do about the discounting since a number of people had always told me that discounting is, you know, was verboten or forbidden in the drug industry and discounters were bad boys. And now, here was the National Wholesale Drug Association, which did not have a reputation for discounting, in effect, taking pharmaceutical lines and discounting them right out in the open. I asked the various manufacturers what they were going to do about that and the answer was they could not do anything about it.

Mr. POTVIN. Did these include any of the manufacturers who had cut you off for discounting to Biddle?

Mr. MANDELL. Yes. Warner-Chilcott.

Mr. POTVIN. So they seemingly took a different position depending on whether the discounter was or was not an NWDA member.

Mr. MANDELL. It seemed to be that way. The National Wholesale Drug Association member, full-line wholesaler, gets away with an awful lot that the small wholesaler does not quite seem to make come off.

Mr. POTVIN. You testified that in the middle portion of 1961 your orders for Warner-Chilcott merchandise from H. L. Moore were increasing. Did this not make you one of the larger Warner-Chilcott accounts in your part of the country?

Mr. MANDELL. For the first half of 1962, because of meeting this 15percent discount, by the way, meeting the price competition, actively promoting the Warner-Chilcott line among all our customers, includ ing large orders from H. L. Moore, which was ordering in great quantity of Warner-Chilcott, we for the first half of 1962 were the leading wholesaler in our entire Warner-Chilcott Division.

Mr. DINGELL. Did you have any comment with sales officials of Warner-Chilcott on this matter?

Mr. Woods. Mr. Chairman, we are presently in litigation with Warner-Chilcott.

Mr. DINGELL. For the record, sir, please give the record your full

name.

Mr. WOODS. W. Edward Woods. New York City. We are presently in litigation with Warner-Chilcott. The case is on the trial calendar waiting trial. I do not think it is fair to get involved in a case which we are going to try.

Mr. DINGELL. Very well.

Mr. POTVIN. Have you been subsequently cut off by WarnerChilcott?

Mr. MANDELL. We were cut off, effective July 1, 1962.

Mr. POTVIN. Was any reason given?

Mr. MANDELL. No. They did not give us any reason. We were just summarily dismissed after buying from them for many years. Mr. POTVIN. Who summarily dismissed you?

Mr. MANDELL. Well, the man responsible for the cutoff was the director of sales at that time.

Mr. POTVIN. What was his name?

Mr. MANDELL. It was Mr. William Enes.

Mr. POTVIN. Did you know Mr. Enes at that time?

Mr. MANDELL. No; I did not. I did not know him at that time nor do I know him now, but I know he was the protege of Mr. Beckwith.

Mr. POTVIN. This would be the same Mr. Beckwith to whom you have heretofore referred?

Mr. MANDELL. Yes, sir.

Mr. DINGELL. Gentlemen, the Chair notes with some regret that the clock now says 12 and that the House is in session. It will, therefore, be necessary for the subcommittee to recess. We will reconvene at 2:30 or as promptly thereafter as possible.

The subcommittee will then recess.

(Whereupon, at 12 o'clock noon, the subcommittee was recessed, to reconvene at 2:30 p.m., this day.)

AFTERNOON SESSION

Mr. DINGELL. The subcommittee will come to order.

Mr. POTVIN. Mr. Chairman, Mr. Mandell, with your indulgence, sir, I would like, if I may, to just momentarily pursue some questions which, due to my oversight, I did not fully establish this morning. The first of these, sir, is a function of dual distribution. Now, as you doubtless are aware, dual distribution is a phrase used to denote that practice on the part of the manufacturer in which he sells to a distributor and then also sells to that distributor's customers so that, in essence, he would be both your supplier and your competitor.

I would like to ask you this, sir. You have testified that within the drug industry there are prime lines which go only to full-line NWDA wholesalers. Then there are, so to speak, nonprime lines that are sold to all or virtually all drug wholesalers who evince a desire to carry

them.

Can you tell me, first, with respect to the prime lines, are these manufacturers engaged in dual distribution in that they compete with their wholesale customers?

TESTIMONY OF JACK MANDELL, OF M. SOBOL, INC.-Resumed

Mr. MANDELL. It is an unfortunate phraseology calling these prime lines because there are a lot of good lines which do sell to small wholesalers.

Mr. POTVIN. I certainly did not mean to indicate any superiority in terms of research or quality.

Mr. MANDELL. NO. I understand that. But getting back to the terminology of prime lines, there are such firms as Eli Lilly, that sell almost exclusively or virtually exclusively to NWDA members. In effect, they have a monopoly on that particular manufacturer's line of merchandise.

Eli Lilly sells only to wholesalers and not to the retailers which the wholesalers supply. So, they do not engage in dual distribution. Mr. POTVIN. How about Mead Johnson, sir?

Mr. MANDELL. Before we get off Eli Lilly, I want to comment that I think this is an excellent method of distribution as far as the industry goes. It is eminently fair, not because not speaking as a wholesaler, but for the industry as a whole, I have always admired that type of policy since the pharmaceutical manufacturer does not set up shop in competition with his wholesaler who is obviously unable to compete pricewise. The merchandise costs the wholesaler a lot more

than it costs the manufacturer to make, and I think that is a very fair means of distribution. However, I feel they do not have enough distributorships. The people who have had Eli Lilly in the drug industry historically have not discounted the line until very recently and then only when they were forced to enter discounting of the line.

Now, we have other manufacturers who do sell to wholesalers as well as retailers.

Mr. POTVIN. If we might pursue the subject of prime lines, what about Mead Johnson?

Mr. MANDELL. So far as I know, it maintains the same policy as Eli Lilly.

Mr. POTVIN. What about Squibb?

Mr. MANDELL. Squibb has for many, many years sold directly to retailers as well as through wholesalers.

Mr. POTVIN. Are there any other so-called prime lines that you can comment on as to

Mr. MANDELL. I do not believe Smith Kline & French has any direct selling to retailers. I think they sell only to wholesalers.

Mr. POTVIN. Could you prepare a chart, for submission to the subcommittee for the record, showing the incidence of dual distribution by the so-called prime manufacturers, sir?

Mr. MANDELL. I could try, but I really do not know. I think you would have to call the individual manufacturers and ask them if they have retail accounts.

Mr. POTVIN. Could you, to the best of your knowledge?

Mr. MANDELL. To the best of my knowledge, yes.

Mr. POTVIN. What about the manufacturers who sell you the nonprime lines? Are they engaged in dual distribution? Do they compete with you?

Mr. MANDELL. Some of them do and some of them, so far as I know, do not.

Mr. POTVIN. There again, could you prepare a chart?

Mr. MANDELL. Basically, I think most of the manufacturers who sell to us do engage in dual distribution.

Mr. POTVIN. Most of your present suppliers, the non-prime-line manufacturers, do engage in dual distribution?

Mr. MANDELL. I think the vast majority of them do.

Mr. POTVIN. Thank you, sir.

Now, with respect to the Smith Kline & French program, which you testified was entitled "The Earned-Service-Allowance Program," before and during Smith Kline & French's earned-service-allowance program, which ran, according to the information received by the subcommittee, from about March 15, 1965, to approximately Novem ber 15, 1966, were you able and did you buy Smith Kline & French merchandise from other wholesalers, particularly full-line wholesalers? Mr. MANDELL. We never stocked the Smith Kline & French line. Mr. POTVIN. You never at any time have been able to stock it? Mr. MANDELL. We have never stocked Smith Kline & French since I have been there. I do not ever recall ever having any Smith Kline & French merchandise. There were occasions when we had other lines of merchandise, other manufacturers, when we were able to sell a particular wholesaler one line of merchandise which he could not get and

then have him in return sell us a line of merchandise which we could not get, so in effect, it was almost a swap.

Mr. POTVIN. Did you notice and could you comment on any effect on discounting by full-time wholesalers of Smith Kline & French. merchandise either during or since the existence of the earned-serviceallowance program by Smith Kline & French?

Mr. MANDELL. Well, in New York specifically, I know there was a time when Smith Kline & French was never discounted. I cannot give you the exact dates but it would be my impression that during the time of the earned-service-allowance contract, perhaps, during part of it the Smith Kline & French merchandise was not discounted and during another part it was. Basically now, in New York, among the full line wholesalers they are not offering, I know McKesson-Robbins no longer offers a discount on Smith Kline & French merchandise.

Mr. PorvIN. And, sir, finally, could you explain somewhat more fully exactly what you meant when you said-I am attempting to quote, it might be a paraphrase "if Smith Kline & French had been able to jam the earned-service-allowance program down the industry's throat, it would have elminated 'diverting."

Mr. MANDELL. Yes, and I would also like to go back over that area once more. I believe I told you this morning from what I can remember, that the first Robbins contract which came out in the latter part of 1964 and became effective in January 1965, was the one where I had made the parallel with Smith Kline & French, but it was in factnow as I see you tell me the dates, it was in fact, the second Robbins contract which was identical virtually with the first, which came out in late 1965 and took effect early in 1966. But the earned-service-allowance contract would have taken, were it as I said, were it made an industrywide practice, would have taken any profitability out of the practice of selling to another wholesaler. Or diverting, so to speak. Mr. POTVIN. Could you quite specifically say in what respect and how it would have done that?

Mr. MANDELL. Well, Smith Kline & French actually did that. There were wholesalers who were selling to H. L. Moore, in Connecticut, and Smith Kline & French, I believe, recharged one wholesaler from what I read in the trade press, $90,000 for not earning his discount because he was selling to another wholesaler. And in fact, from what I read in the trade papers, Smith Kline & French-and I believe Senator Edward Long had a hearing into industrial espionage, and established that a spy was placed in the operation of H. L. Moore, in Connecticut, and was employed by Smith Kline & French and other manufacturers, I believe. In addition to Smith Kline & French, received the information as to who was supplying H. L. Moore with drugs.

Mr. POTVIN. In fact, your name was somewhat prominently mentioned by this industrial snooper, as I recall.

Mr. MANDELL, Yes. I believe it was.

Mr. POTVIN. We will cover that in detail later.

At the time the chairman adjourned the hearing this morning, the year 1952 was starting to fade over the horizon, and the vice president for marketing for Warner-Chilcott, William Enes, had just cut you off. You had established that you did not know Mr. Enes, but that he

was a protege, you understood, of the same Mr. Ed Beckwith with whom you had had previous dealings.

Mr. MANDELL. That is correct.

Mr. POTVIN. Have you tried since that time to get the WarnerChilcott line back again, sir?

Mr. MANDELL. We have tried on a number of occasions. We have been in touch with them asking for them to once again sell us their products. There was one specific occasion, I remember, when Schieffelin Wholesale Drug, which was for many, many years one of the leading wholesalers in the New York region

Mr. POTVIN. Full line or

Mr. MANDELL. Full-line NWDA member, very well established organization, had two branches, I believe one in Manhattan, one in Brooklyn, they went out of business and left what I felt was a void in distribution, and at that time we approached them and asked them to consider selling us their line again so that we could supply some of the accounts which were formerly supplied by Schieffelin, but were refused again.

Mr. POTVIN. When was the next time that you lost an account, and by whom were you cut off, sir?

Mr. MANDELL. The next time we were cut off would have been by Briston Laboratories. Of course, we had an awful lot of problems with other manufacturers who started to cut our order, not ship us all the merchandise we wanted in between along the way.

Mr. POTVIN. Would you describe those difficulties for us? First, with whom did you encounter these difficulties?

Mr. MANDELL. With a number of manufacturers. I can sort of go back in recollection and come up with them, I think.

Mr. POTVIN. You testified that you had become the largest account of Warner-Chilcott in your area. What was your next best line? Mr. MANDELL. Well, we were doing most of our dollar volume, I would say, at that time, probably, in Warner-Chilcott, Sandoz. Mr. POTVIN. And, how did you rank with the Sandoz manufacturing firm? Were you their largest account in the area?

Mr. MANDELL. Yes. We were No. 1 in what they called our trading area, which I was later to learn was the exact duplicate of the NWDA trading area. There came a time in about the middle of 1963 when we were waiting quite anxiously for an order we had placed with Sandoz. Their normal service pattern had been and still is, 1 or 2 days' delivery from the time we place the order till you can expect the order in your warehouse. And at this time I think, we were waiting a week or two. We called Sandoz and asked what happened to the order.

They told us that a lot of Sandoz merchandise was being shipped out West and into the Southwest and other regions of the country and it did not belong there and we were under surveillance and were going to be kept under surveillance and we were going to be given just as much merchandise as they thought we could sell in our own trading area and no more.

Mr. PorvIN. In other words, you were, in effect, told that you were purchasing too much from them.

Mr. MANDELL. Yes; we were.

Mr. POTVIN. I see.