This is a partial transcript from "Your World with Neil Cavuto," August 20, 2004, that was edited for clarity.

TERRY KEENAN, GUEST HOST: A number of states have taken steps to lower the cost of prescription drugs (search), but none has gone as far as to sue the FDA (search). That is until now. The state of Vermont is becoming the very first state to slap the Food and Drug Administration with a lawsuit so it can import prescription drugs from Canada.

Joining me now on the telephone is the Republican governor of Vermont, Jim Douglas.

Governor, good to have you with us. You know, five states have already defied the FDA on this without filing suit. Why are you going the legal route?

GOV. JAMES DOUGLAS, R-VT.: Well, I took an oath of office that I take very seriously, and I think it is important to work within the bounds of the law to accomplish our goals. But nothing is more important, I think, than the future well being of the people of my state and of the United States. And the cost of prescription drugs is getting so high that many people, especially those who are older and on fixed incomes, just next can’t afford them. So I think we have to do what we can to try and bring them down.

KEENAN: How do you expect this lawsuit to proceed, and how do you expect it to affect the costs that your employees in the state of Vermont and your retirees are going to have to pay for drugs?

DOUGLAS: Well, the Medicare Modernization Act that passed last year in the Congress requires the federal government to create rules to allow the legal re-importation of prescription drugs. And the FDA hasn’t done that.

It is required to issue guidance describing when re-importation would be allowed for personal use, as well as by wholesalers and pharmacists and state benefit programs. So we want a court order to require the FDA to do what the law requires, and that is to adopt these rules and allow the program to go forward.

And we wanted a waiver from the FDA to authorize a pilot re-importation plan. We thought a small state like ours, close to an international border, could serve as a model to see how it can be done safely. And so I think the FDA really ought to allow us to go forward.

KEENAN: How frustrated are you with Washington and with the FDA’s claims that people aren’t getting their drugs from Canada when they try to cross borders to get these prescription drugs, but that they might get harmful substance that would be coming from southeast Asia and the like?

DOUGLAS: Well, we certainly want to make sure that it is done safely. And I understand that there are some pharmaceutical products that come from other places, but there haven’t been significant situations of adulterated drugs which I’m aware through Canada, at least any more than what we have run across here in the United States.

So I think we have to find a way to make sure that it can be done safely. And I really believe that in the 21st century we can do that.

KEENAN: Yet, taken to its logical conclusion, and everyone in all 50 states could buy their prescription drugs the way the Canadians do it, just a little above cost, how is the American pharmaceutical industry going to survive that, and how are they going to pay for the R&D that becomes increasingly more expensive every year for them?

DOUGLAS: That’s a very important point, Terry. This is really not a long-term solution to the problem. What we really need to do is to reform the pharmaceutical market here in the United States.

I think we need to increase competition among manufacturers, we need to speed the approval of generic drugs, we need to preserve the ability of states to pool their purchases, as Vermont and seven other states are doing in our Medicaid program now. We really have to reform the marketplace, and that should be our top priority. But in the short term, because in many cases prescription drugs are so much more affordable north of the border, I think this is an appropriate interim step.

KEENAN: All right. Well, we appreciate you sharing all of that with us, and we will continue to follow this lawsuit as it proceeds through the courts. Thanks for joining us today.

DOUGLAS: Thank you, Terry.

KEENAN: Governor James Douglas of Vermont.

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