or other sciences, are given comprehensive and continuous training under the supervision of our physicians. In addition they call on retail pharmacies and hospitals to provide them with information about our products and to assure their ready availability. 13. Do your detailmen have geographic responsibilities only, or do you have separate classes of detailmen covering government and non-government institutions? The majority of our representatives are assigned to geographic areas. Hospital representatives are assigned specific institutions. Another smaller group, called specialist representatives, are assigned specific physicians who, in the main, are specialists. These representatives are responsible for coverage of a group of physicians rather than a geographic area. Many of the geographic areas and/or assignments include both governmental and non-governmental institutions. We have a representative in Washington, D.C. who contacts primarily military and governmental institutions and procurement offices. 14. Let's turn briefly to “samples". Tell us how samples are distributed by your detailmen. Samples are personally delivered to physicians by our representatives. The nature of the physician's practice determines which products are sampled. In some cases, if our representative does not have the product sample requested by a physician, the sample will be mailed to the physician at our representative's request. 15. What limitations or controls are imposed on the dispensing of samples! Sample distribution is planned and monitored. Prior to monthly shipment of samples, we advise representatives as to the products and quantity of the samples they will receive. The representative is told specifically how we wish the samples to be distributed in his area of responsibility. The representative is required to plan his work in advance. This advance planning determines how and to whom he supplies samples. At the end of the monthly period he inventories his residual supply of samples and reports to his manager the excess or plans for future use. District Managers make a physical check at specific intervals. All sample packages are identified as samples. With few exceptions, all tablets and capsules are stamped or marked "sample" to further insure that they do not enter commercial channels. Samples may be distributed by our representatives to physicians only. Breach of this rule is cause for immediate dismissal. 16. I presume that your corporation has a pretty good idea of the prospective sales volume which is likely to be generated by non-governmental hospitals for their own use*, is that not correct? No, this is not correct. With the exception of parenteral products, it is not possible to determine how much of a product dispensed by a non-governmental hospital pharmacy is for the hospital's own use. Product demand will vary from hospital to hospital and from time to time depending on the mix of patients Any gradual change in demand for our products in a specific institution would not give us any information as to how the product is dispensed or to whom. 17. You have probably made market surveys and statistical studies on this for sales planning on your different pharmaceuticals and so forth, haven't you! No, we have not. Our statistical studies generally are directed to the overall hospital market. Market surveys and statistical studies on the sales of products in an institution are generally limited and, in any case, would not give us informa tion other than an approximation of trends. These data would not tell us whether the product was for the hospital's own use. 18. So where a non-governmental hospital of a given bed size makes purchase? of one of your pharmaceuticals, your company can, at some point in the volume purchases, arrive at a pretty good judgment as to whether these purchases ar confined to their own use? We could make a judgment only in those cases where a sales trend would clearly indicate an unexplained and sharp rise in the hospital's purchases. Eve "Own use"-hospitalized patients and routine outpatient dispensing to people tered with the hospital emergency room as patients. en this could be explainable since the demand for our products rises and falls ith changes in the prescribing habits of physicians and/or changes in formulary eference among competing products. 19. And your detailmen would provide specific sales information by knowledge the institutions with respect to MD's with private offices on the grounds, institional drug sales to private patients, and sales to the public, is that not correct? This is not correct. Our representatives would have such specific information dy if it were publicly available. A hospital policy of regularly filling prescripons for private patients of physicians with offices on the grounds might be genally known, however, no specific sales information would normally be available. 20. What does your company do when information comes to your corporate tention that a non-governmental institution buying at a lower price than retail uggists in the area, is actually reselling the drugs in direct competition with tail druggists in the area? The courses of action open to us when information comes to our corporate tention that a non-governmental institution, buying at a lower price than retail ruggists in the area, is reselling in direct competition with reail druggists are arply limited by the "restraint of trade" prohibitions of the Sherman Act. Under the judicial construction of the Act, recently given new emphasis by he U.S. Supreme Court in the Schwinn case, we cannot impose any limitation pon the freedom of our hospital customer to dispose of a product purchased from 3 to whom and at such price as it sees fit. Thus, we do not attempt to extract ny promises from a hospital that it will not resell at retail, merchandise purhased from us. When such a situation comes to our attention, we do remind the ospital administrator, by reference to the statement on our invoice, that we have fforded the hospital favorable prices on the representation that the products re for the treatment of patients and not for resale. 21. How long has this practice been in effect? Since 1962. 22. Can you cite any specific non-governmental institutions where this situation as arisen and what you did? The situation has arisen very infrequently. In most cases the matter was esolved by direct contact with the administrator. In cases where the hospital efused to take cognizance of the representation on our invoice or in fact was ound to have a pharmacy which was owned and operated for a profit by a chain, e have thereafter refused to afford them favorable prices. An example would be Doctors Hospital Pharmacy and West Side Hospital Pharmacy in Los Angeles, nd Hawthorne Memorial Hospital Pharmacy, Hawthorne, California. It is our nderstanding that the three hospital pharmacies are part of the Daylin, Inc. hain and fill non-patient prescriptions in addition to serving the hospital needs. ccordingly they are billed at retail catalog prices. 23. [Questions on formulary and importance of getting drugs on formulary to romote private MD prescribing?] We are interested in having our drugs listed in hospital formularies so that we an sell these products to the hospitals. We believe that the experience gained by aterns and residents as a result of the use of our products in the hospital may arry over when they enter private practice. 24. What is your corporate policy regarding sales direct to retailers? The policy of this division is to sell our products direct to all retail druggists 7ho wish to buy directly from us and who maintain a satisfactory credit rating. Ve have no minimum order size or minimum annual purchase requirements. 25. Is this policy in a published statement available to retailers? Will you proide us with a copy? We have no published statement available to retailers which specifically states hat we will sell our products to them on a direct basis. However, a price list of ur products is sent annually to all retail pharmacies in the United States which ists the direct prices on all of our products and also lists the branches to which he retailer is to send his orders. 26. How long has this policy been in effect? Our policy of selling direct to all retail druggists has been in effect for over 25 ears. 78-783-68-vol. 2- -27 27. During this period, have departures been made from this policy? No. Subject: Request for competitive prices. I would like to purchase: (Amount) (Product) Date_. (Size) If you can meet the price (invoiced) (quoted) to me by a competitor, as follows: 1. Name of Product: 2. Price Quoted: 3. Quantity: 4. Name of Competitor: 5. Invoice Number and Date: Signature Position Mr. DINGELL. If there is no further business to come before the committee, then the subcommittee will stand adjourned until February 13 at 10 a.m. (Whereupon, at 3:05 p.m., January 25, 1968, the subcommittee recessed, to reconvene at 10a.m., Tuesday, February 13.) SMALL BUSINESS PROBLEMS IN THE DRUG INDUSTRY TUESDAY, FEBRUARY 13, 1968 HOUSE OF REPRESENTATIVES, Washington, D.C. The subcommittee met, pursuant to recess, at 10:05 a.m., in room 2539, Rayburn House Office Building, Hon. John D. Dingell (chairman of the subcommittee) presiding. Present: Representatives Dingell and Broyhill. Also present: Gregg Potvin, subcommittee counsel; Myrtle Ruth Foutch, clerk; and John J. Williams, minority counsel. Mr. DINGELL. The hearing will come to order. This morning the Subcommittee on Regulatory Agencies of the House Small Business Committee will continue its hearings into the problems of the drug industry. With me today is my good friend and colleague, Hon. James Broyhill, together with Gregg Potvin, majority counsel, John Williams, minority counsel, and Miss Myrtle Ruth Foutch, clerk of the committee. This week the subcommittee will hear testimony from 10 additional manufacturers of ethical pharmaceuticals. To date, the subcommittee has been both pleased and impressed with the excellent cooperation which we have received from the industry. Despite the very helpful nature of the testimony of those witnesses appearing thus far, it would appear, from a perusal of the record, that certain questions remain unanswered. As a result, those witnesses appearing today and at subsequent sessions will be requested to supply certain information in addition to that obtained from prior witnesses. This does not mean that the hearings will undergo any substantial change of character or that information not previously sought is going to particularly alter the character of the hearings. It would, however, not be inaccurate to refer to the balance of our hearings as phase 2, implying a moderate increase in the scope of the subcommittee's inquiry. For example, it is noted from the study of industry reports that manufacturers are in the happy position of having, on the whole, increased their net profits in recent years. Yet, in examining the wholesale sector of the industry, it is noted that profits have been declining of late. At the retail level, a recent analysis reveals that from 1947 to 1967, the dollar volume of prescriptions filled by retailers increased 644.4 percent. This evidently is a continuing trend-as 1967 reflected an increase of 8.7 percent over the preceding year. This compares with an increase, for a 20-year period, of 136.5 percent on sales in all other categories and an increase of all other sales from 1966 to 1967 of only 4 percent. It is estimated that the average drugstore is filling 20 more prescriptions a day than it did 20 years before. The annual increase of prescriptions was approximately 1.512. In fact, in 1967, the average drugstore sold over $70,000 in prescriptions as compared to only $9,700 20 years before. Yet, in spite of this fast increase in volume, the committee has received matching correspondence which strongly suggests that retailers, as well as wholesalers, are encountering problems in showing a net profit at their prescription counter. The average expenditure per prescription has increased from $1.36 in 1947 to $3.33 in 1967. Additionally, the percentage of prescriptions which have been refilled one or more times has increased from a third, or 38.9 percent, to over half, 55.2 percent. The cost to the public, there fore, has increased substantially. Some of these increases were, of course, a result of new drugs which were not in evidence 20 years ago. Yet, there is here something of a paradox that manufacturers' profits should be at an alltime high while wholesalers and retailers are declining that the public's cost for drugs has more than doubled per prescription and has increased more than a sixfold in terms of dollar volume yet, retailers report that they are all too often encountering problems in terms of profitability. The subcommittee will, therefore, attempt to receive additional information in these areas. Our first witness this morning is Mr. Lawrence C. Hoff, director, office of domestic pharmaceutical sales for the Upjohn Co. Mr. Hoff. the committee welcomes you to the committee table this morning. The Chair notes that you have present with you a friend or counsel, and if you will give your full name, address, and title and that of the gen tleman who is at the committee table with you we will be happy to re ceive such testimony as you choose to give. TESTIMONY OF LAWRENCE C. HOFF, DIRECTOR OF DOMESTIC PHARMACEUTICAL SALES OF THE UPJOHN CO.: ACCOMPANIED BY GERARD THOMAS, GENERAL COUNSEL Mr. HOFF. Thank you, Mr. Chairman. My name is Lawrence C. Hoff. I am director of domestic pharmaceutical sales for the Upjohn Co. in Kalamazoo, Mich. With me at the table is Gerard Thomas, general counsel for the Upjohn Co. Immediately upon graduation from Stanford University in June 1950 I became employed by the company. I worked as a detail man in California and in Hawaii for 8 years. Since January 1958 I have been engaged in sales education and in several supervisory positions. I be came a district supervisor in 1958. In July 1962 I became assistant area sales manager of our Dallas branch, and then in April 1963, area sales manager there. On July 1, 1965, I became regional sales manager, supervising sales functions for our Dallas, Denver, Kansas City, and Minneapolis branches. Since March 1, 1966, I have been director of domestic pharmaceutical sales. I feel it is proper to say a word of introduction concerning the Upjohn Co. itself, though I will be brief, since I am sure the company |