PHARMACEUTICAL SUPPLY CHAIN SECURITY TUESDAY, JULY 11, 2006 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON CRIMINAL JUSTICE, DRUG POLICY, COMMITTEE ON GOVERNMENT REFORM, Washington, DC. The subcommittee met, pursuant to notice, at 10 a.m., in room 2154, Rayburn House Office Building, Hon. Mark E. Souder (chairman of the subcommittee) presiding. Present: Representatives Souder, Gutknecht, Foxx, Cummings, Ruppersberger, and Norton. Staff present: Marc Wheat, staff director and chief counsel; Michelle Gress, counsel; Scott Springer, congressional fellow; Kimberly Craswell, clerk; Tony Haywood, minority counsel; and Jean Gosa, minority assistant clerk. Mr. SOUDER. The subcommittee will come to order. Mr. Cummings is going to be a little late, and we will have Members in and out, but I want to get the hearing started on time. Good morning, and thank you for being here today. This is the second hearing conducted by the subcommittee to investigate the threat of counterfeit drugs within the United States. Today's hearing is focused on measures to prevent counterfeits from entering the pharmaceutical supply chains and to improve supply chain security. This hearing comes in the wake of FDA's recent update from its Counterfeit Drug Task Force which recommends ending the multi-year stay on implementing the pedigree rule required in the Prescription Drug Marketing Act, an act that was signed into law in 1988. A pedigree shows the drug's chain of custody, tracking the product as it flows through the supply chain. States such as California and Florida already have tough pedigree laws, and other States are moving forward with their own legislation. The FDA's decision to implement the pedigree requirement is a welcome, if overdue, effort in the national fight against counterfeit medicines in a pharmaceutical supply chain. Pedigrees can be paper or electronic, also known as an ePedigree; ePedigree can be accomplished through what is known as radio frequency identification [RFID], where a small RFID tag on the drug package is read and tracked from seller to seller providing, an electronic record of all transactions for the drug. Nonetheless, the pedigree is only one tool in the tool box for creating and maintaining a secure supply chain. Counterfeit pharmaceutical drugs are illegal, generally unsafe and pose a serious threat to the public health. Moreover, despite some sensational media segments on the prevalence and danger of counterfeit drugs, the American public is generally unaware of the program. The illegitimate business of creating, distributing and selling counterfeit pharmaceutical products is an unregulated, criminal and growing part of the global economy. There is one major difference between pharmaceutical counterfeiting and other underground industries: lives are at stake. It has been estimated that, globally, counterfeit pharmaceutical commerce will grow to become 16 percent of the aggregate size of the legitimate industry, a 6 percent increase from 2004. This illegal business will generate $75 billion in revenue in 2010, a 92 percent increase from 2005. The counterfeit industry is also growing at a much faster rate than the legitimate pharmaceutical business. Some estimates indicate that counterfeit drug sales will grow 13 percent annually through 2010, compared to just 7.5 percent estimated annual growth for global pharmaceutical commerce. Many of the products sold via drug traffickers contain ingredients that could be harmful, and these products are coming from illegal operations with very poor controls. The U.S. supply chain has become increasingly vulnerable to a variety of threats. Counterfeit drugs often travel through a distribution network of wholesalers, distributors, pharmacies, online shelf companies and criminal organizations buying, selling and reselling through unofficial channels with little product integrity. The FDA has confirmed that the large majority of known instances of counterfeit drugs have entered the supply stream through what is known as a secondary market, where drug diversion takes place. Drug diversion is the principle method by which counterfeits consistently enter the legitimate drug market. This happens because the pharmaceutical supply chain is not regulated by any single entity, private or governmental. The pharmacies within the State are monitored by the State Boards of Pharmacy which enforce the standards of care within each State. However, the State Boards of Pharmacy lack police power, and many are limited to only a handful of inspectors. Drug manufacturers have to comply with the FDA for the safety, effectiveness and labeling of their drugs. The drug manufacturers typically exercise no control over their drugs once they are shipped out of the manufacturing facility. Rather, the drugs are bought and sold by distributors and frequently pass in and out of the secondary market, where they may be bought and sold dozens of times, passed among several hands, repackaged, mishandled or relabeled. Distributors like retailers and physicians are licensed by the States which must only meet the minimal standards set by the Prescription Drug Marketing Act. In order to obtain a distributor's license, some States' licensing requirements are more lenient than others. Although some States have toughened their licensing standards for distributors, this leaves a patchwork of inconsistent standards across the country. Unscrupulous distributors can exploit the lowest standards of some States to insert counterfeit or adulterated product in the legitimate drug supply chain. When unscrupulous middlemen resell pharmaceuticals, they sometimes relabel them to reflect higher and more valuable doses, mishandle them to contaminate or degrade the drug, or substitute fake products for the legitimate goods. The counterfeits can be indistinguishable from the legitimate product. For the patient, there is no commercial transaction like this. The patient has virtually zero ability to inspect the drug's packaging or compare it to other samples. The patient who goes to a pharmacy to have his or her prescription filled is as helpless in determining the quality of the drug and completely dependent on a system that has experienced some tragic breaches. Moreover, it is impossible to measure the scope of the problem, and we cannot say with any degree of certainty how many or which counterfeit drugs make it to the pharmacy shelves because a health indication or ultimate death may be attributed to the patient's underlying illness rather than the drug. I look forward to hearing from our witnesses an assessment of the current threats and available protective measures to strengthen the supply chain. Our first panel today consists of Mr. Randall Lutter, Associate Commissioner for Policy and Planning at the Food and Drug Administration; and Mr. Kevin Delli-Colli, Deputy Assistant Director, Financial and Trade Investigations, Division, Office of Investigations, U.S. Immigration and Customs Enforcement [ICE]. Our second panel consists of Carmen Catizone, executive director of the National Association of the Boards of Pharmacy; Ms. Susan Winckler, vice president of policy and communications at the American Pharmacists Association; Mr. John Gray, president and CEO of Healthcare Distribution Management Association [HDMA]; Rick Raber, project manager with Northern APEX-RFID and a fellow Hoosier from northeastern Indiana. Welcome to each of you, and I look forward to your testimony. Mr. Gutknecht, do you have an opening statement? [The prepared statement of Hon. Mark E. Souder follows:] Subcommittee on Criminal Justice, Opening Statement of Chairman Mark Souder "Pharmaceutical Supply Chain Security" July 11, 2006 Good morning, and thank you for being here today. This is the second hearing conducted by the Subcommittee to investigate the threat of counterfeit drugs within the United States. Today's hearing is focused on measures to prevent counterfeits from entering the pharmaceutical supply chain, and to improve supply chain security. This hearing comes in the wake of the FDA's recent update from its Counterfeit Drug Task Force, which recommends ending the multi-year stay on implementing the "pedigree" rule required in the Prescription Drug Marketing Act, an Act that was signed into law in 1988. A pedigree shows the drug's chain of custody, tracking the product as it flows through the supply chain. States such as California and Florida already have tough pedigree laws, and other states are moving forward with their own legislation. The FDA's decision to implement the pedigree requirement is a welcome - if overdue - effort in the national fight against counterfeit medicines in the pharmaceutical supply chain. Pedigrees can be "paper," or electronic, also known as e-pedigree. E-pedigree can be accomplished through what is known as Radio Frequency Identification, or RFID, where a small RFID "tag" on the drug package us read and tracked from seller to seller, providing an electronic record of all transactions for the drug. Nonetheless, the pedigree is only one tool in the toolbox for creating and maintaining a secure supply chain. Counterfeit pharmaceutical drugs are illegal, generally unsafe, and pose a serious threat to the public health. Moreover, despite some sensational media segments on the prevalence and danger of counterfeit drugs, the American public is generally unaware of the problem. The illegitimate business of creating, distributing, and selling counterfeit pharmaceutical products is an unregulated, criminal and growing part of the global economy. There is one major difference between pharmaceutical counterfeiting and other underground industries: lives are at stake. It has been estimated that globally, counterfeit pharmaceutical commerce will grow to become 16% of the aggregate size of the legitimate industry, a six percentage-point increase from 2004. This illegal business will generate $75 billion in revenues for its owners in 2010, a 92% increase from 2005.2 The counterfeit industry is also growing at a much faster rate than the legitimate pharmaceutical business. Some estimates indicate that counterfeit drug sales will grow 13% annually through 2010, compared to just 7.5% estimated annual growth for global pharmaceutical commerce. Many of the products sold via drug traffickers contain ingredients that could be harmful, and these products are coming from illegal operations with very poor controls. The U.S. drug supply chain has become increasingly vulnerable to a variety of threats. Counterfeit drugs often travel through a distribution network of wholesalers, distributors, pharmacies, online shell companies, and criminal organizations buying, selling and re-selling through unofficial channels with little product integrity. The FDA has confirmed that the large majority of known instances of counterfeit drugs have entered the supply stream through what is known as the secondary market, where drug diversion takes place. Drug diversion is the principal method by which counterfeits consistently enter the legitimate drug market. This happens because the pharmaceutical supply chain is not regulated by any single entity, private or governmental. The pharmacies within a state are monitored by the state Boards of Pharmacy, which enforces the standards of care within each state. However, the state Boards of Pharmacy lack police power, and many are limited to only a handful of inspectors. Drug manufacturers have to comply with the FDA for the safety, effectiveness, and labeling of their drugs. But drug manufacturers typically exercise no control over their drugs once they are shipped out of the manufacturing facility. Rather, the drugs are bought and sold by distributors, and frequently pass in and out of the secondary market, where they may be bought and sold dozens of times, passed among several hands, repackaged, mishandled, or relabeled. Distributors, like retailers and physicians, are licensed by the states, which must only meet the minimal standards set by the Prescription Drug Marketing Act. In order to obtain a distributor's license, some states' licensing requirements are more lenient than others. Although several states have toughened their Peter Pitts, 21st Century Health Care Terrorism: The Perils of International Drug Counterfeiting, Pacific Research Institute, Sept. 20, 2005. 2 Id. 3 Id. |