ocean transportation and marine in- surance), at which the supplier makes such aluminum fluoride available for export sale (whether or not financed by A.I,D,). XXXXXXXXXX XXXXXXXXXX SR-1X7 TITANIUM DIOXIDE (Supersedes SR-13) Schedule B Number 513.5520 Titanium Dioxide produced in the United States, may contain raw material imported from Free World countries, provided the total cost of such materials (delivered at the point of production) does not exceed 35 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). X-3EXXXXXXXX XXXXXXXXXX PAGENO="0062" 7378 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY SOURCE RULfliGS SR-148 COLOR INDEX DYES Schedule B Number - 531.0100 Time Limited Source Ruling A. Reactive Yellow l~ Color Index Dye Reactive Yellow 13, produced in the United States, may contain CA Acid (chlor-3-amino-l~-sulfo-benzoic acid) imported from Free World countries, provided the total cost of such raw material (delivered at the point of production) does not exceed 25 percent of the lowest price(excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity avaiJable for export sale (whether or not financed by A.I.D.). B. Reactive Blue 19 Color Index Dye Reactive Blue 19, produced in the United States, may contain Bromoaminic Acid, imported from Free World countries, provided the total cost of such raw material (delivered at the point of production) does not exceed 51 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). C. Reactive Yeflow l~ Color Index Dye Reactive Yellow 15, produced in the United States, may contain Amino Sulfone K imported from Free World countries, provided the total cost of such imported material (delivered at the point of production) does not exceed 31 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available, for export sale (whether or not financed by A.I.D.). D. Reactive Yeflow 17 Color Index Dye Reactive Yellow 17, produced in the United States, may contain Amino Sulfone D imported from Free World countries, provided the total cost of much imported material (delivered at the point of production) does not exceed 38 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). F. Solubilized Vat Black 1 Color Index Dye Solubilized Vat Black 1, produced in the United States, may contain Vat Printing Black BL for Sol l0O~, imported from Free World countries, provided the total cost of such raw material (delivered at the point of production) does not exceed 33 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). The above rulings apply to deliveries of dyestuffs supported by Bills of Lading dated not earlier than October 1, 1968, and not later than September 30, 1970. cccxxx cxxx ~xxesxxxxx SR-1c9 HIGH ALUMINA REFRACTORINS Schedule B Number - 662.3210 Bauxite imported from Free World Countries may be considered as of indigenous source when used by United States producers in the production of High Alumina Refractories. xxxxxxsxxx u-sxxxxeex PAGENO="0063" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7379 SOURCE RULINGS ~4~5O NICKEL CAIE4IUN BATTERIES (INDUSTRIAL TYPE) Superseded by SR-50.l SR-53.l NICKEL CAD4IUN BATTERIES (INDUSTRIAL TYPE) (Supersedes SR-50) Schedule B Number - 729.1230(P) Time Limited Source R~~j~g The following ruling applies to deliveries su~ported by Bills of Lading dated not earlier than November 1, 1969, and not later than October 31, 1970: Industrial type nickel-cadmium batteries (i.e., railroad signaling and locomotive starting) manufactured in the United States, may contain foreign components from Free World countries provided the total cost (delivered at the point of production) does not exceed 142 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.i.D.). Any deliveries supported by Bills of Lading dated later than October 31, 1970, must comply with the standard 10 percent rule or such other percentage limitation as A.I.D. may prescribe. ~(-XXXXXXX*x *XXXX~-X-~ SR-51 NICKEL OR NICKEL-BASE ALLOY ELECERODES Schedule B Numbers - 698.8730 - 698.87140(2) Nickel imported form Free World countries may be considered as of indigenous source when used by U,S. producers in the manufacture of nickel or nickel-base alloy electrodes. XX X4(-X-X-X-X-X-X- SR-52 COMPACTORS AND TOWER TYPE ROAD ROLLERS (DIESEL POWERED) Schedule B Number - 718.14228 Towed type, diesel engine_equipped vibratory compactors including pneumatic-tired, sheepsfoot and steel-wheeled rollers designed for 30 or more brake horsepower (continuous duty rating in accordance with the air-cooled diesel manufacturer's standard commercial published horsepower curves), when manufactured in the United States, may contain air-cooled diesel engines produced in Free World countries provided the total cost of foreign components (delivered at the point of production) does not exceed 20 percent of the lowest price (excluding the cost of ocean transportation and marine insurance) at which the supplier makes the finished compactor or roller available for export sale (whether or not financed by A.I.D.). 4-X~eXXXX-X-X-e ~-X-X-X-X-X-XXXC SR-53 MOTOR VEHICLE PARTS Sch. B 612.1000; 621.0510 - 621.0520; 629.14005; 633.00l0;61s2.9885; 633.8105; 663.8225; 6614.7020 - 6614.8015; 698.1115; 698.12014; 698.12145; 698.3010; 698.6110 - 698.8110; 711.5062 - 71150614; 719.2105 - 719.21145; 7l9.2257;7l9.2260; 719.7010 - 719.7075; 719.9212; 719.9310 - 719.9320; 719.9340 - 719.9900; 7~2.l023; 722.1066; 722.2054; 723.1030; 723.1080; 729.1210; 729.1240 - 729.1255; 729.2025; 729.4110 - 729.4120; 729.4135- 729.4230; 729.5288 - 729.5290; 729.5295; 729.9555 - 729.9610; 732.8100 - 732.8910; 732.8932 - 732.8948; 812.4125; 812.4145; 812.4210; .861.8220; 861.9742 - 861.9748; 861.9950 and such additional Schedule B numbers specifically requested by individual suppliers and authorized by A.I.D. (PROC/IRD). Basic materials (copper, tin, steel, cork, asbestos, etc.) imported from Free World countries may be considered as of indigenous source when used by U.S. producers in the manufacture of motor vehicle parts. PAGENO="0064" 7380 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY SOURCE RULING SR-514 NICKEL AND NICKEL ALLOY H~ODUCTS Schedule `B Numbers - 683.2110 - 683.2400 Nickel imported from Free World countries may be considered as of indigenous source when used by U.S. producers in the manufacture of nickel and nickel alloy products. *exxexxxxx xsxxeexexx SR-.55 SPARE AND REPLACEMENT PARTS The foreign-componentry limitation is applied to spare and replacement parts as follows: 1. In the case of parts shipped separately from the equipment to which they are applicable, the 10 percent foreign-cosrponentry limitmtion is applied to the shipment as a whole and not to each individual spare or replacement part. 2. In the case of parts ordered to accompany a product (machine or piece of equipment) to which they are applicable, and the product is subject to a maximum foreign-componentry limitation (either 10 percent or another percentage specifically determined), A.I.D. will allow the supplier to include foreign parts to the following extent: the cost of imported parts (delivered to the supplier), plus the cost of the other foi'eign éomponents of the product, may not exceed the allowable foreign componentry percentage of the lowest export price of the product, (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the product available for export Cale (whether or not financed by A.I.D.). *e-exxxxxex sxxxxexxxx SR-56 MJLTISPEED BICYCLES Schedule B Number - 733.1100 Bicycles with multispeed gearing devices of three oi~ more speeds manufactured in the United States may contain components from Free World countries provided that the total cost of such components from other than authorized sources (delivered at the point of production) does not exceed 45 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.) and, in the case of shipments of knocked-down units, provided also that components from other than authorized sources are shipped from the United States on the sane Bill of Lading with the other components. This ruling does not extend to parts or components intended for use as spare or replacement parts. (See also SR-55.) **9eHc-3E-3E-e-3~-e XXeXXXXXXX SR-57 FEBROCNDOME Schedule B Number - 671.5010 Ferrochrome produced in the United States may contain chrome ore imported from Free World countries, provided the total cost of such materials (delivered at the point of production) does not exceed 20 percent of the lowest price (excluding the cost of ocean transportation and marine insurance) at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). *xxxxxx-ex- -e-x-x-x-xexxex SN-58 MIMEOGRAPH STENCIL TTSSUE Schedule B Number - 641.5055(P) Mimeograph stencil tissue, produced in the United States, may contain abaca fiber from Free World countries, provided the total cost of such raw material (delivered at the point of production) does not exceed 15 percent of the lowest price (excluding the cost of ocean transportation and marine insurance), at which the supplier makes the commodity available for export sale (whether or not financed by A.I.D.). PAGENO="0065" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7381 SOURCE RULINGS -- SR 70-6 Series INDEX COMMODITY SR Numb ACETATE CIGARETTE TOW AND ACETATE YARNS AND FIBERS AGRICULTURAL TRACTORS AND IMPLEMENTS 16* ALUMINA - HIGH ALUMINA REFRACTORIEB ALUMINA - ALUMINA AND ALUMINUM INGOTS ALUMINUM FLUORIDE ALUMINUM PRODUCTS 37 ANTHROSOL BLUE, IBC 18 APPLICABILITY OF COMPONENTRY RULE TO COMPLETE INSTALLATIONS 8 ASBESTOS CEMENT PIPE 9 BASIS FOR COMPUTING COST OF COMPONENTS 17 BATTERIES - NICKEL CADMIUM BATTERIES (INDUSTRIAL TYPES) 50.1 BICYCLES - MULTISPEED BICYCLES 56 BITS - DIAMOND DRILL BITS, WHEELS, AND TOOLS 5 BUSES - MOTOR VEHICLES, TRUCKS AND BUSES 28 CEMENT - ASBESTOS CEMENT PIPE 9 CHEMICALS - NICKEL CHEMICALS 38 CHROME - MAGNESITE-CHROME REFRACTORIES CINEMATOGRAPHIC - PHOTOGRAPHIC AND CINEMATOGRAPHIC SUPPLIER 1~1~ COLOR INDEX DYES COMPACTORS AND TOWED TYPE ROAD ROLLERS (DIESEL POWERED) 52 COMPONENTRY - APPLICABILITY OF COMPONENTRY RULE TO COMPLETE INSTALLATIONS 8 COMPONENTS - BASIS FOR COMPUTING COST OF COMPONENTS 17 CONTRACEPTIVES COPPER - REFINED COPPER 1t~ COST-BASIS FOR COMPUTING COST OF COMPONENTS 17 * Cancelled 40-471 0 - 71 - pt. 18 -- 5 PAGENO="0066" 7382 COMPETITIVE PROBLEMS IN THE DRUG INDTJSTRY SOURCE RULINGS -- SR 70-6 Series INDEX COMMODITY CRYOLITE - NATURAL DIAMOND - DIAMOND DRILL BITS, WHEELS, AND DIESEL ELECTRIC DRILL - DIAMOND DRILL BITS, WHEELS~ AND DYES - COLOR INDEX ELECTRODES - NICKEL OR NICKEL-BASE ALLOY ELECTROLYTIC - MANGANESE ELECTROLYTIC MANGANESE FABRICS - TEXTILE FANRIC GENERATORS - DIESEL ELECTRIC HIGH ALUMINA REFRACTORIES---- HYDRAULIC *i:uiw.Ler~ HYDROUS TRIBASIC LEAD SULEATE 24 INGOTS - ALUMINA AND ALUMINUM INGOTS 41 INSTALLATIONS - APPLICABILITY OF COMPONENTRY RULE TO COMPLETE INSTALlATIONS 8 IRON AND STEEL MILL PRODUCTS 4 LEAD - HYDROUS TRIBASIC LEAD SULFATE 24 MAGNESITE - CHROME REFRACTORIES 43 MANGANESE DIO)CEDE, MANGANESE HYDRATE 25x 30 MANGANESE - ELECTROLYTIC MANGANESE DIOXIDE 11 MANGANESE - ELECTROLYTIC MANGANESE METAL 15 MANGANESE HYDRATE - MANGANESE DIOXIDE, MANGANESE HYDRATE 25x 30 MEDICINAL & PHARMACEUTICAL PREPARATIONS 34 METAL - ELECTROLYTIC MANGANESE METAL- 15 58 MOTOR VEHICLES rPYOTJPF 10 SR Number GENERATORS 10 .~),- :4 ~! ELECTRODES 51 M&114.L i5 PAGENO="0067" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7383 SOURCE RULINGS -- SR 70-6 Series INDEX COMMODITY SR Number MOTOR VEHICLE REPIACE1~BNT PARTS 53 MOTOR VEHICLES, TRUCKS AND BUSES 28 MULTISPEED BICYCLES 56 NATURAL CRYOLITE 19 RICKEL AND NICKEL AlLOY PRODUCTS 54 NICKEL CADMIUM BATTERIES (INDUSTRIAL TYPE) 50. NICKEL CHEMICALS 38 NICKEL OR NICKEL-BASE ALLOY ELECTRODES 51 1 PARAFFIN WAXES, FUlLY REFINED AND SEMI-REFINED 42 PARTS-SPARE AND REPLACEMENT PARTS 55 PETROLEUM - FULLY REFINED PARAFFIN WAXES 42 PHARMACEUTICAL - MEDICINAL AND PHABAMACEUTICAL PREPARATIONS PHOTOGRAPHIC AND CINEMATOGRAPHIC SUPPLIES 44 PIPE - ASBESTOS CEMENT PIPE 9 REFINER COPPER 14 NEFRACTORIES - HIGH ALUMINA BEFRACTORIES 49 REFRACTORIES - MAGNESITE-CHRONE REFRACTOxY[ES- 43 REPLACEMENT PARTS - SPARE AND REPLACEMENT PARTS 55 ROLLERS - COMPACTORS AND TOWED TYPE ROAD ROLLERS (DIESEL POWERED) 52 SILVER NITRATE 21 SPARE AND REPLACEMENT PARTS 55 STEEL - IRON AND STEEL MILL PRODUCTS 4 STENCIL - MIMEOGRAPH STENCIL TISSUE 58 TEXTILE FABRICS 1 TIRES AND TUBES 6* TISSUE - MIMEOGRAPH STENCIL TISSUE 58 TITANIUM DIOXIDE TOOLS - DIAMOND DRILL BITS, WHEELS, AND TOOLS 5 * Cancelled PAGENO="0068" 7384 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY SOtBCE RULINGS -- SR 70-6 SERIES INDEX C0~40DIT1 SR Numoer TRUCKS - MOTOR VEHICLES, TRUCKS AND BUSES---- TURBINES - HYDRAULIC TURBINES VEHICLES - MOTOR VEHICLES VEHICLES - MOTOR VEHICLES, TRUCKS AND BUSES HAEHS - PARAFFIN WAXES, FULLY REFINED AND SEME-REFENED W1[EEIB - DIAMOND DRILL BITS, W}EIELS, AND TOOLS PAGENO="0069" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7385 A'D 11-104 (4-U) AGENCY WAIVER APPLICATION under Section 201.24(cXl) of A.I.D. Regulation 1 PLEASE COMPLETE AND RETURN IN DUPLICATE (INCLUDING ATTACHMENTS) 1. To: TI From: Supplier (Name and Address) Office of Small Business Agency for International Development Department of State Washington, D. C. 20523 3. On behalf of Importer (Name and address) * 5U0057 5UJ0EA~ NO. 24..ROOso aeenovai. IXCIOZa JUNE $O~ 1.71 4. Who is Supplier's (Check One): a. Distributor e. Other Relationship: J b. Dealer ~ (1) Subsidiary, wholly owned c. Agent ~ (2) Subsidiary, partially owned [~J d. Licensed Manufacturer ~ (3) Other Affiliation (attach statement describing) S. For products: (Identify - or attach list - or continue on reverse side) Include USDC Schedule B Non. U Which products are (Check One): a. Manufactured by supplier [~J b. Manufactured under supplier's U.S.-registered trade mark or U.S.-registered brand name of c. Distributed by supplier as the manufacturer's duly authorized exporter for: (country) 7. And imported by above-named importer for (Check One): a. Resale in (country) b. [J Manufacturing, or ~ Processing, or ~ Assembly, and sale of end-product for which importer is supplier's duly authorized distributor in (country) 8. Should A.I.D. grant a waiver based on the documents submitted herewith, the supplier undertakes to provide promptly to the A.I.D. Office of Small Business a record of any changes thereto which might affect the waiver. Two copies of the waiver instrument will be furnished the supplier, one for his records and one to be forwarded to the importer. (Signature - Authorized Official) (Title) (Date) Attachments, per subsections (c) and (d) of Section 20l.24(cXl)ii (check applicable documents) ~J I. Contractual Agreement between Supplier and Importer (4, a- d above) 2. Agreement between Manufacturer and Supplier (6-b or 6-c above) 3. Statement of Other Affiliation between Supplier and Importer (4-c above) PLEASE COMPLETE AND RETURN IN DUPLICATE (INCLUDING PAGENO="0070" 7386 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY AID ~maII Business Memo Tra~ Inform~tion for Am.rican SuppIi.rs -~ ~II~H~ Agency for I Washington, Imai*dly DEPARTMENT OF STATS ntentatlonal Development, OMc. of Small Susima~ D. C. 20523 DUdley 3-7091 S~1 No. 65-3 March 1, 1965 (M/L: Entire WB List) ~AI~E~ OF PU8LICATIQN RE~UI~NTS FOR P~CU1~!~ UNDER CERTAIN SPECIAL SUPPLIER IMPORTER RELATIQt~HIP~ (SBI1 No. 65.3 supersedes in their entirety S~1 No. 59-3 dated April 22, l9~9; Supp1~nt No. 1 to S~1 No. 59-3 dated March 30, 1961, and Supplement No. 2 to S~1 No. 59-3 dated August II, 1961.) Section 602 of the Foreign Assistance Act of 1961 provides that the Office of Small Business, A.I.D., shall make available to suppliers in the United States, and particularly to email independent enterprises, information as far in advance as possible with respect to purchases proposed to be financed by A. I. D. funds. To notify U.S. suppliers of opportunities to furnish co~dities financed under the Foreign Aesistance Programs, A.I.D. requires that the foreign government or private importers, before placing any order or agreeing to place any order covered by a subauthorisation of ~re than $5,000, shall give the A.I.D. Office of Small Business a description of the coemodities desired, stated in terms of tkmited States standards. This description is published in the Small Business Circular, requesting formal competitive bids, (usually in the case of procurement by a government agency) or informal quotations, (usually in the case of procurement by a private importer). The Circular is distributed, without charge, to all interested subscribers. A.I.D. recognizes that certain conditions can exist where publication of proposed purchases in the Small Business Circular would serve no useful purpose, such as where the existence of contractu- ally binding comercial relationships would vitiate competition. Such conditions are recognised in the cossnercial relationships described in A.I.D. Regulation 1, Section 20l.24(c)(l)(i), subsections (a), (b), (c), and Cd). Briefly they comprise those situations when procurement concerns coemodities imported under the following conditions: 1. A registered brand name cosrodity for resale by a regularly authorized dealer of the sole distributor of the brand item; 2. A co~dity for resale by a regularly authorized distributor of the manufacturer, or of the manufacturer's regularly authorized exporter for the destination involved; and 3. A coessodity for assembly, manufacture or conversion, and resale of the end-product, by a regularly authorized importing distributor of the manufacturing supplier or the manufacturer' s regularly authorized exporter for the dtstination involved. Section 201.24(c)(l)(ii) explains how to apply for a waiver when such conditions exist. For the convenience of applying suppliers, the enclosed form has been designed to facilitate submission of the information required to permit ready evaluation of qualifying relationships, and to accelerate processing of all applications. PAGENO="0071" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7387 Unless otherwise indicated on the Agency Waiver when issued, the waiver will remain valid for three years and will appl.- to all repetitive ealee or the comodities to the importer indicated thereon. Renewal, when required, should be requested from the Office of Small Business eu.fficiitly in advance of the expiration date to avoid possible lapse in continuous validity of the waiver. Pertinent changes in the controlling supplier/importer relationship for which an Agency Waiver is issued, however, will automatically nullify its validity, and the supplier is responsible for notifying the Office of Small Business of all such changes. Agency Waivers are issued to the supplier in duplicate, one copy for his records end oni to be forwarded to his importing distributor. The status of waivers issued prior to November 1, 1964, will remain unchanged until/unless notified to the contrary. Additional copies of Agency Waiver ~pp1ication fors~ A~ 11-tC~ aay be obtained upon request £roi the Orrice of SaaU Business. PAGENO="0072" 7388 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY AGENCY WAIVERS OF SMALL BUSYNESS NOTIFICATION REQUIREMENT ISSUED TO SU7PLIERS ON BEHALF OF IMPORTERS OF MEDICINALS AND PHARMACEUTICALS (As OF July 28, 1970) __________ U.S. Suppliers (27) Norwich Pharmaceuticals Abbott Laboratories (Universal Enterprises Merck, Sharp & Dohme Intl. Park, Davis & Co. Richardson-Merrell, Inc. A. H. Robins Co. Inc. E. II. Squibb & Sons, Inc. Wyeth Intl. Ltd. Morocco (1) Merck, Sharp & Dohme Intl. ________ Abbott Laboratories (Universal Enterprises) American Roche Intl. Inc. Burroughs Wellcome & Co. CIBA Pharmaceuticals Co. Park, Davis & Co. Pfizer Corp. Pfizer Overseas G. D. Searle & Co. E. R. Squibb & Sons, Inc. Upjohn Intl. Inc. Whitehall Intl. Inc. Wyeth Intl. Ltd. Thrkey (6) Abbott Lab. (Universal Enter.) American Hospital Supply Corp. (Don Baxter) Intl. Div. Lakeside Laboratories Norwich Pharmacal Co. Pfizer (Corp. & Overseas) E.R. Squibb & Sons, Inc. Agentr (27) Ghana Drug House Ltd. *Abbott Laboratoriec (India) rck, Sharp & Dohme of India Ltd. *Park, Davis (India) Ltd. *Richardson Hindustan Ltd. ENandelwal Laboratories Pvt. Ltd. *Kararnchand Premchand Pvt. Ltd. *Wyeth Laboratories Ltd. Etablissements Pierre My SA *Abbott Laboratories (Pakistan) Merck, Sharp & Dohme of Pakistan *Burroughs Wellcome (Pakistan) *CIBA (Pakistan) Ltd. *Park, Davis & Co. Ltd. *Pfizer Laboratories Ltd. -c-Pfizer Laboratories Ltd. *Searle (Pakistan) Ltd. *Squibb of Pakistan Ltd. The Schazoo Laboratories Ltd. Wyeth Laboratories (Pakistan) Ltd. Wyeth Laboratories (Pakistan) Ltd. *Abbott Laboratories CA Eczacibasi Ilac Sanayi ye Ticaret D.E. V.A. Sanayi ye Ticaret A.S. Eczacibasi Ilac Sanayi ye Ticaret Anonim Sirketi *Pfizer Ilaclari A.S. *E.R. Squibb & Sons Ilaclar A.S. Country (~) Ghana (1) India (7) Pakistan (12) *Affiliated with U.S. Supplier listed. PAGENO="0073" COMPETITIVE PROBLEMS IN THE DRUG INDUSThY 7389 A.I.D. `Expenditures: Total Conmiodities arid Pharmaceuticals Fiscal Years 1968 and 1969 (Values in Millions of' Dollars) 1968 1969 Total Commodities 1,161 1,025 Total Pharmaceuticals Value 31.7 20.6 Percent of total commodities 2.7 2.cY~ Project PMrinaceuticals Value 13.0 5.0 Percent of totals pharmaceuticals ~4l~ 21-~% Non-Project Pharmaceuticals Value 18.7 i~.6 Percent of total pharmaceuticals 597~ 76% PAGENO="0074" 7390 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY REFUND CLAIMS ASSERTED BY AID. AGAINST PHARMACEUTICAL SUPPLIERS TABLE 1.-CLAIMS ON WHICH REFUNDS HAVE BEEN RECEIVED Nature of violation Supplier Date of claim Overpricing Other' Abbott Laboratories Dec. 22, 1961 $5,996.23 Do Feb. 5,1962 1,857.00 Do Sept.29,1969 $209,277.69 Do June 4,1970 162626.55 Allied Biochemical Labs Dec. 7,1961 3,065.00 American Chemical & Drug Sept.20, 1957 1,844.70 Do Sept. 21, 1965 9,449.00 American Cyanamid. Mar. 2,1962 263,383.00 Do July 28, 1967 17,429.29 Do July 28,1967 32,570.71 Do May 24, 1968 3,306.25 Do Aug. 22, 1968 3,255.12 Do Sept. 4, 1961 3,000.00 Arco Espanola, S.A Aug. 22, 1962 37,624.00 Labs Atral. Ltd Apr. 10, 1962 3,599.72 Don Baxter Feb. 12, 1968 3,842.00 Bristol Labs Aug. 30, 1961 41,800.00 Burroughs Wellcome June 26, 1970 3,755.00 Byron Chemical Co. Jan. 2,1967 9,000.00 Ciba of India Sept. 13, 1962 17,545.50 Labs Diamant Oct. 30, 1962 1,010.25 Bank Negara Indonesia May 2,1968 1,515.96 Farmaceutici Biagini Dec. 13, 1961 1,101.94 Do Dec.13,1961 684.50 Jensen-McLean Co Mar. 21, 1956 6,270.00 Lakeside Labs, Inc May 16, 1969 16, 107.50 - Do May 16, 1969 516. 04 Do May 16, 1969 616.00 Do May 16,1969 13,699.00 Eli Lilly, S.A July 6,1967 13,294.20 Do May 1,1970 3,620.00 S. E. Massengil Co May 22, 1969 916.58 Do Sept. 25, 1969 118.62 Do Nov. 3,1969 165.63 Do May 1,1970 5,161.92 Do May 1,1970 15,040.00 E. Merck June 15, 1960 1,426.79 Merck Sharp & Dohme Jan. 22, 1965 905.54 Do Jan. 8,1968 144,970.00 Do Mar. 14,1969 13,460.00 Do June 23,1970 28,540.00 B. Niadas & Fils Feb. 16, 1962 3,445.00 Nisco Labs, Inc May 17, 1966 5,000.00 Olin Mathieson-P. Bauer. Apr. 22, 1965 263,000.00 Organon Nov. 13, 1961 9,485.58 Pacific California Pharm Mar. 24, 1966 4,000.00 Pacific States Labs Apr. 3,1962 8,393.00 Panmed Pharm Jan. 12, 1962 690.00 Do July 23, 1963 9,602.80 Parke, Davis & Co Dec. 13, 1961 32,459.62 Do May 15, 1963 469.50 Do Sept. 9,1963 2,328.10 Do Nov. 12, 1968 1,300.88 Do Dec. 17, 1962 50,744.77 Do Feb. 24, 1965 66.95 Pfizer Corp July 31, 1961 8, 799. 15 Do July 31, 1961 20, 760. 00 Do June 27, 1961 26,286.10 Do Aug. 6, 1963 1, 022. 05 Do Aug. 20, 1963 2, 900. 91 Do Sept. 30, 1964 599. 50 Do Oct. 7,1964 434.94 Do Oct. 27,1964 905.12 Do Dec. 30, 1964 1,824.00 Do June 13, 1961 4,160.00 Do Mar. 30, 1965 500.72 Do Apr. 29, 1965 52.80 Do Dec. 30, 1964 1, 238.45 Do Dec. 30, 1964 864.00 Do July 28, 1967 24, 686. 12 Do June 4,1964 279.92 Do July 29, 1967 220.00 Do July 28,1967 32, 171.00 Richardson-Merrell May 17, 1966 3,687.33 Roussel Corp Sept. 27, 1963 3,003.01 Do Apr. 12, 1966 167, 970. 00 Sandoz, Ltd Aug. 14,1962 1, 082.40. Scherer Apr. 13, 1964 4, 292. 44 See footnote at end of table. PAGENO="0075" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7391 REFUND CLAI MS ASSERTED BY A. I .D AGAINST PHARMACEUTICAL SUPPLIERS-Continued TABLE I-CLAIMS ON WHICH REFUNDS HAVE BEEN RECEIVED-Continued Nature of violation Supplier Date of claim Overpricing Other 1 Schering Corp. Pan Am Sept.29, 1961 $16,729.45 Do Mar. 7,1967 75,525.02 Do Mar. 31, 1967 $16,500.00 Schering Trans Am Mar. 31, 1967 997.50 Schering Corp Jan. 14, 1969 841.20 Searle International Sept. 15, 1960 3,600.00 E. R. Squibb & Zons July 24, 1967 7,717.44 Sterling Products Sept 26, 1961 26, 692. 05 Sterling Drug International May 31, 1962 2,733.30 Do May 31,1962 1,078.00 Supramar Chemicals Nov. 15, 1967 3,063.80 Do Aug. 22, 1968 5,578.81 Swan Chemical Sept 10, 1969 5,280.00 Upjohn International Mar. 22, 1962 14,621.45 Do Mar.22,1962 5,516.38 Upjohn Overseas June 16, 1959 3,865.00 Warner Lambert Jan. 27, 1965 7,646.21 Total Refunds Received 919, 191.05 1,080,868.51 Total claims (44 companies) 61 34 ii ncludes claims for recovery of ineligible payments made for benefit of the importer or other ineligible commissions and from suppliers who shipped ineligible commodities. TABLE 11.-CLAIMS REFERRED TO THE DEPARTMENT OF JUSTICE Date of Supplier claim Nature of violation - Overpricing Other Archifar Pharm Jan. 27, 1964 $49,066.67 Gedeon-RichterPh Mar. 8,1968 802,617.44 Malcolm-Gregg Co Oct. 17, 1961 47,792.26 Timothy Chew &Co Jan. 31,1961 31,364.00 Roussel Corp July 31, 1967 24, 548.00 Do Feb. 23, 1967 208,680.00 Do June 30,1967 56,000.00 Do Aug. 21,1969 32,000.00 Do Aug. 21,1969 180,613.75 Do Aug. 21,1969 49,000.00 Total referred to the Department of Justice 1, 481,682. 12 Total claims (5 companies) 10 TABLE 111.-CURRENT CLAIMS UNPAID AS OF JULY 31, 1970 Date of Supplier claim Nature of violation Overpricing Other Alcon Labs June 9,1970 $2,217.60 F & S International Ltd Apr. 21,1970 63,610.05 Merck, Sharp & Dohme May 20,1970 239,189.00 Wyeth Labs July 1,1970 218, 572.87 Total current claims 523 589 52 Total claims (4 companies) 4 SUMMARY Grand total of pharmaceutical refund claims: Dollars: $4,005,331.20. Number of claims: 109. Number of companies: 53. PAGENO="0076" 7392 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY EXAMPLES OF GUIDANCE AND INSTRUCTIONS REGARDING SELECTED PHARMACEUTICALS 1. Items requisitioned for use in a Technical Assistance project under which finished dosage form pharmaceuticals are eligible: Trisulfapyrimidines and "Combiotic" a. Advice regarding the triple sulfa item: "Based on evaluation of these (sulfa) drugs by the National Academy of Science, National Research Council, the Food and Drug Administration is re- stricting the label claims of nine short-acting sulfonamides to a narrow range of conditions, such as uncomplicated urinary tract infections, trachoma, malaria resistant to antibiotics, and chanchroid. The sulfonamides affected in- clude combinations of sulfadiazine and sulfamerazine, either with or without sulfamethazine. While the product is available and may be purchased from several U.S. sources, the information from FDA is offered in order that the proposed purchase may be reconsidered and evaluated in the light of the very recent information concerning its recommended use." The product was procured following assurance to AID/W that the intended use included treatment of the conditions for which it was recommended by FDA. b. Advice regarding the "Combiotic" item: Mission was told that this pharmaceutical was dropped from the AID eligi- bility because of findings published by FDA and instructed to select a safer and more effective drug. This was done. 2. A commercial importer in Pakistan requested AID/W approval to pur- chase: dihydrostreptomycin for proposed production of "Entox" tablets which would be made by combining dihydrostreptomycin with iodochlorohydroxyquino- line. We instructed our mission to inform the importer and the appropriate agency of the Government of Pakistan that dihydrostreptomycin is a potent antibiotic with potential for causing irreversible diminished hearing and that it is not usually approved for combination with other potent ingredients such as the one proposed. We also advised that the product the importer proposed to make would not be legal for sale in the U.S. under the FDA regulations and that a combination of the two ingredients is consequently ineligible for AID financing. Despite this advice, the Government of Pakistan confirmed its authorization to finance dihydrostreptomycin for the production of "Entox". 3. A commer- cial importer in Colombia requested AID/W approval to purchase, as separate items: streptomycin and potassium penicillin for combination in the produc- tion of veterinary injectables. We instructed our Mission to inform the importer and appropriate agency of the Government of Colombia of the following labeling requirements for streptomycin and potassium penicillin G for veterinary injectables: "Warning: The use of this drug must be discontinued 30 days before treated animals are slaughtered for food." AID/W approval was withheld pending receipt of a statement from the Government of Colombia confirming its desire for AID financing for these two ingredients to produce the veterinary injectables. The proposed purchase was then approved for AID financing. 4. A commercial importer in Colombia requested AID/W approval to pur- chase: streptomycin for production of a fixed-combination consisting of streptomycin and "Leocillin". We instructed our mission to inform the importer and the appropriate agency of the government that streptomycin is a potent antibiotic with potential for causing diminished hearing and that it is not usually approved for combina- tion with other potent ingredients. "Leocillin", the other active ingredient with which the importer proposed to combine streptomycin, is a brand name for penicillin. Because fixed combinations of streptomycin with penicillin for in- jection needlessly subject patients to hazards of both drugs, FDA recommended their withdrawal from U.S. markets. Such combinations are therefore ineligible for AID financing. The Government of Colombia nevertheless advised that AID financing of streptomycin was desired. 5. A commercial importer in Chile requested AID/W approval to purchase: dihydrostreptomycin sulfate for processing into finished dosage form. We requested our mission to obtain information as to the proposed finished products and the strengths, forms and other active ingredients which would PAGENO="0077" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7393 be combined with the dihydrostreptomycin in the finished product. Our mission learned that the dihydrostreptomycin was to be combined in 75 percent strength with chioramphenicol in 100 percent strength base to produce "Chiorostrep" capsules and liquid forms described as an antimicrobian in the treatment of intestinal disorders and also in post-operative treatment of the gastro-intestinal duct. We then informed our mission that: (a) penicillin in combination with dihydrostreptomycin was added to our ineligible list because of dihydrostreptomycin's potential for causing delayed but irreversible deafness. (b) although chioramphenicol is a valuable drug for intestinal infec- tions, such as typhoid and paratyphoid, it is recommended as a last resort rather than as a first line treatment for lesser gastrointestinal disorders, since chloramphenicol not uncommonly produces a reaction which induces serious and fatal blood dyscrasias. (c) dihydrostreptomycin and chlorampbenicol as a fixed-combination compound wou'd not be eligible under AID llnancing and would be illegal for sale in the U.S. Upon receipt of this information, the importer cancelled his request for AID financing of the dihydrostreptomycin. 6. A commercial importer in India requested AID/W approval to purchase: tyrothricin which he proposed to combine with benzocaine to troches (lozenges). We instructed our mission to inform the importer and the appropriate agency of the Government of India that such combinations were outlawed for ship- ment in U.S. inter-state commerce in 1966, because of health hazards resulting from the combination of these ingredients in lozenges. Continued failure of the Government of India to provide our mission with a statement either confirming or cancelling its approval for importation of the tyrothricin for the intended production resulted in a recommendation from our mission that the request for prior approval be denied. Sometime later, another importer requested the same ingredient for produc- tion of the same finished product. Our mission was again instructed to provide the importer and the appropriate agency of the Indian Government with the identical information provided in the first instance. This time the additional information was provided that the only products approved containing tyrothri- cm are topical ointments and solutions and bandages. The Indian Government promptly advised that in view of the U.S. Food and Drug Administration views concerning the finished products, the importer's request should be disapproved. SALES MOVING FROM PARENT TO SUBSIDIARY AND NUMBER OF SMALL BUSINESSES A review of all applications for commodity eligibility for AID financing filed with the Agency during FY 1969 indicates that approximately 83 percent of the dollar value of drug sales under program loans in that year were made by U.S. parents selling to their foreign Subsidiaries. U.S. suppliers selling to non-affiliated importers include at least forty-five small businesses. [Press release, June 20, 19691 FORMER NEW HAMPSHIRE GOVERNOR JOINS AID AGENCY Lane Dwinell, New Hampshire businessman and banker, and a former Gover- nor of the State, was sworn in today (June 19, 1969) as Assistant Administrator of the Agency for International Development in charge of administration. Dr. John A. Hannah, AID Administrator, officiated as the oath of office was administered. The ceremony was attended by Administration and Congres- sional officials. A former Assistant Secretary of State for Administration during the Eisen- hower administration, Dwinell was president of the Carter Churchill Com- pany in Lebanon, N.H. for many years, and president and director of the National Bank of Lebanon from 1961 to 1968. During his two terms as Governor of New Hampshire (1955-59), Dwinell served for two years as chairman of the Federal-State Relations Committee of the National Governors Conference. PAGENO="0078" 7394 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Before his election as Governor, he had served as a member of the New Hampshire Board of Education and was successively elected to the State House of Representatives, where he served as Speaker for two years, and to the State Senate, where he was elected President. Born in Newport, Vermont in 1906, Dwinell received a bachelor's degree from Dartmouth College in 1928 and a master's degree from Dartmouth's Amos Tuck School of Business Administration in 1929. He was employed by General Motors Corporation as a financial analyst from 1929 to 1935. Dwinell has served as a trustee of the University of New Hampshire and of Dartmouth College. He was president of the New Hampshire Manufacturers Association in 1946-47 and a director of the National Association of Manufac- turers from 1963 to 1966. He is married to the former Elizabeth Cushman of New Bedford, Massachu- setts. DEPARTMENT OF STATE, AGENCY FOR INTERNATIONAL DEVELOPMENT, Washington, D.C., June 18, 1970. HON. GAYLORD NELSON, Chairman, Subcommittee on Monopoly, Select Committee on Small Business, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: Thank you for your letter of June 5 in which you re- quest certain information concerning pharmaceutical purchases financed by AID. Part of the information you ask for relates to total expenditures for drugs financed by AID in 1968 and 1969. We attach summary tabulations showing the dollar value of AID expenditures for bulk pharmaceuticals during each of the three successive six month periods commencing on July 1, 1968. The data are broken down into the geographic and product categories provided in our com- puter runs. We do not have available comparable data for the first six months of 1968. For your information, however, the total value of pharmaceuticals paid for out of AiD funds in the latter period, including finished dosage items, was $8,740,309.00. We are also preparing data which you require in connection with specific shipments of the items you list in your attachment as well as a number of other items purchased in large quantities with AID financing. For each desig- nated item, the listings will show the U.S. supplier, the foreign importer and the FAS price paid. This information must, however, be developed for you from individual transaction records. We expect to complete our compilation and forward it to you before July 3. We hope you will find this satisfactory. Sincerely yours, MATTHEW J. HARvEY, Director, Congressional Liaison. (Attachments (3).) PAGENO="0079" PROGRAM ASSISTANCE-AID COMMODITY EXPENDITURE ANALYSIS-WORLDWIDE SUMMARY July 1, 1968, to Dec. 31, 1968 Schedule B commodity Latin Code Description East Asia Vietnam Africa NESA 1 America Total 5120310 Sulfonamide drugs, in bulk $36,270 -$177,540 $45,413 $21,636 5120315 Acetylsalicylic acid, bulk 6,667 5120325 Syn. org. med. chems., bulk, necessary 248301 -17,429 697,679 1,875,342 5120730 Enzymes 21,252 301,222 5148000 I norg. mdcnl. chems., necessary, bulk 1, 614 49, 002 756 6, 941 40, 513 5411010 Vitamin A, bulk 4,927 25,885 651 5411020 Vitamin B1, bulk 19, 521 31 5411030 Vitamin B12, bulk 1,340 25,467 5411040 Vitamin B, Ex. B1 and B12, bulk 12, 568 86,767 12, 166 5411050 Vitamin C, bulk 26, 772 64,226 8, 031 5411060 Vitamins, bulk, necessary 3,547 79, 359 6,303 5413010 Penicillin, bulk 149,755 180, 190 5413025 Streptomycin, etc., bulk 622, 280 9, 957 5413035 Tetracycline, etc., bulk 242,878 234,670 5413040 Antibiotics necessary, bulk -23, 434 34, 174 217, 518 5413045 do 117,237 163,442 939,710 5414000 Vegetable alkaloids and derivatives, bulk 138,764 574 27,973 5415010 Prednisolone bulk 13,547 133,347 5415020 Hydrocortisone, bulk 6,686 5415040 Hormones, necessary, bulk 1,327 73,906 105,976 5416100 Glyosides and derivatives, bulk 1, 590 2, 968 5416230 Other animal products, medicinal 42, 110 36, 483 5416320 Vaccines, for human use 12, 895 5416340 Bacterial products, veterinarian use 16,792 5417002 Medicinal chems., bulk, necessary 227, 475 174, 250 5419930 Pharmaceutical goods, necessary 7,867 4,935 27, 776 -$74,220 6,667 2,803,893 322,474 98, 828 31,464 19, 553 26,807 111,501 99, 030 89, 209 329,945 632, 237 477, 549 228, 259 1,220,390 167,312 146,894 6,686 181,211 4, 558 78, 593 12, 895 16,792 401, 725 40, 579 Total 599, 194 -169,401 756 2,631,716 4,418, 553 7,480,831 1 Near East and South Asia. PAGENO="0080" >- C,, 0 C,, C/) ~ >-~ 0 0 ~ 0 0 >- d 0 0 0 C-) 0 C-) I- C,, (I) C,, C-) 0 7396 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ~ - - c,~or- ~ c-~ N~r-~C-JQ ~CO~ 0c~J~fl COOOr-~ ScOC~ C*4C*4C~J IC~4 CO ~i1~ ~-C/)C~C* PAGENO="0081" C-, = C,, w 0 C,, C/, C~ >- (0 0) - < C~) w d 0 (0 w o, >< >- .~ 0 0 0 C-, LL C-, I- C,, C,, C,) C, 0 0~ COMPETITIVE PROBLEMS IN THE DRTJG INDUSTRY' N C,, 7397 ll~o~0 ~ ~II 40-471 0-71-pt. 18-6 PAGENO="0082" 7398 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY U.S. SENATE, SELECT COMMITTEE ON SMALL BUSINESS, Washington, D.C., September 24, 1970. HON. LANE DWINELL, Assistant Administrator, AID, Department of State, Washington, D.C. Di~n GOVERNOR DWINELL: During the course of the hearing on AID's financing of drugs to foreign countries under the Commercial Import Program, you stated that your agency can finance transactions only at the prevailing market price in the United States. It was pointed out, however, that there were large differences in prices of the same drugs sold to different countries. For example, American Cyanamid charged its Pakistan subsidiary $270/kg. for tetracycline at about the same time it was charging its Colombia subsidiary $100/kg. Wyeth was charging its Colombia subsidiary $800/kg. for oxazepam while charging its Chilean sub- sidiary $186.50 for the same thing. American Cyanamid charged its Pakistan subsidiary almost $14,000/kg. for triamcinolone, while charging its Indian subsidiary less than $8,000/kg. for the same drug. It would be greatly appreciated if you would let me know which of these prices you consider the prevailing market price, on what basis you make this determination, and also the method of securing a market price if the drug is under patent and the product can be secured from only one firm. An early reply will be appreciated. Sincerely yours, GAYLORD NELSON, Chairman. DEPARTMENT OF STATE, AGENCY FOR INTERNATIONAL DEVELOPMENT, Washington, D.C., October 13, 1970. HON. GAYLORD NELSON, Chairman, Subcommittee on Monopoly, Select Committee on Small Business, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: Thank you for your letter of September 24, 1970 con- cerning the prices charged for pharmaceutical ingredients under the AID com- mercial import program. You ask that we answer some further questions which relate to our explanation in the August 6 hearing of AID's maximum price requirements. You list the following different prices which were charged under AID financing in sales of three products by U.S. pharmaceutical suppliers to their importing affiliates: Product and U.S. supplier Importing country Price per kilo Tetracycline: American Cyanamid Pakistan Do Colombia $270.00 100.00 Oxazepam: Wyeth do Do Chile 800.00 187.50 Triamcinolone: American Cyanamid Pakistan Do India 14,000.00 8,000.00 You specifically ask that we let you know which of these prices we consider the prevailing market price, the basis upon which we make this determination, and the method of securing a market price if the drug is under patent and the product can be secured frosu only one firm. We stated at the hearing that our pricing rules, in brief, provide "that a supplier's price may not exceed the pre- vailing export market price for comparable sales of all exporters nor may it exceed the price generally charged by the seller in his comparable sales". The PAGENO="0083" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7399 transactions listed above either have been or are being reviewed on a post audit basis for conformance with these pricing rules. In the case of Oxazepam our post audit has been completed. Laboratorios Wyeth, Inc. were requested under AID Bill for Collection No. 40-514-36828 dated June 30, 1970 to refund to AID overcharges on this product of $31,680.0& plus interest from the date of overpayment. AID informed Wyeth, in connec- tion with the Bill that the maximum price eligible for AID financing was $320.00 per kilo and that this price constituted the prevailing export market price. Our examination included all export sales of Oxazepam by Wyeth. The prevailing export market price was determined based on review of information for all Oxazepam export transactions as to the FAS prices charged and quanti- ties sold in the years 1967 and 1968. rube data include 2,386 kilos purchased by affiliated and non-affiliated importers in eleven countries. We consider that the AID-financed price exceeds the prevailing export market price if a pre- ponderance of comparable AID and non-AID sales are at prices lower than the price charged in the A1D-financed transaction. In this case, we found that $320.00, the prevailing market price, was also the price to a non-affiliated buyer in a developed nation, not receiving AID assistance. You will also note that this is a patented, sole source product which can be secured only from Wyeth and we have, accordingly, reviewed and made our determination based upon information obtained for this product only. While the Agency post audits all AID financed pharmaceutical transactions, the process is time consuming and in the case of tetracycline and Triamcino- lone shipments by American Cyanamid, we do not as yet have data which permit us to know the prevailing market price. These data are being collected and when our information is complete we shall apply the~ standards described above for Wyeth's Oxazepam to these products. At this point, we can only observe that a discrepancy between prices in AID sales does not necessarily establish the actual existence of a price violation. We must examine not only all the sales of the product but the factors which relate to comparability of sales. In the case of tetracycline we will be dealing with a product sold by a number of U.S. exporters. Our examination and determination will include all export sales and will apply to AID financed prices charged by all companies. Our Triamcinolone review, on the other hand, will be limited to the patent holder and his licensees. We hope you will find this information satisfactory. When we have com- pleted our review of the Triamcinolone and tetracycline transactions we will notify you of the results. Sincerely, LANE DWINELL. DEPARTMENT OF STATE, AGENCY FOR INTERNATIONAL DEVELOPMENT, Washington, D.C., November 1~, 1970. HON. GAYLORD NELSON, Chairman, Monopoly Subcommittee, Select Committee on Small Business, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: In accordance with my letter of September 8, 1970, I am pleased to transmit the balance of the information prepared in response to the request of the Subcommittee on Monopoly of the Select Committee on Small Business during the hearings on August 6, 1970. Specifically, the informa- tion transmitted herewith in duplicate covers the following: Pages 7346-7347 "Lowest domestic price and lowest export price from the U.S. at which drugs listed on the 4-sheet summary are sold." Data provided cover prices on selected pharmaceuticals as reported to AID by U.S. manufacturers named on the attached listing. Page 7351 * "Price comparisons in importing countries of raw drugs and of finished products." The Subcommittee requested information relating to the prices in importing countries of bulk raw drugs financed by AID and of finished products manu- PAGENO="0084" 7400 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY factured from such bulk raw drugs. The attached table lists both the unit price to the pharmacists and to the consumer for finished dosage forms manufactured from 23 selected AID financed ingredients. I have also attached for your ready comparison, a copy of a table summarizing information previously given to the Subcommittee indicating prices for the bulk ingredients financed by AID. With respect to page 7347, I bad transmitted on September 8 a list of small business companies that supplied pharmaceuticals under AID financing during fiscal years 1908 and 1969. I now find that three of the companies included in that list do not qualify under our definition of "small business" firms, i.e., that (a) it is not dominant in its field of operations and, with its affiliates, employs fewer than 500 employees, or (b) is certified as a small business concern by the Small Business AdminiStration. The firms to be deleted are: 1. Carter Wallace N.S. Inc. 2. International Chemical Corporation. 3. A. H. Robbins Inter-American Corporation. Please let me know if I can be of further assistance. Sincerely yours, LANE DWINELL. (Enclosures.) AID FINANCED PRICES FOR CERTAIN PHARMACEUTICAL INGREDIENTS (1968-69) Unit price Product Country per kilo Kilogram Ampicillin trihydrateL Colombia $420.00 Benzathazine Chile 215.75 Benzatha7ine penicillin Pakistan 45.60 Benzathazine bicillin Colombia 160.00 Penicillin-G Chile 294.50 Chlorcyclizine hydrochloride Turkey 155.00 Chlormethazone Brazil 70. 00 Do Colombia 70.00 Chlordiazepoxide granulate Pakistan 245.00 Cyproheptadine hydrochloride do 1, 600. 00 Do Colombia 1,800.00 Do India 1,060.00 Dexamethesone glucocorticoid Pakistan 27. 50 Do Colombia 27. 50 Dexchlorpheniramine maleate do 650. 00 Diazepam granulate Pakistan 99. 20 Doxycycline Pakistan 1,750.00 Do Colombia 2,250.00 Ethoheptazine citrate do 150.00 Mothylcycline hydrochloride Pakistan 350.00 Do Colombia 450.00 Na!idixic acid Brazil 94.00 Do Colombia 94.00 Oxazepam Chile 187. 50 Do Colombia 800.00 Chlortetracycline do 100.00 Demethylchlortetracycline Pakistan 405.00 Do Colombia 250.00 Oxytetracycline Pakistan 100. 00 Do Colombia 100.00 Rolitetracycline do 550.00 Tetracycline hydrochloride Pakistan 270. 00 Do Colombia 150. 00 Gram Methylprednisolone do 5.10 Triamcinolone (glucocorticoid) Brazil 8.00 Do Pakistan 13.93 Do Colombia 12.00 Do India 7.96 Triamcinolone acetate Pakistan 32.92 Do Colombia 36.00 Do India 7.96 Trihexyphendyl hydrochloride Brazil .30 Do Pakistan 1.70 Do Colombia 1.80 PAGENO="0085" FINISHED DOSAGE PRICES-PHARMACEUTICALS MANUFACTURED FROM SELECTED AID FINANCED INGREDIENTS Finished product ---------------------------- Importer and country Generic name Trade name Dosage form Unit packaging to Strength pharmacist Current unit price to pharmacist Unit packaging to consumer Bristol, Colombia Ampicillin Pentraxyl Capsules 250 mg 12 per bottle $2992 12 per bottle $3990. Do do do Vial do 250 mg. vial $0.538 250 mg. vial $0718. Do do do Bottle per6O cc do 60cc bottle $1.69 60cc bottle $2254. Wyeth, Chile Benzathazine Vial 1,200,000 units Vial $0.59 vial Vial $0.71. Do do do 2,400,000 vial do $0.96 vial do $1.17 vial. Wyeth, Pakistan Benzathazine pencillin Penidure, LA Injections 600,000 units 1 cc vial $0.79 vial 1 cc vial $0.94 vial. Do do do do 1,200,000 units do $1.01 vial do $1.18 vial. Wyeth, Colombia Benzathazine bicillin Benzetacil, LA Bottle 600,000 units Bottle $0361 bottle Bottle $0536 bottle. Do do Benzetacil fortified do 300,000 units do $0342 bottle do $0493 vial. Do do Benzetacil, LA do 2,400,000 units do $0999 bottle do $1 440 bottle. Do do Benzetacil 6-3-3 do 600,000 units do $0566 bottle do $0816. Do do Benzetacil, LA do 1,200,000 units do .do do do. Wyeth Chile Penicillin G Bicillun Vial 600 000 units Vial $0 29 vial Vial $0 34 vial Abbott, Turkey Chlorcyclizine HCL Diparalene Tablet 50 mg. 25 per tube $0.40 25 per tube $0.55. Do do do Cream 6 percent 30 gr. tube $03033 30 gr. tube $04166. (Winthrop) Sydney Ross, BraziL - Chlormethazone Fenarol Tablet 200mg 12 tabs per box... $0.33 box 12 tabs per box_~ $0.48 box. Do do do do do 48 tabs per box - - $1.54 box 48 tabs per box - - $2.06 box. Do do Beserol do 100 mg 20 tabs per box - - $0.89 box 20 tabs per box - - $1.20 box. Do do do do do 100 tabs per box - $4.43 box 100 tabs per box - $5.69 box. Sydney Ross, Colombia do Fenarol do 200 mg 48 tabs per box - - $0998 box 48 tabs per box - - $1536 box. Do do Beserol do 100 mg 100 tabs per box~ $3.12 box 2 tab, strip $0096 strip. Merck, Pakistan Chlorodiazepoxide granu- Librium Tablet 5 mg 3 per bottle $ .83 bottle 3 per bottle $1.04 bottle. late. Do do do do 10 mg 25 per bottle $1.08 bottle 25 per bottle $1.35 bottle. Do Cyproheptadine HCL Periactin do 4 mg 20 per bottle $0.71 bottle 20 per bottle $0.83 bottle. Do do do do do 100 per bottle $2.74 bottle 100 per bottle $3.23 bottle. Do do do Sirup 2 mg in 5 ml 114 ml. bottle $0.86 bottle 114 ml. bottle $1.02 bottle. Do do do do . do 456 ml. bottle $2.95 bottle 456 ml. bottle $3.47 bottle. Merck, India Cyproheptadine HCL do Tablet 4 mg 10 x 10's 100 per $2.34 bottle 10 x 10's $2.66 bottle. bottle. Do do do Sirup 2 mg. in 5 ml 114 ml. bottle $0.73 bottle 114 ml. bottle $0.83 bottle. Do do do . do do 228 ml. bottle $1.31 bottle 228 ml. bottle $1.57 bottle. Do Cyproheptadine HCL and Peridecadexa+Cypro - - - Tablet 4 mg.-.25 mg.- 10 x 10's 100 per $4.10 bottle 10 x 10's $4.66 bottle. Dexamethasone. 4 mg. bottle. Do do do Elixir(sirup) 2 mg. in 5 ml. 57 ml. bottle $0.41 bottle 57 ml. bottle $0.46 bottle. .25 mg.-2 mg. Current unit price (.:~ to consumer 0 0 w z PAGENO="0086" C-, C,, a a C-) a a C,, 2 0 a C-, 0 5 C-) 0 C-) S = `I) C-) a- C, C,, 0 a a = C,, 7402 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ~ E-~ ~ -~2-~2~ ~ E 0 C) ~. ~ 0 ~ C,) E a E :E :~ :~ ~ EE'EEC, EOaE a a <~cQ, ~- ~ ~ ~ ~ ~s c, :~ I -~ ~a~a ~aaa a E C, E PAGENO="0087" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7403 ;;o!.f ~ ( 22O.~° ~j~pg~ B~B ~o~j ~ ~ :oa E~Edd~- :~ H~ ~~:E~:HH E C.) ~ C.) ~ : ood ~dddd~d0dd~ C.) C.) PAGENO="0088" FIN SHED DOSAGE PRICES--PHARMACEUTICALS MANUFACTURED FROM SELECTED AID FINANCED INGREDIENTS-Continued Unit Current unit Unit Current packaging to price to packaging to unit price pharmacist pharmacist consumer to consurr~er Bristol, Colombia_. Politetracycline Bristacin A I.v Vials 150 mg 150 mg. vial $0388 vial 150 mg. vial $0517 vial. Do do do .do 350 mg 350 mg. vial $0806 vial 350 mg. vial $1075 vial. Do do do do do do $0836 vial do $1,115 vial. ~ Cyanamid, Pakistan Tetracycline HCL Achromycin Capsule . 250 mg 8 per bottle $1.35 bottle 8 per bottle $1.59 bottle. ~ Do .do do do do 16 per bottle $2.19 bottle 16 per bottle $2.5~ bottle. Bristol, Pakistan Tetracycline HCL Tetrex do do 8 per bottle $1.62 bottle 8 per bottle $1.91 bottle. .~ phosphate complex Cyanamid, Colombia. Tetracycline HCL Achromycin do do 100 per bottle $10072 b3ttle 100 per bottle $14137 bottle. 3 Do do Achromycin Pediatric~... Drops 100 mg. per cc 10cc. bottle $0471 bottle 10cc. bottle $0662 bottle, ~ Do do Achromycin Bottle 50 mg. per 3 gr 36 gr. bottle $0737 bottle 36 gr. bottle $1,035 bottle. t~ Do do Achromycin Unguento Tube 1 percent 3.5 tube (gr.) $0091 tube 13.5 tube $0128 tabe. ~i (ears and eyes) Do do Achromycin Topical do 3 percent 14.2 gr. tube $0266 tube 14.2 gr. tube $0373 tube. rj.s Do do Achromycin Troches Tablet 15 mg 100 per boo $1049 boo 100 per boo $1472 boo. Cyanamid, Brazil Triamcinolone glucocorticoid Ledercort Tablet 4 mg 10 per vial $1.66 vial 10 per vial $2.25 vial. ~ Do do do do 8mg 5 per vial $1.51 vial 5 per vial $2.04 vial. ~ Cyanamid, Pakistan do do . do 4 mg 10 per bottle $2.19 bottle 10 per bottle $2.58 bottle. Do do do do do 30 per bottle $5.91 bottle 30 per bottle $6.95 bottle. ~ Do - do Ledercort D Cream 0.10 percent 15 gr. tube $0.56 tube 15 gr. tube $0.66 tube. Cyanamid, Colombia Triamcinolone alcohol Ledercort Tablet 4 mg 10 per bottle $1102 bottle 10 per bottle $1547 bottle. Do do do do 8 mg do $1277 bottle do $1,792 bottle. Do Triamcinolone acetonide...... Ledercort D Ointment 0.01 percent 28.4 gr. tube $0619 tube 28.4 gr. tube $0.87 tube. ~ Do do do do do 56.8 gr. tube $1083 tube 56.8 gr. tube $1.52 tube. ~ Cyanamid, India Triamcinolone alcohol Ledercort Tablet 4 mg 10 per bottle $1.02 bottle 10 per bottle $1.17 bottle. ~ Do Triamcinolone Diacetate.... - Ledercort Diacetate Pacentecal 25 mg. per mL 1 ml. vial $1.05 vial 1 ml. vial $1.20 vial. ~ Do Triamcinolone acetonide...... Ledercort with Neomycin.. Cream 0.1 percent 5 gr. tube $0.39 tube 5 gr. tube $0.44 tube. Do do Ledercort topical Ointment do do $0.37 tube do $0.41 tube. Cyanamid, Brazil Trihexypherdyl Hydro- Artane Tablet 2 mg 100 per vial $0.64 vial 100 per vial $0.86 vial. chloride. Do do do do 5 mg do $1.34 vial do $1.81 vial. Cyanamid, Pakistan do Pacitane do 2 mg 100 per bottle $1.73 bottle 100 per bottle $2.04 bottle. Cyanamid, Colombia do Artane do do do $1,273 bottle do $1787 bottle. ~ Finished product Importer and country Generic name Trade name Dosage form Strength Source: USAID mission in importing countries. PAGENO="0089" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7405 (Upon the direction of the chairman, information pertaining to the subject of the hearings is included ) [Reprinted from Economics & Political Weekly vol II No 26 July 1 1967] PHARMACEUTICAL COMPANIES IN MAHARASHTRA-FINANCIAL STRUCTURE AND OWNERSHIP (By R. K. Hazari and H. G. Lakhani) This paper analyses the balance sheets, profit and loss accounts, shareholders' lists and directors' particulars of 88 pharmaceutical private limited companies registered up to the end of March 1962 in Maharashtra under the Companies Act. The authors' purpose is to explore and present facts relating to a small but qualitatively important part of the corporate sector. The data presented here reveal that most of the pharmaceutical manufactur~ ing business in Maharashtra is under foreign control, mainly American, British and Swiss. In 1964 the wholly foreign owned companies were earning a cash profit (profit after tax but before depreciation) which would bring their in- vestment back within two years. Foreign majority companies were taking a little more than four years to get back their investment. [This study was completed as the first phase of a research project on Finan- cial Structure and Ownership of Private Limited Companies in Maharashtra at the Centre of Advanced Study in Economics, University of Bombay. Indu Kale, V D Lall, and K K Subrainanian helped in the tabulation of data. Thanks are due to the Government of India, Department of Company Affairs, for per- mission to inspect the necessary documents with the Registrar of Companies, Maharashtra State, Bombay.] Most of the pharmaceutical companies in India are registered in Maharashtra State, almost all of them in Bombay City, and most of these, in turn, are pri- vate limited companies. Some of the larger and foreign controlled among these have recently converted themselves into public companies and have offered their shares to the public; this development took place in most cases after 1964, the cut-off year for this study. This paper analyses the balance sheets, profit and loss accounts, shareholders' lists and directors' particulars of 88 pharmaceutical private limited companies registered upto the end of March 1962 in Maharashtra under the Companies Act. Its purpose is to explore and present facts relating to a small but quali- tatively important part of the corporate sector. No attempt is made to arrive at policy conclusions regarding the pharmaceutical industry or the role of foreign capital in it. While following the analysis of data, it should be remem- bered that several leading pharmaceutical companies carry on non-pharma- ceutical manufacturing and/or trading activities also, e g, toilet products, dye- stuffs, chemicals, etc. It is not possible to isolate data for these activities from pharmaceutical business. FOREIGN CONTROL PREDOMINATES Of these 88 companies in 1964, 9 wholly foreign owned companies accounted for 35 per cent of total assets and 42 per cent of sales (net of excise). An- other 15 companies with foreign majority ownership had 50 per cent of total assets and 40 per cent of sales. Thus, 24 foreign controlled companies had 85 per cent of total assets and 82 per cent of total sales (Table 1). There were, in 1964, 5 Indian majority companies (including one fifty-fifty company) which accounted for 9 per cent of total assets and 11 per cent of sales. In other words, the 29 companies which had foreign control or financial participation accounted for roughly 93 per cent of the assets and turnover of the 88 companies. Of the 59 wholly Indian owned conipanies, 39 had accumulated losses. The remaining 20 companies accounted for 5 per cent of total assets and 6 pen cent of sales. SIZE DISTRIBUTION There is a comparable skewness in the size distribution of companies (Table 2). Nearly all companies with foreign control or participation have assets ex- ceeding Rs 10 lakhs each, and 17 have assets in excess of Rs 1 crore each. Only 11 (including 3 with accumulated losses) wholly Indian owned companies have PAGENO="0090" 7406 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY assets exceeding Rs 10 lakhs each, and none had crossed the Rs 1 crore barrier through 1964. AGE DI5TRIBUTION The industry is largely a post-war development. Only 15 (including 9 wholly Indian owned) companies were registered before 1946 (Table 3). Most of the larger companies with foreign control or participation were registered in 1946-50 and 1955-59. There has been a considerable growth in the number of wholly Indian owned companies but most of these are in trade, not manu- facture. FOREIGN PRODUCER, INDIAN TRADER Of the companies with foreign control or participation, the majority in terms of numbers, assets and turnover is in manufacture (Table 4). Indian owned companies are mostly in trade. Among trading companies (defined as those having nil or negligible plant and machinery), the wholly Indian owned ac- count for roughly one-half of assets and turnover. Among manufacturing com- paiiies, their share is 4 per cent or less. TABLE 1.-OWNERSHIP DISTRIBUTION OF COMPANIES, 1964 Percentage Number of Total assets of total Category Ownership companies (Rs lakhs) assets Sales' (Rs lakhs) Percentage of total sales A Wholly foreign owned 9 22, 17 34.8 B Foreign majority, Indian minority~.. 15 231, 97 50.1 C Indian majority, foreign minotity~. 5 5,45 8.5 Dp Wholly Indian, making profits 20 2,97 4.7 Di Wholly Indian, maing losses 39 41,22 1.9 26, 19 25,00 7,04 3,78 54 41.9 40.0 11.3 6.0 0.8 Total 88 263,78 100.0 6 62,55 100.0 I Net of excise duty. 2 Including accumulated losses of Rs 11 lakhs. 3 Figure for 18 companies whose total assets amounted to Rs 2,24 lakhs. 4 Including accumulated lo~ses of Rs 54 lakhs. 5 Including accumulated losses of Rs 65 lakhs. 6 Figure for 85 companies whose total assets amounted to Rs 63,05 Iakhs. TABLE 2.-SIZE DISTRIBUTION OF COMPANIES, 1964 Total assets (Rs `000) A B C Dp Dl Total I Including one with total assets of Rs 10,000 for which profit and loss account is not available. TABLE 3.-AGE DISTRIBUTION OF COMPANIES Period of Registration A B C Dp Dl Total Before 1946 3 1 2 4 5 15 1946-1950 1951-1954 1955-1959 1 1 1 6 1 4 1 8 10 4 8 25 7 24 1960-1962 Total 1 1 3 12 17 9 15 5 20 39 88 OtolO 1 1 11 to 20 2 2 21 to 50 " L~ 5ltolOO 1 2 8 11 101 to 200 3 9 12 201 to 500 6 8 16 SOltol,000 1 1 4 4 1,001 to 5,000 2 3 6 3 14 5,00ltolO,000 1 2 2 2 7 Above 10,000 6 9 2 17 Total 9 15 5 20 `39 1 88 PAGENO="0091" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7407 MANAGEMENT Only 1 company each is managed by managing agents and manager (Table 5). There are managing directors in 17 out of 24 foreign controlled companies and, in all, 48 out of 88 companies. The remaining 38 companies, including 9 wholly Indian owned, are deemed to be managed by their boards of directors since they have no managerial personnel within the meaning of the Companies Act. The 88 companies have 403 directors between them (Table 6). The 24 foreign controlled companies have 137 directors, of whom 61 are Indian and 76 are foreigners; they have only 2 women directors. The proportion of Indian di- rectors is fairly high in both, wholly foreign owned companies (44 per cent) and foreign majority companies (45 per cent). Among them, Raptakos Brett has 8 Indians on its 10-member board,' Cilag Hind 5 out of 7, Cyanamide 2 out of 4 and Merck, Sharp Dohme 3 out of 5. Out of the 61 Indian directors in these companies, 37 appear to be company executives in service, and the rest are merchants, financiers, solicitors, etc. Foreign directors are not altogether missing in the category of Indian con- trolled companies but their number is negligible. On an average, the 59 wholly Indian owned companies have about 4 directors each, against 6 in those with foreign control and participation. Women directors are, curiously, quite promi- nent; 46 out of a total of 238 directors or 19 per cent are women. One company, Lenec Institute, has an all-female 11-member, board. OWNERSHIP The over-all pattern of ownership of share capital is heavily weighted with the large size of foreign controlled companies. In 1964, the 88 companies had a total share capital of hIs 14.45 crores, owned by 817 shareholders. The 24 foreign controlled companies among these accounted for a share capital of hIs 12.26 crores, owned by 161 shareholders (Table 7). TABLE 4.-OCCUPATIONAL DISTRIBUTION OF COMPANIES, 1964 [Amounts in Rs Iakhsj A B C Dp Dl Total Manufacturing: Number of companies 7 11 4 Total assets 21, 31 1 31, 15 5, 44 Percentage (35.2) (51.5) (9.0) Total sales 24,34 23,77 7,04 Percentage (42.9) (41.9) (12.4) Trading: Number of companies 2 4 1 Total assets 86 82 1 Percentage (26.1) (24.8) (0.3) Total sales ~1,85 1,23 - Percentage (32.1) (21.3) (-) ` 11 1, 96 (3.2) ~l,39 (2.4) 9 1,01 (30.6) 2,39 (41.4) 9 42 2 62 60, 48 (1.0) (100.0) 24 56,78 (O.4~ (100.0) 30 46 ~6O 3,30 (18.2) , (100.0) 630 " 5,77 (S.2) (100.0) 1 Including accumulated losses of Rs 7 lakhs. 2 Including accumulated losses of Rs 28 Iakhs. 3 9 companies only. 4 Including accumulated losses of Rs 26 lakhs. One company (May and Baker) has only commission income and no sales. 6 29 companies. . TABLE 5.-PATTERN OF MANAGEMENT (Number of Companies) A B C Op Dl Tota Managing director 6 11 3 10 18 48 Board of directors 3 4 2 9 20 38 Managing agent 1 1 Manager 1 1 Total 9 15 5 20 39 88 PAGENO="0092" 7408 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY TABLE 6.-PATTERN OF DIRECTORSHIPS' A B C Op Dl Total Number of companies Number of directorships of which - 9 55 15 82 5 28 20 89 39 149 88 403 (a) Indian 24 (b) Foreign 31 (I) Males 55 (ii) Females 37 45 80 2 22 6 26 2 87 2 79 10 147 2 113 36 317 86 353 50 `Including alternate directors. Taking all the 88 companies together, 70 per cent of the share capital is owned by foreign companies and another 3 per cent by foreign individuals. Indian (mainly industrial and finance) companies hold 14 per cent, Indian individuals 12 per cent, and trusts less than 1 per cent. Though all the 88 companies studied are private, the major part of the share capital held by Indian companies as shareholders comes from public companies. Among Indian individual shareholders, the breakdown by linguistic/com- munal groups indicates that Gujarati-speaking Hindus/Jams and Parsis are the largest single category of owners, followed by Maharashtrians (among whom solicitors are prominent), Marwaris, Southerns and Christians, in that order. The individual shareholding is almost entirely urban, and that, too, largely from Greater Bombay, which is hardly surprising because the companies are highly localised in the metropolis. Slightly less than three-fifths of the indi- vidual shareholding is in the hands of males, and more than two-fifths is held in the names of women. Most of it, four-fifths, is registered in single names, and only one-fifth in joint names. Only a little more than 8 per cent of the total share capital is owned by di- rectors and their families in their own names; this includes the holdings of directors who are, for instance, solicitors, and are associated with the com- pany only in a professional capacity. Slightly more than 3 per cent of the share capital is owned by persons whose connection with the controlling fam- ilies or interests could not be identified; for private limited companies whose share capital is owned largely by corporate bodies, this is a fairly high pro- portion. FOREIGN PARTICIPATION The shareholding in wholly foreign owned companies is predominantly corpo- rate. What little is owned by foreign individuals is largely in Raptakos Brett, through and executor and trustee holding. It is difficult to trace the ultimate ownership and control of foreign companies but it appears that, in this cate- gory, most of the companies are British: Boots, British Drug, Burroughs Well- come, and Glaxo. Abbott and Pfizer are American, Franco-Indian and May and Baker are French and Raptakos Brett is Greek. The foreign shareholding in foreign majority companies is 72 per cent of total share capital, and most of the balance, 23 per cent, is owned by the com- panies of Indian partners. Among these 15 companies, only 3, Boehringer Knoll, W T Suren, and Evans are British-controlled. The first two are with Rallis (i e, Tata Fison) participation and the third is part of the Glaxo group. The Swiss control 4 companies-Anglo-French Drug (Roche-Tata). Ciba (Ciba- Kasturbhai), Roche (Roche-Tata) and Sandoz (Sandoz-Shaw Wallace-Jasden- wala). The Americans control 6-Cilag Hind (Johnson-Premchand), Cynamide (Cynamide-Kasturbhai), Johnson and Johnson (Johnson-Premchand), Merck, Sharpe and Dohme (Merck-Tata), Parke Davis (Parke Davis-C H Bhabha~ and Wyeth (American Home-Maheshwari, a close associate of Birla). The Germans control 2-Bayer India (Bayer-Ghia) and German Remedies (Bauer). In companies with Indian majority and foreign minority, the foreign share- holding is 45 per cent, and the remainder is divided between Indian companies and individuals. Among these five companies, two, Excel (Shroff, Tata-Fison) and Francis Klein (Binani-Klein) have British participation and another two, Alta (Dhote-Monsanto 50:50) and Geoffrey Manners (Birla/Maheshwari-Amer- ican Home), have American participation. The fifth, Hoechst Pharmaceuticals is a joint venture of Mallya of Bangalore (United Distilleries) and Hoechst of Germany. PAGENO="0093" U) 0 - F- - F- COMPETITIVE PROBLEMS IN - THE DRUG INDUSTRY F- E < ~-~z ~ `~ a °0aat~a)~% ~ - ~°°° ~ ~ ° ~ ~e.4 ~~COC~JOO ~ QU) ~ - ,-~- < ~ ~ < C)C) ~, H `-,~ ~ ~-, :::-`-` ~-, -\-~-,~-- -~ ~-`r-' C~) < ~oo ~ ~ ~ ~ a V.-, 0 cz~ < 0) ~ ~. )D w `-~)-- a. -~ < -~ < ~L ~ 7409 E ~ .2 PAGENO="0094" 7410 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY In the aggregate, 10 companies with American control or participation ac- count for 35 per cent of the total assets and 38 per cent of the sales (net of excise) of the 88 companies studied. Another 10 companies with UK control or participation have 26 per cent of assets and turnover; these include Glaxo, by far the largest company in the sample, which had total assets exceeding Rs 11 crores in 1964. The 4 companies under Swiss control have 23 per cent of total assets and 18 per cent of sales. Three ëompanies associated with West Germany have 6 per cent of assets and sales. Among foreign associated com- panies, the companies under Swiss control appear to have a low ratio of sales to total assets (Table 8). INDIAN OWNED COMPANIES Those 20 of the 59 wholly Indian owned companies which had no accumu- lated losses in 1964 are owned entirely by individuals, mainly Gujarati Hindus/ Jams and Parsis, Maharaslitrians and Christians resident predominantly in Bombay (Table 7). About 60 per cent of the holding is with males and the remaining 40 per cent with females. Most of the shareholding is in single names. Nearly 90 per cent of the share capital comes from directors and their families. There is some inter-corporate holding in the remaining 39 wholly Indian owned companies which had accumulated losses in 1964, but this comes to only 18 per cent of total share capital and originates almost wholly from service (i e, trading and real estate) companies-mostly public companies. Trusts, which do not figure as shareholders in any other category, contribute 15 pert cent of share capital. Individuals, nevertheless, account for more than two- thirds of share capital. Most of them are Gujarati Hindus/Jams, Maharash- trians and Southerners, with a sprinkling of Marwaris, again resident pre- dominantly in Bombay. The proportion of shares held by females is somewhat lower in this category as compared with others, though it has a much higher frequency of women directors (see Table 6). Slightly less than one-third of the share capital contributed by individuals, i e, one-fifth of total share capital, comes from persons who are neither directors nor (so far as could be identi- fied) members of directors' families. BALANCE SHEET STRUCTURE In 1964, private pharmaceutical companies had 22 per cent of their total funds from share capital, 25 per cent from reserves, 18 per cent from loans,, and the remaining 35 per cent from current liabilities and provisions (Table 10). PAGENO="0095" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7411 The significance of reserves varied considerably between the different cate- gories of companies. Foreign controlled companies had, in proportionate terms, much larger reserves than Indian owned companies, which depended to a much greater extent upon loans. Moreover, wholly foreign owned companies got a considerable part of their relatively small loans from associate companies abroad; this source of funds was a poor second to banks in foreign majority companies. Loans from foreign associates amounted to Rs 61 lakhs in wholly foreign companies and Rs 153 laklis in foreign majority companies. Indian owned companies tended to rely in large measure on unsecured rather than secured loans, mainly from sources other than banks. Of the total funds in 1964, 37 per cent were utilised for fixed assets, 31 peil cent for inventory, 22 per cent for receivables, and 9 per cent for cash. Indian majority and wholly owned companies had, as compared with foreign con- trolled companies, a smaller proportion of fixed assets and a larger proportion of receivables. TABLE 8.-RATIO OF SALES AND ASS ETS OF FOREIG N ASSOCIATED COMPANIES T 0 TOTAL SALES AND ASSETS Country of foreign control or participation United States United Kingdom Switzerland West Germany Total Numberof companies 10 9 4 Total assets(Rs Iakhs) 22,55 16,34 14,79 Percent of 88 companies (35.4) (25.6) (23. 2) Total sales (Rs lakhs) 24, 02 16, 63 11, 41 Percent of 88 companies (38. 4) (26. 6) (18. 2) 3 3,69 (5.8) 3, 81 (6. 1) 26 57,37 (90.0) 55, 87 (89. 3) TABLE 9.-FOREIGN INVESTMENT IN SAMPLE COMPANIES . [Rs croresi - Wholly Foreign foreign majority (9) (15) Foreign minority (5) Total (29) (1) Paid-up capital 4.86 15.71 (a) Cash (1.46) (5. 10) (b) Bonus shares (1.37) (c) Other noncash (2.03) (0.61) (2) Reserves 7.48 `4.99 (3) Loans from associates 0. 61 1. 53 20.41 (0.23) (0.16) (0.02) 20.37 0. 07 10.98 (6.79) (1.53) (2.66) 12.84 2. 21 Total 12.95 12.23 0.85 26.03 1 72% (being foreign holding of total share capital) of relevant aggregate amounts. 2 45% (being foreign holding of total share capital) of relevant aggregate amounts. PAGENO="0096" * 7412 COMPI~TITIVE PROBLEMS IN THE DRUG INDUSTRY C - OC~ c~ cd cd cd co ~ ~ -~ ~ ~N-~c'Jr--c'4 nc'jcOC'4cO~ CI) < _J o_ - U~ ~ ~ = (_) ~ ~ ~ dcdr~cd.c d.c~r.~dcdcr CI) ~ t) I. co ~n ~cc~ ~ c~ ~ ~~&dcocdcd~6 cd~Z~cdcdd-~ ~~z:°~ c~j~$~ 0~ U 6 < PAGENO="0097" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7413 ~00 -00 (b00-~o 00 ~00~C) 0) ~ c~i ~ r-~- - 0)~ 00 - - ~ C)J C'~ CO ~ 00 N~~) 0) E E `I- `~. C 6 ~ ~ 40-471 0-71--pt. 18-7 PAGENO="0098" 7414 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY C-) H' o a' E ,-~-dd ~ ~ o 0~ ~ ~ :~ 0 0 ~ C-) ~- ~ ` a' : H ~ w c_) (~j~c)C~4C'4 0) ~` E ~ C-) PAGENO="0099" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7415 r-. r- ~fl ~ ~_ ( .~ .2~ `- 0 0 - C~ c~~) ~C) 00 .~ ~ 0 0 0 PAGENO="0100" 7416 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY TABLE 12.-BREAK-DOWN OF VALUE OF PRODUCTION 1964 [Percentages] Total A B C Dp (1) Profit before tax 19.8 23.2 19.7 14.1 (2) Depreciation 2.6 1.8 3.7 2.2 (3) Interest: 1.2 0.5 1.7 1.2 (4) Managerial remuneration 0.4 0.2 0.4 0.4 (5) Royalties 1.0 1.4 0.8 (6) Labour 13.1 15.5 11.9 10.3 7.8 1.0 2.1 1.3 1.0 11.2 Gross value added 38.1 42.6 38.2 28.2 24.4 TABLE 13.-SOURCES AND USES OF FUNDS FOR 31 COMPANIES 1958-64 [Amounts in Rs Iakhsj Wholly Wholly Indian foreign Foreign Indian making owned majority majority profits (7) (8) (4) (12) Total (31) SOURCES (1) Reserves: 229 387 65 9 690 (a) Development rebate (23) (37) (10) (1) (71) (b) Other free (135) (209) (46) (7) (397) (C) Specific (71) (141) (9) (1) (222) (i) As percent of total 29.6 36.7 17.1 1L7 30.2 (2) Capitalized reserves (bonus shares) 17 33 50 (ii) As percent of total 2.2 8.7 2.2 (3) Depreciation 92 145 48 9 294 (iii) As percent of total 11.9 13.7 12.6 11.7 12.9 (4) Internal resources (1+2+3) 338 532 146 18 1034 (iv) As percent of total 43.7 50.4 38.4 23.4 45.3 (5) Paid up share capital 105 106 24 16 251 (a) Cash subscription (95) (66) (22) (16) (199) (b) Noncashexcludingbonusshares (10) (40) (2) (52) (v) As percentof total 13.6 10.0 6.3 20.8 11.0 6) Loans 33 276 144 29 416 (a) Secured (-27) (158) (138) (23) (292) Banks (-27) (158) (135) (22) (288) Othercompanies (3) (3) (b) Unsecured (-6) (118) (7) (6) (125) (i) Directors and associate companies (-3) (77) (7) (5) (81) (ii) Banks (..-7) (-1) (-8) (vi) As percent of total -4.2 26. 2 37. 9 37. 7 18.2 (7) Current liabilities and provisions 363 141 66 14 584 (a) TaxI (281) (58) (53) (38) (431) (vi) As percent of total 47.0 13.4 17.4 18.2 25.6 (8) External resources (5+6+7) 435 523 234 59 1251 (viii) As percent of total 56. 3 49.6 61. 6 76. 6 54. 7 Total 773 1055 380 77 2285 Percent (100.0) (100.0) (100.0) (100.0) (100.0) Uses (1) Grossfixed assets 286 709 147 33 1175 (a) Land, buildings, plant, and machinery_ (245) (658) (147) (27) (1077) (i) As percent of total 37. 0 67. 2 38. 7 42. 9 51.4 (2) Investments -1 -5 16 -2 8 (a) Private (-6) (15) (-2) (7) Within same group (5) (15) (1) (20) (ii) As percent of total -0.1 -0.5 4.2 -2.6 0.3 (3) Inventory 239 211 115 19 584 (iii) As percent of total 30.9 20.0 30.3 24.5 25.6 (4) Receivables 233 121 66 27 447 (a) Within same group (10) (10) (3) (23) (iv) As percent of total 30.1 11.5 17.4 35.1 19.6 (5) Cash 16 19 36 71 (v) As percent of total 2.1 1.8 9.5 3. 1 Total 773 1055 380 77 2285 Percent (100.0) (100.0) (100.0) (100.0) (100.0) I Net of tax advances. PAGENO="0101" * COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7417 TABLE 14.-SOURCES AND USES OF FUNDS FOR 17 MANUFACTURING COMPANIES 1958-64 [Amounts in Rs Lakhsj Wholly Wholly Indian foreign Foreign Indian making owned majority majority profits Total (6) (4) (3) (4) (17) Sources (1) Reserves 228 369 65 4 666 (a) Development rebate (23) (32) (10) (2) (67 (b) Other free (134) (195) (46) (2) (377 (c) Specific (71) (142) (9) - (222) (i) As percent of total 30. 6 34. 8 17. 2 10. 3 30. 0 (2) Capitalised reserves (bonus shares) 17 33 .50 (ii) As percent of total 2. 3 8. 7 2. 2 (3) Depreciation 92 145 48 8 293 (iii) As percent of total 12. 4 13. 7 12. 7 20. 5 13. 2 (4) Internal resources (1+2+3) 337 514 146 12 1007 (iv) As percent of total 45.3 48.5 38.5 30.8 45.4 (5) Paid-up share capital 105 106 24 2 237 (a) Cash subscription (95) (65) (22) (2) (184) (b) Noncash excluding bonus shares (10) (41) (2) (53) (v) As percent of total 14. 1 10. 0 6.3 5. 1 10. 7 (6) Loans -33 290 144 12 413 (a) Secured (-27) (151) (138) (2) (264) Banks (-27) (150) (135) (2) (261) Other companies (3) (3) (b) Unsecured (-6) (138) (7) (10) (149) Directors and associate companies (-8) (96) (7) (3) (98) Banks (-28) (-1) (-29) (vi) As perceit of total -4.4 27.4 38.0 30.8 18.6 (7) Current liabilities and provisions 334 151 66 13 564 (a) Tax' 285 63 53 401 (vii) As percent of total 44.9 14.2 17.4 33.3 25.4 (8) External resources (5+6+7) 406 547 234 27 1214 (viii) As percent of total 54. 6 51. 6 61. 7 69. 2 54. 6 Total 744 1060 379 39 2223 Percent (100.0) (100.0) (100.0) (100.0) (100.0) Uses (1) Gross, fixed assets 286 706 147 21 (a) Land, buildings, plant and machinery.. (245) (660) (147) (18) (i) As percent of total 38. 4 66.6 38. 8 54. 0 (2) Investments -1 -6 16 (a) Private (-7) (15) Within some group (1) (3) (15) (ii) As percentof total -0.1 -0.6 4.2 (3) Inventory 239 212 115 10 (iii) As percent of total 32. 1 * 20. 0 30. 4 25. 6 (4) Receivables 211 126 65 6 Withinsamegroup (10) (2) (iv) As percent of total 28. 4 11.9 17. 1 15. 4 (5) Cash 8 21 36 1 (v) As percentof total 1.1 2.0 9.5 2.5 (6) Miscellaneous expenditure and intangibles 1 1 1 (vi) As percent of total 0. 1 0. 1 2. 5 Total 744 1060 379 39 1160 (1070) 52. 2 9 (8) (19) 0.4 576 26. 0 408 (12) 18. 4 66 3.0 3 0. 1 2223 Percent (100.0) (100.0) (100.0) (100.0) (100.0) 1 Net of tax advances. TABLE 15.-ALLOCATION OF PROFITS AFTER TAX 1964 [Percentages] Number of companies Dividend Retention A B C Dp Wholly foreign owned Foreign majority Indian majority Wholly Indian owned, making profits 9 15 5 18 12.3 43.7 35.3 25.0 87.7 56.3 64.7 75.0 Total 47 25. 1 74. 9 PAGENO="0102" 7418 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY TABLE 16.-RESERVE BANK SAMPLE OF 32 PUBLIC PHARMACEUTICAL COMPANIES 1960-61 1961-62 1962-63 1963-64 1964-65 Percentages of profit before tax (1) Tax provision 44.5 45.0 56.2 62.2 58.0 (38. 8) (43. 8) (52. 7) (51. 2) (50. 6) (2) Dividends 31.0 28.3 24.8 23.2 24.1 (37. 0) (35. 7) (31. 5) (29. 9) (30. 0) (3) Retention 24.5 26.7 19.0 14.6 17.9 (24.2) (20.5) (15.8) (18.9) (19.4) Percentages of profit after tax (1) Dividends 55.8 51.4 56.6 61.2 57.3 (60. 4) (63. 6) (66. 6) (61. 4) (60. 8) (2) Retention 44.2 48.6 43.4 38.8 42.7 (39. 6) (36. 4) (33. 4) (38. 6) (39. 2) Source: "Reserve Bank of India Bulletin", November 1966. Note: Figures in parentheses refer to all 1,333 public companies in the sample. TABLE 17.-PROFIT AFTER TAX ON NET WORTH IN RESERVE BANK SAMPLE COMPANIES [Percentagesj Public companies Private companies Pharmaceu- Metals and All 1333 ticals (32) All 501 chemicals 1(92) 1960-61 10.9 17.2 12.6 20.0 1961-62 10.0 16.0 12.4 19.1 1962-63 8.6 11.9 9.8 14.5 1963-64 9.4 12.7 9.0 16.0 1964-65 9.2 15.2 na. n.a. 1 Further breakdown of industries is not available. Source: "Reserve Bank of India Bulletin," November 1966 and December 1965. TABLE 18.-PROFITABILITY 1964 AND 1962 - Amounts (in Rs Iakhs) Percentages Number Profits Sales of com- Depre- after Net net of Category Year panies ciation Tax worth excise Profit on net worth (5 on 7) Profit on net sales (5 on 7) Cash earn- ings on net worth (4+5 on 6) 1 2 3 4 5 6 7 8 9 10 (A) Wholly foreign owned 1964 9 49 364 889 1 2657 40.9 13.7 46.5 1964 6 33 273 555 1530 49.2 17.8 55.1 1962 6 27 166 525 1276 31. 6 13. 0 36. 8 (B) Foreign majority 1964 15 102 2 214 1403 2500 15. 3 8. 6 22. 5 1964 14 98 221 1328 2489 16. 6 8. 9 24. 0 1962 14 52 235 905 1883 26.0 12.5 31.7 (C) Indian majority 1960 5 17 34 174 704 19.5 4.8 29.3 1962 5 11 43 121 514 35.5 8.4 44.6 (D) Wholly Indian, making profits 1964 18 4 8 89 378 9.0 2. 1 13.5 1964 15 3 7 78 329 9.0 2.1 12.8 1962 15 3 17 48 312 35.4 5.4 41.7 Total 1964 47 174 620 7555 `6239 23.4 9.9 31.1 1964 40 152 535 2135 5052 25.1 10.6 23.2 1962 40 93 461 1599 3985 28.8 11.5 34.6 11 ncluding commission income of a company which had no income from sales. The figure consequently differs from that in Tables 1 and 4. 2 One company made a loss. PAGENO="0103" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7419 TABLE 19--PROFITABILITY OF FORE IGN CONTROLLED COMPANIES 1964 1962 Profit after Tax Profit after Tax as percent of as percent of Net Net Net Net Company Country of origin woth sales worth sales 1 United Kingdom 56.0 23.2 31.4 14.2 2 United States of America 39.1 9.4 n.a. n.a. 3 Switzerland 15.2 10.4 30.3 13.0 4 United States of America 20.9 15.5 49.0 32.2 5 do 21.5 10.3 27.9 7.9 6 Switzerland 6.3 2.1 7.9 3.2 7 do 19.7 11.9 11.2 7.6 8 United States of America 12.6 11.8 12.8 11.8 9 United Kingdom 23.5 7.0 36.8 8.7 10 UnitedStatesof America 16.5 4.2 5.5 1.8 11 United Kingdom 14.3 5.0 n.a. n.a. 12 do 7.2 2.3 32.8 14.1 13 West Germany 15.6 2.7 16.7 2.6 14 do 39.2 4.3 6.4 1.4 15 France 13.8 1.5 55.1 8.0 16 United Kingdom 7.7 4.2 14.0 7.6 17 Switzerland 26.5 3.7 48.6 12.6 18 United States of America 130.1 9.1 35.8 13.8 19 France 13.1 2.9 2.0 0.5 20 United States of America 26.8 4.3 48.6 8.5 21 United Kingdom 27.5 2.7 20.8 6.1 22 do 5.1 14.9 2.9 14.4 Total 20 companies' 26.3 12.3 28.1 12.7 Total 24 companies2 (25.2) (11.2) The data in this row are for 20 identical companies in both years. 2 Including companies for. which 1962 data are not available. These also include a Greek company and a new American loss-making company, whose figures should reveal their identity. TABLE 20.-PROFITABILITY OF FOREIGN CONTROLLED COMPANIES Profit after Profit after Number of tax on net tax on net Country of origin Year companies worth sales United Kingdom 1964 7 16.9 17.2 1964 6 45.8 18.5 1962 6 30. 5 13. 4 United States 1964 8 19.5 8.8 1964 6 19.3 11.2 1962 6 28.4 15.8 WestGermany 1964 2 25.6 3.2 1962 4 20.3 . 2.2 Switzerland 1964 4 20.6 7.9 1962 4 21.3 8.7 France 1964 2 13.4 1.9 1962 2 25.9 8.3 Total (including others) 1964 24 25. 2 11. 2 1964 20 26.3 12. 3 1962 20 28. 1 12. 7 TABLE 21.-GROWTH OF GROSS FIXED ASSETS 1958 1960 1962 1964 1958-60 1960-62 1962-64 (Rs Iakhs) (Percen tage increase) (A) Wholly foreign owned (7) 119 170 293 405 43 72 38 (B) Foreign majority (8) 110 310 477 819 182 54 72 (C) Indian majority (4) 37 90 138 184 143 53 33 Total (19) 266 570 908 1453 114 59 55 PAGENO="0104" 7420 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY FOREIGN INVESTMENT Total foreign investment in the sample companies amounted to Rs 26 crores in 1964. This comprised paid-in cash subscription of Rs 7 crores towards share capital, bonus and non-cash share capital of Rs 14 crores, unsecured loans of Rs 2 crores from overseas principals, and reserves of Rs 13 crores (Table 9). Comparability over a period of thne is vitiated by differences in coverage but it does appear that over the period 1958 to 1964, retained profits have become more significant, especially in companies with foreign control or participation. Correspondingly, dependence upon share capital and loans has been reduced. At the same time, the proportion of fixed to total assets has risen consistently. Over the entire period, net worth exceeded the amount of net fixed assets, except in wholly Indian owned profitmaking companies in 1964. SOURCES AND USES OF FUNDS Comparable balance sheet data are available for 31 companies in 1958 and 1964 (Table 13). Over this six-year period, these companies raised 45 per cent of their gross total funds from internal sources (32 per cent from reserves, 13 per cent from depreciation). As mentioned earlier, plougliback has been signifi- cant in this sample, more so, however, in foreign associated than in Indian controlled companies. Even then, external sources provided the major part of total funds. Share capital (as in other industries) was of relatively minor im- portance and even that included some non-cash subscription (other than bonus shares). Loans were of considerable importance, especially in Indian con- trolled companies. The foreign associated companies raised Rs 266 lakhs from banks as between the two years; in addition, they secured lIs 76 lakhs frorn~ associate companies abroad. These two sources were for them substantially less important than current liabilities (excess tax provision and trade creditors, etc). Surprisingly, only about one-half of gross total funds were used for fixed investment (two-thirds in foreign majority and less than two-fifths in wholly foreign owned). Working capital absorbed the balance, indicating either that they turned over their fixed capital with unusual speed or that their operations were more in the nature of trade than manufacture. Almost the whole of this expansion was in 17 manufacturing companies (Table 14). Their data correspond closely to those for all companies, and the analysis above applies equally to them. INCOME AND EXPENDITURE Excluding those wholly Indian owned companies which had accumulated losses, there are 47 companies for which income and expenditure data are avail- able for 1964. Their profit before tax amounted to nearly 20 per cent of value of production, but varied from 23 per cent in wholly foreign owned companies, 20 per cent in foreign majority, 14 per cent iii Indian majority to 8 per cent in wholly Indian owned companies (Table 11). The data on cost structure are not fully comparable, mainly because the classification of items is not uniform. Materials absorb the bulk, 43 per cent of value of production, labour 13 per cent, general administration and selling expenses (neither of which is satisfactorily or uniformly classified) another 13 per cent. Royalty takes 1 per cent (half as much more in wholly foreign owned companies). Managerial remuneration takes a larger fraction of income in wholly Indian owned companies as compared with the nominal fraction in for- eign associated companies. Gross value added in 1964 was 38 per cent of value of production and net value added was about 35 per cent. The share of labour in net value added was 37 per cent, while that of capital, as measured by profit before tax, interest, managerial remuneration and royalties, was 63 per cent. These overall pro- portions conceal fairly wide disparities between various categories (Table 12). Out of the profit before tax, more than one-half (56 per cent) was taken~ away by taxation in 1964 against a significantly smaller proportion (40 ~erj centi) in 1962, for which year, however, the data are not fully comparable. Strangely enough, Indian controlled companies paid tax in 1964 at a much higher rate than foreign ~ontrolled companies. This appears to have resulted largely from disparity in eligibility for tax concessions on fresh investment. For all 47 companies, development rebate (the only major concession which can be quantified) was 7 per cent of profits before tax in 1964 but it was 16 PAGENO="0105" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7421 per cent in foreign majority companies and about 3 per cent in wholly Indian companies. In 1962, development rebate was even more significant in com- panies with foreign control or participation and altogether in wholly Indian owned companies. Dividend absorbed only 11 per cent of profit before tax, and 32 per cent (44 per cent in wholly foreign owned) was ploughed back. Taking the appropriation of profits after tax, it is clear that the major part of disposable profit, both in the aggregate and in each ownership category, is ploughéd back. (Table 15). Comparison between 1962 and 1964 is difficult owing to the difference in coverage but, on the whole, it does appear that the com- panies have stepped up their retention percentages. It also appars that the emphasis on retention in this sample of private companies is much greater than in the Reserve Bank sample of 32 public pharmaceutical companies (Table 16). PROFITABILITY Profit and loss accounts in 1964 are available for 85 companies. Excluding 38 wholly Indian owned companies which had accumulated losses in that year, the remaining 47 companies earned after tax 24 per cent on net worth and 10 per cent on sales (net of excise). Their cash earning (profit after tax but be- fore depreciation) was 31 per cent on net worth or, to put it in simple terms, they were recovering their investment in about three years. As between the various categories, the wholly foreign owned companies were earning a cash profit which would fetch their investment back within two years; the foreign majority companies were taking a little more than four years to do so while wholly Indian owned companies would take as long as seven years though in the case of the last group the ratio of cash earnings to net worth shows a steep decline from 1962 (Table 18). Comparable data for both 1962 and 1964 are available for 40 companies. These show a-slight decline in profitability between the two years which might be due in part to the freezing of drug prices in 1963. The brunt of this decline was borne by companies under Indian control and with Indian minority partici- pation. The wholly foreign owned companies, on the other hand, improved their profitability further between 1962 and 1964. The profitability of private pharmaceutical companies in Maharashtra com- pares very favorably with that of pharmaceutical companies in the Reserve Bank samples of both public and private companies; it is nearly twice the profitability of RBI public companies (Table 17). INDIVIDUAL PROFITABILITY The individual profitability of 24 foreign controlled companies is shown in Table 19. The profit on net worth ranges from 130 per cent to 6 per cent, but relative profitability is not closely related to sales or assets. In general, it appears that, on the whole, there was some decline in the profitability of these companies between 1962 and 1964, but this was confined to US, Swiss and French companies. British and German companies actually improved their profitability during this period (Table 20). GROWTH Betwen 1958 and 1964, the gross fixed assets of 31 identical companies (this number excludes Glaxo, the largest company) increased about 5 times, from Rs 278 lakhs to Rs 1453 lakhs. The highest growth was that of foreign majority companies from Rs 110 lakhs to Rs 819 lakhs. Wholly Indian owned companies yearly growth rates of foreign associated companies are given in Table 21. The spurt in investment took place in 1958-60 and was substantially supplemented by the entry of new companies which are not included in Table 21. The growth rate has remained impressive since 1960. Data on growth of sales are available only for 1962-64 (Table 18, col 7). Over these two years, sales of 40 identical companies expanded by 27 per cent. The expansion was 20 per cent in wholly foreign owned companies, 32 per cent in foreign majority, 37 per cent in Indian majority and only 5 per cent in wholly Indian owned companies. SUMMING UP The analysis in this paper suffers from two main limitations. Some of the major pharmaceutical companies have non-pharmaceutical business which can- PAGENO="0106" 7422 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY not be segregated in the available financial statements. And, comparable data are not available for all companies for the entire period. Most of the pharmaceutical manufacturing business in Maharashtra carried on by private limited companies is under foreign control, mainly American, British and Swiss. Most of the companies are Indian owned but these are mostly small trading enterprises and include many with accumulated losses. The proportion of indian directors in foreign controlled companies is fairly high. About 73 per cent of the share capital of the sample companies is owned by foreign companies and individuals. indian companies hold 14 per cent, and the rest is owned by Indian individuals, led by Gujarati-speaking communities. Total foreign investment in the sample amounted in 1964 to Rs 26 crores, comprising paid-in cash share capital Rs 7 crores, bonus and non-cash share capital Rs 4 crores, reserves Rs 13 crores and unsecured loans Rs 2 crores. Retained profits have become more important as a source of finance between 1958 and 1964 and the proportion of fixed to total assets has risen consistently. During this period, only about one-half of gross total funds raised were, how- ever, fixed investment and working capital absorbed the balance. In 1964, 47 companies (excluding those wholly Indian owned with accumu- lated losses) were earning after tax 24 per cent on net worth and 10 per cent on sales. The wholly foreign owned companies were earning a cash profit (profit after tax before depreciation) which would fetch their investment back within two years. The foreign majority companies were taking a little more than four years to do so. The profitability of this sample compares favourably with that of companies in the Reserve Bank samples of public and private companies. Gross fixed assets increased about 5 times between 1958 and 1964, the high- est growth being In foreign majority companies. There was a spurt in invest- ment in 1958-60. The growth of both investment and sales has remained impressive since 1960. LIST OF PHARMACEUTICAL COMPANIES, 1964 (A) WHOLLY FOREIGN OWNED (1) Abbott Laboratories. (2) Boots. (3) British Drug. (4) Burroughs Welicome. (5) Franco Indian. (6) Glaxo. (7) May and Baker. (8) Pfizer. (9) Raptakos Brett. (B) FOREIGN MAJORITY, INDIAN MINORITY (1) Anglo French Drug. (2) Bayer India. (3) Boehringer Knoll. (4) Ciba. (5) Cilag Hind. (6) Cynamide. (7) Evans Medical. (8) German Remedies. (9) Johnson and Johnson. (10) Merck, Sharpe, Dohme. (11) Parke Davis. (12) Roche. (13) Sandoz. (14) Wyeth. (15) WTSuren (C) INDIAN MAJORITY, FOREIGN MINORITY (INCLUDING 50 :50) (1) Alta. (2) Excel Industries. (3) Geoffrey Manners. (4) Hoechst. (5) Francis Klein. PAGENO="0107" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7423 (DP) WHOLLY INDIAN, PROFIT MAKING (1) Alarsin. (2) All India Herb Supply. (3) Chremosyn. (4) D K Sandu. (5) Delhi Pharm Dist. (6) Dr Sahib Singh. (7) Enzo Chem. (8) Fair Deal. (9) Hico Products. (10) Indo Pharma. (11) K P Motilal. (12) Mac Lab. (13) Navshakti Ayurvedic. (14) Neo Pharma. (15) Pathological Labs. (16) Pharmax. (17) Pharmpak. (18) Poly Pharm. (19) Semit Products. (20) Zenith Chemical. (DL) WHOLLY INDIAN WITH ACCUMULATED LOSSES (1) Alpha Lab. (2) Amba Tannin Pharma. (3) Apollo Lab. (4) Arcies Lab. (5) Ar-Ex Lab. (6) Ayurvedic Dhanwantray Pharm. (7) Asian Agencies. (8) Bharat Rasashala. (9) Bombay Drug House. (10) Bombay Pharmacy. (11) Bombay Surgical and Medical. (12) Chem Drugs. (13) Chemica India. (14) Choonilal Dahyabhai. (15) Continental Drug. (16) Deelabs. (17) Deenbandhu. (18) Eisen Pharm. (19) Ethical Products. (20) Farmaxin. (21) Health Products. (22) Indye Kem. (23) Kalpatru Ayurvedic. (24) Kab Pharma. (25) Lakdawala. (26) Lenec Institute of Pharm. (27) Lyra Pharma. (28) Neo Pharma Industries. (29) Oriental Medical and Surgical Stores. (30) Patel Pharm. (31) Pharma Medico. (32) Ruma Laboratories. (33) Sunways. (34) Syncoma Lab. (35) Thilo Mody. (36) Vibro Pharma. (37) Worli Chemicals. (38) Aurum Pharm. (39) Bombay Oriental Chemical. (Whereupon, at 12:55 p.m., the subcommittee adjourned, to re- convene at 10 a.m., on Tuesday, August 11, 1970.) PAGENO="0108" PAGENO="0109" COMPETITIVE PROBLEMS IN TilE DRUG INDUSTRY (Present Status of Competition in the Pharmaceutical Industry) TUESDAY, AUGUST 11, 1970 tT.S. SENATE, SUBCOMMITTEE ON MONOPOLY OF THE SELECT COMMITTEE ON SMALL BUSINESS, Washington, D.C. The subcommittee met, pursuant to recess, at 10:10 a.m., in room 318, Old Senate Office Building, the Hon. Gaylord Nelson (chairman of the subcommittee) presiding. Present: Senators Nelson, Hatfield, and Dole. Also present: Benjamin Gordon, staff economist; Elaine C. Dye, clerical assistant; Keith A. Jones, minority counsel; and Dennison Young, Jr., associate minority counsel. Senator NELSON. We will open the hearings this morning. Our witness today is Mr. Donald E. Johnson, the Administrator of Veterans' Affairs. Mr. Johnson, the committee welcomes your appearance here this morning. Your statement may be printed in full in the record and you may present it however you desire.' If you wish to extemporize from it or add to it from time to time, or if you wish any of your associates from the department to make additional comments, feel free to do so. I assume you have no objection to being interrupted for questions, as you go along. STATEMENT OP HON. DONALD E. JOHNSON, ADMINISTRATOR OP VETERANS' AFFAIRS; ACCOMPANIED BY JOHN J. CORCORAN, GENERAL COUNSEL; ALFRED T. BRONAUGH, ASSOCIATE GENERAL COUNSEL; OP THE DEPARTMENT OP MEDICINE AND SURGERY: DR. BENJAMIN B. WELLS, DEPUTY CitIEP MEDICAL DIRECTOR; DR. PAUL A. L. HABER, DIRECTOR, EXTENDED CARE SERVICE; DONALD P. WHITWORTH, DIRECTOR, SUPPLY SERVICE; CLYDE C. COOK, DEPUTY DIRECTOR, SUPPLY SERVICE; ROBERT A. STAT- LER, DIRECTOR, PHARMACY SERVICE; AND ROLAND P. HARDING, CHIEF, DRUGS AND PHARMACEUTICALS DIVISION Mr. JOHNSON. Thank you, Mr. Chairman, and members of the committee. `See complete prepared statement beginning at p. 7473. 7425 PAGENO="0110" 7426 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY I welcome the opportunity to appear before this subcommittee to describe to you the policies and practices of the Veterans' Admin- istration in the selection and procurement of drugs and to acquaint you with the role we play within the Federal Government in this important field of medicine. I would like, Mr. Chairman, at this time to introduce those who are accompanying me to this hearing. First of all, to my immediate right is Dr. Benjamin B. Wells, the deputy chief medical director. In addition we have Dr. Paul Haber, director of the extended care service; Donald P. Whitworth, director, supply service; Clyde Cook, dep- uty director of the supply service; Robert A. Statler, director, phar- macy service; Roland F. Harding, chief, drugs and pharmaceuticals division; John J. Corcoran, our general counsel; and Alfred T. Bronaugh, associate general counsel. As the Administrator of Veterans' Affairs, I am directing an agency which is the largest Federal consumer of drugs and medicines outside the military. In fact, except in times of war or major military action, we are the largest Federal consumer. In addition, by delegation and assignment under the Federal Property and Administrative Services Act of 1949, as amended, we are the commodity manager for all nonmilitary users. Our procure- ment and contracting for this commodity thus provides logistical support for many Federal programs as well as for the Veterans' Administration medical and clinical programs. I will describe in some detail the operations of our program, which may serve to amplify the meaning of the data already provided this subcommittee. As a small businessman myself for a number of years, I per- sonally as well as officially wholeheartedly subscribe to the princi- ples of the Small Business Act (15 USC 631), particularly section 2(a) which provides that a fair proportion of Federal procurement shall be from small business. The data furnished to this subcommittee might lead to the conclusion that a rather small proportion of the Veterans' Administration drug procurement is from small business. I would like to supplement that data with the information that of all our drug purchases from both central procurement and individual hospital procurement 16 percent of our dollars are spent directly with small contractors. Senator NELSON. May I interrupt? Is that 16 percent of your hos- pital procurements of all drugs, or are you including other items? Mr. JOHNSON. We are dealing entirely here with drugs and phar- maceuticals. Mr. GORDON. Mr. Chairman, the staff broke down the figures given by the Veterans' Administration and we found the following: During the fiscal years 1968 and 1969, the Veterans' Administra- tion purchased over $91 million worth of pharmaceuticals. This is on the basis .of the data the VA gave us. Of this amount only $2.1 mil- lion or 2 percent involved purchases where actual competitive bid- ding took place, $1.3 million or 65 percent, that is, 65 percent of that 2 percent, went to small firms, and approximately $744,000 or 35 percent went to large firms. PAGENO="0111" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7427 The figures on pharmaceutical purchases and figures on competi- tive bidding provided by the VA were, we felt, inflated, since both included purchases of nonprescription drugs such as aspirin, alcohol and other such commodities. Dr. WELLS. Well, we are going to come to that, Mr. Gordon, just a little later, but I think Mr. Whitworth should address himself to that at this point. Mr. WHITWORTH. Well, Mr. Gordon, you realize, sir, that the in- formation you received was only on about 50 percent of our total purchases, those from our national purchasing program. Now, this 16 percent, sir, is both central procurement and the other 50 percent, which takes place outside our national procure- ment program. Senator NELSON. You are talking about the drugs procured for veterans who are not in hospitals? Mr. WHITWORTH. Not entirely, sir. We buy about 50 percent of our drugs on a national basis, stock them in our depots and locally, about 50 percent. Our central purchasing is the information we previously furnished this committee. For the other 50 percent, the orders are placed by our 166 hospitals, against open end contracts let by the national organization, or drugs bought locally on the local market. Some of this latter 50 percent, that which the hospitals themselves placed orders for, you did not get small business informa- tion on the specific data we furnished. It would have taken too long for us to have gotten it for you. Senator NELSON. Then on the 50 percent that is purchased centrally by the Veterans' Administration, about 11/4 percent, a little less, is purchased from small businesses? Mr. WHITWORTIT. Well, Mr. Gordon used the, term of $91 million. For the $91 million the 16 percent applies, yes, sir. To that portion which is centrally procured and covered by the information we have previously supplied you, the 16 percent does not apply. Mr. GORDON. We are concerned in these hearings with small drug manufacturers. Mr. WHITWORTH. Yes, sir. Mr. GORDON. We are not considering drugs bought from a small drug store. Mr. WHITWORTH. That is not what we are talking about. Senator NELSON. So that I have it clear, do you include in your 16 percent,' purchases made from retail pharmacists? Mr. WHITWORTIT. No, sir. These are from manufacturers, and we go on further, I think, in the Administrator's statement to comment upon the possibility of some of that which is bought from the small retailer or wholesalers where actually they were manufactured by large manufacturing firms. If you listen to that part of the whole statement, sir, this part may become clear. I may be wrong, but I think it will. Our 16 percent applies to our total procurement program, the $91 million. Senator NELSON. And you are saying that 16 percent of all drug purchases are drugs manufactured by a small business drug manu- facturer? Mr. WHITWORTH. Some of that is an estimate, sir, but that is our PAGENO="0112" 7428 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY best estimate from small business-from small business manufac- turers. Senator NELSON. This documentation does not appear rn the con- tracts you submitted to us. We end up with 11/4 percent. `Where is the discrepancy? Mr. JOHNSON. Sir, the discrepancy is in this area, that the data that you have is approximately 50 percent of the total purchases made by the VA, the 50 percent that is made through the central office and is deposited in the depot centers, of which we have three. The hospitals and clinics also have the authority to make purchases of drugs and can do so on their own initiative as they are needed, and this 50 percent, we were unable to furnish you within the time span, the data, the detailed data which you requested. Senator NELSON. But do I understand that you are saying that by the hospital purchases that you achieve this 16 percent? In other words, your central purchasing out of the Veterans' Ad- ministration is only about 11/4, 65 percent of the 2 percent? `Why is that so low when you say that you have such a high per- centage of acquisition of drugs from small businesses done by the individual hospitals? Mr. `WHITWORTI-I. Sir, most of the hospital purchasing is done from open end Federal supply schedule contracts made by the Veterans' Administration, and many of these are with small manufacturers. So, the percentage is rather higher there than it is on our national basis. Senator NELSON. `Why would it be higher there? Mr. `WHITWORTH. `Well, we are dealing in larger quantities in the national program, and we are dealing in many cases with a sole- source drug that is produced by a large manufacturer. Actually, 80 percent plus, sir, of our drugs, in the 50 percent we have furnished you, are sole-source items, and mostly from big business. About 80 percent of that which you have information on are sole source items, and most of those sole-source items are manufactured by other than small business. Mr. JOHNSON. Sir, I think also that it would be true that open-end contracts with small business, small contractors, are very appealing to them because it allows them to spread their manufacturing dis- tribution over a period of time, and this is the kind of contract that we use with the individual hospital that can order against that open- end contract. Senator NELSON. `We have some more questions later on sole- source purchasing, but we will get to that further on. Please continue. Mr. JOHNSON. Thank you, sir. An additional 5 percent is for prescriptions purchased from local private pharmacies, almost all of which are small businesses; and a significant proportion of the remaining 79 percent, although the product of large manufacturers, may be procured from small busi- ness distributors and drug wholesalers. This is not the optimum situation for the Veterans' Administration, and I shall see that strong and sincere efforts are extended to improve our posture in support of small business. PAGENO="0113" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7429 Unfortunately, as the chairman and members of this subcommittee well know, the procurement of drugs is considerably more complex and complicated than almost any product purchased both for Federal and private programs. It has been fraught with controversy and is not free from strongly held divergent opinions. It is an area in which those of opposing views can find competent expert opinions in support of any particular viewpoint as to the safety, efficacy, relative therapeutic merits or- to use a term not often related to human life and health-the cost effectiveness of any given drug, drug manufacturer or therapeutic drug category. It is an area which, as the Administrator of this large drug- consuming agency, I am convinced does not offer "pat" or un- equivocal answers. It is within this framew-ork that the policies on the selection and procurement of drugs evolve within the Veterans' Administration. The administrative process does not dictate the selection of drugs which will be prescribed and dispensed in our Veterans' Administra- tion hospitals and clinics. We consider that the judgment of the physician is paramount to all other considerations in the drug selec- tion process. Senator NELSON. What physician? Mr. J0I-Ixsox. The VA physician, the physician that is an em- ployee of the Veterans' Administration, as well as those who are on a fee basis with the VA, and I think we come later on to tell you what our policies are, sir, within the VA and what controls we do have. Senator NELSON. `When you say the judgment of the physician, you mean the individual physician who is prescribing for his par- ticular patient? Mr. JOHNSON. Yes, sir. Senator NELSON. And that the judgment of that individual phy- sician is paramount to all other, considerations? Mr. JOHNSON. Yes, sir. Senator NELSON. What is the individual physician's qualifications for making an expert judgment about this whole range of drugs as versus the therapeutic committee? Mr. JOHNSON. Dr. `Wells. Dr. WELLS. In our VA hospitals we have just over 5,000 phy- sicians about whom we know the qualifications. They also work with the therapeutics committee at the hospitals. This is a fairly well controlled group of people from the standpoint of qualifications. On the other hand, we use, in addition, approximately 90,000 physicians who prescribe on a fee basis, `outpatient to veteran pa- tients. These physicians are physicians of the community. Their qualifications are those that usually pertain to the licensed prac- titioners who are a member of organized medicine. Senator NELSON. I have a series of questions along that line but I guess we had better proceed with the statement, and I will get to them later. Mr. JOHNSON. Thank you, Mr. Chairman. In this agency his judgment is not made as a matter of unen- 40-471 0-71--pt. 18-S PAGENO="0114" 7430 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY lightened preference in an information vacuum. Supplementing his own knowledge and the sources of information is the approval process at both the local hospital and national agency level. He is also supported by technical and scientific data provided by our pharmacy service and cost and market data provided by our supply service. I would like to digress slightly to call the subcommittee's attention to the unique and extensive affiliation program between the Na- tion's medical schools and the Veterans' Administration. This affilia- tion program provides us with a vast body of fresh information on both laboratory and clinical research, pharmacological studies, new drug developments, in a more comprehensive and timely manner than otherwise might be available. We make full use of this infor- mation and do not, as some have charged of private physicians, rely primarily upon promotional and advertising sources for knowledge of drug products. Senator HATFIELD. I would like to interrupt at this point, Mr. Chairman. I would like to first of all commend you on your digres- sion here, because I think it is a very fundamental point that you are making. I am not sure you are aware of some comments I made on July 6 which are recorded in the record, and I would like to quote from that: Several critical VA programs have been neglected because of funding crises. One way to improve medical care in the VA hospitals would be to intensify and expand affiliations between VA hospitals and -medical schools. However, - valuable programs between medical schools and VA hospitals are dependent upon the assumption that facilities and equipment are comparable at each of the institutions. Could you expand a little bit on this, because I think this is, frankly, one of the most important ways in which we can improve and expand the Veterans' hospital programs. You are aware of the physical proximity of the Veterans' hospital in Portland, Oreg., to the University of Oregon Medical School, and I know somewhat of the exchange there and the working relationship between the hospital and the medical school. Are there specific plans that you have in mind to expand this kind of working relationship in other parts of the country? Mr. JOHNSON. Senator, 79 of the 101 medical schools in the United States are now affiliated in some manner with VA hospitals. It is the policy of this Administration, Dr. James Musser, who is the Chief Medical Director, and myself, that all possible will be done to enhance the relationship and the affiliation. I think I should add at this point that this is not confined entirely to the medical schools, that there are many schools of allied heaith sciences and, in fact, today it numbers something over 500 affiliations that we have, nursing schools, dental schools and the like, all kinds of activities; that particularly in those general medical and surgical hospitals, the highly active and acute hospitals as well as the psy- chiatric hospitals, we are meeting constantly with the Council of Deans of the medical schools of the United States, searching for ways in whiëh we can enhance the affiliation, and we are asking for certain legislation now to allow us to expand our sharing agree- PAGENO="0115" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7431 ments, particularly of equipment, which is one area that we can make the medical dollar go further, and this would also go with personnel, as well. As we move into this very active area of specialized medical services, to use one example, kidney transplant, or organ transplan- tation, for example. That we can justify only, not only in terms of dollars but avail- able personnel, as a team that can work both at the university hospital, or what other general hospital that might exist, with the university and the VA hospital in order to fully utilize not only their equipment, but their expertise, and I believe that there is a fine rapport in relationship that has been encouraged very much with the meetings that both Dr. Musser and myself have had with the deans of the medical schools. Dr. Musser came on board January 2 of this year, and immedi- ately launched into a program of meetings, and we held five regional meetings with the medical deans or their representatives in order to underscore our concern and our desire to move forward in this area that you so eloquently spoke to. I think perhaps Dr. Wells might have something to add, because he is the professional man and a former member of several faculties. Dr. WELLS. Well, 93 of our hospitals are affiliated, as Mr. Johnson says, with 79 medical schools. There are 101 medical schools at the present time in some state of existence. We are in negotiations with approximately 20 of the newly developing medical schools, all of whom want to establish an affiliation with VA hospitals. Mr. JOHNSON. I might say, Senator, if I may interrupt here, that in trying to meet this national problem of medical personnel, that for example in Shreveport, La., at our campus, the VA campus there will be a new medical school established in cooperation with HEW and other agencies that are supplying some funds. We believe that this might be one way in which, so far as MD's are concerned and the expansion of classroom space, that we can work very well so that there can be a quick acceleration of the available medical schools. Senator HATFIELD. Let me ask you a question in the area of spe- cialties relating to the possibility of expanding relationships with other than Federal programs, such as State programs. There are two areas. One is the area of mental health and the mental institutions that the VA operates. What `kind of working relationships have you de- veloped there, or are you developing, between the VA hospitals of that type and State or private mental hospitals? Mr. JOHNSON. I am going to let Dr. Wells speak to this. I would say that we are cooperating with State agencies and in some in- stances city governments and outpatient mental health clinics and soon. In fact, we are even letting some of our doctors become involved in those programs on an active basis. Dr. WELLS. We have a full State hospital program that we sup- port, Senator Hatfield, that is important in this area. I might call on Dr. Haber in a moment, but let me say the policy has been now for some years to move out of the area of purely mental hospitals and to establish psychiatric units in our general mental hospitals. PAGENO="0116" 7432 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Now, this has, we believe, led to much better care in that setting than in the mental hospital-and the hospital usually relates to the medical school or the community through a medical advisory committee. In addition to these affiliated hospitals that Mr. Johnson spoke of, 20 of our hospitals operate under a medical advisory committee which then relates that hospital to the community. Senator HATFIELD. Do you plan, then, to move away from the strictly isolated mental hospital, as such, toward an integrated medi- cal center program ? Dr. WELLs. We would hope to. We think this is a much more stable pattern and it is a way in which we can relate ourselves to the State and local hospitals and to the mental hygiene program of the entire country. Senator HATFIELD. The other area is the specialty in the field of geriatrics. What are you doing here with respect to a program that would necessitate less than full hospital care but would be more involved, say, in nursing care and others? Mr. JOHNSON. Senator, Dr. Haber is here, who is in charge of that whole program, and I would let him speak to this. I do want to preface his remarks by saying this is one of the areas in which I have exhibited particular interest, based strictly upon statistics available that say half of our veterans are World War II veterans whose average age is 50 years of age, and we have been operating, for example, under a 6,000-bed ceiling for nursing home type beds, and we have made request now to expand that, and in our future projections and studies which I initiated last September, there will have to be a dramatic increase in the number of beds available in this decade of the 1970's. I might say, too, and the doctor might not want to say this, that this is an area in which we need some assistance from anyone of influence, including the U.S. Senate with the medical schools to get them to have an interest in this particular kind of care. Of late, fortunately, there has been some opening on the part of the medical schools in taking an interest, particularly those training general practitioners, because it is found that a great deal of the general practitioner's time is spent with patients of the nursing home type. Senator HATFIELD. I did not want to discuss too long, but I just want to say in response to your. statement that you are planning some expansion of this program, that if there is some legislation that you are preparing, 1 would be interested in seeing it. Mr. JOHNSON. Senator, I would be very pleased to send to you our study, which was completed on this, and will do so to your office. Senator HATFIELD. Why don't you go ahead. Senator NELSON. Yes, please continue. Mr. JOHNSON. The process of drug selection begins at the indi- vidual Veterans' Administration hospital. When one of our physi- cians proposes to add a new drug product to those approved for use, he presents his proposal to the therapeutic agents and phar- macy review committee.. This committee, consisting of representative members of the pro- fessional, technical and administrative staff meets at least monthly to review the drug selection process. Before approving a new prod- uct, the committee considers available date on the item's safety, PAGENO="0117" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7433 efficacy, known side effects, adverse reactions, extensiveness of use in the medical community, and evaluates these factors together with data, on duplication of drugs already approved for local use, the cost of therapeutically equivalent drugs, the ready availability of sources for both routine and emergency deliveries. After considering all these factors, the committee in approving the drug, will direct a period of clinical evaluation followed by its inclusion in the station's drug formulary, which is available to all physicians on the staff, at every nursing station, and is provided to non-Veterans' Administration physicians prescribing for eligible veteran beneficiaries both in and out of our hospitals. If the committee does not concur in the proposal, the drug may be approved for use by the physician~ for a specific, patient, but it would not be used for additional patients without subsequent re- view by the committee for each such patient and it would not be described or listed in the station's drug formulary. The results of each station's local committee proceedings are re- ported in detail to the central office executive committee on therapeu- tic agents. This central committee provides an overview of the `agency opera- tions, provides guidance and assistance to individual hospital com- mittees, and digests and disseminates data to Veterans' Administra- tion personnel through a variety of media. In considering the selection process of drugs procured by the Veterans' Administration, a little known fact must be `borne in mind. The historical picture of drug usage by this~ agency is one of providing drugs and medicine to hospitalized veteran patients. We formerly provided a limited amount of drugs from~ our own pharmacies or through financial reimbursement to private phar- macies for outpatients. ` Several recent legislative actions have extensively increased the number of veterans who are to receive drugs and medicines at Gov- ernment expense. ` In fiscal year 1968, for the first time in this agency's history, the total expenditure for drugs provided outpatients exceeded that provided inpatients. This trend has steadily increased in fiscal years 1969 and 1970 and is projected to continue upward. Many of the prescriptions for these drugs are written by private physicians. Although we provide these physicians with data on our drug selections and our formularies, we cannot, and do not, attempt to control their professional practice by administrative direction. This growing outpatient workload has increased th~ number and kinds and brands of drugs purchased by the Veterans' Administra- tion to fill these prescriptions. This subcommittee has in the past expressed the view that the purchase of drugs on a "generic" basis should be increased. We interpret this to mean the procurement on a competitive basis. of drugs formulated of the same primary chemicals. It is the official policy of this agency to request and ei~courage physicians prescribing for our mpatients and outpatients to use generic terminology `or non- proprietary nomenclature whenever possible. The two forms used by physicians to order medications for pa- tients, VA form 10-4158 "Doctors Orders" and VA form 10-2577d "Prescription Form," contain statements authorizing dispensing of PAGENO="0118" 7434 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY another brand of a generically equivalent product, identical in dos- age form and content of active ingredients. If the prescribing physi- cian does not agree to the use of a generic product he must check in the appropriate place provided on the form. This encourages him to use the generic product but permits him to express his professional right to prescribe a particular item if he feels he can justify the request. When we can be assured of effective safeguards to adequately assure that chemically equivalent drugs are also biologically and therapeutically equivalent, we promote actively the use of generic- ally produced drugs. At this time in the critical review and challenge of our historical methods of assuring the safety and efficacy of drug products, we are proceeding with greater caution. There is increasing evidence that many of the drugs marketed for some years as chemically equivalent drugs meeting IJSP or NF standards will not produce the same clinical response in patients. I am certain this subcom- mittee is aware of the National Academy of Sciences/National Re- search Council "white paper" which recommended that manu- facturers of generic drugs available on the market for some years be required to prove that their products have the same therapeutic effectiveness as the original drugs they seek to imitate. As I stated earlier, this entire area is one in which there are di- vergent views. The promotion of generic equivalent procurement and the criticism of marketing of so-called "me too" drugs is an example of the dichotomy of views. Generically equivalent drugs almost universally enter the market as "me too" drugs. Mr. GORDON. Mr. Johnson, may I interrupt for a moment? On the top of that page you say: There is increasing evidence that many of the drugs marketed for some years as chemically equivalent drugs meeting lISP or NF standards will not produce the same clinical response in patients. Would you please name these drugs? Mr. STATLER. An example, Mr. Gordon, is chloramphenicol. Mr. GORDON. That was a question of blood levels, and there was never any evidence to show that some were not just as good as others from a clinical point of view. Senator NELSON. That is a batch-tested drug anyway. Do you have- Mr. STATLER. But, the therapeutical response was not the same in all instances from company to company. We have in our VA an example, tetracycline. Mr. GoiwoN. Is this on oxytetracycline? Mr. STATLER. No, tetracycline hydrochloride, it was reported the. patient was not getting the desired clinical response with this par- ticular brand. Senator NELSON. The statement suggests that clinically equivalent drugs meeting lISP or NF standards will not produce the same clinical response in patients. Do you have any examples? Mr. STATLER. Another example is Theophylline. a formulation for asthma. It has been documented in clinical~ case abstracts that with the use of Theophylline you do not always have produced the same PAGENO="0119" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7435 clinical response in a patient, you do not get the immediate relief of the asthmatic attack. For example, we have cases where the tablet will not produce the response in the patient because they did not dissolve in the patient and were passed through. Senator NELSON. That obviously did not meet the TJSP standard if it did not dissolve. The USP standard requires a certain dissolu- tion rate. Mr. STATLER. I beg to differ. It did meet the TJSP standard and it met the so-called in vivo tests, disintegration tests, but in actual practice in the patient the physicians were documenting that the drug was passing through the~ patient undissolved and, therefore, was not producing therapeutic response. Mr. GORDON. Could this be due to the patient? Mr. STATLER. There are physiological differences in make-up of the patients, and this could be, but they have tried no controlled test. But, other drugs have produced the same response. Mr. GORDON. Have you done any double blind control tests which indicate that certain brands of, let us say, tetracycline- Mr. STATLER. Not on a daily treatment. Research programs- Mr. GORDON. You have done no double blind studies to show that? Mr. STATLER. No; we do not do this in patient treatment~ This is reported in other cases of clinical pharmacologists on double blind studies. Mr. GORDON. Could you give us the studies to which you refer which show that the drugs marketed are such? Mr. STATLER. These are alluded to, of course, in the white paper produced by NAS-NRC. Senator NELSON. What white paper is that? Mr. STATLER. The white paper on the generic equivalency that is alluded to in the National Academy of Sciences and National Research Council, that not all drugs are therapeutically equivalent and do not produce the same therapeutic response. Senator NELSON. I think that is an entirely different question. Is that not referring to the NAS-NRC study in which they made cer- tain recommendations, for example, that all mixed combination anti- infectives be removed from the marketplace? Is that it? Mr. STATLER. No; I am referring to the paper that is alluded to as the white paper, as published in the Journal of the American Medical Association in which it was pointed out that not all drugs being chemically equivalent produced the same therapeutic re- sponse in all patients. (The information referred to follows:) [From the Journal of the American Medical Association, Vol. 208, No. 7, May 19, 1969, pp. 1171-72] SPECIAL COMMUNICATION-WHITE PAPER ON THE THERAPEUTIC EQUIVALENCE OF CHEMICALLY EQUIVALENT* DRUGS (Prepared by a subcommittee of the Policy Advisory Committee, Drug Efficacy Study,) Recent reports of considerable variation in the serum levels, and therefore in the probable biological activities, of equal doses of certain drugs marketed by different manufacturers, focus attention upon an important determinant of * Drugs that meet the current standards of identity, purity, and quality, and quality of the active ingredients established by competent authority. PAGENO="0120" 7436 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY drug efficacy. These variations indicate that therapeutic equivalence, or equal biological activity, cannot necessarily be inferred from equivalence in the chemical institution of V different formulations of the same drug. In the Drug Efficacy Study, it has been found that, in many cases, no data bearing on bio- logical activity of chemically equivalent drugs are available other than those submitted by the manufacturer who originally filed a New Drug Application for his product. For this reason, the following qualifying addendum was ap- proved by the Policy Advisory Committee of the Drug Efficacy Study and was forwarded tO the Food and Drug Administration with each of the 26 groups: "Drugs of identical chemical V composition (so-called generic drugs) formu- lated and marketed by numerous individual firms under generic or trade- marked names have been evaluated for efficacy as a group without consideration of `therapeutic equivalence.' In the event that no evidence for pharmacological availability or therapeutic efficacy in man can be presented for any of the drugs in the attached listing, their classifications of effectiveness may need to be modified if future regulations of the FDA require such proof." This statement defines the problem but offers no solution. Theoretically, bio- logical tests in man of every formulation of a drug would be needed in order to establish proof of therapeutic equivalency. In many but not all instances, blood levels might be a satisfactory index of therapeutic activity as well as of the absorption of oral preparations. Furthermore, if `appropriate chemical or physical tests should be found to correlate consistently with serum concentra- tions, these in vitro tests might be substituted for the more burdensome tests in animals or man. Indeed, blood levels in animals can be acceptable tests only if they correlate with comparable observations in man. The more potent the pharmacodynamic action of the drug, the more imperative would be the need for proof of the equivalence of biological and physical or chemical tests. The Policy Advisory Committee of the Drug Efficacy Study is aware that consistent evidence of therapeutic equivalence of oral preparations, even when based upon simple study of blood concentrations in man, might require the testing of each lot of each formulation and so become a large-scale clinical operation requiring consent of large numbers of patients and volunteers. A strict interpretation of therapeutic equivalence might even require biological tests of individual capsules or successive batches of the drug selected at random. Moreover, variation in biological response of individual subjects would seem likely to be greater than compositional differences among enteric-coated tab- lets or time-release capsules. Let us not deceive ourselves: if tests in human subjects constitute the only reliable method of demonstrating therapeutic equivalence, an unacceptably large burden will be imposed on drug manufac- turers. Such biological tests may represent the most valid measure of com- parative therapeutic activities, but the measure is one that is impossible of technical achievement by the pharmaceutical and medical professions. What, in this less than perfect world, can be done? All producers of drugs should be required, as they are now, not only to provide evidence of composi- tion, purity, and quality but also evidence of physical availability as judged by tests of disintegration, dispersion, and dissolution rates in appropriate solvents. In the majority of cases, this should suffice, but in every case in which there may be doubt of biological equivalence' (eg, calcium added to tetracycline), biological tests should be required. The exploration of possible chemical, physical, and animal tests that might satisfactorily be substituted for biological tests in man has already begun, and this should most certainly be encouraged. Particular attention is being paid to relatively insoluble drugs dispensed in solid forms as tablets or capsules. A Joint Panel of the United States Pharmacopeia and the National Formulary has been at work for some months on the development of standards and test procedures in vitro that will permit better definition of physiological avail- ability. Biological data on the lack of therapeutic equivalence of various prepa- rations of chloramphenicol recently dramatized this problem. Critical investi- gation of the chemical and physical properties of these preparations is cur- rently in progress, and such investigations shou1d certainly be encouraged. The whole subject will require extensive scrutiny as well as close attention to process control of the uniformity of the chemical and physical properties of both generic and trademarked preparations. Appraisal of problems concerned with particular drugs will represent various degrees of medical, as well as technical difficulty. For example, are high blood concentrations of short dura- PAGENO="0121" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7437 tion medically more desirable than lower, more prolonged, concentrations? The decision would be quite different in the case of an antibiotic in contrast with an antiepileptic preparation. What if by such criteria a generic formulation turns out to be biologically superior to the original proprietary? What if blood concentrations cannot be measured? With some drugs, there are reasonably good analytical methods for biologi- cal assays, whereas for others a meaningful test is virtually impossible at this time.. Consequently, the problem of the biological equivalence of drugs should be approached expectantly and progressively. Critical evidence of chemical and physical equivalence is the first order of business. Obviously, new drugs and accepted drugs of greatest pharmacodynamic action or therapeutic importance may additionally require careful biological scrutiny. It would seem reasonable for the FDA to require that the generic manu- facturer submit, in addition to evidence of chemical equivalence and purity, data on dissolution rate and data from other in vitro tests demonstrating equivalency. However, if there is evidence that in vitro evaluation or animal. tests do not correlate well with pharmacodynamic effects in man, there may been need to resort to clinical tests. In this way, the principle of generic pre- scribing based on therapeutic equivalence may become acceptable to the medi- cal profession and be supported by the pharmaceutical industry. W. B. CASTLE, M.D., Chairman. E. B. ASTWOOD, M.D. MAXWELL FINLAND, M.D. CHESTER S. KEEFER, M.D. Senator NELSON. I am puzzled about exactly what it means. The most distinguished pharmacologists in the country who have ap- peared before the committee have consistently taken the position that if the drug meets the DSP and NF standards, they are equivalent. The only exception is that DSP and NF may have missed something so that at some stage some excipient has a different effect from that of some other excipient for some reason or other. The testimony of the expert witnesses we have had is that the DSP and NF stand- ards are the best in the world, and for all practical purposes, drugs meeting their standards are equivalent. There are, I believe, about a half a dozen examples out of the thousands of drugs on the market which may meet DSP standards and are not therapeutically equiva- lent. That is the general position of Dr. Modell and a whole series of the most distinguished authorities in the country before this com- mittee. Are you saying they are wrong? Mr. STATLER. No, sir. `We, in fact, use those sources and those references as a means for determining the drugs to be used in the VA, but there is a divergence of opinion among clinical pharma- cologists as to the efficacy of certain equivalence of chemical drugs. This is, of course, what we have alluded to. There are problems. Our physicians in our hospitals do weigh their clinical experience on the use on patients and do find from time to time that certain drugs do provide response to a better degree than others. Senator NELSON. `We have had testimonials like yours, but we have yet to have scientific evidence submitted. It is strange that in the 31/2 years of our hearings we have not had any scientific evidence to show that where two drugs meet DSP standards, the same corn- pound, and yet they are not therapeutically equivalent. Do you have any clinical studies that demonstrate that? We wish that somebody would submit them if they are available, because we have not any yet. PAGENO="0122" 7438 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Dr. WELLS. Mr. Chairman, I would concede that the conclusion that you have stated is the one we accept for the most part in medi- cal services, that a drug that does meet these standards is likely to be an equivalent, and I really think that what we best do at this point is ask our pharmacy service to submit for the record any evi- dence that they have that this has not proved to be true.' Senator NELSON. With respect to the widely cited case of chlor- amphenicol, the specific testimony of the Commissioner of the FDA, was simply that additional brands of chloramphenicol that came into the marketplace simply did not achieve the same blood level within the same time period as Chloromycetin did. Commissioner Ley's testimony was that there was no evidence that one was more efficacious than the other. One achieved the blood level in a certain shorter time than did the others, but there was no clinical evidence that the therapeutic effect, in fact, was any better for the one that achieved a higher level more quickly. However, the FDA position was that since the first one in the marketplace achieved a certain blood level in a certain length of time they \~anted con- sistency in the achievement of blood levels, so any chloramphenicol could be used and there would not be any differences. It is not really a case of saying that they were not therapeutically equivalent because to date there have been no clinical tests to demon- strate that this is so. This is the testimony we have from the FDA. So, that is not a valid example. But, the committee, for the rec- ord, would be interested in receiving any clinical tests which demon- strate that two drugs meeting USP standards were not clinically equivalent. We have yet to get this material from the witnesses that we have had. Dr. Goddard, the former FDA Commissioner~ stated that there probably have been a half a dozen such cases. All it means is that the best experts in the country, including the drug companies who participated in establishing the standards, omitted something that they did not understand at the time and then, of course, it was necessary that that be corrected. The U.S. Pharmacopeia and the National Formulary have the best established standards and exceptions are rare. Frequently we hear that stated, as there were many such cases. I would thiiik this would require some evidence, if it does indeed exist, I would like to have it furnished to the subcommittee. Dr. WELLS. Mr. Nelson, we do not conduct clinical studies that pertain to this field, but we will have our pharmacy service submit literature on which this statement was based.2 Senator NELSON. I think we probably have all of the literature but if you have something that we do not have, we would like to have it for the record. Thank you. You may proceed. Mr. JOHNSoN. Senator, taking your initial suggestion, and for those who are following the written text, I will skip the last para- graph on page 6, because I think we have covered the balance of that other paragraph. 1 No such information was supplied by the veterans' Administration. 2 See subsequent Information beginning at p. 7478. PAGENO="0123" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7439 Your staff has expressed interest in our policy toward the use of combination drugs. It is our policy to discourage the use of these drugs. We do not prohibit their use when the prescribing physician determines that a combination drug is required for his patient. It is noteworthy that over 86 percent of the expenditures in our cen- tral drug program were for single entity drugs during a period when the combination drugs were enjoying an increasing share of the national market. We, of course, continually monitor our drug program to guard against use of drugs producing previously unsuspected adverse re- actions. We participate in the Food and Drug Administration's adverse reaction reporting system, both providing and receiving data from them on a regular basis. Information on adverse reactions is promptly disseminated to our hospitals and clinics and drug recalls handled through a sys- tem of double safeguards. In addition to the notifications provided through the FDA drug recall system, we also inform our stations on those items which are standardized for our use. There have been several instances lately where either the safety or effectiveness of specific drugs have been called into question prior to actual suspension or recall. We alert our hospitals and clinics to these by special announcements, telegrams, or other prompt notifi- cations. If these items are procured through our central procure- ment program, we either discontinue procurement or purchase mini- mum quantities to meet only immediate needs pending resolution of the controversy. The decision as to continued use of a product under special re- view is left to the prescribing physician, but with the assurance that he is fully informed of any findings about the possible con- tinued marketing of the drug. There is widespread evaluation under organized and controlled studies in the Veterans' Administration into the uses of and efficacy and safety of drug products. In addition to these organized indi- vidual and cooperative studies, there is continuing evaluation in the everyday practice of medicine by our staff of 5,000 physicians. The dissemination of the knowledge from these sources has con- tinually contributed to the improved health care .not only of vet- erans but the entire Nation. Several major medical breakthroughs, such as the chemotherapy used in treatment of tuberculosis, either originated in our Vet- erans' Administration medical research or were possible because of our cooperative ventures with medical and pharmacological in- quiries initiated by others. Turning to our procurement practices, I would like to again emphasize that the question of selection of which specific drugs will be procured is a professional and not an administrative decision. The responsibility of our procurement staff located within the sup- ply organization is to purchase the drugs selected for use at the lowest cost, to assure their distribution to our pharmacies in an efficient and timely manner and to provide quality control and inspection processes during manufacture needed to insure that drugs PAGENO="0124" 7440 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY meet the Veterans' Administration specifications and quality re- quirements. Approximately one-half our annual drug requirements are pro- vided by purchase from our Veterans' Administration Marketing Center in Hines, Ill.q and distribution through our three supply dis- tribution centers at Somerville, N.J.. Hines, Ill., and Bell, Calif. Thirty-five percent are purchased by our individual hospitals and clinics from Federal supply schedules, executed by the Veterans' Administration Marketing Center for use of all Federal agencies. The remainder are purchased by special negotiation and from local sources by our hospitals and clinics. The data furnished your committee related to those drug items purchased by our marketing division for drugs and chemicals lo- cated at our Veterans' Administration Marketing Center. In deter- mining which will be supplied through our central purchase and distribution program we apply the following criteria: (1) volume purchases are necessary to secure timely delivery and advantageous prices, (2) price adv'tnt'tges through bulk buying is sufficient to assure greatest economy through central distribution; (3) items are physically adaptable to storage and distribution; (4) the frequency of issue, repetitive use, physical characteristics, and stability of re- quirements justify central purchase and distribution. Items which do not meet these criteria are provided through the Federal Supply Schedule for Federal Supply Groups 6505 and 6810, drugs, medical chemicals and reagents. A reporting system on frequency of drug use permits the periodic re-evaluation of our methods of supply. This reporting system does not produce data your subcommittee desired on individual items procured locally, since it did not con- tain names of suppliers, or bidder information. It does provide us with usage trends to permit movement of items from one method of supply to another. Our quality control process consists of the following elements: 1. Professionally developed specifications, including IJSP or NF requirements, and any other additional descriptive or performance requirements considered necessary. 2. Inspection of manufacturers' facilities before inclusion on the Veterans' Administration bidders' list. 3. Laboratory analysis by the Food and Drug Administration of random samples selected by Veterans' Administration personnel from various lots before acceptance by our central distribution points. 4. Physical inspection of random samples by professional person- nel either at our supply depots or our hospital and clinic pharmacies. 5. A reporting system which we call quality improvement re- ports to be submitted by using activities in case of dissatisfaction with products or need for improvement. 6. Periodic reinspection of our suppliers' facilities and suspen- sion from participation in Veterans' Administration procurement of those not meeting our standards. We work in close cooperation with the Defense Supply Agency in exchanging information on bidder performances, inspection reports, product suitability, et cetera. PAGENO="0125" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7441 We accept the quality control findings and vendor inspection re- ports of the Defense Supply Agency as an integral part of our own quality, control program. We also interchange quality control information with the Food and Drug Administration and other elements of the Department of Health, Education, and Welfare. I previously mentioned that we procure or contract for drugs for other Federal users. In 1961 the Administrator of General Services Administration, as provided in the Federal Property and Adminis- tration Services Act, assigned to the Veterans' Administration the responsibility and authority for the procurement and distribution of drugs, biologicals, medical chemicals and reagents required by Federal agencies. Since that time we have contracted for `md administered the Fed eral supply schedules for these items We have also provided them from our ccntral depot stocks to those agencies who have placed requisitions upon us During the fiscal year 1970, we estimate that other Federal. agen- cies acquired $37.5 million worth of drugs and chemicals and re- agents through or from us, broken down as follows: $33,500,000 ordered from Federal supply schedules executed by the, Veterans' Administration; $3,500,000 ordered from our supply depot stocks; $500,000 ordered from stocks at our hospitals. We also procure from time to time, items made available to us from the Defense Supply Agency when that agency is able to acquire them at a lower cost than our own direct procurement. In closing, I would like to assure this subcommittee that we are interested in effective control of drug purchasing, and in the greatest economy' consistent with our needs and the effective and safe treat- ment of our veteran patients. We do strive to bring competitive conditions into the drug market and to economize wherever possible. Senator NELSON. May I ask a question at this point? Mr. JOHNSON. Yes, sir. Senator NELSON. I realize now that we have all of the purchases that are made, of the $91 million purchases made in the fiscal years 1968 and 1969. It appears from our examination of the contract that only 2.07 percent was by competitive bid. The rest was sole-source purchase. How is that reconciled with your `statement: We do strive to bring competitive conditions into the drug market and to economize whenever possible? Mr. JoHNSoN. Mr. Donald Whitworth. Mr. WrnTwoirrn. Sir, our figures show that of the VA marketing center purchases that we supplied you information on, that we bought 12.66 percent competitively of the items that could have been bought competitively. In other words, we bought single source, where competition was available, on 12.66 percent. That is, in 1969, competition was not ,available-and I am talking now strictly about the data we furnished you-competition was not available on 81.46 percent. Therefore, our percentage that we bought after advertising was 5.88 percent. This does not jibe with your 2 percentages, but it is 5.88. It is not im- pressive, but we bought competitively about 5.88 percent. PAGENO="0126" 7442 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY However, if you take out the 81 percent, sir, that could not have been bought competitively, we bought 33.72 percent competitively of that part on which competition was available. Senator NELSON. What was the reason it could not be bought com~ petitively? Mr. WHITWORTH. Well, sir, we buy sole-source procurement for three basiè reasons. One, that is the only source available-obviously. Senator NELSON. When you say the only source, are you saying it was the Only brand name- Mr. WHITwORTH. There was only one manufacturer who manu- factures the item. Senator NELSON. Only one manufacturer made the particular drug that you desired? Mr. WHITWORTH. Yes, sir; and, two, only one source met our stand- ards. Competition is ostensibly available, but Only one source-only one product-meets the VA standards. Senator NELSON. What percentage of your purchases did that in- volve-where there was more than one drug but only one source met your standards? Mr. WHITWORTH. Well, sir, we are running into a little problem here. You are talking about $91 million total procurement, and we are talking about now the central procurement. We have given you data on that, but in answer to your question, I would have to say about two-thirds of the items on which competition was available we did not seek competition on 33 percent-33.72 percent in 1969- of the items that we could have bought competitively we did buy competitively. The balance, sir, we did not buy competitively for three reasons. Mr. JOHNSON. As I understand your question, Senator, and I con- fine my remarks to the central procurement, but of those items that are manufactured by more than one manufacturer, but with only one manufacturer meeting our standards in 1969, about 121/2 percent of our purchases were made on that basis. Senator NELSON. Did you give the third reason, the third category? Mr. WHITWORTH. I am sorry, sir, I did not hear you. Mr. JOHNSON. The third category is to satisfy professional re- quirements, only source available, only one source meeting stand- ards, and to satisfy professional requirements. Senator NELSON. What does that mean, "professional require- ments"? Dr. WELLS. That is largely a matter of the opinion of the phy- sician prescribing. In other words, we do not impose upon the phy- sician an administrative direction that he must use a particular drug, but allow him a range of~ selection, this particularly applies to our fee-basis physicians. Mr. JOHNSON. You see, today, sir, there are over 90,000 physicians on a fee basis as compared with 3 or 4 years ago of only half that number, and there is some problem of controlling. There is also a matter of professional judgment involved here, so that there is more of the possibility of brand names, rather than generic names, used in the outpatient treatment, and as I stated earlier in the testimony, the outpatient usage today is greater than the inpatient usage, and this only took place in 1968. PAGENO="0127" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7443 Senator NELSON. Now, as I uiiderstand your testimony, the large drug expenditure that you have for outpatients-regardless of the price, regardless of the fact that there may be no difference in their therapeutic value, regardless of the fact that the doctor may pre- scribe the highest priced one in the marketplace-do I understand under item 3 that you do not in any way interfere with that? Dr. `WELLS. Oh, yes. `We are not passive in that connection at all. If the prescription is presented on an emergency basis it may be filled, indeed, as you say, pending some examination of this. On the other hand, these fee-basis physicians are contacted, they are given our formulary information, they are asked to prescribe the less expensive equivalent drug so that we make every effort to correct these faults as we learn about them, as the prescriptions come through for examination. Senator NELSON. You furnish to the physician a list of all of the brand and generic names of a particular compound and the price, and encourage physicians to prescribe the lowest priced one? Dr. `WELLS. Yes, sir. `We furnish them a list of the drugs that are stocked in our pharmacies which are purchased on this basis; that is, the lowest possible cost for the equivalent product. Senator NELSON. How many of these are being bought from pharmacies? Dr. WELLS. Do you mean in total patients? Senator NELSON. Outpatients. Your outpatients are all over the country. Dr. WELLS. That is right. Mr. JOHNSON. Yes, sir; but the bulk, the bulk of outpatients are within range of a facility, of a VA facility, and we encourage those facilities to be used. Now, of course, it stands to reason that in your State and mine there are many who are too far away, and they have to use a local pharmacy. S Mr. STATLER. Senator, 80 percent of all outpatient prescriptions by fee-basis physicians are filled in the VA pharmacies and these physicians are given, a formulary or listing of the drugs we have available, and are encouraged to prescribe what we have already standardized as a therapeutic equivalent. Occasionally we have a new physician who writes f~r a drug we do not stock and we will make an effort to get him to prescribe a therapeutic equivalent, if he has one, if he is not unable to be reached, or has a particular require- ment. Senator NELSON. Please proceed. * Mr. JoHNSoN. I would like to mention a couple of examples of this. The largest recovery in the history of this Nation for `over- charges on drugs sold at prices in restraint of trade involved the antibiotic tetracycline hydrochloride. Recognizing . competition was apparently not being developed despite availability of this item from several manufacturers, Veterans' Administration reported in- formation suggesting restraint of trade or price regulation to the Federal Trade Commission and the Department of Justice in 1955. In the widespread publicity attendant upon the Federal Trade Commission and court actions which resulted in the ordered refund PAGENO="0128" 7444 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY of millions of dollars, the fact that the Vetreans' Administration initiated this action has been largely overlooked. We have taken action where we felt there was supporting evi- dence and alternative courses to exert the pressure of the Federal process in promoting competitive procurement for drugs. Mr. GORDON. Mr. Chairman, has the VA reported any other situa- tion to the antitrust agency? Mr. WHITWORTIHI. Yes, sir; we have. Mr. GORDON. You have? Mr. WHITWORTH. Yes. Not in recent months, but we can supply for the record this information. Mr. GORDON. Can you name any, offhand? Mr. WHITWORTH. No; I cannot at the mo1nent. Mr. GORDON. Well, could you supply that? Dr. WELLS. We will supply that information for the record, Mr. Gordon. (The information follows:) BIDS REPORTED TO DEPARTMENT OF JUSTICE AS IDENTICAL Date Name of bidders Item Prices May 14, 1964 Lederle Labs Triamcinolone tabs., 4 mg 500's E. R. squibb do May 10, 1965 Halsey Drug Co Sodium Diphenyihydantion capsules 13'~ gr Premo Pharm. Labs do ~35. 55 35 55 4. 00 4.00 May 13, 1965 Consolidated Midland Corp Pyridoxine hydrochloride 3,~ gr Leo Linden Labs, Inc do HalseyDrugCo do XttrimLabs,lnc do Davis Edwards Pharm. Co do 5.25 5.25 4.45 4.45 5.10 Nysco Labs, Inc do Aug. 17, 1965 Consolidated Midland Corp Pentobarbital sodium capsules 13~ gr Halsey Drug Co., Inc do Sept. 28, 1965 - - - Mallinckrodt Chem. Works Cocaine hydrochloride 28.35 gm S.B.Penick&Co do 5.10 2.25 2.25 14.80 14.80 Ouinton Co., Div. of Merck & Co do Sept. 9, 1965 Premo Pharm. Labs, Inc Triarncinolone tabs, 4 mg Pfizer Labs, Inc do Sept. 9, 1965 Lederle Labs Hydrocortisone tabs, 20 mg E. R. Squibb & Sons do Jan. 27, 1966 Mallinckrodt Chen. Works Cocaine hydrochloride 28.35 gm S. B. Penick&Co do Jan.27,1966 S. B. Penick&Co Codeinephosphate Mallinckrodt Chem do 14.80 2. 10 2. 10 35.55 35. 55 14.80 14.80 10.64 10. 64 Jan. 27,1966 American Pharm. Co Ferrous sulphate tabs, 5 gr Leeds Dixon Labs do 1.40 1.40 Sept. 28, 1966.... Bristol Labs Sodium Oracilin caps, 250 mg Squibb &Sons do Sept. 28, 1966~~ Nysco Labs, Inc Cortisone acetate, 25mg Panray Div. Ormont Drug & Chern. Co do Sept. 30, 1966~~ Kasar Labs Digitalis tabs., 13~ gr Lederle Labs do 10.50 10.50 1.75 1.75 .93 . 93 Note: VA pioneered the reporting of identical bids on drug items beginning in 1955. Mr. JOHNSON. Another example of our cost awareness is our action in procurement of rubella measles vaccine for the immunization pro- grams sponsored by Health, Education, and Welfare. When we were first requested to procure this item, the cost was $1.41 per unit dose. As a result of our efforts to obtain a better price and our encouragement to several firms to manufacture this product, we have negotiated the unit price down to 72 cents. The savings to the Government for this product was approximately $2,900,000 dur- ing this last fiscal year alone. PAGENO="0129" COMPETITIVE PROBLEMS: IN THE DRUG INDUSTRY 7445 I assure this subcommittee that w~ will `be constantly alert to im~ prove the quality, safety, and therapeutic effectiveness of drug prod- ucts and to expend the Federal do-liars entrusted to the Veteran~' Administration in a prudent and thrifty manner. Mr. Chairman, this concludes my statement. Senator NELSON. Thank you. Mr. JOHNSON. I will answer any questions you might have. Thank you. Senator NELSON. Let us go back to the question about competitive bidding and sole-source purchasing. The three exceptions that you cite-that you purchase sole source when it is the only drug avail- able, or when there are others available but which do not meet your standards, or based upon the physician's preference. Do I under- stand the law correctly, that any Federal agency may purchase a drug any place in the world, that is, even though there is a patent or an exclusive license for a drug to be sold in this country. Although it has to be a sole source for any private hospital or any private physician to prescribe from, that nevertheless, under the law, a Federal agency is not required to observe, is not forced to observe a patent or exclusive licensing arrangement and may buy the same drug in the world market? - Is that the law? Does that law apply to the Veterans' Admin- istration? Dr. `WELLS. `We are at liberty to purchase in the world market under the limitations of the Buy American Act; yes, we could. We are also allowed to use patents for the exclusive use of the agency, if there were someone who would manufacture for VA alone. We could use this, the eminent domain principle over the patent, if this were manufactured and used solely within the VA. Mr. CORCORAN. By way of clarification, recovery against the United States for the unlicensed use of a domestic patent is limited to that authorized by the provisions of section 1498 of title 28 of the United States Code. By the terms of this section, recovery against the Government cannot be had on any claim arising in a foreign - country. Hence, where the American manufacturer is a licensee under a foreign patent. the United States can procure from, foreign sources without subjecting itself to liability for patent infringement. In the case of domestic patents, however, although the United States is free to utilize the patent for its own use, if it does so, it subjects itself to possible liability under section 1498 of title 28. Ordinarily,. but not in all cases, the Government protects itself by the use of a patent indemnity clause in the contract by which the contractor indemnifies the Government against any liability which might attach because of patent infringement. Senator NELSON. Now, in doing your purchasing and looking at the prices-when you are not able to accept competitive bids , be- cause there is only one manufacturer in this country, or for some other rea.son-do you compare the price, the sale price offered by the American sole source versus the price available in the world market as a matter of regular practice? Dr. WELLS. These prices are available, and I will ask Mr Whit worth to what degree this is done. 40-471 0-71--pt. 18-9 PAGENO="0130" 7446 COMPETITIVE PEOBLEMS IN THE DRUG INDUSTRY Mr. WHITWOETH. Sir, we do not normally advertise for foreign products. American brokers get our bids and bid on the foreign product, and in those instances we do apply the Buy American Act; but we do not normally send our invitations to bid to foreign sources, foreign manufacturers. This is not a practice of ours. Senator NELSON. Aren't their foreign prices readily available on all druas. just as are domestic prices? Mr. WTHITWORTII. Not to our buyers, sir. We have no need for these. Senator NELSON. Well, we get them any. time we want them. We ask the State Department, and immediately they supply us with price information for any country. Dr. `WELLS. Mr. Nelson, the prices are available, of course, and rather readily so. It is just our practice not to bid in the foreign market. Mr. WHITWORTIr. The agency has always had this policy, sir, not to send our invitations to foreien suppliers. However, brokers in this country sometimes do bid on foreign items. Senator NELSON. I am just wondering why von should not do this. We had incredible testimony last week showin~r that in our forei~rn aid 1)rogram prices were being paid as high as 8.000 percent over the world price. I cannot understand why the Government should allow itself, using the taxpayers' dollars, to pay these kinds of prices. If the difference wa~s nominal, it might seem tolerable, but we have had a series of cases where the price we paid was anywhere from 200 to 1,200 percent to 2,000 percent to 8,000 percent over the world price. In your negotiating, since 80 percent of these contracts are sole source, wouldn't good sensible bargaining require that you have available the world price on any of these drugs, and that in negotia- tion you make some comparison, and when you encounter an exces- sive price you say, "We will not pay it"? Why shouldn't that be a built-in, automatic policy of any Government purchasing agency in order to protect the taxpayers' dollars? Dr. WELLS. Mr. Chairman, there have been instances when, indeed, we have done just this. where prices were way out of range. Senator NELSON. On Panalba? Dr. WELTS. Yes; and tetracycline was another one. But, one of our great difficulties here was we submit offers to purchase to quali- fied bidders only~ which means we have to have some previous knowl- edge of the supplier. Mr. WHITWORTH. We are hard put to conduct the necessary in- spections in domestic manufactnring, and so have no resources in foreign locations. In those instances where we can, we use the De- partment of Defense inspection people to certify the suppliers. Senator NELSON. Why not use the FDA, who already does that? It is also a Federal agency, and I don't see any sense in duplicating ~ts functions. Mr. WHTTWORTH. There are no foreign manufacturers of end items we buy other than those we have done business with-or there are very few-that FDA gives approval to, sir. We read, of course, your testimony of last week where you were talking about big, bulk drugs, and larger packaging, but the foreign PAGENO="0131" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7447 bidders of VA-bought items are not FDA-approved as a rule. This, I am sure, you will find to be true. Senator NELSON. There are lots of drugs purchased by our own drug companies from overseas and resold in this country, and I will wager that a substantial number of drugs that the VA pays for are purchased by American companies from either foreign subsidiaries or foreign manufacturers. The testimony is full of that. In the case of an anti-infective, they meet exactly the same standards the FDA has. Every anti-infective imported into this country is batch tested. Mr. WHITWORTU. FDA, sir, has certified all of those from whom we buy, even though the source of a raw material is foreign and this is an FDA-approved item or manufacturer from whom we are buy- ing. The point is it has to be FDA-approved before we can do busi- ness with them. Senator NELSON. Since 80 percent is sole source, why not, as a matter of policy, check the price of the foreign product in the world market, of which there are many excellent suppliers. There are com- panies selling drugs in the United States who have exclusive licenses in America and never have made an ounce of the bulk material. Every single ounce is imported, with only the finished product being made here. The price charged here is tremendously higher than in the foreign market for the same compound manufactured by the same foreign firm. But, what I am saying is, how do we protect the taxpayers' dollar unless when you are negotiating you exercise all the power you have? Why can't you say: Here is the price of a distinguished foreign company, here is the world price, yours is 500 percent, 1,000 percent, 300 percent above it, and unless your price Comes somewhere close to the world price, we will not purchase. Why shouldn't that be a matter of automatic, consistent policy of any Federal purchaser of large numbers of drugs? Mr. WHITWORTU. Mr. Chairman, as Dr. Wells said a while ago, it is a matter of quality control, sir. We feel we do not have the re- sources to determine that we are getting the quality that we require. Senator NELSON. Well, I understand from the testimony that you regularly check for quality of your drug. It is no problem for any other buyer, New York City, for example, which buys its own drugs. It takes bids, then checks to see whether they meet USP standards and if they do, they accept the lowest bid. With the kind of purchasing that Government is doing, why is that any more difficult for the Federal Government to do this than for New York City? Mr. WHITWORTH. Well, sir, the foreign buying that we have done, we have depended solely upon the military and FDA for our quality control. The quality control the Administrator described in his statement, sir, strains our resources to keep up with the domestic market. Any purchase we have made foreign we have asked the Department of Defense and the FDA to check for quality control. Senator NELSON. If you do not monitor the prices as a regular matter, how do you decide when you ought to seek foreign contracts? Mr. WHITWORTH. I can only say, sir, that as a matter of policy we PAGENO="0132" * 7448 cOMPETITIVE PROBLEMS IN THE DRUG INDUSTRY do not seek foreign business. We consider it when an American representative of a foreign manufacturer submits a bid. This is rare. Dr. WELLS. Mr. Chairman, may I say at this point that I believe that we should reexamine our policy in this connection with a view to seeing what the foreign prices are by comparison to what we have. I~f then we can be assured of quality control by using resources that we have, the resources of DOD and FDA, then we should indeed move into this area, if it is possible. Up to date it has seemed to people in VA that we were unable to get sufficient assurance of quality control that we could tell our doc- tors that you are getting, indeed, an equivalent drug and, therefore, we have not gone as far as we should perhaps, in the price explora- tion. Senator NELSON. Well, now, you do have meprobamate; correct? Dr. WELLS. Yes. Senator NELSON. There is no American supplier. Carter-Wallace is the sole importer of bulk, and if you are buying it from an Ameri- can market you are paying, I can assure you, a tremendously high, exorbitant price. Mr. WHITWORTIT. Mr. Chairman, we bought it foreign for a num- ber of years, sir. Senator NELSON. Pardon? Mr. WHITWORTH. We bought meprobamate foreign for a number of years, and apparently it is coming from Denmark. Senator NELSON. What do you pay for meprobamate? Mr. STATLER. $2.85 for 500 tablets, roughly $2.85 for 500 tablets. Senator NELSON. You are buying your meprobamate from a foreign source? Mr. STATLER. It is bought competitively by generic name, and some of the successful bidders have been from Denmark. We have also had small business firms in the United States be successful in it also. Riverton Laboratories was one. Mr. WHITWORTH. But not in the last buys, sir. Senator NELSON. Now, meprobamate is a case which, as I under- stand it, is imported by one company and is resold to other com- panies. The increase in the bulk price over what they pay, I assure you, is quite dramatic. Why shouldn't the policy be the same as that which you followed respecting meprobamate? Why shouldn't that be applied as a regular matter in testing against your sole source whether or not you are getting a fair price for the taxpayer's dollar? I do not know of any other way to keep a sole source honest in terms of pricing. Dr. WELLS. As I understand it, this is one drug we have had out on competitive bidding, so that presumably we get the lowest price in this instance in the world market. Senator NELSON. That is fine, and I am glad to see that. Why isn't that regular policy? Why not keep a regular tabulation on the world price so that when you have a sole source you are able to say to the sole source, "Your price is way off"? How do you know that you are paying a fair price when you do not know what the world price for an equivalent product is? Dr. WELLS. Well, I do not think we could give a good answer to PAGENO="0133" COMPETITIVE PROBLEMS IN THE DRTJG INDUSTRY 7449 that unless we were monitoring the world market prices, which I believe we have not done. Senator NELSON. That is what I am getting at. Why not? Dr. WELLS. I really cannot answer that. I think that it has not been a policy, and that is why I say I think we must reexamine our policy in this connection, look at the world market prices; but we, in addition, must be assured of quality control and an opportunity for appropriate inspection by FDA and DOD. Senator NELSON. Nobody would argue with that. I am just con- cerned about what I saw last week, where the price is 8,000 percent over the world price. I guess AID could not do anything about it under their particular circumstances and the peculiarity of the way the requests come from the foreign countries, but paying that price or anything near it unnecessarily is a waste of the taxpayer's dollar and I assume that if you could show the competitive price, you would get it met. This has been the case domestically. In New York City, the prices being charged for prednisone were $17 and $18 a hundred tablets to the pharmacist, yet on the same day the same company bid $1.20 a hundred to New York City and lost the bid to somebody who bid 45 cents. I think you have to demonstrate that there is some competition here in order to be sure that you are not paying an exorbitant price. I would think that you ought to take a look at the prices of the drugs you purchase, and compare them with the world price and see what the difference is. Mr. GORDON. May I interrupt here? Since you and the Defense Department are very large buyers of drugs, have you ever considered the possibility of buying bulk, whether overseas or in this country, and then contracting out for tableting and bottling? Dr. WELLS. For repackaging and reformulating? Mr. GORDON. That is right. Dr. WELLS. I do not know, to be perfectly honest, whether this has been considered, if at all. Mr. WHITWORTH. We certainly have not done any of this. Mr. GORDON. Have you ever considered it? Mr. WHITWORTH. To my knowledge, we have not considered it with the military or unilaterally, sir. Mr. GORDON. Perhaps it might be worthwhile to consider that. Senator NELSON. On the question of the formularies, I am sure we are all agreed that we have an obligation to establish procedures-at least in teaching hospitals and in Federal institutions-that would maximize the chances of establishing a program of rational pre- scribing and rational purchasing. Do I understand from the testimony that each of the veterans' hospital has a formulary committee or therapeutics committee? Mr. JOHNSON. Yes, sir. Senator NELSON. And so each veterans' hospital has a formulary of its own? Dr. WELLS. Correct. *Mr. STATLER. They use the American Hospital Formulary Serv- ices as a basis for developing in their individual hospitals. PAGENO="0134" 7450 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Dr. WELLS. Then they add whatever is locally required. Senator NELSON. As you may know from the Task Force on Pre- scription Drugs, published August 30. 1968, the HEW Task Force on Prescription Drugs recommends the establishment of a review committee, or utilization review, as follows: Any drug program utilization review is a dynamic process aimed first at rational prescribing and the consequent improvement of the quality of the health care; and, second, at minimizing needless expenditures. Many hospital staff committees of experts have long taken the responsibility of reviewing their records of their fellow physicians and offering such advice or taking such disciplinary action as they deem necessary. During the past 2 years, utilization review programs have been instituted to improve the quality of the medical care under the hospital program of medicare. Similar reviews are used in several American and foreign drug programs to improve the quality of the drug prescribing. Has the Veterans' Administration hospitals instituted a utilization review program? Dr. `WELLS. Actually this has long been one of the functions of our therapeutic committees of the hospitals, to monitor utilization as well as the specific selection of drugs. Our great difficulty in this connection is in our fee-basis program, where *e have much less opportunity to monitor utilization in the 90.000 prescribing phy- sicians who are essentially part of the private sector. Mr. Jorixsox. Senator. I would like to ask Dr. Haber to respond further. Dr. HABER. Senator, I think the question of the control over the types of drugs which are prescribed by our physicians is basically as has been- Senator NEr~soN. Basic to what? Dr. HABER. Basically, as has been elucidated. a function of the therapeutic committee which exists at every VA hosnital. Part of their oversight exists in the utilization and review of the kinds of drugs that are afforded the physicians for the treatment of their patients. Now, the problem is that although all of our inpatient.s are treated by our own staff, 5,000 physicians employed by the VA hospitals, whose qualifications we have exclusive control over, a certain number of our patients are treated as outpatients. `We record about 8 million outpatient visits a year. Of these, the vast majority are performed at VA hospitals by the same 5.000 physicians and by some consultants and attendants, and again, these people are exceedingly sensitive to our methods of control. The greater degree of the nroblem comes from those veterans that do not live near VA hospitals, service-connected veterans whose treatment by authorized physicians is permitted under law. and they are the 90.000 physicians, where we have less precise controls, as Mr. Johnson mentioned to you before. The fact of the matter is that the number of physicians under this program has increased in the last several years, basically because we wanted to give the veteran greater freedom of choice in getting a physician of his own choosing to treat him in his own hometown. The fact further is that the number of prescriptions ordered by these physicians is a small percentage of the total prescriptions which the PAGENO="0135" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7451 VA authorizes. Most of those are, of course, done in our own hos- pitals, and we do exercise a degree of control over these physicians in that we review the prescriptions which are mailed into us for filling in our own pharmacy. The problem here is one in which we try to accord the greatest latitude of choice to the individual veteran and still exercise the highest degree of control over the kind of drugs these physicians use. Senator NELSON. Well, what puzzles me a bit is that in your state- ment you say that the VA has therapeutic committees and is careful to make certain that they establish a good formulary. However, in looking at the drugs listed here it is apparent that the National Academy of Sciences-National Research Council and the Medical Letter, are very critical of a number of the drugs being purchased by your agency. I will give you a few examples: One of them is Zactirin, a drug mixture of ethoheptazine citrate and aspirin used as an analgesic. Aspirin costs 70 cents a thousand. Zactirin, a trade name, is $15.75 a thousand. Now, the NAS-NRC report says Zactirin is "possibly effective" as an analgesic-but only because it contains aspirin. It is questionable whether the additional ingredient, ethoheptazine citrate, adds any- thing to this effect. NAS-NR.C concludes: This combination may be no more effective as an analgesic than the amount of aspirin present. Now, anybody following the National Academy of Sciences-Na- tional Research Council would say "We are not going to allow in our formulary a drug costing $15.75 a thousand when aspirin is avail- able at 70 cents a thousand." The National Academy of Sciences has come to this conclusion. How do you explain that this drug gets by your formulary com- mittee? Dr. WELLS. This is one of the many combination drugs that by policy we would discourage the use of. I think we could only say that our control is by no means perfect and we have many physicians who will ask for a drug and insist upon it, even though our policy is opposed to it. Mr. STATLER. If I may just elucidate a second, our last purchase of that on the centralized purchase program was in April 1968. We have made copies of the. NAS-NRC different efficacy studies and made it available to all our therapeutic committees, and they have taken this into their judgment. Obviously, they may be getting this on local purchases from time to time in response to prescriptions written by the outside, private physician, but as long as the drug is still legally on the market and the physicians are permitted to pre- scribe it, our pharmacists have to provide that medication to fill these prescriptions from time to time. But, it is not standardized for formulary use in very many of the facilities. Dr. WELLS. The report I am looking at here right now, Mr. Chair- man, indicates we bought none of this in the past year. Senator NELSON. There is another one, an analgesic, Fiorinal. It is an APC plus butalbital as an analgesic. The last purchase of that PAGENO="0136" 7452 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY was in 1969. The following comment on that is from the Medical Letter, volume 3, page 21: It has never been convincingly shown that the combination of aspirin, phenacatin and caffeine, as in Fiorinal, has greater analgesic effectiveness than aspirin alone. Why would you purchase that when aspirin is 70 cents a thousand and Fiorinal is $9.45 a thousand? Mr. STATLER. Well, if there are some purchases probably of Fiori- naT it is because again of the outpatient prescriptions but as I said before- Senator NEr~soN. You mean to say that none of this was bought directly by contract? Mr. STATLER. Yes; it was bought in response to the demand for prescriptions that were generated by fee-basis physicians, by the outside physicians, but most of the in-house physicians, of the 5,000, they have access to the Medical Letter comments and have formed their judgment, and Fiorinal probably is not standardized for in- house prescription items. Senator Ni~r~sox. But this gets me back to my original question. The contract was for 1969, $18,106.92 worth of this drug. Regardless of the individual physician's demands, why should the Veterans' Administration spend $9.45 a thousand when the best evidence in America, by the pharmacologists and clinicians, is that it is no better than aspirin at 70 cents? Why does not the Veterans' Administration say we will not sup- ply this drug? Mr. STATLER. By far the biggest purchases are aspirin tablets, and we dispensed 521/2 million doses of aspirin and 461/2 million doses of phenobarbital as opposed to a few thousand, 100,000, of Fiorinal that we had to buy for prescriptions from the outside. Senator NELSON. But you are purchasing them and putting them in the veterans' hospitals. Mr. STATLER. Filling prescriptions for physicians in our outpa- tient program; yes, sir. Senator NELSON. All I am saying is that if we are going to have rational prescribing in this country, you have it in your authority to say no, we will not pay $9.45 a thousand for something that is no better than phenobarbital at 50 cents or aspirin at 70 cents. Why should the taxpayers pay it.? They would generally not do that in any teaching hospital in this country,, would they? Dr. WELLS. I think they would. I have had 25 years in teaching hospitals in the United States aiid I think you would accede to the judgment of the physicians, even though it might be wrong, and even though you had supplied them with information such as we have available. Senator NELSON. If it happens in the teaching hospitals, then they do not have very good formulary committees. Is there any evidence- the testimony speaks of testing, efficacy, and so forth-do you have any evidence at all from any source that the Medical Letter is. wrong and that, in fact, Fiorinal is better than aspirin or pheno- barbital? Dr. `WELLS. No, no; we have no such evidence at all. PAGENO="0137" COMPETITIVE~ PROBLEMS IN THE DRUG INDUSTRY 7453 Senator NELSON. Now, if the Veterans' Administration is going V to let itself be pushed around because of an irratiOnal prescription by an individual physician, who is to protect V the taxpayer's dollar or, indeed, promote good medical practice? V Dr. WELLS. This is a very difficult question, sir, but we are in the position not infrequently of having to accede to the demands of the physicians and their judgment on their patient. V This is a tradition we must follow. Senator NEr~soN. So what you are saying is, if an individual phy- sician, against the expertise of the best pharmacologists and clinicians in the country, still insists on prescribing a drug, then you will spend the money and let him have the drug? Dr. WELLS. On a limited basis, sir. I think we do everything we can to discourage that, but we, under pressure, I suspect would succumb. Senator NELSON. Well, one of the largest purchases is Librium as a tranquilizer, and that is for about $2.4 million. Is there any clinical evi- dence that those drugs are sunerior to barbiturates as VaVn anxiety agent, superior to phenobaVrbitai, for example? V Dr. WELLS. Very different from phenobarbital. I think we are talking about two entirely different classes here, and m~ny phy- sicians find they get much better results with Librium as a tran- quilizer than they would with phenobarbital, and also it lacks some of the side effects of plienobarbital particularly, which has a cumula- tive depressant effect. Senator NELsoN. Well, tVhe Medical Letter says both drugs are effective sedatives, but it is still not clear that they have any im- portant advantage over barbiturates. Now, again, the cost of pheno- barbital is 50 cents a thousand; Librium is $43.50 a thousand, and Valium is $53 a thousand. If there is no evidence that they have any advantage or any more effectiveness or advantage over barbiturates, why pay $43.50 versus 50 cents? Dr. WELLS. I think we are in an area here of very honest differ- ences of opinion among physicians, pharmacologists, and people who study drugs, that we are talking about very different kinds of ac- tions, and physicians at least have very definite opinions about the use of Librium versus phenobarbital. Dr. ITABER. Mr. Chairman, we have a great number of patients who come to us, highly sedated on barbiturates, particularly the aging patient who comes to the nursing home and the intermediate care facilities, and we find many of these people have been over- sedated for long periods of time on barbiturates. In such cases, with the possibility of side reactions, particularly on the skin and other parts of the nervous system, we find that changing to the chlordiazepoxide or diazepam is frequently of much more use to the aging patient and helps to break the vicious cycle where he becomes more sedated and becomes more confusional and requires more sedation. We find this particularly useful in the aging population, at least, on initialV entry into our system. Senator NELSON. Are these testimonials, or do you have some clinical studies which support what you just said? PAGENO="0138" 7454 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Dr. WELLS. As a matter of fact, I believe the first really large- scale trials of Librium really took place in the VA, the Coral Gables Hospital, at which time there were comparisons made. We could supply the record of that work. I think if you look in your own literature you will see that Dr. Kaim was one of the first people to use this large-scale trial. We satisfied ourselves at that time that this was a useful drug. Senator NEI~soN. If you have some clinical studies since the Medi- cal Letter's comments of June 5, 1964, we would like to have them for the committee. Let me read these comments: Few well-controlled studies have directly compared any of these drugs with phenobarbital or other barbiturates and clinical experience does not clearly point to any one of them as outstanding in the relief of anxiety, in incidence of such side effects as drowsiness and impairment of intellectual or manual skills, or in addicting potential. In the absence of a sound basis for a choice, picking a drug for a patient hampered by anxiety must he more or less arbi- trary. Dr. HABER. Mr. Chairman, may I answer that, please? I have here a personal communication from Dr. Kenneth Lifshitz, Of the Rock- land State Hospital in Orangeburg, N.Y., an outstanding authority and contributor to the newly published volume entitled "The Prin- ciples of Psycho-pharmacology," edited by W. G. Clark, K. Pit- man, D. X. Freedman, and C. Leake, one of the most eminent pharmacologists in the country. Dr. Lifshitz' letter advocates the use of these tranquilizing drugs in the use, as I said specifically before, in geriatric psycho-pharma- cology. Senator NELSON. Is the $2.4 million worth of Librium being used mainly for that purpose? Dr. HABER. A large proportion of it is used for that portion; yes, sir. Senator NELSON. What kind of a check do you have on that? Dr. HABER. I cannot answer that question specifically. I do not know the ages of all patients who get all of our drugs, but since half of our population is in that category, I am sure at least half of it is being used for that purpose. Dr. WELLS. A great deal of it is also being used in our alcoholic treatment program. Senator NELSON. Under first choice in the Medical Letter it says: If the choice is to be made by trial and error, it would seem wise to begin the drug treatment of disabling anxiety with one that appears to be as effec- tive as any other, has the benefit of long use, low cost and a good record of safety. Phenobarbital in non-hypnotic doses of such a drug has the further advantage that most clinicians are thoroughly familiar with it. Dr. WELLS. That is a very good opinion. I think there are opinions to the contrary. Senator NELSON. There are opinions to the contrary? Dr. WELLS. I say, I think there are opinions to the contrary. Senator NELSON. Are there any controlled studies that show that it is superior that it, in fact, contradicts the Medical Letter, which witnesses before this committee have cited as the most distinguished authority of its kind in these matters? 1 1 See Appendix I, p. 7740. PAGENO="0139" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7455 Dr. WELLS. I am not aware of controlled studies that would counter that. On the other hand, I believe that the language of the Letter itself simply says that there are none, there is nothing to prove this. It does not say positively. Senator NELSON. Therefore, why pay $53 for Valium or $43.50 for Librium when phenobarbital is available for 50 cents. Why not follow the Medical Letter's procedure of starting with phenobarbital? Dr. WELLS. We have literally thousands of physicians who simply do not subscribe to that viewpoint, sir. Senator NELSON. Just to cite for the record the testimony of Dr. Harry L. Williams, professor of pharmacology, Emory University School of Medicine, Atlanta, Ga.,' who also is affiliated with the Grady Hospital. In answering a question on Librium, he said: Librium [sells] somewhere around $50 a thousand. Faced with a choice be- tween whether to use that drug or to use phenobarbital, which we use at Grady Hospital, and which in many cases is equal to and in some cases superior to, Librium, which cost, us 9 cents per thousand, this is 9 cents versus $50. Here is a statement by a distinguished pharmacologist, in a large general hospital in Atlanta, and I am puzzled why we would spend this amount of taxpayers' dollars when there are no controlled clini- cal studies demonstrating the superiority of either Librium or Valium to phenobarbital. Dr. WELLS. I think your point is well taken, but I am afraid we are in an area of opinion, and we are uncertain and, therefore, simply must go along with our doctors who say we think this is the best for our patients. Mr. JOHNSON. Senator, I can only speak here as a layman in this, and know nothing at all about clinical studies and so on, but I want to point out to you that the population at the Grady Hospital or any other that you mention is considerably different than the population that we do have in some of our veterans' hospitals, particularly in the matter of the aging, particularly these that come in, particularly the comment that was made by Dr. Wells awhile ago that some of these drugs have been successful in our alcoholism treatment centers and so on, and that I want at this point to speak up for the doctors within the VA system, those `within our rolls. I am sure it is not their desire to spend taxpayers' dollars just to be spending dollars, but they are wanting to deliver the very best there is in medicine, and I have confidence in their competency to make these kinds of decisions and to bring about the kind of results that they are looking for. And I see every day, as I visit hospitals, what they are doing, and if there is any measure of success, I believe they are reaching it. Senator NELSON. Well, the purpose, of course, of establishing your therapeutic committee is to use the best expertise there is in the coun- try to be sure that drugs are rationally prescribed. There is a tremendous amount of expert testimony by the best medical experts in the country that there is a lot of' irrational pre- scribing. Mr. JOHNSON. Senator, I think that the testimony is taken into `Hearings, Part 2, p. 457. PAGENO="0140" 7456 COMPETITIVE PRQBLEMS IN THE DRUG INDUSTRY account by these committees, coupled with their own experience, and I believe that they are exercising prudent action as they prescribe these drugs. Senator NELSON. I am sure your intention is good and you have established formularies and therapeutic committees. Nevertheless, it seems to me that it is not working as well as it ought to. Here is another example: Deprol, a drug mixture containing benactyzine HCL and meprobamate, an antidepressant. The Medical Letter says: Deprol is of no value for the treatment of either neurotic or psychotic de- pression. The Medical Letter also says: Neither of the ingredients in Deprol is effective against depression. FurtherL more, there is "no convincing evidence that this drug has any value except in cases amenable to placebo therapy." Why buy it? Is there any evidence to refute what the Medical Letter says? Dr. WELLS. I am not aware of any evidence on that, and I per- sonally would subscribe to the Opinion expressed in the Letter. I think again we are back to the whole problem of the fallibility of the absolute control, and of our necessity to a degree to go along with, while we educate and persuade the physicians that prescribe for the veteran population. Senator NELSON. I have a whole list of examples here. It just seems to me that if we cannot get our top executive levels, where you have the authority and the availability of the expertise to establish a sound prescribiiig policy, then we cannot do it any place. Darvon is also currently being purchased and it is bought as an analgesic. The Medical Letter says there is no evidence to "establish the superiority of 65-milligram doses of propoxyphene to two tab- lets of either aspirin or APC." Then it goes on to say that the 32- to 65-milligram doses of Dar- von "has consistently proven inferior to aspirin." Dr. WELLS. Well, my answer to that would be that again I think the Letter is quite correct. I think that one, Darvon, can be equated to a certain amount of aspirin or a visit from the chaplain. But here we are again in an area of incomplete control. Senator NELSON. Well, I will just recite a couple more here. It seems to me that with the expertise that the Department has avail- able, with the support of all of the best medical scientists, clinicians, pharmacologists in the country, that the. Veterans' Administration could establish some formulary control at the national level for all of its hospitals, using the best scientific knowledge we have. Panalba is another example. In 1957, Dr. Harry Dowling, whom I am sure you know as one of the most distinguished physicians and scientists in this country, at that time chairman of the drug council for the AMA, together with eight other distinguished people signed an editorial in the AMA Journal. The other signers were Dr. Maxwell Finland, who I am sure you know, Dr. Morton Ham- burger, Dr. Ernest Jawetz, Dr. Vernon Knight, Dr. Mark H. Lep- PAGENO="0141" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7457 per, Dr. Gordon Meiklejohn, Dr. Lowell A. Rantz, and Dr. Paul S. Rhoads. The editorial states: There are no data or experience which would justify the employment of any mixed combination of two antibiotics in a single ampule or single capsule or tablet for systemic use. It is our firm conviction that promotion or sale of such combination should be discouraged until or unless adequate data from controlled investigation justifies its practice, and then only with respect to definite combinations for specific purposes. That was in 1957. In 1968 the National Research Council of the National Academy of Sciences recommended we remove from the marketplace all mixed combinations of anti-infectives. The experts, as far back as 1957, were discouraging the use of mixed combina- tions, and yet the Veterans' Administration all through those years purchased it. Then even after the NAS-NRC recommended their removal from the marketplace, including Panalba, it was purchased by the Vet- erans' Administration-3 months after it was recommended for re- moval from the marketplace. There have been no studies to prove that it was effective as a fixed combination, and that is why it was removed. If you have a formulary committee of medical experts, why would that be bought? Dr. WELLS. This I think is really a classical example of our whole problem, Mr. Chairman. Indeed, at least two people who were on that committee that you named there have been or were with our special medical advisory committee to the Veterans' Administration. Here was a combination antibiotic that practically the entire medi- cal profession at one time fell into believing that it was better. Our doctors were not different from the doctors elsewhere. Senator NELSON. Starting with Dr. Dowling as early as 1957, the best of the clinicians who were acquainted with the drug were simply saying you should not------ Dr. WELLS. That is right, but despite that, that is why I say this is the classical example of our problem, despite that the drug con- tinued to be sold at a fairly high level and was, indeed, that pharma- ceutical manufacturer's leading drug for even some years after it was known generally by the best people and the best advice that it was not effective as a combination drug. So there was a lag there in control until it was pulled off the mar- ket, and I think this is exactly the problem we are up against when our advisors know, we know that something is not the ideal drug at the ideal price, and still there is the traditional lag, an inertia in the system which takes us quite a little time to catch up with, and that is what happened in this particular case, that it was being used quite widely throughout the country, not only in VA. Mr. JoHNsoN. Senator, I think it has to be reiterated here that within the Agency there is strong control and direction made upon our own physicians through this series of committees, but that there is less control, and perhaps there are suggestions on how it could be exercised without infringing upon the professionalism of outside doctors who treat our veterans but within, and I reiterate again, within the agency I believe we are exercising strong control and di- rection on the use of these drugs. PAGENO="0142" 7458 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Now, these pharmacy committees, through these therapeutic com- mittees- Senator NELSON. But you are, in fact, spending substantial amounts of the taxpayers' money to buy drugs which the best medical experts say there is an equivalent at a much cheaper price than the one being bought-or that the one being bought has no effectiveness at all. Mr. JOHNSON. But this has come about, sir, largely as a result of good legislation which allowed us to give that veteran the kind of service in the local community to which the Congress thought, and I believe correctly, he is entitled. And yet, yet we have the problem of the matter of the professionalism and infringing here and how much direction we can give to the private physician or general prac- titioner as to exactly what he should prescribe. At this point, if he comes in, as was stated earlier for an emer- gency filling of a prescription, it is filled, but at every opportunity we have, we make that doctor aware of the list that we have and we use and recommend. Dr. HABER. Senator, may I make two points with respect to VA's practice of irrational prescription, which I think may have some bearing here? One is the fact that even though the Medical Letter may point out that a drug has, in their opinion, limited effectiveness, the Medical Letter is not above errors in the past, either. I am merely trying to indicate that the bulk of medical opinion does change. Several years ago it was a rare physician who did not believe that you could affect the course of diabetes by prescribing oral hypoglycemic drugs. Now, some ten years after they have been introduced in the market there is serious question as to whether they have, indeed, been serving our patients well by the broad use of these drugs, so that there has to be always, at some time a dissenting body of physicians whom we come to grips with at some point. The second thing I would like to point out is we also do not al- ways serve the taxpayer best by concern for his dollar at the moment, in the sense that sometimes long-range effectiveness of drugs turns out to be more important than immediate economies. The history of the Veterans' Administration in the treatment of tuberculosis, I think, is an excellent example. The conquest of tuberculosis in this country is due in no small measure to the effective use of these drugs in large scale programs in the Veterans' Administration. At the time there was considerable question about the expense of these drugs because their efficacy had not been widely demonstrated, yet the VA did demonstrate it. Tuberculosis has dropped in preeminence as a killer of patients to one I think now in 12th to 13th place, so again in the long run of the story it is sometimes more important than the most immediate economies which can be effected. Senator NELSON. We are not really talking about that kind of case. We are talking about the cases that I have cited, and there are a number of them, where well-established drugs are in the market- place, for example phenobarbital, and a new expensive drug is put PAGENO="0143" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7459 on the market which has no demonstrated superiority over the others. The Medical Letter says any rational prescribing would take the established, lower priced one. Now, if evidence develops in clinical studies that the newer drug has superiority for some purpose over all others, that is the time to purchase it. On what grounds can it be prescribed, when there is no superiority at all? On the hope that because it costs $43 that it might do better than the 50-cent-per-thousand drug if you use it long enough? I do not think there is a valid basis for making a decision that way. Dr. HABER. Senator, anyone who has seen large numbers of people, aging people, admitted to psychiatric or to general medical institu- tions for the purpose of caring for them in nursing homes, cannot but be struck with the fact that many of these patients have for years been maintained on small doses of inexpensive barbiturates. The number of side reactions is legion, of course. I am not trying to condemn the barbiturates, I a~m just trying to say many, many times when an antianxiety agent or tranquilizer is required and the barbiturate has been used, and abused, we must have recourse to some of the other drugs, albeit they are not the least expensive, and I have seen situations in which the long-term use of barbiturates has been the most effective barrier to treatment of this particular patient, and another tranquilizer could be substituted. Senator NELSON. That does not get at the question, and I still have a whole series here where the best medical evidence was that there was another drug available, much cheaper, and the clinical evidence was that the one being purchased was no more effective, or in some cases less effective, than the drug being purchased at a tremendously higher price. Certainly you are not arguing against the proposition that we use the best scientific, medical, and pharmacological evidence available today for deciding on drug purchases at Government in- stitutions, are you? Dr. HABER. No, sir. I am arguing that there are conditions and there are variances in the human psyche and sometimes it is difficult to argue which is the best or the cheapest drug to use. Senator NELSON. I do not think anybody would argue with that. Could you, on the question of the purchases, submit more detail on the small business purchases and percentages so that we have it clear for the record? I do not think our discussion and dialog back and forth made it clear. Dr. WELLS. You want us to elaborate on the small business pur- chases? Senator NELSON. Yes, please. Dr. WELLS. We will do this, certainly. (Subsequently the Veterans' Administration submitted the follow- ing information:) The question was raised as to the percentage of procurement from Small Business. Our statement indicated that approximately 16% was acquired from Small Business firms, 5% from local pharmacies and the remaining 79% from other sources. This was not reconcilable with the data we had previously fur- nished you. The data that was available to your staff prior to the Hearings related only to those purchases from our central buying program. The percentages we PAGENO="0144" 7460 COMPETITIVE. PROBLEMS IN THE DRUG INDUSTRY quoted at the Hearings, which were for the Fiscal Year 1969, related to our entire drug procurement program. In Fiscal Year 1969 $1,531,194 was pur- chased from Small Business firms under our central buying program. We could identify $6,717,359 for this Fiscal Year as coming from Small Business through Federal Supply Schedule contracts executed by our national buying office, but purchased by our local hospitals and clinics. This $8,248,553 represents 15.84% of the 52,072,550 in direct purchases both central and local. No purchases from retail or wholesale concerns of items that may have been manufactured by big business concerns are included in these figures. There is an additional amount purchased by our local hospitals directly from Small Business concerns which we cannot identify. Five years ago 156 of our 276 Federal Supply contractors were Small Business concerns. We reduced the number of contractors during this period by discontinuing contracts with those whose volume of business did not justify the expense of making the individual contracts or who did not offer the Federal Government any price advantage over direct local procurement. Many of the items formerly supplied through these extra contractors are still purchased by these hospitals. However, since they are purchased on a local basis only, we do not have data on the quantity of these drugs which come from Small Business. Mr. GORDON. Mr. Chairman, the - staff has prepared some charts showing the concentration of purchasing and I ask that they, as well as VA submissions, be put in the record at this point. Senator NELSON. That will be done. (The material follows:) VA-COMPETITIVE BIDDING, FISCAL YEARS 1968 AND 1969 Amount of Other Product Winning bidder purchase bidders Alcohol (8 orders) DPSC(3) $1586 Shell (4) 29,049 Public Ker(1) 18,750 Alcohol dehydrated (8 orders) DPSC (2) 15,391 WarnerGraham(4) 60,160 U.S. Industries (1) 13,296 National Distillers (1) 17, 563 Alcohol USP(1O orders) DPSC(2) 18,450 Union Carbide (3) 29, 179 USI Chem (3) 17,861 WarnerGraham(1) 7,115 National Distillers (1) 3,993 Aminophylline (4 orders) Torrigian (1) 5,184 Premo (1) 605 DPSC (1) 2,624 American Quinine (1) 6,534 Ascorbic (1 order) Kasar(1) 1,554 Aspirin tabs (7 orders) Dewey (3) 19,894 Kasar(2) 11,772 DPSC (1) 7,452 PHS-Stockpile (1) 1,704 Bacitracin (6 orders) Premo (4) 14,921 Day Baldwin (2) 5,916 Bacitracin ointment (7 orders) Day Baldwin (3) 15,118 Fougera(l) 1,728 Premo (3) 14, 141 Belladonna tincture (6 orders) Certified Labs (1) 1,049 DPSC (5) 2, 579 Cascara (4 orders) Lannett(3) 6,688 Halsey Drug (1) 2,660 Cascara (5 orders) Certified Labs (2) 2, 523 Halsey (2) 1,939 Lannett(1) 1,238 Chiorpheniramine maleate (7 orders) Anabolic (2) 2,244 Kasar(1) 1,115 American Quinine (1) 482 DPSC(3) 2,791 Codeine phosphate (3 orders) Lilly (2) 25, 932 Kirkman (1) 9, 576 Codeine phosphate (4 orders) Kirkman (2) 5,985 Lilly (2) 10, 554 Colchicine tablets (6 orders) American Quinine (1) 4,212 Anabolic(5) 13,931 Cyanocobalamin in]. (12 orders) Torigian (1) 7,920 Anabolic (1) 1, 269 Philadelphia Labs (1) 1, 629 American Quinine (9) 25, 949 PAGENO="0145" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7461 VA-COMPETITIVE BIDDING, FISCAL YEARS 1968 AND 1969-Continued Amount of Other Product Winning bidder purchase bidders Ephedrine sulfate (6 orders) Lannett(2) $1, 831 DPSC (3) 2, 842 DHW Stockpile (1) 1, 797 Ether (6 orders) DPSC(3) 5,031 Mallinckrodt(2) 6,119 DHEW Stockpile (1) 1, 270 Ferrous sulfate tablets (7 orders) Zenith (3) 8, 294 American Quinine (3) 9, 757 Davis Edwards (1) 2, 700 Griseofulvin (5 orders) McNeil (4) 19, 130 Ayers (1) 7,076 Hexachlorophene liquid soap (6 orders) Harley Chem. Co. (3) -21,959 National Chem., Pa. Labs (3) 18,425 Hexa vitamin tablets (7 orders) American Quinine (4) 23, 936 Lannett(3) 13,821 Hexa vitamin tablets (5 orders) Gyma (1) 4, 633 USV (1) 2, 847 Bolar(1) 6,977 American Quinine (2) 11, 276 Hydrogen peroxide (9 orders) American Peroxide (4) 29, 446 Dewey(3) 24,730 DPSC(2) 2,678 Isopropyl alcohol (8 orders) Union Carbide (4) 48, 395 DPSC(1) 2,155 Phipps Prod. (2) 11,834 Shell Chem (1) 8, 598 Isopropyl rubbing alcohol (5 orders) Dewey (4) 25, 771 Halsey Drug (1) 8, 372 Meprobamate (4 orders) Gyma (2) 156, 000 Wallace (1) 25, 000 Durst (1) 69, 600 Meorobamate (3 orders) Halsey Drug (2) 3, 766 Davis Edwards (1) 2, 082 Mineral oil (8 orders) Halsey Drug (4) 9, 162 Lannett(2) 4,620 Dewey (1) 2,039 Certified Labs (1) 5, 083 Neomycin sulfate (5 orders) Copanos (3) 28, 146 Premo(2) 31,279 Neomycin sulfate (10 orders) DPSC (2) 4,218 Upjohn (1) 8, 136 Premo (7) 49, 269 Nitroglycerin (6 orders) Lilly(6) 12,435 Papaverine HCL (5 orders) Merrell (3) 3, 195 USV(2) 1,992 Penicillin G inj. (8 orders) Copanos (3) 61, 191 Lilly (3) 67, 482 Squibb(1) 3,335 Romar (1) 35, 679 Phenabarbital (6 orders) Kasar (3) 12,198 Massengill (3) 10, 991 Phenabarbital and belladonna extracttablets (7 orders) Kasar (3) 3, 270 Massengill (4) 3, 972 Potassium penicillin G (4 orders) Copanos (1) 2,713 Zenith (1) 2, 227 DPSC (2) 2, 976 Potassium penicillin G tablets (4 orders) Zenith (2) 6, 862 Copanos(1) 3,948 Pfizer(1) 4,105 Prednisone tabs (5 orders) Davis Edwards (2) 22, 150 Halsey (1) 8,381 Zenith (2) 22, 579 Prednisolone (5 orders) Lannett (2) 3,838 Zenith (2) 3,425 Massengill (1) 1,161 Pyridoxine (2 orders) American Quinine (1) 1,241 Lannett(1) 1,697 Pyridoxine HCL(6 orders) Lannett(1) 2,783 Anabolic(2) 3,184 American Quinine (2) 1, 876 Bolar(1) 1,356 Quinidine sulfate (8 orders) Davis-Rose-Hoyt (3) 24,254 Davis-Edwards (2) 19, 905 American Quinine (1) 6,278 Sodium pentobarbital (6 orders) Davis Edwards (2) 5,448 Anabolic(2) 4,487 American Quinine (2) 10,616 Sodium saicylate (4 orders) Panray (3) 21,179 Kirkman (1) 13,997 40-471 0-71-pt. 18-lO PAGENO="0146" 7462 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY VA-COMPETITIVE BIDDING, FISCAL YEARS 1968 AND 1969-Continued ITEMS OBTAINED SOLESOURCE DURING FISCAL YEARS 1968 AND 1969 WHERE ONLY ONE SOURCE WAS AVAILABLE Innovar injection (2 ml.) McNeil Laboratories Premarin injection (20 mg.) Ayerst Laboratories Adrenosem injection (5 mg. per ml. S. E. Massengill & Co 2 ml.). Medrol tablets (4 mg. 500) Upjohn Co Librium capsules (10 mg. 500) Roche Laboratories Librium capsules (5 mg. 500) do Librium capsules (25 mg. 500) do Lasix tablets (40 mg. 1000) Hoechst Pharm. Co Tofranil tablets(25 mg. 5000) Geigy Pharm Ismelin tablets (25 mg. 103) Ciba Pharm. Co Dulcolax suppositories (10 mg. 500)__ Giegy Pharm Dulcolax suppositories (10 mg. 50) do Amount of Other Product Winning bidder purchase bidders Sodium secobarbital (5 orders) Anabolic (2) Halsey Drug (1) Prmo (1) Davis Edwards (1) TetracyclineHCL (8 orders) Rachelle (6) Zenith (1) Halsey (1) Therapeutic formula vitamin capsules (7 orders) American Quinine (4) Lannett(3) Thiamine HCL tablets (7 orders) Bolar (1) Davis Edwards (2) American Quinine (4) Digitalis (1 order) Kasar (1) $5,282 8 5,445 5 1,778 1 6,168 4 348,850 6 89,845 2 22,011 1 68,479 4 23,493 2 445 9 33,666 7,512 1 775 3 PURCHASLS OF DRUG BY MAJOR THERAPEUTIC CATEGORIES Fiscal year- 1968 1969 Psycho therapeutic agents Antibiotics Analgesics and antipruritics Antidiabetic drugs Topical preps Cardiovascular drugs Respiratory Diagnostic agents Urinary antiseptics Fecal softeners and (Laxatives) Antacids Muscle relaxants General anesthetics Gastrointestinal antispasmodics Diuretics Hypnotics and sedatives Antituberculosis Systemic steroids Sulfa drugs Chemicals, basic Vitamins Anticonvulsants Eye, ear and nose preps Cough preps Anticancer drugs Hormones Antihistamines Oral enzymes $4, 106, 501 $5,613,634 4,887,632 4,528,380 1,790,578 2,376,419 633,868 874,526 931,998 1,020,837 746,635 1,089,762 748,850 928,929 699,868 956, 028 703,394 1,052,332 652,464 739,382 454,779 433, 071 340, 024 562, 715 492, 369 430, 070 290,324 328,993 183,234 391,852 303, 525 343,790 232,627 iso, 006 233, 121 265, 043 159,852 185, 084 149, 536 132, 126 130, 022 162,805 123, 527 208,944 82,337 145,810 91,461 113, 515 49,904 67,646 46,496 51,955 92,495 63,922 26,974 42,860 Fiscal years 1968 Item Company Amount Amount 1969 Date standardized $12,498.00 July 15, 1968 $12, 169 3, 510. 00 Feb. 13, 1967 5, 985 None Sept. 30, 1968 5,893 16,584.00 June22, 1964 15,016 1,301,644.00 Aug. 15, 1960 1,291,524 97,280.00 Apr. 30, 1965 132, 58~ 540,331.00 Mar.22, 1961 903,060 77,971.00 Apr. 5,1967 108,153 265,278.00 May 24, 1960 166,780 6,463.00 Oct. 20, 1961 12,650 92,702.00 Aug.4, 1961 112,468 81,042.00 do 103, 134 PAGENO="0147" C C TJ2 0 z 2 C) 3 C,, 0 0 C#) 0 m C,, 0 C C-) rn 0 ;~ ~ ~ ~ I Q~)Co~C)~O ~ ~ 3 PAGENO="0148" 7464 COMPETITIVE PROBLEMS IN THE DRTJG INDUSTRY ITEMS OBTAINED SOLE SOURCE DURING FISCAL YEARS 1968 AND 1969 WHERE ONLY ONE SOURCE WAS AVAILABLE-Continued Fiscal years 1968 Item Company Amount 1969 Date standardized Amount Cordran cream (.05%, 60 Gm.) Eli Lilly & Co $27, 635. 00 May 14, 1965 $31, 400 Rezipas powder (1 lb.) E. R. Squibb & Sons 25, 220. 00 May 3, 1965 19, 096 Robaxin tablets(750 mg 500) A. H. Robins Co 5,939.00 June 12, 1967 24,682 Cytoxin tablets(50 mg. 100) Mead-Johnson Labs 36,868.00 June 22, 1964 48,829 Renoerafin injector (76 percent 20 ml.)_ E. R. Squibb & Sons None Aug. 19, 1968 10, 440 Nardil tablets (15 mg. 100) Warner-Chilcott Labs 1, 903 Dec. 18, 1959 3, 695 Sebulex (4 oz.) Westwood Pharm 12, 087. 00 June 22, 1964 12, 546 Parafon forte tablets (500) McNeil Laboratories 19, 218.00 Apr. 18, 1967 77,688 Riopan suspensiofl (12 oz.) Ayerst Laboratories 8,921.00 Mar. 2, 1966 8,803 Quibron capsules (100) Mead-Johnson Laboratories... None July 15, 1968 - 10,787 Penthrane (125 ml.) Abbott Laboratories 41,702.00 Dec. 27, 1965 66,463 Noludar capsules (300 mg. 500) Roche Laboratories 55, 578. 00 Apr. 30, 1965 82, 305 Persaitii tablets (25 mg. 1000) Geigy Pharmaceuticals 30, 807. 00 Feb. 5, 1965 13, 702 Gantanol tablets (500 mg. 500) Roche Laboratories 33, 782. 00 Nov. 30, 1965 38, 189 Vistaril capsules (50 mg. 500) Pfizer Laboratories 41, 830. 00 May 6, 1966 64, 668 Vistaril capsules (100 mg. 500) do 18,615.00 do 22, 015 Dymelor tablets (500 mg. 500) Eli Lilly & Co 31, 783. 00 Nov. 4, 1965 42, 636 Cytoxin injection (200 mg.) Mead-Johnson Laboratories~_ 13, 036.45. 00 June 22, 1964 18, 816 Mucomystsolution (20 percent 10 ml.) do 56, 219. 00 June 23,1964 82, 619 ~~Solu-Medrol injection (40 ml.) Upjohn Co 46,485.00 June 22, 1964 6P, 105 NegGram caplets (500 mg. 1,000) Winthrop Laboratories 150, 758. 00 Apr. 29, 1965 173, 722 Mandelamine forte suspension (8 oz.). - Warner-Chilcott Labs 40, 318.00 Feb. 28, 1967 45, 334 Ser-Ap-Es tablets (1 000) Ciba Pharm. Co 5,331.00 do 38, 869 Robaxisal tablets (500) A. H. Robins Co 14,990.00 June 22, 1964 21,493 Renacidin powder (500 Gm.) Guardian Chemical Co 44,651.00 Nov. 20, 1962 48,376 Isordil tembids (40 mg. 100) Ives Laboratories 46, 822. 00 Apr. 29, 1965 50, 083 Panalba capsules (250 mg. 100) Upjohn Co 23, 979. 00 Feb. 24, 1966 25, 578 Mucomystsolution(20percent,3Oml.L Mead-Johnson 91,233.00 June 23, 1964 51,490 Lotocreme (8 oz.) Abbott Laboratories 17,072.00 Feb. 5, 1965 19,751 Robinul tablets (1 mg. 500) A. H. Robins Co 22,873.00 June 22, 1964 25,602 Valium tablets (5 mg 500) Roche Laboratories 602,208.00 June 23, 1964 1,128,168 Darvon Compound-65 capsules (500)..~ Eli Lilly & Co 572, 804. 00 May 18, 1962 700, 543 Conray-400 (25 ml.) Mallinckrodt Chemical Works 30, 081. 00 Dec. 27, 1965 19,298 Chymoral tablets (500) Armour Pharm. Co None Sept. 24, 1965 16,632 Modumate (25 gm. 100 ml.) Abbott Laboratories 26, 862. 00 Feb. 5, 1965 4,360 Tandearil tablets (100 mg 1,000) Geigy Pharmaceuticals 18,270.00 do 22,837 Diabinese tablets (250 mg. 250) Pfizer Laboratories 130, 272. 00 May 9, 1966 195,974 Keflin injection (4 gm.) Eli Lilly & Co 65,040.00 Oct. 19, 1967 369,600 Tofranil tablets (25 mg. 100) Geigy Pharmaceutical Co 5, 828. 00 Jan. 21, 1959 9, 483 Tinactin solution (1 percent, 10 ml.) - - - Schering Corp 17, 081. 00 June 30, 1967 36,713 Ismelin tablets (10 mg 100) Ciba Pharm. Co 13, 742. 00 Oct. 20, 1961 10, 061 Fluothane (125 ml.) Ayerst Laboratories 434,760.00 April 29, 1965 338,358 Haldol tablets (1 m4. 5,000) McNeil Laboratories None July 11, 1968 82,744 Haldol tablets (2 mg 5,000) do None do 203,232 Haldol tablets (1 mg 1,000) do None do 32, 990 Haldol concentrate (2 mg/mI. 120 ml.) do None July 15, 1968 50, 559 Haldol tablets (2 mg. 1,000) do None do 59, 905 Renovist injection (50 ml.) E. R. Squibb & Sons None Aug. 19, 1968 7, 906 Dulcolax tablets (5 mg. 1,000) Geigy Pharmaceuticals 52, 906. 00 Aug. 4, 1961 36,662 Depo medrol (40 mg. per ml. 5 ml.). Upjohn Co 19,200.00 June 22, 1964 28,910 Dulcolax tablets (5 mg. 100) Geigy Pharmaceuticals 2,380.00 Aug. 4,1961 3,502 Vasodelan tablets (10 mg. 1,000) Mead-Johnson Laboratories.. 105, (i94. 00 March 18, 1962 132, 726 Phenaphen capsules(500) A. H. Robins Co 8,361.00 Dec. 19, 1961 7,866 Ilosone pulvules (250 mg. 100) Eli Lilly & Co 42,823.00 June 5, 1959 44,757 Dimetane extentabs (12 mg. 500) A. H. Robins Co 7, 109. 00 Dec. 19, 1961 9, 541 Antabuse tablets (500 mg. 50) Ayerst Laboratories 4,666.00 Feb. 28, 1968 8,359 Dianabol tablets (5 mg. 100) Ciba Pharm. Co 3,485.00 Feb. 21, 1963 6,420 Cordran cream(0.05 percent l5gm.).... Eli Lily & Co 15,789.00 May 14, 1965 13,124 Coly-Mycin-M injection (150 gm.) Warner-Chilcott Labs 276,939.00 Oct. 4, 1961 256,230 Surfak cansules (240 mg. 1,000) Hoechst Pharm. Co 94,816.00 June 6, 1961 147,317 Tindal tablets (20 mg. 1 000) Schering Corp None Sept. 18, 1968 8,436 Keflin injection (1 gm) Eli Lilly & Co 1,858,920.00 Oct. 19, 1967 2,342,130 Coly-Mycin-S otic (5 ml.) Warner-Chilcott Labs 11, 189.64 March 1, 1966 17,273 Bronkometer(10 ml.) Breon Laboratories 6,480.00 June 7, 1966 13,608 Aventyl pulvules(25 mg 500) Eli Lilly & Co 76,416.00 Nov. 4.1965 65,409 Soma compound tablets (100) Wallace Laboratories 4,233.00 April 11, 1968 12, 583 Valium tablets (10 mg. 500) Roche Laboratories None May 16, 1968 278, 568 Lincocin capsules (500 mg. 100) Upjohn Co 123,534.00 Feb. 24, 1966 135, 117 Diuriltablets (500 mg. 1,000) MSD 47,102.00 May 27, 1958..~ 45,606 Mysoline tablets (250 mg. 1,000) Ayerst Laboratories 87,264. 00 Prior to Jan. 19, 1965 130, 706 Aerosporin injection (500,000 U) Burroughs-Wellcome & Co...... 37, 039. 00 May 20, 1967 47, 188 TreactorSC tablets (250 mg. 100) Ives Laboratories 6,960.00 Apr. 8, 1963 4,176 TrecatorSC tablets (250 mg. 500) do 115,973.00 Apr. 8, 1963 58,630 Renografin-60 injection (30 ml.) E. R. Squibb & Sons 168,064.00 June 30,1966 144, 855 Labstix test strips (100) Ames Laboratories None May 18,1968 101, 348 Lasix injection (10 mg/mI. 2 ml.) Hoechst Pharm. Co None Nov. 4,1968 31, 074 PAGENO="0149" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7465 ITEMS OBTAINED SOLE SOURCE DURING FISCAL YEARS 1968 AND 1969 WHERE ONLY ONE SOURCE WAS AVAILABLE-Continued Fiscal years 1968 Item Company Amount 1969 Date standardized Amount Lincocin solution, (300 mg/mI. 10 ml.)_ Upjohn Co Isuprel mistometer (15 ml.) Winthrop Laboritories Norgesic tablets (500) Riker Laboratories Darvon capsules (65mg 500) Eli Lilly & Co Conray.400 injection (50 ml.) Mallinckrodt Chemical Works_ Mandelamine suspension (pt.) Warner-Chilcott Labs Mycolog cream (15 gm.) E. R. Squibb & Sons Cyclospasmol tablets (100 mg. 100)._ Ives Laboratories Norflex tablets (100 mg. 50) Riker Laboratories Ismelin tablets (25 mg. 1,000) Ciba Pharm. Co Dianabol tablets (5mg. 1,000) do Ismelin tablets (10 mg. 1,000) do Darvon compound capsules (500) Eli Lilly & Co Librium injection (100 mg.) Roche Laboratories Deprol tablets (100) Wallace Laboratories Ken lotion (63~) Westwood Pharm Atromid-S capsules (500 mg. 100) Ayerst Laboratories Maolate tablets (400 mg. 500) Upjohn Co Equagesic tablets (100) Wyeth Laboratories Kantrex injection (0.5 gm. 2 ml.) Bristol Laboratories Kantrex injection (1.0 gm. 3 ml.) do Serax capsules (15 mg. 500) Wyeth Laboratories Serax capsules (10 mg. 500) do Serax capsules (30 mg. 500) do Phenergan tablets (25 mg. 1,000) do Phenergan injection (25 mg/mI. 10 do ml.). Phenergan injection (50 mg/mI. 10 do ml.). Prozine capsules (50's) do Regitine ampuls (5 mg.) Ciba Pharm. Co Sparine tablets (100 mg. 500) Wyeth Laboratories Sparine tablets (50 mg. 500) do Sparine tablets (25 mg. 5,000) do Sparine tablets (25 mg. 500) do Sparine tablets (200 mg. 500) do Sparine concentrate (30 mg/mI. 4 oz.) do Zactirin tablets (1,000) do Taractan tablets (25 mg., 500) Roche Labs Testape (100 tests) Eli Lilly & Co Dorideñ tablets (500 mg., 1,000) Ciba Pharm. Co Talwin injection (30 mg./mI. 10 mI.)..._ Winthrop Labs $57, 190. 00 Feb. 23, 1966 $65, 250 145,929.00 July 6,1966 205, 323 18, 949. 00 Sept. 23, 1965 28, 327 609,126.00 May 5,1962 677, 387 5, 560. 00 Feb. 26, 1968 19, 800 37, 286. 00 May 16, 1962 24, 996 None Aug. 19, 1968 21,053 12,319.00 Apr.8,1963 13,259 47, 174. 00 Dec. 20, 196k 44, 165 31,842.00 Mar. 18, 1963 23,499 11,491.00 Feb.21,1963 16,058 30, 844. 00 Apr. 14, 1963 24, 988 75,016.00 May 8,1962 75, 956 42,882.00 Mar.1,1966 73,305 24,648.00 June9,1965 38,603 7,567.00 June 12,196L_~._ 6,683 None Aug.19,1968 46,479 None May 16,1968 51,456 22,438.00 July 13,1965 None 33,056.00 Oct. 14, 1968 8,815 36,391.00 do None 39,308.00 Sept. 8, 1966 None 7,800.00 do None 34,793.00 do None 12, 091. 00 Prior to Nov. 16, None 1964. 18,408. 00 Prior to Dec. 10, None 1964. 4, 612. 00 Prior to Jan. 16, None 1965. 5,639.00 Mar.5,1959 None 1, 395. 00 Prior to Mar. 10, None 1965. 11,971.00 Aug.7,1956 None 15,624.00 Aug. 15, 1956 None 8,856.00 do None 10,487.00 do None 4,393.00 do None 4, 491. 00 Prior to Oct. 12, None 1964. 14,112.00 June21, 1965 None 16,294.00 June27,1963 27,156 57,781.00 Aug. 15, 1956 102,229 68, 382. 00 Prior to Oct 16, 74, 829 1964. None Aug. 5, 1968 335, 580 ITEMS OBTAINED SOLE SOURCE DURING FISCAL YEARS 1968 AND 1969 WHERE MORE THAN ONESUPPLIER EXISTED $30, 668. 00 Prior to Jan. 26, None 1965. 9, 485. 00 Prior to Dec. 11, None 1964. 526, 930. 00 Oct. 4, 1965 $28, 490 7,672.00 PriortoJan.26, None 1965. 3, 529. 00 Dec. 21, 1955 None 7, 022. 00 Prior to Jan. 19, None 1965. 11, 735. 00 Prior to Jan. 19, None 1965. 639,993.00 Aug.3,1965. 139,394 8,191.00 Oct. 14, 1966 None 91, 103. 00 Aug. 3, 1965 26, 082 60,552.00 May29,1959 None Fiscal years 1968 Item Company Amount 1969 Date standardized Amount Aludrox suspension (8 oz.) Wyeth Laboratories Aludrox tablets (lOOs) do Polycillin/N (0.5 gm, VI) Bristol Laboratories Amphojel (Pt.) Wyeth Laboratories A.M.T suspension (8 oz.) do Denesex ointment (lb.) WTS Pharmacraft Desenex powder(1~oz.) do Polycillin capsules (250 mg., lOOs) - - - Bristol Laboratories Prostaphlin capsules (250 mg.) do Prostaphlin injection (1 gm.) do Chloromycetin amps (1 gm.) Parke-Davis & Co PAGENO="0150" 7466 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ITEMS OBTAINED SOLE SOURCE DURING FISCAL YEARS 1968 AND 1969 WHERE MORE THAN ONE SUPPLIER EXISTED-Continued Fiscal years 1968 Item Company Amount 1969 Date standardized Amount Pabalate tablets (500) A. H. Robins Co Tessalon perles (100mg.) Ciba Pharm. Co Maalox suspension (6 oz.) W. H. Rorer, Inc KY lubricant jel Johnson & Johnson Lubafax surgical lubricant Burroughs-Wellcome & Co. Peritrate tablets (80 mg., 500) Warner-Chilcott Labs Peritrate tablets (20 mg., 5,000) do Peritrate tablets (10 mg., 50(w) do Peritrate tablets (20 mg., 500s) do Peritrate tablets (20 mg., l000s) do Nupercainal ointment(1 oz.) Ciba Pharm. Co Tedral tablets SA (100) Warner-Chilcott Labs Tedral tablets (1,000s) do Mylanta tablets (100) Stuart Co Mylanta suspension (5 oz) do Amesec pulvules (500s) Eli Lilly & Co Betadine antiseptic sol. (gal.) Purdue-Frederick Azulfidine tablets (0.5 gm.) Pharmacia Labs Betadine surgical scrub (gal.) Purdue-Frederick Isordil tablets (10 mg., 500) Ives Laboratories Isordil tablets(5 mg., 100) do Prolixin tablets (5 mg., 5,000) E. R. Squibb & Sons Osmotrol injection (10 percent, Travenol Laboratories 1,000 ml.). Prolixin tablets (2.5 mg., 500) E R Squibb & Sons Thiosulfil forte tabs (0.5 gm., 100s)~ Ayerst Laboratories Mysteclin-F capsules (250 mg.) E. R. Squibb & Sons, Inc Tuberculin PPD tabs (10/20 tests) MSD Mandelamine tabs. (1 gm. 1,000) Warner-Chilcott Labs Mandelamine tabs. (0.5 gm. 1,000) do Mandelamine tabls. (1 gm. 100) do Esidrix tablets (50 mg. 1,000s) Ciba Pharm. Co Polaramine repetabs (6 mg. 1000)... -- Schering Corp Travad Desposal enema (43/b oz.) Travenol Laboratories Soma tablets (350 mg, 100) Wallace Laboratories Synalar Cream (0.25 percent 425 gm.)_ Syntex Laboratories Disophrol chronotabs (100) White Laboratories Pavabid plateau caps. (150 mg 100).... Marion Laboratories Gelusil liquid (12 oz.) Warner-Chilcott Labs Gelusil liquid (5 oz.) do Gelusil tablets (1,000s) do Gelusil tablets (5,000) do Daricon tablets (10 mg. 500) Pfizer Laboratories Fiorinal tablets (1,000) Sandoz, Inc Donnatal tablets (1,000) A. H. Robins, Co None Aug 15, 1969 3, 732. 00 Oct. 20, 1967 6,117.00 Nov. 4, 1965 10,872.00 June 9, 1965 54,928.00 Aug. 20, 1965 79,896.00 Prior to 11/18/64..... 31,738.00 Feb.20,1963 30,174.00 June 30, 1967 4,230.00 Prior to 4/10/65 30,772.00 July 20, 1964 15,233.00 Nov. 18, 1964 None Aug. 19, 1968 None Feb. 3. 1969 50, 503.00 Apr. 11, 1967 28, 841. 00 Dec. 16, 1964 56, 421. 00 Prior to Dec. 15, 1964. 15, 436. 00 Prior to Nov. 18, 1964. 55,201.00 June 8, 1951 15, 189. 00 May 6. 1966 35, 198. 00 Sept. 19. 1963 48, 400. 00 Prior to Jan. 21, 1965. Donnatal extentabs (500) do 9, 474. 00 Feb. 12, 1958 Synalar cream (0.25 percent, 15 gm).. Syntex Laboratories 37, 801. 00 Apr. 19. 1963 Tylenol tablets (325 mg. 1,000) McNeil Laboratories 65, 231. 00 Apr. 7, 1964 Nitrospan capsules (2.5 mg. 100) USV Pharmaceutical Co None Sept. 19, 1968 Medihaler Iso w/adapter(15) Riker Laboratories 137, 162.00 Nov. 5, 1962 Metamucil powder (14 oz.) G. 0. Searle 79,453.00 Mar. 3, 1967 Atarax injection (50 mg/mI. 10 ml.).... J. B. Roerig & Co 53,625.00 Mar. 2,1966 Anectine powder (1,000 mg) Burroughs-Wellcome & Co... - 11, 136. 00 Mar. 11, 1964 Rela tablets (350 mg 100) Schering Corp 41, 377. 00 May 3, 1961 Neosporin ointment (3/i oz.) Burroughs-Wellcome & Co.. None August 19, 1968 Kenalog cream (0.1 percent 5 lbs.).- -- E. R. Squibb & Sons, Inc do April 11, 1968 Robitussin syrup (4 oz.) A. H. Robins, Co 19, 967. 00 October 19, 1967 - - - Titralac tablets (1,000) Riker Laboratories 24,495. 00 February 13, 1963. - - Synalarcream (0.01 percent45 gm)... Syntex Laboratories 45,316.00 April 19, 1963 Robitussin syrup (1 gal.) A. H. Robins, Co 60, 334. 00 May 5, 1970 Chlor-Trimeton repetabs (12 mg Schering Corp 6, 104. 00 Prior to October 12, 1,000). 1964. Epitrate ophthalmic sol (2.0 percent Ayerst Laboratories 2, 621. 00 February 28, 1968._~ 7.5 ml.) Phisohex (~aI.) Winthrop Laboratories 254, 160. 00 Demerol injection (50 mg/mI. 30 ml.) do 19, 620. 00 February 20, 1950. - - 239, 151 Prior to April 15, 15, 909 1957. Furacin soluble dressing (lb.) Eaton Laboratories 8, 121. 00 September 23, 1965.... 11, 257 Gantrisin tablets (0.5 gm. 1,000) Roche Laboratories 72, 012. 00 Prior to January 19, 89, 250 1965. $24, 043. 00 Prior to Jan. 21, 1965. 6,859.00 Mar. 9, 1959 121,010.00 Mar. 14, 1965 16,731.36 Prior to Dec. 7, 1964. 23,811.00 Prior to Nov. 20, 1964. 79,431.00 May 29, 1958 22,686.00 Aug. 15, 1956 17, 558. 00 Aug. 8, 1952 20,960.00 Aug. 15, 1956 None May 6, 1969 7, 136.00 Feb. 21, 1963 23,941.00 Oct.4,1963 44,917.00 Prior to 11/8/65 11,337.00 Aug. 11, 1964 67, 544. 00 do 49,687.00 Prior to 11/4/64 23,080.00 June 22, 1964 50,325.00 Jan. 10, 1966 25,196.00 June 22, 1964 31,881.00 Mar. 22, 1967 6,699. 00 do 24,999.00 May 14, 1965 4,376.00 Mar. 8, 1966 $23, 998 9,240 133,773 7,417 28,968 59,996 8,042 10,082 19,625 1,738 9,504 30,845 64,579 12,768 91,558 66,171 46,083 54,846 35,488 59,189 15~61 12, 498 4,243 11,676 2,799 27,904 21,918 66,471 84,394 23,928 None 3, 142 36,715 25,780 15,408 5,913 107,917 30,207 45,118 13,612 62,938 5, 024 44,939 55, 476 10,608 36,216 90,479 10,991 128,045 87,905 110, 500 10,210 49,669 2,378 80,490 67,797 25,466 42,699 26,234 12,351 12,979 PAGENO="0151" E co - ~ ~ ~o c~c~J ~ ooa,ooc~J (D'J~ ~ooc~4-.-~ ~or-c~ioo -~ ~ - - c~, ~ ~ c~j - - C~-~ C~)CO,-~ C~4 C~ C~) ~) ~ - z ~ CO co co co CD ~ _ ~ I I !d I !1 ~ o~ D~ ~ (`4 U~ -~ (`)c-4cn CC (`Cr- (`C (`4 (`4 (`4 (`~CCJ (`C ~. ~ - (`4 (`4 - (`4(0 (`4 ~(C - co~ - (0 .9 o-2 - ~ PAGENO="0152" C) 0 *0 *0 ~ C') ~ ~ Q 7:12 -n Z C,) R ;~ ~ ~ C - C) H U, U~_-J~_-4 ~ -~ ~ ~ ~ ~ 00 U, U, 00 U, U, 00 C) C) U, (CC) - C): C) C) -~ ~ ~ - - - CO C) C) 00 N3 C) CO C) - (0 N3 (000 U, N3 (CU, 00 PAGENO="0153" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7469 VETERANS' ADMINISTRATION-COMBINATION DRUG PRODUCTS PURCHASED-SOURCE 8 Dollar value fiscal year Item number Item name 1968 and 1969 *6505_207087A Chlorpheniramine Malrate, Codeine Phosphate, Phenylpropanolamine Hydrochloride, $15, 688. 00 Carbetapentane Citrate, Glyceryl Guaiacolate, Sodium Citrate, Citrid Acid, Chloro- form and Methylaraben syrup, 473 ml. (16 oz.) (Tussar-2) (3633). *6505_213275A Chymotrypsin, Hydrocortamate Hydrochlorile and Neomycin Palmitate ointment 2, 175. 00 (Chymar), 5 gm. (`d oz. No. 2318). *6505_o88_7925A Chymotrypsin, Hydrocortamate Hydrochiorile and Neomycin Palmitate ointment 6,086.00 (Chymar), 15 gm. ~ oz., No. 2314). *6505_782_o5o3A Chymotrypsin, Hydrocortamate Hydrochiorile and Neomycin Palmitate ointment 2,799.00 (Chymar), 30 gm. (1 oz., No. 2328). *65o5..782o478A Chymotrypsin, Hydrocortamate Hydrochlorile and Neomycin Palmitate ointment 4, 712. 00 (Chymar), 60 gm. (2 oz., No. 2319). 6505-220200A Cobalamin concentrate tablets 25 mcg. with intrinsic factor, concentrate, 30s (Biopar 250. 80 Forte, No, 2254). 6505-761--0887A Cyanocobalamin tablets, 6 mcg., with intrinsic factor concentrate, 30s (Biopar, No. 447. 50 2258). 6505-782025A Pentaerythritol Tetranitrate and Butabarbital sodium capsules, 30 mg., control 578. 00 release, (Pentritol tempules with Butabarbital), lOOs (No. 3027). 6505-782030A Pentaerythritol Tetranitrate and Butabarbital Sodium Capsules, 30 mg., control 578. 00 release, (Pentritol tempules with Butabarbital) 250s (No. 3012). 6505-914--6565A Proteolytic Enzymes with Neomycin ointment 15gm. (3/b oz. tube, Biozyme, No, 2261) 14, 022. 00 *6505_892840A Sodium Secobarbital, Phenobarbital, Sodium Butabarbital, and Sodium Pentobarbital 832. 00 tablets, scored, light green (Nidar) 100s (No. 2870). *6505_892843A Sodium Secobarbital, Phenobarbital, Sodium Butabarbital, and Sodium Pentobarbital 988. 50 tablets, scored, light green (Nidar) 1,000s (No. 2871). *6505_893150A Sodium Sulvacetamide, Trisulfapyrimidine (Deltamile) oral suspension, 0.5 gm. per 103. 50 5 ml., 480 ml. (16 oz., number 2432). *6505.893175A Sodium Sulfacetamide, Trisulfapyrimidine (Deltamide) tablets, 0.5 gm, lOOs (number 133. 60 2428). *~5o54j~44~54~ Trypsin-Chymotrypsin tablets, in a 6 to 1 ratio, enteric coated, red, Enzyme 1, 053. 25 (Chymoral) 48s (number 2330). *65o5728.2611A Trypsin-Chymotrypsin tablets, in a 6 to 1 ratio, enteric coated, red, Enzyme. 10, 212. 00 (Chymoral) 250s (number 2343). *65o5_985.7315A Influenza virus vaccine, USP, polyvalent, type A and B, 10 ml. (Winvac) 2,775.00 6505-784-6690A Methiodal Sodium and Neomycin Sulfate solution, 50 ml. (Retropaque) 4, 125.00 *6505_9o3_9996A Chlorpromazine Hydrochloride and Dextro Amphetamine Sulfate tablets, 10 mg. 7, 600. 00 Chlorpromazine Hydrochloride, USP, and 2 mg. Dextro Amphetamine Sulfate, 50's, sugar coated, aqua colored (Thora-Dex No. 1). *65o5~g9g566A Chlorpromazine Hydrochloride and Dextro Amphetamine Sulfate tablets, 25 mg. 5, 300. 00 Chlorpromazine Hydrochloride, USP, and 5 mg. Dextro Amphetamine Sulfate, 50 s, sugar coated, aqua colored (Thora-Dex No. 2). 6505-045--7790A Diphtheria and Tetanus toxoids, adsorbed, USP, combined, (Pediatric) alum pre- 1, 022. 00 cipitated, 5 ml. (5 immunizations) tablets number 1799. 6505-780-3523A Procaine Penicillin and buffered Penicillin for aqueous injection, NF, 10,000,000 units, 3, 750. 00 10-dose vial (1,000,000 units per dose; 750,000 units Penicillin G Procaine and 250,000 units Penicillin G crystalline-sodium, Duracillin F.A.) 25's. *6505_890_19o2A Pyrrobutamine compound capsules, yellow opaque body, green opaque capsules 1,650.00 1000's (Co-Pyronil). 6505-685-5411A Sodium Amobarbital and Sodium Secobarbital capsules Pulv. number 303 13/~ gr. 722. 50 (100 mg), blue body, orange capsule 1000's (Tuinal). 6505-685-5413A Sodium Amobarbital and Sodium Secobarhital capsules Pulv. number 304, 3 gr. 965. 00 (200 mg.), blue body, orange capsules 1000's (Tuinal). 6505-059-3457A Vitamin B Complex and Ascnrbic Acid Injectbn (Betadi C3mplex F. C.) Ampoule 833.~0 number 620 2 ml. Ampoule 100's, 6505-901-6671A Vitamin B complex and Ascorbic Acid injection (Betalin Complex F. C.) Ampoule 5, 484. 00 number 621 10 ml. vial, 25's. 6505-901--6651A Vitamin B Complex injection (Betalin Complex) Ampoule number 390,2 ml. ampDule, 721. 50 100's, 6505-764-4368A Vitamin B Complex injection (Betalin Complex) Ampoule number 391, 10 ml. vial, 1, 488. 00 25's. 6505-766-9589A Vitamin B Complex and Ascorbic Acid Tablets, coated, cinnamon-brown, 1000 s 1, 812. 00 (Becotin-T) tablets number 1810. . . *65o5.809.271oA Benzathine Penicillin G and Procaine Penicillin G suspension, sterile, injection, in 8, 532. 00 aqueous suspension, cartridge needle unit, needle size 20 g.x1~", 300,000 units, 1 ml. (Bicillin CR 600, Tubes) 10's pkg. number 1S405. *6505.9o1_6o32A Benzathine Penicillin G and Procaine Pencillin G suspension, sterile, injection, in 1,777.50 aqueous suspension, cartridge needle unit, needle size 20 G.x13~", 300,000 units, 1 ml. (Bicillin CR 600), (Tubex) 50's pkg. number 1U405. *65o5616.7858A Benzathine Penciilin G and Procaine Penicillin G suspension, sterile, inlection, in 1,035.00 aqueous suspension, cartridge needle unit, needle size 20 G.x1~", 600,000 units, 2 ml. (Bicillin CR 1200 MU, (Tubex) 10's pkg. number W405. *6so5.881.os2oA Benzathine Pencillin G and Procaine Pencillin G suspension, sterile, injection, in 2, 587. 50 aqueous suspension, cartridge needle unit, needle size 20 G.x13~", 600,000 units, 2 ml. (Bicillin CR 1200 MU), (Tubes) 50's pkg. number 1X405. 6505-984-4052A Diphtheria and Tetanus toxoids USP, combined, (Pediatric) Aluminum Phosphate, 62.40 ultrarefined, 0.5 ml. needle size 25 G.x%", 10's (Tubex) pkg. number 69E18. 6505-087-5737B Diphtheria and Tetanustoxoids and Pertussis vaccine, adsorbed, USP, combined alumi- 385. 00 num Phosphate, 0.5 ml. cartridge needle unit, needle size 25 G.x9/8", 10's (triple antigen Tubes) pkg. number 78L9. See footnot at end of table, p. 7470. PAGENO="0154" 7470 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY VETERANS' ADM IN ISTRATION-COMBINATI ON DRUG PRODUCTS PURCHASED-SOURCE 8-Continued Item number Item name Dollar value fiscal year 1968 and 1969 6505-299-9541A Lentopen, 1 ml, needle size 20 G.x13~i", 10's(Tubex). All purpose, 300,000 units Pro- caine Penicillin G and 100,000 units Potassium Penicillin G in oil, pkg. number 1AB263. *6505_890_1522A Mepergan injection, 50 mg. Promethazine Hydrochloride and 50 mg. Meperidine Hydrochloride, 2 ml., needle size 22 G.x13~", 10's (Tubex) pkg. number 18628. 6505-809-2707A Procaine Penicillin G and Streptomycin Sulfate suspension, sterile, 2 ml. cartridge needle unit, needle size 21 G.x13~", 10's (Wycillin SM Tubex) 400,000 units, pkg. number 8652. 6505-089--3068A Procaine Penicillin G and Streptomycin Sulfate suspension, sterile, 2 ml. cartridge needle unit needle size 21 G. x13/2", 10's (Wycillin SM, Tubex) 600,000 units, pkg. number 1A752. 6505-~930334A Tetanus and Diphtheria toxoids, absorbed, USP, combined (adult) Aluminum Phos- phate, ultrafined, 0.5 ml;, (cartridge needle unit, needle size 25 G.x~/8", 10's (Tubes) pkg. number 69E23. 6505-835--1123A Vitamin B Complex injection, 1 ml. cartridge needle unit, needle size 22 G.x13/2", 10's (Tubex) pkg. 1A779. $950.00 337.40 3, 008. 00 2,680.00 873. 60 563. 20 *Available from one source only. . VETERANS' ADMINISTRATION-COMPETITIVE BIDDING, FISCAL YEAR 1959 Amount of Product Winning bidder purchase Other bidders Alcohol Shell Alcohol dehydrated Warner Graham Alcohol USP Union Carbide USI Chemical Warner Graham National Distillers Aminophylline American Quinine Aspirin tabs Dewey Kasar Bacitracin Premo Bacitracin ointment Day Baldwin Fougera Premo Chloral Hydrate Mallinckrodt Cascara Lannett Halsey Drug Cascara Certified Labs Halsey Chlorpheniramine Maleate Anabolic Codeine Phosphate Kirkman Lilly Colchicine tablets Anabolic Cyanocobalamin injection Anabolic American Quinine Ether Mallinckrodt Ferrous Sulfate tablets Zenith American Quinine Davis Edwards Glycerin suppositories G-W Labs Griseofulvin McNeil Hexachlorophene liquid soap Harley Chemical Co Hexavitamin tablets Lannett Hexavitamin tablets Gyma USV Bolar American Quinine Hydrogen peroxide American Peroxide Dewey Iodine Mallinckrodt Isopropyl alcohol Union Carbide Shell Chemical Isopropyl rubbing alcohol Dewey Halsey Drug Meprobamate Gyma Wallace Halsey Drug Mineral oil Dewey Halsey Drug Lannett $21,063 5 40,408 1 14,312 2 17,861 0 7,115 0 3,993 1 6,534 2 21,349 5 2,718 1 6,655 2 10,498 1 1,728 2 2,460 2 1,373 0 3,096 3 2,660 0 89,112 4 1,939 0 1,187 6 15,561 1 3,678 0 6,485 5 1,269 2 8,480 3 6,119 1 8,294 3 5,422 4 2,700 1 12,236 0 5,945 4 16,382 0 5,006 1 4,633 3 2,847 1 6,977 5 6,304 1 2,850 1 20,809 3 1,478 1 6,424 2 8,598 3 14,402 1 8,372 1 74,400 1 25,000 1 3,733 1 2,011 4,761 3 5,988 3 PAGENO="0155" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7471 VETERANS' ADMINISTRATION-COMPETITIVE BIDDING, FISCAL YEAR 1969-Coninued Amount of Other Product Winning bidder purchase bidders Neomycin sulfate Copanos $8,442 2 Premo 26,200 0. Upjohn 8, 136 1 Premo 26,061 3 Nitroglycerin Lilly 4,883 0 Papaverine HCI Merrell 1,309 1 USV 1,992 5 Penicillin G Injection Copanos 5,871 1 Lilly 67,482 1 Squibb 3,335 0 Phenobarbital Davis Edwards 900 7 Kasar 7,569 1 Massengill 11, 071 3 Potassium ~onicillin G tab!ets Copanos 596 4 Zenith 2,227 0 Piemo 1,078 1 Potassium penicillin G tabets Zenth 2,795 0 Pfier 4,105 1 Prelnisone tabs Zen.th 22, 579 0 Pre~nsolone Lannett 1, 016 7 Zeiiith 3, 425 0 Masseigill 1, 161 4 Pyridoxine Lannett 1,697 5 Pyridoxine HCI Anabolic 3, 112 American Quinine 1,876 Bolar 1,800 Quinidine sulfate Davis Rose Hoyt 18, 494 American Quinine 6,278 Sodium pentobarbital Anabolic 1,696 American Quinine 10,616 Sodium salicylate Panray 6,732 Kirkman 13,997 Sodium secobarbital Anabolic 4, 141 Davis Edwards 6, 168 Tetracycline HCI Rachelle 143,056 Zenith 89,845 Halsey 22,011 Therapeutic formula vitamin American Quinine 19,483 Lannett 19,254 Triasyan B tablets Halsey 2,605 Massengill 3, 125 Thiamine HCI Bolar 445 Davis Edwards 3,666 American Quinine 3,631 DRUG PROCUREMENTS FROM LARGE COMPANIES BY DSA, GSA, AND VA, FISCAL YEARS 1968 AND 1969 DSA GSA VA Company calendar fiscal ficsal Total years years years Abbott $1,670,201 $114 $502, 125 $2, 172,440 American Cyanamid 1,934,223 4,000 189,236 2,127,459 American Home 5,124,096 884,516 2,336,373 8,344,984 Bristol 7,638,463 2,490,516 10, 128,979 Ciba 400,784 5,000 688,061 1,093,845 Johnsoñ&Johnson 3,349,233 15,345 798,583 4,163,160 Lilly 7,796,491 6,660 9,405,345 17,208,496 Merck Sharpe Dohme 4,214,316 15, 129 125, 500 4,354,945 Parke Davis 1,882,448 125,842 241,956 2,250,246 Pfizer 2,657,026 5,805 968,248 3,631,071 Richardson-Merrell 1,353,265 41,958 1,395,223 Roche 7,942,776 55,124 7,017,987 15,015,887 Schering 719,086 559,702 1,278,788 Searle 5,038,378 804,874 448,187 6,291,439 Smith Kline & French 5,582,728 4,173,543 9,756,271 Sterling 4,702,992 364,886 2,490,873 7,558,751 Squibb 1,025,349 15,250 622,925 1,663, 524 Syntex 873,732 177,444 1,051, 176 Upjohn 1,367,936 240 1,010,675 2,378,851 Warner-Lambert 2,611,592 2,443,396 5,054,988 Totals 67,885,115 2,302,785 36,732,633 106,920,523 PAGENO="0156" 7472 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY VETERANS' ADMINISTRATION-SOLE SOURCE PROCUREMENT We purchase drugs sole source for the following reasons: 1. Only. source available. 2. Only one source meets established standards. 3. To satisfy professional requirements. A number of drugs required for treatment of patients are available from only one source and therefore competition cannot be obtained. Standards have been established for manufacture, quality control, housekeep- ing and testing requirements for firms who sell drugs to the VA. These stand- ards are universally applied and must be met by all manufacturers supplying the VA. We procure drugs sole source when this is necessary to satisfy the prescrip- tion as written by the physician. We are responding to requests for filling prescriptions written by over 90,000 non-VA physicians in our service-connected outpatient program alone. These physicians are not on our staff and although efforts are made to contact them by phone to suggest available equivalent medi- cation, it is not always possible to obtain their permission for dispensing a therapeutic equivalent. We are supplying drugs to fill 11 million prescriptions by VA pharmacies at considerable savings over what we would pay to have the same prescription filled in community pharmacies. Physicians prescribing for VA patients are requested and encouraged to use generic terminology whenever possible to permit more standardization of drug procurement. The two forms used by physicians to order medications for pa- tients, namely, VA Form 10-1158 "Doctors Orders" and VA Form 10-2577d "Prescription Form", contain statements authorizing dispensing of another brand of a generically equivalent product, identical in dosage form and con- tent of active ingredients. if the prescribing physician doesn't agree to use of a generic product he must check in an appropriate place provided on the form. This encourages him to use the generic product but permits him to express his professional right to prescribe a particular item he feels is essential in treat- ment of the patient. Senator NELSON. On page 24 in the Task Force on Prescription Drugs, there is a statement by the Task Force on rational prescrib- ing which I ask be printed at this point in the record. (The material follows:) [Excerpt, Task Force on Prescription Drugs-Report and Recommendations-Committee Print, 90th Congress, 2d Session-Subcommittee on Monopoly of the Select Committee on Small Business, U.S. Senate-Prepared by the U.S. Department of Health, Education, and Welfare, Aug. 30, 1968, page 24] * * * * Rational prescribing The appropriate selection of a drug-the right drug for the right patient, in the right amounts at the right times-is generally defined as rational pre- scribing, and any significant deviation is considered to be irrational prescribing. Rational prescribing is obviously the result of judgments on many points- the safety and efficacy of the drug for the clinical problem at hand, the ad- vantages or disadvantages of alternative forms of therapy, the most appropri- ate dosage form, the length and intensity of treatment, the possible side effects or adverse reactions, and the possibility of drug interaction. To these may be added judgments concerning relative costs. Rational prescribing is clearly a major goal for the welfare of patients. It is likewise a major goal for any drug insurance program. Here, emphasis has been placed not directly on achieving rational prescribing but rather on pre- venting some of the more serious or costly forms of irrational prescribing. Among the latter are these: The use of drugs without demonstrated efficacy. The use of drugs with an inherent hazard not justified by the serious- ness of the illness. The use of drugs in excessive amounts, or for excessive periods of time, or inadequate amounts for inadequate periods. The use of a costly duplicative or "me-too" product when an equally effective but less expensive drug is available. PAGENO="0157" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7473 The use of a costly combination product when equally effective but less expensive drugs are available individually. The simultaneous use of two or more drugs without appropriate con- sideration of their possible interaction. Multiple prescribing, by one or several physicians for the same patient, of drugs which may be unnecessary, cumulative, interacting, or needlessly expensive. Senator NELSON. I want to thank you very much for your testimony. Mr. JOHNSON. Thank you very much, Mr. Chairman. It was a pleasure. Senator NELSON. And for spending your time here with us this morning. Thank you. (The complete prepared statement and supplemental information submitted by Mr. Johnson follows:) STATEMENT OF HON. DONALD E. JOHNSON, ADMINISTRATOR OF VETERANS' AFFAIRS Mr. Chairman and Members of the Committee, I welcome the opportunity to appear before this Subcommittee to describe to you the policies and practices of the Veterans Administration in the selection and procurement of drugs and to acquaint you with the role we play within the Federal Government in this important field of medicine. As the Administrator of Veterans Affairs I am directing an agency which is the largest Federal consumer of drugs and medicine outside the military. In fact, except in times of war or major military action, we are the largest Fed- eral consumer. In addition, by delegation and assignment under the Federal Property and Administrative Services Act of 1949, as amended, we are the commodity manager for all non-military Federal users. Our procurement and contracting for this commodity thus provides logistical support fOr many Fed- eral programs as well as for the Veterans Administration medical and clinical programs. I will describe in some detail the operations of our program, which may serve to amplify the meaning of the data already provided this Sub- committee. As a small businessman myself for a number of years, I personally as well as officially wholeheartedly subscribe to the principles of the Small Business Act (15 USC 631), particularly Section 2a which provides that a fair propor- tion of Federal Procurement shall be from small business. The data furnished to this Subcommittee might lead to the conclusion that a rather small propor- tion of the Veterans Administration drug procurement is from small business. I would like to supplement that data with the information that of all our drug purchases from both central procurement and individual hospital pro- curement 16% of our dollars are spent directly with small contractors; an additional 5% is for prescriptions purchased from local private pharmacies, almost all of which are small businesses; and a significant proportion of the remaining 79%, although the product of large manufacturers, may be pro- cured from small business distributors and drug wholesalers. This is not the optimum situation for the Veterans Administration, and I shall see that strong and sincere efforts are extended to improve our posture in support of small business. Unfortunately, as the Chairman and Members of this Subcommittee well know, the procurement of drugs is considerably more complex and complicated than almost any product purchased both for Federal and private programs. It has been fraught with controversy and is not free from strongly held divergent opinions. It is an area in which those of opposing views can find competent expert opinions in support of any particular viewpoint as to the safety, efficacy, relative therapeutic merits or (to use a term not often related to human life and health) the cost effectiveness of any given drug, drug manufacturer or therapeutic drug category. It is an area which, as the Administrator of this large drug-consuming agency, I am convinced does not offer "pat" or unequivo- cal answers. It is within this framework that the policies on the selection and procurement of drugs evolve within the Veterans Administration. PAGENO="0158" 7474 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY The administrative process does not dictate the selection of drugs which will be prescribed and dispensed in our Veterans Administration hospitals and clinics. We consider that the judgment of the physician is paramount to all other considerations in the drug selection process. In this agency his judgment is not made as a matter of unenlightened preference in an information vacuum. Supplementing his own knowledge and sources of information is the approval process at both the local hospital and national agency level. He is also sup- ported by technical and scientific data provided by our Pharmacy Service and cost and market data provided by our Supply Service. I would like to digress slightly to call the Subcommittee's attention to the unique and extensive affiliation program between the Nation's medical schools and the Veterans Administration. This affiliation program provides us with a vast body of fresh information on both laboratory and clinical research, pharmacological studies, new drug developments, in a more comprehensive and timely manner than otherwise might be available. We make full use of this information and do not, as some have charged of private physicians, rely pri- marily upon promotional and advertising sources for knowledge of drug prod- ucts. The process of drug selection begins at the individual Veterans Administra- tion hospital. When one of our physicians proposes to add a new drug product to those approved for use, he presents his proposal to a Therapeutic Agents and Pharmacy Review Committee. This Committee, consisting of representa- tive members of the professional, technical and administrative staff meets at least monthly to review the drug selection process. Before approving a new product, the Committee considers available data on the item's safety, efficacy, known side-effects, adverse reactions, extensiveness of use in the medical com- munity, and valuates these factors together with data on duplication of drugs already approved for local use, the cost of therapeutically equivalent drugs, the ready availability of sources for both routine and emergency deliveries. After considering all these factors, the Committee in approving the drug, will direct a period of clinical evaluation followed by its inclusion in the station's drug formulary, which is available to all physicians on the staff, at every nursing station, and is provided to non-Veterans Administration physicians prescribing for eligible veteran beneficiaries both in and out of our hospitals. If the Committee does not concur in the proposal, the drug may be approved for use by the physician for a specific patient, but it would not be used for additional patients without subsequent review by the Committee for each such patient and it would not be described or listed in the station's drug formulary. The results of each station's local committee proceedings are reported in detail to the Central Office Executive Committee on Therapeutic Agents. This central committee provides an overview of the agency operations, provides guidance and assistance to individual hospital committees, and digests and disseminates data to Veterans Administration personnel through a variety of media. In considering the selectian process of drugs procured by the Veterans Ad- ministration, a little-known fact must be borne in mind. The historical picture of drug usage by this agency is one of providing drugs and medicine to hos- pitalized veteran patients. We formerly provided a limited amount of drugs from our own pharmacies or through financial reimbursement to private pharmacies for outpatients. Several recent legislative actions have extensively increased the number of veterans who are to receive drugs and medicines at government expense. In Fiscal Year 1968, for the first time in this agency's history, the total expenditure for drugs provided outpatients exceeded that provided inpatients. This trend has steadily increased in Fiscal Years 1969 and 1970 and is projected to continue upward. Many of the prescriptions for these drugs are written by private physicians. Although we provide these physicians with data on our drug selections and our formularies, we cannot and do not attempt to control their professional practice by administrative direction. This growing outpatient workload has increased the number and kinds and brands of drugs purchased by the Veterans Administration to fill these prescriptions. This Subcommittee has in the past expressed the view that the purchase of drugs on a "generic" basis should be increased. We interpret this to mean the procurement on a competitive basis of drugs formulated of the same primary chemicals. It is the official policy of this agency to request and encourage PAGENO="0159" COMPETITIVE PROBLEMS IN THE DRUG INDTJSTRY 7475 physicians prescribing for our inpatients and outpatients to use generic termi- nology or nonproprietary nomenciature whenever possible. The two forms used by physicians to order medications for patients, VA Form 10-1158 "Doctors Orders" and VA Form 10-2577d `Prescription Form", contain statements au- thorizing dispensing of another brand of a generically equivalent product, identical in dosage form and content of active ingredients. If the prescribing physician does not agree to the use of a generic product he must check in the appropriate place provided on the form. This encourages him to use the generic product but permits him to express his professional right to prescribe a particular item if he feels lie can justify the request. When we can be assured of effective safeguards to adequately assure that chemically equivalent drugs are also biologically and therapeutically equiva- lent, we promote actively the use of generically procured drugs. At this time in the critical review and challenge of our historical methods of assuring the safety and efficacy of drug products, we are proceeding with greater caution. There is increasing evidence that many of the drugs marketed for some years as chemically equivalent drugs meeting USP or NF standards will not produce the same clinical response in patients. I am certain this Subcommittee is aware of the National Academy of Sciences/National Research Council "white paper" which recommended that manufacturers of generic drugs available on the market for some years be required to prove that their products have the same therapeutic effectiveness as the original drugs they seek~ to imitate. As I stated earlier this entire area is one in which there are divergent views. The promo- tion of generic equivalent procurement and the criticism of marketing of so- called "me too" drugs is an example of the dichotomy of views. Generically equivalent drugs almost universally enter the market as "me too" drugs. We will continue to develop the program of generic procurement when this will produce lower drug costs to us. However, we will not sacrifice the assurance of optimum patient care by use of questionable therapeutic agents merely to obtain the lowest price available. Until increased scientific knowledge and more precise standards are available to us, we must continue to exercise our own best judgment in the selection of therapeutically equivalent drugs. Your staff has expressed interest in our policy toward the use of combina- tion drugs. It is our policy to discourage the use of these drugs. We do not prohibit their use when the prescribing physician determines that a combina- tion drug is required for his patient. it is noteworthy that over 86% of the / expenditures in our central drug program were for single entity drugs during a period when the combination drugs were enjoying an increasing share of the national market. We, of course, continually monitor our drug program to guard against use of drugs producing previously unsuspected adverse reactions. We participate in the Food and Drug Administration's adverse reaction reporting system, both providing and receiving data from them on a regular basis. Information on adverse reactions is promptly disseminated to our hospitals and clinics and drug recalls handled through a system of double safeguards. In addition to the notifications provided through the FDA drug recall system, we also inform our stations on those items which are standardized for our use. There have been several instances lately where either the safety or effectiveness of specific drugs have been called into question prior to actual suspension or recall. We alert our hospitals and clinics to these by special announcements, telegrams, or other prompt notifications. If these items are procured through our central procurement program, we either discontinue procurement or purchase minimum quantities to meet only immediate needs pending resolution of the controversy. The decision as to continued use of a product under special review is left to the prescribing physician, but with the assurance that he is fully informed of any findings about the possible continued marketing of the drug. There is widespread evaluation under organized and controlled studies in the Veterans Administration into the uses of and efficacy and safety of drug products. In addition to ~these organized individual and cooperative studies, there is continuing evaluation in the everyday practice, of medicine by our staff of 5,000 physicians. The dissemination of the knowledge from these sources has continually contributed to the improved health care not only of veterans but the entire nation. Several major medical breakthroughs, such as the chemo-therapy used in treatment of tuberculosis, either originated in our Veterans Administration medical research or were possible because of our PAGENO="0160" 7476 COMPETITIVE PROBLEMS IN THE DRTJG INDUSTRY cooperative ventures with medical and pharmacological inquiries initiated by others. Turning to our procurement practices, 1 would like to again emphasize that the question of selection of which specific drugs will be procured is a pro- fessional and not an administrative decision. The responsibility of our pro- curement staff located within the supply organization is to purchase the drugs selected for use at the lowest cost, to assure their distribution to our pharma- cies in an efficient and timely manner and to provide quality control and in- spection processes during manufacture needed to insure that drugs meet the Veterans Administration specifications and quality requirements. Approximately one half our annual drug requirements are provided by purchase from our Veterans Administration Marketing Center in Hines, Illinois and distribution through our three supply distribution centers at Somerville, New Jersey; Hines, Illinois; and Bell, California. Thirty five percent are purchased by our indi- vidual hospitals and clinics from Federal Supply Schedules, executed by the Veterans Administration Marketing Center for use of all Federal agencies. The remainder are purchased by special negotiation or from local sources by our hospitals and clinics. The data furnished your Committee related to those drug items purchased by our Marketing Division for Drugs and Chemicals located at our Veterans Administration Marketing Center. In determining which items will be sup- plied through our central purchase and distribution program we apply the following criteria: (1) volume purchases are necessary to secure timely de- livery and advantageous prices; (2) price advantages through bulk buying Li sufficient to assure greatest economy through central distribution; (3) items are physically ado otable to storage and distribution; (4) the frequency of issue, repetitive use, physical characteristics, and stability of requirements justify central purchase and distribution. Items which do not meet these criteria are provided through the Federal Supply Schedule for Federal Supply Groups 6505 and 6810, Drugs, medical chemicals and reagents. A reporting system on frequency of drug use permits the periodic reevaluation of our methods of supply. This reporting system does not produce data your Subcommittee desired on individual items proc~ured locally, since it did not contain names of suppliers, or bidder information. It does provide us with usage trends to permit movement of items from one method of supply to another. Our quality control process consists of the following elements: (1) profes- sionally developed specifications, including USP or NF requirements, and any other additional descriptive or performance requirements considered necessary; (2~ inspection of manufacturers' facilities before inclusion on the Veterans Administration bidders' list; (3) laboratory analysis by the Food and Drug Administration of random samples selected by Veterans Administration per- sonnel from various lots before acceptance by our central distribution points; (4) physical inspection of random samples by professional personnel either at our supply depots or our hospital and clinic pharmacies; (5) a reporting sys- tem which we call Quality Improvement Reports to be submitted by using activities in case of dissatisfaction with products or need for improvement; (6) periodic reinspection of our suppliers' facilities and suspension from par- ticipation in Veterans Administration procurement of those not meeting our standards. We work in close cooperation with the Defense Supply Agency in exchanging information on bidder performance, inspection reports, product suitability, etc. We accept the quality control findings and vendor inspection reports of the Defense Supply Agency as an integral part of our own quality control program. We also interchange quality control information with the Food and Drug Administration and other elements of the Department of Health, Education and Welfare. I previously mentioned that we procure or contract for drugs for other Federal users. In 1961 the Administrator of General Services Administration, as provided in the Federal Property and Administrative Services Act, assigned to the Veterans Administration the responsibility and authority for the pro- curement and distribution of drugs, biologicals, medical chemicals and re- agents required by Federal agencies. Since that time we have contracted for and administered the Federal Supply Schedules for these items. We have also provided them from our central depot stocks to those agencies who have placed requisitions upon us. During the Fiscal Year 1970, we estimate that other Fed- PAGENO="0161" COMPETITIVE PROBLEMS IN THE DRuG INDUSTRY 7477 eral agencies acquired $37.5 million worth of drugs and chemicals and reagents through or from us, broken down as follows: $33,500,000 ordered from Federal Supply Schedules executed by the Veterans Administration; $3,500,000 ordered from our supply depot stocks; $500,000 ordered from stocks at our hospitals. We also procure from time to time items made available to us from the De- fense Supply Agency when that agency is able to acquire them at a lower cost than our own direct procurement. In closing, I would like to assure this Subcommittee that we are interested in effective control of drug purchasing, and in the greatest economy consistent with our needs and the effective and safe treatment of our veteran patients. We do strive to bring competitive conditions into the drug market and to economize wherever possible. I would like to mention a couple of examples of this. The largest recovery in the history of this nation for overcharges on drugs sold at prices in restraint of trade involved the antibiotic tetracycline hydrochloride. Recognizing that competition was apparently not being devel- oped despite availability of this item from several manufacturers, Veterans Administration reported information suggesting restraint of trade or price regulation to the Federal Trade Commission and the Department of Justice in 1955. In the widespread publicity attendant upon the Federal Trade Com- mission and court actions which resulted in the ordered refund of millions of dollars, the fact that the Veterans Administration initiated this action has been largely overlooked. We have taken action where we felt there was sup- porting evidence and alternative courses to exert the pressure of the Federal process in promoting competitive procurement for drugs. A.nother example of our cost awareness is our action in procurement of rubella measles vaccine for the immunization programs sponsored by Health, Education and Welfare. When we were first requested to procure this item, * the cost was $1.41 per unit dose. As the result of our efforts to obtain a better price and our encouragement to several firms to manufacture this product, we have negotiated the unit price down to 72ç~. The savings to the government for this product was approximately $2,900,000 during this last fiscal year alone. I assure this Subcommittee that we will be constantly alert to improve the quality, safety and therapeutic effectiveness of drug products and to expend the Federal dollars entrusted to the Veterans Administration in a prudent and thrifty manner. Mr. Chairman, this concludes my statement. I have members of my staff here with me and we will be happy to answer questions or provide additional information which will aid you in your hearings. (Subsequently, the Veterans' Administration submitted the fol- lowing literature upon the general subject. In addition to the article, "Treatment of the Acute Alcohol Withdrawal State: A Comparison of Four Drugs," two exhibits on "Drug Treatment of Schizophrenic Reactions" and "Treatment of the Acute Alcohol Withdrawal State," and a bibliography of some other studies are included.) 40-471 O-71----pt. 18-11 PAGENO="0162" 7478 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Treatment of the Acute Alcohol Withdrawal State: A Comparison of Four Drugs BY S. C. KAIM, M.D., C. J. KLETT, PH.D., AND BENJAMIN ROTHFELD, M.D. Amer. J. Psychiat. 125: 12, June 1969 © Copyright 1969 American Psychiatric Association PAGENO="0163" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7479 Treatment of the Acute Alcohol Withdrawal State: A Comparison of Four Drugs BY S. C. KAIM, M.D., C. J. KLETT, PH.D., AND BENJAMIN ROTHFELD, M.D. A double-blind study of 537 patients evalu- ated the relative efficacy of four drugs- chlordiazepoxide, chlorpromazine, hydroxy- zinc, and thiamine-commonly used in treating alcohol withdrawal symptoms, spe- cifically to prevent delirium tremens and con- vulsions. Of the 55 patients who developed these symptoms, two percent were in the chlordiazepoxide group; the incidence ranged from ten to 16 percent in the other treatment groups. The authors conclude that chlor- diazepoxide appears to be the drug of choice among those tested. IN THEIR CLASSICAL STUDY Isbell and associates( 8) conducted an experiment in which ten former morphine addicts consumed large amounts of alcohol for prolonged periods, following which alcohol was abruptly withdrawn. Four of the subjects withdrew from the study before abstinence symptoms appeared. The six volunteers who consumed alcohol for 48 days or more exhibited significant symptoms on withdrawal: tremor, weakness, perspira- tion, nausea, vomiting, diarrhea, hyperre- Read at the 124th annual meeting of the American Psychiatric Association, Boston, Mass., May 13-17, 1968. Dr. Kaim is director, staff for alcoholism and related disorders, Veterans Administration Central Office, Washington, D. C. 20420. Drs. Klett and Rothfeld are with the Veterans Administration Hospital, Perry Point, Md., where Dr. Klett is chief, Central Neuropsychiatric Research Labora- tory, and Dr. Rothfeld is associate chief of staff. This study is project 16 of the Veterans Administration Cooperative Studies in Psychiatry. Preliminary reports were presented at the 12th and 13th annual conferences of the Veterans Adminis. tration Cooperative Studies in Psychiatry, Denver, Cob., 1967 and 1968 and at the Second International Symposium on Action Mechanisms and Metabolism of Psychoactive Drugs, Paris, France, October .1967. flexia, fever, elevated blood pressure, and insomnia. Seizures occurred in two of the subjects, delirium tremens in two others, and hallucinations without impairment of sensorium in two (one of whom also suffered convulsions). Because these subjects consumed an excellent diet liberally supplemented with vitamins, it did not seem likely that their symptoms were due to a nutritional deficien- cy. The report by Isbell and associates strongly supported the thesis that withdrawal of alcohol is responsible for this syndrome. In a more naturalistic setting Victor and Adams(1 8) studied 266 patients who were consecutively hospitalized for alcoholism. After .the intake of alcohol was stopped, 32 (12 percent) of the patients suffered seizures, 14 (five percent) had delirium tremens, and 47 (18 percent) exhibited atypical hallucinatory states. These authors also considered the syndromes related to cessation of drinking. Fraser(5) produced an abstinence syn- drome in chronically intoxicated dogs (tremulousness, seizures, and a "canine delirium") when alcohol was abruptly withdrawn from them. The Lexington group (Isbell and associates) stated that complete cessation of drinking was' not necessary to provoke abstinence symptoms, for they found that a 25 percent reduction in the average daily alcohol intake could result in a fall of blood alcohol values to zero. Fraser(S) likens alcohol withdrawal to withdrawal from barbiturates, and he ad- vises (in both cases) ` substitution of a drug with equivalent effects in order to avert delirium, seizures, or both. Isbell and associates(8) advise against alcohol for this purpose because its calories lack proteins, vitamins, and minerals, and it is difficult to adjust dosage to avoid intoxication. They PAGENO="0164" 7480 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY cite the traditional use of paraldehyde and the lesser use of barbiturates and chioral hydrate in the treatment of delirium tremens. Although sedation had been regarded as symptomatic treatment, the Lexington group postulates that it may represent specific treatment in the sense that the sedatives used may be adequate pharma- cologic substitutes for alcohol. Since the advent of the newer psycho- pharmacologic agents-reserpine, the phe- nothiazines, meprobamate, the benzodiaze- pines, etc.-many of these drugs have been employed in the treatment of the acute alcohol withdrawal state. The early reports on the use. of these agents tended to be optimistic. Postel and Cossa( 13) cited a decrease in delirium tremens mortality from 65 percent in 1952 to 25 percent in 1955 following treatment with 25 percent alcohol, chiorpromazine, and vitamin B. complex intravenously. Figurelli(4) reported a de- crease in delirium tremens mortality from ten percent to 0.6 percent after changing treatment from paraldehyde to promazine. More recent studies have been reported in a more sober vein. In a study comparing promazine and paraldehyde, Thomas and Freedman(.l5) found that in the milder alcohol withdrawal states more patients were symptom free after two days of treatment with promazine than were those treated with paraldehyde. However, if patients treated with promazine did not respond in two days the symptoms tended to become more severe, with a prolonged course ensuing. In fOur such patients (of a total of 34) severe delirium developed, one terminating fatally. All of the 33 patients treated with paraldehyde were free of symptoms by the fourth day. Of 39 other patients admitted in delirium tremens, 17 were treated with promazine and 22 with paraldehyde. There were six deaths in the promazine group (35 percent) but only one in the paraldehyde group (4.5 percent). In another recent study Golbert and associates(6) treated 49 patients for alcohol withdrawal syndromes (agitated and tremu- lous states, including two patients with acute hallucinosis). with either promazine, chlor- diazepoxide, alcohol, or a combination of paraldehyde . and chloral hydrate. In the alcohol group (12 patients), five developed delirium tremens, and one of them also had convulsions. In the promazine group (13 patients.), seven developed delirium, one with convulsions; the only deaths (two) occurred in this group. In the chlordiazepox- ide group of 12 patients, six developed delirium. In the paraldehyde-chloral group (12 patients), only one developed delirium. Golbert and associates(6) treated 23 patients in delirium tremens with either promazine or the paraldehyde-chloral com- bination. In the promazine group of 12 patients, one developed convulsions and two died. There were no convulsions or deaths in the paraldehyde-chloral group. Thus in both promazine-treated . groups there~ was a mortality rate of 16 percent, compared to no deaths in the other groups. The literature, is replete with reports on the clinical use of other psychoactive agents. Laties and associates(12) found promazine and chlorpromazine . "essentially indistin- guishable in. performance" in the treatment of delirium tremens. Kaim and Rosenstein (11) reported that: In the alcoholic with frank or impending delirium tremens and associated convulsive seizures, Librium [chlordiazepoxide], in higher dosage of 200 to 300 mg. daily, brings prompt and gratifying control of both the psychotic and the convulsive phenomena without the toxicity experienced with the use of phenothia- zines, reserpine, or even the barbiturates. Weiner( 19) advocates the routine use of hydroxyzine parenterally as "the recom- mended drug" for treatment of the acute alcoholic states, with sodium amytal intravenously for "the few that do not respond." He advises against paraldehyde (danger of sudden death) and phenothia- zines (hypotensive risk). Victor( 17) stresses that the newer psychoactive drugs "have proved of value only in the milder forms of the withdrawal syndrome. However, there are no adequate data to show that any of them is effective in preventing delirium tre- mens." In spite of the high incidence of alcoholism, there have indeed been very few large-scale studies evaluating the relative effectiveness of different drugs used in the treatment of the alcoholic during the acute withdrawal period. PAGENO="0165" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7481 Treatment Program Because of the serious nature of this condition and its widespread occurrence in the 166 Veterans Administration hospitals, a large-scale cooperative study was initiated to evaluate the relative efficacy and safety of four drugs commonly used in treating the withdrawal symptoms of the alcoholic. Chlordiazepoxide, chlorpromazine, hydrox- yzine, and thiamine were evaluated against a matching placebo control in 23 VA hos- pitals using a common protocol. All newly admitted patients who had been drinking heavily for a period of at least two weeks immediately preceding hospitalization were considered for the study, as well as patients who were originally admitted for relatively minor medical or surgical condi- tions and who developed alcohol withdrawal symptoms during the early part of hospital- ization. Patients selected for the study had to show at least four of the following eight symptoms of withdrawal: gastrointestinal distress (anorexia, nausea, or vomiting), sweatiness or flushing, insomnia, tremulous- ness, irritability, apprehension, depression, and clouded sensorium or confusion. Patients were excluded from the study for any of the following reasons: over 55 years of age, frank schizophrenia or obvious chronic brain syndrome. complications requiring primarily medical or surgical attention, delirium tremens at the time of hospitalization, and known epilepsy or diabetes. Procedure Successive patients who fulfilled the selection criteria were assigned by random code to one of the five treatment groups. On the first day all patients received, every six hours, either: 50 mg. of chlordiazepoxide intramuscularly, 100 mg. of chlorpromazine orally, 100 mg.of hydroxyzine intramuscu- larly, 100 mg. of thiamine intramuscularly. or placebo. On the second through tenth days a flexible dosage schedule was employed within decreasing limits. During the last four days of the ten-day treatment period half of each treatment group was changed to placebo. All treatment was oral after the first day. During the first day patients on intramuscular medication also received placebo capsules; patients on oral medica- tion also received intramuscular placebo injections. During the ten days of the study no other psychoactive drugs, conventional sedatives, or hormone or vitamin preparations could be prescribed. Fluids were prescribed orally or intravenously as needed in accordance with good medical care. Other supportive treatment (counseling, psychotherapy) was also provided as seemed indicated. The principal investigator at each participating hospital was responsible for the coordination of the research team and for. the collection of the laboratory and scale data. The research team consisted of an evaluation group (nurse and nursing assistant) from each shift and the treatment physician. The ward evaluation team was responsible for completing the following items: Nurses' Alcohol Symptom Scale (at the end of each eight-hour shift), medication record (during each shift), Lorr and Mc- Nair Mood Scale (once daily), and alcadd test (during the sixth treatment day). The treatment physician was responsible for completing the Symptom Check List daily and the Global Rating on the first, sixth, and tenth days. Patients could be dropped from the study because of refusal to take oral medication, inadequate control of symptomatology, development of delirium tremens or other serious complications, or intercurrent ill- ness. In such cases the patient was promptly rated and the reasons given for the termina- tion on the Early Terminator Record. When a patient completed or was dropped from the study, all his forms were forwarded for processing to the Central Neuropsychiatric Research Laboratory, VA Hospital, Perry Point, Md. Results Significant results are found in the group of patients who had to be terminated early, which numbered 106 of the 537 patient population studied. As seen in table 1, 39 patients were lost from the study because they left the hospital against medical advice or without leave or were allowed to leave PAGENO="0166" 7482 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY TABLE 1 Reasons for Early Termination from the Study DRUG GROUP CHLORDIAZEPOXIDE HYDROXYZINE CHLORPROMAZINE THIAMINE P ACEBO TOTAL REASON (N = 103) iN = 103) (N = 98) (N = 103) (N - 130) (N = 531) Left hospita( against medical advice or without leave 10 2 9 9 7 37 Delirium tremens 1 2 4 4 7 18 Convulsions 3 6 2 5 16 Delirium tremens and convulsions 2 3 1 6 Behavioral worsening 1 3 2 6 3 15 Vomiting, intractable 1 1 2 Hypertension 1 1 Pneumonia 1 1 1 3 Tuberculosis . 1 1 Severe cold 1 1 Skin eruption 1 1 Requested discharge 1 1 2 Requested change of medication 1 1 Died' 1 1 Inadequate therapy 1 1 Total ~ TT ~ Another patient, dropped from the chlorpromazine group because of delirium tremens and convulsions, subsequently died. before the tenth day of treatment. The early Chiordiazepoxide 1 (1 percent) terminators were fairly evenly distributed Chiorpromazine 7 (7 percent) among the five groups, with the exception of Hydroxyzine 4 (4 percent) the hydroxyzine group. which lost only two Placebo 8 (6 percent) patients compared with eight to 11 lost in Thiamine 4 (4 percent) each of the other groups. It is difficult to account for this one significant difference, as Chiordiazepoxide thus is seen to have resulted in a significantly lower incidence these patients discharged themselves from of delirium than either chiorpromazine or the hospital for a variety of reasons. One may speculate that alcoholics feel more placebo. comfortable with hydroxyzine than with the Several patients who suffered isolated other drugs studied, seizures were not dropped from the study. Adding these to the cases terminated Fifteen patients were terminated because because of convulsions, the over-all of behavioral worsening, ranging from one incidence of seizures among the 537 patients in the chlordiazepoxide group to six in the was 37, or seven percent. The seizure thiamine group. This was the only signifi- incidence according to drug group follows: cant difference. Twelve patients were dropped from the Chlordiazepoxide 1 (1 percent) study because of nine miscellaneous Chiorpromazine 12 (12 percent) reasons. No more than one patient in a Hydroxyzine 8 (8 percent) treatment group was terminated for any one Placebo 9 (7 percent) of these causes. Thiamine 7 (7 percent) The clinically important findings concern It is apparent that chlordiazepoxide was those patients who developed delirium significantly better than any of the other tremens or seizures (or both). The. treatments. An important additional factor incidence of delirium for the entire should be mentioned here. Only one of the population of 537 was 24. or 4.5 percent. patients receiving thiamine, one receiving The incidence by drug group follows: hydroxyzine, and three receiving the placebo PAGENO="0167" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY TABLE 2 Incidence of Delirium Tremens and Convulsions 7483 DRUG GROUP CNLORDIA. CHLORPRO- . ZEPOXIDE MAZINE HYDROXYZINE THIAMINE PLACEBO TOTAL IISTURBANCE (N = 103) (N = 98) (N = 103) (N = 103) (N = 130) (N = 537) Delirium tremens 1 4 2 4 7 18 Convulsions 1 9 6 7 8 31 Delirium tremens and convulsions 0 3 2 0 1 6 Total (percent in parentheses) 2 12) 16 116) 10 110) 11)11) 16 (12) 55 110) suffered convulsions after the first day of treatment. In eight of the 12 chlorpromazine patients who had seizures, the seizures occurred after the first day and as late as the sixth day of treatment. The total incidence of delirium tremens and convulsions in the patient population is shown in table 2, which includes those patients with convulsions who were not terminated early. What about the approximately 400 patients who stayed the course? In general, the scales employed indicated that all five treatment groups improved rapidly, the larger changes occurring in the first two days. Individual symptoms appeared to respond more readily to one or another of the treatments, but no treatment method had an over-all consistent superiority. In fact, the placebo group appeared to fare (sympto- matically) as well as any of the others. Discussion The state resulting from acute withdrawal from prolonged use of excessive amounts of alcohol is attended by an appreciable risk of serious symptoms, the development of delirium tremens, and a moderately high mortality rate. The world literature abounds with conflicting reports on the effectiveness of numerous treatment regimens. The advent of the phenothiazines led to their extensive use in this condition. Early reports were extremely favorable, as is usual in the case of new agents. More recent reports, however, have been quite guarded as to both the efficacy and safety of the phenothiazines in this regard. The opinion has recently been expressed that no adequate data have yet been reported to prove that any of the newer psychoactive agents is effective in preventing the development of delirium tremens during the withdrawal state. With these issues in mind the VA embarked on a double-blind comparative evaluation of four of the commonly employed treatments of the alcohol with- drawal syndrome. As in other studies of this state, most patients in all five treatment- groups (including placebo) improved rapidly, the rate of change appearing greatest in the first two days of treatment. The success or failure rates in this study must be keyed to the rates of occurrence of the two most common and serious developments in this syndrome: convulsions and delirium tremens. Chlordiazepoxide was associated with the best outcome in both these disturbances; chlorpromazine, with the worst. With respect to seizures, our finding confirms the early report of Kaim and Rosenstein( 10) of the anticonvulsant action of chiordiazepoxide. The finding that patients receiving chlorpromazine incurred the most seizures confirms the reports of Bonafede(2), Fabisch(3), Sainz( 14), Bar- rett( I), and Ticktin and Schultz( 16). Chlordiazepoxide also appeared to offer substantial protection against the develop- ment of delirium tremens during alcohol withdrawal. In a recent study Greenberg and, Pearlman(7) reported that dreaming was suppressed during periods of increasing blood levels of alcohol. Withdrawal led to an increase in stage 1 rapid eye movement sleep, with 100 percent stage 1 found just before the development of delirium tremens. PAGENO="0168" 7484 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Barbiturates and some of the newer psychoactive agents also suppress dreaming. The authors postulate that with chiordiaze- poxide, which does not suppress dreaming during its short-term use, the dream deficit can be made up during sleep rather than delirium. The findings in the present study lend support to this speculation. Jaffe(9) has aptly cited the very low degree of cross-dependence with alcohol shown by the phenothiazines, contrasted with the high degree of cross-dependence with alcohol shown by chiordiazepoxide. From the results of this study we would agree with him that "since the development of delirium tremens always carries with it a risk of a fatal outcome, it seems appropriate to treat all but the mildest cases of alcoholic withdrawal with agents that show cross-dependence with alcohol." Conclusion A double-blind controlled comparison was made in 23 Veterans Administration hospitals of chlordiazepoxide, chlorproma- zine, hydroxyzine, thiamine, and a placebo in 537 patients suffering acute alcohol withdrawal symptoms. Treatments were compared with regard to symptom change and the development of delirium tremens and seizures. Symptomatic improvement occurred in the great majority of patients in all five treatment groups, the greater changes occurring during the first two days of treatment. Individual symptoms appeared to respond more readily to one or another of the treatments (including placebo), but there was no consistent over-all superiority of any one treatment. ~Convulsions developed in one percent of the patients who received chlordiazepoxide, in 12 percent of the chlorpromazine group, eight percent of the hydroxyzine group, seven percent of the placebo group, and seven percent of the thiamine group. Delirium tremens developed in one percent of the chiordiazepoxide group, seven percent of the chlorpromazine group, four percent of the hydroxyzine group, six percent of the placebo group, and four percent of the thiamine group. It is concluded that chlordiazepoxide appears to be the drug of choice (among those tested) in the prev~ntion of delirium tremens and convulsions during the acute alcohol withdrawal state. Chiorpromazine was associated with the highest incidence of both delirium and seizures. The differences between these two drugs were highly significant in the development of both delirium tremens and convulsions. Acknowledgments The authors acknowledge the assistance of the principal investigators at the 23 participating hospitals. They are: H. L. Schmidt, Jf., M.D., Augusta, Ga.; P. C. Clark, M.D., Bay Pines, Fla.; M. H. Clifford, M.D., Bedford, Mass.; S. Gold, M.D., Coatesville, Pa.; K. J. Langlois, M.D., Danville, Ill.; H. Neuer, M.D., Dayton, Ohio; L. London, M.D., Downey, Ill.; H. Zotter, M.D., Houston, Tex.; C. I. Schwartz, M.D., Lexington, Ky.; C. 0. Pearce, M.D., Little Rock, Ark.; J. Zirgulis, M.D., Los Angeles, Calif.; H. M. Moser, M.D., Lyons, N. J.; W. Simon, M.D., Minneapolis, Minn.; W. P. Rohan, Ph.D., Northampton, Mass.; I. J. Blumenthal, M.D., Northport, N. Y.; J. I. Prusmack, M.D., Palo Alto, Calif.; I. Reus, M.D., Perry Point, Md.; J. J. Duetsch, Ph.D., Salem, Va.; J. H. Latimer, M.D., Salt Lake City, Utah; R. W. Brawley, M.D., Sepulveda, Calif.; F. W. Keil, M.D., Temple, Tex.; R. S. Merrill, M.D., Tomah, Wis.; and T. V. Frank, M.D., Waco, Tex. Hydroxyzine (Vistaril) was supplied by Edward Costello of Pfizer Laboratories, New York, N. Y.; chiordiazepoxide (Libri- um), by Dr. llhan H. Tuzel of Roche Laboratories, Nutley, N. J.; and chiorpro- mazine (Thorazine), by William E. Kirsch of Smith Kline & French Laboratories, Philadelphia, Pa. REFERENCES 1. Barrett, ON., Jr.: Convulsive Seizures After Administration of Chlorpromazine, J.A.M.A. 166:1968-1987, 1958. 2. Bonafede, V. I.: Chlorpromazine Treatment of Disturbed Epileptic Patients, Arch. Neurol. Psychiat. 74:158.162, 1955. 3. Fabisch, W.: The Effect of Intravenous Chlorpromazine on the EEG of Epileptic PAGENO="0169" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7485 Patients, Electroenceph. Clin. Neurophysiol. 8:712, 1956. 4. Figurelli, F. A.: Delirium Tremens: Reduction of Mortality and Morbidity with Promazine, J.A.M.A. 166:747-750, 1958. 5. Fraser, H. F.: Tolerance to and Physical Dependence on Opiates, Barbiturates, and Alcohol, Ann. Rev. Med. 8:427-440, 1957. 6. Golbert, T. M., Sanz, C. J., Rose, H. D., and Leitschuh, T. H.: Comparative Evaluation of Treatments of Alcohol Withdrawal Syn- dromes, J.A.M.A. 201 :99-102, 1967. 7. Greenberg, R., and Pearlman, C.: Delirium Tremens and Dreaming, Amer. J. Psychiat. 124:133-142, 1967. 8. Isbell, H., Fraser, H. F., Wikler, A., Belleville, M. A., and Eisenman, A. J.: An Experimental Study of the Etiology of "Rum Fits" and Delirium Tremens, Quart. J. Stud. Alcohol 16:1-33, 1955. 9. Jaffe, J. H.: "Drug Addiction and Drug Abuse," in Goodman, L. S., and Gilman, A., eds.: The Pharmacological Basis of Therapeu- tics, 3rd ed. New York: The Macmillan Co., 1965, p. 304. 10. Kaim, S. C., and Rosenstein, I. N.: Anticon- vulsant Properties of a New Psychotherapeutic Drug, Dis. Nerv. Syst. 21 :March Suppl. 46-48, 1960. 11. Kaim, S. C., and Rosenstein, L N.: Experience with Chlordiazepoxide in the Management of Epilepsy, J. Neuropsychiat. 3:12-17, 1961. 12: Laties, V. G., Lasagna, L., GrOss, G. M., Hitchman, I. L., and Flores, J.: A Controlled Trial of Chlorpromazine and Promazine in the Management of Delirium Tremens, Quart. J. Stud. Alcohol 19:238-243, 1958. 13. Postel, J., and Cossa, P., cited by Nielsen, J.: Delirium Tremens in Copenhagen, Acta Psy- chiat. Scand. 41: Suppl. 11-92, 1965. 14. Sainz, A. A.: The Management of Side Effects of Chlorpromazine and Reserpine, Psychiat. Quart. 30:647-653, 1956. 15. Thomas, D. W., and Freedman, D. X.: Treatment of the Alcohol Withdrawal Syn- drome: Comparison of Promazine and Paral- dehyde, J.A.M.A. 188:316-318, 1964. 16. Ticktin, A. E., and Schultz, 3. D.: Librium, A New Quieting Drug for Hyperactive Alcoholic and Psychotic Patients, Dis. Nerv. Syst. 2l:March Suppl. 49-52, 1960. 17. Victor, M.: Treatment of Alcoholic Intoxica- tion and the Withdrawal Syndrome, Psycho. som. Med. 28:636-650, 1966. 18. Victor, M., and Adams, R. D., cited by Fraser, H. F.: Tolerance to and Physical Dependence on Opiates, Barbiturates, and Alcohol, Ann. Rev. Med. 8:427-440, 1957. 19. Weiner, L. J.: Manual for the Operation of the Receiving Ward, Philadelphia General Hospital, 1965. PAGENO="0170" 7486 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY LEO E. HOLLISTER, M.D., Palo Alto, California C. JAMES KLETT, Ph.D., Perry Point, Maryland EUGENE CAFFEY, Jr., M.D., Perry Point, Maryland SAMUEL C. KAIM, M.D., Washington, D.C. . The exhibitors wish to make clear that the work heing summarized has resulted from the efforts of literall hundreds of people. They have been fortunate in having small parts to play in this monumental effort. PAGENO="0171" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY BASIC PRINCIPLES OF THE COOPERATIVE STUDIES 1 LARGE, HOMOGENEOUS SAMPLES OF PATIENTS 2 RANDOM ASSIGNMENT OF TREATMENTS 3 BLIND CONTROLS 4 OBJECTIVE ASSESSMENT OF PATIENT CHANGES 5 STATISTICAL ANALYSIS OF DATA hese studies have evolved a series of logical questions about drug therapy of schizophrenia have been proposed. TRANQUILIZING DRUGS REALLY WORK IN SCHIZOPHRENICS? 7487 Yes, beyond any doubt. The question coos ansocered in a controlled study 0v the relati cc eltecticene 55 at chlorpromazine, promazine, phenobarbital and placebo (1957). 805 CHRONIC PATIENTS 37 HOSPITALS 24 WEEKS OF TREATMENT Chlorpromazine and peosnazine better than phenabarbital or placebo; chlorpromazine better than promazine. PAGENO="0172" 7488 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ARE SOME DRUGS BETTER THAN OTHERS ? Yes, bot its ho~d to fied sigeificost diffetesces betocees mossy like dsogs. Toss stodies hose sdscoted these fsstdisgs: the fiest, o compsssotioe stody of chlospsoetozise, tiflo-psomosise, meposiee, psochlospetoosse, peoph esosstte sod phesobsobital (1958 the second, o composatise ecalootios of chlospeomocise, chlonpnothioise, flcph esazee, sesespise, hosdazise sod tesflopsomozise. (1960 640 NEWLY ADMITTED PATIENTS ~ 35 HOSPITALS 12 -WEEK TREATMENT bbflf km 6 h 512 NEWLY ADMITTED PATIENTS 32 HOSPITALS 24 WEEKS OP TREATMENT Dscgs mocked by ostecisks mccc sigesficontly bettes than setespitte; top ice deogs sot sigsifscotttly dsffenetst. PAGENO="0173" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7489 ARE SIDE EFFECTS AND cOMPLICATIoNS A MAJOR PROBLEM IN USING PSYCHOTHERAPEUTIC DRUGS? No, not enen in double-blind trials. Wece treated approoimately 3000 patients in corioos blind controlled stodies with: NO fatalities from treatment NO cases of agronulocytosis NO cases of drug-induced jaundice About 4% drop-outs for medical reasons Here is the prenalence of certain side affects in 1000 patients: AKATHISIA 16% NAUSEA, VOMITING 9% DYSTONIA 3% CONSTIPATION 10% SEIZURES 1% EOSINOPHILIA 16% DERMATITIS 4% LEUCOPENIA 7% DRY MOUTH 15% ARN. HEPATIC TESTS 15% WEAKNESS, FATIGUE 20% WEIGHT GAIN> 25 LBS. 6% EXTRAPYRAMIDAL SYNDROMES 10% WHAT HAPPENS WHEN DRUGS ARE STOPPED IN PATIENTS WHO HAVE IMPROVED ON THEM? Many relapse. Three-hundred-forty-night patients who had been treated with either chlorpramazine or thioridazine were either continued on full doses, reduced to taking drug only 3 days a week (3/7 dose), or switched to placebos. 11961) Here are the results in terms of relapses and urine tests: hile it is clear that many patients may be withdrawn from drugs for substantial periods of time without relapsing, we simply don't huw to identify such patients. Possibly a number of patients might require less drug for maintenance therapy than is commonly used. PAGENO="0174" 7490 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY HOW ARE PATIENTS CHANGED BY THESE DRUGS? Pnimany symptoms of schiaophnenia ate impnoued. In many studies noon the pntnctpal aneas of change hone been found to be st such impottant symptoms as emotional toithdnau'al, hallucinations, delusions and othen dtstunbed thtnksng, and paranotd ptolectton. An eoample of the types of chanaes obsetned in one such study ts shoscn beloco: AVERAGE CHANGES DURING EIGHT WEEDS SF TREATMENT With 555 TRANOUILIZ5NG DRUGS These dnugs one mote than tnanquilizens' - They should be appnopnately tenmed antpsychotcs'. DOES PSYCHOTHERAPY ADD TO CHEMOTHERAPY? Not in schiaophrenics seen in gtaup psychothenapy thnee times a meek Ion ttoeloe noeeks. Patents mete nandomly assianed to dnua tnaatment alone (thiatidazinel, anoup psychotheapy alone on both tneatments togethet. Chemothenapy alone on combined scith psychothenapy onas supetion to psychothenapy alone tn neducno psychotc symptoms. MEAN SCORES OP IMPROVEMENT ON TWO RATING SCALES INPATIENT MULIIDIHENSIONAS PSYCHIATRIC SCALD BRIEF PSYCHIATRIC RATING SCALE 70- N 20 2 o- 4, 2 NURSES EVALUATION SCALE N u~ N c- 12 WEEKS WEEKS PAGENO="0175" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7491 WHAT HAPPENS TO SCHIZOPHRENIC PATIENTS? Nearly 600 of our patients from one study mere folloaced for three years. Tcco out of three admitted to the study mere relented crithin nine months; almost a third mere relented in four morths. Ten percent are clearly therapeutic failures as they remained hospitalized continually user the three-year period. THE MAJOR ANTIPSYCHOTIC DRUG CLASSES PHENOTHIAZINE DERIVATIVES I: NUCLEUS b01555~ r-Q-c-cuucuzcnzs~--Q-c; THIOXANTHENE DERIVATIVE c(ic0~ OENzDSuIN0LIzINE:E:v:TIVE PHENYLPIPERAZINE c~5c~ICnu~ The sin drug group s represen ted may be called major tranquilizers because they are useful in major emotional disorders. Only three of many phenuthiazine derivatives hose been shams. Most of these drug classes hose antipsychotic effects and prod uce extrapyramidal syndromes but hone little else in common. PAGENO="0176" 7492 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY SELECTED REFERENCES COOPERATIVE STUDIES IN PSYCHIATRY BENNETT, I. F. COOPERATIVE VA STUDY OF CHEMOTHERAPI IN PSYCHIATRY: PROJECT No. I. IN COLE, J. 0. & GERARD, R. W. (EDS.), PSYCHOPHARMACOLOGY: PROBLEMS IN EVALUATION, WASHINGTON: NATIONAL ACADEMY OF SCIENCES - NATIONAL RESEARCH COUNCIL, 1959, 412-420. CAFFEY, E. M., JR. EXPERIENCES WITH LARGE SCALE INTERHOSPITAL COOPERATIVE RESEARCH IN CHEMOTHERAPY. AMER. J. PSYCHIAT., 1961, 117, 713-719. CAFFEY, E. M., JR. CONTROLLED STUDIES OF TRANQUILLIZING AND ANTIDEPRESSANT DRUGS IN 2000 HOSPITAL PATIENTS. PROCEEDINGS OF THE THIRD WORLD CONGRESS OF PSYCHIATRY, VOL. I, 1962. 149-151. CAFFEY, E. M., JR., DIAMOND, L. S., FRANK, T. V., GRASBERGER, J. C., HERMAN, L., KLETT, C. J., & ROTHSTEIN, C. DISCONTINUATION OR REDUCTION OF CHEMOTHERAPY IN CHRONIC SCHIZOPHRENICS. J. CHRON. DIS., (IN PRESS). CAFFEY, E. M., JR., FORREST, I. S., FRANK, T. V., & KLETT, C. J. PHENOTHIAZINE EXCRETION IN CHRONIC SCHIZOPHRENICS. AMER. J. PSYCHIAT., 1963, 120, 578-582. CAFFEY, E. M., JR., HOLLISTER, L. E., POKORNY, A. D., & BENNETT, J. L. TRANQUILIZING AND ANTIDEPRESSANT DRUGS. VA MEDICAL BULLETIN MB-6, DEPARTMENT OF MEDICINE AND SURGERY, 1960. CAFFEY, E. M., JR. & KLETT, C. J. SIDE EFFECTS AND LABORATORY FINDINGS DURING COMBINED DRUG THERAPY OF CHRONIC SCHIZOPHRENICS. DiS. NERV. SYST., 1961.22 370-375. CAFFEY, E. M., JR., ROSENBLUM, M. P., & KLETT, C. J. SIDE EFFECTS AND LABORATORY FINDINGS IN A STUDY OF ANTIDEPRESSANT DRUGS. DIR. NERV.SYST., 1962, 23, 444-450. CASEY, J. F., BENNETT, I. F., LINOLEY, C. J., HOLLISTER, L. E., GORDON, M. H., & SPRINGER, N. N. DRUG THERAPY IN SCHIZOPHRENIA: A CONTROLLED STUDY OF THE RELATIVE EFFECTIVENESS OF CHLORPROMAZINE, PROMAZIN5 PHENOBARBITAL, AND PLACEBO. A.M.A. ARCH. GEN. PSYCHIAT.,. 1960, 2, 210-220. CASEY, J. F., HOLLISTER, L. E., KLETT, C. J., LASKY, J. J., & CAFFEY, E. M., JR. COMBINED DRUG THERAPY OF CHRONIC ScH,Z0pHRENICS: A CONTROLLED EVALUATION OF PLACEBO, DEXTROAMPHETAMINE, IMIPRAMINE, ISOCARBOXAZID, AND TRIFLUOPERAZINE ADDED TO MAINTENANCE DOSES OF CHLORPROMAZINE. AMER. J. PSYCHIAT., 1961, 117, 997-1003. CASEY, J. F., LASKY, J. J., KLETT, C. J., & HOLLISTER, L. E. TREATMENT OF SCH1ZOPHRENIC REACTIONS WITH PHENOTHIAZINE DERIVATIVES: A COMPARATIVE STUDY OF CHLORPBOMAZINC, TRIFLUPROMAZINE, MEPAZINE, PROCHLORPERAZINE, PERPHENAZINE, AND PHENOBARBITAL. AMER. J. PSYCHIAT. , 1960, 117, 97-105. GORHAM, D. R. & OVERALL, J. E. DRUG-ACTION PROFILES BASED ON AN ABBREVIATED PSYCHIATRIC RATING SCALE. J.NERV. MENT. DIR. , 1960, 131, 528-535. GOF.HAM, D. R. & OVERALL, J. E. DIMENSIONS OF CHANGE IN PSYCHIATRIC SYMPTOMATOLOGY. DIS. NERV.SYST., 1961, 22, 576-580. GORHAM, D. R. a POKORNY, A. D. EFFECTS OF A PHENOTHIAZINE AND/OR GROUP PSYCHOTHERAPY WITH SCHIZOPHRENICS. DIS.NERV. SYST., 1964, 25 77-86. GORHAM, D. R. & SHERMAN, L. J. THE RELATION OF ATTITUDE TOWARD MEDICATION TO TREATMENT OUTCOMES IN CHEMOTHERAPY. AMER. J. PSYCHIAT. , 1961, 117, 830-831. HOLLISTER, L. E., BENNETT, J. L., KAIM, S. C., & KIMBELL, I., JR. DRUG-INDUCED ELECTROENCEPHALOGRAPHIC ABNORMALITIES AS PREDICTORS OF CLINICAL RESPONSE TO THIOPROPAZATE AND HALOPERIDOL. AMER. J. PSYCHIAT., 1963, 119, 887-888. HOLLISTER, L. E., BENNETT, J. L., KIMBELL, I., JR., SAVAGE, C. & OVERALL, J. E. DIAZEPAM IN NEWLY ADMITTED SCHIZOPHRENICS. DIS. NERV. SYST., 1963, 24, 746-750. HOLLISTER, L. E., CAFFEY, S. M., JR., & KLETT, C. J. ABNORMAL SYMPTOMS, SIGNS, AND LABORATORY TESTS DURIHG TREATMENT WITH PHENOTHIAZINE DERIVATIVES. CLIN. PHARMACOL. THERAPEUT., 1960, 1, 284-293. HOLLISTER, L. E., MARRAZZI, A. S., a CASEY, J. F. SERUM OXIDASE ACTIVITY IN CHRONIC SCHIZOPHRENICS TREATED WITH TRANQUILIZING DRUGS. AMER. J. PSYCHIAT. , 1959, 116, 553-554. HOLLISTER, L. E., OVERALL, J. E., CAFFEY, E. M. , JR., BENNETT, J. L., MEYER, F., KIMBELL, I., JR., & HONIGFELD, G. CONTROLLED EVALUATION OF HALOPERIDOL WITH THIOPROPAZATE IN NEWLY ADMITTED SCHIZO PHRENICS. J. NERV. MENT. DIS., 1962. 135, 544-549. HOLLISTER, L. S., OVERALL, J. E., KIMBELL, I., JR., BENNETT, J. L., MEYER, F., & CAFFEY, E. M., JR. OXYPERTINE IN NEWLY ADMITTED SCHIZOPHRENICS. J. NEW DRUGS, 1963, 3, 26-31. HOLLISTER, L. S., OVERALL, J. E., MEYER, F., & SHELTON, J. PERPHENAZINE COMBINED WITH AMITRYPTILINE IN NEWLYAOMITTEDSCHIZOPHRENICS. AMER. J. PSYCHIAT., 1963, 120, 591-592. PAGENO="0177" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7493 HONIGFELD, G. RELATIONSHIPS AMONG PHYSICIANSt ATTITUDES AND RESPONSE TO DRUGS. PSYCHOL. RPTS., 1962 11, 683-690. HONIGFELD, G. ONE YEAR FOLLOW-UP OF DEPRESSED PATIENTS TREATED IN A MULTI-HOSPITAL DRUG STUDY. II. PSYCHIATRIC EVALUATIONS. DIS. NERV. SYST., 1963, 24, 2-62. HONIGFELD, 0. PHYSICIAN AND PATIENT ATTITUDES AS FACTORS INFLUENCING THE PLACEBO RESPONSE IN DEPRESSION. DIS. NERV. SYST., 1963, 24, 343-347. HONIGFELD, G. EFFECT OF AN HALLUCINOGENIC AGENT ON VERBAL BEHAVIOR. PSYCHOL. RPTS., 1963, 13, 383-385. HONIGFELD, 0. THE ABILITY OF SCHIZOPHRENICS TO UNDERSTAND NORMAL, PSYCHOTIC AND PSUEDO-PSYCHOTIC SPEECH. DIS. NERV. SYST., 1963, 24, 692-694. HONIGFELO, G. NON-SPECIFIC FACTORS IN TREATMENT. DIS. NERV. SYST. (IN PRESS). HONIGFELD, G. a LASKY, J. J. ONE YEAR FOLLOW-UP OF DEPRESSED PATIENTS TREATED IN A MULTI-HOSPITAL STUDY. I. SOCIAL WORKERS1 EVALUATIONS. DIS. NERV. SYST., 1962, 23, 555-562. KLETT, C. J. a CAFFEY, E. M., JR. WEIGHT CHANGES DURING TREATMENT WITH PHENOTHIAZINE DERIVATIVES. J. NEUROPSYCHIAT., 1960, 2, 102-108. KLETT, C. J. & LASKY, J. J. A CLINICAL TRIAL OF FIVE PHENOTHIAZINES USING SEQUENTIAL ANALYSIS. J. CLIN. EXP. PSYCHOPATHOL., 1960, 21, 89-tOO. KLETT, C. J. & LASKY, J. J. ATTITUDES OF HOSPITAL STAFF MEMBERS TOWARDS MENTAL ILLNESS AND CHEMOTHERAPY. DIS. NERV. SYST., 1962, 23, 101-106. LASKY, J. J. VETERANS ADMINISTRATION COOPERATIVE CHEMOTHERAPY PROJECTS AND RELATED STUDIES. IN UHR, L. & MILLER, J. 0. (EDS.), DRUGS AND BEHAVIOR, NEW YORK: WILEY, 1960, 540-554. LASKY, J. J. THE PROBLEM OF SAMPLE ATTRITION IN CONTROLLED TREATMENT TRIALS. J. NERV. MENT. DIS., 1962, 135, 332-337. LASKY, J. J., KLETT, C. J., CAFFEY, E. M., JR., BENNETT, J. L., ROSENBLUM, M. P., & HOLLISTER, L. E. DRUG TREATMENT OF SCHIZOPHRENIC PATIENTS: A COMPARATIVE EVALUATION OF CHLORPROMAZINE, CHLORPROTHIXENE, FLUPHENAZINE, RESERPINE, THIORIDAZINE, AND TRIFLUPROMAZINE. DIS. NERV. SYST., 1962. 23, 698-706. LINDLEY, C. J. (ED.) TRANSACTIONS, ANNUAL RESEARCH CONFERENCE, VA COOPERATIVE STUDIES OF CHEMOTHERAPY IN PSYCHIATRY, VOLS. 1-6, DEPARTMENT OF MEDICINE AND SURGERY, 1956-1961. LORR, M., KLETT, C. J., MCNAIR, D. M., a LASKY, J. J. INPATIENT MULTIDIMENSIONAL PSYCHIATRIC SCALE PALO ALTO: CONSULTING PSYCHOLOGISTS PRESS, 1963. OVERALL, J. E. DIMENSIONS OF MANIFEST DEPRESSION. J. PSYCIIIAT. RES., 1963, 1, 239-245. OVERALL, J. E. a GORHAM, D. R. FACTOR SPACE D2 ANALYSIS APPLIED TO THE STUDY OF CHANGES IN SCHIZOPHRENIC SYMPTOMATOLOGY DURING CHEMOTHERAPY. J. CLIN. EXP. PSYCHOPATHOL., 1960, 21, 187-195. OVERALL, J. E. a GORHAM, D. R. THE BRIEF PSYCHIATRIC RATING SCALE. PSYCHOL. RPTS., 1962, 10, 799-812. OVERALL, J. E., GORHAM, D. R., & SHAWVER, J. R. BASIC DIMENSIONS OF CHANGE IN THE SYMPTOMATOLOGY OF CHRONIC SCHIZOPHRENICS. J. ABN. SOC. PSYCHOL., 1961, 63, 597-602. OVERALL, J. E., HOLLISTER, L. E., BENNETT, J. L., SHELTON, J., a CAFFEY, E. M., JR. BENZQUINAMIOE IN NEWLY ADMITTED SCHIZOPHRENICS A SEARCH FOR PATIENTS BEST TREATED BY A SPECIFIC DRUG. CURRENT THERAPEUT. RES., 1963, 7, 335-342. OVERALL, J. E., HOLLISTER, L. E., HONIGFELD, G., KIMBELL, I. H., JR., MEYER, F., BENNETT, J. L., & CAFFEY, E., JR. COMPARISON OF ACETOPHENAZINE WITH PERPHENAZINE IN SCHIZOPHRENICS: DEMONSTRATION OF DIFFERENTIAL EFFECTS BASED ON COMPUTER-DERIVED DIAGNOSTIC MODELS. CLIN. PHARMACOL. THERAPEUTICS, 1963, 4, 200-208. OVERALL, J. E., HOLLISTER, L. E., POKORNY, A. D., CASEY, J. F., & KATZ, G. DRUG THERAPY IN DEPRESSIONS: CONTROLLED EVALUATION OF IM IPRAMINE~ ISOCARBOXAZID, DEXTROAMPHETAMINE-AMOBARBITAL, AND PLACEBO. CLIN. PHARMACOL. THERAPEUTICS, 1962, 3, 16-22. SHERMAN, L. J., MOSELEY, E. C., GING, R., & BOOKBINDER, L. J. PROGNOSIS IN SCHIZOPHRENIA. ARCH. GEN. PSYCHIAT., 1964, 10, 123-130. 40-471 0 - 71 - pt. 18 -- 12 PAGENO="0178" 7494 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY TREATMENT OF THE ACUTE ALCOHOL WITHDRAWAL STATE: DEVELOPMENT OF DELIRIUM TREMENS AND CONVULSIONS A comparison of four drugs S. C. Kaim, M.D. Veterans Administration Central Office, Washington, D.C. C. J. Klett, Ph.D. and Benjamin Rothfeld, M.D. Veterans Administration Hospital, Perry Point, Maryland PAGENO="0179" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7495 INTRODUCTION An acute withdrawal state develops in alcoholic subjects within hours to days after cessation (or diminution) of a pro- longed period of heavy drinking. Symptoms may include, in various combinations, anorexia, nausea, vomiting, sweat- ing, flushing, insomnia, tremulousness, tachycardia, agitation, irritability, apprehension, depression, weakness, fever, clouded sensorium and confusion. If untreated, this syndrome may progress to hallucinosis or delirium tremens, and may be complicated by grand ma! seizures. Most symptoms of acute alcohol withdrawal will resolve spon- taneously in several days. The two feared developments in this syndrome are delirium tremens and convulsions, either of which may terminate fatally. Despite the high incidence of alcoholism, there have been very few large scale studies evaluating the relative effective- ness of different drugs used in the treatment of the alcoholic during the acute withdrawal period. Because of the serious nature of this condition and its wide- spread occurrence in the 166 Veterans Administration hos- pitals, a large scale cooperative study was initiated to evaluate the relative efficacy and safety of four drugs commonly used in treating the withdrawal symptoms of the alcoholic. Chlordiazepoxide, chlorpromazine, hydroxyzine, and thia- mine were evaluated against matching placebo controls in 23 Veterans Administration hospitals using a common protocol. PAGENO="0180" 7496. COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY MATERIALS AND METHODS All newly admitted patients who had been drinking heavily for a period of at least two weeks immediately preceding hospitalization were considered for the study, as well as patients originally admitted for relatively minor medical or surgical condi- tions who developed alcohol withdrawal symptoms during the early part of hospi- talization. Successive patients who fulfilled the selection criteria were assigned by random code to one of the five treatment groups. On the first day all patients received every six hours, either: 1. 50 mg. of chiordiazepoxide intramuscularly 2.100mg. of chlorpromazine orally 3. 100 mg. of hydroxyzine intramuscularly 4. 100 mg. of thiamine intramuscularly, or 5. Placebo On the second through tenth days, a flexible dosage schedule was employed within decreasing limits. During the last 4 days of the 10-day treatment period half of each treatment group was changed to placebo. All treatment was oral after the first day. During the first day patients on intramuscular medication also received placebo capsules; patients on oral medication also received intramuscular placebo injections. During the ten days of the study, no other psycho-active drugs, conventional seda- tives, or hormone or vitamin preparations could be prescribed. Fluids were prescribed orally or intravenously as needed in accordance with good medical care. Other supportive treatment was also provided as seemed indicated Chlordiazepoxide-LIBRIUM Chiorpromazine-THORAZINE Patients selected for the study had to show atleast four of the following eight symptoms of withdrawal: 1. Gastro-intestinal distress: anorexia, nausea or vomiting 2. Sweatiness and/or flushing 3. Insomnia 4. Tremulousness 5. Irritability 6. Apprehension 7. Depression 8. Clouded sensorium or confusion Patients were excluded from the study for any of the following reasons: 1. Over 55 years of age 2. Frank schizophrenia, or obvious chronic brain syndrome 3. Complications requiring primarily medical or surgical attention. 4. Delirium tremens at the time of hospitalization 5. Known epilepsy or diabetes. Hydraxyzine-ATARAX, VISTARIL PAGENO="0181" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7497 RESULTS In general, all 5 treatment groups improved rapidly. the larger changes occurring on the first 2 days. The clinically impor- tant findings concern those patients who developed delirium tremens or seizures (or both). The total incidence of delirium tremens for the entire popu- lation of 537 was 24, or 4.5%. The total incidence of convul- sions was 37, or 7%. The breakdown by treatment group is shown in the following table: INCIDENCE OF DELIRIUM TREMENS AND CONVULSIONS Delirium Convul- DT and Tremens sions Consul- (I b 1 o Toti Chiorda epoxdeN-103 1 1 () 2 (2/) Chiorpromazine N- 98 4 9 3 16 16%) Hydroxyzine N-103 2 6 2 10 (10%) Thiamine N-103 4 7 0 Ii (11%) Placebo N-130 7 8 1 16 (12%) Total N-537 18 31 6 55 (10%) CONCLUSION The state resulting from acute withdrawal from prolonged use of excessive amounts of alcohol is attended by an ap- preciable risk of the development of serious complications, delirium tremens and convulsions, and a respectable mor- tality rate. The view has been expressed that no adequate data have yet been reported to prove that any of the newer psycho- active agents are effective in preventing the development of delirium tremens during the withdrawal state. With these issues in mind the Veterans Administration em barked on this double blind comparative evaluation of four of the commonly employed treatments of the alcohol with- drawal syndrome. The success (or failure) rate in this study was keyed to the rates of occurrence of the two most common and serious developments in this syndrome: convulsions and delirium tremens. In this study, chlordiazepoxide was associated with the best outcome on both these scores. PAGENO="0182" 7498 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Casey, J.F.; Bennett, I.F.; Lindley, C.J.; Hollister, L.E.; Gordon, M.L; Springer, N.H.: Drug Therapy in Schizophrenia: A Controlled Study of the Relative Effectiveness of Chlorpromazine, Promazine, Phenobarbital, and Placebo. Archives General Psychia~y 2:210~220, 1960 Casey, J.F.; Lasky, 3.3.; Klett, C.J.; bluster, L.E.: Treatment of Schizophrenic Reactions With Phenothiazine Derivatives: A Comparative Study of Chiorpromazine, Triflupromazine, Mepazine, Prochlorperazine, Peiphenazine, and Phenobarbital. American Journal of Psychi~f~y~ 117:97 105, 1960 BAirn, S.C.; Klett, CS.; Rothfeld, B.: Treatment of the Acute Alcohol Withdrawal State: A Comparison of Pour Drugs. American 3ou!j!4~f ~ç~hia~yj25:l6401646, 1969 Hollister, L.E.; Caffey, E.M. Jr.; Klett, C.J.: Abnormal Symptoms, Signs, and Laboratory Tests During Treatment with Phenothiazine Derivatives. Clinical Pharmacology Therapeutical: 284.293, 1960 Klett, C.J. and Lasky, 3.3.: A Clinical Trial of Five Phenothiazines Using Sequential Analysis. Journal_Clinical ~p~riaental Psychopathology 21:89'lOO, 1960 Lorr, M.; McNair, D.M.; Weinstein, G.J.; Michauz, W.W.; Raskin, A.: Meprobamate and Chlorprornazine in Psychotherapy: Some Effects on Anxiety and Hostility of Outpatients. Archives General Psycbiat~y 4:381~389, 1961 Michauz, W.W.: SideEffects, Resistance and Dosage Deviations in Psychiatric Outpatients Treated With Tranquilizers. JournaLof Nervous_& Mental Dise~pe l33:203~2l2, 1961 Lorr, II.; Mcbair, D.M.; Weinstein, G.J.: Early Effects of Chlordiazepoxide (librium) Used With Psychotherapy. ~ournal_P!yc!48~ic Research 1:257-270, 1963 PAGENO="0183" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7499 Reprinted from the A. ~1]. A. Archives of General Psichiatrv February 1960, Vol. 2, pp. 210-220 Copyriph t 1960, by American Medical Association Drug Therapy in Schizophrenia A Controlled Study of the Relative Effectiveness of Chiorprosnazine, Proinazine, Phenobarbital, and Placebo JESSE F. CASEY, M.D.; IVAN F. BENNETT, M.D.; CLYDE J. LINDLEY, M.A., Washington, D.C.; LEO E. HOLLISTER, M.D., Palo Alto, Calif.; MORDECAI H. GORDON, Ph.D., and N. NORTON SPRINGER, Ph.D., Perry Point, Md. Because of the difficulty in obtaining con- trolled drug studies of sufficient scope to be clinically meaningful, a cooperative study was planned to include psychiatric hospitals in the Veterans Administration nation-wide system. Such a study had the advantage of including a large and well-defined sample of patients treated in multiple hospital settings. Difficulties, anticipated in establishing a commonly understood research protocol and obtaining evaluations of treatment suffici- ently similar to permit pooling of the data, did not prove to be insurmountable. At the time this study was planned, two trends were already evident in regard to tranquilizing drugs.7 One was that reserpine and Rauwolfia alkaloids were diminishing in popularity for psychiatric use. The other was that interest in the phenothiazine derivatives, based on the successes with chlorpromazine, was mounting. Although preliminary clinical studies had indicated effectiveness of a dechlorinated analogue, promazine, this drug had not been tested under conditions of a "double-blind" con- trol. Thus, these two phenothiazine deriva- tives, chlorpromazine and promazine, were selected for study. For comparison, an active agent, phenobarbital, and an inert placebo (lactose) were chosen. The purpose of the study was to determine whether these treat- ments differed in efficacy for specified Despite the vast number of clinical in- followed their introduction, relatively few vestigations of tranquilizing agents which studies have used adequate controls. Such Submitted for publication July 23, 1959. controlled studies as were done often were Smith, Kline & French Laboratories and Wyeth, based on small numbers of patients, involved Laboratories, generously prepared and furnished differing control techniques, or led to con- the medications. tradictory conclusions.~-~ From the Veterans Administration Cooperative Studies of Chemotherapy in Psychiatry. The pre- sented authorship indicates only major roles in coordinating the study and preparing this report. Other major contributors to this study were Thomas G. Andrews, Ph.D.; Eugene Caffey Jr., M.D.; S. T. Ginsberg, M.D.; Joseph Cameron, MA., Amedeo S. Marrazzi, M.D., and Marcus P. Rosenblum, M.D. Additional participants, num- bering several hundred, have been acknowledged in the Transactions of the First (1956), Second (1957), and Third (1958) Research Conferences on Chemotherapy in Psychiatry, published by the U.S. Veterans Administration Department of Medi- cine and Surgery, Washington 25, D.C. Director, Psychiatry and Neurology Service, Department of Medicine and Surgery, Veterans Administration Central Office, Washington, D.C. (Dr. Casey). Chief, Psychiatric Research, Psy- chiatry and Neurology Service, Department of Medicine and Surgery, Veterans Administration Central Office; now with Eli Lilly & Company (Dr. Bennett). Special Assistant to Director, Psychiatry and Neurology Service, Department of Medicine and Surgery, Veterans Administration Central Office, Washington, D.C. (Mr. Lindlev). Chief, Medical Service, Veterans Administration Hospital, Palo Alto, Calif. (Dr. Hollister). Assistant Chief, Central Neuropsychiatric Re- search Laboratory, \Teterans Administration Hos- pital, Perry Point, Md.; now with National Institute of Neurological Diseases and Blindness, National Institutes of Health, U.S. Public Health Service, Department of Health, Education, and Welfare (Dr. Gordon). Chief, Central Neuropsv- chiatric Research Laboratory, Veterans Hospital, Perry Point, Md.; now Area Chief Clinical Psychologist, Office of the Area Medical Director, Veterans Administration, Trenton, N.J. (Dr. Springer). PAGENO="0184" 7500 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ~chizophrenic patients under controlled con- ditions. Procedure * Population-The study population was made up of men under 51 years of age who were hospital- ized for schizophrenic reactions. Patients with organic brain disease, previous leukotomy, or active systemic disease were specifically excluded. Sampling. - Thirty-seven hospitals contributed 805 patients to the study. Patients were selected from four main categories: acute disturbed, acute nondisturbed, chronic disturbed, and chronic non- disturbed. Chronic patients greatly outnumbered the acute (81% to 19%) ; the number of nondis- turbed patients was greater than the number of disturbed patients (73% to 27%). Chronic non- disturbed patients made up about two-thirds of the sample because a sufficient number of acute dis- turbed patients was not available. Patients selected within each of the lour cate- gories of chronicity and disturbance were randomly distributed among four treatment groups. The number of patients dropped during the course of the study because of serious side-reactions, inade- quate evaluation, or other reasons was distributed evenly among the categories. The final sample available for analysis consisted of 692 patients. Treatment-Double-blind" controls were usC(l in applying the four treatments: chlorpromazine. promazine, phenobarbital, and placebo. Patients nominated for the study were assigned medication in random order. Neither the patients nor their physicians knew which of the four agents was assigned. As a safeguard, the manager of the hospital was provided with this information for release only if the welfare of the patients so (lie- tated. As pharmacologic and si(Ie-effects might impair "double-blind" conditions, using two tran- quilizers reduced the chances of identifying the drugs. The commonest side-effect, (IrowSinesS, was duplicated by phenobarbital. Decisions regarding dosage and duration of treatment were made only after considerable dis- cussion. The issue of flexible doses as opposed to fixed doses was decided in favor of the latter, it being recognized that an arbitrarily selected dose * Detailed statements about the population, the sampling procedure (randomization procedure, homogeneity of groups, etc.), treatment procedure (precautions, laboratory methods, etc.), and method of evaluation (training of raters, arriving at team consensus rating, recording observations, nature of scales, etc.) are available elsewhere.''° Detailed statistical tables of the complete data may be obtained from the Central Neuropsychiatric Research Laboratory, Veterans Administration, Perry Point, Md. of a drug might not be optimal for all patieuts. A daily dose of 400 mg. of chlorpromazine was considered enough to demonstrate any therapeutic effect of this agent. An equal dose of promazine was recommended by the manufacturer. The dose of phenobarbital was 200 mg. daily. All medica- tions were packaged in capsules containing one- fourth the total daily dose of drug, that is, 100 mg. of chlorpromazine or proniazine or 50 mg. of phenobarbital in each capsule. Each patient's supply of medication was labeled only with his name and the cede number. All medications were odorless and identical in appearance and taste. No previous tranquilizing medication had been given for at least two months prior to the study to chronic patients and one month to acute patients. Initiation of medication was gradual, beginning with 1 capsule on the first day of the study, 2 on the second, 3 on the third, and the full (lose, of 4 capsules, daily tl1ereafter. All medication was given orally, divided into 2 or 3 daily~ (loses given at least eight ltours apart. The duration of treatment was arbitrarily deter- mined at 12 weeks, a perio(l of sufficient length to demonstrate therapeutic effects. At the end of this time, a "blind cross-over" was effected for another 12 weeks, as diagramed in Figure 1. Thus some patients were allowed to contintie on the same treatment for 24 weeks; others ha(l a control medication replaced l)y a tranquilizer or vice versa. Of the 692 patients completing the first 12 weeks of treatment, 489 (from 26 hospitals) completed the seeon(l 12-week treatment pcrio(l. The only treatment activities restricted were in- dividual and group psychotherapy, shock therapy, and interward transfer. All other treatment activ- ities available in the hospital were continue(l dur- ing the study. Supplemental conventional hypnotics, not barbiturates, were perniitte(l when deemed essential. Method of Evaluation of Treatment-Clinical changes in patients were measured by three rating devices: (1) The Multi-Dimensional Scale for Rating Psychiatric Patients (MSRPP)," (2) a Clinical Estimate of Psychiatric Status,12 and (3) the Manifest Anxiety Scale.'3 The MSRPP consists of 62 items, 40. of which require a clinical psychiatric interview for rating. The deviations of a patient's item scores from the norm yield a "total morbidity score." Subgroup- ings of items also provide scores for 11 factors of psychopathology : activity level, withdrawal, conceptual disorganization, perceptual distortion, mannerisms, paranoid projection, retarded depres- sion, melancholy agitation, self-depreciation, re- sistiveness, and belligerence. In this stu(ly, a tiani of observers at each hospital gave a consensus rat- ing for each patient with this scale. Data for this PAGENO="0185" 1~valuation at weeks 0 6 12 18 24 * * Chlorpromazine to 39 patients Chlorpromazine to 170 patients: Phenobarbital to 40 patients * * Placebo to 39 patients 41 patients 40 patients 42 patients scale were complete for the entire sample of patients. The Clinical Estimate of Psychiatric Status re- quired judgments by psychiatrists for 11 items of psychopathology and prognosis: severity of illness, recent change in mental condition, severity of symptoms, risk of leaving hospital without per- mission, participation in activities and self-care, probable time of release, probable level of re- quired care if released, probable level of economic productivity if released, probability of return to hospital if released, risk of violence to self, risk of violence to others. This device was inadequate for evaluating patient change but was somewhat useful in describing the sample of patients as a whole. The Manifest Anxiety Scale required the active participation of patients for answering questions. The scale could be completed by oniy about half the sample, with answers of doubtful reliability, and therefore was not considered appropriate for evaluating these patients. These measures were obtained at the beginning of the study, at the midpoint and end-point of the of tl1e study, at the mid-point and end-point of the initial 12-week treatment course, and at the mid- Iioint and end-point of the second 12-week cross- over study. As drugs were changed only at the 12-week interval, for the sake of brevity most consideration will be given these ratings. Statistical Analysis.14'8-Data were analyzed by multiple covariance, providing linear adjustment of group means to estimated equal starting levels of age, length of hospitalization, duration of illness, total morbidity, weight, and, in the initial 12-week study, chronicity and disturbance (the last two variates were not retained in the cross-over study because very few of the 489 patients in its sample were classified as other than chronic and non- disturbed). Treatment group means on all meas- urements were compared relative to the estimated variability among individuals in the population from which the sample was assumed to have been drawn at random. The difference in means at the end of the 24th week, adjusted to equal starting levels, was used to test the difference in change over 24 weeks; the difference between means at the end of the 24th week, adjusted to equal levels at start and end of 6th and 12th weeks, was used to test the difference in change over the second 12 weeks. Contrasts were tested for significance at the 5% level and against critical values based on the ranges of ranks of sets of means. J'his level was halved in those very few instances in which initial dispersions varied significantly among groups. COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7501 : Promazine to *Promazine to 171 patients . Phenobarbital to Placebo to Fig. 1. - Diagram of study plan. Chiorpromazine to 39 patients .Phenobarbital to 173 patients . Promazine to 43 patients Phenobarbital to 41 patients Chiorprornazine to 40 patients *Placebo to 178 patients . Prornazine to 44 patients Placebo to 41 patients PAGENO="0186" 7502 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Results Characteristics of the Sample at Start of Study-The patients assigned to each of the four treatment groups were quite similar as to means and variances of background variables at the start of the study. The sampling technique apparently succeeded in eliminating biasing f a c t o r s among the groups. The sample for the 12-week course con- sisted of 20% classified as chronic disturbed, 61% as chronic nondisturbed, 7% as acute disturbed, and 12% as acute nondisturbed; for the 24-week course, 23% as chronic disturbed, 74% as chronic nondisturbed, 2% as acute disturbed, and 1% as acute non- disturbed. In all other respects, the two samples were essentially alike at start of treatment. The average patient was 36 years old, had been ill about 10 years, and had been hospitalized for over 7 years. On the MSRPP, relative to a sample of Veterans Administration psychiatric hospital pa- tients,11 he scored at levels of markedly more total morbidity, resistiveness, perceptual dis- tortion, mannerisms, withdrawal, self-de- preciation, and conceptual disorganization; considerably more paranoid projection and belligerence, and very slightly more retarded depression, hyperactivity, and melancholy agitation. A further description of the average pa- tient, based on psychiatrists' judgments, fol- lows: The patient was more severely ill than the average patient in the hospital. His mental condition had not changed substan- tially for the two weeks preceding the study. While there was some risk, it was rather unlikely that he would harm himself or others. He might possibly try to leave the hospital unofficially, but, again, this was somewhat unlikely. In terms of the most realistic treatment goals, he would require a minimal degree of nursing care and would participate. though not very much, in ward activities. If he were able to be released from the hospital, it would he in the care ul his family, and the probability of his return would l)e high. He would be either unproductive economically or only partially self-supporting. Drop-Outs and Side-Reactions-The number of patients who were dropped from the study or reported to have developed untoward symptoms during it did not vary significantly among the four groups in the initial 12-week course or the 12 groups in the cross-over study. Of the 805 subjects selected for the study and placed on medication, 67 (8%) had to be withdrawn in the first 12 weeks for the following reasons: increased disturbance, 18, of whom 10 received a tranquilizer; medica- tion refused, 12, of whom 9 were in the tranquilizer groups; side-effects, 8, and an unrelated physical illness, 4. In 9 the pa- tient selection was incorrect (overage, lo- botomy); 14 were discharged from the hospital before the study was completed (5, absent without leave; 1, transferred; 1, trial visit; 7, no reason given). In two cases the reason for withdrawal was not stated. Of 528 patients who started on the second 12 weeks, 39 (7.4%) were withdrawn be- fore treatment was completed. Administra- tive reasons accounted for dropping all these patients but one. Only 27 (3%) patients of the total orig- inal sample were reported to have developed side-effects in the first 12 weeks: extra- pyramidal syndrome, 6 (1 with phenobar- bital); excessive drowsiness, 9 (1 with phenobarbital and 2 with placebo); derma- titis, 6 (3 with phenobarbital); vertigo, 2 (1 with phenobarbital); leukopenia, 3 (2 with phenobarbital), and jaundice (1 with phe- ñobarbital). Side-effects were severe enough in eight patients for them to be dropped from the study; seven had been receiving a tranquilizer. One of these seven developed leukopenia; five, extrapyramidal syndrome; one, dermatitis; and another, who received phenobarbital, a rash. Two cases of ex- cessive drowsiness were the only instances of side-effects reported from the placebo group. Nine (4.5%) of the phenobarbital patients had noticeable side-effects. In the proinazine group there were 5 (2.5%), and in the chlorpromazine group, 11 (5%). PAGENO="0187" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7503 Of the 489 patients who completed the 24-week course, 15 (3.1%) developed, in the second 12 weeks, untoward symptoms, most as the result of intercurrent illness. Side-effects attributable to treatment oc- curred as follows: One patient had leuko- penia, and one, convulsive seizures, while receiving promazine after 12 weeks of phe- nobarbital; one had edema of the hands and eyes while receiving chiorpromazine after 12 weeks of placebo. One side-effect which was peculiar to the tranquilizing drugs was weight gain during treatment. In each case in which chlor- promazine or promazine was compared with the control medications, weight gain was significantly greater (statistically) with the tranquilizer drugs. This relationship oc- curred when the drugs were used continually or only during one or the other period of treatment. Changes in Total Morbidity and Specific Symptoms During Treatment.-In assessing the effects of the drugs, either when given alone or in sequence, comparisons were made on the basis of the MSRPP total morbid- ity score and in regard to specific symptoms of psychopathology, aberrant behavior, or prognostic estimates gathered from the MSRPP and the Clinical Estimate of Psy- chiatric Status. Only results statistically significant at the 5% level will be presented. Of the 600 contrasts herein considered, 110 were found significant. The experimental design permitted com- parisons to be made between the four treat- ments administered for 12 weeks to fairly large groups of patients and between 12 treatment groups of smaller size after 24 weeks of consecutive treatment. Figure 2 shows changes which occurred in the total morbidity scores of patients treated for 12 weeks. Chlorpromazine was more effective in reducing morbidity than promazine, phe- nobarbital, or placebo. Promazine was su- l)erior to each of the two control medications. The latter two did not differ from each other. 45 40 as 0 0 (~fl >~ 0. -~ Q- 35 a *~; 30 0 -2 -4 - `3) 0 0 (n >` -o -o 0 0~- *~ ~ -6 I-a- ~cr a, a) ~ -8 C 0 -c o -io C) a, a ~i3 -12 > - ~ #~_ Treatment Comparisons. Sign/f/con/Differences CI/PI-Sig. Cl/Ph- Sig. Cl/Pr- N.S Pr/Pt - N.S * Pr/Ph- Sig. Pt/Ph- N.S CHLORPROMAZINE PROMAZINE -- PLACEBO PH EN 0 BARBITAL CHLORPROMAZINE - PROMAZINE PHENOBARBITAL ..- PLACEBO 0 6 12 Weeks of Treatment Fig. 2--Changes in total morbidity scores dur- ing initial 12-week period of drug therapy. 0 612 18 24 Weeks of Treatment Fig. 3--Changes in total morbidity scores in patients treated consecutively for 24 weeks with a single drtig. PAGENO="0188" 7504 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Changes in total morbidity which occurred in the smaller groups of patients treated for 24 weeks with a single treatment are shown in Figure 3. Chlorpromazine produced strik- ing improvement in being greatest in the initial 12-week period. Over 24 weeks, im- provement from chlorpromazine was not significantly greater than that from prom- azine but greater than from the control drugs. Improvement from promazine was significantly more than from phenobarbital but not from placebo. The difference be- tween placebo and phenobarbital was not significant. The first 12-week treatment period was considered to be most important for asses- sing changes in specific symptoms as the patients were newly treated: After the cross- over of treatments occurred, the situation became more complex, with the possibility of some carry-over effects from the earlier treatment. Table 1 describes the relation- ships of the various treatments to one an- other in regard to reduction of symptoms during this initial period of treatment. Chlorpromazine was superior to any of the other three treatment drugs in reduction of certain symptoms. Promazine surpassed phenobarbital and placebo in a more limited range of symptomatic improvement. The dif- TABLE 1.-Differences in Reduction of Symptoms Between Drug-Treated Groups During Initial Twelve-Week Treatment Period * Cl surpassed Pr In reducing symptoms of total morbidity, se- verity of illness, unimproving mental condition, risk of leaving hospital without permission, withdrawal, conceptual dis- organization, perceptual distortion, mannerisms, self-depre- ciation, resistiveness, belligerence, risk of violence to others. Cl surpassed Ph in the same respects plus participation in ac- tivities and self-care. Cl surpassed P1 in the same respects with the exception of risk of leaving the hospital without permission and partic- Ipation in activities and self-care. Pr surpassed Ph in reducing symptoms of total morbidity, con- ceptual disorganization, perceptual distoriion, mannerisms, resistiveness, and belligerence. Pr surpassed P1 in reducing symptoms of total morbidity, con ceptual disorganization, and perceptual distortion. Ph surpassed P1 in reducing symptoms of retarded depression. P1 surpassed Ph in reducing symptoms of belligerence. TABLE 2.-Differences in Reduction of Symptoms Between Drug-Ts~eatcd' Groups over Twenty-Four-Week Period: Same Drug Used Continually * ClCl surpassed PrPr in reducing symptoms of withdrawal, conceptual disorganization, mannerisms, and belligerence; surpassed PhPh in reducing the same symptoms plus total morbidity, unimproving mental condition, and resistiveness: surpassed PIPI in reducing symptoms of total morbidity, con- ceptual disorganization, paranoid projection, and belligerence. PrPr surpassed PhPh in reducing symptoms of total morbidity and resistiveness; reduced no symptoms significantly more than CICI or P1PI. PhPh reduced no symptoms significantly more than ClCl, PrPr, or PlPl. PlPl surpassed CICI, PrPr, and PhPh in reducing the symptom of self-depreciation; surpassed PhPh in reducing the symptom of resistiveness. *clcl, PrPr, PhPIS, and PIPI indicate successive 12-week courses of each agent. All differences beyond the 1% level of statistical significance; only comparisons showing such differences are noted. ferences between phenobarbital and placebo were slight. Comparisons between the smaller groups treated for 24 weeks consecutively with a single treatment yielded essentially similar results (Table 2). Continued treatment with chiorpromazine produced more symptomatic improvement than continued treatment with the other three agents. Twenty-four weeks of promazine therapy reduced total morbid- ity and resistiveness more than phenobarbital only. Phenobarbital produced no significant symptom reduction as compared with the other three agents. Placebo for 24 weeks reduced the symptom of self-depreciation significantly more than any one of the other. agents. The cross-over design permitted various sequence of drugs (chlorpromazine and promazine) and control medications (phe- nobarbital and placebo) to be evaluated. Figure 4 shows the changes in total morbid- it)' which occurred when the drugs were preceded by placebo or followed by it. When placebo was administered during the initial 12-week period, slight changes toward im- provement were seen. The addition of chlor- promazine for the, second 12-week period produced strikingly more reduction in mor- bidity. The effect of pronlazine in this regard was slight. \Vhen the drugs were * CI, chlorpromazine; Pr, promazine; Ph, phenobarbital; P1, placebo. All differences are beyond the 5% level of statistical signill- cance; only comparisons showing such differences are noted PAGENO="0189" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7505 a) 0 C.) (I) 0 0 0a Fcr .E u' :Q)~ cs-~ -8 C 0 j -10 CHLORPROMAZINE - PROMAZINE PLACEBO CHLORPROMAZINE - PROMAZINE PHENOBARB ITAL 6 12 18 24 a) 0 C-) U, >` ~0 .0 0 0W-. .~o- I-0~ -~ C 0 C.) 0' 0 ~ -12 0 Weeks of Treatment Fig. 4.-Changes in total morbidity scorcs iii patients treated with placebo either before 01 after promazine or chiorpromazine. administered first, both produced improve- ment (chiorpromazine more than promazine). Somewhat surprisingly, placebo following drug therapy maintained much of the im- provement obtained initially from chlorpro- mazine and actually enhanced that obtained from promazine. This finding suggests that some carry-over effect may be obtained from treatment with these drugs, the im- provement persisting as long as three months. When phenobarbital preceded or followed treatment with the tranquilizing drugs, sim- ilar results were obtained (Fig. 5). Initial treatment with phenobarbital produced neg- ligible effects. When chlorpromazine was added, improvement was rapid and marked; with promazine, less so. Initial treatment with the tranquilizers produced improve- ment (more so with chlorpromazine). When phenobarbital followedthe tranquilizers, im- Provenlent from chlorpromazine was main- tained and that from promazine enhanced. 0 6 12 18 24 Weeks of Treatment Fig. 5.-Changes in total morbidity score in patients treated with phenobarbital either before or after promazine or chlorpromazine. TABLE 3.-Differences in Reduction of Symptoms When Drugs Followed Control Medications or Vice Versa: Twenty-Four-Week Treatment * 01 surpassed Pr OlPh surpassed PrPi in reducing symptoms of severity of illness; dPi surpassed PrPl in reducing symptoms of risk of violence to ethers. (ii surpassed Pr CIPh surpassed PhPh in reducing total morbidity and sythp- toms of conceptual disorganization, mannerisms, resistive- ness and belligerence. 01 surpassed Pt OJP1 surpassed PlPl in reducing symptoms of paranoid pro- jection. Pr surpassed Ph PrPh surpassed PhPh in reducing total morbidity and sym p- toms of uniniproving mental condition, conceptual clisorgan- ization, mannerisms, and resistiveness. Pr surpassed Pt PrPI surpassed P101 in reducing symplome of paraiioid pro- jection. P1 surpassed Cl asd Pr PIPI surpassed CIPI; P101 surpassed CICI, and PIPI sur- passed PrPl, in reducing symptoms oF self-depreciation. * CiPh, PrPh, PlPr, etc., refer to successive 12-week cour~ev of the medications in the order indicated. All differences beyoscl the 5% level of statistical signifieinc' - only comparisons showing such differences are noted PAGENO="0190" 7506 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Comparisons of symptom reduction when drugs followed control medications or vice versa are shown in Table 3. Tn general, the presence of a tranquilizing agent in the se- quence increased symptomatic relief, as compared with the control agents. Further- more, chlorpromazine was generally better than prornazine. Phenobarbital was never superior to the tranquilizing drugs in im- proving any specific symptom. Placebo ex- celled each of the other three agents in reducing self-depreciation. Comment Sampling and Statistical Considerations. The intent of this study was to determine the relative effectiveness of these drugs with schizophrenic patients classified as acute, disturbed arid nondisturbed, and as chronic, disturbed and nondisturbed. However, the available sample proved to be composed mainly of chronic nondisturbed patients. Ac- cordingly, the results of this study are most applicable to such patients. One should ex- pect that therapeutic effects of the tran- quilizing agents might have been more easily demonstrable in the other three groups of schizophrenics. In the cross-over study, the preponderance of chronic nondisturbed patients was even greater. In addition, the fragmentation of the original sample pro- duced rather small samples for each treat- ment sequence. Both these factors might be expected to increase the difficulty in demon- strating clear-cut therapeutic differences. Every effort was made to assure that differences among patient groups following treatment were in fact due to the treatment. In the statistical analysis, it was assumed that the samples had been randomly selected, that each treatment group resembled the other in most pertinent characteristics, and that the design of the experiment eliminated other biasing factors. As far as could he determined, all these assumptions were ten- able in this study. Tools for Evaluation of Patient Change. The twu rating devices utilized con- sisted of one which was extensively tested and one completely new. The MSRPP has been well validated and very widely used."~'2° As no scale is more accurate than the raters, it is important to note that this scale was used in this study by a team, consisting in all cases of a pyschiatrist and a psychologist, which made a consensus rating. Later evaluation of this technique suggested that it has, a high degree of interrater reliability.2' Each team was spe- cially trained in the use of the scale prior to the initiation of the study. Consequently, it was felt that the results of these ratings were acceptably reliable. Although' the Clinical Estimate of Psy- chiatric Status required only "global" in- tuitive judgments, it was felt that such material might prove to be useful. Without previous trial, one could not be sure of the degree of the relevance or interrater con- sistency of the scale. In most cases signif- icant improvement of patient groups in regard to "severity of illness" measured by this device was consistent with similar im- provement in the total morbidity score of the MSRPP. However, what some of the measures in this scale were relevant to had not been established and could not be clearly interpreted. Drop-Outs and Side-Effects-The num- ber of drop-outs and side-effects was com- paratively small. However, these findings could not be generalized beyond the present sample, since 65% of patients had received tranquilizing drugs before. Presumably, such patients may have had an opportunity before the study to become "desensitized" to some of the side-effects o~ these agents. Clinical Findings-A number of factors in this study tended to introdu~e a "negative bias." The chronicity of the patients and their previous refractoriness to\ tranquilizing drugs did not afford the mbst sensitive group for demonstrating theraheutic effects of these agents. The use of a\ single fixed dose, while considered necessary in the ex- perimental design, may have limited the effects of treatment. Equivalenc~e uf dosage between drugs was determined f\rom clinical \ 107/217 Casey et a!. PAGENO="0191" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7507 favor of one treatment over another. The relatively brief duration of treatment may have tended to minimize changes. Despite these handicaps, the results ob- tained were consonant with most clinical experience. When chlorpromazine was used, either preceding or following another treat- nient, the effect of the drug was clearly superior to that of the others. As chlor- promazine is generally considered to be the "standard" against which all other tran- quilizers should be measured, the results obtained here bear out this high opinion of the drug. Promazine, while showing definite therapeutic effects, produced changes of less degree and in fewer instances. Here, too, clinical opinion is that this drug is less ef- fective than chlorpromazine at the same dose* levels, especially in chronic schizophrenics.22 Had a higher or a flexible dose of this drug been used, differences between promazine and chlorpromazine might have been less striking, and the superiority of the former drug over phenobarbital and placebo more evident. The fact that placebo and phenobarbital produced little therapeutic benefit in chronic schizophrenics came as no surprise to clini- cians with extensive experience in treating such patients. The placebo effect is con- tingent upon a high degree of spontaneous remission and a high level of suggestibility of the patient, neither situation obtaining in chronic schizophrenics. On the other hand, the retention of therapeutic gains from tran- cluilizers for as long as three months following the cross-over to placebos or phenobarbital was surprising. Although it is a common clinical experience that some patients may stay in remission for a long time after discontinuation of medication, it is equally common for patients to relapse within days or weeks. The process of group: averaging of morbidity might tend to mask a frequency of relapse that would be intoler- able clinically. but relapse of individual pa- tients in this study. could not have been \`ery frequent, else the changes in averages would ha~ indicated that carry-over, effect from chlorpromazine may last as long as three months after patients have been switched to placebos.23 While tending to support this idea, . the present study does not constitute definitive proof because of the comparatively small sample (39 to 42 patients) in each of these treatment groups. Another interesting aspect of the use of placebos in this study was the apparent amelioration of a symptom of mental de- pression (self-depreciation) by placebo when given continually for 24 weeks, as compared with the other three agents given in the same fashion. Here the effect may be negative rather than positive; the drugs may have aggravated this particular symptom. Clinical evidence suggests that, at least with the phenothiazine derivatives, some patients may have depressive symptoms aggravated. Summary A large cooperative study involving 692 men with schizophrenic reactions hospital- ized in 37 Veterans Administration neuro- psychiatric hospitals was undertaken to determine the relative effectiveness of chlor- promazine, promazine, phenobarbital, and placebo. Controls included random assign- ment of treatments, use of the double-blind technique for drug administration, and pro- vision for similar conditions of treatment. Chlorpromazine and promazine were admin- istered in daily doses of 400 mg., and phe- nobarbital, in doses of 200 mg. After 12 weeks of treatment, some patients continued for 12 more weeks on the drug initially assigned, and some were switched to con- trol medications following the tranquilizing drugs, or vice versa. Chiorpromazine was found to be signif- icantly better in reducing total morbidity of patient groups treated with this drug over a 12-week period than were any of the other three agents. Over the 24~week period chior- promazine was significantly more effective than either control medication. Proniazine was significantly iioie effective thaii either control medication over the 12-week period, experience and advice of drug manufac-. have been greater. Another controlled study turers, with possible unknown bias in PAGENO="0192" 7508 l)ut superior only to phenobarbital after 24 weeks of treatment. No significant differ- ences in. clinical effects were noted between phenobarbital and placebo when the drug Was given for 12 or 24 weeks. When chlor- pronlazi He or promazine followed control medicati( ins, clinical improvement was in- creased, especially with the former drug. However, the substitution of control med- ication following tranquilizing drugs main- tamed the gaiiis from the latter surprisingly well for an additional 12-week period. Re- duction of specmhc symptoms of illness was greatest with chlorpromazine, less with protnaziiic, and little with the control med- ications. Placel)() was more effective than all drugs in reducing the symptom of self- depreciation, a symptom of mental depres- sion. Side-effects from treatment with all four agents were minimal, and none was severe. The value of chlorpromazine in treating schizophrenic patients was confirmed by this study. Promazine did not appear to he so effective, poSsil)ly owing to inadequate dosage. Phenoharhital and placebo were comparatively ineffective, as might be ex- pected in a sample composed largely of chronic schizophrenic patients. The feasibility of carrying out such large- scale cooperative studies of drugs reported useful in psychiat rv was confirmed. Results obtained from this study provide definitive support for previously held clinical opinions regarding the efficacy of tranquilizing drugs in treating schizophrenic reactions. Psychiatry and Neurology Service, Veterans A(lmmnistration, Dept. of Medicine and Surgery. REFERENCES I. Zeller, \V. W.; Graffagnino, P. N.; Cullen, C. F., and Rietman, 11. 1. : Use of Chlorpromazinc and Reserpine in the Treatment of Emotional Dis- orders, J.A.M.A. 160:179-183 (Jan. 21) 1956. 2. Freeman, H.; Arnold, A. 1.., and Cline, H. S.: Effects of Chlorpromazine an(l Reserpine in Chronic Schizophrenic Patients, Dis. Ncrv. Sys- tem 17 :213-219 (July) 1956. 3. Tenenhlatt, S. S., and Spagno, A.: .A Con- I rolled Study of Chlorpromazinc Therapy iii lironic Psvcliot ic Patients, .1. Cliii. ~1 Expei. Psychopath. 17 :81 M2 (Jan-March) 1956. 4. Feldman, P. E.; Lacy, B. S.; \\`alker, A. and Garrez, N. J.: A Controlled, Blind Study of Effects of Thorazine on Psychotic Behavior, Bull. Menninger Clin. 20:25-47 (Jan.) 1956. 5. Hall, R. A., and Dunlap, D. J.: A Study of Chlorpromazine : Methedology and Results with Chronic Semi-Disturbed Schizophrenics, .T. Nerv. & Ment. Dis. 122 :301-314 (Oct.) 1955. 6. Rosner, H.; Levine, S.; Hess, H., and Kayc, H.: A Comparative Study of the Effect oii Anxiety of Chlorpromazine, Reserpine, Pheno- harl)ital, and a Placebo, J. Nerv. & Ment. Dis. 122: 505-512 (I)ec.) 1955. 7. Lindley, C. J.: V.A. Hospital Survey of franquilizing 1)rugs, iii I.~.S. Veterans Adminis- tration Dept. of Medicine and Surgery Trans- actions of the Second (1957) Research Conference on Chemotherapy in Psychiatry 2 :29-34 (June) 1958. 8. Protocol for Project No. 1, Cooperative \Tt.t erans Administration Study of Chemotherapy in Psychiatry, in U.S. Veterans Administration Dept. of Medicine and Surgery `l'ransactioiis of the Second (1957) Research Conference on Chemo- therapy in Psychiatry 2 :166-213 (June) 1958. 9. Gordon, M. H.: Analysis of Research Data, in U.S. Veterans Administration Dept. of Medi- cine and Surgery Transactions of the Second (1957) Research Conference on Chemotherapy in Psychiatry 2 :19-22 (June) 1958. 10. Gordon, M. H.: Analysis of Project 1, in U.S. Veterans Administration Dept. of Medicine and Surgery Transactions of the Third (1958) Research Conference on Clieniotherapy in Psy- chiatry, to be published. 11. Lorr, M.; Jenkins, R. 1.., and Holsopple, J. Q.: Multidimensional Scale for Rating Psy- chiatric Patients, Hospital Form, Veterans Admin. Tech. Bull. No. 10-507 (Nov. 16) 1953. 12. Clinical Estimate of Psychiatric Status, in U.S. Veterans Administration 1)ept. of Medicine and Surgery Transactions of the Second (1957) Research Conference on Chemotherapy in Psy- chiatry 2:183-185. 13. Taylor, J. A.: A Personality Scale of Mani- fest Anxiety, J. Abnorm. & Social Psychol. 48: 285-290 (April) 1953. 14. Snedecor, G. \V.: Statistical Methods, Ed. 5, Ames, Iowa, Iowa State College Press, 1955, pp. 212-214. 15. Lmndquist, E. F. : Design and Analysis of Experiments in Psychology and Education, Boston, Houghton Mifllin Company, 1953, p. 86. 16. l)uncan, 1). B. : Multiple Range and Miil- tiple F Tests, Biometrics 11:1-42 (March) 1955. 17. Kramer, C. Y.: Extension of Multiple Range Tests to Group Means with Unequal Num- hers of Replications, Biometrics 12:307-310 (Sept.) 1956. COMPETITIVE PRQBLEMS IN THE DRUG INDUSTRY PAGENO="0193" 18. Stanley, J. C.: Additional "Post-Mortem" Tests of Experimental Comparisons, Psychol. Bull. 54:128-130 (March) 1957, citing Scheffe, H.: A Method for Judging All Contrasts in the Analysis of Variance, Biometrika 40:87-104, 1953. 19. Lorr, M.; Jenkins, R. L., and Holsopple, 1. Q.: Factors Descriptive of Chronic Schizo- phrenics for the Operation of Prefrontal Lobotomy, J. Consult. Psychol. 18:293-296 (Aug.) 1954. 20. Stilson, D. W.; Mason, D. J.; Gynther, M. D., and Gertz, B.: An Evaluation of the Com- parability and Reliabilities of 2 Behavior Rating 7509 Scales for Mental Patients, J. Consult. Psychol. 22:213-216 (June) 1958. 21. Klett, C. J., and Lasky, J. J.: Agreement Among Raters on the Multidimensional Scale for Rating Psychiatric Patients, J. Consult. Psychol., to be published. 22. Kinross-Wright, V. J., and Morrison, S. B.: A Critical Study of Promazine Therapy, J. Clin. & Exper. Psychopath. 19 :219-225 (July-Sept.) 1958. 23. Good, W. W.; Sterling, M., and Holtzman, VtT.: Termination of Chlorpromazine with Schizo- phrenic Patients, Ani. J. Psychiat. 115 :443-448 (Nov.) 1958. COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 40-471 0 - 71 - pt. 18 -- 13 PAGENO="0194" 7510 COMPETITIVE PROBLEMS IN THE DRUG iNDUSTRY TREATMENT OF SCHIZOPHRENIC REACTIONS WITH PHENOTHIAZINE DERIVATIVES A Comparative Study of Chiorpromazine, Triflupromazine, Mepazine, Prochiorperazine, Perphenazine, and Phenobarbital' JESSE F. CASEY, M.D.,2 JULIAN J. LASKY, PH.D., C. JAMES KLETT, PH.D.,3 AND LEO E. HOLLISTER, M.D.4 [Reprinted from THE AMERICAN JOURNAL OF PSYCHIATRY, Vol. 117, No. 2, August, 1960] PAGENO="0195" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7511 Since chlorpromazine5 has been proved useful in treating chronic hospitalized schiz- ophrenics(1, 2, 3, 4), newer phenothiazine derivatives have appeared with claims of higher potency, greater therapeutic effec- tiveness, and fewer side effects or compli- 1 Project 3 of the Veterans Administration Coopera- tive Studies of Chemotherapy in Psychiatry. Pre- liminary results were presented at the Fourth Annual Research Conference on Chemotherapy in Psychiatry. VA Hospital, Memphis, Tenn., May 20, 1959. The indicated authorship connotes roles in planning or coordinating the study and preparing this report. Others who made major contributions were: T. G. Andrews, Ph.D., J. L. Bennett, M.D., E. M. Caffey, Jr., M.D., H. M. Houtchens, Ph.D., C. J. Lindley, M.A., M. Lorr, ~Ph.D., A. S. Marrazzi, M.D., A. Pokorney, M.D., and M. Rosenbium, M.D. The 35 VA hospitals which participated in this study are located at: Albany, N. Y., American Lake, Wash., Ann Arbor, Mich., Augusta, Ga., Battle Creek, Mich., Bay Pines, Fla., Biloxi, Miss., Brockton, Mass., Bronx, N. Y., Buffalo, N. Y., Coatesville, Pa., Danville, Ill., Denver, Cob., Downey, Ill., Fort Meade, S. Dak., Houston, Tex., Jefferson Barracks, Mo., Los Angeles, Calif., Lyons, N. J., Montrose, N. Y., Murfreesboro, Tenn., New York, N. Y., Northampton, Mass., North Little Rock, Ark., Northport, N. Y., Palo Alto, Calif., Perry Point, Md., Roseburg, Ore., Salt Lake City, Utah, Sepulveda, Calif., Togus, Me., Tomah, Wis., Topeka, Kan., Tuskegee, Ala., and Waco, Tex. Without the generous cooperation of staff personnel from these hospitals, this study would not have been possible. 2Director, Psychiatry and Neurology Service, De- partment of Medicine and Surgery, VA Central Office, Washington, D. C. 3 and Assistant Chief, VA Central NP Research Laboratory, Perry Point, Md. ~ Chief, Medical Service, VA Hospital, Palo Alto, Calif. ~ The generic and trade names of the drugs used in this study are: chlorpromazine-Thorazine (do- nated by Smith, Kline and French Laboratories), mepazine-Pacatal (Warner-Chilcott Laboratories), perphenazine-Trilafon (Schering Corporation), pro- chlorperazine-Compazine (Smith Kline and French), triflupromazine-Vesprin (E. R. Squibb and Sons). cation~. After reviewing the voluminous literature the harried clinician might still wonder whether any of the newer com- pounds were superior in any way. The re- ports on mepazine, for example, have ranged from enthusiastic endorsement to unqualified rejection(5, 6, 7, 8, 9): Bowes concluded that mepazine was twice as strong as, interchangeable and synergistic with chiorpromazine; Denber's sober title, "Ineffectiveness of mepazine - - ." com- pleted the spectrum of opinion. Recently more definitive studies of the newer phenothiazine derivatives have ap- peared(10, 11). Although these studies still contain contradictions, the differences are more understandable. In Freyhan's study of 10 phenothiazine compounds and reserpine, chlorpromazine was more effec- tive than mepazine, reserpine, and prorna- zine. It is inferred from his data that per- phenazine, prochiorperazine, trifluoperazine and trifiupromazine were not more effective than chiorpromazine, although he makes it clear that they caused more extrapyram- idal reactions. Goldman differed with Freyhan, stating that perphenazine, pro- clorperazine, and trifiupromazine were more effective than chiorpromazine, caused fewer side effects and practically no complica- tions. He could not differentiate therapeuti- cally between perphenazine and prochior- perazine but found that trifiupromazine produced fewer side effects than either. Some of these contradictions appear to be due to the use of different dosage schedules, criteria of improvement treatment goals and population samples. With this and its own experience as a background(12, 13), the Veterans Adminis- tration began, in May 1958, a large-scale cooperative study of the relative therapeutic TREATMENT OF SCHIZOPHRENIC REACTIONS WITH PHENOTHIAZINE DERIVATIVES A Comparative Study of Chiorpromazine, Trifiupromazine, Mepazine, Prochlorperazme, Perphenazme, and Phenobarbital 1 JESSE F. CASEY, M.D.,2 JULIAN J. LASKY, PH.D., C. JAMES KLETT, PH.D.,3 ~ LEO E HOLLISTER, M.D.4 PAGENO="0196" 7512 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY effectiveness and toxicity of chiorpromazine, 21 patients were dropped; 12 because of trifiupromazine, mepazine, prochiorpera- side effects and 9 due to deviant laboratory zine, and perphenazine. Phenobarbital was findings. used as a control medication. Drugs, Dosage, Duration of Treatment: Identical-appearing coded medications were PROCEDURE supplied to the hospitals from a central Patient Sample: Six hundred forty newly point in the following strength capsules: admitted schizophremc men were studied chiorpromazine 50 and 200 mg triflu in 35 VA hospitals. The average patient promazine and mepazine, 25 and 50 mg.; was 34 years old (the median was also 34), prochiorperazine, 10 and 25 mg. ; perphena- and the range was 18 54 years He weighed zine 8 and 16 mg phenobarbital 32 mg 161 pounds, had finished 10% grades, had These doses were chosen as equivalent been a semi skilled worker and was first on the basis of the manufacturer s recom treated for mental illness 7% years before mendations. During the first 4 weeks of his current admission About half the pa treatment a fixed progressive dosage sched tients were single, 30% were married, and ule was followed in all treatment groups: the rest were divorced (10%) or separated day 1, one low strength capsule; day 2, (8%) The number of previous hospitaliza two low strength day 3 three low tions were as follows: none-18%, one-23%, strength; day 4, one high strength; days two or three-27%, four or five-21%, six or 5 through 14, two high strength; days 15 more-11%. Forty-four percent had never through 28, three high strength. During the received tranquilizers previously. All were remaining 8 weeks of the study, a flexible in good physical health. schedule was used in which the physician As measured by the Multidimensional adjusted the dose, within limits of 1 to 6 Scale for Rating Psychiatric Patients- high strength capsules daily, to produce MSRPP(14), the average study patient optimal therapeutic effects in his individual before treatment was a little sicker, in patients. general, but as active and no more de- Figure 1 shows the average number of pressed than the general population of capsules prescribed per week during the schizophrenic men hospitalized in VA hos- fifth through the twelfth weeks for patients pitals. He was somewhat more resistive, in each of the 6 treatment groups. The belligerent, withdrawn, and conceptually average daily dose of each drug during the disorganized than the usual hospitalized flexible dosage period was as follows: chlor- schizophrenic veteran and markedly more promazine, 635 mg.; triflupromazine, 175 paranoid, self-depreciatory, mentally agi- mg. ; mepazine, 190 mg.; prochiorperazine, tated, active, and perceptually confused. 90 mg.; and perphenazine, 50 mg. The attrition in the sample by the end of After the fifth week there were reliable `~ the study was 26%. One hundred fifty pa- variations among the treatment groups in tients were dropped from the study. An number of capsules prescribed. Fewer cap- additional 18 could not be included because sules were prescribed for chlorpromazine of incomplete data. During the study period patients than for any other group during 85 patients left the hospital: 43 without the sixth week. In the eighth week and for medical approval, 24 on trial visits, and 18 the remainder of the study, significantly by approved discharge. Also eliminated fewer capsules were prescribed for chlor- were 23 patients who were worse or had promazine and perphenazine patients than shown no improvement, 16 who refused for mepazine or phenobarbital patients. medication, 4 who' became seriously de- Physicians used the full range of 1 to 6 cap- pressed, and 1 who was transferred. Finally, sules daily for each medication. 6 study protocol, reproduced in its entirety in the Transactions of the Third Annual Research Con- ference in Chemotherapy in Psychiatry, contains con- siderable detail concerning selection of patients, the randomization procedures, precautions, restrictions, laboratory controls and forms. METHODS OF EVALUATING TREATMENT Clinical Status: Clinical changes in pa- tients were measured by two rating de- TAll differences discussed are statistically significant at or beyond the .05 level. PAGENO="0197" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7513 Average Weekly Dose of Capsules During the Flexible Dosage Period. Lii Lii Iii a. U) Lii -J U, a. C.) cx: -~ ~ 22 z 21 28 DOSE EACH CASULE: mg. * Mepazine 50 o Phenobarbital 32 ~ Triflupromazine 50 ~ Prochlorperazine 25 o Perphenazine 16 A Ch~orpromazine 200 27 2 : 2~ 1 ~_ I 1 `~`4 5 6 7 8 9 10 11 12 WEEKS FIGuTIE 1 vices: the MSRPP and the Clinical Esti- physician. These included adverse be- mate of Psychiatric Status scale-CEPS( 15). havioral effects, disturbances of the central The MSRPP consists of two parts; the clini- and autonomic nervous systems and al- cal interview section completed by a 2- or lergic reactions, chosen on the basis of 3-man team of psychologists and psychia- known side effects of the phenothiazines. trists, and a ward behavior section based Laboratory Measures: Hematologic tests on the observations of a 2- or 3-person team included differential and total leucocyte of nurses and nursing assistants. The counts obtained just before treatment and MSRPP yields a total morbidity score which each week during treatment. Serum gluta- is an overall index of psychopathology and mic oxalacetic-transaminase (SGO-T) or 11 additional scores which represent symp- serum alkaline phosphatase determinations torn clusters. The reliability of the MSRPP were used as screening hepatic tests. Either was estimated by having each member of of these tests was requested before treat the clinical and ward teams make their pre- ment and then weekly for the first 5 weeks. treatment judgments independently before If either was abnormal a battery of ad arriving at team consensus evaluations ( 16). ditional hepatic tests wa~ to be ordered. The CEPS required judgments from psy- Pulse rate and blood pressure were re- chiatrists on 12 items of psychopathology corded daily for the first weeks of treatment and prognosis. Patients were evaluated by and morning temperatures were recorded both rating devices before and after 4 and daily for the first 8weeks. 12 weeks of treatment. Untoward Symptoms: The presence or STATISTICAL ANALYSIS absence of 18 specific symptoms and signs The statistical model for evaluating, the were checked and recorded weekly by the relative therapeutic effectiveness of the PAGENO="0198" 7514 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY study drugs was analysis of multiple co- variance (simple randomized design). Each of the 24 criterion measures derived from the MSRPP and CEPS was analyzed for relative changes in clinical status during the first 4 weeks, the following 8 weeks, and over the entire 12-week study period. Final criterion mean scores in each analysis were adjusted for initial status on the criterion being analyzed as well as for the net effect of 11 control variables: age, edu- cation, occupational level, marital status, number of previous hospitalizations, nature of onset of first and current illness, months since condition first required medical at- tention, initial weight, history of previous tranquilizers and morbidity. In addition to adjusting the criterion means of the 6 treatment groups for whatever differences existed prior to treatment despite random assignment, this technique statistically elim- inated that portion of the variability of the criterion associated with the covariates. The net effect of the adjustment was to provide statistical equality of the treatment groups prior to treatment and to reduce the error term used in evaluating mean differences. One thousand and eighty comparisons were carried out; each of 6 treatment groups being compared with each other, yielding 15 comparisons for each of 24 criteria over each of three time periods. The effect of making so many comparisons is to increase the likelihood of deciding there is a significant difference when in fact there is not. The findings were subjected to a multiple range test(17, 18) for protection against this kind of error. RESULTS Criteria of Clinical Effectiveness: Ad- justed mean morbidity scores (MSRPP) for each of the 6 treatment groups are shown in Figure 2. The pretreatment mean is based upon the entire sample of patients. Even at the end of 4 weeks of treatment, a signifi- cant reduction in total morbidity had been produced by chiorpromazine, trifiuproma- nine, prochiorperazine, and perphenazine as compared with phenobarbital. The differ- a- a- U) 30 w 0 () U) >- 1- 25 U) 0 z w EVALUATION PERiOD Ficuii~2 35 Adjusted Mean Morbidity Scores, (MSR PP) after 4 and 12 Weeks of Treatment. .......~... o Phenobarbital 20 -. Mepazine (Pacafal) A Chlorpromazine (Thorazine) Prochiorperazine (Compazine) Perphenazine (Trilafon) L * Trifiuprornazine (Vesprin) PRE-TREATM ENT 4wks. l2wks. PAGENO="0199" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7515 ence between mepazine and phenobarbital 1. All five phenothiazine derivatives were was not significant at this time When 12 therapeutically effective a e they were weeks of treatment had been completed all supenor to phenobarbital the control drug 5 phenothiazines had~ reduced morbidity in r~ispect to sOme important criteria of significantly more than phenobarbital. Four improvement. There were no instances in of the phenothiazines' were superior to which the phenobarbital group showed mepazine at both the 4th and 12th week reliably greater improvement than the evaluations. There were no significant dif- phenothiazine groups. The ways in which ferences among the `4 more effective drugs. all phenothiazines were superior to pheno- Even though the differences shown in barbital are shown in the upper portiOn of Figure 2 between prochiorperazine and tn- Table 1. fiupromazine may appear to approach sig- 2. One of the phenothiazine deriCatives nificance this difference has a p value was less effective than the other four In > 20 every instance that mepazine surpassed The results of the analyses of relative phenobarbital all other phenothiazines also change in `the remaining 23 criteria of clinical effectiveness have been organized in Table 1 to emphasize the 3 main findings did so. In the middle portion of Table 1 are listed those criteria of clinical effectiveness on which all phenothiazines except mepa- which occurred during two time periods.8 * 8 Detailed statistical tables containing the ad- justed means, F ratios, and results of the multiple zine exceeded phenobarbital. In the lower third of Figure 1 are presented those cri- Research Conference on Chemotherapy in Psychiatry. range test for all criteria at the three evaluation Inquiries concerning additional statistical or pro- periods may be found as a supplement in the Ap- cedural details may be directed to the Central NP pendix of the Transactions of the Fourth Annual Research Laboratory, Perry Point, Md. TABLE 1 CUNIcAL DIFFERENCES BETWEEN VARIous PHENOTHIAZINE DERIVATIVES AND PHENOBARBITAL OR MEPAZINE IN Nzwix ADMII-rED Scmzo~muc~ic MEN Patients receiving chiorpromazine, mepazine, perphenazine, prochlorperazine and trifiuproma- zine were more improved than those receiving phenobarbital in the following ways: After 4 Weeks After 12 Weeks Less: resistive; belligerent; thinking dis- Same gains as after 4 weeks plus: less likely turbance; nursing care required.. . to injure others; greater chance for early dis- charge greater chance for independence and self support following discharge illness less severe; condition improving; decrease in symptoms Patients receiving chlorpromazine, perphenazine, prochiorperazine and `trifiupromazine. were noted more improved than those receiving phenobarbital in the followmg additional ways After 4 Weeks ` After 12 Weeks Less : motor disturbance; likely to injure Less : motor disturbance; likely to injure self; self. Decrease in symptoms, illness less severe, paranoid' projection; perceptual distortion; condition improving. . AWOL potential. More participation in activi- ties. Patients receiving chiorpromazine, perphenazine, proclorperazine and trifiupromazine were more improved than those~ receiving mepazine as follows: After 4 Weeks , ` After 12 Weeks Less paranoid projection; motor disturbance. Less : motor disturbance; perceptual dis- tortion; . belligerence; thinking disturbance; likely to injure others; melancholy agitation. Decreased `symptoms and greater chance for discharge. Condition improving. PAGENO="0200" 7516 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY teria with respect to which chlorpromazine, triflupromazine, prochlorperazine, and per- phenazine were better than mepazine There were no instances in which any of these phenothiazines was reliably worse than mepazine. 3. The remaining four phenothiazine derivatives were not differentiated from one another `in therapeutic effectiveness. Over the entire 3-month period there were no significant differences among these 4 treat- ment groups on any of the 24 criteria. SIDE EFFECTS AND LABORATORY FINDINGS Only 21 patients (37) were discontinued from treatment because of side reactions or deviant laboratory tests, this number being fairly evenly distributed among the 6 treatment groups. Five patients were dropped because of leucopenia. Four had deviant hepatic tests. Other reasons for termination included: 3 cases of Parkin- sonism, 1 epigastric pain, 1 photophobia, 1 dermatitis, 2 deviant temperature or blood pressure, and 4 patients who became pale, nauseated, weak or hypotensive. A detailed report of the abnormal symp- toms, signs and laboratory tests has been published elsewhere( 19). The piperazinyl- phenothiazines, perphenazine and prochior- perazine, produced most of the side effects followed by the aliphatic phenothiazines, chiorpromazine and trifiupromazine. Mepa- zine and phenobarbital produced the fewest side effects~ Although the extrapyramidal syndrome was unique for the phenothia- zines (and most pronounced with the piper- azinyl derivatives), most of the other side effects measured, including adverse be- havioral reactions and autonomic nervous system effects, were also reported in some measure for phenobarbital. Hematologic changes (leucopenia, eosinophilia, and leu- cocytosis) were encountered with all drugs without significant differences in frequency. The same was true of abnormal hepatic tests, none of the patients having a definite clinical picture of jaundice. DISCUSSION Since this study was designed as a com- parative evaluation of 4 newer phenothia- zines with chiorpromazine serving as a standard or reference treatment, emphasis was placed upon the relative effectiveness and toxicity of these 5 agents rather than the evaluation of any one considered inde- pendently. Phenobarbital, mimicking some of the properties of the phenothiazines, was included as an active placebo. To be con- sidered an effective agent, any phenothia- zine derivative should be superior, at least, to a conventional sedative. The fact that all the phenothiazines studied were , effective in reducing some aspects of psychopathology is evident from their comparison' with. phenobarbital and is consistent with most published reports. Of greateE interest are the symptoms affected. After, one month of treatment with these drugs, patients were less resistive, belliger- ent, and disturbed in their thinking than patients receiving phenobarbital. These changes were accompanied by a decrease in the amount of physical nursing care required, Further gains were made during the last two months of the study. Psychiatric judgments indicated' that patients receiving the phenothiazine derivatives had better prospects for early discharge and were more likely to be independent and self-supporting after discharge than patients receiving phenobarbital. In short, any of the 5 phenothiazine deriv- atives produced clinical effects superior to phenobarbital. It is inferred that these 5 agents would be superior to an inert placebo group or to a group that had re- ceived no capsules `at all. The' reduction in morbidity of the phenobarbital group dur- ing treatment was slight and did not reach significance. A previous VA cooperative study based on a large sample of chronic schizophrenic patients' demonstrated that neither a placebO `nor phenobarbital had therapeutic value nor was either more ef- fective than the other(1). Although all the phenothiazines were more effective than phenobarbital, mepa- zine was less effective than the other four. This~finding may be related to differences in chemical structure as discussed by Him- wieh(20). One explanation of mepazine's apparent inferiority might be that it had been used at too low a dose. During most of the first month of treatment, mepazine pa- tients received 150 mgs./day, the lower limit of the range of maximal therapeutic PAGENO="0201" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7517 effectiveness as defined by Feldman(21). The largest amount a patient in this study could receive during the flexible dosage period was 300 mgs./day, the upper limit of Feldman's range. That 150 mgs./day was not optimal is clearly demonstrated by the increments in mean dosage of mepazine shown in Figure 1. Although the mean daily dose of mepazine given to patients during the flexible dosage period was 190 mgs., in the final weeks of the study, ap- proximately a third of these patients were receiving the maximum amount allowed by the study protocol (300 mgs.) and side effects were minimal. In the light of current knowledge, it may be assumed that the unit dose of mepazine used in this study should have been approximately that of chiorpro- mazine. The interpretation of the finding that the 4 remaining phenothiazines did not dif- fer significantly is not an obvious one. Sta- tistical logic does not permit the conclusion~ that these compounds are identical in action. Interpretation must be guided by. the experimental conditions which pro- duced the results. The purpose of random assignment of patients to treatment, the double blind procedure and statistical ad- justment for initial differences was to pre- vent one treatment group from having an advantage over any other except in terms of The treatment being evaluated. The flexible dosage schedule was chosen to al- low each drug to be evaluated at approxi- mately optimal dosage. The choice of cri- teria of clinical effectiveness was intended to encompass a large portion of the domain of psychopathology. The reliability of the MSRPP was investigated and considered satisfactory. However, some may feel that such measures are either too insensitive to capture the subtle nuances of drug. differ- ences or have missed important areas of behavioral change. Within the limitations of this design, the findings are consistent and are considered reliable. The high dropout rate (168 patients, 26%) in this study~ raised two questions. First, was there any evidence of selective dropout related to treatment group? In terms of total number of dropouts in each treatment group from all causes, there were no significant differences between the groups. However, a disproportionate num- ber of patients on trifiupromazine were out of the hospital (26 of a total of 85) prior to the end of the treatment period. It is difficult to evaluate this as a biasing factor, in that 16 of these patients left against medical advice or without permission, which may not necessarily relate to the results of treatment. A disproportionate number of patients on phenobarbital and mepazine (16 of a total of 23) were dropped because of lack of improvement or worsening of their condition. This situation was consistent with the clinical findings and did not constitute a source of obscuring bias. Second, were these patients different in any way from those completing the study? Patients who left the hospital prior to the end of the study for whatever reason were in general not as ill initially as those remaining until the end of the study. Pa- tients leaving without medical approval, the greatest number of whom were in the triflupromazine group, had lower morbidity scores, were less depressed and withdrawn and showed less disturbance in thinking before treatment than did those who re- mained in treatment for the entire period. When this study was conceived, the con- trolled evaluation of side reactions and abnormal laboratory results during therapy with phenothiazine drugs was~ considered potentially more important than therapeutic differences between the drugs. In some respects this prediction was true, though not in the manner thought. The most out- standing finding was the comparative pau- city of severe abnormalities, accounting for only a 3% loss in the total sample. Next in interest was the lack of difference in prev- alence of abnormal symptoms, signs, and laboratory tests between the phenothiazines and, surprisingly, phenobarbital. In the case of phenobarbital, these~ abnormalities included such adverse behavioral effects as depression or agitation, autonomic effects such as blurred vision or dry mucous mem- branes, such presumed central nervous ef- fects as akathisia, as well as eosinophilia, leucocytosis, leucopenia and abnormal he- patic tests. In many instances, these ab- normalities probably represented manifes- tatiOns of schizophrenia or spontaneous fluctuations completely unrelated to drug PAGENO="0202" 7518 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY therapy. The failure to encounter any in- stance of frank jaundice or agranulocytosis in 530 patients treated with phenothiazine derivatives suggests that these complica- tions may have been more feared in the past than was warranted. In view of the frequent abnormalities associated with phe- nobarbital therapy, especially those not commonly attributed to this drug before, one must be cautious in ascribing all that happens during drug therapy to the drugs being used. The original intent to discover some index between therapeutic effective- ness of the drugs and side reactions or laboratory abnormalities was not feasible with so little difference between the agents in either regard. Although this study offers considerable' information regarding the clinical effective- ness, side effects, and toxicity of 5 pheno- thiazines used under the described condi- tions, the data necessary to guide drug therapy of individual schizophrenic pa- tients are not provided. With the data from this and other studies and his personal ex- perience with drugs as background ma- terial, the physician must still select a specific drug for an individual patient, tak- ing into consideration such factors as speed of action; dosage schedules; treatment goals; combinations, potentiation, and se- quences of drugs; duration of effects; cal- culated risks and safety; convenience; cost; subjective patient response; compat- ability with other treatments; and any special features or unique advantages of a given drug. SUMMARY Six hundred forty newly-admitted schizo- phrenic men in 35 VA hospitals were randomly assigned to chlorpromazine, tn- fiupromazine, mepazine, prochiorperazine, perphenazine and phenobarbital groups. Treatment followed a double blind pro- cedure for 12 weeks. Patients were started on low "equivalent" doses of each drug which were gradually increased in a pre- determined manner during the first 4 weeks. During the final 8 weeks, each prescribing physician adjusted the dose for each of his patients in order to evoke an optimal thera- peutic response~ Average daily doses during the flexible period were: chiorpromazine, 635 mg.; triflupromazine, 175 mg.; mepazine, 190 mg. ; prochlorperazine, 90 mg. ; and per- phenazine, 50 mg. Clinical evaluations using two rating scales provided 24 criteria of change. For each criterion, the mean of each of the 6 treatment groups adjusted for the net effect of 12 control variables was compared by analysis of multiple covari- ance with the mean of every other treat- ment group at each of three evaluation periods; first month, the following 2 months, and over the entire 3 months. Side effects, hematologic and hepatic function data were also recorded during the course of treatment. One hundred sixty-eight pa- tients failed to complete the study. In general, the results indicated that all 5 phenothiazine derivatives were therapeu- tically more effective than phenobarbital. Mepazine was less effective than the other 4 drugs at the doses employed. No signifi- cant differences in therapeutic efficacy were noted between chlorpromazine, triflupro- mazine, prochlorperazine, and perphenazine. Criterion measures showing change toward improvement after treatment with pheno- thiazine derivatives included resistiveness, belligerence, thinking disturbance, and de- gree of illness. Other criteria affected favor- ably, especially by. the 4 more potent pheno- thiazines, were motor disturbance, paranoid projection, perceptual distortion and with- drawal. Only 21 patients (3%) were discontinued from treatment because of side reactions or deviant laboratory tests. Most side reactions, especially the extrapyramidal syndromes, were produced by perphenazine and pro- chlorperazine. Phenobarbital was associated with a number of~ side reactions ("tur- bulence," autonomic symptoms) commonly attributed only to the phenothiazine deriva- tives. Abnormal hematologic tests includ- ing eosinophilia, leucocytosis and leuco- penia were neither frequent nor severe. The distribution of the 36 patients with leuco- penia was not significantly different among the treatment groups. Continued treatment with the drugs in 31 leucopenic patients produced no case of agranulocytosis. Al- though abnormal hepatic tests occurred in 88 patients, these were sporadic. No clear- cut case of jaundice or hepatic dysfunction was encountered during treatment. PAGENO="0203" BIBLIOGRAPHY 1. Casey, J. F., Bennett, I. F., Lindley, C. J., Hollister, L. E., Gordon, M. H., and Springer, N. N. : A.M.A. Arch. Gen. Psychiat., 2: 210, Feb. 1960. 2. Denber, H. C. B., and Bird, E. C.: Am. .J. Psychiat., 113: 972, May 1957. 3. Kline, N. S.: Psychopharmacology. Wash- ington, D. C.: AAAS, 1956.. 4. Winkelman, N. W., Jr..: Am. J. Psychint., 113: 961, May 1957. 5. Kline, N. S., and Jacob, G. M.: Am. J. Psychiat., 112: 63, July 1955. 6 Kline N S Am J Psychiat 113 596 Dec 1956 7 Bruckman N Kitchener M Saunders J. C., and Kline, N. S.: Am. J. Psychiat., 114: 262, Sept. 1957. 8. Bowes, H: A.: Am. J. Psychiát., 113: 530, Dec. 1956. 9. Denber, H. C. B.: Am. J. Psychiat., 114: 656, May 1958. 10. Freyhan, F. A.: Am. J. Psychiat., 115: 577, Jan. 1959. 11. Goldman, D.: Am. J. Med. Sci., 235: 67, Jan. 1958. 12. V. A. Dept. Med. and Surg.: Trans- 7519 actions of the Third (1958) Research Con- ference on Chemotherapy in Psychiatry. Wash- ington 25, D. C., 3: 1959. 13. V. A. Dept. Med. and Surg.: Trans- actions of. the Fourth (1959) Research Con- ference on Chemotherapy in Psychiatry. Wash- ington 25, D. C., 4: Mar. 1960. 14. Lorr, M., Jenkins, R. L., and Holsopple, J. Q.: V. A. Technical Bulletin No. 10-507: Nov. 16, 1953. 15. V. A. Dept. Med. and Surg.: Trans- actions of the Second (1957) Research Con- ference on Chemotherapy in Psychiatry. Wash- ington 25, D. C., 2: 183, 1958. 16. Klett, C. J., and Laskey, J. J.: `J. Con- sult. Psychol.: 23: 281, June 1959. 17. Kramer, C. Y.: Biornet., 12: 307, Sept. 1956. 18. Duncan, D. B.: Biomet., 11: 1, Mar. 1955~ 19. Hollister, L. E., Caffey, E. M., and Klett, C. J. : Clin. Pharmacology and Théra- peutics. In Press. 20. Himwich, H. E., Rinaldi, F., and Walls, D.: J. Nerv. Ment. Dis., 124: 53, July 1956. 21. Feldman, P. E.: Am. J. Psychiat., 114: 143, Aug. 1957. COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY PAGENO="0204" 7520 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ABNORMAL SYMPTOMS, SIGNS, AND LABORATORY TESTS DURING TREATMENT WITH PHENOTHIAZINE DERIVATIVES LEO E. HOLLISTER, M.D. Palo Alto, Calif. EUGENE M. CAFFEY, JR., M.D. and C. JAMES KLETT, Ph.D. Perry Point, Md. Reprinted from CLINICAL PHARMACOLOGY AND THERAPEUTICS St. Louis Vol. 1, No. 3, Pages 284-293, May-June, 1960 (Copyright © 1960 by The C. V. Mosby Company) (Printed in the U.S.A.) PAGENO="0205" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7521 Abnormal symptoms, signs, and laboratory tests during treatment with phenothiazine derivatives Complications were neither frequent nor severe in 599 newly admitted schizophrenic patients treated for 12 weeks with chlorpromazine, triflupromazine, mepazine, prochlorperazine, perphenazine, and phenobarbital. Twelve patients were dropped from treatment because of adverse symptoms or signs, 5 because of hematologic abnormalities, and 4 because of deviant hepatic tests. Many abnormal symptoms and signs generally thought to be associated with phenothiazine drug therapy also occurred during treatment with phenobarbital. Leucopenia was not significantly more frequent from phenothiazines. than from phenobarbital. No significant differences in abnormal hepatic tests were noted between the 6 agents. Most abnormal tests were isolated and sporadic. No frank case of intrahepatic obstructive jaundice was observed. Changes in body temperature, pulse rate, and blood pressure were uncommon, with no significant differences in frequency between the drug regimens. Not all abnormalities in symptoms, signs, and laboratory tests which occurred during treatment can be attributed to it. At least some must be spontaneous fluctuations in the population studied. Leo E. Hoiiister, M.D. Palo Alto, Calif. Medical Service, Veterans Administration Hospital Eugene M. Caffey~ Jr., M.D., and C. James Kiett, Ph.D. Perry Point, Md, Staff Psychiatrist, Veterans Administration Hospital, and Assistant Chief, Veterans Administration Central Neuropsychiatric Research Laboratory Wide experience with the phenothiazine derivatives in clinical use has delineated the prevalence of undesirable effects or abnormal laboratory tests, as they are studied under varied conditions. A con- trolled study by the Veterans Administra- tion suggests that the incidence of reac- Staff from 35 hospitals participating in Project No. 3, veterans Administration Cooperative Studies in Chemo- therapy in Psychiatry, collected the data used for this study. tions and abnormal laboratory findings may be smaller than is generally believed, and these must be evaluated against a back- ground of behavioral, hematologic, hepatic, and autonomic nervous system variability inherent in a schizophrenic population. Six drugs (chlorpromazine, trifiuproma- zine, mepazine, prochiorperazine, perphen- azine, and phenobarbital) were given for a 12 week period to 599 newly admitted PAGENO="0206" 7522 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY schizophrenic men in 35 Veterans Adminis- tration Hospitals.1 A double blind control was employed, using "equivalent" doses of each of the 6 agents in both an initially determined and later flexible dosage sched- ule. Biasing factors were that the sample was composed of men under the age of 51 years, some of whom had previously re- ceived phenothiazine derivatives. Except for their mental illness, the patients were generally in good health. Methods of study Four specific types of information were sought: (1) the prevalence of clinical symptoms or signs frequently reported as occurring with phenothiazine deriva- tives2'5'7'11; (2) the prevalence of abnor- malities in hematologic measures, especially total leukocyte count, absolute neutrophil count, and eosinophil count; (3) the prev- alence of positive hepatic findings; (4) the occurrence of aberrations in body tempera- ture, pulse rate, or blood pressure. A symptom-sign check list for each of 14 specific items was completed weekly by the attending physician on each patient. Thus information was obtained about the prevalence, the time of onset, and the dura- tion of each of these manifestations. Total and differential leukocyte counts were obtained on each patient prior to and during each of the 12 weeks of treatment. If other hematologic tests were deemed necessary, these were obtained at the dis- cretion of the attending physician. For pur- poses of this study leukocytosis was con- sidered to be present if the total leukocyte count exceeded 13,500 per cubic milliliter. No lower limit was imposed on the total leukocyte count for determining the pres- ence of leukopenia; rather this was deemed to be more accurately represented by a calculation of the absolute neutrophil count (total leukocyte count times per cent of neutrophils). An absolute neutrophil count of 3,000 per cubic milliliter was con- sidered as the lower limit of normal. A patient was regarded as leukopenic when the absolute neutrophil count dropped be- low 1,800. Absolute neutrophil counts of less than 1,500 per cubic milliliter were con- sidered to represent a potentially dangerous situation, but the decision as to whether or not treatment should be continued was left to the attending physician. Eosinophil counts of 7 per cent or more were con- sidered to be elevated. All these data were tabulated on an appropriate form for each of the 12 weeks of treatment. The study protocol also recommended that each patient have hepatic tests per- formed prior to and during the first 5. weeks of treatment. Recommended as pref- erential screening hepatic tests were the alkaline phosphatase determination and the serum glutamic oxalacetic acid trans- aminase (SGO-T) test. If either of these tests was abnormal (over 8 Bodansky units for the alkaline phosphatase test and over 40 units for the SGO-T test), other hepatic tests were to be performed. These included determinations of the total serum bilirubin, cephalin flocculation, and Bromsulphalein (BSP) retention. The upper limits of nor- mal were set at 1.2 mg. per 100 ml., 3+ at 48 hours, and more than 8 per cent reten- tion, respectively, for each of the tests. Each participating hospital was re- quested to make daily measures of patients' temperatures during the entire treatment course and daily measures of blood pres- sure and resting pulse rates during the first week of treatment. Naturally, great varia- tions occurred in conditions under which these measures were made in various patients. Results of study Control values for total neutrophil count, alkaline phosphatase and SGO-T determinations. Data on the total leuko- cyte count of 475 patients prior to treat- ment were tabulated. The mean control leukocyte count was 8,200 per cubic milli- liter with a standard deviation of 2,750. Ninety-seven patients (more than 20 per cent) had control total leukocyte counts of over 10,000 per cubic milliliter. In 80 of these 97 patients the total leukocyte count PAGENO="0207" COMPETITIVE PROBLEMS IN THE DRTJG INDUSTRY 7523 was in the 10,000 to 13,500 range, in 11 be- tween 13,500 and 16,000, and in 6 over 16,000 per cubic milliliter. The maximum control leukocyte count observed was 22,500 per cubic milliliter. Nineteen patients had control leukocyte counts of less than 5,000 and only 3 of these 19 patients had total leukocyte counts of less than 4,000 per, cubic milliliter. Thus leukocytosis by ordi- nary standards was comparatively common in this schizophrenic population but leuko- penia was neither frequent nor severe. Determination of control values for alka- line phosphatase was more complicated be- cause they were reported in 4 different kinds of units. The largest sample consisted of reports in Bodansky units which were `available on 256 patients. The mean value in Bodansky units for control alkaline phos- phatase determinations was 4 units with a standard deviation of 1.8 units. Six patients had control values for alkaline phosphatase greater than 8 units. SGO-T determinations were performed on 154 patients. The mean value for this determination was 24.8 units with a stand- ard deviation of 19.4 units. `Nineteen pa- tients showed control elevations of SGO-T titer to more than 40 units. Abnormal signs and symptoms. Data on the occurrence of abnormal symptoms and signs were available for the entire sample of 599 patients. Twelve patients were dropped from treatment because of side reactions. No abnormal symptoms or signs were reported in 167 patients. These 167 patients were not distributed among the 6 treatment groups as might have been ex- pected by chance, so each drug group was compared individually with every other drug group and tested for significance by the chi square test. Each symptom or sign was evaluated in the same manner. If a patient was reported as manifesting a par- ticular symptom at any~'time during the study period, he was tallied once regard- less of whether the symptom occurred dur- ing one or more weeks. When a significant difference among the 6 groups was ob- served for any symptom, the groups were then compared by pairs. Ten symptoms showed significant differences between the treatment groups. `Table I compares the drugs with regard to clinical evidence of side effects during the 12 week treatment period. Perphena- zine and prochlorperazine, both piperazine derivatives, produced more reactions than Table I. Corn parison* between drugs in Occurrence of clinically noted `side effects during 12 week treatment period Perphenazine Produced more drowsiness and extrapyramidal effects (impaired associated movements, rigidity, tremor, and akathisia) than phenobarbital or mepazine; more extrapyramidal effects (rigidity, tremor, and akathisia) than triflupromazine; more extrapyramidal effects (impaired associated movements, rigidity, and akathisia) than chlorpromazine; and more akathisia' than' prochiorperazine. 1 rochiorpera inc Produced more drowsiness extrapvramidal effects (impaired associated movements rigidit, tremor ~ikathisn) and nausea or vomiting than phenobarbita! more drosssiness e'stri pyramidal effects (impaired associated movements, rigidity), weakness or fatigue' and nausea or vomiting than snepazine. Chiorproma inc 1 roduced more dro~ssiness e~trapyramidal effects (rikidit) tremor) thin phenobarbital snore drowsiness, impaired associated movements, and weakness or fatigue than mepa- sine. Triflupromazine Produced nzore extrapyramidal effects (impaired associated movements) than plicnobarbital; snore impsired assocflte(l movements than mcpa inc Complete absence of side etfects `was sizore common than with prochiorperazinc or perphenazine. Mepazine Produced snore blurred vision than phenobarbital or triftupromazine. ` Pizenobarbital `Produced more excitement and agitation than mepazinc, triftupromazinc, chiorpromazine, or prochlorpera one Complete absence of side effects wis more common th on with proc/i lorperazine or perphenazinc. 5Only differences significant at the 5 per cent level using clii square comparisons of the drug pairs are slated. PAGENO="0208" 2 8 o 9 2 10 12 16 1 2 16 28 0 0 4 16 13 20 17 7 4: 4 3 14 18 17 9 20 19 12. 13 2 4 1 Table III. Changes in leukocyte and eosinophil counts during 12 week treatment period Drug Eosinophilia Leukocytosis Leukopenia J\T0 of Total No. No. of Total No. No. of Total No. counts patients counts patients cOunts patients Phenobarbital Chiorprornazine Triflupromazine 20 (4)* 18 (3) 11 (0) 40 34 22 16 (3) 12 (2) 11 (3) 40 13 32 9 (5) 7 (6) 3 (3) 19 23 4 Mepazine Prochlorperazine Perphenazine 17 (4) 16 (1) 16 (4) 37 : 42 31 12: (4) 19 (1) 16 (2) 25 42 : 33 8 (5) 2 (3) 7 (4) : 29 5 14 7524 COMPETITIVE PROBLEMS IN THE DRUG ~.INDTJSTRY the other drug. The two aliphatic deriva- tives, chiorpromazine and trifiupromazine, produced more reactions than the piperi- dine derivative, mepazine, or phenobarbital. Table II indicates the number Of pa- tients showing any abnormal symptom in each of the drug treatment groups. The median daily dose at which drowsiness was produced varied considerably (piochior perazine, 35 mg.; perphenazine, 48 mg.; trifiupiomazine 60 mg mepazine 75 mg phenobarbital, 96 mg.; chiorpromazine, 200 mg). The majority of adverse behavioral: effects appeared: during the first 3 weeks of treatment; their persistence was com- parable for each of the drugs. Mental de- pression and "turbulence" (anxiety and agitation), usually considered adverse ef- fects of phenothiazine :derivatives, were equally common with phenobarbital. Extrapyramidal effects were more fre- quent from the piperazinylphenothiazines Table II Number of patients in each drug group showing clinically observed side effects :: : : : Symptom or sign : : Total N=599 : Pheno. barbital 99 Prochlor- pera inc 100 Triflupro- ma inc 96 Prochior- Mepa inc pera inc 103 100 Perphena- S 101 Adverse behavior Drowsiness 232 28 Depression 103 18 Anxiety : 198 38 Agitation 181 44 (`entral nervous system Extrapyramidal effects 52 0 Impaired associated movements 57 Rigidity 62 Tremor 47 Akathisia : : 110 Dystonia (spasm) 16 Weakness, fatigue 135 Seizures 4 A utonomic nervous system Fainting : : 16 Blurred vision 90 Nausea, vomiting 60 Dryness of mouth 107 Constipation 89 Allergic effects Dermatitis 21 48 38 : 28 44 46 15 13 15 23 19 29 26 28 41 36 20 26 30 27 34 8 6 2 15 21 10: 1 16 20 9 2. 15 27 5 5 10 15 16 12 20 34 3 : 1 3 6 18 16 29 28 1 1 1 1 24 24 23 2 10 6 13 10 3 8 10 11 14 *Numbers in parentheses indicate patients with abnormal control values. PAGENO="0209" than the others. As might he expected, no pationt tree tod with phenoharhital was be- lieved to have the complete extrapyramidal syndrome. These effects were most frequent in the third week Of treatment, at daily doses of 43 mg. of perphenazine, 75 mg. of prochlorperazine, 150 mg. of trifluproma- zinc, and 60() mg. of chlorpromazine. Pa- tients receiving phenobarbital reported as having akathisia prohably reflected the dif- ficulty in distinguishing this, symptom-com- plex from the ordinary manifestations of psychosis. Similarly, an instance of dystonic syndrome with phenoharhital must have reflected an error in clinical judgment, as this syndrome is unique for phenothiazine derivatives. As extrapyramidal syndromes are fre- quently said to correlate with clinical im- provement, such a relationship was . sought in the case of perphenazine and prochlor- perazine. Substantial clinical improvement was arbitrarily defined as a reduction of 25 per cent or more from the initial total mor- bidity score (measured by the Multidimen- sional Scale for Rating Psychiatric Patients) at the end of 12 weeks of treatment. Any change less than this was considered in- sufficient improvement. These two cate- gories of improvement were then grouped according to the presence or absence of extrapyramidal syndromes. No statistically significant differences were noted between groups showing substantial improvement and those not, either with or without extra- pyramidal effects, in the case: of either drug. Although autonomic nervous system ef- fects are not related to the. pharmacologic action of phenobarbital, a surprising num- ber were recorded.. Presumably these repre- sent normal variations in the state of the patients, rather than drug effects. They tended to occur hter in the course tWin with the phenothcuzme derivatives which usually produced these effects immediately `md st low doses Cases of dermatitis were `too few to show much distinction between the drugs. The occurrence of this complication with pheno- barbital was not surprising as allergic erup- tions with barbiturates should be expected. Changes in leukocyte and eosinophil counts. The occurrence of eosinophilia, leukocytosis, and , leukopenia is shown in Table III. None of the differences between drug groups were statistically significant. Eosinophilia was most frequently noted, being highest for, phenobarbital (even when corrected for 2 abnormally elevated counts in the control period) and lowest with trifiupromazine. The tOtal number of COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7525 Table IV Occuziciu.c of ahnormal licpatic tests dunn,, 12 week treatment period . Total ` Alkaline (Tephalin 13S1' Patients No. will, serum SGO- 7 phosphrttase flocculation retention with 2 or ttzore biliruhin liter over - 3 pits or over 8 per abnormal abnormal over over 8 units more in cent in Drug tests , tests 1.2 mg. % 40 units (Bodansky) 48 hours 45 minutes Phcnolmrbittl 20 (l0)~ 6 (5) 4 10 4 6 Chlorpromazinc 19 (5) 3 (1) ` 4 9 5 5 lriflmtpronmazinc . 11 (2) 6 (2) 2 . 10 4 3 Mepazinc 16 (8) 5 (3) 6 9 . 3 3 Prochlorperazinc 17 (4) 3 (1) 0 Il 6 1 Perphenazine 14 (7) .1 (1) . 2 , 9. 2 Total 97, (36) 26 (13) 3 0 0 2 Range of values 3 1 1.3-2.7 40-177 8.2-14 3-4 plus 9-17% 111g. per units units 101 nil.' *Numl,ers in parent-hoses indicate patients with abnormal control values. 40-471 0 - 71 - pt. 18 -- 14 PAGENO="0210" 7526 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 5000 - 4500t- ~ PHENOBARBITAL (9 GASES) F- z 4000 :2 0 . 0 3500 -J I a- 3000 0 a- F- :3 w z 2500 2000 w :3 -J 0 ra~ C.!) 1000 w < N Cl 23456789101112 WEEKS OF TREATMENT Figs. 1 to 5. Course of absolute neutrophil counts in patients who developed leukopenia during treatment with five phenothiazine derivatives and phenobarbital. (After initial count, only counts in leukopenic range are shown, preceding or suc- ceeding counts being above the leukopenic level.) abnormal counts paralleled the number of patients showing such abnormalities. The degree of eosinophilia was comparable among various treatment groups, generally being mild. In 77 per cent of patients, counts were below 10 per cent. Although eosinophil counts as high as 20 per cent were observed, these were comparatively rare, only 17 counts of .13 per cent or more being observed. The frequency of abnormal eosinophil counts was rather evenly dis- tributed through the 12 weeks of treatment and the control week. The next most common hematologic àb- normality was leukocytosis. The total num- her of elevated counts paralleled the dis- tribution of patients with leukocytosis. Elevated counts were evenly distributed throughout the 12 weeks of treatment and the control week. The degree of leuko- cytosis observed was surprisingly high: over one-half the counts exceeded 15,000 per cubic milliliter, the median range be- ing .15,000 to 16,500. Leukopenia was comparatively infrë~ quent in this group. Of 36 patients with leukopenia 5 were dropped from treatment. This abnormality was observed most fre- quently in patients treated with phenobar- bital and least frequently in patients treated with prochlorperazine and trifiupromazine~ The course of leukopenic counts in such patients is shown in Figs. 1 through 5. Although the absolute neutrophil - count decreased to less than 1,500 per cubic milli- liter with each of the 6 drugs, in those cases in. which treatment was continued without interruption; counts subsequently returned to higher levels. Abnormal :hepatic tests. Abnormal he- patic tests occurred in 97 patients without statistically significant differences between the treatment groups (Table IV.). In 36 of these 97 patients abnormal tests were pres- ent duringthe control period. Only 26 pa- tients had more than a single abnormal test during the 5 week period of measure- ififA :jj Cl 23456789101112 WEEKS OF TREATMENT CHLORPROMAZI NE (7 GASES) 4500 4000 3500 -J I a. 300C 0 2500 2000 w 1- 1500 0 C') a~ 1001 501 Fig. 2. PAGENO="0211" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7527 ment. Most abnormalities were found in the SGO-T titer, alkaline phosphatase de- terminations, and serum bilirubin levels. However, these tests were performed most frequently. As can l)e seen from the table, the range of abnormal values was not great, few tests being at the upper limits. Interpretation of such abnormal tests, occurring sporadically and infrequently, was extremely difficult. In no instance was there a distinguishing pattern of persistent abnormal tests as occurs ordinarily in he- patic dysfunction following administration of phenothiazine derivatives. Prodromal symptoms or the appearance of clinical jaundice was not reported in any patient. Four patients were dropped from treat- ment because of abnormal hepatic tests without other abnormal clinical signs or laboratory findings. One patient treated with perphenazine had several abnormal control tests with persisting abnormalities through the early part Of his treatment pe- riod. These tests were only mildly erratic but indicated prO-existing parenchymatous liver damage which was not aggravated by drug therapy. Changes in temperature, pulse, and blood pressure. Temperatures which changed sig- nificantly were lower. Only oral tempera- tures of less than 97° F. were considered abnormally low (Table V). The distribu- ti()n of this type of abnormal body tem- perature varied between the treatment Table V. Changes in temperature, pulse rate, and blood iress,ire during 12 week treatment period Temper- Pulse Blood pressure ature rate decline: 30 mm. less over 110 systolic and/or than per 20 izin. Drug 97° F. minute diastolic Phenobarbital 8 0 3 Chlorpromazine 7 1 5 Triultipromazine 8 1 2 Mcpaz~nc 12 2 2 Prochlorperazine 8 1 8 Pcrphenazinc 7 1 5 :~ Cl 23456789 101112 WEEKS OF TREATMENT Fig. 3. groups. A few patients in each treatment group showed persistently low body tem- peratures ranging between 95° and 97° F. The frequency and persistence of these low temperatures throughout treatment (and often through the control period) sug- geste(l that these individuals had low body temperatures normally. In other instances the lowering of body temperatures was sporadic. No single sharp elevations of temperature occurred such as have occa- sionally been reported with phenothiazine derivatives, nor was any sustained eleva- ti()n of temperature reported. Changes in pulse rate were surprisingly rare. Patients who had tachycardia did not have it persistently, only occasionally. On the other hand, in a number of cases pulse rates declined under drug treatment, per~ Imps because of some abatement of anxiety. Changes in blood pressure were uncom- mon. In practically all cases the blood pres- sure never fell below the usual physiologic limits. The usual pattern was a fall from an initially elevated or borderline level of blood pressure to a physiologic level either in the middle range or at the low side. The 500C. \~7 \ø PERPHENAZINE 4500 (7 CASES) 4000 z 0 o -j I 0. 0 F- w z U 1- -J 0 U) `3 PAGENO="0212" 7528 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY varying conditions under which these measurements were obtained detract from their significance. Discussion Well-controlled studies for determining abnormal symptoms, signs, and laboratory tests associated with drug therapy take spontaneous occurrence into account and tend to eliminate the biasing factor of clin- ical expectation. The disadvantages of our technique are that the ranges of drug dos- age are arbitrary during the critical early part of therapy and that the technique of observation of patients varies greatly. The dosage schedule in this study was thera- peutically efficacious, simulating usual clin- ical conditions. Differences between ob- servers should have been equally distrib- uted among the 6 treatment groups, not constituting a major biasing factor. Consideration of the occurrence of ab- normal signs and symptoms in the 6 treatment groups led to three possible con- clusions: (1) Their occurrence with phe- nothiazine derivatives has been greatly overestimated. (2) Phenobarbital produces more side effects than is ordinarily be- lieved. (3) Many phenomena represent spontaneous fluctuations in schizophrenic patients or manifestations of the illness it- self. Of these, the last has probably not been stressed enough. Examples of the first possibility were the relatively infrequent occurrence of extrapyramidal syndromes (less than 10 per cent), seizures, and skin eruptions in patients treated with pheno- thiazine derivatives. Examples of the sec- ond and third possibilities were the occur- rence of depression, anxiety, agitation, akathisia, and autonomic nervous system side effects during therapy with phenobar- bital. The abnormal behavioral symptoms were probably manifestations of schizo- phrenia rather than drug effects. Leukocytosis, leukopenia, and eosino- philia are known to be consequences of treatment with phenothiazine deriva- tives.3'5~2 However, each hematologic ab- normality was present in control counts and just as frequent during, treatment with phenobarbital as with the other drugs. The development of leukopenia during drug therapy is especially important. Twenty- five of the 36 patients in this study with leukopenia (absolute neutrophil counts 500( MEPAZINE 4500 ~ (8 CASES) I- z 4000 0 3500 -J 300(i~ 0 cc ~ 2500- w Z 2000- ~ CI 23456 89101112 WEEKS OF TREATMENT Fig. 4. H z 0 0 -J I a- 0 cc F- w I w H -J 0 (I) ccl WEEKS OF TREATMENT Fig. 5. PAGENO="0213" below 1,800 per cubic milliliter) had abso- lute neutrophil counts of less than 3,000 per cubic milliliter during the week pre- ceding treatment. This suggests that pa- tients beginning with low neutrophil counts are more prone to further depression dur- ing treatment. On the other hand, leuko- penia from phenothiazine derivatives was not significantly more frequent than that from phenobarbital. Still more remarkable was the return to normal levels of consid- erably depressed absolute neutrophil counts despite uninterrupted. treatment~ Continuation of treatment did not produce agranulocytosis, but was succeeded even- tually by, normal counts. Obviously, the decision to continue or abandon treatment in the face of leukopenia must be made on more factors than a declining leukocyte count. In view of the occurrence of leuko- penia with phenobarbital, it may be as- sumed that some patients may have spon- taneously occurring cyclic leukopenia unrelated to drugs. Abnormal hepatic tests were common in all treatment groups. More than one-third of patients with abnormal tests had them during the control period. Moie significant was the fact that no patient developed a clinical or laboratory picture compatible with jaundice as usually encountered with phenothiazine derivatives. The relatively few equivocal abnormal hepatic tests were probably not related to drug treatment, as these were sporadic, isolated, or not cor- roborated by other tests. Clinically impor- tant hepatic dysfunction from phenothiazine derivatives is usually associated with rec- ognizable jaundice preceded by fever and prodromal symptoms, and easily corrobo- rated by appropriate laboratory or histo- logic tests.6'9 What is important is that ab- normal hepatic tests occurring during drug therapy should not always be attributed to subclinical manifestations of drug-induced hepatic dysfunction, as has been done.4'1° The interpretation of the changes in temperature, pulse rate, and blood pressure was quite difficult. The infrequency of such changes, despite careful efforts to detect 7529 them, was surprising. Some patients had lower than usual body temperatures which varied from occasional to sustained low readings. These low body temperatures may have represented a normal, variant for some schizophrenic patients rather' than drug-induced hypothermia. Changes in pulse rate were few. None of the recorded blood pressures were below normal physio- logic limits, the most frequent change oc- curring when the initial readings were somewhat higher than usual. The untoward effects recorded in this controlled study were relatively uncommon and appeared in many instances to be manifestations of spontaneous variations in schizophrenic patients or not due to spe- cific actions of the phenothiazine deriva- tives. Despite rather careful scrutiny for detecting these abnormalities, their occur- rence in the various drug treatment groups was neither frequent nor troublesome. Only 21 of 599 patients were dropped from treatment because of side effects or abnor- mal laboratory tests, none of which were serious in degree. References 1. Casey, J. F., Lasky, J. J., Klett, C. J., and Ho!- lister, L. E.: Treatment of Schizophrenic Reac- tions With Phenothiazine Derivations. A Com- parative Study of Chiorpromazine, Triflupro- mazine, Mepazine, Prochlorperazine, Perphen- azine, and Phenobarbital. Proceedings of the Fourth Annual Research Conference, Veter- ans Administration Cooperative Studies on Chemotherapy in Psychiatry, Memphis, Tenn,, May 13, 1959. In press, 2. Cohen, 1. M.: Complications of Chiorproma- zine Therapy, Am. J. Psychiat. "113:115-121, 1956. 3. Council on Pharmacy and Chemistry: Blood Dyscrasias Associated With Chiorpromazine Therapy, J.A.M.A. 160:287, 1956. 4. Dickes, R., Schenker, V., and Deutsch, L.: Serial Liver-Function and Blood Studies in Patients Receiving Chiorpromazine, New Eng- land J. Med. 256:1-7, 1957. 5. Fernandes, B., and Leitao, G.: Incidents and Accidents in Chlorpromazine Therapy, J. Clin. & Exper. Psychopath. 17:70-76, 1956. 6. Gebhart, W. F., Van Ommen, R. A., McCor- mack, L. J., and Brown, C. H.: Chlorproma- COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY PAGENO="0214" 7530 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY zine Jaundice; Clinical Course, Hepatic-Func- tion Tests, and Pathologic Findings; Summary of 20 Cases, A~M.A. Arch. lot. Med. 101:1085- 1093, 1958. 7. Hollister, L. E.: Medical Progress. Complica- tions From the Use of Tranquilizing Drugs, New England J. Med. 257:170-177, 1957., 8. Hollister, L. E.: Allergic Reactions to Tran- quilizing Drugs, Ann. Tnt. Med. 49:17-29, 1958. 9. Hollister, L. E.: Allergy to Chiorpromazine Manifested by Jaundice, Am. J. Med. 23:870- 879, 1957. 10. Keup, W.: Effect of Phenothiazine Derivatives on Liver Function, Dis. Nerv. System, Mono- graph Supplement 20:161-175, May, 1959. 11. Kinross-Wright, V. J.: Complications of Chlor- promazine Therapy, Dis. Nerv~ System 16:114- 119, 1955. 12. Pisciotta, A. V., Ebbe, S., Lennon, E. J., Metz- ger, G. 0., and Madison, F. W.: Agranulocy- tosis Following Administration of Phenothia- zinc Derivatives, Am. J. Med. 25:210-223, 1958. ` PAGENO="0215" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7531 Reprinted from JOURNAL OF CLINICAL AND EXPERIMENTAL PSYCHOPATHOLOGY & QUARTERLY REVIEW OF PSYCH1ATRY AND NEUROLOGY. Vol. XXI No. 2 April-June 1960 © Copyright 1960 MD Publications, Inc. All rights reserved. A Clinical Trial of Five Phenothiazines Using Sequential Analysis* C. James Kieti, Ph.D., and Julian J. Lasky, Ph.D. PERRY POINT, MARYLAND Although there are now many examples of the use of sequential analysis in medical re- search,4' 8, 13 as well as several excellent discussions of the method,'-3' ~` it has not often been applied to psychiatric problems. It seems particularly appropriate for clinical trials of new therapeutic agents. This paper describes an application of sequential analysis'4 tp data gathered in a large-scale controlled study of newly admitted schizophrenic males treated with selected phenothiazine derivatives. Following a statement of the experimental design, the results of an analysis of multiple covariance will be presented to serve as a basis for evaluating the results of the sequential tests. The relevance of both analyses to this study will also be discussed. From the Veterans Administration Central Neuropsychiatric Research Laboratory, Perry Point, Md. * Part of project III of the Veterans Administration Cooperative Studies of Chemotherapy in Psychiatry. Portions of this paper were presented at the Third Annual Research Conference in Psychiatry, Veterans Administration Hospital, Downey, Ill., June 10, 1958, the Fourth Annual Research Conference in Psychiatry, Veterans Administration Hospital, Memphis, Tenn., May 20, 1959, and the Gordon Research Conference on Medicinal Chemistry, New London, N. H., August 7, 1959. PAGENO="0216" 7532 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY METHOD* Six medications were randomly assigned to 640 schizophrenic males as they were suc- cessively admitted over -a six month period to 35 cooperating hospitals. The drugs used were chlorpromazine,t mepazine4 perphenazine,~ prochlorperazine,t and triflupromazir~e.~ Phenobarbital was used as an active control substance. Treatment was carried out under double-blind conditions, and dosage followed a fixed-flexible schedule. Dosage was pro- gressively increased at a specified rate during the first four weeks until it reached the fol- lowing levels: prochlorperazine, 75 mg.; mepazine and triflupromazine, 150 mg.; pheno- barbital, 96 mg.; chlorpromazine, 600 mg; and perphenazine, 48 mg. A flexible dosage schedule was used during the remaining 12 weeks of the study, during which period the physician adjusted the dosage, within limits, to meet the optimal chemotherapeutic needs of his individual patients. The daily dosage in mg. during the flexible period was as follows: prochlorperazine, 25 to 150; mepazine and triflupromazine, 50 to 300; phenobarbital, 32 to 192; chlorpromazine, 200 to 1200; and perphenazine, 16 to 96. At the beginning of the study, the average patient was 34 years old and had first been treated for mental illness about 7 years prior to current hospitalization. Eighteen per cent had never been hospitalized previously, and one third had been hospitalized more than three times. Fifty-six per cent had received some variety of ataractic drug previously. Clinical changes in patients were measured by two rating scales: the Multidimensional Scale for Rating Psychiatric Patients9 (M.S.R.P.P.), and the Clinical Estimate of Psy- chiatric Status Scale (C.E.P.S.S.'l. The M.S.R.P.P. yields scores for 11 factors or symptom clusters as well as an over-all score called Total Morbidity. The C.E.P.S.S. required judg- ments from psychiatrists on 12 items referring to psychopathology and prognosis. Pa- tients were evaluated by both rating deyices before treatment and after 4 and 12 weeks of treatment. Detailed laboratory studies were also conducted. - The statistical model used to evaluate the relative therapeutic effectiveness of the drugs studied was analysis of multiple covariance (simple randomized design). Each of the 24 criterion measures (12 from the M.S.R.P.P. and the 12 C.E.P.S.S. items) was analyzed for relative changes in clinical status during the first month, the second two months, and over the entire three month study period. Final criterion mean scores in each analysis were * A more complete descriptidn of project III has been prepared for separate publication. The study protocol, reproduced in its entirety -in the Transactions of the Third Annual Research Conference on- Chemotherapy in-Psychiatry, edited by Clyde -J. Lindley and published by the Veterans Administration Department of Medicine and Surgery April 1959 contains considerable detail concerning selection of patients the randomization procedures precautions restrictions laboratory controls and forms A statistical appendix in the Transactions of the Fourth Annual Conference on Chemotherapy in Psychiatry, edited by Clyde J. Lindley and published by the Veterans Administration Department of Medicine and Surgery, May, 1960, presents the results, as well as other data, in great detail; t The trade name of Smith, Kline & French Laboratories for chlorpromazine is Thorazine, and for prochlor' - perazine is Compazine. - - -- ~ The trade name of Warner Chilcott Laboratories for mepa inc is Pacatal § The trade name of Schering Corporation for perphenazine is Trilafon ii The trade name of E. R. Squibb & Sons for triflupromazinc is Vesprin. - PAGENO="0217" COMPETITIVE PROBLEMS IN THE DRIJG :INDTJSTRY 7533 adjusted for initial status on the criterion being analyzed as well as for the net effect of 11 control variables such as age, number of previous hospitalizations, and initial weight. Briefly the results were as follows Total morbidity scores were significantly (~ < 0 05) reduced after 4 and 12 weeks ot treatment by prochiorperazine chiorpromazine perphen azine, and triflupromazine as compared with either mepazine or phenobarbital. There were no significant differences among patients treated with the first four drugs named during any of the evaluation periods. The difference between patients treated with mepazine and phenobarbital was not significant after four weeks but was significant after 12 weeks. The results on the remaining criteria essentially followed this same pattern. The Sequential Analysis. Data were collected by the cooperating hospitals and forwarded to the central laboratory over a period of about nine months. Each set of data consisted of the requested information on 6 patients, to each of whom a different treatment had been assigned at random The decision to be arrived at with each pair of treatments repre sented in the set was whether one drug was superior to the other or whether there was no important difference between them. Reduction in total morbidity score was selected as the best single criterion of the clinical effectiveness of the drugs In a particular pair of patients receiving different treatments if the patient on drug A showed greater reduction in morbidity over the time period being considered than did the patient receiving the second drug that pair of patients was scored a plus and plotted 1 unit vertically on a previously prepared graph containing a sequential channel If drug B was superior, the pair was scored a minus and plotted 1 unit horizontally. The occasional ties were omitted. These plus and minus outcomes were plotted in serial order as data were received and evaluated, sampling being continued until the serial record of plus and minus pairs crossed one of the decision lines or until the number of available patient pairs was exhausted. __ i~O~4OI FIG. 1. Sequential channel: one-sided alternative. FIG. 2. Sequential channel: two-sided alternative. PAGENO="0218" 7534 COMPETITIVE PROBLEMS 1N THE DRUG INDUSTRY If the two drugs were equally effective it would be expected that half the pairs would be scored plus and the other half minus; that expectancy is represented by the lower decision line labeled P0 in figure 1. For this case, the serial record of plus and minus pairs would ascend at about a 450 angle, crossing P0 after perhaps 30 or 40 pairs had been evaluated.. How soon the decision line would. be crossed would depend upon the vagaries of sampling. An alternative hypothesis must also be specified. If drug A were superior, the members of the pairs receiving that drug should, on the average, show greater improvement and the proportion of pairs scored plus should be greater than 50 per cent. A percentage that is felt to be clinically meaningful has to be designated for the upper decision line. The alterna- tive hypothesis labeled P1 in figure 1 that 65 per cent or more of the pairs should favor drug A, was formulated after consulting several psychiatrists who were especially knowl- edgeable concerning patients' response to drugs. Cak~ilation of the average sample number necessary to reach a decision also showed that with this value a decision could be expected to be. reached before the number of observational units available were exhausted. A co- efficient of risk of 0.05 was attached to both of these alternative.hypotheses and is indicated as alpha and beta in figure 1 With these four values the slope and intercept of these lines can be quickly calculated ~1 It has been indicated what should happen if the two treatments were equally effective. If drug A were superior in 100 per cent of the pairs, the serial record of plus and minus pairs would go straight up to cross P1 after 11 pairs had been evaluated If the superiority of drug A were not quite that great it might require additional pairs again depending upon the sampling. If drug B were superior in .100 per cent of the pairs, the serial line would be plotted horizontally and cross P0 after eight pairs of patients had been evaluated. In this event, it would be concluded that drug A was not importantly better than drug B. Again, if the percentage in favor of B were less than 100 per cent, more pairs might be required to reach this decision. Using this sequential channel does not adequately provide for the contingency that drug B is better than drug A. Only the two decisions shown are permitted. If, however, another channel is superimposed on the first, as is shown in figure 2, the test is extended to include this additionalpossibility. The two lines defining the zone of no important difference should extend downward and to the left, although this is not shown in figure 2. If the sampling line of plus and minus pairs crosses both of these extended lines, the decision is that of no important difference. A number of instances in which such a decision was reached in this manner will be found in subsequent figures. The same graph shown in figure 2 served all of the drug comparisons. RESULTS Figures 3 through 6 present the results after one month of treatment on a fixed dosage schedule. Figure 3 contains five channels, one for each phenothiazine compared to pheno- barbital. The following decisions~ were reached: prochiorperazine, chiorpromazine, per- phenazine, and triflupromazine were better than phenobarbital in reducing morbidity; mepazine was not importantly different from phenobarbital. Figure 4 compares mepazine PAGENO="0219" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY FIG. 3. Five phenothiazines compared with phenobarbital after one month of treatment. with the four other phenothiazines. They were all better than mepazine. Figure 5 com- pares chlorpromazine with prochlorperazine, perphenazine, and triflupromazine. No de- cision was reached in the triflupromazine-chlorpromazine comparison before the cases avail- able for evaluations were exhausted. Although triflupromazine did have a tendency towards superiority at this point (59 per cent), it was not significantly better (x2 = 2.84, p > 0.05). 0i02~0iO20 01020 JL~ 12030 NUMBER OF NEGATIVE PAIRS Fio. 4. Mepazine (Pacatal) compared with four other phenothiazines after one month of treatment. 7535 ~4o 11. U > I- 30 C,, 0 0. 20 U 2 0 z `HEN OBARB _______ BE17ER ° 0 ° 10 ° 0 20 30 40 NUMBER OF NEGATIVE PAIRS PAGENO="0220" Cs) 0. Ui > I- Cs) 0~ 20 Ui m z 7536 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY I0 TRILAFON ) VESPRIN BETTER BETTER I I I $ ~H0RAZINE 40 I0 20 30 10 20 30 ~ NUMBER OF NEGATIVE PAIRS FIG. 5. Chiorpromazine (Thorazine) compared with prochiorperazine (Compazine), perphenazine (Trilafon), and triflupromazine (Vesprin) after one month of treatment. C OMPAZI NE BETTER TRILAFON BETTER BETTER 10 20 10 20 30 NUMBER OF NEGATIVE PAIRS 0 FIG. 6. Comparison of perphenazine (Trilafon), triflupromazine (Vesprin), and prochiorperazine (Compazine) after one month of treatment. PAGENO="0221" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 10 ~ 0 ° 20 30 40 NUMBER OF NEGATIVE PAIRS FIG. 7. Five phenothiazines compared with phenobarbital after three months of treatment. The decisions reached in the other two comparisons were that neither prochiorperazine nor perphenazine is importantly different from chiorpromazine. Figure 6 shows the remaining three phenothiazines compared with each other, and in each comparison the decision was the same-no important difference. This completes the comparisons after one month of f - THORAZINE VESPRIN TRILAFON BETTER BETTER BETTER 10 20 0 0 20 0 10 20 ~ ~ATAL 7537 U) 40 Iii ? 30 F- U) .0 Q. 20 0 Id I0 D z NUMBER OF NEGATIVE PAIRS FIG. 8. Mepazine (Pacatal) compared with four other phenothiazines after three months of treatment. PAGENO="0222" 7538 COMPETITIVE PROBLEMS SIN THE DRUG INDUSTRY C0MPAZINE V / 10 20 30 0 20 30 0 0 20 30 NUMBER OFNEGATIVE PAIRS FIG. 9. Chiorpromazine (Thorazine) compared with triflupromazine (Vesprin), perphenazine (Trilafon), and prochlorperazine (Compazine) after three months of treatment. treatment. The decisions are completely consistent with those yielded by the analysis of multiple covariance. The remaining figures deal with the three month data. The first four channels in figure 7 yielded the same decisions as the one month data. However, mepazine, which was not im- portantly different from phenobarbital after one month of treatment was almost superior C,) a; ~ 40 I- Cl) 0 Q.30 La. 0 ~ 20 z 10 0 10 20 30 0 0 20 30 0 10 20 30 40 NUMBER OF NEGATIVE PAIRS FIG 10 Comparison of perphenazine (Trilafon) triflupromazine (Vesprin) and prochlorperazine (Compazine) after three months of treatment. 40 U) w 40 I- U) 30 ~ 20 z TRILAFON BETTER TRILAFON BETTE~JJ.rI TRILAFON , ,/ ~ VESPRIN MPAZINE VESPRIN BETTER ~ ,.r~ BETTERJ~) jr~11~T~ BETTER PAGENO="0223" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7539 TABLE I Total Number of Random Pairs Available for the Sequential Analysis and the Final Percentage Scored Positive Comparison After I month Number of pairs % positive pairs After 3 months Number of pairs % positive pairs Chlorpromazine vs. phenobarbital 94 63 * 60 67 Prochiorperazine vs. phenobarbital 96 70 67 73 Triflupromazine vs. phenobarbital 92 64 56 80 Perphenazine vs. phenobarbital 98 71 63 86 Mepazine vs. phenobarbital 98 53 64 64 Chlorpromazine vs. mepazine 96 65 69 67 Prochiorperazine vs. mepazine 99 65 71 63 Triflupromazine vs. mepazine 90 64 58 81 Perphenazine vs. mepazine 98 72 63 75 Prochiorperazine vs. chiorpromazine 96 51 65 55 Triflupromazine vs. chlorpromazine 90 59 55 71 Perphenazine vs. chlorpromazine 95 55 57 61 Prochiorperazine vs. triflupromazine 90 48 61 38 Perphenazine vs. triflupromazine 90 50 51 47 Perphenazine vs. prochlorperazine 97 57 65 55 to phenobarbital after three months. The number of available pairs was exhausted at a critical moment in this comparison. The final proportion of pairs in favor of mepazine was 0.64; significantly better than chance (x2 = 5.06, p < 0.05). Thus, this result might be interpreted as being consistent with the covariance analysis, which did show mepazine to be superior to phenobarbital after three months. Figure 8 is similar; prochlorperazine at 63 per cent was another near miss but significant (x2 = 5.55, p <0.05). Figure 9 contains the one clear inconsistency with the analysis of covariance Triflupromazine is shown to be better than chlorpromazine. The final proportion of pairs in favor of triflupromazine was 0.71. The covariance analysis did not distinguish between these two drugs, but inspection of the adjusted means shows that the triflupromazine group had the lowest mean morbidity score after treatment followed by perphenazine, chlorpromazine, prochlorperazine, mepa- zine, and phenobarbital, in that order. In the other two channels in this figure, perphen- azine approached a decision line but no decision was reached in either comparison. The last figure is self-explanatory. Again the serial plot almost reached a decision in favor of triflupromazine over prochlorperazine,. but did not disagree with the covariance analysis. Table I presents the total number of random pairs available for the sequential analysis and the final percentage of them scored positive. DISCUSSION Although analysis of variance and this sequential model are quite dissimilar, in that the former tests the significance of the difference between adjusted means whereas the* latter PAGENO="0224" 7540 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY tests the deviation from chance expectancy in the proportion of random pairs, both analyses led to essentially similar decisions and both analyses were relevant although they served different purposes. The sequential analysis provided a simple cumulative summary of the progress of the study, which was very useful for purposes of information. In marked contrast in terms of time to this always~ current graphic record, the analysis of covariance provided findings only after six months of sample build-up, three months of treatment, and three months of data preparation and analysis. Most of the decisions yielded by the sequential analysis were reached while some hospitals were still accumulating their complete quota of patients for pretesting. If sampling could have been terminated as decisions were reached, con- siderablë economy of effort would have resulted. In this study, however, other objectives, such as a determination of the incidence of side effects and an evaluation of laboratory data in large quantity made it desirable to complete data collection on the entire sample On the other hand, analysis of covariance possesses certain advantages, the most important of which is that it is a more powerful statistical method than this nonparametric sequential model. Initial differences between groups in respect to 12 control variables were adjusted by covariance. This adjustment provided statistical equality of the treatment groups prior to treatment and reduced the error term used in evaluating mean differences. The problems. introduced by making multiple comparisons was handled by use of a multiple range test.6 Sequential analysis lacks both of these highly desirable advantages. Sequential analysis is usually recommended because it is economical in terms of the number of observational units, since only that, number of units necessary to reach a de- cision is evaluated. It has already been pointed out that in this study other objectives made it undesirable to suspend sampling and take advantage of whatever economy the method has to offer Another feature of this application of sequential analysis that reduced the efficiency of the method was the use of pairs of patients as the observational unit. Al- though some decisions were reached after evaluating a small number of patient pairs, this was not generally true and in several comparisons the cases available for evaluation were exhausted before a decision could be reached. There are some alternative sequential models that may lead to more econpmical decisions but that were not adopted for use in this study because of other special requirements. One of these is the sequential t test. For example, previously collected data.had shown that the median change in morbidity score over a six week period for phenobarbital and a lactose placebo group was, zero, and that the change scores approximated a normal distribution. Using the sequential t tables developed by the Bureau of Standards,ii it was possible to test whether zero would fall within or outside a one standard deviation limit for each of the drug groups at a specified level of confidence. Mepazine and phenobarbital were found to be noneffective agents by this criterion; the remaining four phenothiazines were found to be effective. The number of patients necessary to reach these decisions ranged from 7 to 12. In using this model, four values had to be designated at the outset: the two coefficients of risk (alpha and beta), the expected mean change of zero, and the amount of change which would' be of interest (one standard deviatiOn). The' normative data that provided the ex- PAGENO="0225" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7541 pected change of zero was derived from a chronic schizophrenic sample and was not felt to be representative of the newly admitted patients. Armitage' has discussed two models applicable to patient pairs. In the case where there is an "all or none" therapeutic outcome, e.g., death or infection, each pair of patients is classified as ± +, + -, - +, or - -. The + + and - - pairs are disregarded, and the remaining pairs plotted in the order of their evaluation. To calculate his decision lines, it is necessary to specify two alternative hypotheses and their associated coefficients of risk. Armitage bases his alternative hypotheses on the known success rate of the control treat- ment and his judgment of what would constitute a meaningful increment of successes for a new treatment. One not-so-apparent disadvantage of this method is that the number of discarded pairs can be quite large, e.g., in his sample problem, a decision was reached after 14 pairs had been evaluated but 31 additional pairs were tied and therefore disregarded. In the case where there is a quantitative measure of the success of treatment available for each member of the pair, Armitage recommends the sequential t test. The expected mean difference under the null hypothesis would be zero, and the alternative hypothesis can be set by the experimenter so as to represent a clinically important difference. This latter value can be determined from normative data obtained in previous investigations if they are available. A variation of these two methods has been presented by Sainsbury and Lucas,'° who used each patient as his own control in an evaluation of prochiorperazine in outpatients suffering from acute anxiety. The patients in their trial received either prochiorperazine for one week followed by placebo for a week, or the reverse order,determined at random. The out- comes were plotted as suggested by Armitage. Finally, it is worth noting that, in all of these models, the experimenter must decide what constitutes a clinically important difference and what degree of risk he is willing to tolerate in reaching his decisions. Although the latter should not be determined without careful thought, convention leads us to set these at 0.05 or 0.01. Defining the difference that is considered to be important enough to detect is more difficult. It is possible in some in- stances to base this definition upon previously collected data or, as Armitage suggests, to select a value that, if present, has a reasonable chance of being detected with the cases available for evaluation. As he points out,' "Eventually a compromise will be reached between the requirements of sensitivity in detecting small differences (which tend to increase the length of the trial) and those of economy (which tend to decrease the length)." SUMMARY An application of sequential analysis in a clinical trial of phenothiazine derivatives is described. The results were found to be reasonably consistent with those obtained from a more conventional statistical approach. Advantages and disadvantages of the methcd as well as alternative models are discussed. RESUMEN Se describe en este trabajo una aplicacidn del análisis secuencial en una prueba clInica 40-471 0 - 71 - pt. 18 -- 15 PAGENO="0226" 7542 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY KLETT AND LASKY con derivados de la fenotiazina. Los resultados se hallaron razonablemente paralelos con los obtenidos mediante un estudio estadIstico más convencional. Se explican también las ventajas y desventajas del método asI como los de otros estudios. RESUME L'auteur décrit l'application du procédé dit d'analyse par la méthode des probits séquen- tielle ou progressive dans un essai clinique de ddrivés de la phdnothiazine. Les résultats correspondaient d'assez près avec ceux obtenus par une méthode statistique plus courante. L'auteur examine les avantages et les inconvénients de cette méthode ainsi que ceux d'autres systèmes. REFERENCES 1. ARMITAGE, P.: Sequential tests in prophylactic and therapeutic trials, Quart. J. Med. 23:255-274, 1954. 2. BARTHOLOMAY, A. F.: The sequential probability ratio test applied to the design of clinical experiments, New England J. Med. 256:498-505, 1957. 3. Bitoss, I.: Sequential medical plans, Biometrics 8:188-205, 1952. 4. CLARK, M. L.; SCHNEIDER, E. M.; DOERING, C. R., AND WOLF, S.: Rapid evaluation of gastric inhibitory agents, Clin. Res. Proc. 3:132, 1952. 5. DOERING, C. R.; HAGANS, J. A.; ASHLEY, F. W.; CLARK, M. L.; SCHNEIDER, E. M., AND WOLF, S.: Sequential analysis in therapeutic research. I. Applications to binomial data and to measured data normally distributed (one.sided alternative), J. Lab. & Clin. Med. 50:621-628, 1957. 6. DUNCAN, D. B.: Multiple range and multiple F tests, Biometrics 11:1-42, 1955. 7. HAGANS, J. A.; DOERING, C. R.; CLARK, M. L.; SCHNEIDER, E. M., AND WOLF, S.: Sequential analysis in therapeutic research. II. Applications to measured data normally distributed (two.sided alternative), J. Lab. & Clin. Med. 50:629-638, 1957. 8. KILFATRICK, G. S., AND OLDHAM, P. D.: Calcium chloride and adrenaline as bronchial dilators compared by sequential analysis, Brit. M. J. 4901:1388-1391, 1954. 9. LORR, M.; JENKINS, R. L., AND HOLSOFFLE, J. Q.: Multidimensional scale for rating psychiatric patients, hospital form, Veterans Administration Technical Bulletin 10'507, Nov. 16, 1953. 10. SAINSBURY, P., AND LUCAS, C. J.: Sequential methods applied to the study of prochlorperazine, Brit. M. J. 5154:737-740, 1959. 11. TREHUB, A.: The clinical application of sequential analysis, J. Clin. Psychol. 14:86-89, 1958. 12. United States Department of Commerce: Tables to Facilitate Sequential t-Tests, National Bureau of Standards Applied Mathematics Series 7, Washington, U. S. Government Printing Office, 1951. 13. VALEE, B. L.; WACKER, W. E. C.; BARTHOLOMAY, A. F., AND ROBIN, E. D.: Zinc metabolism in hepatic dysfunction. I. Serum zinc concentrations in Laënnec's cirrhosis and their validation by sequential analysis, New England J. Med. 255:403-408, 1956. 14. WALD, A.: Sequential Analysis, New York, Wiley, 1947. (Thereupon, at 12 :10 p.m., the heariiig iii the above-entitled mat- ter was conchuded.) PAGENO="0227" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY (Present Status of Competition in the Pharmaceutical Industry) MONDAY AUGUST 17, 1970 US. SENATE, SUTBCOMMITTEE ON MONOPOLY OF THE SELECT COMMITTEE ON SMALL BUSINESS, Washington, D.C. The subcommittee met, pursuant to recess, at 10 a.m., in room 1318, New Senate Office Building, the Honorable Gaylord Nelson (chairman of the subcommittee) presiding. Present: Senator Nelson. Also present: Benjamin Gordon, staff economist; Elaine C. Dye, clerical assistant; and Keith A. Jones, minority counsel. Senator NELSON. The hearing of the Monopoly Subcommittee will come to order. The committee is pleased to welcome you here this morning, Ad- miral Etter, and your associates. For purposes of the record, it might be helpful if you would introduce those who are with you from left to right or right to left, and then I would suggest that any time anyone wishes to make a comment, please identify yourself so that the reporter will have the correct identification in the record. Admiral, we are pleased to have you here this morning. STATEMENT OF REAR ADM. HARRY S. ETTER, MC, USN, CHAIRMAN, DEFENSE MEDICAL MATERIEL BOARD, AND ASSISTANT CHIEF FOR PLANNING AND LOGISTICS, BUREAU OF MEDICINE AND SURGERY; ACCOMPANIED BY COL. M. E. McCABE, MC, USA, OF- FICE OF THE SURGEON GENERAL, DEPARTMENT OP THE ARMY; CAPT. L. M. FOX, MC, USN, CHIEF OF MEDICINE, NAVAL HOSPITAL, NATIONAL NAVAL MEDICAL CENTER; COL. E. J. CLARK, MC, USAF, OFFICE OF THE SURGEON GENERAL, DEPARTMENT OF THE AIR FORCE; COL. J. P. FAIRCHILD, MC, USA, DEPUTY COMMANDER, WALTER REED GENERAL HOSPITAL, AND CHAIRMAN, THERA- PEUTIC AGENTS BOARD; CAPT. S. C. PFLAG, MSC, USN, CHIEF, FIELD BRANCH, BUREAU OF MEDICINE AND SURGERY, NAVY DEPARTMENT; AND COL. A. 3. SNYDER, MSC, USA, CHIEF, MEDI- CAL PROCUREMENT DIVISION, DIRECTORATE OF PROCUREMENT AND PRODUCTION, DEFENSE PERSONNEL SUPPORT CENTER Admiral ETTER. Well, Senator, it is a pleasure to be here. I am Rear Adm. Harry S. Etter, MC, U.S. Navy, Chairman of the De- 7543 PAGENO="0228" 7544 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY fense Medical Materiel Board and Assistant Chief of the Bureau of Medicine and Surgery for Planning and Logistics. It is a pleasure to appear before this subcommittee to describe and discuss the man- ner in which the Department of Defense procures pharmaceutical products. My formal statement has been previously submitted to the subcommittee for your review and study. With your permission I will, therefore, summarize it only and request that the full statement be inserted in the record. Senator NELSON. The statement will be printed in full in the record.1 You may present it however you desire and if you wish to elaborate on it in any way or extemporize, just feel free to do so. Admiral ETTER. At the end of World War II the Army and Navy medical departments established the first consolidated standardized procurement office to serve the needs of both services. From that example has evolved our present DOD medical supply system. As it exists today our system includes a specific sequence of events. Senator NELSON. May I interrupt a moment? I think it might be better if you would read it, and when we come to those parts that we have covered as a consequence of questions, you could skip them. That way it will be easier to follow your statement. In other words, would you just read your statement. Admiral ETTER. The full statement, sir? Senator NELSON. Yes. We will come to some questions which I have keyed to various parts of your statement, and in exploring these questions, we will cover other parts of your statement. Those parts that we cover you can just skip as you go along. Admiral ETTER. It is a statement, as you know, quite lengthy. Senator NELSON. I think some of our questions will cover fair parts of your statement, so you will be able to skip large parts of it later. I have some questions, for example, on "Type Classification" starting under the title "Initial Action." Perhaps if you could pre- sent part of that, we can then raise some questions. Admiral ETTER. Initial action. Type classification is a term applied to the adoption of a drug as a standard item, and its subsequent in- clusion in the Department of Defense Medical Materiel Section of the Federal Supply Catalog. Type classification is a responsibility of the Defense Medical Materiel Board, but the action must be spon- sored by one or more of the services. Some drugs are type classified as standard because the worldwide commitments of the Armed Forces make it imperative that these items be readily avaiTable at all times, regardless of usage or con- sumption rates. Our usual motivation, however, is the dollar savings which accrue through our centralized purchasing and distribution system. Consequently, although type classification action may be initiated as a result of the recommendation of an individual, a presentation by industry, or a proposal by DMMB, most actions follow a determination that the volume of local purchases by field activities indicates that economies will result. For several years, for example, we have been stock listing calcium carbonate and aminoacetic acid tablets (FSN 6505-890-1658). Type 1 See Information beginning at p. 7578. PAGENO="0229" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7545 classification was requested by the Air Force in 1963. The item is a commercially available antacid which was marketed under the trade name of "Titralac tablets" by Riker Laboratories, Inc., Northridge, Calif. It is used primarily in the treatment of peptic ulcers (gastric and duodenal) and gastric hyperacidity. In 1963 the Air Force, used a statistical sampling technique to evaluate usage of nonstandard drugs. Upon noting that over $2,500 was being spent on this antacid that year by a selected group of 21 hospitals, the Air Force marked the drug for review. Air Force pro- fessional and logistic personnel concurred that there would be' a continued requirement for a drug of this type, and that demand and use rates could be expected to increase, or at least remain constant.' As a result of these preliminary actions, the Air Force submitted to DMMB a recommendation "to stock list an antacid comparable to Titralac tablets." DMMB advised the Army and Navy of the Air Force action, and requested service positions. Working from the Air Force recommendation, Army and Navy personnel reviewed their own reports, consulted their specialists, concurred with the Air Force and the item was standardized. These reviews include consideration of such data as local purchase statis- tics, professional needs and uses, patient acceptance, comparison with items already stock listed, and an evaluation of known sources of supply. ESSENTIAL CHARACTERISTICS Since the Air Force request named only the one commercial prod- uct, it was necessary for DMMB to request Riker Laboratories for detailed information on Titralac. Riker advised that the product `was' patented, but agreed to provide that information-physical and chemical characteristics, test protocols, clinical and stability studies- which specifically identify the `item produced by that manufacturer. The board used these data in the preparation of tentative essential characteristics for calcium carbonate and aminoacetic acid tablets. The essential characteristics (or EC's) are defined as those manda- tory qualities required of an item to accomplish a specific profes- sional, therapeutic, technical, or military purpose. For, drugs, they' include, but are not limited to a description of the item, and its ap- plication. or use; components of the formula, when appropriate; quantification, as required; unit of issue, type of container; package size, and any special packaging instructions; and labeling require- ments, identification data, and necessary instructions for use. Initial proposals for type classification on an item are recorded on a "coordination worksheet for medical items pending adoption" (DMMB form 1, Exh. 1).' DMMB distributed this form 1 concur- rently to the services and to DPSC. Comments were solicited from all addresses. The services annotated the `form 1 with their initial, and 12 months replenishment requirements. Within DPSC, the form was reviewed in the technical and supply operations divisions of the medical directorate to hasten availability of the drug ,through the DOD wholesale distribution depots. Having 1 See exhibits beginning at p. 7588. ` PAGENO="0230" 7546 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY determined that the EC's were adequate for preparation of a com- petitive specification or purchase description, DPSC returned the form 1 to the Board. Had it been determined that no further data could be acquired, and that total available information was inadequate for preparation of a competitive specification, the case would have been returned to the services. Upon their recommendations, a determination would have been made to discontinue action, or to process the item indi- cating a limited source of supply. Parenthetically, a recommendation for a limited source of supply may originate with a service, DPSC or DMMB. This action may be taken only in those instances where it has been professionally de- termined that the product of a specified supplier or suppliers is re- quired to provide for the health and welfare of Armed Forces per- sonnel or their dependents. The decision must be concurred in by all three military, medical services. Such determinations normally derive from an accumulation of clinical experience, and may relate to experience prior to type classification of the drugs, or to those in the system which have accumulated a significant complaint history. I shall speak again of limited source items when I reach the statisti- cal portion of my presentation. Mr. GORDON. May I ask a question at this point? Turn back to Titralac, which you mentioned before. You said that Riker advised that the product was patented but it agreed to provide information you wanted. Now, for one thing, did anybody examine the patent to see if it was a valid patent or if it, at least on the surface, looked like a valid patent? Or did you just take the word from Riker that they had a valid patent? Admiral ETTER. Mr. Gordon, I cannot answer that from personal knowledge, but I would assume that when they said it was patented it was, but they provided the information which was necessary to write the specification. This satisfied the requirements of the DPSC and the board. Mr. GORDON. With respect to the physical andchemical characteris- tics, is it not correct that when som~body files for a patent, that per- son has to give a sufficient amount of information so anybody in the field could duplicate it once the patent expires? In fact,. as I understand it, disclosure is one of thereasons why we give a patent. I cannot understand why you had to go to them and get this infor- mation when it should have been available in the patent application itself. . Admiral ETTER. Mr. Gordon, I cannot answer that question di- rectly. Mr. GORDON. Do you have anybody here who can? Admiral ETTER. I. would like to ask if Colonel Snyder or Captain Pfiag could provide any information on that'subject. Colonel SNYDER. I am Colonel Snyder, Chief of the Medical Pro- curement Division, DPSC. Generally speaking, when a solicitation is made like this, or an offer is made, I cannot speak for the first inquiry when they are closing EC's, and so on, but when a solicitation is made and a patent reported on the solicitation, it is then referred to DSA Headquarters. PAGENO="0231" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7547 Mr. GORDON. Do I understand that you do not try to determine, at least on a preliminary basis, whether that patent may be or may not be valid-whether it looks valid or not? Colonel SNYDER. At that point in time the procurement function is not aware of any patent that is reported and whether royalties are involved or payments. They are referred to DSA Headquarters where they are verified with the Patent Office. The patent involves many things, from processes to the compound itself. I think it would be imprudent for me to try to go into this. This is a very specialized field. Mr. GORDON. You stated that you requested Riker Laboratories for detailed information on Titralac. Riker advised that the product was patented but agreed to provide that information. Now, I thought that this information was provided when the patent is applied for. This is the justification for granting .a patent monopoly. It is an exchange~ We give you a patent monopoly for 17 years, you give the people of the United States information. So, anybody in the field could reproduce it once the patent expires. Colonel SNYDER. Mr. Gordon, if I may, I would like to defer and get that information. I do not have the specifics. Admiral ETTER. Could we provide it for the record? (The subsequent information was received and follows:) Patent data alone is inadequate for preparation of Essential Characteristics by the Defense Medical Materiel Board, or specifications by the Defense Per- sonnel Support Center. Patents contain only those data on constituents and procedures that were available when the patent was filed. During the seventeen years of patent protection, processing or fabricating developments by the patent holder or licensees often significantly improve the product, but do not require modification of the patent. Additionally, patents do not provide data such as clinical studies, stability or packaging. If industry can be persuaded to provide this information, it results in a real dollar saving in development of procure- ment documentation. Senator NELSON. May I ask a question? I am not exactly clear what the phrase "type classification" means actually. What does the word "type" mean as used in that phrase? Admiral ETTER. Well, the type classification in this regard is a description of the drug, its ingredients, and in effect, its intended use. It is a type of drug, and we were standardizing, or asking for standardization of a type or class of antacid. Senator NELSON. Are you using the word "type" in the generic sense? Does it refer to all drugs of the same compound regardless of how many there might be by various brand names and generic producers? Admiral ETTER. It can be used in the generic sense but there are other things, as you well know, Senator, that take them out of the particular generic field and put into a local-into another source of drug, and in this instance, I think this applies here. Captain Pfiag, can you add any infOrmation? This is Captain Pfiag of the Field Branch, Bureau of Medicine and Surgery, for- mally medical technical director of DPSC. * Captain PFLAG. Type classification in the generic sense, we are re- ferring to standardization of a product. Senator NELSON. But as I understand it, the branch or: some com- PAGENO="0232" 7548 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ponents of the branch of the service may request a type classification, is that correct? Captain PFLAG. It means requesting standardization of the prod- uct for central procurement vis-a.-vis local procurement. Senator NELSON. That is what I do not understand. In this case we are talking about Titralac, right? Did one of the services or components of one of the services ask that Titralac become the type classification? Captain PFLAG. Yes. In other words, the Air Force, in this in- stant case asked that the item be standardized so that it could be procured centrally. Admiral ETTER. Senator, in that regard, cOuld I add that they did this as a result of their survey, which indicated a large usage of this particular drug in their hospitals to support local practices. It had not been standardized. Therefore, they foresaw a saving to the Gov- ernment-to the Air Force-if this could be type classified and standardized so that it could be bought in bulk and, therefore, the price to the user-the Air Force, in this instance-would be brought down. It is strictly an economy measure, sir. Senator NELSON. So that I understand it correctly, the situation in this case or perhaps in many cases, is that at some various hospitals, a particular drug, in this case Titralac, is being locally procured. Admiral ETTER. Correct. Senator NELSON. And as you review the usage of drugs in your various installations, you see that a particular drug is being used a number of times. Admiral ETTER. Right. Senator NELSON. Then because of that, the service in which the drug is being used, in this case the Air Force, requests a type classi- fication of that particular item under that particular name. At that stage, what is your procedure? Admiral ETTER. Our procedure then- Senator NELSON. Once you get a request from the service for a type classification, for example, in this case Titralac- Admiral ETTER. Then the board writes the essential characteristics, which I have outlined in my statement, and forwards them to the Defense Personnel Center for technical characteristics. When these are approved, they go out on a purchase requirement to the industry. On the other side of the coin, I can also say that we get quite a number of requests from our. hospitals. Most of these-I am familiar because of my Navy connections-are requests for type classification of drugs because they think they are using a lot and it would result in a saving to them. `When we canvass the rest of our hospitals, we find this is not the case. It is not in general use, and, therefore, type classification is not requested in this instance, and we ask that they continue to get it on local purchase. Senator NELSON. In this case, as I understand it, Titralac is the brand name for an antacid. Admiral ETTER. It is, sir. Senator NELSON. Do you require the service to submit any clinical evidence as to the superiority of this antacid, for example. to the antacids that would be listed in the U.S. Pharmacopeia or National Formulary? PAGENO="0233" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7549 Admiral ETTER. I think that here we did not ask for anything other than the fact that it had been found to be a drug which their physicians have preferred to prescribe over other types of antacids, or the physician's own particular desire in that regard. The patient's acceptance, the doctors being satisfied that this produces the desired results, all of these things enter into the use of these drugs at the local level when the drug is not standardized. Senator NELSON. But if you do not evaluate it at the top level in terms of its comparative value for the purpose it is used, vis-a-vis all other antacids, vis-a-vis what is in the U.S. Pharmacopeia or the National Formulary-in neither of which this is listed-what, if any, justification do you demand of the service or the hospitals to demon- strate their need to have this brand name drug over and against what is listed in the official compendia of the United States? Admiral ETTER. My only answer, sir, is that it had been found to be the drug of choice by the local practicing physicians and I do not think that we, sitting up in the Bureau level or top of the organi- zation, have any way at all to evaluate the use of a drug in a field that the physician feels is the drug he wants to prescribe. Senator NELSON. What qualification does the individual physician have to make a judgment that some particular brand name drug is superior and he would prefer using it rather than one listed in the official compendia of the United States? Admiral ETTER. I think, primarily, this would result from patient acceptance, and the fact that it has been found to be effective in his hands. Now, how he particularly picked this one over another one is up to the individual physician, and this is something which we certainly cannot control. Senator NELSON. That is the question I am getting at. Why can you not control it? For example, you say it is up to the individual physician to decide. Well, I think everybody knows that regardless of how good a physician is, most of them are not qualified to make a judgment as to one antacid or one drug versus another because all he can do is give a testimonial. He does not have any clinical evi- dence or any controlled tests to demonstrate it. This is the reason that the profession, the medical profession, takes the position that there ought to be formularies established and that anybody who wants to use something outside the formulary should have some kind of justification. What I am getting at is how do you avoid, then, the prescribing of drugs which are ineffective? Admiral ETTER. Well, any drug which is used in our hospital sys- tem (and I think this applies to all three services) , that is not on the standard list-the request for purchase of that drug must go to the pharmacy-therapeutic committee for approval. Senator NELSON. Excuse me. Is this at the hospital? Admiral ETTER. This is at the hospital level, sir. Senator NELSON. Well, does each one of the military hospital in- stallations. have a therapeutics committee? Admiral ETTER. They do, sir. Senator NELSON. And does each.hospital have a formulary? PAGENO="0234" 7550 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Admiral ETTER. They do, sir. Senator NELSON. And I will get to that later, but I a.m lust curious to know how some of these drugs get on their formulary when all the medical experts-the best expertise in the country say-they are ineffective or at best not better than other drugs. We had similar testimony from the Veterans' Administration. that they have to listen to what the individual doctor says. You have a situation, then, in which the military has the authority to follow the soundest conceivable prescribing practices and the power to establish the best formulary, with the guidance of the best medical experts in the United States but the Veterans' Administration posi- tion was, "yes, but we have to do what the individual doctor says" and I understand that to be your response also. Admiral ETTER. That is, sir, and I would like to have one more comment on that, Senator. Then I want to toss this one ove~ to Colonel Fairchild. I think that this is very pertinent to the issue today. As von well know, the military medical services are all having a desperate time keeping enough qualified physicians in the hard core of the services to practice medicine. As a result, we try to do everything we can to make service life just as attractive, and a.s professionally rewarding to them as we possibly can. particularly when young doctors first come into the service. One of the first things that can really tee him off is the old man or skipper says you cannot prescribe that drug. And why not? Because I say you cannot. Now, this is the old man speaking up against the young man just out of medical school, just out of residency. or internship, who wants to try his wings and is on his own. Certainly physicians are indi- vidualists, as I a.m sure you are well aware. and if von try to restrict their practice or you try to keel) them from prescribing in the way they think best, it certainly can be one added way to make service life unattractive and that man is going to leave the service. Senator NELSON. Well, that is like saving we will let him practice bad medicine because we do not want to lose him. Admiral ETTER. I do not think it would be practicing bad medi- cine when the pharmacy-therapeutic committee has to pass on this particular drug. Senator NELSON. Apparently tho pharmacy-therapeutics commit- tee takes the same. position von do because they have passed a lot of drugs-I have a list here-which the National Academy of Sciences- National Research Council or the Medical Letter simply says are in- effective or that there is no proof that they are any better-and this is the pattern we get all over the country. Now, the young doctor, as you know, has a modest course in phar- macology the second year in medical school. WThat is his qualification when he comes to your hospital to tell a therapeutics committee or to tell any distinguished authority that he knows l)etter about the use of a particular drug. You say you are afraid to interfere for fear you will not make his practice. comfortah1e and he will not stay in the service? It does not seem to me that that is an efficient way to run a professional organization. Admiral Errru. I think many of the people we are talking about PAGENO="0235" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7551 are those who have finished their residencies, have had considerable practice, and in their hands these are the drugs they have found to be accepted by the patients and which give them the results they desire. Senator NELSON. I am sure that you are well aware we had the same thing with all the fixed dosage antibiotic combinations. Doctors all over the country used them and said they were effective despite the fact that the. chairman of the AMA's Council on Drugs and a distinguished list of clinicians who were nationally known for their expertise, wrote an editorial in the AMA Journal as far back as 1957 decrying the use of these antibiotic combinations. It has been the traditional position of the AMA's Council on Drugs that fixed combination antibiotics should not be used, that their use is poor medical practice, irrational prescribing. Then finally, the NAS-NR~C comes to exactly the same conclusion, and recom- mends their removal from the marketplace. Now, what are the qualifications for an individual doctor to say that he wants to use the fixed combination antibiotics because his experience indicates that it works and it is good for the patient and he knows better than the chairman of the Council on Drugs of the AMA and his associates which took that position 13 years ago and the National Academy of Sciences-National Research Council which took that position in 1968. Admiral ETTER. Well, in that regard, Senator. I think certainly all these drugs which now have been proven to be ineffective or at least have, in their reasoned judffment. been declared ineffective by the NRC and NAS Council, will not be prescribed in our military hos- pitals. `We are certainly-_we are dedicated. Senator, to providing the best possible drugs we can for the treatment of our active duty and dependents personnel and retirees-the best possible drugs at the least possible cost. because cost is a real consideration for us now at the present time. This is where I get into it on one of my jobs. My main job is as Assistant Chief. Planning and Loffistics, where I can control the budget for all hospitals. I am interested in economies, as we all are, but at the same time, not economy at the expense of the patient. Senator NELsoN. But what I am trying to get at here is, how do you get the best medicine for your patients-at the best economy- if the prescribing physician is going to have the kind of influence he does at the hospital-an influence contrary to the best medical ex- pertise in the United States? Admiral ETTER. We. are not now in the position. Senator, of thwarting their advice. `We are taking the advice of the experts at the present time. Senator NELSON. `Well, let me just read a couple to you. Here is a drug called Fiorinal. You purchased in 1968, $238,383 worth of Fiorinal. which is an APC r~us butalbital. It is an analgesic. Now, here is what the Medical Letter says about Fiorinal, volume 3, page 21: It has never been convincingly shown that the combination of aspirin, phena- cetin, and caffeine as in Fiorinal has greater analgesic effectiveness than aspirin alone. PAGENO="0236" 7552 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Volume 9, page 38, "If aspirin alone is not effective, a sedative drug, in place of or in addition to aspirin, can be tried". For ex- ample, phenobarbital, as an alternative to Fiorinal. You have the Medical Letter saying it has not been shown that in combination it is better. The price for aspirin is 70 cents a thousand, for phenobarbital $1.10 a thousand, for Fiorinal $8.58 a thousand. If you had followed the advice of the Medical Letter, instead of spending $238,383, a com- parable amount of the aspirin would have cost $19,504, a saving of over $200,000, or the comparable cost of phenobarbital would have been $30,000, a savings of $208,000. Now, what clinical evidence was given by those who asked at the hospital level that Fiorinal be on your list, to prove that it was a better analgesic than aspirin or a better sedative than phenobarbital? Admiral Erri~n. Colonel Fairchild, do you have a response to the Senator here? Colonel FATRCHTLD. I will try, Senator. I am Colonel Fairchild, president of the therapeutic agents board of Walter Reed. If I may stick to Fiorinal as an example, I personally am concerned that it is in the formulary. I would like to see it not in there. However, the young doctors coming from schools iii other parts of the country, have been using a drug, for example: Fiorinal. They want to continue to practice as they have practiced where they came from. They put in a request to our therapeutic agents board through their chief of service. Then a search is made at that time to find comparable items. Our pharmacists at the same time will be checking prices now. The prices would be compared. The requesting physician would have to present his case to the chief of service, and then the chief of service and the man himself would have to present it to the therapeutic agents board, which meets once a month. If he can convince the group of the therapeutic agents board that he, in fact, needs this medication to continue his practice, then it is purchased locally. This acceptance is following a sometimes relatively heated discus- sion whether or not a medication really has any value over, as for example, aspirin or phenobarbital. And then as I understand from this particular point or, as the hospital uses more and more of a given medicine, whether or not it is justified as the hospital uses it and it becomes a high-cost item, a request is made for standardization of the Army. Senator NELSON. How are we ever going to accomplish the ob- jective of the higher standards of the profession in terms of rational prescribing unless we are going to require that the young people who come into the medical practice in your jurisdiction or the Veterans' Administration be required to prescribe rationally? I am astonished to think that a young doctor coming into the hospital would sit down with the therapeutics committee where you had a chnician with many years of experience, where you could produce the Medical Letter, where you could produce the evidence of what the drug was and what it was used for, and show him that he was advocating one which cost much, much more and that there was no proof that it was superior and if he could not produce any proof himself-I think it would be astonishing for him to take the attitude PAGENO="0237" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7553 he wants to prescribe it anyway. If he did, I do not think he ought * to be practicing medicine. I just do not understand that. Colonel FAIRCHILD. It is not only young doctors. Senator NELSON. When I went into the Army, they did not allow me any of my idiosyncracies for very long. Colonel FAIRCHILD. Not only the young doctors. We are getting in older doctors who come into the service. They have their own likes and dislikes, too. Senator NELSON. I understand your position: you do not believe you should have Fiorinal in the formulary. But, I think we have demonstrated quite clearly over a period of time in our hearings, that even when you get to a physician with all the authority the military has over its hospitals and personnel, includiiig the capacity to establish the best formulary and the best guidelines for medical practice in hospitals according to the best standards that can be established, that even the Army cannot do it. It seems to me, then, the possibility of really achieving rational prescribing by doctors on a whole series of complicated drugs and me-too drugs and dupli- cative drugs is out the window. It cannot be done. You might as well admit it. I. have a list here of drugs. They run the same. Here is Zactirin, which is a fixed combination drug consisting of ethohepta- zine citrate and aspirin. The National Research Council of the Na- tional Academy of Sciences states: "Zactirin is possibly effective as an analgesic but only because it contains aspirin." Well, you speiit $472,131 on Zactirin in 1968 and 1969. The amount you would have spent on aspirin is $22,467. It would have been a saving of $450,000 in view of the National Academy's statement that it is effective only because it contains aspirin. The NAS-NRC con- cludes: This combination may be no more effective as an analgesic than the amount of aspirin present. How do we justify spending an extra $450,000 when the National Academy of Sciences states that it is no more effective than the aspirin it contains? Colonel FAIRCHILD. May I speak to that? Senator NELSON. Yes. Colonel FAIRCHILD. Although it is, I think, relatively difficult to defend, I would like to cite a case, if I may, of a lady. Let us take a 55-year-old who has had for years a disfiguring rheumatoid arthritis, and over the period of years she has tried this drug, that drug, and another drug. One day she meets Zactirin, and Zactirin seems to hit the spot with her. It is difficult then after a period of 4 or 5 years of success with Zactirin for the physician to withdraw that par ticular drug and say aspirin is just as good. And that is the position we are put in, the relationship between the physician and the patient. Senator NELSON. YOu' are not telling me, are you, that in every case this drug is used, the Military Establishment had first tried aspirin or some other analgesic for years, and then went to Zactirin because Zactirin worked? I assume, because of the purchase, that this drug is now on your type classification list, is it not? Colonel FAIRCHILD. It is; and it is in our formulary, but the drug is not in our pharmacy. It just was an example that we could use- PAGENO="0238" 7554 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON. Well, you know better than I, that an inexpensive analgesic which works for 99.9 percent or more of the people may not in some rare instance for some reason that no one understands. In which case you might have to go to another drug which works but costs more. This, however, is not the position of the National Academy of Sciences, and that is not how the drug is being pre- scribed in the military installations. It is .`t type classification and it is being prescribed instead of aspirin in the face of the judgment of the National Academy of Sciences and in the face of Defense Depart- ment claims of budget squeezes. Here is where you could have saved at least $400,000 and still bought it for this little old lady who had the problem you are talking about. Colonel FAIRCHILD~ I think you will find that we are gradually getting these things out and that the relative use of them is becoming smaller and smaller. Senator NELSON. Well, that was $400,000 worth. Let me take one that is very substantial. In 1968-69, your figures indicate an expenditure for Ornade of $4,373,147. Ornade was bought for the treatment of upper respiratory infections. The National Acad- emy of Sciences-National Research Council panel says it is unaware of any evidence that Ornade is effective for congestion or hypersecre- tion associated with the common cold. Furthermore, several carefully controlled studies, in which different antihistamines were tried, dis- closed no alleviation of symptoms or shortening of duration of symptoms of ~cold. NAS-NR.C said that Ornade and other antihista- mines may be beneficial in the treatment of allergic rhinitis but allergic rhinitis is being treated in that instance, not the upper respiratory infection. Here you have the National Academy of Sciences taking a position against the use of Ornade and $4,373,000 worth of the drug has been purchased. What is the explanation for that? Admiral Ermu. Well, in this regard I am not sure when these purchases for Ornade particularly were made relative to the NRC- NAS recommendations. As I am sure you are well aware, Senator, these recommendations are now just coming off the press in fairly voluminous numbers, and these all will be taken into consideration in all of our future purchases. Up to now our system just has not caught up with the NRC-NAS studies. However, I will say this about Ornade in particular. I was chair- man of the therapeutics committee 3 or 4 years ago in the Ports- mouth Naval Hospital, at which time it was not on the table. There was, as Colonel Fairchild indicated before, quite a heated discussion, and our ENT people were bound and detei mined that this drug should be type classified because of the large us'tge of it in the pharmacy. They were convinced at that time that it was a good nasal decongestant. They were convinced at that time it was the best one they had available. Based on that, the Navy went along with the type classification, and I said we could put it in the formulary. But here you are putting yourself-in this instance the chairman of the group is putting himself up against the clinician who has observed the drug. At least, his objective feelings about Ornade were that he PAGENO="0239" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7555 felt that his patients were getting relief by having been given Ornade. Whether this treatment would have been just as good with Benadryl or others I cannot say, but they were convinced this was the drug of choice. Senator NELSON. NAS-NRC said it was good for rhinitis. But that was not what the procurement was for in the Defense Depart- ment requirements. The specifications state: "Shall be suitable for use in the treatment of upper respiratory infections"-that is the specification demanded by your Department in purchasing. What I am saying is, what evidence did anybody ever produce that Ornade was of any value for upper respiratory infections? Colonel FAIRCHILD. It actually does not help the infection, sir. Senator NELSON. Pardon? Colonel FAIRCHILD. It actually does not help the infection, but it relieves the congestion so the individual can carry on his work at the time he has a cold. That is the difference between keeping a man at his job and losing him to stay home and blow his nose. We brought Ornade up before our Board several months ago and just. because of the extra expense we felt this was a drug that we could perhaps do without and use something else instead. And we asked all our chiefs to justify the continued use in our formulary of Ornade and those who were for it were in the majority. So we had to continue the use of Ornade. But we reviewed it just recently for this very thing that you bring out today. Senator NELSON. Despite what the individual doctors' testimonials were respecting Ornade~ the NAS-NRC panel said that several care- fully controlled studies in which different antihistamines were tried disclosed no alleviation of symptoms or shortening of duration of cold symptoms. So, you have a situation where a doctor is giving testimonials and you are stocking the drug without evidence that it does what it is alleged to do. For this the Government is spending a large amount of money. I just keep getting back to the question, how can we have rational prescribing in this country if the military cannot achieve it, al- though they are in total control of what should be purchased and what should be prescribed and they can call upon the best expertise in the United States to help them make the judgment both within and without the service. How much credence would you give to a doctor who would say he does not agree with the Medical Letter, with the Drug Council of the AMA, with Dr. Dowling and Dr. Modell, and with the expert clinicians on the various panels of the U.S. Pharmacopeia and the National Formulary? You have all that expertise available to you. Why don't you use it and say, this is our formulary, we are going to practice good medicine here? Admiral ETTER. Senator, I think we are making progress in this regard. I sincerely do. I think as a result of many of these authori- ties you quote, that we are going to be in a much better position in our local hospitals to evaluate these drugs on possibly a little more rational basis, but it is very difficult to evaluate a drug entirely ra- tionally when the physician himself feels that this has been a useful tool in his hands. I would like to ask Captain Fox if he has anything to add to the PAGENO="0240" 7556 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY discussion so far from his experience at Bethesda. He is the chief of medicine, Naval Hospital, Bethesda, and is the chairman of their pharmacy-therapeutics committee. Captain Fox. Senator, I agree with Colonel Fairchild, that I per- sonally would not prescribe many of the items that have been men- tioned here so far this morning. I do not think I have ever prescribed Zactirin. Ornade, on the other hand, remember, Ornade is a combi- nation drug. I gather that the NAS-NRC study was referring to the antihistamine part of the Ornade and I think that probably is true, although a few years ago there was general thinking that an anti- histamine did have a drying effect on the nasal passages. I think this idea is not being adhered to and people are now beginning to be- lieve antihistamines are ineffective for nasal congestion. On the other hand, Ornade does have other agents, strictly decon- gestant agents, and I think it is effective in that sense, but not in combination with the antihistamine. Senator NELSON. Of course, there are lots of cheap decongestants in terms of nose drops, et cetera, rather than using Ornade. Captain Fox. Yes, sir. Senator NELSON. I will recite another case for the record. Darvon is an analgesic. Its established name is propoxyphene HCL. Total ex- penditures for Darvon were $4,360,784. The comparable cost of as- pirin would have been $172,380, a savings of $4,188,404. Yet, the Medical Letter, volume 12, page 5, says there 1S no evi- dence to "establish the superiority of 65-milligram doses of propoxy- phene to two tablets of either aspirin or APC." In the few studies which have been done, a 32- to 65-milligram dose of Darvon "has consistently proven inferior to aspirin." Then why use Darvon? Captain Fox. I agree, sir, but that volume 12 Of the Medical Let- ter is the current volume. This information has not come out until recently, although the studies that they are basing it on have been accumulating over several years' time. Senator NELSON. I understand. That is the issue dated January 23, 1970. But my question is: Since there are well-established, effec- tive analgesics, does not the procedure that the I)OD follows in ac- quiring drugs actually encourage this sort of thing, because you do not require proof of a new drug's superiority to established, effective, and less costly drugs before you give it a type classification or be- fore you let it be used in your hospitaTh? Captain Fox. `Well, Senator, the Armed Forces do not practice a brand of medicine that is any different from civilian medicine. Most of our doctors are civilians who come in and spend a few years, 2 usually, and then go out, and our turnover rate is very high, as you know. We are just part of the civilian medical community, and I do not think that we can try to enforce standards that are not being enforced in the civilian practice. * Senator NELSON. There are some therapeutics committees in pri- vate hospitals in this country, in public general hospitals, that are tough and have established a high standard, and would not permit any of these drugs on their formularies and those are civilian hos- pitals. Why could not the military establish a therapeutics commit- PAGENO="0241" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7557 tee with, if necessary, outside consultants to secure all the guidance it can and then say we are simply not going to spend this kind of money on drugs that are either ineffective or not more effective than established drugs available in the marketplace, and if a physician wants to prescribe them, he must come up with a justification show- ing its superiority-something other than a testimonial? That is done in many important hospitals in this country now. I recognize that there has been a vast accumulation of knowledge about drugs in the past 5 or 10 years, but it would seem to me that military installations ought to be leading the parade in the establishment of a standard for use of drugs that is not excelled any place in the country. Captain Fox. I think we are headed in that direction, Senator. It is a slow process. It takes education at all levels. Senator NELSON. Counsel calls attention to the testimony of Dr. Harry Williams, a distinguished pharmacologist from Atlanta, Ga., who is professor of pharmacology, Emory University School of Medicine, Atlanta, Ga. He testified on Librium and he says Librium costs somewhere around $50 a thousand: Faced with a choice between whether to use that drug or use phenobarbital, which we use at Grady Hospital, and which in many cases is equal to and in some cases superior to Librium which costs us 9 cents per 1,000- This is 9 cents versus $50- the average physician has nowhere to go to find out whether the statement made by the drug company that Librium is the successor to the tranquilizers is really true. He has rio place to go. This is a case where they replaced Librium, a drug costing $50 a thousand, with one that costs them 9 cents. The whole pattern over the past 3 years in our hearings indicates the same type of thing, that is, where expensive brand names of some kind or another are used for a purpose for which they either are not effective or no more effective than a well-established drug available in the marketplace at a much lower cost. I am concerned about establishing procedures, as I am sure the professional people are, procedures which would re- quire the practice of good medicine. I can't accept the idea that some- body may resent it because he is used to prescribing something else; adoption of procedures to promote rational prescribing will enhance his medical education. Here are the cases of Librium and Valium as tranquilizers: total purchases of a little over $6 million, $3,191,000 plus for Librium, $2,932,000 for Valium. Comparable cost for plienobarbital for the Librium would have been $132,976 instead of $3,191,442. Comparable cost of phenobarbital for the Valium would have cost $88,000 versus the Valium cost of $2,932,200. So, there would have been a savings of almost $6 million had phenobarbital been purchased instead of Librium and Valium. The Medical Letter, in volume 11, says both drugs "are effective sedatives but it is still not clear that they have any important ad- vantage over barbiturates." This is another example, it seems to me, where physicians who want to use a more expensive drug ought to be required to produce 40-471 O.-71---pt. 18-16 PAGENO="0242" 7558 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY evidence that it has some superior qualification over and above testi- monials of individual physicians.. I will put this material into the record and I will put the tetracy- cline case in the record also. They stated in the. Medical Letter, "At recommended dosages and frequency of admission the d1fferent tetra- cyclines have similar clinical effectiveness." Well, oxytetracycline was purchased by your Department. Chlor- tetracycline, demethyltetracycline were all purchased by the DOD at a cost of $2,959,000. Comparable cost of tetracycline hydrochloride would have been $610,000, with a savings of $2,349,000. It has been argued. for a long, . long time by clinicians that there is no superiority of these other tetracyclines over tetracycline hydro- chloride, which is the position of the Medical Letter. I think it demonstrates the problem of allowing a type classification to origi- nate willy-nilly based upon the prescribing bias of individual phy- sicians in miscellaneous Defense hospitals around the country, does it not? Admiral ETTER. Well, that is awfully hard to argue against, Sena- tor. It is very hard to argue, against your position in this regard, but I think, as Dr. Fox pointed out, progress is being made, and many of these reports you are speaking about now are just now surfacing. A lot of this is just now coming to the attention of the hospital au- thorities and the board and DPSC, and I think there will be some changes in our customs and practices. Senator NELSON. Is it `not true, that unless the procedure is changed, this will be repeated over the years? Unless you establish a therapeutics committee, using the guidelines of the best expertise on drugs in the country, and unless you require the prescribing phy- sician to prescribe from a formulary established in accordance with the best available knowledge, as new combinations or new variations of old drugs come out, there will be advertising and promotion, as a result of which there will be a new Librium, a new this, or a new that, for which there is an old established drug available. Under the system you follow, is it not true that you would, end up with thou- sands of type classifications for drugs which are based solely upon usage at the local level with no proof that they are superior to available established drugs at all? Admiral ETTER. `Well, Senator, speaking about hospital pharmacy- therapeutics committees, I think that the ones in existence now at `Waiter Reed. Bethesda, and at Andrews certainly represent some of the best professional talent in this country in the medical field. All the specialty fields are covered, and they are noted in their fields. I think as it is, these people-these boards-will become aware of these things, and will make the clnan~es. It has to be, I feel, an evolu- tionary thing rather than revolutionary thing. You inst cannot dictate to doctors summarily how they are going to practice medicine. It just does not work. They are not that breed of cat. As Dr. Fox pointed out, these that we have are a cross section of the civilian physicians, and as long as they want to do these things, they are doing these things in their own way. `We have to go along with them up to an extent. Now, we can put on the brakes, and brakes are being put on. As PAGENO="0243" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7559 Colonel Fairchild said, some of the drugs which are more expensive have been questioned at Walter Reed, but I certainly think you could put Walter Reed's committee up against any group in the country. They are eminently qualified physicians in their own right and in their fields. Put them up against any board, and I would go along with the Walter Reed group. Senator NELSON. I have no basis for making a judgment one way or the other, but if I understand you correctly, you take the position that you cannot tell the doctors what to do. Therefore, even if you have the best experts in the world available to you, you can still get into your formulary drugs that the therapeutics committee say are no good, besides costing a lot more, because no one wants to offend the individual doctors. So it ends up that you can have a superb therapeutics committee and yet have a formulary that is not superior. Now, I do not know what the Walter Reed Hospital formulary is and I would not be qualified to judge it. It may be one of the best in the country, but I still do not understand why you should worry about a doctor saying he has been using Librium, or any one of these other drugs, for many, many years and he finds it effective and wants to use it, while at the same time the therapeutics committee finds that the particular drug he wants is not superior and, in fact, is in- effective. The committee has the Medical Letter statements of the best clinicians and medical panels which have studied it. Certainly the therapeutics committee can say: here is what the panel of the lISP and NF have decided to put into the official compendia for this purpose, unless you can produce some evidence based upon controlled clinical studies, you will have to use the drug in the formulary. The physician is not much of a scientist if he is going to insist on using something if there is no scientific evidence of its superiority, is he? Colonel FAIRCHILD. I believe that if we stick with Librium and Valium for a moment, that as the drug is evaluated and presented to the medical :professioll in the literature, that these articles, this evidence, is then used by the individual physician interpreted as absolutely correct and it is not until later after they have had a chance to evaluate the drug over many millions of patients can they state it is not as effective as, and it is at this particular point in time that the therapeutics agents board is presented with the request by the doctor to add it to his armamentarium. So, at the time he presents his original request for Valium, Libri- um, et cetera, he has evidence or* could not get it through the com- mittee. Senator NELSON. What is his evidence? Colonel FAIRCHILD. His evidence is articles iii the literature that support his particular need. Or perhaps-as I had the good fortune, I grew up with Dr. Dowling, rather, under Dowling, and I worked with him over here in D.C. General, so I had an experience with sulfisoxazole before it was known as Gantrisin while it still had a- it was called NIl 445 at the time. And I had this experience and when I was ready to go out, I liked this drug. I had some fine ex~ periences with it by a well known man, and I wanted to use it. And I thought at that particular time I had a right and justification to use it. PAGENO="0244" 7560 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON. You say they cannot get the drug in the for- mulary unless they have some evidence from the literature. What do you mean by that? Colonel FAIRCHILD. They have to have some evidence, sir. Senator NELSON. Well, would the evidence be controlled studies? Colonel FAIRCHILD. Alleged controlled studies, that as time goes on perhaps they find that they are not as controlled as the original- Senator NELSON. These drugs that the Medical Letter and the National Academy of Sciences were commenting on did not have any controlled studies that demonstrated their superiority. The fixed combination antibiotics, the best known of which was Panalba, are good examples. The studies which the manufacturer of Panalba per- formed, or had contracted for, simply showed that the ingredients of the mixture tetracycline and novobiocin were not synergistic, were not additive, but were actually antagonistic. And yet this drug was one of the most widely prescribed drugs in this country. So, when it was included in the hospital formulary,. there had not been any controlled studies to demonstrate its superiority to tetracycline alone. Now, how would that particular drug get on the formulary if such an action is based upon controlled studies and when the controlled studies that were done by the company did not support the claims that were made for it? I think that including it in a formulary and using it extensively is due to the advertising and promotion. Colonel FAIRCHILD. I was not. on the board at Walter Reed at the time Panalba was brought in. I was on the board when it was taken out, so I cannot make a statement as to what claims were made for Panalba. I do know that when a request is made of my board, that request must include justification. for that drug over known drugs, and par- ticularly if that drug is a more expensive drug than the known drugs. So, you must speak to this and convince the committee that in fact they need it, there is justification for the use of it. Mr. GORDON. May I interrupt just a moment? You mentioned sulfisoxazole a few moments ago. That drug is in the USP and we were not discussing that particular drug, isn't that correct? Colonel FAIRCHILD. I was just bringing this up as an example of my own personal experience with a drug before it was on the market. Senator NELSON. Sulfisoxazole was included in the U.S. Pharmaco- peia after that? .. Colonel FAIRCHILD. Yes. Back in 1943, I think it was. Senator NELSON. Let us see. I suppose we have covered a fair amount of what follows. I had some questions, Admiral, on page 10. Would you want to start reading there1 10 and 11, at the top. "Pure, safe and therapeutically effective drugs". Admiral ErrER. It starts on page 9. . Senator NELSON. Yes, go ahead. Admiral ETrER. In the preparation of medical specifications, every effort is made to delineate the essential needs of the~ Government in an effort to procure pure, safe, and therapeutically :effective drug products, yet maximizing efforts to seek competitive procurement. PAGENO="0245" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7561 It must be recognized that military needs frequently involve re- quirements which transcend those of some commercial products on the market. For example, military medical materiel is subjected to worldwide distribution under adverse conditions. Product stability is, therefore, a very essential element in assuring that the product is suitable when it is ult~mate1y consumed. As a result, the standards described in DPSC specifications are at times more stringent than commercial standards in anticipation of adverse storage and trans- portation, and long-term storage. Senator NELSON. May I ask a question there? The first sentence is, "It must be recogeized that military needs frequently involve re- quirements which transcend those of some commercial products." As I read your statement, you seem to be referring to packaging here, not composition of the finished product.. Am I correct? Admiral ETrER. The stability of the product itself for long-term storage, and this can come particularly in the tablet form of certain drugs. Tablets must be made in a particular fashion so that they will remain stable longer under high temperatures or high humidi- ties or freezing or cold. Packaging is certainly part of that, too. Senator NELSON. Fine. Admiral ETrER. It will be noted that the method of specification preparation is responsive to the rapidly changing need of the medical services. The division operates closely with the procurement person- n~l and obtains rapid feedback from industry on recent technological advances. Technical reviews and evaluations of such data permit updating and upgrading medical specifications. Valuable information is obtained via the complaint reporting system which involves evalua- tion of complaints, classification of the types of complaints, and de- termination of whether specifications require modifications in order to circumvent further complaints of a similar nature. DPSO procures approximately 1,100 drag items, of which about 560 are monographed in the current issue of TJSP XVIII and NF XIII. About 50 percent of these items include standards that exceed those of the official compendia. Senator NELSON. In what way do you exceed the standards of the official compendia? It is the position of the TJSP and NF that these standards are as high as they can be for any useful medical purpose. Admiral ETTER. For example, it is my understanding that with some of the antibiotic preparations, IDPSC requires both high and low limit concentrations of the available active ingredients in that drug. NF and USP did not, and now I understand they have in- corporated some of the higher standards as I indicated before, be- cause of certain storage requirements and certain requirements which make them last over a longer period of time under adverse conditions. Senator NELSON. Just so that it is clear in the record, you are not saying that because it has something that makes it store for a longer period, that that makes it a therapeutically more effective drug? Admiral ETTER. No, sir. Senator NELSON. I just wanted to get at the question of superiority, to be clear on what you mean by standards that exceed those of the official compendia and if you intend to say they exceed them in terms of therapeutic effectiveness. PAGENO="0246" 7562 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Admiral Ern~E. This next sentence, I think, also speaks to this. Requirements specified include color limits for liquid products particularly for parenterals; expiration dates, refrigeration require- ments for many items not required by the USP and NF; dissolution tests, animal tests, accelerated aging, and some clinical requirements. Also, special packaging is required for greater assurance of stability. These areas include inner and outer seals, leakage tests, special closures, label adhesion, tin plating, and vacuum packing. In this regard, Senator, I would like to ask Captain Pflag if he has anything to add to this matter of exceeding the TJSP and NF standards. Captain PFLAG. No, sir. I think, Admiral, that was covered in the statement in a very general way, unless the Senator wants some specific, more specific data. Senator NELSON. Well, I am not exactly sure what the Admiral is saying, when you talk about packaging and the longer life because of a different method of compounding or formulating. We have made it clear that this does not make it superior therapeutically. Frequently, the drug companies say, well, our drugs meet a higher standard than the U.S. Pharmacopeia and/or the National For- mulary. The best expert testimony that we could get, not only from TJSP and NF, but also from outside experts, such as Dr. Modell, with whom you are familiar. Dr. Modell states: By and large, purification or modification beyond these standards- That is, USP or NF- doesn't make any practical difference, but as I have already stated from time to time there are improvements made occasionally by the industry, occasionally by workers outside of the industry, and as soon as the DSP learns of this, it changes its own standards and requirements. Thus, there may be a gap, but in general, there is no practical difference between all drugs that live up to DSP standards. Then on page 303 Dr. Modell states: They- Referring to USP standards- they are not minimal standards by any means. U. S. Pharmacopeia has the highest standards of all pharmacopelas in the world. They are standards that are so high that further purification would provide nothing more than addi- tional costs. The primary requisite is the establishment of the standards necessary for the most effective use in medicine. It is, therefore, explicit in the decision of the U. S. Pharmacopeia Committee to set specific standards for a drug that further purification or higher standards will accomplish nothing in medicine. If the industry wants for one reason or another to go far beyond this, oil course, it has every right to do it, but it does nOt mean that it has accomplished anything in so doing. This is the aspect that I was referring to, and I take it that you are not saying that you require standards higher than DSP or NF in the context in which I was reading the statement of Dr. Modell? 1 Captain PFLAG. Senator, we find it absolutely necessary that a drug be as potent at the time it was procured as it would be at the end of a long-term storage period. It might be, for example, 5 years. 1 See testimony of Dr, `Walter Modell, Part 1, pages 283-305. PAGENO="0247" COMPETITIVE PROBLEMS IN THE DRIJG INDUSTRY 7563 The drugs procured commercially generally meeting TJSP stand- ards, which are minimum in many instances- Senator NELSON. But Dr. Modell says no. Captain PFLAG (Continuing). Are not subjected to extremes in temperature and climatic conditions. May I give you an example, a specific example, sir. Several years ago we purchased reserpine tableth from a certain company on the west coast. These tablets met the NF disintegration test which at the time was 30 minutes, at the time of procurement it met it nicely. At the end of 5 months, as this material laid on our depot shelves, the disintegration time ranged from 30 minutes to 21/2 hours, and had this been in the system any longer it might have even gone beyond that. So we have to make absolutely certain that an item that we pro- cure at one point in time is in a condition to be used on a patient several years later if it is stored in prepositioned war reserve stocks. Senator NELSON. Or if it is an item that can be preserved that long without losing its potency. Captain PFLAG. Yes. We have other instances where material is put on the beaches, for example, in Vietnam, i.e., dextran. When it is in an ambient atmosphere fluctuating from 120 degrees Fahrenheit to 50 degrees Fahrenheit, you get particulation in this material. Senator NELSON. So you aren't saying, really, if I understand you, that you require standards higher than TJSP because obviously that drug that was on the shelves on the warehouse for 5 months and did not disintegrate for 21/2 hours did not meet DSP standards- Captain PFLAG. Did not meet NF standards- Senator NELSON (Continuing). At that time. Captain PFLAG (Continuing). At the time we picked it up, but at the time we purchased it, it met NF standards. Senator NELSON. That's right. Captain PFLAG. And, sir, as a result of that, what we do is, we reexamine our specification and attempt to introduce tests and tighten specification so that we can prevent this from ever occurring again. Senator NELSON. Yes; but what you are saying is that you wish to insure that it meets DSP standards, not superior standards. Captain PFLAG. That it would meet NF standards or DSP stand- ards. Senator NELSON. Or TJSP. Captain PFLAG. Yes, sir; at the time the drug is to be used. Senator NELSON. Correct. Captain PFLAG. Yes, sir. Senator NELSON. But at no stage were you demanding that the drug meet a standard higher than NF or DSP. You are just de- manding that it meet the NF or DSP standard, and under certain storage conditions, it didn't meet it. I would like to know what that standard is if it is higher than DSP or NF. Captain PFLAG. We have a case in penicillin, in a penicillin in- jectible, in which we require a color standard which is higher- Senator NELSON. A color standard? Captain PFLAG. A color standard; that the injectible be of a cer- tain clarity, have an absence of yellowness or color. PAGENO="0248" 7564 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Senator NELSON. Do you have evidence that that is more effective therapeutically? Captain PFLAG. Yes, sir; to this extent, sir. We have found that as penicillin injectible ages, that there is an increase in yellow color, or it darkens, and, therefore, since we purchase some of this for long- time storage, it seems prudent to get the lowest color value that one possibly can, so that as it ages there would be less color, and, there- fore, less degradation. The color is synonymous with degradation. Generally, where there is a color change, it is generally associated with degradation of the product. Senator NELSON. All right, go ahead. Admiral lETTER. In qualifying drug manufacturers, facilities of prospective contractors are inspected to determine the company's potential to produce a specification item under acceptable conditions of quality control and housekeeping. The DPSC drug standards are used as a guide in determining the acceptability of the firms. Dis- qualifications are usually in the areas of inadequate quality control, unacceptable housekeeping, or deficiencies in technology. Preaward samples are requested in those instances where the capa- bility of the firm to produce an item in conformance with the speci- fications has not been established. Our medical laboratory performs the necessary analyses to determine compliance with specifications, and from these findings judges whether the manufacturer has the potential to produce the item specified. Other Government labora- tories, such as FDA and U.S. Army Medical Research Laboratory at Fort Knox, are utilized to augment DPSC testing capability. The medical laboratory is an essential segment of the total quality assurance effort. The laboratory represents an independent source of analyses by highly qualified, trained scientific personnel inti- mately acquainted with tests and standards of chemical, physical, and bacteriological testing. The analyses performed on preaward samples, first articles, preacceptance samples, and depot surveillance samples represent a critical part of the effort toward the quality ob- jective. The laboratory also serves as a checkpoint for inspectors when they wish to have company results verified independently. During production, every drug product is inspected by a qualified chemist, pharmacist, or chemical engineer of the Defense Contract Administration Service of DSA. These personnel are specifically and formally trained for this function by DPSC. Senator NELSON. May I ask a question here. I think I could cover these next few pages. Do DOD personnel inspect the plants of all suppliers? Admiral lETTER. Of all the prospective suppliers, they inspect all plants of those with whom we have contracts, sir. Senator NELSON. Those with whom you have direct contact. You aren't referring to purchases made at the local level? Admiral ETTER. No, sir. Senator NELSON. What is the qualification of your inspectors? `What are their technical qualifications? Admiral ETTER. They all undergo training in DPSC, and they have all-I think I am correct, Captain Pfiag-a baccalaureate de- gree, usually in one of the sciences. PAGENO="0249" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7565 Captain PFLAG. Yes, sir. Admiral ETTER. And are chemists. or other similar type trained personnel such as pharmacists. Senator NELSON. Are these full-time personnel? Is this their full- time assignment? Captain PFLAG. Yes, sir. Senator NELSON. And how many are there? Captain PFLAG. There are approximately 80 inspectors full, time. This is the Defense Contract Administration Services inspectors who have a baccalaureate in one of the sciences, chemistry, pharmacy, and they are all civilians as the admiral has pointed out; yes, sir. Senator NELSON. They are civilians whom you have hired? Captain PFLAG. Yes, sir. And they have been trained by the De- fense Personnel Support Center in a special course in drugs and chemicals. Senator NELSON. Is there any coordination between the inspecting agencies or exchange of information with them, for example, the Veterans' Administration ~ Captain PFLAG. Yes, sir. Senator NELSON. Is there any coordination among these inspection teams? Captain PFLAG. Yes, Senator. Through the Intragovernmental Pro- fessional Advisory Council on Drugs and Devices, we have an ar- rangement whereby information is transmitted from us to FDA to VA and back again. So that we are all kept aware of any deficiencies that we may encounter, any violations of the law, and so forth. Senator NELSON. Where is that information filed or kept? In other words, is there some central place that one could go to see all the inspections made of whatever number of plants by DOD person- nel, Veterans' Administration, Food and Drug Administration? Captain PFLAG. Yes, sir. We have, of course, in the Defense Per- sonnel Support Center that information available. In the FDA that is available, and in the VA it is available. And we incorporate the intelligence that relates to our contracts into the procurement history files of the other item history files that we have. Senator NELSON. What is the basis of your inspections? That is, do you routinely inspect those who are regular suppliers, or do you just get a contract and then inspect before you accept the product, or what is the procedure? Captain PFLAG. When an offeror of material bids, of coUrse, he is inspected and he is given what we give a preaward survey. However, each time there is a contract in a plant, our inspectors are inspecting as they are accepting lots of material. Each lot must be inspected. Senator NELSON. When the drug is supplied, is there any assay of the drug to determine whether it meets the standards? Captain PFLAG. Yes, sir. Every lot is assayed either by the con- tractor with the inspector witnessing it, or the inspector himself will perform the assay. And in many instances we will `require a verifica- tion assay that is done at the Defense, is performed at the Defense Personnel Support Center. So there is a check-and-balance system, sir. Senator NELSON. Then, for procurement of drugs overseas, which I take it you occasionally do, you h'ive inspectors there, too ~ PAGENO="0250" 7566 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Captain PFLAG. Yes. Senator NELSON. How many do you have? Are they permanent civilian or military personnel? Captain PFLAG. We have two civilians who are there on temporary additional duty assignments, and we have a full-time Medical Serv- ice Corps officer who has received special training at the Defense Personnel Support Center. Unlike our contracts in the United States, in Europe we have a full-time resident inspector while production is going on. Senator NELSON. Here, in this country? Captain PFLAG. No, sir. Senator NELSON. No; there. Captain PFLAG. There. Senator NELSON. So, if you make a purchase there, you have one of your personnel present at all times? Captain PFLAG. Full-time resident inspector, sir; yes. Senator NELSON. I think you covered that, Admiral. So maybe you could start on page 14. I think you have covered everything up to that, or the last sentence on page 13, unless there is something that you wish to add. Admiral ETTER. No, sir. The basic statute governing procurement by the Department of Defense-title 10, United States Code 2304-directs that purchases shall be made by formal advertising and authorizes the use of negoti- ation in 17 specifically enumerated situations. Formal advertising operates most effectively where (1) an ade- quate number of qualified suppliers have actively competed for Gov- ernment contracts; (2) they are willing to price competitively; (3) definitive specifications are available for the required product; and (4) there is sufficient time to carry out the inflexible formalities of the formal advertising process- Senator NELSON. May I interrupt at this point, Admiral. On item 2, what does that mean, "They are willing to price com- petitively"? Admiral ETTER. Could I ask Colonel Snyder to respond to this part, sir. Colonel SNYDER. To make a formal advertising meaningful, you must have competition. Otherwise, there is no basis of comparison. Now, to take that by itself would be most difficult to define. I cannot think of a single instance, other than a sole source supplier, where firms have been unwilling to price competitively. The essential element of formal advertising is that you have some variance in price. Otherwise, there is no ability to differentiate one from another. On a supposition, if I may, if we were to solicit com- petition on a particular product, and if three firms came in with an identical price, unless there was some strange and unusual circum- stances-I can't even think of an example offhand-we would be required to report them to the Federal Bureau of Investigation for possible collusion. Now, I cannot remember, in my limited experience, of it ever happening, because all of the firms are well aware of this provision of law where they would be investigated very painfully if this PAGENO="0251" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7567 happened. But this is only there as an element that would be essen- tial to formal advertising. As I say, we have never used this as a reason for not using formal advertising. Senator NELSON. There is, as I understand it, a provision in the law-section 1498 of title 28 of the United States Code-that provides that Federal agencies are not bound by patents issued by the Federal Government, so if there is a sole source here in the United States and other sources in Europe and if you are not satisfied with what you can negotiate with the American sole source, you may purchase in Europe; is that not correct? Colonel SNYDER. That is correct. Senator NELSON. And as I understand it, you have done that from time to time? Colonel SNYDER. Yes, sir. Senator NELSON. Is it a matter of policy in negotiating with sole source suppliers in this country to maintain a listing of the world price, so to speak, versus the sole source offering price here so that as a regular part of purchasing policy you would use the world price to guarantee that you were getting a reasonable price offering from the American sole source? Admiral ETTER. I think that is correct, sir. Senator NELSON. Is it a part of regular policy to do that? In other words, every time you have a sole source supplier in the United States, do you as a matter of policy check the price listing of European suppliers of the same drug? Colonel SNYDER. No, sir. First, I would like, if I may, to define "sole source." Admiral ETTER. This is single source here. Colonel SNYDER. Sole source, we have very, very few. I think there are only eight or nine drug items. If you are speaking of single source, we do not solicit, only one firm on a single source drug, even though it may have been historically supplied by a single source during some extended period of time. Senator NELSON. Sole source being a case where there is no other producer in this country; right? Colonel SNYDER. No. Sole source would be a situation where the Defense Medical Materiel Board would designate. the source as the only source from which we might procure the item. Senator NELSON. Though there may be other sources. Colonel SNYDER. Yes. Though there may be other sources, many more. Single source is where traditionally or historically there has been the one supplier, either for reasons of price, patent, Federal authorization such as an NDA or a form 6, or whatever, even though there may have~ been some limited degree of competition, only one source has been successful over an extended period of time~ Senator NELSON. So it is in single-source situations `where you have bought from the world market, right? Colonel SNYDER. Generally speaking, yes. ` Senator NELSON. My question is, in those situations do you always check the world price to be sure that you are at arms' length in your negotiations with the sin~rle source here? ` PAGENO="0252" 7568 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Colonel SNYDER. Not specifically, because on each of our single- source procurements we do solicit competition. Rest assured, there are a number of suppliers of foreign material; all of the major drug firms in Europe watch our procurements very carefully. As you know, each procurement that we make is advertised in the Commerce Business Daily and it is in several of the trade journals. They watch us very closely. Now, one thing you should know is because of our Buy American Act, there can be what appears to be a substantial price differential in a lower price that may be available in Italy or Germany, or what- ever, and the price, but because of our Buy American Act we have a 50-percent differential which would immediately set them somewhat apart. We are prohibited from spending our Defense appropriations money without allowing this differential. Senator NELSON. Well, is that 50-percent differential in the law? Is that a rule of the Defense Department? Colonel SNYDER. It is in the Armed Services Procurement Regula- tions. I would presume that there was some legislative guidance. We don't just arrive at these things-it is the Buy American Act, which is our guide. I am not sure of the intricacies of the actual legislation, but I am sure that this was not something that we arrived at uni- laterally. Senator NELSON. You are saying that even if there is a single source, that you are required to accept the American single source if it does not exceed the world price available drug by more than 50 percent; is that it? Colonel SNYDER. Well, that is over-simplifying it, but, generally speaking, that is true. It is a little more involved in the evaluation than that. We do not, though, specifically investigate the world price, other than what we may have read in our professional read- ing, ancillary reading, that would indicate something of this sort. Senator NELSON. But you are saying that if there is a single source you do advertise automatically for bids in any event? Colonel SNYDER. We always ask for competition regardless of the traditional history of buying it from one source; yes, sir. Senator NELSON. And even when you have a negotiated contract with a sole source you ask for bids regularly? Colonel SNYDER. No, sir. Now, sole source, if we are directed by the Defense Medical Materiel Board to buy a specific agent or drug from one firm, we only contact that firm. But. there are only, I think, nine items of that nature, and those are under constant review where the state of the art advances or where it no longer can be designated, for professional reasons, as a sole-source item. On all items, of which there are over 500,. which are single source, we do solicit competition. And the. fact it isn't successful is due to any one number of reasons. There is no single reason which . you can categorically say that we could correct this situation so we would immediately have compe- tition. Mr. GORDON. Mr. Chairman, as I understand it, the Executive order which governs the statutory Buy American provisions sets alternative standards by which the price of products of domestic origin is deemed to be unreasonable or inconsistent with t.he public PAGENO="0253" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7569 interest. That is, the American price is presumptively unreasonable if the U.S. bid or offered price exceeds the sum of the bid price for materials of foreign origin, plus a differential consisting of (1) 6 percent of the bid or offered price of materials of foreign origin, or (2) 10. percent of the bid or offered price of materials of foreign origin exclusive of applicable duty and all costs incurred after ar- rival in the United States. However, the Armed Service Procurement Regulations adds a 50-percent evaluation factor in favor of goods of American manu- facture. It is quite different from the Executive order; in other words, there is an addition of about 40 percent there. I am reading from a staff memo: The Armed Services Procurement Regulation (ASPR), for instance, adds a 50 percent "evaluation factor" in favor of goods of American manufacture. This procedure originated as a gold flow correction, but since the agreement among the world's central banks in 1968 whereby a two-tier gold system operates to end the monetary gold flow problem, the practice has been continued as a balance-of-payments correction. Thus, instead of a 10-percent alternative Buy American calculation, the Defense Department applies a 50-percent balance~of- payments factor. Senator NELSON. I would like to skip to the bottom of page 15, Admiral, and the following sentence: It is the policy of the Department of Defense to place a fair proportion of its total contracts for supplies and services with small business concerns. and you go on beyond that. What methods do you follow to place a fair proportion of the con- tracts with small business? Admiral ETTER. Well, we encourage them in every way to bid on all solicitations. When they have failed to submit bids for one reason or another, because, possibly, of some of the difficulties of the manu- facturing processes, the representatives of these small business firms are counseled at DPSC. They are advised as to what they might be able to do to put them in a better bidding position. Every effort is made in this regard to try to give them a fair share of the business. Senator NELSON. What is the definition of a small business that is used by the Defense Department? Colonel SNYDER. It is 750 employees in total. That includes all affiliations, firms under a common executive board or control. Senator NELSON. Seven hundred and fifty or less employees? Colonel SNYDER. Yes, sir. Senator NELSON. Do you know how many there are with whom you have done business who fit the small business category? Colonel SNYDER. I do not have that information specifically. Senator NELSON. Could you supply it for the record? Colonel SNYDER. Yes, sir. Admiral ETTER. There is, in the backup data-in the exhibits there are some listings of the small businesses, and the ones that have been given contracts recently. Senator NELSON. Where is that? Admiral ETTER. Captain Pfiag says he can name a few offhand. Captain PFLAG. The Endo Laboratory, Knoll Associates, the Strong Cobb Amer Laboratories, Day-Baldwin_-these have all been suc- cessful suppliers in the small business category, sir. PAGENO="0254" 7570 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Colonel SNYDER. I would like to add, though, that each of those has been acquired by large business in the~ last 2 years. This is one of our great difficulties, and I know because of your interest in small business, Mr. Gordon has commented informally as to your distress over the apparent shift from small to large. Really, there is no shift as such. We are still buying, generally speaking, from these very successful small firms, but they have in the main been acquired by one of the conglomerates or one of the larger holding companies. Now, as we-it is very interesting, because of the assistance that is given-and there may be some difference as to the word "assistance", but because of the monitoring of the procurement and the manufac- turing practices and the quality control actions of these small com- panies, they. become more skilled, and as they become successful in participating in our Defense procurement, they are watched very carefully. And I think, really, that it is kind of a kiss of death on a small business; as we get a small business to the point where they are supplying successfully and kind of get them on their feet, they are immediately acquired by one of the larger firms. It speaks well for our system in one way in that it is a mark of success that they can succeed with us. It is distressful in that we must again start all over in our efforts to obtain small businesses to participate in our effort. As you know, we are given a goal of a certain amount of our pro- curement must be given to small business, and we spend a great deal of time in this effort. But it is very difficult. Senator NELSON. Do you have a set-aside provision? Five percent is it? Colonel SNY1ER. Our goal for this year, for fiscal year 1971, is 20.1 percent. And this is very difficult. Mr. GORDON. So far it is only 8 percent, isn't it? Colonel SNYDER. I am sorry, sir. Mr. GORDON. So far the small business set-aside program is only 8 percent, isn't it? Admiral ETTER. It was 8 percent, I think, in 1969. In 1970 it is, as I remember, 17 percent. Colonel SNYDER. It varies substantially between segments of the industry. We get much more small business success in the metal- bending or in the hospital equipment area than we do in the drug business. The nature of the drug business, because of the require- ments for a very substantial quality control staff, sales staff, manu- facturing staff, makes it very difficult for a small business-that is, it is more difficult, comparably speaking, for a small firm to succeed in the drug field than it is in one of the other fields. Mr. GORDON. Isn't it generally true that a small business can do better in the drug industry as far as capital equipment goes? It is not a capital intensive industry, and it seems to me that a small business could do better in that field, especially in selling to the Government. Colonel SNYDER. Well, this has not been my experience, sir. There is a very substantial investment, unless you are going to be just a tableting firm or do one very specific operation where it may be more successful, or they may be more successful in working as a subcon- tractor somewhere. PAGENO="0255" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7571 Mr. GORDON. I would like to ask about the bidders' list you sub- mitted. You say here on the top of the bidders' list: This list represents those organizations which are presently listed as bidders for drug products. The list does not purport to indicate the capability of the bidder, nor is it a listing of suppliers of drugs to DPSC. Colonel SNYDER. That is true, sir. Mr. GORDON. That is right on the list. However, the Armed Services Procurement Regulations; paragraph 2.205 (b) says: All eligible and qualified suppliers who have submitted bidders' mailing list applications or whom the purchasing activity considers capable of filling the requirements of a particular procurement shall be placed on the appropriate. bidders' mailing list. Is this that list? Colonel SNYDER. That is true, sir. Now, any firm can submit a form 129, which is a request for in- clusion on the bidders' mailing list, by indicating those products which he feels he is qualified and capable of supplying. Now, the only qualification that he must furiiish at the time of that submittal is one as to his financial capability, which is a very broad thing, the number of employees, square footage, and so on. I am sure you are familia.r with the form. We do not really investigate his capability and qualifications until such a time as he is the low bidder on a specific offer. And at that time the people from our technical division would investigate him as to his, the housekeeping, his manu- facturing capabilities, capacity, his quality control methods, all of the things that go into qualification as a supplier to the Government. Mr. GORDON. Does this list include eligible and qualified suppliers? Colonel SNYDER. Using your word- Mr. GORDON. That is what the ASPR regulation requires. Colonel SNYDER. Using your word "include", it does, sir. It in- cludes also those who, in my personal view, are certainly not quali- fied. We have no way of rejecting them until such time as a specific evaluation is made as to their technical, total capacity requirements. Mr. Gordon, you must understand that anyone is eligible to partici- pate in a Government procurement. We take their applications but we do not spend a great deal of money investigating each of these until such time as they are the low offerer. Mr. GORDON. The regulation says that a list should be established which includes eligible and qualified suppliers, or the alternative, suppliers considered capable of filling the requirements. Colonel SNYDER. Yes, sir. Mr. GORDON. Now, is this such a list? That is what I want to know. Colonel SNYDER. I haven't stopped beating my wife, either. Mr. Gordon, you must understand that there is no facility-and we do not have the funds nor the ability-to evaluate every person who submits a form 129 unless he is the low bidder on a specific offer. Now, it does include-include, using "include" in its very strict definition-all those eligible and qualified, but it also includes some who are not eligible and qualified. When we get down to the specifics of an examination of their plant- Admiral ETTER. But it does include all those eligible and qualified. PAGENO="0256" 7572 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Colonel SNYDER. Yes, sir. Admiral ETTER. The answer is yes. Senator NELSON. Would you like to skip to page 17. I think we have covered everything up to there. Admiral ETTER. Start with the paragraph, "The procurements"- Senator NELSON. No; I wanted to discuss the drug Titralac. Is that an antacid? Admiral ETTER. The Titralac; yes, sir. Senator NELSON. Titralac. And that is for gastrointestinal prob- lems, peptic ulcer? Is that the area that we are talking about? Admiral ETTER. Yes, sir. Senator NELSON. And that was a sole-source procurement item? Admiral ETTER. No, sir. It was not. It was a single-source procure- ment. Senator NELSON. Single source? Admiral ETTER. It was single source from the time that it was first standardized in 1964 up to 1968. Since 1968, there have been two or three other bidders, and Hiker Laboratories, which originally had the contract, has iiot had it since that time. Chase Laboratories has had the contract, and I think Abbott has one at the present time. Senator NELSON. I couldn't find it in TJSP or NF as an antacid. Dr. Burack doesn't mention it. What does this antacid have that any number of others don't have? Admiral ETTER. As I think I tried to point out earlier, Mr. Chair- man, this one was originally recommended for type classification because of its use, and of prescribing by a large number of phy- sicians in Air Force hospitals. At the same time, the Navy and the Army, because of their experience with the drug, agreed that this was a good agent. This happened to be one that they felt had a high degree of patient acceptability, and in which the doctors who were prescribing had confidence. This is only one of 18 or 19 antiacids which are On our standard listing, so that we have a choice. The doctor can pay his money and take his choice in these particular antiacids family compounds. Senator NELSON. You have 18? Admiral ETTER. Eighteen or 19, I think, sir. Senator NELSON. Are there any clinical studies to indicate that they do anything the drugs listed in NF and USP don't do?. Admiral ETTER. Most of them are listed in the NF and TJSP-the other ones to which I spoke-the other list of 17 or 18. And here, again, we are back to the matter which we discussed earlier-the physician's choice and patient acceptability of this particular one. In this regard, Colonel Clark has not had an opportunity to say much yet, and he is an internist.. I would like to know if Colonel Clark from the Air Force Surgeon General's Office would like to comment on this particular item. Colonel CLARK. I am not sure I can add anything to Admiral Etter's statement. I think the number of antacids required reflects the gamut of physician training,, each physician being trained in the use of different drugs, and it also reflects the fact that this is a chrome problem we are talking about-many of the patients have been taking drugs for many years and they are reluctant to switch to a different one even though they might get a good result. PAGENO="0257" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7573 Senator NELSON. Are you skipping to the last paragraph on page 19? Admiral ETTER. I am starting "On 31 March"? Senator NELSON. Yes, sir. Admiral ETTER. On 31 March, 1 and 2 April 1969, the Drug In- formation Association, in collaboration with the American College of Clinical Pharmacology and Chemotherapy, American Medical Association, American Therapeutics Society, and the American So- ciety for Pharmacology and Experimental Therapeutics conducted a symposium on "Formulation Factors Affecting Therapeutic Per- formance of Drug Products." Dr. Don Harper Mills, M.D., JD, Clinical Professor of Forensic Medicine and Pathology, School of Medicine, University of Southern California at Los Angeles, presented a paper which stated most succinctly the problem of the medical practitioner. Dr. Mills notes the significant increase of malpractice suits in recent years, and speculates that certain statistics project that theoretically, "a phy- sician who practices for ten years faces a 100 percent chance of being sued.". It is the duty of the physician tO exercise judgment, to select, to choose-he determines what laboratory test, to consult or not consult, which consultant, what diagnosis, and finally, what therapy. It is the exercise of his judgment in the latter area which is of concern to us today. In his paper, Dr. Mills emphasizes that the duty of the phy- sici.an to choose. a drug which, of his own knowledge, is effective, safe and proper, is an affirmative one, and. must be susceptible of proof in court. Dr. Mills includes as a fact requiring personal knowl- edge, the therapeutic equivalency-or biological availability-of the chemically equivalent drugs available. Senator NELSON. May I interrupt. Doesn't this indicate that your physicians in the hospital would be better off if a formulary was established by qualified people? In all these cases we named here, such as Darvon, Librium, and others, if we had a lawsuit, the doctor couldn't present any evidence about the therapeutic equivalency or biological availability because he does not have any. The basis~ of the selection of the drug for your type of classification is that the doctor uses it. We have recited the examples here where the Medical Letter says in controlled tests they either are inferior or not superior. In .addition, how can the individual physician, as Dr. Mills says, depend on his own personal knowledge-susceptible to proof-to select from a therapeutic category the best~ drug for a particular purpose? Obviously, of this list of available drugs I submitted, there is no test that proves that according to the Medical Letter or the National Academy of Sciences-National Research Council. Admiral ETTER. . No. I think here is a-it is primarily a matter of the physician having confidence in a particular drug for one reason or another. He has- Senator NELSON. What I am getting at, the doctors who requested Darvon and these various other drugs I cited, didn't have any knowl- edge of therapeutic equivalency or biological availability. They just 40-471 0-71-pt. 18-i7 PAGENO="0258" 7574 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY had an impression or testimonial that they made for the drug. Isn't that correct? Admiral ETTER. That, and the fact that they had prescribed that drug and had found that drug in their experience and in their feel- ings about it to be effective, in their own judgment. And this-we are getting down to one of the real problems here. As you well know, the. practice of medicine, fortunately or unfortunately, is not a science, but it is an art, and it is frequently that art that goes along with the prescribing of the drug that does as much as the drug does. If a physician has confidence in that drug, whatever you may want to call it, he can impart that confidence to the patient. If the patient feels better on that drug-better on that drug than any other drug-~-- that is the drug that that doctor is going to use because he has con- fidence in that drug. Charisma, or whatever you want to call it. Senator NELSON. Well, I guess we went through it. I think the practice of prescribing drugs is an art, but there is some science to it, too. And the argument of the leaders of the profession, so far as I know, in every single medical discipline I know, is that we use all the best knowledge available, and all I am pointing out is that these doctors prescribing these drugs are not using the best knowl- edge available; they are using testimonials which, no matter how competent they are, doesn't compare with the controlled studies used by the Medical Letter or the NAS-NRC in making their determina- tions. Admiral ETTER. They are doing it, Senator, as a result of pre- scribing this drug themselves. Certainly, no one on the basis of a testimonial from a drug company or anybody else, without having used that drug, is going to ask to have it put in the formulary, or request standardization. This follows a result of trial and error, if you will. This results in the use of the drug by that doctor in his practice of medicine. Senator NELSON. I think, as all good doctors know, if you just prescribe diet and rest for patients, 90 percent of them get well, without any medication at all, so the fact that you gave them drugs and they got well does not prove that the drug is any good. Admiral ETTER. I will not argue that one bit, sir. 1 think you are absolutely right., Senator NELSON. Minority counsel would like to ask a question. Mr. JoNES. To what extent do you attempt to educate the indi- vidual physicians concerning the relative therapeutic efficacy of the drugs? Admiral ETTER. There is continued education through their medi- cal staff meetings, through the written word in the medical journals, through the Medical Letter, and any number of ways. Certainly, in our larger hospitals there are continuing medical education pro- grams that they go through. Mr. JONES. Is there an attempt to educate them directly through the Department, or are you relying primarily upon their own indi- vidual efforts at education? For example, take the Medical Letter concerning Darvon: How are they now to know that Darvon has been found to be no more effective than aspirin, if in fact, that is the case? PAGENO="0259" COMPETITIVE PROBLEMS TN THE DRUG INDUSTRY 7575 Admiral ETTER. I am glad you added that last phrase, 9f, in fact, that is the case." These are circulated and are read at the weekly and monthly meet- ings of the medical staff. Every effort is made to get as much infor- niation as possible to the practicing physician. Also, the headquarters divisions of the three services put out bulletins, put out monthly notices, at least, on all of the information which is put out by the National Research Council and NAS in an attempt to get this dis- seminated. Now, you can lead a horse to water, I will admit, but you can't make him drink. But we do everything we can in the service to try to. keep him abreast of the most recent advances in medical literature. Could I ask Colonel McCabe if he could add to this. He has not had a chance to say anything yet. Colonel McCabe from the Army Surgeon General's Office. Colonel MCCABE. I think, in general, our physicians keep them- selves up to date through their own devices, through the usual staff meetings. I don't think it is practical for us to reduplicate an entire informa- tion-producing system that has grown by tradition as a way to educate physicians, namely, attendance at professional meetings and reading the available literature. It seems to me highly uneconomic to reduplicate all this. So we expect our physicians who come to us as qualified phy- sicians and remain with us for a long period of time, to maintain their own competence through the usual professional channels. We do provide a certain amount of information through DOD channels, but I don't think we should try to reduplicate the entire thing. It would not be economically feasible to do this. Mr. JONES. As a practical matter, would you anticipate that the Medical Letter article concerning Darvon would affect DOD pur- chases of Darvon? . Colonel MCCABE. Well, I think with any of these things there is an evolutionary process and not a revolutionary process when there is change found in drug efficacy or drug use. Why does an individual physician want to use a drug or have it presented to a therapeutic agent board?. One-he has read about it in the journals. Two-his colleagues have used, it, perhaps, and told him they find it effective. Three-he has used it himself before he came into the service and found it effective, and, therefore, in his . own best clinical judgment this is a drug which he would like to use. If he wishes this to be put in the formulary of the hospital, then he would present it to the TAB, again, who are, I think, conscientious individuals, not pharma- cologists but practicing physicians. This is not a rubber-stamp operation. There are many drugs pre- sented that are not used, but they are in that situation that when someone is told, "No, we are not going to put this drug in the pharmacy," he is sittingin a room with these people who can discuss it, and it is not someone far distant who is, by fiat, practicing medi- cine for him. Someone in the same room is saying, "We don't think it is economic. We don't think it is good enough. We think there are better drugs, and better drugs you can use." PAGENO="0260" 7576 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY But if he is convinced it is useful and TAB feels it is probably useful, it may very well be put in the formulary. Now, many of these drugs that were put in the formulary by therapeutics agent board action, at the time they were put in there probably the consensus of medical people in the country would have been that they were useful. It is a considerable amount of time later now that the- Senator NELSON. Which drugs are you talking about. Colonel MCCABE. Many drugs that are now being claimed ineffec- tive, when they were originally put on the drug list were probably considered effective. Senator NELSON. Well, let's take a look at the biggest, most dra- matic case of all, and that is the fixed combination antibiotics. The best authorities in the country were saying for the past 15 years, "It is bad medical practice to use fixed combination drugs," and that was the standard of the top medical experts in the country, in the teaching hospitals and the clinicians and the pharmacologists, and yet physicians continued right on using it. Colonel MCCABE. That is correct. Senator NELSON. So those were not considered by the best experts to have been the most effective drugs. Colonel MCCABE. Another reason for the use of drugs is wide- spread use. In other words, if there is a large number of physicians who feel the drug is effective, that in and of itself is indication for use, perhaps. In addition to which, if these drugs are ineffective in fixed combination for the indication given, that doesn't mean the drug per se is an ineffective drug. It is just acknowledgement of the fact that when you use two drugs, you should use them, if you use them together, as individual drugs with their own dosage rather than just put them together in a fixed dosage. Senator NELSON. Correct. But the problem of the fixed combina- tions was that they were not more effective than one of their in- gredients, making other ingredients unnecessary and in the case of Panalba, some tests showed that the effect was antagonistic. Why expose a patient to two drugs when one will do the job. By that test, the NAS-NRC was saying it was ineffective. They didn't mean to say that if you give somebody tetracycline and novo- biocin in a fixed combination it might not affect the target organism. It probably would. But you were at the same time exposing the same patient to sensitizing with a drug he didn't need. It was not more effective than tetracycline alone. But what I am saying is that all through the years the standard in the profession was you shouldn't use fixed combinations. But aren't we talking about something here that is kind of a mythology? We say the doctors are the ones who have to make that judgment about the drugs and that they are qualified to do so. I have kept you past 12 o'clock, but I just want to read into the record from the HEW Task Force on Prescription Drugs and what they say on this issue we are now discussing is quite dramatic- page 26. The Task Force said: Finally, it is assumed that he [the doctorl has the training, experience, and time te weigh the claims and available evidence, and thus to make the proper selections. PAGENO="0261" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7577 Everything, of course, hinges on the validity of this final assumption. We find that few practicing physicians seem inclined to voice any question of their competency in this field. We have noted, however, that the ability of an individual physician to make sound judgments under these quite confusing conditions is now a matter of serious concern to leading clinicians, scientists, and medical educators. A distinguished pharmacologist, for example, has stated that the lack of knowledge and sophistication in the proper use of drugs is perhaps the greatest deficiency of the average physician today. Other medical leaders have pointed to the wide discrepancy in the prescribing habits of the average physician as compared to the prescribing methods recommended by panels of medical experts. Still others have commented on the continued use by the average physician of products which have been found unnecessary or unacceptable by specially qualified therapeutics committees in hospitals and clinics. We note that the most widely used source of prescribing information is es- sentially a compilation of the most widely advertised drugs. The responsibility for these and other deficiencies has been placed on various factors: Inadequate training in the clinical application of drug knowledge during the undergraduate medical curriculum. Inadequate sources of objective information on both drug properties and drug costs. Widespread reliance by prescribers for their continuing education upon the promotional materials distributed by drug manufacturers. The exceedingly rapid rate of introduction and obsolescence of prescription drug specialties. The limited time available to practicing physicians to examine, evaluate, and maintain currency with the claims for both old drugs and newly marketed products. The constant insistence on the idea that the average physician, without guid- ance from expert colleagues, does in fact possess the necessary ability to make scientifically sound judgments in this complicated field. This is really a refutation of all the testimony made here today and by witnesses previously. Now, Dr. Dowling, formerly chairman of the AMA Council on Drugs and a most distinguished authority, states in his. recent book, "Medicines for Man, the development, regulation and use of pre- scription drugs"-I won't read~~ all of the examples but I will put them in the record. I will start in the middle of page 281: The first consisted of observations of the work of 88 general practitioners in North Carolina. Each doctor was rated on the various skills of general prac- tice by an internist who watched him at work for thrèé days, in the office, in the hospital, and in the patients' homes. Therapeutic skills were assessed for six common disease categories. Proper treatment was judged to have been given for anemias by only 15 percent of the doctors, for emotional problems by 17 percent, for congestive heart failure by 25 percent, for upper respiratory infections or obesity by 33 percent, and for hypertension by 43 percent. So substantially less than half. were meeting the best standards in prescribing drugs under direct observation. Then, in Ontario, page 282: The proportion of Ontario physicians whose work was considered unsatis- factory varied from 15 percent for the treatment of cardiac failure to 75 per- cent for the treatment of high blood pressure. Corresponding figures for Nova Scotia physicians ranged from 45 percent for drugs used to treat infections, to 75 percent for high blood pressure: Then he concludes: . . Under the circumstances, the number of doctors whose performance does not meet reasonable criteria of quality is too great to be tolerated. Well, this is what we are dealing with in terms of prescribing drugs. PAGENO="0262" 7578 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY I shall just conclude by saying that it seems to me the Department of Defense is in a position in its hospitals to establish the highest standard and have the doctors comply. If it can't be done there, those statistics will be the same 10 years from now. Admiral ETTER. Senator, could I make one remark here. I cer- tainly hope that those percentages are not used to rate the phy- sicians practicing in the military today. Senator NEr~soN. Not what? Admiral ETTER. They are not used to rate the physicians practicing in the military today. We are citing here a large number of cases of people who apparently have been judged by their peers to be found wanting. I do not think that we can certainly apply those same kind of percentages to the practicing military physician today, par- ticularly in our military hospitals. Senator NELSON. Well, yours are civilian doctors, you told us, and the HEW study was a general study. We are talking about pre- scription drugs in an area where it has been incredibly complicated. There is no criticism of the brilliance or intelligence of an individual physician. It is just the question of who knows what these claims stand for. If I were a doctor and read the Journal of the AMA, and I see Chioromycetin advertised with a bronchoscope, which gives the indication it is for upper respiratory treatment, which it is not, and see it promoted widely for a broad spectrum of anti-infective pur- poses, and when the Journal says that its regulations require proof that it is effective and meets proper standards, I would probably prescribe it. There is no way for me to know, even if I were a most brilliant physician, that in fact Chloromycetin was being widely mispre- scribed and overprescribed in this country just because of the promo- tion of the drug. `With respect to control of prescribin~ practices, it seems to be agreed upon by all the experts in the field, that we establish a formularv based upon the best knowledge there is. Neither the Veterans' Administration nor the Department of Defense in my judgment, has at least done as good a job as they ought to, based upon the procedure you have followed. With that happy note-did you have anything you wanted to add? I do not have any objection to your arguing with me, if you had something you wanted to add to that. Admiral ETTER. I have nothing to add. Senator NELSON. You had some material on the names of small businesses and so on that we asked for. Admiral ETTER. Yes, sir. Senator NELSON. I want to thank you very much, gentlemen, for your patience today. Admiral ETTER. Thank you. (The complete prepared statement of Admiral Etter, above-re- ferred to, follows, together with attachments:) STATEMENT OF REAR ADM. H. S. ETTER, MEDICAL CoRPs, U. S. NAVY, CHAIRMAN, DEFENSE MEDICAL MATERIEL BOARD Mr. Chairman and members of the subcommittee, it is a pleasure to appear before this subcommittee to describe and discuss the manner in which the De- partment of Defense procures its drugs. PAGENO="0263" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7579 In the interest of brevity, I shall group those medical, dental, and veteri- narian medicaments and drug products under the general term "drugs". I will attempt to provide continuity by first presenting a brief historical background. Then I will trace a drug from a statement of requirement through its standardization and availability in the supply system, and examine its pro- curement files. With this approach, I can explain the inter-relationships be- tween the users, the services, and the various defense activities involved. I have some statistics to present at the conclusion of this review, and will then attempt to answer questions by the subcommittee. Since I am a physician, and do not work directly in the procurement area, I am accompanied by specialists who can provide detailed information within their areas of expertise HISTORY The Army and Navy Medical Departments pioneered the consolidated, stand- ardized military supply systems we have today. As early as 1945, the .Army- Navy Medical Procurement Agency was established by the two military Sur- geons General to act as a common purchasing office for standardized medical, dental, and veterinarian supplies. ln 1949, following establishment of the Air Force as a separate service, the Agency was chartered as: the Armed Services Medical Procurement Agency. Subsequently, as military logistic support organi- zations continued to evolve, the activity was successively designated as a single manager agency (Military Medical Supply Agency); Defense Medical Supply Center; and most recently, Directorate Of Medical Materiel, Defense Personnel Support Center, Philadelphia, Pa. It is a component of the Defense Supply Agency (DSA), and its acronym is "DPSC". Medical and dental professional guidance to this Agency is provided by the Defense Medical Materiel Board (DMMB, or "the Board"). Its predecessors included, most recently the Armed Services Medical 1~iateriel Coordinating Com- mittee, and the original Army/Navy Medical Materiel and Specifications Board. INITIAL ACTION "Type classification" is the term applied to the adoption of a drug as a standard item, and its subsequent inclusion in the Department of Defense (DOD) Medical Materiel Section of the Federal Supply Catalog. Type classifi- cation is a responsibility, of the DM1\'IB, but the action must be sponsored by one or more of the services. Some drugs are type classified as standard because the worldwide commit- ments of the Armed Forces make it imperative that these items be readily available at all times, regardless of usage or consumption rates. Our usual motivation, is the dollar savings which accrue through our centralized purchas- ing and distribution system. Consequently, although type classification action may be initiated as a result of the recommendation `of an individual, a presen- tation by industry, or a proposal by DM1\IB, most actions follow a determina- tion that the volume of local purchases by field activities., indicates that economies will result. For several years, for example, we have been stock listing calcium carbonate and aminoacetic acid tablets (FSN 6505-890-1658). Type classification was re- quested by the Air Force in 1963. The item is a commercially available antacid which was marketed under the trade name of "Titralac tablets" by Riker Lab- oratories, Inc., Northridge, Calif; It is used primarily in the treatment of peptic ulcers (gastric and duodenal) and gastric hyperacidity. In 1963 the Air Force used a statistical sampling technique to evaluate usage of nonstandard drugs. Upon noting that over $2,500 was being spent on this antacid that year by a selected group of 21 hospitals, the Air Force marked the drug for review Air 1~ orce professional and logistic personnel concurred that there would be a continued requirement for a drug of this type, and that demand and use rates could be expected to increase, or at least remain con- stant As a result of these preliminary actions the Air Force submitted to DMMB a recommendation "to stock list an antacid comparable to Titralac tablets." DMMB advised the Army and Navy of the Air Force action, and requested service positions. Working from the Air Force recommendation, Army and Navy personnel reviewed their own~ reports,. consulted their specialists, concurred with the Air PAGENO="0264" 7580 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Force and the item was standardized. These reviews include consideration of such data as local purchase statistics, professional needs and uses, patient acceptance, comparison with items already stock listed, and an evaluation of known sources of supply. ESSENTIAL CHARACTERISTICS Since the Air Force request named only the one commercial product, it was necessary for DMMB to request Hiker Laboratories for detailed information on Titralac. Hiker advised that the product was patented, but agreed to provide that information-physical and chemical characteristics, test protocols, clinical and stability studies-which specifically identify the item produced by that manufacturer. The Board used these data in the preparation of tentative essential charac- teristics for calcium carbonate and aminoacetic acid tablets. The essential characteristics (or EC's) are defined as those mandatory qualities required of an item to accomplish a specific professional, therapeutic, technical, or military purpose. For drugs, they include, but are not limited to- A description of the item, and its application or use. Components of the formula, when appropriate. Quantification, as required. Unit of issue, type of container, package size, and any special packaging instructions. Labeling requirements, identification data, and necessary instructions for use. Initial proposals for type classification on an item are recorded on a "co- ordination worksheet for medical items pending adoption" (DMMB form 1, exhibit 1). DMMB distributed this form 1 concurrently to the services and to DPSC. Comments were solicited from all addressees. The services annotated the form 1 with their initial, and 12 months replenishment requirements. Within DPSC, the form was reviewed in the Technical and Supply Opera- tions Divisions of the Medical Directorate to hasten availability of the drug through the DOD wholesale distribution depots. Having determined that the EO's were adequate for preparation of a competitive specification or purchase description, DPSC returned the form 1 to the Board. Had it been determined that no further data could be'. acquired, and that total available information was inadequate for preparation of a competitive specification, the case would have been returned to the services. Upon their recommendations, a determination would have been made to discontinue action, or to process the item indicating a limited source of supply. Parenthetically, a recommendation for a limited source of supply may origi- nate with a service, DPSC or DMMB. This action may be taken only in those instances where it has been professionally determined that the product of a specified supplier or suppliers is required to provide for the health and welfare of Armed Forces personnel or their dependents. The decision must be concurred in by all three military medical services.' `Such determinations normally derive from an accumulation of clinical experience, and may relate to experienèe prior to type classification of the drugs, or to those in the system which have ac- cumulated a significant complaint history. I shall speak again of limited source items when I reach the statistical portion of my presentation. Had DPSC or the services submitted conflicting recommendations regarding this particular standardization action, it would have been DMMB's responsi- bility to resolve them. There being none, comments were reviewed, data was finalized, and the results transcribed to an item review report (D1~I1~IB form 5, exhibit 2). Distrib'ution follows that of the form 1, but the form 5 is an action document. It authorizes cataloging,' preparation of specifications, procurement, and distribution. `(This same form is used for any directed change in status, such as revised EC's or reclassification to limited standard or deleted.) I will not describe in general terms the responsibilities and actions taken by personnel of the Technical and Supply Operations Divisions of the Medical Directorate upon receipt of an item review report. ` SUPPLY OPERATIONS' A supply control study (DPSC form 2340) is developed by a supply opera- tions commodity (item) manager to portray all data relevant to an appropriate PAGENO="0265" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7581 procurement. Such data includes considerations of the item's shelf life, the time needed to obtain an item, and the mobilization as well as operational (quantity) requirements. The supply control study, and the levels of approval that it goes through (depending on dollar values involved) becomes a backup document for DD form 1348 (DOD single line item requisition system document) used as the formal purchase request, which is forwarded from the DPSC Medical Sup- ply Operations Division through the Medical Technical Operations Division, to the DPSC Procurement and Production Directorate (Medical Procurement Division) to obtain system stocks. When a new item is adopted, and the item is not replacing an existing item, services estimate their initial requirements, and their 12 months replenishment requirements. These estimates are used to assist in determining the initial pro- curement quantity. Subsequent procurements are based on actual demands placed by customers. In the case of new items replacing items already in the system, requirements are computed from the demands applicable to the items being replaced. The announcement of the availability for issue of new items in the supply system is made to the services upon award of a contract and designa- tion of a firm delivery date. This permits sufficient time for the services to disseminate the information to customers through service publications. Once an item is stocked, the computation of future requirements is based on orders or demands received, as adjusted by accumulated professional informa- tion. DPSC receives an average of 3,500 to 4,000 requisitions daily from a total of about 3,700 military customers. On the basis of these demands, a monthly computerized demand forecast is constructed, and is used to compute projected system supply levels and requirements. For items centrally managed, procured, and stocked and issued, a 2-month safety level stock is needed to prevent pos- sible depletion of inventory resulting from unavoidable delays in deliveries and/or due to surges in demands. A procurement cycle (PC) factor represents the periods between successive replenishments, or procurement frequency for an item, and takes into consideration the economic order quantity concept. The PC factor normally represents the quantity to be procured at the time the item reaches the reorder point. The procurement leadtime is expressed in months of demands anticipated to occur from dates of purchase requests to the point of delivery on the contract. When assets on hand and on order reach the level of the quantitative sum of demands anticipated during the safety level and the procurement leadtime periods, DPSC normally buys the procurement cycle quantity. Therefore, under an ideal situation, stocks should be received into the system when the quantity remaining on hand is at or just above the computed safety level quantities~ TECHNICAL OPERATIONS The primary responsibility of the Division of Technical Operations is to conduct an effective quality assurance program to assure that medical materiel of suitable quality is procured, stocked, stored, and issued. To conduct this program effeëtively, it is necessary to prepare comprehensive and definitive specifications, perform preaward facility surveys of prospective contractors, analyze preaward samples to determine potential capability, participate with defense contract administration service in product inspections at contractors' plants, evaluate field complaints, and maintain an active liaison with the depots and military medical services. DMMB provides the selection of items and the EC's to technical operations as the specification preparing activity. The Technical Operations Division seeks specification information from industry, the Food and Drug Administration, National Institutes of Health, professional committees of compendia such as the U. S. Pharmacopela (USP) and National Formulary (NF), published liter- ature, and military activities such as specialized service laboratories. DPSC is assisted in obtaining such data from other Government departments by using the lateral contacts developed under the Intragovernmental Professional Ad- visory Council on Drugs and Devices (IPADD). Required data includes, for example, chemical and physical characteristics of raw materials, dosage forms, stability and clinical studies or reports. In the preparation of medical specifications, every effort is made to delineate the essential needs of the Government in an effort to procure pure, safe, and therapeutically effective drug products, yet minimizing efforts to seek competi- tive procurement. It must be recognized that military needs frequently in- PAGENO="0266" 7582 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY volve requirements which transcend those of some commercial products on the market. For example, military medical materiel is subjected to worldwide distribution under adverse conditions. Product stability is, therefore, a very essential element in assuring that the product is suitable when it is ultimately consumed. As a result, the standards described in DPSC specifications are at times more stringent than commercial standards in anticipation of adverse storage and transportation, and long-term storage. It will be noted that the method of specification preparation is responsive to the rapidly changing need of the medical services. The division operates closely with the procurement personnel and obtains rapid feedback from industry on recent technological advances. Technical reviews and evaluations of such data permit updating and upgrading medical specifications. Valuable information is obtained via the complaint reporting system which involves evaluation of com- plaints, classification of the types of complaints, and determination of whether specifications require modifications in order to circumvent further complaints of a similar nature. DPSC procures approximately 1,100 drug items, of which about 560 are monographed in the USP XVIII and NP XIII. About 50 percent of these items include standards that exceed those of the official compendia. Requirements specified include color limits for liquid products particularly for parenterals; expiration dates, refrigeration requirements for many items not required by the USP and NP; dissolution tests, animal tests, accelerated aging, and some clinical requirements. Also, special packaging is required for greater assurance of stability. These areas include inner and outer seals, leakage tests, special closures, label adhesion, tin plating, and vacuum packing. In qualifying drug manufacturers, facilities of prospective contractors are inspected to determine the company's potential to produce a specification item under acceptable conditions of quality control and housekeeping. The DPSC drug standards are used as a guide in determining the acceptability of the firms. Disqualifications are usually in the areas of inadequate quality control, unacceptable housekeeping, or deficiencies in technology. Preaward samples are requested in those instances where the capability of the firm to produce an item in conformance with the specification has not been established. Our medical laboratory performs the necessary analyses to deter- mine compliance with specifications, and from these findings judges whether the manufacturer has the potential to produce the item specified. Other Gov- ernment laboratories such as FDA and U. S. Army Medical Research Labora- tory at Fort Knox are utilized to augment DPSC testing capability. The medical laboratory is an essential segment of the total quality assurance effort. The laboratory represents an independent source of analyses by highly qualified, trained scientific personnel intimately acquainted with tests and stand- ards of chemical, physical and bacteriological testing. The analyses performed on preaward samples, first articles, preacceptance samples and depot surveil- lance samples represent a critical part of the effort toward the quality objec- tive. The laboratory also serves as a check point for inspectors when they wish to have company results verified independently. During production, every drug product is inspected by a qualified chemist, pharmacist, or chemical engineer of the Defense Contract Administration Serv- ice of DSA. These personnel are specifically and formally trained for this func- tion by DPSC. Inspection is performed against the applicable specifications and includes review of the laboratory analyses. Time inspector may witness con- tractor testing or personally conduct check tests as necessary in the company laboratory. Among the other features of the quality assurance program are: monitoring of inspection reports, participating in inspection operations, and maintaining a surveillance program over material in the system. Customer satisfaction with material supplied is evaluated by visiting depots, military hospitals and dis- pensaries. In this manner, DPSC maintains a direct line of communication with the medical/professional personnel with a view toward improving products and services wherever possible. In offshore procurement of drugs further measureF~ are taken to assure that plants and products comply with specifications. A specially trained medical service corps officer is assigned overseas for inspect~on of plants and surveil- lance of the inspection program. During production o'm DPSC contracts, a quail- lied inspector maintains residency at the plant. Pricr to acceptance the active ingredients and finished product of each lot are forwarded for FDA testing in PAGENO="0267" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7583 Washington, D. C., or New York district offices. Only after such testing reveals compliance with our specifications does the inspector accept and ship the mate- rial. In the context described above, the technical operations division completed action on this specific item review report and subsequently forwarded to pro- curement both the requisition from supply operations, and the definitive speci- fications. PROCUREMENT The DPSC organization is made up of a number of separate directorates, as shown in their organization chart (exhibit 3). The Directors of the Directorate of Medical Materiel and the Directorate of Procurement and Production are on an equal organizational level, and both report directly to the Commander. I point this out to show that at this point, the requisition passes from the con- trol of a medical officer to the province of a medical procurement specialist. Within the Directorate of Procurement and Production is a division of medical materiel which does the actual buying of drugs. Drug purchases result from a team effort. Supply operations determines when and how much to buy. The technical staff looks at each buy and establishes the specifications. An advance copy of the purchase request is received in the procurement directorate for supply operations. This copy is utilized by the contracting officer to determine the method of procurement. The basic statute governing procurement by the Department of Defense (title 10, USC 2304) directs that purchases shall be made by formal advertis- ing and authorizes the use of negotiation in 17 specifically enumerated situa- tions. Formal advertising operates most effectively where: (1) An adequate number of qualified suppliers have actively competed for Government contracts. (~) They are willing to price competitively. (3) Definitive specifications are available for the required product. (4) There is sufficient time to carry out the inflexible formalities of the formal advertising process-preparing the invitation; permitting bidders time to prepare their bids reviewing opening and evaluating the bids received; and determining the responsibility and responsiveness of the low bidder. When all of these conditions exist, formal advertising is the most successful means of securing for the Government the benefits of competition. In the ab- sence of any one condition, however, formal advertising may be ineffective and negotiation must be used. It should be noted that the benefits which flow from competition do not re- sult exclusively from "formal advertising". Publicized negotiated procurements can actually become more competitive than procurements utilizing traditional invitation for bid format. The contracting officer reviews the item's procurement history card and the bidders list for past procurement problems. Should the bidders list indicate only one known source of supply, or limited sources of supply, this would be a signal to the buyer or contracting officer that a negotiated procurement is in order; The buyer determines whether the delivery schedule allows time for formal advertising. If not, he negotiates with the supply operations division. If priorities permit, the delivery date is revised. If the urgency of need does not permit a reduction in the priority, negotiated procurement may be required to meet the required delivery date. The hard copy of the requisition contains the specifications to be utilized for the procurement. Should the specification be new or a significant modification of an existing specification, this too could be a reason for negotiation of the procurement. Once the contracting officer determines that negotiation or formal advertis- ing is in order, a solicitation is issued. In the case of formal advertising, award is then made to the low responsive and responsible bidder. In cases of nego~ tiated procurements, the contracting officer evaluates the responses received and makes a determination whether further negotiation is in order. In con- trast to the formally advertised procurements, in negotiated procurements, an offeror's prices, terms and conditions are not revealed until after award. It is the policy of the Department of Defense to place a fair proportion of its total contracts for supplies and services with small business concerns. Every PAGENO="0268" 7584 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY effort is made to encourage small business participation. The Defense Person- nel Support Center has on the staff of the commander a group of small busi- ness specialists who, together with the resident representatives of the Small Business Administration, personally review every procurement action contem- plated with an estimated value in excess of $2,500. This review for small business suitability contemplates historical evidence of small business compe- tence and/or probability of developing small business capability. The review is documented in every procurement, reflecting all the factors considered, with negative or affirmative determinations in each case. As is readily apparent from the statistics previously furnished by DPSC, and in spite of concerted efforts, DOD is unable to place a significant percentage of total dollars with small business. This is caused by two factors. First, the dominating high dollar value of the single source drug items, and secOndly, the recent substantial acquisitions of successful small business by large corpora- tions. It seems that as quickly as we develop responsible small business sources, they are acquired by large business. Their success with our agency appears to be prima facie evidence of desirability for acquisition. While the information is available in other places, experience during fiscal year 1970 reflects 17.8% of total medical procurement dollars going to small business, and 32.5% Of total medical contracts. As an indication of the industry differences, the small busi- ness share of drug business in numbers of contracts is 7.7%. Conversely, in surgical instruments and dressings, it is 27%; and hospital equipment's share is more impressive at 38%. The first buy of our example drug, calcium carbonate and aminoacetic acid tablets, was in January 1964. Following a pattern established to ensure rapid availability in the supply system, the first procurement was negotiated with the known conimercial source: Riker Laboratories, Inc. All subsequent pro- curements have been publicized in advance, and based on the competitive speci- fication. The procurements, with one recent exception which was by formal advertis- ing, have all been negotiated. Despite publication of the requirement in the business journals, DPSC had no bidders except Riker between the first buy and February 1968, although the patent (to which Riker was apparently the sole licensee) expired in October 1964. Two of our present generically-oriented bidders (Dorsey Labs and Chase Pharmaceuticals) were queried regarding their earlier failure to bid after. the patent expired. The first indicated a gen- eral lack of interest in DPSC business until 1967. The latter had experimented with the tablet shortly after expiration of the patent. They were at first unable to locate a supply of the appropriate type of calcium. Later they had tableting problems. They have been active bidders since solving their production prob- lems between late 1967 and early 1968. Exhibit 4 depicts the detailed purchase history for 1968 and 1969. Since preparation of these data for earlier submission to this subcommittee, Abbott Laboratories has been awarded a contract at a unit price of $1.97. During its presence on the stock list, the Drug's EC's have been modified but once, and that was in July 1968. Essentially, this revision established stated parameters for weight, content, and active ingredients. Two specific subjects related to this drug require detailed examination: the selection of one of a family of drugs such as antacids, and the procurement of a product protected by a patent. A recent article ("O.T.O. Antacids," by Richard P. Penna, handbook of non- prescription drugs, American Pharmaceutical Association, 2nd edition, October 1967, page 7), quotes the Drug Trade News to the effect that antacids on the market today include over 300 products in the form of tablets, gums, lozenges and wafers; about 175 liquid antacids; and over 100 in powder form. Most of these products are a combination of one or more of a half dozen antacids such as calcium carbonate or aluminum hydroxide, with another agent (such as magnesium carbonate) to prevent constipation which might be caused by the antacid alone. Different patients and conditions preclude standardizing on a single generic product or dosage form. Conversely, the total numbers availab1e in the market are too great to consider standardization of all. Our supply system lists about 18 antacid products, including tablets, liquids and powder. This range allows the military physician a deliberate, reasoned choice in management of the individual patient. PAGENO="0269" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7585 Because the majority of antacids are used for treatment of chronic condi- tions, patient acceptability and psychosomatic considerations are particularly important. Many gastric problems originate with or are aggravated by stress. Having settled on a satisfactory prescription, the physician will frequently find that the patient becomes conditioned to the use of exactly that medication, and unexpected changes in its appearance can generate patient reactions of a magnitude not seemingly in direct relationship to that of the change. Conse- quently, our essential characteristics for these items are particularly sensitive to flavor, palatability, and color. Other factors also have a major bearing on our choices among this family of drugs. I mentioned that we provide a range of antacids in order to allow a deliberate choice. We must do this because of the medicolegal responsibilities of the physician as they relate to drug usage. Through the use of our individual hospital formularies, and the medical stock list, we encourage our physicians to prescribe generically. The Surgeons General endorse this procedure so long as we can exercise adequate quality control and quality assurance procedures throughout the entire supply system, from type classification of the item to consumption of the drug by the patient. We have, to the best of our ability, assured ourselves that these products are safe, efficacious, and economical. But what of the individual physician? On 31 March, 1 and 2 April 1969, the Drug Information Association in col- laboration with the American College of Clinical Pharmacology and Chemo- therapy, American Medical Association, American Therapeutics Society, and the American Society for Pharmacology and Experimental Therapeutics con- ducted a symposium on "Formulation Factors Affecting Therapeutic Perform- ance of Drug Products". Dr. Don Harper Mills, M.D., JD, clinical professor of forensic medicine and pathology, School of Medicine, University of Southern California at Los Angeles, presented a paper which stated most succinctly the problem of the medical practitioner. Dr. Mills notes the significant increase of malpractice suits in recent years, and speculates that certain statistics project that theoretically, ". . . a physician who practices for ten years faces a 100% chance of being sued." It is the duty of the physician to exercise judgment, to select, to choose-he determines what laboratory test, to consult or not con- sult, which consultant, what diagnosis, and finally, what therapy. It is the exercise of his judgment in the latter area which is of concern to us today. In his paper, Dr. Mills emphasizes that the duty of the physician to choose a drug which, of his own knowledge, is effective, safe and proper, is an affirma- tive one, and must be suceptible of proof in court. Dr. Mills includes as a fact requiring personal knowledge, the therapeutic equivalency (or biological avail- ability) of the chemically equivalent drugs available. We in the Department of Defense have been aware for some time of clinical indications that not all chemically equivalent drugs appeared to be thera- peutically equivalent. Like most of the profession, we had originally no scien- tific documentation or studies. It was primarily a clinical impression supported by a large body of the profession over the same general time frame and sub- stantiated by therapeutic experiences. In 1966, we became sufficiently concerned that we began to search for a means of evaluating the question. The services are neither staffed nor funded for the conduct of formal clinical studies. In this connection, section 203 of title 2 of the fiscal year 1970 Defense Authorization Act (research and development) re- quired a restriction on our medical R&D efforts to studies involving military- related diseases. The FDA did not at that time appear informed in this area, and we were somewhat reluctant to set ourselves up as experts purely on the basis of clinical indications. We chose a very small scale approach similar to that ultimately adopted by the National Academy of Science/National Research Council Task Force on drugs. We planned to obtain all possible clinical and stability data from the originator of a~ product and the FDA. We would then search the literature, and other possible sources such as the Intragovernmental Professional Advisory Council on Drugs and Devices (IPADD), and attempt to reach conclusions which would be supported by scientifically acceptable evi- dence. Limited resources precluded advancing beyond the planning stage. DOD is grateful that it has been spared the necessity of conducting its own study. Recent widespread concern has resulted in the NAS/NRC study of drugs, which has now been reported to FDA. PAGENO="0270" 7586 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY FDA Commissioner Edwards is quoted in the July 1970 issue of the Journal of the American Pharmaceutical Association as follows: "I refer, of course, to the problem of generic equivalence. It has become in- creasingly apparent that drug products which purport to be equivalent and which may satisfy chemical and other analytical tests of equivalence may not be therapeutically equivalent." FDA has indicated that the problem is as complex as we had originally envisioned. They recognize that it is not presently possible to determine bio- availability in the entire armamentaria. DOD is not fully informed on all FDA action regarding bio-availability. We do know that the subject is under intensive study. We know also that the University of Michigan is currently under contract to FDA for a study titled "Generic Equivalency of Marketed Drug Products". As these data are developed, they will be required in new drug applications, and we, in turn will include them in our EC's. In mentioning the NAS/NRC study, 1 have raised the collateral issue of the efficacy of drugs. This group reported to FDA that they could find no substan- tiating evidence that many drugs on the market are effective for treatment of the conditions for which they are labeled. DOD follows theY actions of FDA very closely. It is our policy that central procurement of these drugs is sus- pended immediately upon FDA announcement that certification of the drug has been questioned. Unless there is an indication that the drug may be harm- ful, we do not suspend issues of the drug until FDA completes its administra- tive reviews and directs regulatory action. When that action is directed by FDA, DOI) complies. Our immediate interest at the initial announcement, however, is a logistical one-we want to preclude further investments in an item which may be eliminated from the stock list. Perhaps an example is the best explanation of our procedures when the efficacy of a drug has been questioned. Tolbutamide has been much in the news of late. The University Group Diabetes Program (UGDP) has studied a 10 year period of the administration of tolbutamide in the treatment of diabetes. Their statistics suggest that patients on tolbutamide suffered a higher death rate from cardiovascular events than did patients on insulin or those without medication. The UGDP report was one of three presented at the meeting of the American Diabetes Association on 14 June 1970. Papers were also presented by Dr. Harry Keen, speaking for the British Diabetic Association, and Dr. J. Paasikivi of the Karolinska Institute of Sweden. The UGDP findings were totally unexpected. No adverse effects were sus- pected by clinicians throughout the world. The findings of Dr. Keen do not refute the UGDP data, since Keen's study is of shorter duration in years, and the UGDP ~study does not indicate an in- creased cardiovascular disease mortality in the tolbutamide group until about six years. The study by Dr. Paasikivi is somewhat different design, and is difficult to compare with the UGDP work. However, the data to date are not conclusive, and other undetected risk factors may be involved. The statement issued by `Dr. Harding for the American Diabetes Association (exhibit 5), appeai~s fully representative of the current attitude of diabetolo- gists toward the use of tolbutamide, and the other oral agents. After consulta- tion, DOD concurs that it would be wrong at this time to withhold to!butamide from patients who need it. On the other hand, the indiscriminate use of this drug merely to correct mild blood sugar abnormalities must be discouraged. To return to our example drug-when we first standardized calcium carbonate and aminoacetic acid tablets-may I digress to say that I hope the subcom- mittee is successful in its objective of simplified generic names. Dr. James E. P. Toman, Ph.D., of the ~University of Illinois College of ~Pharmacy has some particularly pungent and appropriate words on this subject in a 1964 McGraw- Hill book: "Thé~ `Evaluation of Therapeutic Agents and Cosmetics". But, to return `to my subject, when first type classified, this drug' was patented, and was sold under the trade name of Titralac. Although the patent expired some months after our first purchase (October 1964), it affords us an opportunity to discuss this subject. With respect to the patent aspects of DOD drug procurement, DPSC con- tracts for drugs incorporate the "authorization and consent" clause set forth in ASPR 9-102. Briefly, this clause authorizes and consents to any unnecessary PAGENO="0271" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7587 infringement of product or process patents by a contractor in the production of an item for the Government. The clause is used to take advantage of 28 U.S.C. 1498 which provides that when a contractor infringes a patent with the authorization and consent of the Government, the patent owner's only remedy is by suit against the Government. The effect of that statute on drug purchases has been considered by the Comptroller General of the United States. He has held that it wou'd be improper to reject a low bidder's offer merely because the bidder was not licensed to manufacture a patented article. The basis for his view was that. Congress enacted 28 U.S.C. 1498 specifically to enable the Government to obtain or use patented articles from any source subject to the payment of reasonable compensation to the patent owner. In addition to the authorization and consent clause, the indemnity provi- sions prescribed by paragraph 9-103 of ASPR are usually included in DSA contracts for drugs. These provisions require the contractor to indemnify the, Government for patent infringement liability assessed against thè~ Government as a result Of V the contractor's performance. Including such provisions is gen-. erally considered to be in the Government s best interest since it enables bids V to be evaluated' V on `an equal b'asis. It tends to encourage suppliers to become licensees of the patent ,owner, and' thus in' a position to sell not only to the Government but to the public as `well. However, DSA assumes the full finan- cial responsibility for patent infringement by deleting the indemnity provisions from `the solicitation where this wou'd result in a lower overall cost to the Government. Lest there be some implication from the above that DOD does not actively solicit competition in procurement of drugs, exhibit 6 is a copy of a letter which was distributed by `DPSC to their `entire drug bidders list. Exhibit 7 is a copy of that list. As can be seen from exhibit 6, DOD placed no legal impediments in the way of possible bidders, whether considering patented or unpatented items. The lack of response to exhibit 6 can probably be best explained in terms of industry self-protection. In DMMB development of EC's, and DPSC preparation of specifications, we have found that a patent is only one form of protection for a proprietary item. It is very common to develop trade secrets subsequent to the grant of a patent. These secrets need not be made available to other than a licensee of the patent holder, and may be of such significance that they affect the therapeutic capa- bilities of the drug. Secondly, we find that in many instances, only one company manufactures a non-patented item. Exhibit 6 contains multiple examples of this situation. We attribute the lack of additional bidders to several factors: 1. The established bidders, by virtue of existing plant equipment, capacity, special competence, know-how, or production scheduling, is able to underprice prospective competition. (For example, a DPSC solicitation closing on 26 May 1970, contained a 50% set-aside for small business. The buy was for 376,104 bottles of glyceryl ,guaiacolate syrup, FSN 6505-064-8765. Small business did not bid, and we are convinced that this `omission relates to inability to com- pete on the price.) V 2. Industrial secrets are closely protected by their developers. Many of our single source items have generic EC's but we do not know the necessary manu- facturing techniques. Such factors as the sequence of combining substances, humidity, working temperatures, etc., have specific effects on the finished prod- uct. Lack of knowledge in this area may preclude or delay competition (as it did with our example drug, calcium' carbonate and aminoacetic acid tablets). 3. It may not be profitable to obtain a new drug application (NDA) for Government sales only, and many small manufacturers lack the resources for national distribution', in the commercial market. In summary, by using the "authorization and consent" clause, and by con- sidering bids or offers from firms, whether or not they are owners or licensees of a patent, DOD and DSA do take advantage of and use the authority provided in 28 U.S.C. 1498 in the purchase of drugs. This practice is well known through- out the drug industry. Gentlemen, this completes my formal statement. At your pleasure, we may now review the exhibits which are appended to the statement, or I shall en- deavor to answer questions for the subcommittee. PAGENO="0272" 7588 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY EXHIBIT-i Covershcet L'MMB Form 1 (Rev 10/69) DEFENSE MEDICAL MATERIEL BOARD TYPE CLASSIFIcATIoN/us~R LEST ACTION REQUEST ~`iie: From Staff Director To: OTSG, Department of the Army (MEDDD-SC) 3..3 Date:: OTSG, Department of the Navy (BUMED 4A) 6-3 OTSG, Department of the Air t~6rce (AFMSHBA) 6-3 Subj: End: (1) D}21B Form 1, Section A covering new item PAGENO="0273" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7589 YPASS~CA~rION rH M ( 0 S TRtN~r H) ~ ~ ~`rcLfM ~ i*. P~ELAT too TO ~TOC KLISTSO TEM8 (REr~rnS~RT C OMSOSSOT OR SUCPLX) AS orSo(s) DMMB FOPM I TYPE CLASSIFICAT1ON/PECL~b~~~ ~N o°OLCARLC ~SEC ~. ..~ .,.. .... .~... ~ ... -.. ~ .- . D0~Lo4R~ 00Cr . SECTION A PAGENO="0274" 7590 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY J~C-TECHN1CPL -~ ~OVIOE REPAIR PARTS PAMPHLET SERVICt DATA NEITHER D~MB FORM I TYPE CLASSIFICATION/RECLASSIF1CATION SECTiON C PAGENO="0275" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7591 DMMB Form-S EXHIBfl'-2 PAGENO="0276" C) C S S C r CD z S C z CD S EXHIBIT-3 L~. ,Ua7 1 I ORGANIZATION I PAGENO="0277" EXHIBIT-4 FSN 6505-890-1658 CALCIUM CARBONATE AND ANINOACETIC ACID TABLETS, 500s, BOTTLE QUANTITY __________ SOLICITED 11,952 15,216 11,904 26 Jun 68 N 16,224 CONTRACT NUMBER AWARD DATE METHOD OF PROCUREMENT QUANTITY AWARDED SUCCESSFUL BIDDER/ OFFEROR UNIT PRICE TOTAL PRICE UNSUCCESSFUL BIDDERS! OFFERORS UNIT PRICE 68-C-2746 6 Feb 68 N 11,952 Riker $ 3 48 $ 41,593 None 68-C-2952 21 Feb 68 N 15,216 Riker 3.48 52,952 *Dorsey $ 3.25 68-C-4568 20 Jun 68 N 11,904 \ Chase 2.84 46,076 Dorsey Riker 3.15 3 48 68-C-4633 16,224 Chase 2.84 46,076 Dorsey Riker 3.00 3.48 69-C-2118 13 Dec 68 N 11,280 11,280 Chase 2 75 31,020 Riker 3 48 69-C-2707 31 Jan 69 N 20,544 20,544 Chase 2.67 54,852 **Strong Riker Cobb .806 3.40 C-) C C CD z C CD * Low offer rejected due to an unsatisfactory pre-award survey. ~A Low offer rejected in that the samples submitted failed to conform to the Government's requirements. Titralac (Biker) PAGENO="0278" 7594 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY EXHIBIT j_ EXTRACT FROM AN AMERICAN DIABETES ASSOCIATION LETTER TO MEMBERS DATED 17 JUNE 1970, AND DISTRIBUTED FOLLOWING THE 30TH ANNUAL MEETING OF THE AMERICAN DIABETES ASSOCIATION, WHICH ENDEDON 14 JUNE 1970: AT A PRESS CONFERENCE THAT FOLLOWED THE SCIENTIFIC SESSION, A STATEMENT GIVING THE ASSOCIATION'S POSITION WAS READ BY DR. ROBERT C. HARDIN, RETIRING PRESIDENT. SO THAT M~MBERS OF THE ASSOCIATION WILL BE FULLY AWARE OF THIS ORGANIZATION'S PRESENT VIEWPOINT ON THE SUBJECT, THE STATEMENT TO THE PRESS IS REPRINTED IN FULL BELOW: THE AMERICAN DIABETES ASSOCIATION COMMENDS THOSE PERSONS WHO HAVE REPORTED STUDIES CONCERNING THE EFFECTS OF THERAPY ON THE COURSE OF DIABETES AND ITS COMPLICATIONS AT THIS ANNUAL MEETING. NEW DATA HAVE BEEN PRESENTED, SOME OF WHICH RAISE QUESTIONS ABOUT THE EFFICACY AND SAFETY OF ORAL THERAPY. HOWEVER, IT IS DIFFICULT TO GENERALIZE FROM THESE UNPUBLISHED DATA. CAREFUL EVALUATION OF THE COMPLETE DATA AND FURTHER STUDY WILL BE NECESSARY TO REACH FINAL CONCLUSIONS. AT THIS POINT, THE EVIDENCE PRESENTED DOES NOT APPEAR TO WARRANT ABANDONING THE PRESENTLY ACCEPTED METHODS OF TREATMENT OF DIABETES -- DIET, DIET WITH ORAL AGENTS, OR DIET AND INSULIN AS INDICATED. PAGENO="0279" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7595 EXHIBIT-6 O DEFENSE SUPPLY AGENCY HEADQUARTERS DEFENSE PERSONNEL SUPPORT CENTER PHILADELPHIA, PENNSYLVANIA 19101 IN REPLY REFER TO DPSC-PM J~N 27 1969 MEMORANDUM TO: PROSPECTIVE MEDICAL BIDDERS Government procurement officers are required by law and regulations to procure competitively to the maximum extent possible. This, of course, benefits all of us as taxpayers. This Center is experiencing considerable difficulty in obtaining com- petition on many items. Enclosed you will find a partial listing of these items * I am requesting that you review the listing to determine if your company may possibly be able to participate in future solicitations for these items. Following your review, it is important that I have your reaction. Are you interested? If not, why? Are there aspects of our methods or contractual requirements that are not entirely clear to you? I would welcome any comments that you nay wish to submit in writing and am available at any time in my office for further discussion. I am looking forward to your continued sup and cooperation. (I~ (AJLlL~ End 3 SNYDER Lt Cob l~, USA Chief, ~vision of Medical Materiel Directo te of Procurement & Production PAGENO="0280" 7596 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY FSN & N~NCL&~UBE 6505 O1~5~.3466 Sodiurri ~ Injection 65o5~~o5o~3:7Fi MeUar~1 h~ete. 6505-052-1367 Vistaril Parent~~1 Soluti9n, 50 teg, per cc, 10 cc (Kydroxyzine Eel. mi.) 65o5..o55-57l6 I4docaine~Hydzochloride 6505-059-9017 Ch1ordiazepcxid~ Hydrochloride Caps. 65o5-o6I~-8731 Sodium Diar~r±~vate 65o5-o65-421~~ Phenergan Supponitories-Rectal 65o5-o66J~875 Sodium Liothyronine Tablets, USP, 1000's 6505-071-0610 Metostix Reagent Strips 6505-071-65~~7 Triancinolone Acetonide Cream, 0.5%, 8 oz. 65o5-o7i~-2760 Iodipamide Sodium Injection, I~F 65o5-o7I~..2981 Dioctyl Sodium Su1~osuccinate & Ferrous Fumarate Capsules, 1000's 6505-07l~-3169 Dsnthron end Calcium Bis 65o5-o7~-~702 Dyshenoxylate Rd. & Atropine Sui!ate Tablets, 500e 65o5_o71~_991l~ (Hygroton Tablets - lOOs) Chlorthalidcne Tablets 6505-082-2651 Meperidine Hydrochloride liii. 65o5-o82~2652 Meperidine Hydrochloride Inj., 1~, 75 mg, Cartridge Needle Unit, 1 cc, 20s PAGENO="0281" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7597 FSN & Nt~Y1ENC1JLT~JRE 65O5.~82..2659 Amitriptyl~n~ Hydrochloride Tabs. 65~82-~26~8 Niofuran1-t~Ln Oxr 1 Suspensior 5~o32~2;h~ Mea~J.es Vjru~s Vaccine, Live 65o~o82-.2672 Streptokinasé-Streptodorn_ase Tablets 65o5~o82~26~ D~etbylpropir~n Tablets, 75 mg, iDOs 65o5~~o89-.~424 Ep~wdrine Hydrochloride Phenobarbital Potassium Iodide 65o5..loli.5400 Corticotropin Injection, USP, 40 USP Units 65o~~1o6-9oo0 Amyl NitrIte, NP Ampule, 0.33 cc (5 minima), 12s 655..lo8..i~65 Atropine Injection, 2 mg, 1 cc 65o5.~io8-8~oo Diiuercaprol Inj.,USP, 10%, 5 cc, lOs 65o~~.11o..6575 Blood Detection Tablets, 60s 65o5.u3~9295 Chlorquine Phosphate Tablets, 0.5 Gm 65o5~u3~.931o Chioroquine Phosphate Tablets, liSP, 0.5 Gm, l000s 65o5~.u4-5o25 Cocaine Hydrochloride, liSP, 0.5 Gm (7~.l/2 gr) 6's 65o5..u6-oloo M~Cresy1acetate, 1 oz. 6505-116-0200 Crotemiton Cre~i, 10%, 60 Gm PAGENO="0282" 7598 COMPETITIVE PROBLEMS IN THE DRTJG INDUSTRY P811 & N~4XNCL&TURE 655~~u6~51i.95 Bisbydroxycoumarin Tablets, USP, 50 mg (3/li. gr) 100. 65o5~u.6-.5~i.98 Diethylcarbamazine Citrate Tablets, USP, 50mg (3/li. gr) 100. 65o5-u6-8350 Dipherihydremine Hydrochloride Capsules, USP, 50 mg (3/li. gr) 100. 65o5~u6~966o Dimenhydrinate Tablet., IJSP, 50 mg (3/li. gr) lOOs 65o5~~u6-967o Dienby3r1na~ e Tablets, TJSP, 50 mg 1000. 65o5.~126-.91i.25 Merceptoinerin Sodium, USP, Sterile i/li. gr 65o5-l28-5675 Thimerosol, NP, 1/li. oz 65o5~~l29.~55i7 Merphine Injection, USP, i6 mg (i/li. gr) tube v/Needle 65o5~~129~55l8 Morphine Injection, lISP, 16 ing (1/li. gr), 5. 65o5~~l3o~~l96o Nitrofura~one Ointment, NP, Water Soluble, 1:500, 1 lb (1i.53: 6 gm) 65o5~l38-li.6io Protein Hydro].yaate Injection, USP, 1000cc, 6. 6505~ili.o~5olo Silver Nitrate Solution, Amnioniacal, 2cc 65o5~ili.6~Ji425 Sulfisomasole Tablets 65o5~l~7~o~o Tar Compound, Ointment, Modified 1# Jar 65o5~11i.7~l86o Tetracaine Hydro Tabs, 100 tug, 1.5 gr, 100/Btl 65o5~l53~~8223 Ethyl Chloride, NP, 100 Gm PAGENO="0283" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7599 FSN & NENCLATIJBE 65o5.~153..8728 Methiodal Sodium Inj,, TJS~, 40% 6505-153..8774 Hexyiresorcino]. Pill., USP, 0.2 Gm (3 gr) 5s 6505..l53~9719 Ergonovine Maleate Tablets, 0.2 mg lOOs 65o5~l6o..7Qo0 Plague Vaccine, 20 cc, Potency 18 months 6505-.16o-.7875 RabIes Vaccine, USP, i4 Doses, Potency 6 months 65o5..16o-.8200 Searlet Fever, Streptococcus Toxin 50 Tests 65o5~16o~95l0 Sponge Absorbable Gelatin, USP 65o5.~l6o-95oo Sponge Absorbable Gelatin, USP, 20 x 60 x 70mm, 4's 65o5..16o-951o Sponge Absorbable, Gelatin, USP, 80 x 125 x l0~i 6~o5~i6i-o6oo Ozytetracycline Hydrochloride for Injection 65o5~.16l~.2950 T~rcmbin, Topical, Bovine, 5000 Units 65o5.~162..l520 Yellow Fever Vaccine, USP, 20 doses 6505~l95~8674 Sodium Po].yanethol Sulfonate, Reagent, 10 Gm 65o5.~a)o-.6984 Oatmeal, Colloidal Concentrate, 18 oz. 65o5.-201-l261 Diphenbydremine Hydrochloride, USP, 1/2 oz 65o5..225~~7499 Prednisolone Teritary Butylacetate Suap., 20 mg, 1 cc 65o5-.225-.9220 Methylglucamine Diatrizoate - Sod Diartrizeate Inj. PAGENO="0284" 7600 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY PSN & NOMENCLATURE 65o5~226~l2o2 Sodium Oxacillin Capsules, 48s (u.S Months Potency) 65o~226~12o3 Test Strips and Color Chai~t 65O5~~261-72i4.O Lidocaine Hydrochloride with Epinephrine mi. Cartridges, 2%, 1.8cc, 50s 650~261..721L5 Ben~ethonium Chloride Tablets, 0.25 Gm (4 gr) 80s 65o5~26l-.725l Propyihexedrine Inhalant, NP, 0.25 Gm 65o5.-28l.~2o56 0~.To1id.ine Dihydrochioride Tabs, 0.6 nig, 150/BTL 65o5.~285~~a38 Acetyl Sulfisoxazole Oral Susp. 65o5~~286-9867 Merafluride Injection, USP, 1 cc, 12's 65o5-.286..9868 Mucolytic Detergent Solution, 500 cc 65o5..2~..6o3l Bilirubin Test Kit 65o5.~298..287o Corticotropin Inj,, Repository, USP, 40 Units/cc, 5 cc 65o5~~299..8o13 Insulin Isophane Suspension 65o5.~299-8o14 Ch].oroquine Hydrochloride mi., 5 cc, lOs 6505~.299.~8l26 Hyaluronidase for Injection 65o5~~299-8l49 Priniaquine Phosphate Tablets 65o5..299.-8172 LactIc Acid, TJSP 65o~~.299~8274 0~rtetracyciine for Susp., Oral 1.5 Gm PAGENO="0285" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7601 FSN & NOMENCLATURE 6505-299_8280 lopanoic Acid Tablets, 0.5 Gm, 6s 65o5~.299-8285 Rabies Vaccine, Veterinary 65o5-299-8351~ Histoplasmin, 0.0]. cc. 6505-299-8600 Coccidioidin, 1 cé, 10 Tests 6505-299-8608 Oxytetracyc].ine~Ophtha]jnjc Ointment 655-299-86ji~ Procainamide Hydróch].oride Lii. 6505-299-8671 Selenium Sulfide Detergent Suap. 6505-299-8739 Chlortetracyc].ine Hydrochloride Ophthalmic, Ointment, 1%, 1/8 oz. (3.5 Gm) 6505-299-87~i.7 Chlortetracyc]i.ne Hydrochloride Ointment, 3%, 1/2 oz. 65o5-299-9l~.96 Levarterenol Bitartrate Injection, 0.2%, l~cc, lOs 6505-299-9516 Methimazole Tablets, USP, 5 mg, (]./]2 gr), lOOs 65o5-299~9663 Procaine Hydrochloride Injection, lISP, 1%, 0.5 cc, 50s 6505-299-9666 Cyclopentolate Hydrochloride Ophthalmic Solution, 1%, 15cc 6505-299-9667 Protamine Sulfate Injection, NF, 10 mg, per cc, 5 cc, 6's 6505-299-9669 Phentolamine NethanesU.lfonate for Injection, USP, 5 mg, (1/12 gr), 6s 6505-299-9672 Silver Nitrate Applicators, 6 inch, lOOs PAGENO="0286" 7602 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY FSN& N~4ENCLATURE 65o5~.299-9675 Insulin Injection, Isophane, u.40, 10 cc, Potency 18 Months 6~o5-5l5-l577 Propanthe.iine Bromide Tablets, USP, 15 mg, lOOs 65o5_S26_039t~ Dextroamphetamine Sulfate & Amobarbital Capsules 6505-527-2056 Chrproinaz~ne Hydrochloride Tablets, USP, 100 mg (1-1/2 gr) 5000 6505-527-6885 Probenecid Tablets, USP, 0.5 Gm (7-1/2 gr) lOOs 655~5b3~65~l Erythromycin Ethylcarbonate for Oral Susp. 65o5-5'~3-79l~ Chlorothlaz:de Tablets, NF, 0.5 Gm, l000s 65o5~55l~8632 Promazine Hydrochloride Tablets, 50 mg, (~/6 gr), 500s 65O~55i~8683 Prcmazine Hydrochloride mi. 50 mg, (5/6 gr) per cc, 2 cc, 25s 65o5~576~.88L2 LidccainE~ Hydr3chloride with Epinephrine Injection, Cartridges, 2%, 1.8 cc, 505 65~579-9293 Hemoglobin Dil~ent, Dehydrated, l2s 65c5-579.-929~~ Pen1~il1inaEe for Injection, 800,000 units 65o~579~-9715 Hydroxy~ine Hydrochloride Tablets, 10 mg, 500s 655-579~9717 Hydroxyzine Hydrochloride Tablets, NF, 25 mg, 500s 65o5~582~2oa Methylerg~n~vifle Maleate Injection, 0.2 mg (1/300 gr) 1 cc, 12s 655-582-~)9 Sodium D1atr~zoate Injection, USP, 50%, 30 cc, 25s PAGENO="0287" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7603 FSN &~ 6505~582-1.590 ChJ~rpromazine Hydrochloride Tablets, 25 mg, 500s 6~c5~582_!~6o)+ Ee~rlcainc Hydrochloride Injection, 1%, 3J cc 6~o5-582_)~863 Diphenhydrarnjne Hydrochloride Capsules, USP, 50 mg, l000s 6~o5-582-5~2 Chiorhydroxyquinolene Ointment, 1 lb jar 6505-582-5370 Procainamide Hydrochloride Capsules, 0.25 gin, lOOs 65O5-582_5I~iL Fluore~cein Sodium Applicators, 50s 65o5_58l~.o398 Propanthellne Bromide Tablets, liSP, 15 Ing, l000s 655~58l1._28~ Sulfamethoxypyridazine Tablets, 0.5 Gm (7-1/2 gr), l000s 65o5-58~.-2895 Hydralazine Hydrochloride Tablets, lOOs 6505..5814.~313.l Lidocaine Hydrochloride Jelly, 2%, 3) cc 65o5-58~--3l79 Methylphenidote, Hydrochloride Tablets, 10 mg (1/6 gr), lOOs 6505-581i.-3277 Promethazine Hydrochloride Tablets, USP, 25 mg, (3/8 gr), l000s 65o5-58'~-328O Promethazine Hydrochloride Inj., USP, 25 xng (3/8 gr), per cc, 10 cc 61o5_581~_3669 Perphenazine Tablets, 1~ mg, 500s, (i/i6 gr) 65o5~597~58ia Streptokina~e, 125,000 Units 6505-597-58)43 Chlorpromazine Hydrochloride Inj. USP, 25 mg (3/8 gr) per cc, 2 cc, 6s PAGENO="0288" 7604 COMPETITIVE PROBLEMS IN TIlE DRUG INDUSTRY FSN & NOMCL~T~P~E 650 Li4::~in~ Eydr ~L~r~de Inj., NF, 0.5%, 50 cc O5~"~98'~6U6 L!~i~e ~y~5z~ohloride mi., USP, 1%, 50 cc 650~~98.-E,uT Lid~;lne Eyd.rcohloride, liSP, 2%, 20 cc 65o5-6o6..~o9 N'aco1~y-tic De~ergent Solution, 60 cc 6505~616~T656 3~thanechcl Chloride Tablets, USP, 10 trig, 100s 6~5-Gl6~7861 Acetone Test Tablets, lOOs 65o5~6l6-9'68 Gluteth~trLd~ Tablets, 0.5 Gm, (7-1/2 gr) 500s 65o5~6i6~9i28 Nystatin Tablets, Vaginal 6505~.6l6~~9l29 Nyatatin Tableta, liSP, Oral, 500,000 Units, lOOs 65o5.-6i6-95~7 Pre&ilsolo~ Sodium Phosphate Ophthalmic Solution, USP, 5 cc 6505..616~.9~a8 Prednisolone 21~Phoaphate Ophthalmic Ointment, 0.25 %, 3.5 grin (l/8 oz) 6505.~6l9~8388 CbIorprori~!±ne Hydrochloride Capsules, 75 mg, 2508 65o5-6l9~8620 Glyceryl Trinitrate Tablets, USP, o.6 mg (i/ioo gr), lOOs 6'5o5..636-o~~83 Erythromycin for Injection, USP, 1 gin, 5s 6505-656-1022 Eydro~rprogesterOne Caproate Injection, 1.25mg per cc, 10 cc 65o5.~656-l3k5 Prc~b1or~era~ine Maleate Capsules 15 ring (i/'~ gr), 250s PAGENO="0289" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7605 FSN ~ Nc~~MTUBE 6505-656-I Prcch1orpe~'azine Maleate Capsules 15 mg (1/14. gr), 1500s 65o5-656-1~7 Prochiorperazine Maleate Tablets, 5 mg (1/12 gr), 500s 6505-656-114.68 Senna Pod Ext~ract Tablets, lOOs 6505-656-1610 Prochiorperazine Ed.isy].ate Injection, 5 mg per cc, 2 cc, lOOs 6505-660-0083 Norethendrólone Tablets, 10 zng (1/6 gr), 500s 65o5-66o-0l32 Chlorainpbenicol for Ophthalmic Solution, USP 65c5-66o-o~.66 Dienestrol Cream Vaginal, 0.1%, 2~3/1i. oz (78 gm) 6505-660-1601 Methocarbaznol Tablets, 0.5 ~n (7-1/2 gr), 500s 6505-660-1676 Y~fl~'cin Sulfate Injection, 3 cc 6505-660-1720 Propoxyphene Hydrochloride Capsules, USP, 32 mg (1/2 gr), lOOs 6505~660~l714.3 Chlorzoxazone Tablets, 250 mg, l000s 6505-660-1765 ~ Iron Dextran Complex Injection, 10 cc 6505-660-1798 Benzonatate Capsules, 100 mg (1-1/2 gr), lOOs 6505-663-2636 Sodium Ch1b~ ide-Sodium Bicarbonate Mixture 6505-663-2701 Chloramphen5col Paimitate, Oral Suspension, USP, 60 cc ~ Acetazolamidc Tablets, 250 mg (14. gr), lOOs 40-471 0 - 71 - pt. 18 -- 19 PAGENO="0290" 7606 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ?~3!\~ & NOMENCLATURE 666)+~8i~~ Und~y1eriic Acid Ointment, Compound, NF, 1 oz -6~".- L9C8 Pr~nidone Tablets, USP, 0.25 ~ (I~ gr), lOOs 6~c~-6&~-2326 Peitaer~thrito1 Tetranitrate Tablets, 80 mg, 500a 65o~-68o~2787 Antivenir Kit, Polyvalent, 1 Dose 3~682-~ ~6 Procaine Penicillin G Suspension, USP, 600,000 Units in Apieous Suspension, Caid~e~NeedJ~ Unit, 1 cc, ~s 6~o ~-682~6~38 Ben~athine Penicillin G and Procaine Penicillin G Suspension, Sterile, 600,000 ~ 2 cc, Cartride-Needle Unit, l-l/~ inch, 20~ 656&2-8l9~ Tri~ncincicne Acetonide Cream, Topical 65o5-68~-8625 Va~opressin Injection, USP, 1 cc, lOs 65o5~~685-519O Oxy-tetracycline-Po]-ymixifl B Powder (Ear-drops) c68~5-~3j5 N~rethylnodre1 with Mestraziol Tablets, 10 ni~, 500s 65o5~685~55l2 Benadryl Ampuoles, 50 mg per 1 cc, lOs 65o5-686~.1029 Estrogen~c Substances 6505-687-3662 Nitroglycerin Tablets, USP, 0.3 mg (1/200 gr), lOOs 6505-687-~17 Atropine Injection 2 mg, 1 cc, 720 65o5-687-7S01 AspIrin ~ Ethoheptazine Tablets, l000s PAGENO="0291" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7607 FSN & N~RENCLATUBE 6505_687-8011.7 Benzathine PenicIllin G Suspension, Sterile, USP, 1,200,000 units in Aqueous Suspension, Cartridge-Needle Unit, 2 cc, 20s 6505-687-8075 Furazolidone & Nifuroxime Suppository, NF, Vaginal, 21~ø 6505-687-8205 Cetylpyridinium Chloride Lozenges, 1.5 zng, ~0OB 65o5.~687~8Z~58 Bensathine Penicillin G Suspension, Sterile, USP, 6oo,ooo Units in Aqueous Suspension, Cartridge-Needle Unit, 1 cc, 20s 65o5~687_81~59 Procaine Penicillin G and Potaesiuni Penicillin 0 in Oil 65o5-687-81~7o Pancreatic Dornase, 100,000 Units 6~o~-68~-8~86 Diphenyihydantoin Tablets, V lOOs 6505~689~9211.5 Thiordazine Hydrochloride Tablets 6505-689-9253 Noretb~no&re1 wMestranol Tablets, lOOs 6505-720-9680 Succinylcholine Chloride, 1 ~ 6505-721-8899 Rydroxyzine Hydrochloride Syrup V 6505-723-5015 V Hemorrhoida]. Suppositories w/Hydrocortieone Acetate, 12s V 6505-725-6992 V V V Darvon Pulvules, 500 V V V VV V V: V V V V 6505_728_26211. V V V V V Flurandrenolone Cream V : V V V V 6505-735-3559 Chlopronszine Hydrochloride Tablets, 1008 V V V PAGENO="0292" 7608 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY F$N & NOMEI~CLATTJRE 65o~.753-L~7o2 Phen~Lt~Le S ilate Tablets, ].OOs 65c5~7~3~956 Stre~tor~y: ~n Sui!ate Injection, USP, 20 gage, i-i/~# inch, Sterile H~T'~derI~i'~ Ne°diea attached to Cartridges, v/one Plastic Cartridge Syr~.nge~ 2,5 c~, 3Ds 6~o5-753-5o1~3 Chl~roquine and Primaquine Phosphate 6'5o ..753..051 8 Inli~ Zinc Su~pension 65o5~~~'~ JCL~ Sodium A~e~ri~z~ate 7, Polyvinyl Pyrrolidone 65o5~753-.9ff° Hdrocortt~xie Sodium Succinate for Injection, 100 mg 65o5.~753-Q6l1 He~a~hI.cr~phene Salicylic Acid and Sulfur Ointment 65o5~75j~Q612 Trlprold.Ltie Hydrochloride & Pseudo Ephedrine Hydrochloride Syrup 6co~..753-~96~ Triprcl1din~ Hydrochloride & Pseudo Ephedrine Hydrochloride Tablets 65o5~~~ `-98&' AUant~n Siiifa~11smide and Aminoacridine Hydrochloride Ointment 65o5~.7~~oo76 Mepivar nine Hydrochloride Injection 65o5..75~~CO&) Mepivacaine By1rochloride Injection 65n5~7~L ~ Mepivioair'~ Hydrcchloride Injection 65o5~751~Oo86 D~.cyciomine Hydrochloride, Doxylamine Succinate & Pyridoxine Hydrochloride 6~o75a.-o2&~) Chlorapr~ic~i Sodium Succinate for Injection, USP, Equiv. to 1 gm Chloramphenic;~, USP, lOS PAGENO="0293" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7609 FSN & Nc~CLArJRE 65o5~7~-.o395 Methocarbarnol Injection 65o5-751~..21~37 Triethanol Po1y~epticle Oleate Condensate E~r Drops 65o5~7~..21~86 Dextroamphetamine Sulfate and Amobarbital Capsules, 250s 65o5-7~-25o7 Dextroamphetainitie Sulfate and Ainobarbita3. Capsules, 250s 6505~7514-2580 Insulin, Zinc Suspension 65o5~75~..2651~ Tetrahydrozoline Hydrochloride Solution, 0.1%, 1 Pt 65o5_751~_2655 Tetrahydrozoline Hydrochloride Solution 655..7~-2656 Tetrahydrozoline Hydrochloride Solution 6505_75l~..2721~ Aspirin Amphetamine Sulfate & Phenacetin Tablets, 500s 65o5.75~~-.2727 Rabies Vaccine, USP, Duck I~nbryo, 7 Doses 65o5~~75i~..2797 Salicylazosulfapyridiné Tablets, 0.5 gin, 500a 65o5-751~-28o'~ Urease Test Tablets 65o5..76~~-33l3 Clilorsoxazone & Acetominophen Tablets, 500s 6505..7611-35!~2 Penthizane 65o5-76Z~-9ol'~ Dipyridnmole Tablets 6505-765-0582 Cantanol Tablets, 0.5 gin, 500s PAGENO="0294" 7610 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY FSN & NOMENCLATURE 65o5-765..o82)~ Hydroxyzine Pamoate Capsules 65o5~77o.83L~5 Nalidixic Acid. Tablets 65o5-773-651~5 Mandelaznine Suspension Forte, 8 Fl oz 6505-781-3111 Isosarbide Dinitrate Tablets, Ii.O `lug, 100's 65o5.~782-265o Poliovirus Vaccine, Live, Oral Types 1, 2 & 3, 10 Dose 65o5-782.~265l Pollovirus Vaccine, Live, Oral, Types 1, 2 & 3, "100 Dose 6505-782-2688 Acetyleysteine Solution, 20%, 30 cc, 3a~ 65o5..782-39o1 Sodiun Sulfacetamide & Prednisolone Acetate `Ophthalmic Suspension, 5 cc 65o5-782-6~~27 Undecylenic Acid Ointment Compound, NP, 1 cc, l6Os 65o5-782-6i~83 Triazncinalone Acetonidé Solution, .0066%, 150 gui, In Aerosal Dispenser (Kenalog spray) 65o5.~782.~6~#85 Demethylchlortetracycline Hydrochloride Tablets 6505-782-6506 Cedilanid-'D Axnpuls, 0.2 mg per cc, 1~ cc, 12s 65o5..782-676l ` ` Tripolidone Hydroch1or~de Pseudoephedrine Hydrochloride Syrup 6505-782-6762 Zarontin Capsules, 0.25 gui, lOOs 65o5-783..7a1.8 Valiom Tablets, 5 mg, 500s 65o5.78Z~_1~976 Propoxyphene Hydrochloride, Aspirin, Caffeine & Phenacetin Capsules, 500s PAGENO="0295" COMPETITIVE PROBLEMS IN TIlE DRUG: INDUSTRY 7611 FSN & NOMENCIATtJRE 65o5-781~-4977 Sodium Iothala~ate Injection 65o5.q85J~357 Lidocaine Ointment, 5%, 35 gm 6505-786-87k7 Oxyphenbutazone Tablets, 100 xngm, l000s 6505-817-0360 Trimeprozine Tablets, 2.5 mgin (1/25 gr), 500s 6505-817-2215 Trifluoperazine Hydrochloride Tablets, I mgrn (i/6o gr), 50Cc 6505-817-2227 Oxytetracycline Oral Suspension, 1 Pint each c~ 6505-817-2228 Phenylbutazone Tablets, 100 mgni (1.-l/2 gr), lOOs 6505-817-2279 Chiorproparulde Tablets, 250s 65o5-817-263 Quinacrine Hydrochloride Tablets, USP, 0.]. Gm. (1-1/2 gr), 50Cc 6505-823-7903 Testosterone Enanthate & Estradlol Valerate Inj, 2 cc 65o5-823-792J~ Nitrofurazone Vaginal Suppositories, 12s 6505-823-7956 Dexametha6one 21-Phosphate Neomycin 0.5% Ophthalmic Ointment 3.5 Gm, 6s 6505-823-7957 Dexaznethasone `Phosphate-Neomycin Ophthalmic Solution, 5 cc 6505-823-7985 DiphenylhydA~toin Sodium, USP, 0.25 Gm 65o5-823-8oIi~1 Atropine Injection, 2 mg (1/32 gr) 65o5~~853-1i.792 Epinephrine Injection, USP, (1/1000) Cartridge-Needle, :umit, I cc, ~)s PAGENO="0296" 7612 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY FE1~ & NOMENCLATURE 6505 a53-~799 Imiprami~ ~y±~ ~hlor~.de Tablets, 25 m~ (3/8 gr) lOOs 650 ~ ~E9l5 Lc~e.U~rphan Tar+rate Injection, USP, I mg/cc I cc, 6s h5O5-~653-6916 Phenmetra~ine H~i Tablets, N.F., 25mg, l000s 6%5~853:~.~ Tr!fiouror~ine E7drochloride Tablets, 2 ingrn (1/30 gr) 500s 65e5~553~1LL Arrtigen, VDRL, 0.5cc, lOs 65c5.~85)~-2239 Cb~qu~ne & Primaquine Phosphate Tablets, 6s 65o5~4~5L~22L~2 Guanethi&tne Suifate Tablets, 10 mgm (1/6 gr) lOOs 6505~85k-2~99 Phytonadi~ne mi. 10 mg. 1 cc 6s 6505_85i~2s0i~ Halothane 125 65o5.~57~238 Cernphcra~d ~rach1crophenol, NP, 1 oz, (28.35 Gm) ~ Hyd~xypr"ges~erone, Caproate liii. 0.25 Gm per cc, 5 cc 65o5~864~76~e Morphii~. ~ USP, 15 mgrri Cartridge Needle Unit, 1 cc, 20s 655.~86!~ `Sb Morphi~ 1nj~ USP, 10 mgm, Cartridge Needle Unit, 1 cc, 20s 65o586~~8c9i Codeine Ph~sphate Injection, USP, 60 mgm Cartridge Needle Unit, 1 cc, 20s 655~~861~o9.2 Codeine Phosphate Inj. USP, 3) rn~n Cartridge Needle Unit, 1 cc, 20s 655~861~.8o9~ Meperidine Uvdrochloride Inj. USP, 50 mg Cartridge Needle Unit, 1 cc PAGENO="0297" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7613 PSN & N0~IENCiATU~E 65c~5-864..~095 Meperidine Hydrochlorije Inj. USP ]DO m~n Cartridge Needle Unit, 20 s 65O5~861~..3O96 Neperidine Uy~irDchlorJ.de Inj. USP, 50 ~gm, Cartridge Needle Unit, 1 cc, 20s 65o5-.889-57~ Nystat.in Cintinent, USP, 3) Gin. 6505-~389~~33 Bisacody]. Sizpositorjes, 10 mg, 50a 65o5~889..90~ Bisacodyl T&olet~, 5 mgxn, l000s 65o5.~89o.-lo~ Pho~phatab2 (Jakallne) l~8s Test Kit 65o5..89o..j.c~ ~#3 Pyrvinitnn Pa~noate Oral Susp 2 fl. oz. 65O5~69D..].llo Diphenylhyd.intojn Oral Suspension, I~F, 1/2 pt. (237 cc) 65o5..3~-1ll2 Brompheniranine Maleate Tablets, 12 ingru 65o5-.890-1186 Methy1pre~xii~olone Acetate Su.sp., 11.0 Ing, per cc, 5 cc 6505..8D-1208 Proehiorperazine and Isopropaznide Capsules, 25Os 65o5_~9o.~i2t1.7 Danthron & Calcium Bis, (Dioctyl Sulfosuccinate Capsules, l000s) 65o5~89o~1~l Isoxuprine Eydrochloride Tablets 65o5-89o~1333 Sodium Su1±~acetamjne & Prednisolone Acetate Ophthalmiô Suspension) 5 cc 6505-89O-.l3~ Medroxyprogesterone Acetate Tablets, 10 mgni, lOOs 65O5.~89O-1373 Methylpolysilcxane Tab1et~, 11.0 iii~rn, 500s 65o5-890..l38l Pyrviniwn Paiioate Tablets, USP, 50 xng, 25s PAGENO="0298" 7614 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY FSN & NC~4ENCLkTL~BE 65o5~89~-i383 Methsh~terntte & Phenobarbital Tablets, 500s, T]rpe II 65o5.~89o.~i388 Ervt;hro~ycin E~tolate Capsules, 250 mg, lOOs 65o5~89o~1'~ Chl~r~nir~znine Maleate 250s (Ornade) 65o5.~89o~i)4.28 Bio~Sorb-Cree~n 65o5-89o~114t9 Methy~a~L~enine Diatrizoate (Hypaque) 65o5.~89~-l'~85 Methyiphenidate Hydrochloride ~or Injection, 10 mg 65c5-89o-.1~-86 Fungi~ne Lotion, 3%, 30 cc (21k months potency) 65o5_890~1i~96 Prednisolone Sodium Phosphate liii. 65o5~89o-153~~ Thberculin Tine Test 65o5-.89o~1537 Thioridazine He]. Tabs 65o5~89o-1538 Thiorida~ine Ed Tabs, l000s 65o5-89o~1550 Trifluoperaziue Ho].. Tabs (Stelazine) 65o5.~890.l551 Phenistix Reagent Strips (phenistix) 6~o5.~89o-155~~ Fluorandrenoloile Cream, 0.05%, 15 Gin tube 65o5-890~1558 Sodium Phosphate Sodium Citrate Solution PAGENO="0299" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7615 FSN & N~4ENC1ATUBE 65o5~89o-1561 Methiciflj.n Sodium for Injection Eui~fered, 1 Gm 6505-890-1568 Po1~iri~rxin B. Bacitracin 65o5.890-l582 Colistimetliati Sodium for Injection 65o5-89..1573 Estrogenic Substances, Conjugated, Cream, VagInal, 0.625%, 1 ~ oz. 6505-890-1599 Benzathine Penicillin G, Procaine Penicillin G & Potassium Penicillin G i'or Injection 6505..890-1562 Oaphenadrine CItrate Tablets, 100 mg, 6505-890-1627 Dioctyl Calcium Sulfocciriate Capsules 1000's 6505-890-1633 Aluminum Acetate Solution Tablets, Effervescent, lOOs 65o5~89o_163Z~ Hexachlorophene Salacylic d u~&d Sulphur Cake, 3-3/1~ oz. 6505-890-1657 Kaolin and Pectin Mizture 6505-890-1763 Decloinycin Syrup 65o5-89o-rT75 Metbysergide Maleate Tabieti~ 6505-890-1788 Thiopental Anestbesi~ Kit. 6505-890-1819 Trinethobenzamide B~1 and Ben~.ocaine Suppositories, ~P 65o5-89o-18~~.o Metronida~o1e Tabs, 0.25 Gm, 250's 6505-890-1856 M~tbyldopa Tablets, 0.25 Gm, 100's PAGENO="0300" 7616 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY F~N & NOMENCLATURE 65oei88~ Oyproh~pt;~dLii~e Uci, TabB 65..8~i~i891 Brornphenira~nirc Maleate Tabs 65o~89o~1892 Br~pheriiranth~e Maleate, Phenylephrine Hcl; 655~890-1898 Megiumine lothalamite In~. 6505-89-1901 Test Stri.p~ & ~o1or Chart, Urinary Blood, Glucose, Protein & ~E, 100's 65o5.~89O~1902 Cycl~pentit1~ U~ydro 6505~890-1911 Cyclopentemlfle-EydrOV 65o5.~890-1913 Dii ydrostreptOmycifl-.POlYtVXin v/Activated Attapulgite Aluminum Hydroxide & Pectin 65o5~89O.~2)O6 Anaaa~c Tahl~ta, ~Oá (211. Months Potency) 65o5..89O-~2DiO Brometha~iX1e ~ydro Chior, 1 Gal. 655.~89o~2oi2 Ch1orpr~ent ~ramit~e Maleate 655..89O~2Oi3 Mycostatin Cream 65o5.~89O~2O15 * Belladonna Alke.loidS, Ergotazuine Tartrate & Phenobarbital Tablets, lOOs 65O5-890'2O2~f Propox~phine Hydrochloride, Aspirin and Phen. Capsules 655~~890~2027 Mineral Oil, Lanolated, Water Diepersible, 8 rl. oz. * ** = PAGENO="0301" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7617 FSN & N~!4RNCLATUBE 6505-8904081 Declosilcin Tablets 6505-890-2193 Povid.one-Iodine Oint., 10%, Icc, 1a. `a (In Plastic Tubes) 65o5-89o-2a17 Sulfanilamide, Allantoin and Aminacrine B~ydrocbloride Cream, Vaginal ~ oz. (fl3.l~ Gin) 6505-891-999Zi. Dextroamplietazn.lne Sulfate and Prochiorperazine Maleate Capsules 65o5~9oo_2I1~6~ :, ., Sodium Cephalothin for Injection, 1 Gm 6505-903-8173 Smallpox Vaccine, 100 doses 6505-901i.-0119 Barium Sulfate, Diagnostic 65o5~9o5_9o14i Flu.ocinolone Acetonid.e Cream, 0.025%, Z~25 Gm: In water-washable base 6505-913-5873 Oxytetracycline.-Polyuiyxin B Ophth. Ointment, 1/8 o~. (3.5 Gm) 50's 6505-913-7905 Chloroquine & Primaquine Phos. Tabs, 150's 6505-9j3-79o7 Propoxyphene Hcl, Aspirin & Phenacetin `Cape, 100 `8 6505-913-8557 Measles, Virus Vaccine 65o5_9ll~_o2l~6 Meplvacaine Hcl Ixij, (Carbocaine Hcl) 6505~9114_o252 Dibydroetreptoinyciti-Poly~rXifl Tabs (Po1ymagrr~ Tabs) 65o5-9114.-rt'~2 ` ` Carbocaine' Hcl Inj ` ` PAGENO="0302" 7618 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY -FSN t. N~ENCL&TURE 655911~3593 I Pcvidone-IociLne Sol, NF, io%, *oz. (15 cc) 50a 65o5..926-2)62 MegluTnine Diatrizoate Inj (Rerio-Grafin-60) 6~o5-926-2l02 Nitrofurazone & Diperod~n Rd. Suppositories 12. (FuriiOiu Urstbrsl laserts) 65o5-926-2u1 Meclizine Rydro Tablets, USP, 25 mg, 100. 65o5..66I1~~5582 MedUzJ.ne Fy&ro Tablets, USP, 25 ag, 100$ 6505-926-2112 Meclizine Ed. Tabs. 6. (Boztino CheWable Tabs) 6505-926-2i51i~ Lud.anethacin Capsules 100. 65o5..926-2159 Nec*nycin Sulfate, Po1y~xin B Sulfate & Graaicidi.n Cream Topical, 15 Gm 6505..926-216o Test Kit, Sy~iillis Detection 65o5_985_7221~ Test Kit, SyphiUis 100-tests 6505-926-2166 Test Kit, Pregnancy Detemnination, 2) tests 6505-926-22)6 Test Strips & Color chart, Urinary blood 6505-926-2239 Plwni~e - modified 65ô5-926-221~1 To].naftate Solution 65o5-926-22~~6 Thytropar, Injection 65o5-926-221~7 Procaine Penicillin PAGENO="0303" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7619. FSN & NOMENCLATTJRE 65o5-.926-~.763 Zinc. Bacitracin, Neomycin Sulfate (Neo..Polycin Ointment) 65o~.926J~76I~ Smallpox Vaccine freeze dried. 6505.-926..4765 Pyrl!nethalnine Tablets (I~.raprlm) 65o5..926J~q68 Linconiycin Hydrochloride Thj. (Lincocin) 65o59264769 . Lincomytin Hydrochloride Monohydrate Capsules (Lincocin) 65o5-926J~773 Nortriptyline Hydrochloride Capsules, Equiv to 25 ing of Nortriptyline Base, lOOs 65O5_926~8!47 Mannitol Injection (Osmitrol) 65o5_926~1~8e~ Aluminum Aspirin Tablets Chewable 25's 65O5.~926Ji.885 Echothiophate iodide for Ophthalmic Solution 65O5-926-88~J4. Dioctyl Su.lfosuccinate Capsules (Surfak) 65o5-926..8926 Chlórpheniramine Maleate, Chiorform,. Codeine Thos, Glyceryl, Gualacolate, Methol & Phenylephrine Hydro Syrup 65o~-926-8929 . .~ . 0 Chloral-Betaine Tablets (Beta-Chlor Tablets) 65o5~926~8~85 Dextromethorphan-Hydrobronide (Robitussin..U4) . . . 6505-952-0267 Methyiprednisolone Acetate 6505-957-9531 Reserpine mi 6505-965-8583 Prochlorperazine Suppositories (Ccxrpszine Suppositories) PAGENO="0304" 7620 COMPETITIVE PROBLEMS IN THE DRUG: INDUSTRY FSN& N~CLATURE 6~5o5-967-8736 Froc1a1.orp'~ra~ine Suppositories, (Compazine Supposito~'ies) 65o5-~969-8617 Sodium Lactate liii 65o5_982-1~ 228 Warfarin Sodium Tabs 65o~982~l~229 Warfarin Scdium Tabs 65o5~.982_5l~92 Cetylpyridinium Chloride Sol. Alcoholic 0.025%, 5 oz. 65o5-982-5557. Erythromycin Estolate for Oral Suspension 65o5-982-959~i Chlorpheniremine Maleate & Phenyl~hizine Hydro Tablets 6505-985-7079 Chlordant;aed. & Beny.alkon Chloride Vaginal Cream 6505-985-7uo Fluocinolone Acetonide Cream, 0.025%, 15 Gm E5o5_c~65..21~76 Theip~ Ulne Ephedrine Tabs 65o~967-8735 Propcxy~threne Hcl, Aspirin, Caffeine Tabs (I~rv~on) 6505-958-1719 Calci~.trn Chloride Injecti~ 65o5-958-236~ Propoxyphene Hel Caps, USP, 65 tug, 500's 650596155O~ Nystatin~I'~eomycifl Sulfate, Cream 6505-962-4375 AUybarb APC Tablets 65o5-96P-~~376 Tetrahydroa.~lifle Eel. Ophth Solution PAGENO="0305" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7621 FS~j_& NC~4ENCIATUBE 6505-963-5355 Denaznethasone Phosphate Inj (Decadron) 6505-965-2319 Tr1melhoben~a~n1de Ilydro Cap 65o5-965-21~35 Phenmetrazine Hy&ro Tablets, NP, 75 ~g, bOOs 404710 71 pt 18 20 PAGENO="0306" 7622 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY EXHIBIT 7 DRUG BIDDERS LIST. DPSC, DSA THIS LIST REPRESENTS THOSE ORGANIZATIONS WHICH ARE PRESENTLY. LISTED AS BTJ)DERS FOR DRUG PRODUCTS. THE LIST. DOES NOT PURPORT TO INDICATE THE CAPABILITY OF ThE~ BIDDER, NOR IS IT A LISTING OF SUPPLIERS OF DRUGS TO DPSC THE LISTING IS VALID AS OF JULY, 1970. DPSC HISTORICAL RECORDS DO NOT ALLOW RECONSTRUCTION OF THE BIDDERS LIST AS OF 27 JANUARY 1969, WHEN EXHIBIT 6 WAS DISTRIBUTED, BUT IS REPRESENTATIVE OF THAT LIST. PAGENO="0307" COMPETITIVE PROBLEMS IN THE DRTJG INDUSTRY 7623 ~ i7~i~ ~IL ii C Cf*M C!!U' J~(J 4 P~ET SV'ECT*tTV.CHFMS Dlv BROOKLYN NEW YORK 10015 P 0 BOX 70 MORRISTOWN N J 07960 _____ ATTN R!ASALES ____________ ABYC LIMITED CHFM~PHAR !~ ALTA PHARMACAL CORP p 0 BOX 2115 ~ ~ NORTH BALDWIN AVE ~ AUSTIN TFXAS 78767 *FL MONT F CAL! FORM IA 91731 ABBOTT LABORATORIES ..--~- AMRIJR DISTILLED PROD INC - - 14TM STREET SHEP lOAN ROAD 320') W AVER AVE NORTH CHICAGO ILLINOIS 60064 MTLWAtJKFE W!SC 53216 - ALBFPT ACAN X-RAY INC. AMEND ORUG-CHFMICAL CO. 1RROO HAWTHORNE 117-119 EAST 24 STREET OETPOTT 3 MICHIGAN 48203 NFW YORK N V 10010 A'O'~CHFMICA1 CO INC AMEPI~AN ASS0C*OF~LOOO BANKS 126 02 NORTHERN BLVD "~"AA RB NATL: CLEARINGHOUSE OFF FLUSHING N *Y. 11368 .270 MASONIC AVE SAN FRANC IStO CALIF 94118 SCHFNLEV AFFIL BRANDS CORR ~ AMERICAN CHEM ICAL DRUG CO 1290 AVE OF THE AMER ~ OF AMFR TRANSPACIFIC CORP NEW YORK N V 10019 P 0 BOX 3169 RINCON ANNEX SAN FRANCISCO CALIF 94119 AIR PRO!) C CHFMtCALS INC -~--~ AMERICAN CONTTNFNTAL LABS P 0 BOX 538 *~[~~ff~600 REACH BOULEVARD ALLENTOWN PA 181tY5 -.----4 RUFP'JI~ PARK CALIF 90620 AtCOM LAB INC - --~-- .~ AMERICAN CYANAMII ~ P0 BOX 1959 . - ~TT~T1~ AGRICULTURAL DIVISION FORT WORTH TEXAS 76101 ~. ~ ~ R~X 400 *.PRINCFTON NEW JERSEY 08540 AIFA I~OPC4NTCS INC *MFR~ CAN CYANAMTD CO - B CONGRESS ST FTN~ CHEM~CAL BFVEPLY MASS 01915 ~ ~EROAN AVFNIJF TTjAVNF N J07470 ALLEN PHARMACAL CO INC ~ MCr,AW LAB INC 175 PEARL ST ~~"D* O~ AMER HOSPS~PPLY*C0RP BROOKLYN N V~ 1.1?0 ~ ~ BOX K . . MTIIFDC,FV!LLF GA 31061 -~__TTF~1 M~J~AP1E~___ AILEPGAN PHARMACEUTICALS INC: AMERICAN HOSP SUPPLY CORP 1090 SfflJTH GRAND AVE 14') SHAW RO SANTA A!~A CAl ~ . .~4 SM! 1f'ANC 1511) CA) JF 9/,0'!O PAGENO="0308" 7624 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY SI P ~IflkP A N(~I(I~ 120 1~A~ ITAN CVNT!TR PKWY 2000 50(1111 D~LTL INE BLVD ~DISflN N J 08817 - - COLUMBIA SOUTH CAROLINA 29205 AMER ICAN LA8ORATORIES INC ANDFRSON-KFITH p f) 6 854 CLINTON AVE GAINES VTLLE.~EORGIA 3~5oL:_; NEWARK N J07198~_~_ AMERICAN LANOLIN CORP ANDERSON LABS INC - P 0 BOX 1957 13 RAILROAD S P 0 BOX iom FO~~ W0PTH.TEXAS._76~0I_~.._~:~....... LAURFNCF MASS 01842 AMERICAN NATIONAL RED c~o~s ANOOR LABS INC IRCO STREFTS NW T 6144 RUSH-L TWA RD WASHINGTON DC 20006 . ~ .N V 14543 GENERAL SUPPLY OFCR AMFPTI~AN PEROXIDE co ~ ANKERFARM SR A ~ VIA CASFLLA17 437 CARLTON AVENUE 20156 MILAN ITALY .. BROOKLYN N .~` 11238 AM~PTCAN PHAFM COMPANY APPLIED BIOLflGTCALSC!ENCE LAB 120 BRUCK'JER BLVD .~. 6320 SAN FFQNANDO ROAD NEW YORK N y 10454 GLENDAI.E CALIF 91201 AMERICAN QUININE CO . : ~ APBROOK 10, FAIRCHILD COURT _~_~--~~4: SOMEPSET COUNTY PLAINVTFWN V `L~.:.. SOMFPVTLLF NJ AMES Cl : ARCHER-TAYLOR DRUG CO DIV MILES LAB P 0 BOX 616 1127 MYRTLF sr - WI'HTTA KANSAS 67201 . - ELKHART INDIANA 46514 AMALF INC - ARLYN CHEMICAL INC 2425W DDPOTHY LANE p 0 ~OX 137 DAYTON OHIO 45439 . - CARISTAUT NEW JERS~Y0O72 .AMSCO LABORATORIES . e. .......,.:.. ARMOUR-DIAL INC 2424 WEST 23RD ST -. - p a BOX 4309 ERIE PA 16506 - ~ . CHICAGO ILLINOIS ~06B~0_~ AMAROLIC INC . . METQTX CLIN C D.TAGNOST!CS DIV 514 PTVFPDALF PQTVE APMOIIP PHAPMACFIJTTCAI. CO G~ 1~tDAI I (AI.I F 01 ?04 ~ i~ IAc~ ii -` . . . I II I 1~I'1 f~IIf~ $ . -. PAGENO="0309" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7625 A ~. i' ti A ~ I ~) I 2101 AVE ~ 1 .. 99~101 SAW MILL RIVER *flAO. P ~) BOX 159 BAY STA~__ YONKFRS N Y 10701 BROOKLYN N V 11235 `. `.~ . ASSOCIATED LABS _____ . BARIUM C CHFMTCALS INC OBA THE DALLAS LAB ~. Pfl POX 230 13)3 WALL STREET . `STATE ROUTE 7 NORTH - DALLAS 15 TEXAS 75215 N STFURFNV [LIE OHIO 43952 ASTRA PHARMACEUTICAL PROD INC BARNES-HIND PI-IAR INC NFPONSFT S~ . `~*~ 895 K lEER Rfl Wfl'~CHESTFR MASS 01606 SUNNYVALF CAL IF 94086 -- - .T ATTN MR KRULFV!TCH DIR OF Q C ATLAS CHEMICAL CMFG CO . RARPOWS CHEMICAL CD' INC P 1 BOX 2322 -~ 300 PROSPECT ST SAN DIEGO CALIF 92112 TMw000 L I N V 11696 AVON ~ROI) INC - . BARPV41 ABS INC . 30 ROCKFRFFLLER PLAZA . ~5SS 9100 KFPCHFVAL AVE NEW YORK NY 10020 S DETROIT M!CH-48214 AVFRST LABQR~&TORIES S - BARTON DISTILLING CO AMEPTCAN HOME PRr)DUCTS .. ``~ ~o) -S MTCHIGAM AV~ 685 3RD AVE .5' . CHICAGO ILLINOIS 60604 NEW YORK N Y 10017 BADGER LABORATORIES INC *- . BAXTER LABS JACKSON ` 6301 LINCOLN AVE WTSCONSTN 53037 . .. MORTON GRflVF ILLINOIS 60053 BAIRD C MCGU.TPF INC ` . - MC(AW LAB `SOUTH STREET ```" DIV OF AMER HOSO. SUP CORP HOLBROOK MASS 02343 __.. .. 1015 (~PAN0VTFW AVE S GLENDALE CALIF .91201 J T RAKER CHEMICAL CO -. -` BECTON DICK INSON-COMPANY 222 `RED SCHOOL LANE . R(JTHFRF()Rf~ NEW JERSEY 07070 PH!LIIPSRURG N J 08865 5 5 WARREN COUNTY S BALTTMORF BIOLOGICALLAB- ~ -- RFFCHAM PHARMACEUTICALS- ~ DIV BID QUFST - --- : DIV OF RFFCHAM INC DIV OF ~FCTON DICK INSONCCO INC . 6'~ IMOUSTRIAL SOUTH -- - -- P 0 BOX 175 - - - - `.7' CLIFTON N J 07012 CrICKFYcVTLLF MD 21030 - 5 BANNER (`,FLATIN PROD CIRP - ` RFL C ART PRODUCTS S 20710 OFABORN ST p 0 POX 157 I~IO(JSTPTAL RD - 1~t~TI~Fi!lI CAl Ii `)Ii~ I P10IlA~I!IIlC< II .1 PAGENO="0310" 7626 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY Ift. fl. `~1~ f_1~f I(~(~L I. l~~~tfj'y' 14-21 122ND STPFET . ~. TH~ DC)RD~N C11~PANV COLLEGE POTNI N v ioose 5000 LANGOON STREET PHILADELPHIA PA 19124 BENALEM CORP * . -~ BOWFN C COMPANY. INC 2333 1~2 COTMER AVE . LOS ANGELES CALIF90064 ~ IROO CHAPMAN AVENUE ROCKVILLE MARYLAND 20852 JOHN BENE C SONS INC. ~ BOWMAN BP.AUMPHARM INC 437-45 CARLTON AVE. 119 SCHRDVEQ AVE -S U BROOKLYN, N.Y. 11238 ~ CANTON OHT0 4fs702 H BERGE INC ______.... BOWMAN-BRAUNPHARMACFIJTTCALS 4111 SD CLINTON AVE . 119 SCHPOYER AVENUE S U SO PLATNFTFLO N J 07080 CANTON OHIO 44702 BFTHL~HFM APPARATUS CO IMC L. BOYLF~C CO . FRONT C DEPOT.- STREETS ,. ., 6330 CHALET DRIVE : HELLFRTOWN PENNSYLVANIA 1~O. . ~.H.. tOS ANGELES 90022 BIBEP PHARMA~AL Cfl..TNC .. BPEON LABORAYORTES 713 SOUTH-l4TH ST ~rn PARK AVE NFW~RK N J 07103 . H. N~W YORK N V 10016 BtO-CHEM PRODUCT-S. co . -: BRISTOL LAB 6108 SAN FFPNANDO ROAD RQISTOL MYFRS CO -~ - GLENDALE CALIF 9f201 . -~.,: P0 BOX 657 SYRACUSE N. V 13201 -. ATTN T OCONNELLY_______________ BIOCRAFT LABORATORIES INC -. RROEMMFL PHARM 1235 SUTTFP STQFET 92 ROUTE 46 . SAN FRANCISCO CALIFORNIA 94108 FAST PATERSON N J 07407 . RIO PROD RESEARCH LAB 1 : DR B ~ PET~UL IS 2130 S INDUSTRIAL PK DR ~~L; AMUPOL PRODUCTS CO TEMPE ARTZ 85281 :.~..H. ~ 0 BOX 300 - ---.---~ . NAPERVILLE ILL 60~4O .THFBLUF LINE CHEMICAL CO ~ H BRYANT LABORATORIES INC. 30? S PROADWAY . 880 JONES ST ST LOUTS MISSOURI 63102 . BE~KEL~Y CALIF 94710 ROt AR PHARMACEUTICAL CO INC BUFFALO DENIAL MEG CO 130 1 TMOU ST .. ?O1L-?3 ATI ANTIC AVE * (`rfpyAr-~lIr N V 11726 * ~~PUflVI ~` I N V It ~~)7 PAGENO="0311" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7627 -, -; I ~ (1! I_ /~I'.~ I criluvIk ILL i'vr . - 59 C~1MM~RCF ROAI) NORRISTOWN PA 19404 .~ CFDAR GROVE N J 07009 - - BURROUr,H RRO5 PHAP.M INC r~NT(JPY LABORATORIES INC 714 F PRATT ST -. 4916 VFTFRANS MFMORIAL HGW4 BALTIMORE MI) 21202 M~TATPTF LOUISIANA JEFFERSON PARISH 70004 BURROUGHS WFLLCOME-C0 INC CASF LAW1RATOR IFS INC SCARSDALE RD 1407 NORTH DAYTON ST TUCKAHOF N V 10707 _~ - CH!CMO ILL INOIS 60622 BURTON PARSONS CCf~ INC. - THE L I) CAULK CO - - - - DTV OF D~NTSP1Y INTER INC - 7351 86TH AVENUF P fl ~OX 159 WASHINGTON 0 C 20027 - - MTIFORI) DEIAWARF 19963 JOHN t~i BUTLER CO. -. ~F~TFg CHFM INC - - 51~() N LAKE SHORE DR - - 100 E 42ND ST CHICAGO ILL 60611 . - NEW YORK N V 10017 C C M PHAPMA~AL INC - TI4F CFNTRAL PHARMACAL CO - - 116-128 F THIPD ST 151~ F A NILE ~0 SEYMOUR INDIANA 47274 - - - HA7FL PARK MICH 48030 - - -. -. CALOTOCHEM - - -. . CF~!FTED LABS TNC - P 0 BOY 54282 - 400 VALLEY RI) LOS ANGFLFS CAt.II~90054 - WAQ~TNGTON PA 18976 CAMBPIDGF CHEMICAL PROD INC CHASF CHFMICAL CO 9182 GR~FNFTFLt~ ROAD - - ,.280 CHESTNUT ST DETROIT MICHIGAN 48228 .NFWAPK N J 07105 --- -.------.----~_____~L.___. -- ---. ---- -. CAMEPON MFG CO : CHATTEM DRUG ~ CHEMICAL CO FAST SECOND STREET -- 1715 W 38TH 51 P 0 BOX 391 CHATTANOOGA IENN 3740 FMPDR!UM PENNA 15834 - - -- CAN-TITE RUBBER CORP - -CHEMICAL COMPOUNDING CORP ~ 31-PFDFFRN.AVCNUE 532 JOHNSTON AVENUE TNW~OD I I N V 11696 - JF~SFY CITY N J 07304 CAPITOL SCIENTIFIC CO - CI-4ESFAPOUGH-PONOS INC - 2501 PAXTON STREET 485 FYTNGTON AVF 4~'flf~T `PIJ'~G ~A 1 1105 - ~JI 4 VIIPV N V 11)017 PAGENO="0312" 7628 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY ;ii( ~L S I NC I III. C UR$' 5547 N1)PTH RAVFNSWI)DO AVE 7 LII~ERTY SQ(JAPE CHTCAG~ ILL 60640 - LYNN MASS 01901 CHICAGO SANITARY PRODUCTS CO CONTINENTAL CHEMICAL CO INC 3100 SOUTH THROOP STRFET ~ 2000 S BELTLINE BLVD CHICAGO ILLINOIS 60608 COLUMBIA S C 29205 CT~A PHARMACEUTICAL Co CONTINENTAL CHEMICAL CORP 556 MORRIS AVE 1439 ASH STREET SW~MIT N J 07901 TERRE HAUTE TNI) 47808 CITY CHEMICAL CORPORA1~TON COOK WAITE LABS INC 132 WEST 22ND STREFT NEW YORK N V 10011 __. 90 PARK AVE NEW VORKNV 10016 CLTFF1~RD CHFMTCAL CORP COflPF~ CHEMICAL CO 852 CLINTON AVENUE Y . 70 PARKER P1) NEWARK NEW JERSFV 07108 LONG VALLEY t~iJ 07853 COLAR LAB INC :. COOPER LAB INC 3 SCIENCE P0 6 ROOSEVELT AVE GLENWOOI) ILL 60425 ________ P0 BOX 190 MYSTIC CI 06355 COLLEGE OF AMER PATHOLOGIST9~ .. "CORO LABORATORIES INC 230 NORTH MICHIGAN AVE H . - .19191 FILER AVE CFITCAGD ILLINOIS 60601 ~ . .OETR~1TT34 MICH 48234 COLUMBIA PHARMACEUT ICAL CORP H COURTLANOT LABORATORIES 530 ~AV ST . .5555. VALLEY BOULEVARD FREEPORT NY 11520 ~ ANGELES CALIFORNIA 90032 COMFORT MEG CO . . COWLEY PHARMACEUTICALS INC 1056 *W VAN RUREN ST 65 SOUTHB~IDGE ST CHICAGO 7 ILL60607 AUBURN MASS 01501 PN CONPIT . .. . AMERICAN CRYOGENICS INC MAYN STREET POBflX 91 * ~PBA COYNE CYLINDER CO MAYNARD MASS 01754 . 224 RYAN WAY SAM FRANCISCO CALIF 94080 CONSOLIDATED LABORATORIES INC. CPOWL CHEMICAL CO 3 GCIFNCF RO , nr~~ 1s74 GI FNWPI)1 II~ O'~7'~ cIIAMPKTN ~n ~ PAGENO="0313" COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY 7629 1 i.: it `~L Ci I N( .- WI ?jJ~t PtIAP ~ttt. ~31 COLUMOTA ST P 0 BOx 550 : RFNSSELEAP N V 12144 IANSDALE ~A 19446 CURTTN SCTFN CO J H DELAMAR-SON INC 22113 UNIVERSITY AVE S E *~T~~T~4507_11 NORTH KEDZTE AVENU~E~,. ~ MINNEAPOLIS MTNN 55414 c~c~r~o TLLTNOI.S60625_,.~_ CUSTOM PACKAGING INC DFLMAR SCIFNTTFIC LABS 136 TICHE'40R STREFT I 1~7 MADISON ST NEWARK 5 N J 07105 MAYW000 TIC 60153 -~~-~----~ CUTTER LABORATORIES DELTA BIOCHEMICAL INC 15 JUST ROA~) 360 KFNDALTA F~TPFtFLr) N J07OO6__~_~ SAN ANTONIO TFXAS 782l4 DADE ~HARMACEUTTCALS INC THE D~NVER CHEMICAL MFGCO 420 S W 11TU ST * WAMPOLE LABS HALIANDALE FLA 33009 _~_~ 35 CI1MMFPCE ROAD. STAMFORD CIThIN 06904 DADE REAr,ENl~S INC OF PUY MFG CO 1851 DELAWARE PARK P 0 POX 988 P 0 ROX 672 ~ WARSAW IND 46580 MIAMI FLA 33152 DAVIES ROSE HOYT OER.MIK LABORATORIES INC KFNfl~IL COMPANY 150 ETIFFN WAY 613 HIGHLAND AVE SV~TSSCT LI NY 11791 NFFDHAM MASS 02194 .~-- : DAVIS-EDWARDS PHARMACAL CORP DERRICK SOAP PRODUCTS 5845 NOPTHEPNBLVD * T~ 100-02 NORTH FTRST ST WO~DSTDE N V 11377 ., ST LOUTS MO 63102 DAVIS EMERGENCY EQUIPMENT.C~; PERRY PRODUCTS INC - 45 HALL ECK ST 87-113 WT~NER AVE MFWARK N J 07104 ~ _... MTODLETOWN NY 10940 - * DAVIES-YOUNG CD ** DEWFY PRODUCTS CO 705 ALBANY ST ~ ~ ~TI ~ 532 COTTAGE GROVE SE* * DAYTON OHIO 45401 GRAND PAPIDS `ITCH 49502 DAY-PALDWTN INC. ~ *.~. DIECO LABORATOR IFS 1660 CHESTNUT AVE ** ~ 9?O HENRY STREET III 13 101 H .1 0,~'~'j flITPI1IT M ICUICMt `sA?Ol PAGENO="0314" 7630 COMPETITIVE PROBLEMS IN THE DRUG INDUSTRY K A A 2000 SHAMES DRIVE n,,~