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and that is if you take our total membership and, on the average, this would mean that we probably have in most areas somewhere around 10 NWDA members, 10 houses that would be NWDA members. I think it is just pure random as to whether there would be some of the nonlarger firms that you are referring to, such as McKesson & Brunswig, that would be in some of these markets.

Mr. POTVIN. Do you keep any data on the number of people who apply for membership and do not successfully accomplish that purpose?

Mr. FORD. No, sir. I am not aware of any tabulation or record that is prepared in that fashion at all.

Mr. POTVIN. So that you really don't know the number. Again, suppose that I wanted to be a member, and I may have written you or I might not have, and I make a reconnoiter and determine that none of my competitors want to let me into the establishment. How would this show in the statistics?

Mr. FORD. We obviously would have no way of knowing this.

Mr. POTVIN. Precisely. So that it seems to me that it is a very difficult judgment for you to make. All we have in our record, of course, are those who have told us of the very serious difficulties they have encountered as it turned out, insuperable difficulties, in obtaining membership.

Mr. DINGELL. Mr. Ford, the committee is grateful to you for your presence this morning. We appreciate your kindness and your frankness. The Chair also will express appreciation of the committee to Mr. Willis. Gentlemen, thank you both.

Mr. WILLIS. Thank you very much. The way it was conducted on both sides left me totally unemployed, but I enjoyed it, and I was edified. (Discussion off the record.)

Mr. DINGELL. The subcommittee will stand adjourned, subject to the call of the Chair.

(Whereupon, at 12:20 p.m., September 27, 1967, the subcommittee adjourned, subject to the call of the Chair.)

SMALL BUSINESS PROBLEMS IN THE DRUG INDUSTRY

THURSDAY, OCTOBER 12, 1967

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ACTIVITIES OF REGULATORY AGENCIES

OF THE SELECT COMMITTEE ON SMALL BUSINESS,

Washington, D.C.

The subcommittee met, pursuant to call, at 10:15 a.m., in room 2359, Rayburn House Office Building, Hon. John D. Dingell (chairman of the subcommittee) presiding.

Present: Representative Dingell.

Also present: Representative Burton, of the full committee; Gregg Potvin, subcommittee counsel; Myrtle Ruth Foutch, clerk; and John J. Williams, minority counsel.

Mr. DINGELL. The subcommittee will come to order.

The subcommittee is honored to have with us Dr. James L. Goddard, M.D., the distinguished and able Commissioner of Food and Drugs, of the U.S. Department of Health, Education, and Welfare, to continue the scrutiny by Subcommittee No. 5 into matters involving drugs, drug pricing, and certain antitrust matters.

The Chair is happy to note the presence of Bill Goodrich, who is well known to the Chair and who served with great distinction in the drafting of a number of pieces of legislation involving food and drugs. We are pleased to have you, too, Mr. Goodrich.

Dr. Goddard, I see you have a prepared statement, so the Chair, in recognition of your time schedule, will be happy to hear from you.

TESTIMONY OF JAMES L. GODDARD, M.D., COMMISSIONER OF FOOD AND DRUGS, U.S. DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, ACCOMPANIED BY WILLIAM W. GOODRICH, ASSISTANT GENERAL COUNSEL, FOOD AND DRUGS

Dr. GODDARD. Mr. Chairman, I am happy to appear before you today, along with Mr. Goodrich and Mr. Pumpian, to discuss the programs of the Food and Drug Administration relevant to the subject of your hearings.

We understand that you are primarily interested in the pricing structure within the drug industry, especially as it relates to the small businessman, and the flow of drugs in the channels of commerce. The FDA, as you know, has no jurisdiction over price, but our regulatory operations under the Food, Drug, and Cosmetic Act do have a definite bearing on the economics of this industry. I would like today to discuss our role, particularly as it may relate to these economic factors.

We have a single standard in our requirements for compliance with the Food, Drug, and Cosmetic Act, whether the firm be a large one or a

small business organization. The law itself specifies the scientific and medical information required and the quality controls which must be followed to insure the safety and efficacy of drugs. I might add, Mr. Chairman, that we would encourage, as you do, a viable small business community within the drug industry.

The Kefauver-Harris Drug Amendments of 1962 gave many new responsibilities to FDA, radically changing our regulatory program. In the 5 years since the passage of this landmark protection legisla tion, the Congress has enacted other health legislation which has touched every American in some way. The medicare coverage extended to our elderly citizens under social security is one of the most vital new pieces of health legislation. Our young people who wish to pursue education in health fields are being aided under the Health Profes sions Educational Assistance Act. Research centers are being funded to study the deadly and perplexing medical problems of our timeheart disease, cancer, and stroke. Mental retardation centers and community mental health centers are being assisted and established. Federal aid also is financing rehabilitation programs in the fields of narcotic addiction and alcoholism. The Hill-Burton Act has been extended to increase the capabilities of hospitals to treat all our citizens. These measures have an influence upon every man, woman, and child in this country. The expanded concept of health care responsibilities within government-both Federal and State-and the increased involvement with the health care afforded our citizens has had tremendous impact.

There is now a greater awareness of many perplexing medical problems. There is a greater understanding of the health care needs of our citizens. As a result, there is also a greater interest than ever before in the Nation's drug supply. How is the need for valuable lifesaving therapeutic agents to be satisfied? How can we assure the quality of our drugs?

Your committee, Mr. Chairman, is interested in the price of drugs. One of the elements stressed by many manufacturers as having a large impact upon the consumer's drug cost is the research effort. I would like to sketch for the committee, Mr. Chairman, some of the factors involved in this research effort as seen from our vantage point at FDA. Mr. DINGELL. Doctor, the chairman would like to say, without unduly interrupting you, that the function of this hearing is not to review drug prices. That has been well scrutinized in the Senate. Our funetion here is to review antitrust pricing practices in restraint of trade, and things of this kind, although I suspect that, in that regard, the question of drug prices will creep in.

Dr. GODDARD. I understand. Fine.

Under the 1962 Drug Amendments, and implementing regulations issued early in 1963, no drug may be shipped across State lines for experimental use in man until certain requirements are met. The sponsor of an investigation must prepare and present an acceptable plan for the investigation, describing the drug, outlining the experimental procedure, and identifying the qualified persons who will conduct the

studies.

The agency reviews these investigations from reports or through inspections. When necessary, modifications of an investigational plan is required. In some cases, the FDA may terminate the investigation

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if the plan proves inadequate, or is not being followed, or if the trials produce evidence that the drug is unsafe for continued clinical experimentation.

Before marketing a new drug commercially, the sponsor must submit a new drug application-or NDA-supported by all the evidence on which the manufacturer bases his belief that the product is safe and Peffective. The NDA also must contain data on the drug's composition, components, and manufacture, as well as copies of the labeling which is to accompany the drug.

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As this outline indicates, the development of a new drug is neither quick nor inexpensive. But I know of no one-no one in the drug industry and certainly no one outside of it-who advocates a return to the era when drugs were tested in the marketplace, sometimes with catastrophic consequences.

Apart from this, however, there is evidence that not all of the expenditures for drug development represent money well spent. Mr. Chairman, we have reviewed many NDA's during the current fiscal year that simply were not approvable. Excluding from consideration one group of applications representing a special problem, three times as many applications were returned to the sponsors as being "incomplete" as were approved. The majority of the "incompletes" rejected were found to be deficient in several respects.

Twenty-seven percent of these unapprovable NDA's did not have enough animal safety data. Sixty-four percent of the unapprovable NDA's did not show adequate clinical safety when used in humans; 62 percent were lacking in clinical efficacy; component and composition data were not adequate in 16 percent and 22 percent, respectively, of the NDA's returned. In 49 percent of these NDA's the application did not stipulate manufacturing controls which we felt would assure a quality drug product. Samples submited were unacceptable in 29 percent of those returned. And in 44 percent of these NDA's, we refused to allow proposed labeling.

The inadequate NDA's were submitted by companies of all sizes. It is apparent that much of the research on which we receive data is poorly executed. This type of research undoubtedly contributes to the high cost of drug development. The other inadequacies noted in the breakdown also represent an expensive inefficiency.

I might also mention that only a part of the drug research investment is allocated to the outer frontiers of therapetic science. During fiscal 1967-the year in which we eliminated the so-called NDA backlog-the FDA approved 83 drugs for marketing; of these, 14 are considered to be new chemical entities. In the first quarter of this fiscal year, 13 NDA's have been approved. Under our criteria, four are classified as new chemical entities. So it is apparent that much of the scientific research being conducted by drug manufacturers today has not resulted in the introduction into medical practice of genuinely new therapeutic agents-and yet the development of such agents should be one of the most serious concerns guiding industry and the scientific community.

There is another aspect of this picture of drug research and development which bears on both the advance of pharmaceutical science and the ability of firms to compete within the drug industry.

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