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30–672 PDF 2006

SICK CRIME: COUNTERFEIT DRUGS IN THE UNITED

STATES

HEARING

BEFORE THE

SUBCOMMITTEE ON CRIMINAL JUSTICE,

DRUG POLICY, AND HUMAN RESOURCES

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

NOVEMBER 1, 2005

Serial No. 109–194

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

JEAN SCHMIDT, Ohio

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director/Communications Director

ROB BORDEN, Parliamentarian/Senior Counsel

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON CRIMINAL JUSTICE, DRUG POLICY, AND HUMAN RESOURCES

MARK E. SOUDER, Indiana, Chairman

PATRICK T. MCHENRY, North Carolina

DAN BURTON, Indiana

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

STEVEN C. LATOURETTE, Ohio

CHRIS CANNON, Utah

CANDICE S. MILLER, Michigan

VIRGINIA FOXX, North Carolina

JEAN SCHMIDT, Ohio

ELIJAH E. CUMMINGS, Maryland

BERNARD SANDERS, Vermont

DANNY K. DAVIS, Illinois

DIANE E. WATSON, California

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

MAJOR R. OWENS, New York

ELEANOR HOLMES NORTON, District of

Columbia

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

MARC WHEAT, Staff Director

MICHELLE GRESS, Professional Staff Member

MALIA HOLST, Clerk

TONY HAYWOOD, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on November 1, 2005 ........................................................................ 1

Statement of:

Eban, Katherine, author, Dangerous Doses; Kevin Fagan, father of Timothy Fagan, counterfeit drug victim (Epogen); and Max Butler, brother

of Maxine Blount, counterfeit drug victim (Procrit) ................................... 62

Butler, Max ................................................................................................ 75

Eban, Katherine ........................................................................................ 62

Fagan, Kevin .............................................................................................. 71

Lutter, Randall W., Ph.D., Acting Associate Commissioner for Policy and

Planning, Food and Drug Administration .................................................. 16

Pitts, Peter J., director, Center for Medicines in the Public Interest;

Carmen Catizone, executive director, National Association of Boards

of Pharmacy; James A. Dahl, former Assistant Director of Investigations, FDA Office of Criminal Investigations; and Donald Dekieffer,

Dekieffer & Horgan ...................................................................................... 96

Catizone, Carmen ...................................................................................... 100

Dahl, Jim ................................................................................................... 109

Dekieffer, Donald ...................................................................................... 115

Pitts, Peter J. ............................................................................................. 96

Letters, statements, etc., submitted for the record by:

Butler, Max, brother of Maxine Blount, counterfeit drug victim (Procrit),

prepared statement of ................................................................................... 77

Catizone, Carmen, executive director, National Association of Boards of

Pharmacy, prepared statement of ............................................................... 102

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 10

Dahl, James A., former Assistant Director of Investigations, FDA Office

of Criminal Investigations, prepared statement of .................................... 111

Dekieffer, Donald, Dekieffer & Horgan, prepared statement of ................... 117

Eban, Katherine, author, Dangerous Doses, prepared statement of ............ 64

Fagan, Kevin, father of Timothy Fagan, counterfeit drug victim (Epogen),

prepared statement of ................................................................................... 73

Gutknecht, Hon. Gil, a Representative in Congress from the State of

Minnesota, Pharma ad ................................................................................. 89

Lutter, Randall W., Ph.D., Acting Associate Commissioner for Policy and

Planning, Food and Drug Administration, prepared statement of ........... 19

Pitts, Peter J., director, Center for Medicines in the Public Interest,

prepared statement of ................................................................................... 98

Souder, Hon. Mark E., a Representative in Congress from the State

of Indiana:

Prepared statement of ............................................................................... 5

September 17, 2005 article ....................................................................... 92

(1)

SICK CRIME: COUNTERFEIT DRUGS IN THE

UNITED STATES

TUESDAY, NOVEMBER 1, 2005

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON CRIMINAL JUSTICE, DRUG POLICY, AND HUMAN RESOURCES, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 2:05 p.m., in room

2154, Rayburn House Office Building, Hon. Mark E. Souder (chairman of the subcommittee) presiding.

Present: Representatives Souder, Burton, Gutknecht, Schmidt,

Cummings, Watson, and Norton.

Staff present: Marc Wheat, staff director and chief counsel;

Michelle Gress, professional staff member and counsel; Malia

Holst, clerk; Tony Haywood, minority counsel; and Jean Gosa, minority assistant clerk.

Mr. SOUDER. The subcommittee will come to order. Good afternoon and thank you all for being here. We’re here because selling

fake prescription drugs within the United States is a serious public

threat and a growing problem.

This hearing will examine the vulnerabilities that allow counterfeit or substandard drugs to end up in legitimate pharmacies, how

such vulnerabilities expose this Nation to terrorist attacks through

our medicines, and the anticipated widespread counterfeiting of

lifesaving avian flu treatment in the midst of a potential pandemic,

compounding the deadly toll of an outbreak. Just this morning the President asked Congress for $1.2 billion

for vaccines to prepare for an avian flu pandemic. We cannot risk

vaccinating Americans with counterfeited therapies. This is a very

serious issue to which we are calling our attention. According to

the World Health Organization, 10 percent of global pharmaceutical commerce this year will be counterfeit. That is expected to

double by the year 2010 as international criminal organizations become more sophisticated.

Last year within the United States the FDA’s counterfeit drug

investigations rose 150 percent in only 12 months. One key to understanding this disturbing problem is the so-called ‘‘gray market’’

which stems from the practice of drug diversion. Drug diversion is

the principal method by which counterfeits enter the legitimate

drug market. The FDA confirmed with subcommittee staff that

drug diversion was the entry point for every case investigated by

that agency involving counterfeit drugs going into legitimate pharmacies. For example, closed-door or own-use pharmacies are priVerDate 11-MAY-2000 11:41 Dec 15, 2006 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 D:\DOCS\30672.TXT HGOVREF1 PsN: HGOVREF1
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mary sources for diversion. Own-use pharmacies such as nursing

homes or hospitals agree to provide medications solely to their own

patients. Accordingly, such pharmacies acquire medication at a

price much lower than wholesale. This opens the door to fraud, exemplified by some own-use pharmacies overstating their patient

populations, reserving surplus drugs, then selling them at a higher

price into the gray market.

Once drugs are on the gray market they may be bought and sold

dozens of times, passed among several hands, mishandled and relabeled. This happens easily because the pharmaceutical supply

chain is not regulated by any entity, private or governmental. The

pharmacies within a State are monitored by 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 safety, effectiveness and labeling of their drugs. The drug manufacturers

typically exercise no control over their drugs once they’re 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. Distributors, like retailers and physicians, are licensed by

the States, which must only meet the minimal standards set by the

prescription drug marketing act.

If you could display the first illustration.

In order to obtain a distributor’s license, some States’ licensing

standards provide an opportunity for unscrupulous distributors to

legitimately buy and sell pharmaceuticals. One of the most notorious recent counterfeit drug bust cases which we’ll hear about in

our second panel involved a convicted felon who obtained a State

distributor license in Florida. As you can see on this map, 11

States, including Florida, have recently toughened their licensing

standards for distributors. However, this leaves a patchwork of

laws across the country allowing for unscrupulous distributors to

obtain legitimate State licenses and trade drugs on the secondary

market.

This situation of inconsistent standards throughout the country

has prompted the Health Care Distribution Management Association [HDMA], to recently advocate uniform Federal licensing standards for prescription drug distributors.

Having a private business association advocate vigorous licensing

standards is something we rarely see, but it’s clear that the gravity

of this problem and the issues at stake have prompted the HDMA

to take this radical step in order to promote the safety and security

of our Nation’s drug supply.

Nevertheless, the current system allows drugs to pass through

several middlemen before reaching the patient’s hands. When they

resell the drugs, they sometimes relabel them to reflect higher and

more valuable doses, mishandle them to contaminate or to degrade

the drug, or substitute fake products for the legitimate goods.

This is a photo of an alleged tablet of Lipitor, a popular cholesterol-lowering drug, and a suspected counterfeit. They are virtually

indistinguishable. The FDA recently indicted 11 individuals, a drug

repacker and 2 wholesale distributors in cases related to the sale

of Lipitor.

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Go to the third illustration.

This is a closeup photo of Lipitor’s registered trademark. The

measurement in the upper left-hand corner shows the scale of 1/

20th of a millimeter, which is incredibly small. While the microscope can reveal the counterfeiting, the naked eye may not. Counterfeit or substandard drugs like this counterfeit Lipitor can end up

on the shelves of the trusted pharmacy and ultimately distributed

to unsuspecting victims. For the patient, there is no commercial

transaction like this. The patient has virtually zero ability to inspect the drug packaging or compare it to other samples.

The patient who goes to a pharmacy to have his prescription

filled is helpless in determining the quality of the drug and 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.

One way to verify a drug’s authenticity is through a pedigree

which would show the drug’s chain of custody. Some of the States

toughened licensing standards to distributors, such as Florida, who

will soon require paper pedigrees for drugs purchased within that

State. However, the FDA delayed until September 2006 the effective date for national regulations requiring a pedigree in the hopes

an electronic track-and-trace program such as radio frequency identification [RFID] will be viable.

The FDA has reported to the subcommittee staff that their Office

of Criminal Investigations [OCI], has turned out 71 indictments on

their counterfeit drug cases, many of which involve multiple

counts, leading to 67 convictions so far. Several more cases not yet

in the formal judicial process are in the pipeline. Moreover, OCI’s

robust investigations have interdicted counterfeit drugs that would

have made it to pharmacy shelves.

However, significant vulnerabilities in this system still exist. In

addition to providing a way for unscrupulous enterprises to obtain

massive prices by distributing phony high-price drugs, the

vulnerabilities in the systems provide a way for terrorists to target

our citizens. One widely discussed scenario, among dozens of possibilities of how they might exploit our vulnerability, involves a deliberate anthrax scare to trigger a run on Cipro, the antibiotic used

for anthrax poison. A phony and deadly version having been injected into the pharmaceutical stream by terrorists would cause

thousands more deaths.

Baswa Hamad, a Taliban-linked terrorist recently extradited

from Afghanistan, defends a Jihad of taking Americans’ money at

the same time the drugs we are paying for kill us.

Finally, the counterfeit drugs issue is well illustrated by the immediate worldwide concern over an avian flu outbreak in the FDA’s

announcement last week that anticipates an increase in the sale of

counterfeit or fraudulent treatments for such a pandemic. Tamiflu,

currently the only known treatment for this virus strain, is expected to be widely counterfeited. Counterfeit treatment in the

midst of a pandemic would certainly compound the deadly toll of

the flu.

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I do not want to wait until there are catastrophic failures in the

system to examine the problems that allow counterfeit drugs into

our pharmaceutical market. The time for examining and acting on

this problem is now.

Our first panel today is Mr. Randall Lutter, Acting Associate

Commissioner for Policy and Planning at the Food and Drug Administration.

The second panel consists of Katherine Eban, author of Dangerous Doses; and family members of two patients who are victims

of counterfeit drugs purchased at mainstream pharmacies: Kevin

Fagan, the father of Timothy Fagan who received counterfeit

Epogen after his liver transplant operation; and Max Butler, the

brother of Maxine Blount who received counterfeit Procrit in the

midst of her battle against breast cancer.

The third panel consists of Mr. Peter Pitts from the Center for

Medicines in the Public Interest; Carmen Catizone, executive director of the National Association of Boards of Pharmacy; Jim Dahl,

Former Assistant Director of Investigations, FDA Office of Criminal Investigations; and Donald deKieffer of deKieffer & Horgan.

Now I’d like to yield to our ranking member, Mr. Elijah

Cummings.

[The prepared statement of Hon. Mark E. Souder follows:]

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Mr. CUMMINGS. Thank you Mr. Chairman. Counterfeit drugs represent a threat to the safety of the drug supply globally. The World

Health Organization estimates that in poor countries as much as

25 percent of the medicine consumed may be counterfeit or substandard. In some developing countries the percentage is as high

as 50 percent.

In the United States consumers can be confident that the safety

and effectiveness of the drugs they obtain through the legitimate

market are extremely safe and effective in relative terms. Nevertheless, there is ample evidence that counterfeit drugs are an increasing challenge for Federal and State regulatory bodies, pharmacies, and drug manufacturers and wholesalers. The health risk

to consumers that obtain drugs that are fake, diluted, or mislabeled

as to dosage, potency, or other characteristics is potentially quite

serious, depending on the drug and the illness or condition the

drug is being used to treat. Such drugs may be simply ineffective,

resulting in a patient’s condition going untreated, or they may very

well be harmful.

Charged with ensuring the safety and effectiveness of the drugs

available to consumers in the United States, the FDA is the lead

Federal agency for investigating U.S. counterfeit drug cases. Over

the past several years there has been a sharp increase in the number of counterfeit drug investigations undertaken by FDA’s Office

of Criminal Investigations. The number of these investigations

ranged from 5 and 11 annually between 1997 and 2000.

In 2004 FDA’s OCI conducted 58 investigations, up from 30 the

year before, and 27 in 2002. This increase coincides with a similar

increase in the amount of counterfeit drugs seized in the United

States in recent years.

In 2000 an estimated 100,000 doses of counterfeit drugs were

seized in the United States, whereas last year an estimated 3 million fake medications were seized in our country. This suggests a

substantial increase in the volume of counterfeit drugs available in

the United States.

Although most of the counterfeit drugs seized in the United

States are destined for the black market or illegitimate Internet

pharmacies, FDA investigations have also led to seizures of counterfeit drugs offered for sale in legitimate pharmacies. This raises

legitimate serious concerns about the integrity of the supply chain

between manufacturer and pharmacy.

As we will hear today, the course a drug takes from the shipping

docks to the pharmacy shelf can be convoluted, one that offers unscrupulous distributors numerous opportunities to exploit weaknesses in regulation and security.

In 1987 Congress enacted the Prescription Drug Marketing Act

to protect the American public from the emerging problem of counterfeit drugs. For a variety of reasons, 18 years later, some of the

law’s requirements have yet to be implemented by regulation.

In July 2003, FDA formed the Counterfeit Drug Task Force to

develop recommendations for addressing all aspects of drug counterfeiting. In February 2004, the task force issued a report entitled,

‘‘Combating Counterfeit Drugs: A Report of the Food and Drug Administration.’’ The FDA report highlights measures that can be

taken to better protect Americans from counterfeit drugs, focusing

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on six areas, and they are: securing the actual drug product and

its packaging; securing the movement of the product as it travels

through the U.S. drug distribution chain; enhancing regulatory

oversight and enforcement; increasing penalties for counterfeiters;

heightening vigilance and awareness of counterfeit drugs; and, finally, increasing international collaboration.

Prominent among the proposed means for securing drugs

through the supply chain is new technology design to track and

trace drugs as they travel in the stream of commerce from the

manufacturer to the pharmacy. Adoption of drug authentication

technology and stricter State licensing standards for drug distributors are other key measures recommended by the report.

State regulators and industry also have taken notice of the counterfeit drug threat. For its part, the National Association of Boards

of Pharmacy has taken the important step of proposing new model

rules for the licensing of wholesale distributors, and to date 11

States have adopted the tougher standards. In addition, some

major wholesalers and retailers have announced their attention to

avoid obtaining drugs from secondary markets.

Still, there is much to be done to ensure the efforts to protect the

drug supply, to catch up to and keep pace with the actions of bad

actors who think nothing of jeopardizing the health and safety of

American consumers in order to turn a fraudulent profit.

Today we will hear valuable testimony from the FDA, other industry stakeholders, outside observers, and representatives of victims of counterfeit drugs about the threat that fake, mishandled,

or mislabeled products pose to the integrity of the U.S. drug supply

and about what progress is being made to secure the U.S. drug

supply against threats like diversion and illegal importation.

And so, Mr. Chairman, I thank you for holding this important

hearing and I look forward to the testimony.

[The prepared statement of Hon. Elijah E. Cummings follows:]

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Mr. SOUDER. Mr. Burton, do you have any opening comments?

Mr. BURTON. No.

Mr. SOUDER. Ms. Holmes Norton.

Ms. NORTON. Thank you very much, Mr. Chairman, because I do

think this is a very important issue to focus upon. Frankly, I was

surprised that there was no Federal regulation here. No one can

doubt we’re in interstate commerce this time, I think, and when we

have the industry saying that the hodgepodge of State regulations

and difficulty of enforcing at the State level means we ought to

have Federal regulation, I’m about to listen. And I hope you are,

Mr. Chairman, because it looks like this problem is growing way

out of proportion and anybody can understand why.

It seems to me it coincides simultaneously with the huge increases in pharmaceutical drug prices. The more you get of that—

and that seems to be out of control. Even seniors, when they get

access in January to our bill, will find that the prices continue to

go up because there is nothing that the bill does about it. At least

they’re going to be safe, I believe, in the safe HMOs or other organizations. But what could be more dangerous to the general population, who do not have access to such a bill, than fake pharmaceuticals? It is very, very foreboding to know about this increase

when we know that people need many of these pharmaceuticals

and will now have, because there is no Federal regulation between

the manufacturer and the pharmacy, the temptation to in fact take

advantage of what looks like a cheaper version of the drug. We

Americans, if you can get it cheaper, if it’s on sale, I think that’s

why you have Wal-Mart, then of course people are going to go for

it.

So I really pity the Federal Government trying to do this in the

context of no real strong Federal legislation, and I hope that we are

encouraged to move swiftly.

When I think of the of medicines that my constituents tell me

about, when I say, for example, you ought to use generics, particularly if you’re on Medicaid or Medicare, because you’re using up

scarce dollars, and people then begin to tell me about differences

in medicines that I am not very familiar with. For example, high

blood pressure medicine and how they try one or another until they

get the right one. I can just imagine somebody getting a cheaper

high blood pressure medicine and thinking, ‘‘I guess this is it.’’ This

is very, very dangerous.

And of course, if I may say so, Mr. Chairman, the people who are

most likely to look for cheaper drugs are going to be middle-class

and poor people who just say, ‘‘This is it. If this is all I can get and

costs half as much, I am going to do this.’’

We already have blocked reimportation. We could have reimportation legislation that controls this, at least from outside of

the United States, controlled how importation took place. You

would think that at least within the United States, we could find

a way to make sure that people aren’t getting fake medicine. I

think we ought to try to see what we can do about this before we

go home this session. And I thank you again for this hearing, Mr.

Chairman.

Mr. SOUDER. Thank you.

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I would also like to recognize Ms. Schmidt from Ohio. Do you

have any opening comments you’d like to make?

Mrs. SCHMIDT. Just glad to be here and looking forward to a lot

of the discussion on this very serious issue.

Mr. SOUDER. Thank you very much.

I ask unanimous consent that all Members have 5 legislative

days to submit written statements and questions for the hearing

record. Any answers to questions provided by the witnesses must

also be included in the record. Without objection, it is so ordered.

Also ask unanimous consent that all exhibits, documents, and

other materials referred to by Members, will be included in the

hearing record, that all Members may be permitted to revise and

extent their remarks. Without objection, it is so ordered.

Our first panel is composed of Mr. Randall W. Lutter—once

again in my head I couldn’t get it out, even though they corrected

me—who is the Acting Associate Commissioner for Policy and Planning at the Food and Drug Administration. As an oversight committee it’s our practice to ask witnesses to testify under oath.

[Witness sworn.]

Mr. SOUDER. Let the record show the witness responded in the

affirmative. Thank you for joining us today. We’re looking forward

to your testimony.

STATEMENT OF RANDALL W. LUTTER, PH.D., ACTING ASSOCIATE COMMISSIONER FOR POLICY AND PLANNING, FOOD

AND DRUG ADMINISTRATION

Mr. LUTTER. Thank you, Mr. Chairman and members of the subcommittee. I’m Randall Lutter, Acting Associate Commissioner for

Policy and Planning at the U.S. Food and Drug Administration.

Thank you for the opportunity to testify about FDA’s efforts fighting counterfeit prescription drugs.

Let me emphasize, first, that the overall quality of drug products

that consumers purchase from U.S. pharmacies remains high. The

American public can be confident that these medications are safe

and effective. The FDA cannot, however, offer the same assurance

about the safety and quality of drugs purchased from sources outside the U.S. regulatory system. Counterfeit drugmakers operating

outside the system seek profit by peddling fake medicines to sick

patients who need real treatment, sometimes with tragic consequences.

My testimony today will focus first on the growing counterfeit

drug problem and then on FDA’s effort to secure and approve the

safety of our drug supply.

U.S. law defines counterfeit drugs as those sold under a product

name, without proper authorization, where the product is knowingly and intentionally mislabeled in a way that suggests it’s the

authentic approved product. Counterfeit drugs include products

without the active ingredient, with too little of the active ingredient, with the wrong active ingredient, or with fake packaging. This

definition reflects fraud. Consumers wrongly believe they’re buying

a genuine product. Counterfeit prescription drugs are illegal and

they’re inherently unsafe.

As you can see from the first slide, the number of newly initiated

counterfeit drug cases has risen in the last few years. We believe

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the unusually high number of cases in fiscal year 2004 stems in

part from the increased awareness and vigilance throughout the

drug distribution chain, as a result of FDA’s 2004 Counterfeit Drug

Report, increased referrals from other law enforcement agencies, as

well as improved communications with manufacturers.

Fortunately, because of the expertise and extensive investigative

experience of the Office of Criminal Investigations at FDA, we’ve

been successful in stopping most of these drugs before they could

reach consumers, and we’ve also detected and dismantled many

counterfeit schemes. Counterfeiters have become so sophisticated

that many counterfeit drugs are indistinguishable from genuine

FDA-approved products.

As shown in the second slide, fake Viagra appears superficially

identical to the genuine product.

As shown in slide three, fake Lipitor appears very much like the

authentic product.

As shown in slide four, even the packaging of fake Serostim is

cleverly made to look like the real thing.

Counterfeit drugs can have serious adverse health consequences

for patients. For example, counterfeit Procrit, which is an injectable

sterile drug used by cancer and AIDS patients, contains not the active ingredient of Procrit but nonsterile tap water which could have

caused a severe infection in the patients who received it.

The second example is counterfeiters tried to pass aspirin tablets

as Zyprexa, a drug for schizophrenia and bipolar disorder. This

could have been dangerous for patients who were aspirin sensitive,

who were aspirin allergic, or who have bleeding disorders. In addition, patients wouldn’t receive their appropriate treatment for this

potentially serious disorder.

In 2001, in a report to Congress regarding the Prescription Drug

Marketing Act of 1987, FDA noted that in order for secondary

wholesalers to have full pedigrees for their products, Congress

would have to amend section 503(e) of the Food, Drug and Cosmetics Act. FDA issued final regulations implementing the Prescription

Drug Marketing Act in 1999, but it stayed on several occasions certain provisions in response to public comments and to allow Congress to consider the 2001 report. The stay was most recently extended to December 2006 in the expectation that electronic trackand-trace technologies would offer a low-cost alternative to paper

pedigrees.

In July 2003, FDA established an internal Counterfeit Drug Task

Force to campaign against the growing threat of counterfeit drugs.

The task force report released in February 2004 highlighted a

multitiered approach to better protect Americans from counterfeit

drugs.

See slide five, please.

The multitiered approach consisted of securing the actual drug

product, securing its packaging, and securing its movement

through the U.S. distribution chain; also enhancing regulatory

oversight and enforcement, increasing penalties for counterfeiters,

heightening vigilance and awareness of counterfeit drug; and, last,

increasing international collaboration.

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For brevity I focus here on new technologies that might help us

secure more effectively the product, its packaging and movement

through the supply chain.

New technology that could electronically track and trace the

product could provide a reliable electronic drug pedigree.

Slide six shows the information that an electronic might accumulate as a product moves through the distribution system. Radio frequency identification, the most promising electronic track-and-trace

technology uses a radio frequency chip, an example of which appears in slide seven.

Adoption of RFID technology will allow supply chain stakeholders to track the chain of custody or pedigree of every package of

drugs through every step of the supply chain.

Our other initiatives include encouraging health professionals to

use the MedWatch form to report suspect counterfeit drugs to FDA.

We have created a network to provide timely notification of verified

counterfeit events to members and constituents of a variety of

groups. We’re distributing public service announcements to consumers and collaborating with international partners.

Before I conclude, I’d like to touch on an issue of recent interest

for public health regulators. As public awareness grows on the

avian flu as a potential public health threat, FDA anticipates an

increased risk of counterfeit or fraudulent treatments. Although

the agency is not aware at this point of any counterfeit Tamiflu

cases in the United States, there are initiatives in place to deter

counterfeiters and parties who sell fraudulent or phony products

against avian flu.

In conclusion, despite recent progress, there remains a viable and

concrete threat of counterfeit drugs entering distribution in the

United States. We must all work together to pursue the measures

identified in the FDA’s counterfeit report to protect U.S. patients

against counterfeit and unsafe drugs. Thank you.

[The prepared statement of Mr. Lutter follows:]

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Mr. SOUDER. You said in your testimony that you asked Congress

in 2001 in the report to amend section 503(e) to make the requirement universal. Are you maintaining that that is a major reason

you haven’t gone ahead with the pedigree? I don’t understand what

the point of that is.

Mr. LUTTER. Since the time that recommendation was offered,

there has been no legislative action. Our current proposal is to do

the best we can given current law and the authorities we have.

Mr. SOUDER. You’re saying without a universal pedigree, there’s

no point in——

Mr. LUTTER. Our expectation is that the track-and-trace technology exemplified by RFID would offer a way to implement an

electronic pedigree given the existing authorities.

Mr. SOUDER. So you wouldn’t need to do the amendment.

Mr. LUTTER. It would still be helpful and the recommendation

still stands. It’s unclear. While we have substantial optimism about

the availability of RFID, by 2007, after the end of 2006, there’s of

course uncertainty about the schedule, that it would be adopted.

Mr. SOUDER. So the criticism that the State—are you maintaining that the reason you haven’t implemented any kind of pedigree

is because of the failure to amend 503?

Mr. LUTTER. The decision behind the stay was in response to a

variety of public comments, including from Members of Congress

and the Small Business Administration as well as from industry,

that it would be very difficult to comply with the regulation as

drafted. It related in part to the cost of implementing the paper

pedigree, which was the best available technology at the time, and

also with respect to the difficulties of 503.

Mr. SOUDER. This bill was passed 18 years ago. Have private

companies done anything to improve that, to establish a pedigree?

What have they done to move ahead?

Mr. LUTTER. There are some initiatives in some States where

States have already adopted stringent regulations, Florida being

one. A variety of major pharmaceutical companies have taken active steps recently to adopt voluntarily the RFID track-and-trace

technology. We think that the actions by those companies, and also

by Wal-Mart, which, as you know, is a leader in retailing and in

distribution, provide a way for the industry to move forward toward a lower-cost electronic track-and-trace technology.

Mr. SOUDER. Did Florida move to an electronic track and trace

or to the paper trail?

Mr. LUTTER. They have not adopted the electronic RFID.

Mr. SOUDER. So they did in Florida what you said would be difficult for us to do at the Federal level?

Mr. LUTTER. Yes.

Mr. SOUDER. Are other States copying the Florida——

Mr. LUTTER. There have been examples of other States. They’re

in a variety of stages of implementation. FDA’s policy in general

has been to facilitate and support more stringent licensing requirements on wholesalers at a State-by-State level where there has

been evidence that the existing programs are lax.

Mr. SOUDER. Why would you favor it on a State-by-State level

but not nationally?

49

Mr. LUTTER. We at this point have no particular policy. We’re

still studying the proposal by the HDMA, which you alluded to in

your earlier remarks.

Mr. SOUDER. For 18 years?

Mr. LUTTER. Excuse me?

Mr. SOUDER. For 18 years you have been studying it; 1987, 1999

made more specific questions. Part of the question is how long do

you have to study something?

Mr. LUTTER. We issued the regulation on the pedigrees in 1999

and we’ve stayed it repeatedly since then. It did take a while following the enactment of the law.

Mr. SOUDER. Are you going to continue to stay this until you figure out whether the electronic will work?

Mr. LUTTER. At the time that we issued the last stay, we received ample public comment from the industry, from manufacturers, and from retailers that they believe that based on available information that they had, that electronic track and trace would be

feasible and widespread by the year 2007. Because electronic track

and trace offered a lower-cost way of satisfying pedigree requirements, we believed at that time the track and trace would be a way

of satisfying the pedigree requirements after December 2006, and

that’s why we issued—extended the stay of the rule through December 2006.

At this time, we continue to be optimistic that RFID would be

economically feasible to the industry and available at that time,

but of course there’s uncertainty about how the technology will develop.

Mr. SOUDER. I have been more immersed in this last stretch trying to figure out how we regulate pseudoephedrine with meth, and

the arguments you’re making are so similar as we try to deal with

this at a Federal level. The administration’s position has been why

not a State-by-State level? And so we have chaos, that people in

one State go over to the next State to get it. We’ve been meeting

about the difficulty of the paper trail and whether it can be done

electronically, which people hold out may be a possibility to do this

electronically. Now we’re hearing that in a sense everything is

somewhat in danger, and we’ll hold out hope that electronic will do

it.

That’s why my question is: Has anything been done in 18 years,

or is it in fact the threat of a Federal regulation? I have a family

business. I grew up in a family business. And part of the question

is at what point do you start to react proactively to avoid the Federal intervention, or how long do we wait and stay and stay and

stay? That’s kind of where my questions were driving, if you could

tell us directly that the electronics will be implemented by date certain and will work in small business.

What we found in pseudoephedrine is Target and Wal-Mart can

agree, but small business can’t really function, because the bigger

distributors will have electronic ability; the smaller ones may not.

So then you get into a situation of having electronics, but it automatically biases toward the big retailers unless you have a paper

combined with it, which is what we’re finding in the other areas.

50

I just don’t see—do you really think there will be electronic availability in every little pharmacy and grocery story in the United

States in, what did you say, 2006?

Mr. LUTTER. The information that was given to us from the industry a couple of years ago as we were preparing the Counterfeit

Task Force report, and at the time we developed the decision on

the stay, was that there was substantial optimism. A lot of that

was because the RFID is not primarily for counterfeit control in the

sense of providing a pedigree, but also it provides substantial business advantages to the wholesalers and to the industry, the manufacturing companies, in terms of giving them information about

management of their inventories to lower inventory control costs

and to provide an opportunity for them to better manage the distribution of their entire product. The information that we had from

them is that this would be economically feasible by the year 2007.

Clearly these expectations depend on their judgment about the development of the new technology. We will have to reassess the development of that new technology as we approach the expiration of

the stay late next year.

Mr. SOUDER. Why wouldn’t you do what States are doing in meth

and other things; that is, put a paper trail in and when the electronics come, you replace it with electronics.

Mr. LUTTER. In 2001 when we originally issued the stay, there

was substantial opposition from the industry, including the Small

Business Administration, that this would put out of business many

small secondary wholesalers. And since this is also in response to

these concerns expressed by the industry and by the Small Business Administration and by Members of Congress, we decided to

implement the stays.

Mr. SOUDER. Thank you. Mr. Cummings.

Mr. CUMMINGS. Who are these counterfeiters, do you know? Do

you have any idea who they are? Are the people in this country or

outside of the country?

Mr. LUTTER. The counterfeiters are identified primarily through

the ongoing criminal investigations. In terms of who they are,

when the products are sold in this country where FDA has jurisdiction, they’re sold by American, typically American, pharmaceutical

product wholesalers, and the products are typically intercepted at

that level, but people who are masquerading in any event as such

wholesalers.

Mr. CUMMINGS. You say in your testimony, I think you said that

we catch them usually before they get to the retail.

Mr. LUTTER. We have been successful to date in catching most

of the products before they reach retail distribution.

Mr. CUMMINGS. Why is that? How has that come about?

Mr. LUTTER. I think it’s largely because of the quality of the tips

and the information that we gather from the manufacturers and

from the wholesale distribution system. Most counterfeit investigations that we initiate are not the result of a consumer saying I got

a product which isn’t genuine—because it’s clearly extremely difficult for consumers to make the distinction. Instead, they’re sometimes from manufacturers who give tips that a product has been

brought to their attention which is not one of theirs, but in fact resembles theirs; or is from a wholesaler who also has information

51

that the products are being sold as if they were FDA-approved,

when in fact they’re products which are not. And it’s that sort of

information that is usually the impetus for the investigations that

we undertake.

Mr. CUMMINGS. Just recently we had on the national news this

thing about the folks trying to sell some fake flu vaccines. How did

that come about? How did that information come about?

Mr. LUTTER. That was a case in Texas where the flu vaccine was

injected at a workplace. It’s actually not a counterfeit product, because apparently it was not sold as if it was a brand-name vaccine.

It was surely fake, it was fraudulent, it was unsafe, it was potentially dangerous.

Mr. CUMMINGS. Unapproved.

Mr. LUTTER. Unapproved, surely. My understanding, the syringes were filled with sterile water. Surely the people received no

benefit in terms of protection against the flu, which is the primary

interest that they were seeking the vaccinations.

Mr. CUMMINGS. So you’re saying, then, that we are able to catch

most—the people that we have been able to at least catch, they

have gotten to them before they got the product to the retailer.

Who are these retailers? Is there any particular part of the country

where you see this more prevalent?

Mr. LUTTER. I don’t think it’s easy to generalize about what types

of retailers are more inclined to be buying this. I think many retailers are business people and are potentially vulnerable to sales of

counterfeit products when they’re made available. So I think in

that sense it’s a potentially widespread problem.

Mr. CUMMINGS. How often do we find these drugs actually get to

the retailers, from what you can see? Is that a major problem? I

know what you just said, that we see a number of cases where they

actually get to the retailer.

Mr. LUTTER. Based on conversations with the senior staff in the

Office of Criminal Investigations at FDA, I don’t think I’m able to

generalize about that. We just don’t know.

Mr. CUMMINGS. There seems to be an increase in FDA counterfeiting investigations recently. How much is this attributed to

heightened vigilance or to the extent the problem may be getting

worse? Do you have any idea?

Mr. LUTTER. We’ve had extensive discussions internally about

that question. The best professional judgment is that the problem

is indeed getting worse. There are probably more counterfeit drugs

out now than there used to be.

Notwithstanding that, we believe the overwhelming majority of

all products available in the United States are safe. As to why

there’s an increase, that’s a very difficult question. We believe that

the increase in initiated new investigations, the first chart that I

presented today, reflects largely two things: One is a growing

threat in terms of the number of counterfeits that may exist; and

the second one is improved information that we get from manufacturers and from wholesalers from the law enforcement community

both at a Federal level and at a State and local level, and those

better tips are ones that help us initiate more investigations than

was the case in the past.

52

Mr. CUMMINGS. Do you feel that you have enough money to do

the things that you need to do? Here we have an increase in the

investigations, and based upon what you just said, it seems as if

people have decided that this is a business that they want to be

a part of; this counterfeiting business, that is.

Do you feel we have enough money? We’re trying to concentrate

on a number of issues, as you well know, in our country. And I’m

wondering if you believe your folks have enough money to do what

you need to do, because if this continues to increase, I can see a

situation where a lot of people can be harmed, and I was just wondering.

Mr. LUTTER. Let me say, first, that most recent available data on

the number of investigations is somewhat reassuring. A very high

number in fiscal year 2004, 58, fell the following year to 32. And

that suggests that the very high number in that 1 year was somewhat unusual. The decline may be due in part to successful deterrents, may be due in part to the fact that when we initiated new

investigations in the most recent year, we discovered that some of

those were in fact linked to investigations initiated in the earlier

year and therefore were not independent. And when accounting for

these investigations, taking in a manner that attempted to count

merely the number of independent ones, the independent investigations initiated in the last year was lower.

With respect to your question of whether or not we need more

money, we have a variety of priorities at the FDA in the Office of

Regulatory Affairs and with respect to criminal investigations in

particular. The Office of Criminal Investigations is responsible for

medical devices, also foods as well as drugs. It also investigates

cases of fraud regarding new drug applications. Given those competing priorities, we do the best we can with the resources that we

have.

Mr. CUMMINGS. Well, what does that mean, though?

Mr. Chairman, I have to finish this. Give me 1 second. We are

here talking about the drug counterfeiting, and I need to know

where that falls in all the things that you just stated; that’s the

one question.

The other question is, help me understand, isn’t it possible that

we still may have a very significant problem in the mere case, the

mere fact that there have been, maybe, as you just testified, less

investigations may not necessarily mean that there are less problems? I mean, can you answer those two? And then I’m finished.

Mr. LUTTER. Well, there’s a very tenuous relationship between

the number of investigations and the extent of the problems. We

believe that there’s more problems associated with counterfeit

drugs in recent years, call it the last 2 or 3, than there were 5 or

6 years ago. In that sense the trend is disturbing.

I’m sorry; your other question?

Mr. CUMMINGS. I was trying to figure out exactly where in the

line of priorities—I asked the question, first of all, do you have

enough money? Then you gave me a whole list, a laundry list, and

rightfully so, of the things that are priorities for you. And I’m just

trying to figure out where this falls in the list. Is this something

that’s at the top of the list, is this at the bottom? Where is it?

53

Mr. LUTTER. The way the OCI is managed is that the investigators are generalists. They are assigned to different topics according

to where the opportunities are and where the information lies so

that they can be most effective. And in that sense, I think it’s very

difficult to come up with a single ranking of where the priorities

are, because it depends on the particular circumstances available

in any particular investigations.

Mr. CUMMINGS. Thank you.

Mr. SOUDER. I understand your testimony to say that the FDA,

that you systematically random test drugs at pharmacies and grocery stories, that you systematically random test things on the

Internet or at, say, flea markets or other selling points to see if

there’s fraud.

Mr. LUTTER. No.

Mr. SOUDER. Then how in the world can you say under oath that

you know what the level of the problem is? In other words, all you

can testify to us is how many——

Ms. NORTON. Mr. Chairman, can you speak up?

Mr. SOUDER. I’m questioning how he can testify under oath that

he knows the extent of the problem if you’re not doing any testing

other than from a tip.

Mr. LUTTER. Mr. Chairman, I mentioned earlier that it was

based on the best professional judgment of——

Mr. SOUDER. In other words, tips.

Mr. LUTTER. The staff of the Criminal Investigations that the

trend is increasing.

Mr. SOUDER. You said earlier that you believe it’s generally been

an increasing trend, but I was responding really to Mr. Cummings’

first question. You downplayed, you said the overwhelming numbers and all this kind of stuff. The fact is you don’t know. Based

on the tip, which is one indicator, but if you’re not doing random

testing, particularly in high-risk areas, you don’t know. We do that

all the time in all other kinds of narcotics, and you can’t make that

statement, because you don’t have a border check that systematically—or do you? Are you basing this solely on how many criminal

investigations are initiated from tips?

Mr. LUTTER. We lack the resources to conduct the sort of randomized testing of products sold in the market that I think you’re

describing. We have not contemplated that. We’ve never done it.

Mr. SOUDER. That is a very fair statement and we may all have

to decide that the risk isn’t there, but then we can’t make sweeping

statements about safety if we haven’t random tested.

Mr. LUTTER. The statement about safety is based on many years

of experience of the FDA professional staff who are responsible for

ensuring the safety of and effectiveness of drugs sold in America,

and their collective judgment is that the vast majority of these

products are safe.

Mr. SOUDER. Thank you. Mr. Burton.

Mr. BURTON. We’re all against counterfeit drugs. You probably

don’t know this, but we had Mr. Hubbard before my committee

when I was chairman of the full committee, about five times, and

we were talking about the reimportation of pharmaceutical products. He said that they couldn’t guarantee the safety of them, and

I asked him how many people died from aspirin or Tylenol last

54

year, and he didn’t know. I said, do you have any records about

that? And he says, well, no. I said, how many people were injured

last year from pharmaceutical products imported from Canada,

where they have a pretty rigid pharmaceutical policing system?

And he says he didn’t know.

And I have all the testimony here from two or three hearings if

you would like. I’d be glad to give you all of it. The fact is you don’t

know. You just don’t know. And policing it is very, very difficult.

The reason that people import pharmaceutical products is because

the cost disparity is so great. The pharmaceutical pharmacy

charges 8, 9, 10, 20 times more in the United States for the very

same product sold in Germany, France, England, Canada and elsewhere. And you’ve got people on fixed incomes who have to split

their pills. You talk about being safe: They split their pills, split

their medication, because they can’t afford to buy the pills because

they cost so much here, when they can go across the border in Canada and get the same thing, 10 times as many pills for the same

price. That’s the problem.

And we never heard about this kind of a problem before we started talking about reimportation, the counterfeits. We had hearings

for 4 years, we never talked about counterfeit drugs until we started talking about reimportation. And all of a sudden, the pharmaceutical industry and HHS said we’ve got a problem with counterfeit drugs and it’s going to create a terrible problem for the American people. Never heard about it until then because of the profit

margins that we were talking about.

I’m a free enterprise advocate. I believe in the companies making

a big profit, I want them to, but I don’t want Americans to pay 10

times for Taxol. My wife died of cancer a few years ago. I don’t

want them paying 10 times for Taxol what they do in Canada,

France or Germany, or someplace else. And hiding behind the

counterfeit things bothers me; we want the purity to be there. But

to keep saying, my gosh, we can’t have reimportation, we can’t import drugs from Canada and France and Germany, because of—

that is just an argument that’s being fostered by those who want

to make a lot more money here in the United States and saddle

the profits on the back of the Americans while the rest of the world

gets off scot free. You can give me all the stuff you want to about

the FDA being concerned. That really bothers me.

I want to talk to you just a little bit about the wholesalers, and

I’m disappointed we don’t have any wholesalers here today on the

panel, and I don’t blame the staff or the chairman for that. I just

wish they were here so they could defend themselves when you

talk about the problems that they face. Can you detail for us any

significant counterfeit drug cases since late 2003?

Mr. LUTTER. I’m not prepared to do that.

Mr. BURTON. Give me one. OK, you can’t. When the Health Distributor Management Association published their recommended

guidelines for pharmaceutical wholesaler operations that track

counterfeit stolen products, specifically back through licensed secondary market wholesalers, that was in 2003. I don’t think FDA

can give us any counterfeit evidence since then. I’m not so sure you

can go back any further than that. What’s been done by the industry, the wholesale industry, particularly wholesalers in reaction to

55

the counterfeit problems that we heard about? Can you give us any

idea what they’ve done to protect the buying public?

Mr. LUTTER. I’m sorry. What’s been done by the wholesalers?

Mr. BURTON. What has been done by the wholesale industry, particularly wholesalers, in reaction to the counterfeit problems that

you have been talking about?

Mr. LUTTER. I think one might, sir, ask that question of the

wholesale industry.

Mr. BURTON. Well, you guys are at the FDA, and you’ve been

talking to the wholesale industry about a problem that has been

created by these counterfeit drugs going through the process. Have

you talked to anybody in the wholesale industry about what they’ve

done?

Mr. LUTTER. We have talked to them about the——

Mr. BURTON. What have they done?

Mr. LUTTER. They came to present to us recently their proposal

with respect to uniform national licensing standards.

Mr. BURTON. Have you heard of the Health Distributors Management Association [HDMA]?

Mr. LUTTER. Yes, sir.

Mr. BURTON. OK. What have they done to help protect the buying public from the products that are going to the wholesale operation? You don’t know?

Mr. LUTTER. I’m not prepared to answer that, sir.

Mr. BURTON. Well, why is it fair to cast a blanket across the entire secondary market when in fact many legitimate businesses are

providing a valuable service? And you don’t have any answer for

me today.

You know, I can see I’m out of time, but I just want to say, obviously we want to protect the buying public from counterfeit drugs

because they’re not safe in many cases, but at the same time there

is a responsibility on the part of the pharmaceutical industry in

this country to make sure that Americans buy a product at a fair

price, that we don’t saddle the American people with a product like

Paxil where they may have to pay 8 or 10 times as much as they

do right across the border or in Canada. That’s the reason why people import. And with the Internet being the way it is today, you

have a herculean problem because if you stop the importation of

products from Canada, they’ll get on the Internet and buy it from

Germany and if you stop it from Germany they’ll get on the Internet and buy it from France, or they will buy it from Spain. And

it’s very difficult for you to regulate everything that’s going through

the U.S. mail. And you’re talking about little old ladies and little

old men who can’t afford to buy this product because it’s so much

more expensive here than abroad, and so you’ve got really a herculean problem in controlling this. And I want you to control it because we don’t want counterfeit products in the marketplace, but

we want to make sure that Americans don’t pay an exorbitant price

for the same life-saving drugs that right across the Canadian border are costing a Canadian woman with breast cancer one-tenth of

what it costs here in the United States.

Mr. SOUDER. Ms. Norton.

Ms. NORTON. Thank you very much. And I think the gentleman

has a point.

56

Dr. Lutter, this subcommittee has had a lot of hearings, and one

of the things—one of our major frustrations is with the problem

law enforcement has in getting control of any valuable drugs, and

many of our hearings are, of course, about drugs which are very

valuable to addicts and to people who sell to them. So I was taken

aback by your statement on page 2, that most of the counterfeit

drugs at issue did not reach consumers. How do you know that

most counterfeit drugs do not reach consumers?

Mr. LUTTER. The statement is intended to apply to the counterfeit drugs found during the course of the investigations. So with respect to other counterfeit drugs, we just don’t know, and that’s——

Ms. NORTON. That is like saying that the drugs we confiscate,

the heroin we confiscate does not reach the streets of New York

and D.C. So, I mean, you really have to watch out for these blanket

statements. Sure, anything that you are investigating, if it turns

out to be legitimate it may not reach it for that matter, but that

is an unqualified statement, that most of the counterfeit drugs at

issue do not reach consumers.

Mr. LUTTER. The counterfeit drugs that we find in the course of

our investigations as a generalization don’t reach consumers. I’m

trying to clarify that here.

Ms. NORTON. I very much appreciate the clarification, because

later on in your testimony you talk about how cleverly—in fact, in

your oral testimony right after you indicated that you were catching everything, you then went on to show us a set of slides about

just how cleverly these drugs are packaged so that you would have

to have a trained eye to even know they were counterfeit. So I take

it that there may be many consumers out here without an FDA’s

trained sense of what is counterfeit and what is not, since even

your people have to look closely at it, who may be passing these

counterfeit drugs off.

Would that be a true statement?

Mr. LUTTER. It is absolutely true that there may be some. First

of all, it’s very difficult for people to distinguish these counterfeit

drugs from the genuine. That was the key point of the slides that

I tried to show earlier.

With respect to the comment about whether or not consumers

may be exposed to counterfeit drugs, absolutely, our system is not

foolproof. We do the best we can with——

Ms. NORTON. But those are only law enforcement folks, and no.

I mean, no prosecutor will tell you that he catches all the criminals. You know, he catches a tiny number and he hopes that has

an effect on the rest who might be inclined toward criminality.

I understand that about 50 percent of the drugs on sale in some

countries are counterfeit. What percentage of the drugs on sale in

this country would you believe are counterfeit? Because surely you

can interpolate, once you know how much you have, you’re a Ph.D.,

you know then how to calculate how many go on sale that may be

counterfeit or at least are offered for sale that may be counterfeit.

What would be your estimate?

Mr. LUTTER. Let me begin by saying we don’t have a scientific

basis for coming up with an accurate estimate of that——

Ms. NORTON. Do you have any statisticians in your department?

Mr. LUTTER. We do have statisticians.

57

Ms. NORTON. Do you agree, you have a Ph.D, that you could extrapolate, once you know how many you catch, and then try to at

least estimate, even if you truthfully said of course, as you must,

this is only an estimation of how many counterfeit drugs are out

there?

Mr. LUTTER. Our best estimate is it is significantly less than 1

percent.

Ms. NORTON. And you have just now told me you couldn’t, and

now you’re telling me that less than 1 percent in the United States

are counterfeit.

Mr. LUTTER. Significantly less than 1 percent.

Ms. NORTON. How do you know that, sir?

Mr. LUTTER. That’s based only on the professional judgment of

the staff at FDA.

Ms. NORTON. But not based on the kind of extrapolation that I

have asked for, the statistical——

Mr. LUTTER. It is not based on a statistical calculation.

Ms. NORTON. Let me tell you something, Dr. Lutter, to the extent

that you are truthful to people by saying these things are out here,

we have only our own professional judgment, but they’re out here

in larger and larger numbers, to the extent that you say that you

make people more and more leery about purchasing drugs that

may be counterfeits. I don’t find it very helpful that you are operating without, that the FDA is operating without doing the necessary

statistical work so as to warn consumers of the statistical probability of in fact having counterfeit drugs to reach them. Wouldn’t

that help people, including pharmacists and others, to help you in

the law enforcement challenge you reach?

Mr. LUTTER. Undertaking that sort of statistical analysis is

something that we haven’t previously contemplated. It would take

significantly more resources than are available to date.

Ms. NORTON. Oh, my God, I’m sure I could—come on. I’ll put you

in touch with some Ph.D math students in statistics who could help

you out, Dr. Lutter. I do not think that this is a complicated statistical problem.

And Mr. Chairman, I ask that the agency be requested, using its

existing resources, to try to find out what the statistical probability

is. I really don’t believe that is a complicated problem. And I do believe at the very least the public, if it knew that, might be more

inclined to be careful.

Dr. Lutter, one more question. You say on page 7, in order for

secondary wholesalers to fully comply with pedigree requirements

by which we mean understanding throughout the chain whether

drugs are legitimate, Congress would have to amend Section

503(e), and you say later in questions that you’re just doing the

best you can and you indicated what some of the problems were

when questioned. Does the agency recommend that we in fact

amend 503(e)?

Mr. LUTTER. That was the recommendation we issued in 2001,

and we still stand by it, yes, ma’am.

Ms. NORTON. Thank you very much, Mr. Chairman.

Mr. SOUDER. Ms. Schmidt, do you have any questions?

Mrs. SCHMIDT. Not at this time.

Mr. SOUDER. Ms. Watson.

58

Ms. WATSON. Thank you, Mr. Chairman. I was listening very

closely to the questions that my colleague was asking and the response, and it occurs to me that maybe this hearing is premature,

and my good friend, Dan Burton, has the same concern I have. And

you know, a lot of it goes to the price of manufacturing, and of

course there should be concern about these fake drugs, but I’d like

to know the magnitude of the problem. I tell you what I’m more

concerned about, and you can respond if you heard these rumors,

that there seems to be a consistent rumor that terrorist organizations are planning to spike up drugs and things, and that’s one way

of killing off Americans.

And Mr. Chairman, I’d like to hold a hearing maybe on that kind

of threat to us because they’re getting very clever in the way they

plan to attack us. But I think to make the kind of assertion that

we’ve got these counterfeit drugs running rampant and we need to

be cautious, we need to base it on a little more statistical data than

I’m hearing. Of course I came in late. I don’t know how much transpired before I came in, but hearing on counterfeit drugs within the

United States takes, for me, more statistical evidence that there is

a real serious problem with the counterfeit drugs. That’s the excuse

you use for being opposed to reimportation. And what I would like

to do is, and this goes to the Chair and our committee, is to really

look into the rumors that I’m hearing because the addiction level

in the United States of America, because of the marketing of drugs

the way we do, could be the beginning of something that could have

an impact on our society, which I’m on Homeland Security. Well,

we better start looking at these rumors.

So I just want to say that I’d like to kind of back up what Eleanor Holmes Norton was saying, that we really need more evidence

that this is a problem that should take priority right now. I think

the threat to us, as rumored, is more of a priority.

So thank you for the time. I yield back, Mr. Chairman.

Mr. SOUDER. Thank you.

Mr. Gutknecht.

Mr. GUTKNECHT. Thank you, Mr. Chairman.

And Dr. Lutter, I don’t know if we’ve met before, but I have been

involved and interested in this issue for a long time. And since you

couldn’t answer the question that Ms. Norton had, let me answer

at least according to the FDA’s open counterfeit drug cases report,

the report done by the Task Force on Importation, in 1997 there

were 6 cases, in 1998 there were 4 cases, in 1999 there were 6

cases, Representative Norton, in 2001 there were 20 cases, in 2002

there were 22 cases, and the last year we have numbers for is 22.

Just out of curiosity, do you know how many people died in hospitals last year due to getting the wrong drug?

Mr. LUTTER. There are estimates by the Institute of Medicine a

few years back where up to high tens of thousands of deaths per

year are attributed to medication errors.

Mr. GUTKNECHT. It generally is over 5,000 a year, and here we’re

talking about 22 cases.

Now, the other thing I just want to call your attention to, we

have been trying to get the FDA to get involved in anti-counterfeiting packaging for at least 4 years. And I remember the first time

we had a meeting on this with one of the directors, who is no

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longer with FDA, and we talked about this. He said, well, this can’t

be done. And then I reached in my pocket and I showed him a $20

bill and I said well, you know, the U.S. Treasury now has come up

with a pretty good anti-counterfeiting technology for our $20 bills,

and he said that can’t be done in drugs. I thought that’s kind of

an interesting attitude, but that technology exists today; it is being

used in Europe. At least five of the major pharmaceutical companies are using it. This is a problem; I mean, counterfeiting is a

problem. But it just strikes me that the FDA is not really serious

about that, because if they were they would be focusing on really

helping us solve the problem.

There is also a technology, and I don’t know if it’s been talked

about here in this hearing yet today, using these little computer

chips. Frankly, I don’t know if my staff stuck them in here, but we

can show them to you. We brought the cost down now to about 10

cents per chip, and they are incredibly amazing little chips; you can

literally tell where the drug was made and the day it came off the

line, simply through a relatively simple reader.

Now the drug companies themselves are interested in this because they have a keen interest. I would have a question, though,

in the studies that you’ve done in counterfeit drug cases, is most

of the counterfeiting being done in the United States or is it coming

in from other countries?

Mr. LUTTER. The products themselves are often manufactured

overseas and smuggled into the United States.

Mr. GUTKNECHT. I didn’t say often. No, no, no. Where is most of

the counterfeiting actually being done for the drugs being sold in

the United States?

Mr. LUTTER. You mean the manufacturing of the products or

their distribution for sale?

Mr. GUTKNECHT. Where are they actually making these counterfeit drugs? Because the studies I’ve seen, most of them are actually

made here in the United States.

Mr. LUTTER. The information that we have from the Office of

Criminal Investigation suggests that the manufacturing itself is

often overseas.

Mr. GUTKNECHT. I’m sorry, that doesn’t square with what we’ve

been told.

And the real issue, and this is where the FDA continues to miss

the point, people don’t counterfeit $1 bills do they? They counterfeit

$20 bills, but mostly they counterfeit $100 bills. The reason that

there is an industry developing, both illegal importation and counterfeiting, is because we have done nothing to help level the prices

that Americans pay for prescription drugs, and that’s the real issue

here that nobody wants to talk about. That’s why more and more

people say, you know, ‘‘I can make more money in getting into the

business of selling Celebrex or Tamoxifen,’’ which it used to sell for

about $500 in the United States, this is one of the examples, Mr.

Chairman, it used to sell for about $500 a month in the United

States. You can buy it in Canada for less than $100 a month. You

can buy it in almost every European country for less than $100 a

month.

The reason that people are starting to look at doing these kinds

of things is because we have done nothing to help level the prices

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that Americans have to pay for these drugs. So it seems to me that

if the FDA ever wants to get serious about addressing these kinds

of issues, you ought to go to where the big problems are. The big

problem is that Americans are being held hostage; they pay way

too much for their prescription drugs. They know it and everybody

else knows it, and yet the FDA says, well, we have to go after these

22 cases, right; 22 cases. When thousands of people are dying every

year from prescriptions given in hospitals, and the FDA is doing

nothing about it; there is no plan to deal with that. And yet we can

use bar coding technology, we can use all kinds of things that are

available today to change those numbers.

So I’m sorry, I’m a little, I get a little emotional about it because

we’ve been in this battle now for 4 years and for 4 years the FDA

has said ‘‘you know what, we want to work with you,’’ and for 4

years there has been absolutely no help whatsoever. I’m sorry that

you’re the one on the hot seat today and I happen to be in this seat

today, but we’re not going to give up on this. And trying to scare

people because you have 22 cases of counterfeit drug cases when

we have literally millions of other problems dealing with prescription drugs—and let me add one last point, Mr. Chairman. I know

my time has expired, but the FDA is the Food and Drug Administration. Do you know what percentage of the food coming, the fruits

and vegetables coming into the United States, are contaminated

with foodborne pathogens, including things that can kill you? Do

you know what percentage it is?

Mr. LUTTER. I’m not——

Mr. GUTKNECHT. The answer is the FDA has actually got a report on that. It’s roughly 2 percent. Now that is a much higher percentage than the numbers, and with all due respect, your guess I

think is way high in terms of the counterfeit drug problem, but I

think we have a lot bigger problems. And they’re largely—the problems with drugs today are all centered around one fact, and that

is Americans pay way too much for what they get. We’re doing almost nothing to stop importing fruits and vegetables, even though

we know by our own studies that 2 percent of the fruits and vegetables coming into the United States are contaminated with

foodborne pathogens that can kill you.

I yield back my time.

Mr. SOUDER. Before we move to our second panel, I just want to

clarify that you’ve informed the committee, the OCI did, that there

are 58 cases in 2004 and not 22, and that is a jump; is that correct?

Mr. LUTTER. Fifty-eight cases in 2004?

Mr. SOUDER. Yes.

Mr. GUTKNECHT. Mr. Chairman, there were 22 cases in 2003.

Mr. SOUDER. And it jumped to 58 in 2004?

Mr. GUTKNECHT. But it wasn’t 10,000.

Mr. SOUDER. Yes. And when you have a case, is that 58 people

got one pill, or are these cases that could in fact affect thousands

of people in each case?

Mr. LUTTER. Sir, these are independent criminal investigations,

so in that sense, yes, they vary in terms of their scope. Some may

be very small, others may be quite large and potentially infecting

large numbers of people, including thousands.

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Mr. SOUDER. Thank you. I thank you for your testimony today.

If Members have additional questions we will send those to you in

writing. Thank you for participating.

If the second panel could come forward. Before I swear the second panel in, we’ve been joined today by Congressman Israel from

New York, and he would like to introduce one of the witnesses.

Mr. ISRAEL. Thank you very much, Mr. Chairman. I want to express my appreciation for the courtesy that you and the ranking

member have extended in allowing me to sit in on this subcommittee, although I’m not a member, and allowing me to introduce one

of my constituents, Kevin Fagan, who will be sharing his family

story with you today.

Kevin Fagan is a long time resident of Deer Park, NY. He works

as a second line supervisor at Con Edison, a company that he has

proudly served for 22 years. He is married to Jean and is the father of three children, Timothy Lauren, and Caitlyn.

I first met Mr. Fagan in 2003 when he informed me that his

older child, Tim, had been injecting himself with counterfeit

Epogen, a drug he picked up from a national pharmacy to help him

recover from a liver transplant, a drug that somehow found its way

to the Playpen South Strip Club in Miami, where it had been tampered with.

This ordeal changed Mr. Fagan into a public advocate determined to do what he could to ensure that more families don’t suffer

from loved ones receiving counterfeit medicines. He has dedicated

himself to teaching elected officials and the public about the dangers of our prescription drug supply chain. Since prescription drugs

can change hands up to a dozen times between the manufacturer

and the pharmacy, these drugs, as we’ve learned today, can be

tainted, diluted, relabeled and counterfeited.

As a result of my association with the Fagans I have introduced

Tim Fagan’s Law, H.R. 2345, which gives the FDA the authority

to recall drugs, implements harsher penalties for criminals of counterfeit drugs, and requires pedigrees of a drug’s origin.

Kevin Fagan has been a remarkable champion of this legislation

named in his son’s honor, an outspoken advocate for the need to

clean up our Nation’s drug supply, and I am pleased to introduce

him as he shares his story, and to again thank the chairman and

the ranking member for holding this vitally important hearing.

Mr. SOUDER. Thank you very much for being here. This panel

consists of Katherine Eban, author of Dangerous Doses, Mr. Fagan,

who you’ve just heard described by his Congressman, and Max Butler, brother of Maxine Blount, counterfeit drug victim. So if you

would each stand. It is the guidelines of this oversight committee

to swear the witnesses in.

[Witnesses sworn.]

Mr. SOUDER. Let the record show that each of the witnesses responded in the affirmative.

We thank you for being here today and we’re going to start with

Katherine.

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STATEMENTS OF KATHERINE EBAN, AUTHOR, DANGEROUS

DOSES; KEVIN FAGAN, FATHER OF TIMOTHY FAGAN, COUNTERFEIT DRUG VICTIM (EPOGEN); AND MAX BUTLER,

BROTHER OF MAXINE BLOUNT, COUNTERFEIT DRUG VICTIM

(PROCRIT)

STATEMENT OF KATHERINE EBAN

Ms. EBAN. Mr. Chairman and members of the committee, thank

you for having me here.

Mr. SOUDER. You need to tap your mic. There should be a button.

Ms. EBAN. Mr. Chairman and members of the committee, my

name is Katherine Eban. Thank you for having me here.

As an investigative journalist and book author, I’ve spent the last

3 years documenting a rising tide of counterfeit medicine in our

pharmacies and hospitals. My book, Dangerous Doses: How Counterfeiters Are Contaminating America’s Drug Supply, was published this May. It is based on more than 160 interviews, over

13,000 pages of documents and several years of firsthand reporting.

Adulterated medicine routinely lands on our pharmacy shelves in

part because major wholesalers seek out discounted medicine from

smaller ones. This extremely dangerous trading has degraded our

medicine and endangered patients.

A few numbers: 97,000 vials of counterfeit Epogen and Procrit,

enough to treat 30,000 cancer patients for a month, are believed to

have entered the supply chain and reached patients in 2002. In

2003, 600,000 patients may have received counterfeit Lipitor, according to Pfizer’s own estimate. One percent of the Nation’s drug

supply is 35 million prescriptions, the FDA estimates less than 1

percent of the Nation’s drug supply is counterfeit.

Some States and other players have made significant efforts to

restrict the flow of counterfeit medicine, yet recently 1,000 Exxon

Mobil employees in Texas were injected with counterfeit flu vaccine.

In our poorest supply chain, medicine may move through a dozen

hands on its way to the pharmacy. The wholesalers who buy and

sell it may be narcotics traffickers, mafia members or high level

diverters, some with legitimate State licenses. Though wholesaler

in name, many never buy directly from manufacturers or sell directly to pharmacies. They are traders who buy and sell to one another in an all-hours auction. Every single counterfeit to reach

American patients has moved through their hands with scant proof

of its origin.

Who in their right mind would buy this medicine? Everyone unfortunately. Even the Nation’s major wholesalers set up trading divisions to scout for bargains from these middlemen, purchases that

allow substandard and even counterfeit medicine to reach patients.

Among recent reforms, major wholesalers, Cardinal Health and

AmerisourceBergen, announced they would limit or cease their

pharmaceutical purchases from secondary wholesalers, but gaping

holes remain. Because our distribution system is national and medicine that is in California 1 day winds up in New York the next,

our drug supply is only as clean as its dirtiest link.

Tim Fagan, a 16-year-old liver transplant patient, learned this

the hard way when life-saving Epogen from his CVS pharmacy

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proved counterfeit. His medicine required constant refrigeration

and stable handling, yet it was uplabeled by a counterfeiter, transported in used paint cans, and allegedly stored in the beer cooler

of a Miami strip club. Its journey took me several years to reconstruct.

If we could please show the slide. Thank you.

His medicine began as low dose, or 2000 U/mL Epogen. Cardinal

Health and AmerisourceBergen, near at the top, sold 110,000 vials

of it to a small Miami pharmacy, which never dispensed it to a single patient, but instead sold it all to an accomplice of an alleged

counterfeiter, Jose Grillo. Grillo packed the low dose medicine into

paint cans and carried them to a south Miami trailer where a

friend soaked the vials overnight, and rubbed off the low dose labels and glued on fake high dose ones for 40,000 U/mL. Grillo,

awaiting trial, allegedly transformed each $25 vial into a $470 vial,

a scheme worth $46 million. Investigators were only able to recover

13,000 of his vials, which means that 97,000 remained in the supply chain and is presumed to have reached patients.

Once he had uplabled the vials, Grillo allegedly brought them to

his customers, including the Miami strip club, where investigators

believe he sold the medicine for one-sixth the average wholesale

cost. The medicine then moved through a network of shell companies, as represented by the dark gray in the middle of the chart,

each one raising the price. An Arizona wholesaler, which ultimately

bought the medicine, then offered AmerisourceBergen a deal, high

dose Epogen for a price lower than the manufacturer’s.

Amerisource bought back the very low dose Epogen it had originally sold, counterfeited in the interim.

Despite recent reforms, numerous diverters with wholesale licenses still peddle substandard medicine for all those seeking a discount and willing to take the risk. Consumers need to know where

their medicine has been. The most important reform would be comprehensive pedigree records for every drug. Those who say ‘‘impossible’’ are likely committed to a Byzantine and opaque drug supply.

Only Federal regulations that mandate pedigree records will shed

light on and eliminate the hidden paths that our medicine may

take.

I urge the committee to look at Tim Fagan’s Law, introduced by

Representative Steve Israel of Long Island, which requires paper

pedigree records, strict regulation of wholesalers, severe criminal

penalties for counterfeiting, and stronger enforcement powers for

the FDA’s Office of Criminal Investigation.

Thank you for your commitment to protecting America’s drug

supply.

[The prepared statement of Ms. Eban follows:]

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Mr. SOUDER. Thank you for your testimony. Mr. Fagan.

STATEMENT OF KEVIN FAGAN

Mr. FAGAN. Good afternoon. My name is Tim Fagan, and in 2002

my son Timothy received counterfeit Epogen after a life-saving

liver transplant. While I am thankful for your time today, I wish

I had never heard of this topic.

Tim was very sick for a long time, and our trek to find a cause

and a cure for his disease took us as far as the Mayo Clinic in

Rochester, MN. No answers could be found. Upon returning back

from the Mayo Clinic, Tim’s health took a severe turn for the

worse, and he required a liver transplant.

After surviving a 9-hour operation and a hospital stay, Tim returned home to further recuperate. Our family thought our prayers

had been answered when my son came home. Shortly after returning home, Tim became severely anemic and his transplant team

prescribed Epogen, which is an anti-anemia injectable drug to combat his anemic condition and bolster his already weakened health.

We received the Epogen from a nationally known pharmacy,

Brightwaters Pharmacy. There was nothing over the Internet.

Upon receiving the Epogen injections once a week, several hours

after each injection my son woke up screaming in pain. Through

everything my son has been through, I have never heard him

scream like this before.

Several hours after the first injection the pain caused him to

wake out of a sound sleep. My wife and I ran into his bedroom. I

fully anticipated finding a robber or burglar from his blood curdling

screams; I had never heard him scream like this before in my life.

We found his whole body wrapped in pain. Tim was doubled over

crying, screaming, ‘‘help me,’’ and I didn’t know what to do to help

my son.

We immediately called his doctors. They were dumbfounded by

the reaction, having never seen anything like this to this drug that

they’ve prescribed to numerous patients. And this same episode

proceeded for 8 more weeks.

Finally, my wife receives a call from our local pharmacy informing her that the FDA notified them that counterfeit Epogen was on

the market and to check the vials in our possession. My wife

checked the vials and found that they were indeed counterfeit

based upon the information supplied to her; they were missing a

degree symbol and they had a certain lot number.

We were understandably frantic with worry as to what this

might have done to my son in the short term and the long term.

I asked the pharmacy how this happened. They said, ‘‘We get all

our drugs, all our Epogen, exclusively from AmerisourceBergen.’’ I

had never heard of AmerisourceBergen before. I looked up their

number. I called them in Pennsylvania and asked them how it happened. They rushed me off the phone, to say the least, and ended

the call saying it’s not their problem. As it turns out, it is their

problem. AmerisourceBergen is the number 22 company on the

Fortune 500 list. AmerisourceBergen is one of the three largest

drug distributors in the United States, and AmerisourceBergen has

revenues approaching $50 billion a year. Yet instead of purchasing

drugs directly from the manufacturer, they chose to purchase these

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drugs from the second or gray market where elected officials and

law enforcement agencies have identified as the source of counterfeit drugs into the supply chain.

This was a domestic issue; it was no international trading of

drugs. It started in Florida, went through several hands throughout the country and wound up in my son on Long Island.

Fortunately for us, we have a Congressman who is very much,

like you, interested in protecting their constituents, the regular

people, and I contacted Representative Israel for help. And his law,

H.R. 2345, Tim Fagan’s Law, calls for tougher criminal penalties

for those engaging or distributing counterfeit drugs. It calls for increased funding for the FDA to perform the very inspections that

the committee called on earlier today at random. It calls for increased funding for law enforcement investigations. It calls for public education and track and trace technology. And I ask each and

every one of you if you would please co-sponsor this legislation

which would protect all the Tim Fagans and potentially every

American citizen from counterfeit drugs.

I thank you for your time. And again, I ask you to co-sponsor,

I plead with you to please co-sponsor this legislation and make it

a reality. Thank you very much.

[The prepared statement of Mr. Fagan follows:]

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Mr. SOUDER. Thank you for coming today.

Mr. Butler.

STATEMENT OF MAX BUTLER

Mr. BUTLER. Good afternoon, Mr. Chairman, and members of the

committee. My name is Max Butler, brother of the late Maxine

Blount of Holister, MO, a victim of counterfeit drugs. I’m honored

that the committee has provided me with the opportunity to testify.

I hope to illustrate the impact that this crime has had on our family and friends.

This crime undermines the trust that society has in its doctors

and pharmacies. It targets victims that are already fighting for

their lives and one that often results in suffering and sometimes

an early death.

In 1998 Maxine Blount was diagnosed with breast cancer. Her

doctor explained that her cancer was very serious and promised to

provide Maxine with every opportunity to beat the cancer. Treatments began; she received chemo and radiation treatments to reduce the size of the tumors in her breast so that the doctors could

safely do a mastectomy. After the mastectomy Maxine continued to

receive regular treatments until she began to take the counterfeit

Procrit. The counterfeit Procrit made it impossible for her to rebuild her strength between chemo treatments.

At the time that Maxine was diagnosed she owned and operated

a Mailboxes Etc, a business that she loved and worked long hours

at. The business did well and resulted in many clients that depended on Maxine to help them succeed. She was an active member and officer of the Chamber of Commerce, taking great pride in

her civic responsibilities and caring about the community and businesses. After 2 years of fighting cancer, Maxine sold her business

so that she could concentrate her efforts on surviving.

Maxine had 5 children and 11 grandchildren. She loved her family, and as her condition worsened, she noted that she would be unable to enjoy the future with her family. At age 61, Maxine should

have had many years left to enjoy life.

As her cancer advanced, the doctor would change her medication.

Most changes were successful in slowing or arresting the cancer for

some period of time, forever giving Maxine and the family hope.

Several months before Maxine’s death she noted that the Procrit

was no longer working. Procrit is a drug that helps cancer patients

to rebuild blood cells and strength between chemo treatments. As

a result of the counterfeit drugs, Maxine had to lengthen the time

between treatments. This allowed the cancer to advance much

more rapidly.

After Maxine informed the nurse at the doctor’s office that

Procrit was not working, it was determined that her medication

was counterfeit. She was receiving 5 percent of the dosage needed.

As earlier noted, the counterfeit Procrit prevented Maxine from

taking chemo treatments as needed. In addition, she had no

strength, more pain, problems concentrating, and felt much worse

than she ever had. The mistreatments, combined with her loss of

confidence in the pharmacy system, resulted in the quality of

Maxine’s life taking a nose dive. It took her hours just to shower

and dress. As she dressed, she would have to take a break between

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each garment. Sometimes she would have to take a nap between

garments.

Maxine had dedicated all effort to trying to get well or survive

until a drug could be developed that would be a cure for her. She

had total confidence in her doctor and pharmacy until this happened. She had purchased her drugs at one of the largest and most

reliable pharmacies in St. Louis. At first she blamed the pharmacy,

then she learned that the controls in prescription drugs were not

effective and that counterfeit drugs were not all that uncommon.

She was spending thousands of dollars each month on counterfeit

drugs, and the pharmacy even refused to return her money when

they found they were counterfeit. Maxine’s confidence was gone,

and at this point she pretty much resigned herself that the end

was near.

I don’t pretend to know that Maxine would be alive today if she

had not received counterfeit drugs. What I do know is that she

would have lived longer, would have experienced much less pain

and suffering, and she would have been able to spend more time

with her family. Maxine died on October 24, 2002.

The criminals that deal in counterfeit drugs are murderers. They

steal people’s dignity, cause unbelievable pain and often early

death for their victims. When they distribute counterfeit drugs,

they have no way to know who the victims will be. Anyone in our

families or the counterfeiter’s families could be a victim of this

crime. I don’t understand how these criminals can look at themselves in the mirror.

In closing, I would like to reiterate that stronger controls would

have delayed Maxine’s death, reduced her suffering, and allowed

her to die with more dignity. Thank you.

[The prepared statement of Mr. Butler follows:]

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Mr. SOUDER. I want to thank each one of you for your testimony,

and our sympathy goes out to your families. I appreciate your willingness to speak out and share your personal sorrows so we can

try to figure out how best to deal legislatively with this and put

as much oversight on this as possible.

Mr. Butler, in your testimony you said that they determined that

the Procrit was counterfeit. How did that process work?

Mr. BUTLER. The nurse took the Procrit that my sister had with

her and she sent it to the laboratory. The laboratory analyzed it,

and it came back that it was counterfeit. Counterfeit meaning a reduced amounts, it was 5 percent of the volume she should have

been getting.

Mr. SOUDER. So the nurse initiated the process and the hospital

paid for the process, is that how——

Mr. BUTLER. Yes, that is correct. My sister didn’t realize that the

reason the drugs had stopped working was because it was counterfeit; she thought it was because the cancer had advanced to a point

where it just wasn’t doing any good.

Mr. SOUDER. Do you know in that case, did the hospital then go

to the pharmacy, or what happened from there?

Mr. BUTLER. The hospital notified the pharmacy and my sister

notified the pharmacy. They did an investigation from there in

terms of where they got the counterfeits from or where they got the

medication from. I don’t know the whole story of what the pedigree

said at the time. The Procrit had been acquired from the cheapest

vendor, and they had purchased the drugs from a number—that

same type of drug from a number of different vendors. There are

specific lot numbers involved, and I’m not that familiar with exactly what happened on that side.

Mr. SOUDER. Mr. Fagan, have you met other people who have

been through your problem in the course of exploring this?

Mr. FAGAN. No, I haven’t, outside of today. But the unique thing

is that I believe I haven’t because we were in a very unique situation in that we were in possession of vials. We would receive a

month’s worth of vials at a time from our pharmacy for Tim’s

weekly injections. Think of how many senior citizens go to the doctor for a shot, the injection is administered, the vial goes in a garbage, or the same thing in a hospital. So the proof is destroyed, the

patient doesn’t get better and the underlying disease is blamed for

what happened.

And what the scent of it is is that companies like

AmerisourceBergen, large Fortune 500 companies, choose to put

profit before patient safety, and it is absolutely criminal. What

happened to my son is unconscionable. I sit here before you and it’s

just surreal that this thing is even happening, but it is, and that’s

the disturbing truth of it is that this problem potentially affects

every American citizen. If it could happen to me, if it could happen

to my son, it could happen to anyone.

Mr. SOUDER. Mrs. Eban, could you describe a little bit about

what you have learned about the gray market? You talked about

that in Mr. Fagan’s case. How exactly is this working? Is that the

main source of the problem? Clearly we’ve heard about the pedigrees; that’s a big problem with it. In your feeling about, you heard

of someone on the first panel going back and forth about how kind

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of random and rare this is. Is it only when we get a very dramatic

case that we actually learn of any kind of problem?

Ms. EBAN. If I can answer the second part of your question first.

We don’t know how big a problem this is. The FDA put out a report

and said that less than 1 percent of the Nation’s drug supply is

counterfeit. In my reporting, I went down to Washington and met

with the authors of the report and asked them, how did you come

to that number, and they said to me basically, well, we don’t know,

we guessed but we don’t imagine it’s any worse. So there haven’t

been any studies done on this problem.

I tend to say, all right, less than 1 percent, they’re making what

I think is a conservative estimate. If we say 1 percent of the Nation’s drug supply is counterfeit, and even that sounds conservative

and relatively reassuringly small, 1 percent is 35 million prescriptions a year. And it’s likely that number is concentrated among the

high cost brand name pharmaceuticals for the sickest patients who

need it the most, the reason being, as committee members have

noted, that counterfeiters favor the most expensive drugs as an excellent return on investment. So I think you are looking at a fairly

big problem.

I’d like to add that when the FDA mentioned cases, 32 a year,

58 a year, those cases often represent thousands or hundreds of

thousands of counterfeit doses that have potentially reached patients. One of those cases in 2003 was counterfeit Lipitor, and by

Pfizer’s own estimate 600,000 tablets of counterfeit Lipitor reached

patients. Again, in 2002 Jose Grillo’s counterfeiting of 110,000 vials

of Epogen and Procrit, taking very weak doses and making them

look like strong doses, only 13,000 of those vials are recovered,

which means that 97,000 vials are estimated to have reached patients.

I think from these examples we can gather that the problem is

fairly big, and the numbers demonstrate that it’s growing, but because no definitive studies have been done we don’t know for sure

the size of it.

In my reporting I identified over a dozen patients, but we know

that the FDA’s Med Watch system has received reports from dozens and dozens and dozens of patients who believe they have received counterfeit medicine.

Mr. SOUDER. In those dozen patients, when they went into the

pharmacy, did you find a consistent pattern that here Mr. Fagan

said that actually he was notified indirectly through the pharmacy

to check whether it was counterfeit, Mr. Butler is saying that the

nurse sent it out for testing? Is that a pretty typical pattern of

what you have been seeing, or do some of them get nonresponsiveness?

Ms. EBAN. The way that it is detected is entirely random. And

sadly I have to say that Tim Fagan and Maxine Blount are the

lucky ones only in the sense that they learned that they had taken

counterfeit medicine, whereas many patients never know, they simply don’t get better, and because they have serious diseases of

course they don’t know why they’re not improving.

So in my reporting I began to realize that we all know someone

whose medicine suddenly stopped working, and once you immerse

yourself in this problem you really do begin to ask yourself why,

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and you begin to think of a whole new set of reasons why that

might have happened.

Mr. SOUDER. Thank you.

Mr. Cummings.

Mr. CUMMINGS. First of all, I want to thank all of you for your

testimony. To Mr. Fagan and to Mr. Butler, I want to thank you

for taking your pain and what you have gone through and using

it as a passport to hopefully help other people in the future.

I’m going to start with you, Ms. Eban, and I’m just curious.

Today I note that—well, yesterday the USA Today said effective

immediately that the CVS chain said it would purchase pharmaceuticals only directly from manufacturers or from wholesalers who

certify they are not buying from what has been dubbed the secondary market. How significant is that?

Ms. EBAN. It is very important, and it’s the right step; if every

pharmacy chain in the United States insisted upon that, I think

you would find that the gray market, the wholesalers who simply

trade sideways among themselves, would shrink considerably. The

problem is that the reforms that have been taken, the steps that

have been announced by players in the supply chain, are random,

individual, and have many loopholes. Many doors still remain open.

Mr. CUMMINGS. You know, I remember a while back when we

had the Tylenol contamination and how it just sent a rippling effect, and now we have these containers that have seals and whatever. And when I think about say, manufacturers, are they—it

seems as if they had—if there was any idea, if the word got out

that maybe their drug had been contaminated in any way. When

I say contaminated, I don’t mean—I know these are counterfeits,

I understand that, but it has their label, it has something that is

supposed to be their label. It seems like that would cause them to

really be major players in this. Do you find that to be the case, in

other words, trying to help to make sure the problem is solved? Because if it gets out there, say, for example, that Lipitor, if there is

lot of counterfeit Lipitor out there, then I think that sends a terrible message from an economic standpoint, and sadly sometimes

economics, as what Mr. Fagan said, is what drives things.

Ms. EBAN. I think that manufacturers have changed their stance

about the problem. Earlier on, as I found, they were not really willing or likely to raise their hands to say our medicine is being counterfeited for fear that patients would then go to possibly a rival’s

medicine in order to try to get safe medicine. But I think that the

problem has grown enough that they have become quite concerned

about it. They have ramped up significantly tamper-proof packaging, holograms, chemical taggants and markers that are embedded

in the packaging or even in the product themselves. But many security directors of drug companies I’ve spoken to have said, given

12 to 18 months, counterfeiters can pretty much copy anything. So

the approach has to be on many levels to solve the problem.

Mr. CUMMINGS. You know, one of the things that you said that

kind of stuck in the DNA of every cell in my brain is you said that

1 percent may be as many as 35 million prescriptions?

Ms. EBAN. Yes, that is right.

Mr. CUMMINGS. Now, did you hear the testimony of the gentleman, Mr. Lutter, from FDA?

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Ms. EBAN. Yes, I did.

Mr. CUMMINGS. Do you think he is underestimating the problem,

or overestimating, or you don’t have a clue?

Ms. EBAN. I think that the FDA has always wanted to reassure

the public that they should take their medicine and that their medicine is safe, but I don’t think they really know the size of the problem because they have not done any studies. They are guessing as

to the size of the problem, and I do think that historically they

probably have played down problems because they don’t want to

panic consumers.

Mr. CUMMINGS. And let me say this to you, Mr. Fagan and Mr.

Butler, if this Congress wanted to do this it could be done overnight, period. It has to be the will of the Congress to do it, but it

can be done. I’ve seen things much harder than this done. And it

was suggested to keep fighting. I, for one, will make sure my name

is on that bill.

Mr. FAGAN. Thank you.

Mr. CUMMINGS. And last, but not least, I think one of the things

that should not be lost in all of this is something that you emphasized, Mr. Fagan, and you, Ms. Eban, I think you, too, Mr. Butler,

to a degree. As you were sitting here talking I was thinking about

all the people in my district, and I represent a lot of poor people

and lower middle class people, and I’m sure that in some of those

instances—and I have a lot of seniors—so they get the medication,

and like you all said, they may die or may be harmed because

they’re not getting the right dosage or they may be getting just

completely fake medication with none of the ingredients it’s supposed to have in it, but yet still when the autopsy is performed or

when the final report is done they died because of cancer or whatever it might have been. So we really don’t know, we don’t know

how many of these people are being affected by all of this. I just,

I’ll tell you, one of the things I think we must do, and I think all

of us, and the reason why this is so significant, this hearing is so

significant, and I do compliment you, Mr. Chairman, for putting together a balance here of witnesses, is because this affects, it can

affect every single one of us, all of us. We do have to have trust

in the medicine we take and the food we eat, so I really thank you,

and I’m hoping that we will be able to move this along, but thank

you all so very, very much.

Mr. SOUDER. Thank you.

Mr. Burton.

Mr. BURTON. First of all, let me just say you have my sympathy.

My wife died of liver cancer, and she had breast cancer prior to

that, and she took Tamoxifen, and when we were going through

her chemotherapy and her other treatments, we had ladies that

were sitting next to her taking chemotherapy that were talking

about Tamoxifen and talking about how they couldn’t afford it. I

presume the same thing was true with Procrit. That’s when I started checking with my colleagues about the costs in other countries.

In Canada the things that she was taking was one-fifth, one-sixth

what it cost here. One of the reasons that we have this counterfeit

problem, I believe, is because of the price disparity. Somebody is

going to testify that Willie Sutton said the reason he robbed banks

was because that’s where the money was. I mean, if it costs six

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times as much for a product in Canada as it does here, and you

can get it or counterfeit it, you’re going to make a lot of money just

by doing it here in the United States.

But we really do have to do something about the counterfeit

problem. I’m not downplaying that.

As I understand it, in the case of your sister, the druggist took

the pill and cut the amount by one-fifth or one-sixth or one-tenth

or whatever it was. I don’t know how you deal with that kind of

a guy. I mean, he needs to be in the slammer, no question about

that. I think the same thing is true when somebody’s taking a

product that deals with people who suffer from a liver transplant

and they start watering it down or anything. And the price disparities, I think, have a lot to do with that as well.

I’ve got a list here that my colleague, Mr. Gutknecht, has compiled on the differences in prices. One of the Gordian knots that we

have to deal with in dealing with this problem, in my opinion, is

that we’re in a global marketplace right now. Let’s say that we’re

able to come up with a mechanism to make absolutely sure that

every product, that every pharmaceutical product, is pure and

packaged properly in the United States. If it costs so much more,

like Tamoxifen does, here than it does in France or Germany, the

people who have to rely on that are going to try to get it through

the Internet, and then you have to police everything coming

through the mail from a foreign country because people are going

to buy it where they can afford it, if they can’t, whether it’s drugs

or almost anything. So what we’ve got to do is we’ve got to, and

I’ve sat down with the leaders of the various pharmaceutical companies Lilly and Merck and others, and I said what we need to do

is sit down and talk about some way of coming up with a pricing

structure that is fair for the people of this country, as it is elsewhere. If you do that, you’re going to minimize this kind of a problem.

There’s always going to be people that are going to cut somebody

to make more money, and as long as the money is there to be made

they’re going to do it. So I just say that you have my sympathy for

what you’ve gone through, but this is a problem that is not going

to be easily solved, as one of my colleagues just said, because you

can get these products from other parts of the world and you can

get them at much lower prices.

So the root cause of it, in my opinion, is trying to come up with

some kind of, not a government imposed price index, but some way

that we can make sure that the American people are paying a price

that’s not completely out of line with what they’re paying in other

parts of the world. I think that’s the reason this whole issue has

arisen, not because we don’t have counterfeit products, we’ve had

those for a long, long time, but because the importation of products

has become such a big issue that I think the pharmaceutical companies and our health agencies have said hey, we’ve got to do

something to stop this, and one of the main ways to stop it is to

start raising cane about counterfeit drugs and put the fear of God

into everybody that’s taking it.

That’s not to say that there aren’t counterfeit drugs, that’s not

to say that there is unscrupulous pharmacists that are going to cut

something to one-fifth of its strength in order to make a buck.

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You’re always going to have people like that, but the main issue,

in my opinion, is to try to make sure that Americans pay a fair

price, just like the rest of the world does, for pharmaceutical products, and that is one of the things that Mr. Gutknecht and I have

and others have been working on for a long time.

The unfortunate thing is the pharmaceutical industry has over

600 lobbyists in Washington, DC, over 600. There are only 535

Members of Congress, so they have a tremendous amount of impact

on what we do around here. Plus, they give out millions and millions and millions of dollars in contributions for campaigns, so they

have a tremendous amount of influence.

So this problem is very important, Mr. Chairman, in dealing with

counterfeit pharmaceutical products, but I think of equal import or

as much import is dealing with the disparity in prices, which I

think is one of the most—is the genesis of this problem.

And I yield back the balance of my time.

Mr. SOUDER. Ms. Watson.

Ms. WATSON. These questions go to the author. In listening to

the testimony, it seems that the drug—let me address this to Mr.

Butler first, and then to the author. The drug that your sister was

using was a counterfeit prescribed or obtained through what process?

Mr. BUTLER. My sister obtained it by going to the local pharmacy, a very large pharmacy chain, a reputable chain in St. Louis,

one of the largest. That’s where she got it from. They had purchased it from a wholesaler. Where the wholesaler got it, I’m not

sure. I think Ms. Eban’s book indicated it may have come through

a strip club in Miami, I’m not sure.

Ms. WATSON. Was it prescribed by her doctor?

Ms. BUTLER. Yes, it was.

Mr. BURTON. Will the gentlelady yield?

Ms. WATSON. I certainly will.

Mr. BURTON. I think it’s very important. When the pharmacist

got the drug, it was at normal strength, was it not?

Mr. BUTLER. It was not at normal strength.

Mr. BURTON. Who did the cutting of it; who cut the volume of

it down?

Mr. BUTLER. That was prior to—I’m not sure who did the cutting.

Katherine did the investigation and she may know, I think she

probably does.

Mr. BURTON. All right. Thank you.

Ms. WATSON. I have been reading the bill and what I’m trying

to ferret out is how and what is the procedure that would be used

to stop this, because apparently your sister initiated it on her own

or the doctor said you need this kind of drug. I’m trying to figure

out how we can get to that point where we could prohibit or stop

or cease the sale of this counterfeit drug. I don’t know where in the

system we could go, and I’m looking at the bill to see that it addresses this. There is an investigation; they do ask for additional

money in the bill to investigate. But how does the process get started. And I see that the sponsor of the bill is not here, and I know

there’s an order to recall drugs. And certainly if drugs are not—

here’s the author.

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In listening to Mr. Butler, his sister went to a pharmacist and

got a particular drug. Where in your bill, what provision in the bill

would address that, initiated by—and I didn’t know whether it was

a doctor’s prescription or what, but I think she initiated it herself.

Mr. BUTLER. The doctor prescribed the Procrit. It’s necessary to

help build the blood and strength back up between chemo treatments.

Ms. WATSON. When she went to purchase it, she learned afterwards that it was a fake or they were cutting—whatever. I just

wanted to know from the author, is there a provision that would

address that process?

Mr. ISRAEL. Mr. Chairman, you’re very kind to allow me. Do I

have permission to answer?

Mr. SOUDER. Of course.

Mr. ISRAEL. One of the most important things that the bill does

is provide a very significant disincentive to criminals who are counterfeiting drugs by increasing penalties from current Federal law

of 3 years in prison to life in prison. That would be a very significant penalty.

With respect to what immediate action can be taken to prevent,

to deal with the purchase or the acquisition of counterfeit medication, the most important thing we can do is make sure we have

pedigrees, that we know every single step that medication has gone

through so that you know the integrity of that medication has been

maintained. And the final point I would make is that, right now,

the FDA has no ability, no true ability to recall counterfeit medicines from the pharmacy shelves. It’s easier to recall a defective

toaster oven than counterfeit medications. This would give the FDA

the ability to recall counterfeit drugs immediately when there is a

report of such drugs.

Ms. WATSON. Mr. Butler, did your sister have a prescription?

Mr. BUTLER. Yes, she did.

Ms. WATSON. From the doctor? And when she purchased it, she

found that it wasn’t having the desired effect, and then she found

out later it was counterfeit?

Mr. BUTLER. Yes. She had taken the Procrit for some time and

it had worked very well. She had gotten that from the same pharmacist. When it stopped working, she made an assumption that it

was because her cancer had worsened, and that was the reason it

wasn’t working. So she didn’t immediately tell her doctor, but she

started delaying. It got so she had to delay the process before she

could go back for chemo. Then when she told the doctor or told the

nurse, the nurse sent it in and had it analyzed. The pharmacist did

not know the medication was counterfeit. They had purchased it

from a wholesaler.

Ms. WATSON. I see. I want to be sure that, in the bill, which I’m

very sympathetic to, that there is a provision that would require

the pharmacists some way to check out those drugs when they get

them from a probably unauthorized manufacturer. I don’t know,

but I’m hoping that this bill would address how we attempt to try

to save your sister’s life through this bill, and I think that something has to be in here to indicate—the pharmacy didn’t know, but

they purchased it somewhere, and probably whoever was marketing this sold them a bill of goods.

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Mr. BUTLER. Actually, they purchased it from a legitimate wholesaler.

Ms. WATSON. I’d like to yield back to the author because it’s your

bill, and you might want to kind of elaborate on that.

Mr. ISRAEL. Thank you. The simple answer is that the pedigree

requirement would have notified the pharmacy immediately that

this particular medication did not go through the appropriate

transactions; that it may have gone elsewhere, may have been tampered with. That’s what’s really at the heart of this bill, requiring

the FDA to require the paper pedigree that was supposed to be implemented 17 years ago.

Ms. WATSON. Another question, Mr. Chairman, if I still have

time, who would have the authority in that process to carry this

out? You see, apparently the pharmacy purchased a bad batch of

this prescription drug. Somewhere we’ve got to stop that kind of

thing from happening, if it is a bad batch.

Mr. ISRAEL. The enforcement would be by the FDA. It provides

an additional $325 million for the FDA for spot checking, additional enforcement and training pharmacies to be able to recognize

potentially counterfeit drugs.

Ms. WATSON. Thank you.

I yield back my time.

Mr. SOUDER. Thank you.

Ms. Schmidt, do you have any questions?

Mrs. SCHMIDT. Yes, I do. Thank you very much. First off, my

heart goes out to you, Mr. Fagan, and to you, Mr. Butler, on the

situations that you had to deal with.

Drugs are very important to all of us. They allow us to live a lot

longer, a lot more comfortably, and so we want to make sure that

the drugs we are receiving are the drugs we expect to receive. I

think there are two issues that are going on here. The first is the

affordability of drugs in the United States versus the affordability

of drugs in Germany and Canada and other places. But I think, the

second is the kind of drugs that we’re receiving, and are they pure?

Have they been tampered with? What I’m hearing from Ms. Eban

is that the drugs she discovered were not tampered with in Germany or in Ireland or in Canada; they were tampered with in the

United States. So we have two issues: One is price and an unfairness of the price here in the United States, and the second is the

purity of the drugs.

I think the second part is easily remedied by putting some sort

of a tracking system on those drugs, something like what is in Germany, putting them in the little individual tablets, putting blister

packs or putting something like this on them to make sure the

drug is pure because when we worry about something coming

through from the mail, the insurance policy that my husband and

I have, our health insurance policy requires that if we’re taking

drugs for a long period of time, that we get them through the mail.

So worrying about whether you get it through the mail and if it’s

been tampered with, that’s something that’s already here.

The second thing is trying to make the drug prices more fair to

our U.S. customers. I worry that any legislation that we pass that

tries to correct the first part of it by making sure that our drugs

are pure but doesn’t address the price of the drug will not correct

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the purity or the lack of purity of the drug. So that is my concern,

and I know that Mr. Butler and Mr. Fagan probably don’t have a

solid answer for that, but, Ms. Eban, do you?

Ms. EBAN. Thank you very much. First of all, I think many

American consumers assume that when they go to a pharmacy and

pay top dollar for their drugs, that their drugs are guaranteed to

be safe, but in fact, the soaring prices of our drugs actually puts

their safety at risk because America has become a go-to market for

counterfeiters. We offer the best return on investment for counterfeiters who want to move their products into our market. My book

deals exclusively with counterfeit medicine that has reached consumers through pharmacies and through hospitals and through legitimate mail order, so that is our legitimate drug supply, and

counterfeits have infiltrated that. I just want to say that in the

case of Maxine Blount and Tim Fagan, this was not a case in either

situation of a rogue pharmacist diluting drugs or tampering with

drugs. This was about systemic corruption of our drug supply in

which major wholesalers, who are responsible, legitimate wholesalers, look for bargains or discounts in the secondary market.

They buy even from licensed wholesalers, but that medicine still

proves to be counterfeit because it doesn’t have a proven origin,

which is what a pedigree paper would correct.

They are looking for discounts in the secondary market because

they want to be able to buy low and then sell high. As we all know,

they can sell very high. So these are players whose sole profit is

coming from arbitrating the price of the drug. That whole gray

bandwidth in the middle of that chart, every single box is a different wholesaler and the drugs moved through. Every wholesaler

bought low and sold high, and it finally got to a regional wholesaler

and then a national wholesaler once it approached the market rate.

Once the price came up, then it could be sold to a pharmacy and

ultimately to a consumer, but it is the buying from unknown

sources from that gray market that is driving this problem. That’s

what needs to be corrected.

In order to have a record that follows each drug, whoever buys

or sells it would need to commit to its origin, and that’s extremely

important. I hope that answers, in part, your question.

Mrs. SCHMIDT. Thank you, it does.

Mr. SOUDER. Mr. Gutknecht.

Mr. GUTKNECHT. Thank you, Mr. Chairman, and I want to thank

all the panelists, and I would extend my condolences as well. Finally, I think I understand. Mr. Butler, are you familiar with a

case in the Kansas City area of the pharmacist who was intentionally doctoring? They were principally cancer drugs as well.

Mr. BUTLER. Yes.

Mr. GUTKNECHT. This is not that case. Second, I want to come

back, Ms. Eban; there was a story, and I will submit for the record,

Mr. Chairman, an article that appeared within the last 2 weeks I

believe in the Wall Street Journal about the pharmaceutical marketing association hiring writers to write a novel.

Are you familiar with that story?

Ms. EBAN. I am familiar with that story, and in fact, I even

heard that the editor at the publishing house who was going to be

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editing it was none other than Jayson Blair, who was a former colleague of mine from the New York Times.

Mr. GUTKNECHT. That’s correct. Just for the record, you are not

now or never have been under contract from any of the pharmaceutical companies or marketing associations?

Ms. EBAN. Absolutely not.

Mr. GUTKNECHT. Let me point out, I didn’t know I had this with

me, but I would share this with any of the people here and certainly other members of the committee. I talked earlier about the

new computer chips. In this little vial, there are 50 computer chips.

They sell now, I believe, for like 10 cents apiece. They have the

ability to do exactly what we’re talking about. The FDA has known

about these for at least 2 years because I told them about them,

and they have consistently refused to do exactly what we’re talking

about. The reason I say that, and I’m certainly empathetic to what

we’re talking about, and I would certainly like to work with the author and you to come up with a safer way to protect our drug supply. That has never been my intention. What I want to make certain is that Americans have access to world class drugs at world

market prices.

But I’m also going to submit for the record, I believe this may

be from today’s, one of today’s Hill newspapers, and this is a scare

ad, and it’s done by Pharma. Let me just read what it says: ‘‘Real

or counterfeit, the answer could be a click away.’’

[The information referred to follows:]

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Mr. GUTKNECHT. Well, this is all part of an orchestrated effort

to make people believe that, gee whiz, if I buy my drugs from that

pharmacy in Winnipeg, it may be a counterfeit. The truth of the

matter is with the technology we use in the United States today,

you are more likely to get a counterfeit drug if you buy your drug

from the local drug store. Unfortunately, that is a fact.

In terms of the bill, I certainly want to work with the author, but

giving the FDA an army of new inspectors to go out and chase little

old ladies trying to save $200 on the Tamoxifin by buying it from

Manitoba is not my idea of really making America safer. So I will

work with you and provide you with information on this technology, and incidentally, we have the next generation of technology

already being developed. They are little digital taggants, and they

can be put in every single drug so that we can know exactly what

that drug is made of, where it came from, when it came off the production line, right down to the components of that drug. So there

are a lot of things we can use today, technology right off of the

shelf. We don’t have to give the FDA an army of new people, and

we don’t have to make it even harder for folks in my district to try

and save a few hundred bucks a month on their prescription drugs

by buying them from a pharmacy in Canada.

We want to be careful, and I think our new colleague from the

State of Ohio, I think, has really stated it right. There are really

several issues at play here, and we want to make certain that people who break the law are held fully accountable. I will say this,

though, in all fairness to the life sentence concept, if we’re going

to start making mandatory life sentences, I would go first after sex

offenders, because every day there are stories in the papers both

here and throughout the United States of sex offenders who are

turned back on the streets after a couple of years, and they have

the highest rate of recidivism of anybody.

Finally, Ms. Eban, I want to come back to another point that you

made. There is, going back to the scare tactics of Pharma, the truth

of the matter is, I know that there is a certain amount of counterfeiting going on. But some of it is so good that it is virtually impossible to tell the real from the imposter. And the bottom line is, if

you are getting a counterfeit that is an exact copy of the name

brand drug, ultimately, what is the harm to the consumer? I have

a very good example that I have been told, and the example is of

one of the male enhancement drugs, you can buy them in India for

10 cents a tablet. Here they’re $10. You may call them counterfeiters; I would call them entrepreneurs that are selling them for

$5. The net result to the consumer is exactly the same.

Ms. EBAN. Unfortunately, though, counterfeiters don’t provide a

guarantee that the effect on the consumer will be the same, and

so it’s a crap shoot. Of course, if it is exactly the same and it’s less

money, the consumer benefits, but there is no guarantee of that.

I also want to say that there has been testimony, I believe it was

before Congress, in the last year which said that the terrorist organization of Hezbollah was counterfeiting Viagra and selling it within the United States. So we certainly do know that terrorists do

look at counterfeiting as an activity that can build profits for whatever work that they are doing, and they also do not provide any

guarantees, of course.

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Mr. GUTKNECHT. If you’re in the crime business, clearly, you look

at this, and the potential is hundreds of millions if not billions of

dollars. So I would not be surprised that there are all kinds of organizations out there who have looked at this business and said,

you know, if you can buy something for a dime and sell it for $5,

you can make a lot of money at that 50 percent markup. I yield

back my time.

Mr. SOUDER. Mr. Burton.

Mr. BURTON. I have one real quick question. First of all, you can

see the computer chips in this vial, and so there is technology, as

Mr. Gutknecht said, that can be utilized to track these things. The

one thing I’d like to reemphasize is what you just said a minute

ago, and I hope it’s not lost on the rest of the audience tonight and

everybody else who’s paying attention to this, and that is the huge

price disparity is an encouragement for counterfeiters. I’d like for

you just to elaborate on that one more time. Because of this huge

price disparity between a U.S. product sold here and somewhere

else in the world, that is an encouragement for counterfeiters,

right?

Ms. EBAN. I would agree with that statement. I will say that, traditionally, counterfeiting in the legitimate drug supply, even in

Canada for example, has been lower because their prices are regulated and counterfeiters breed when there is a differential in the

prices because that leads to a growing gray market where drugs

are diverted and then obtained by counterfeiters. So low prices and

regulated prices do decrease the instances of counterfeiting, but the

more that we have a global market with differentials in different

markets, different prices in differing markets, and you have more

parallel trade, then you will see an increase in counterfeiting.

We’ve seen this recently in the European Union where now England has had counterfeiting incidents and other countries because

the drugs are cheaper in Portugal and Spain. That increases the

number of middlemen, increases the number of counterfeiters. So

the more that we can reduce prices and regulate the discrepancies

or decrease the discrepancies in prices, you will see, I believe, a reduction in counterfeits.

Mr. BURTON. Thank you.

Thank you, Mr. Chairman.

Mr. SOUDER. Before going to the third panel, I have listened to

two panels of two of my good friends and colleagues in effect trying

to take this subject, in my opinion, off hearing. So I’m going to ask

to insert in the record, ‘‘Fake Drugs Nightmare Comes to Haunt

Canada,’’ into the record.

[The information referred to follows:]

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Mr. SOUDER. I want to point out, Mexico is shipping incredible

amounts of drugs into the United States where we do not have the

assurances that we have from Canada. I have been back and forth

on that legislation myself. We don’t even know the Canadian pharmacies in the Internet are in Canada; all they have to have is an

address shipping through Canada. This hearing was not to talk

about what I would say is ‘‘let the buyer beware’’ type situations.

In other words, if you want to buy on the Internet, you know you’re

taking a certain amount of risk; you cannot verify anything other

than the shipping address. If you buy it in the flea markets, you

have less protection. If you buy it from somebody selling out of the

back end of a station wagon, you have different risks. You may

save money, but you know you’re taking somewhat ‘‘the buyer beware’’ if you want to do that.

What we’re talking about in this hearing is going through legitimate structures where, in fact, the question is, if you believe in an

FDA, if you believe in a Food and Drug Administration, do you

then, if you’re going to pay the price at the drug store, if you’re

going to pay the market price, are you then guaranteed? What reasonable guarantee do you have that it’s safe?

Now everybody agrees that the bigger the price gap, the more

people are going to cheat. But in this subcommittee, we have heard

in all different types of testimony, for example, people in confiscated products will do this at a $4 gap if they can get enough

quantity or even in a small time operator. Furthermore, copyright

law does in fact matter in the United States, and the record should

show that my good friend from Minnesota is incorrect in mildly encouraging industries, saying, look, as long as it’s the same CD, as

long as it’s the same, quite frankly, Spam, it does in fact matter

whether somebody stole the Spam label and sells the same quality

spam, which is made in my colleague’s district, sells that for the

same thing. Yes, it’s not a safety question then. Yes, it’s not a question of whether or not somebody is going to die from it. But it is

a question of copyright law.

Mr. GUTKNECHT. Mr. Chairman, I agree with that, and I believe

in intellectual property rights, but this is a special class of products. Intel, for example, does not get the same protection for its intellectual property that the drug companies get. The drug companies are the only companies in the United States of America that

get to control the product after the first customer. And if Intel decides to sell its chips in Japan for one-fifth of what they’re selling

them in the United States, distributors in the United States could

buy them from the Japanese.

Mr. SOUDER. Reclaiming my time. That does not give nor should

we encourage anybody to violate the national intellectual property

rights or claim that those things aren’t—in other words, the criteria isn’t, look, as long as it’s a good counterfeit, it’s OK, and that

we don’t like this particular law, so it’s OK. I mean, if you want

to change the law, fine.

Mr. GUTKNECHT. Mr. Chairman, that was not my point. I do not

encourage people to break the law or take illegal drugs, OK. All I’m

saying is that when we talk about counterfeit drugs, we’re not always talking about people being actually harmed, but the price difVerDate 11-MAY-2000 11:41 Dec 15, 2006 Jkt 000000 PO 00000 Frm 00098 Fmt 6633 Sfmt 6633 D:\DOCS\30672.TXT HGOVREF1 PsN: HGOVREF1
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ferential is encouraging more and more arbitrage and more and

more illegal activity.

Mr. SOUDER. People aren’t harmed on counterfeit dollar bills.

Mr. GUTKNECHT. We have an FDA that has turned the other way

on the technology that exists today. Instead of doing what their job

is of coming up with technologies, they have gone out chasing little

old ladies who are trying to save money on Tamoxifin.

Mr. SOUDER. I’m sorry, that is not the evidence that we heard

today. That is a claim that is not the evidence we heard of the 56

cases of the people we’re hearing in this that they’re chasing, trying to figure out how to make the American supply safe. Also, as

I raised in my opening testimony, which we’ll get into more in the

third panel, the fact is that as we look at the flu shots that are

about to come up, we have a huge problem if that starts to go into

counterfeiting and trying to vaccinate on Asian flu virus or Anthrax, where we have terrorism questions and other types of questions in the United States. Do we believe in the Food and Drug Administration or not? That is the legitimate question. The international question, buying on the Internet, the internationalization

of this is a separate question and a difficult part of this. The pricing question and the pharmaceutical companies is also a difficult

part of this. The fact is, our focus is on counterfeiting in the United

States and how this relates not only to the terrible tragedies that

have happened to your families but what in fact could really become a huge question as we deal with terrorism, borders and other

types of questions. As I have pointed out earlier, as we’re trying to

do the regulations that we’re trying to do here, they are very similar to the types of controls that we’re having on how we address

pseudoephedrine and methamphetamine. I have been immersed up

to my head, but it’s a question whether it comes across the border,

India and China producing it, paper tracking or computer tracking,

is it going to be in pill form? We deal with this type of thing all

the time in this subcommittee and other places. What we haven’t

dealt with is this particular type, and I appreciate your willingness

to come forward today and to speak out, and hopefully, we can if

not move some legislation at least get FDA to get the initial steps

in that they should have, in my opinion, done some time ago.

Thank you very much for coming, and we’ll now move to the

third panel. The third panel consists of Mr. Peter Pitts, Center for

Medicines in the Public Interest; Mr. Carmen Catizone, executive

director of the National Association of Boards of Pharmacy; Jim

Dahl, former Assistant Director of Investigations, FDA Office of

Criminal Investigations; and Mr. Donald DeKieffer, DeKieffer &

Horgan. I thank you all for coming and if you will stand, I can

swear you in.

[Witnesses sworn.]

Mr. SOUDER. Let the record show that each of the witnesses responded in the affirmative.

Thank you for your patience during this hearing, and we’ll start

with Mr. Pitts.

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STATEMENTS OF PETER J. PITTS, DIRECTOR, CENTER FOR

MEDICINES IN THE PUBLIC INTEREST; CARMEN CATIZONE,

EXECUTIVE DIRECTOR, NATIONAL ASSOCIATION OF BOARDS

OF PHARMACY; JIM DAHL, FORMER ASSISTANT DIRECTOR

OF INVESTIGATIONS, FDA OFFICE OF CRIMINAL INVESTIGATIONS; AND DONALD DEKIEFFER, DEKIEFFER & HORGAN

STATEMENT OF PETER J. PITTS

Mr. PITTS. Good afternoon. My name is Peter Pitts, and I’m the

senior fellow for healthcare at Pacific Research Institute and director of the Center for Medicines in the Public Interest. I’m also

former Associate Commissioner of the Food and Drug Administration, also a 10-year resident of Indianapolis. Nice being on a Hoosier-based committee.

I’d like to thank the committee and Mr. Chairman for giving me

an opportunity to testify on the urgent and national problem of

prescription drug counterfeiting. The business of creating, distributing and selling counterfeit pharmaceutical products is a criminal

and growing part of the global economy. When asked why he

robbed banks, Willie Sutton replied, because that’s where the

money is. If Sutton were alive today, he’d be selling counterfeit prescription drugs.

The bad news is that international prescription drug counterfeit

is on the rise. I estimate, by 2010, counterfeit pharmaceutical commerce will become 16 percent of the total size of the legitimate

global pharmaceutical industry, a 6 percentage-point increase from

2004. This illegal business will generate $75 billion in revenue for

its owners in 2010, a 92 percent increase from today.

Consider this, the growth in counterfeit drugs is out pacing the

sale of legitimate pharmaceuticals, and the Internet has become

the 21st century’s virtual drug cartel. The World Health Organization estimates between 8 and 10 percent of the global medicine

supply chain is counterfeit, rising to 25 percent or higher in some

countries, as already mentioned. The largest counterfeit market

with close proximity to the EU, the European Union Free Trade

Zone, is Russia, with a generally accepted estimate at 12 percent

of drugs are counterfeit.

Now that the Baltic nations of Latvia, Lithuania and Estonia

have joined the European Union, WHO has warned an increase in

the risk of counterfeits entering the supply chain is ‘‘obvious.’’ Two

news items recently crossed the wires that illustrate this problem

and its truly global nature. The first story from China tells of 11

Chinese nationals and 1 American invested in a counterfeit medicine scheme that spanned 11 countries, 440,000 bogus pills and

$4.3 million U.S. dollars. The drugs were Lipitor, Viagra, Cealis

and Levitra. The nations involved were the United States, Great

Britain, Switzerland and Israel. The second frightening news item

comes from Hamilton, Ontario, where a registered pharmacist was

charged by Canadian Federal authorities with selling counterfeit

Norvasc heart medication after five customers who bought it died

of heart attacks and strokes. The Royal Canadian Mounted Police

announced multiple investigations remain open in other parts of

the country.

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Attention must be paid to this very serious global problem because it is nothing short of international healthcare terrorism. I

just returned from Europe, and they’ve got a lot of problems over

there. One of them is that profiteers masquerading as pharmacists

are selling unsafe, unregulated, mislabeled, repacked and commingled drugs to unsuspecting consumers. In Europe, the cause of this

is known as parallel trade, and it’s bad medicine. According to the

Treaty of Rome, parallel trade is completely legal, and articles 30

and 36 prohibit manufacturers from managing their European supply chains in their own patients’ interests. Counterfeiters are taking advantage of this opportunity. For example, in 2002, the wholesaler in the Basel region of Switzerland was caught selling repackaged drugs to Germany worth about 23 million Swiss francs, about

$18 million U.S. dollars, and 2 years later, Swiss customs seized

HIV medications stolen from a batch sent to Africa by the World

Health Organization.

Swiss Medic, which is Switzerland’s FDA, is also concerned about

the quantity of fake drugs available on the Internet. According to

the Swiss authorities, there are 15 big cases in Europe right now,

and, ‘‘there is big money involved.’’ Last year, 140 million individual drug packages were parallel imported throughout the European

Union, and a wholesaler repackaged each and every one of those

140 million packages. This means that literally parallel traders

open 140 million packets of drugs, remove the contents and repackage them.

But these parallel profiteers are not in the—they are strictly in

the money-making business, not in the safety business, and mistakes happen. For example, new labels incorrectly state the dosage

strength. The new label says the box contains tablets, but inside

are capsules. The expiration dates and batch numbers on the medicine box don’t match the medicines inside, and patient information

is often in the wrong language or out of date. Drugs purchased

from a British pharmacy and sent to an unknowing American consumer could come from the European Union from nations such as

Greece, Latvia, Poland, Estonia. In fact, parallel traded medicines

account for about 20 percent, one in five, of all prescriptions filled

by British pharmacies. In the EU, there is no requirement to

record the batch numbers of parallel imported medicine, so if a

batch of medicine originally intended for sale in Greece is recalled,

tracing where the entire batch has gone for example from Athens

to London through Canada and Indianapolis is impossible.

‘‘Buyer beware’’ is bad health care practice and even worse

health care policy. Safety cannot be compromised, even if the truth

is inconvenient. Facts are stubborn things, and false profits result

in deadly consequences. Thank you.

[The prepared statement of Mr. Pitts follows:]

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Mr. SOUDER. Our second witness is Carmen Catizone.

Thank you for coming today.

STATEMENT OF CARMEN CATIZONE

Mr. CATIZONE. Thank you, Mr. Chairman.

Thank you, Mr. Chairman, and members of the subcommittee.

We’ve submitted written comments, and I’d like to vary from that

testimony to address some of the issues that have been raised earlier by Representatives. First of all, as the association represents

State agencies, we are not opposed to Federal legislation. We’re

willing to work with the industry in developing effective Federal

legislation. Even though Federal preemption concerns the State

agencies, we believe there’s probably a compromise that can be

worked.

I want to point out the State of Indiana recently enacted legislation and regulation that addresses many of the concerns that the

Representatives raise today. It provides for accountability of the

wholesalers. It provides for accreditation of those wholesalers to

verify they are legitimate, engaging in legitimate business operations. Contrary to the criticism of the State regulations that are

being enacted and passed, I would say there is more similarity

than dissimilarity among the State regulations.

What I would ask the subcommittee to consider, though, is in enacting any Federal legislation to not be lulled by the promise that

Federal legislation will cure everything. We’ve been waiting 17

years not for the FDA to implement the pedigree standards but for

the industry to agree to those standards which they fought and

stayed for the past 17 years. If the industry does not want to put

forth an earnest effort to enact effective legislation that’s been enacted in Florida, California and most notably Indiana, we ask you

not to support that legislation but support what the States are

doing one by one to try to create uniform legislation across the

country.

In regard to pedigrees, the issue of counterfeit drugs can be resolved quickly by tracing that product from the manufacturer,

through the wholesaler, through the pharmacy. Again, the industry

has fought the pedigree requirements tooth and nail. In the States,

where we’ve enacted requirements to say, ‘‘Let us use pedigree requirements,’’ the industry has said, ‘‘It’s too costly.’’ When the

States have said, ‘‘We’ll rely on RFID policy and trace and track

technology and implement that as technologies develop,’’ industry

has said, ‘‘Technology will be available until 2011 and we can’t wait

that long.’’ When we’ve said, ‘‘Let’s implement this process through

a paper and electronic transition,’’ the industry fought that also.

We’ve tried to work with the industry in implementing what is normal distribution, what restricts the product from secondary markets, what tracks that product from the wholesalers, manufacturers to the pharmacy, and we have not received the cooperation that

we think is needed from the industry. So the chip which Representative Gutknecht says is available, we know it’s available, all you

have to do is talk to people in Florida and California about the resistance the industry is giving them to implementing these programs, and you’ll see that unless the industry is forthright in Federal legislation, all we’re going to do is stop the momentum that

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the States have created and put another staying process in place

that could last another 17 years.

At MEP, the association that represents State agencies has revised final rules for the licensure of wholesale distributors to assist

States in State licensure and regulation of wholesale distributors.

We’ve created and maintained a national specified list of susceptible drug products to identify products that have been counterfeited or are likely to be counterfeited. We’ve made operational the

Verified Accredited Wholesale Distributor Program, which is now

required by Indiana and by default has set a national standard for

the licensure and accreditation of wholesale distributors because

very few wholesalers operate only in Indiana. Wholesalers that are

licensed in Indiana, which number 600, are doing business interstate, and those wholesalers that have applied for our accreditation

to date have been very happy with the process and very complimentary of the State of Indiana and the process put in place.

In fact, we will probably conclude some investigations and inspections this week of wholesalers who applied for accreditation,

and that accreditation includes criminal background checks, authentication, due process, pedigree requirements, everything that

people this afternoon discussed that’s being necessary to protect

the Nation’s drug supply. We consider the problem of counterfeit

drugs a significant concern that must be addressed.

The present regulatory safeguards which have been changed in

response to FDA’s report on counterfeit drugs require additional resources and support from State and Federal legislatures to ensure

that the U.S. medication distribution system is not compromised.

The cooperation among the States and the FDA is critical for the

success of any effort to maintain the integrity and security of the

U.S. medication distribution system. The collaboration between the

FDA and ABP and the State boards of pharmacy to combat the

threat of counterfeit drugs has been growing and increasing and

needs to continue to grow and increase as new challenges are faced

and new strategies are developed. If we do not have that support

and that cooperation and the U.S. medication distribution system

is compromised by counterfeit drugs, then Federal and State agencies will be powerless to create a situation where citizens will be

protected. If that situation occurs, no one will be protected and no

one will be safe. Thank you.

[The prepared statement of Mr. Catizone follows:]

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Mr. SOUDER. Thank you.

Mr. Dahl.

STATEMENT OF JAMES A. DAHL

Mr. DAHL. Mr. Chairman and members of the committee, thank

you for the opportunity to testify today on this important issue.

I appear before you as a private citizen but one with considerable

knowledge on this topic. I retired from the FDA Office of Criminal

Investigations just 1 month ago today. In my brief remarks today

and in my more thorough submission for the record, I hope to represent the interests and opinions of the 185 special agents of FDA’s

Office of Criminal Investigations who are the true experts on counterfeit drugs and related pharmaceutical crimes.

The wholesale drug distribution system in this country is easily

corrupted through the introduction of diverted, stolen, misbranded,

illegally repackaged, expired, previously dispensed, counterfeit or

otherwise suspect drugs. Substandard, dangerous or unapproved

and sometimes counterfeit drugs are frequently sold via largely

anonymous and unregulated Web sites. Small parcels containing

unknown, misbranded, unapproved and counterfeit drugs are flooding our borders. Couple all that with the possibility for terrorist exploitation of our vulnerabilities, and one can easily see we have an

enormous problem on our hands.

So what should we do? First, fully implement the PDMA regulations requiring a pedigree on wholesale distribution of prescription

drugs. Although the underlying law has some loopholes, the pedigree regulations as currently written would help control unscrupulous wholesalers and provide evidence and information useful to

OCI in its criminal investigations. OCI has recommended to the

greater FDA the full implementation of the pedigree rules since it

was originally proposed in 1999, and it is now time for Congress

and the American public to demand that the stay on those regulations be lifted.

Second, call for new legislation that would help OCI and others

in their criminal investigations. I’d like to highlight just a few

needs. Administrative subpoena authority for use by OCI agents in

their felony investigations should be authorized. This is a very effective tool commonly used by a number of other agencies, including the IRS and the Bureau of Immigration and Customs Enforcement and every inspector general in the Government. If a HUD

agent can use an administrative subpoena to collect documentary

evidence concerning false statements on a mortgage application,

I’m sure the American public would agree that an OCI special

agent should be able to use a similar tool to gather evidence concerning criminal organizations that would deliver substandard or

counterfeit drugs to an unsuspecting patient in a hospital.

Title 18 of the United States Code needs to be amended to make

the Food, Drug and Cosmetic Act felonies predicate offenses under

the racketeering statutes and specified unlawful activities for

money laundering. Most offenses are committed for economic gain.

OCI needs these tools to effectively attack the criminal enterprises

that put public health at risk. In addition, Title 18 needs to be

amended to allow upon conviction the direct forfeiture of the gross

proceeds from felony violations of the Food, Drug and Cosmetic Act.

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This not only helps punish the defendant for his illegal actions but

is effective in dismantling the criminal enterprise that could otherwise continue to prey upon the public.

Title 21 of the U.S. Code needs to be amended to provide for

higher maximum penalties for felony violations of the act. I would

suggest that the penalties be linked to the actual or potential harm

caused by the illegal conduct in a manner similar to that provided

under the Federal Anti-Tampering Act. It does not make sense that

a person risks up to a 10-year maximum sentence for counterfeiting a registered trademark but only up to 3 years for counterfeiting

a drug.

Title 21 of the U.S. Code also needs to be amended to modernize

and improve enforcement generally. For instance, the definition of

what constitutes a counterfeit drug should be broadened. A provision making the attempted commission of a FD&C Act felony needs

to be enacted. A sting provision needs to be included to improve on

the effectiveness of undercover operations, and seizure laws at

ports of entry need to be streamlined to allow efficient and effective

seizures and disposition of violative products.

My third suggestion for dealing with counterfeit drugs and related pharmaceutical crime is one of resources. OCI’s operational

budget for fiscal year 2005 was only $3.96 million, yet at any given

time during that year, OCI had an inventory of 800 to 900 open

and active investigations, many addressing the priority issue spoken of today along with others involving such diverse and important matters as consumer product tampering, medical device

crimes, false statements to the agencies, illegal trade in human tissue for transplant, adulterated biologics, etc. Yet it appears to me

that OCI has become a victim of its own success. I believe OCI provides the agency with its biggest bang for buck yet it is being asked

again to do more with less. OCI simply needs more operational

funding and more people to adequately address the increasingly

complex criminal cases that appear on the horizon each day.

Resources are always a sensitive issue, but the time has come

that we must confront this crime problem with real solutions. As

a start, a mere million dollars in operational funding, along with

a couple dozen of fully funded FTE’s would go a long way to addressing these issues. In conclusion, I would like to compliment the

men and women of OCI and the U.S. attorneys offices around the

country for their continued dedication and resourcefulness in investigating and prosecuting pharma crime. Every day, they are out

there doing interviews, conducting surveillance, testifying in courts

and making arrests and much, much more. Without their continued good work, this country would be facing even greater problems.

I also believe that we need to remember that FDA’s overall mission is extremely important and complex, but the problem of criminal attacks against the pharmaceuticals we all rely on cannot be

solved with a status quo Office of Criminal Investigations. The

FDA must confront drug counterfeiting as a law enforcement problem. It must continue to seek and seriously consider advice from

the true experts within and outside the agency and adopt a political will to provide law enforcement with the tools and resources it

needs.

[The prepared statement of Mr. Dahl follows:]

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Mr. SOUDER. Thank you.

Mr. DeKieffer.

STATEMENT OF DONALD DEKIEFFER

Mr. DEKIEFFER. Mr. Chairman, I’m going to depart from my prepared testimony to address some of the issues that have been

raised in the hearing today.

As we’ve all heard, the counterfeit drug problem in the United

States is very severe, and it’s getting worse, but it’s not as severe

as it is in many other countries, including countries all over Europe. The European market right now has approximately five times

the number of counterfeits that we do, so the mere fact that a

country has lower drug prices does not mean it will have axiomatically lower counterfeits.

There are three major sources of counterfeit drug supplies in the

United States though: cross border imports, the Internet and diversion. I really don’t want to spend too much time on talking about

the import question today. As you mentioned, Mr. Chairman, that’s

maybe a topic for another day. The Internet itself could take up

hearings all by itself. The fact is, though, the diversion has been

the source of all of the counterfeit drugs that have entered the legitimate drug supply chain in this country in the last 5 years. I’m

not talking about drugs that are purchased over the Internet. I’m

not talking about drugs that are purchased by people that are

going to Mexico and bringing back drugs across the border, people

that are buying in back alleys. I’m talking about people going to

legitimate pharmacies expecting to get legitimate drugs. In every

case that we’ve seen in the last 5 years that we’ve seen counterfeits, it’s because of diversion.

Now in the case of the sources of diverted drugs and where do

these come from, well, there are about seven major sources: samples, stolen products, re-imports, own-use pharmacy fraud, Medicare and Medicaid fraud, complicity and conspiracy with pharmaceutical representatives, and so-called surplus medications. Now

the problem is the supply chain is not controlled by the manufacturers, and it’s not supervised by any regulator nationally.

Now when we talked today, we used the words ‘‘the industry’’ in

kind of an umbrella here. The drug supply going from the manufacturer to the retailer is not one industry; it’s three and arguably up

to five different industries. So each of these industries, if you will,

has slightly different interests. So when we heard today that the

industry opposes this particular proposal or the industry supports

this particular approach, we have to be very careful in what industry specifically we’re talking about.

The diversion pipeline itself, once you open that diversion pipeline, from one of the sources I mentioned, stolen products, re-imports, own-use pharmacy fraud, whatever, once the pipeline is

opened to get into the legitimate supply chain, that is where all of

the counterfeits that have entered that chain have gotten in. That’s

the way they get into the stores, the shelves of CVS and Rite Aid

and that sort of thing. So if you attack diversion and cut that out,

you reduce the likelihood to near zero of counterfeit drugs getting

on legitimate pharmacy shelves.

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Consumers themselves really are defenseless. They can’t tell

what legitimate packaging is or what it isn’t because, as we know

in this country anyway, we don’t get drugs in packages; we get

them in little amber bottles. Maybe there’s an amber bottle producers association out there making sure they don’t have packaging in

anything else aside from an amber bottle. In Europe, as you pointed out, unit dose is ubiquitous and has been for the past 10 years.

That creates some of its own problems, but by and large, they have

had far fewer instances because of that packaging than we have.

And that certainly is one of the things that can be done. Because

the kinds of marketing that you’re talking about, Congressman,

RFID among others, as RFID is only one of the solutions, is much

easier to do if you have packaging that actually reaches the pharmacist and ultimately the consumer. Right now, that entire process

is in the middle of the supply chain.

Evidence is destroyed during the process of consumption, too, so

there’s no way that a consumer or even OCI can tell whether the

incident of counterfeiting is increasing or not.

There are a number of solutions that I have recommended in my

written statement. Let me just mention a couple more. One, I

would like to underscore what Mr. Dahl said: We have fewer than

200 agents in FDA OCI as our defense against counterfeit drugs

in the entire United States, with an operating budget of less than

$3 million. Some gas stations have bigger operating budgets than

that. It’s a scandal and a disgrace. It is something not brought before this committee or I dare say any other committee before because the FDA budgetary process doesn’t permit it.

The other recommendations that I have, though, are in my written testimony. I’d be more than happy to answer questions about

them in the question and answer session, and I thank you again

for the opportunity to testify.

[The prepared statement of Mr. DeKieffer follows:]

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Mr. SOUDER. Thank you all for your testimony.

One thing I have been confused about today is the multiplicity

of possible conspiracies here. It’s unclear to me who favors what.

On the one hand, a couple of my colleagues are suggesting that this

whole idea of counterfeit drugs is something that the pharmaceutical companies are proposing.

What I thought I heard Mr. Catizone imply was that there’s a

danger that—I thought you were saying that the pharmaceutical

companies or others were opposing regulation. Is that what you

were in effect saying?

Mr. CATIZONE. I need to clarify that. There’s been opposition to

different aspects of regulation. In regard to title control over the

wholesale distributors, the pharmaceutical industry and particularly Pfizer has taken a lead role in this regard. But in regard to

the chips and the RFID technology, there’s some confusion as to

which, in industry, support that and which don’t. I think overall,

in this instance, the manufacturers are very supportive because

they want to protect their products and make sure the right products are reaching consumers. The wholesale industry is the one opposing the regulation that we’ve been pushing at the State level.

Mr. SOUDER. You’re concerned that if Congress passes a bill, that

the wholesale industry would weaken it so that it wouldn’t be implemented and undermine strict State laws?

Mr. CATIZONE. That’s one of our concerns. We’ve had recent discussion with the industry that’s assured us this won’t occur. But

if you look at some of the facts and some of those that were in

Katherine’s books, the wholesale industry says this represents less

than 1 percent of their business. They’re going to stop doing business with the secondary markets. If that’s the case, why is there

so much resistance to any regulation?

Second, now that the States have gained momentum and are

passing regulations and creating uniformity, why aren’t they coming forth for Federal legislation? We’ve also not heard the wholesalers support Representative Israel’s bill at the Federal level but

want to introduce their own bill.

We have over 100 field investigators that are ready to inspect

and soon will have over 200 ready to move in to any State at a moment’s notice. We think that the industry realizes that the States

have taken this seriously, and the States are not going to back

down, and so now there’s an attempt to say, let’s try something federally to weaken what the States have done.

Mr. SOUDER. Mr. Dahl, how would you characterize the types of

investigations you are doing? Would you say CSI? That’s a TV

show.

Mr. DAHL. OCI. We don’t have a TV show yet.

Mr. SOUDER. If we give you that much money, you’ll maybe have

a TV show.

At OCI, were these—let me ask you two questions. Do you believe that the investigations were driven by the pharmaceutical

companies’ desire on the import question or do you believe that

they’re driven more by how we’ve had a rise in counterfeiting and

the types of threats of counterfeiting? In other words, did you chase

down people buying pills on the Internet because of the cost, or

were you focusing on broader investigations that might have been

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more threats to safety or a little bit of both, protecting international patents and so on and some of its safety questions? And

then the second question I wanted you to take that one; it’s a pretty big question.

Mr. DAHL. It’s a little bit of both. Certainly, we had criminal investigations involving illegal Internet sales. There is no crime of

selling drugs by the Internet, but if you sell a defective product, illegal product, you commit certain crimes. So certainly we have had

criminal investigations there. We certainly have had some criminal

investigations with small parcels and large parcels being smuggled

in from foreign countries, and we certainly have had criminal investigations involving wholesale distribution of counterfeit or misbranded or stolen or illegally repackaged drugs. We have not had

any criminal investigations on little old ladies crossing into Canada

buying drugs. We are not focusing on that. We are not bringing

cases like that.

Mr. SOUDER. Do you sense, and is there any peremptory type of

looking at or should this be part of the variable of—I don’t know

how to say this. In other words, how would you prioritize investigations? One would suggest, if there’s a big price gap, smuggling operations are going to occur, as well as high-risk terrorist type actions. Are we doing sampling on vaccinations or things that are

vulnerable, a little bit more proactive rather than reactive? Are

there some drugs where they become essential to life where an

adulterated drug has a different threat than an aspirin, although

any drug totally tampered with can be a threat? How would you

address that, Mr. Dahl, and then Mr. DeKieffer?

Mr. DAHL. OCI prioritizes its investigations based on harm to individuals. The economic fraud that may be present is always secondary. We will always compromise a criminal investigation in

favor of public health, and we certainly have announced recalls and

recoveries of products and given public warnings that would have

in another agency not been done because the investigation was still

underway. But we can’t afford to risk the public health. So whether

it’s a counterfeit drug, a medical device that could have a serious

impact on an individual, tissue for transplant, whatever it might

be, the blood supply, we’re always going to prioritize the public

health, and I don’t think that will ever change.

Mr. CATIZONE. Mr. Chairman, if I can respond. The risk of drug

products we’ve prepared is based on criteria that address the high

price pharmaceuticals, so they will counterfeit Epogen and Procrit

versus an Amoxicillin. They’re also based on limited distribution,

specialized patient care like HIV/AIDS patients. That list has been

compiled based on the facts and based upon some of the concerns

which other Representatives have raised today.

Mr. DEKIEFFER. One of the major issues is, I think, a misunderstanding about what is likely to be counterfeited. The higher-priced

item will be counterfeited first; that’s almost never the case. The

product will be counterfeited first whether it’s drugs or almost anything else where the margin is the greatest. In other words, the opportunity to make the greatest markup, No. 1, and No. 2, the likelihood of being caught is the lowest. In other words, the ease with

which you can pass the product off and the margin you can make

will be the magnets for counterfeiting in almost any circumstance,

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and it’s particularly true with drugs. When certain States, for example, Florida made up lists of drugs a few years ago with a little

bit more than 30 drugs they wanted to look at most carefully. They

really didn’t pick drugs that were most likely to be counterfeited.

They picked drugs that were the most likely to have some effect on

people. I think a combination of those two approaches, one, the

most likely to be counterfeited, and second, the drugs most likely

to cause harm if they are, is the correct way to go about it.

Mr. PITTS. Mr. Chairman, to that point as well, the drugs that

are most likely not to be counterfeited are drugs that are going to

do extreme damage to the consumer because that’s basically killing

off the business. When you see drugs such as Viagra or

antidepressants pills, they’re the least likely to be reported, for obvious reasons. So I think you’re looking for counterfeiters who are

looking to make as big a margin as possible for as long as possible.

This is not a one-shot operation; it’s big business, and they want

to be in business for a long time.

Mr. SOUDER. Mr. Burton.

Mr. BURTON. Do any of you represent the pharmaceutical industry?

Mr. DEKIEFFER. My law firm provides data to about 50 different

companies, and among them some are in the pharmaceutical industry. We provide data on diverters and counterfeiters internationally, and among some of our clients are pharmaceutical companies.

About a third of our clients are pharmaceutical companies.

Mr. PITTS. Pacific Research accepts funding from pharmaceutical

companies, but I’m funded from general funding.

Mr. DAHL. I’m unemployed.

Mr. BURTON. You know, let’s say we pass the legislation to which

you referred, and it sounds like to me that there is some real merit

in a number of the things that you brought up today. I think I’ve

already asked for a copy of the Indiana statute, so we may look at

that as a model for Federal legislation if necessary. But what I

wanted to find out is let’s say we pass everything that you say we

ought to pass and it becomes law. How do you deal with the people

that buy pharmaceutical products from Canada or Mexico or

France or Germany and buy them through the Internet?

Mr. DAHL. If I could speak to maybe the 185 OCI agents, we’re

not dealing with them at all. We’re not worried about somebody

buying a small parcel from a brick and mortar pharmacy,

Winnepeg, we’re worried about the 10,000 pills that come in a 75-

pound package from Thailand with no labels on it at all that get

put in other boxes and resold.

Mr. BURTON. OK. That’s good. So then you really don’t have opposition to individuals getting pharmaceutical products from Canada or——

Mr. DAHL. Let’s face it, we have importation. There is probably

10,000 parcels that came in while we’ve been sitting in this room

this afternoon, so we have it. If you want to pass a law to better

regulate it, I think you should. If you don’t, it doesn’t matter, we’re

still going to have it. And the FDA knows that, and so does everyone else.

Mr. PITTS. Although, Mr. Burton, to your point, I think it’s important not to send the wrong signals. Clearly when you tell people

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that drugs from other countries are safe, and it’s OK to get them

from the Internet, with all the best intentions, some people aren’t

necessarily listening quite as carefully, and what they hear is it’s

OK to get drugs from nonregulated entities.

Mr. BURTON. We’ve had legislation in both the House and the

Senate that got a lot of support, although we’ve never gotten them

both together, and we continue to work on that. dThe legislation

deals primarily with Canada, because they have pretty strict regulations on pharmaceutical products up there. And we keep getting

opposition. Yet when Mr. Hubbard appeared before our committee,

we asked him to give us a case where someone was damaged by

pharmaceuticals imported from Canada, for instance, and he

couldn’t give us any.

Mr. PITTS. Well, there are five deceased Canadians in Hamilton,

Ontario, from counterfeit drugs, so——

Mr. BURTON. There are five deceased Canadians?

Mr. PITTS. Yes, sir.

Mr. BURTON. From counterfeit drugs.

Mr. PITTS. Yes, sir. Norvasc.

Mr. BURTON. Well, what does it have to do with the importation

into the United States from pharmacists up there?

Mr. PITTS. Well, you said that, you know, bringing in drugs from

Canada, which is a safe and secure drug supply system, which they

do——

Mr. BURTON. No, I understand. If there is counterfeit, regardless

of where they come from, they can be contaminated and can kill

people. But the problem is that the people that were importing, little old ladies and people like that, pharmaceutical products from

Canada, they couldn’t find any cases where there was any harm

that had happened. We asked about that.

Mr. PITTS. A lot of times when you’re taking medicine like for

cholesterol or high blood pressure medication, as the earlier panel

has mentioned, it isn’t a question of taking the drug and keeling

over, it’s a question of not getting the therapeutic benefit from the

drugs that you’re taking.

Mr. BURTON. I understand.

How many people died from aspirin last year, or from Tylenol?

Mr. PITTS. How many?

Mr. BURTON. Do you know how many?

Mr. PITTS. No, sir.

Mr. BURTON. Well, it was in the thousands, from what I’ve been

told, and other medications like that. But anyhow, that’s another

issue.

I guess the main question I had was how do you police importation of pharmaceutical products? And I don’t know—no matter how

many laws we pass that deal with the problem here in the United

States, as long as people can buy those products over the Internet

from outside the country, you still have a real policing problem.

Mr. PITTS. Oh, absolutely, no question about it. But I guess the

point is not to exacerbate the problem by telling people that they

should do it, because it allows people that are trying to take advantage of these people to sell more bad product.

Mr. BURTON. OK. I guess my last question would be, then, do you

think that one of the inducements for people to go outside the counVerDate 11-MAY-2000 11:41 Dec 15, 2006 Jkt 000000 PO 00000 Frm 00130 Fmt 6633 Sfmt 6633 D:\DOCS\30672.TXT HGOVREF1 PsN: HGOVREF1
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try to buy these products is because things like tamoxifen cost four

or five times as much as it does here than it does in Canada, and

people who are dying from cancer want to be able to buy their

product, and they can’t afford it, and so they say, in desperation,

‘‘If I’m going to survive, I’ve got to get the product, I’ve got to split

my pill?’’ Sometimes you have people that go to the pharmacy here

in the United States that say, ‘‘I have to split my pill,’’ and so the

reason they do it is because of economics.

Mr. PITTS. Sure, people in this country do that; people in Europe

do it as well. It is common practice that people want to get something less expensive, and especially something they need for their

life. It simply becomes a question of what are the tradeoffs. If you

want to have drugs, you need to have them available, and if you

want to get a drug cheaper and you want to go outside the regulatory system that your government provides, then you take risks.

Mr. Chairman, to your point, it goes back to the whole issue of

what is the job of the FDA, and to my former colleague at OCI,

how can they be better funded to make sure that people can get

the drugs that they need and that they’re safe.

Mr. BURTON. Thank you, Mr. Chairman.

Mr. SOUDER. Thanks.

Mr. Gutknecht.

Mr. GUTKNECHT. Thank you. And just for the record, then, Mr.

DeKieffer, your company does do work with the pharmaceutical industry, and, Mr. Pitts, your organization does receive significant

funds from the pharmaceutical industry?

Mr. PITTS. I don’t know what significant means, but they definitely do receive funding, yes. I wish it was significant.

Mr. GUTKNECHT. Would you submit for us a record of how much

money you got from pharmaceuticals last year?

Mr. PITTS. It’s a 501(c)(3), so those records are publicly available.

Mr. GUTKNECHT. All right, thank you.

Mr. Catizone, I just want to say that I agree with everything

that you’ve said. I’ve been studying this issue now for 5 years. I

often tell people I feel like the little boy who comes in and asks his

mother a question. His mother is busy, and she says go ask your

dad, and the little boy said, well, I didn’t want to know that much

about it. I sometimes feel that way. I think you’ve really hit the

nail on the head. And my concern about whether it’s this bill or

this whole issue of counterfeiting, there are different motives by

different groups. My real concern—and I do agree with you, that

the pharmaceutical industry really doesn’t want to solve this problem because the technology exists, too—in terms of solving, that’s

not really the right word, we can never solve any problem completely. We live in an imperfect world, and there are always going

to be people who will take advantage of it.

But the truth of the matter is neither FDA nor the pharmaceutical industry has taken a particularly keen interest in solving

this problem, and I believe—and I will just say this for the

record—I believe the real reason is they know if they really solve

this problem, all of a sudden, and somebody said the Internet has

changed everything, and it is true, because until the Internet we

didn’t know how much more we paid for prescription drugs than

people in Germany or Italy or France or Canada. In the informaVerDate 11-MAY-2000 11:41 Dec 15, 2006 Jkt 000000 PO 00000 Frm 00131 Fmt 6633 Sfmt 6633 D:\DOCS\30672.TXT HGOVREF1 PsN: HGOVREF1
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tion age you can’t keep those things secret anymore, and it has

changed everything. Yet in the information age we still want to

pretend that we can hire enough policemen, and with all due respect, I’m not sure you can hire enough enforcement people to ultimately change consumer behavior on this. You are correct, probably 10,000 packages arrived in Minnesota today, and some of

them through the State-sponsored Web site so that people can buy

their prescription drugs from Canada.

But I would love to work with people who are really sincere

about resolving this, because I think if you go to the RFID tags,

like these, or, as I say, the latest technology, which are microscopic

taggants, all of a sudden, you know, then it becomes a world market. And we can track this product wherever it is, wherever it

comes from, where it was produced, when it was produced.

But, Mr. Catizone, I think you’re exactly right. I’m not sure the

FDA or the pharmaceutical industry really wants to solve the problem because then it becomes a world market, and then they can’t

play the game where they sell some of these drugs for literally

thousands of dollars more. You mentioned—I don’t know who mentioned the AIDS drugs. It’s almost shameless what they sell some

of those drugs for, especially when you consider that most of the

research was paid for by the American taxpayers. But those are all

policy questions that we have to resolve, and I want to thank you

all for coming because I think this has been a very interesting

hearing.

And, Mr. Catizone, I really do want to thank you because I think

you nailed exactly what the problem is.

I yield back.

Mr. SOUDER. I thank the gentleman.

And the other question I meant to ask that I didn’t get done because it’s something that’s kind of confused me all day long here,

and that is, if we get the pedigree, we solve the question of the

grayness, the gray market and all that. But if we get a pedigree,

does, in fact—if the pedigree includes black marketers, that just

enables us, from law enforcement purposes, to go back and figure

out how it got bad, right? Does it put—is another advantage to this

that it puts pressure on individuals to have a shorter pedigree, that

announcements like CVS did, or we heard Wal-Mart, bigger companies can figure out how to do this, they can buy directly from the

manufacturer? In fact, they can probably hammer the price down

at the manufacturing level.

What is a practical impact of a pedigree to an independent pharmacist in a small town who’s buying wholesale?

Mr. CATIZONE. With a pedigree you track that product from a

manufacturer throughout the distribution chain, and if you alert

people to not accept any products where that pedigree doesn’t exist,

where the pedigree has been altered, where the pedigree has gone

outside of that normal distribution, you have placed a major dent

in the counterfeit drug market.

Mr. SOUDER. So first off, one would be the mere existence of a

pedigree.

Mr. CATIZONE. Exactly.

Mr. SOUDER. The second thing is how would you know if you’re

a small pharmacist what is outside the chain?

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Mr. CATIZONE. That’s what the normal distribution has been

from the manufacturer directly to the pharmacy, or from the manufacturer through one wholesaler that’s been authorized or that’s

been accredited to the pharmacy. Anything outside of that is outside of normal distribution.

Mr. SOUDER. So what we’re really looking for are very short pedigrees.

Mr. CATIZONE. Exactly.

Mr. SOUDER. And very tight. Otherwise this looks like an analysis of figuring out; after somebody’s dead, you can go back and figure out how it got there, as opposed to how I was trying to sort

through the prevention side.

Mr. DeKieffer, in fairness, you said you provided data to other

companies as well. What other companies besides pharmaceutical

companies do you provide——

Mr. DEKIEFFER. Yes. We provide data to footwear industries, to

apparel, to food industries, to high-tech electronics, because the

same kinds of people who are diverting drugs are also involved in

all kinds of other illicit black market and gray market activities.

So we work with a number of clients in a number of different industries to try to identify leaks in the supply chain. And very often

we find that the bad guys don’t divide their industry the same way

that legitimate companies do, and they will steal anything.

So, yes, we do have pharmaceutical clients. We also have clients

that sell sunglasses.

Mr. SOUDER. I thank you all for your testimony today. Thank you

for your patience. It was a long hearing. With that, the subcommittee stands adjourned.

[Whereupon, at 5:08 p.m., the subcommittee was adjourned.]

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