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Head of Nation's Leading Drug Store Chain Calls for Safe, Legal Imported Drugs

CVS/pharmacy CEO Tom Ryan says global pricing system needed to help alleviate costs for Americans

May 6, 2004 - CVS/pharmacy Chairman, President and CEO Tom Ryan called on Congress and the Administration to quickly establish a means for consumers to legally and safely import prescription drugs. To do otherwise, he said, would be to ignore the millions of Americans who are forced to go outside the existing prescription drug system in the U.S., which is intended to ensure drug safety, because they cannot afford to buy drugs within the system. His comments came in testimony yesterday before the Department of Health and Human Services Drug Importation Task Force,

"While many in our industry believe that importation is a fundamentally flawed concept and oppose it without exception, I have come to a slightly different view," Ryan said. "Simply put, there are too many patients our pharmacists never see because they cannot afford the drugs we dispense, and others who are unable to pay for a full regimen of medications because it soaks up so much of their disposable income."

For those reasons, Ryan said he supports a safe, legal system of importation that would include the bulk importation of medicines from Canada as well as other nations where safety and quality measures are similar to those in the United States and dispensed by licensed U.S. pharmacies.

Ryan added that if such a system were put in place, CVS/pharmacy would commit to playing an active role in providing access to imported drugs to consumers who need them.

Despite his support for importation, Ryan said he believes it should be viewed only as a temporary solution. In order to truly address the problem of skyrocketing drug costs for Americans, the existing global pricing model, under which identical drugs to those sold in the U.S. often cost far less in other countries due to government price controls. "The existing underlying global pricing model simply cannot be sustained," said Ryan.

The CVS/pharmacy CEO said that the federal government and pharmaceutical companies must move the industry to a global pricing system that is fair across all countries and that is based on what the market is able to bear and the value delivered by the products. "The United States cannot bear the cost of R&D for the world," said Ryan. "International trade negotiations are one place where the U.S. can begin to lead the way to establishing a more appropriate, market-based pricing system with our trading partners. In the longer-term, the answer must be fair and equitable trade practices and open access. We cannot allow millions of our fellow citizens to go without life sustaining medications due to arbitrary international trade practices. We don't do it for sugar, rice or corn; we shouldn't do it for life saving medications."

"It is a complicated problem with neither simple explanations nor simple solutions," Ryan continued. "But this much is clear: No industry can permanently sustain a pricing system in which the cost of a product varies so radically from one country to the next, and pharmaceuticals are no exception."

With over 40 years of dynamic growth in the retail pharmacy industry, CVS is committed to being the easiest pharmacy retailer for customers to use. With 4,187 stores in 32 states and the District of Columbia, CVS has created innovative approaches to serve the healthcare needs of all its customers through its online pharmacy, CVS.com and its pharmacy benefit management and specialty pharmacy subsidiary, PharmaCare Management Services.

On April 5, 2004, CVS entered into a definitive agreement under which it will acquire 1,260 Eckerd drug stores, located mainly in the southern United States, in addition to Eckerd Health Services, which includes Eckerd's mail order and pharmacy benefit management businesses. The transaction is subject to review under the Hart-Scott Rodino Act as well as other customary closing conditions, and is expected to close in June of 2004. General information about CVS is available through the Investor Relations portion of the Company's website, at http://investor.cvs.com.

    Remarks by:

     Tom Ryan, Chairman, President and CEO - CVS Corporation

     HHS Drug Importation Listening Session

     May 5, 2004

Mr. Chairman and members of the Task Force, on behalf of CVS/pharmacy, I am pleased to be speaking with you today to share our views on the importation of prescription drugs.

By way of background, I am Chairman, President and CEO of CVS Pharmacy. After completing our recently announced acquisition of part of the Eckerd drugstore chain, CVS/pharmacy will become the largest retail drug operator in the United States, with more than 5,000 retail outlets in 36 states, filling over 400 million prescriptions per year (which is equal to 13% of all prescriptions dispensed in the U.S.) In addition, our Pharmacy Benefits Management company, PharmaCare, will become the fourth largest, serving over 30 million lives.

While many in our industry believe that importation is a fundamentally flawed concept and oppose it without exception, I have come to a slightly different view.

It's indisputable that modern pharmaceuticals are tremendously valuable. Innovative drugs save lives and improve the quality of life for countless people around the world. However, there are patients our pharmacists never see because they cannot afford the drugs we dispense, and others who are unable to pay for a full regimen of medications because it soaks up so much of their disposable income.

Over the last few years there has been some progress in reducing the financial burden faced by many of those in the greatest need, including retailer / manufacturer / and state-sponsored discount programs and, most recently, the just-launched Medicare discount cards. While these are helpful, they do not treat the underlying condition; they only relieve some of the symptoms.

That condition is the way pharmaceutical prices are set around the world. As you know, identical drugs to those sold in the U.S. often cost far less in other countries due to government price controls. As a result, a multi- billion-dollar industry, operating outside U.S. law and federal regulation, has emerged to facilitate the flow of prescription drugs from Canada, and other countries, into the U.S.

I applaud the efforts of this Task Force to address this important health care issue. Much of the discussion and debate has focused on the risks to patient safety, such as the dangers associated with counterfeit drugs and the inability to consult with a licensed pharmacist, weighed against the value of access to prescription drugs for consumers who cannot afford them at current U.S. prices. Safety and accessibility are important questions, but these arguments miss the core issue. "The existing underlying global pricing model simply cannot be sustained."

Let me be clear: I am not advocating that price controls are the solution. It's a fact that a Ford Taurus, Dell laptop and bottle of non-prescription Tylenol all cost more in the U.S. than in Canada. That's the market working, not arbitrary government price controls.

Global pricing is a complex problem with neither simple explanations nor simple solutions. But this much is clear: No industry can permanently sustain a pricing system in which the cost of a product arbitrarily varies so radically from one country to the next, and pharmaceuticals are no exception.

We must find a common ground. I put forth two basic principles that might help move the dialogue forward:

First, the federal government and pharmaceutical companies must move this industry to a global pricing system that is fair across all countries. The United States can no longer bear the cost of R&D for the world. Trade negotiations are one place where the U.S. Trade Representative, among others, can begin to lead the way to establishing a more appropriate, market-based pricing system with our trading partners. The recent U.S.-Australia Free Trade Agreement is a notable advance on this front. This Administration must elevate pharmaceutical pricing issues to the forefront of international trade negotiations.

Fixing the disparities in price that have evolved around the world will not be a simple task, nor will it be quick.

This leads to my second principle -- while that process moves forward, the fact remains that many Americans need help today with the cost of their prescription drugs. It is to serve this real need that CVS/pharmacy calls on the Administration and Congress to quickly establish a means for consumers to legally and safely access imported prescription drugs for a temporary period - - perhaps 3 to 4 years, perhaps longer -- while a viable long-term solution is pursued. To do otherwise would be to ignore the millions of Americans who are playing "Prescription Roulette" as we speak, forced to go outside our existing system, which is intended to ensure drug safety, in order to preserve their pocketbook. Today there are well over 100 internet pharmacies sending medications into the U.S. from Canada alone. In addition, as you heard this morning, there are states and cities setting up programs to direct their uninsured citizens to international pharmacies, or even to purchase products directly for their employees.

Our concern at CVS/pharmacy is for our customers and the trust they place in our pharmacists. Mr. Chairman, I believe that if CVS tried to import drugs to meet our customers' needs, Federal and state authorities would shut us down within an hour. It is not acceptable to allow this trade to continue in the shadows.

I recognize that there are many issues that require resolution before importation can be temporarily permitted. These include: deciding which drugs to import given the lack of uniform international standards, ensuring adequate product supply, and determining how to protect intellectual property rights, to name just a few. Also, in a program of this kind, we need to prioritize providing relief to uninsured individuals -- making imports available to any and all payers would strain supplies to the point where cost savings would disappear.

Opening up our domestic drug distribution system to additional sources of products undoubtedly increases the potential for counterfeit and/or adulterated products to enter the system. Therefore, I believe that the lowest risk approach would be bulk importation: sourced from approved foreign entities, imported by established domestic distributors, and dispensed by licensed U.S. pharmacies. Such a system should include requirements for clear drug pedigree and chain of custody, the use of appropriate anti-counterfeiting technologies, and adequate fees charged to exporters to offset the additional cost of federal inspections and oversight.

In contrast, legalizing direct importation by consumers would involve millions of packages from hundreds of sources; the resources needed to ensure safety in that model would be massive compared to adding some safeguards to the safe, well-established distribution system already in place in the U.S. Clearly, the most logical path would be to leverage the drug distribution system we already have in place today.

To conclude, we all know this is not an academic exercise - millions of Americans already have opted to import drugs because they can't afford not to. We owe it them to face this issue head-on and not look the other way. If importation is made legal and safe, CVS/pharmacy, as the nation's leading pharmacy chain, is committed to playing an active role in providing access to imported drugs to American consumers who need them.

In the longer-term, the answer must be fair and equitable trade practices and open access. We cannot allow millions of our fellow citizens to go without life sustaining medications due to arbitrary international trade practices. We don't do it for sugar, rice, or corn; we shouldn't do it for life saving medications.