[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]





                         COUNTERFEIT BULK DRUGS

=======================================================================

                                HEARINGS

                               before the

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                       JUNE 8 and OCTOBER 3, 2000

                               __________

                           Serial No. 106-164

                               __________

            Printed for the use of the Committee on Commerce


                    U.S. GOVERNMENT PRINTING OFFICE
                       65-846 WASHINGTON : 2000


                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING, 
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland

                   James E. Derderian, Chief of Staff

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

              Subcommittee on Oversight and Investigations

                     FRED UPTON, Michigan, Chairman

JOE BARTON, Texas                    RON KLINK, Pennsylvania
CHRISTOPHER COX, California          HENRY A. WAXMAN, California
RICHARD BURR, North Carolina         BART STUPAK, Michigan
  Vice Chairman                      GENE GREEN, Texas
BRIAN P. BILBRAY, California         KAREN McCARTHY, Missouri
ED WHITFIELD, Kentucky               TED STRICKLAND, Ohio
GREG GANSKE, Iowa                    DIANA DeGETTE, Colorado
ROY BLUNT, Missouri                  JOHN D. DINGELL, Michigan,
ED BRYANT, Tennessee                   (Ex Officio)
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Baker, Dennis, Associate Commissioner for Regulatory Affairs, 
      U.S. Food and Drug Administration..........................   241
    Henney, Hon. Jane E., Commissioner; accompanied by Dennis E. 
      Baker, Associate Commissioner, Regulatory Affairs, Food and 
      Drug Administration........................................   296
    Kelly, Hon. Raymond, Commissioner, U.S. Customs Service......   304
    Maher, Patricia L., Deputy Assistant Attorney General, Civil 
      Division, Department of Justice............................   308
    Mehringer, Nikki, Area Quality Control Leader, Eli Lilly.....   361
    Taylor, John, Acting Director, Office of Compliance, Center 
      for Drug Evaluation and Research, U.S. Food and Drug 
      Administration.............................................   253
Material submitted for the record by:
    Pendergast, Mary, memo dated November 13, 1997, to Jon Hunt..   273
    Plaisier, Melinda K., Associate Commissioner for Legislation, 
      Department of Health & Human Services:
        Letter dated July 25, 2000, to Hon. Fred Upton, enclosing 
          response for the record................................   274
        Letter dated August 10, 2000, to Hon. Fred Upton, 
          enclosing response for the record......................   276
        Letter dated December 11, 2000, to Hon. Fred Upton, 
          enclosing response for the record......................   373
    Reitz, John T., President and CEO, Isotag Technology, Inc., 
      prepared statement of......................................   272

                                 (iii)

  

 
                         COUNTERFEIT BULK DRUGS

                              ----------                              


                         THURSDAY, JUNE 8, 2000

                  House of Representatives,
                             Committee on Commerce,
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 11 a.m., in 
room 2322, Rayburn House Office Building, Hon. Fred Upton 
(chairman) presiding.
    Members present: Representatives Upton, Burr, Bryant, 
Stupak, and Strickland.
    Staff present: Alan Slobodin, majority counsel; Anthony 
Habib, legislative clerk; Chris Knauer, minority investigator; 
and Brendan Kelsay, minority research analyst/press assistant.
    Mr. Upton. Good morning, everybody.
    We have a number of subcommittee meetings and full 
committee hearings going on, and we expect a number of members 
coming in the next few minutes, but in the interest of time we 
will get started.
    Today we are here to dissect the issue of the influx of 
counterfeit bulk drugs. There is an increase in concern that 
drug ingredients made overseas that are either counterfeit, 
unapproved or poorly made are entering our Nation's health care 
system and endangering patients' health and even their lives.
    Here is a case in point. Several years ago, 89 Haitian 
children died after taking cough medicine made with 
contaminated glycerin traced to China. We may think that tragic 
events like this can't happen here in our country with its 
sophisticated regulatory system, but our committee's 
investigation reveals that our system does have major flaws, 
and it could happen here all too easily.
    Recently, our committee's investigation revealed that FDA 
had linked the adverse reactions of 155 American patients to 
gentamicin sulfate made by Long March Pharmaceutical, a Chinese 
drug company. It may well be that other patients died from 
unknown impurities in this drug as well. FDA's own forensic 
tests showed unexplained discrepancies between the chemical 
fingerprints of the drug taken from Long March at different 
times.
    FDA's inspection revealed data integrity problems and other 
serious deficiencies with Long March. Despite FDA inspections 
in quality control by the U.S. drug companies that use this 
material, the suspicious bulk drug still infiltrated our health 
care system without detection. This is just one example of 
other instances that have confirmed that counterfeit, 
substandard drug imports are getting into our prescription drug 
supply and harming patients.
    To substantiate our concerns about counterfeit bulk drugs 
infiltrating our Nation's health care system, I now ask 
unanimous consent to place FDA correspondence, internal FDA 
documents and articles on drug counterfeiting into the record 
documenting the counterfeit bulk drug problem.
    Without objection, that is done.
    [The information referred to follows:]

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    Mr. Upton. Copies are provided to the witness as well.
    Some of the FDA internal documents reveal that over the 
last few years key FDA officials believe counterfeit imported 
bulk drugs to be associated with deaths and other serious 
adverse events in American patients. This is the first time 
many of these documents have come to light.
    The international community is also increasingly concerned. 
Just last month, the World Health Organization and 
international pharmacists and international drug manufacturers 
publicized their concerns about counterfeit drugs. Some have 
estimated that 50 to 70 percent of the drugs in some developing 
countries are counterfeit.
    It would be wrong to assume that the U.S. is immune to the 
documented counterfeiting in international pharmaceutical 
trade. The World Health Organization and some industry analysts 
estimate that about 5 to 8 percent of drug products shipped to 
the U.S. are counterfeit, unapproved or substandard.
    Counterfeit bulk drugs are ingredients in human 
prescription drugs which are deliberately and fraudulently 
mislabeled or misbranded with respect to its identity or 
source. Without knowledge of the source, there is no product 
history. Without product history, the safety and efficacy of 
the product cannot be assured because there is no information 
about impurities, the age, the storage, the manufacturing 
environment or even the synthesis of the product.
    It is extremely difficult to detect counterfeit bulk drugs 
because there is no single chemical test for all impurities 
that may be in the product.
    Counterfeit bulk drugs can represent a serious threat to 
the public health. A bulk quantity of as little as 50 kilograms 
can be used in the production of millions of tablets or 
capsules. Therefore, only one counterfeit bulk that contains an 
impurity or is synthesized improperly could cause immediate 
death or injury to numerous people.
    The result of a counterfeit could be that the medication 
will not be as effective or could produce a long-term disease 
or injury. For example, these pictures being shown over here to 
the right show the differences at a microscopic level between 
the authentic drug and the counterfeit drug. The difference in 
this case lies in the particle size. Such a difference in the 
particle size could mean that the drug doesn't get absorbed 
into the blood stream and therefore doesn't work.
    There is still much we do not know about the public health 
threat. The FDA has not made any public health assessment of 
the issue. Even if the FDA attempted such an assessment, the 
FDA has no ability to make an assessment with its current data.
    In its March 5, 1999, letter to Congressman Klink and 
myself, the FDA stated that it does not collect data to assess 
the amount of unacceptable or adulterated active pharmaceutical 
ingredients shipped to the United States from foreign sources.
    With what information the FDA does have, the FDA has linked 
counterfeit or unapproved bulk drugs to deaths and other 
adverse events in the United States. Last year, when FDA's 
Forensic Chemistry Center conducted a focused, in-depth study 
of just a handful of Chinese drug imports, evidence was 
uncovered which led in part to targeted inspections, resulting 
in an import alert for one plant and warning letters for two 
other plants. We know we are seeing only the tip of the 
iceberg.
    Lured by high prices and potential profits in the United 
States, counterfeit bulks can get into our prescription drugs 
in several ways: one, as imported ingredients to the U.S. 
manufacturers; two, as imported ingredients to pharmaceutical 
compounders; and three, as source ingredients for Internet 
pharmacies marketing to the United States.
    The counterfeiters use sophisticated methods, such as 
preparing false labeling, containers, seals and certificates of 
analysis, or using a manufacturing process that differs from 
the filed manufacturing process.
    Here are two examples; the first example involves three 
pictures. The first picture shows a document dated around 1989 
from an industry consultant, laying out a scheme to market 
unapproved Chinese trimethoprim under the approved label of a 
German company.
    The second picture shows that the signature from the first 
document belongs to Dr. Jose Gomes.
    The third picture shows that Dr. Gomes, in 1999, was the 
consultant for Long March Pharmaceutical, the firm that made 
gentamicin sulfate that I talked about a little bit earlier.
    The second example is a diagram of how a drum of bulk drugs 
shipped to Australia was counterfeited. A layer of authentic 
drug on the top, milled sugar in the next layer, followed by a 
layer of authentic drug, et cetera.
    The public policy implications are enormous. Public health 
is threatened by unapproved, substandard or counterfeit bulk 
drugs. Counterfeits could have direct impact on the integrity 
of the adverse drug event report system. Counterfeit bulk drugs 
not only hurt patients but defraud Medicare and Medicaid 
programs that pay for these drugs as if they are authentic.
    There is also speculation that an unknown influx of 
counterfeit unapproved drugs is leading to more drug and 
chemical allergies and more antibiotic resistance.
    Even after years of plans and recommendations from internal 
working groups, the FDA remains largely unable to detect or 
control imported counterfeit bulk drugs from entering the U.S. 
The FDA has not worked with the Customs Service to investigate 
imported counterfeit bulk drugs since 1996 and, as far as I 
know, does not have any ongoing criminal enforcement action or 
even a known strategy to deter or prevent crimes connected to 
counterfeiting bulk drug imports. Instead, the FDA relies on a 
regulatory system of inspections, import policies and post-
marketing surveillance.
    However, the FDA's testimony on this system is not great. 
To illustrate this point, here are some direct quotes from the 
documents.
    ``The agency is hindered by not having a complete list of 
foreign facilities manufacturing drugs products for the United 
States.''
    That's not acceptable. Those are my words.
    ``We still don't have systems that can effectively and 
efficiently communicate across the agency or readily provide 
field staff with critical information.''
    Again, that's not acceptable.
    ``The drug listing data base also does not interface with 
OASIS, which would assist import officers by automatically 
comparing manufacturers and listed pharmaceutical products to 
products offered for importation.''
    Again, that's not acceptable.
    ``FDA has identified the need to establish enhanced 
procedures to better assure that an import alert notice for a 
product or company will, in fact, prevent the violative 
products from reaching the U.S. consumer.''
    Again, the same response.
    ``The drug listing does not ensure authentic sources or 
authentic material, as described in new drug applications, is 
in fact being offered for admission.''
    In addition, the FDA told us that they only have 
information on 18 percent of the foreign drug manufacturers 
that ship to the United States. Only 18 percent. The FDA has no 
information on 623 importing drug firms from China and 409 
importing drug firms from India. No information.
    These kinds of weaknesses and others cause me to conclude 
that the FDA cannot assure the American people that 
prescription drugs are free from counterfeits and poorly made, 
unknown ingredients. The FDA has told this committee that its 
safety net is being stretched by the increasing global nature 
by the pharmaceutical commerce. At some point, FDA's safety net 
will in fact break, and I fear that it already may be broken.
    It is urgent that the FDA shift to a new model to deal with 
counterfeit bulk drug imports. I am ready to do more than just 
hold FDA accountable; I am committed to working for a solution 
to this serious and dangerous problem. I intend to fully work 
with Commissioner Henney and the FDA to develop and implement 
new, effective protections, but the FDA needs to be forthright 
today about the threat and what it will really take to deal 
with the problem.
    I look forward to the testimony and further discussion and 
action by the Congress, Republicans and Democrats, and the 
administration.
    At this point, I yield to my friend and colleague from the 
great State of Michigan, Mr. Stupak.
    [The prepared statement of Hon. Fred Upton follows:]

   PREPARED STATEMENT OF HON. FRED UPTON, CHAIRMAN, SUBCOMMITTEE ON 
                      OVERSIGHT AND INVESTIGATIONS

    Today we're here to dissect the issue of the influx of counterfeit 
bulk drugs. There is increasing concern that drug ingredients made 
overseas that are either counterfeit, unapproved, or poorly made are 
entering our nation's health care system and endangering patients' 
health and even lives.
    Here's the case in point. Several years ago, 89 Haitian children 
died after taking cough medicine made with contaminated glycerin traced 
to China. We may think that tragic events like this can't happen here 
in our country, with its sophisticated regulatory system. But our 
Committee's investigation reveals that our system has major flaws--and, 
it could happen here--all too easily.
    Recently, our Committee's investigation revealed that FDA had 
linked the adverse reactions of 155 American patients to gentamycin 
sulfate made by Long March Pharmaceutical, a Chinese drug company. It 
may well be that other patients died from unknown impurities in this 
drug. FDA's own forensic tests showed unexplained discrepancies between 
the chemical fingerprints of the drug taken from Long March at 
different times. FDA's inspection revealed data integrity problems and 
other serious deficiencies with Long March. Despite FDA inspections and 
quality control by the U.S. drug companies that used this material, 
this suspicious bulk drug still infiltrated our healthcare system 
without detection. This is just one example of other instances that 
have confirmed that counterfeit, substandard drug imports are getting 
into our prescription drug supply and harming patients.
    To substantiate our concerns about counterfeit bulk drugs 
infiltrating our nation's health care system, I now ask unanimous 
consent to place FDA correspondence, internal FDA documents, and 
articles on drug counterfeiting into the record documenting the 
counterfeit bulk drug problem. Some of the FDA internal documents 
reveal that over the last few years key FDA officials believe 
counterfeit imported bulk drugs to be associated with deaths and other 
serious adverse events in American patients. This is the first time 
many of these documents have come to light.
    The international community is also increasingly concerned. Just 
last month, the World Health Organization, international pharmacists, 
and international drug manufacturers publicized their concerns about 
counterfeit drugs. Some have estimated that 50-70% of the drugs in some 
developing countries are counterfeit. It would be wrong to assume that 
the United States is immune to the documented counterfeiting in the 
international pharmaceutical trade. The World Health Organization and 
some industry analysts estimate about 5-8% of drug products shipped to 
the U.S. are counterfeit, unapproved or substandard.
    Counterfeit bulk drugs are ingredients in human prescription drugs 
which are deliberately and fraudulently mislabeled or misbranded with 
respect to its identity or source. Without knowledge of the source, 
there is no product history. Without product history, the safety and 
efficacy of the product cannot be assured because there is no 
information about impurities, the age, the storage, the manufacturing 
environment, or the synthesis of the product. It is extremely difficult 
to detect counterfeit bulk drugs because there is no single chemical 
test for all impurities that may be in the product.
    Counterfeit bulk drugs can represent a serious threat to the public 
health. A bulk quantity as little as 50 kilograms can be used in the 
production of millions of tablets or capsules. Therefore, only one 
counterfeit bulk that contains an impurity or is synthesized improperly 
could cause immediate death or injury to numerous people. The result of 
a counterfeit could be that the medication will not be effective or 
could produce a long term disease or injury. For example, these 
pictures show the differences at a microscopic level between the 
authentic drug and the counterfeit drug. The difference in this case 
lies in the particle size. Such a difference in the particle size could 
mean that the drug does not get absorbed in the bloodstream and 
therefore doesn't work.
    There is still much we do not know about this public health threat. 
The FDA has not made any public health assessment of this issue. Even 
if FDA attempted such an assessment, the FDA has no ability to make an 
assessment with its current data. In its March 5, 1999, letter from 
Congressman Klink and me, the FDA stated that it does not collect data 
to assess the amount of unacceptable or adulterated active 
pharmaceutical ingredients shipped to the U.S. from foreign sources. 
With what information the FDA does have, the FDA has linked counterfeit 
or unapproved bulk drugs to deaths and other adverse events in the U.S. 
Last year when FDA's Forensic Chemistry Center conducted a focused, in-
depth study of just a handful of Chinese drug imports, evidence was 
uncovered which led in part to targeted inspections resulting in an 
import alert for one plant and warning letters for two other plants.
    We know we are only seeing the tip of the iceberg.
    Lured by high prices and potential profits in the U.S., counterfeit 
bulks can get into our prescription drugs in several ways: (1) as 
imported ingredients to U.S. manufacturers; (2) as imported ingredients 
to pharmaceutical compounders; and (3) as source ingredients for 
interact pharmacies marketing to the U.S. The counterfeiters use 
sophisticated methods such as preparing false labeling, containers, 
seals and certificates of analysis, or using a manufacturing process 
that differs from the filed manufacturing process.
    Here are two examples. The first example involves three pictures. 
The first picture shows a document dated around 1989 from an industry 
consultant laying out a scheme to market unapproved Chinese 
trimethoprim under the approved label of a German company. The second 
picture shows that the signature from the first document appears to 
belong to Dr. Jose Gomes. The third picture shows that Dr. Gomes in 
1999 was the consultant for Long March Pharmaceutical, the firm that 
made the gentamicin sulfate I talked about earlier. The second example 
is a diagram of how a drum of bulk drug shipped to Australia was 
counterfeited. A layer of authentic drug on the top, milled sugar in 
the next layer, followed by a layer of authentic drug, etc.
    The public policy implications are enormous. The public health is 
threatened by unapproved, substandard or counterfeit bulk drugs. 
Counterfeits could have direct impact on the integrity of the adverse 
drug event report system. Counterfeit bulk drugs not only hurt 
patients, but defraud Medicare and Medicaid programs that pay for these 
drugs as if they are authentic. There is also speculation that an 
unknown influx of counterfeit, unapproved drugs is leading to more drug 
and chemical allergies and more antibiotic resistance.
    Even after years of plans and recommendations from internal working 
groups, the FDA remains largely unable to detect or control imported 
counterfeit bulk drugs from entering the U.S. The FDA has not even 
worked with the Customs Service to investigate imported counterfeit 
bulk drugs since 1996 and does not have any ongoing criminal 
enforcement action--or even a known strategy--to deter or prevent 
crimes connected to counterfeiting bulk drug imports. Instead, FDA 
relies on its regulatory system of inspections, import policies, and 
postmarketing surveillance. However, the FDA's testimony on this system 
is devastating. To illustrate this point, here are some direct quotes 
from FDA documents.
    ``The Agency is hindered by not having a complete list of foreign 
facilities manufacturing drugs products for the U.S.''
    This is not acceptable,
    ``[W]e still do not have systems that can effectively and 
efficiently communicate across the Agency, or readily provide field 
staff with critical information they need.''
    This is not acceptable.
    ``The Drug Listing database also does not interface with OASIS, 
which would assist import officers by automatically comparing 
manufacturers and listed pharmaceutical products to products offered 
for importation . . .''
    This is not acceptable.
    ``FDA has identified the need to establish enhanced procedures to 
better assure that an import alert notice for a product or company, 
will, in fact, prevent the violative products from reaching the U.S. 
consumer.''
     This is not acceptable.
    ``The drug listing does not ensure authentic sources or authentic 
material as described in New Drug Applications (NDAs) is in fact being 
offered for admission.''
    This is not acceptable,
    In addition, the FDA told us they only have information on 18% of 
the foreign drug manufacturers that ship to the U.S. The FDA has no 
information on 623 importing drug firms from China and 409 importing 
drug firms from India. These kinds of weaknesses, and others, cause me 
to conclude that the FDA cannot assure the American people that 
prescription drugs are free from counterfeits and poorly made, unknown 
ingredients. The FDA has told the Committee that its safety net is 
being stretched by the increasingly global nature of pharmaceutical 
commerce. At some point the FDA's safety net will break, and I fear it 
may already be broken. It is urgent that the FDA shift to a new model 
to deal with counterfeit bulk drug imports.
    I am ready to do more than just hold FDA accountable. I am 
committed to working for a solution to this serious and dangerous 
problem. I fully intend to work with Commissioner Henney and the FDA to 
develop and implement new, effective protections. But the FDA needs to 
be forthright today about the threat and what it will really take to 
deal with the problem. I look forward to the testimony, further 
discussion, and action.

    Mr. Stupak. Thank you, Mr. Chairman. I want to thank you 
for holding this hearing, and I will be brief.
    You certainly in your outline--in your testimony, it was 
outlined that we cannot tolerate the sale of illegal and 
potentially adulterated pharmaceuticals in the market. 
Obviously, patient safety is compromised when drugs are 
imported that are manufactured without quality controls and 
inspections.
    I am interested to hear, Mr. Baker, about the Food and Drug 
Administration's attempts to prevent and punish illegal bulk 
drug sales. In addition, I am interested to learn what the FDA 
is doing to combat illegal compounding and radiological 
diagnostics. We need to understand what FDA's plan is for--what 
its plan is for enforcing current law. If the FDA feels it 
needs more resources, then they need to request them and they 
have to tell us what exactly they need. Otherwise, there is no 
excuse for the FDA not performing its mission.
    As I listened to your testimony, Mr. Chairman, on the bulk 
sale of drugs here, I am concerned about what is happening on 
the Internet. As you know, Mr. Klink and I have been working on 
the On-line Pharmacy Consumer Protection Act, and we have been 
working with the administration to come up with a bill that can 
be acceptable to both sides because we feel it is a huge 
problem.
    So now you take these counterfeit bulk drugs--and you say 
we know about 18 percent of them. How many more and are they 
being sold on the Internet? In fact, I have no reason to think 
they are not being sold over the Internet. I think this hearing 
has so much more we can explore, and I think it will be a very, 
very interesting hearing.
    So I thank you for holding this hearing, Mr. Chairman.
    Mr. Chairman, I am going to close with that, but before 
that, I would like to ask unanimous consent to place Mr. 
Dingell's statement into the record. He is currently at a 
meeting on the patients' bill of rights. Otherwise, he would be 
here, because I know Mr. Dingell is very interested in 
counterfeit bulk drug sales.
    So with unanimous consent I would submit his statement 
forward, please.
    Mr. Upton. Without objection, his statement will be made a 
part of the record, and all members of the subcommittee's 
statements, in fact, will be made a part of the record.
    Mr. Stupak. I yield back the balance of my time.
    Mr. Upton. Thank you.
    [The prepared statement of Hon. John D. Dingell follows:]

    PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
                  CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Chairman, I have long been concerned about counterfeit, 
substandard, misbranded, and adulterated drugs entering this country 
from abroad. Previous investigations conducted by this Subcommittee 
more than a decade ago ultimately led to the passage of the 
Prescription Drug Marketing Act, which added measures to protect 
consumers from potentially dangerous foreign drug sources. But 
protecting consumers from questionable and dangerous drug products 
manufactured abroad remains a formidable challenge.
    I remain concerned that the Food and Drug Administration (FDA) has 
yet to develop a suitable framework, in the face of potentially greater 
risks, for protecting the public. The Agency remains alarmingly behind 
in foreign inspections of firms sending drug products into the United 
States. And it still lacks the ability to track and measure the 
counterfeiting problem.
    The FDA is supposed to inspect firms for Current Good Manufacturing 
Practices (CGMPs) before they are approved to ship a drug product into 
the United States. Nevertheless, just last week FDA reported to us that 
approximately 4,600 foreign drug firms have shipped to the U.S., but 
have never been inspected by the FDA. Cause for added concern is the 
fact that firms in two countries with historic drug counterfeiting 
problems, China and India, are prominent on that list. According to 
FDA's records, 623 firms from China that have shipped drug product to 
the U.S. have never been inspected by the FDA. The figure for India is 
409.
    To make matters worse, the problem of tracking dubious 
manufacturers seems to be getting worse, not better. FDA still lacks 
the basic information technology to allow it to efficiently communicate 
with the Agency's many other databases to provide staff with mission-
critical information. A workable system for tracking who sends what and 
when to this country, and whether their manufacturing practices are 
acceptable, should already have been implemented. Commissioner Henney 
should immediately determine the Agency's information technology 
requirements for such a system and implement the system as soon as 
practicable.
    I also remain troubled that the FDA still lacks the ability to 
gather information about counterfeit, substandard, or even adulterated 
materials on a real-time basis. It is my understanding that, in recent 
staff discussions with the Agency, FDA officials agreed that it might 
be useful to require manufacturers to report immediately to the FDA if 
they discover any counterfeit bulk in their manufacturing processes. 
Currently, there is no such requirement, and that unnecessarily leaves 
other manufacturers and consumers at some risk. The implementation of 
such a requirement should allow FDA to develop a ``real-time'' database 
that could not only warn other companies if a particular product from a 
particular supplier is in question, but also allow the Agency to better 
understand and address this problem.
    Mr. Chairman, I believe that drug counterfeiting is a very real 
problem that will likely grow worse in the future. With the 
introduction of now hundreds of Internet sites selling prescription 
drugs with almost no regulatory framework in place, the environment and 
the incentive for using fake bulk drugs, making fake drugs and selling 
them directly to consumers is obvious. FDA lacks a credible framework 
for addressing these public health risks, and that is very worrisome.

    Mr. Upton. Mr. Burr.
    Mr. Burr. Thank you, Mr. Chairman.
    Let me take this opportunity to welcome our colleague, Mr. 
Stupak, back. We have missed him, and I am sure that his 
participation in this will help to enlighten this issue.
    Mr. Baker, let me welcome you. Let me suggest to you that 
the way to get started with this committee is to fulfill the 
requirements of the rules of the committee. Your testimony was 
turned in at 3 p.m. yesterday. The committee rules require 
those who testify to submit their testimony, I think, 48 hours 
in advance, so that members actually have an opportunity to 
read it, to study it, to understand what it is that Federal 
agencies are trying to do, understand, engage their level of 
passion and commitment to the issues.
    I think you have done a very good job of trying to lay out 
what the scenario is at the FDA. It would have been better, 
quite honestly, if the Commissioner were here. I am sorry that 
there was a conflict and that she had a week of travel; but 
clearly, if she got back yesterday, she could have also 
submitted testimony at 3 p.m. the day before the hearing.
    So I don't see that there is a tremendous amount of 
advantage, but I look optimistically at your testimony and the 
opportunity to go through some questions with you.
    Let me just read one part of your statement here. You say, 
``It is important to distinguish between counterfeit drugs and 
products that are contaminated or otherwise improperly 
manufactured. While each of these conditions may''--may--``pose 
a threat to public health, counterfeiting is quite different 
and a much more rare occurrence in the drug manufacturing 
industry. The FDA Act states that a counterfeit drug,'' and you 
go into a very specific definition.
    If your intent is to come here and to debate what the 
specific definition of counterfeit or threat is to the drug 
market in this country, I hope you will change before we start.
    We are not here to debate definitions. We are here because, 
one, a problem exists; two, the FDA agrees a problem exists; 
three, the FDA has not done everything within its power to 
solve the problem. For that reason, there is an appropriate 
role for the Oversight and Investigation Subcommittee to play 
in the solution of this problem.
    Let me go on in your testimony, if I can, to import alerts. 
Page 22, near the end, ``While counterfeit drugs continue to be 
an issue of concern, it was determined that there was no 
specific need for a Commissioner's Office initiative.''
    That tells me that the level of concern about the issue is 
not as great at the end of your testimony as it was at the 
beginning of your testimony.
    I hope that you will have an opportunity to set the record 
straight on what the level of commitment at the Food and Drug 
Administration is on solving this issue of counterfeiting or 
contamination, this issue of a public health question to an 
agency that I quite honestly have spent a tremendous amount of 
time trying to make sure that the gold standard that the 
American people expect, that the FDA employees have worked 
aggressively to maintain, is maintained in every piece of 
legislation that goes out of this institution.
    I certainly hope that we will continue to do that and that 
you will enlighten us on what we can do legislatively to make 
sure that everything possible is done at the FDA to assure the 
safety and efficacy of everything that goes into 
pharmaceuticals.
    Mr. Chairman, I thank you and I yield back.
    Mr. Upton. Thank you.
    Mr. Bryant.
    Mr. Bryant. Thank you, Mr. Chairman.
    I might first thank you for having this hearing and thank 
our witness, our distinguished witness, for being here today. I 
look forward to his testimony.
    As you explained, there are many competing factors for our 
time, and we may be in and out a little bit during the hearing, 
but I do appreciate your coming today.
    I think this is a good subject for a hearing and I want to 
commend our chairman for having this. I would echo his remarks, 
as well as my friend from Michigan, Mr. Stupak's remarks, as 
well as Mr. Burr's remarks; and would add that as I understand, 
in reading from some of the preparatory materials for this 
hearing, the issue that we are concerned with today and we 
would like to hear from you is: Does the use of counterfeit, 
unapproved bulk drugs pose a threat to the safety and efficacy 
of other finished drugs?
    Mr. Burr sort of touched on that, and maybe what I hear him 
saying is his impression that the FDA does not consider this to 
be a significant problem. Maybe I misunderstood what he said, 
but I think that was his construction of what your statement 
says.
    But if there is a legitimate threat out there, what does 
the FDA do in its regulatory system to ensure that that does 
not happen? And second, does the FDA have any initiative, 
anything to put forward today to us, to explain what you are 
doing to ensure that U.S. prescription drug supplies are free 
from counterfeit or unapproved bulk drugs?
    I think those are the issues. Is there a problem? And if 
you agree there is a problem, what are you doing about it?
    As I read other materials--our chairman mentioned some of 
the statistics that are involved here; and I know, like all 
agencies, or I suspect, you will plead that there are not 
enough people to go around and FDA needs more people to help 
enforce this. Nevertheless some of the statistics are mentioned 
here. Again our chairman has mentioned some of them already, 
but I will mention a couple more.
    There are approximately 310 points of entry in the United 
States, but in fiscal year 2000, the FDA has only 68 full-time 
equivalents in the field allocated to human drugs. They 
mentioned the 4,600 foreign drug manufacturers who have never 
been inspected by the FDA. Only about 18 percent of the total 
number of foreign drug manufacturers are shipping to the U.S. 
at this time--in 1998, I should say--that the FDA has 
information on. The tracking system, foreign inspection force, 
does not include reports which relate to manufacturing 
violations with a product from a country, and so on.
    These are generally admissions, I think the FDA has made in 
the letter to Chairman Bliley.
    One final comment in regard to all of this, and I say this 
as a former U.S. Attorney--and I know Bart Stupak is a former 
law enforcement officer and probably has seen this: It is a 
phenomenon out there among our investigative agencies, called 
TURF. And I found that as a U.S. attorney, who sort of helped 
run investigations with the idea that we would gather facts 
from the FBI and the DEA and all of those investigators out 
there in our office and help prosecute the bad guys. But I 
found this concept of turf battles.
    In reading through these materials, I see where the FDA--
and I would like maybe to hear from you if this is true or 
not--the FDA has not worked with the Customs Service to 
investigate imported counterfeit bulk sales or bulk drugs since 
1996 and does not have any ongoing criminal enforcement action 
or strategy, for that matter. I think this gets into something 
else, but again the issue of whether you are working 
cooperatively with other agencies that have a similar 
jurisdiction and a similar goal to prevent this type of conduct 
from happening.
    Again, realizing that we don't call it turf battles, but 
that is what it is, I would like to know why the FDA is not 
working with Customs and maybe any other agency that would 
have, again, similar jurisdiction that would help by combining 
resources, and maybe even a task force or something like that, 
to stop this.
    I guess in the end, as I close, we have got to agree, 
first, if there is a significant problem or not; and that is 
what I would like to first hear, too.
    With that, I would yield back my time.
    Mr. Upton. Thank you.
    [Additional statement submitted for the record follows:]

 PREPARED STATEMENT OF HON. TOM BLILEY, CHAIRMAN, COMMITTEE ON COMMERCE

    Mr. Chairman, this hearing is of vital importance. On June 23, 
1999, at a hospital in Los Angeles, a 10-year old boy was given a dose 
of an antibiotic called gentamicin sulfate. After he finished getting 
this dose, he got unexpected side effects of chills, shaking, and 102 
degree fever. The drug he took was made of ingredients that came from a 
bulk drug plant in China called Long March Pharmaceutical. This 10-year 
old boy was just one of what turned out to be 155 American patients in 
1998 and 1999 who suffered from these reactions that were linked to the 
Long March ingredient. Some of these reactions were life-threatening. 
While none of the 155 patients died from these reactions, there are 
other patients who may have died from unknown impurities in counterfeit 
or substandard gentamicin. Whatever was wrong with this drug 
ingredient, it slipped through the FDA and the U.S. drug companies.
    Could the FDA have prevented the gentamicin problem? The FDA years 
ago had tips about counterfeit gentamicin and had opportunities to 
prevent the gentamicin problem. In 1994, FDA investigated counterfeit 
bulk gentamicin sulfate, but dropped the investigation because the 
suspicious lots were no longer available. Nothing was done on the 
regulatory side, not even taking samples of gentamicin sulfate from 
various U.S. firms to test for impurities or counterfeiting. Based on a 
1996 memo from one of its criminal investigators, the FDA had 
information from a case involving Long March-labelled counterfeit drugs 
for animals that told them that counterfeit gentamicin sulfate for 
humans was being sold in the U.S. In addition, FDA had recommendations 
in 1996 to deter, detect, or interdict counterfeit gentamicin sulfate 
and other counterfeit bulk drugs. Many of these key recommendations 
were not implemented. Lack of FDA action left American patients 
vulnerable to imported bulk drugs like the Long March gentamicin.
    The FDA's record on controlling counterfeit bulk drugs so far is a 
record of failure. That is an outrage. As far back as 1991, the FDA had 
evidence from its field force that suggested widespread availability of 
counterfeit bulk drugs in both human and animal drug industries. In 
1996, then-FDA Commissioner David Kessler established a counterfeit 
bulk drug initiative and a working group to deal with this issue. A 
year later, the FDA disbanded the Commissioner's working group and 
downgraded the priority of counterfeit bulk drugs. Since the FDA has 
downgraded the priority of counterfeit bulk drugs, international 
authorities including the World Health Organization (WHO) last month 
have recognized the growing problem of counterfeit drugs. While the FDA 
has taken some small steps in improving some of its systems, much 
remains to be done.
     As the Committee's investigation has revealed, the FDA's 
regulatory system used to protect Americans from counterfeit or 
substandard drug ingredients has significant holes. For example, many 
times FDA will allow drug products into our country not based on proof 
of authenticity, but merely on the representations of an international 
broker, who could in fact be the counterfeiter. FDA has only partial 
information, if that, on the original source to determine authenticity. 
The FDA's own people acknowledge that the import alert system is broken 
and that using drug listings for admitting drug imports has had a 
dismal record. The FDA admits it has information on only 18 percent of 
the foreign drug manufacturers shipping to the U.S. The FDA admits 
there are about 4,600 foreign drug manufacturers that have shipped to 
the U.S. since October 1997 but have never been inspected by the FDA, 
including 623 in China and 409 in India. At the time of entry at the 
ports, the inspectors do not have the ability to know where the drug 
shipment is going in the U.S. and what will really happen to it.
    What has been truly disappointing has been FDA's apparent lack of 
interest in using the authority and resources the Congress gave the FDA 
specifically to investigate counterfeit bulk drugs. In 1993 the FDA's 
Office of Criminal Investigations was created specifically to give the 
FDA the capability to investigate counterfeit drugs. By statute, FDA 
has special enforcement powers related to investigating counterfeit 
drugs.
    But what has been the record? How has the FDA used this authority? 
In May 1996, one of FDA's criminal investigators wrote a memorandum to 
his supervisors at the FDA's Office of Criminal Investigations about 
evidence from a criminal investigation showing the threat of 
counterfeit bulk drugs imported into the USA. But his supervisors did 
nothing to follow-up on the investigative leads or to implement or 
suggest improvements in criminal investigations of counterfeit bulks. 
In its June 2, 2000 letter to me, the FDA admits in the area of 
counterfeit bulk drugs the Office of Criminal Investigations has no 
open investigations, has not initiated even one investigation, and has 
not worked with any other federal agency investigating counterfeit bulk 
drugs. There is no criminal investigative strategy included in the 
FDA's draft 1999 Work Plan on counterfeit drugs. None.
    Ladies and gentlemen, bulk-drug counterfeiting and the acts that 
perpetuate the fraud are federal crimes. These crimes threaten the 
public health and the integrity of the pharmaceutical industry, place 
law-abiding bulk suppliers at a competitive disadvantage, and victimize 
U.S. drug companies. Just last month, the WHO, international 
pharmacists, and international drug manufacturers issued public 
statements about the major problem of drug counterfeiting. It seems 
that imported drug counterfeits are increasingly recognized as a major 
problem.
    In some of its statements to the Committee, the FDA assumes there 
must be no major problem even though it has not conducted a public 
health assessment of the counterfeit bulk drug issue and has little 
quantifiable information on the subject. However, the FDA told 
Committee staff that they had learned from an investigation about 10 
years ago that Americans had died from counterfeit bulk antiseizure 
medicine. The FDA told staff as well that there are public health 
concerns with introducing counterfeit and unapproved bulk drugs into 
our medicines. This is why FDA has in place regulations and inspections 
to deal with bulk drug ingredients.

    Mr. Upton. Our witness today is Dennis Baker, Associate 
Commissioner for Regulatory Affairs at the Food and Drug 
Administration.
    Mr. Baker, welcome. As you know, we have a long-standing 
tradition of taking testimony under oath. Do you have any 
objection to that?
    Mr. Baker. None whatsoever, sir.
    Mr. Upton. Committee rules also allow you to have counsel, 
if you wish to have counsel represent you as well.
    Do you wish to have counsel?
    Mr. Baker. No, I do not.
    Mr. Upton. If you would stand and raise your right hand.
    [Witness sworn.]
    Mr. Upton. You are now under oath and your testimony is 
made a part of the record in its entirety, and the time is 
yours. Thank you.

     TESTIMONY OF DENNIS BAKER, ASSOCIATE COMMISSIONER FOR 
     REGULATORY AFFAIRS, U.S. FOOD AND DRUG ADMINISTRATION

    Mr. Baker. Thank you, Mr. Chairman, and good morning, Mr. 
Chairman, and members of the committee.
    I am Dennis Baker, Associate Commissioner for Regulatory 
Affairs at the U.S. Food and Drug Administration.
    Mr. Upton. If you could just put the mike a little closer.
    Mr. Baker. Is that better?
    Mr. Upton. That's better.
    Mr. Baker. Thank you.
    With me today, I have Mr. John Taylor. He is Acting 
Director of our Office of Compliance at the Center for Drug 
Evaluation and Research within FDA. Together, our offices are 
responsible for regulating the importation of foreign drugs.
    I appreciate this opportunity. I am rather new to FDA. I 
have been on board about a year now. I came on board from the 
State of Texas, so I have had some eye-opening experiences, as 
you might guess, and coming here today is another eye-opening 
experience.
    But what we are here today about is imported counterfeit 
bulk drugs, and the Agency's actions to protect the American 
public from the risks of those drugs.
    I want to preface my remarks by noting that while we take 
very seriously the counterfeiting of drug products, we still 
believe the overall quality of drug products in the country to 
be very high. The public, we think, can be confident that the 
drug products they use are safe and effective.
    Although FDA takes many steps to protect American consumers 
and patients against unsafe drugs, we recognize that more can 
be done and should be done. There is room for improvement in 
our abilities both to quantify the potential for the entry of 
counterfeit bulk into the U.S. market and, when warranted, to 
strengthen our regulatory or enforcement activity.
    In this testimony, I will highlight FDA's efforts to ensure 
that imported bulk drugs meet the requirements of the Food, 
Drug and Cosmetic Act. More detail on FDA's programs and 
activities in this area is provided in my written statement, 
and I request that it be included in the record.
    Mr. Upton. Yes.
    Mr. Baker. Simply put, the Food, Drug and Cosmetic Act 
defines a counterfeit drug, as we mentioned earlier, as a drug 
that bears a false identification of its manufacturer, 
processor, packer or distributor. The definition applies to 
active pharmaceutical ingredients, APIs, as well as finished 
dosage forms that are deliberately and fraudulently mislabeled 
or misbranded with respect to their identity and source.
    Counterfeit APIs pose a real or potential health hazard 
because their manufacturer is often unknown, which makes it 
impossible to establish an accurate product history.
    As a result, the safety, quality and efficacy of the 
product cannot be assured. Central to FDA's system of 
protection for the integrity of prescription and 
nonprescription drugs are the standards for safety and 
effectiveness in manufacturing that are established by the 
Center for Drug Evaluation and Research.
    It is important to note that a key element of this system 
of protection is the responsibility that a drug manufacturer 
has to test and validate the safety, purity and consistency of 
the APIs it uses in the manufacture of its products.
    Some of the strategies employed by FDA to maintain these 
standards include the rigorous scientific evaluation of all 
marketing applications for new innovator and generic drug 
products and monitoring the quality of APIs in finished dosage 
forms manufactured in and imported into the United States; 
collecting and evaluating information on adverse events 
associated with marketed products; and conducting inspections 
to ensure that manufacturers produce high-quality 
pharmaceutical products.
    Over the last decade, FDA has taken a close look at the 
issue of counterfeiting, and we have engaged in wide-ranging 
discussions on whether our regulatory enforcement programs were 
up to the task or needed reworking.
    Let me emphasize that many of our discussions in the 
earlier part of the decade were based on the fact that our 
information resources were far less capable than what we have 
today. Although there is still room for improvement, and I 
would say much improvement, most of the information systems in 
use today were established during the 1990's in response to our 
need for better information.
    The task before us now is to better integrate the various 
information resources into a unified environment, a unified 
information technology (IT) environment. We fully recognize 
that we have been working from a collection of independently 
developed data bases, all of which contain critical 
information, but they clearly need to be integrated; they have 
to be linked. This unified environment will make better 
information available to the field, where we must make quick 
decisions on the admissibility of products, and it will allow 
us to reconcile the data now contained in our various existing 
systems.
    We have a program of technology upgrades in place. Those 
upgrades have already resulted in the roll-out of the FACTS 
system which incorporates data from the OASIS import registry 
and the COMSTAT compliance information system.
    In an effort to begin to address the weakness in IT 
available to import inspectors, a pilot was initiated in the 
Philadelphia district to provide import inspectors with access 
to CDER's EES system, which tracks drug applications. This 
allows the import inspectors to increase the probability of 
confirming authentic sources of APIs. The goal is to ultimately 
have access to a single data base that includes all the 
information needed and houses a true foreign establishment 
inventory.
    The FDA has also restructured its foreign inspection 
program in order to better target those firms and products that 
have the most potential for problems, including counterfeiting.
    While the bulk of our foreign plant inspections are still 
in support of new drug applications, we have instituted a 
tiered inspection system based on potential risk to the 
consumer. In spite of our best strategies, however, resource 
limitations will prevent us from conducting universal foreign 
drug inspections.
    Now, that being said, could we do a better job with the 
resources we have? Certainly.
    FDA has also revised the sampling of products under the 
drug product surveillance program, and these samples are 
analyzed by our Forensic Chemistry Center. Since 1998 we have 
been focusing on collecting a greater number of samples of 
targeted APIs to determine if a product is authentic and meets 
specifications. Building this data base for API information 
will be helpful to our field inspectors in identifying possible 
counterfeit APIs. Currently, this data base contains 
information on approximately 400 to 500 APIs.
    Another aspect of our program emphasizes a stronger 
cooperative effort with foreign governments and industry.
    Mr. Chairman, FDA is alert to the fact that our protections 
against counterfeit drugs are in need of improvement. Building 
and maintaining a strong regulatory framework and providing the 
tools to ensure the integrity of imports is a complex and 
resource-intensive undertaking that requires flexibility in 
response to the constant growth and changes of the global 
market.
    While our agency has done much in recent years to meet 
these demands, clearly more can be done. Today, I would like to 
announce five additional new initiatives we are undertaking to 
further improve this system. Just last January, I allocated 
funds to the Forensic Chemistry Center for analytical work in 
assessment of APIs gathered through targeted inspections of 
importers. The FCC API data base will be made available 
electronically to all field inspectors by January 2001.
    While the Philadelphia pilot does not fix the entire IT 
problem, in the interim, it clearly provides a benefit to our 
field force. By the end of the year, we will expand this pilot 
nationwide so all of our field force has access to the EES 
data, a real-time reading of the data.
    Exporters to the U.S. are required by FDA to provide the 
name of the foreign manufacturer upon entry to the U.S. This 
information has been inconsistently provided by importers and 
the agency has not enforced this requirement. Effective 
immediately, we are going to put all importers on notice that 
this information must be accurately provided and the entry of 
their products into the U.S. will be contingent upon it.
    At the suggestion of Mr. Dingell and Mr. Klink, we 
considered requiring domestic manufacturers to provide 
information to FDA when they discover that bulk materials they 
receive are substandard, ineffective or appear not to be from 
the approved source. We did consider this idea. We believe it 
will provide us with useful information, and we are looking at 
regulatory approaches for implementing this requirement.
    A vigorous and effective system requires sufficient 
resources that provide the necessary expertise, scientific 
methodologies, tools for testing and integrated information 
systems. We are committed to ensure the Agency has what it 
needs. We look forward to working further with the committee as 
we strive to provide the American public with the protections 
it expects and deserves.
    This concludes my testimony, and we will be happy to answer 
any questions you may have.
    [The prepared statement of Dennis E. Baker follows:]

   PREPARED STATEMENT OF DENNIS E. BAKER, ASSOCIATE COMMISSIONER FOR 
            REGULATORY AFFAIRS, FOOD AND DRUG ADMINISTRATION

    Good morning, Mr. Chairman, and Members of the Committee. I am 
Dennis E. Baker, Associate Commissioner for Regulatory Affairs (ACRA) 
at the United States (U.S.) Food and Drug Administration (FDA or the 
Agency). With me today is my colleague, John M. Taylor, Acting 
Director, Office of Compliance, Center for Drug Evaluation and Research 
(CDER). I am pleased to come before the Committee to discuss your 
concerns about imported counterfeit bulk drugs and the Agency's actions 
designed to protect the American public from the possible risks that 
such drugs may pose.
    It is important to note that the overall quality of drug products 
in this country is very high. However, FDA takes very seriously 
allegations regarding the counterfeiting or adulteration of drug 
products. We recognize that more can be done to quantify the scope of 
the problem counterfeit bulk drugs may pose in the U.S. market, and 
strengthen our regulatory or enforcement activity, when warranted. In 
this testimony, I will describe efforts the Agency has taken to ensure 
that imported bulk drugs meet the requirements of the Federal Food, 
Drug, and Cosmetic (FD&C) Act. ``Bulk drugs'' are active or inactive 
ingredients used in the manufacture of finished dosage drug products. 
While safety issues clearly apply to all products that are classified 
as bulk drugs, at the Committee's request, this testimony will 
generally focus on issues related to the importation from foreign 
sources of active pharmaceutical ingredients (APIs), which was the 
subject of Chairman Bliley's May 8, 2000, letter to the Agency.
    It is important to distinguish between counterfeit drug products 
and products that are contaminated or otherwise improperly 
manufactured. While each of these conditions may pose a threat to 
public health, counterfeiting is a quite different, and much more rare, 
occurrence in the drug manufacturing industry. The FD&C Act states that 
a counterfeit drug is:
        ``A drug which, or the container or labeling of which, without 
        authorization, bears the trademark, trade name, or other 
        identifying mark, imprint, or device, or any likeness thereof, 
        of a drug manufacturer, processor, packer, or distributor other 
        than the person or persons who in fact manufactured, processed, 
        packed, or distributed such drug and which thereby falsely 
        purports or is represented to be the product of, or to have 
        been packed or distributed by, such other drug manufacturer, 
        processor, packer, or distributor.''
    More simply stated, a drug that identifies itself as the product of 
a drug manufacturer, processor, packer, or distributor other than the 
actual manufacturer, processor, packer, or distributor of such drug is 
counterfeit under the FD&C Act. This definition applies to active 
pharmaceutical ingredients, intermediate pharmaceuticals, and finished 
dosage forms that are deliberately and fraudulently mislabeled or 
misbranded with respect to their identity and source. Counterfeiting 
can apply to innovator or generic products.
    Counterfeit APIs pose a real or potential health hazard because 
their manufacturer is often unknown. The fact that the manufacturer is 
unknown means that there is no product history. Therefore, the safety 
and efficacy of the product cannot be assured, the impurity profile is 
unknown and the age, storage, manufacturing environment, and/or the 
synthesis of the product cannot be determined. Moreover, the failure to 
have a product history means that the results of research and 
development and the clinical trials done by legitimate pharmaceutical 
product manufacturers are negated.
    The participants in illegal counterfeiting activity may include 
manufacturers of API pharmaceuticals, manufacturers and repackers who 
relabel and substitute API products in the distribution chain, 
importers, brokers, domestic agents, and purchasing agents either 
acting alone or in concert with a corporate unit. There are certain 
products that especially lend themselves to counterfeiting. In general, 
very expensive chemicals that are purchased in small quantities or less 
expensive chemicals that are purchased in very large quantities are 
particularly vulnerable to counterfeiting.

         I. THE REGULATION OF ACTIVE PHARMACEUTICAL INGREDIENTS

    FDA is responsible for the safety and quality of domestic and 
imported pharmaceutical products. Specifically, FDA's CDER establishes 
standards for the safety, effectiveness and manufacture of prescription 
and over-the-counter (OTC) drugs. In addition, FDA's human drug program 
applies premarket review, postmarket surveillance, education, research 
and other strategies to ensure that all drug products are safe and 
effective and that information on the proper uses of the drug products 
is available to all users.
    The strategies employed by FDA include:

 regulating the testing of investigational new drugs (INDs);
 evaluating the data in new drug applications (NDAs) for 
        marketing new drugs and abbreviated new drug applications 
        (ANDAs) for marketing generic drugs;
 monitoring the quality of API and finished dosage drug 
        products manufactured in and imported into the U.S. through 
        post market surveillance programs;
 collecting and evaluating information on adverse effects 
        associated with the use of marketed products;
 regulating the advertising and promotion of prescription 
        drugs;
 establishing and monitoring standards for use, labeling and 
        composition of both prescription and OTC drugs;
 conducting inspections to ensure that manufacturers produce 
        safe, pure and high quality pharmaceutical products; and
 evaluating the conditions under which drugs are manufactured, 
        packed, tested and held.
    FDA's human drug program also disseminates timely and accurate 
product information to the medical community and the public regarding 
new drugs and their uses, identifies drugs with the potential for 
abuse, and makes recommendations to the Drug Enforcement Administration 
(DEA) for drug classification and control.
    Foreign manufactured drugs imported into the U. S.--both bulk and 
finished products--fit into the Agency's regulatory framework through 
new and generic drug evaluations, drug quality assurance, inspections, 
postmarketing surveillance and adverse drug event reporting programs.
New Drug Evaluation/Generic Drug Evaluation
    The goal of the new and generic drug approval process is to ensure 
that 1) new drugs brought to market are safe and effective as labeled 
for their intended use, and 2) generic drugs approved for marketing are 
safe, effective, and manufactured in a way that ensures their continued 
safety, efficacy, and bioequivalence. Personnel from the Office of 
Regulatory Affairs (ORA), sometimes accompanied by chemistry or other 
professional staff from CDER, conduct pre-approval and post-approval 
inspections of the facilities manufacturing drug products that are 
identified by drug sponsors in their applications.
    FDA's Pre-approval Inspections Program (PAI) provides for the 
investigator to verify the accuracy and authenticity of data submitted 
by firms in support of the approval of their new or abbreviated new 
drug applications and to assess the firm's compliance with current good 
manufacturing practices (cGMP). The program covers both domestic and 
foreign manufacturers of both finished dosage form products and APIs.
    A drug manufacturer is responsible for testing and validating the 
safety, purity and consistency of the APIs it uses in the manufacture 
of its products. In fact, all such manufacturers are required to 
disclose the source of their APIs in their applications, and both 
domestic and foreign API manufacturers must be in compliance with cGMPs 
prior to the approval of those applications. Drug Master Files (DMFs) 
are established to allow producers of active ingredients and other 
formulation materials to submit confidential commercial information 
directly to FDA. Therefore, these bulk drug inspections are considered 
to be pre-approval inspections and include inspectional verification of 
the information submitted to the DMF by the bulk drug manufacturer. The 
DMF contains manufacturing information pertinent to the formulation 
material. It is referenced by an applicant for a finished dosage form 
and is considered part of the application.
    Foreign and domestic bulk manufacturers are reevaluated 
periodically for cGMP compliance, either during pre-approval 
inspections for a different product, or by a routine drug process cGMP 
inspection under the API program.
Drug Quality Assurance Program
    Without proper process validation and control, marketed drugs may 
be deficient in many ways such as being subpotent, superpotent, or 
contaminated with other drugs or microorganisms. CDER is responsible 
for conducting postmarketing assurance monitoring of the overall 
manufacturing quality of drugs and maintaining drug establishment 
registration and drug products listing. In conjunction with ORA, CDER 
must also ensure that the manufacturing, processing, packing, and 
holding of drugs are such that the highest quality products will be 
marketed.
    FDA inspections and product analyses are conducted to ensure that 
firms are validating their manufacturing processes. Comprehensive cGMP 
evaluations of drug products or dosage form are conducted. These 
inspections include domestic and foreign API and finished dosage form 
manufacturers.
    In addition, CDER initiates drug sampling surveys that involve the 
collection and analysis of imported bulk drug substances and finished 
products that are then analyzed by Agency field labs for quality and 
forensic laboratories for evidence of counterfeiting. Selection of drug 
products for FDA sampling and testing under the Drug Product Survey 
Program is based on the following criteria: therapeutic significance; 
emerging problems; impurities; stability concerns; results of previous 
drug surveys; economic importance; and compliance history of the firm. 
Foreign active pharmaceutical ingredients have been added as sampling/
testing targets. CDER strives to obtain voluntary support from the 
pharmaceutical industry whenever possible, informing firms of problems 
with their products or manufacturing processes so that correction may 
be made as expeditiously as possible, but takes regulatory action when 
necessary to effect the required changes.
Postmarketing Surveillance and Epidemiology
    FDA employs other surveillance programs, including drug listing 
review of imports and the Drug Quality Reporting System under MedWatch. 
ORA is establishing a library of authentic bulk drug substances to use 
in investigations to identify counterfeit drugs.

                  II. FOREIGN INSPECTION WORKING GROUP

    The continuing increase in international trade has turned the world 
into a global marketplace. The number of API and finished drug products 
manufactured abroad for the U.S. market is growing. It has been 
reported that as much as 80 percent of the APIs used to manufacture and 
produce prescription drugs in this country is imported from other 
countries. Therefore, over the last decade, FDA has substantially 
increased its worldwide inspectional and import monitoring operations, 
but the rapid expansion of the world market will continue to challenge 
our ability to direct appropriate levels of resources and operations to 
the foreign arena. FDA must continually recalculate its enforcement 
tools to ensure that the American public is protected from adulterated 
and unsafe products entering the U.S. market.
    To keep pace, FDA has stepped up its inspectional and import-
monitoring activities since the early 1990s, however, the Agency 
recognized that it needed to do more. In 1995, the FDA formed a Foreign 
Inspection Working Group (FIWG), comprised of representatives from all 
parts of the Agency, in an effort to evaluate the Agency's current 
foreign inspection program and related import product monitoring. The 
working group devoted months to understanding and identifying FDA's 
strengths and weaknesses in its foreign inspection program. The FIWG 
issued a summary report in June 1997. This evaluation cuts across 
Agency program areas, however, I will focus on the drug program and how 
it relates to bulk drugs, the findings, and the Agency's subsequent 
actions over the past three years.
Inspection Planning
    Prior to Fiscal Year (FY) 1997, FDA's foreign inspection program in 
large part focused on pre-approval inspections. In the early 1990s, 
foreign inspections resulted in a higher percentage of foreign 
manufacturers with significant GMP problems relative to domestic 
facilities. These findings indicated a need for more post-approval 
surveillance coverage to help assure that imported drug products are 
produced in accordance with cGMPs.
    CDER addressed this issue by structuring its foreign post-approval 
inspection scheduling using a risk-based strategy that allows it to 
more effectively utilize limited resources. Specifically, assignments 
are still primarily application driven, in that all foreign inspections 
of firms that are part of an application are conducted during the 
course of the application review. Additional post-marketing 
surveillance inspections are scheduled based on risk as assigned by a 
four-tiered system:

 Tier 1--firms needing reinspection due to a previous finding 
        of ``official action indicated'';
 Tier II--firms manufacturing sterile bulk or finished dosage 
        products;
 Tier III--firms with a higher number of applications and firms 
        manufacturing bulk drugs for use in injectable dosage forms; 
        and
 Tier IV--all other firms.
    The tiered system has had the beneficial effect of focusing our 
limited resources on the firms that pose the highest risk to the 
American consumer. We have maintained a level of inspecting about 250 
foreign firms per year for cGMP compliance and pre-approval acceptance. 
The inspections performed have been in the Tier I and Tier II 
categories.
    The negative consequence, however, is that by continually 
emphasizing these high-risk firms we are not able to get to the Tier 
III and Tier IV firms, thereby lengthening the gap between inspections. 
CDER has recognized this problem and has identified and provided to ORA 
a priority list of 24 firms in China and 32 firms in India that have 
not been inspected but, according to the Operational and Administrative 
System for Import Support (OASIS) data, have shipped product in the 
last two years into the U.S. ORA is working these firms into inspection 
planning as resources permit and travel plans make opportunities 
available. For example, inspections of these priority firms can be 
added to pre-approval inspection trips.
Official Establishment Inventory
    The Agency's Official Establishment Inventory (OEI) is a 
compilation of firms FDA has inspected, firms that have shipped 
products to the U.S., as indicated by the OASIS database, and firms 
that have listed as part of the Agency's drug listing program. FDA has 
completed evaluations of entry data from OASIS and is using this 
information to supplement the inventory of firms in the OEI. This is an 
ongoing process. FDA recognizes that there are weaknesses in this data, 
due in part to the fact that the OASIS system is user-driven. The 
Agency is using broker evaluations in part to increase the integrity of 
the submitted data and eventually included in the OEI.
    The Agency is hindered by not having a complete list of foreign 
facilities manufacturing drug products for the U.S. market. This 
finding indicates a need to improve the Agency's information database 
on foreign firms exporting drug products to the U.S. The Food and Drug 
Administration Modernization Act (FDAMA) of 1997, requires the 
registration of foreign establishments. Once we have completed the 
rulemaking process and put the technology in place to implement this 
requirement, the Agency will have available to it a comprehensive 
listing of foreign establishments exporting drugs to the U.S.
    Having a complete OEI, however, is only one step. We also must have 
the information technology to be able to more fully utilize the data we 
already have to the Agency's benefit. Therefore, FDA has begun a 
process of upgrading its hardware and software systems to move beyond 
the fragmented and independent systems of the past into an integrated 
information environment where data is more readily available and more 
easily manipulated to provide information and analyses that has not 
been possible before.
    The Agency recognizes while we have made great strides in improving 
our information technology, we still do not have systems that can 
effectively and efficiently communicate across the Agency, or readily 
provide field staff with critical information they need.
    FDA is implementing the upgrade of our information technology 
systems to utilize wide area network (WAN) technology, which will 
support the availability of much more information to inspection 
officers. We are evaluating both the technology, as well as the cost, 
or further integrating our various sources of data into unified 
databases.
    The OASIS system uses information input by filers (Custom House 
Brokers and importing firms) to facilitate the screening and/or 
inspection of imported products that are subject to FDA regulation. 
OASIS began as a pilot program in the Seattle District in 1992. It 
interfaced with the U.S. Customs Service Automated Commercial System 
(ACS), screened entries (using ACS) and provided the initial 
operational support to FDA users. The interface with ACS and the 
screening subset of the system (known as EEPS) was implemented 
nationally by June 1995, and use of the OASIS system by industry became 
mandatory in December 1996. The baseline of the current version of 
OASIS with full basic operational functionality was implemented 
nationally by October 1997. The system has undergone continuous 
improvement of operational support. A major change in September 1999, 
moved screening from ACS to OASIS and expanded screening to cover all 
data elements.
    As a user-driven system, OASIS depends upon import brokers to 
provide complete and accurate information. While the OASIS system 
provides the majority of the information it was designed to provide, it 
only contains 2 years worth of data, and does not electronically 
interface with other systems which contain additional information which 
would be of value to our field staff.
    One of FDA's major upgrades in information technology is the 
establishment over the last year of the Field Accomplishment and 
Tracking System (FACTS), which performs a number of functions, 
including the ability to request, manage and report on inspections and 
other field assignments such as sample collections and analyses, and 
compliance cases. FACTS incorporates data from the Compliance Status 
Information System (COMSTAT) system, described below, as well as OASIS, 
and will eventually provide the resident environment for the foreign 
OEI. We also are actively working on integrating the Establishment 
Evaluation System (EES), which provides information on inspection 
requests and outcomes to compliance officers, drug reviewers and field 
personnel, with the FACTS database.
    COMSTAT provides the compliance status of foreign manufacturers 
based on the results of cGMP inspections. COMSTAT data is shared with 
other Federal agencies and foreign inspectorates to ensure that 
pharmaceutical products purchased or cleared for import meet acceptable 
standards. Ideally, this data should be readily available to FDA's 
import inspectors making admissibility decisions. COMSTAT does not 
include the drug listing identification number FDA assigns to each 
manufacturer in the Drug Listing database, which lists the products of 
drug firms registered with CDER. FDA is pursuing the linkage of 
information in the Drug Listing database with COMSTAT so that we can 
easily match foreign manufacturers who have ``listed'' with their 
compliance status. The Drug Listing database also does not interface 
with OASIS, which would assist import officers by automatically 
comparing manufacturers and listed pharmaceutical products to products 
offered for importation, and this is another area where we are working 
on establishing a linkage.
    Finally, we are also actively working on connecting the current EES 
with the import data available in OASIS, as described more fully later 
with regard to a pilot project in our Philadelphia District.
Import Alerts
    FDA has identified the need to establish enhanced procedures to 
better assure that an import alert notice for a product or company 
will, in fact, prevent the violative products from reaching the U.S. 
consumer. We have begun this process by making import alerts available 
to interested parties on FDA's Internet site.
International Information Exchange
    The Agency needs to strengthen and improve communication with the 
public health and regulatory components of foreign governments. FDA 
foreign inspections are ``pre-announced,'' because FDA must obtain 
permission to enter the foreign country. Therefore, it is difficult for 
FDA to assure that the firm is operating under normal conditions during 
the inspection.
    Establishing strong relationships with the foreign governments will 
facilitate both access to the country and a fair and frank exchange of 
information regarding the regulatory status of facilities in that 
country. The Agency has negotiated a Mutual Recognition Agreement (MRA) 
with the European Union. This agreement involves an upfront investment 
of resources on the part of FDA that should result in expanded 
inspectional coverage of foreign firms by foreign inspectional body 
counterparts. On a parallel track, FDA has a number of Memoranda of 
Understanding (MOUs) with foreign countries to obtain inspectional 
information that will supplement what FDA is already doing.
Sampling
    Evidence of product quality problems has not been identified during 
current surveillance sampling activity. We will continue to target 
high-risk drug products for sampling.

                    III. COUNTERFEIT DRUG INITIATIVE

    In 1995, the Agency began a closer examination of the issue of 
counterfeit drugs. For just over 2 years a cross-cutting group reviewed 
both the Agency's knowledge of the extent of counterfeiting and the 
adequacy of the systems in place to handle it when it occurred. While 
the work of this group is certainly related to the work of the FIWG as 
described above, the findings and observations were specific to 
counterfeit drugs.
Meetings with Representatives from Foreign Governments and Industry
    The Agency has and continues to strengthen its international 
collaborative efforts with other inspectorates outside the MRA process. 
We have given priority to Canada, Australia, and Mexico for more 
development and have worked with Latin American countries on 
educational efforts, for example, the University of Puerto Rico 
project. These efforts also include a semiannual scientific exchange 
meeting with representatives from the United Kingdom, Germany, Canada, 
Australia, and the Netherlands.
    The Agency has met with pharmaceutical industry representatives 
from innovator and generic drug companies to discuss the importance of 
sharing information that they may have regarding counterfeit drug 
products. Discussions are held regarding the most productive ways to 
enhance cooperation by exchanging information and providing assistance 
during future investigations. Companies that produce high demand 
products that tend to be counterfeited often do not elaborate on the 
actions they are taking to combat the counterfeiting problem. While 
such secrecy is understandable, sharing such information would create 
efficiencies for both the Agency and the industry in efforts to combat 
counterfeiting.
    In addition, in 1997, the Office of Criminal Investigations (OCI) 
began to coordinate international efforts aimed at identifying, 
investigating, and prosecuting pharmaceutical crime through liaison 
with international efforts that had been formed by the Forensic 
Chemistry Center. In 1998, OCI formally established a liaison with its 
international counterparts within the Medicines Control Agency (MCA) in 
the United Kingdom, and the German National Police, Bundeskriminalamt 
(BKA). This collaborative effort of sharing criminal intelligence has 
now grown into the Permanent Forum on International Pharmaceutical 
Crime (PFIFC). This working group is an international enforcement forum 
aimed at exchanging intelligence and ideas to foster mutual cooperation 
in combating pharmaceutical crime. The following countries have 
representatives on this forum: USA, United Kingdom, the Republic of 
Ireland, Northern Ireland, Spain, Germany, Canada, Singapore, Brazil, 
Belgium, South Africa, the World Health Organization, and the World 
Customs Organization. The PFIPC meets once a year and facilitates 
ongoing dialogue among member nations throughout the year.
Postmarket Sampling of Imported Products
    As we noted above, a key element of post-marketing surveillance is 
the Drug Product Surveillance program. While this program provides the 
Agency with valuable information about the quality of drugs marketed in 
this country through sampling and analysis of imported and domestic 
drug products, the volume of imports dictates that only a small 
fraction of the entries are examined.
    That said, there is concern that the current sampling strategy is 
not using the Agency's resources most effectively. Increased sampling 
and testing of foreign produced bulk pharmaceutical chemicals and 
finished dosage forms have revealed very few problems. Two changes have 
been made to our sampling strategy as a means to address these 
concerns.

1. The sampling of APIs for analysis by the Forensic Chemistry Center 
        (FCC) to detect counterfeits was revised in 1998. The sampling 
        now calls for the collection of five batches per year for each 
        of the last 5 years (25 samples total) for each source of API 
        at each finished dosage manufacturer. In the past, we received 
        a few samples each of a large number of different drugs that 
        was a kind of ``shotgun'' approach, hoping for a random hit. 
        The new program is more focused and more likely to detect 
        counterfeits, however, of necessity, only a few drugs can be 
        addressed each year. Three drugs were selected for sampling in 
        FY 1998, five drugs were selected for FY 1999, and three are 
        targeted for FY 2000.
2. CDER's compliance program now directs FDA investigators as part of 
        its inspection assignment at a foreign API manufacturer to ask 
        the manufacturer to provide the FCC authentic samples of its 
        APIs, labeling, certificates of analysis, container 
        information, batch numbering information, size, and amounts of 
        API produced and shipped to the U.S. The authentic information 
        is entered into the API database and used for comparison to 
        suspect samples.

Increased Training for FDA Import Inspectors
    FDA inspectors and investigators need accessible information to 
help them determine the authenticity of pharmaceutical products. The 
Agency recognizes the need to provide training to investigators and 
inspectors on conducting effective API inspections while providing 
specific information on issues involving counterfeit and unapproved 
sources of drugs as well as poor cGMP compliance. Intensive training 
sessions will be conducted in July 2000, with U.S. Customs Service 
officers collaborating with FDA to provide the training. These sessions 
will focus on U.S. Customs Service laws and regulations, enforcement 
techniques that can be used at U.S. ports of entry, and a U.S. Customs 
Service strategic problem solving-program that targets willful 
violators. While not totally focused on bulk drug imports, this 
additional training will be highly applicable to field activity in this 
area.

Drug Listing
    The Drug Registration and Listing System provides information on 
foreign pharmaceutical manufacturers, based on the statutory 
requirement that they list the drug products that they ship into the 
U.S. However, anyone can obtain a drug labeler code and therefore 
submit a drug listing form. The drug listing does not ensure that 
authentic sources or authentic material as described in NDAs is in fact 
being offered for admission.
    To begin to address the weaknesses in the current system, a pilot 
program was initiated in the Philadelphia District to provide import 
inspectors with access to additional databases. Using CDER's EES, which 
tracks drug applications, inspectors increase the probability of 
confirming authentic sourcing of APIs. The pilot was set-up in 
cooperation with CDER, who donated a stand-alone computer to provide 
the import inspector access to the EES and IND databases and other 
inspection databases. The system allows inspectors to retrieve 
additional important data in about three to four minutes on any API 
entry.
    The Philadelphia District Office is a relatively small API 
importing area compared to New York or Los Angeles. Nonetheless, this 
pilot has enabled Philadelphia to verify information on API entries on-
line, and has resulted in approximately 50 less telephone calls to CDER 
seeking this information. Based on the success of this pilot program, 
the Agency is planning to expand this pilot program in stages until it 
provides nationwide EES access to all import inspectors.

Enhancing Analytical and Forensic Methodology to Analyze APIs
    It has been observed that counterfeiters are becoming more 
sophisticated with respect to the counterfeiting of labeling, 
containers, seals, and documents. Therefore, to detect counterfeit APIs 
it will be necessary to conduct forensic analysis of the API.
    The FCC continues to improve its ability to detect counterfeit APIs 
by enhancing its expertise, forensic methodologies, and 
instrumentation. Numerous APIs have been collected and chemically 
fingerprinted. Last year, based in part on these types of analyses, 
special targeted inspections were conducted in China, which resulted in 
one firm being placed on import alert and warning letters being issued 
to two others.

Develop a Strategy for Inspection of U.S. Import Agents and Brokers
    The Agency is currently inspecting these facilities on a ``for 
cause'' basis in response to leads it receives about specific 
importers. A proposal to begin inspecting these facilities on a routine 
basis is in the FY 2001 workplan.
    In addition, FDA has already established a broker/filer evaluation 
program to audit the integrity of data submitted by customs brokers. 
These programs have encouraged import filer compliance, and FDA is 
hopeful that planned enhancements to these programs will provide 
additional intelligence and subsequently increase enforcement actions 
in the areas of counterfeit and unapproved drugs.
Targeted Collection and Testing of Selected Imported APIs
    As described above in the discussion of FIWG actions, despite 
increased sampling and testing of foreign produced bulk pharmaceutical 
chemicals and finished dosage forms, very few problems have been 
detected. Changes have been made to our sampling strategy as a means to 
address these concerns.

Import Alerts
    The sheer volume of imported products precludes the Agency from 
physically examining every entry into the U. S. Therefore, other tools 
must be used to help control the entry of products where historical 
data suggests products are likely to be violative. One approach the 
Agency has taken is to use Import Alerts as a means to disseminate 
information to interested parties regarding problems with imported 
products. Import alerts have been made available on FDA's website. 
These alerts can be used to identify problem commodities, problem 
shippers, or problem importers, in addition to providing guidance for 
import coverage. An alert may cover an individual manufacturer, 
supplier or a particular product from an entire country. As a follow-up 
to an inspection, import alerts may also issue where it is determined 
that a manufacturer is in violation of cGMPs and the firm's status is 
determined to require ceasing distribution in the U. S. These products 
can be detained without physical examination or analysis because there 
is a violation of the FD&C Act.
    The counterfeit drug initiative working group was disbanded last 
year. While counterfeit drugs continue to be an issue of concern, it 
was determined there was no specific need for a Commissioner's Office 
initiative and that ORA and the Centers are the appropriate components 
to manage the potential for counterfeit products as part of their on-
going workload.

Challenges
    Building and maintaining a strong the regulatory framework and 
tools to address the entries from foreign countries is complex, and the 
Agency needs to have the flexibility to change as the global market 
changes. A healthy regulatory and enforcement system requires 
significant staff and resources, staff expertise, scientific 
methodologies and the tools to conduct testing, information systems, 
and access to information via established networks with both other 
countries and the industry.
    While FDA has done much in the past few years to address both the 
general challenges in having a strong and viable foreign inspection 
program and the specific tools needed to combat counterfeit drugs, 
clearly more can be done. We look forward to working with you as we 
continue to strive to provide the protection the American public 
expects and deserves.
    I would be happy to answer any questions you might have.

    Mr. Upton. Well, thank you. As you may know, we are now 
going to have questions, and I am going to try to keep strict 
time with our questions. I am sure we will do a couple of 
rounds, 5 minutes apiece, and we will alternate between sides, 
Republican and Democrat. The clock is now running.
    As you talked about in your statement--I guess the thing 
that grabbed me the most in your statement was that a number of 
us in the Congress, particularly this committee, have asked for 
more action taken. It seems as though a basic instinct would be 
that if, in fact, one of our domestic pharmaceutical 
industries, if they actually came upon tainted compounds coming 
into the country, that the first, the very first thing that you 
all ought to be required to do is to, in fact, go after the 
source, inspect it and take corrective action, whatever it may 
be, so that it never happens again.
    Admittedly, the task is large: thousands of companies 
around the world sending tons of stuff into this country, 
without even an inspector, at virtually every port; the 
documentation coming in so that you don't even know necessarily 
that it is going to a pharmaceutical company, but instead it is 
a supplier--it is a middleman, it is going to some warehouse 
and not necessarily being traced beyond that.
    But your statement at the end, that Mr. Dingell and Mr. 
Klink--and I would add Mr. Upton and Mr. Burr and Mr. Bliley 
and others--would think that one of your first requirements 
would be that if one of those pharmaceutical companies 
identified a bad supply coming in, you ought to have the 
requirement to be notified so that you can go find the source.
    Now, that's been out there for, what, a year? Why wouldn't 
that be an immediate source of review, particularly in light of 
your comment today, which I have a copy of, which you probably 
read in the Wall Street Journal. It says the FDA was taken 
aback by numbers; the Commerce Committee had specifically asked 
the Agency to check its computer records for the number of 
foreign drug manufacturers that hadn't been inspected. When the 
answer came back as 4,600, FDA officials conceded that they 
were surprised, and then you are quoted as saying, ``Surprised 
is probably an understatement. Concerned, definitely, and we 
are on it.''
    Well, if you are on it, you should make it incumbent upon 
our manufacturers to say they have got some bad stuff, can you 
do something about it. Yet you haven't even taken up the first 
step, marching down the field, of saying you have got a 
requirement to tell us where it is coming from.
    Knowing that your staff is limited to do inspections in 
other countries--and, you know, you look at the numbers that I 
cited in my testimony, India and China and other places as 
well; and we showed documents of bad things happening--why 
isn't that the first thing that would come to your mind?
    Mr. Baker. It is difficult to explain why that wouldn't 
come to mind. It probably is because we look at the overall 
bulk product from the standpoint of contaminants and so forth: 
Is there some reason for rejection by the manufacturer other 
than counterfeiting?
    Mr. Upton. That ought to be your first line of defense. If 
Merck or Pharmacia--Upjohn or any major company, with all the 
different things that they do and they are certainly committed 
toward safety from top to bottom, they ought to be your front-
line defense in terms of what is going on. To not even require 
them to notify you when something comes in--you know, the 
pictures that I showed earlier on of the counterfeit supply and 
the one that's traditional.
    Let's say that was an epilepsy drug and one of them works 
and one of them doesn't. One of them is going to an individual 
who will have a seizure and perhaps die and the other one is 
going to be okay. I mean, these are life-and-death decisions, 
and we have to trust you all to make sure that it is done 
right.
    We see this sad case of what happened in Haiti. My sense is 
that we have got some other problems that have occurred in this 
country, maybe not--without the headlines, maybe we don't know, 
but someone has got to have that Good Housekeeping Seal of 
Approval which you have. To me, the most basic thing is when 
someone is suspected of sending something in, that somebody is 
on top of it.
    Mr. Taylor. Mr. Chairman, I agree with everything that you 
have said.
    Mr. Upton. I have to swear you in now. You should have 
probably stood up when we did this in the beginning. But if you 
would identify yourself again for the record.
    Mr. Taylor. My name is John Taylor and I am the Acting 
Director of the Office of Compliance at the Center for Drug 
Evaluation and Research.
    Mr. Upton. If you would stand, I will swear you in.
    [Witness sworn.]
    Mr. Upton. You are now sworn in as well.
    Just in a minute, time is gone, but if you would give an 
answer and then we will continue to rotate.

     TESTIMONY OF JOHN TAYLOR, ACTING DIRECTOR, OFFICE OF 
COMPLIANCE, CENTER FOR DRUG EVALUATION AND RESEARCH, U.S. FOOD 
                    AND DRUG ADMINISTRATION

    Mr. Taylor. Okay. Right now, as a part of the GMP 
regulations--those are the quality control and quality 
assurance regulations that dictate how pharmaceutical products 
are supposed to be manufactured to ensure their safety and 
efficacy--the manufacturer is supposed to determine whether or 
not the bulk product they are getting is from the approved 
supplier. So they are supposed to have in their files 
information regarding the bulk products that they are getting. 
If they run an analysis and it determines that there are 
impurities or that the product is subpotent, that information 
is supposed to be in their files; and as a part of our GMP 
inspections, we are looking at that and have access to this.
    Mr. Upton. I know you have access to it. The question is, 
if you have got the red flag that's up there, why aren't they 
required to tell you, so that you can take action like that, to 
go after them to make sure it doesn't happen again versus, oh, 
it is--you know, it is the third year of our inspection 
process, and here we are, and maybe we find it and maybe we 
don't, and--you know?
    Mr. Taylor. I agree with you. That's the reason why I think 
it is a good idea because it gives us the opportunity on a 
real-time basis to have information regarding whether or not a 
product that is received is of poor quality; and instead of 
waiting between our regulatory inspections to discover that 
information, this gives us an opportunity to do regulatory 
follow-up right away, whether it be civil or criminal. So I 
think it is a very good idea.
    Mr. Upton. Well, why can't we get it done? This has been 
before you. Again, I know Mr. Dingell is not here, but it has 
been before you for more than a year. He is not exactly a 
silent individual. He usually carries a big stick.
    Mr. Taylor. I do think we should follow up and we should 
follow up on it quickly. I know the idea was brought up before. 
I apologize for the fact that we did not run with it, but we 
think it is a good idea, and we are prepared to run with it and 
offer it. What we want to do is find the right place in the 
regulations where it should fit.
    But that's something we think is a good idea and will help 
us.
    Mr. Upton. Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman.
    Mr. Baker, if I may, if you would bear with me for a 
minute, I would like to ask you a question or two, and I 
appreciate your help in fully understanding this issue and a 
related issue.
    First, I understand the tremendous strain that the 
implementation of the 1997 FDA Modernization Act has put on the 
resources of the FDA. However, this issue before the committee 
disturbs all of us here today. When I couple this issue with 
the other information I have been given on another potential 
drug safety concern, I am perplexed.
    Mr. Baker, are you aware that some pharmacies are importing 
nonpharmaceutical-grade radioisotopes and illegally 
manufacturing and selling radioactive diagnostic drugs under 
the guise of the practice of pharmacy?
    Are you aware of that going on?
    Mr. Baker. I will defer to Mr. Taylor on that. We do have 
information on that, yes, sir.
    Mr. Taylor. Yes, sir.
    Mr. Stupak. How have you responded then to the concerns of 
the legitimate manufacturers whose FDA-approved drugs are being 
copied by these pharmacies, since they have brought this 
problem to your attention about a year ago?
    Mr. Taylor. Well, my response would be, the Modernization 
Act obviously carved out some exceptions for compounding. For 
example, the fact that you don't have to register as a 
manufacturing facility, you don't have to follow GMPs; but that 
same exception was not carved out for radiopharmaceuticals.
    Mr. Stupak. So there is no exception for them?
    Mr. Taylor. Right. As a result, radiopharmaceutical 
manufacturers still have to register with the Agency.
    Mr. Stupak. Right.
    Mr. Taylor. And still have to follow good manufacturing 
practices.
    Mr. Stupak. You admitted a year ago they brought this to 
your attention, right? I have some letters here from June 1999, 
August 1999, May 12, 2000 to a Lana Ogram. Have you succeeded 
her in that office now?
    Mr. Taylor. Well, she actually works for me.
    Mr. Stupak. Okay. In the Office of Compliance, right?
    Mr. Taylor. Yes.
    Mr. Stupak. So they work for you. So if it is your policy 
then to ensure that patients are protected from potentially 
unsafe and ineffective drugs, why has no one responded in the 
last year to the concerns brought forth by these manufacturers?
    Mr. Taylor. Well, sir, I have been there 6 weeks, and when 
I first arrived, I realized that these letters were before the 
office. And we are preparing responses, not only to letters 
that we have received from manufacturers about 
radiopharmaceuticals, but also letters we have received from 
compounders seeking clarification on our policy.
    Mr. Stupak. I realize you have been there for 6 weeks. You 
said this lady, Lana----
    Mr. Taylor. Lana Ogram.
    Mr. Stupak. [continuing] Ogram works for you, right?
    Mr. Taylor. Yes.
    Mr. Stupak. So has she followed up with these people?
    Mr. Taylor. Well, I know that we have drafted responses 
that are now before our attorneys and are ready to go out. She 
has spoken to some of these people. We have actually done, 
quite frankly, some investigatory follow-up to investigate some 
of the allegations that are in the letter, and some of that is 
actually ongoing right now.
    Mr. Stupak. Okay.
    Mr. Taylor. So we think there will be further steps in the 
future.
    Mr. Stupak. If you would, after this hearing sometime, and 
in the real near future, could you get with us? Because I would 
like to follow up more on this detail.
    Mr. Taylor. Sure.
    Mr. Stupak. If you are doing something, we want to know 
what it is, so we can get back to these folks. I want to follow 
up that part of it. I am really interested in this very serious 
allegation here.
    They use the radioisotopes, I am sure you know, for very 
serious illnesses and diseases and for detection, and I just 
want to make sure we are doing all we can so those who are 
faced with a serious injury are getting the best possible 
coverage.
    Mr. Taylor. Sure.
    Mr. Stupak. Mr. Baker, if I can jump back to you then, in 
June 2 correspondence to this committee, you reported that--and 
I am quoting--``The number of foreign drug manufacturers that 
have shipped to the U.S. but have never been inspected by the 
FDA is approximately 4,600.'' You go on to say, in a quote 
again, ``The number of such firms located in China is 623 and 
the number located in India is 409.''
    Mr. Baker, isn't there evidence that both China and India 
have had significant problems with drug counterfeiting in the 
past?
    Mr. Baker. Yes.
    Mr. Stupak. Okay. What can you tell us about the 623 firms 
located in China that are apparently shipping or have shipped 
to the U.S., but have never been inspected?
    Mr. Baker. Right now, we are going through the entire 4,600 
list. That's one of the things that I instructed the staff to 
do. I wanted answers, and I wanted answers right away. We 
should have some basic information on anyone that is shipping 
into the country.
    One of the things we are dealing with here is, a lot of 
these APIs may have been entered and then they would be in the 
system as entered from an API source, but it goes to a 
nonpharmaceutical source. So we are looking at the issues 
associated with those entries right now.
    Mr. Stupak. Okay. Do you know if any of the 623 Chinese 
firms mentioned above are tier 2 or tier 3 firms? Do you know?
    Mr. Baker. Yes, they may be, certainly.
    Mr. Stupak. Okay. Do we know if they meet all the current 
good manufacturing practices?
    Mr. Baker. No, we don't.
    Mr. Stupak. We don't know that. Okay.
    So we should be concerned then, without that knowledge, 
about products some of these companies are shipping here to the 
U.S. then, right?
    Mr. Baker. Yes, sir.
    Mr. Stupak. Okay. What about the Indian firms, the 409, are 
they tier 2, tier 3?
    Mr. Baker. Yes, sir, I am sure they are.
    Mr. Stupak. Again, we don't know if they are--the current 
good manufacturing practices, we don't know if they follow that 
standard?
    Mr. Baker. That's correct, sir.
    Mr. Stupak. Okay.
    You indicated in your statement that you appreciate the 
support of Congress, and then trying to do your investigation, 
and I mentioned in my opening statement that--what are the 
resources you need? If we are not providing you sufficient 
resources, what exactly do you need to really get at this 
issue?
    I am hearing here this morning already that letters are 
about a year old; they are not being answered; attorneys are 
looking at them; we don't know if these Chinese or Indian firms 
are following. What do you need specifically to really enforce 
this, to correct some of these problems?
    Mr. Baker. A combination of things. Obviously, part of the 
solution would be the FTEs to do a better job of inspecting. It 
is also having that comprehensive and linked computer system to 
adequately assess data to make sure that we are able to 
quantify information that's coming in. We are trying to pull it 
now from several independent data bases. It is not an efficient 
system.
    Then, obviously, we need a targeted approach to criminal 
investigations, both through our Forensic Chemistry Center and 
our Office of Criminal Investigations.
    Mr. Stupak. Can I ask you one more--if I may, Mr. Chairman?
    Do you know now if any of this material is being sold 
through some of the Internet Web sites to U.S. citizens that's 
already counterfeited drugs or are substandard drugs?
    Mr. Baker. I am not aware of that, no, sir.
    Mr. Stupak. Okay.
    Have you done a review of it, a screening?
    Mr. Baker. We have done some purchasing of products offered 
on the Internet, and we have done some analytical work 
associated with those products. Thus far, the products have 
proven to be mostly from domestic suppliers. But then, given 
the scope of the Internet, the number of places potentially 
offered and our ability to analyze, I wouldn't rule out that 
being a problem; just simply, we haven't uncovered it at this 
point.
    Mr. Stupak. You said they were from U.S. products, but when 
we had our hearing on the Internet sales, most of the Web sites 
are from other countries. Very few are from the U.S. So have 
you checked any of the Web sites that are located----
    Mr. Baker. We have been checking Web sites, yes, sir.
    Mr. Stupak. Because most of those are not U.S. products; 
they are other countries.
    Thank you, Mr. Chairman.
    Mr. Upton. Mr. Burr.
    Mr. Burr. Mr. Baker, does the FDA believe that Americans 
have died or been injured because of counterfeit or unapproved 
bulk ingredients?
    Mr. Baker. We have information that there were certainly 
injuries associated with counterfeit products, yes, sir.
    Mr. Burr. Is that answer yes?
    Mr. Baker. Yes, sir.
    Mr. Burr. Mr. Taylor, you work in what capacity at the FDA?
    Mr. Taylor. I am the Acting Director of the Office of 
Compliance.
    Mr. Burr. Would the Office of Compliance come under the 
Office of Regulatory Affairs?
    Mr. Taylor. No. I report to the Director of the Center that 
approves drugs; I report to Dr. Woodcock. We are peers. We are 
a sister organization of Mr. Baker.
    Mr. Burr. Okay.
    Mr. Baker, I understand that on Monday you met with the 
committee staff.
    Mr. Baker. That's right.
    Mr. Burr. At that meeting, the staff presented you with a 
confidential report on counterfeit and fraudulent practices in 
the bulk drug industry. You said, if I understood them 
correctly, you had never seen that document; is that correct?
    Mr. Baker. Yes, sir.
    Mr. Burr. Well, my understanding is that the Office of 
Criminal Investigation, which reports to you, had a copy of 
this report, but didn't share it with you, even in your 
preparation for this hearing. Is that correct?
    Mr. Baker. I did have it in preparing for this particular 
hearing today.
    Mr. Burr. Why wasn't it shared with you if they report to 
you and you are in charge of this?
    Mr. Baker. The information was shared with me. I didn't 
recognize the document as it was presented to me. The basic 
information was shared with me in February 2000. At that point, 
I allocated funds to do some targeted inspections and 
analytical work associated with APIs and importers.
    Mr. Burr. Is there a communications problem at the FDA?
    Mr. Baker. No, sir, I don't believe so. I think we have got 
good communications across the various programs.
    Mr. Burr. Let me ask you about a memorandum that we entered 
into the record. It was a memorandum from Carl Nielsen. I 
believe he is the Director of Import Operations. I believe you 
appointed him. Is that correct?
    Mr. Baker. Yes, sir, that's correct.
    Mr. Burr. It was a memo from him to Frank Forgon?
    Mr. Baker. Forgione.
    Mr. Burr. Forgione. Excuse me.
    This is on counterfeit imported human Rx bulk drugs. In 
this memo, Mr. Nielsen states, ``It appears there have been 
deaths associated with the use of generic prescription drugs 
made from counterfeit bulk drugs supplied by Flavine.''
    Is that the documentation that you were referring to when 
you said the FDA believed that, in fact, Americans had died?
    Mr. Baker. That actually was referring to that 
documentation and then to adverse events that have been 
associated with some of them.
    Mr. Burr. So is there more than this memo that would 
suggest that there is a health problem?
    Mr. Baker. I don't know that I can answer that without 
looking at a number of documents to see what we have.
    Mr. Burr. Well, I would hope that your staff, in 
preparation for this hearing, would have at least shared with 
you the documents that existed that might deal with deaths that 
had occurred from contamination or counterfeiting of drugs.
    You believe that that is taking place?
    Mr. Baker. Well, we have certainly investigated a number of 
deaths and injuries associated with counterfeit drugs and 
allegations of counterfeit drugs, yes, sir.
    Mr. Burr. He also observed in this memo--let me read it, 
and I quote--''There is, in effect, little or no FDA control of 
bulk drugs coming into this country, and there is currently no 
ongoing enforcement action to serve as a meaningful deterrence 
to the trafficking and use of counterfeit or unapproved bulk 
drugs.''
    Have you read that statement?
    Mr. Baker. Yes, sir.
    Mr. Burr. Is that the case?
    Mr. Baker. At this time, we do not have a specific 
enforcement action going on. We do have investigations open.
    Mr. Burr. Can you share with me what the date of this 
memorandum was?
    Mr. Baker. August 1996, I believe.
    Mr. Burr. May 15. Of what year?
    Mr. Baker. I am sorry, 1996.
    Mr. Burr. Okay. It has been 4 years since this revelation 
was made at the FDA. How long should we wait?
    Mr. Baker. I don't think we should wait. We have to be 
proactive, and that's what we are attempting to do now is, be 
proactive and identify----
    Mr. Burr. How long have you been in your capacity?
    Mr. Baker. About a year.
    Mr. Burr. About a year?
    Mr. Baker. Yes, sir.
    Mr. Burr. So I can't date back to 1996 and ask you from 
1996 to a year ago why something didn't happen. That is unfair. 
But clearly the FDA, in their own memoranda, knew in 1996, May 
15, that they had a problem; they had a problem and they had 
deaths.
    What has happened since you have been there that assures 
this committee that this is not continuing?
    Mr. Baker. Our ongoing efforts to improve the overall 
processes.
    Mr. Burr. What are those efforts? What are those 
improvements?
    Mr. Baker. Well, some of them we just covered in my 
testimony.
    Mr. Burr. Those are in response, I believe, to the fact 
that Congress now has this on their front burner, that John 
Dingell and Bart Stupak and Ron Klink and Fred Upton and Tom 
Bliley are concerned with this and we have come up with a 
series of things that we are going to run to the Hill and 
present. This is 1996, Mr. Baker.
    Mr. Baker. Yes, sir.
    Mr. Burr. What initiatives happened before Congress got 
interested in the deaths of Americans and the counterfeit of 
drugs and the contamination of bulk drugs coming into the 
country?
    Mr. Baker. Well, one of the initiatives that occurred 
before I knew this was going on was in February of 2000 when I 
directed the funding of the initiative out of our Forensic 
Chemistry Center to do specific, targeted inspections and 
sampling and analytical work at specific import sites.
    Mr. Burr. I hope you understand my frustration.
    Mr. Baker. Yes, sir, I surely do.
    Mr. Burr. And this is today's news article, and the 
chairman has already referred to it, when your quote is, 
``Surprise is probably an understatement,'' surprise that there 
are so many entities out there that are uninspected.
    Gosh, 4 years ago; a year ago you came in, we are still in 
the mode where we are surprised? I am hopeful that through this 
hearing you will understand the urgency of a solution to this 
problem.
    Mr. Baker. Yes, sir.
    Mr. Burr. Mr. Chairman, I yield back.
    Mr. Upton. Mr. Strickland.
    Mr. Strickland. Thank you, Mr. Chairman.
    Mr. Baker, much of the inability to detail precisely who 
these foreign firms are, when they were last inspected, whether 
they are manufacturing in accordance with current good 
manufacturing practices and so on, is because of an information 
technology problem.
    The FDA has a multitude of data bases that don't properly 
interact with each other; is that correct?
    Mr. Baker. Yes, sir, that is correct.
    Mr. Strickland. Isn't that mainly the problem with the 
OASIS system, or are there other systems who are at fault here?
    Mr. Baker. There are several systems that interact, that we 
use information from, in order to make assessment of products. 
In addition to the OASIS system, which is the entry system for 
FDA, where we actually have items come in on a screen and our 
people look at the items for approval of entry into the United 
States, we have a FACTS data base which is our data base which 
covers foreign establishments and domestic establishment 
inventory. That latest upgrade came on-line last September. We 
are developing the data base there.
    The OASIS system feeds information into the FACTS system; 
as an example, whenever a firm offers a new product for entry 
into the United States, it automatically updates FACTS with the 
information that this is a new manufacturer, and it creates an 
FEI, Federal Establishment Number, there.
    Mr. Strickland. Okay. The FDA obviously has had problems 
for years with these foreign inspection data bases. You have 
apparently been telling this subcommittee--I am fairly new to 
this subcommittee, but I think you have been telling this 
subcommittee for years that the problem is soon to be fixed. So 
I guess a fair question to ask you would be, when is it going 
to be fixed?
    Mr. Baker. We are making efforts at this time to go to a 
Windows-based environment. I have been advised that that will 
be in place by the end of 2001. That way we will be able to 
work better across the data bases structurally.
    In addition to that, I have asked--I beg your pardon?
    Mr. Strickland. I am sitting here thinking, when you said 
the end of 2001, I am thinking we could plan, execute, carry 
out, conclude a war in that length of time. It just seems like 
an unreasonable period of time. Is it impossible for you to 
accomplish this sooner than the end of 2001?
    Mr. Baker. Well, our Chief Information Officer basically 
drives the structure of the information systems within FDA. I 
don't have a good answer for you why it would take that length 
of time.
    Mr. Strickland. I would like to yield to my colleague.
    Mr. Stupak. On this IT problem----
    Mr. Baker. Yes, sir.
    Mr. Stupak. On this IT problem, can you get back to this 
committee within a month and tell us formally what you are 
going to do and how it is going to be fixed and what needs to 
be done to fix it?
    Mr. Baker. Yes, sir.
    Mr. Stupak. This has been going on for some time. I 
certainly agree with my colleague here that the end of 2001 
just doesn't seem right.
    I would think that within 30 days you could come back to 
this committee, under the chairmanship of Mr. Upton, and tell 
us exactly what you are going to do, what has to be done, how 
we do it--and hopefully it is not going to be 2001--in writing.
    Mr. Baker. Very definitely, yes.
    Mr. Stupak. Thanks for yielding.
    Mr. Strickland. Yes. And if you can't do it, you need to 
come back and tell us you can't do it and why you can't do it. 
That seems to be a fair request on our part.
    Mr. Baker. Yes, sir.
    Mr. Strickland. Mr. Baker, does the FDA have a timetable--
well, the 2001, that's your current timetable, the end of 2001?
    Mr. Baker. That's for the overall architecture of the 
system to be completed and carried out across the Agency, on 
the wide area network.
    Mr. Strickland. That's the architecture. That doesn't 
mean----
    Mr. Baker. Individually, it doesn't----
    Mr. Strickland. I assume architectural plans, but does that 
mean that there would be--even under your current plans, that 
this would be accomplished by the end of 2001?
    Mr. Baker. I have been advised that it is due to be 
accomplished by the end of 2001. That doesn't mean we can't do 
some things with our current systems, which is what I am 
proposing here today, and the information I gave you in some of 
my oral testimony of things we are going to do--we are going to 
do immediately.
    Mr. Strickland. Mr. Baker, what percentage of the bulk raw 
material used to manufacture these drugs globally would you 
consider to be counterfeit?
    Mr. Baker. I don't know that I can quantify that, the 
amount that may be counterfeit, of a global nature. I have seen 
reports from WHO and others that indicate it could be quite 
high, 50 to 70 percent.
    Mr. Strickland. Fifty to 70 percent? And then there may be 
other of these drugs that are substandard, or in other ways 
adulterated; is that correct?
    Mr. Baker. Yes, sir.
    Mr. Strickland. Which countries are the most problematic 
when it comes to selling these substandard counterfeit bulk 
ingredients?
    Mr. Baker. There are quite a few countries that have been 
discussed. Specifically, we have had problems with China and 
India, in fact.
    Mr. Strickland. So you would say China and India would be 
near the top of the list if you were making a judgment on that?
    Mr. Baker. Certainly they would be on the list, yes, sir.
    Mr. Strickland. What countries are the most problematic, in 
your judgment, when it comes to selling substandard or 
counterfeit finished products, not the bulk materials, but the 
finished products?
    Mr. Baker. I don't know that I would have a good answer for 
you there because the capability in any number of countries is 
such that they can market counterfeit drugs. It is an ongoing 
problem. We even see it from Mexico.
    Mr. Strickland. One final question, Mr. Baker, and perhaps 
this has already been asked; I am not sure.
    But in your judgment, should the FDA require that all U.S. 
firms that import raw pharmaceutical ingredients certify in 
writing that each of their sources meets current good 
manufacturing practice requirements; and, if not, why not?
    Mr. Baker. Right now, we do require that they provide a 
certificate of analysis or they have ongoing records, 
laboratory records, to indicate that the product meets the 
standards for manufacturing in accordance with the approval of 
their product.
    Mr. Strickland. But you have told us that you can't know 
for sure if these firms meet current good manufacturing 
practice requirements. Apparently, that is a particular 
standard that is a recognized standard.
    Would it not make sense to require these firms to provide 
you with assurance in writing that the materials they are using 
have been manufactured under these conditions?
    Mr. Baker. That may be helpful. I will defer to Mr. Taylor 
here, but I will say that they are required to, by laboratory 
analysis, demonstrate that the products are meeting a standard 
of purity there.
    Mr. Strickland. But not necessarily meeting the standard of 
current good manufacturing practices? Is that right?
    Mr. Taylor. Well, I just want to expand on his answer.
    For prescription drugs, as a part of the approval process, 
when an approval packet is submitted to the Agency, one of the 
pieces of information that also must be submitted is the name 
of the supplier of the bulk product, essentially the active 
pharmaceutical ingredient. When that information is provided to 
the Agency, the Agency is then required to go to that facility 
and inspect to determine whether or not they are in compliance 
with good manufacturing practices. If they are not, then not 
only does the approval not move forward, they are not allowed 
to import that product into the United States. That's for 
prescription drugs.
    Now, obviously we have talked today about the fact that 
there are some facilities that we don't know about and we have 
to do a better job with that; and some of those facilities 
might be supplying materials for over-the-counter products, 
which would not fall within this preapproval rubric.
    But my point is that they are supposed to be in compliance 
with GMPs. They are supposed to provide that information to the 
Agency about the compliance with GMPs so that we can go out and 
make sure that their statements are correct.
    Mr. Strickland. Thank you, Mr. Chairman.
    Mr. Upton. Mr. Bryant.
    Mr. Bryant. Thank you, Mr. Chairman. And we are going to 
have to be subject to leave here and vote, and I want to be 
very brief in my questioning.
    Understanding that you have only been in your position a 
year, I mentioned in my opening statement my concern about 
not--since 1996, not coordinating with Customs. And perhaps you 
could, if you don't know the answer as to why that's not 
ongoing, you could later file a letter as an exhibit to your 
testimony with an explanation as to why that's not being done; 
and hopefully, maybe, some indication that your office might 
reconsider that. Is that fair?
    Mr. Baker. Yes, sir.
    Mr. Bryant. Now, in your position, are you the person that 
has the authority to control the agents out in the field, the 
ones at the places of entry in this country and wherever else 
you have investigators trying to work on this problem of 
counterfeit bulk drug imports?
    Mr. Baker. Yes, sir.
    Mr. Bryant. You are the person responsible?
    Mr. Baker. Yes, sir, the field operations report to me.
    Mr. Bryant. Now, where does Mr. Taylor fit into this with 
you? If you could be brief.
    Mr. Taylor. Sure.
    I head the Office of Compliance within the Center for 
Drugs. The Center for Drugs is a sister agency within FDA, and 
we help ORA determine whether or not a specific manufacturer or 
a specific product is in compliance with Federal law.
    Mr. Bryant. Okay.
    Now, Mr. Baker, is your job 100 percent dedicated to this 
particular problem, or do you have other responsibilities in 
the area of regulation?
    Mr. Baker. We regulate all foods, drugs, medical devices 
and cosmetics, and the attendant problems associated with 
those. So we cover the spectrum.
    Mr. Bryant. Do you have somebody in your office whose job 
it is to be 100 percent dedicated to this particular problem of 
importing counterfeit bulk drugs?
    Mr. Baker. No, sir.
    Mr. Bryant. Where I am going with this is trying to find 
within the scheme, the chain of command, who can come in here 
and we can complain to. We have got a lot of responsibilities 
and we cover the land up here. We expect people like you, or 
whoever in your office is in charge of this problem, dedicating 
100 percent of their time and assets to that to do a better job 
in this situation; and it is not happening.
    So every year or two we have to drag you folks in and gripe 
and moan at you; and then nothing seems to happen, particularly 
in this case, since we are going back to 1996.
    I am just wondering, if that was my job, 100 percent of the 
time, to make sure that we have enough agents out there at the 
ports and doing these inspections and operating the computers 
so that the data bases can come together and maybe working with 
other agencies like the Customs to do this, that's who I want 
to know.
    Whose job is it to do that? Because obviously they are not 
doing a good job. And if we could get those people motivated, 
maybe we wouldn't have to do this, you know, devote our time to 
this oversight.
    Mr. Baker. We do have a Director of Import Operations. 
That's Mr. Carl Nielsen, as they mentioned earlier, and that 
covers our import activities. Our foreign inspections are 
covered another component within ORA. There is ongoing 
communication between those.
    Mr. Bryant. I would like to know if Mr. Nielsen is 
concerned with the fact that of the 310 points of entry we have 
only got 68 full-time equivalents in the field. And I am sure 
that--at the 68 that are covered, I am sure we have several at 
one location, so probably more than----
    Mr. Baker. Actually, sir, that's the way they set it out, 
based on funding. We have about 254 people in the field 
reviewing all FDA-regulated products. About a quarter of their 
time is spent reviewing drug imports, and so that's where the 
68 came out as an FTE figure. We actually have about 254 people 
in the field.
    Mr. Bryant. I am going to read you a couple of quick 
questions because my time is running out, and we have got a 
vote. You can again late-file your answer to these.
    Would you favor assigning agents from the Office of 
Criminal Investigations or other FDA personnel to post in Asia 
and Europe for the primary purpose of gathering information in 
support of this counterfeit drug initiative?
    Second, has the FDA considered a joint FDA industry effort 
to develop a program to eliminate counterfeit bulk drugs?
    Third, would you favor developing new systems within the 
FDA to identify counterfeit drugs and other unapproved or 
illegal drugs that enter the country?
    Fourthly, does the FDA favor exploring new technologies to 
help ensure the safety and security of our drug supply, such as 
tagants and drugs on containers or labels.
    And finally, this is important, what in your opinion can 
this committee or Congress do to approve your ability, the 
FDA's ability, to further assess the problem and investigate, 
interdict and control counterfeit drugs?
    If you could maybe get a copy of this testimony and answer 
those specific questions, as well as this issue of the Customs, 
I would appreciate it very much.
    Mr. Baker. Yes, sir.
    Mr. Upton. I would just note that we do have about 5 
minutes left in the vote, so we will temporarily adjourn here 
and we will come back at 12:45.
    [Brief recess.]
    Mr. Upton. Welcome back. We are not expecting a vote for a 
couple of hours, but I don't expect this subcommittee hearing 
to go on for a couple hours more either. So I think we will be 
okay in terms of the timing.
    I know a couple of members are on both sides of the lanes 
here, and again we have other subcommittees within our 
committee meeting, and many of us are on multiple committees. 
And we have an important piece of legislation on the floor; I 
know that I have an amendment that will be up a little bit 
later this evening as well.
    Mr. Baker, I don't know if you saw this article a couple of 
weeks ago, it was in Dickinson's FDA Webview. There is an 
article entitled ``Counterfeit Bulk Drugs Not a Health Issue 
for United States, FDA Says.''
    The article went on to say that ``Counterfeit bulk drugs 
entering the U.S. are not a public health problem for this 
country, FDA Center for Drug Evaluation and Research Director 
Janet Woodcock told FDA Webview yesterday.'' The article went 
on to further say that Woodcock said that ``Counterfeit APIs 
have a low priority at FDA because U.S. manufacturers have not 
expressed heightened concern about them and finished dosage 
form makers are the ones responsible for assuring the integrity 
of drugs sold in the United States.'' All of that being in 
quotes.
    What is your reaction to the statements attributed to Ms. 
Woodcock? Are they accurate?
    Mr. Baker. Well, Mr. Chairman, I would have to say, 
obviously we believe there is a counterfeit problem, both in 
this world and potentially within this country. We have had 
problems quantifying that, obviously.
    What I think Dr. Woodcock was speaking to was simply the 
controls within the domestic supply whereby the manufacturers 
are doing heightened testing and certificates of analysis 
associated with the products. So I don't believe she was saying 
that coming into the country, that this may not be a problem. I 
think she was saying--addressing the domestic supply.
    Mr. Upton. Now, you all, as I understand, agreed to spend 
some money to investigate this; is that right?
    Mr. Baker. Yes, sir.
    Mr. Upton. How much money was that that you----
    Mr. Baker. The recent one was $59,000 for purchasing of 
products for analytical work.
    Mr. Upton. Tell me exactly what the money was to be used 
for. I mean, what was the money supposed to do?
    Mr. Baker. We are going to be targeting specific importers, 
particularly those that have a heightened profile for importing 
and distributing counterfeit product, plus targeting and 
sampling for analysis and analyzing product that would fit the 
profile of a potentially counterfeited drug.
    Mr. Upton. Are you going to look at India and China as part 
of that?
    Mr. Baker. Yes, sir. Their products would be some of those 
that would be looked at, yes, sir.
    Mr. Upton. All right. When you begin to look into those 
two, and I think it was Mr. Stupak who raised the large number 
of firms over there that, in fact, there are no inspections.
    Are you having trouble with the governments of those two 
countries? What is the access to those facilities like?
    Mr. Baker. We have been provided access to the facilities 
that we have asked to inspect. We do go through the process of 
notifying the foreign government, establishing the travel, and 
then conducting the inspections.
    Mr. Upton. Have you ever been denied access? Is there a 
case where you have been denied access to look at some of those 
firms?
    Mr. Baker. I am not certain. I would have to check. I am 
not aware of it, though.
    It is no. I am told it is no.
    Mr. Upton. It has never happened. According to the June 
1998 gold sheet, William Grosse, quality assurance director at 
Eli Lilly, spoke about the growing threat of counterfeit bulks 
at the meeting of the Drug Information Association. He said, 
``sooner or later, we are going to have a catastrophe'' in the 
United States. He mentioned that the sale of counterfeit 
products worldwide is increasing at a rapid rate. He cited 
figures suggesting that 40 to 60 percent of drug products sold 
in Malaysia and Indonesia, 25 sold in Mexico and 78 percent 
sold in the United States are counterfeit.
    He went on to say that manufacturers are collecting a lot 
of information on the problem but do not have a very good place 
to take it.
    That sort of goes back to my initial question at the 
beginning.
    In light of that article, is Dr. Woodcock's assertion that 
U.S. manufacturers have not expressed a heightened concern an 
accurate one?
    Mr. Baker. They have expressed the concerns to us about the 
overall counterfeit situation. We do have ongoing dialog with 
their security chiefs, and we have routine meetings to discuss 
issues associated with counterfeiting and other problems in the 
drug industry.
    Mr. Upton. Has there been an outcry by the pharmaceutical 
industry that they would like to have you all regulate or get 
an announcement, some notification, information, when, in fact, 
they suspect that they have received tainted compounds?
    Mr. Taylor. Not that I know of, Mr. Chairman.
    Mr. Upton. You know, we thought on this panel that it is a 
wise idea. I am just wondering if they have voiced such support 
independently as well.
    Mr. Taylor. No, sir, and even though I think it is a good 
idea, I am not sure how that good idea will be received. When 
we put the idea out, we are going to have to do so as a part of 
rulemaking, and that will give industry and others an 
opportunity to comment. But I have not heard anything as of 
this date as to whether or not industry likes that idea.
    Mr. Upton. Okay.
    Mr. Strickland.
    Mr. Strickland. Thank you, sir.
    Mr. Baker, how often is the FDA supposed to be inspecting 
foreign firms that export drugs or drug products to the U.S. 
for GMP practices?
    Mr. Baker. Well, it would be great if we could impose the 
same standard on them that we do on our own domestic suppliers. 
The reality of our inspections, is that they are driven by the 
application process, that is, to get a drug approved, and then 
we go to the tiered process after that as a follow-up 
surveillance, or going in for cause.
    Mr. Strickland. What is the practice for our own domestic 
firms?
    Mr. Baker. We try to get in there at least every 2 years, 
more often for cause.
    Mr. Strickland. Two years?
    Mr. Baker. Yes, sir.
    Mr. Strickland. Now, it has been confirmed with your staff 
that there are several incidents where firms, these foreign 
firms that export to us, haven't been inspected by an FDA 
official in at least 7 years. Why is that?
    Mr. Baker. Quite honestly, sir, a good bit of it has to do 
with the resources available to do the overseas inspections.
    Mr. Strickland. Do you think 7 years is too long?
    Mr. Baker. Yes, sir.
    Mr. Strickland. What if a foreign firm makes significant 
changes in their practices during this extended intervening 
period of time between inspections; how would the FDA know such 
changes have occurred if it doesn't inspect more frequently? It 
wouldn't, would it?
    Mr. Baker. No, we may not. They are obligated to tell us 
about any changes in the processes, and hopefully, if it is an 
API firm, the final dosage manufacturer will be notified and 
they will know about any changes.
    Mr. Strickland. What are the implications of these 
infrequent inspections on public health?
    Mr. Baker. Well, again, that's hard to quantify, but it 
certainly would be an at-risk situation.
    Mr. Strickland. So we can reasonably conclude that because 
these inspections are not occurring, that American citizens who 
purchase products which may be made from these imported goods 
are at risk; is that a reasonable conclusion?
    Mr. Taylor. I am not sure we can draw that conclusion.
    Mr. Strickland. Do you conclude that they are not at risk?
    Mr. Taylor. No, I cannot conclude that, either. I think 
that by not having regular inspections at a shorter interval, 
obviously it does not serve the same deterrent effect as if we 
were in there over and over again, but I am not sure I could 
draw the conclusion that negatively----
    Mr. Strickland. Well, if there aren't health and safety 
implications to the inspection process, why have an inspection 
process? And if the inspection process is not occurring in a 
timely manner, it seems very reasonable to be able to say here 
today that American citizens are being placed at risk due to a 
lack of inspection. Is that--I am not trying to be 
unreasonable.
    Mr. Taylor. Right.
    Mr. Strickland. But I don't want us to be fuzzy about our 
conclusions when we don't have to be.
    Mr. Baker. The potential is there, yes, sir.
    Mr. Taylor. That's right, and that's why we have those 
regulations in place in the first place.
    Mr. Strickland. The FDA has clearly defined its resource 
limitations in the area of conducting these GMD inspections on 
foreign firms. What are the limitations, in your judgment, and 
specifically, and if you could be as candid as possible, what 
do you need in order to do an adequate job, what resources? If 
you can name an estimated amount of money or a number of 
inspectors, what is it specifically that you need that would 
enable you to come before us a year from now, and we would all 
be very pleased with what had happened in the intervening 12 
months?
    Mr. Baker. Fine. Right now we have 175 FTEs that are 
available to do foreign drug inspections, that are drug 
inspectors available for foreign drug inspections. I would like 
to add that they also have domestic responsibilities, so they 
have to cover the domestic side as well. We are pulling 
personnel out of the domestic side any time we do these foreign 
inspections. That's one issue.
    Having the IT available, which we have discussed earlier, 
where we can get meaningful data and have it real-time 
available to our inspectors is another issue. When I came on 
board here a year ago, we didn't even have all of our 
investigators equipped with laptop computers, which they are 
now.
    Mr. Strickland. Mr. Baker, I don't see why you just don't, 
if necessary, contract with some firm that has the expertise 
necessary to do this, bring them in and in perhaps 2 months, 
that seems like a reasonable period of time, have this IT 
problem solved. It just seems that this is a problem that 
doesn't need to drag on and on and on.
    Mr. Baker. Absolutely. I totally agree.
    Mr. Strickland. I want to ask you, sir, if you would 
provide to us, and Mr. Chairman, I would like your support on 
this request, if I could have it. It seems reasonable that we 
would ask for a formal plan within 2 months as to how you plan 
to accomplish this, and in that plan, you lay out your problems 
and lay out your lack of resources, if there is a lack of 
resources. That seems like a reasonable request from us, and I 
would like for you to agree today to do that.
    Mr. Baker. We will do that, yes, sir.
    Mr. Strickland. One final question, Mr. Chairman.
    I am intrigued by the problems with China and India, 
especially that have been noted here. Do you know that if China 
was a part of the World Trade Organization, that our ability to 
prohibit them from sending in these materials into our country 
would be inhibited--that our enforcement ability would be 
inhibited because of their membership in the World Trade 
Organization, if we could keep that from happening simply 
because their firms did not meet FDA inspection or approval or 
standard? Could you answer that for me.
    Mr. Baker. I don't know if I can. I don't know what the 
impact is of them entering the WTO and the problems associated 
with GMPs. I don't know. I am not a trade lawyer.
    Mr. Taylor. I don't know the answer, either, but we 
certainly can get back to you with an answer.
    Mr. Baker. Yes, certainly.
    Mr. Strickland. If you would, I would find that very 
helpful, and one further question. Why don't we just decide 
that if a country is engaging in these practices, or foreign 
firms in these countries are engaging in these practices and 
they are identified, that we just simply say we are not going 
to allow business with you in the future?
    Mr. Baker. Well, there are Customs laws and there are also, 
of course, the FDA laws that drive appeal rights and everything 
else associated with entering products into the country, and 
importers, like anyone else, would have their day in court. So 
it would be a difficult situation to stop it out of hand. I 
don't know that anybody has the authority just to make that 
declaration.
    Mr. Strickland. Well, I fear that China's involvement in 
the WTO may make the ability to regulate and enforce even more 
difficult. So if you would get back with me on that issue, I 
would appreciate it.
    Mr. Taylor. Certainly.
    Mr. Baker. Sure.
    Mr. Strickland. Thank you, Mr. Chairman.
    Mr. Upton. Thank you.
    Mr. Baker, in the letter that was sent to Chairman Bliley 
May 31, the FDA says, at this time there are neither specific 
allegations concerning bulk counterfeit drugs nor any concern 
of a systematic problem.
    I want to just refer again to some of these letters, which 
I think you have a copy of. Maybe you can turn them around. You 
will see the same, just so that Mr. Baker can see them.
    This is a fairly clear case, I think you can see, of a firm 
trying to repackage, actually the other letter you will see it 
has the same signature, but they are actually trying to show 
the original source of these compounds to be from West Germany, 
which, of course, would have been prior to 1990--instead of 
coming in from China.
    In light of the poor inspection in China, and this being a 
problem, I just find it difficult to believe that you weren't 
aware of any systematic problem, and that this should not have 
been--or this should have been referred to the IG or to 
somebody who actually could have begun to look into this. I 
mean, we are frustrated on this panel, Republicans and 
Democrats alike, with trying to make sure that, in fact, there 
is a safety net out there. You all have that responsibility. 
Yet, there are literally thousands of companies that we don't 
know about. We saw the well-publicized deaths, the 89 deaths in 
Haiti; your admission that, in fact, we have had problems in 
this country, and just some basic investigatory tools that 
ought to be utilized, it just seems, haven't been done. That's 
our frustration up here. I know I speak for Republicans as well 
as Democrats when I say that.
    We want to make sure that you have the tools, that you have 
the FTEs, full-time equivalents, the people that are in power. 
We want the pharmaceutical companies to be able to tell you 
with 100 percent certainty whether, in fact, the material they 
are getting is safe or not, and not only the big players, the 
Eli Lillys, the Mercks, the Pharmacias, the Upjohns, but the 
generics, too. They make billions of pills for a variety of 
different medicines--whether it be aspirin or a number of other 
things, particularly when the patents expire.
    It seems as though there has been ample evidence, whether 
it is the materials here or others, that, in fact, the FDA 
should have acted on, should have promulgated some regulations, 
should have been able to get some feedback, particularly in 
light of the fact that you admit that there are problems that 
are out there. That's what frustrates us.
    Mr. Baker. Well, we have taken the situation seriously. We 
have initially trained, we have completely trained 30 FTEs, 
specifically in the area of counterfeiting, and we are taking 
that training out beyond that 30. In addition, in July, we are 
going to be doing Customs training with our staff, and the 
Customs Service is going to be instructing on their laws. We 
are going to do some strategic problem-solving and a number of 
other things so that our people are better able to work jointly 
with Customs and can use authorities vested in Customs law to 
get at some of these various counterfeit issues here.
    So we are taking it very seriously. I can tell you we also 
have some frustration and we will move forward with these 
things.
    Mr. Upton. Now we have more port of entries for these 
products than we have inspectors looking out for it, is that 
right?
    Mr. Baker. Yes, sir, that is true. In the instance of APIs, 
though, we have about 90 percent of them going into roughly 8 
to 10 ports. So we are able to concentrate some resources to 
deal with APIs in certain areas, but it doesn't solve the 
overall situation, and as you are aware, we do get APIs in all 
of those ports, although maybe not in large numbers.
    Mr. Upton. As I understand it, as these products come in 
from overseas, they are not necessarily saying they are going 
to Merck or Pharmacia or Upjohn. It is going to ABC warehouse, 
you know ABC trucking firm--I mean, it is going to some, I 
almost want to say ``generic,'' I won't, but perhaps some 
nonpharmaceutical name and once it is there, it is gone, right? 
I mean, you can't really track it, is that right?
    Mr. Baker. It makes it most difficult, yes, Mr. Chairman. 
In fact, we are dialoguing right now to see what our regulatory 
authority is to require the identification of the ultimate 
consignee. That is something we are looking at to see if we do 
have the regulatory authority to do it.
    Mr. Upton. Could you let us know? When do you expect to 
come up with a conclusion to that question?
    Mr. Baker. I hope to have it within the next 3 or 4 weeks.
    Mr. Upton. I think we would like to know what that answer 
will be.
    Mr. Baker. We will be happy to inform you, yes.
    Mr. Upton. Where can we be helpful? What roadblocks do you 
see? I mean, are there some other things that have been 
identified that we have not touched on today?
    Mr. Baker. No, we have done a pretty good job of touching 
on things today.
    Mr. Upton. Yes. This was something I was going to ask. What 
about the ability to get criminal records from law enforcement 
agencies from across the land, across the ocean, from foreign 
law enforcement authorities on Custom brokers?
    Do you have that authority?
    Mr. Baker. We have had good working relationships with a 
number of the foreign entities and have been able to get 
records, but obviously you can't always get records, depending 
on the country.
    Mr. Taylor. Yes. I believe our experience is varied, 
depending on what country we are dealing with. So there have 
been instances where it has been difficult to get that 
information in the past.
    Mr. Upton. What countries have been particularly difficult?
    Mr. Taylor. Well, at one point in time, and this has 
improved dramatically, so this isn't the case today, when we 
were investigating Flavine several years back, we had problems 
with the German authorities sharing information with us. But 
our relationship with them is strong today, and that's no 
longer the case, and we used that case as a good stepping stone 
to building a better relationship.
    Mr. Upton. Going back to the problem with the Haitians' 
deaths, what was the FDA's reaction to those 89 deaths? Was 
there any tracking here in terms of those same substance coming 
from China that may have tainted our supply at all? Was there 
any red flag that went up right away?
    Mr. Taylor. Sir, I apologize. I don't know. I wasn't 
intimately involved.
    Mr. Upton. You weren't there.
    Mr. Baker. I was in the State of Texas. I can tell you that 
there was quite a bit of investigative activity at the Federal 
and State levels when that occurred, to ensure that we didn't 
have product in our markets, but I was not at the FDA at that 
time.
    Mr. Taylor. I was just informed that we did put an import 
alert in place and we followed up on the shipments. The import 
alert was put in place so that the product could not continue 
to come in from China, and there was other follow-up to trace 
the shipments of the product itself at that time.
    Mr. Upton. Was any found?
    Mr. Taylor. Apparently, the answer is yes.
    Mr. Upton. I knew the answer. And what happened?
    Mr. Taylor. It was destroyed, apparently.
    Mr. Upton. So it could have happened here?
    Mr. Baker. Yes.
    Mr. Taylor. It is possible, yes.
    Mr. Upton. Do you know--and I don't know the answer to 
this. Do you know how much was found? How many shipments? What 
the size of the product was? And where was it found? Where in 
the pipeline was it?
    Mr. Baker. One in California and on the East Coast. There 
were two shipments that we found that were basically in the 
pipeline at the time.
    Mr. Upton. I mean, I just can't imagine a greater nightmare 
for a family, you know, to find out that something that they 
might buy over-the-counter or prescribed by their physician, 
usually an individual of great trust, just to find out that it 
was tainted, and, you know, may cause some serious illness or 
even death. That's why this subcommittee feels very strongly 
that we want protection, and it has got to be perfect. When we 
are able to identify, whether it be documents like this or 
stories of what has happened in other countries and by chance, 
thank God, find them before they impact Americans, that you 
have the tools to protect us all.
    Again, it goes back to the pharmaceutical companies don't 
want to have a tainted product out there. No way. I would like 
to think that the Agency would, in fact, deliver on what is a 
request by a number of us here to make sure that that 
communication channel is wide open, and that when there are 
serious threats or uncovering of evidence to suggest that a 
certain firm or a certain plant anyplace in the world is 
delivering a product that's less than adequate, that you have 
the tools to go right away to make sure that it is stopped, 
that there are consequences for that firm as well as perhaps 
individuals, and that we have an Iron Curtain of preventing 
that stuff from getting into the mainstream.
    That's your role and from up here on this dais we want to 
make sure that you have the tools to do that. So I would 
suggest your message back to the people that work for you and 
the people that you work for is that that message be heard loud 
and clear when you get back to your office this afternoon. This 
is something that I think we want to continue to follow up on, 
and whether it be July or September, to have another hearing to 
find out exactly what is going on. And that we do a job as well 
listening to some of the pharmaceutical firms and others to 
find out how we can better help you make sure what happened in 
Haiti, and has happened in the United States--maybe we have 
discovered it, maybe we haven't--the system is in place so that 
we don't have any questions.
    I guess one last question here. We have got an e-mail that 
was dated November 1997 from then-Deputy Commissioner Mary 
Pendergast concerning an international drug trader called Helm. 
I don't know if you are familiar with that. Do we have that 
that we can share with them? I don't know if you are familiar 
with this offhand.
    She writes, and I quote here, that ``Helm Voss are 
notorious in other parts of the world for not telling the truth 
about what they are shipping.
    ``Apparently several countries around the world have 
blacklisted them because of adverse health consequences 
resulting from their products about which they have lied or 
concealed the truth. Apparently, they are big''--this is all 
quoted. ``Apparently they are big into switching labels and the 
like.''
    Do you know if the FDA has ever looked into that e-mail or 
the allegations as to whether it is true or accurate or not?
    Mr. Baker. Mr. Chairman, I am familiar with the Helm issue. 
I am not familiar with the details of the case. I wasn't 
anticipating testifying on that.
    Mr. Upton. Would you be able to respond----
    Mr. Baker. Yes, sir.
    Mr. Upton. [continuing] in writing back to the committee 
within a week or so and we will share it with both sides?
    Mr. Taylor. Absolutely.
    Mr. Baker. That will not be a problem.
    Mr. Upton. Here is a copy of the e-mail for you. I think 
that will be helpful.
    Again, I appreciate you coming up today. Next time we would 
like to have your testimony so I can take it home a night or 
two before the hearing.
    I want to compliment the staff on both sides for making 
sure that we were prepared and have been able to walk through 
this, and the members that were here today, and we look forward 
to having you again----
    Mr. Baker. Mr. Chairman.
    Mr. Upton. [continuing] to talk about the progress, Dr. 
Henney--and to talk about the progress that's been made from 
today knowing some of the details that we were alerted to.
    Do you have a closing statement that you would like to 
make?
    Mr. Baker. Mr. Chairman, I would like to thank you and 
thank the committee for having us here today and for listening. 
There are a number of issues clearly that have to be resolved. 
There are problems. We fully acknowledge that. The one thing I 
do is solve problems. That's part of my job. I am here today 
because I am the new guy on the block and these people report 
to me. And I am prepared to take the hits for that. We will 
correct these problems to the extent we can, and you will know 
what our problem areas are and what our resource needs are. 
It's our duty to let you know.
    Mr. Upton. Well, we want to make sure that you succeed. It 
will require some follow-up. Thank you.
    [Whereupon, at 1:20 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

  PREPARED STATEMENT OF JOHN T. RIETZ, PRESIDENT AND CHIEF EXECUTIVE 
                    OFFICER, ISOTAG TECHNOLOGY, INC.

    Mr. Chairman: My name is John Rietz and I am President and CEO of 
Isotag Technology Inc., with offices in Texas, Florida, and New Mexico. 
Thank you for the opportunity to submit this statement for the record 
and I commend you for convening this important hearing.
    ISOTAG Technology, Inc. provides the world's leading covert 
identification products and services. Our patented technology, which 
was originally developed at the Los Alamos National Laboratory (LANL), 
offers economic solutions for anti-counterfeiting, anti-diversion, 
product liability protection and quality and process control 
management.
    ISOTAG's unique combination of technology, detection, data 
management, decision support, and enforcement will effectively and 
conclusively solve the counterfeiting of bulk drugs. We believe that 
our comprehensive, complete solution offers the best assurances for the 
purity of medicines taken by all Americans.
    ISOTAG's products and services include:
    1. Molecular Tagging--ISOTAG provides a unique, covert molecular 
fingerprint, introduced during the drug manufacturing process, which 
provides forensic proof of authenticity and purity.
    2. Inviable Inks--ISOTAG recently acquired invisible ink 
technology, which was developed by Eastman Chemical Company, called 
Clircode. This patented technology operates in the Infrared area of the 
spectrum, which overcomes some of the inherent problems associated with 
invisible UV inks. Clircode can be applied at multiple points in the 
drug distribution process such as packaging, boxes, labels or holograms 
and are detected via hand-held readers and cameras.
    Clircode, in conjunction with the molecular ISOTAG, provides cost-
effective and complete protection against all potential counterfeiters 
and diverters.
    I would be most pleased to present our state-of-the-art technology 
and a proposal providing a solution to the current bulk drug 
counterfeiting problem to the committee at your convenience. 
Additionally, we would be pleased to make a presentation to the 
appropriate officials at the Food and Drug Administration to assist in 
their efforts to stop the flow of counterfeit drugs coming across our 
borders.
    In conclusion Mr. Chairman, I want to thank you again for the 
opportunity to participate in this important hearing. I would be 
pleased to respond to any questions you might have as you continue in 
your efforts to protect the health of all Americans.

[GRAPHIC] [TIFF OMITTED] T5846.230

              Department of Health & Human Services
                               Food and Drug Administration
                                                      July 25, 2000
The Honorable Fred Upton
Chairman
Subcommittee on Oversight and Investigations
Committee on Commerce
House of Representatives
Washington, D.C. 20515-6115
    Dear Mr. Chairman: Thank you for your interest in the safety of 
pharmaceutical drugs in the United States (U.S.). This is in follow-up 
to the Subcommittee's June 8, 2000, hearing on counterfeit bulk drugs. 
Mr. Dennis Baker, Associate Commissioner for Regulatory Affairs at the 
Food and Drug Administration (FDA or Agency) was asked to provide 
information for the record.
    We have restated the questions in the order they were asked, 
followed by our response.
    1. Mr. Stupak--Provide information on the status of actions taken 
regarding the importation of non-pharmaceutical grade radioisotopes and 
the manufacturing and sale of radioactive diagnostic drugs under the 
guise of the practice of pharmacy.
    FDA has been evaluating how to treat the compounding of 
radiopharmaceuticals in light of statutory changes mandated by the Food 
and Drug Administration Modernization Act of 1997 (FDAMA), Public Law 
105-115. Specifically, FDAMA added a new Section 503A to the to the 
Federal Food, Drug, and Cosmetic Act (the Act) which creates exemptions 
for compounded products from certain provisions of the Act. Section 
503A(e)(2), however, provides that Section 503A does not apply to 
radiopharmaceuticals.
    We expect to issue responses to a number of inquiries on this 
matter very soon, and we will, at that time, be able to provide the 
Committee with more detailed information regarding our enforcement 
policy.
    2. Mr. Bryant--Why is FDA not working with the Customs Service on 
counterfeits and will FDA reconsider that position?
    FDA has worked with the U.S. Customs Service (USCS or Customs) on 
specific counterfeit drug investigations in the past, and will continue 
do so in the future when warranted.
    The Flavine counterfeit investigation and prosecution, completed in 
1996, was a long-term joint investigation worked by FDA's Office of 
Criminal Investigations (OCI) and Customs. The reason OCI has not 
worked with Customs on counterfeit bulk drugs since 1996 is because no 
substantive information identifying a counterfeit bulk drug entering 
the U.S. has been brought to the attention of OCI or Customs since that 
time.
    OCI has a cooperative working relationship with Customs, including 
a Memorandum of Understanding with Customs providing for all OCI agents 
to be cross-designated as Customs officers. OCI currently is working a 
number of on-going investigations with Customs involving unapproved and 
counterfeit finished human drugs and adulterated or misbranded medical 
devices and foods. The Customs Service in recent testimony before the 
Committee on May 25, 2000, stated, ``Customs also has several ongoing 
investigations involving U.S. persons operating foreign pharmaceutical 
websites. All of these investigations are being worked jointly with the 
FDA's OCI. The Customs Office of Investigations has a great working 
relationship with FDA investigators.''
    OCI is willing to work with Customs on a criminal investigative 
task force, if warranted. However, the establishment of a task force is 
predicated on identifying a large number of specific criminal 
violations that are occurring and the need to respond to those 
violations with the resources of a number of agencies. A good example 
of this is the USCS High Intensity Drug Trafficking Area Task Force at 
the Dulles International Mail Facility where OCI is represented.
    In the case of counterfeit bulk drugs, no large number of specific 
criminal violations has been identified. Accordingly, FDA has concluded 
that a joint standing task force with Customs for counterfeit bulk drug 
investigations is not warranted at this time.
    If credible new information regarding counterfeit bulk drugs is 
obtained, criminal investigations will be initiated in the appropriate 
venue and worked jointly with Customs. The Committee should be assured 
that when information is received concerning suspect counterfeit 
activity, OCI will work closely with Customs and other law enforcement 
agencies to conduct a thorough investigation, and OCI will provide FDA 
officials with any information developed regarding possible public 
health implications.
    FDA also is providing additional training to its import inspection 
cadre that includes an effort to improve our effectiveness in working 
with Customs' field personnel. During the period of June 19 through 
July 14, 2000, approximately 80 FDA field and supervisory staff 
involved with imports each received 36 hours of advanced training, 
including instruction from Customs personnel on that agency's statutory 
authority, regulations and operating procedures. Another 40 staff is 
receiving the training during the week beginning July 24, 2000. The 
training included strategic problem-solving exercises in working with 
Customs personnel to jointly address problems encountered in the field 
regarding the importation of counterfeit bulk drugs.
    3. Mr. Bryant--Please respond to the following five questions.
    A. Does FDA favor posting OCI agents in Europe and Asia regarding 
counterfeits?
    The permanent posting of one or more OCI agents overseas has been 
considered a number of times over the last decade, but the Agency has, 
in each instance, concluded that the large additional expense would 
outweigh the potential benefits. FDA has requested funding in its FY 
2001 budget that would be partially used to support a criminal 
investigator assigned to Interpol. This would support and facilitate 
OCI's criminal investigations and provide the Agency with a point of 
contact for international police intelligence information related to 
terrorism.
    B. Does the Agency favor a joint FDA/industry effort regarding 
counterfeits?
    Yes, we do. FDA already meets with the security directors of the 
various pharmaceutical manufacturers to discuss ways to more 
productively cooperate through the exchange of information and the 
provision of information relevant to investigations.
    FDA believes our relationship with industry on the issue of 
counterfeiting should be improved, and the Agency will enhance our 
relationship with top management of the pharmaceutical industry, 
particularly those individuals who oversee the security and regulatory 
affairs departments. This was an agenda item for the most recent 
meeting of the Field Drug Committee, which is a group of senior Office 
of Regulatory Affairs and Center for Drug Evaluation and Research 
managers who make decisions related to FDA's drug inspection program.
    FDA has already met with top officials of Johnson & Johnson, DuPont 
Pharmaceuticals and representatives of CEFIC (the European Bulk Drug 
Industry). We will also meet with the New Jersey Health Counsel, which 
consists of top officials of the pharmaceutical industry in New Jersey, 
on July 27, 2000, to discuss our anti-counterfeiting initiative and 
encourage their cooperation in this effort.
    As noted in Mr. Baker's testimony of June 8, 2000, manufacturers 
are already required to test and validate the safety, purity and 
consistency of the active pharmaceutical ingredients used in their 
products. We are exploring some new actions that manufacturing firms 
might be able to take in order to better detect counterfeits.
    C. Do you favor developing new systems in FDA to identify 
counterfeit drugs and other unapproved or illegal drug that enter the 
country?
    Yes, we do, and the Agency has already begun this process. FDA has 
begun to implement certain recommendations in the 1999 Draft Plan, such 
as evaluating a trace-back procedure for bulk products and a procedure 
for the submission of information from industry regarding suspicions 
that bulk products are counterfeit, substandard, or from outside 
approved sources.
    In addition, FDA has re-established an Agency-wide Working Group on 
counterfeit bulk drugs, in order to further refine FDA's strategy on 
bulk drug importation and to develop additional systems to prevent, 
deter and interdict the importation of counterfeit drugs.
    D. Submit plan on implementation of new technologies such as 
taggants.
    The new Working Group on counterfeits, described above, is 
considering this issue and the possible use of taggants or similar 
technologies will be discussed with industry as part of our joint FDA/
industry efforts described above.
    E. What can the Committee and Congress do to help FDA?
    FDA is making a full assessment of its needs and areas for 
improvement in handling counterfeit bulk drugs. We will submit a 
detailed plan of action to the Committee, as requested by Chairman 
Upton, in the near future. As requested, we will address our resource 
and/or legislative needs in detail at that time.
    4. Mr. Strickland--Provide information on whether allowing China 
into the World Trade Organization (WTO) would hamper FDA's ability to 
regulate counterfeit drug products from that country.
    FDA's laws and regulations apply to covered imported products 
without regard to the products' country of origin or the status of the 
importing country as a member of the WTO or any other international 
organization. China's accession to the WTO Agreement would not change 
the application of FDA's requirements to products originating in China.
    5. Mr. Upton--Respond to the issues raised in the November 13, 
1997, e-mail from Mary Pendergast, former Deputy FDA Commissioner, 
regarding the Helm import company.
    The referenced e-mail was written during the time period following 
the 1996 contamination of glycerin used in medications distributed in 
Haiti, in which FDA assisted the Haitian government and conducted 
investigations in Europe and China to determine the source of the 
suspect glycerin. The e-mail from Ms. Pendergast to the Commissioner of 
Food and Drugs expressed concern about the part that Helm/Vos played in 
the glycerin incident.
    The 1996 investigation in Haiti disclosed that the suspect glycerin 
(contaminated with diethylene glycol (DEG)) used in production of 
liquid acetaminophen was shipped from China to the Vos warehouse in the 
Netherlands and then to Haiti. In July 1996, FDA completed an 
investigation at the Vos facility in Europe and at a European trader, 
who purchased the glycerin from China. Information concerning these 
investigations was provided to the appropriate European authorities for 
further investigation of the incident.
    In September 1996, FDA conducted an investigation at Helm New York, 
Piscataway, New Jersey, in follow-up to the glycerin problem in Europe 
and Haiti. The investigation disclosed that Helm New York handled 
limited quantities of glycerin and a private laboratory had tested the 
latest lot of glycerin received by the establishment. Since September 
1996, other investigations have been completed at the Helm New York 
facility to address issues concerning the establishment's importation 
of active pharmaceutical ingredients.
    In 1997, FDA completed investigations in China in an attempt to 
determine the source of the glycerin and cause of the contamination 
with DEG. The investigations disclosed that the glycerin shipped to 
Haiti had been manufactured in China. We were unable to determine the 
point at which the contamination of the glycerin with diethylene glycol 
had occurred. During the investigations, we obtained a copy of a 
telefax from the European trader to the Chinese trader who handled the 
glycerin, which stated that the purity of the glycerin in the suspect 
lot was ``53.9% instead of 98% min.''
    FDA has taken other steps to insure the safety of imported glycerin 
used by finished dosage form pharmaceutical manufacturers including 
issuing an import alert for glycerin from China and investigating 
entries of imported glycerin from sources other than China. We continue 
to periodically monitor glycerin exported to the U.S.
    6. Mr. Upton--Does FDA believe it has the authority to require 
importers to identify the ultimate consignee.
    Yes, FDA believes it has the authority to require importers to 
identify the ultimate consignee. We are now evaluating how best to 
establish such a requirement without placing an unnecessary burden on 
industry or inhibiting trade.
    Thank you for making this information a part of the public record. 
We look forward to working with the Committee on our mutual goal of 
protecting the American public from the importation of counterfeit or 
otherwise dangerous drug products from abroad.
             Sincerely,
                                        Melinda K. Plaisier
                             Associate Commissioner for Legislation
cc: The Honorable Ron Klink
   Ranking Minority Member
   Subcommittee on Oversight and Investigations
   Committee on Commerce
   House of Representatives
                                 ______
                                 
              Department of Health & Human Services
                                      Public Health Service
                                                    August 10, 2000
The Honorable Fred Upton
Chairman
Subcommittee on Oversight and Investigations
Committee on Commerce
House of Representatives
Washington, D.C. 20515-6116
    Dear Mr. Chairman: This letter is in response to the Subcommittee's 
June 8, 2000, hearing, regarding counterfeit bulk drugs. As discussed 
at the hearing, the Food and Drug Administration (FDA or the Agency) 
was asked to- report back to Subcommittee with a plan to improve the 
detection and interdiction on imported counterfeit and substandard 
Active Pharmaceutical Ingredients (APIs).
    Directly following the hearing, the Agency re-established a 
Counterfeit Drug Working Group (Working Group) to explore issues of 
imported counterfeit and substandard drugs, FDA's import operations and 
foreign drug inspection program. over the past two months the Working 
Group had numerous meetings to devise a workable plan to assess the 
extent of the counterfeit drug problem in the United States (U.S.). The 
Agency also has contracted with a private firm to assess the status of 
FDA's import Information Technology (IT) and to explore the most 
efficient way of connecting databases to share information more readily 
with FDA's field inspectors. Since the June 8 hearing, the Working 
Group has had under development a plan for detecting these products to 
better ensure that the public is protected from potentially hazardous 
drug products.
    The report will outline the Agency's plans for better handling 
imported counterfeit and substandard APIs and finished drugs. The plan 
also will outline FDA's training program for import inspectors on 
counterfeit drugs as well as the initial use of the Establishment 
Evaluation System (EES) database by import inspectors. These latter 
programs have been developed since the Subcommittee hearing.
    The additional resources, personnel and funding that FDA believes 
is necessary to fully carry out our responsibilities for inspecting 
foreign drug manufacturers and to increase the surveillance of foreign 
APIs and finished drugs are under review by the Working Group. Because 
the scope of this evaluation needs to encompasses both the Agency's 
domestic and foreign operations, as well as the operations of various 
FDA Centers, parts of this analysis are preliminary in nature. The 
Agency looks forward to providing more specific information on our 
funding needs relating to personnel and technology in the future, once 
a complete assessment is made and appropriate review has occurred.

              A. PROBLEM STATEMENT AND SUMMARY OF ACTIONS

    The increase in international trade has had an impact on the 
ability of FDA to cope with the volume of regulated products, including 
APIs. As Mr. Dennis E. Baker, Associate Commissioner for Regulatory 
Affairs (ORA), stated at the June 8 hearing, while FDA believes that 
the quality of drugs in this country is high, the Agency takes very 
seriously any allegations regarding the counterfeiting or adulteration 
of drug products. The Agency realizes that more can be done to help 
ensure that imported APIs and finished drug products meet the 
requirements of the Federal Food, Drug, and Cosmetic (FD&C) Act.
    Diminishing or flat-lined resources, coupled with the increasing 
volume of APIs from overseas, have stretched personnel and resources so 
thinly that FDA has been struggling to fulfill the program mandates in 
these areas. Policing the global drug marketplace to deter or interdict 
imported substandard drugs is a daunting task, given the resources made 
available to FDA.
    In response to this challenge, the Agency has developed a risk-
based approach to foreign drug inspection. The Center for Drug 
Evaluation and Research (CDER) developed a four-tiered approach to 
perform surveillance inspections of firms that FDA has not been able to 
inspect. At the present time FDA is only able to inspect Tier I 
(Official Action Indicated, or OAI, inspection follow-up) and Tier II 
(sterile bulks, finished drugs and aerosols) firms. The required pre-
approval inspections are being conducted in accordance with the 
Agency's mandate under the Prescription Drug User Fee Act. Resources 
are the primary factor limiting the Agency's ability to undertake 
additional inspections. The Working Group is looking at these issues 
and discussing how to best utilize current resources and what it would 
cost, as discussed in the June 8 hearing, to perform the inspections in 
all tiers of the CDER risk-based system.
    As stated previously, a Working Group has been re-established to 
explore the issues raised in the June 8 hearing. The Working Group 
consists of representatives from many Agency programs. These include 
the Office of Criminal Investigations (OCI), the Division of Import 
Operations and Policy (DIOP), the Office of Enforcement, the Forensic 
Chemistry Center (FCC), the Division of Federal-State Relations (DFSR) 
and the Division of Information Systems, and, Division of Emergency and 
Investigational Operations, all of which are components of ORA, and the 
Offices of Compliance within the Center for Drug Evaluation and 
Research (CDER) and the Center for Veterinary Medicine (CVM).
    The Working Group is in the process of assessing the effectiveness 
of the regulatory tools, compliance programs, staffing and procedures 
that already exist within the current statutory construct to monitor 
imported APIs. The Agency already has implemented the following 
actions:

 FDA has contracted with a private IT contractor to assist the 
        Agency in examining its existing technology and data. FDA has 
        charged the firm with recommending ways to integrate its 
        systems and expedite the availability of important data to the 
        consumer safety officers and inspectors that are responsible 
        for monitoring imports at the nation's ports of entry.
 As mandated in the Food and Drug Administration Modernization 
        Act of 1997, FDA has drafted a final rule requiring foreign 
        establishments whose products are imported or offered for 
        import into the U.S. to register with FDA and to identify a 
        U.S. agent. once in place, the rule will provide for the 
        collection of information needed to establish an accurate 
        Official Establishment Inventory for foreign drug firms.
 ORA's DIOP has engaged their counterparts at U.S. Customs 
        Service (Customs) to assist in putting Customs house brokers 
        and importers on notice that they must declare the proper 
        manufacturer of their imported products. Accurate information 
        will assist FDA with the difficult task of finding imported 
        counterfeit or unapproved APIs and preventing their use in 
        finished drug products.
 ORA has developed a plan to establish a cadre of expert 
        investigators and chemists that would be stationed in strategic 
        high volume API import locations across the country. This plan 
        will require more resources.
 FDA has extended access to the EES database to the three FDA 
        Districts handling the vast majority of imported APIs. Training 
        for FDA import inspectors already has been accomplished and 
        accounts have been established.
    The Working Group is studying many other suggestions and proposals 
that have been put forward. The initiatives noted above, which will be 
discussed in greater detail, represent a significant first effort at 
improving our foreign inspections, drug surveillance, and import 
operations to better protect the American public from the threat of 
imported counterfeit APIs.

                B. AGENCY INITIATIVES CURRENTLY UNDERWAY

    In June and July 2000, FDA conducted three Import Enforcement 
training courses for FDA import personnel including Compliance 
Officers, Consumer Safety Officers, and Consumer Safety Inspectors. 
Approximately forty students attended each one-week course representing 
in total about half of all persons assigned to field import operations. 
FDA and Customs attorneys jointly developed the course curriculum at 
the request of FDA's Division for Import Operations and Policy. The 
instruction course included training in Strategic Problem Solving 
(SPS), a Customs training module developed specifically to facilitate 
the targeting, investigation and prosecution of willful violators. Each 
course included a facilitated workshop after the pattern of SPS. In 
each class, two of the problems involved specific imported API 
counterfeiting fact patterns. Facilitated brainstorming by the field 
personnel focusing on the imported counterfeit API threat produced 
numerous ideas for strategies in detecting, preventing and interdicting 
counterfeit imported APIs. The Working Group is assessing these 
proposals for viability.
    FDA's FCC and Customs have agreed to explore methods to better 
leverage their respective resources in the investigation and analysis 
of suspect counterfeit products. The FCC is hosting the first meeting 
in their forensic laboratory on August 10, 2000, to demonstrate FDA's 
current forensic capabilities and strategies. The two Agencies will 
explore better means to coordinate their efforts by granting access to 
analytical data and equipment and cross training in methodologies and 
emerging forensic techniques. The FCC will interface directly with 
Customs' laboratories to share information on analytical procedures 
FDA's forensic experts use to detect unapproved and counterfeit APIs. 
The Working Group has placed a high priority on developing with Customs 
a unified approach for interdicting counterfeit drugs.
    Under FDA's Compliance Program 56002F, ``APIs'', FDA requests 
information relating to API characterization at the conclusion of 
current good manufacturing practices (CGMP) inspections. The FCC 
collates this information into a database for the development of a 
library of authentic APIs. These data will be used as one tool for 
identifying suspect counterfeit APIs during FDA's operations. The 
Working Group is currently assessing the most practical means for 
making FCC's data readily available for FDA personnel during import 
entry examinations and foreign and domestic drug inspections.
    The FCC has scheduled additional API targeted inspections at 
various importers and finished dosage manufacturers throughout the U.S. 
Additional hands-on training is planned for investigators in other 
strategic locations. In February 2000, the FCC briefed Mr. Baker of the 
potential threat of imported counterfeit APIs. Consequently, Mr. Baker 
authorized and funded FCC's efforts to conduct targeted API inspections 
at the importer and domestic finished dosage manufacturer levels. With 
these funding increases the FCC conducted six targeted API inspections. 
Three of these are importers of foreign APIs, two are domestic finished 
dosage manufacturers and one is a domestic animal drug manufacturer. 
The FCC inspectors are now reviewing imported API documents and samples 
of product, labeling, packaging schemes and certificates of analyses. 
At each of these inspections, the FCC worked with local FDA district 
drug investigators to detect suspect API shipments through product and 
records examinations.
    Based on unverified data from the Operational and Administrative 
System for Import Support (OASIS) that was originally supplied by 
Customs house brokers when various drug entries were filed, there are 
approximately 4600 firms that appear to be non-inspected foreign drug 
manufacturers. The Agency is reviewing the OASIS data to develop an 
import alert for foreign establishments that appear to have exported to 
the U.S. an API that is normally used to manufacture a finished dosage 
form which requires an approved application. A preliminary assessment 
by FDA's CDER, Office of Compliance, thus far, has identified forty-six 
firms in China and Hong Kong and eleven firms in India that appear to 
have exported to the U.S. in 1999. These firms have never been 
inspected by FDA and appear to be exporting a misbranded drug to the 
U.S. The Agency is developing an import alert for these firms and 
expects to be able to add to this list as the OASIS data is further 
evaluated. The final phase of the analysis of the OASIS data will be to 
identify firms FDA has not inspected but which are referenced in 
approved human and animal drug applications. The human drug firms will 
be evaluated using a risk-based analysis stratified into one of four 
tiers, incorporated into FDA's surveillance list, and subsequently 
scheduled for inspection.
    Previously, Philadelphia District Office participated in a pilot 
that involved an evaluation of imported APIs by cross-referencing drug 
manufacturing data submitted by importers with CDER's EES database. EES 
contains information tracking new drug applications (NDAs) and animal 
new drug applications (ANDAs) and relates those applications to 
approved sources raw materials, including APIs. FDA is extending the 
EES pilot. This represents new information previously unavailable to 
import inspectors. Field access to EES combined with a proposed new use 
of labeling exemptions under Title 21, Code of Federal Regulations 
(CFR) part 201 could result in the development of a monitoring, 
surveillance and enforcement model for all APIs and other drug 
components. On July 10, 2000, FDA trained investigators and compliance 
officers from New York, New Orleans and San Juan District Offices (DO) 
in the use of EES as a supplemental tool for evaluating the 
admissibility of APIs from foreign sources for use in manufacturing an 
NDA or ANDA. The trainees have received EES accounts and are 
familiarizing themselves with the use of the database in evaluating 
Customs entry data and providing additional training in their home 
districts to other import personnel. This EES training is an extension 
of the pilot to the three districts that handle the largest proportion 
of API Customs entries.
    The Working Group anticipates combining EES with other strategies 
could result in: (1) a marked increase in the prevention of non-drug 
manufacturing file referenced APIs being used in the manufacture of 
application drugs, (2) a procedure for tracking APIs and drug 
components from port to end-user destination to deter diversion within 
U.S. market, (3) an increase in opportunity for field exams of APIs 
upon entry for evaluation of authenticity, (4) the development of leads 
for OCI and ``for cause,'' foreign producer, importer, and domestic 
end-user inspections, and (5) the development of intelligence on 
international distribution channels of counterfeit and unapproved 
drugs.
    The Agency has placed the import industry on notice regarding the 
requirement to supply the Agency with accurate data regarding the 
identity and location of the manufacturer of imported drugs. Upon 
review of the notices made to the community over the last several years 
it became apparent that these requirements had been made clear to 
importers and brokers through notices issued on January 29, 1999, and 
March 24, 2000. Recently, the Agency again posted an updated version of 
its requirements on the Internet with links to and from FDA's import 
operations pages. Additionally, on July 28, 2000, a Customs Automated 
Broker Interface (ABI) Administrative message was issued to all filers 
with a reference to the Internet site containing these requirements and 
a physical mailing address where a filer may request a hard copy from 
the Agency. A copy of the July 28, 2000, ABI notification is enclosed.

 C. ADDITIONAL STRATEGIES AND IDEAS FOR HANDLING IMPORTED COUNTERFEIT 
                       AND UNAPPROVED DRUGS/APIS

    The Agency has been developing and implementing strategies for 
assessing the scope of the threat of imported counterfeit APIs to the 
U.S. consumers. The Working Group has identified three major 
operational components for evaluation: foreign inspections, domestic 
inspections and import operations. In order for FDA to ensure the 
integrity of APIs from place of manufacture to place of use and sale in 
the U.S., and to assure those drugs are manufactured and held in 
conformance with good manufacturing practices (GMPs), information from 
these three components must be integrated and made readily available. 
Furthermore, when the Agency intends to conduct a foreign inspection, 
relevant data obtained from the Agency's domestic operations must be 
available to the foreign domestic operations must be available to the 
foreign inspectors for verification or development of additional 
evidence where suspect activity has been identified. These interfaces 
require a more comprehensive and integrated use of IT to increase the 
speed and accessibility of relevant data. An additional evaluation by 
the Agency is underway to determine how the industry could participate 
in combating the potential threat of counterfeit drugs internationally 
and domestically.

1. IT Proposals and Solutions.
    On July 1, 2000, ORA engaged the services of an IT contractor to 
assess the Agency's overall IT needs and to propose changes which will 
accomplish the following goals.
    The IT contractor was charged with determining the information that 
FDA import inspectors need to fully assess admissibility of all FDA 
regulated commodities. The contractor consulted with import inspectors 
and compliance officers with expertise in FDA and Customs laws and 
regulations, GMPs and IT import applications.
    The contractor has used a comprehensive data gathering and 
assessment framework to analyze the functional process, infrastructure, 
and IT systems used by ORA to support import operations. The data 
gathering involved a workshop with the import operations staff, onsite 
visits to relevant FDA centers and to a DO, system demonstrations, 
interviews with system and infrastructure managers, and review of 
documentation on ORA operations provided by FDA. Analysis involved an 
iterative approach to development of processes, issues and 
recommendations. Each iteration consisted of a team analysis, followed 
by a group session to compare and validate each team's assessment. To 
identify the most appropriate technology, the contractor conducted 
extensive technology scanning, arranged for vendor presentations, 
reviewed FDA plans and discussed possibilities with FDA staff.
    The contractor also was charged with developing strategies for 
converting information currently on paper into an electronic format 
form. This information is necessary for the import inspector to make a 
more efficient admissibility decision. The contractor was asked to 
develop short and long term proposals for integrating the FDA's 
databases and for creating a secure electronic environment in which 
large amounts of data may be securely transmitted and accessed by 
authorized Agency personnel. These proposals are to take into account 
anticipated growth of the regulated industry, the dramatic increase of 
cross-center products entering interstate commerce, and the need for 
flexibility to maximize the Agency's enforcement and surveillance 
efforts.
    Finally, the contractor has been charged with assisting the Agency 
in assessing the viability of countermeasure technology to detect and 
deter import violations.
    The Agency expects a final report from the contractor in August 
2000.

2. Joint Industry/Agency Efforts.
    Members of the Working Group conferred with the FDA's Field Drug 
Committee (FDC) on counterfeit API issues. The FDC historically has 
maintained networks with drug industry personnel and trade associations 
and has utilized these relationships for furthering the important 
message of health and safety through consistency in GMP compliance. The 
FDC has agreed to assist the Working Group in developing avenues 
through which industry could join forces with the Agency in combating 
counterfeits in the market place.
    Beyond this initial approach through the FDC, the Agency is 
exploring additional routes for encouraging and receiving intelligence 
on counterfeit drugs in the world market. Historical experience in 
prior counterfeit API investigations has demonstrated that foreign API 
manufacturers whose products are being counterfeited can provide 
substantial assistance in developing tests for authenticity and 
intelligence regarding suspected counterfeiting operations. The Agency 
is aware that intelligence gathering from the trade is a critical 
element to successfully identifying suspect counterfeits in the market.
    In connection with the IT contractor's evaluations, the Agency may 
be able, with appropriate funding, to establish a secure Internet 
environment to encourage manufacturers to provide confidential and 
sensitive information to the Agency. Depending upon the intelligence 
received, the Agency may be able to identify sources of counterfeits or 
substandard products or evidence of other related criminal activity.

3. Foreign Inspection Component.
    Since 1990, the Agency has shifted resources from domestic to 
foreign programs to increase presence in the foreign drug manufacturing 
market place recognizing the shift in global markets. For the Fiscal 
Year (FY) 2001 foreign work plan, the Agency will focus on the 
manufacturers that have not been inspected as identified through the 
analysis of unverified OASIS data. Resources necessary to fully 
implement the four-tiered inspection system are being evaluated by the 
Working Group and will be provided when available.
    The foreign drug inspection program for the current FY is on track 
for accomplishing approximately 450 foreign inspections. This 
represents more foreign inspections than the Agency has ever 
accomplished in a single year. Because the program continues to be 
primarily application driven, the priorities associated with the 
product approval process have impacted on our ability to conduct drug 
surveillance inspections. For FY 2001, ORA is projecting approximately 
500 foreign drug inspections. This projection includes substantial 
increases in drug surveillance inspections, which should result in 
increased coverage of firms in tiers three and four. The Agency is 
attempting to accomplish this increase through reallocation of existing 
resources. This will result, however, in a reduction in domestic 
inspection programs.
    Due to resource restrictions, the Working Group is examining other 
avenues for developing evidence that a foreign firm is complying with 
GMPs. Although there is no true substitute for a physical GMP 
inspection, there may be critical production or validation records 
which, through an Agency review, may provide a minimum level of 
assurance that the firm is aware of and making efforts to comply with 
GMPS. The Working Group is examining modification of the procedures for 
submitting Drug Master Files.
    For instance, under current Agency regulations, validation of a 
drug manufacturer's process is not required for obtaining an approval, 
however, it is required prior to shipment in interstate commerce. Under 
the current paradigm, due to inadequate resources, the Agency often 
cannot verify a foreign manufacturer's validation records prior to the 
first shipment to the U.S. Requiring the production of such records in 
conjunction with or prior to shipment of drugs to the U.S. may permit 
the Agency to review the firm's validation. Overall such a review may 
assist the Agency in focusing its resources toward firms that appear to 
lack adequate control and validation systems. Such a program could be 
extended to the importation of over-the-counter drugs under the same 
authority.
    Compelling the production of such GMP required documents for 
imported drugs may require FDA rule making. Such a program would assist 
the Agency in leveraging its human resources to complement foreign 
inspections,

4. Domestic Inspection Component.
    The Working Group has identified a need for integrating the foreign 
and domestic inspection programs together with the Agency's import 
operations. For instance, the Working Group is recommending the use of 
``Process Mapping'' or ``System Re-engineering'' within ORA to identify 
areas of internal procedural overlap and disconnects that may 
contribute to the lack of information exchange among these inspection 
programs. The IT contractor is expected to assist in assessing the 
viability of an integrated data system which will permit access and 
data submission based upon personnel role definitions.
    Current instructions for performing domestic finished dosage 
manufacturer GMPs have not focused on authenticity of warehouse API 
stock. The inspector will generally track a randomly selected API or 
other raw material from receipt through quarantine and quality control 
testing, into production, verifying that proper batch numbers are 
recorded throughout the process. Assuming that this review demonstrates 
no discrepancies, these aspects of the manufacturing processes are 
presumed to be within the limits of GMPs. Therefore, the Working Group 
is evaluating the need to add components to and modify domestic 
inspection procedures to provide comprehensive coverage of APIs during 
inspections of end users.

5. Import Operations Component.
    FDA's DIOP is responsible for providing policy guidance to the 
field relating to import procedures, overseeing the development and 
operation of the Agency's Import Alert system, and for maintaining the 
Agency's OASIS system.
    The Working Group is reviewing DIOP's procedural and system 
operations and is assessing the Agency's personnel and equipment needs 
to better monitor U.S. ports of entry. During the June 8 hearings, 
Customs designated over 300 ports of entry. OASIS data indicates that 
approximately 100 ports have seen entries of APIs. FDA has a notable 
presence in over 40 ports. The ports where FDA conducts the bulk of its 
work represent those through which the vast majority of drugs enter.
    The Working Group is considering whether current FDA or Customs 
authority would sustain a restriction on which ports of entries certain 
commodities, such as drugs, may be offered for import based upon a 
health and safety assessment. Other approaches might be available to 
accomplish a similar effect. For instance a proposal to restrict entry 
of certain commodities to certain times of the workday or week rather 
than by geographical criteria.
    The Working Group reviewed Import Alert 68-09, which covers over 50 
veterinary APIs. Although this alert was originally issued in 1993, it 
remained largely unutilized due to inadequacies in FDA's product coding 
system. Consequently, CVM, CDER and ORA components are reviewing a 
Working Group proposal to merge all human and animal drugs into a 
common ``drug'' FDA product code. This will align the CVM product code 
system with CDER's system enabling criteria to be set in OASIS to make 
CVM import alerts more effective. Because many APIs have application in 
both human and animal drug industries, the Working Group is considering 
consolidating human import APIs into Import Alert 68-09.

6. Possible new use of drug labeling requirements.
    The Working Group is examining the development of a new use of the 
drug labeling requirements found at 21 CFR Part 201. CVM's Import Alert 
68-09 currently addresses imported API drug labeling noting ``[b]ulk 
new animal drug substances labeled for further manufacturing or 
processing, which do not bear any indications for veterinary use, may 
be misbranded under section 502(f)(1) [of the FD&C Act] if they are 
intended for veterinary use or for further processing as animal 
drugs.'' The Import Alert continues ``21 CFR 201.122 exempts a drug 
from adequate directions for use when labeled for further manufacturing 
and processing and when used to manufacture a new animal drug, which is 
covered by an approved application.
    ``. . . 21 CFR 201.150 exempts a drug, which is intended to be 
further processed or manufactured, from adequate directions when it is 
shipped under the terms of a written agreement which, if followed, will 
assure the finished product is not adulterated or misbranded.'' This 
Import Alert was revised on July 12, 2000, and has been the basis of 
Working Group discussions for extension of the drug labeling 
regulations to control imported APIs and drug ingredients generally.

7. Proposal for assessing the existence or extent of imported 
        counterfeit and substandard drugs.
    ORA has proposed a plan for assessing the extent of the potential 
threat that imported counterfeit and unapproved APIs may pose to the 
health of the unsuspecting American consumer. This plan would require 
an increase in ORA's current staff, equipment and supplies for forensic 
analyses, and operational funds for domestic and foreign inspections 
that would target imported APIs. The plan could generate leads for 
criminal and civil enforcement actions and provide concrete factual and 
analytical data upon which the Agency could plan its next course of 
action.
    The proposal consists of establishing a team of experts to detect 
counterfeit and substandard APIs. This specialized team would be 
stationed in strategic locations identified by high import or 
manufacturing activities. They would conduct focused API inspections of 
domestic and foreign manufacturers, importers, and conduct forensic 
analyses of resulting samples. The overall resource requirement for 
this plan includes additional full-time equivalents and funding for 
equipment, domestic travel and operational costs. Foreign inspection 
costs would increase these funding needs. ORA is assessing the 
viability of the proposal.

8. Possible International Collaboration.
    The Working Group is investigating whether collaborations with 
foreign governments could increase the Agency's ability to verify the 
existence and the compliance status of manufacturers, shippers, 
repackers or relabelers of drugs of other countries. Such collaboration 
would involve counterpart foreign government agencies authenticating 
the source and quality of APIs imported into the U.S.

9. Possible Security Measures.
    The Working Group is engaged in discussions with the Customs' 
Applied Technology Division which has considerable experience in 
tracking shipments within U.S. commerce to verify and document cargo 
diversion. The Working Group will evaluate the currently available 
technology in terms of levels of surveillance capabilities, cost of 
equipment and implementation.
    The Working Group has asked the IT contractor to explore low cost 
security devices for use by foreign manufacturers such as chemical 
taggants in labeling, glue, ink or packaging materials to detect 
suspect counterfeit drugs. The Agency is considering a wide array of 
available technology including encrypted bar code technology in 
labeling and Certificates of Analysis containing manufacturing 
information already submitted by the foreign manufacturer through a 
secure web-based environment. Other possible solutions include radio 
frequency tags for detection during examinations at ports of entry.
    The Working Group will continue its assessment of the extent of the 
counterfeit drug problem in the U.S. The strategies outlined above will 
be further developed and enhanced. Additionally, other potential 
strategies will be examined.
    Thank you for your continued interest in these important issues. We 
hope this information is helpful, please contact us if you have further 
concerns or questions.
            Sincerely,
                                        Melinda K. Plaisier
                             Associate Commissioner for Legislation
Enclosure

cc: The Honorable Ron Klink
   Ranking Minority Member
   Subcommittee on Oversight and Investigations
   Committee on Commerce

   The Honorable Thomas J. Bliley, Jr.
   Chairman, Committee on Commerce

   The Honorable John D. Dingell
   Ranking Minority Member
   Committee on Commerce

[GRAPHIC] [TIFF OMITTED] T5846.231

[GRAPHIC] [TIFF OMITTED] T5846.232

[GRAPHIC] [TIFF OMITTED] T5846.233

[GRAPHIC] [TIFF OMITTED] T5846.234



              COUNTERFEIT BULK DRUGS AND RELATED CONCERNS

                              ----------                              


                        TUESDAY, OCTOBER 3, 2000

                  House of Representatives,
                             Committee on Commerce,
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2322, Rayburn House Office Building, Hon. Fred Upton 
(chairman) presiding.
    Members present: Representatives Upton, Cox, Burr, Bryant, 
Bliley (ex officio), Waxman, Strickland, and Dingell (ex 
officio).
    Also present: Representative Coburn.
    Staff present: Alan Slobodin, majority counsel; Anthony 
Habib, legislative clerk; and Chris Knauer, minority counsel.
    Mr. Upton. Good morning, everyone. Today the subcommittee 
continues its oversight and investigation of counterfeit bulk 
drugs and other issues related to imported drugs. On June 8 of 
this year this subcommittee held a hearing on FDA's failure to 
take adequate actions concerning imported bulk drugs. Several 
key findings emerged from that hearing.
    One, for the first time the FDA publicly disclosed that it 
knew 4 years ago that the deaths of Americans were in fact 
linked to a counterfeit bulk drug. Two, in 1996 the FDA and 
Centers for Disease Control determined that 89 Haitian children 
died from taking cough medicine made with poisonous antifreeze 
traced to China but labeled as glycerine. The FDA's follow-up 
investigation of the Haitian cough medicine case uncovered 
shipments of suspected glycerine that made their way into the 
United States. The FDA linked toxic adverse reactions to 155 
American patients on an antibiotic called gentamicin sulfate 
made by a Chinese bulk manufacturer, Long March Pharmaceutical. 
Even with a system of safeguards such as FDA inspections and 
manufacture testing, the Long March bulk drugs still reached 
and harmed unsuspecting American patients.
    The FDA had little or no information on about 4,600 firms 
that had shipped bulk drugs into this country, including 623 
from China and 409 in India. This lack of information showed 
the inadequacies in FDA's information systems and the real 
risks of uninspected firms shipping counterfeit or substandard 
drugs into the U.S. .
    Since the June 8 hearing there have been more key findings 
in developments on the counterfeit drug import front. Because 
of the committee's investigation the FDA magazine so far 
identified at least 46 firms in China and 11 firms in India 
that appear to have exported misbranded drugs to the United 
States in 1999 and have never been inspected. The FDA recently 
advised committee staff that as many as 242 firms worldwide 
appear to have shipped misbranded drugs to the United States in 
1999 and yet have never been inspected.
    In July committee staff visited the port of Laredo, Texas 
and on the U.S.-Mexican border to learn about the U.S. Customs 
Service and FDA controls of commercial and personal imports of 
prescription drugs. The staff visit showed the lack of controls 
over Mexican pharmacies and the wide availability of suspicious 
counterfeit or substandard prescription drugs imported from 
Mexico.
    Last month committee investigators accompanied Dennis 
Baker, FDA's Associate Commissioner for Regulatory Affairs, to 
China and India to observe FDA inspections of bulk drug firms 
and to gather additional information on issues related to the 
counterfeit drugs. Here are some of the important findings from 
that trip:
    Committee staff obtained evidence that Chinese firms are 
secretly manufacturing drugs that are still under U.S. patent. 
The firms market these violative drugs using secret price 
lists.
    In another interesting counterfeiting example a Chinese 
pharmaceutical company is marketing products allegedly as food, 
but these products actually contain the active ingredients of 
Viagra. It is difficult to track counterfeiting in China 
because counterfeiting factories use a day shift for making a 
legitimate drug and sometimes a night shift for the counterfeit 
version. Some local government authorities are complicit in the 
counterfeiting and thwart operations that could expose these 
practices. Chinese government authorities who are not corrupt 
often lack the resources to investigate. Another difficulty is 
the inability to track product flow because distribution in 
China is very complicated.
    Two developments that make China a bigger time bomb of drug 
counterfeiting are these: China's joining the WTO and Internet 
sales. But India may be the biggest counterfeiting problem 
because of the lack of patent laws and the lack of centralized 
regulatory control of the pharmaceutical industry. According to 
FDA inspectors, the plants in China and India visited by the 
committee staff seem to be representative of most of the drug 
plants inspected in China and India. But if that is so, these 
plants use outdated technology and procedures no longer used in 
the West.
    In addition, it is difficult to believe that these plants 
can remain compliant since these plants are normally operating 
outside of U.S. regulations when they manufacture for their 
domestic market and are not pressured by environmental or other 
safety laws such as firms here in the United States. There are 
major obstacles to FDA foreign inspections being able to assure 
the same safety standards as domestic inspections. Unlike 
domestic inspections, FDA foreign inspections in China and 
India cannot use samples of microbiological testing because the 
samples would lose their integrity by being shipped for testing 
to a U.S. lab. Unfortunately, no field testing is available.
    Even when an FDA inspection teams includes a Mandarin 
speaking FDA inspector, the language barrier remains a major 
problem in China because there are difficulties in translating 
technical terms and the firm's interpreter can sometimes lack 
that scientific knowledge. Where the firm's interpreter has 
scientific training, these interpreters sometimes tend to go 
beyond interpreting and suggest answers or provide leading 
questions to employees.
    Also, FDA inspection teams try to work efficiently and 
split up to look at different parts of the firm. As a result 
FDA inspectors often are still relying on the firm's 
interpreter even when another FDA inspector on the team in fact 
knows the language.
    Beyond some of the new information obtained by the 
committee there has been another important development: 
Legislation on an appropriations bill that would change FDA 
laws to ease reimportation of U.S.-made prescription drugs. 
Much of the debate has focused on safety. These concerns are a 
reflection of the investigative work of this subcommittee in 
the 1980's, and today. This subcommittee will continue its 
oversight work to ensure that the FDA can control the current 
flow of drug imports and that the FDA not implement schemes 
that would in any way jeopardize the safety requirements of 
drug imports.
    Last, since the June 8 hearing the FDA has reported back to 
the subcommittee on actions and strategies to improve its 
scrutiny of imported drugs. The Department of Justice has 
reported back to Chairman Bliley on proposals to strengthen 
investigation and prosecution of crimes involving counterfeit 
drug imports. We will hear in some detail at this hearing about 
these actions, plans and proposals from the FDA and the 
Department of Justice.
    We talked a lot at the June 8 hearing about what was wrong 
with the FDA. Today I want to mention something right with the 
FDA. His name is Dennis Baker, and he is FDA's Associate 
Commissioner for Regulatory Affairs. He has had a very tough 
job, testified for FDA at the June 8 hearing. But from what I 
have been told by staff, he I know is a dedicated public 
servant who is genuinely committed to improving the FDA. And 
Dr. Henney, I hope you will send a strong and loud message of 
support for him and for the upgrading of information technology 
that he seeks and that the FDA badly needs. Welcome, today's 
distinguished witnesses.
    We are particularly honored that Raymond Kelly, U.S. 
Customs Service Commissioner, is joining us today. Certainly I 
want to extend a very warm welcome to the FDA Commissioner, Dr. 
Jane Henney, who is making her first appearance before this 
subcommittee. I look forward to discussing these vital issues 
and working with you to find effective solutions. I yield to--
--
    Mr. Coburn. Mr. Chairman, as a member of the full committee 
and a former member of the O&I Subcommittee, I would ask 
unanimous consent to participate in this hearing.
    Mr. Upton. Is there any objection to that? Hearing none, 
the gentleman is allowed.
    Mr. Dingell. I'll defer to the chairman.
    Mr. Upton. Mr. Bliley, the chairman of the full committee.
    Chairman Bliley. Thank you, Mr. Chairman. You held a 
hearing last summer on imported counterfeit drugs and today we 
will look at some very serious questions about FDA's ability to 
assure that all drugs manufactured here or abroad meet safety 
requirements. Congress is about to enact permanent changes to 
the Food, Drug and Cosmetic Act as part of the agricultural 
appropriations bill.
    I regret that these kind of policy changes are being made 
without action in the Commerce Committee. Relaxing the laws 
governing the importation and reimportation of prescription 
drugs into the United States will have far-reaching 
consequences, some potentially dangerous. Unfortunately, a full 
vetting of this issue has not occurred. I am very concerned 
that the Congress is legislating changes to a public health law 
that may be unwise and may erode the gold standard that exists 
for the quality and efficacy of drugs consumed by Americans.
    I think all my colleagues in the administration would agree 
it is completely unacceptable to have two safety standards for 
the drugs that Americans consume, one for the drugs made here 
and a lower one for imports. When it comes to safety, there 
should be no compromises. This committee has been vigilant on 
drug safety. Imported or reimported drugs should meet the same 
rigorous standards. Avoiding this double standard is important 
because in many cases drug imports can not be assumed as safe 
as U.S. drugs.
    Under my authority investigators from this committee last 
month went with the FDA to China and India to see firsthand the 
bulk drug plants and the problems with inspecting them. While 
China and India have a wealth of human labor and scientific 
talent, these drug plants lack resources and systems to assure 
safety. The plants that the staff observed had major problems 
meeting such basic safety requirements as clean water, good 
ventilation, and methods to avoid contamination. In the opinion 
of the investigators and the FDA inspectors, these kinds of 
plants could not exist in the United States because they would 
be unable to compete.
    Beyond these plant visits, investigators also obtained 
information and evidence related to fraud and counterfeiting 
that are a reality in the international pharmaceutical trade. 
FDA already cannot assure against the double standard because 
of weak import controls and inadequate information systems.
    Prompted by this committee's investigation, the FDA has 
reviewed its records on drug imports and found that 242 firms 
may have shipped misbranded drugs to the United States in 1999 
and have never been inspected. The total of 242 includes at 
least 46 firms from China and 11 from India.
    FDA must upgrade its enforcement and information systems to 
assure the safety of imported drugs. In addition to these 
improvements, there must be effective criminal enforcement 
against fake drug imports.
    After the June 8 hearing, I wrote to Attorney General Janet 
Reno about the Justice Department's view on improving ways to 
investigate and prosecute crimes related to counterfeit drug 
imports. In response to my request, the Department has 
suggested some legislative proposals such as requiring certain 
records as part of a foreign drug inspection and ensuring 
extraterritorial application of the Food, Drug and Cosmetic 
Act. These proposals seem reasonable in concept and I support 
them. I would be pleased to have the committee work with the 
FDA and the Justice Department on developing legislative 
language.
    As the reimportation of prescription drugs is eased, this 
committee has worked and will continue to work to strengthen 
protections for consumers against imports of fake drugs. 
Today's hearing to get more information on the problem and on 
proposed solutions and action is yet one more example of this 
committee working to protect consumers.
    I welcome today's witnesses and look forward to the 
testimony.
    Mr. Upton. Thank you, Mr. Chairman. Mr. Dingell.
    Mr. Dingell. Mr. Chairman, I thank you. I have a longer 
statement which I ask to be inserted in the record.
    Mr. Upton. Without objection, all members of the 
subcommittee will be allowed to introduce and offer their 
statements in their entirety.
    Mr. Dingell. Mr. Chairman, it is amazing to me how many 
times this Congress must relearn the same lesson, how little we 
profit from it and what messes we get ourselves into by failing 
to address the real underlying problem. I know there is a 
tremendous drive to allow reimportation of drugs or to allow 
importation of drugs and pharmaceuticals and other things in a 
more expedited easy fashion. This I think is in good part 
because my colleagues to some degree on both sides of the 
aisle, but mostly on the majority side, have found that the 
people are fed up with the fact that a lot of Americans are, 
(A) paying too much and, (B) that our senior citizens are not 
able to get prescription pharmaceuticals because they simply 
cannot afford them, and of course with some of the witchcraft 
that is coming forward on the other side of the aisle about how 
we are going to pay for prescription pharmaceuticals by 
enriching HMOs means that my colleagues on that side have 
urgent need of something to shelter them against public 
criticism.
    In the 99th Congress, this committee looked at 
reimportation of prescription pharmaceuticals. We had a long 
bipartisan report. We found a number of things. We found, for 
example, shipments of fake pharmaceuticals. We found unsafe 
packaged pharmaceuticals. We found counterfeits. We found 
adulterated antibiotics from places like China. We found 
prescription pharmaceuticals that had been repackaged under 
unsafe conditions that had been stored under unsafe and under 
conditions which created deterioration of the prescription 
pharmaceuticals and which put Americans at risk.
    So we passed the basic legislation to which we are 
inquiring today, the PDMA, which required that the prescription 
pharmaceuticals be imported through licensed manufacturers. 
That was because the Congress was, quite frankly, too stupid 
and too tight to properly fund these programs and because OMB 
saw to it that Food and Drug didn't have the money that they 
needed to do the job and didn't have the resources and the 
number of people.
    Now, with a growing trade in prescription pharmaceuticals 
from places like China, we are going to expand the amount that 
comes in. The chairman just made, I thought, a very sapient 
observation in which he pointed out that there is desperate 
need to see to it that Food and Drug has the resources to do 
the job that they have to. We aren't seeing to it with that 
situation, and I intend to ask a few questions about it.
    Now if you think that you are limiting this only to 
subjects like prescription pharmaceuticals and things which 
will come in, you are entirely in error, because we are talking 
about aerosol inhalers, we are talking about pre-mixed-
injection solutions, we are talking about ointments and creams, 
auto injectors, power inhalers, topical gels, injection 
solutions, inhalation solutions, pediatric solutions, capsules, 
prefilled syringes, and a wide array of other things, including 
syrups and nasal sprays.
    Now, if you are talking about having Food and Drug catch 
somebody at the border when they have the array of shipments 
that they have in, you are going to find that, (A) they can't 
do it and, (B) they can't paw through to find out whether these 
substances are in fact safe, whether they are deteriorated, 
whether they are manufactured under good manufacturing 
conditions as required by our law or whether they are doing 
other things. In short, you are setting yourself up, if you 
pass legislation easing reimportation or easing importation, to 
a situation where you are looking at a fine calamity and some 
fine killings of Americans and making Americans ill because you 
are not doing the job that you should in terms of seeing to it 
that Food and Drug has the resources to address these problems 
now.
    I would just call to your attention one little thing, where 
Food and Drug some years back had a scare over Chilean grapes. 
They pulled the whole Food and Drug administrative and 
enforcement mechanism and they sent them to the ports to look 
and see what was going on. They found, I think, three grapes 
that had cyanide in them. But the result of this mess was that 
there was a prodigious lack of enforcement of all parts of the 
foods and drug law because they didn't have either the people 
or the resources without this particular scare to do the job 
that they needed to do.
    So I look forward with a great deal of interest to what we 
uncover today. I intend to ask about the resources and to try 
and recall for the benefit of those who have not learned this 
lesson, as I had to learn it back in the 99th Congress, about 
what happens when you turn loose an agency without proper 
resources, charge them with protecting the American people and 
then find that they cannot do the job that they have to do.
    I think that this is particularly subject to criticism when 
we do this in order to avoid criticism for failing to pass 
proper legislation to address the problems of our senior 
citizens and having prescription pharmaceuticals made available 
to them at a reasonable cost.
    In any event, this will be an interesting hearing. We will 
try and see to it that it is lively and that all participate. 
In the meantime if anybody has got any loose time I have an 
excellent statement which deals with these matters and other 
matters in greater detail, which I hope will be helpful to the 
Chair, to the committee and to the Congress in terms of 
understanding the mess in which we are injecting ourselves.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. John D. Dingell follows:]

    PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
                  CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Chairman, I have long been concerned about counterfeit, 
substandard, misbranded, and adulterated drugs entering this country 
from abroad. Previous investigations conducted by this Subcommittee 
more than a decade ago ultimately led to the passage of the 
Prescription Drug Marketing Act (PDMA), which added measures to protect 
consumers from potentially dangerous foreign drug sources. But 
protecting consumers from questionable and dangerous drug products 
manufactured abroad remains a formidable challenge.
    I remain concerned that the Food and Drug Administration (FDA) has 
yet to develop a suitable framework for protecting the public in the 
face of potentially greater risks. The agency still remains alarmingly 
behind in inspecting those firms that send drug products here, and it 
still lacks the ability to track and measure the global counterfeiting 
problem. What is more troubling is that significant new 
responsibilities could soon be placed on an agency that is already 
underfunded and struggling to meet its current mandate.
    Mr. Chairman, FDA is supposed to inspect firms for Current Good 
Manufacturing Practices (CGMPs) before they are approved to ship a drug 
product into the United States. Yet at the last hearing, it was 
disclosed that approximately 4,600 foreign drug firms may have shipped 
products to the U.S., yet were never inspected by the agency. FDA now 
tells us that the figure is lower, but they still cannot tell us what 
it is. That inability does not instill confidence.
    The lack of this kind of information stems from the agency's 
reliance on an incomplete and outdated information technology system 
called OASIS. We have asked the agency to address the shortcomings of 
this system for years, but FDA has failed. While FDA is again trying to 
fix this system by hiring yet another outside contractor, the fact 
remains that the agency still cannot efficiently generate data critical 
to its foreign inspection efforts.
    A workable system for tracking who sends what and when to this 
country, and whether such firms meet U.S. good manufacturing practice 
requirements, must be implemented, and soon. Commissioner Henney should 
immediately determine the agency's information technology requirements, 
and then finish the job.
    Meanwhile, as FDA continues to struggle with this problem, new 
inspection demands are piling up. Although we cannot determine the 
exact size of the foreign inspection backlog, we know that one exists 
and it appears considerable.
    What is worse is that in the coming years increased inspection 
demands will only grow. For example, staff was told that next year, as 
many as 10 to 15 new facilities requiring an FDA inspection could 
emerge in China alone. For this single country, FDA would have to 
significantly increase its inspection efforts from the previous year, 
which would represent a significant resource expense to the agency. 
Multiply this across the globe and the ensuing problem becomes obvious.
    How will we expect the FDA to keep pace with such demand when it is 
already falling behind? Further, if the agency cannot keep up, what 
will the effect be on the safety of the nation's drug supply? These are 
critical questions that must be asked and properly addressed. What is 
also important is that we ask these questions in the context of the 
larger debate now taking place regarding drug pricing. That is because 
the outcome of that debate could have profound consequences on how the 
agency does its job, and how it allocates resources.
    While it is known that I have a number of safety concerns regarding 
most of the re-import proposals, I also have concerns that we are on 
the verge of asking an already overstretched agency to do significantly 
more. I remain skeptical whether we will adequately fund FDA, or even 
if it is technically prepared and capable of doing the job. I cannot 
think of a time when FDA was not struggling for resources, nor do I 
recall that the agency did a particularly good job at stopping 
adulterated and counterfeit material from reaching our shores before 
the Prescription Drug Marketing Act went into effect.
    Policing the world's drug supply is an expensive endeavor. Yet, 
while we agree that foreign inspections are a critical component to 
safeguarding the nation's health, we still do not adequately fund them. 
Why? If we are going to hold the FDA responsible for being the world's 
drug cop, shouldn't we provide it with the necessary resources to do 
the job competently?
    Let me conclude by saying that I believe that drug counterfeiting 
is a very real problem that will likely only grow worse in the future. 
The world's drug supply is every bit as vulnerable to dangerous 
counterfeiting today as when I first began the investigation more than 
15 years ago that ultimately led to the Prescription Drug Marketing 
Act. And while I have a great deal of respect for my friends at the FDA 
that continually protect us from that threat, I do believe the agency 
is slipping behind in meeting its mandate. I would think long and hard 
about whether, in the near future, we want the agency to take on even 
greater responsibilities, before we have first addressed what is now 
broken.
    I look forward to hearing from today's witnesses, and with that, I 
yield back.

    Mr. Upton. Thank you. Recognize the vice chair of the 
subcommittee, Mr. Burr.
    Mr. Burr. Thank you, Mr. Chairman. Welcome, Commissioner 
Henney. Mr. Chairman, before I make my written remarks, let me 
associate with the chairman of the committee and the ranking 
member of the committee with the concern that I personally hold 
after a 2\1/2\-year commitment through the FDAMA legislation at 
a time where we worked aggressively, every member of this 
committee, to protect the gold standard that we recognize 
existed at the Food and Drug Administration and the dismay that 
we go through today with an effort to open up the market to a 
flow of drugs in a way that we can't, I believe, fulfill the 
commitment to meet the same standard.
    It is somewhat of an amazement that it bypassed this 
committee, that the effort is stuck into an appropriations bill 
and that individuals responsible within this government for the 
safety and efficacy of our pharmaceuticals have been supportive 
of this effort for reimportation and importation. I have tried 
to stay focused on this hearing because it deals with 
counterfeit drugs. It is somewhat ironic that we would 
highlight the problem that exists in America and at the same 
time walk into another room and talk about how to expand the 
risk to us of a current problem.
    After reviewing Commissioner Henney's testimony, I am 
pleased to see that the FDA listened to several of our 
suggestions at the June 8 hearing and has moved forward with 
some important initiatives. However, several statements in the 
testimony do raise some questions. One, given that the 
importers were notified on January 29, 1999, March 24, 2000, 
July 20, 2000 and July 28, 2000, that they must provide the FDA 
with the identity and location of the drug import 
manufacturers, it concerns me that you have not provided us 
with any compliance data on the requirement today. The first 
notice was given over 20 months ago.
    Two, as one of the authors of FDAMA, it disheartens me to 
see that a final rule on a requirement included in FDAMA has 
just been sent for approval to the Office of Management and 
Budget. It is very important for foreign establishments whose 
products are imported or offered for import into the U.S. to 
register with the FDA and identify a U.S. agent. It should not 
have taken FDA 3 years to issue a rule on this part of the 
FDAMA legislation. You state that the Office of Criminal 
Investigations is working on a number of ongoing investigations 
with Customs involving unapproved and counterfeit finished 
human drugs. I am curious to know how many investigations are 
included in a number after all the years the FDA just spoke 
about the potential threat posed by counterfeit drugs.
    Four, the Prescription Drug User Fee Act requires 
preapproval inspections of manufacturing facilities. Why are 
there by FDA's count 242 uninspected foreign manufacturers that 
are exporting products to the United States of America? The 
bottom line in this issue is consumer safety. It should be as 
it relates to the debate on counterfeit drugs, it should be as 
it relates to any debate about a stream or flow of 
pharmaceuticals, be them finished or bulk, to this country and 
I hope that never changes.
    I thank the chairman. I yield back.
    Mr. Upton. Thank you.
    Mr. Bryant.
    Mr. Bryant. Thank you, Mr. Chairman. I too, as my colleague 
from North Carolina did, wish to associate myself with the 
remarks of our chairman of the full committee as well as the 
ranking member in terms of the concern that we all have 
regarding the availability of prescription drugs to our 
population as well, and specifically to our senior citizens.
    I would differ with those on the committee who raise 
complaint about this Congress passing for the first time ever a 
prescription drug benefit for our senior citizens, something 
again that has never happened. And while it may not be the 
perfect bill, and rarely do we initially pass a perfect bill 
out of the House, it is a good start. It goes a long way down 
the road in providing universal coverage.
    It is a voluntary bill, one that doesn't make you get into 
the program if you don't want to, one that provides very good 
access to this benefit and at the same time provides a 
catastrophic type coverage for people out there who have 
extremely large bills. I think, importantly, it offers this, to 
coin a Washington phrase, sooner than later, this is something 
our senior citizens in particular don't need to wait years to 
begin receiving this type of benefit.
    I would specifically thank our chairman of this 
subcommittee, Mr. Upton, for a very timely hearing. I think in 
terms of providing an opportunity to have the FDA in at this 
time as well as Customs and Justice to talk about the 
importation issue is a wonderful opportunity, given several 
things, the Internet and sales and things like that that are 
just overwhelming Congress in so many ways. The Internet 
itself, sales of prescription drugs and other things would be 
one of those, but so many other times I think that the Internet 
and the technology that is emerging, particularly in the 
pharmaceutical industry, are overwhelming Congress's ability to 
keep up and enact legislation and to regulate to the extent 
those are necessary. Just deciding whether we need to regulate 
or legislate sometimes is a difficult decision itself.
    But I do look forward to the testimony of this very 
distinguished panel. Obviously the issue of the day is the 
importation and even the legislation that my colleague in North 
Carolina referred to, the riders to the agriculture 
appropriation bills that permit this. The legislation that 
protects the safety and the efficacy of drugs was put in place 
for a reason.
    There is a concern now, again with the rising cost of 
drugs, that we look at ways to lower those costs. This was one 
of the things that has been passed out of the House, but again 
not without controversy. I do look forward to the statements 
from the panelists on those opinions. And given the events of 
the last week with the approval of the drug RU-486, I am sure 
that might come out in some examination, because that obviously 
has very broad implications, too, in this arena of reimporting 
drugs into the country and the safety, which I think we all 
agree is foremost in the minds of all the people in this room 
today as well as I suspect in Washington also.
    With that said, I would be happy to give back my time, but 
again my appreciation for your very timely hearing today.
    Mr. Upton. Thank you.
    Mr. Waxman.
    Mr. Waxman. I have no opening statement. I welcome our 
witnesses. I look forward to their testimony. I will reserve 
all my comments until we get into questions. But I also want to 
commend the FDA for its decision last week on RU-486 and so 
many other things where I think it is doing a good job. You 
should hear sometimes from us and we acknowledge that.
    Mr. Upton. Well thank you. At this point we are prepared to 
have the first panel testify. We are honored to have the 
Honorable Jane Henney, Commissioner of the Food and Drug 
Administration, with us today; the Honorable Raymond Kelly, 
Commissioner of the U.S. Customs Service; and Ms. Patricia 
Maher, Deputy Assistant Attorney General, Civil Division, from 
the Department of Justice. Welcome.
    As you may know, your statements in their entirety are made 
as part of the record. We would appreciate it if you might be 
able to summarize that in about 5 minutes or so. And as you may 
know, testimony before in subcommittee traditionally has always 
been under oath. And do any of you have objection to us taking 
your testimony under oath?
    Ms. Henney. I don't have objection to taking it under oath, 
but I would like to affirm rather than swear, affirm rather 
than swear as you give the oath.
    Mr. Upton. Okay.
    Mr. Dingell. That is proper.
    Mr. Upton. Do any of you wish to be represented by counsel 
as well? If not, if you would stand.
    [Witnesses sworn.]
    Mr. Upton. You are now under oath, and, Dr. Henney, we will 
start with you. Thank you and welcome.

 TESTIMONY OF HON. JANE E. HENNEY, COMMISSIONER, FOOD AND DRUG 
   ADMINISTRATION; ACCOMPANIED BY DENNIS E. BAKER, ASSOCIATE 
     COMMISSIONER, REGULATORY AFFAIRS; HON. RAYMOND KELLY, 
  COMMISSIONER, U.S. CUSTOMS SERVICE; AND PATRICIA L. MAHER, 
 DEPUTY ASSISTANT ATTORNEY GENERAL, CIVIL DIVISION, DEPARTMENT 
                           OF JUSTICE

    Ms. Henney. Thank you. Good morning, Mr. Chairman, members 
of the committee. I am Jane Henney, Commissioner of Food and 
Drugs. I appreciate the opportunity to be here today to discuss 
our efforts to detect and prevent the introduction of 
counterfeit bulk drugs into the drug supply of the United 
States and specifically to report on our actions since your 
hearing on this matter in June. A more comprehensive report of 
these activities is in my statement, and I appreciate your 
placing that in the record.
    FDA believes that the quality of drugs in this country is 
high, but we must take very seriously any allegations regarding 
the counterfeiting or adulteration of drug products. The agency 
agrees with the committee's assessment that more can and should 
be done to help ensure that imported bulk drugs or active 
pharmaceutical ingredients in finished products meet the 
requirements of the Federal Food, Drug and Cosmetic Act.
    The agency has been developing and implementing additional 
strategies for assessing the scope of the threat of imported 
counterfeits and moving forward with activities already under 
way. Let me begin by providing the committee with an update on 
the five initiatives FDA announced at the time of the June 
hearing.
    No. 1, additional funds were allocated to the Forensic 
Chemistry Center for sampling, analytical work and assessments 
of APIs gathered through targeted inspections of importers. 
With these funding increases, the Forensic Center has conducted 
20 targeted API inspections, including 9 at importers of 
foreign APIs, 10 at domestic finish dose manufacturers, and one 
at a domestic animal drug manufacturer. The Forensic Center 
inspectors are now analyzing the information obtained during 
these inspections to determine whether additional follow-up by 
district officers, investigators or our Office of Criminal 
Investigations is warranted.
    Two, make the Forensic Center API data base available 
electronically to all field investigators by January 2001. 
This, as you recall, is a data base that currently contains 
information or fingerprints on 330 APIs that have been 
collected and chemically analyzed by the Forensic Center. This 
information is one important tool that FDA can use to more 
quickly identify whether or not a product is authentic or 
counterfeit. The technology necessary to make the Forensic 
Center's API data base available to all of our field and port 
and drug inspectors is being developed and planned. We do 
expect to have the system in place by January 2001.
    Three, expand the Philadelphia pilot nationwide by the end 
of 2000. The Philadelphia pilot, as you will recall, allowed 
inspectors to retrieve additional drug approval data from the 
Establishment Evaluation System, or EES, data base maintained 
by the Center for Drug Evaluation and Research in about 3 to 4 
minutes on any API entry. Rapid access to this information 
increases the probability of confirming authentic sourcing of 
APIs.
    The pilot was a success and access to this system has been 
expanded to three FDA districts handling the vast majority of 
APIs, New York, New Orleans, and the San Juan district offices. 
Currently we are completing plans for the additional technology 
upgrades in the training for field personnel necessary to 
expand the program to the rest of our districts, which we will 
complete early next year.
    Four, put all importers on notice that they are required to 
provide the name of the foreign manufacturer upon entry into 
the U.S. and that the entry of their products into the U.S. 
will be contingent upon it. The agency has placed the import 
industry on notice regarding the existing requirement to 
provide FDA with accurate data regarding the identity and 
location of the manufacturer of imported drugs. On July 20 of 
this year, we posted an updated version of these requirements 
on the Internet with links to and from FDA's import operations 
pages. And on July 28 a Customs systems administrative message 
was issued to all files with a reference to this Internet site 
containing these requirements. Compliance with this requirement 
is assessed as the agency carries out routine filer evaluation. 
Customs has informed FDA that these types of reporting failures 
may be the basis for Customs civil actions. This information 
will be useful to the agency in better defining and identifying 
a universe of foreign manufacturers shipping to the U.S.
    Five, require domestic manufacturers to provide information 
to FDA when they discover that the bulk materials they receive 
are substandard, ineffective or appear not to be from the 
approved source. As you may know, the committee proposed this 
idea to the agency last year. We are proceeding with efforts to 
develop a proposed regulation that would establish this 
requirement.
    I would be pleased to also note actions that we have under 
way or other actions we have taken, including foreign 
registration. We have cleared and forwarded to OMB the final 
rule requiring foreign establishments whose products are 
imported or offered for import into the U.S. to register with 
FDA and to identify a U.S. Agent. This rule will be effective 6 
months after the publication of the final rule, and it will 
provide us the collection of information needed to establish an 
accurate official established inventory.
    We have reestablished our working group and this group has 
spent 3 months exploring a full range of issues regarding 
imported counterfeit and substandard drugs.
    On the important issue of information technology needs 
assessment, it was one of the greatest concerns at the June 
hearing, for the agency does lack a well-integrated IT system, 
particularly with respect to regulation of drug imports, but as 
it relates to our other information systems as well. We have 
had a contractor undertake a study. Their report has recently 
been received by the agency and we are currently reviewing both 
their recommendations and their resource estimates. We have 
also begun very aggressive cross-training with the U.S. Customs 
Service in June and July. We've conducted three import 
enforcement training courses for our own personnel. This is a 
course that has been jointly developed by FDA and Customs, who 
have developed the course and teach it. And it focuses on the 
interplay between FDA and Customs enforcement measures, 
strategic problem solving, administrative procedures and 
international agreements, and one-half of the training is in 
Customs law and regulation. We are extending this course to 
additional field personnel and we will be joined by other 
members of the Customs Service as well.
    The other cooperative efforts we have with Customs include 
our memorandum of understanding with a cross-designation of our 
OCI agents as Customs officers and we are working on a number 
of ongoing investigations with Customs regarding unapproved and 
counterfeit finished human drugs, medical devices, and foods.
    We have also had very aggressive discussions with Customs' 
Applied Technology branch about the use of countermeasures to 
detect counterfeits and track shipments when warranted. We have 
also been active in the international arena, which I would be 
glad to spend time discussing with you if you would like in the 
questions and answers. And we are also working with Customs on 
the leveraging of science and technology. We have met to 
explore methods to better leverage our respective resources in 
this manner.
    We had hosted at the Forensic Center a meeting on August 10 
with Customs officials to look at ways to use analytical data 
and equipment and cross-train in methodology and emerging 
forensic techniques. With respect to an import alert, we have 
been working with the issue of identifying foreign API 
manufacturers shipping to the U.S. who have not been inspected. 
As many members have cited, this data has enabled us to produce 
a list of 242 manufacturers in 36 countries that appear to have 
exported to the U.S. in 1999 but have not been inspected. Today 
we have issued an import alert for these uninspected foreign 
drug establishments. We have also had additional strategies for 
handling imported counterfeit unapproved drugs and APIs under 
consideration, which I will be happy to discuss during the 
questions and answers.
    Mr. Chairman, in June you asked us what additional 
resources, personnel and funding may be necessary to fully 
carry out our responsibilities for inspecting foreign drug 
manufacturers and to increase the surveillance of foreign APIs 
and finished drugs. The agency has long recognized that we need 
additional resources in the area of post-market surveillance, 
which would encompass many of the activities I've discussed. In 
just the past 2 years, fiscal year 1999 and fiscal year 2000, 
the President's budget included $25.8 million and $39.3 
million, respectively, for post-market surveillance activities. 
Neither of these requests was funded. The lack of new funding 
and absence of increase for our core operations reduces the 
numbers of FTEs available to perform the agency's critical 
post-marketing activities.
    At this time only preliminary estimates have been made of 
these resource requirements, as the scope of this evaluation 
needs to encompass both the agency's domestic and foreign 
operations as well as the operations of the various FDA 
centers. Once we have assessed these needs, we will look 
forward to working with you and the other Members of Congress 
to assure FDA has the tools it needs to do our job for the 
American public.
    Mr. Chairman and members of the committee, I want to assure 
you that all of us at FDA remain concerned about any 
possibility that counterfeit or otherwise unsafe drugs may find 
their way into the American drug supply. We will remain 
vigilant as we refine and improve our programs and procedures 
that we use to ensure the availability of safety medications 
for consumers. We appreciate your continued interest in these 
issues, and I will be happy to answer questions.
    [The prepared statement of Hon. Jane E. Henney follows:]

  PREPARED STATEMENT OF HON. JANE E. HENNEY, COMMISSIONER OF FOOD AND 
                                 DRUGS

                              INTRODUCTION

    Mr. Chairman and Members of the Committee, I am Jane E. Henney, 
M.D., Commissioner of Food and Drugs, Food and Drug Administration (FDA 
or the Agency). I appreciate the opportunity to be here today to 
discuss our efforts to detect and prevent the introduction of 
counterfeit bulk drugs into the drug supply of the United States 
(U.S.), and specifically, to report on our actions since your hearing 
on this matter in June.
    As we stated in our testimony at your June 8 hearing, FDA believes 
that the authenticity and quality of drugs in this country is high, but 
we must take very seriously any allegations regarding the 
counterfeiting or adulteration of drug products. The Agency agrees with 
the Committee's assessment that more can and should be done to help 
ensure that imported bulk drugs or Active Pharmaceutical Ingredients 
(APIs) and finished drug products meet the requirements of the Federal 
Food, Drug, and Cosmetic (FD&C) Act. Since June 8, the Agency has been 
developing and implementing additional strategies for assessing the 
scope of the threat of imported counterfeit APIs to U.S. consumers and 
responding appropriately to that threat.
    The growth in international trade over the past few decades has had 
a substantial impact on the ability of FDA to cope with the volume of 
regulated products, including APIs. Despite an increase in overall 
Agency funding in recent years, those increases have been allocated to 
new initiatives, and the Agency's core operations have not received 
commensurate increases. Field personnel and resources have been 
stretched so thin that FDA has been struggling to fulfill many of our 
program mandates. The increasing number of APIs from overseas makes 
policing the global drug marketplace to deter or interdict imported 
substandard drugs a daunting task. We have looked for additional ways 
in which we can use our own resources wisely, as well as leverage with 
others to increase our effectiveness.
    On June 8, you asked FDA for a plan to improve our ability to 
detect and interdict imported counterfeit and substandard APIs. We 
forwarded a preliminary report to you, Mr. Chairman, on August 10, 
2000, which outlined the Agency's plans and additional ideas under 
consideration for better handling imported counterfeit and substandard 
APIs and finished drugs.
    Let me begin by providing the Committee with an update on the five 
initiatives FDA announced at the June hearing.

1. In February 2000, additional funds were allocated to the Forensic 
        Chemistry Center (FCC) by the Office of Regulatory Affairs for 
        sampling, analytical work and assessments of APIs gathered 
        through targeted inspections of importers.
    With these funding increases, the FCC has conducted 20 targeted API 
inspections, including nine at importers of foreign APIs, ten at 
domestic finished dosage manufacturers and one at a domestic animal 
drug manufacturer. The FCC inspectors are now reviewing imported API 
documents and samples of product, labeling, packaging schemes and 
certificates of analyses obtained during these inspections. Information 
derived by these analyses will be used to help determine whether 
additional follow-up by district office investigators or the Office of 
Criminal Investigations is needed and to support any enforcement 
actions that may be warranted. At each of these inspections, the FCC 
worked with local FDA district drug investigators to detect suspect API 
shipments through product and records examinations. This activity also 
provided an opportunity for FCC staff to train field investigators and 
raise the awareness of District Investigation Branches to the problem 
of counterfeit API's. Additional hands-on training is planned for 
investigators in other strategic locations.

2. Make the FCC API database available electronically to all field 
        inspectors by January 2001.
    This database currently contains information or ``fingerprints'' on 
330 API's that have been collected and chemically analyzed by FCC. This 
information is one important tool which FDA can use to more quickly 
identify whether or not a product is authentic or counterfeit.The 
technology necessary to make FCC's API database available 
electronically on a real-time, searchable basis to field import and 
drug inspectors is being developed, and training for field personnel is 
being planned. We expect to have this system in place by January 2001.

3. Expand the Philadelphia pilot nationwide by the end of 2000.
    A pilot program was begun in the Philadelphia District office in 
1997, to evaluate the value of providing drug approval information to 
import field personnel. The pilot provided import inspectors in the 
Philadelphia District with access to information contained in the 
Establishment Evaluation System (EES) database maintained by the Center 
for Drug Evaluation and Research (CDER). EES tracks information related 
to the approval process for drug applications. The program allows 
inspectors to retrieve additional important data in about three to four 
minutes on any API entry, which increases the probability of confirming 
authentic sourcing of APIs.
    In light of this success, access to the EES system has been 
expanded to the three FDA Districts handling the vast majority of 
APIs--New York, New Orleans and San Juan District Offices. Training for 
these inspectors has been completed and accounts have been established. 
The system has been up and running for approximately two months, and 
our inspectors in these districts report that the EES information is 
very useful in helping to assure that the declared destinations of 
imported APIs are appropriate. Currently, we are completing plans for 
the additional technology upgrades and training for field personnel 
necessary to expand the program to the rest of our districts, which we 
plan to complete early next year.

4. Put all importers on notice that they are required to provide the 
        name of the foreign manufacturer upon entry into the U.S., and 
        that the entry of their products into the U.S. will be 
        contingent upon it.
    The Agency has placed the import industry on notice regarding the 
existing requirement to provide FDA with accurate data regarding the 
identity and location of the manufacturer of imported drugs. These 
requirements were previously made clear to importers and brokers 
through notices issued on January 29, 1999, and March 24, 2000. 
However, this requirement was not being fully met. Therefore, on July 
20, 2000, the Agency again posted an updated version of its 
requirements on the Internet with links to and from FDA's import 
operations pages. On July 28, 2000, a U.S. Customs Service (Customs) 
Automated Broker Interface (ABI) system administrative message was 
issued to all filers with a reference to the Internet site containing 
these requirements and a physical mailing address where a filer may 
request a hard copy from the Agency. A copy of the July 28, ABI 
notification was provided in FDA's August 10, letter to the 
Subcommittee.
    Compliance with this requirement is assessed as the Agency carries 
out routine filer evaluations and is one of the factors considered in 
providing continued electronic filing privileges on Operational and 
Administrative System for Import Support (OASIS). Customs has informed 
FDA that these types of reporting failure may be the basis for Customs 
civil actions. This information will be useful to the Agency in better 
defining and identifying the universe of foreign manufacturers shipping 
to the U.S.

5. Require domestic manufacturers to provide information to FDA when 
        they discover that the bulk materials they receive are 
        substandard, ineffective, or appear not to be from the approved 
        source.
    As you know, the Committee proposed this idea to the Agency last 
year. We stated in June that we agreed this is a promising approach, 
and FDA is examining what would be required to develop a proposed 
regulation that would establish this requirement.
Agency Examination of Imported Counterfeit Bulk Drugs
    Immediately following the June 8 hearing, FDA established a 
Counterfeit Drug Working Group (Working Group) which has spent the past 
three months exploring the full range of issues concerning imported 
counterfeit and substandard drugs. The Working Group has looked 
carefully at FDA's import operations and our foreign drug inspection 
program, and has been developing a plan to better assess the extent of 
the counterfeit drug problem in the U.S. The Working Group also has 
been examining ways the Agency can more readily detect these products 
to better ensure that the public is protected from potentially 
hazardous drugs.
    FDA's Counterfeit Drug Working Group consists of representatives 
from many Agency components, including: the Office of Criminal 
Investigations (OCI), the Division of Import Operations and Policy 
(DIOP), the Office of Enforcement, the Forensic Chemistry Center (FCC), 
the Division of Federal-State Relations (DFSR), the Division of 
Information Systems (DIS), and the Division of Emergency and 
Investigational Operations (DEIO), all of which are components of the 
Office of Regulatory Affairs (ORA), as well as the Offices of 
Compliance within the Center for Drug Evaluation and Research (CDER) 
and the Center for Veterinary Medicine (CVM), and the Office of Chief 
Counsel (OCC).
    While FDA is still in the process of assessing the effectiveness of 
the regulatory tools, compliance programs, staffing and procedures that 
already exist within the current statutory construct to monitor 
imported APIs, the Agency already has implemented a number of program 
initiatives, including the following actions.
    Foreign Registration--FDA has cleared and forwarded to the Office 
of Management and Budget (OMB) a final rule requiring foreign 
establishments whose products are imported or offered for import into 
the U.S. to register with FDA and to identify a U.S. agent. As you 
know, this requirement was mandated in the Food and Drug Administration 
Modernization Act of 1997. It will provide for the collection of 
information needed to establish an accurate Official Establishment 
Inventory for foreign drug firms.
    Information Technology Needs Assessment (IT)--As you know, one of 
the issues of great concern at the June hearing was the Agency's lack 
of a well-integrated IT system for the regulation of drug imports. We 
acknowledged that FDA has been working with several independently 
developed databases of critical information that need to be integrated. 
We also understand the Committee's frustration that this problem has 
not yet been remedied.
    In early July, FDA engaged the services of a private IT contractor 
to assess the Agency's IT needs for drug imports and to propose changes 
to accomplish the goals described below. The contractor was charged 
with determining what information FDA import inspectors need to fully 
assess the admissibility of all FDA regulated commodities. The 
contractor consulted with import inspectors and compliance officers 
with expertise in FDA and Customs laws and regulations, good 
manufacturing practices, and IT import applications. The contractors' 
report was recently received by the Agency, and we are currently 
reviewing both the recommendations and the estimated resource 
requirements.
    Cross-training with U.S. Customs Service--In June and July 2000, 
FDA conducted three Import Enforcement training courses for FDA import 
personnel including Compliance Officers, Consumer Safety Officers, and 
Consumer Safety Inspectors. A total of 120 students attended one-week 
courses representing in total about half of all persons assigned to 
field import operations. FDA and Customs jointly developed the 
curriculum and taught the course. The course included training in 
Strategic Problem Solving (SPS), a Customs training module developed 
specifically to facilitate the targeting, investigation and prosecution 
of willful violators. Each course included a facilitated workshop after 
the pattern of SPS. In each class, students analyzed and provided 
recommendations for specific imported API counterfeiting fact patterns. 
These facilitated brainstorming sessions by the field personnel focused 
on the imported counterfeit API threat and produced numerous ideas for 
strategies in detecting, preventing, and interdicting counterfeit 
imported APIs. The Working Group is assessing these proposals for 
viability.
    This training course is being extended to additional field 
personnel in three sessions that began this week.
    Other Cooperative Efforts with Customs--FDA's OCI has a close 
working relationship with Customs, including a Memorandum of 
Understanding providing for all OCI agents to be cross-designated as 
Customs Officers. OCI currently is working a number of on-going 
investigations with Customs involving unapproved and counterfeit 
finished human drugs, and adulterated and misbranded medical devices 
and foods.
    OCI and Customs cooperated in a joint operation targeting the 
Internet sales of unapproved pharmaceuticals by Thailand-based 
organizations. In cooperation with Thai authorities, Customs arranged 
for the consolidation and diversion of international mail deliveries of 
these products to JFK Airport, where FDA personnel were assigned 
exclusively for review and processing of these entries. In the period 
February to August 2000, approximately 300 such shipments were 
reviewed, found to be non-admissible, and returned to Customs for 
forfeiture.
    FDA has also had discussions with Customs' Applied Technology 
branch and we will be meeting with them this month to explore the use 
of countermeasure devices to detect counterfeits and track shipments 
where warranted.
    International Collaboration--OCI, through liaison with their 
international law enforcement counterparts and other regulatory 
agencies, is a key Agency component in cooperative international 
efforts aimed at identifying, investigating and prosecuting drug crime. 
OCI participates in the Permanent Forum on International Pharmaceutical 
Crime (PFIPC), an international enforcement forum aimed at exchanging 
information and ideas on combating pharmaceutical crime. PFIPC works in 
conjunction with a Forensic Group that provides scientific expertise. 
OCI also maintains contact with their counterparts at the World Health 
Organization, the World Customs Organization, Interpol, and FDA's 
counterparts such countries as the United Kingdom, Germany, Spain and 
Australia. Additionally, the FCC participates in the International 
Laboratory Forum on Counterfeit Medicines.
    Forensic Chemistry Center Initiatives--The FCC and Customs have 
agreed to explore methods to better leverage their respective resources 
in the investigation and analysis of suspect counterfeit products. The 
FCC hosted the first meeting in their forensic laboratory on August 10, 
2000, and demonstrated FDA's current forensic capabilities and 
strategies. The two agencies will explore ways to grant access to 
analytical data and equipment and cross training in methodologies and 
emerging forensic techniques. The FCC will interface directly with 
Customs' laboratories to share information on analytical procedures 
FDA's forensic experts use to detect unapproved and counterfeit APIs. 
FDA has placed a high priority on developing with Customs a unified 
approach for interdicting counterfeit drugs.
    Review of Data on Uninspected Firms--In response to a request from 
Chairman Bliley earlier this year, FDA produced a report based on 
unverified data from OASIS, which identified listings for approximately 
4,600 firms that appeared to be non-inspected foreign drug 
manufacturers. It should be noted that the OASIS data was input by 
Customs house brokers at the time that drug entries were filed.
    This number of 4,600 ``uninspected firms'' was the subject of great 
concern at the June hearing. As explained in our previous testimony, 
that number was the best estimate we were able to provide on short 
notice, and was derived by comparing raw data input by import brokers 
into OASIS with a known list of inspected firms. FDA has reviewed the 
OASIS data and manually cross-checked it with other information sources 
to weed out duplicates and incorrect entries and establish a much more 
accurate list of uninspected foreign drug manufacturers that appear to 
have exported to the U.S. an API that is normally used to manufacture a 
finished dosage form which requires an approved application. So far, 
the review of this data has enabled us to produce a much more reliable 
list of 242 foreign API manufacturers, in 36 countries, that appear to 
have exported to the U.S. in 1999, but have not been inspected, 
according to the EES database. The Agency is developing an import alert 
for these uninspected foreign drug establishments. The 242 identified 
firms include forty-six firms in China and Hong Kong and eleven firms 
in India.
    The final phase of the analysis of the OASIS data will be to 
identify firms FDA has not inspected but which are referenced in 
approved human and animal drug applications. The human drug firms will 
be evaluated using a risk-based analysis stratified into one of four 
tiers, incorporated into FDA's surveillance list, and subsequently 
scheduled for inspection.

Additional Strategies for Handling Imported Counterfeit, Unapproved 
        Drugs and APIs
    Joint Industry/Agency Efforts--Members of the Working Group 
conferred with the FDA's Field Drug Committee (FDC) on counterfeit API 
issues. The FDC historically has maintained networks with drug industry 
personnel and trade associations and has utilized these relationships 
for furthering the important message of health and safety through 
consistency in the Good Manufacturing Practice compliance. The FDC will 
assist in developing avenues through which industry could join forces 
with the Agency in combating counterfeits in the market place.
    Beyond this initial approach through the FDC, the Agency is 
exploring additional routes for encouraging and receiving intelligence 
on counterfeit drugs in the world market. Historical experience in 
prior counterfeit API investigations has demonstrated that foreign API 
manufacturers whose products are being counterfeited can provide 
substantial assistance in developing tests for authenticity and 
intelligence regarding suspected counterfeiting operations. The Agency 
is aware that intelligence gathering from the trade is a critical 
element to successfully identifying suspect counterfeits in the market.
    Foreign Inspection Component--When faced with the challenge of a 
steadily increasing volume of needed foreign inspections, coupled with 
limited resources, a risk-based approach to foreign drug inspection was 
developed. CDER established a four-tiered approach to prioritizing and 
performing surveillance inspections of firms that FDA had not 
previously been able to inspect. At the present resource level, 
however, FDA is only able to inspect firms in Tier I (Official Action 
Indicated, or OAI, inspection follow-up) and Tier II (sterile bulks, 
finished drugs and aerosols). It should be noted that pre-approval 
inspections are required by the Prescription Drug User Fee Act and most 
are conducted in accordance with the Act's mandate. Thus, resources are 
the primary factor limiting the Agency's ability to undertake 
additional inspections. As I am sure your Committee staff reported back 
to you after their trip to China and India to observe foreign 
inspections, foreign inspections are extremely resource intensive--
requiring not only highly trained investigative and scientific 
personnel, but linguistically and culturally competent staff, as well. 
The time needed to conduct a foreign inspection is also magnified by 
travel requirements.
    The Agency is reassessing these issues and discussing how to best 
utilize our current resources given current constraints. We hold fast 
to the belief that there is no substitute for an eyes and hands-on 
inspection.
    Even with these limitations, I would hasten to note that since 
1990, the Agency has shifted resources from domestic to foreign 
programs to increase our presence in the foreign drug manufacturing 
marketplace, recognizing the shift in global markets. The foreign drug 
inspection program for the current fiscal year is on track for 
accomplishing approximately 450 inspections in all foreign drug program 
areas. This represents more foreign inspections than the Agency has 
ever completed in a single year. The program continues to be primarily 
application driven, and the priorities associated with the product 
approval process do impact our ability to conduct drug surveillance 
inspections.
    For fiscal year (FY) 2001, ORA is projecting approximately 550 
foreign inspections associated with its foreign drug work plan in all 
program areas. The FY 2001 foreign work plan focuses on manufacturers 
that have not been inspected, as identified through the analysis of 
OASIS data discussed previously. This includes substantial increases in 
drug surveillance inspections, which would result in increased coverage 
of firms in Tiers III and IV. However, to accomplish this increase, a 
reallocation of existing resources would need to occur by reducing our 
domestic inspection program.
    Import Operations Component--FDA's DIOP is responsible for 
providing policy guidance to the field relating to import procedures, 
overseeing the development and operation of the Agency's Import Alert 
system, and for maintaining the Agency's OASIS system. Customs has 
identified over 300 designated ports of entry. OASIS data indicates 
that approximately 175 ports have seen entries of APIs. FDA has a 
notable presence in over 40 ports. The ports where FDA conducts the 
bulk of its work represent those through which the vast majority of 
drugs enter. The Working Group is reviewing DIOP's procedural and 
system operations and is assessing the Agency's personnel and equipment 
needs to better monitor U.S. ports of entry.
    Security Measures--FDA is engaged in discussions with the Customs' 
Applied Technology Division, which has considerable experience in 
tracking shipments within U.S. commerce to verify and document cargo 
diversion. We will evaluate the currently available technology in terms 
of levels of surveillance capabilities, cost of equipment and 
implementation. Additionally, we have asked the IT contractor to 
explore the possible use of low cost security devices by foreign 
manufacturers such as chemical taggants in labeling, glue, ink or 
packaging materials to detect suspect counterfeit drugs. Other possible 
solutions include radio frequency tags for detection during 
examinations at ports of entry.
    The Agency is considering a wide array of available technology, 
including encrypted bar code technology in labeling and Certificates of 
Analysis containing manufacturing information already submitted by the 
foreign manufacturer through a secure web-based environment.
    Mr. Chairman, in June you asked us what additional resources, 
personnel and funding may be necessary to fully carry out our 
responsibilities for inspecting foreign drug manufacturers and to 
increase the surveillance of foreign APIs and finished drugs. The 
Agency has long recognized that we need additional resources in the 
area of post-marketing surveillance, which would encompass many of the 
activities I have just discussed. In just the last two years--FY 1999 
and FY 2000--the President's budget included $25.8 million and $39.3 
million, respectively, for post-marketing surveillance activities, none 
of which was funded. The lack of new funding, coupled with an absence 
of increases for core operations, reduces the number of FTEs available 
to perform the Agency's critical post-market activities.
    At this time, only preliminary estimates have been made of these 
resource requirements, as the scope of this evaluation needs to 
encompass both the Agency's domestic and foreign operations, as well as 
the operations of various FDA Centers. We look forward to providing 
more specific information on our funding needs relating to personnel 
and technology in the future, once a complete assessment is made and 
appropriate review has occurred.
    FDA will continue its assessment of the extent of the counterfeit 
drug problem in the U.S. Over the coming weeks, the strategies outlined 
above will be further developed and enhanced, and other potential 
strategies will be considered. While the Agency has already made a good 
deal of progress, we have much work remaining.
                               conclusion
    Mr. Chairman, I want to assure you that all of us at FDA remain 
strongly concerned about any possibility that counterfeit or otherwise 
unsafe drugs may find their way into the American drug supply. We will 
remain vigilant as we refine and improve the programs and procedures 
that we use to ensure the availability of safe medications for 
consumers.
    We appreciate the continued interest of the Subcommittee in these 
important issues. Thank you again for the opportunity to discuss these 
issues with you, and I will be happy to answer any questions.

    Mr. Upton. Thank you.
    Mr. Kelly.

                 TESTIMONY OF HON. RAYMOND KELLY

    Mr. Kelly. Thank you, Mr. Chairman, members of the 
committee, for the opportunity to testify today. The Customs 
Service is an agency of almost 20,000 employees stationed at 
301 ports of entry and 165 other locations across the country. 
Many know Customs as the Federal Government's primary drug 
interdiction agency. One of our greatest challenges is sifting 
illegal narcotics from the $1 trillion in trade and half a 
billion travelers we process each year. But the scope of 
Customs' responsibilities goes well beyond drug interdiction to 
include money laundering, copyright and trademark infringement, 
the import and export of weapons of mass destruction, 
prohibited technologies, forced child labor investigations, 
child pornography and criminal exploitation of the Internet. We 
also enforce over 400 regulations for 40 other Federal agencies 
at our borders, including the laws that prohibits the 
importation of counterfeit pharmaceutical products.
    As we are all aware, legislation is currently pending to 
allow the U.S. pharmacists and wholesalers to reimport American 
manufactured, FDA approved drugs from abroad. This morning, I'd 
like to discuss our concerns about the potential resource 
implications for our agency.
    Customs has experienced a significant spike in 
investigations and seizures of counterfeit pharmaceuticals over 
the last few years. One factor in this development is the 
Internet. We consider the problem serious enough to make it a 
top priority of Customs' CyberSmuggling Center, which is our 
new state-of-the-art facility devoted to combating Internet 
crime.
    Part of the mission of the center is to search for foreign 
companies marketing prohibited or unsafe drugs to U.S. 
consumers. That information is passed on to our Office of 
Investigations, which has successfully concluded a number of 
counterfeit pharmaceutical cases in recent years. Prescription 
drugs are most commonly sent through U.S. mail. Customs 
inspectors staff 14 international mail branches at various 
postal facilities across the United States to deal with these 
shipments.
    To state that finding counterfeit drugs hidden amongst 
hundreds of millions of parcels is like finding needles in a 
hay stack would be an understatement. In fact, finding any form 
of contraband in postal shipments presents a massive challenge.
    Our limited resources require a risk management approach, 
through which we utilize advance intelligence, records of past 
seizures, and other factors to zero in on packages that present 
the most significant threat. Customs laboratories also play a 
critical part in our investigations. Their expertise in 
analyzing everything from textiles to foreign oil, to food 
products to determine point of origin and composition is world-
renowned.
    We maintain fully equipped labs at the following locations: 
New York, Chicago, Savannah, New Orleans, Los Angeles, San 
Francisco and San Juan. In addition, we have three mobile labs 
that deploy at any point along our borders. We are confident in 
the forensic capability of our labs to find discrepancies in 
shipments of bulk and finished pharmaceuticals. But where we do 
require assistance specifically from the Food and Drug 
Administration is in determining effective national standards 
for interdiction of these products. These standards will be 
critical especially in light of the pending legislation.
    To that end, Customs initiated a request to the FDA last 
January for further guidance on detaining suspect 
pharmaceuticals. In addition, we formed a joint task force with 
FDA in August to examine shipments of online drug purchases. 
The task force's work will include the set-up of a pilot 
examination program in Los Angeles beginning on October 23.
    We've asked the FDA to develop interim guidelines to cover 
the illegal shipments we are taking in now for both online and 
bulk pharmaceuticals. Customs has already begun examining 
shipments of pharmaceuticals as part of Operation Safeguard, 
our ongoing enforcement program with FDA. The first phase began 
September 25 at the Customs mail facilities in Oakland, 
California and here in Washington at Dulles Airport. So far 
we've detained 200 shipments. To give the members an example, 
our seizures included a 3000-tablet shipment of Prozac with an 
expiration date of 1980.
    In addition, our Office of Investigations maintains a close 
relationship with its FDA counterpart. We have a memorandum of 
understanding, as the Commissioner mentioned, in place with the 
FDA at our field locations that cross-designates their special 
agents as Customs officers. Customs has also provided training 
to FDA officials on import enforcement. We will continue do so 
throughout the course of the next fiscal year.
    Mr. Chairman, our biggest concern in the face of new 
legislation is obtaining adequate resources to enforce it. From 
an overall Customs perspective, a spiraling volume of goods at 
our borders has put immense pressure on our ability to 
facilitate international trade while enforcing our Nation's 
laws. We've taken many steps to address anticipated challenges, 
including refinement of our targeting approach and development 
of a Resource Allocation Model to project future staffing needs 
across the country. Though this study has not been finally 
approved by OMB and the Treasury Department, once it is it will 
allow flexibility in building in new resource needs like the 
one we are discussing today.
    We just received the resource package FDA has developed and 
we are reviewing it right now. That analysis and the 
development of the national standards I referred to will help 
us greatly in determining our own requirements.
    Customs encounters many travelers in our borders returning 
from trips expressly for the purpose of purchasing drugs. We 
are very familiar with the lengths to which our citizens will 
go to obtain savings on health costs. I should note that for 
the public's information implementation of the Medicine Equity 
and Safety Act would not affect individuals who travel across 
our northern and southern borders to obtain prescription drugs. 
They would continue to be subject to existing laws that apply 
to such purchases. Nor would online purchases by consumers be 
impacted. They too would be regulated according to current 
guidelines.
    Mr. Chairman, I want to thank you and the members of the 
committee for considering the Customs Service in your 
discussions of the importation of pharmaceuticals. This is an 
issue that speaks directly to our mission. We will continue to 
make every effort possible to work with the Congress and our 
fellow inspection agencies to address the health and safety 
concerns of the American people.
    Thank you.
    [The prepared statement of Hon. Raymond Kelly follows:]

 PREPARED STATEMENT OF HON. RAYMOND KELLY, COMMISSIONER, U.S. CUSTOMS 
                                SERVICE

    Mr. Chairman, members of the committee, thank you for this 
opportunity to testify.
    As Commissioner of U.S. Customs, I oversee an agency of 20,000 
employees stationed at 301 ports of entry across the country. Many know 
Customs as the federal government's leading drug interdiction agency. 
One of our greatest challenges is sifting illegal narcotics from the 1 
trillion dollars in trade and half a billion travelers we process each 
year.
    But the scope of Customs responsibilities goes well beyond drug 
interdiction to include: money laundering; copyright and trademark 
infringement; the import and export of weapons of mass destruction and 
prohibited technologies; forced child labor investigations; child 
pornography; and criminal exploitation of the Internet.
    We also enforce over 400 regulations for 40 other federal agencies 
at our borders, including the laws that prohibit the importation of 
counterfeit pharmaceutical products, the topic I am here to discuss 
with you today.
    As you are all aware, legislation is currently pending to allow 
U.S. pharmacists and wholesalers to re-import American manufactured, 
FDA approved drugs from abroad. This is an effort to lower prescription 
drug costs for consumers. This morning I would like to discuss the bill 
and its impact on our agency.
    Customs has experienced a significant spike in its investigations 
and seizures of counterfeit pharmaceuticals over the last few years. 
One factor in this development is the Internet. We consider the problem 
serious enough to make it a top priority of Customs' Cybersmuggling 
Center, our new, state-of-the-art facility devoted to combating 
Internet crime.
    Part of the mission of the Center is to search for foreign 
companies marketing prohibited or unsafe drugs to U.S. consumers. That 
information is passed on to our Office of Investigations, which has 
successfully concluded a number of counterfeit pharmaceutical cases in 
recent years.
    Prescription drugs are most commonly sent through U.S. mail. 
Customs Inspectors staff fourteen international mail branches at 
various postal facilities across the United States to deal with these 
shipments.
    To state that finding counterfeit drugs hidden amongst hundreds of 
millions of parcels is like finding needles in a haystack would be an 
understatement. In fact, finding any form of contraband in postal 
shipments presents a massive challenge. Our limited resources require a 
risk management approach, through which we utilize advance 
intelligence, records of past seizures, and other factors to zero in on 
packages that present the most significant threat.
    Customs laboratories also play a critical part in our 
investigations. Their expertise in analyzing everything from textiles, 
to foreign oil, to food products to determine point of origin and 
composition is world-renowned. We maintain fully-equipped labs at the 
following locations: New York; Chicago; Savannah; New Orleans; Los 
Angeles; San Francisco and San Juan. In addition, we have three mobile 
labs to deploy at any point along our borders.
    We're confident in the forensic capability of our labs to find 
discrepancies in shipments of bulk and finished pharmaceuticals. But 
where we do require assistance, specifically from the Food and Drug 
Administration, is in determining effective national standards for 
interdiction of these products.
    These standards will be critical especially in light of the pending 
legislation. To that end, Customs initiated a request to the FDA last 
January for further guidance on detaining suspect pharmaceuticals. In 
addition, we formed a joint task force in August to examine shipments 
of on-line drug purchases. The task force's work will include the set-
up of a pilot examination program in Los Angeles beginning on October 
23rd.
    In the meantime, I've urged the FDA to develop interim guidelines 
to cover the illegal shipments we're taking in now. Customs has already 
begun examining shipments of pharmaceuticals as part of ``Operation 
Safeguard.'' The first phase of this operation began September 25th, at 
the Customs mail facilities in Oakland, California and here in 
Washington, at Dulles Airport. So far, we've detained 200 shipments. To 
give the members an example, our seizures included a three thousand-tab 
shipment of Prozac with an expiration date of 1980 on it.
    In addition, our Office of Investigations maintains a close 
relationship with its FDA counterpart. We have a Memorandum of 
Understanding in place with the FDA at our field locations that cross-
designates their special agents as Customs officers. Customs has also 
provided training to FDA officials on import enforcement. We'll 
continue to do so throughout the course of the next fiscal year.
    Mr. Chairman, our biggest challenge in the face of the new 
legislation is keeping pace with the spiraling volume of goods at our 
borders while also enforcing our nation's laws. We've taken many steps 
to address anticipated challenges, including refinement of our 
targeting approach and development of a strong resource allocation 
plan.
    We recently received the resource projections FDA has developed for 
its own needs under the new legislation and we're reviewing it now. 
That analysis, and the development of the national standards I just 
referred to, will help us greatly in determining our own requirements.
    I should note for the public's information that implementation of 
the Medicine Equity and Safety Act would not affect individuals who 
travel across our northern and southern borders to obtain prescription 
drugs. They would continue to be subject to existing laws that apply to 
such purchases. Nor would on-line purchases by consumers be impacted. 
They too would be regulated according to current guidelines.
    Mr. Chairman, I want to thank you and the members of the Committee 
for considering the Customs Service in your discussions of the 
importation of bulk pharmaceuticals. This is an issue that speaks 
directly to our mission. We will continue to make every effort possible 
to work with the Congress and our fellow inspection agencies to address 
the health and safety concerns of the American people.
    I'd be happy to take any questions you have.

    Mr. Upton. Thank you.
    Ms. Maher.

                 TESTIMONY OF PATRICIA L. MAHER

    Ms. Maher. Mr. Chairman and members of the committee, good 
morning. My name is Patricia Maher. I am a Deputy Assistant 
Attorney General in the Civil Division of the Department of 
justice. In that capacity one of my responsibilities is to 
oversee the Office of Consumer Litigation, the Civil Division's 
office that handles civil and criminal cases brought under a 
number of Federal consumer protection statutes, including the 
Federal Food, Drug and Cosmetic Act.
    This morning I will speak to you about our experience 
prosecuting traffickers of counterfeit pharmaceutical products 
that are manufactured outside of the United States. I will also 
offer some ideas regarding additional tools that would be 
helpful to combat this problem.
    Prosecutions of the type I will be discussing are both 
important and difficult. They are important because the targets 
in these cases introduce drugs of unknown safety and efficacy 
into the United States. Successful prosecutions signal to 
traffickers around the world that tainting the drug supply of 
the United States will not be tolerated. But these cases are 
difficult because much of the evidence of unlawful activity is 
located overseas and thus is more difficult to obtain than 
evidence located within our borders.
    While we have been successful in overcoming these hurdles 
and obtaining convictions, we need your help to eliminate 
obstacles that slow investigations and create questions 
regarding the applicability of the act to the behavior that is 
at issue in these cases.
    The Food, Drug and Cosmetic Act defines a counterfeit drug 
to include a drug which without authorization bears an 
identifying mark of another drug manufacturer that did not 
manufacture the drug. Under the act the term ``drug'' includes 
both finished drug products and components of drug products 
that are referred to as bulk pharmaceuticals or active 
pharmaceutical ingredients.
    In the pharmaceutical industry the term ``counterfeit 
drug'' is generally used to refer to a compound that is not 
made by the authorized manufacturer but is presented to the 
consumer as if it were.
    Counterfeit drugs pose a number of potential public health 
issues. They may contain a less potent ingredient than claimed, 
ingredients other than those listed or no active ingredient at 
all, which makes them less effective and possibly toxic to 
unknowing consumers. The World Health Organization has 
estimated that as much of 10 percent of the world's supply of 
branded medicines are counterfeit, with the level rising to 50 
percent in some developing countries.
    Prosecutions are necessary to reach counterfeit operations 
that fall outside the regulatory system where the drugs are 
going to be introduced into the United States. Prosecutions for 
importation of counterfeit products have relied primarily on 
evidence gathered domestically, whether the defendants are 
citizens of this country or foreign nationals.
    In my written testimony I provided two examples of 
successful prosecutions of drug counterfeiters. One involved a 
ring of traffickers importing millions of counterfeit birth 
control pills from Spain and Guatemala. The other case involved 
a company called Flavine International, which imported 
counterfeit antibiotics from China.
    There are unique challenges when groups acting outside the 
United States import counterfeit pharmaceutical products. Even 
when extraterritorial jurisdiction exists over crimes committed 
abroad, principles of sovereignty limit what measures we can 
take unilaterally to investigate and prosecute such crimes. FDA 
currently has the authority to conduct inspections abroad. 
Letters rogatory are the customary method of obtaining 
assistance from abroad in the absence of a treaty or executive 
agreement.
    In order to improve our ability to investigate and pursue 
evidence and defendants abroad, the Department has supported 
extradition treaties to obtain the return of defendants and 
mutual legal assistance requests to obtain documents, witness 
testimony, or other evidence. Of course, even when extradition 
treaties and mutual legal assistance procedures are in plates 
with the foreign jurisdiction, they may not always ensure that 
we will be able to obtain all of the international law 
enforcement cooperation we would like in every case.
    As I have explained in greater detail in my written 
testimony, extradition treaties do not ensure that defendants 
will be returned to the United States for prosecution if they 
are from countries that will not extradite their own citizens, 
or the underlying conduct is not a crime in the requested 
State.
    Moreover, while we may seek to obtain the statements or 
deposition testimony of foreign witnesses unwilling to come to 
the United States through the traditional letters rogatory 
method or through our increasing number of mutual legal 
assistance treaties, in the best of circumstances this can be a 
time consuming process. In the worst of circumstances, legal 
privileges or other foreign law requirements may completely 
frustrate our efforts.
    Despite their limitations, however, modern international 
extradition treaties and MLATs remain among the more effective 
mechanisms available for obtaining the international 
cooperation we need. We ask that Congress continue to support 
our efforts to expand the network of such agreements. Certain 
measures could be taken that would make clear that foreign 
manufacturers or distributors of pharmaceuticals in the United 
States are subject to the same obligations and protections that 
apply to domestic companies. These proposals would also aid in 
the prosecution of producers or traffickers of counterfeit 
pharmaceuticals who know that their products will be used in 
the United States.
    First, we believe that foreign countries should be 
encouraged to cooperate with the United States and, where 
appropriate, to prosecute manufacturers and distributors of 
counterfeit drugs in their own courts. We ask Congress to 
review carefully proposals that might deny or restrict FDA's 
authority to inspect foreign establishments. Other possible 
measures include amending the Food, Drug and Cosmetic Act to 
make explicit what is now implicit, that foreign companies and 
individuals who manufacture and distribute drugs and drug 
components for use in the United States are subject to the act, 
making cooperation by foreign firms a condition of FDA approval 
of drug applications by those firms so that the approval under 
the act would be conditioned on the manufacturer's agreement to 
make documents and witnesses available in criminal 
investigations in the United States.
    Finally, Congress could require foreign exporters of drug 
products to provide original certificates of analysis 
establishing the integrity and authenticity of the drugs or 
drug components that would have to be filled out by each 
manufacturer involved in the production of the drug product 
shipped.
    The Department recommends these actions and policies to 
provide additional tools for the detection and prosecution of 
those who traffic in counterfeit pharmaceutical products. We 
will work with FDA, Customs, Congress and industry to implement 
measures of this type to aid prosecutions in this area. Where 
counterfeiting activity is uncovered we are committed to 
prosecuting such cases.
    Thank you. I would be happy to answer any questions.
    [The prepared statement of Patricia L. Maher follows:]

  PREPARED STATEMENT OF PATRICIA L. MAHER, DEPUTY ASSISTANT ATTORNEY 
          GENERAL, CIVIL DIVISION, U.S. DEPARTMENT OF JUSTICE

    Mr. Chairman and Members of the Subcommittee: Good morning. My name 
is Patricia L. Maher. I am a Deputy Assistant Attorney General in the 
Civil Division of the Department of Justice. In that capacity, one of 
my responsibilities is to oversee the Office of Consumer Litigation 
(OCL)--the Civil Division's office that handles civil and criminal 
cases brought under a number of federal consumer protection statutes 
including the Federal Food, Drug, and Cosmetic Act (FDCA). This 
morning, at your invitation, I will speak to you about our experience 
prosecuting traffickers of counterfeit pharmaceutical products that are 
manufactured outside of the United States. At your request, I will also 
offer some ideas regarding additional tools that would be helpful to 
combat this problem.
    Prosecutions of the type I will be discussing are both important 
and difficult. They are important because the targets in these cases 
introduce drugs of unknown safety and efficacy into the United States. 
Successful prosecutions signal to traffickers the world over that 
tainting the drug supply in the United States will not be tolerated. 
The cases are difficult because much of the evidence of unlawful 
activity is located overseas, and thus is more difficult to obtain than 
evidence located within our borders. While we have been successful in 
overcoming these hurdles and obtaining convictions, we need your help 
to eliminate obstacles that slow investigations and create questions 
regarding the applicability of the FDCA to the behavior that is at 
issue in these cases. In that connection, we will work and consult with 
FDA regarding needed changes in the Food, Drug and Cosmetic Act, such 
as those described in this testimony.
    As evidence of U.S. law enforcement's commitment to combat the 
threat posed by counterfeit pharmaceuticals, the Department of Justice, 
FBI, and Customs Service hosted last month the first meeting of law 
enforcement experts of the G-8 countries to address intellectual 
property crimes. Under the auspices of the Senior Law Enforcement 
Experts on Transnational Organized Crime (Lyon Group), representatives 
from all G-8 countries discussed mechanisms for improved cooperation 
and information-sharing in responding to a variety of intellectual 
property crimes, including trafficking in counterfeit pharmaceuticals.

 I. THE DANGER POSED BY THE IMPORTATION OF COUNTERFEIT PHARMACEUTICAL 
                                PRODUCTS

    The FDCA defines a counterfeit drug to include a drug which, 
without authorization, bears an identifying mark of another drug 
manufacturer that did not manufacture the drug. (21 U.S.C. 
Sec. 321(g)(2).) Under the FDCA, the term ``drug'' includes both 
finished drug products and components of drug products that are 
referred to as ``bulk'' pharmaceuticals or active pharmaceutical 
ingredients. In the pharmaceutical industry, the term ``counterfeit 
drug'' is generally used to refer to a compound that is not made by the 
authorized manufacturer, but is presented to the consumer as if it 
were.
    There are also drug products that are manufactured in whole or in 
part by unauthorized factories or facilities, and then shipped with the 
complicity of the authorized manufacturer under its name and trademark. 
These drugs may not technically fit the legal definition of 
``counterfeit drug'' if the authorized manufacturer has approved the 
use of its own trademark and the like. Nonetheless, these drugs involve 
the marketing of a product where the identity of the true manufacturer 
is misrepresented to, or withheld from, consumers and the Food and Drug 
Administration (FDA) and the drug is misbranded under the FDCA. As a 
consequence, some or all of the process of manufacturing the drug could 
fall outside the supervision of the FDA and could render the drug 
adulterated or misbranded. Because such drugs also involve a false 
representation about their true place of manufacture, they can be 
referred to as misbranded or adulterated.
    Counterfeit drugs pose a number of potential public health issues. 
The World Health Organization (WHO) has found that the majority of 
counterfeit drugs reported to the organization contain a less potent 
active ingredient than claimed, ingredients other than those listed, or 
no active ingredient at all, which makes them less effective and 
possibly toxic to unknowing consumers. WHO has estimated that as much 
as ten percent of the world's supply of branded medicines are 
counterfeit, with the level rising to fifty percent in some developing 
countries.
    Even where the product in question contains the represented amount 
of the drug's active ingredient, it can pose hazards. The effectiveness 
of drugs depend on a long chain of factors that include measures in 
quality control, distribution, and inventory control. The FDCA requires 
that all drugs in this country be manufactured under pursuant to the 
good manufacturing practice regulations to ensure the consistent safety 
and efficacy of the drug product.
    The scope of the problem in the United States should be 
substantially less than it is in the rest of the world. Several legal 
provisions help to assure that imported products comply with legal 
requirements. Drug companies in this country are required to sample and 
test bulk drugs, whether obtained domestically or internationally, that 
will be used in finished drug products, as well as to examine the 
labeling of any such shipments. (See 21 C.F.R. Sec. 211.84.) These 
measures help to assure that bogus drugs will be detected if they are 
sold to a legitimate finished dosage manufacturer in the United States.
    Misbranded versions of a number of drug products have appeared in 
the United States, nevertheless. The potential for an increase in such 
traffic exists because of the increasingly global nature of the 
pharmaceutical business. Moreover, the ease with which counterfeit 
products can be distributed by ``pharmacies'' that appear on the 
Internet makes this an issue that affects consumers directly.

   II. OBTAINING ASSISTANCE FROM FOREIGN GOVERNMENTS AND PROSECUTING 
              CONDUCT OCCURRING OUTSIDE THE UNITED STATES

A. The Need for Credible Criminal Deterrence
    Underlying the FDCA's statutory scheme to protect the public health 
is the requirement that regulated businesses deal truthfully with the 
FDA. Most businesses do so. Because the FDA and our national scheme for 
drug safety rely on information supplied by regulated businesses, it is 
necessary to take strong action against those that provide false 
information to the FDA. The means for punishing fraudulent conduct are 
contained in the criminal provisions of the FDCA. The general 
provisions of the criminal code that prohibit false statements to 
government agencies also apply to false statements made regarding 
pharmaceuticals. The importation of counterfeit drugs very often 
involves fraud on the FDA and purchasing customers about the true 
source or nature of the drug. This is classic felony conduct under the 
FDCA.
    Counterfeiting products can yield huge profits and is a 
longstanding practice in some areas around the globe. Furthermore, the 
incentive to mislead FDA about the source of a product's manufacture 
may exist even where the product contains the same active ingredients. 
The market for pharmaceutical drugs in the United States is 
substantial, and it is only open to drug products that are properly 
approved. Because proper approval is rigorous and demanding, there is a 
strong economic incentive to mislead FDA to obtain market access 
without the full expense of proper testing and evaluation. Similarly, 
there is a strong economic incentive to get FDA approval before other 
companies, and to maximize the output of a drug before other companies 
obtain approval for a competing version of the drug. One way for a drug 
manufacturer to maximize output within such a window is to obtain drug 
components or drug products from other, non-approved, facilities 
without notifying customers or the FDA.
    Prosecutions are necessary to reach counterfeit operations that 
fall outside the regulatory system, where the drugs are going to be 
introduced into the United States. The operations of some drug 
counterfeiters are much the same as those of the narcotics trade, 
crossing many borders and involving the use of clandestine facilities. 
In such circumstances, FDA's regulatory measures and controls are less 
likely to uncover the activity and impose a punishment sufficient to 
act as a deterrent.

B. Previous Experience in Obtaining Evidence Abroad in Prosecutions 
        Involving the Importation of Counterfeit Pharmaceutical 
        Products
    Prosecutions for importation of counterfeit products have relied 
primarily on evidence gathered domestically, whether the defendants are 
citizens of this country or foreign nationals. For example, the 1987 
prosecution of a ring importing millions of counterfeit birth control 
pills from Spain and Guatemala was based entirely on evidence gathered 
in the United States. Similarly, the Flavine International case, which 
involved a group importing counterfeit antibiotics from China, also was 
based primarily on evidence gathered within the United States. I will 
elaborate on these examples of our experience prosecuting importation 
of counterfeit pharmaceuticals.
    1. Example: the prosecution of importers of counterfeit birth 
control pills--In the mid 1980s, approximately two million counterfeit 
birth control pills were imported as part of a drug diversion scheme. A 
large number of the pills contained subpotent estrogen or no estrogen. 
The case began when a group of traffickers acting both inside and 
outside the United States began importing, repacking, and distributing 
counterfeit birth control pills that had been manufactured in 
Barcelona, Spain. The tablets were similar in appearance and 
composition to genuine Ovulen-21 tablets made by Searle. These pills 
were shipped from Spain to intermediary countries, and then smuggled 
into the United States and sold. The proceeds of the sales, including 
over $200,000 profits, were deposited in a Panamanian bank account.
    Having made a substantial profit on the counterfeit Ovulen, the 
defendants next solicited a small company in Guatemala to make 
counterfeit pills that again would appear to be genuine, but in this 
case would have no active ingredient at all. The Guatemalan company 
shipped 12,000 cycles of the pill to the United States in August 1984. 
FDA learned of the counterfeit birth control pills in October 1984. The 
government gathered evidence from witnesses in the United States, 
including some of the traffickers who decided to cooperate.
    An Indictment filed in the Southern District of Florida in February 
1987 charged six defendants who resided in the United States. All 
defendants were convicted either after pleading guilty or going to 
trial. The defendants were sentenced to terms of imprisonment of up to 
twenty-four years.
    2. Example: the prosecution of counterfeit antibiotics from China--
The prosecution of a New Jersey corporation, Flavine International, 
Inc. (Flavine), its owner who was a German national, and other company 
managers was based on the substitution of an unapproved foreign product 
for an FDA-approved foreign product. The investigation, which was 
conducted by the United States Customs Service and the FDA, revealed 
that on numerous occasions from August 1985 through November 1991, the 
defendants solicited and received orders from drug manufacturers in the 
United States for bulk antibiotics that are FDA-approved for use in the 
United States. The drugs included oxytetracycline, gentamicin sulfate, 
and sulfamethazine. The drugs were sold for use in animal and human 
drugs. To fill these orders, defendants bought drugs from an unapproved 
overseas manufacturer, falsely declaring their origin.
    Once the unapproved products arrived in the United States, the 
defendants, when necessary, had the product repacked in new containers 
that more closely resembled those of the approved manufacturer. 
Defendants removed labels from containers and affixed fraudulent labels 
to containers in order to falsify the origin and manufacturer of the 
drug product. They also replaced the manufacturers' certificates of 
analysis with fraudulent certificates of analysis that falsely claimed 
that the drugs were made by an approved manufacturer. These acts were 
performed without the authorization of the approved manufacturer whose 
name was used.
    In April 1997, Flavine was fined a total of $925,000, and its owner 
was sentenced to two years in prison and fined a total of $75,000 for 
illegally importing counterfeit pharmaceuticals from China and 
laundering money in a kickback scheme.

C. Obtaining and Developing Evidence of Conduct Abroad
    There are unique challenges when groups acting outside the United 
States import counterfeit pharmaceutical products. Even in those 
circumstances in which extraterritorial jurisdiction exists over crimes 
committed abroad, principles of sovereignty limit what measures we can 
take unilaterally to investigate and prosecute such crimes. In some 
cases, law enforcement agencies in the United States, such as the 
Customs Service and the Food and Drug Administration (FDA), may make 
requests of law enforcement agencies abroad informally or through 
Interpol. State ethics rules, however, may effectively prevent contact 
with employees of corporations under investigation through such 
informal contacts. This occurs because federal law now requires 
Department of Justice attorneys to comply with state ethics rules. Such 
rules (see Model Rule 4.2) often can effectively bar contacts with 
employees of corporations unless corporate counsel authorizes the 
communication. FDA also currently has the authority to conduct 
inspections abroad. (See 21 U.S.C. Sec. 374.) Letters rogatory are the 
customary method of obtaining assistance from abroad in the absence of 
a treaty or executive agreement. (See 28 U.S.C. Sec. 1781.)
    In order to improve our ability to investigate and pursue evidence 
and defendants abroad, the Department has supported extradition 
treaties to obtain the return of defendants, and mutual legal 
assistance requests to obtain documents, witness testimony, or other 
evidence. Of course even when extradition treaties and mutual legal 
assistance procedures are in place with a foreign jurisdiction, they 
may not always ensure that we will be able to obtain all of the 
international law enforcement cooperation we would like in every case. 
For example, even our most modern extradition treaties require that an 
offense for which extradition is sought be a crime in both the 
requesting and the requested state (the ``dual criminality'' 
principle). Thus, to the extent that some foreign countries have to 
date not criminalized the counterfeiting of pharmaceuticals, the 
extradition of persons from such countries wanted for prosecution in 
the United States may not be possible. In addition, some older 
extradition treaties do not clearly cover offenses that are perpetrated 
in a foreign country yet take effect in the United States; and despite 
our continuing efforts, some countries still refuse to extradite their 
own nationals.
    Moreover, while we may seek to obtain the statements or deposition 
testimony of foreign witnesses unwilling to come to the United States 
(through the traditional ``letters rogatory'' method, or through our 
increasing number of mutual legal assistance treaties (MLATs)), in the 
best of circumstances this can be a time consuming process. In the 
worst of circumstances, legal privileges or other foreign law 
requirements may completely frustrate our efforts.
    Despite their limitations, however, modern international 
extradition treaties and MLATs remain among the more effective 
mechanisms available for obtaining the international cooperation we 
need. We ask that Congress continue to support our efforts to expand 
the network of such agreements.

D. Jurisdictional Questions
    Among the considerations in obtaining evidence and pursuing 
prosecutions in these cases is the extraterritorial application of the 
FDCA. Congress has the power to address the problem of counterfeit 
pharmaceutical imports even when it involves conduct occurring overseas 
that has an impact in the United States. Amending the FDCA to make the 
extraterritorial application of the FDCA to persons affecting the 
United States by their actions abroad explicit instead of implicit 
would aid the investigation of criminal cases in these situations. Such 
an approach would be consistent with the international law principles 
that United States courts apply. Indeed, international law principles 
have expanded to permit jurisdiction upon a mere showing of intent to 
produce effects in this country, without requiring proof of an overt 
act or actual effect within the United States. Although cases involving 
intended but unrealized effects are rare, international law does not 
preclude jurisdiction in such instances, subject to the principle of 
reasonableness. Thus, we believe that foreign manufacturers of 
pharmaceutical bulk materials who know that the product will be used in 
the United States are subject to the jurisdiction of the United States 
and the FDCA.
    The FDCA prohibits the introduction into interstate commerce of 
adulterated or misbranded drugs (21 U.S.C. Sec. 331(a)), and defines 
``interstate commerce'' to include commerce between ``any State or 
Territory and any place outside thereof,'' (21 U.S.C. Sec. 321(b)). In 
construing Title VII of the Civil Rights Act of 1964, which had a 
similarly broad statement of application, a divided Supreme Court found 
that such language falls short of demonstrating the affirmative 
legislative intent required to extend the protections of American law 
beyond our territorial borders. That decision, EEOC v. Arabian American 
Oil Co., ultimately was superseded by statute. In this opinion, 
however, the Supreme Court specifically named the FDCA as a statute 
with ``boilerplate'' language that could be insufficient to convey a 
legislative intent to apply extraterritorially. (See Arabian American 
Oil Co., 499 U.S. at 251.) The Controlled Substances Act, by contrast, 
contains explicit language creating jurisdiction in the United States 
for manufacturing or distributing drugs abroad, where the intent is to 
introduce unlawful drugs into the United States. (See 21 U.S.C. 
Sec. 959.)

 III. PROPOSALS FOR IMPROVING THE PROSPECTS FOR CRIMINAL PROSECUTIONS 
             INVOLVING COUNTERFEIT PHARMACEUTICAL PRODUCTS

    We believe that prosecutions of counterfeit drug producers and 
traffickers would be greatly aided by amending the FDCA to make 
explicit what is now implicit--that foreign companies and individuals 
who manufacture or distribute drugs and drug components for use in the 
United States are subject to the FDCA. The application of such a law, 
however, will necessarily be limited by due process considerations.
    Second, we would ask that Congress review carefully treaties that 
might deny FDA full authority to inspect foreign establishments. The 
Department supports FDA retaining its current legal authority to 
inspect foreign establishments even where FDA has entered into 
agreements with foreign regulatory agencies to have those agencies 
conduct the inspections. In addition, the approval to manufacture and/
or distribute drugs and drug components in the United States could be 
conditioned on the manufacturer's or distributor's agreement to make 
documents and witnesses available in criminal investigations in the 
United States. FDA currently has the right to inspect drug 
manufacturers (see 21 U.S.C. Sec. 374), but this section does not 
explicitly provide the FDA authority to secure interviews with 
witnesses or any method by which the production of documents can be 
compelled independent of an inspection. As previously mentioned, it is 
difficult to obtain testimony of witnesses regarding conduct occurring 
outside the United States.
    Clarifying FDA authority as outlined above would make foreign 
establishments subject to the same obligations, privileges, rights, and 
protections that apply to domestic firms. Currently, during FDA's 
regulatory investigations of foreign firms, only certain production 
records and personnel are made available to inspectors. (See 21 U.S.C. 
Sec. 374.) An explicit requirement that a company must provide such 
cooperation could authorize FDA to withhold or deny approval of drug 
applications, and to withdraw a firm's existing approved applications, 
if FDA finds that the foreign firm is not cooperating in an 
investigation. This would be analogous to FDA's existing authority to 
refuse the new drug application of an applicant that has submitted 
false data to the agency. (See Fraud, Untrue Statements of Material 
Facts, Bribery, and Illegal Gratuities; Final Policy, 56 Fed. Reg. 
46191 (1991).) Foreign businesses choosing to market pharmaceutical 
products in this country should not be able to gain better treatment 
than domestic firms because of their location outside of the country.
    Third, the Department requests that the Congress consider 
legislation requiring foreign exporters of drug products to provide 
original certificates of analysis establishing the integrity and 
authenticity of the drugs or drug components filled out by each 
manufacturer involved in the production of the shipment of a drug 
product. Such a change would depart only slightly from current 
practice. The FDCA provides that a drug is misbranded if its labeling 
is false or misleading. (See 21 U.S.C. Sec. 352(a).) In addition, the 
regulations establish that the appearance of a name on a drug product 
label, without qualification, is a representation that the company is 
the sole manufacturer. (See 21 C.F.R. Sec. 201.1(h)(2).) If a 
manufacturer performs more than half of the operations, it meets its 
obligations if it states that certain manufacturing operations have 
been performed by other firms. (See id. at Sec. 201.1(c)(1).) A simple 
means of ensuring authenticity of drug components could be accomplished 
by a minimal expansion of these requirements to apply to foreign firms.
    Finally, we believe that foreign countries should be encouraged to 
cooperate with the United States and, where appropriate, to prosecute 
manufacturers and distributors of counterfeit drugs in their own 
courts. Where foreign nations can prosecute such conduct, it is in the 
United States' interest to help such prosecutions go forward. Increased 
cooperation with foreign authorities could also facilitate the 
detection of such criminal activity.
    The Department recommends these actions and policies to provide 
additional tools for the detection and prosecution of those who traffic 
in counterfeit pharmaceutical products. Where such activity is 
uncovered, we are committed to prosecuting such cases.
    Mr. Chairman and members of the Subcommittee, thank you for the 
opportunity to testify before the Subcommittee. I look forward to 
answering your questions.

    Mr. Upton. Thank you very much. The Chair, in talking to a 
number of members on both sides of the aisle, had a request 
that we go to a 10-minute question period instead of the normal 
5. I need to make that formally. Does anyone have an objection 
to do that? If not, that will be the course of the day, and I 
will first recognize the chairman of the full committee, Mr. 
Bliley, for 10 minutes.
    Chairman Bliley. I thank you, Mr. Chairman.
    Dr. Henney, as you know, the language approved in the 
Senate-passed agricultural appropriations bill required that 
regulations provide the Secretary of HHS a reasonable assurance 
that imported drugs are safe and effective. But drugs currently 
manufactured for consumption by Americans must meet rigorous 
standards for safety and efficacy as put forth in section 505 
of the Food, Drug, and Cosmetic Act. What is the 
administration's position regarding the standards which should 
be applied to drugs that are reimported or imported from 
foreign manufacturing facilities into the U.S.?
    Would you agree with me that reimported or imported drugs 
should be required to meet the same standards as drugs 
manufactured for U.S. consumption?
    Ms. Henney. Mr. Chairman, I believe that both the 
administration, the Secretary as well, as Mr. Lew in his 
communications with the committee has made clear their position 
with respect to this bill, there is very strong opposition to 
the amendments as proposed by Mr. Crowley and Coburn. However, 
the discussion I believe is focused, as you know, particularly 
on the amendments offered by Mr. Jeffords to our Senate 
appropriations bill.
    I think there is one thing that we have stressed very 
strongly, and that is the general support for the framework or 
paradigm that might be put in place, but it will be totally 
unworkable unless the FDA is funded to support the initiative 
in question, and certainly we would expect that the kind of 
affirmation of the system of safety would at least be 
equivalent to what we have now.
    Chairman Bliley. I think I got it straight. It was a nice 
long statement, but are you saying that then you agree with me 
that it should meet the same standard of safety and efficacy as 
drugs manufactured in the United States?
    Ms. Henney. I believe what I am saying, Mr. Chairman, is 
that there should be no lowering of the safety net that now 
protects the American citizens.
    Chairman Bliley. Well, do you believe the Senate language 
that only requires a reasonable assurance of safety and 
efficacy meets that standard?
    Ms. Henney. Mr. Chairman, I don't believe that I have 
undertaken a thorough analysis from the legal perspective of 
what that reasonableness standard might mean. I think it is 
very clear that all of us concerned with the kinds of 
medications that people take in this country want them to meet 
at least the standard of safety that we now have in place for 
our citizens.
    Chairman Bliley. In other words, they should comply with 
section 505, right?
    Ms. Henney. Mr. Chairman, I believe that the safety 
standards of this country with respect to prescription drugs 
have always been to be safe and effective for their intended 
use. I think that that standard should apply no matter where 
the drug comes from.
    Chairman Bliley. Thank you, Mr. Chairman. I've got to leave 
for another meeting. I will try to get back.
    Mr. Burr [presiding]. I thank the chairman. As we play 
musical chairs, the chairman would recognize the gentleman from 
Michigan.
    Mr. Dingell. Mr. Chairman, I thank you. Commissioner and 
Mr. Kelly, what would you need in the way of resources to 
properly enforce our current laws at the ports of entry? That 
is an answer you are not prepared to give this morning. So will 
you please submit it for the record.
    Mr. Kelly. Yes, sir.
    [The following was received for the record:]

    The Food and Drug Administration (FDA or the Agency) is not 
prepared to articulate a specific resource need at this time. 
However, as you know, the Agency acknowledges that it lacks 
sufficient resources to conduct comprehensive coverage at all 
U.S. borders.
    In response to the Committee's questions posed on June 8, 
2000, FDA began re-evaluating its use of the limited resources 
available for import operations by developing a resource model. 
FDA is re-evaluating its current operations to determine where 
procedures should be updated and revised to better address 
dynamic industry shifts and make better use of current 
resources. Any useful resource model would depend upon this 
current operation evaluation which is still on going. 
Nevertheless, the ratio comparisons described below may be 
useful in created a base line for resource discussions.
    As discussed more fully later, we have implemented an 
import alert that focuses on certain active pharmaceutical 
ingredients (APIs) that do not appear to have been manufactured 
at facilities identified as an FDA approved sources in an 
application. We will need to evaluate the results of the Import 
Alert, including the results of inspections at the dosage form 
manufacturers and investigations of all intermediaries involved 
with the product, in order to more fully understand the 
magnitude of the actual and potential importation of unapproved 
APIs. The results of these investigations will provide 
important information relevant to determining additional 
resources requirements.

    Mr. Dingell. Second of all, Mr. Kelly, does your agency 
enforce Food and Drug laws at the port of entry?
    Mr. Kelly. Yes, sir, we do, along, as I said with my 
prepared remarks, with the rules and regulations, the laws of 
40 agencies.
    Mr. Dingell. Now, Dr. Henney, at how many of the ports of 
entry do you have Food and Drug people to approve admission of 
drugs and prescription pharmaceuticals?
    Ms. Henney. Well, Mr. Dingell, I think that while we have--
--
    Mr. Dingell. Just how many, please? I have limited time.
    Ms. Henney. I don't know a precise number.
    Mr. Dingell. Would you please submit that for the record?
    Ms. Henney. I would be pleased to submit it for the record.
    [The following was received for the record:]

    The U.S. Customs Service (Customs) recognizes approximately 
301 ``ports of entry.'' FDA maintains district offices or 
resident posts in the metropolitan areas adjacent to 94 of 
these ports, although only 37 offices or resident posts include 
staff involved with import operations. The other 57 offices or 
resident posts are for the most part small resident posts whose 
responsibilities are limited to domestic products.
    FDA receives notification of the entry of FDA-regulated 
products, either through Customs' ACS system, or through paper 
entry documents collected by Customs at all ports of entry, 
even those at which FDA staff are not always present. Even if 
the product is ``conditionally'' released by Customs without 
FDA examination, it is not released into commerce until FDA 
reviews the entry documentation. If FDA decides to collect a 
sample or otherwise examine the product after the product has 
left the port area, Customs can (under the terms of the 
importer's entry bond) order the product redelivered for FDA 
examination.

    Mr. Dingell. Now you are behind, Dr. Henney, in your 
foreign inspections. You have some, I heard the figure, 4600 
plants not inspected. You've given us the number of 272, is 
that correct? Is that a hard number or not?
    Ms. Henney. 242. To the best of our ability, yes, that is a 
firm----
    Mr. Dingell. And the number does grow. How long will it 
take you to complete the inspections of those 242? How much 
will each of the inspections cost you?
    Ms. Henney. I will be glad to submit that figure for the 
record. I don't have it off the top----
    [The following was received for the record:]

    It is expected that very few, if any, of the 242 firms FDA 
has identified will require a physical inspection. The goal in 
identifying these firms was to identify any firms that appear 
to be improperly shipping APIs into the U.S. and to determine, 
based on additional information, whether any of the APIs were 
in fact being shipped for a legitimate purpose.
    The 242 firms described in FDA's testimony were identified 
by comparing 1999 data from the OASIS database with information 
in CDER's Establishment Evaluation System (EES) to determine if 
U.S. dosage form manufacturing firms appear to have received an 
API from a source not named in their approved application. 
After electronic comparison and further manual comparisons, 
this search revealed that 242 foreign firms, which, at this 
time, do not appear to be approved suppliers for application 
products, shipped an API to various U.S. firms.
    The 242 firms were incorporated into an import alert that 
issued on October 3, 2000 (IA #6666). These firms will be 
prevented from importing the specified APIs into the U.S. 
unless they can provide documentation that the dosage form 
manufacturer consignee holds an approval for the use of that 
API in a finished human drug product or documentation 
establishing that the API is intended for an authorized use 
(e.g., for a non-application product).
    If a firm can show that the API is used in an approved 
human drug product, then a pre-approval inspection would have 
been performed, and CDER will search the paper inspection 
records pre-dating the EES system to confirm the pre-approval 
or other inspection of the API manufacturer. In other cases, 
investigations at the domestic firms/consignees are being 
conducted to determine if APIs from unapproved sources were 
used to manufacture finished drug products.
    While there is no definition of exactly what each 
investigation will require, our past experience indicates an 
average of 20 hours is needed for each investigation. We 
estimate that the average cost is $130.00 per hour per 
investigator, not including travel costs, administrative and 
support time.

    Mr. Dingell. How much does an inspection cost of a foreign 
plant?
    Ms. Henney. It really depends on the location of the plant, 
the number of inspectors you have to take along, whether have 
you to hire translators. There is a varying amount.
    Mr. Dingell. So the answer is you don't know?
    Ms. Henney. I don't know a precise figure but I will be 
glad to submit it.
    [The following was received for the record:]

    The chart below provides information on the costs of 
foreign human drug process inspections conducted by the Office 
of Regulatory Affairs (ORA). It uses the fiscal year (FY) 2001 
Agency estimated cost of $112,000 per FTE, and travel costs and 
inspection times approved by ORA as of October 23, 2000.
    This information can be used to estimate costs for 
inspections but does not include an estimate of CDER costs 
pertaining to the regulatory outcomes of inspections. Each ORA 
foreign Drug Process inspection requires 2 people at 60 direct 
hours each. The estimate includes all direct time and travel 
costs and includes all other indirect costs as well. The total 
cost for a single inspection is estimated at approximately 
$23,000 per inspection.

                                         HUMAN DRUG PROCESS INSPECTIONS
                                     (FY 2001 Costs 65846 $112,000 per FTE)
----------------------------------------------------------------------------------------------------------------
                                                                                    Salary &
                                                            Hours per    FTE per   Operating   Travel     Total
                                                           Inspection  Inspection   Cost ($)  Cost ($)  Cost ($)
----------------------------------------------------------------------------------------------------------------
Lead Consumer Safety Officer (CSO).......................         60      0.0645       7,224     2,500     9,724
  2nd CSO or Laboratory Analyst..........................         60      0.0645       7,224     2,500     9,724
Subtotal Direct inspection Cost..........................        120      0.1290      14,448     5,000    19,448
  ORA indirect (support) Cost (.125 FTE).................                 0.0161       1,806               1,806
Total ORA Cost/Foreign GMP Inspection....................                 0.1451      16,254     5,000    21,254
  CDER Inspection Report Review..........................                 0.0160       1,792              11,792
TOTAL FOREIGN INSPECTION COST............................                                                 23,046
----------------------------------------------------------------------------------------------------------------


    Mr. Dingell. I don't mean to be rude to you, but I've got a 
lot of questions and a limited amount of time. You have to 
cooperate.
    Isn't it true that FDA has still not developed a specific 
timeframe for how frequently the agency should be inspecting 
foreign firms that ship to the U.S. for good manufacturing 
practices?
    Ms. Henney. I believe what we would like to have as our 
goal is to be able to inspect them as we do our domestic 
plants, which is typically on an every 2-year cycle. Our 
resources have not allowed that.
    Mr. Dingell. How much resources will it take you to have 
the resources you need to inspect those every 2 years?
    Ms. Henney. I will be glad to submit that exact figure for 
the record.
    [The following was received for the record:]

    Based on CDER's drug listing data, we estimate that there 
are now approximately 1,900 foreign firms that may be offering 
drugs for entry to the U.S. market. If these firms were 
inspected every two years (at 950 inspections per year), our 
annual projected costs for inspections, trip planning and 
evaluation of findings would be approximately $23 million. The 
table below describes the calculations arriving at this amount, 
but does not include the cost of any necessary equipment.
    This represents only a calculation of direct inspection 
resources. The actual costs to support a sustained program of 
offshore inspections worldwide would require inspection 
organization enhancements and personnel management adjustments. 
For example, currently we accomplish foreign inspections with 
inspectors based at field offices in U.S. These inspectors are 
needed to inspect the domestic industry and travel for foreign 
inspections part-time. A program of two-year foreign 
inspections would likely require the restructuring of inspector 
stationing.

                    PROJECTED ANNUAL INSPECTIONS COST
------------------------------------------------------------------------
              Activity                    Explanation           Cost
------------------------------------------------------------------------
                                     950 inspections x
                                      0.1451 FTE per
                                      inspec. = 138 FTE
ORA Inspectors.....................  138 FTE x $112,000      $15,456,000
                                      FTE cost.
ORA travel planning................  10 FTE x $112,000 FTE     1,120,000
                                      cost =.
Travel.............................  950 inspections x         4,750,000
                                      $5,000 per
                                      inspection.
                                     gxl950 reports x
                                      0.016 FTE per review
                                      = 15.2 FTE.
CDER review........................  15.2 FTE x $112,000       1,702,400
                                      FTE cost =.
TOTAL..............................  .....................   $23,028,400
------------------------------------------------------------------------


    Mr. Dingell. How many plants abroad have you been able to 
inspect more than once or meet the 2-year requirement that you 
are supposed to? You are going to have to submit that for the 
record, too. But I do want to know the answer.
    [The following was received for the record:]

    As of October 1, 2000, FDA has conducted 1,507 inspections 
of the 900 foreign facilities in the CDER database of all firms 
inspected since October 1, 1994. Four hundred and ten (4 1 0) 
of the 900 facilities have had multiple inspections in this 
six-year time period. Two hundred and seventy-five (275) have 
been inspected twice, 87 have been inspected three times, and 
48 have been inspected four or more times in the last six 
years.

    Mr. Dingell. Now, Commissioner Henney, isn't it also the 
case that many foreign firms that ship drug products to the 
United States haven't received a GMP inspection from FDA in as 
many as 6 to 8 years or longer? Just yes or no.
    Ms. Henney. It is very dependent upon whether they have an 
active NDA----
    Mr. Dingell. The answer then is you don't know or the 
answer to the question is yes or no? Which, please?
    Ms. Henney. It is not a yes or no answer. It is very 
dependent on an active NDA or have a drug that is undergoing 
approval.
    Mr. Dingell. I am talking about good manufacturing 
practices investigations.
    Ms. Henney. Good manufacturing investigations are highly 
dependent on whether they have an application under approval or 
they have active NDAs.
    Mr. Dingell. Without the 2-year inspection you don't have 
the vaguest idea of whether or not they are complying with the 
requirements of good manufacturing practices, do you?
    Ms. Henney. I think that would be fair to say, that we 
don't know what goes on in the interval.
    Mr. Dingell. Commissioner, isn't it also the case that 
because FDA has not visited such facilities that it is possible 
that GMP conditions may have worsened since the--in such 
facilities since the last FDA inspection?
    Ms. Henney. That could always be the case.
    Mr. Dingell. Particularly in countries like China or in 
some of the new developing countries that are exporting to the 
United States, isn't that so?
    Ms. Henney. I don't know that we see a higher rate there 
but, yes, that could be.
    Mr. Dingell. Now, commissioner, isn't it also true that 
FDA's attempts to catch up on the backlog of foreign 
inspections will require additional moneys and resources be 
made available to enable FDA, first, to catch up and, second, 
to meet its schedule, isn't that right?
    Ms. Henney. Absolutely.
    Mr. Dingell. Of course the number of these plants is going 
to increase, is it not?
    Ms. Henney. Yes, it will.
    Mr. Dingell. China will have as many as 10 to 15 new 
facilities that are going to require FDA inspections. I am 
informed that is in the $15,000 and $30,000 range; is that true 
or false?
    Ms. Henney. I think that is a reasonable approximation of 
what an inspection there costs.
    Mr. Dingell. Now, Commissioner, isn't it generally the case 
that much of the current backlog in foreign inspections is 
directly attributable to the lack of sufficient resources?
    Ms. Henney. Yes.
    Mr. Dingell. The Congress has not been giving you either 
the money or the personnel you need to do these things, isn't 
that so?
    Ms. Henney. Not for the past several years.
    Mr. Dingell. Is it also the case as the agency attempts to 
inspect foreign firms overseas it risks understaffing its 
domestic inspections?
    Ms. Henney. That is of great concern to me.
    Mr. Dingell. Isn't it the case that over the past 2 years 
FDA always had insufficient resources in the area of foreign 
inspections?
    Ms. Henney. We've had insufficient resources in terms of 
our overall post-marketing surveillance.
    Mr. Dingell. Now, Commissioner, isn't it the case that 
conducting proper foreign inspections of facilities who send 
drug products to the United States to determine that they meet 
current good manufacturing practices is a vital function in 
ensuring the safety of the Nation's drug supply?
    Ms. Henney. It is a critical element.
    Mr. Dingell. Now, Commissioner, if FDA is falling behind in 
their foreign GMP inspections and many plants overseas have not 
been recently inspected, how much money would it take to get 
FDA to a point where it is satisfied that it knows the internal 
GMP conditions of all plants shipping drug products to the 
United States are in fact complying with our laws and in fact 
are safe?
    Ms. Henney. I will be glad to submit that for the record, 
sir.
    [The following was received for the record:]

    Ideally, a biennial inspection should be conducted to 
acquire the information needed to determine compliance with 
CGMP requirements. Therefore, our best projection of the annual 
cost to ensure manufacturing quality of imported drugs is $23 
million, as described in the answer to question #5.

    Mr. Dingell. I think you are going to have to. Now, 
Commissioner, in your testimony you say that as many as 242 
manufacturers in 36 countries appear to have exported to the 
United States but have not been inspected. That is a reliable 
number, is it?
    Ms. Henney. Yes, to the best of our ability, it is a hard 
number.
    Mr. Dingell. It is possible, however, that the number is 
larger, is it not?
    Ms. Henney. We have----
    Mr. Dingell. Because you really have a big problem there in 
terms of keeping your data and information on these kinds of 
activities current, isn't that right?
    Ms. Henney. Yes, but that data has been processed----
    Mr. Dingell. With all respect, I've got to get through my 
questions. Commissioner, would you acknowledge that there is a 
rather serious problem with counterfeiting in both bulk drug 
ingredients as well as finished products in other parts of the 
world?
    Ms. Henney. I think any time you have a product like this 
that is very profitable, it opens itself up for counterfeiting 
efforts.
    Mr. Dingell. You are not able to inspect at all ports of 
entry nor are you able to inspect all mail entries and things 
of that kind, isn't that right?
    Ms. Henney. Yes, because of our resources.
    Mr. Dingell. That is true also with regard to your agency, 
is it not, Mr. Kelly?
    Mr. Kelly. Yes, sir.
    Mr. Dingell. Now, Commissioner, if a shipment of finished 
products were to contain 10 percent counterfeit material and 90 
percent legitimate material, isn't it true that a batch test 
might have some limitations in detecting the counterfeit part 
of the shipment?
    Ms. Henney. Yes, it would depend----
    Mr. Dingell. Would you indicate whether you agree with that 
statement, Mr. Kelly?
    Mr. Kelly. As far as batch testing is concerned?
    Mr. Dingell. Yes. You are going to have a hard time if 
you've got part good and partly counterfeit or part 
deteriorated, you are going do have trouble telling which is 
good and if you only batch test or if you only do some subject 
to sampling, you are going to have trouble knowing what the 
real facts are with regard to that shipment, isn't that right?
    Mr. Kelly. Yes.
    Mr. Dingell. Now, Commissioner, does batch testing give you 
100 percent reliability that the product coming into United 
States does not have counterfeit product mixed into it?
    Ms. Henney. I think it would depend on the degree to--the 
percentage the----
    Mr. Dingell. The answer simply is no, unless you inspect it 
all, isn't that right?
    Ms. Henney. That would give you greater assurance, yes.
    Mr. Dingell. Commissioner, does batch testing give you 90 
percent reliability that a product coming into the U.S. doesn't 
have counterfeit product mixed into it or 80 percent or 70 
percent? Can you give us an idea what the figure is or do you 
wish to submit that?
    Ms. Henney. I would prefer to submit it for the record, 
sir.
    [The following was received for the record:]

    Quality testing of each batch of bulk drugs would provide 
some valuable information on potency, purity and other 
specifications. A counterfeit bulk drug, however, might also 
meet these specifications and such testing could not be relied 
upon to detect certain counterfeit products.
    A program that includes chemical fingerprint testing and 
evaluation of labeling, containers, seals, certificates of 
analysis, shipping records and covert markings will be more 
useful in detecting and deterring shipments of counterfeit bulk 
drugs. It is not possible at this time to determine the 
statistical probability of detecting counterfeit drugs using 
these samples and analytical techniques.

    Mr. Dingell. I want you to understand, Commissioner, these 
are friendly questions. I have been a critic of the fact that 
the Congress has not funded your agency for a long time. So I 
don't want you to engage in any defensive behavior here. I 
think we have to do something to see to it you can protect the 
people. I am not satisfied that the effort now ongoing in the 
Congress is going to enable us to have assurances on that 
matter.
    Commissioner, isn't it the case that certain products are 
inherently difficult to repackage or relabel, such as sterile 
injection solutions, auto injectors, ointments, and prefilled 
syringes?
    Ms. Henney. Yes, those are some of the most difficult.
    Mr. Dingell. So--and what--how do you know whether the 
repackagers abroad are repackaging safely in cleanly and 
adequate circumstances or they are repackaging pharmaceuticals 
that in fact meet all the Food and Drug standards, including 
being current on their efficacy and not having passed their 
expiration date?
    Ms. Henney. That is one of our greatest challenges in this 
whole area.
    Mr. Dingell. How many of these repackagers do you 
investigate?
    Ms. Henney. I would be glad to submit----
    [The following was received for the record:]

    Sixteen foreign facilities classified as drug repackagers 
have been inspected since October 1, 1994.

    Mr. Dingell. How many of them are there and how often do 
you get around to visit them? If you'll submit that for the 
record, too.
    [The following was received for the record:]

    There are approximately 102 foreign facilities identified 
as repackagers in the current CDER drug registration and 
listing database. Drug repackagers have been included in the 
tier of facilities generally scheduled for routine surveillance 
once every six years under the system currently applied to 
target and assign foreign inspections. Some of these facilities 
will be inspected more frequently if they are covered by a pre-
approval inspection of if they are classified as violative.

    Mr. Dingell. Commissioner, it is my understanding that drug 
packaging, drug labels, holograms, and even shipping records 
are often easily copied by counterfeiters and that the 
sophistication of the efforts of counterfeiters make it 
extremely difficult to determine faked items from the real 
items, is that true?
    Ms. Henney. We have a better chance to catch them with 
those, but they can get one step ahead of us, yes.
    Mr. Dingell. Mr. Kelly, do you agree with that statement?
    Mr. Kelly. Yes, sir.
    Mr. Dingell. Commissioner Henney, what percentage of bulk 
raw materials used to manufacture globally is considered 
counterfeit? I believe you gave us some figures earlier. Would 
you like to do that again, please?
    Ms. Henney. I think that to our best estimate and knowledge 
it is probably in the 5 to 7 percent range.
    Mr. Dingell. Now you have a problem not only with the fact 
that it is--that these are counterfeit but also that they might 
be deteriorated, contaminated, adulterated, filthy, full of 
foreign or deleterious or other hazardous additions to the mix, 
is that not so?
    Ms. Henney. Yes.
    Mr. Dingell. Mr. Chairman, I think I've taken all the time 
I am entitled to. I thank you for your curtesy.
    Mr. Burr. The gentleman's time has expired, but the Chair 
would notify the gentleman to stick around with us.
    Mr. Dingell. I thank you. Commissioner Henney and Mr. 
Kelly, I want to thank you. I did not mean to be discourteous. 
Our time, as you know, is limited. We have a great deal that we 
have to do to get a proper record here.
    Mr. Burr. The Chair would take this opportunity to 
recognize himself for the purposes of questions.
    Again welcome to all our witnesses. Commissioner, let me 
ask you what standard do we currently use to determine whether 
a drug that is coming into this country, imported into this 
country, has met our standards? Do we use section 505 of the 
Food Drug Cosmetic Act?
    Ms. Henney. Yes, that is primarily the standard we rely on.
    Mr. Burr. So we currently use that standard for all drugs 
that are imported into this country.
    Now, Mr. Kelly, is that the understanding that the Customs 
agency has?
    Mr. Kelly. Yes, sir, that is our understanding.
    Mr. Burr. I need you to pull that mike closer for her 
purposes when we move to you. General Maher, let me ask you, is 
the Justice Department clear on the standard that we use for 
approving drugs for import into this country?
    Ms. Maher. We wouldn't be doing the testing.
    Mr. Burr. What part would you play in the determination of 
drugs coming into this country or reimported into this country?
    Ms. Maher. I am not sure I understand the question. We 
don't play a role in determining----
    Mr. Burr. Do you play a role as it relates to patent 
protection? Is the U.S. code something that comes under your 
jurisdiction?
    Ms. Maher. It does not come specifically under my 
jurisdiction.
    Mr. Burr. But under the Justice Department?
    Ms. Maher. Yes.
    Mr. Burr. Are you familiar with title 35, section 271 of 
the U.S. Code?
    Ms. Maher. I am not.
    Mr. Burr. Let me basically tell you what that says. And 
just get--I've got the code here in case you want to read it 
for yourself. But what that code says, ``whoever without 
authority makes use of, offers to sell or sells any patented 
invention within the United States or imports into the United 
States any patented invention during the term of the patent 
therefore infringes on the patent.'' Is that your understanding 
of the law?
    Ms. Maher. As I said, I am not familiar with that provision 
but----
    Mr. Burr. Given what that provision says, would it then be 
a patent infringement for a manufacturer to produce in this 
country for export, not for the purposes of reimporting into 
this country, and a third party reimports into this country 
without the explicit consent of the manufacturer; have they 
infringed on the manufacturer's patent?
    Ms. Maher. I would assume so if there is not a license 
agreement.
    Mr. Burr. If there is not a license agreement that 
specifically allows them to reimport into this country. That 
isn't limited just to drugs, isn't it?
    Ms. Maher. No, I don't believe so.
    Mr. Burr. That is a general patent protection we have in 
this country. It is not only stated in the U.S. Code, it to 
some degree is codified in the North American Free Trade 
Agreement and in the world Trade Agreement, World Trade 
Organization as it relates to the TRIPS agreement, where we 
negotiate intellectual property. So if in fact the FDA for any 
reason looked at the Justice Department and said as it relates 
to a patent infringement we want you to sort of wink, turn your 
head and not enforce this, would that be a precedent in court 
for other industries as they took to a court a patent 
infringement against them that you hadn't enforced this one?
    Ms. Maher. I don't think a lack of prosecution can ever be 
offered as precedent, that somehow it undermines another 
prosecution. There is always--there are always decisions that 
have to be made about which cases to bring. The fact that one 
case isn't brought doesn't undermine a prosecution if the facts 
and circumstances warrant it in another case.
    Mr. Burr. Mr. Kelly, has Customs ever stopped a product 
because of a patent infringement?
    Mr. Kelly. Yes, we do, and it is usually a result of a what 
you might call a patent lookout where the patent holder would 
put us on alert as to the possibility of violation.
    Mr. Burr. Were you aware before the last hearing we had 
that it was a patent infringement for the reimportation of 
pharmaceuticals?
    Mr. Kelly. No, sir, but I wasn't at the last hearing 
either.
    Mr. Burr. Hopefully somebody briefed you relative to the 
line of questions that took place and that was one of them. I 
think Customs acknowledged that they were not aware that there 
was a patent violation that existed, whether it is in bulk, API 
or whether it is in personal use. In fact, it is a patent 
infringement because it is not specifically or explicitly said 
that it could be reimported.
    Commissioner, let me ask you if I could, given that you use 
the 505 standard for the current importation of drugs, and let 
me reask Chairman Bliley's question, do you anticipate that if 
there's legislation that moves through this institution this 
year that the FDA would demand section 505 be met before any 
reimportation language was supported by the FDA?
    Ms. Henney. Well, section 505 is really the basic safety 
standard.
    Mr. Burr. I think we can get by with a yes or no, given the 
limited amount of time.
    Ms. Henney. That all drug approvals must meet. As I tried 
to indicate to Chairman Bliley, I believe that same standard 
would apply.
    Mr. Burr. So section 505 should apply to any reimportation, 
yes or no?
    Ms. Henney. I think we would have that expectation, yes.
    Mr. Burr. As you know, a couple of months ago five drug 
companies joined in the United Nations initiative to provide 
AIDS drugs to a number of Africa nations at significantly 
discounted prices. First question, do you have an opinion 
regarding the impact legalizing reimportation will have on drug 
manufacturers who either donate or sell drugs in foreign 
countries below market prices?
    Ms. Henney. I don't.
    Mr. Burr. Have you stopped to think about it at all?
    Ms. Henney. That is not something I've given consideration 
to, no.
    Mr. Burr. Do you believe that if we lift the reimportation 
ban that in fact we may actually discourage manufacturers from 
participating in these types of programs because we've opened 
up a new market for a drug that meets the 505 standard, 
designated for some type indigency program, whether it is in 
Africa, Asia, and potentially it is more profitable for those 
countries to reimport those drugs to the United States? Should 
that be a concern to the FDA?
    Ms. Henney. We have not been asked to consider that 
question. So I would only be given----
    Mr. Burr. Would you supply for this committee a statement 
from the FDA, a written statement on that?
    Ms. Henney. I will be happy to.
    [The following was received for the record:]

    The legislation, as enacted (section 745 of P.L. 106-387), 
provides in new section 804 (k) of the Federal Food, Drug, and 
Cosmetic Act (FD&C) Act that the authority to reimport 
pharmaceutical products does not apply to drugs donated to 
charitable organizations or a foreign country. This provision 
should ensure that donated drugs would be used for their 
intended purpose rather than being resold in the United States.

    Mr. Burr. Thank you very much. Commissioner, let me just 
point out a few things in your testimony if I could. Do we all 
acknowledge that the growth in international trade over the 
past few decades has had a substantial impact on the ability of 
the FDA to cope with the volume of regulated products coming 
into this country? That is out of your statement.
    Ms. Henney. I think there are two issues there. Yes, we are 
seeing an overwhelming exponential increase in the number of 
regulated products coming into this country, approximately 14 
percent I believe just this past year.
    Mr. Burr. You've asked for----
    Ms. Henney. It did stretch our resources tremendously.
    Mr. Burr. You've asked for $23 million to fund any effort 
that might deal with reimportation. Can you break down for me 
how those $23 million are spent, how much would be enforcement, 
how many would be inspection?
    Ms. Henney. Yes, I will be glad to supply that for the 
record.
    [The following was received for the record:]

    The President has not yet requested the $23 million, as 
required by the statute. However, the enclosed chart reflects 
FDA's estimated cost to fully implement the Medicine Equity and 
Drug Safety Act of 2000. As you can see, the $23 million for 
the first year included funding to begin to build the system 
called for in the bill. Specifically, $2.52 million will go 
toward beginning to build the Forensic Chemistry Center's drug 
database; $9.55 million will be used to purchase laboratory 
equipment and ramp up our laboratory capability; $5.50 million 
will be used to begin needed information technology upgrades; 
$5 million will go towards establishing appropriate 
accreditation capabilities; and $.56 million will be needed for 
regulation development.

[GRAPHIC] [TIFF OMITTED] T5846.235

    Mr. Burr. Thank you. I appreciate that very much.
    Also in your testimony, this is in item 3, excuse me, item 
4, put all importers on notice they are required to provide the 
name of foreign manufacturers. As I stated earlier, the FDA has 
a long history of sending notices out for their acknowledgment, 
sign-up, licensing, whatever we want to call it. What's your 
assessment? Have only the honest people registered? Is that the 
difficulty?
    Ms. Henney. Well, I think there are many factors in this. 
And some of it has to do with time and knowledge and a number 
of other things. We have put the importers on notice again and 
we are working with Customs right now to make this a condition 
of entry. So I think that there will be a much more aggressive 
step taken for not being compliant with this notice.
    Mr. Burr. On page 10 of your testimony you state that the 
FDA's OCI has a close working relationship with Customs, 
including a memorandum of understanding providing for all OCI 
agents to be cross-designated as Customs officers. How many 
total OCI agents are there at FDA?
    Ms. Henney. Approximately 150.
    Mr. Burr. Can you tell me of the 150 agents which are now 
cross-designated as Customs officers?
    Ms. Henney. I will be glad to supply the exact number for 
the record, but I believe nearly all of them are. There are a 
few I believe, perhaps in Miami, that aren't but they actively 
work these cases.
    [The following was received for the record:]

    As you know, the Office of Criminal Investigations (OCI) was 
established in March 1992 with the selection of a Director. At that 
time there were no criminal investigators employed by the FDA. In May 
1993 FDA and Customs signed an MOU concerning the cross designation of 
OCI special agents as Customs officers. As a new criminal investigative 
agency that would be working a number of joint investigations with the 
Customs it was apparent that our field agents should quickly develop a 
close working relationship with Customs agents. Therefore, the main 
purpose of establishing the MOU for cross designation was to achieve a 
close working relationship and coordination between OCI and Customs. 
That close working relationship was established and OCI and Customs 
have in the past and are presently working together on a number of 
joint investigations.
    Cross designation requires a block of training by Customs field 
offices and a renewal every six months of the cross designation status. 
OCI currently has a total of 133 special agents and supervisors. Eleven 
of those agents/supervisors are assigned to OCI headquarters and 122 
agents/supervisors are assigned to field offices. Of the 122 agents/
supervisors, 77 are crossdesignated as Customs officers. In some cases 
the initial training or renewals requested by OCI have not taken place 
for a variety of reasons. Since we have already established a close 
working relationship with Customs field offices some field supervisors 
in Customs do not feel cross designation status is necessary for all 
OCI agents. They conclude that the status should be accorded for a 
specific reason or investigation, if necessary, citing the time and 
expense to cross designate agents. Also the language of the MOU states, 
``The U.S. Customs Service agrees: to designate certain special agents 
of the Food and Drug Administration, Office of Criminal Investigations 
as Customs Officers''. After years of working with and establishing an 
excellent cooperative working relationship with Customs field offices, 
it is FDA's belief that it is not necessary for all OCI agents to be 
cross-designated as Customs Officers.
    OCI investigates numerous import-related cases in virtually every 
district in the U.S. and Puerto Rico. To our knowledge, the absence of 
cross-designation has never been a factor or an impediment to any OCI 
import related case in any district. OCI's relationship with Customs is 
such that if it was determined that cross-designation was necessary to 
assure any import investigation was enhanced, OCI would seek it and we 
are confident that Customs would be responsive.

    Mr. Burr. Let me say that according to the information from 
the U.S. Customs Service that there are presently 15 FDA cross-
designated agents in Baltimore, 14 in Los Angeles and 12 in 
Chicago. That is a total of 41. None of these are in the high 
volume API districts that you stated. Why aren't all OCI agents 
cross-designated and why aren't any OCI agents cross-designated 
in the high volume API areas?
    Ms. Henney. Well, Mr. Chairman, your information differs a 
little bit with mine and so I will be glad to supply a fuller 
answer for the record. Because it has been my understanding----
    Mr. Burr. Is that your understanding, Mr. Kelly? I mean 
these are Customs documents.
    Mr. Kelly. My understanding it is the number is about 50. 
My understanding also is that we do have a close working 
relationship, close----
    Mr. Burr. Are any of those 50 designated in the high volume 
API districts?
    Mr. Kelly. In the locations that you mentioned.
    Mr. Burr. Chicago, Baltimore and Los Angeles, which were 
none of the cities that were mentioned earlier that were high 
volume.
    Mr. Kelly. My understanding is we have a closer working 
relationship than we had in 1993 when that memorandum of 
understanding was signed and that we are working in those 
higher volume ports, even though there is not an official 
cross-designation working together.
    Mr. Burr. The Chair's time has expired. At this time the 
Chair would recognize the gentleman from California, Mr. 
Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman.
    As you know, Commissioner Henney, the House and the Senate 
both passed drug reimportation language by wide margins as part 
of the agriculture appropriations bill. Draft compromise 
language has been circulated and many of us are concerned that 
the compromise as drafted contains loopholes that the drug 
companies will exploit to eviscerate the original intent of the 
proposal.
    I and my colleagues Congressman Sanders, Berry, and Crowley 
wrote to the agriculture appropriations conferees expressing 
our concerns about the draft language. I would like to ask you 
about some of the issues we raised in our letter. The letter 
indicates that the current language appears to allow drug 
manufacturers to discriminate against U.S. pharmacists and 
wholesalers. For example, the companies could require their 
foreign distributors not to sell to U.S. pharmacists or 
wholesalers and could enforce these requirements by inserting 
restrictive provisions in their contracts.
    Isn't that correct?
    Ms. Henney. Mr. Waxman, that issue, if it exists, I think 
could be a real one, but I think that the implications in terms 
of trade restriction or trade restraints are really better 
answered by other agencies. We've got a lot of legal advisers.
    Mr. Waxman. I wasn't really asking before whether this 
would stand up under NAFTA or GATT or anything else. I am just 
asking you if the drug companies had a contract with their 
foreign purchaser not to turn around and sell it and that 
contract were upheld, that would be a problem, wouldn't it, for 
importation of drugs into the United States?
    Ms. Henney. One would think it would.
    Mr. Waxman. And it would allow, I believe, drug companies 
themselves or their intermediaries to discriminate against U.S. 
pharmacies or wholesalers because they could insert these 
clauses into the contracts with the foreign distributors, which 
make it illegal then to sell to U.S. pharmacists or 
wholesalers. And under the current draft of this language in 
the agricultural appropriations bill, this type of restrictive 
contract, as I read it, would be perfectly legal. Of course, if 
we try to challenge it on a trade basis, that could take years 
before we see any result. We may not win it.
    Is there any reason to believe the drug companies would 
take actions like trying to get these special provisions in 
contracts with their purchasers abroad?
    Ms. Henney. I don't know that I have any evidence of that. 
But if that would happen, I would think it would certainly be 
something that should be addressed now if Jeffords is expected 
to work.
    Mr. Waxman. In fact I believe these restricted practices 
are commonplace. I agree with you if we are going to face this 
problem, we ought to correct it now.
    If we don't address this loophole, this legislation won't 
go very far in addressing the high cost of prescription drugs 
for seniors in the U.S.; and if the language is left as is, it 
will allow the drug companies to evade the intent of the law.
    Another loophole I am concerned with deals with labeling. 
Drugs must bear the FDA-approved labels. In cases of brand name 
drugs, the copyright of these labels belongs to the 
manufacturer. The manufacturer could frustrate the intent of 
this legislation by using foreign labels that are different 
than U.S. labels and then refuse to allow reimporters to use 
the FDA-approved label. Do you think the drug manufacturers 
could thwart the intent of the law simply by changing labels, 
their foreign labels?
    Ms. Henney. We at the FDA did raise this labeling issue to 
Senator Jeffords soon after it passed on our appropriations 
bill. We assumed that it was an oversight, but there is nothing 
in the bill, as you note, that requires the manufacturer to 
give the approved label to the importer. Without this 
requirement, then the importer wouldn't have access to that 
approved label and it couldn't be imported because it would be 
essentially misbranded. It is likely an issue dealing with 
copyrights, trademarks and the like, and again it is another 
thing that needs to be fixed if Jeffords is expected to work.
    Mr. Waxman. I would think that it is quite simple for the 
drug companies to use this tactic. Currently labels for the 
drugs used overseas do not always use the FDA-approved label. 
If this problem isn't addressed, as you pointed out, drug 
companies will have an enormous tool to block reimportation of 
drugs and undermine the intent of the law. It seems to me that 
there are simple solutions. Prescription drug manufacturers 
could be required to provide importers with authorization to 
use approved labeling and manufacturers could be prohibited 
from discriminating against U.S. pharmacies and wholesalers.
    Would you support such an effort to eliminate these 
loopholes?
    Ms. Henney. I think they must be worked out if the law is 
going to work.
    Mr. Waxman. Thank you.
    Mr. Chairman, I yield back the balance of my time.
    Mr. Upton. Thank you. I appreciated your testimony this 
morning and particularly, Dr. Henney, I was delighted to see 
the statement in your testimony, I think it was point four, 
that indicated that the FDA would require manufacturers to 
notify FDA when they receive poor quality bulk drugs. This was 
an issue that we took up in our hearing earlier this spring, 
and as we have proceeded to other things like Firestone, 
notification to a Federal agency I think is very, very 
important. How quickly and under what parameters do you see 
this happening? What timeframe?
    Ms. Henney. I think we certainly need to engage in a very 
thorough discussion and dialog with the industry on this 
matter. It clearly would require rulemaking and notice and 
comment. Rulemaking could take us several months.
    Mr. Upton. But you expect to see this happen by the early 
part of next year?
    Ms. Henney. I think we will begin engaging in these 
discussions. I don't believe that we could be to a final rule 
by the first of the year.
    Mr. Upton. I have a question that I would like to sort of 
set out. In a letter back in July to me, July 25, the FDA 
wrote, ``OCI is willing to work with Customs on a criminal 
investigative task force if warranted. However, the 
establishment of a task force is predicated on identifying a 
large number of specific criminal violations that are occurring 
and the need to respond to those violations with the resources 
of a number of agencies.'' It goes on to say, ``In the case of 
counterfeit bulk drugs, no large number of specific criminal 
violations has been identified. Accordingly, FDA has concluded 
that a joint standing task force with Customs for counterfeit 
bulk drug investigations is not warranted at this time.''
    Now, a letter that I think the Department of Justice sent 
to Chairman Bliley a week or 2 ago indicated that in fact an 
interagency cooperative such as a task force can be an 
important component of law enforcement, and facilitates the 
investigation by using each agency's area of expertise.
    Where exactly are we in the field of things trying to get 
all three agencies to work together and in fact develop an 
interagency task force? Does your language back in July still 
stand based on what the Department of Justice sent us and as a 
former OMBite, where was the clearance process?
    Ms. Henney. I think with respect to the working groups or 
task forces that are meeting, whether or not it is a standing 
task force or not may be the term of art we are all debating 
about.
    We clearly are engaged in fairly frequent discussions with 
a number of parts of Customs with respect to the counterfeit 
issue both in terms, as I mentioned before, of our laboratory 
efforts, our importation efforts, our civil actions as well as 
criminal actions. We simply don't have at this point a standing 
criminal task force, but we do have a working group that is 
engaged in fairly frequent meetings. In fact, I attended one in 
August.
    Mr. Upton. Ms. Maher?
    Ms. Maher. Well, looking at the letter you referred to, and 
we said that in the Department's view interagency working 
groups and task forces are effective and can be useful, is the 
language you quoted, in law enforcement in identifying and in 
working on particular cases with Customs and FDA. But I don't 
think that there is any conflict with what the Commissioner has 
said that we are not currently participating in such a task 
force.
    Mr. Upton. Do you know how many foreign firms appear to 
have shipped misbranded products in 1999? Is there any idea? Do 
you have some list?
    Ms. Henney. I don't think that we have a list, no.
    Mr. Upton. The FDA indicated that it was developing 
intelligence on international distribution channels of 
counterfeit and unapproved drugs. Exactly how is that being 
done? Is it through the Office of Criminal Investigations? Are 
they working closely with Customs?
    Ms. Henney. Mr. Chairman, with your indulgence I would like 
the person that you gave such worthy praise to before to answer 
that question. The head of our field operations, Mr. Dennis 
Baker. If anybody can live in reflective glory, I was very glad 
that I hired him when I first came on board.
    Mr. Upton. Welcome back.
    Mr. Baker. Thank you.
    Mr. Upton. I have to quickly swear you in.
    [Witness sworn.]
    Mr. Upton. You are under oath as well. Thank you.
    Mr. Baker. Mr. Chairman, we have several ways and venues of 
developing intelligence. We have international working groups 
where we do have international partners that our Office of 
Criminal Investigations works with to identify potential 
counterfeiting operations and distribution throughout the 
world.
    We also evaluate foreign inspections. As an example, our 
staff are now securing information on all manufacturing that 
occurs in establishments overseas, not just information on what 
is being distributed.
    Mr. Upton. Let me stop you right there. In the hearing that 
we had earlier this summer, we talked a little bit about the 
glycerin I indicated in my statement, the glycerin which was 
contaminated in Haiti, which caused a good number of deaths 
there.
    As I recall from that testimony, in fact we traced that 
back and we found some of that product, at least the raw 
material, had been identified as coming in and was in the 
United States and had not been used and it was caught in the 
nick of time.
    Now, did that come from China? Where did that material come 
from? It came from China. Was any attempt ever made? Whatever 
happened to the investigation? Here is a substance that caused 
deaths for sure. Whatever happened to the investigation of 
where it came from? Did they identify the source where it came 
from? Was there some tracking?
    Mr. Baker. They did identify the import source into the 
United States and they did quite a bit of leg work. I would 
have to pull the files to refresh my memory on it. That was 
some time ago. We did find it in distribution channels in the 
United States.
    Mr. Upton. Was that case ever referred to the Department of 
Justice?
    Mr. Baker. Insofar as the importer?
    Mr. Upton. Correct.
    Mr. Baker. I would have to go back and look at the files to 
see what the disposition was.
    Mr. Upton. Here is a clear case for what Dr. Henney was 
indicating in her testimony of requiring the manufacturer--if 
this had been a U.S. firm, to in fact pass that along directly 
so that we could take some type of action and make sure that it 
didn't happen again and in fact identify the source, whether it 
be FDA inspectors that would go there or have the authority to 
look out for that company's particular products as they entered 
the States. Do you know more based on that note that was handed 
to you there?
    Mr. Baker. We did meet with the Chinese embassy to disclose 
information that we learned from the Haitian event. In essence, 
we passed along our information to the Chinese authorities for 
use against the manufacturer of the product in China.
    Mr. Upton. Do you know if any follow-up happened?
    Mr. Baker. I would have to check to see what the follow-up 
was.
    Mr. Upton. I would appreciate that for the record.
    Mr. Baker. I will be happy to supply that.
    [The following was received for the record:]

    On October 28, 1999, Agency representatives from the 
Division of Emergency and Investigational Operations, Division 
of Field Science, and Office of International Programs, met 
with representatives from the Chinese Embassy to disclose the 
results of the Agency's investigation into the 1996 incident in 
Haiti that killed 88 children caused by contaminated glycerin 
used in a drug product. After the Haitian tragedy, FDA issued 
an Import Alert for glycerin exported from all countries.
    FDA began investigating this incident per the request of 
the World Health Organization. The Agency's findings revealed 
that the glycerin used in Haiti was contaminated with 
approximately 24 to 26% diethylene glycol (DEG). The Agency 
also concluded that the contaminated glycerin, labeled as 
``pharmaceutical grade'', originated from a firm in China. The 
Agency was not able, however, to identify the firm in China 
that caused the contamination.
    In an effort to bring closure to this issue, to alert 
Chinese officials to the Agency's findings, and to allow 
Chinese officials to continue this investigation, the Agency 
requested the meeting to disclose the results of its 
investigation.
    Embassy officials indicated that they would report back to 
the Chinese government and initiate a follow-up. FDA officials 
also offered to assist the Chinese government in their efforts. 
To date, the Agency has not received any requests for 
assistance.

    Mr. Upton. Okay, I think that completes my questions at 
this point. Mr. Bryant.
    Mr. Bryant. Thank you, Mr. Chairman. Dr. Henney, let me ask 
you a question about what the administration's position would 
be on reimportation or importation of drugs which are 
identified in the Controlled Substances Act as drugs which have 
the potential for addiction or abuse?
    Ms. Henney. I'm sorry, I heard the first part of your 
question but not the last part.
    Mr. Bryant. What is the position of the administration and 
FDA on the reimportation of drugs that are listed on the 
controlled substances list, those that are addictive and can be 
used in an abusive way?
    Ms. Henney. Are you--let me just ask a point of 
clarification, Mr. Bryant. Are you speaking of the 
reimportation bill currently being considered or are you 
talking about personal reimportation of scheduled products?
    Mr. Bryant. The former.
    Ms. Henney. The former. I don't think that the position as 
outlined by the administration distinguishes between scheduled 
products versus prescription drugs. It is really drugs that are 
manufactured, are under prescription that could be reimported. 
So I assume that the authors of the legislation mean all 
products that can be obtained under a prescription and of 
course some of those are drugs that can be abused.
    Mr. Bryant. I am concerned and I think a number of 
questions have been asked between the Customs and FDA of the 
efforts of the joint investigations, cross designations of 
FDA's OCI, and folks with Customs. Coming from a limited law 
enforcement background as a former U.S. attorney, and I think I 
pointed this out in the last hearing, back in June, of the turf 
battles that go on among investigators, Federal and State 
investigators. I want to be careful that both of you, and I am 
sure that Justice would agree, that everyone work together on 
this in a cooperative fashion so we can make sure whatever we 
do in Congress works with whatever laws you enforce now are 
enforced and there are not problems with jealousies among 
agencies.
    I think you testified that 150, most of whom are cross-
designated, I am concerned about the location and we don't want 
to micromanage, but Director Kelly, Mr. Kelly, what is your 
view on the placing of these--I know that you have folks out 
there, but the placing of these OCI agents particularly among 
the high traffic areas, the high volume areas?
    Mr. Kelly. Congressman, I am led to believe by our people 
that we are working more closely now with the FDA than ever 
before. In 1993 there was a memorandum of understanding that 
allowed for this cross-designation and there were some issues 
in 1993 that I think all reports have been resolved. We don't 
necessarily need this cross-designation because we are working 
so closely at many of these ports. There certainly is no 
resistance on our part to expand the cross-designation. The 
number is about 50, as Congressman Burr mentioned before. If 
more cross-designation is needed, we will do two.
    All of the feedback that I have received is that we are 
working closely and cooperatively as far as investigations. We 
do have a task force of sorts in the San Diego area doing 
Internet investigations right now.
    Mr. Bryant. Would you explain to me in your testimony, 
maybe on your website, in our preparation materials the 
indications are that there are something like 358 ports of 
entry and 20 customs centers in addition to that which you 
operate, and the issue I would ask you to explain to me, are 
some of these limited in terms of commercial trade and if we 
pass this legislation that we are talking about where it would 
likely increase the importation of drugs and all of the 
problems that need enforcement, how will that affect those 
commercial sites and can we close down some of those given the 
assets that you have, and will you be forced to try to shut 
down some of these commercial entries to offset that?
    Mr. Kelly. We have 301 ports of entry. The overarching 
supervision are 20 customs centers. Some ports, yes, are 
strictly trade. For instance, Otai Mesa in California is 10 
miles from San Ysidro, it is passenger car, but Otai Mesa is 
all vehicle traffic. We would--we simply don't know the volume 
that will be generated by this piece of legislation. I could 
not make an intelligent statement whether or not we would be 
forced to close. That certainly would be a very drastic measure 
to close a port of entry. We would resist that tremendously.
    Mr. Bryant. We are sort of on both sides of this. We don't 
want to impair our legitimate businesses but we don't want 
these counterfeit drugs coming in either. You guys are where 
the rubber meets the road.
    Let me go back to a question, if I can find it very quickly 
here, to Dr. Henney. Dr. Henney, in terms of the foreign drug 
plants, our committee here has obtained evidence of some 
Chinese firms that readily ignore patent laws and distribute 
these drug products. Are we aware of the distribution of such 
drug products outside of China that violate our patent laws?
    Ms. Henney. Mr. Bryant, I am going to have to submit that 
response for the record. I don't know that I can give you a 
full and complete answer to what extent we are knowledgeable 
about that.
    [The following was received for the record:]

    FDA is not aware of evidence that Chinese firms are 
manufacturing and distributing pharmaceuticals in violation of 
U.S. patent laws.

    Mr. Bryant. Mr. Kelly, do you have any information on that?
    Mr. Kelly. No, sir.
    Mr. Bryant. This committee has obtained reports of firms 
that are counterfeiting drug products still under the U.S. 
patent laws. These firms do manufacture other products that are 
exported to the United States and it seems to me that the FDA 
would find these reports relevant to assessing the integrity of 
these firms, and I assume that the FDA would like to have these 
reports that the committee has found.
    Ms. Henney. We would appreciate that.
    Mr. Bryant. Dr. Henney, let me ask you a question here. The 
FDA seems to be saying that it doesn't want individual citizens 
to bring drugs approved for the U.S. market from Mexico for 
their personal use because the agency can't assure the safety 
and effectiveness of these drugs, but as long as a wholesaler-
importer provides documentation about testing products obtained 
in Mexico, this somehow is dispositive. So while it is not safe 
and effective if it is brought into the United States by an 
individual, it seems to be safe and effective if brought in by 
a commercial operator whose products will be available to not 
just one person but thousands of other folks, and we are going 
to know that the drug is safe and effective by virtue of the 
paperwork being provided by the very person whose business 
interests are affected by this. This is at best illogical, and 
at worst this is downright dangerous.
    What is it specifically about the pending importation 
proposal which has changed the FDA's mind and reversed the 
agency's clear and heretofore unambiguous position about 
assuring the safety and effectiveness of these imported drugs?
    Did you follow all of that?
    Ms. Henney. I tried to.
    Mr. Bryant, I think there are a number of issues embedded 
in your question. I think first and foremost, the pending 
legislation which the administration has made comment on was 
initiated by the Congress. It clearly does apply to importers, 
and the importer might be a pharmacist, and we feel that if 
that is to take place, that our current method of assuring a 
safety system would have to be nurtured with a new system that 
we would need to put in place to make sure that the safety 
issues remain strong.
    And that is why we are saying that we cannot accomplish 
this piece of legislation without full funding to support a new 
safety system on our part in terms of authenticating what is 
coming in and making sure that it does meet safety standards. 
However, this piece of pending legislation does not deal with 
personal importation and the personal importation policy. So we 
have not made comment in that regard.
    I think it is important to keep in context that the 
personal importation policy when it was initiated by the agency 
many years ago was a policy built out of compassion, that there 
was an overriding concern about people's ability to get product 
that might be available in another country that was not 
available here, and it was particularly done at the time of the 
AIDS crisis when there were no treatments available here and 
possibly available in some other countries. And we opened it up 
by policy to allow an individual to bring a personal amount of 
product into this country, or if they were coming in from a 
country and had already been prescribed a medication in another 
country that may not have been available here.
    I think that policy has extended over time, and it is now 
one that people are relying on because of the price issue. We 
have tried to be understanding of that matter. We do have 
concerns about it and that is why we try to tell citizens that 
go into other countries to purchase products perhaps at lower 
cost, that they do that at some risk in terms of their safety, 
but we have chosen by enforcement discretion not to enforce the 
law in terms of their personal desire to purchase that product. 
But they need to be aware of the safety risk they put 
themselves at.
    Mr. Bryant. To be clear in my own mind, let me ask that 
each one of you and probably a close simple yes or no answer 
might apply. You might have to explain a little bit. Do the 
three agencies, for lack of a better word, that you represent, 
each one of you, what is your position on this bill that 
would--these riders, the Crowley and the Coburn and I guess 
Jeffords over in the Senate, what is the position? Do you favor 
the passage of this that I understand would allow the 
importation of bulk drugs from other countries, large numbers, 
rather than simply the personal use situation? Do you support 
this type of legislation? And each of you answer yes or no.
    Ms. Henney. Mr. Bryant, I believe the administration has 
made itself very clear in terms of strong opposition to both 
the Crowley and Coburn amendment on the issue of strong safety 
concerns that those amendments would represent.
    On the matter of Jeffords, I think from the FDA's part, the 
original Jeffords, and I am given to understand that this has 
been opened up for a lot of discussion, and I don't know its 
current state of play, but if we looked at the language as 
originally embodied in Jeffords, we believed that it was a new 
system, it could be a workable system, and from our part we 
could only do it if fully funded.
    I think a number of other issues have arisen during the 
course of discussion, but I don't know the current language of 
Jeffords as it now stands, so I couldn't comment on that.
    Mr. Kelly. Trade has essentially doubled in the last 6 
years, and obviously the volume comes right through the Customs 
Service. We don't have a position on the bill. Obviously we do 
what we have to do. Clearly we are strapped for resources now. 
So this legislation certainly has the potential of adding to 
the volume that Customs has to deal with. All I ask is 
consideration for the Customs Service as far as resources are 
concerned.
    We have a resource allocation model that we had a 
consultant do for us, and it is an excellent piece of work. It 
is workload driven. What we would want to do is take 
information from the FDA and put it into our resource 
allocation model and come out with a figure, what do we need to 
effectively enforce this piece of legislation. So our concern 
is resource driven, what do we need to do our job as far as 
this piece of legislation is concerned.
    Ms. Maher. Mr. Bryant, the Department of Justice has not 
commented on the bill and the Office of Consumer Litigation, 
which I oversee, is certainly not the only component which 
would have views on that. If the Department were to provide 
views, we would have to solicit views from divisions such as 
the Criminal Division and the Office of International Affairs, 
and so forth. We can do that, but that has not been done to 
date.
    Mr. Bryant. Thank you. I yield back the balance of my time.
    Mr. Upton. Mr. Cox.
    Mr. Cox. Thank you, Mr. Chairman.
    Thank you for joining us. I would like to ask about the 
letter that the FDA sent to the committee addressed to Chairman 
Bliley and copied to the ranking member, Mr. Dingell. I wonder 
if you can distribute a copy of that letter to the members and 
the witnesses. This letter concerns the production of documents 
to the committee concerning the criminal case that is described 
in Ms. Maher's testimony involving the prosecution of 
counterfeit antibiotics from the People's Republic of China.
    According to the letter of August 29, the FDA may have 
violated grand jury secrecy rules by disclosing information 
which is subject to the grand jury rule 6(e) of the Federal 
Rules of Criminal Procedure. The letter is unusual in that it 
is not signed by a lawyer, nor does it reference any petition 
to the court concerning the use of the material within FDA by 
anyone other than an attorney for the government. I am 
assuming, and I will have to ask you this question, that the 
signatory on the letter, Melinda K. Plaisier, is not an 
attorney for the government; is that correct?
    Ms. Henney. That's correct. She is head of our legislative 
office.
    Mr. Cox. I take it that you are a medical doctor and not an 
attorney for the government?
    Ms. Henney. Yes, I am a physician.
    Mr. Cox. Rule 6(e) of the Federal Rules of Criminal 
Procedure requires that this information be handled by 
attorneys for the government, and it would have to be 
segregated within FDA, presumably stamped secret, and other 
precautions would have to be taken so that this information 
could be kept secret within the confines of the law. It appears 
that that did not occur. Do you know why?
    Ms. Henney. Mr. Cox, this matter came to our attention a 
few months ago, I believe a few days before the committee 
received this letter, we saw during the course of looking at 
materials that had been provided to the committee that some 
6(e) documents inadvertently may have been transmitted in 
response to a request before the agency from the committee.
    Mr. Cox. I need to stop you because I don't understand how 
that can happen. I don't understand how that information could 
have been in the possession of anyone not an attorney for the 
government.
    Ms. Henney. That is what we are investigating ourselves 
right now, how it happened.
    Mr. Cox. How can you conclude that it is inadvertent then?
    Ms. Henney. Well, it was inadvertent in that it got 
transmitted to the committee and we are exploring how it 
happened, not only the transmittal to the committee but how it 
happened that the 6(e) documents were outside the confines of a 
secure situation within the agency.
    Mr. Cox. The people who transmitted this information and 
who reviewed it for transmittal in the first instance 
apparently were not attorneys for the government and were not 
on the grand jury list?
    Ms. Henney. That's correct.
    Mr. Cox. So at least facially we have a potential criminal 
violation. Was there a notification to the Inspector General?
    Ms. Henney. We have notified the Inspector General, but it 
is under investigation by our internal investigations group.
    Mr. Cox. Is that normal for a potential criminal violation?
    Ms. Henney. Yes.
    Mr. Cox. That the IG would not handle it?
    Ms. Henney. Within the agency we have an internal affairs 
operation. They work closely with the IG of the Department, but 
they are able to undertake investigations within the agency.
    Mr. Cox. My understanding of your MOU is that in fact it 
would be normal for the IG to handle that; is that correct?
    Ms. Henney. Under the memorandum of understanding as I know 
it, we notify the IG of any matter like this and they take it 
under consideration as to whether they want to handle solely 
the investigation or they work with us in the investigation. We 
have notified them of that and we have not heard whether they 
will be entering this particular investigation or not.
    Mr. Cox. I am attempting to find a copy of it, and I just 
reviewed it recently and it strikes me that it is abnormal for 
the IG not to do this.
    Ms. Henney. As I recall, when this particular memorandum of 
understanding was entered into with the IG, it was at a time 
when the agency felt a need to have its own internal affairs 
unit. We were long delayed in terms of waiting for the IG 
because of the number of cases that they had under 
investigation through the whole department, and thus this 
arrangement was developed through this memorandum of 
understanding. It is that which we have relied on.
    Mr. Cox. Does the Office of Internal Affairs comprise non-
FDA employees?
    Ms. Henney. No.
    Mr. Cox. They are people that work for the FDA. Have any of 
them worked for the Office of Criminal Investigations?
    Ms. Henney. They are credentialed as essentially criminal 
investigators, but they do not report to that office.
    Mr. Cox. Have any of the people who presently work there 
formally been in the Office of Criminal Investigations?
    Ms. Henney. I don't know that.
    Mr. Cox. The concern is that what we have if we handle it 
as it is being handled is the people conducting the 
investigation essentially investigating their colleagues. There 
isn't the same arm's length arrangement that you would have if 
you had the IG conducting the investigation. I wonder if the 
MOU seems on its face, as it does to me having read it, to put 
this in the lap normally of the IG and the decision was made 
not to do that.
    Ms. Henney. The decision was to give this to the Office of 
Internal Affairs. They would make their normal contacts with 
the IG and develop the plan for the investigation of the 
matter.
    Mr. Cox. This has been going on for months. Where does it 
stand now?
    Ms. Henney. I have not received a report on the status.
    Mr. Cox. The Office of Internal Investigations doesn't have 
the power itself to convene a grand jury?
    Ms. Henney. No.
    Mr. Cox. Or to even get testimony under oath as the IG 
could. Isn't that right?
    Ms. Henney. I do not know the extent of their authorities 
in that regard.
    Mr. Cox. Can they subpoena documents?
    Ms. Henney. I don't know, Mr. Cox.
    Mr. Cox. Are you at all involved in the decision whether to 
conduct the investigation through the IG or through the Office 
of Internal Investigation?
    Ms. Henney. I was involved in the decision that said we 
needed to investigate this matter thoroughly.
    Mr. Cox. You did not opine on it going to the IG or 
Internal Affairs?
    Ms. Henney. I did not make a designation as to which 
should, and I think what we have normally done when we have 
matters within the agency that need exploration is to turn 
first to our Internal Affairs, and then they consult with their 
colleagues in the IG as to how it will be conducted.
    Mr. Cox. Why have you not been briefed on the status of the 
investigation?
    Ms. Henney. I am normally briefed on the status of the 
investigation when the investigators feel that they are at a 
point where they need to be having me make a decision or need 
to transmit critical information.
    Mr. Cox. Is your inference from the passage of a month and 
some since at least we were provided and presumably the FDA was 
on notice that it is a complex investigation and that is why it 
is taking a long time or that there is nothing worth paying 
attention to?
    Ms. Henney. I don't know what all might be involved in the 
investigation at this point.
    Mr. Cox. I raise this because it is rather clear that in 
the one criminal matter that we have seen--and this is the only 
one to my knowledge, the only criminal case that FDA has 
brought for the importation of bulk pharmaceuticals?
    Ms. Henney. I believe that is correct. I don't know that 
for a fact.
    Mr. Cox. It seems that we have a rather serious internal 
problem within FDA concerning the handling of the documents. 
They appear not to have been marked properly. They are being 
handled by people who are not on the grand jury list. They are 
not apparently in the office where they belong. Do you know the 
answer to the question of which office these things came from?
    Ms. Henney. We do not know at this point the different 
transmission points within the agency. That is what they are 
exploring right now.
    Mr. Cox. Do you believe that in any way the misconduct or 
mishandling of documents here is related to a lack of funding 
to the FDA?
    Ms. Henney. I think we will have to make those judgments 
once we see the completion of the investigation.
    Mr. Cox. I will say that it strikes me as extremely 
improbable that that could be the case. Rather this seems to be 
a clear case of people not following the rules, and I would 
hope that it would get some serious attention because I have 
never seen a letter like the one that came to the committee 
just--let me ask this: Has the FDA or the Department of Justice 
made application to the District court that had jurisdiction 
over this matter where the guilty plea was entered, and so on, 
that would permit the people who have handled this information 
within FDA to do so?
    Ms. Henney. I need the thrust of your question again, 
please.
    Mr. Cox. Even though I realize, Ms. Maher, you are with the 
Civil Division, do you know the answer to that question?
    Ms. Maher. I don't know the answer to that question. I just 
notice that the letter was copied to the Assistant U.S. 
Attorney in New Jersey. Frankly, this is the first time I have 
seen the letter, and I wasn't aware of the issue and I don't 
have any information on it. But that doesn't mean that the U.S. 
Attorney's office isn't--hasn't made some kind of application. 
I just don't know the answer to the question.
    Mr. Cox. Okay. These are very serious matters. It is a 
crime, and it seems to me, or at least according to 6(e), 
handling documents in this way is subject to serious criminal 
penalties. It doesn't seem to be being handled internally with 
that gravity, and I would hope that would change. The way that 
it came to the attention of the committee is highly unusual. I 
don't think that the committee has ever received a letter like 
this, not only during my 12 years in Congress, but at all 
because it is so facially irregular.
    To the extent that you haven't been briefed on it, I would 
assume that this would be a good time and perhaps you can get 
back to us. Is that acceptable?
    Ms. Henney. Yes.
    [The following was received for the record:]

    As you know, FDA's Office of Internal Affairs began the 
preliminary investigation of this matter in September and in 
accord with our MOU with the Department of Health and Human 
Services Office of the Inspector General (OIG) notified them. 
Subsequently, on October 4, the OIG notified the Agency that 
they would assume the lead on this investigation. Dr. Henney, 
Commissioner of Food and Drugs, was briefed on this status 
subsequent to the hearing. Since the OIG now has the lead, FDA 
expects no further briefing until the investigation is 
completed.

    Mr. Cox. Thank you. Thank you, Mr. Chairman.
    Mr. Upton. Before I yield to Dr. Coburn, I have been asked 
by the minority to put two letters into the record by unanimous 
consent that they, I guess, referred to in their questions. So 
without objection that is now done.
    [The following was received for the record:]

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    Mr. Cox. Mr. Chairman, I would ask also by unanimous 
consent that we include the letter that we just had discussion 
on for clarity purpose.
    Mr. Upton. Without objection, so ordered.
    [The following was received for the record:]

              Department of Health & Human Services
                               Food and Drug Administration
                                                    August 29, 2000
The Honorable Thomas Bliley
Chairman, Committee on Commerce
House of Representatives
Washington, D.C. 20515-6115
    Dear Mr. Chairman: This letter is in follow-up to a telephone 
conversation I had with Mr. Alan Slobodin, Senior Counsel, of your 
staff on August 25, 2000. I called Mr. Slobodin to advise him that it 
recently came to our attention that the Food and Drug Administration 
(the Agency) may have inadvertently disclosed documents related to a 
closed grand jury investigation in a document production responsive to 
your letter of August 4, 1998, requesting information about counterfeit 
bulk drugs.
    Specifically, documents provided to the Committee on the following 
dates, included documents that may be subject to Rule 6(e) of the 
Federal Rules of Criminal Procedure: October 14, 1998 Boxes 1 and 2; 
October 29, 1998 Box 3 of 4; December 29, 1999; January 20, 1999.
    We respectfully request that if the Committee is finished with 
these documents, please return them to the Agency. We will be happy to 
arrange for a courier to pick them up. If the Committee has further 
need of the documents, we respectfully request that you take 
precautions to not further disclose, make no copies, and advise us when 
you are finished so we may arrange to have them returned to the Agency.
    We apologize for any inconvenience this may have created. Please 
let us know when the Agency may retrieve these documents.
            Sincerely
                                        Melinda K. Plaisier
                             Associate Commissioner for Legislation
cc: The Honorable John D. Dingell
   Ranking Minority Member
   Committee on Commerce
   House of Representatives

   Mr. Richard Schechter
   Assistant U.S. Attorney
   Department of Justice

    Mr. Upton. Dr. Coburn.
    Mr. Coburn. Thank you, Mr. Chairman.
    Dr. Henney, you have been through a controversial period of 
time where you approved a drug that Mr. Waxman is happy with 
and I am unhappy with, and my purpose is not to berate you in 
that decision, but I have some questions about that process 
that I think are important for the FDA, and implicit in past 
drug approvals and future drug approvals, and I just wanted to 
ask you some questions about that if I might. If you don't know 
the answer, that is fine. I would like you to get back to me 
with the answer.
    Also, I sent you a letter on September 6 asking some 
specific questions that I have not heard any answer from, and 
this was prior to the release of that approval.
    The basis of my question is this: With the approval of RU-
486, it by itself will not accomplish the purpose under which 
it was approved by the FDA. It is a recognized medical fact 
that it has to be used in combination with some other drug with 
which to do that. The other drug that is used in that is a drug 
that is produced by G.D. Searle Company, which they have 
disallowed and disavowed that they want that drug used for 
that.
    My question to you is: Coming with implicit approval of RU-
486, will the FDA hold harmless every practitioner in the off-
label use for Cytotech for every purpose outside of the 
approved use and every other drug that might be utilized in 
combination with other approved drugs, and have you set a 
precedent which will diminish the power of the FDA?
    Ms. Henney. With respect to the treatment plan that you 
reference, Mr. Coburn, Dr. Coburn, I think that the treatment 
plan in order to accomplish the early termination of pregnancy 
really does require the two products; and in that regard we 
have been engaged in discussions with Searle about changing the 
label to reflect that treatment plan on the label.
    In terms of----
    Mr. Coburn. Could I interrupt you there? Have you ever in 
the history of the FDA gone to a manufacturer when they have 
expressed a desire that they don't want a label change and 
recommended to them that a label and nonapplication by them be 
changed because the FDA wants a change? Has that ever happened 
before in the history of the Food and Drug Administration?
    Ms. Henney. I don't know the full history of the Food and 
Drug Administration, so I don't know the answer to your 
question. I do know that it is quite common in my own field 
where a drug in and of itself is not the whole treatment, but 
requires the use of many other drugs to really complete an 
effective treatment plan, that that has been done in those 
kinds of situations. And that has been done in those kinds of 
situations.
    Mr. Coburn. But the FDA has, in fact, asked other 
manufacturers to change their labeling request to make a 
treatment plan, and that would be your testimony, that the FDA 
has done that in the past?
    Ms. Henney. I don't know that there has been a formal 
request of that to be reflected on the label. There is 
certainly an acknowledgment, as we have approved different 
products, that they are a part of a treatment plan, not 
effective in and of themselves to the degree the treatment plan 
provides.
    Mr. Coburn. In regards to Cytotec, Searle sent a letter out 
to all practitioners throughout the United States, all 
providers, stating, No. 1, they don't want this drug used for 
this, that it's dangerous for this; and in statements made to 
the press they stated, in fact, that this letter was written 
jointly with the help of the Food and Drug Administration. Is 
that a true statement?
    Ms. Henney. I think there are two issues there. There were 
essentially two letters in question. One--and we certainly were 
very much engaged with their writing of the language in the 
letter that tells practitioners and women really that if they 
are taking Cytotech and wish to remain pregnant, that there are 
side effects potentially of birth defects.
    However, for the termination of pregnancy, that is a 
different issue and a different letter under question. And we 
have asked for revision of that, because it is different than 
what the company implies and states on its label in other parts 
of the world.
    Mr. Coburn. In fact, under the label requirements, even the 
IND and the NDA that was done with Cytotec in this country we 
have no label request and no indication for the procedure under 
which this drug indirectly has been approved by the FDA in 
conjunction with RU-486; is that correct?
    Ms. Henney. What are you talking about here?
    Mr. Coburn. I'm talking under the jurisdiction--you don't 
have jurisdiction outside of this country in terms of labeling. 
You have jurisdiction in this country.
    I'm talking about the letter that they sent--I'd like to 
introduce this into the record--August 23, which they claim was 
written in part with the help of the Food and Drug 
Administration.
    So my question is, it really doesn't have anything to do 
with RU-486 and Cytotec. The fact is, I see a prostitution of 
the process of the Food and Drug Administration that undermines 
your ability in the future to ever counter a claim for any drug 
company that wants a liability claim on off-label using, 
because in fact the Food and Drug Administration, with its 
approval of RU-486, has implicitly approved a drug for which 
the drug manufacturer doesn't want it approved, has stated they 
don't want it approved, and you helped write a letter that 
helped them say that.
    So my question is, is this all about posturing for 
liability so that Searle is not sued, and all the liability for 
using this drug now stated, that should never be used for 
pregnant women or for abortion, is that to shift all the 
liability to the practitioner?
    In other words, I don't understand why we would not have 
approved this drug as a true drug regimen and done it in a way 
that does not dilute the future potential of activity for the 
FDA to control drugs. And it seems to me that we've diluted 
your capability precedent for future actions on other off-label 
drugs because you've implied, I believe, that it's okay to use 
this drug for this procedure.
    Is that a fair statement or an unfair statement?
    Ms. Henney. We have said that the treatment plan--we have 
approved the drug as a part of a treatment plan. I think with 
respect to the matter of helping in terms of drafting of that 
particular letter, I think we might question that. Our real 
assistance came in an earlier letter.
    Mr. Coburn. So let me make sure I understand this.
    The FDA did not assist Searle in this letter to 
practitioners stating that they do not want Cytotec used for 
both the induction of labor or as a use of a second drug 
combination as an abortive fashion.
    Ms. Henney. It was really for the use of this, if a woman 
desired to remain pregnant. It was not for its use as an 
abortive agent.
    Mr. Coburn. But I'm talking about this letter. There is no 
assistance by the FDA with G.D. Searle Company in developing 
this letter that went to every practitioner in the United 
States disavowing the utilization of Cytotec, the second 
component in a medical abortion, that they did not want, should 
not be used, it is dangerous to be used in that manner. That is 
the manufacturer of this product saying that, and the FDA had 
no part in the formulating or drafting of this letter.
    Ms. Henney. We had a part in the formulating and drafting 
of the letter that essentially warned health practitioners and 
patients if Cytotec was used and a woman desired to remain 
pregnant that she would be at risk of severe birth defects. 
That is the part of the letter that we assisted in.
    Mr. Coburn. Fine. Thank you.
    I'd like to submit with unanimous consent this letter from 
Searle, as well as statements from the press relating to FDA's 
concerted help in writing this letter. I'm not sure we have a 
full explanation of why the FDA would have been involved in 
this.
    The other thing that concerns me--and I would make this 
note in the record for the future, and I think it's very 
important--FDA has to be the final approver on medical uses and 
labeling for drugs, and I believe that that process has been 
bastardized with this letter and with the use of Cytotec in 
conjunction with this.
    We need to make sure that we preserve FDA's power, and I 
believe a precedent has been set with this because we now have 
the Food and Drug Administration asking a manufacturer to allow 
a drug to be used off-label by their implicit approval of 
another two drug combinations when, in fact, the manufacturer 
doesn't want any part of it and doesn't want the liability 
associated with it.
    The second point I would make is because this has happened, 
any practitioner who uses Cytotec to perform a medical 
abortion, if there is any complication, Searle is off the hook, 
and the maker of RU-486 is off the hook, but the practitioner 
isn't. So what we have done is shifted responsibility from 
those that should be to those that are carrying out what is 
recommended by the Food and Drug Administration as a proved 
policy of terminating lives in this country and doing so in a 
manner that shifts the liability away from those that should 
have it.
    With that, I thank the chairman for allowing me to 
participate.
    Mr. Upton. The documents, without objection, are included 
as part of the record.
    [The following was received for the record:]

    [GRAPHIC] [TIFF OMITTED] T5846.242
    
    [GRAPHIC] [TIFF OMITTED] T5846.243
    
    Mr. Upton. Mr. Burr.
    Mr. Burr. Thank you, Mr. Chairman.
    Commissioner, share with me, if you will, why it has taken 
3 years since FDAMA was passed for us to write the final regs 
as it relates to foreign establishments whose products are 
imported or offered for import in the United States.
    Ms. Henney. Mr. Burr, I think that there were probably two 
factors in its taking 3 years to get this particular regulation 
out.
    The first was that we worked on those matters within the 
FDA Modernization Act that actually has statutory deadlines or 
requirements first, and they were given first priority. I would 
note that we have met nearly 100 percent all of those 
requirements and requests that are embodied in that law.
    Second, we were given no additional appropriations as we 
were expected to undertake all that is involved in rulemaking. 
So there were no additional appropriations provided when the 
FDA Modernization Act passed, so we worked on our--the priority 
issues first under constrained resources, and it has taken some 
time for us to get this out.
    Mr. Burr. Could this committee expect that any change in 
our importation or reimportation guidelines in this country 
would take a similar amount of time, 3 years or longer, to 
fully implement the regs and the guidelines for that?
    Ms. Henney. I would hope not. Because we do place a strong 
priority on this effort. But I have mentioned earlier, 
throughout the course of this hearing, that we have to 
prioritize by risk and we have to prioritize by resources.
    Mr. Burr. I think you clarified a lot today, and my 
understanding, and I think the record will show, that the FDA 
is supportive of a standard that is consistent with section 
505, that these drugs must meet.
    Mr. Waxman raised a question about labeling, and I would in 
fact point you toward section 505. And I will just be general 
in my statement, but section 505 requires that any manufacturer 
file an NDA. And in that NDA they list those facilities that 
that specific drug would be made in. And the labeling is 
determined off of that NDA and in compliance with section 505. 
For anybody to suggest that there might be an additional 
labeling issue would be for them to not have an intention to 
use section 505 as a guideline. Would you agree?
    Ms. Henney. I don't know that they would have an intention, 
but yes, they would have to be given some sort of permission or 
access.
    Mr. Burr. Section 505 is very specific as it relates to 
labeling and the requirement for an NDA and the requirement to 
list the facilities where one would manufacture a drug, 
correct?
    Ms. Henney. You are absolutely correct.
    Mr. Burr. You would expect that to also be a guideline that 
you would follow as it related to reimportation or importation 
changes that might be considered by this Congress?
    Ms. Henney. Yes, there would have to be congruency between 
those two things.
    Mr. Burr. Let me go to Mr. Kelly because he is Customs.
    Your folks are on the border. I mean, even General Maher 
said in her testimony there are also drugs that are 
manufactured in whole or in part in unauthorized factories or 
facilities and then shipped with the complicity of the 
authorized manufacturers under its name and trademark--in other 
words, manufacturers in cahoots with manufacturing outside of 
the stream of an NDA-named facility.
    How do you catch that?
    Mr. Kelly. With great difficulty.
    Mr. Burr. It is not an expiration date now. It is the 
correct paperwork; it is the manufacturer's logo; it is 
everything imprinted--the color of the pill is right. How do 
you catch it?
    Mr. Kelly. As I said, with great difficulty. We need 
direction, we need to work closely with the FDA to get--we are 
looking for some national standards now from them to address a 
lot of these issues.
    Mr. Burr. It is tough, isn't it? You can say that. We 
understand the job that we have got, you are doing. And we 
understand that as pharmaceuticals become more global, which 
they are in fact, the challenges that we place on Customs are 
that much greater.
    Now, the natural question that I have to ask is, what is 
your job going to be like if we allow this new importation and 
reimportation to exist? How much have we strained your ability 
for your Customs agents to determine the difference between 
real and fake, adulterated and nonadulterated?
    Mr. Kelly. Well, it clearly will be strained, to what 
extent we simply don't know. We don't know what the volume is. 
We don't know what the complexity of these shipments will be.
    Mr. Burr. Let me ask General Maher.
    Currently, if a U.S. manufacturer manufactures a product 
and it goes into the consumer stream, they are liable, even if 
the FDA has approved the safety of, the efficacy of the good 
manufacturing process, everything is followed; if in fact they 
have a contaminated product, they are liable. I mean, they will 
be sued and somebody will win.
    Let me ask you, based upon the reimportation language that 
is out there, if a U.S. manufacturer manufactures in this 
country for export, it gets out of their chain of control--
which everybody's testimony said happens today--it is stored 
improperly, it is not temperature controlled, it is not 
humidity controlled, the active ingredient doesn't work because 
of the storage.
    It is reimported back into the country to a wholesaler or 
pharmacist, it is administered to a patient and their heart 
medication does not work and they die. Who is liable? Is the 
original manufacturer liable?
    Ms. Maher. I don't know that I could give you a legal 
opinion on that, based on the statute.
    Mr. Burr. Is that not an important question we get an 
answer to before we head into this world of saying we will take 
all drugs from around the world whether they are manufactured 
in the facility, whether they are stored in the warehouse, 
whether the manufacturer has been able to maintain that chain 
of control; as long as we think that it's not contaminated or 
that it has been made in a facility under section 505, 
approved, we will take it back in. Are we taking a great risk 
and aren't we holding private sector companies in this country 
liable for tremendous exposure?
    Ms. Maher. As I understand it, that is one of the reasons 
the Jeffords bill, in the version that I reviewed, requires, or 
will require, the Secretary to issue regulations that would 
establish a pedigree.
    Mr. Burr. We do require the Secretary to authorize the 
process. We authorize the Food and Drug Administration today to 
approve the safety and the efficacy of every pharmaceutical in 
our marketplace. But that authorization, that approval, that 
good stamp of approval from the FDA does not lift liability 
from the manufacturers, does it?
    Ms. Maher. I am not suggesting that it would lift the 
liability. I am suggesting that it would help to identify who 
is in the chain of custody of the product.
    Mr. Burr. And what Mr. Kelly and what you and what the 
Commissioner have told us today is, we have a serious problem 
today with counterfeit, adulterated drugs.
    Now we are going to open it up to a whole new world, the 
population is going to get that much bigger, and I only ask you 
to look at that one piece and tell me whether I am wrong that 
for a manufacturer of pharmaceutical products in the United 
States of America who manufactures with the intention of 
export, and somewhere in the chain of where that drug goes, it 
is stored improperly, it becomes contaminated for whatever 
reason, we have not done anything in the language currently 
debated that would lift the liability from that original 
manufacturer, have we?
    Ms. Maher. I haven't seen anything expressly in the bill 
that would do that.
    Mr. Burr. I have not either. I would hope that is one of 
the areas we begin to look at and ask ourselves, in fact, is 
this fair?
    Commissioner, would you agree from my earlier set of 
questions, that any reimportation or importation of a patented 
drug without the consent of the manufacturer is in fact against 
U.S. law?
    Ms. Henney. Today, yes.
    Mr. Burr. And is there anything in the proposed legislation 
that changes U.S. Code for patent protection of any 
manufacturer whether they are drug manufacturers or whether 
they are software manufacturers?
    Ms. Henney. Not that I am aware of.
    Mr. Burr. So even under the current reimportation language, 
it would have to be the interpretation of whatever department 
of the Federal Government--hopefully, it is Justice, some area 
of Justice--that they would look at it and say, it is still 
against the law to reimport against the consent of a 
manufacturer under patent protection.
    So in fact we have done nothing unless we address in 
legislation the ability to get around patent law in this 
country.
    Would that be a direct statement to General Maher or to the 
Commissioner?
    Ms. Henney. I would think that would be one issue that 
would clearly have to be worked through.
    Mr. Burr. Would you also agree that--would you also agree, 
it puts us in great jeopardy as it relates to our negotiations 
for harmonization with the EU on a drug standard, if in fact we 
get away from the gold standard we have always had, which is 
section 505?
    Ms. Henney. I don't know that the legislation under 
consideration would truly get us away from that standard.
    Mr. Burr. As long as we stick to 505, we are okay, we are 
on sound ground. But any movement away from section 505 is the 
standard that we use for a sign-off that something is safe and 
effective to come back into this country would, in fact, put us 
in great jeopardy with our trade negotiators on harmonization 
of drug approvals between the EU and the United States of 
America where we, for 3 or 4 years now, cannot find agreement.
    Ms. Henney. Mr. Burr, I am going to ask your indulgence in 
providing a fuller answer to your question for the record. We 
clearly have been involved in nearly a 10-year discussion in 
terms of our international harmonization efforts with not only 
the EU, but Japan and others, about harmonizing what we see in 
terms of our review documents. And the standard that we expect 
at the end for us, a standard of approval, may still be 
different than other countries; but we have never abandoned 
that standard in all of those discussions.
    But I really would appreciate the privilege of providing a 
full answer for the record.
    [The following was received for the record:]

    We do not believe the Medicine Equity and Drug Safety Act of 2000 
(section 745 of P.L. 106387) would compromise the approval standard in 
Section 505 of the FD&C Act. Drugs allowed into the U.S. under this 
legislation are expected to already have been approved by FDA. 
Therefore, we do not expect any impact on MRA negotiations.

    Mr. Burr. I would appreciate that, because I hope that 
given the interaction that members of this committee have had 
with the FDA relative to this issue, that our understanding is 
still the same and that we would hold fast to the gold standard 
in any harmonization negotiations that we might go through, 
either with the EU or with other countries.
    Mr. Chairman, I am happy to yield back the balance of my 
time. I want once again to thank our witnesses. I hope they 
understand that not only are we here to look at the counterfeit 
problem and to be as helpful as we possibly can be as a 
committee and as a Congress; we are also here to make sure that 
any steps that we might make don't contribute to the problem 
that we have.
    And I think clearly there are questions that exist, some of 
which we have gotten answers to today; and I thank our 
witnesses for that. But clearly there are many more areas than 
the authors of this legislation on reimportation have thought 
of that are affected by what we do; and I hope for once we will 
slow down, we will work with an agency that up till this point 
in its history has never broken from the gold standard that it 
set.
    Certainly there is a list of former commissioners of the 
FDA who have raised questions about what we might be getting 
ready to do, and I would like to quote one in concluding. It is 
a letter dated July 17, 2000, to the Senate Majority Leader, 
Trent Lott, Tom Daschle from former FDA Commissioner Goyan, and 
I quote, ``Even with my background and training, based upon 
physical inspection alone, I can't tell the difference between 
an authentic drug that has been properly stored and handled, an 
authentic drug that has not been properly stored and handled, 
and a counterfeit medicine that looks exactly like the real 
medicine that it copies.
    ``How are the Customs Service agents at entry points along 
our borders with Mexico or at one of our Great Lakes ports 
going to tell the difference?''
    I think that best sums up the challenge that you have got, 
Mr. Kelly, but it best sums up the reason that we should slow 
down and do it right and work in a partnership and not a 
political vacuum.
    I yield back.
    Mr. Upton. I appreciate the gentleman yielding back the 
balance of his time. I just note for the record, I wasn't 
intending to go to a third round.
    Mr. Burr. I had confidence you weren't.
    Mr. Upton. Mr. Strickland.
    Mr. Strickland. Thank you, Mr. Chairman.
    Dr. Henney, I find myself generally sympathetic with 
whatever we can do to lower the price of drugs for American 
consumers who, I think, are getting gouged with these high 
prices. Having said that, I think it is terribly important that 
we make sure that whatever we do protects the American consumer 
and the American public.
    In that regard, I understand this letter from 
Representative Dingell has been placed into the record; and 
having read this letter, I am concerned that it appears that 
there is a major problem, at least along the Mexican border, 
where substances that probably should not be available to 
certain individuals are being permitted into the country in 
significant quantities. By that I mean, I think that ought to 
be a major concern for us.
    What I would like to ask you is, can we expect an answer to 
the issues raised in this letter made available to this 
committee within, say, 2 weeks? Is that a reasonable thing to 
request of you?
    Ms. Henney. We will make every effort, Mr. Strickland, to 
respond within 2 weeks. I would say that the investigators or 
the faculty members that Mr. Dingell cites within the letter, 
that have done at least a preliminary study on this issue, we 
actually had invited to come in to talk to the whole leadership 
group of the Agency about their findings so that we might 
explore not only what they found, but if there are any other 
projects, that we might work on them--work with them on.
    So I think that we are very sympathetic to this issue, 
particularly as it relates to the personal importation policy, 
and we want to find out everything that they have found out in 
terms of their study and evaluation of the Mexican border.
    Mr. Strickland. For example, they indicate that on a 
particular day, 11,000 Valium tablets were brought into the 
country. Having worked in health care settings, I know how 
devastating access to that kind of drug can be if it isn't 
appropriately monitored by a physician.
    And I also understand that every study has particular 
methodologies and perhaps certain assumptions that need to be 
looked at and evaluated to make sure that it is a credible 
study. But I think these are very, very serious findings that 
are outlined in this letter, and it seems that it would be 
really helpful if we could have a response from you, and this 
committee could know what your findings and what your 
conclusions are regarding these particular allegations.
    Ms. Henney. Well, I think that they are very interesting 
findings, not only of the controlled substances that may be 
being brought in under personal importation that have unique 
issues, but also that it is not just seniors that are going 
into Canada--and not just Canada from their study, but Mexico 
from this study--but it is really much younger people who are 
seeking these medications as well. So that is why we really 
want to look in depth as at what is being found.
    Mr. Strickland. Just one more question. Is it reasonable 
for us to expect you will sit down, or your office will sit 
down, with Customs and try to work together to try to make sure 
that these issues are resolved?
    Ms. Henney. We intend to sit down not only with Customs, 
but with DEA. We do have a policy that harmonizes; sometimes, 
in operation, it is not interpreted as consistently as it might 
be. So we want to undergird our understanding about how 
personal importation, as it relates to scheduled products, 
really is to work. And certainly we want to share with them the 
findings of the study.
    Mr. Strickland. Thank you.
    Thank you, Mr. Chairman. No further questions.
    Mr. Upton. Mr. Bryant.
    Mr. Bryant. Thank you, Mr. Chairman for this second round.
    Ms. Maher, let me ask you, you know, so often we hear 
stories--probably countless stories--about how people in 
developed countries and underdeveloped countries, taking 
medication, experience problems with drugs that don't work or 
drugs that do them harm. And realistically we just don't have 
that over here in the United States very often.
    I am wondering, as we look at changing the policy rather 
dramatically that would allow potential reimportation of 
potentially dangerous counterfeit drugs--whatever, the whole 
gamut of bad things that can happen in this country--it is not 
unrealistic that we could see some people that are injured, 
some people that die as a result of this. And I know that is 
not the intent of Congress. We want to have drugs that are, I 
guess, more affordable, whatever. I assume that is the logic 
behind this. I know I certainly do, but again not at the risk 
of having people die.
    Is the Department of Justice--in terms of the current 
resources you have available, is the Department of Justice that 
would handle the actual prosecution of these cases that are 
made by Customs and made by the FDA-OCI folks, are you, with 
the resources you have now, ready to handle this potential from 
a legal standpoint?
    Ms. Maher. Well, we are certainly ready, willing and able 
to prosecute cases involving counterfeit pharmaceuticals. And 
if, as a result of a new reimportation law, there were to be an 
increase in those right now, we don't anticipate an inability 
to prosecute cases. So we are prepared to bring cases that are 
referred to us involving counterfeit drugs.
    I think it is the counterfeit drugs that you are referring 
to that cause harm to those who consume them. Whether they are 
in the United States or in some developing country, they are 
drugs that are other than what they purport to be.
    Mr. Bryant. I think it almost goes without saying if this 
law is changed, there will be an increase in the importation of 
drugs now; and how many of those are counterfeit and defective 
or whatever are yet to be determined. And there was fear of 
that at one point; that is why the law was passed as it is. And 
certainly I think we all understand that the real deterrent to 
this type of conduct ultimately is the fear of prosecution of 
getting caught and then being prosecuted to the full force of 
the law.
    Ms. Maher. These are very resource-intensive prosecutions 
to bring, and that is why some of the suggestions that were 
contained in our written testimony are things that we believe 
would make these prosecutions easier and less time-consuming 
and resource intensive.
    Mr. Bryant. Dr. Henney, I also practiced law, and I was a 
civil defense lawyer and defended medical health care 
providers' malpractice cases, and realistic enough to know--Dr. 
Coburn kind of woke me up on this. I had expressed some 
concerns about the approval of RU-486, but I would like to 
follow up on some of the questions he had--not as a doctor. I 
am not a physician like you or he are; I am a lawyer. And know 
just enough about medicine to be fairly dangerous to myself.
    But help me out on the FDA approach here. Is--as I 
understand, this is kind of a two-phase--the first phase is one 
drug followed up by second-phase drug that Dr. Coburn was 
alluding to quite a bit.
    Now, is this first drug--and I know it has a specific name, 
is it--where is it going to be manufactured, inside the country 
of the United States or is it going to be outside?
    Ms. Henney. Mr. Bryant, there are two drugs involved in 
this. The first is misoprostol. That is the drug that we 
announced the approval of last Thursday; and then following 
that, on the third day misoprostol is taken. That combination 
in a treatment plan essentially is the combination that results 
in early termination of pregnancy. We have at the FDA made the 
determination that we will keep the manufacturing site of this 
particular product confidential for two reasons.
    Mr. Bryant. Let me stop there. I think I understand some of 
the politics involved and some of the economic issues involved. 
Are the two drugs you refer to, is that first and second phase? 
Because I am looking--where does Dr. Coburn's Searle product 
come in?
    Ms. Henney. Day three, that is the second drug.
    Mr. Bryant. So we know who manufactures or who handles the 
second product, potentially. But the first one, you are saying 
you cannot tell this committee whether that product--I am not 
asking, where specifically is it made, other than is it in this 
country or out of the country; because I am concerned that--I 
believe if drugs are manufactured in this country generally 
what the FDA does have, I guess, is some authority over that 
and some inspection occasionally of the processes to ensure 
that there is quality control. I don't have that same 
confidence that the FDA has that for any kind of drug that is 
manufactured out of this country.
    So is it fair to say--let me ask it this way: Is it fair to 
say that the FDA will have some process or some inspection or 
some ability to judge the quality of this product and its 
manufacturing process?
    Ms. Henney. Mr. Bryant, let me assure you that this product 
had to go through every step of approval that any drug does 
approved by the FDA. And that includes the preapproval 
inspection of all of the processes of manufacture and making 
that drug. And this drug met that at its manufacturing sites.
    Mr. Bryant. You are not prepared to tell this committee if 
the manufacturing is outside the country or inside the country?
    Ms. Henney. No, I am not.
    Mr. Bryant. The second phase that Dr. Coburn questioned, 
again from a liability standpoint, does the FDA by asking--
let's again use Searle as an example. There may be other 
conditions that would be involved that could have their 
particular drug used off-label, I think is the terminology. 
Does the FDA, by approving this entire process, believe it is 
affording protection from liability to companies like Searle 
who are involved in that second process either willingly or 
unwillingly?
    Ms. Henney. Mr. Bryant, as you alluded to, I am a doctor 
and not a lawyer. So I don't know the full answer to that 
question. But we will try to provide a response to you for the 
record.
    Mr. Bryant. In simple terms, is this the first time to your 
knowledge that the FDA has ever asked a company such as Searle 
to, in effect, relabel a product, say, You can use it really 
for other issues beyond what we say?
    Ms. Henney. As you know, the FDA has been around for 100 
years, and we have been approving products for probably some 50 
years. And I just simply don't know the answer to that 
question.
    Mr. Bryant. So from your knowledge, you just don't know?
    Ms. Henney. I don't know.
    Mr. Bryant. When you are questioning your attorneys, what 
would be the liability effect of that? Would you anticipate 
that Searle, for example, again would have to go back and begin 
a retesting process for themselves, verify that this is a safe, 
effective use of their product?
    I assume they have done that for the reason the product is 
used for now, but with you asking them to label it to another 
use, wouldn't you think they would be wise to at least go back 
and test it themselves? Or are you providing--is FDA providing 
them liability from that?
    Ms. Henney. Mr. Bryant, certainly not liability, but the 
basis of the test, the clinical trials and specifics under 
question involve this product both at clinical trials that were 
part of this submission from the U.S. and France. So we would 
rely on that information.
    Mr. Bryant. Would you also--and I assume you will have 
access to this record; if some of my questions maybe are 
discombobulated, you can determine where I am going about the 
liability issues.
    Would you also give us the opinion of your attorneys, I 
guess, at FDA in terms of the liability for doctors?
    I guess the point he concluded with, even--I am not sure I 
disagree with Dr. Coburn--is that what appears to be an 
effort--there appears to be an effort by FDA to protect the 
manufacturer of phase one drugs, as well as what I call the 
phase two drugs. That is my wording. And in the end, things do 
go wrong.
    You know, the history that I have read about overseas is--
you know, has been pretty good; all that counts. But things do 
happen and things will happen; and in those instances, you 
know, people look around for deep pockets. And I am wondering 
if all that is going to be left out there that could provide 
some compensation for an injured plaintiff would be the 
doctors. Dr. Coburn seems to think that. I am not sure that is 
right, to burden their backs, and--when they are trying to do 
the right thing, and have you, FDA, out there working with the 
drug companies to maybe to give them immunity.
    I don't know how it will all play out, but could you maybe 
check and give us a response, your attorney's best guess on 
that?
    Ms. Henney. We will try to the best of our ability to give 
you a response to that.
    [The following was received for the record:]

    Under the approved treatment regimen, misoprostol is 
administered on day three to help stimulate uterine 
contractions. This use of misoprostol is contained in the 
approved labeling of mifepristone. It is based on the clinical 
trials for the regimen of the two drugs, which FDA found to be 
safe and effective for the termination of early pregnancy. FDA 
does not address liability issues, either for manufacturers or 
for physicians, in its approval decisions.

    Mr. Bryant. Thank you.
    Mr. Upton. Thank you. I might announce the intent--a vote 
has been called. I have got a couple of questions that I know I 
am not going to get through, so I am going to submit those in 
writing. I am going to ask one or two questions before the next 
bell rings. And then we will release you all, this panel, we 
will go vote and probably start the second panel at about 1:15 
when we get back.
    Dr. Henney, I was very concerned about how FDA handles 
criminal investigative information; and my question, which I 
understand your staff, was briefed about last week regards how 
the FDA in fact handles these investigative leads.
    I am going to ask unanimous consent that this internal e-
mail from the FDA's Office of Criminal Investigations be 
entered into the record. This is an e-mail that was dated 
January 7, 1997, concerning bulk counterfeit issues, and 
according to the e-mail, FDA received information from its 
counterpart in Australia, called the Therapeutic Goods 
Administration, TGA. The information was that the TGA had 
obtained evidence of a delivery of bulk drug material 
manufactured in India, supplied to a pharmaceutical 
manufacturer in Australia, which had been partially substituted 
with sugar milled to the same size as the bulk drug; and the 
substitution involved three of ten containers in the delivery.
    TGA further determined that the inferior grade active 
pharmaceutical ingredients were being placed in the bottom of 
the containers or in every third or fourth drum. Apparently, 
the firms involved have access to sophisticated packaging 
activity that may even co-opt employees in the process.
    According to the e-mail, the FDA agent was going to contact 
the TGA, obtain all the pertinent information. The only other 
information besides the e-mail was a handwritten note on the e-
mail indicating the name of the Indian firm and that the FDA 
had a record of two import entries, one in 1994, but none in 
1995 through 1997.
    However, the committee's investigation shows that this 
Indian firm had been inspected twice by the FDA up to that time 
and that the U.S. in fact was its primary export market. And, 
in addition, the committee has not received any other documents 
or information, whether the FDA ever pursued this matter. And I 
don't believe that the matter had been--even amounted to a 
preliminary inquiry by the Office of Criminal Investigations, 
based on the FDA's June 2 letter to Chairman Bliley.
    Do you have any information for the committee on whether or 
not the investigative lead was ever pursued further with the 
Australians? If so, what happened; and if not, why not? And 
does the Office of Criminal Investigations close the matter 
because they relied totally on FDA's information on the import 
data system?
    Ms. Henney. Mr. Chairman, I would want to give a full 
response to your question for the record. I do know that we 
have a very strong and good working relationship through our 
counterparts in Australia. And I do know that we did some 
tracking on this particular issue, but I would like to outline 
that in full detail, if I could, for the record.
    Mr. Upton. Okay. We will allow you to do that.
    [The following was received for the record:]

    The OCI e-mail dated January 7, 1997, concerned information 
provided to OCI by FDA's Forensic Chemistry Center (FCC). FCC 
was passing information to OCI that they received from the 
Medicines Control Agency (MCA) of Britain. MCA was made aware 
of the information in December 1996 during a Pharmaceutical 
Inspection Convention where the Therapeutic Goods 
Administration of Australia made a presentation. Other FDA 
personnel attended this convention. The information concerned a 
delivery of sulfamethoxazole raw material manufactured in India 
and supplied to Australia, which had been partially substituted 
with sugar milled to the same size as sulfamethoxazole.
    At the time, a query was made by OCI to determine if the 
company had imported product to the U.S. That inquiry 
determined that there was no record of entries by the company 
for the years 1995, 1996 or 1997. OCI did not open an 
investigation because there was no criminal violation to 
pursue. The information regarding the incident was maintained 
and regulatory offices in FDA were aware of the situation.

    Mr. Upton. We appreciate your testimony, all three of you, 
as you are now, as they say, ``saved by the bell.''
    We will come back at about 1:15.
    [Brief recess.]
    Mr. Upton. Our next panel really includes only Nikki 
Mehringer, who is the Area Quality Control Leader at Eli Lilly.
    Thanks so much for being patient and waiting. I hope you 
had something to eat, or else a late breakfast. As you know, 
the rules in the subcommittee--we always have the tradition of 
taking testimony under oath. Do you have any problem with that?
    Ms. Mehringer. No problem.
    Mr. Upton. Do you wish to be represented by counsel?
    Ms. Mehringer. No.
    [Witness sworn.]
    Mr. Upton. You are now under oath. Your testimony is made 
part of the record in its entirety, and if you can limit your 
remarks to about 5 minutes, that would be terrific.
    And the time is now yours. Thank you.

TESTIMONY OF NIKKI MEHRINGER, AREA QUALITY CONTROL LEADER, ELI 
                             LILLY

    Ms. Mehringer. Thank you, Mr. Chairman, members of the 
committee. Thank you very much for this opportunity to talk 
with the committee about matters of importance concerning 
safety and quality.
    I am a registered pharmacist, I am a quality control 
professional, and I am a consumer, I am a voter, I am a wife, 
and I am a mother; and the testimony I will give today will 
reflect my experiences in each of these roles.
    We have talked a lot this morning about counterfeit, and 
about people who might want to use changes in the laws and 
regulations of this country to their advantage. I want to talk 
about other possibilities that may happen when people who want 
to follow laws, as they may be changed under the provisions, 
and still lead to increased risk for American patients.
    Let me explain for a few moments the duties of a quality 
control professional at a pharmaceutical manufacturer. The 
current good manufacturing practices for finished 
pharmaceuticals, we have heard about them this morning. They 
are part of the code of Federal regulations; they are the book 
by which I do my job, by which I live, by which I am inspected 
by the FDA.
    I want to read just a few fascinating points from this to 
you. The second paragraph of the GNP states, ``The failure to 
comply with any regulation set forth in this part and in parts 
211 through 226 of this chapter in the manufacture, processing, 
packing or holding of a drug shall render such drug to be 
adulterated under section 501(a)(2)(B) of the act, and such 
drug, as well as the person who is responsible for the failure 
to comply, should be subject to regulatory action.''
    This is very important. This is one of the first things we 
teach people when they come to work in our industry. What this 
says is, if you don't follow any of these rules, the drug 
product you have manufactured is adulterated, under law. If it 
is under your control, you shall reject it. If it is on the 
market, you shall recall it. It doesn't matter what the test 
results were; we do not test quality, we build it in through 
this system.
    One more paragraph, ``Responsibilities of the Quality 
Control Unit: There shall be a quality control unit that shall 
have the responsibility and authority to approve or reject all 
components, drug product containers, closures, in-process 
materials, packaging, term labeling and drug products and the 
authority to review production records to assure that no errors 
have occurred; or if errors have occurred, that they have been 
fully investigated. The quality control unit shall be 
responsible for approving or rejecting drug products 
manufactured, processed, packaged or held under contract by 
another company.''
    That is my job. That is the job of everybody who works for 
me. It is the job of a person and people at every 
pharmaceutical manufacturing company. Accountability here is 
pretty clear: The regulatory action can be taken and, again, 
these are rules.
    This law is a minimum. Every quality control unit at a 
pharmaceutical manufacturer determines their own internal 
standards, writes their own policy and procedures, determines 
what specifications they want to use, which may be higher and 
tighter than those required by the law. It is a business 
decision we make, because we believe it gives us an advantage. 
We believe it is best for the consumer.
    Today, nothing enters a U.S. wholesaler or the U.S. 
Distribution system without the approval of the quality control 
unit of a manufacturer. This is appropriate. These are the 
experts with the attributes of that particular drug.
    Under the provisions of the bill under consideration for 
importation and reimportation, the decision on whether or not a 
drug product can enter or reenter the U.S. distribution system 
would be taken away from the manufacturer and decentralized to 
hundreds of wholesalers and pharmacists. The basis for their 
decision on whether that product could enter or reenter would 
be a paper trail and some degree of testing that would provide 
reasonable assurance of the quality of the drug product.
    This violates the very basis of quality control principles, 
that quality is designed in, built in, controlled in and not 
tested in. And the role of these laws and regulations in this 
system is very unclear to me.
    Let's imagine a few scenarios of how this might work, Mr. 
Chairman. Let's say you receive a call today from a person in 
your district who says, I have a complaint on a drug product. A 
person just called my office, and they do sometimes then say, 
My daughter took a drug product. She's in the hospital; she had 
an adverse reaction. It could be from a tablet, a capsule, an 
injectable product, maybe an aerosol, an inhaler--maybe she had 
asthma and expected to get some good result in the middle of an 
attack, and she didn't.
    She calls you. She is upset. You know where to go; you can 
call the FDA. But you can call that pharmaceutical 
manufacturer, talk to that quality control group. And if it 
were me, if you called me, I would say, give me 2 hours.
    I have all the traceability of that lot. I know where it 
went, I know where it has been stored, I know everything about 
that until it got to the U.S. wholesaler. Then I handed it to a 
wholesaler who is registered, who is covered by the 
Prescription Drug Marketing Act, who is inspected by their 
State board of pharmacy; and he has complete records.
    By that afternoon, I will tell you the history of that 
drug, and I will tell you if there is anything wrong with it. 
You have got clear accountability.
    Let's imagine that happens again in 2 years if this is 
passed. You call me. I say, let me check. And then I call you 
back and say, You know that lot of drug I shipped out of the 
country 18 months ago, and I shipped it to a wholesaler out of 
the country? I never intended it to be reimported back into the 
U.S. In fact, the labeling I put on it was for the country I 
shipped it to. I can tell you, the labeling was not suitable 
for the U.S. market, not approved.
    I don't know when it came back. I don't know how it came 
back. I don't know where it came back. I don't know where it is 
stored. And I am not sure who to call to find out.
    You see the difference. The single point of accountability 
is very, very clear. And it is what the law charges me with. If 
we change this, I do not understand how I can have 
accountability for activities that I have no control over.
    The duties with which I am charged trouble me profoundly, 
that the activities of looking at data regarding storage, 
devising testing protocols, setting limits, reviewing test 
results and deciding disposition of batches will be done by 
hundreds of entities who have no technical knowledge of this 
drug product.
    Every change that is made has intended and unintended 
consequences. Certainly we know the intended consequences of 
this provision, but the unintended consequences could be very 
serious.
    We all know it would be sad if people receive very dramatic 
bodily harm from some counterfeit drug or receive some very 
dramatic adverse drug event. But I will tell you what is just 
as sad. What is just as sad is if somebody goes and pays their 
money and receives a drug that doesn't work and they don't know 
it is not working and they pay their money and they take it and 
they never get better. And the doctor doesn't know if it is a 
treatment failure or a diagnosis failure or a drug failure.
    Today, when you go to the pharmacy and you have a 
prescription filled, you don't worry that it is safe and 
effective, do you? I don't. I have great faith in the FDA and 
the whole enforcement system within the U.S. But how sad it 
would be if we would lose that.
    The United States has a good system of control around the 
manufacture and distribution of pharmaceutical products. It is 
tedious. It is detailed. It is not always convenient. It is 
monotonous. People who are in charge of control functions can 
drive the people around them crazy. But we do it every day in 
this same controlled manner so that when we need to call on it, 
when we need to trace a product, if we need to recall a 
product, we know everywhere that was sent.
    We can get our hands on it quickly. It is there. I will 
tell you that just like good health itself, you don't 
appreciate this control system until it is gone.
    That concludes my testimony, and I have also submitted 
written testimony for the record.
    [The prepared statement of Nikki V. Mehringer follows:]

PREPARED STATEMENT OF NIKKI V. MEHRINGER, AREA QUALITY CONTROL LEADER, 
            EUROPE AND NORTH AMERICA, ELI LILLY AND COMPANY

    Thank you for the opportunity to speak with you today regarding 
Quality Control and Safety matters of interest to the Committee.
    Quality control is essential from the initial point of 
manufacturing through the entire distribution chain to the hands of the 
patient. Even the healthcare professional cannot look at a white tablet 
and determine if it will still be effective--we are all dependant on 
the controls throughout the system that assure the Safety, Identity, 
Strength, Quality, and Purity of the medicine. A failure in this system 
may cause failure in treatment, medical harm, and result in 
significantly increased expense.
    I am a Registered Pharmacist and have practiced pharmacy in 4 
states (Indiana, Ohio, Iowa, and Illinois). I have 15 years experience 
in the pharmaceutical manufacturing industry as a Quality Control 
professional. I am also a consumer, a wife, and a mother. My comments 
reflect my experiences in all of these roles.
    Food and Drug regulation in the United States is based on a three-
fold approach:
    1. The Law--The history of Food and Drug law in the United States 
has been based on reactions to public health crises rather than 
visionary approaches to potential risks. The principal law is the Food 
Drug and Cosmetic Act, which was passed in 1938 in reaction to a 
disaster in which a poisonous ingredient was mistakenly used in the 
preparation of an antibiotic causing the deaths of dozens of children. 
Changes in the act have been made over the years, often in response to 
major public health issues. Examples of these changes include the 
establishment of Good Manufacturing Practices and the Prescription Drug 
Marketing Act. As a result, we have a well-constructed system of laws 
and regulations, which provides the U.S. public with safe and effective 
medicines. This system is recognized around the world for the extremely 
high standards it maintains in the areas of drug manufacturing and 
distribution.
    2. Enforcement--the Food and Drug Administration is charged with 
the enforcement of the Food Drug and Cosmetic Act. The FDA accomplishes 
this with a system consisting of the following:

a) Drug Registration and Approval--This system of review determines 
        what products may be sold in the U.S., including approval of 
        the product itself, the labeling of the product (including 
        approved uses and safety warnings), the location and methods 
        for the manufacture and testing of the product, storage 
        requirements, and allowed expiration dating.
b) Facility inspections for Good Manufacturing Practices--All FDA-
        regulated locations, whether within the U.S. or in other 
        countries, are subject to both routine and for-cause FDA 
        inspections. Such inspections may relate to the practices of 
        the manufacturer, including the state of facilities, 
        procedures, organization and education of staff, quality 
        systems, and process controls in place at the facility.
    3. Good Science--The Pharmaceutical Industry and the FDA 
collaborate to improve current Good Manufacturing Practices through 
scientific approaches such as advancements in validation practices, 
stability studies of molecules, and new methods of manufacturing and 
testing.
    This three-fold system maintains the assurance of quality that the 
American consumer demands. The underlying concepts that support this 
system are complex and dynamic. At the risk of over-simplification, the 
goal of the entire system is to achieve ``Control.'' It is no accident 
that the term we use for the organizational entities entrusted with the 
duty to run these systems within a factory is ``Quality Control.'' The 
systems in place demand control from drug development through 
manufacturing and distribution to assure that the product is safe and 
effective for its intended use. Final product testing is only the 
confirmation that the process worked.
    Chart A illustrates a typical supply chain that supplies product to 
the U.S. Consumer. At each step, there are applicable registration 
requirements, regulations, and enforcement agencies. At each step, 
accountability is clear. Requirements for security, identity control, 
accountability, traceability, and storage are clear. If a consumer 
registers a complaint, the entire history of that single capsule or 
vial can be traced and investigated through the system that is in 
place. The supply chain is controlled.
    Why is this control of the supply chain critical? It has been 
suggested that a drug product could leave this controlled supply chain 
for a period of time and then be allowed to re-enter it if testing were 
performed upon re-entry. The inherent limitations of final product 
testing do not support this assertion. These limitations include the 
following:
    a) Drug products are assigned expiration dates because the drug 
product itself changes over time. The changes in drug products are 
dependent on storage conditions, particularly heat, humidity, and 
sunlight. Testing gives a single-point piece of data regarding the 
chemical status of that product on that day. To predict the 
``goodness'' or the efficacy of a drug product on its assigned expiry 
date, one must know the storage conditions, packaging components, and 
inherent nature of the molecule. The methods and calculations to 
predict this are so sensitive and complex that the FDA has just 
published a Stability Guidance Document that is over 100 pages long. 
Thus, a single point of testing today cannot predict the performance of 
that product over time unless it is put in the context of the inherent 
nature of that molecule and the storage conditions that the product has 
experienced.
    b) Final product testing is not recognized by the law or by the 
industry as sufficient to guarantee safety or quality. In fact, 
manufacturers reject many lots that meet all testing requirements 
because they did not meet the requirements of Good Manufacturing 
Practices for in-process controls, validation, adherence to the 
approved NDA, or other reasons. A drug product may meet all testing 
requirements and still be determined to be adulterated or misbranded 
under U.S. law. Most of the warning letters received by FDA-regulated 
manufacturers do not involve product that fails to meet testing 
requirements; instead these warnings are based on suspect practices at 
the manufacturer. The FDA teaches their investigators to catch 
potential problems before they get to the point that a product would 
actually fail to meet testing requirements--the FDA wants that buffer 
in their control system to prevent potential public health issues. In 
fact, many lots that meet all testing requirements are later recalled 
from the U.S. marketplace each year because they are discovered to have 
not met these GMP requirements or because they failed to meet labeling 
requirements.
    c) Reliability of testing results varies greatly depending on the 
laboratory that performs the testing, the equipment used, the 
analytical testing method used, and the education and experience of the 
people who run the test. To transfer a testing method from one 
laboratory to another within the same company using similar equipment 
consumes hundreds of man-hours to assure that the different 
laboratories will generate similar results on a given sample.
    Dismantling the control of the supply chain leads to other concerns 
around safety and quality. A few of these are listed below:
    a) When a customer complaint is received today by the FDA or the 
pharmaceutical manufacturer, all the records necessary to investigate 
the lot of product are available immediately. The manufacturer can 
trace the history of that product from the dispensing of the raw 
materials, the manufacture of the active ingredient, the manufacture 
and packaging, storage, and distribution of that single tablet, 
capsule, or vial. If a recall is deemed to be necessary, the 
manufacturer can contact all wholesalers to whom that lot of product 
was shipped within a few hours. If a decentralized system of 
importation or re-importation were instituted, the manufacturer would 
not have this capability to trace product. In fact, the manufacturer 
may be recalling a lot of product in Europe with no idea that any of 
the product has been shipped into the United States. Additionally, the 
incident that caused the lot of product to be unacceptable to the 
consumer may have occurred somewhere out of the control of the 
manufacturer or the U.S. government, making investigation slow and 
cumbersome and enforcement impossible.
    b) Each country has unique requirements for products sold in that 
country. Each market has different expectations for products sold in 
that market. A manufacturer may be approved by FDA and therefore will 
target certain lots of product for the U.S. market and will manufacture 
those lots in accordance with FDA and U.S. requirements. However, other 
lots of product produced at that same facility will be targeted for 
other countries and will be manufactured in accordance with their 
requirements. If the pharmaceutical company no longer controls the 
movement of these materials between countries, then there is risk that 
the importer will not be equipped or able to discern critical 
differences in products that may lead to confusion among patients or 
health care professionals and safety issues. Examples of these concerns 
include:
    1) Labeling requirements--Approval of labeling is a part of the 
drug approval process in each country. Therefore, labeling is different 
for each country. Differences may include critical content issues 
including indications for use and wording of safety warnings and also 
include convenience issues such as the bar codes used for inventory 
control in each country. Only the manufacturer can determine if a given 
label is appropriate for a given market based on the knowledge of the 
complex registration and customer requirement for each market.
    2) Packaging--Once again, packaging is approved as part of each 
country's drug approval process. Packaging components may look the 
same, but may be made of different materials. Requirements vary and may 
have safety implications--for example, the U.S. has strict standards 
for Child-Resistant containers that may not be approved in other 
markets. Once again, the manufacturer is charged with assuring that all 
requirements are met for the intended market. A product may meet all 
testing requirements but the container may not meet the U.S. government 
requirements.
    3) Single dose identity or trade dress--Tablets and capsules 
intended for market in the United States are uniquely identified by 
color, shape, size, or imprinting upon the tablet or capsule. These 
unique identifiers are registered at U.S. poison control centers to 
assure quick identification in case of an emergency. Tablets and 
capsules intended for market elsewhere may not have these same 
identifiers. The resulting confusion for health care professionals who 
depend on this system could be disastrous if an importer was not aware 
of this difference.
    All of the issues raised above demonstrate increased risk to the 
public health assuming that all involved are making a true effort to 
transform this system of a centralized, controlled supply chain to a 
decentralized system where hundreds of different entities may be 
importing the same drug product into the United States from multiple 
sources. None of the statements above address the potential risks from 
those who are looking for an open door to bring product into the 
country that they know do not meet the requirements of the NDA or Good 
Manufacturing Practices. Drug counterfeiting is a real issue. The U.S. 
has been able to minimize the availability of counterfeit drugs through 
the strict controls in place today. Areas around the world with less 
strict enforcement capabilities find containers of material that 
contain placebo, substandard or sub-potent or super-potent drug, or 
sometimes drugs that are a completely different entity than the label 
states. The people who participate in this counterfeit business are a 
sophisticated group who knows how to weigh the potential risk of being 
caught against the potential benefit. It is in all of our best 
interests to make sure they know that the enforcement systems in the 
U.S. will not be weakened and they enter here at great risk.
    If any of the potential changes to the supply chain for the U.S. 
pharmaceutical market lead to product that is dramatically harmful to 
patients, we will discover it quickly, and very sadly. There is a risk 
here that is potentially more pervasive, difficult to distinguish, less 
dramatic, and just as sad. That is the risk that health care 
professionals will prescribe medications, patients will pay for them 
and take them as prescribed, the patients will not get better because 
the medicine is not harmful, it is just ineffective. It may be 
ineffective because it was stored improperly somewhere along its 
journeys, or because it is packaged or labeled inappropriately, or 
because it is a counterfeit drug that is actually a placebo. In any of 
these cases, it is our job as the lawmakers, the agencies who enforce 
the laws, and the manufacturers who understand the molecules and the 
science around the molecules to assure we have the controls in place to 
prevent this from occurring.

[GRAPHIC] [TIFF OMITTED] T5846.244

    Mr. Upton. I appreciate that very much. And just as I sort 
of get prepared to ask--I do have a number of questions, but I 
am going to yield, I think, first to my colleague from Ohio, 
Mr. Strickland.
    Mr. Strickland. Sure. Thank you, Mr. Chairman.
    Let me begin by saying that you are a very effective 
witness. I think you advocate for your thoughts and opinions 
effectively and some of the things that you have said have 
given me pause. And so I want to thank you for that.
    Having said that, I would like also to share some thoughts 
with you.
    Ms. Mehringer. Certainly.
    Mr. Strickland. You are a scientist, and that is your 
responsibility with your industry. I respect that, and I 
respect the science, and I respect the fact that you spoke to 
us as you did.
    The problem, I think, that has brought this issue forward 
is the perception, I think, it is based on the fact that the 
industry that you work for--through no fault of your own 
certainly--is engaging in practices which cause many of us to 
think that the American consumer is being treated unfairly; 
that drugs that are developed, in part, through public 
resources are available to other citizens and other countries 
at a cheaper price. And I think there is a perception based on 
fact that the whole pricing of the pharmaceutical industry is 
troublesome.
    Now, you mentioned a business decision in terms of even 
going above and beyond what you may be required to do. And that 
is admirable. Like you, when I buy a medication in this 
country, I don't worry about its safety. I am glad it is that 
way.
    But I am also troubled by the fact that there is this other 
issue out there that is driving this concern and this effort, I 
think. And I think there is an equal responsibility on the part 
of the industry, just as there is a responsibility on the part 
of us who sit up here, to try to make sure that both concerns 
are adequately addressed; that we remain concerned about 
safety, but we also be concerned for the American consumer, for 
the senior citizen, for those who maybe can't afford the drugs. 
And that is a tragedy as well.
    And I am so puzzled, in a sense, that the industry would be 
opposed to a medication benefit under Medicare that would be 
available to Medicare recipients. I can only assume that the 
major concern has to do with cost and price and profit. And so 
I am sitting up here feeling some conflict, because what you 
say makes a lot of sense to me; but I am also sitting up here 
thinking, something has got to be done to protect the American 
consumer.
    And so I really don't have a question for you. I just--I 
will once again state the fact that you said things that make 
sense to me, and I am going to listen to what you have said and 
I will try to respond in a way that I think is responsible. 
But--and you are not responsible for the pricing policies of 
your industry. But that is the problem, as I see it, that makes 
many of us look for ways that we can change things for the sake 
of the American consumer.
    So thank you for your testimony.
    Ms. Mehringer. Thank you.
    Mr. Upton. I thank you for your testimony as well. And the 
thing that we all struggle with--it certainly came out when we 
have been totally immersed in the Firestone issue the last 
couple of weeks.
    But one of the points--and I am from Michigan, as you may 
know--one of the points that I had made was that whenever any 
of us buy a product--any of our constituents, any American buys 
a product that is made in America, we have a belief, in fact, 
that that product is going to be safe; whether it is an 
automobile, whether it is a tire, whether it is a bottle of 
Tylenol, it is going to work, it is going to work for the 
purpose, and that there are regulators at the State and Federal 
level to, in fact, assure that safety.
    As we examined the Firestone issue, one of the items that 
bothered us the most and became one of the planks in the 
legislation that is moving here in the House, as well as in the 
Senate, was that when in fact there was a recall--and there was 
in Venezuela or Saudi Arabia, and it happened at an earlier 
time--that that information needed to be passed along to, in 
this case, NHTSA under the Department of Transportation.
    And in fact, in good testimony, the President of Ford, Mr. 
Nasser, indicated that in the future they would do that; they 
didn't need a law, they would do that. He called on other 
members to do that as well. And we will make sure that that is 
done by getting this legislation passed.
    One of the points--and I use that as the example because in 
the hearing that we had earlier this summer, the FDA indicated, 
and Dr. Henney reiterated today, that they would require 
manufacturers to notify the FDA when they receive poor quality 
material, whether it be directly counterfeit or maybe it was a 
mistake in the process. And it just--I guess those of us 
nonchemists--and I presume that my colleague and friend, Mr. 
Strickland is a non; but it seems to me common sense that when 
you identify a faulty product coming up the line that somewhere 
along the line that information is going to be passed along. 
And based on that, they can begin to trace it.
    Maybe, you know, this is a bad character, maybe we have to 
watch them a little bit closer, maybe we will send those FDA 
inspectors there every year instead of who knows when. But at 
least they are going to get in the process, and we are going to 
weed them out and we are going to build cooperation between 
industry folks like your company, Eli Lilly, and other good 
players, whether it be Pharmacia, Upjohn or any other--
obviously, the client base. Because it is your folks working on 
the line, it is your reputation, as you point out, to make sure 
and ensure that that product is safe from the very beginning of 
your testimony to the very end. And that even after it leaves 
your operation, you are going to have the ability to know the 
quality control as it ends up finally in someone's medicine 
cabinet when that son, daughter, parents, whoever takes that 
medication.
    But I have to say, as we have begun to look at this 
process, again the issue of requiring companies to let us know 
about foreign recalls, the process that you, we would have 
hoped, I would think had already been part of the process; that 
in fact when you found that company overseas that put milled 
sugar in--tainted, you know, 30 percent of the barrels of bulk 
material that came in; when you found that, there is a red 
flag--not only would you tell your other industry peers, of 
which--obviously, you have them, but in fact there would be 
some type of inspection or some alert to make sure that what 
the real-life example, what happened in Haiti with the tainted 
glycerine, would not and could not happen again.
    But there was no checklist, though; is that right?
    Ms. Mehringer. To my knowledge--and I am not an expert in 
counterfeit, but to my knowledge, there is no formal 
requirement for that. However, also, to my knowledge, there is 
a great deal of cooperation between the pharmaceutical industry 
and the FDA on counterfeiting.
    Mr. Upton. That is in this country. But what about in 
products that actually come from overseas, where in fact you 
may not have the inspectors that come in and in fact things are 
found, whether it is the little example that I used at the end, 
before I broke for the vote, with the company in India?
    Ms. Mehringer. I do believe, although not required, there 
have been meetings between corporate security people and the 
FDA to discuss these very issues. And I would ask you to 
consult with the FDA and the OCI on those conversations to my 
knowledge would have been voluntary. But we clearly have seen 
that counterfeiting is a real threat and have seen the FDA as 
our ally there, working against that, even if it didn't 
originate here.
    Mr. Upton. So you would certainly support the FDA's new 
initiative to begin to catch that?
    Ms. Mehringer. Yes.
    Mr. Upton. Now, as I understand also--one of the questions 
that has bothered me for some time, when I learned it, was that 
Eli Lilly and other pharmaceutical companies manufactured the 
same product for different countries, obviously; but why is it 
that they do them in different colors and different shapes and 
sizes? I mean, it would seem to me, if you want to trace 
something, particularly if something is going to go overseas 
and perhaps come back, which we don't know exactly what is 
going to happen, that that would be a very easy way to figure 
out and would help the Customs folks, who have an enormous task 
in front of them. Why wouldn't there be some--I don't want to 
call it ``policing,'' but some just standards, or normalcy, 
repetitive to the products, no matter what it is?
    Ms. Mehringer. Actually, for the most part, we would 
welcome that. The underlying issue is that the drug approval 
process in countries around the world is very fragmented. So 
certain drugs have been launched in various countries at 
different times and approvals have been given; and those 
approvals--in the course of those approvals, each agency seems 
to want its own labeling or its own small nuance.
    Each agency dictates to us what is now approved. We now 
submit identical submissions in the U.S. and Europe, and we 
would love for the FDA and Europe both to say, that is fine, 
just like you submitted them; but then the changes start. And 
in order to market in that area of the world, we must abide by 
those changes.
    Mr. Upton. But someone actually says we would rather have 
them green than blue or yellow?
    Ms. Mehringer. That is more market driven than regulatorily 
driven. There are countries that want plain white tablets. That 
is the standard; that is what they want. They think that is 
what the customer expects, and so we are----
    Mr. Upton. It must be aspirin, because it is white.
    Ms. Mehringer. That is right. That is right.
    There are other countries, like the U.S., that want unique 
identifiers, distinct color, shape, size and form.
    So speaking for the whole pharmaceutical industry, not 
everyone has the same appreciation, as the American public 
does, or the same wants or the same needs.
    So, again, these products which have been launched over a 
period of the last 20 years and have gone through the drug 
development process, we have at times been focused on pleasing 
the regulatory agencies and on pleasing the customers. But 
frankly, it would be much easier for us as manufacturers to 
make one package, one label, and one presentation. I would 
welcome that.
    You understand, though, that I am not free to change that?
    Mr. Upton. I understand that.
    You talked about keeping track of the records, and 
obviously the company, the manufacturers, keep a record from 
start to finish, the lots. And do the pharmacies really do that 
or not? I don't know the answer to the question.
    Ms. Mehringer. Pharmacies do not track by lot number, no.
    Mr. Upton. So once you ship it out--the wholesalers do, 
right?
    Ms. Mehringer. The wholesalers, our own distribution 
centers do. I do not know that all the wholesalers do. We can 
track it to the wholesaler level.
    Mr. Upton. But you indicated that--the example that you 
used, the mother that called you to say, ``My daughter has got 
a problem;'' give me 2 hours--you can track it through your 
system.
    Let's say you gave it to ABC wholesaler, who ships it out 
to Kmart, to use them as an example. Do they all have the 
records then of that--are you able to--are they able to track 
it from that? To use a real-life example, when that happens, 
have they been cooperative and have they been able to have the 
information that you have really needed to reassure that 
parent?
    Ms. Mehringer. When we go to the wholesalers, we have lot 
number accountability to the wholesalers. The shipment from the 
wholesalers on to the pharmacies is generally not tracked by 
lot numbers. But they have been cooperative, absolutely.
    It is important to recognize that the law provides for 
various levels of recalls. And that is dependent upon the risk 
to safety and the risk to health. If we are in a recall 
situation, we work with the FDA; we determine, do we need to go 
to the wholesalers, do we need to go the pharmacies or to the 
American public? I think the whole system works together and is 
very cooperative at that point.
    Mr. Upton. That page was for me.
    I guess the last question is, we try to assure the absolute 
quality assurance to the individual. There really isn't any 
single test that can be used on that product, whether it be 
coming from Mexico or Canada or China. I mean, there are so 
many different ways in terms of what a chemist would look for 
to ascertain the purity of that substance. It is really a very 
tough test. We were commenting up here, the staff was able to 
take, I guess you could say, a field trip that was rather 
lengthy; and they shared some of the information with us in 
terms of the thousands of pills that come across at particular 
border crossings virtually every day. And you really can't say 
it is this; you know, you hope that it is, but there is no 
real--without a lab, you can't really tell.
    Ms. Mehringer. You need a very specialized lab; simple 
chemical testing will not tell you that. In fact, the FDA has 
established their own forensic testing lab, which is quite a 
speciality lab, that they can--I believe they call it 
``fingerprint'' products and try to discern if a material is 
counterfeit or not. That is the only lab in the FDA, I believe, 
that deals with that because they have those specialized 
capabilities.
    So this is not a matter of routine, let's find a chemist 
and a third-party lab and take a look at this. It is very 
specialized to be able to actually fingerprint that drug.
    To your point, also the limitations of testing are--testing 
gives very limited information. It is a single point of what 
happens. Unfortunately, these molecules are dynamic. They 
change, they degrade; when they see heat, they see moisture, 
they degrade a little more. They don't just sit there in the 
solution, in the injectable vial, waiting for someone to take 
them.
    That, again, is why you must have a knowledge of the 
molecule. You must have a knowledge of the formulation. You 
must have a knowledge of those requirements. So if you get a 
single point of testing someone--it might be 92 percent--
someone might think that is good. That may be bad because you 
know that at the rate of degradation, it is going to be 
ineffective in a matter of few months.
    You have to put the testing in the whole context of the 
knowledge of the drug.
    Mr. Upton. I know that I can speak for all the members of 
the subcommittee. We appreciate your time and testimony. We 
look forward to working with you and hearing from you on this 
issue in the future.
    I don't know--Ted, do you have anything?
    Mr. Strickland. Just, I want to thank the witness.
    Mr. Upton. Thank you very much.
    [Whereupon, at 1:50 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

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