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PHARMACEUTICAL SUPPLY CHAIN SECURITY

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

SECOND SESSION

JULY 11, 2006

Serial No. 109–227

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

BRIAN P. BILBRAY, California

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)

DAVID MARIN, Staff Director

LAWRENCE HALLORAN, Deputy Staff Director

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, Counsel

KIMBERLY CRASWELL, Clerk

TONY HAYWOOD, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on July 11, 2006 ............................................................................... 1

Statement of:

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

Pharmacy; Susan C. Winckler, esq., vice president, policy and communications, American Pharmacists Association; John M. Gray, president

and CEO, Healthcare Distribution Management Association, HDMA;

and Rick Raber, project manager, Northern Apex, RFID .......................... 64

Catizone, Carmen ...................................................................................... 64

Gray, John M. ............................................................................................ 90

Raber, Rick ................................................................................................ 99

Winckler, Susan C. .................................................................................... 79

Lutter, Randall W., Acting Associate Commissioner for Policy and Planning, Food and Drug Administration; and Kevin Delli-Colli, Deputy

Assistant Director, Financial and Trade Investigations Division, Office

of Investigations, U.S. Immigration and Customs Enforcement .............. 8

Delli-Colli, Kevin ....................................................................................... 45

Lutter, Randall W. .................................................................................... 8

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

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

Pharmacy, prepared statement of ............................................................... 67

Delli-Colli, Kevin, Deputy Assistant Director, Financial and Trade Investigations Division, Office of Investigations, U.S. Immigration and Customs Enforcement, prepared statement of .................................................. 47

Gray, John M., president and CEO, Healthcare Distribution Management

Association, HDMA, prepared statement of ............................................... 93

Lutter, Randall W., Acting Associate Commissioner for Policy and Planning, Food and Drug Administration, prepared statement of ................... 11

Raber, Rick, project manager, Northern Apex, RFID, prepared statement

of ..................................................................................................................... 101

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

of Indiana, prepared statement of ............................................................... 4

Winckler, Susan C., esq., vice president, policy and communications,

American Pharmacists Association, prepared statement of ...................... 81

(1)

PHARMACEUTICAL SUPPLY CHAIN SECURITY

TUESDAY, JULY 11, 2006

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 10 a.m., in room

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

Present: Representatives Souder, Gutknecht, Foxx, Cummings,

Ruppersberger, and Norton.

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

Michelle Gress, counsel; Scott Springer, congressional fellow; Kimberly Craswell, clerk; Tony Haywood, minority counsel; and Jean

Gosa, minority assistant clerk.

Mr. SOUDER. The subcommittee will come to order. Mr.

Cummings is going to be a little late, and we will have Members

in and out, but I want to get the hearing started on time.

Good morning, and thank you for being here today. This is the

second hearing conducted by the subcommittee to investigate the

threat of counterfeit drugs within the United States.

Today’s hearing is focused on measures to prevent counterfeits

from entering the pharmaceutical supply chains and to improve

supply chain security. This hearing comes in the wake of FDA’s recent update from its Counterfeit Drug Task Force which recommends ending the multi-year stay on implementing the pedigree

rule required in the Prescription Drug Marketing Act, an act that

was signed into law in 1988.

A pedigree shows the drug’s chain of custody, tracking the product as it flows through the supply chain. States such as California

and Florida already have tough pedigree laws, and other States are

moving forward with their own legislation. The FDA’s decision to

implement the pedigree requirement is a welcome, if overdue, effort

in the national fight against counterfeit medicines in a pharmaceutical supply chain.

Pedigrees can be paper or electronic, also known as an ePedigree;

ePedigree can be accomplished through what is known as radio frequency identification [RFID], where a small RFID tag on the drug

package is read and tracked from seller to seller providing, an electronic record of all transactions for the drug. Nonetheless, the pedigree is only one tool in the tool box for creating and maintaining

a secure supply chain.

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Counterfeit pharmaceutical drugs are illegal, generally unsafe

and pose a serious threat to the public health. Moreover, despite

some sensational media segments on the prevalence and danger of

counterfeit drugs, the American public is generally unaware of the

program.

The illegitimate business of creating, distributing and selling

counterfeit pharmaceutical products is an unregulated, criminal

and growing part of the global economy. There is one major difference between pharmaceutical counterfeiting and other underground industries: lives are at stake. It has been estimated that,

globally, counterfeit pharmaceutical commerce will grow to become

16 percent of the aggregate size of the legitimate industry, a 6 percent increase from 2004. This illegal business will generate $75 billion in revenue in 2010, a 92 percent increase from 2005.

The counterfeit industry is also growing at a much faster rate

than the legitimate pharmaceutical business. Some estimates indicate that counterfeit drug sales will grow 13 percent annually

through 2010, compared to just 7.5 percent estimated annual

growth for global pharmaceutical commerce.

Many of the products sold via drug traffickers contain ingredients that could be harmful, and these products are coming from illegal operations with very poor controls. The U.S. supply chain has

become increasingly vulnerable to a variety of threats. Counterfeit

drugs often travel through a distribution network of wholesalers,

distributors, pharmacies, online shelf companies and criminal organizations buying, selling and reselling through unofficial channels

with little product integrity. The FDA has confirmed that the large

majority of known instances of counterfeit drugs have entered the

supply stream through what is known as a secondary market,

where drug diversion takes place. Drug diversion is the principle

method by which counterfeits consistently enter the legitimate drug

market. This happens because the pharmaceutical supply chain is

not regulated by any single entity, private or governmental. The

pharmacies within the State are monitored by the State Boards of

Pharmacy which enforce the standards of care within each State.

However, the State Boards of Pharmacy lack police power, and

many are limited to only a handful of inspectors. Drug manufacturers have to comply with the FDA for the safety, effectiveness and

labeling of their drugs. The drug manufacturers typically exercise

no control over their drugs once they are shipped out of the manufacturing facility. Rather, the drugs are bought and sold by distributors and frequently pass in and out of the secondary market,

where they may be bought and sold dozens of times, passed among

several hands, repackaged, mishandled or relabeled.

Distributors like retailers and physicians are licensed by the

States which must only meet the minimal standards set by the

Prescription Drug Marketing Act. In order to obtain a distributor’s

license, some States’ licensing requirements are more lenient than

others. Although some States have toughened their licensing standards for distributors, this leaves a patchwork of inconsistent standards across the country. Unscrupulous distributors can exploit the

lowest standards of some States to insert counterfeit or adulterated

product in the legitimate drug supply chain.

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When unscrupulous middlemen resell pharmaceuticals, they

sometimes relabel them to reflect higher and more valuable doses,

mishandle them to contaminate or degrade the drug, or substitute

fake products for the legitimate goods. The counterfeits can be indistinguishable from the legitimate product. For the patient, there

is no commercial transaction like this. The patient has virtually

zero ability to inspect the drug’s packaging or compare it to other

samples. The patient who goes to a pharmacy to have his or her

prescription filled is as helpless in determining the quality of the

drug and completely dependent on a system that has experienced

some tragic breaches. Moreover, it is impossible to measure the

scope of the problem, and we cannot say with any degree of certainty how many or which counterfeit drugs make it to the pharmacy shelves because a health indication or ultimate death may be

attributed to the patient’s underlying illness rather than the drug.

I look forward to hearing from our witnesses an assessment of

the current threats and available protective measures to strengthen the supply chain.

Our first panel today consists of Mr. Randall Lutter, Associate

Commissioner for Policy and Planning at the Food and Drug Administration; and Mr. Kevin Delli-Colli, Deputy Assistant Director,

Financial and Trade Investigations, Division, Office of Investigations, U.S. Immigration and Customs Enforcement [ICE].

Our second panel consists of Carmen Catizone, executive director

of the National Association of the Boards of Pharmacy; Ms. Susan

Winckler, vice president of policy and communications at the American Pharmacists Association; Mr. John Gray, president and CEO

of Healthcare Distribution Management Association [HDMA]; Rick

Raber, project manager with Northern APEX-RFID and a fellow

Hoosier from northeastern Indiana.

Welcome to each of you, and I look forward to your testimony.

Mr. Gutknecht, do you have an opening statement?

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

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Mr. GUTKNECHT. Mr. Chairman, I don’t so much have an opening

statement, I just want to thank you and congratulate you for holding this hearing. This is an issue that I’ve had an interest in for

a long time. It all started—this opening statement may get a little

longer than I originally intended, but I want to just make a few

points.

First of all, it started at a town hall meeting that I had many

years ago where seniors began to question why it was they were

treated like common criminals for buying their prescription drugs

from Canada. And the argument that has been consistently proposed by the FDA and their fellows in the pharmaceutical industry

is that we cannot guarantee the safety of drugs coming in from industrialized countries like Canada. The truth of the matter is,

there is technology available today at low cost, and I’ve got some

examples that I brought with me if you want to see audio visuals.

In here, I have 50 RFID computer chips, and you can barely see

them. But this technology is not futuristic. It’s not pie-in-the-sky.

It is available today. And we have the ability to protect the integrity and the safety of the drug supply not only here in the United

States but from other industrialized countries. And so I think this

hearing is a very important step I think on that path toward making certain that the pharmaceutical drugs that Americans take are

safe but, more importantly, more affordable for all Americans.

So I really do want to thank you for having this hearing, and I’m

delighted to be here.

Mr. SOUDER. I thank the gentleman. He’s been very active and

outspoken on this for some time, and I’m glad we can continue to

progress with this.

I ask unanimous consent that all Members have 5 legislative

days to submit written statements and questions for the hearing

record, and any answers to written questions provided by the witnesses also be included in the record. Without objection, so ordered.

I also ask unanimous consent that all exhibits, documents and

other materials referred to by Members may be included in the

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

remarks. Without objection, it’s so ordered.

As the witnesses know, it’s our standard procedure to ask witnesses to testify under oath. If you will raise your right hands, I

will administer the oath to you.

[Witnesses sworn.]

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

We thank you for coming today.

Dr. Lutter, is that correct? Did I say that correct? I look forward

to your testimony. I’ll have you start.

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STATEMENTS OF RANDALL W. LUTTER, ACTING ASSOCIATE

COMMISSIONER FOR POLICY AND PLANNING, FOOD AND

DRUG ADMINISTRATION; AND KEVIN DELLI-COLLI, DEPUTY

ASSISTANT DIRECTOR, FINANCIAL AND TRADE INVESTIGATIONS DIVISION, OFFICE OF INVESTIGATIONS, U.S. IMMIGRATION AND CUSTOMS ENFORCEMENT

STATEMENT OF RANDALL W. LUTTER

Mr. LUTTER. Good morning, Chairman Souder, members of the

subcommittee. I’m Dr. Randy Lutter, 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 regarding counterfeit prescription drugs.

Counterfeit drug products and illicit drug diversion are major

concerns to FDA. While the U.S. drug supply is among the safest

in the world, we believe threats from drug counterfeiters have become increasingly sophisticated. Organizations and individuals who

peddle fake medicines put unsuspecting patients at risk by exposing them to unknown contaminants and denying them medicines

known to be safe and effective at treating their medical ailments.

Our mission is to protect and promote the public health, and

today I will discuss measures FDA has taken and continues to take

to fight phony medicines.

First I’d like to clarify what FDA considers counterfeit. The definition in the True Drug and Cosmetics Act focuses on fraud and

deception toward the consumer as when persons falsely believe

they are receiving a genuine FDA-approved product. It generally

does not include products that are marketed as being similar to or

a foreign version of an FDA-approved drug. Those types of products

are also illegal but referred to as unapproved new drugs, not counterfeit drugs.

My written statement contains details of FDA’s enforcement efforts to combat prescription drug counterfeiters; today, however, I’d

like to highlight some of the work of FDA’s Counterfeit Drug Task

Force, and some of the recommendations made in the recently

issued 2006 report.

The Task Force was established in 2003 and consists of senior

FDA officials. Our mission is to develop recommendations for steps

that FDA, other government agencies and industry could take to

minimize the risk to the public from the introduction of counterfeit

drugs into the U.S. distribution system.

In 2004, the Task Force issued a report outlining a framework

for public and private sector actions that could further protect

Americans from counterfeit drugs. This framework called for a

multi-layered approach to address the problem and stated among

other things that widespread use of electronic track-and-trace technology would help secure the integrity of the drug supply chain by

providing an accurate drug pedigree, which is a record of the chain

of custody of the product as it moves through the supply chain from

manufacturer to pharmacy. Radio frequency identification is a

promising technology to achieve electronic pedigree.

The third conclusion was that widespread adoption and use of

electronic track-and-trace technology would be feasible by 2007.

And finally, the effective date of certain regulations related to the

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implementation of the Prescription Drug Marketing Act should be

delayed until December 1, 2006, to give stakeholders in the supply

chain time to focus on implementing widespread use of ePedigree.

In 2005, the Task Force issued an updated report which assessed

FDA’s and industry’s progress toward implementing the 2004 recommendation. The Task Force found, among other things, that

progress had been made in many areas, but progress toward widespread use of ePedigree was slowing, and the goal might not be

met by 2007. This year, to evaluate progress toward widespread

use of ePedigree by 2007 and to solicit public comment on the implementation of certain PDMA related regulations, we held a public

meeting on February 8th and 9th. Subsequently, on June 9th, the

Task Force issued its most recent report based on this extensive

fact-finding effort. I’ll focus my discussion on this 2006 report on

the status of the stayed provisions related to PDMA and electronic

track-and-trace technologies.

As you know, FDA published five regulations related to the

PDMA in December 1999. The provisions in those regulations define the phrase ‘‘ongoing relationship’’ as used in the definition of

authorized distributor of record set forth in the requirements regarding pedigrees and define the fields of information that must be

included in the pedigree.

FDA had delayed the effective date for these provisions several

times because of significant issues raised by stakeholders. Based on

our recent fact-finding effort, we can no longer justify continuing

the stay. A large majority of supply chain stakeholders told FDA

that the regulations should be allowed to go into effect. Allowing

the stay to expire will provide clarity in the prescription drug supply chain by distinguishing clearly authorized distributors of

records who are exempt from providing drug pedigrees from nonauthorized distributors of record, who must provide a pedigree.

While the regulations do not provide for a phased in approach for

pedigree implementation, FDA has issued a draft compliance policy

guidance for public comment that reflects the risk-based approach

that FDA will use to focus its enforcement efforts regarding the

pedigree regulations. The focus will be on prescription drug products that are most vulnerable to counterfeiting diversion based on

factors such as high value, prior history of counterfeiting or diversion, reasonable likelihood of counterfeiting for new drugs, and

other violations of law.

The 2006 report also states that FDA continues to believe that

RFID is the most promising technology for implementing electronic

track-and-trace in the prescription drug supply chain and that

stakeholders should move quickly to implement this technology.

FDA recognizes that implementing an RFID-enabled drug supply

chain is challenging and urges manufacturers to take a risk-based

approach to implementation.

The 2006 report also considered several technical issues related

to adoption of electronic track-and-trace technology that were perceived as obstacles to implementation and are in need of resolution.

These include mass serialization and unique identification of each

drug package, universal pedigree, covering all drugs from all manufacturers to the dispenser, national uniform information, and privacy issues and the need for consumer education about RFID and

10

the labelling of RFID tag drug products in order to help prevent

unauthorized disclosure of personal information.

FDA’s vision of a safe and secure prescription drug supply chain

is based on transparency and accountability for all persons who

handle the prescription drug throughout the supply chain. With the

pedigree regulations taking effect in December 2006, FDA expects

that supply chain stakeholders will move quickly to electronic

track-and-trace technology. Ultimately, we believe that the public

health would be better protected if all stakeholders work cooperatively to enable all distributors to pass pedigrees.

FDA is doing its part to effectively enforce the law in conjunction

with other Federal, State and local entities, to protect Americans

from criminals who attempt to undermine the public health by introducing counterfeit and diverted prescription drugs into the U.S.

drug supply.

I’d like to thank the subcommittee for the opportunity to testify

today on this important issue. I’d be pleased to respond to any

questions.

[The prepared statement of Mr. Lutter follows:]

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Mr. SOUDER. Thank you.

Mr. Kevin—is it Delli-Colli?

Mr. DELLI-COLLI. Yes, thank you.

Mr. SOUDER. He is Deputy Assistant Director for Financial and

Trade Investigations at ICE. We welcome you back to our committee.

STATEMENT OF KEVIN DELLI-COLLI

Mr. DELLI-COLLI. Good afternoon, Chairman Souder and distinguished members of this subcommittee. My name is Kevin DelliColli, and I am the Deputy Assistant Director for Financial and

Trade Investigations at U.S. Immigration and Customs Enforcement [ICE].

I am pleased to appear before you today to speak about ICE’s

role in combating the trafficking of counterfeit pharmaceuticals. I

have a statement which I will submit for the record and will make

a brief oral statement.

In January 2004, ICE and FDA in San Diego began a multiagency investigation targeting various Web sites, Internet payment

networks and pharmaceutical supply chains. The targets utilized

more than 650 affiliated Web sites to distribute more than $25 million in counterfeit or unapproved pharmaceuticals within a 3-year

period.

The distribution network extended throughout all of North America, and the source country, India, was disguised by trans-shipping

the product through other countries. To date, this investigation has

resulted in 20 indictments, 18 convictions and the seizure of $1.4

million. The primary violator was sentenced in January 2005 to 51

months imprisonment. Prosecution of other defendants is ongoing.

This case highlights many of the challenges confronting U.S. law

enforcement in combating the trafficking of counterfeit pharmaceuticals.

As the largest investigative arm of the Department of Homeland

Security, ICE plays a leading role in targeting criminal organizations responsible for producing, smuggling and distributing counterfeit products, including counterfeit pharmaceuticals. ICE investigations focus not only on keeping these products from reaching

U.S. Consumers, but also on dismantling the criminal organizations responsible for this activity.

ICE smuggling investigations have shown that the Internet has

become the primary tool used by organizations engaged in the trafficking of counterfeit pharmaceuticals, whether for advertisement,

direct sales or as a communication tool. Individuals who previously

would have purchased controlled or prescription pharmaceuticals

through an underground supplier now use the Internet to locate a

source for the drugs, place orders, arrange shipments, and make

payments all from the comfort of their own home. Thus, traffickers

have been able to create an illicit unregulated supply chain which

is filled with counterfeit, adulterated, misbranded and unsafe drugs

that are distributed directly to consumers who in most instances

are drug abusers.

The problem is global. China and India are the most prolific

source countries; however, Mexico, Thailand and Brazil are also

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sources of these drugs. Other countries host Web service, conduct

payment processing or act as trans-shipment points.

ICE addresses this threat in several ways. ICE is a cadre of dedicated and trained special agents assigned to domestic field offices

who specialize in investigating counterfeit violations. ICE special

agents are also deployed to 56 overseas attache offices, making it

possible for ICE to effectively conduct global investigations. ICE

agents in the field and overseas work closely with the ICE Crime

Center to combat pharmaceutical violations over the Internet. ICE

also hosts a National Intellectual Property Rights Coordination

Center, which serves as the primary point of contact for law enforcement referrals and conducts industry outreach.

Another way in which ICE combats pharmaceutical smuggling is

through targeted operations such as Operation Apothecary. Operation Apothecary concentrates its efforts at international mail facilities and express courier hubs to examine and identify packages

containing falsely declared or undeclared pharmaceuticals. ICE,

FDA and other Federal law enforcement agencies use the information obtained from these examinations to target foreign sources, domestic organizations and recipients engaged in smuggling and distributing commercial quantities of illicit pharmaceuticals.

Since 2003, ICE has initiated 178 criminal investigations targeting pharmaceutical smuggling. To date, these investigations have

led to 86 arrests. Millions of dosage units of counterfeit, adulterated, misbranded and unapproved pharmaceuticals have been

seized, and where appropriate, assets attributed to the illegal proceeds have also been seized and forfeited.

To combat the supply side, ICE has actively engaged the Chinese

Ministry of Public Security to conduct investigations of mutual interest. This dialog led to the first two joint U.S.-China enforcement

actions ever to take place in China. One of these investigations

began in February 2005 when the ICE attache in Beijing received

information that Richard Cowley of Shelton, WA, was linked to

groups of individuals involved in the Internet sale of pharmaceuticals in the United States and Europe. This investigation led

to the initiation of Operation Ocean Crossing. ICE special agents

acting undercover met with Cowley and learned the identity of his

supplier in China. The information from this investigation was

shared with Chinese authorities, who then took action against the

largest counterfeit pharmaceutical operation in China. Twelve Chinese nationals were arrested, and three illicit pharmaceutical facilities were shut down during joint enforcement actions which took

place in December 2005. Cowley was arrested in the United States.

He has since pled guilty and is currently awaiting sentencing.

This case is an excellent example of the value of cooperation and

information sharing in combating transnational pharmaceutical

trafficking, and ICE believes that this need for cooperation will

continue to produce significant results.

ICE will continue to aggressively apply our authorities in combating the transnational organizations that traffic in counterfeit

pharmaceuticals.

This concludes my remarks, and I would be pleased to answer

your questions. Thank you.

[The prepared statement of Mr. Delli-Colli follows:]

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Mr. SOUDER. I thank you both for your testimony.

Let me ask kind of a side question first that came up at a hearing we had last week in Colorado on meth.

When Congress passes a new law that is about to take effect, for

example, on September 30th, on—it’s a legal drug if it has

pseudoephedrine in it, but we’re restricting the quantities and requiring people to register, and this will now become national.

Has there been any discussion of what the logical market reaction is going to be? It appears in Oregon that they’ve gone to the

Internet to bring in the pseudoephedrine for the so-called momand-pop labs. Oklahoma just appears to be bringing in crystal ice.

Those were the first two States with pharmaceutical regulations.

But does what you’re talking about here, how would that be handled with a legal product that we’re trying to control the dosage,

in effect?

Mr. DELLI-COLLI. Well, from ICE’s perspective, with responsibility for the meth, it’s a different division than the counterfeit division.

Mr. SOUDER. But this is the pseudoephedrine that’s legal. For example, many headache medicines that would now—now the quantity is handled differently.

Mr. DELLI-COLLI. I’m not familiar enough with the legislation to

know how the implication of that drug would be affected. I believe

it would be similar to an anti-pharmaceutical; it’s going to be prohibited unless it’s brought in by a manufacturer.

Mr. LUTTER. Maybe I can expand on that a little bit.

Pseudoephedrine brought in across the border would be treated as

an illegal, unapproved drug because it has not been reviewed by

FDA.

Mr. SOUDER. But I’m not talking about raw pseudoephedrine, or

ephedra, which we already control; I’m talking about the pills. Any

headache medicine that 37 States are going through that process

as of September 30th, the Federal regulation will put it behind a

counter with people having to sign in, and you can only get a certain amount of it. Now the way to get around that law is to do

what you do with other prescription drugs and try to move around

the border. And I’m wondering, when we pass major legislation like

this that’s going to slam down in 50 States, whether there’s been

any discussion, because the logical market reaction is going to be

sort of trying to move around the legal distribution. And whether

or not some of the ways you’re trying to address tracking and so

on would be a way to do that? I’m just wondering whether you’ve

had any discussion about meth, because this is a new change that

could result in a big bump up in what you’re dealing with. But

there hasn’t been a discussion, I take it.

Mr. DELLI-COLLI. Any time you restrict the domestic sale of—if

the drugs that have the active ingredient that could be used to

manufacture meth are put behind the counter and make it a little

more difficult to obtain, anybody that wanted to do something inappropriate with those drugs would, I believe, resort to the Internet

to find a supplier for that ingredient.

Mr. SOUDER. And your agency hasn’t begun to look at that impact?

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Mr. DELLI-COLLI. Other than the fact that we would anticipate

that we would see an increase.

Mr. SOUDER. What currently—if I may move to Dr. Lutter—what

currently are some of the major drugs that you would be dealing

with in the range of what you’re trying to control here?

Mr. LUTTER. With respect to counterfeit drugs generally, or with

respect to——

Mr. SOUDER. Counterfeit drugs generally. In other words, to give

just kind of an initial layout here, are we talking mostly people

who are—are they common medicines? Are they prescription drugs?

Are they illegal drugs?

Mr. LUTTER. There is a variety of similarities among the drugs

that have been reported counterfeited in the past in the United

States. First, they are typically high value. Some of them are lifestyle drugs. And third, some of them are relatively easier to counterfeit in the sense of being liquids, clear liquids rather than pills,

which are difficult to counterfeit because they have to be manufactured in a manner that closely resembles the authentic product.

In terms of the products that we’ve actually seen counterfeited

in the past, recent cases that have been closed include Lipitor, anticholesterol drug, Viagra and Cialis, which are well known from advertisements, Zyprexa, and also other products for HIV and for

AIDS. Procrit was also listed as a counterfeit drug according to recent accounts.

So the common theme here is that they are drugs that are high

value in the United States in terms of the market as a whole, and

also relatively—some of them are relatively easy to produce in a

manner that deceives trained pharmacists and physicians.

Mr. SOUDER. As I understood your testimony, you were moving—

you said you felt they could move forward in December with the

process?

Mr. LUTTER. A key announcement that we made on June 9th of

this past year is that we would allow the stay of the PDMA regulations to expire in early December of this year. An implication of the

expiration of that stay of the regulation and a discontinuation of

the stay is that there would be additional clarity to stakeholders

in the drug distribution chain about who is supposed to provide

pedigrees and what exactly the pedigrees are supposed to contain.

The PDMA itself, as you know, mandated that stakeholders in a

drug distribution system pass pedigrees to whoever the buyer is,

unless they are authorized distributors of record, the term of art

in the statute. And an authorized distributor of record in the statute is someone who has an ongoing relationship with the manufacturer. What the regulation that we issued in 1999 does is it defines

further what is meant by an ongoing relationship. As you can

imagine, many stakeholders have asked us what is actually meant

by that. So what our 1999 regulation does is stipulate that an ongoing relationship which makes a wholesaler exempt from having

to pass a pedigree under the Prescription Drug Marketing Act is

a written agreement with the manufacturer designating that

wholesaler as an authorized distributor. And under those circumstances, the authorized distributor would not have to pass the

pedigree.

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Mr. SOUDER. Is that authorized distributor list going to be published?

Mr. LUTTER. I’m sorry?

Mr. SOUDER. Is the authorized distributor list going to be published?

Mr. LUTTER. Yes. Our regulations make the—ask the manufacturers to make visible upon request the list of authorized distributors of record.

Mr. SOUDER. So that’s available to you?

Mr. LUTTER. And to anyone else who asks. They’re also directed

by our regulations to update it continually.

Mr. SOUDER. Could secondary distributors claim they had been

purchased from an authorized distributor when they really haven’t

been?

Mr. LUTTER. Well, a secondary distributor who is not an authorized distributor of record would have, as mandated under our regs

and the statute, to pass a pedigree. So the pedigree would stipulate

where they acquired the drugs and allow for anybody who buys the

drugs from them an additional assurance that it is a pharma legitimate source and has been handled by known entities.

Mr. SOUDER. One of the things that I was confused when you

were finishing your statement and I was reading it as well, my understanding—I thought I heard you say that the focus should be

high value, and you repeated that a minute ago, things that are

easier to counterfeit and so on. Does this mean this isn’t going to

apply to all drugs? This is a phase in? Are you providing a list of

what the process will be in December?

Mr. LUTTER. The decision that we announced in June is to allow

the stay to expire in early December, and as of that point the regulation takes effect. We also issued——

Mr. SOUDER. For everything?

Mr. LUTTER. Yes. We also issued a draft compliance policy guidance, which is now open for public comment. And we intend to

issue that in final form before December. The key purpose of the

draft compliance policy guidance is to articulate for stakeholders

how we will use our enforcement resources for the first year during

which the stay—after which—during which the regulations have

taken effect. And there are four basic criteria in the compliance

policy guidance that articulate how we will use our enforcement resources. They are essentially that we will focus efforts on pedigrees

for drugs which are high value, and that’s because we believe

that——

Mr. SOUDER. Are you going to specifically define what high value

is? Are you going to name the different drugs or——

Mr. LUTTER. We have in the compliance policy guide listed examples of high value drugs, but not provided a definition. We’ve also

listed drugs which have previously been counterfeited. And the reason that these are higher risk is that there is a track record. Counterfeiters have shown themselves to be interested in counterfeiting

these drugs in particular for whatever reason.

The third criteria is that for new drugs there needs to be a reasonable expectation that they’re likely to be counterfeited, such as,

again, expectations of high value or ease of creating a drug which

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is very similar to the genuine FDA approved article. And then the

fourth one would be for other violations of law.

Mr. SOUDER. And taking an example that you referred to say of

Lipitor; so what you’re saying is that would be one that they would

be expected to have a tracking. Are you saying that they would

have to have RFID tracking with it, or paper tracking would be

sufficient at this point? A pedigree.

Mr. LUTTER. The regulation and the compliance policy guidance

are silent about the particular technology to be used in providing

the pedigree. The pedigree must be passed by certain entities, and

it must contain certain information. We believe that RFID technology would offer a relatively cost-effective way of ensuring proper

pedigrees. We think it offers substantial advantages to many stakeholders who believe it’s the most promising electronic pedigree

available based on the discussions that we had with stakeholders

in our public meeting on February 8th and 9th. A variety of technologies presented at that meeting, other examples which were

other than paper include a bar code, even a two-dimensional bar

code, and very interestingly from the perspective of many stakeholders were hybrid technologies, technologies that would couple, if

you will, RFID and paper or RFID and a bar code. And the purpose

of these technologies was it reflected a need to meet stakeholders

needs, given that the transition to an RFID world, which many

people believe is where the industry will ultimately end up, will not

be instantaneous but will instead involve a certain period during

which there would be a demand for a variety of products to provide

pedigrees using different technologies.

Mr. SOUDER. Mr. Gutknecht.

Mr. GUTKNECHT. Thank you, Mr. Chairman. And again, I want

to thank you for holding this hearing.

Let me first of all quote from the Center of Medicines in the public interest. They predict that counterfeit drug sales will reach $75

billion globally by 2010, an increase of more than 90 percent. And

so this is a real issue. And it’s not just about the United States;

it’s about the world.

Second, I want to point out, I have in my hands here 50 RFID

tags. These are available today at relatively low cost. And so the

technology exists today.

I also have counterfeit proof packaging, which is available today.

This is not something we’re talking about 10 years from now, 5

years from now; it’s available today.

More importantly, a lot of this technology is being used today.

Unfortunately, it’s being used mostly in Europe. And I don’t think

the Europeans are intrinsically any smarter than we are. If they

can do that, certainly we can do that.

Dr. Lutter, I want to read from your testimony, and I will quote,

‘‘The FDA stated in the 2006 Task Force report that although significant progress has been made to set the stage for widespread use

of ePedigree, this goal, unfortunately, will not be met by 2007. The

FDA is optimistic that considerable momentum and interest in

widespread implementation of ePedigree continue and remains

committed to working with the stakeholders—and I want to underscore stakeholders—to make this happen. Stakeholders urged FDA

not to mandate RFID in order to give the private sector time to

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continue with developing standards that build the appropriate and

necessary infrastructure. We listened to their concerns, and did not

require RFID use at this time.’’

Dr. Lutter, I understand that the stakeholders are not particularly interested in doing this, and my sense is they have their own

reasons for that. But I want to come back to, I understand that the

conclusion was that this would be too hard to implement against

all of the prescription drugs that are out there, which is why Mr.

Burton of Indiana and myself have introduced H.R. 4829. And we

would essentially phase in the implementation of this technology in

the drug supply, starting only with the 30 most easily or most commonly counterfeited drugs in the United States.

Dr. Lutter, why wouldn’t you just start small? I mean, you don’t

have to do this globally. Why don’t we begin somewhere? I mean,

the journey of a thousand leagues begins with a single step, and

I think the first single step is to say, OK, this is the biggest problem, let’s scratch where it itches. Why didn’t you do that?

Mr. LUTTER. With respect to starting small, that approach is actually very similar to something that we’ve adopted in the compliance policy guidance that we’ve put out for public comment. In that

sense, we’re using our resources to focus attention on pedigrees for

the drugs which are most likely to be counterfeited during the first

year after the red will take effect.

With respect to RFID more generally, I think the question there

is really the maturity of the technology and its readiness for immediate adoption on a widespread basis.

According to the testimony that we heard in the public meeting

on February 8th and 9th, a variety of issues pertaining to standards had not yet been resolved, and these included questions such

as the frequency, how to characterize the serialization, in other

words, a unique number for each individual product, and what to

do, for example, with privacy. That is not to say at the same time

that RFID isn’t very promising. What we were told at that public

meeting is that they were very successful pilot projects done by

several drug companies with wholesalers, and these pilot projects

had been so successful that they were not ended or discontinued

when the original completion date arrived. Instead, they were seen

as so successful that they were continued in a realtime production

and distribution environment that allowed the manufacturers and

the wholesalers information about inventory and the location of all

the products for business reasons, in addition to providing information about the pedigree that would be useful in complying with the

PDMA.

Mr. GUTKNECHT. OK. I’ll let you off on that. I’m not sure I completely agree. Because as I say, if you wait for all the stakeholders

to agree on this, I think it’s going to be a long wait.

Mr. Delli-Colli—and I hope I’m pronouncing that close to the

right way—over the last year, we have read about—and I received

a number of calls and e-mails and letters from folks in my district

about prescriptions that they had ordered via the mail from pharmaceutical supply houses in Canada that have been intercepted by

your office. Can you tell us about that, and can you defend that?

Mr. DELLI-COLLI. First of all, by way of explanation, my organization is Immigration and Customs Enforcement, and we conduct

59

the criminal investigations that are associated oftentimes with seizures that are made by Customs and Border Protection. So what

you may be referring to is that drugs are being ordered over the

Internet from Canada and coming in probably through mail facilities or courier hubs and being intercepted by CBP and subsequently seized. CBP is doing that because currently there is no

legal way to import drugs over the Internet. The only way you can

bring in prescription drugs personally is if you accompany the

drugs into the United States and present a prescription at the border.

As far as my office, we would only get engaged with an investigation if we believe that those drugs were being imported for criminal

purposes to be illegally distributed, and not specifically for just an

end user.

Mr. GUTKNECHT. But if a senior citizen in Winona, MN, is ordering their Prilosec from Canada, do you consider that a criminal

act?

Mr. DELLI-COLLI. It also depends. First of all, when you order

something over the Internet, how do you know it’s coming from

Canada? I mean, just because there’s a Web site that indicates that

the site is in Canada, we find often times that many of these organizations are trying to disguise their existence——

Mr. GUTKNECHT. Let me interrupt that. When you say oftentimes, you mean most of the drugs? I mean, often is an interesting

word, but words have meaning. We’re talking about drugs that actually are being distributed by Canadian distributors that have

been doing this for many years, that are well respected, and we

have had no problems either with counterfeit drugs or with adverse

reactions by the consumers. So when you say often, that’s a misleading word, isn’t it?

Mr. DELLI-COLLI. Oftentimes meaning within the context of the

investigations that ICE conducts. And again, CBP is enforcing the

regulations that currently exist. So the investigations that we conduct again are geared toward individuals that are illegally distributing drugs over the Internet. So I may be looking at, you know,

a different cross-section of what we’re dealing with because I am

a criminal investigator.

Mr. GUTKNECHT. OK. Well, my time is expired, but we’re watching this very carefully. And I think our own government is overstepping its legal responsibilities to American consumers. And the

Congress, just for the record, has gone on record several times

making it clear that we believe that law-abiding citizens who are

buying drugs from—prescription drugs—from established sources

that have demonstrated that they are responsible and are distributing the exact same FDA-approved drugs, the Congress has gone

on record several times saying that is not, in the opinion of the

Congress, the right or the responsibility of the Custom agents to

do. And I wish—and I want to thank the chairman for having this

hearing, and I wish we could have more hearings on this because

I think American consumers are being abused, and I think lawabiding citizens are being treated like criminals for no reason. And

I just want that in the public record. Thank you.

Mr. SOUDER. Thank you.

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Mr. Delli-Colli, in your testimony you said that ICE investigations have not revealed instances in which smuggled counterfeit

pharmaceuticals were destined for the legitimate supply chain.

However, you state in Operation Apothecary that you dismantle organizations involved in the illegal importation of commercial quantities of the pharmaceuticals. Where were they destined?

Mr. DELLI-COLLI. The people associated with the distribution,

we’re referring to illicit importation, the ultimate end use of these

drugs is, in the cases that we’ve investigated, are going to people

that either can’t—that would not be able to get a prescription for

the drugs, are drug abusers, or just don’t want to go to a doctor

and apply for a prescription. We haven’t had any—our investigations lead us to drugs that are being provided to wholesalers or distributors to be entered into the brick and mortar pharmacies in the

United States; these are individuals that are using the Internet to

acquire drugs that they wouldn’t legally be able to obtain or choose

not to bother going to the doctor or a physician, or are just looking

for cheaper drugs without any concern as to where they’re purchasing the drugs from. And then there are people then obviously involved in the distribution process that are involved in smuggling

drugs into the United States, traditional ways, bringing them in

trunks of cars, hand-carrying them through the airports, and then

set up Internet sites in the United States and ship those drugs via

the mail, via DHL, FedEx, things of that nature.

Mr. SOUDER. So you haven’t seen any instances of the equivalent

of doctor shopping in the sense of certain pharmacies? We had one

pharmacy in my district that actually—a group of meth users had

sent somebody to a school, then opened up a pharmacy that became

a major distribution point for meth. In Florida, in a hearing on

OxyContin, the Orlando Sentinal had published, and we had quite

a discussion that all the OxyContin abuse had come from just six

places in the whole State of Florida. You haven’t seen that kind of

set up type operations where——

Mr. DELLI-COLLI. Again, because we’re ICE, we’re focused at the

border in the interdiction capacity. So there are probably things

that are occurring domestically which would fit in that nature. And

there are—we have some cases that are somewhat ongoing that involve, you know, actual physicians that are licensed to practice that

write illegal script, but again, we just have not had the type of case

where some unsuspecting person would walk into CVS and hand

a prescription over, and drugs that we intercepted were destined

to be put into that chain as if part of the real supply chain. However, our investigations are increasing, and I think the vulnerability is definitely there for that to occur in the future.

Mr. SOUDER. We are obviously having a hot political discussion

in Congress and across the country about what to do with legitimate Canadian pharmacies and whether they should ship in the

United States, but anybody who has visited Mexico knows and is

on the Internet that there is not security. Have you looked into or

do you have any idea or do you work with the RCMP to see about

trans-shipment, and in fact whether there are people working with

the Canadian address who are not in fact Canadian pharmacies, do

they have licensed pharmacies that they actually know? We know

how much they bring in and how much they move out, and the

61

quantity of goods coming in from Canada exceeds the amount that

they have in their supply chain. So the question is, is ICE looking

at this mismatch, and do we actually know whether there is transshipment, or is this occasional or frequent?

Mr. DELLI-COLLI. Again, we believe that there is trans-shipment

occurring via Canada as well. Again, what we’re seeing and what

we’re getting—where our investigations are taking us is oftentimes

we will either begin a case on the Internet or we’ll find a package

that is seized at the airport, and to defend my brothers at CBP a

little bit, most oftentimes when they are seizing pharmaceuticals

coming into the United States, they’re falsely declared. They’re not

declared as drugs. They’re declared as documents. They’re not contained in the original packaging of the drugs. They’ve been removed from the blister packages, and they’re inserted inside books

and things of that nature.

So a lot of what we’re seeing are blatant attempts to circumvent

the regulations at the port. We don’t necessarily know at the time

we make those seizures who the supplier is; oftentimes we have to

followup with interviews of people, not intending to necessarily

prosecute them because it’s just a personal use situation, but to ask

them how they acquired it and then try to work those cases back.

But we’re seeing again that most of what we’re seeing is the Internet is the primary tool for the distribution network.

Mr. SOUDER. When you find counterfeit drugs from China or

India, which are two of the countries that you mentioned in the

question—some from Mexico—who are they selling through? If it’s

predominantly Internet means, what kind of name would you look

in the Internet to find it under? Is it pretending to be an American

pharmacy, a Canadian pharmacy? What is the masquerade that

they’re using to ship the drugs in? Are they selling it on street corners through Lipitor gangs? I mean, I’m trying to sort——

Mr. DELLI-COLLI. Probably the least of those would be standing

on the street corner. Those days are sort of behind us because of

the Internet. It could be any of those. Oftentimes, obviously, if

you’re gearing toward the U.S. market, you’re going to have an

Internet Web site that is all done in English. It doesn’t necessarily

mean that—the site may purport to be in a foreign country, and

it will just have information on there which makes it—purports to

be tied to a legitimate brick and mortar pharmacy somewhere. It

will indicate that it accepts all forms of credit card purchases,

MasterCard, Visa, Discover. They will frequently ask questions,

talk about how—with respect to the question they have about the

drugs. They may even have a consult with a physician, but you just

don’t know who necessarily you’re dealing with; that is the biggest

problem.

We had one site—this is going back a few years, the end of

1999—we had a Thai site that, by all appearances, the site looked

really legitimate, except it turns out that the person that was filling the prescription was buying the drugs out of the back of a brick

and mortar pharmacy in Thailand and then was himself a hepatitis

patient who just recently, when we did the enforcement act, had

just recently got released from the hospital. And his assistant that

was helping him fill the prescription was a Thai prostitute. So

there’s no controls over the quality or how these drugs are coming

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in. And I think that’s the dilemma that you get into, you know,

who is regulating all these sites all over the world with respect to

accounting for the legitimacy of those drugs.

Mr. SOUDER. Dr. Lutter.

Mr. LUTTER. If I could elaborate a little bit on the lack of controls. I have an example here of counterfeit Tamiflu that was purchased by—it was seized by Customs, who is not with us today, in

April 2006 and turned over to the FDA Office of Criminal Investigations for investigation. OCI determined, the Office of Criminal

Investigations at FDA determined that this had been purchased

over the Internet by an NBC Dateline producer and was part of an

order of 500 total capsules that was shipped from China. These

products, as you see, are very similar to authentic Tamiflu. The labelling in fact is not so close to U.S. Tamiflu as to confuse trained

U.S. physicians or pharmacists.

OCI is continuing its investigation into the source of this counterfeit, but the analysis of our forensic chemistry center confirmed

that the packaging and capsules are counterfeit. And the capsules

have no active ingredient. So aspects of this investigation, such as

the source of the counterfeit Tamiflu, are still under investigation

by OCI field offices, and for that reason the numbers on the blisters on the boxes are concealed here. But this is an example of how

counterfeit products are available on Internet sites that Americans

have access to.

Mr. SOUDER. The big question that I am still kind of wrestling

with here is that, because the distribution system question is critical, because if that had an RFID or a tracer on it, it wouldn’t really

matter because that is not going to have one and it is not moving

through regular tracking procedure. What is this pedigree? How is

the pedigree going to affect the elicit market?

Mr. LUTTER. There are probably three related issues on that. In

this instance, the U.S. purchaser was attempting to buy large

quantities as if he were in fact a wholesaler, trying to sell to retailers and not for personal consumption. However, the Web site could

be available also to individual citizens who would be buying

Tamiflu, which is known to be safe and effective when used as directed not only against seasonal flu, a very important ailment that

affects millions of Americans annually, but also against pandemic,

which is a very serious threat that concerns the administration and

many informed people in the public health community.

So the availability of the counterfeit Tamiflu for sale poses, either at a wholesale level——

Mr. SOUDER. But getting back to the question, that Tamiflu is already illegal, right? Is that package you just held up illegal?

Mr. LUTTER. I’m sorry?

Mr. SOUDER. Is that illegal?

Mr. LUTTER. Yes, this is illegal because it is counterfeit.

Mr. SOUDER. And if I as an individual went to the Internet to

try to buy that, am I going to have a way to tell whether it’s got

a pedigree if I buy it off the Internet and it’s not, because that’s

already illegal, having a pedigree isn’t going to affect that?

Mr. LUTTER. A pedigree would not protect you. A pedigree is for

the purposes of ensuring integrity of the wholesale distribution

scheme.

63

Mr. SOUDER. And these people are outside that.

Mr. LUTTER. And these people are outside that. The pedigree provides an opportunity for U.S. wholesalers all the way through to

dispensers, pharmacies or hospitals to verify that the product in

question had an appropriate and valid chain of custody going all

the way back to the manufacturer.

Mr. SOUDER. So in the 16 percent that I referred to in my opening statement, how much of that potential 16 percent or whatever

the current figure is—that was a 2010 projection—that 16 percent

is outside the chain of legitimate distribution, that we’re not going

to——

Mr. LUTTER. The number I think you referred to is 16 percent

from mail order in the United States currently, and that reflects

all sources, including Internet and old-fashioned mail order where

people may not use the Internet. I don’t know what percent of that

is from foreign-based Internet pharmacies. We reported, HHS reported in a drug importation report to Congress in December 2004,

that the total volume of imported parcles containing unapproved

foreign pharmaceutical products was 10 million in calendar year

2003 and that contained approximately 25 million prescriptions.

But these are rough estimates at best based on the experience that

our staff have at international mail facilities.

Mr. SOUDER. Mr. Gutknecht, do you have any more questions?

Mr. GUTKNECHT. Mr. Chairman, not so much a question but I

think there is what I would describe as almost a convenient conspiracy here. On one hand, you have the pharmaceutical industry

who wants to hold American consumers captive. Counterfeiters

don’t counterfeit $1 bills. It is mostly $100 bills they counterfeit because it is worth doing.

The reason we have created this counterfeit industry is in large

part because drugs in the United States are far too expensive. And

what we have heard here is the Internet has become the instrument. Well, what is the Internet? It is the information age. And

until American consumers knew how much more they were paying

for the same drugs, they weren’t interested in buying their drugs

over the Internet. But once they began to know, once the information age—you can’t hold American consumers hostage, and that is

the fact. You can try, but it doesn’t work and so now you have created a monster. And the answer, the technology that has existed

now for a number of years, the FDA continues to decide, well, yeah,

but we really, yes, it might work, but we don’t want to use it yet.

And so now you have part of the conspiracy is the custom agents

who are literally, for senior citizens who are dealing with pharmacies that they have dealt with for several years and bought their

prescription drugs and they’re completely satisfied and they believe

and everybody believes they are getting exactly what they requested—incidentally, Governors are now on the other side.

Our own Governor of Minnesota, the Governor of Illinois, other

Governors are saying, to save money, they want them to buy from

certain prescription drug suppliers that they have screened. They

have literally gone up and met with the people and looked at their

operations and so forth and they have given them their seal of approval. But we have created this monster. And until or unless our

government understands that you cannot hold American consumers

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hostage in the information age, this problem is going to get worse

and worse and worse. And the responsibility for that problem rests

with the FDA, with Customs and with us.

So I want to thank you for coming to testify, but we won World

War II in 3.5 years. We have been working on this issue of figuring

out ways that Americans could have access to affordable FDA-approved drugs from FDA-approved facilities, we have been working

on this for 5.5 years, and we won World War II in 3.5 years. And

for me and I think for a lot of American consumers, this is totally

unacceptable.

I yield back.

Mr. SOUDER. I thank you each for your testimony. We may have

some additional written questions. Thank you for coming today.

Thank you for your work. We will continue to track to see how this

implementation works.

If the second panel could come forward.

The second panel is Carmen Catizone, the executive director of

the National Association of the Boards of Pharmacy; Susan

Winckler, vice president of policy and communications, American

Pharmacists Association; John Gray, president and CEO of the

Health Care Distribution Management Association; and Rick

Raber, project manager, Northern Apex RFID.

It is our standard practice as an oversight committee to swear

in each of the witnesses. Mr. Catizone, you are sitting in Mark

McGuire’s seat, so we do expect you to talk about the past anyway.

Will you each raise your right hands?

[Witnesses sworn.]

Mr. SOUDER. Let the record show that each of the witnesses responded in the affirmative. Thank you for agreeing to participate

in today’s hearing.

Mr. Catizone, is that the correct?

STATEMENTS OF CARMEN CATIZONE, EXECUTIVE DIRECTOR,

NATIONAL ASSOCIATION OF BOARDS OF PHARMACY; SUSAN

C. WINCKLER, ESQ., VICE PRESIDENT, POLICY AND COMMUNICATIONS, AMERICAN PHARMACISTS ASSOCIATION; JOHN

M. GRAY, PRESIDENT AND CEO, HEALTHCARE DISTRIBUTION MANAGEMENT ASSOCIATION, HDMA; AND RICK RABER,

PROJECT MANAGER, NORTHERN APEX, RFID

STATEMENT OF CARMEN CATIZONE

Mr. CATIZONE. Yes, sir.

Mr. SOUDER. We will start with you.

Mr. CATIZONE. Thank you, Mr. Chairman, good morning.

Good morning, Representative Gutknecht.

Thank you for the opportunity to appear before you this morning.

I am pleased to report that significant progress has been made

to combat the threat of counterfeit drugs. However, as far as we

have progressed, there is still much to do before we can rest and

maintain the confidence we have in the integrity of the medication

distribution system for U.S. patients. The real threat of counterfeit

drugs at this time is not the limited breaches which have occurred

but the potential catastrophe that could result if the U.S. medication distribution supply system is compromised.

65

A recent incident that just came to our attention happened yesterday, where investigators in Indiana discovered counterfeit drugs

that made their way into Indiana pharmacies from a wholesale distributor in Cincinnati. As we speak investigators are trying to

track those sources and determine how widespread that counterfeit

breach is.

If the U.S. medication distribution system is compromised, every

medication that travels from the pharmaceutical manufacturer to

the wholesale distributor to the pharmacy to the patient will be in

question. If that is allowed to take place, no patient will be safe.

In order to prevent that from occurring, the State Boards of Pharmacy and States have passed, are continuing to pass and implementing legislation that tighten the laws and regulations for the licensure and regulation of wholesale distributors. This concentrated

and concerted effort is closing avenues for the introduction and diversion of counterfeit drugs and has already resulted in the end of

operations for a number of wholesale distributors that were dangerous and seeking to corrupt our distribution system.

What has also propelled this effort is the shared desire of the

pharmaceutical manufacturers, primary source wholesale distributors and technology vendors to work with the State Boards of Pharmacy and FDA to stop the influx of counterfeit drugs. Everyone involved in all aspects of dispensing and distributing medications to

patients accepts the seriousness of the challenge and the crises or

problems that could lay ahead.

I am also pleased to report that NABP’s accreditation program

for wholesale distributors is fully operational and is required to recognize by an increasing number of States. VAWD, verified accreditation of wholesale distributors, certifies that the wholesale distributor is legitimate, duly licensed in compliance with State and

Federal laws, and adhering to criteria for the wholesale distribution of medications that protect the integrity of the system and patients receiving medications. NABP will accredit all wholesale distributors, licensed or seeking licensure in the State of Indiana. And

since an overwhelming majority of wholesale distributors conduct

business in multiple States, that accreditation system required by

Indiana is fast becoming a uniform and national standard.

Some recommendations and considerations we ask of the subcommittee at this time to support the efforts of the States and sustain the progress being made are as follows: one, a uniformed pedigree system or auto tracking system must be established. It is a

travesty that we can track the ingredients in the pizza prepared by

our local pizza parlor better than we can track prescription drugs

in the distribution supply system. Two, paper pedigrees are not a

solution for counterfeit drugs. The counterfeit drug dealers are far

too savvy and technology sophisticated to allow for much confidence

in the paper-based system. The answer lies with the electronic

track-and-trace technology, and we request support for the FDA to

assume a leadership role in this area and use its expertise and influence to cause the development of the uniform standards and implementation of track-and-trace technologies and RFID as quickly

as possible.

Third, we ask support for the implementation deadlines for RFID

technology that the States are now enacting. Without a uniform

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standard, without a uniform implementation date, the States are

fast creating a patchwork of deadlines that are not supporting a

uniform system. We need assistance. We need some uniform or national standards.

Thank you again for this opportunity. NABP and the State

Boards of Pharmacy take the threat of counterfeit drugs very seriously and are doing all we can to maintain the integrity of the U.S.

medication distribution system. We are working as hard as we can

to help the States protect the health and welfare of U.S. patients.

Thank you.

[The prepared statement of Mr. Catizone follows:]

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STATEMENT OF SUSAN C. WINCKLER, ESQ.

Ms. WINCKLER. Thank you, Mr. Chairman and the subcommittee

for the invitation to appear this morning. We have heard already

the foundation of data and statistics and numbers about the scope

and problem and the threat of counterfeit medication.

For pharmacists, however, we don’t consider counterfeit medications in terms of numbers. We consider them in terms of faces, the

faces of patients with cancer, with asthma, with diabetes, our patients and the thought that our patients could receive a product

that is at best of questionable effectiveness and at worst poison

stops us in our tracks and raises the importance of what it is that

pharmacists do to protect our system against counterfeit drugs to

be of prime importance.

Pharmacists serve as the last line of defense in protecting patients from counterfeit medications. Recognition of this role however is not consistent. Our role and the impact of anti-counterfeiting initiatives on pharmacy practice is not always considered. We

support enhanced efforts to combat counterfeiting, including advanced technology and coordination of efforts by all interested parties. Our support is tempered, however, by the need to minimize

impact on our patients and recognizing the reality of the costs of

these systems. Any anti-counterfeit initiative must include assessments of both the costs and benefits of those interventions.

As Congress seeks to close gaps in our system, it must assess the

impact of any proposed solutions on pharmacists and our ability to

serve patients. A little bit about the pharmacists role in this arena.

We play three essential roles: the first as prudent purchaser; the

second as an educator; and the third as a reporter of counterfeit

products.

As a prudent purchaser, that’s inherent. We have to be careful

in whom we choose to purchase our medications from. But being

able to do that well requires a licensure process and administration

of that licensure process that is more than a paper fig leaf. We

have to have confidence that the licensure process is more than

making sure that the credit card or the check used to pay for that

licensure process is valid. Our regulators need strong, clear regulations. They also need the authority to enforce those.

The pharmacist’s role as educator may appear to be a little different, but this is where we help patients understand their role and

what they need to do should they be presented with a counterfeit

product and the risks that they in fact face. Pharmacists help patients understand that they need to report certain information to

their doctor and to their pharmacist that might help us identify

that counterfeit drug that has evaded all of us and unfortunately

realized our worst nightmare, actually made it to a patient’s medicine cabinet. And so we have to have that information about those

counterfeit drugs in order to work directly with our patients.

An often overlooked side effect of counterfeit medications is the

effect on legitimate medication use. As news of counterfeit medications emerges in the media, some patients stop taking their legitimate product because of fears about the product. For someone on

blood pressure lowering medication or asthma medication, stopping

that therapy could prove deadly. So we must also understand when

we talk about counterfeit medication that we put it in the right

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context and get information about that to the patients who may

have been affected but help other patients understand the value of

continuing their medication.

Pharmacists also have an important role in detecting counterfeit

products, in noticing that the packaging may not be quite right or

there is a difference in the appearance of the products and report

that to the regulators so that we can protect those patients.

To do all three of these roles, we need some things. We primarily

need access to information. We have to know when there have been

counterfeit products, what are the risks? What is it patients should

do? Because we translate the information that appears on CNN for

the individual patient to help them understand what they need to

do if they need to take any action.

We also need to have a consistent nationwide electronic pedigree.

We support the FDA’s recent recommendation to implement the

relevant sections of the PDMA regarding the pedigree on December

1st of this year. As that implementation takes place, however, we

do need to have consistent input and sufficient input from the

stakeholders to make sure that implementation supports the eventual adoption of an electronic pedigree. And in this arena, PHA

supports a strong national standard for the pedigree out of concern

that having different State standards, while they may be intended

to put a higher level of protection at the State level, may actually

create loopholes that the unscrupulous operators would use to penetrate the system.

We also ask the subcommittee to consider the costs and liability

of all of these systems and understand the roles that when we talk

about anti-counterfeiting measures, it is not just the manufacturers, the wholesalers, but there are the manufacturers, pharmacists,

wholesalers and, at the end of the day, the patients.

Mr. Chairman, as you mentioned, counterfeiting is often described as an economic issue, but we are stealing money from legitimate providers. Counterfeiting of drugs is so much more. It is

stealing money. It is stealing health, and it is stealing our patients’

confidence in our health care system, and we all must do whatever

we can to stop that. Thank you.

[The prepared statement of Ms. Winckler follows:]

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Mr. SOUDER. Thank you. Mr. Gray.

STATEMENT OF JOHN M. GRAY

Mr. GRAY. Thank you, Mr. Chairman. Thank you for the opportunity to provide some perspective here on behalf of HDMA and my

40 primary full service distributors.

We represent large national as well as numerous regional family

owned companies. Our members deliver over 9 million health care

products a day to about 142,000 locations which include pharmacies, hospitals, nursing homes, clinics and the like. HDMA and

the members of our organization have particularly in the last 4 to

5 years begun working extremely closely with all our supply chain

partners, from manufacturers down to pharmacies. We take the

mission to work together cooperatively seriously. And we are supporting all the efforts to make sure that the U.S. medicine supply

chain remains secure.

There is no greater concern I know, particularly in my term here

from our board of directors, no greater concern among them as a

group of companies, about the threat of counterfeit medicines and

what they represent to the supply chain. In response to that concern, we have begun to look at this problem through four key areas

that we think as an organization, as an industry need to be addressed: No. 1, strict regulation and enforcement of laws regarding

counterfeit drugs; No. 2, current and emerging technologies and

making sure those get employed; No. 3, business and government

alliances to track and report the counterfeit drugs, and No. 4, developing and implementing industry best practices.

This morning, I will just address the first three of those four. The

fourth is laid out in my detail in my written comments.

First and foremost on the regulation and enforcement arena, we

have fully supported the implementation of the final PDMA rule as

of December 1, 2006. We think it is time for this industry to move

on and get that accomplished. We think it is a key part of any anticounterfeiting strategy the industry employs going forward. But

our position is, it is just one aspect of it.

In addition, we have worked extensively over the last years with

the NABP, and we have worked and developed a model State licensure bill for the States to establish uniform tough standards on licensing wholesale distributors in the United States. We have been

working with NABP and manufacturers, particularly this past

year, in a number of States. I am here to report there are 16 States

already enacting standards, including your State, Mr. Chairman.

And there are bills pending in 18 other States currently. Our goal

here is to make sure that no criminal ever gets a wholesale license

to distribute drugs again in this country.

The final area, in regulation of the penalty enforcement, our belief is currently the current Federal penalties are inadequate and

outdated. We are advocating for strong criminal penalties for counterfeiters. I believe there is legislation in the Congress today addressing that matter.

Then moving on to current and emerging technologies. We believe anti-counterfeit technologies are the most important tool we

have available to try to secure the supply chain. No single technology would work. We think it is a layering of a variety of techVerDate 11-MAY-2000 10:49 Jul 10, 2007 Jkt 000000 PO 00000 Frm 00094 Fmt 6633 Sfmt 6633 C:\DOCS\34446.TXT HGOVREF1 PsN: HGOVREF1
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nologies. We hold the most promise out for this EPC RFID. We

think that is the way the industry can go and probably likely will

go to track and trace and authenticate products in the supply

chain.

The ability of EPC to tie unique electronic ID to an item to track

it and trace it throughout the supply chain we believe is critical.

My personal past experiences come from the consumer goods industry. I can tell you the progress being made, although it may appear

to some to be slow, having lived through the development of linear

bar coding from 1970 and on, we have made lightening speed with

EPC technology. I think the industry is moving along well in that

effort.

As far as HDMA is concerned, specifically what we are doing in

this organization, we are partnering with NACDS, our chain drug

partners again for the second year in a row, and providing an RFID

summit to bring all the industry leaders together to make them

more clearly understand how to implement this technology and get

those chips that Mr. Gutknecht has on these products and get them

operating.

We are also working, our members are involved in a number of

the pilot projects currently going on that have been announced

publicly. Our education and research foundation I believe has

taken on the crux of the issue as far as EPC, and that is data management. Having lived thorough this world before, it is one thing

to employ technology; it is another to also manage the data that

comes from that technology.

We are engaged with PHARMA as an organization and Rutgers

University to look in-depth at how this industry will manage the

data. Where is it going to go? Where is it going to reside? How will

it be shared? How will law enforcement have access to it? Because

all those rules, all those issues are terribly important, particularly

when it gets into privacy issues with the consumers. So data management is critical as well as the technology. That is why I say it

is a multi-layered approach.

Finally, I would just say that as far as any of these things, patience is obviously required, but I think the industry is moving in

the right direction. And I would agree with my other panelists here

that, as far as uniform pedigree, one impediment to EPC right now

is the lack of uniformity. If the industry gets bogged down in EPC

and attracting not only all the data going beyond pedigree, all of

the data that will be encompassed in EPC will be almost unbearable for the industry to deal with if we do not have uniform pedigree.

Finally, an alliance between NACDS and PHARMA, and we are

working with the FDA in our counterfeit alert network, and we

have also joined the RX Patrol which is a device by which we can

report theft directly to customers and to members throughout the

supply chain.

In sum, I will tell you, in my short time, we understand more

than anybody the public trust placed upon our members to do this,

to make sure the supply chain is authenticated and safely managed. We have zero tolerance as an organization as a philosophy

for counterfeiters, and you have my pledge that we will remain constantly vigilant as a group of companies—that’s 40 wholesale disVerDate 11-MAY-2000 10:49 Jul 10, 2007 Jkt 000000 PO 00000 Frm 00095 Fmt 6633 Sfmt 6633 C:\DOCS\34446.TXT HGOVREF1 PsN: HGOVREF1
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tributors—to make sure that this supply chain is as secure as the

American consumers need it to be. I am available for questions.

Thank you for your time.

[The prepared statement of Mr. Gray follows:]

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Mr. SOUDER. Thank you.

Our last witness today is Mr. Raber from Huntertown, IN. You

are at the forefront of some of this technology, and I look forward

to your testimony.

STATEMENT OF RICK RABER

Mr. RABER. Thank you Chairman Souder, Mr. Gutknecht and

subcommittee members. It is a great honor to sit before you today.

From childhood it was ingrained in my life that Godly character

was vital to success in life. Part of that character was to fulfill my

civic responsibility. So I want to thank you today for the privilege

of serving here today by testifying regarding the security in the

pharmaceutical supply chain.

I am before you today as one with close to a decade of experience

integrating radio frequency identification [RFID]. Our team at

Northern Apex has utilized the technology in many areas in addition to pharmaceutical. We are an experienced stakeholder by virtue of the customers for whom we have integrated RFID onto their

drugs. As project manager for Northern Apex, I led what many consider to be the world’s first pharmaceutical production use of RFID.

We worked with Purdue Pharma to place smart labels on produced

popular pain medication Oxycontin.

The solution identified bottles on the production lines at speeds

greater than two and a half bottles per second. Once packaged in

the sealed tamper evident case, 48 individual bottles could be verified in less than 5 seconds. Since that initial project, I have been

directly involved in designing several pharma implementations.

The discussion at hand regarding the security of the drug supply

should not be about how bad the existing system is but rather ways

for us to improve the already reliable process. The relative number

of incidents to overall production of prescriptions is low but clearly

increasing.

As we examine options which can be utilized to enhance the

chain of custody, there are many things to consider. First, are there

technologies that exist today which could bolster the security of

drug supply? Second, are the technologies under consideration

being used today? Finally, is there cause to implement further

technologies?

Today millions of electronic transactions are being utilized

around the world. They allow us to determine the chain of events

related to a Web site visit or a trade on Wall Street. The FDA has

already proposed using this technology in its prescription of an

electronic or any pedigree.

This electronic transaction records the chain of custody for a

drug and is a significant improvement over the paper pedigree of

today. There are, however, additional technologies which could

complement this electronic pedigree. Consider having the

trackability based on a unique serial number being associated with

every bottle, every case and every pallet. As each item is assembled

into the next larger shipping unit, they are automatically associated, recorded through a data base and used to enhance the electronic pedigree. This is the basis of the RFID schemes presently

being used by GlaxoSmithKlein on Trizivir, Pfizer on Viagra and

Purdue on Oxycontin as well as others.

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Complimentary technologies, such as 2-D barcodes, biometrics,

telematatics and GPS could also be implemented at key spots in

the supply chain. Technologies like RFID and others can change

the effectiveness of the supply chain.

Ladies and gentlemen, these are not things from a Star Wars

movie. As Mr. Gutknecht replied, they are real. This is an American version that exists and is being done.

The Department of Defense and Wal-Mart and others have mandated their suppliers use the technologies for incoming shipments

to their receiving locations.

There are some obstacles to seeing rapid widespread adoption

though. Within the Pharma and RFID industry, there is an ongoing debate over the modes and frequencies of RFID technology and

its operation. There are data base, interface and privacy concerns.

Even with these issues, industries have teamed together to successfully implement item level track-and-trace technology.

While some States have moved to implement pedigree legislation,

these efforts have produced confusion on the parts of some of my

friends sitting next to me today, drug manufacturers and distributors, in trying to accommodate just a few that exist today. Imagine

50 different ones.

For this committee to consider enhancing the present pedigree

legislation to include a set of the described technologies in my opinion is prudent. Does the risk warrant the effort to change? There

is no question that people’s lives have been greatly affected by the

issue at hand. The cost to some has been their life.

With the instances of breach which have already occurred, it is

not out of the question to see this supply chain as a means for

hostiles to suddenly attack the populous before even being discovered. In the same way some have misused the drugs created to

help and heal, nefarious individuals will use and pervert the technologies and solutions we’re even talking about today.

The enemies of the safe drug supply chain are clearly getting

smarter. They are leveraging ever increasing technologies and levels beyond what we can imagine, and the good guys should pursue

doing the same. The risk is growing and shouldn’t be ignored.

Mr. Chairman and subcommittee members, again, thank you for

the privilege of testifying here today, and I am open to any questions you might have.

[The prepared statement of Mr. Raber follows:]

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Mr. SOUDER. I thank you.

Let me start with you Mr. Raber and try to startup in the questioning.

We heard several witnesses say we need some sort of a uniform

approach to this. As you’ve worked with this product and you’ve

just alluded to the fact that it’s very confusing, could you kind of

explain what that means? Does it mean you have different readers,

different frequencies? What is a practical—helping me and others

understand what is necessary.

Mr. RABER. Within the RFID industry, sir, there are several different primary technologies. Without getting really, really technical

here before you, there are two primary that are existing today. An

HF at 13.56 megahertz and UHF in 868 to 915 megahertz. There

is clearly a part of the technology sector that are trying to advance

their technologies, and for good reasons. And I believe it is a good

competitive factor. And otherwise, there are things related to what

kind of products that some of the technologies have been able to

be used on in the past. How does one of the technologies perform

in a case, environment where you have 100 cases of Oxycontin a

pallet? Are you able to read all 100 cases while they are there? And

short range versus long range, there are clearly instances where

short range is more desirable so that singulation is not an issue.

If I have all these bottles sitting on a desk here today and I have

certain versions of 900 megahertz technology, I could see that they

would all be present here. However, I could not tell you which one

was present before each witness here today depending on how that

technology is utilized. So, therefore, some of the near-field communications and some of the things that are related to short-range

technologies can present some desirable things.

Clearly the chain of custody and the way that electronic transaction occurs, RFID is a subset of that. It allows it to tie in better

as has already been said multiple times today. How that transaction occurs certainly can take place without RFID ever playing

a component in it.

What RFID does is allow us to scan bottles as they are going

down the line, scan them as they are put into a multipack of 12

and shrink wrapped, scan them again as they are put into a tamper evident case of 48, scan them again as they go into a vault,

scan them again as they are received at a health care distributor,

scan them again as they are shipped out to another wholesaler.

Those kinds of things.

RFID and other technologies could significantly change the way

that looks. But the technologies themselves, they are real. They are

working today. They will continue to advance, but to hold off and

say that the RFID technology will be adopted by, as Mr. Gutknecht

implied, that there will be people that may avoid doing it until they

are made to do it. It was the same way that has happened with

the Wal-Mart mandate. Wal-Mart several years ago initiated that

their top 100 suppliers from a dollar perspective start shipping in

case level, scanning them, and pallet level. Many of those people

didn’t do it until the deadline showed right up.

I think the health care distributors really have seen value

though when, as you talked about, 16 percent, if they are able to

close the security of the supply chain and eliminate some of the

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counterfeit, there actually can be a very legitimate case made for

the value coming back to them in increased sales because their

products are really truly making it to the field rather than otherwise. So, hopefully, I have answered your question there related to

some of the mix up about what the technologies are.

Mr. SOUDER. When I visited your facility and you talked some

about the Wal-Mart, didn’t you say they also have the ability to

take it down to the very individual bottle? And could you describe

two things with that, and I also remember that part of their reason

was internal theft. It wasn’t just counterfeiting. In other words,

you can figure out who’s stealing things. And if you want to comment on those two things and then leading to this question: What

are the functional approximate, without giving out competitive

things and so on, approximate cost questions that were involved in

here in the different types of frequencies, the difference between

the pallet and an individual, the ability, are people going to have

to get scanners that are specialized with this?

Mr. RABER. Sure. First of all, item level tracking and unique serial number that would be addressed to each individual bottle that

would go through the distribution chain, that is very real, very

practical. It does happen today. Several hundred thousand bottles

of Oxycontin have been tracked. Many bottles of Pfizer’s Viagra

and GlazoSmithKline’s Trizivir have all been tagged in large lots.

The bottles are individually being tracked, we can tell, prior to

the shipping of the case and prior to leaving the facility that those

drugs are there, that there really are 48 in the box, that the 48

have moved through the supply chain. That can occur.

So item level really does happen. What that looks like on the different kinds of things, whether that’s a liquid medication in a vile

or whether that’s a dosage medication that is in a capsule or something; whether it’s in a blister pack or the different types of things

that may occur. Those all play into the manifestation of what technology you would use at item level to be able to track that technology, to track that item.

So are there technologies that exist today? As the gentleman

from the HDMA said here, not one technology, whether UHF or HF

is going to be the answer to the world, universe and everything as

we know it in tracking pharmaceutical items, the value associated

with that, the supply and demand has clearly driven the cost of an

RFID tag down. We have seen in our 10-plus, 10 years experience

of watching tags that used to be in the double digits and closer to

$1 to now being down in volume below 30 cents regularly and in

high volumes certainly below that. And so there are people that are

claiming sub 10 cents now in volume. And when we are talking volume, we are talking about millions and hundreds of millions of tags

a year where somebody would commit to.

Those we are yet to see in production, and I will clarify my statement in that. We have yet to see in high volume production the

single 3 or 4 cent tag in being delivered in volumes that would require to support the supply chain. That is another component that

is not to be ignored.

The technology providers today, while the technologies do exist,

Mr. Gutknecht, one of the things that clearly is an issue and they

are all ramping up their ability to deliver this product, but there

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has been a clear on the part of multiple organizations, the ability

to get the product is something that should not be ignored. In order

to tag, just picture Oxycontin alone or Viagra alone or some of the

other drugs, Lipitor, those drugs and the amount of tags that it

would take to support those kind of implementations are not negligible. They are significant. So that is something that the RFID

manufacturers are required to do.

As it relates to the value related to the readers and the infrastructure that is put in place, many things have rapidly changed

in the last 2 or 3 years since we first worked with simple technologies to do, Matrix and simple technologies to do the Purdue

Oxycontin implementation and the technology is rapidly changing

and working well.

Mr. SOUDER. Mr. Gutknecht.

Mr. GUTKNECHT. Mr. Chairman, and to this panel, thank you for

coming. I think you all provided very excellent testimony.

Mr. Catizone, we have seen you at a number of these types of

meetings, and I want to thank you for coming.

First of all, I want to make it clear that I really appreciate what

the pharmacists do every day. I know they have a tough job.

Frankly, what I have felt for a long time is, and this may sound

funny, but I don’t want people to buy their drugs over the Internet.

What I really want to do is create a system whereby our pharmacists have a little more freedom where they can buy their products from because American pharmacists are actually held hostage

as well. And one of the arguments has been—and, Ms. Winckler,

I am going to come to you because you said something so powerful

and so true—we many times talk here in Washington particularly

in terms of statistics and numbers and dollars and so forth. But at

the end of all of this are real people with real faces. And I have

a chance to meet a lot of these people with real faces. And this goes

back a few years, and I understand we have probably gone beyond

that, but I think the best example is the drug tamoxifen which is

taken by women of all ages, but principally it is an anti-breast-cancer drug. That drug, a number of years ago when we began to do

this research, you could buy in the United States for roughly $400

a month. You could buy it in Canada for $89. It was exactly the

same drug made by the same company in the same plants. It was

FDA approved. And yet for a lot of these people, if you have insurance, it’s not that big of a deal, $400 versus $89. But believe it or

not, there are a lot Americans who either don’t have adequate insurance or whatever, but either way, I mean, I cannot defend the

difference between $400 and $89 for the same drug. And this is

why I am so frustrated because our own FDA and the pharmaceutical industry, when we began talking to them years ago about

the technologies Mr. Raber talked about, their argument was, no,

no, we can’t do that.

What do you think? Can we do this?

Ms. WINCKLER. The first thing we have to do is move beyond

that ‘‘we can’t’’ and let’s figure out how we can and what are those

most cost-effective steps. So I think we can if we have enough consistency and uniformity to make it work, which I think is key particularly in the pedigree area, and then let’s make sure as we are

looking at identifying technologies, what is counterfeit proof today

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may not be counterfeit proof tomorrow. So do we start—as you recommended, let’s start small and start with a piece but then build

into the system and understanding that we need to continually advance those technologies and move forward that we won’t be able

to be say—we will solve the counterfeit problem by continuing to

work to stay ahead of the counterfeiters.

So I think we can but it does take that commitment and being

able to listen and work with everyone and giving the regulators not

only the authority but the resources to enforce and that is I think

something that is a key role for everyone in this room to understand, that if we put a new penalty in or put a new requirement

out there, it is well funded, and we do have the back up to make

sure that it’s enforceable.

Mr. GUTKNECHT. Well, we are more than willing to let the industry lead on this. I don’t hold myself out as an expert on this technology. But we have some people in this town who are experts. I

do agree with you. I mean, we have had to revisit the $20 bill several times in the last several years to try to come up with more

sophisticated technologies to prevent the counterfeit of the $20 bill.

So success leaves clues, and are you ever going to prevent counterfeiting? Probably not. But we can make it extremely difficult

and more complicated and more expensive to do that. And so success leaves clues, and they are all around us. The same company

that makes the ink for this $20 bill makes the ink for this packaging, OK. And you can make it so it is very, very difficult for a lowcost supplier whether they are in India or China or Bangladesh, it

doesn’t matter. We can make it very complicated for them to counterfeit this packaging.

And these chips, one of the arguments we heard a few years ago

when I first started talking about this technology, oh, they said,

that’s way too expensive. Mr. Raber, how would you respond to

that? Is this way too expensive?

Mr. RABER. Value is always in the eyes of the beholder, sir. But,

clearly, there are things that are happening. It is clearly that value

is always in the eyes of the beholder. And the way that any individual market space or company addresses value is based on their

response to that, but what we have seen over and over and over

and a gentleman that I spoke with from Hewlett-Packard about a

year ago spoke about the hidden value that occurs when you implement RFID technologies, there are clearly discussions that happen

as it relates to not just the chain of custody and being able to close

that more secure, but the way that you increase your accuracy of

your supply chain so that your inventory is more accurate; the way

that you reduce the amount of time and handling that it takes to

occur—handling that it takes to handle 100 cases of a drug, the

amount of time that it takes to create a paper pedigree. That value

is clearly one that is not to be ignored.

Mr. GUTKNECHT. Well, I agree with that. Finally, let me say, Mr.

Chairman, I have been in this thing for so long now that I just

really suspect that there are people who have ulterior motives. OK.

This is much less about consumer safety than it is the bottom line

profit. Because once you have a system that is far more secure, all

of the sudden the biggest argument that we have heard about not

allowing pharmacists and consumers access to world class drugs at

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world market prices, all of a sudden it changes the arithmetic

about what Americans can and should pay.

I believe we ought to pay our fair share. The truth of the matter

is I think we are a blessed country and we ought to be willing to

pay and subsidize drugs in undeveloped countries. I think we ought

to pay more than the people in sub-Saharan Africa, but I do not

believe that American consumers should be required to subsidize

the starving Swiss. I mean, it is time that we create what we have

in virtually every other product class that is a world market. And

I believe RFID and other off-the-shelf technologies can go a long

way. Can we ever create a perfect system? No. But if we created

a system where you had a better assuredness that these were in

fact the products that the pharmacists carry that really are what

they say they are, all of a sudden you create a marketplace that

is much fairer for American consumers. This has huge implications.

I want a safe drug supply. I don’t want people buying drugs over

the Internet. But as long as you have a system where Tamoxifin

is $400 in the United States, and it’s $89 in most of the industrialized world, this problem is going to get worse and worse and

worse. And what we have encountered from the FDA so far is little

more than food dragging.

If anybody wants to respond to that, you are more than welcome.

Ms. WINCKLER. If I could offer one suggestion as we look at this,

at how to continue to move forward, it is to also consider that some

of these anti-counterfeiting initiatives have benefits outside of the

direct anti-counterfeiting question. Going unit-of-use packaging for

example helps us on the part of my job that I want to spend my

time on which is helping patients use their drugs correctly. It helps

immensely with patient compliance, and so you have all these

other areas where you can see a benefit. I think we have to look

at our interventions and say, there is an anti-counterfeiting benefit;

what other benefits do we see? What other impact does it have?

And understand that what we do here not only affects the legitimate source of the drug supply but affects the medication supply

generally for patients and worldwide as well.

Mr. CATIZONE. Congressman, the States are saying they can no

longer wait. Florida, California have put in electronic pedigree requirements, and they are holding fast to those deadlines, 2006 and

2007. HDMA and the primary full service wholesalers are supporting those efforts, but there is a significant contingent of people that

don’t want this track-and-trace technology in place, are fighting it,

are using every political trick they can in those States to defeat

those implementation deadlines and working against any regulation and any tracking of those drugs. And so that is a significant

battle that we need your support and need your help with because

the States can’t wait any longer.

Mr. GUTKNECHT. Let me just say that I know those tricks, and

I know who those people are, and we do have a bill. Now it is not

perfect, and we would love your input, but mostly, we would love

your support. It is a little bill we put together. I am not an expert.

Mr. Raber, people like you are, and we are willing to listen to you

because we get so little help from our own agencies. But I would

encourage you to at least look at H.R. 4829 and see if maybe we

can’t get something going, because I agree with you. Ultimately, we

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are going to wind up with 50 different regulations, and this is one

that is not just—I think this issue is a national issue, and it is an

international issue. And I am not necessarily critical of California

or any other State that wants to move forward with this, but I

think it is an indication of just how slow we have been to respond

to what is happening out there in the marketplace. So, again,

thank you to the chairman, and the bells are going off, but I want

to thank you for coming today and for your testimony.

Mr. SOUDER. Mr. Cummings.

Mr. CUMMINGS. Mr. Chairman, I only have a question or two.

Ms. Winckler, let me ask you this, do generic drugs present any

unique situation different than what we would normally see with

regard to these issues?

Ms. WINCKLER. It is probably fair to say that, because generic

medications are generally lower cost, that they are less likely to be

counterfeited. But I think there is still the risk of counterfeiting,

and certainly as we look to trying to address this situation across

the board, we should not ignore them by any means.

Mr. CUMMINGS. Anybody else have anything on it?

Mr. GRAY. I would agree. But from my understanding talking to

our members, there are some generic drugs that are at the point

almost now that might be worth counterfeiting from a counterfeiter’s perspective. So we as an industry and as an association are

working with the generic companies to look at what is the viability

of putting electronic chips on those products. It is one thing to put

a chip on a $100 branded item. It is another thing to put a chip

on a $2 generic item. And how does that work for that generic

manufacturer, because the last thing you want to do obviously is

to disincent the ability of consumers to get generic drugs as well

as branded drugs? So we are working as an industry to figure out

what is the ability to do that with generics relative to all the

things, Mr. Raber, and with the cost of these chips, all the other

things that go along with the anti-counterfeiting measures. So

there are particular issues regarding generics that are just beginning to get explored now.

Mr. CUMMINGS. Mr. Raber, you were laughing. Why is that?

Mr. RABER. It is really interesting because there are always,

there is always a price point. It is real easy to discuss putting an

RFID tag on at Oak Ridge National Labs on something that is a

product related to nuclear security, and it is big things that cost

lots of money, or if it is a stainless steel container that transports

acid around the country that costs $5,000 for the container, it is

easy to put a tag on the side of that. As my colleague says here,

there is a point where you have to make a decision, does the value

of putting it on outweigh the risk or not, and it really always comes

back to that.

Mr. CUMMINGS. Mr. Chairman, in the interest of time, I will submit questions to the panel in writing. Thank you.

Mr. SOUDER. Mr. Ruppersberger.

Mr. RUPPERSBERGER. Just one. I just came in late, I’m sorry. I

want to talk about the pedigree issue on the chain of custody. I

know some States have toughened their licensing standards for distributors such as Florida, which now requires pedigree for all prescription drugs in the State. However, the FDA has delayed the efVerDate 11-MAY-2000 10:49 Jul 10, 2007 Jkt 000000 PO 00000 Frm 00132 Fmt 6633 Sfmt 6633 C:\DOCS\34446.TXT HGOVREF1 PsN: HGOVREF1
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fective date for national regulations requiring a pedigree until December 2006 in the hopes that an electronic track-and-trace program such as radio frequency identification will be viable. Where

do you think we need to be? Do we need to wait until December

2006? Do you think Florida’s plan is effective and should be used

as a model for other States?

Mr. CATIZONE. Commenting from the State perspective, we’re not

happy that the States are embarking on this individually without

national leadership, without uniform standards. But what Florida

has said in a way to transition to the track-and-trace technology

is they have defined normal distribution and normal distribution

encompasses pretty much all the transactions that exist today between legitimate wholesalers, manufacturers and pharmacies. And

Florida has then said, anything outside of that where we have seen

diversion, where we have seen the problems would require an electronic pedigree.

We think that is the best approach at this point to phase in electronic pedigrees rather than coming up with a requirement for all

drugs. We think the time is now. We can’t wait any longer because

if we do and the system becomes compromised, than every patient

is going to be at risk.

Mr. GRAY. As I said, HDMA was very active in Florida, and our

position, as Mr. Catizone said, as primary distributors purchasing

directly through is the model that Florida has been trying and

working with since 2003 on a 34-susceptible-drugs list and very

successfully. To our knowledge, there’s no incidence of counterfeiting in that 3-year period in Florida once they tightened down on

those 34 drugs and the licensing requirements. And our position

going into Florida, which ultimately was passed into law, was that

pedigree would be required for those drugs that are purchased outside of the direct purchase process.

Mr. RUPPERSBERGER. What needs to be done to implement it

now, the Florida plan? What’s the hold up?

Mr. GRAY. They are doing regulations right now. The bill was

only signed by the Governor 2 to 3 weeks ago. Some implementing

regulations need to be done. And but, again, most of our companies

have all been doing this on those 34 high-risk drugs, so we already

know the drill, what’s going to be required for information purposes. It is just now getting the States to do the formal regulations

and instituting it from there.

Mr. RABER. There are a couple issues related to the industry. An

organization called APC Global and some of the other organizations

that are involved: The standardization of what’s going to be put on

an RFID tag, the standardization of what’s going to be into an electronic pedigree, what that looks like; does it contain the actual

NDC number that is normally associated with a drug? Does that

NDC number get encrypted? What happens and what becomes part

of that electronic pedigree is certainly one of the things that’s up

in the air. And the industry in some of the committees that exist

in the different organizations is trying to work their way through

that. But those are some of the obstacles that clearly exist today.

If you are using RFID in the electronic pedigree—there are

means that you could do an electronic pedigree that does not have

RFID. There are ways to be able to do that I would say should be

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pursued rapidly as long as—as well as with the RFID coming along

side of it that keep it moving forward. But there has to be some

agreement on what’s put in place from the product coding that occurs on the tag.

Ms. WINCKLER. From the pharmacist’s perspective, we need action and we need uniformity. So we need to make sure that the

protections that are in place in Iowa are as strong as those in California and Florida and Nevada and across the country. And so that

requires leadership, and it needs it soon.

Mr. GRAY. I would support that. Our companies, we have national and regional, but even my regional distributors ship in multiple States and their fear is that Florida will require one element

of pedigree in their chips, California another. And then they’re

managing multiple data bases of information.

Mr. RUPPERSBERGER. Some of the same issues we have with labelling of food throughout the country.

Mr. GRAY. Very similar. Absolutely.

Mr. SOUDER. Thank you very much. We have a vote on the basic

move to the question on the rule for Internet gambling, and we

have may have a vote on the rule, so we will wind this up, but we

will have some additional written questions. We will try not to

overwhelm you.

Some that I have to give you, some ideas here are, Mr. Raber referred to the competitive advantage of having several different

technologies going here. At what point do we gain from the competitive versus having a uniform? Second, if we could get some information on what Europe does and their relative costs and why we

haven’t—why wouldn’t we just bring that system into here? Is

there a cost reason? Is there a tracking reason? Also we heard earlier, in some written testimony at least if not verbally, about ebay

and flea markets or secondary sales of products, how this might affect that. Would you take those RFID’s off? Is this a secure way

to track?

We have had hearings in this committee on infant baby formula

which has clearly been degraded and changed and altered at some

risk in going to flea markets. And legislation was put in Texas,

Oklahoma and a number of States to try to address that question.

One that Wal-Mart was early on trying to address, putting baby

formula behind the counter in some States.

Then I had some questions that I wanted to make sure got asked

on what your associations were doing as far as trying to do due

diligence, for example, on wholesalers, what does that mean? Are

you tracking to make sure that the wholesale market is legitimate

coming into the pharmacies? As you receive this price pressure

from Canada in effect, the tendency is to try to find the cheapest

product, and how do you kind of counter balance these type of

things which also puts then legitimate above-board wholesalers at

risk.

We will have a series of questions about those type of things. I’m

sorry I won’t get more in depth.

Mr. Gray.

Mr. GRAY. Just one item on the European. I have very close relationships with our Europe counterpart, and I will contact them in

Belgium to find out what are they doing actually. I was just over

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at their annual meeting, and it was news to me that they are employing it over there because I do not hear the wholesalers talking

about it at their event. But I will find out for you, Mr. Chairman,

exactly what is the level of BPC implementation at the wholesale

level anyway in the European marketplace.

Mr. SOUDER. Also, I still am somewhat troubled, and I want to

make sure this question gets in this hearing record. In the first

panel, we heard high-value pharmaceuticals without really a definition or specific items of what that is which seems to me that we

are putting a law in and you’re guilty of a violation of this law,

good luck on figuring out what you are going to be prosecuted on.

And I would like some clarification on that.

Thank you very much. I have to make it over to vote. The subcommittee stands adjourned.

[Whereupon, at 11:52 a.m., the subcommittee was adjourned.]

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