[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
           SICK CRIME: COUNTERFEIT DRUGS IN THE UNITED STATES

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

                                HEARING

                               before the

                   SUBCOMMITTEE ON CRIMINAL JUSTICE,
                    DRUG POLICY, AND HUMAN RESOURCES

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 1, 2005

                               __________

                           Serial No. 109-194

                               __________

       Printed for the use of the Committee on Government Reform


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

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
JON C. PORTER, Nevada                C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas                BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia        ELEANOR HOLMES NORTON, District of 
PATRICK T. McHENRY, North Carolina       Columbia
CHARLES W. DENT, Pennsylvania                    ------
VIRGINIA FOXX, North Carolina        BERNARD SANDERS, Vermont 
JEAN SCHMIDT, Ohio                       (Independent)
------ ------

                    Melissa Wojciak, Staff Director
       David Marin, Deputy Staff Director/Communications Director
               Rob Borden, Parliamentarian/Senior Counsel
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

   Subcommittee on Criminal Justice, Drug Policy, and Human Resources

                   MARK E. SOUDER, Indiana, Chairman
PATRICK T. McHenry, North Carolina   ELIJAH E. CUMMINGS, Maryland
DAN BURTON, Indiana                  BERNARD SANDERS, Vermont
JOHN L. MICA, Florida                DANNY K. DAVIS, Illinois
GIL GUTKNECHT, Minnesota             DIANE E. WATSON, California
STEVEN C. LaTOURETTE, Ohio           LINDA T. SANCHEZ, California
CHRIS CANNON, Utah                   C.A. DUTCH RUPPERSBERGER, Maryland
CANDICE S. MILLER, Michigan          MAJOR R. OWENS, New York
VIRGINIA FOXX, North Carolina        ELEANOR HOLMES NORTON, District of 
JEAN SCHMIDT, Ohio                       Columbia

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                       Marc Wheat, Staff Director
               Michelle Gress, Professional Staff Member
                           Malia Holst, Clerk
                     Tony Haywood, Minority Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on November 1, 2005.................................     1
Statement of:
    Eban, Katherine, author, Dangerous Doses; Kevin Fagan, father 
      of Timothy Fagan, counterfeit drug victim (Epogen); and Max 
      Butler, brother of Maxine Blount, counterfeit drug victim 
      (Procrit)..................................................    62
        Butler, Max..............................................    75
        Eban, Katherine..........................................    62
        Fagan, Kevin.............................................    71
    Lutter, Randall W., Ph.D., Acting Associate Commissioner for 
      Policy and Planning, Food and Drug Administration..........    16
    Pitts, Peter J., director, Center for Medicines in the Public 
      Interest; Carmen Catizone, executive director, National 
      Association of Boards of Pharmacy; James A. Dahl, former 
      Assistant Director of Investigations, FDA Office of 
      Criminal Investigations; and Donald Dekieffer, Dekieffer & 
      Horgan.....................................................    96
        Catizone, Carmen.........................................   100
        Dahl, Jim................................................   109
        Dekieffer, Donald........................................   115
        Pitts, Peter J...........................................    96
Letters, statements, etc., submitted for the record by:
    Butler, Max, brother of Maxine Blount, counterfeit drug 
      victim (Procrit), prepared statement of....................    77
    Catizone, Carmen, executive director, National Association of 
      Boards of Pharmacy, prepared statement of..................   102
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............    10
    Dahl, James A., former Assistant Director of Investigations, 
      FDA Office of Criminal Investigations, prepared statement 
      of.........................................................   111
    Dekieffer, Donald, Dekieffer & Horgan, prepared statement of.   117
    Eban, Katherine, author, Dangerous Doses, prepared statement 
      of.........................................................    64
    Fagan, Kevin, father of Timothy Fagan, counterfeit drug 
      victim (Epogen), prepared statement of.....................    73
    Gutknecht, Hon. Gil, a Representative in Congress from the 
      State of Minnesota, Pharma ad..............................    89
    Lutter, Randall W., Ph.D., Acting Associate Commissioner for 
      Policy and Planning, Food and Drug Administration, prepared 
      statement of...............................................    19
    Pitts, Peter J., director, Center for Medicines in the Public 
      Interest, prepared statement of............................    98
    Souder, Hon. Mark E., a Representative in Congress from the 
      State of Indiana:
        Prepared statement of....................................     5
        September 17, 2005 article...............................    92


           SICK CRIME: COUNTERFEIT DRUGS IN THE UNITED STATES

                              ----------                              


                       TUESDAY, NOVEMBER 1, 2005

                  House of Representatives,
Subcommittee on Criminal Justice, Drug Policy, and 
                                   Human Resources,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:05 p.m., in 
room 2154, Rayburn House Office Building, Hon. Mark E. Souder 
(chairman of the subcommittee) presiding.
    Present: Representatives Souder, Burton, Gutknecht, 
Schmidt, Cummings, Watson, and Norton.
    Staff present: Marc Wheat, staff director and chief 
counsel; Michelle Gress, professional staff member and counsel; 
Malia Holst, clerk; Tony Haywood, minority counsel; and Jean 
Gosa, minority assistant clerk.
    Mr. Souder. The subcommittee will come to order. Good 
afternoon and thank you all for being here. We're here because 
selling fake prescription drugs within the United States is a 
serious public threat and a growing problem.
    This hearing will examine the vulnerabilities that allow 
counterfeit or substandard drugs to end up in legitimate 
pharmacies, how such vulnerabilities expose this Nation to 
terrorist attacks through our medicines, and the anticipated 
widespread counterfeiting of lifesaving avian flu treatment in 
the midst of a potential pandemic, compounding the deadly toll 
of an outbreak.
    Just this morning the President asked Congress for $1.2 
billion for vaccines to prepare for an avian flu pandemic. We 
cannot risk vaccinating Americans with counterfeited therapies. 
This is a very serious issue to which we are calling our 
attention. According to the World Health Organization, 10 
percent of global pharmaceutical commerce this year will be 
counterfeit. That is expected to double by the year 2010 as 
international criminal organizations become more sophisticated.
    Last year within the United States the FDA's counterfeit 
drug investigations rose 150 percent in only 12 months. One key 
to understanding this disturbing problem is the so-called 
``gray market'' which stems from the practice of drug 
diversion. Drug diversion is the principal method by which 
counterfeits enter the legitimate drug market. The FDA 
confirmed with subcommittee staff that drug diversion was the 
entry point for every case investigated by that agency 
involving counterfeit drugs going into legitimate pharmacies. 
For example, closed-door or own-use pharmacies are primary 
sources for diversion. Own-use pharmacies such as nursing homes 
or hospitals agree to provide medications solely to their own 
patients. Accordingly, such pharmacies acquire medication at a 
price much lower than wholesale. This opens the door to fraud, 
exemplified by some own-use pharmacies overstating their 
patient populations, reserving surplus drugs, then selling them 
at a higher price into the gray market.
    Once drugs are on the gray market they may be bought and 
sold dozens of times, passed among several hands, mishandled 
and relabeled. This happens easily because the pharmaceutical 
supply chain is not regulated by any entity, private or 
governmental. The pharmacies within a State are monitored by 
State boards of pharmacy which enforce the standards of care 
within each State. However, the State boards of pharmacy lack 
police power and many are limited to only a handful of 
inspectors.
    Drug manufacturers have to comply with the FDA for safety, 
effectiveness and labeling of their drugs. The drug 
manufacturers typically exercise no control over their drugs 
once they're shipped out of the manufacturing facility; rather, 
the drugs are bought and sold by distributors and frequently 
pass in and out of the secondary market. Distributors, like 
retailers and physicians, are licensed by the States, which 
must only meet the minimal standards set by the prescription 
drug marketing act.
    If you could display the first illustration.
    In order to obtain a distributor's license, some States' 
licensing standards provide an opportunity for unscrupulous 
distributors to legitimately buy and sell pharmaceuticals. One 
of the most notorious recent counterfeit drug bust cases which 
we'll hear about in our second panel involved a convicted felon 
who obtained a State distributor license in Florida. As you can 
see on this map, 11 States, including Florida, have recently 
toughened their licensing standards for distributors. However, 
this leaves a patchwork of laws across the country allowing for 
unscrupulous distributors to obtain legitimate State licenses 
and trade drugs on the secondary market.
    This situation of inconsistent standards throughout the 
country has prompted the Health Care Distribution Management 
Association [HDMA], to recently advocate uniform Federal 
licensing standards for prescription drug distributors.
    Having a private business association advocate vigorous 
licensing standards is something we rarely see, but it's clear 
that the gravity of this problem and the issues at stake have 
prompted the HDMA to take this radical step in order to promote 
the safety and security of our Nation's drug supply.
    Nevertheless, the current system allows drugs to pass 
through several middlemen before reaching the patient's hands. 
When they resell the drugs, they sometimes relabel them to 
reflect higher and more valuable doses, mishandle them to 
contaminate or to degrade the drug, or substitute fake products 
for the legitimate goods.
    This is a photo of an alleged tablet of Lipitor, a popular 
cholesterol-lowering drug, and a suspected counterfeit. They 
are virtually indistinguishable. The FDA recently indicted 11 
individuals, a drug repacker and 2 wholesale distributors in 
cases related to the sale of Lipitor.
    Go to the third illustration.
    This is a closeup photo of Lipitor's registered trademark. 
The measurement in the upper left-hand corner shows the scale 
of 1/20th of a millimeter, which is incredibly small. While the 
microscope can reveal the counterfeiting, the naked eye may 
not. Counterfeit or substandard drugs like this counterfeit 
Lipitor can end up on the shelves of the trusted pharmacy and 
ultimately distributed to unsuspecting victims. For the 
patient, there is no commercial transaction like this. The 
patient has virtually zero ability to inspect the drug 
packaging or compare it to other samples.
    The patient who goes to a pharmacy to have his prescription 
filled is helpless in determining the quality of the drug and 
dependent on a system that has experienced some tragic 
breaches. Moreover, it is impossible to measure the scope of 
the problem, and we cannot say with any degree of certainty how 
many or which counterfeit drugs make it to the pharmacy 
shelves, because a health indication or ultimate death may be 
attributed to the patient's underlying illness rather than the 
drug.
    One way to verify a drug's authenticity is through a 
pedigree which would show the drug's chain of custody. Some of 
the States toughened licensing standards to distributors, such 
as Florida, who will soon require paper pedigrees for drugs 
purchased within that State. However, the FDA delayed until 
September 2006 the effective date for national regulations 
requiring a pedigree in the hopes an electronic track-and-trace 
program such as radio frequency identification [RFID] will be 
viable.
    The FDA has reported to the subcommittee staff that their 
Office of Criminal Investigations [OCI], has turned out 71 
indictments on their counterfeit drug cases, many of which 
involve multiple counts, leading to 67 convictions so far. 
Several more cases not yet in the formal judicial process are 
in the pipeline. Moreover, OCI's robust investigations have 
interdicted counterfeit drugs that would have made it to 
pharmacy shelves.
    However, significant vulnerabilities in this system still 
exist. In addition to providing a way for unscrupulous 
enterprises to obtain massive prices by distributing phony 
high-price drugs, the vulnerabilities in the systems provide a 
way for terrorists to target our citizens. One widely discussed 
scenario, among dozens of possibilities of how they might 
exploit our vulnerability, involves a deliberate anthrax scare 
to trigger a run on Cipro, the antibiotic used for anthrax 
poison. A phony and deadly version having been injected into 
the pharmaceutical stream by terrorists would cause thousands 
more deaths.
    Baswa Hamad, a Taliban-linked terrorist recently extradited 
from Afghanistan, defends a Jihad of taking Americans' money at 
the same time the drugs we are paying for kill us.
    Finally, the counterfeit drugs issue is well illustrated by 
the immediate worldwide concern over an avian flu outbreak in 
the FDA's announcement last week that anticipates an increase 
in the sale of counterfeit or fraudulent treatments for such a 
pandemic. Tamiflu, currently the only known treatment for this 
virus strain, is expected to be widely counterfeited. 
Counterfeit treatment in the midst of a pandemic would 
certainly compound the deadly toll of the flu.
    I do not want to wait until there are catastrophic failures 
in the system to examine the problems that allow counterfeit 
drugs into our pharmaceutical market. The time for examining 
and acting on this problem is now.
    Our first panel today is Mr. Randall Lutter, Acting 
Associate Commissioner for Policy and Planning at the Food and 
Drug Administration.
    The second panel consists of Katherine Eban, author of 
Dangerous Doses; and family members of two patients who are 
victims of counterfeit drugs purchased at mainstream 
pharmacies: Kevin Fagan, the father of Timothy Fagan who 
received counterfeit Epogen after his liver transplant 
operation; and Max Butler, the brother of Maxine Blount who 
received counterfeit Procrit in the midst of her battle against 
breast cancer.
    The third panel consists of Mr. Peter Pitts from the Center 
for Medicines in the Public Interest; Carmen Catizone, 
executive director of the National Association of Boards of 
Pharmacy; Jim Dahl, Former Assistant Director of 
Investigations, FDA Office of Criminal Investigations; and 
Donald deKieffer of deKieffer & Horgan.
    Now I'd like to yield to our ranking member, Mr. Elijah 
Cummings.
    [The prepared statement of Hon. Mark E. Souder follows:]

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    Mr. Cummings. Thank you Mr. Chairman. Counterfeit drugs 
represent a threat to the safety of the drug supply globally. 
The World Health Organization estimates that in poor countries 
as much as 25 percent of the medicine consumed may be 
counterfeit or substandard. In some developing countries the 
percentage is as high as 50 percent.
    In the United States consumers can be confident that the 
safety and effectiveness of the drugs they obtain through the 
legitimate market are extremely safe and effective in relative 
terms. Nevertheless, there is ample evidence that counterfeit 
drugs are an increasing challenge for Federal and State 
regulatory bodies, pharmacies, and drug manufacturers and 
wholesalers. The health risk to consumers that obtain drugs 
that are fake, diluted, or mislabeled as to dosage, potency, or 
other characteristics is potentially quite serious, depending 
on the drug and the illness or condition the drug is being used 
to treat. Such drugs may be simply ineffective, resulting in a 
patient's condition going untreated, or they may very well be 
harmful.
    Charged with ensuring the safety and effectiveness of the 
drugs available to consumers in the United States, the FDA is 
the lead Federal agency for investigating U.S. counterfeit drug 
cases. Over the past several years there has been a sharp 
increase in the number of counterfeit drug investigations 
undertaken by FDA's Office of Criminal Investigations. The 
number of these investigations ranged from 5 and 11 annually 
between 1997 and 2000.
    In 2004 FDA's OCI conducted 58 investigations, up from 30 
the year before, and 27 in 2002. This increase coincides with a 
similar increase in the amount of counterfeit drugs seized in 
the United States in recent years.
    In 2000 an estimated 100,000 doses of counterfeit drugs 
were seized in the United States, whereas last year an 
estimated 3 million fake medications were seized in our 
country. This suggests a substantial increase in the volume of 
counterfeit drugs available in the United States.
    Although most of the counterfeit drugs seized in the United 
States are destined for the black market or illegitimate 
Internet pharmacies, FDA investigations have also led to 
seizures of counterfeit drugs offered for sale in legitimate 
pharmacies. This raises legitimate serious concerns about the 
integrity of the supply chain between manufacturer and 
pharmacy.
    As we will hear today, the course a drug takes from the 
shipping docks to the pharmacy shelf can be convoluted, one 
that offers unscrupulous distributors numerous opportunities to 
exploit weaknesses in regulation and security.
    In 1987 Congress enacted the Prescription Drug Marketing 
Act to protect the American public from the emerging problem of 
counterfeit drugs. For a variety of reasons, 18 years later, 
some of the law's requirements have yet to be implemented by 
regulation.
    In July 2003, FDA formed the Counterfeit Drug Task Force to 
develop recommendations for addressing all aspects of drug 
counterfeiting. In February 2004, the task force issued a 
report entitled, ``Combating Counterfeit Drugs: A Report of the 
Food and Drug Administration.'' The FDA report highlights 
measures that can be taken to better protect Americans from 
counterfeit drugs, focusing on six areas, and they are: 
securing the actual drug product and its packaging; securing 
the movement of the product as it travels through the U.S. drug 
distribution chain; enhancing regulatory oversight and 
enforcement; increasing penalties for counterfeiters; 
heightening vigilance and awareness of counterfeit drugs; and, 
finally, increasing international collaboration.
    Prominent among the proposed means for securing drugs 
through the supply chain is new technology design to track and 
trace drugs as they travel in the stream of commerce from the 
manufacturer to the pharmacy. Adoption of drug authentication 
technology and stricter State licensing standards for drug 
distributors are other key measures recommended by the report.
    State regulators and industry also have taken notice of the 
counterfeit drug threat. For its part, the National Association 
of Boards of Pharmacy has taken the important step of proposing 
new model rules for the licensing of wholesale distributors, 
and to date 11 States have adopted the tougher standards. In 
addition, some major wholesalers and retailers have announced 
their attention to avoid obtaining drugs from secondary 
markets.
    Still, there is much to be done to ensure the efforts to 
protect the drug supply, to catch up to and keep pace with the 
actions of bad actors who think nothing of jeopardizing the 
health and safety of American consumers in order to turn a 
fraudulent profit.
    Today we will hear valuable testimony from the FDA, other 
industry stakeholders, outside observers, and representatives 
of victims of counterfeit drugs about the threat that fake, 
mishandled, or mislabeled products pose to the integrity of the 
U.S. drug supply and about what progress is being made to 
secure the U.S. drug supply against threats like diversion and 
illegal importation.
    And so, Mr. Chairman, I thank you for holding this 
important hearing and I look forward to the testimony.
    [The prepared statement of Hon. Elijah E. Cummings 
follows:]

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    Mr. Souder. Mr. Burton, do you have any opening comments?
    Mr. Burton. No.
    Mr. Souder. Ms. Holmes Norton.
    Ms. Norton. Thank you very much, Mr. Chairman, because I do 
think this is a very important issue to focus upon. Frankly, I 
was surprised that there was no Federal regulation here. No one 
can doubt we're in interstate commerce this time, I think, and 
when we have the industry saying that the hodgepodge of State 
regulations and difficulty of enforcing at the State level 
means we ought to have Federal regulation, I'm about to listen. 
And I hope you are, Mr. Chairman, because it looks like this 
problem is growing way out of proportion and anybody can 
understand why.
    It seems to me it coincides simultaneously with the huge 
increases in pharmaceutical drug prices. The more you get of 
that--and that seems to be out of control. Even seniors, when 
they get access in January to our bill, will find that the 
prices continue to go up because there is nothing that the bill 
does about it. At least they're going to be safe, I believe, in 
the safe HMOs or other organizations. But what could be more 
dangerous to the general population, who do not have access to 
such a bill, than fake pharmaceuticals? It is very, very 
foreboding to know about this increase when we know that people 
need many of these pharmaceuticals and will now have, because 
there is no Federal regulation between the manufacturer and the 
pharmacy, the temptation to in fact take advantage of what 
looks like a cheaper version of the drug. We Americans, if you 
can get it cheaper, if it's on sale, I think that's why you 
have Wal-Mart, then of course people are going to go for it.
    So I really pity the Federal Government trying to do this 
in the context of no real strong Federal legislation, and I 
hope that we are encouraged to move swiftly.
    When I think of the of medicines that my constituents tell 
me about, when I say, for example, you ought to use generics, 
particularly if you're on Medicaid or Medicare, because you're 
using up scarce dollars, and people then begin to tell me about 
differences in medicines that I am not very familiar with. For 
example, high blood pressure medicine and how they try one or 
another until they get the right one. I can just imagine 
somebody getting a cheaper high blood pressure medicine and 
thinking, ``I guess this is it.'' This is very, very dangerous.
    And of course, if I may say so, Mr. Chairman, the people 
who are most likely to look for cheaper drugs are going to be 
middle-class and poor people who just say, ``This is it. If 
this is all I can get and costs half as much, I am going to do 
this.''
    We already have blocked reimportation. We could have 
reimportation legislation that controls this, at least from 
outside of the United States, controlled how importation took 
place. You would think that at least within the United States, 
we could find a way to make sure that people aren't getting 
fake medicine. I think we ought to try to see what we can do 
about this before we go home this session. And I thank you 
again for this hearing, Mr. Chairman.
    Mr. Souder. Thank you.
    I would also like to recognize Ms. Schmidt from Ohio. Do 
you have any opening comments you'd like to make?
    Mrs. Schmidt. Just glad to be here and looking forward to a 
lot of the discussion on this very serious issue.
    Mr. Souder. Thank you very much.
    I ask unanimous consent that all Members have 5 legislative 
days to submit written statements and questions for the hearing 
record. Any answers to questions provided by the witnesses must 
also be included in the record. Without objection, it is so 
ordered.
    Also ask unanimous consent that all exhibits, documents, 
and other materials referred to by Members, will be included in 
the hearing record, that all Members may be permitted to revise 
and extent their remarks. Without objection, it is so ordered.
    Our first panel is composed of Mr. Randall W. Lutter--once 
again in my head I couldn't get it out, even though they 
corrected me--who is the Acting Associate Commissioner for 
Policy and Planning at the Food and Drug Administration. As an 
oversight committee it's our practice to ask witnesses to 
testify under oath.
    [Witness sworn.]
    Mr. Souder. Let the record show the witness responded in 
the affirmative. Thank you for joining us today. We're looking 
forward to your testimony.

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

    Mr. Lutter. Thank you, Mr. Chairman and members of the 
subcommittee. I'm Randall Lutter, Acting Associate Commissioner 
for Policy and Planning at the U.S. Food and Drug 
Administration. Thank you for the opportunity to testify about 
FDA's efforts fighting counterfeit prescription drugs.
    Let me emphasize, first, that the overall quality of drug 
products that consumers purchase from U.S. pharmacies remains 
high. The American public can be confident that these 
medications are safe and effective. The FDA cannot, however, 
offer the same assurance about the safety and quality of drugs 
purchased from sources outside the U.S. regulatory system. 
Counterfeit drugmakers operating outside the system seek profit 
by peddling fake medicines to sick patients who need real 
treatment, sometimes with tragic consequences.
    My testimony today will focus first on the growing 
counterfeit drug problem and then on FDA's effort to secure and 
approve the safety of our drug supply.
    U.S. law defines counterfeit drugs as those sold under a 
product name, without proper authorization, where the product 
is knowingly and intentionally mislabeled in a way that 
suggests it's the authentic approved product. Counterfeit drugs 
include products without the active ingredient, with too little 
of the active ingredient, with the wrong active ingredient, or 
with fake packaging. This definition reflects fraud. Consumers 
wrongly believe they're buying a genuine product. Counterfeit 
prescription drugs are illegal and they're inherently unsafe.
    As you can see from the first slide, the number of newly 
initiated counterfeit drug cases has risen in the last few 
years. We believe the unusually high number of cases in fiscal 
year 2004 stems in part from the increased awareness and 
vigilance throughout the drug distribution chain, as a result 
of FDA's 2004 Counterfeit Drug Report, increased referrals from 
other law enforcement agencies, as well as improved 
communications with manufacturers.
    Fortunately, because of the expertise and extensive 
investigative experience of the Office of Criminal 
Investigations at FDA, we've been successful in stopping most 
of these drugs before they could reach consumers, and we've 
also detected and dismantled many counterfeit schemes. 
Counterfeiters have become so sophisticated that many 
counterfeit drugs are indistinguishable from genuine FDA-
approved products.
    As shown in the second slide, fake Viagra appears 
superficially identical to the genuine product.
    As shown in slide three, fake Lipitor appears very much 
like the authentic product.
    As shown in slide four, even the packaging of fake Serostim 
is cleverly made to look like the real thing.
    Counterfeit drugs can have serious adverse health 
consequences for patients. For example, counterfeit Procrit, 
which is an injectable sterile drug used by cancer and AIDS 
patients, contains not the active ingredient of Procrit but 
nonsterile tap water which could have caused a severe infection 
in the patients who received it.
    The second example is counterfeiters tried to pass aspirin 
tablets as Zyprexa, a drug for schizophrenia and bipolar 
disorder. This could have been dangerous for patients who were 
aspirin sensitive, who were aspirin allergic, or who have 
bleeding disorders. In addition, patients wouldn't receive 
their appropriate treatment for this potentially serious 
disorder.
    In 2001, in a report to Congress regarding the Prescription 
Drug Marketing Act of 1987, FDA noted that in order for 
secondary wholesalers to have full pedigrees for their 
products, Congress would have to amend section 503(e) of the 
Food, Drug and Cosmetics Act. FDA issued final regulations 
implementing the Prescription Drug Marketing Act in 1999, but 
it stayed on several occasions certain provisions in response 
to public comments and to allow Congress to consider the 2001 
report. The stay was most recently extended to December 2006 in 
the expectation that electronic track-and-trace technologies 
would offer a low-cost alternative to paper pedigrees.
    In July 2003, FDA established an internal Counterfeit Drug 
Task Force to campaign against the growing threat of 
counterfeit drugs. The task force report released in February 
2004 highlighted a multitiered approach to better protect 
Americans from counterfeit drugs.
    See slide five, please.
    The multitiered approach consisted of securing the actual 
drug product, securing its packaging, and securing its movement 
through the U.S. distribution chain; also enhancing regulatory 
oversight and enforcement, increasing penalties for 
counterfeiters, heightening vigilance and awareness of 
counterfeit drug; and, last, increasing international 
collaboration.
    For brevity I focus here on new technologies that might 
help us secure more effectively the product, its packaging and 
movement through the supply chain.
    New technology that could electronically track and trace 
the product could provide a reliable electronic drug pedigree.
    Slide six shows the information that an electronic might 
accumulate as a product moves through the distribution system. 
Radio frequency identification, the most promising electronic 
track-and-trace technology uses a radio frequency chip, an 
example of which appears in slide seven.
    Adoption of RFID technology will allow supply chain 
stakeholders to track the chain of custody or pedigree of every 
package of drugs through every step of the supply chain.
    Our other initiatives include encouraging health 
professionals to use the MedWatch form to report suspect 
counterfeit drugs to FDA. We have created a network to provide 
timely notification of verified counterfeit events to members 
and constituents of a variety of groups. We're distributing 
public service announcements to consumers and collaborating 
with international partners.
    Before I conclude, I'd like to touch on an issue of recent 
interest for public health regulators. As public awareness 
grows on the avian flu as a potential public health threat, FDA 
anticipates an increased risk of counterfeit or fraudulent 
treatments. Although the agency is not aware at this point of 
any counterfeit Tamiflu cases in the United States, there are 
initiatives in place to deter counterfeiters and parties who 
sell fraudulent or phony products against avian flu.
    In conclusion, despite recent progress, there remains a 
viable and concrete threat of counterfeit drugs entering 
distribution in the United States. We must all work together to 
pursue the measures identified in the FDA's counterfeit report 
to protect U.S. patients against counterfeit and unsafe drugs. 
Thank you.
    [The prepared statement of Mr. Lutter follows:]

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    Mr. Souder. You said in your testimony that you asked 
Congress in 2001 in the report to amend section 503(e) to make 
the requirement universal. Are you maintaining that that is a 
major reason you haven't gone ahead with the pedigree? I don't 
understand what the point of that is.
    Mr. Lutter. Since the time that recommendation was offered, 
there has been no legislative action. Our current proposal is 
to do the best we can given current law and the authorities we 
have.
    Mr. Souder. You're saying without a universal pedigree, 
there's no point in----
    Mr. Lutter. Our expectation is that the track-and-trace 
technology exemplified by RFID would offer a way to implement 
an electronic pedigree given the existing authorities.
    Mr. Souder. So you wouldn't need to do the amendment.
    Mr. Lutter. It would still be helpful and the 
recommendation still stands. It's unclear. While we have 
substantial optimism about the availability of RFID, by 2007, 
after the end of 2006, there's of course uncertainty about the 
schedule, that it would be adopted.
    Mr. Souder. So the criticism that the State--are you 
maintaining that the reason you haven't implemented any kind of 
pedigree is because of the failure to amend 503?
    Mr. Lutter. The decision behind the stay was in response to 
a variety of public comments, including from Members of 
Congress and the Small Business Administration as well as from 
industry, that it would be very difficult to comply with the 
regulation as drafted. It related in part to the cost of 
implementing the paper pedigree, which was the best available 
technology at the time, and also with respect to the 
difficulties of 503.
    Mr. Souder. This bill was passed 18 years ago. Have private 
companies done anything to improve that, to establish a 
pedigree? What have they done to move ahead?
    Mr. Lutter. There are some initiatives in some States where 
States have already adopted stringent regulations, Florida 
being one. A variety of major pharmaceutical companies have 
taken active steps recently to adopt voluntarily the RFID 
track-and-trace technology. We think that the actions by those 
companies, and also by Wal-Mart, which, as you know, is a 
leader in retailing and in distribution, provide a way for the 
industry to move forward toward a lower-cost electronic track-
and-trace technology.
    Mr. Souder. Did Florida move to an electronic track and 
trace or to the paper trail?
    Mr. Lutter. They have not adopted the electronic RFID.
    Mr. Souder. So they did in Florida what you said would be 
difficult for us to do at the Federal level?
    Mr. Lutter. Yes.
    Mr. Souder. Are other States copying the Florida----
    Mr. Lutter. There have been examples of other States. 
They're in a variety of stages of implementation. FDA's policy 
in general has been to facilitate and support more stringent 
licensing requirements on wholesalers at a State-by-State level 
where there has been evidence that the existing programs are 
lax.
    Mr. Souder. Why would you favor it on a State-by-State 
level but not nationally?
    Mr. Lutter. We at this point have no particular policy. 
We're still studying the proposal by the HDMA, which you 
alluded to in your earlier remarks.
    Mr. Souder. For 18 years?
    Mr. Lutter. Excuse me?
    Mr. Souder. For 18 years you have been studying it; 1987, 
1999 made more specific questions. Part of the question is how 
long do you have to study something?
    Mr. Lutter. We issued the regulation on the pedigrees in 
1999 and we've stayed it repeatedly since then. It did take a 
while following the enactment of the law.
    Mr. Souder. Are you going to continue to stay this until 
you figure out whether the electronic will work?
    Mr. Lutter. At the time that we issued the last stay, we 
received ample public comment from the industry, from 
manufacturers, and from retailers that they believe that based 
on available information that they had, that electronic track 
and trace would be feasible and widespread by the year 2007. 
Because electronic track and trace offered a lower-cost way of 
satisfying pedigree requirements, we believed at that time the 
track and trace would be a way of satisfying the pedigree 
requirements after December 2006, and that's why we issued--
extended the stay of the rule through December 2006.
    At this time, we continue to be optimistic that RFID would 
be economically feasible to the industry and available at that 
time, but of course there's uncertainty about how the 
technology will develop.
    Mr. Souder. I have been more immersed in this last stretch 
trying to figure out how we regulate pseudoephedrine with meth, 
and the arguments you're making are so similar as we try to 
deal with this at a Federal level. The administration's 
position has been why not a State-by-State level? And so we 
have chaos, that people in one State go over to the next State 
to get it. We've been meeting about the difficulty of the paper 
trail and whether it can be done electronically, which people 
hold out may be a possibility to do this electronically. Now 
we're hearing that in a sense everything is somewhat in danger, 
and we'll hold out hope that electronic will do it.
    That's why my question is: Has anything been done in 18 
years, or is it in fact the threat of a Federal regulation? I 
have a family business. I grew up in a family business. And 
part of the question is at what point do you start to react 
proactively to avoid the Federal intervention, or how long do 
we wait and stay and stay and stay? That's kind of where my 
questions were driving, if you could tell us directly that the 
electronics will be implemented by date certain and will work 
in small business.
    What we found in pseudoephedrine is Target and Wal-Mart can 
agree, but small business can't really function, because the 
bigger distributors will have electronic ability; the smaller 
ones may not. So then you get into a situation of having 
electronics, but it automatically biases toward the big 
retailers unless you have a paper combined with it, which is 
what we're finding in the other areas.
    I just don't see--do you really think there will be 
electronic availability in every little pharmacy and grocery 
story in the United States in, what did you say, 2006?
    Mr. Lutter. The information that was given to us from the 
industry a couple of years ago as we were preparing the 
Counterfeit Task Force report, and at the time we developed the 
decision on the stay, was that there was substantial optimism. 
A lot of that was because the RFID is not primarily for 
counterfeit control in the sense of providing a pedigree, but 
also it provides substantial business advantages to the 
wholesalers and to the industry, the manufacturing companies, 
in terms of giving them information about management of their 
inventories to lower inventory control costs and to provide an 
opportunity for them to better manage the distribution of their 
entire product. The information that we had from them is that 
this would be economically feasible by the year 2007. Clearly 
these expectations depend on their judgment about the 
development of the new technology. We will have to reassess the 
development of that new technology as we approach the 
expiration of the stay late next year.
    Mr. Souder. Why wouldn't you do what States are doing in 
meth and other things; that is, put a paper trail in and when 
the electronics come, you replace it with electronics.
    Mr. Lutter. In 2001 when we originally issued the stay, 
there was substantial opposition from the industry, including 
the Small Business Administration, that this would put out of 
business many small secondary wholesalers. And since this is 
also in response to these concerns expressed by the industry 
and by the Small Business Administration and by Members of 
Congress, we decided to implement the stays.
    Mr. Souder. Thank you. Mr. Cummings.
    Mr. Cummings. Who are these counterfeiters, do you know? Do 
you have any idea who they are? Are the people in this country 
or outside of the country?
    Mr. Lutter. The counterfeiters are identified primarily 
through the ongoing criminal investigations. In terms of who 
they are, when the products are sold in this country where FDA 
has jurisdiction, they're sold by American, typically American, 
pharmaceutical product wholesalers, and the products are 
typically intercepted at that level, but people who are 
masquerading in any event as such wholesalers.
    Mr. Cummings. You say in your testimony, I think you said 
that we catch them usually before they get to the retail.
    Mr. Lutter. We have been successful to date in catching 
most of the products before they reach retail distribution.
    Mr. Cummings. Why is that? How has that come about?
    Mr. Lutter. I think it's largely because of the quality of 
the tips and the information that we gather from the 
manufacturers and from the wholesale distribution system. Most 
counterfeit investigations that we initiate are not the result 
of a consumer saying I got a product which isn't genuine--
because it's clearly extremely difficult for consumers to make 
the distinction. Instead, they're sometimes from manufacturers 
who give tips that a product has been brought to their 
attention which is not one of theirs, but in fact resembles 
theirs; or is from a wholesaler who also has information that 
the products are being sold as if they were FDA-approved, when 
in fact they're products which are not. And it's that sort of 
information that is usually the impetus for the investigations 
that we undertake.
    Mr. Cummings. Just recently we had on the national news 
this thing about the folks trying to sell some fake flu 
vaccines. How did that come about? How did that information 
come about?
    Mr. Lutter. That was a case in Texas where the flu vaccine 
was injected at a workplace. It's actually not a counterfeit 
product, because apparently it was not sold as if it was a 
brand-name vaccine. It was surely fake, it was fraudulent, it 
was unsafe, it was potentially dangerous.
    Mr. Cummings. Unapproved.
    Mr. Lutter. Unapproved, surely. My understanding, the 
syringes were filled with sterile water. Surely the people 
received no benefit in terms of protection against the flu, 
which is the primary interest that they were seeking the 
vaccinations.
    Mr. Cummings. So you're saying, then, that we are able to 
catch most--the people that we have been able to at least 
catch, they have gotten to them before they got the product to 
the retailer. Who are these retailers? Is there any particular 
part of the country where you see this more prevalent?
    Mr. Lutter. I don't think it's easy to generalize about 
what types of retailers are more inclined to be buying this. I 
think many retailers are business people and are potentially 
vulnerable to sales of counterfeit products when they're made 
available. So I think in that sense it's a potentially 
widespread problem.
    Mr. Cummings. How often do we find these drugs actually get 
to the retailers, from what you can see? Is that a major 
problem? I know what you just said, that we see a number of 
cases where they actually get to the retailer.
    Mr. Lutter. Based on conversations with the senior staff in 
the Office of Criminal Investigations at FDA, I don't think I'm 
able to generalize about that. We just don't know.
    Mr. Cummings. There seems to be an increase in FDA 
counterfeiting investigations recently. How much is this 
attributed to heightened vigilance or to the extent the problem 
may be getting worse? Do you have any idea?
    Mr. Lutter. We've had extensive discussions internally 
about that question. The best professional judgment is that the 
problem is indeed getting worse. There are probably more 
counterfeit drugs out now than there used to be.
    Notwithstanding that, we believe the overwhelming majority 
of all products available in the United States are safe. As to 
why there's an increase, that's a very difficult question. We 
believe that the increase in initiated new investigations, the 
first chart that I presented today, reflects largely two 
things: One is a growing threat in terms of the number of 
counterfeits that may exist; and the second one is improved 
information that we get from manufacturers and from wholesalers 
from the law enforcement community both at a Federal level and 
at a State and local level, and those better tips are ones that 
help us initiate more investigations than was the case in the 
past.
    Mr. Cummings. Do you feel that you have enough money to do 
the things that you need to do? Here we have an increase in the 
investigations, and based upon what you just said, it seems as 
if people have decided that this is a business that they want 
to be a part of; this counterfeiting business, that is.
    Do you feel we have enough money? We're trying to 
concentrate on a number of issues, as you well know, in our 
country. And I'm wondering if you believe your folks have 
enough money to do what you need to do, because if this 
continues to increase, I can see a situation where a lot of 
people can be harmed, and I was just wondering.
    Mr. Lutter. Let me say, first, that most recent available 
data on the number of investigations is somewhat reassuring. A 
very high number in fiscal year 2004, 58, fell the following 
year to 32. And that suggests that the very high number in that 
1 year was somewhat unusual. The decline may be due in part to 
successful deterrents, may be due in part to the fact that when 
we initiated new investigations in the most recent year, we 
discovered that some of those were in fact linked to 
investigations initiated in the earlier year and therefore were 
not independent. And when accounting for these investigations, 
taking in a manner that attempted to count merely the number of 
independent ones, the independent investigations initiated in 
the last year was lower.
    With respect to your question of whether or not we need 
more money, we have a variety of priorities at the FDA in the 
Office of Regulatory Affairs and with respect to criminal 
investigations in particular. The Office of Criminal 
Investigations is responsible for medical devices, also foods 
as well as drugs. It also investigates cases of fraud regarding 
new drug applications. Given those competing priorities, we do 
the best we can with the resources that we have.
    Mr. Cummings. Well, what does that mean, though?
    Mr. Chairman, I have to finish this. Give me 1 second. We 
are here talking about the drug counterfeiting, and I need to 
know where that falls in all the things that you just stated; 
that's the one question.
    The other question is, help me understand, isn't it 
possible that we still may have a very significant problem in 
the mere case, the mere fact that there have been, maybe, as 
you just testified, less investigations may not necessarily 
mean that there are less problems? I mean, can you answer those 
two? And then I'm finished.
    Mr. Lutter. Well, there's a very tenuous relationship 
between the number of investigations and the extent of the 
problems. We believe that there's more problems associated with 
counterfeit drugs in recent years, call it the last 2 or 3, 
than there were 5 or 6 years ago. In that sense the trend is 
disturbing.
    I'm sorry; your other question?
    Mr. Cummings. I was trying to figure out exactly where in 
the line of priorities--I asked the question, first of all, do 
you have enough money? Then you gave me a whole list, a laundry 
list, and rightfully so, of the things that are priorities for 
you. And I'm just trying to figure out where this falls in the 
list. Is this something that's at the top of the list, is this 
at the bottom? Where is it?
    Mr. Lutter. The way the OCI is managed is that the 
investigators are generalists. They are assigned to different 
topics according to where the opportunities are and where the 
information lies so that they can be most effective. And in 
that sense, I think it's very difficult to come up with a 
single ranking of where the priorities are, because it depends 
on the particular circumstances available in any particular 
investigations.
    Mr. Cummings. Thank you.
    Mr. Souder. I understand your testimony to say that the 
FDA, that you systematically random test drugs at pharmacies 
and grocery stories, that you systematically random test things 
on the Internet or at, say, flea markets or other selling 
points to see if there's fraud.
    Mr. Lutter. No.
    Mr. Souder. Then how in the world can you say under oath 
that you know what the level of the problem is? In other words, 
all you can testify to us is how many----
    Ms. Norton. Mr. Chairman, can you speak up?
    Mr. Souder. I'm questioning how he can testify under oath 
that he knows the extent of the problem if you're not doing any 
testing other than from a tip.
    Mr. Lutter. Mr. Chairman, I mentioned earlier that it was 
based on the best professional judgment of----
    Mr. Souder. In other words, tips.
    Mr. Lutter. The staff of the Criminal Investigations that 
the trend is increasing.
    Mr. Souder. You said earlier that you believe it's 
generally been an increasing trend, but I was responding really 
to Mr. Cummings' first question. You downplayed, you said the 
overwhelming numbers and all this kind of stuff. The fact is 
you don't know. Based on the tip, which is one indicator, but 
if you're not doing random testing, particularly in high-risk 
areas, you don't know. We do that all the time in all other 
kinds of narcotics, and you can't make that statement, because 
you don't have a border check that systematically--or do you? 
Are you basing this solely on how many criminal investigations 
are initiated from tips?
    Mr. Lutter. We lack the resources to conduct the sort of 
randomized testing of products sold in the market that I think 
you're describing. We have not contemplated that. We've never 
done it.
    Mr. Souder. That is a very fair statement and we may all 
have to decide that the risk isn't there, but then we can't 
make sweeping statements about safety if we haven't random 
tested.
    Mr. Lutter. The statement about safety is based on many 
years of experience of the FDA professional staff who are 
responsible for ensuring the safety of and effectiveness of 
drugs sold in America, and their collective judgment is that 
the vast majority of these products are safe.
    Mr. Souder. Thank you. Mr. Burton.
    Mr. Burton. We're all against counterfeit drugs. You 
probably don't know this, but we had Mr. Hubbard before my 
committee when I was chairman of the full committee, about five 
times, and we were talking about the reimportation of 
pharmaceutical products. He said that they couldn't guarantee 
the safety of them, and I asked him how many people died from 
aspirin or Tylenol last year, and he didn't know. I said, do 
you have any records about that? And he says, well, no. I said, 
how many people were injured last year from pharmaceutical 
products imported from Canada, where they have a pretty rigid 
pharmaceutical policing system? And he says he didn't know.
    And I have all the testimony here from two or three 
hearings if you would like. I'd be glad to give you all of it. 
The fact is you don't know. You just don't know. And policing 
it is very, very difficult. The reason that people import 
pharmaceutical products is because the cost disparity is so 
great. The pharmaceutical pharmacy charges 8, 9, 10, 20 times 
more in the United States for the very same product sold in 
Germany, France, England, Canada and elsewhere. And you've got 
people on fixed incomes who have to split their pills. You talk 
about being safe: They split their pills, split their 
medication, because they can't afford to buy the pills because 
they cost so much here, when they can go across the border in 
Canada and get the same thing, 10 times as many pills for the 
same price. That's the problem.
    And we never heard about this kind of a problem before we 
started talking about reimportation, the counterfeits. We had 
hearings for 4 years, we never talked about counterfeit drugs 
until we started talking about reimportation. And all of a 
sudden, the pharmaceutical industry and HHS said we've got a 
problem with counterfeit drugs and it's going to create a 
terrible problem for the American people. Never heard about it 
until then because of the profit margins that we were talking 
about.
    I'm a free enterprise advocate. I believe in the companies 
making a big profit, I want them to, but I don't want Americans 
to pay 10 times for Taxol. My wife died of cancer a few years 
ago. I don't want them paying 10 times for Taxol what they do 
in Canada, France or Germany, or someplace else. And hiding 
behind the counterfeit things bothers me; we want the purity to 
be there. But to keep saying, my gosh, we can't have 
reimportation, we can't import drugs from Canada and France and 
Germany, because of--that is just an argument that's being 
fostered by those who want to make a lot more money here in the 
United States and saddle the profits on the back of the 
Americans while the rest of the world gets off scot free. You 
can give me all the stuff you want to about the FDA being 
concerned. That really bothers me.
    I want to talk to you just a little bit about the 
wholesalers, and I'm disappointed we don't have any wholesalers 
here today on the panel, and I don't blame the staff or the 
chairman for that. I just wish they were here so they could 
defend themselves when you talk about the problems that they 
face. Can you detail for us any significant counterfeit drug 
cases since late 2003?
    Mr. Lutter. I'm not prepared to do that.
    Mr. Burton. Give me one. OK, you can't. When the Health 
Distributor Management Association published their recommended 
guidelines for pharmaceutical wholesaler operations that track 
counterfeit stolen products, specifically back through licensed 
secondary market wholesalers, that was in 2003. I don't think 
FDA can give us any counterfeit evidence since then. I'm not so 
sure you can go back any further than that. What's been done by 
the industry, the wholesale industry, particularly wholesalers 
in reaction to the counterfeit problems that we heard about? 
Can you give us any idea what they've done to protect the 
buying public?
    Mr. Lutter. I'm sorry. What's been done by the wholesalers?
    Mr. Burton. What has been done by the wholesale industry, 
particularly wholesalers, in reaction to the counterfeit 
problems that you have been talking about?
    Mr. Lutter. I think one might, sir, ask that question of 
the wholesale industry.
    Mr. Burton. Well, you guys are at the FDA, and you've been 
talking to the wholesale industry about a problem that has been 
created by these counterfeit drugs going through the process. 
Have you talked to anybody in the wholesale industry about what 
they've done?
    Mr. Lutter. We have talked to them about the----
    Mr. Burton. What have they done?
    Mr. Lutter. They came to present to us recently their 
proposal with respect to uniform national licensing standards.
    Mr. Burton. Have you heard of the Health Distributors 
Management Association [HDMA]?
    Mr. Lutter. Yes, sir.
    Mr. Burton. OK. What have they done to help protect the 
buying public from the products that are going to the wholesale 
operation? You don't know?
    Mr. Lutter. I'm not prepared to answer that, sir.
    Mr. Burton. Well, why is it fair to cast a blanket across 
the entire secondary market when in fact many legitimate 
businesses are providing a valuable service? And you don't have 
any answer for me today.
    You know, I can see I'm out of time, but I just want to 
say, obviously we want to protect the buying public from 
counterfeit drugs because they're not safe in many cases, but 
at the same time there is a responsibility on the part of the 
pharmaceutical industry in this country to make sure that 
Americans buy a product at a fair price, that we don't saddle 
the American people with a product like Paxil where they may 
have to pay 8 or 10 times as much as they do right across the 
border or in Canada. That's the reason why people import. And 
with the Internet being the way it is today, you have a 
herculean problem because if you stop the importation of 
products from Canada, they'll get on the Internet and buy it 
from Germany and if you stop it from Germany they'll get on the 
Internet and buy it from France, or they will buy it from 
Spain. And it's very difficult for you to regulate everything 
that's going through the U.S. mail. And you're talking about 
little old ladies and little old men who can't afford to buy 
this product because it's so much more expensive here than 
abroad, and so you've got really a herculean problem in 
controlling this. And I want you to control it because we don't 
want counterfeit products in the marketplace, but we want to 
make sure that Americans don't pay an exorbitant price for the 
same life-saving drugs that right across the Canadian border 
are costing a Canadian woman with breast cancer one-tenth of 
what it costs here in the United States.
    Mr. Souder. Ms. Norton.
    Ms. Norton. Thank you very much. And I think the gentleman 
has a point.
    Dr. Lutter, this subcommittee has had a lot of hearings, 
and one of the things--one of our major frustrations is with 
the problem law enforcement has in getting control of any 
valuable drugs, and many of our hearings are, of course, about 
drugs which are very valuable to addicts and to people who sell 
to them. So I was taken aback by your statement on page 2, that 
most of the counterfeit drugs at issue did not reach consumers. 
How do you know that most counterfeit drugs do not reach 
consumers?
    Mr. Lutter. The statement is intended to apply to the 
counterfeit drugs found during the course of the 
investigations. So with respect to other counterfeit drugs, we 
just don't know, and that's----
    Ms. Norton. That is like saying that the drugs we 
confiscate, the heroin we confiscate does not reach the streets 
of New York and D.C. So, I mean, you really have to watch out 
for these blanket statements. Sure, anything that you are 
investigating, if it turns out to be legitimate it may not 
reach it for that matter, but that is an unqualified statement, 
that most of the counterfeit drugs at issue do not reach 
consumers.
    Mr. Lutter. The counterfeit drugs that we find in the 
course of our investigations as a generalization don't reach 
consumers. I'm trying to clarify that here.
    Ms. Norton. I very much appreciate the clarification, 
because later on in your testimony you talk about how 
cleverly--in fact, in your oral testimony right after you 
indicated that you were catching everything, you then went on 
to show us a set of slides about just how cleverly these drugs 
are packaged so that you would have to have a trained eye to 
even know they were counterfeit. So I take it that there may be 
many consumers out here without an FDA's trained sense of what 
is counterfeit and what is not, since even your people have to 
look closely at it, who may be passing these counterfeit drugs 
off.
    Would that be a true statement?
    Mr. Lutter. It is absolutely true that there may be some. 
First of all, it's very difficult for people to distinguish 
these counterfeit drugs from the genuine. That was the key 
point of the slides that I tried to show earlier.
    With respect to the comment about whether or not consumers 
may be exposed to counterfeit drugs, absolutely, our system is 
not foolproof. We do the best we can with----
    Ms. Norton. But those are only law enforcement folks, and 
no. I mean, no prosecutor will tell you that he catches all the 
criminals. You know, he catches a tiny number and he hopes that 
has an effect on the rest who might be inclined toward 
criminality.
    I understand that about 50 percent of the drugs on sale in 
some countries are counterfeit. What percentage of the drugs on 
sale in this country would you believe are counterfeit? Because 
surely you can interpolate, once you know how much you have, 
you're a Ph.D., you know then how to calculate how many go on 
sale that may be counterfeit or at least are offered for sale 
that may be counterfeit. What would be your estimate?
    Mr. Lutter. Let me begin by saying we don't have a 
scientific basis for coming up with an accurate estimate of 
that----
    Ms. Norton. Do you have any statisticians in your 
department?
    Mr. Lutter. We do have statisticians.
    Ms. Norton. Do you agree, you have a Ph.D, that you could 
extrapolate, once you know how many you catch, and then try to 
at least estimate, even if you truthfully said of course, as 
you must, this is only an estimation of how many counterfeit 
drugs are out there?
    Mr. Lutter. Our best estimate is it is significantly less 
than 1 percent.
    Ms. Norton. And you have just now told me you couldn't, and 
now you're telling me that less than 1 percent in the United 
States are counterfeit.
    Mr. Lutter. Significantly less than 1 percent.
    Ms. Norton. How do you know that, sir?
    Mr. Lutter. That's based only on the professional judgment 
of the staff at FDA.
    Ms. Norton. But not based on the kind of extrapolation that 
I have asked for, the statistical----
    Mr. Lutter. It is not based on a statistical calculation.
    Ms. Norton. Let me tell you something, Dr. Lutter, to the 
extent that you are truthful to people by saying these things 
are out here, we have only our own professional judgment, but 
they're out here in larger and larger numbers, to the extent 
that you say that you make people more and more leery about 
purchasing drugs that may be counterfeits. I don't find it very 
helpful that you are operating without, that the FDA is 
operating without doing the necessary statistical work so as to 
warn consumers of the statistical probability of in fact having 
counterfeit drugs to reach them. Wouldn't that help people, 
including pharmacists and others, to help you in the law 
enforcement challenge you reach?
    Mr. Lutter. Undertaking that sort of statistical analysis 
is something that we haven't previously contemplated. It would 
take significantly more resources than are available to date.
    Ms. Norton. Oh, my God, I'm sure I could--come on. I'll put 
you in touch with some Ph.D math students in statistics who 
could help you out, Dr. Lutter. I do not think that this is a 
complicated statistical problem.
    And Mr. Chairman, I ask that the agency be requested, using 
its existing resources, to try to find out what the statistical 
probability is. I really don't believe that is a complicated 
problem. And I do believe at the very least the public, if it 
knew that, might be more inclined to be careful.
    Dr. Lutter, one more question. You say on page 7, in order 
for secondary wholesalers to fully comply with pedigree 
requirements by which we mean understanding throughout the 
chain whether drugs are legitimate, Congress would have to 
amend Section 503(e), and you say later in questions that 
you're just doing the best you can and you indicated what some 
of the problems were when questioned. Does the agency recommend 
that we in fact amend 503(e)?
    Mr. Lutter. That was the recommendation we issued in 2001, 
and we still stand by it, yes, ma'am.
    Ms. Norton. Thank you very much, Mr. Chairman.
    Mr. Souder. Ms. Schmidt, do you have any questions?
    Mrs. Schmidt. Not at this time.
    Mr. Souder. Ms. Watson.
    Ms. Watson. Thank you, Mr. Chairman. I was listening very 
closely to the questions that my colleague was asking and the 
response, and it occurs to me that maybe this hearing is 
premature, and my good friend, Dan Burton, has the same concern 
I have. And you know, a lot of it goes to the price of 
manufacturing, and of course there should be concern about 
these fake drugs, but I'd like to know the magnitude of the 
problem. I tell you what I'm more concerned about, and you can 
respond if you heard these rumors, that there seems to be a 
consistent rumor that terrorist organizations are planning to 
spike up drugs and things, and that's one way of killing off 
Americans.
    And Mr. Chairman, I'd like to hold a hearing maybe on that 
kind of threat to us because they're getting very clever in the 
way they plan to attack us. But I think to make the kind of 
assertion that we've got these counterfeit drugs running 
rampant and we need to be cautious, we need to base it on a 
little more statistical data than I'm hearing. Of course I came 
in late. I don't know how much transpired before I came in, but 
hearing on counterfeit drugs within the United States takes, 
for me, more statistical evidence that there is a real serious 
problem with the counterfeit drugs. That's the excuse you use 
for being opposed to reimportation. And what I would like to do 
is, and this goes to the Chair and our committee, is to really 
look into the rumors that I'm hearing because the addiction 
level in the United States of America, because of the marketing 
of drugs the way we do, could be the beginning of something 
that could have an impact on our society, which I'm on Homeland 
Security. Well, we better start looking at these rumors.
    So I just want to say that I'd like to kind of back up what 
Eleanor Holmes Norton was saying, that we really need more 
evidence that this is a problem that should take priority right 
now. I think the threat to us, as rumored, is more of a 
priority.
    So thank you for the time. I yield back, Mr. Chairman.
    Mr. Souder. Thank you.
    Mr. Gutknecht.
    Mr. Gutknecht. Thank you, Mr. Chairman.
    And Dr. Lutter, I don't know if we've met before, but I 
have been involved and interested in this issue for a long 
time. And since you couldn't answer the question that Ms. 
Norton had, let me answer at least according to the FDA's open 
counterfeit drug cases report, the report done by the Task 
Force on Importation, in 1997 there were 6 cases, in 1998 there 
were 4 cases, in 1999 there were 6 cases, Representative 
Norton, in 2001 there were 20 cases, in 2002 there were 22 
cases, and the last year we have numbers for is 22.
    Just out of curiosity, do you know how many people died in 
hospitals last year due to getting the wrong drug?
    Mr. Lutter. There are estimates by the Institute of 
Medicine a few years back where up to high tens of thousands of 
deaths per year are attributed to medication errors.
    Mr. Gutknecht. It generally is over 5,000 a year, and here 
we're talking about 22 cases.
    Now, the other thing I just want to call your attention to, 
we have been trying to get the FDA to get involved in anti-
counterfeiting packaging for at least 4 years. And I remember 
the first time we had a meeting on this with one of the 
directors, who is no longer with FDA, and we talked about this. 
He said, well, this can't be done. And then I reached in my 
pocket and I showed him a $20 bill and I said well, you know, 
the U.S. Treasury now has come up with a pretty good anti-
counterfeiting technology for our $20 bills, and he said that 
can't be done in drugs. I thought that's kind of an interesting 
attitude, but that technology exists today; it is being used in 
Europe. At least five of the major pharmaceutical companies are 
using it. This is a problem; I mean, counterfeiting is a 
problem. But it just strikes me that the FDA is not really 
serious about that, because if they were they would be focusing 
on really helping us solve the problem.
    There is also a technology, and I don't know if it's been 
talked about here in this hearing yet today, using these little 
computer chips. Frankly, I don't know if my staff stuck them in 
here, but we can show them to you. We brought the cost down now 
to about 10 cents per chip, and they are incredibly amazing 
little chips; you can literally tell where the drug was made 
and the day it came off the line, simply through a relatively 
simple reader.
    Now the drug companies themselves are interested in this 
because they have a keen interest. I would have a question, 
though, in the studies that you've done in counterfeit drug 
cases, is most of the counterfeiting being done in the United 
States or is it coming in from other countries?
    Mr. Lutter. The products themselves are often manufactured 
overseas and smuggled into the United States.
    Mr. Gutknecht. I didn't say often. No, no, no. Where is 
most of the counterfeiting actually being done for the drugs 
being sold in the United States?
    Mr. Lutter. You mean the manufacturing of the products or 
their distribution for sale?
    Mr. Gutknecht. Where are they actually making these 
counterfeit drugs? Because the studies I've seen, most of them 
are actually made here in the United States.
    Mr. Lutter. The information that we have from the Office of 
Criminal Investigation suggests that the manufacturing itself 
is often overseas.
    Mr. Gutknecht. I'm sorry, that doesn't square with what 
we've been told.
    And the real issue, and this is where the FDA continues to 
miss the point, people don't counterfeit $1 bills do they? They 
counterfeit $20 bills, but mostly they counterfeit $100 bills. 
The reason that there is an industry developing, both illegal 
importation and counterfeiting, is because we have done nothing 
to help level the prices that Americans pay for prescription 
drugs, and that's the real issue here that nobody wants to talk 
about. That's why more and more people say, you know, ``I can 
make more money in getting into the business of selling 
Celebrex or Tamoxifen,'' which it used to sell for about $500 
in the United States, this is one of the examples, Mr. 
Chairman, it used to sell for about $500 a month in the United 
States. You can buy it in Canada for less than $100 a month. 
You can buy it in almost every European country for less than 
$100 a month.
    The reason that people are starting to look at doing these 
kinds of things is because we have done nothing to help level 
the prices that Americans have to pay for these drugs. So it 
seems to me that if the FDA ever wants to get serious about 
addressing these kinds of issues, you ought to go to where the 
big problems are. The big problem is that Americans are being 
held hostage; they pay way too much for their prescription 
drugs. They know it and everybody else knows it, and yet the 
FDA says, well, we have to go after these 22 cases, right; 22 
cases. When thousands of people are dying every year from 
prescriptions given in hospitals, and the FDA is doing nothing 
about it; there is no plan to deal with that. And yet we can 
use bar coding technology, we can use all kinds of things that 
are available today to change those numbers.
    So I'm sorry, I'm a little, I get a little emotional about 
it because we've been in this battle now for 4 years and for 4 
years the FDA has said ``you know what, we want to work with 
you,'' and for 4 years there has been absolutely no help 
whatsoever. I'm sorry that you're the one on the hot seat today 
and I happen to be in this seat today, but we're not going to 
give up on this. And trying to scare people because you have 22 
cases of counterfeit drug cases when we have literally millions 
of other problems dealing with prescription drugs--and let me 
add one last point, Mr. Chairman. I know my time has expired, 
but the FDA is the Food and Drug Administration. Do you know 
what percentage of the food coming, the fruits and vegetables 
coming into the United States, are contaminated with foodborne 
pathogens, including things that can kill you? Do you know what 
percentage it is?
    Mr. Lutter. I'm not----
    Mr. Gutknecht. The answer is the FDA has actually got a 
report on that. It's roughly 2 percent. Now that is a much 
higher percentage than the numbers, and with all due respect, 
your guess I think is way high in terms of the counterfeit drug 
problem, but I think we have a lot bigger problems. And they're 
largely--the problems with drugs today are all centered around 
one fact, and that is Americans pay way too much for what they 
get. We're doing almost nothing to stop importing fruits and 
vegetables, even though we know by our own studies that 2 
percent of the fruits and vegetables coming into the United 
States are contaminated with foodborne pathogens that can kill 
you.
    I yield back my time.
    Mr. Souder. Before we move to our second panel, I just want 
to clarify that you've informed the committee, the OCI did, 
that there are 58 cases in 2004 and not 22, and that is a jump; 
is that correct?
    Mr. Lutter. Fifty-eight cases in 2004?
    Mr. Souder. Yes.
    Mr. Gutknecht. Mr. Chairman, there were 22 cases in 2003.
    Mr. Souder. And it jumped to 58 in 2004?
    Mr. Gutknecht. But it wasn't 10,000.
    Mr. Souder. Yes. And when you have a case, is that 58 
people got one pill, or are these cases that could in fact 
affect thousands of people in each case?
    Mr. Lutter. Sir, these are independent criminal 
investigations, so in that sense, yes, they vary in terms of 
their scope. Some may be very small, others may be quite large 
and potentially infecting large numbers of people, including 
thousands.
    Mr. Souder. Thank you. I thank you for your testimony 
today. If Members have additional questions we will send those 
to you in writing. Thank you for participating.
    If the second panel could come forward. Before I swear the 
second panel in, we've been joined today by Congressman Israel 
from New York, and he would like to introduce one of the 
witnesses.
    Mr. Israel. Thank you very much, Mr. Chairman. I want to 
express my appreciation for the courtesy that you and the 
ranking member have extended in allowing me to sit in on this 
subcommittee, although I'm not a member, and allowing me to 
introduce one of my constituents, Kevin Fagan, who will be 
sharing his family story with you today.
    Kevin Fagan is a long time resident of Deer Park, NY. He 
works as a second line supervisor at Con Edison, a company that 
he has proudly served for 22 years. He is married to Jean and 
is the father of three children, Timothy Lauren, and Caitlyn.
    I first met Mr. Fagan in 2003 when he informed me that his 
older child, Tim, had been injecting himself with counterfeit 
Epogen, a drug he picked up from a national pharmacy to help 
him recover from a liver transplant, a drug that somehow found 
its way to the Playpen South Strip Club in Miami, where it had 
been tampered with.
    This ordeal changed Mr. Fagan into a public advocate 
determined to do what he could to ensure that more families 
don't suffer from loved ones receiving counterfeit medicines. 
He has dedicated himself to teaching elected officials and the 
public about the dangers of our prescription drug supply chain. 
Since prescription drugs can change hands up to a dozen times 
between the manufacturer and the pharmacy, these drugs, as 
we've learned today, can be tainted, diluted, relabeled and 
counterfeited.
    As a result of my association with the Fagans I have 
introduced Tim Fagan's Law, H.R. 2345, which gives the FDA the 
authority to recall drugs, implements harsher penalties for 
criminals of counterfeit drugs, and requires pedigrees of a 
drug's origin.
    Kevin Fagan has been a remarkable champion of this 
legislation named in his son's honor, an outspoken advocate for 
the need to clean up our Nation's drug supply, and I am pleased 
to introduce him as he shares his story, and to again thank the 
chairman and the ranking member for holding this vitally 
important hearing.
    Mr. Souder. Thank you very much for being here. This panel 
consists of Katherine Eban, author of Dangerous Doses, Mr. 
Fagan, who you've just heard described by his Congressman, and 
Max Butler, brother of Maxine Blount, counterfeit drug victim. 
So if you would each stand. It is the guidelines of this 
oversight committee to swear the witnesses in.
    [Witnesses sworn.]
    Mr. Souder. Let the record show that each of the witnesses 
responded in the affirmative.
    We thank you for being here today and we're going to start 
with Katherine.

 STATEMENTS OF KATHERINE EBAN, AUTHOR, DANGEROUS DOSES; KEVIN 
    FAGAN, FATHER OF TIMOTHY FAGAN, COUNTERFEIT DRUG VICTIM 
(EPOGEN); AND MAX BUTLER, BROTHER OF MAXINE BLOUNT, COUNTERFEIT 
                     DRUG VICTIM (PROCRIT)

                  STATEMENT OF KATHERINE EBAN

    Ms. Eban. Mr. Chairman and members of the committee, thank 
you for having me here.
    Mr. Souder. You need to tap your mic. There should be a 
button.
    Ms. Eban. Mr. Chairman and members of the committee, my 
name is Katherine Eban. Thank you for having me here.
    As an investigative journalist and book author, I've spent 
the last 3 years documenting a rising tide of counterfeit 
medicine in our pharmacies and hospitals. My book, Dangerous 
Doses: How Counterfeiters Are Contaminating America's Drug 
Supply, was published this May. It is based on more than 160 
interviews, over 13,000 pages of documents and several years of 
firsthand reporting.
    Adulterated medicine routinely lands on our pharmacy 
shelves in part because major wholesalers seek out discounted 
medicine from smaller ones. This extremely dangerous trading 
has degraded our medicine and endangered patients.
    A few numbers: 97,000 vials of counterfeit Epogen and 
Procrit, enough to treat 30,000 cancer patients for a month, 
are believed to have entered the supply chain and reached 
patients in 2002. In 2003, 600,000 patients may have received 
counterfeit Lipitor, according to Pfizer's own estimate. One 
percent of the Nation's drug supply is 35 million 
prescriptions, the FDA estimates less than 1 percent of the 
Nation's drug supply is counterfeit.
    Some States and other players have made significant efforts 
to restrict the flow of counterfeit medicine, yet recently 
1,000 Exxon Mobil employees in Texas were injected with 
counterfeit flu vaccine.
    In our poorest supply chain, medicine may move through a 
dozen hands on its way to the pharmacy. The wholesalers who buy 
and sell it may be narcotics traffickers, mafia members or high 
level diverters, some with legitimate State licenses. Though 
wholesaler in name, many never buy directly from manufacturers 
or sell directly to pharmacies. They are traders who buy and 
sell to one another in an all-hours auction. Every single 
counterfeit to reach American patients has moved through their 
hands with scant proof of its origin.
    Who in their right mind would buy this medicine? Everyone 
unfortunately. Even the Nation's major wholesalers set up 
trading divisions to scout for bargains from these middlemen, 
purchases that allow substandard and even counterfeit medicine 
to reach patients.
    Among recent reforms, major wholesalers, Cardinal Health 
and AmerisourceBergen, announced they would limit or cease 
their pharmaceutical purchases from secondary wholesalers, but 
gaping holes remain. Because our distribution system is 
national and medicine that is in California 1 day winds up in 
New York the next, our drug supply is only as clean as its 
dirtiest link.
    Tim Fagan, a 16-year-old liver transplant patient, learned 
this the hard way when life-saving Epogen from his CVS pharmacy 
proved counterfeit. His medicine required constant 
refrigeration and stable handling, yet it was uplabeled by a 
counterfeiter, transported in used paint cans, and allegedly 
stored in the beer cooler of a Miami strip club. Its journey 
took me several years to reconstruct.
    If we could please show the slide. Thank you.
    His medicine began as low dose, or 2000 U/mL Epogen. 
Cardinal Health and AmerisourceBergen, near at the top, sold 
110,000 vials of it to a small Miami pharmacy, which never 
dispensed it to a single patient, but instead sold it all to an 
accomplice of an alleged counterfeiter, Jose Grillo. Grillo 
packed the low dose medicine into paint cans and carried them 
to a south Miami trailer where a friend soaked the vials 
overnight, and rubbed off the low dose labels and glued on fake 
high dose ones for 40,000 U/mL. Grillo, awaiting trial, 
allegedly transformed each $25 vial into a $470 vial, a scheme 
worth $46 million. Investigators were only able to recover 
13,000 of his vials, which means that 97,000 remained in the 
supply chain and is presumed to have reached patients.
    Once he had uplabled the vials, Grillo allegedly brought 
them to his customers, including the Miami strip club, where 
investigators believe he sold the medicine for one-sixth the 
average wholesale cost. The medicine then moved through a 
network of shell companies, as represented by the dark gray in 
the middle of the chart, each one raising the price. An Arizona 
wholesaler, which ultimately bought the medicine, then offered 
AmerisourceBergen a deal, high dose Epogen for a price lower 
than the manufacturer's. Amerisource bought back the very low 
dose Epogen it had originally sold, counterfeited in the 
interim.
    Despite recent reforms, numerous diverters with wholesale 
licenses still peddle substandard medicine for all those 
seeking a discount and willing to take the risk. Consumers need 
to know where their medicine has been. The most important 
reform would be comprehensive pedigree records for every drug. 
Those who say ``impossible'' are likely committed to a 
Byzantine and opaque drug supply. Only Federal regulations that 
mandate pedigree records will shed light on and eliminate the 
hidden paths that our medicine may take.
    I urge the committee to look at Tim Fagan's Law, introduced 
by Representative Steve Israel of Long Island, which requires 
paper pedigree records, strict regulation of wholesalers, 
severe criminal penalties for counterfeiting, and stronger 
enforcement powers for the FDA's Office of Criminal 
Investigation.
    Thank you for your commitment to protecting America's drug 
supply.
    [The prepared statement of Ms. Eban follows:]

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

                    STATEMENT OF KEVIN FAGAN

    Mr. Fagan. Good afternoon. My name is Tim Fagan, and in 
2002 my son Timothy received counterfeit Epogen after a life-
saving liver transplant. While I am thankful for your time 
today, I wish I had never heard of this topic.
    Tim was very sick for a long time, and our trek to find a 
cause and a cure for his disease took us as far as the Mayo 
Clinic in Rochester, MN. No answers could be found. Upon 
returning back from the Mayo Clinic, Tim's health took a severe 
turn for the worse, and he required a liver transplant.
    After surviving a 9-hour operation and a hospital stay, Tim 
returned home to further recuperate. Our family thought our 
prayers had been answered when my son came home. Shortly after 
returning home, Tim became severely anemic and his transplant 
team prescribed Epogen, which is an anti-anemia injectable drug 
to combat his anemic condition and bolster his already weakened 
health. We received the Epogen from a nationally known 
pharmacy, Brightwaters Pharmacy. There was nothing over the 
Internet. Upon receiving the Epogen injections once a week, 
several hours after each injection my son woke up screaming in 
pain. Through everything my son has been through, I have never 
heard him scream like this before.
    Several hours after the first injection the pain caused him 
to wake out of a sound sleep. My wife and I ran into his 
bedroom. I fully anticipated finding a robber or burglar from 
his blood curdling screams; I had never heard him scream like 
this before in my life. We found his whole body wrapped in 
pain. Tim was doubled over crying, screaming, ``help me,'' and 
I didn't know what to do to help my son.
    We immediately called his doctors. They were dumbfounded by 
the reaction, having never seen anything like this to this drug 
that they've prescribed to numerous patients. And this same 
episode proceeded for 8 more weeks.
    Finally, my wife receives a call from our local pharmacy 
informing her that the FDA notified them that counterfeit 
Epogen was on the market and to check the vials in our 
possession. My wife checked the vials and found that they were 
indeed counterfeit based upon the information supplied to her; 
they were missing a degree symbol and they had a certain lot 
number.
    We were understandably frantic with worry as to what this 
might have done to my son in the short term and the long term. 
I asked the pharmacy how this happened. They said, ``We get all 
our drugs, all our Epogen, exclusively from 
AmerisourceBergen.'' I had never heard of AmerisourceBergen 
before. I looked up their number. I called them in Pennsylvania 
and asked them how it happened. They rushed me off the phone, 
to say the least, and ended the call saying it's not their 
problem. As it turns out, it is their problem. 
AmerisourceBergen is the number 22 company on the Fortune 500 
list. AmerisourceBergen is one of the three largest drug 
distributors in the United States, and AmerisourceBergen has 
revenues approaching $50 billion a year. Yet instead of 
purchasing drugs directly from the manufacturer, they chose to 
purchase these drugs from the second or gray market where 
elected officials and law enforcement agencies have identified 
as the source of counterfeit drugs into the supply chain.
    This was a domestic issue; it was no international trading 
of drugs. It started in Florida, went through several hands 
throughout the country and wound up in my son on Long Island.
    Fortunately for us, we have a Congressman who is very much, 
like you, interested in protecting their constituents, the 
regular people, and I contacted Representative Israel for help. 
And his law, H.R. 2345, Tim Fagan's Law, calls for tougher 
criminal penalties for those engaging or distributing 
counterfeit drugs. It calls for increased funding for the FDA 
to perform the very inspections that the committee called on 
earlier today at random. It calls for increased funding for law 
enforcement investigations. It calls for public education and 
track and trace technology. And I ask each and every one of you 
if you would please co-sponsor this legislation which would 
protect all the Tim Fagans and potentially every American 
citizen from counterfeit drugs.
    I thank you for your time. And again, I ask you to co-
sponsor, I plead with you to please co-sponsor this legislation 
and make it a reality. Thank you very much.
    [The prepared statement of Mr. Fagan follows:]

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    Mr. Souder. Thank you for coming today.
    Mr. Butler.

                    STATEMENT OF MAX BUTLER

    Mr. Butler. Good afternoon, Mr. Chairman, and members of 
the committee. My name is Max Butler, brother of the late 
Maxine Blount of Holister, MO, a victim of counterfeit drugs. 
I'm honored that the committee has provided me with the 
opportunity to testify. I hope to illustrate the impact that 
this crime has had on our family and friends.
    This crime undermines the trust that society has in its 
doctors and pharmacies. It targets victims that are already 
fighting for their lives and one that often results in 
suffering and sometimes an early death.
    In 1998 Maxine Blount was diagnosed with breast cancer. Her 
doctor explained that her cancer was very serious and promised 
to provide Maxine with every opportunity to beat the cancer. 
Treatments began; she received chemo and radiation treatments 
to reduce the size of the tumors in her breast so that the 
doctors could safely do a mastectomy. After the mastectomy 
Maxine continued to receive regular treatments until she began 
to take the counterfeit Procrit. The counterfeit Procrit made 
it impossible for her to rebuild her strength between chemo 
treatments.
    At the time that Maxine was diagnosed she owned and 
operated a Mailboxes Etc, a business that she loved and worked 
long hours at. The business did well and resulted in many 
clients that depended on Maxine to help them succeed. She was 
an active member and officer of the Chamber of Commerce, taking 
great pride in her civic responsibilities and caring about the 
community and businesses. After 2 years of fighting cancer, 
Maxine sold her business so that she could concentrate her 
efforts on surviving.
    Maxine had 5 children and 11 grandchildren. She loved her 
family, and as her condition worsened, she noted that she would 
be unable to enjoy the future with her family. At age 61, 
Maxine should have had many years left to enjoy life.
    As her cancer advanced, the doctor would change her 
medication. Most changes were successful in slowing or 
arresting the cancer for some period of time, forever giving 
Maxine and the family hope. Several months before Maxine's 
death she noted that the Procrit was no longer working. Procrit 
is a drug that helps cancer patients to rebuild blood cells and 
strength between chemo treatments. As a result of the 
counterfeit drugs, Maxine had to lengthen the time between 
treatments. This allowed the cancer to advance much more 
rapidly.
    After Maxine informed the nurse at the doctor's office that 
Procrit was not working, it was determined that her medication 
was counterfeit. She was receiving 5 percent of the dosage 
needed.
    As earlier noted, the counterfeit Procrit prevented Maxine 
from taking chemo treatments as needed. In addition, she had no 
strength, more pain, problems concentrating, and felt much 
worse than she ever had. The mistreatments, combined with her 
loss of confidence in the pharmacy system, resulted in the 
quality of Maxine's life taking a nose dive. It took her hours 
just to shower and dress. As she dressed, she would have to 
take a break between each garment. Sometimes she would have to 
take a nap between garments.
    Maxine had dedicated all effort to trying to get well or 
survive until a drug could be developed that would be a cure 
for her. She had total confidence in her doctor and pharmacy 
until this happened. She had purchased her drugs at one of the 
largest and most reliable pharmacies in St. Louis. At first she 
blamed the pharmacy, then she learned that the controls in 
prescription drugs were not effective and that counterfeit 
drugs were not all that uncommon. She was spending thousands of 
dollars each month on counterfeit drugs, and the pharmacy even 
refused to return her money when they found they were 
counterfeit. Maxine's confidence was gone, and at this point 
she pretty much resigned herself that the end was near.
    I don't pretend to know that Maxine would be alive today if 
she had not received counterfeit drugs. What I do know is that 
she would have lived longer, would have experienced much less 
pain and suffering, and she would have been able to spend more 
time with her family. Maxine died on October 24, 2002.
    The criminals that deal in counterfeit drugs are murderers. 
They steal people's dignity, cause unbelievable pain and often 
early death for their victims. When they distribute counterfeit 
drugs, they have no way to know who the victims will be. Anyone 
in our families or the counterfeiter's families could be a 
victim of this crime. I don't understand how these criminals 
can look at themselves in the mirror.
    In closing, I would like to reiterate that stronger 
controls would have delayed Maxine's death, reduced her 
suffering, and allowed her to die with more dignity. Thank you.
    [The prepared statement of Mr. Butler follows:]

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    Mr. Souder. I want to thank each one of you for your 
testimony, and our sympathy goes out to your families. I 
appreciate your willingness to speak out and share your 
personal sorrows so we can try to figure out how best to deal 
legislatively with this and put as much oversight on this as 
possible.
    Mr. Butler, in your testimony you said that they determined 
that the Procrit was counterfeit. How did that process work?
    Mr. Butler. The nurse took the Procrit that my sister had 
with her and she sent it to the laboratory. The laboratory 
analyzed it, and it came back that it was counterfeit. 
Counterfeit meaning a reduced amounts, it was 5 percent of the 
volume she should have been getting.
    Mr. Souder. So the nurse initiated the process and the 
hospital paid for the process, is that how----
    Mr. Butler. Yes, that is correct. My sister didn't realize 
that the reason the drugs had stopped working was because it 
was counterfeit; she thought it was because the cancer had 
advanced to a point where it just wasn't doing any good.
    Mr. Souder. Do you know in that case, did the hospital then 
go to the pharmacy, or what happened from there?
    Mr. Butler. The hospital notified the pharmacy and my 
sister notified the pharmacy. They did an investigation from 
there in terms of where they got the counterfeits from or where 
they got the medication from. I don't know the whole story of 
what the pedigree said at the time. The Procrit had been 
acquired from the cheapest vendor, and they had purchased the 
drugs from a number--that same type of drug from a number of 
different vendors. There are specific lot numbers involved, and 
I'm not that familiar with exactly what happened on that side.
    Mr. Souder. Mr. Fagan, have you met other people who have 
been through your problem in the course of exploring this?
    Mr. Fagan. No, I haven't, outside of today. But the unique 
thing is that I believe I haven't because we were in a very 
unique situation in that we were in possession of vials. We 
would receive a month's worth of vials at a time from our 
pharmacy for Tim's weekly injections. Think of how many senior 
citizens go to the doctor for a shot, the injection is 
administered, the vial goes in a garbage, or the same thing in 
a hospital. So the proof is destroyed, the patient doesn't get 
better and the underlying disease is blamed for what happened.
    And what the scent of it is is that companies like 
AmerisourceBergen, large Fortune 500 companies, choose to put 
profit before patient safety, and it is absolutely criminal. 
What happened to my son is unconscionable. I sit here before 
you and it's just surreal that this thing is even happening, 
but it is, and that's the disturbing truth of it is that this 
problem potentially affects every American citizen. If it could 
happen to me, if it could happen to my son, it could happen to 
anyone.
    Mr. Souder. Mrs. Eban, could you describe a little bit 
about what you have learned about the gray market? You talked 
about that in Mr. Fagan's case. How exactly is this working? Is 
that the main source of the problem? Clearly we've heard about 
the pedigrees; that's a big problem with it. In your feeling 
about, you heard of someone on the first panel going back and 
forth about how kind of random and rare this is. Is it only 
when we get a very dramatic case that we actually learn of any 
kind of problem?
    Ms. Eban. If I can answer the second part of your question 
first. We don't know how big a problem this is. The FDA put out 
a report and said that less than 1 percent of the Nation's drug 
supply is counterfeit. In my reporting, I went down to 
Washington and met with the authors of the report and asked 
them, how did you come to that number, and they said to me 
basically, well, we don't know, we guessed but we don't imagine 
it's any worse. So there haven't been any studies done on this 
problem.
    I tend to say, all right, less than 1 percent, they're 
making what I think is a conservative estimate. If we say 1 
percent of the Nation's drug supply is counterfeit, and even 
that sounds conservative and relatively reassuringly small, 1 
percent is 35 million prescriptions a year. And it's likely 
that number is concentrated among the high cost brand name 
pharmaceuticals for the sickest patients who need it the most, 
the reason being, as committee members have noted, that 
counterfeiters favor the most expensive drugs as an excellent 
return on investment. So I think you are looking at a fairly 
big problem.
    I'd like to add that when the FDA mentioned cases, 32 a 
year, 58 a year, those cases often represent thousands or 
hundreds of thousands of counterfeit doses that have 
potentially reached patients. One of those cases in 2003 was 
counterfeit Lipitor, and by Pfizer's own estimate 600,000 
tablets of counterfeit Lipitor reached patients. Again, in 2002 
Jose Grillo's counterfeiting of 110,000 vials of Epogen and 
Procrit, taking very weak doses and making them look like 
strong doses, only 13,000 of those vials are recovered, which 
means that 97,000 vials are estimated to have reached patients.
    I think from these examples we can gather that the problem 
is fairly big, and the numbers demonstrate that it's growing, 
but because no definitive studies have been done we don't know 
for sure the size of it.
    In my reporting I identified over a dozen patients, but we 
know that the FDA's Med Watch system has received reports from 
dozens and dozens and dozens of patients who believe they have 
received counterfeit medicine.
    Mr. Souder. In those dozen patients, when they went into 
the pharmacy, did you find a consistent pattern that here Mr. 
Fagan said that actually he was notified indirectly through the 
pharmacy to check whether it was counterfeit, Mr. Butler is 
saying that the nurse sent it out for testing? Is that a pretty 
typical pattern of what you have been seeing, or do some of 
them get nonresponsiveness?
    Ms. Eban. The way that it is detected is entirely random. 
And sadly I have to say that Tim Fagan and Maxine Blount are 
the lucky ones only in the sense that they learned that they 
had taken counterfeit medicine, whereas many patients never 
know, they simply don't get better, and because they have 
serious diseases of course they don't know why they're not 
improving.
    So in my reporting I began to realize that we all know 
someone whose medicine suddenly stopped working, and once you 
immerse yourself in this problem you really do begin to ask 
yourself why, and you begin to think of a whole new set of 
reasons why that might have happened.
    Mr. Souder. Thank you.
    Mr. Cummings.
    Mr. Cummings. First of all, I want to thank all of you for 
your testimony. To Mr. Fagan and to Mr. Butler, I want to thank 
you for taking your pain and what you have gone through and 
using it as a passport to hopefully help other people in the 
future.
    I'm going to start with you, Ms. Eban, and I'm just 
curious. Today I note that--well, yesterday the USA Today said 
effective immediately that the CVS chain said it would purchase 
pharmaceuticals only directly from manufacturers or from 
wholesalers who certify they are not buying from what has been 
dubbed the secondary market. How significant is that?
    Ms. Eban. It is very important, and it's the right step; if 
every pharmacy chain in the United States insisted upon that, I 
think you would find that the gray market, the wholesalers who 
simply trade sideways among themselves, would shrink 
considerably. The problem is that the reforms that have been 
taken, the steps that have been announced by players in the 
supply chain, are random, individual, and have many loopholes. 
Many doors still remain open.
    Mr. Cummings. You know, I remember a while back when we had 
the Tylenol contamination and how it just sent a rippling 
effect, and now we have these containers that have seals and 
whatever. And when I think about say, manufacturers, are they--
it seems as if they had--if there was any idea, if the word got 
out that maybe their drug had been contaminated in any way. 
When I say contaminated, I don't mean--I know these are 
counterfeits, I understand that, but it has their label, it has 
something that is supposed to be their label. It seems like 
that would cause them to really be major players in this. Do 
you find that to be the case, in other words, trying to help to 
make sure the problem is solved? Because if it gets out there, 
say, for example, that Lipitor, if there is lot of counterfeit 
Lipitor out there, then I think that sends a terrible message 
from an economic standpoint, and sadly sometimes economics, as 
what Mr. Fagan said, is what drives things.
    Ms. Eban. I think that manufacturers have changed their 
stance about the problem. Earlier on, as I found, they were not 
really willing or likely to raise their hands to say our 
medicine is being counterfeited for fear that patients would 
then go to possibly a rival's medicine in order to try to get 
safe medicine. But I think that the problem has grown enough 
that they have become quite concerned about it. They have 
ramped up significantly tamper-proof packaging, holograms, 
chemical taggants and markers that are embedded in the 
packaging or even in the product themselves. But many security 
directors of drug companies I've spoken to have said, given 12 
to 18 months, counterfeiters can pretty much copy anything. So 
the approach has to be on many levels to solve the problem.
    Mr. Cummings. You know, one of the things that you said 
that kind of stuck in the DNA of every cell in my brain is you 
said that 1 percent may be as many as 35 million prescriptions?
    Ms. Eban. Yes, that is right.
    Mr. Cummings. Now, did you hear the testimony of the 
gentleman, Mr. Lutter, from FDA?
    Ms. Eban. Yes, I did.
    Mr. Cummings. Do you think he is underestimating the 
problem, or overestimating, or you don't have a clue?
    Ms. Eban. I think that the FDA has always wanted to 
reassure the public that they should take their medicine and 
that their medicine is safe, but I don't think they really know 
the size of the problem because they have not done any studies. 
They are guessing as to the size of the problem, and I do think 
that historically they probably have played down problems 
because they don't want to panic consumers.
    Mr. Cummings. And let me say this to you, Mr. Fagan and Mr. 
Butler, if this Congress wanted to do this it could be done 
overnight, period. It has to be the will of the Congress to do 
it, but it can be done. I've seen things much harder than this 
done. And it was suggested to keep fighting. I, for one, will 
make sure my name is on that bill.
    Mr. Fagan. Thank you.
    Mr. Cummings. And last, but not least, I think one of the 
things that should not be lost in all of this is something that 
you emphasized, Mr. Fagan, and you, Ms. Eban, I think you, too, 
Mr. Butler, to a degree. As you were sitting here talking I was 
thinking about all the people in my district, and I represent a 
lot of poor people and lower middle class people, and I'm sure 
that in some of those instances--and I have a lot of seniors--
so they get the medication, and like you all said, they may die 
or may be harmed because they're not getting the right dosage 
or they may be getting just completely fake medication with 
none of the ingredients it's supposed to have in it, but yet 
still when the autopsy is performed or when the final report is 
done they died because of cancer or whatever it might have 
been. So we really don't know, we don't know how many of these 
people are being affected by all of this. I just, I'll tell 
you, one of the things I think we must do, and I think all of 
us, and the reason why this is so significant, this hearing is 
so significant, and I do compliment you, Mr. Chairman, for 
putting together a balance here of witnesses, is because this 
affects, it can affect every single one of us, all of us. We do 
have to have trust in the medicine we take and the food we eat, 
so I really thank you, and I'm hoping that we will be able to 
move this along, but thank you all so very, very much.
    Mr. Souder. Thank you.
    Mr. Burton.
    Mr. Burton. First of all, let me just say you have my 
sympathy. My wife died of liver cancer, and she had breast 
cancer prior to that, and she took Tamoxifen, and when we were 
going through her chemotherapy and her other treatments, we had 
ladies that were sitting next to her taking chemotherapy that 
were talking about Tamoxifen and talking about how they 
couldn't afford it. I presume the same thing was true with 
Procrit. That's when I started checking with my colleagues 
about the costs in other countries. In Canada the things that 
she was taking was one-fifth, one-sixth what it cost here. One 
of the reasons that we have this counterfeit problem, I 
believe, is because of the price disparity. Somebody is going 
to testify that Willie Sutton said the reason he robbed banks 
was because that's where the money was. I mean, if it costs six 
times as much for a product in Canada as it does here, and you 
can get it or counterfeit it, you're going to make a lot of 
money just by doing it here in the United States.
    But we really do have to do something about the counterfeit 
problem. I'm not downplaying that.
    As I understand it, in the case of your sister, the 
druggist took the pill and cut the amount by one-fifth or one-
sixth or one-tenth or whatever it was. I don't know how you 
deal with that kind of a guy. I mean, he needs to be in the 
slammer, no question about that. I think the same thing is true 
when somebody's taking a product that deals with people who 
suffer from a liver transplant and they start watering it down 
or anything. And the price disparities, I think, have a lot to 
do with that as well.
    I've got a list here that my colleague, Mr. Gutknecht, has 
compiled on the differences in prices. One of the Gordian knots 
that we have to deal with in dealing with this problem, in my 
opinion, is that we're in a global marketplace right now. Let's 
say that we're able to come up with a mechanism to make 
absolutely sure that every product, that every pharmaceutical 
product, is pure and packaged properly in the United States. If 
it costs so much more, like Tamoxifen does, here than it does 
in France or Germany, the people who have to rely on that are 
going to try to get it through the Internet, and then you have 
to police everything coming through the mail from a foreign 
country because people are going to buy it where they can 
afford it, if they can't, whether it's drugs or almost 
anything. So what we've got to do is we've got to, and I've sat 
down with the leaders of the various pharmaceutical companies 
Lilly and Merck and others, and I said what we need to do is 
sit down and talk about some way of coming up with a pricing 
structure that is fair for the people of this country, as it is 
elsewhere. If you do that, you're going to minimize this kind 
of a problem.
    There's always going to be people that are going to cut 
somebody to make more money, and as long as the money is there 
to be made they're going to do it. So I just say that you have 
my sympathy for what you've gone through, but this is a problem 
that is not going to be easily solved, as one of my colleagues 
just said, because you can get these products from other parts 
of the world and you can get them at much lower prices.
    So the root cause of it, in my opinion, is trying to come 
up with some kind of, not a government imposed price index, but 
some way that we can make sure that the American people are 
paying a price that's not completely out of line with what 
they're paying in other parts of the world. I think that's the 
reason this whole issue has arisen, not because we don't have 
counterfeit products, we've had those for a long, long time, 
but because the importation of products has become such a big 
issue that I think the pharmaceutical companies and our health 
agencies have said hey, we've got to do something to stop this, 
and one of the main ways to stop it is to start raising cane 
about counterfeit drugs and put the fear of God into everybody 
that's taking it.
    That's not to say that there aren't counterfeit drugs, 
that's not to say that there is unscrupulous pharmacists that 
are going to cut something to one-fifth of its strength in 
order to make a buck. You're always going to have people like 
that, but the main issue, in my opinion, is to try to make sure 
that Americans pay a fair price, just like the rest of the 
world does, for pharmaceutical products, and that is one of the 
things that Mr. Gutknecht and I have and others have been 
working on for a long time.
    The unfortunate thing is the pharmaceutical industry has 
over 600 lobbyists in Washington, DC, over 600. There are only 
535 Members of Congress, so they have a tremendous amount of 
impact on what we do around here. Plus, they give out millions 
and millions and millions of dollars in contributions for 
campaigns, so they have a tremendous amount of influence.
    So this problem is very important, Mr. Chairman, in dealing 
with counterfeit pharmaceutical products, but I think of equal 
import or as much import is dealing with the disparity in 
prices, which I think is one of the most--is the genesis of 
this problem.
    And I yield back the balance of my time.
    Mr. Souder. Ms. Watson.
    Ms. Watson. These questions go to the author. In listening 
to the testimony, it seems that the drug--let me address this 
to Mr. Butler first, and then to the author. The drug that your 
sister was using was a counterfeit prescribed or obtained 
through what process?
    Mr. Butler. My sister obtained it by going to the local 
pharmacy, a very large pharmacy chain, a reputable chain in St. 
Louis, one of the largest. That's where she got it from. They 
had purchased it from a wholesaler. Where the wholesaler got 
it, I'm not sure. I think Ms. Eban's book indicated it may have 
come through a strip club in Miami, I'm not sure.
    Ms. Watson. Was it prescribed by her doctor?
    Ms. Butler. Yes, it was.
    Mr. Burton. Will the gentlelady yield?
    Ms. Watson. I certainly will.
    Mr. Burton. I think it's very important. When the 
pharmacist got the drug, it was at normal strength, was it not?
    Mr. Butler. It was not at normal strength.
    Mr. Burton. Who did the cutting of it; who cut the volume 
of it down?
    Mr. Butler. That was prior to--I'm not sure who did the 
cutting. Katherine did the investigation and she may know, I 
think she probably does.
    Mr. Burton. All right. Thank you.
    Ms. Watson. I have been reading the bill and what I'm 
trying to ferret out is how and what is the procedure that 
would be used to stop this, because apparently your sister 
initiated it on her own or the doctor said you need this kind 
of drug. I'm trying to figure out how we can get to that point 
where we could prohibit or stop or cease the sale of this 
counterfeit drug. I don't know where in the system we could go, 
and I'm looking at the bill to see that it addresses this. 
There is an investigation; they do ask for additional money in 
the bill to investigate. But how does the process get started. 
And I see that the sponsor of the bill is not here, and I know 
there's an order to recall drugs. And certainly if drugs are 
not--here's the author.
    In listening to Mr. Butler, his sister went to a pharmacist 
and got a particular drug. Where in your bill, what provision 
in the bill would address that, initiated by--and I didn't know 
whether it was a doctor's prescription or what, but I think she 
initiated it herself.
    Mr. Butler. The doctor prescribed the Procrit. It's 
necessary to help build the blood and strength back up between 
chemo treatments.
    Ms. Watson. When she went to purchase it, she learned 
afterwards that it was a fake or they were cutting--whatever. I 
just wanted to know from the author, is there a provision that 
would address that process?
    Mr. Israel. Mr. Chairman, you're very kind to allow me. Do 
I have permission to answer?
    Mr. Souder. Of course.
    Mr. Israel. One of the most important things that the bill 
does is provide a very significant disincentive to criminals 
who are counterfeiting drugs by increasing penalties from 
current Federal law of 3 years in prison to life in prison. 
That would be a very significant penalty.
    With respect to what immediate action can be taken to 
prevent, to deal with the purchase or the acquisition of 
counterfeit medication, the most important thing we can do is 
make sure we have pedigrees, that we know every single step 
that medication has gone through so that you know the integrity 
of that medication has been maintained. And the final point I 
would make is that, right now, the FDA has no ability, no true 
ability to recall counterfeit medicines from the pharmacy 
shelves. It's easier to recall a defective toaster oven than 
counterfeit medications. This would give the FDA the ability to 
recall counterfeit drugs immediately when there is a report of 
such drugs.
    Ms. Watson. Mr. Butler, did your sister have a 
prescription?
    Mr. Butler. Yes, she did.
    Ms. Watson. From the doctor? And when she purchased it, she 
found that it wasn't having the desired effect, and then she 
found out later it was counterfeit?
    Mr. Butler. Yes. She had taken the Procrit for some time 
and it had worked very well. She had gotten that from the same 
pharmacist. When it stopped working, she made an assumption 
that it was because her cancer had worsened, and that was the 
reason it wasn't working. So she didn't immediately tell her 
doctor, but she started delaying. It got so she had to delay 
the process before she could go back for chemo. Then when she 
told the doctor or told the nurse, the nurse sent it in and had 
it analyzed. The pharmacist did not know the medication was 
counterfeit. They had purchased it from a wholesaler.
    Ms. Watson. I see. I want to be sure that, in the bill, 
which I'm very sympathetic to, that there is a provision that 
would require the pharmacists some way to check out those drugs 
when they get them from a probably unauthorized manufacturer. I 
don't know, but I'm hoping that this bill would address how we 
attempt to try to save your sister's life through this bill, 
and I think that something has to be in here to indicate--the 
pharmacy didn't know, but they purchased it somewhere, and 
probably whoever was marketing this sold them a bill of goods.
    Mr. Butler. Actually, they purchased it from a legitimate 
wholesaler.
    Ms. Watson. I'd like to yield back to the author because 
it's your bill, and you might want to kind of elaborate on 
that.
    Mr. Israel. Thank you. The simple answer is that the 
pedigree requirement would have notified the pharmacy 
immediately that this particular medication did not go through 
the appropriate transactions; that it may have gone elsewhere, 
may have been tampered with. That's what's really at the heart 
of this bill, requiring the FDA to require the paper pedigree 
that was supposed to be implemented 17 years ago.
    Ms. Watson. Another question, Mr. Chairman, if I still have 
time, who would have the authority in that process to carry 
this out? You see, apparently the pharmacy purchased a bad 
batch of this prescription drug. Somewhere we've got to stop 
that kind of thing from happening, if it is a bad batch.
    Mr. Israel. The enforcement would be by the FDA. It 
provides an additional $325 million for the FDA for spot 
checking, additional enforcement and training pharmacies to be 
able to recognize potentially counterfeit drugs.
    Ms. Watson. Thank you.
    I yield back my time.
    Mr. Souder. Thank you.
    Ms. Schmidt, do you have any questions?
    Mrs. Schmidt. Yes, I do. Thank you very much. First off, my 
heart goes out to you, Mr. Fagan, and to you, Mr. Butler, on 
the situations that you had to deal with.
    Drugs are very important to all of us. They allow us to 
live a lot longer, a lot more comfortably, and so we want to 
make sure that the drugs we are receiving are the drugs we 
expect to receive. I think there are two issues that are going 
on here. The first is the affordability of drugs in the United 
States versus the affordability of drugs in Germany and Canada 
and other places. But I think, the second is the kind of drugs 
that we're receiving, and are they pure? Have they been 
tampered with? What I'm hearing from Ms. Eban is that the drugs 
she discovered were not tampered with in Germany or in Ireland 
or in Canada; they were tampered with in the United States. So 
we have two issues: One is price and an unfairness of the price 
here in the United States, and the second is the purity of the 
drugs.
    I think the second part is easily remedied by putting some 
sort of a tracking system on those drugs, something like what 
is in Germany, putting them in the little individual tablets, 
putting blister packs or putting something like this on them to 
make sure the drug is pure because when we worry about 
something coming through from the mail, the insurance policy 
that my husband and I have, our health insurance policy 
requires that if we're taking drugs for a long period of time, 
that we get them through the mail. So worrying about whether 
you get it through the mail and if it's been tampered with, 
that's something that's already here.
    The second thing is trying to make the drug prices more 
fair to our U.S. customers. I worry that any legislation that 
we pass that tries to correct the first part of it by making 
sure that our drugs are pure but doesn't address the price of 
the drug will not correct the purity or the lack of purity of 
the drug. So that is my concern, and I know that Mr. Butler and 
Mr. Fagan probably don't have a solid answer for that, but, Ms. 
Eban, do you?
    Ms. Eban. Thank you very much. First of all, I think many 
American consumers assume that when they go to a pharmacy and 
pay top dollar for their drugs, that their drugs are guaranteed 
to be safe, but in fact, the soaring prices of our drugs 
actually puts their safety at risk because America has become a 
go-to market for counterfeiters. We offer the best return on 
investment for counterfeiters who want to move their products 
into our market. My book deals exclusively with counterfeit 
medicine that has reached consumers through pharmacies and 
through hospitals and through legitimate mail order, so that is 
our legitimate drug supply, and counterfeits have infiltrated 
that. I just want to say that in the case of Maxine Blount and 
Tim Fagan, this was not a case in either situation of a rogue 
pharmacist diluting drugs or tampering with drugs. This was 
about systemic corruption of our drug supply in which major 
wholesalers, who are responsible, legitimate wholesalers, look 
for bargains or discounts in the secondary market. They buy 
even from licensed wholesalers, but that medicine still proves 
to be counterfeit because it doesn't have a proven origin, 
which is what a pedigree paper would correct.
    They are looking for discounts in the secondary market 
because they want to be able to buy low and then sell high. As 
we all know, they can sell very high. So these are players 
whose sole profit is coming from arbitrating the price of the 
drug. That whole gray bandwidth in the middle of that chart, 
every single box is a different wholesaler and the drugs moved 
through. Every wholesaler bought low and sold high, and it 
finally got to a regional wholesaler and then a national 
wholesaler once it approached the market rate. Once the price 
came up, then it could be sold to a pharmacy and ultimately to 
a consumer, but it is the buying from unknown sources from that 
gray market that is driving this problem. That's what needs to 
be corrected.
    In order to have a record that follows each drug, whoever 
buys or sells it would need to commit to its origin, and that's 
extremely important. I hope that answers, in part, your 
question.
    Mrs. Schmidt. Thank you, it does.
    Mr. Souder. Mr. Gutknecht.
    Mr. Gutknecht. Thank you, Mr. Chairman, and I want to thank 
all the panelists, and I would extend my condolences as well. 
Finally, I think I understand. Mr. Butler, are you familiar 
with a case in the Kansas City area of the pharmacist who was 
intentionally doctoring? They were principally cancer drugs as 
well.
    Mr. Butler. Yes.
    Mr. Gutknecht. This is not that case. Second, I want to 
come back, Ms. Eban; there was a story, and I will submit for 
the record, Mr. Chairman, an article that appeared within the 
last 2 weeks I believe in the Wall Street Journal about the 
pharmaceutical marketing association hiring writers to write a 
novel.
    Are you familiar with that story?
    Ms. Eban. I am familiar with that story, and in fact, I 
even heard that the editor at the publishing house who was 
going to be editing it was none other than Jayson Blair, who 
was a former colleague of mine from the New York Times.
    Mr. Gutknecht. That's correct. Just for the record, you are 
not now or never have been under contract from any of the 
pharmaceutical companies or marketing associations?
    Ms. Eban. Absolutely not.
    Mr. Gutknecht. Let me point out, I didn't know I had this 
with me, but I would share this with any of the people here and 
certainly other members of the committee. I talked earlier 
about the new computer chips. In this little vial, there are 50 
computer chips. They sell now, I believe, for like 10 cents 
apiece. They have the ability to do exactly what we're talking 
about. The FDA has known about these for at least 2 years 
because I told them about them, and they have consistently 
refused to do exactly what we're talking about. The reason I 
say that, and I'm certainly empathetic to what we're talking 
about, and I would certainly like to work with the author and 
you to come up with a safer way to protect our drug supply. 
That has never been my intention. What I want to make certain 
is that Americans have access to world class drugs at world 
market prices.
    But I'm also going to submit for the record, I believe this 
may be from today's, one of today's Hill newspapers, and this 
is a scare ad, and it's done by Pharma. Let me just read what 
it says: ``Real or counterfeit, the answer could be a click 
away.''
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] T0672.049
    
    Mr. Gutknecht. Well, this is all part of an orchestrated 
effort to make people believe that, gee whiz, if I buy my drugs 
from that pharmacy in Winnipeg, it may be a counterfeit. The 
truth of the matter is with the technology we use in the United 
States today, you are more likely to get a counterfeit drug if 
you buy your drug from the local drug store. Unfortunately, 
that is a fact.
    In terms of the bill, I certainly want to work with the 
author, but giving the FDA an army of new inspectors to go out 
and chase little old ladies trying to save $200 on the 
Tamoxifin by buying it from Manitoba is not my idea of really 
making America safer. So I will work with you and provide you 
with information on this technology, and incidentally, we have 
the next generation of technology already being developed. They 
are little digital taggants, and they can be put in every 
single drug so that we can know exactly what that drug is made 
of, where it came from, when it came off the production line, 
right down to the components of that drug. So there are a lot 
of things we can use today, technology right off of the shelf. 
We don't have to give the FDA an army of new people, and we 
don't have to make it even harder for folks in my district to 
try and save a few hundred bucks a month on their prescription 
drugs by buying them from a pharmacy in Canada.
    We want to be careful, and I think our new colleague from 
the State of Ohio, I think, has really stated it right. There 
are really several issues at play here, and we want to make 
certain that people who break the law are held fully 
accountable. I will say this, though, in all fairness to the 
life sentence concept, if we're going to start making mandatory 
life sentences, I would go first after sex offenders, because 
every day there are stories in the papers both here and 
throughout the United States of sex offenders who are turned 
back on the streets after a couple of years, and they have the 
highest rate of recidivism of anybody.
    Finally, Ms. Eban, I want to come back to another point 
that you made. There is, going back to the scare tactics of 
Pharma, the truth of the matter is, I know that there is a 
certain amount of counterfeiting going on. But some of it is so 
good that it is virtually impossible to tell the real from the 
imposter. And the bottom line is, if you are getting a 
counterfeit that is an exact copy of the name brand drug, 
ultimately, what is the harm to the consumer? I have a very 
good example that I have been told, and the example is of one 
of the male enhancement drugs, you can buy them in India for 10 
cents a tablet. Here they're $10. You may call them 
counterfeiters; I would call them entrepreneurs that are 
selling them for $5. The net result to the consumer is exactly 
the same.
    Ms. Eban. Unfortunately, though, counterfeiters don't 
provide a guarantee that the effect on the consumer will be the 
same, and so it's a crap shoot. Of course, if it is exactly the 
same and it's less money, the consumer benefits, but there is 
no guarantee of that. I also want to say that there has been 
testimony, I believe it was before Congress, in the last year 
which said that the terrorist organization of Hezbollah was 
counterfeiting Viagra and selling it within the United States. 
So we certainly do know that terrorists do look at 
counterfeiting as an activity that can build profits for 
whatever work that they are doing, and they also do not provide 
any guarantees, of course.
    Mr. Gutknecht. If you're in the crime business, clearly, 
you look at this, and the potential is hundreds of millions if 
not billions of dollars. So I would not be surprised that there 
are all kinds of organizations out there who have looked at 
this business and said, you know, if you can buy something for 
a dime and sell it for $5, you can make a lot of money at that 
50 percent markup. I yield back my time.
    Mr. Souder. Mr. Burton.
    Mr. Burton. I have one real quick question. First of all, 
you can see the computer chips in this vial, and so there is 
technology, as Mr. Gutknecht said, that can be utilized to 
track these things. The one thing I'd like to reemphasize is 
what you just said a minute ago, and I hope it's not lost on 
the rest of the audience tonight and everybody else who's 
paying attention to this, and that is the huge price disparity 
is an encouragement for counterfeiters. I'd like for you just 
to elaborate on that one more time. Because of this huge price 
disparity between a U.S. product sold here and somewhere else 
in the world, that is an encouragement for counterfeiters, 
right?
    Ms. Eban. I would agree with that statement. I will say 
that, traditionally, counterfeiting in the legitimate drug 
supply, even in Canada for example, has been lower because 
their prices are regulated and counterfeiters breed when there 
is a differential in the prices because that leads to a growing 
gray market where drugs are diverted and then obtained by 
counterfeiters. So low prices and regulated prices do decrease 
the instances of counterfeiting, but the more that we have a 
global market with differentials in different markets, 
different prices in differing markets, and you have more 
parallel trade, then you will see an increase in 
counterfeiting. We've seen this recently in the European Union 
where now England has had counterfeiting incidents and other 
countries because the drugs are cheaper in Portugal and Spain. 
That increases the number of middlemen, increases the number of 
counterfeiters. So the more that we can reduce prices and 
regulate the discrepancies or decrease the discrepancies in 
prices, you will see, I believe, a reduction in counterfeits.
    Mr. Burton. Thank you.
    Thank you, Mr. Chairman.
    Mr. Souder. Before going to the third panel, I have 
listened to two panels of two of my good friends and colleagues 
in effect trying to take this subject, in my opinion, off 
hearing. So I'm going to ask to insert in the record, ``Fake 
Drugs Nightmare Comes to Haunt Canada,'' into the record.
    [The information referred to follows:]

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    Mr. Souder. I want to point out, Mexico is shipping 
incredible amounts of drugs into the United States where we do 
not have the assurances that we have from Canada. I have been 
back and forth on that legislation myself. We don't even know 
the Canadian pharmacies in the Internet are in Canada; all they 
have to have is an address shipping through Canada. This 
hearing was not to talk about what I would say is ``let the 
buyer beware'' type situations. In other words, if you want to 
buy on the Internet, you know you're taking a certain amount of 
risk; you cannot verify anything other than the shipping 
address. If you buy it in the flea markets, you have less 
protection. If you buy it from somebody selling out of the back 
end of a station wagon, you have different risks. You may save 
money, but you know you're taking somewhat ``the buyer beware'' 
if you want to do that.
    What we're talking about in this hearing is going through 
legitimate structures where, in fact, the question is, if you 
believe in an FDA, if you believe in a Food and Drug 
Administration, do you then, if you're going to pay the price 
at the drug store, if you're going to pay the market price, are 
you then guaranteed? What reasonable guarantee do you have that 
it's safe?
    Now everybody agrees that the bigger the price gap, the 
more people are going to cheat. But in this subcommittee, we 
have heard in all different types of testimony, for example, 
people in confiscated products will do this at a $4 gap if they 
can get enough quantity or even in a small time operator. 
Furthermore, copyright law does in fact matter in the United 
States, and the record should show that my good friend from 
Minnesota is incorrect in mildly encouraging industries, 
saying, look, as long as it's the same CD, as long as it's the 
same, quite frankly, Spam, it does in fact matter whether 
somebody stole the Spam label and sells the same quality spam, 
which is made in my colleague's district, sells that for the 
same thing. Yes, it's not a safety question then. Yes, it's not 
a question of whether or not somebody is going to die from it. 
But it is a question of copyright law.
    Mr. Gutknecht. Mr. Chairman, I agree with that, and I 
believe in intellectual property rights, but this is a special 
class of products. Intel, for example, does not get the same 
protection for its intellectual property that the drug 
companies get. The drug companies are the only companies in the 
United States of America that get to control the product after 
the first customer. And if Intel decides to sell its chips in 
Japan for one-fifth of what they're selling them in the United 
States, distributors in the United States could buy them from 
the Japanese.
    Mr. Souder. Reclaiming my time. That does not give nor 
should we encourage anybody to violate the national 
intellectual property rights or claim that those things 
aren't--in other words, the criteria isn't, look, as long as 
it's a good counterfeit, it's OK, and that we don't like this 
particular law, so it's OK. I mean, if you want to change the 
law, fine.
    Mr. Gutknecht. Mr. Chairman, that was not my point. I do 
not encourage people to break the law or take illegal drugs, 
OK. All I'm saying is that when we talk about counterfeit 
drugs, we're not always talking about people being actually 
harmed, but the price differential is encouraging more and more 
arbitrage and more and more illegal activity.
    Mr. Souder. People aren't harmed on counterfeit dollar 
bills.
    Mr. Gutknecht. We have an FDA that has turned the other way 
on the technology that exists today. Instead of doing what 
their job is of coming up with technologies, they have gone out 
chasing little old ladies who are trying to save money on 
Tamoxifin.
    Mr. Souder. I'm sorry, that is not the evidence that we 
heard today. That is a claim that is not the evidence we heard 
of the 56 cases of the people we're hearing in this that 
they're chasing, trying to figure out how to make the American 
supply safe. Also, as I raised in my opening testimony, which 
we'll get into more in the third panel, the fact is that as we 
look at the flu shots that are about to come up, we have a huge 
problem if that starts to go into counterfeiting and trying to 
vaccinate on Asian flu virus or Anthrax, where we have 
terrorism questions and other types of questions in the United 
States. Do we believe in the Food and Drug Administration or 
not? That is the legitimate question. The international 
question, buying on the Internet, the internationalization of 
this is a separate question and a difficult part of this. The 
pricing question and the pharmaceutical companies is also a 
difficult part of this. The fact is, our focus is on 
counterfeiting in the United States and how this relates not 
only to the terrible tragedies that have happened to your 
families but what in fact could really become a huge question 
as we deal with terrorism, borders and other types of 
questions. As I have pointed out earlier, as we're trying to do 
the regulations that we're trying to do here, they are very 
similar to the types of controls that we're having on how we 
address pseudoephedrine and methamphetamine. I have been 
immersed up to my head, but it's a question whether it comes 
across the border, India and China producing it, paper tracking 
or computer tracking, is it going to be in pill form? We deal 
with this type of thing all the time in this subcommittee and 
other places. What we haven't dealt with is this particular 
type, and I appreciate your willingness to come forward today 
and to speak out, and hopefully, we can if not move some 
legislation at least get FDA to get the initial steps in that 
they should have, in my opinion, done some time ago.
    Thank you very much for coming, and we'll now move to the 
third panel. The third panel consists of Mr. Peter Pitts, 
Center for Medicines in the Public Interest; Mr. Carmen 
Catizone, executive director of the National Association of 
Boards of Pharmacy; Jim Dahl, former Assistant Director of 
Investigations, FDA Office of Criminal Investigations; and Mr. 
Donald DeKieffer, DeKieffer & Horgan. I thank you all for 
coming and if you will stand, I can swear you in.
    [Witnesses sworn.]
    Mr. Souder. Let the record show that each of the witnesses 
responded in the affirmative.
    Thank you for your patience during this hearing, and we'll 
start with Mr. Pitts.

STATEMENTS OF PETER J. PITTS, DIRECTOR, CENTER FOR MEDICINES IN 
   THE PUBLIC INTEREST; CARMEN CATIZONE, EXECUTIVE DIRECTOR, 
 NATIONAL ASSOCIATION OF BOARDS OF PHARMACY; JIM DAHL, FORMER 
 ASSISTANT DIRECTOR OF INVESTIGATIONS, FDA OFFICE OF CRIMINAL 
    INVESTIGATIONS; AND DONALD DEKIEFFER, DEKIEFFER & HORGAN

                  STATEMENT OF PETER J. PITTS

    Mr. Pitts. Good afternoon. My name is Peter Pitts, and I'm 
the senior fellow for healthcare at Pacific Research Institute 
and director of the Center for Medicines in the Public 
Interest. I'm also former Associate Commissioner of the Food 
and Drug Administration, also a 10-year resident of 
Indianapolis. Nice being on a Hoosier-based committee.
    I'd like to thank the committee and Mr. Chairman for giving 
me an opportunity to testify on the urgent and national problem 
of prescription drug counterfeiting. The business of creating, 
distributing and selling counterfeit pharmaceutical products is 
a criminal and growing part of the global economy. When asked 
why he robbed banks, Willie Sutton replied, because that's 
where the money is. If Sutton were alive today, he'd be selling 
counterfeit prescription drugs.
    The bad news is that international prescription drug 
counterfeit is on the rise. I estimate, by 2010, counterfeit 
pharmaceutical commerce will become 16 percent of the total 
size of the legitimate global pharmaceutical industry, a 6 
percentage-point increase from 2004. This illegal business will 
generate $75 billion in revenue for its owners in 2010, a 92 
percent increase from today.
    Consider this, the growth in counterfeit drugs is out 
pacing the sale of legitimate pharmaceuticals, and the Internet 
has become the 21st century's virtual drug cartel. The World 
Health Organization estimates between 8 and 10 percent of the 
global medicine supply chain is counterfeit, rising to 25 
percent or higher in some countries, as already mentioned. The 
largest counterfeit market with close proximity to the EU, the 
European Union Free Trade Zone, is Russia, with a generally 
accepted estimate at 12 percent of drugs are counterfeit.
    Now that the Baltic nations of Latvia, Lithuania and 
Estonia have joined the European Union, WHO has warned an 
increase in the risk of counterfeits entering the supply chain 
is ``obvious.'' Two news items recently crossed the wires that 
illustrate this problem and its truly global nature. The first 
story from China tells of 11 Chinese nationals and 1 American 
invested in a counterfeit medicine scheme that spanned 11 
countries, 440,000 bogus pills and $4.3 million U.S. dollars. 
The drugs were Lipitor, Viagra, Cealis and Levitra. The nations 
involved were the United States, Great Britain, Switzerland and 
Israel. The second frightening news item comes from Hamilton, 
Ontario, where a registered pharmacist was charged by Canadian 
Federal authorities with selling counterfeit Norvasc heart 
medication after five customers who bought it died of heart 
attacks and strokes. The Royal Canadian Mounted Police 
announced multiple investigations remain open in other parts of 
the country.
    Attention must be paid to this very serious global problem 
because it is nothing short of international healthcare 
terrorism. I just returned from Europe, and they've got a lot 
of problems over there. One of them is that profiteers 
masquerading as pharmacists are selling unsafe, unregulated, 
mislabeled, repacked and commingled drugs to unsuspecting 
consumers. In Europe, the cause of this is known as parallel 
trade, and it's bad medicine. According to the Treaty of Rome, 
parallel trade is completely legal, and articles 30 and 36 
prohibit manufacturers from managing their European supply 
chains in their own patients' interests. Counterfeiters are 
taking advantage of this opportunity. For example, in 2002, the 
wholesaler in the Basel region of Switzerland was caught 
selling repackaged drugs to Germany worth about 23 million 
Swiss francs, about $18 million U.S. dollars, and 2 years 
later, Swiss customs seized HIV medications stolen from a batch 
sent to Africa by the World Health Organization.
    Swiss Medic, which is Switzerland's FDA, is also concerned 
about the quantity of fake drugs available on the Internet. 
According to the Swiss authorities, there are 15 big cases in 
Europe right now, and, ``there is big money involved.'' Last 
year, 140 million individual drug packages were parallel 
imported throughout the European Union, and a wholesaler 
repackaged each and every one of those 140 million packages. 
This means that literally parallel traders open 140 million 
packets of drugs, remove the contents and repackage them.
    But these parallel profiteers are not in the--they are 
strictly in the money-making business, not in the safety 
business, and mistakes happen. For example, new labels 
incorrectly state the dosage strength. The new label says the 
box contains tablets, but inside are capsules. The expiration 
dates and batch numbers on the medicine box don't match the 
medicines inside, and patient information is often in the wrong 
language or out of date. Drugs purchased from a British 
pharmacy and sent to an unknowing American consumer could come 
from the European Union from nations such as Greece, Latvia, 
Poland, Estonia. In fact, parallel traded medicines account for 
about 20 percent, one in five, of all prescriptions filled by 
British pharmacies. In the EU, there is no requirement to 
record the batch numbers of parallel imported medicine, so if a 
batch of medicine originally intended for sale in Greece is 
recalled, tracing where the entire batch has gone for example 
from Athens to London through Canada and Indianapolis is 
impossible.
    ``Buyer beware'' is bad health care practice and even worse 
health care policy. Safety cannot be compromised, even if the 
truth is inconvenient. Facts are stubborn things, and false 
profits result in deadly consequences. Thank you.
    [The prepared statement of Mr. Pitts follows:]

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    Mr. Souder. Our second witness is Carmen Catizone.
    Thank you for coming today.

                  STATEMENT OF CARMEN CATIZONE

    Mr. Catizone. Thank you, Mr. Chairman.
    Thank you, Mr. Chairman, and members of the subcommittee. 
We've submitted written comments, and I'd like to vary from 
that testimony to address some of the issues that have been 
raised earlier by Representatives. First of all, as the 
association represents State agencies, we are not opposed to 
Federal legislation. We're willing to work with the industry in 
developing effective Federal legislation. Even though Federal 
preemption concerns the State agencies, we believe there's 
probably a compromise that can be worked.
    I want to point out the State of Indiana recently enacted 
legislation and regulation that addresses many of the concerns 
that the Representatives raise today. It provides for 
accountability of the wholesalers. It provides for 
accreditation of those wholesalers to verify they are 
legitimate, engaging in legitimate business operations. 
Contrary to the criticism of the State regulations that are 
being enacted and passed, I would say there is more similarity 
than dissimilarity among the State regulations.
    What I would ask the subcommittee to consider, though, is 
in enacting any Federal legislation to not be lulled by the 
promise that Federal legislation will cure everything. We've 
been waiting 17 years not for the FDA to implement the pedigree 
standards but for the industry to agree to those standards 
which they fought and stayed for the past 17 years. If the 
industry does not want to put forth an earnest effort to enact 
effective legislation that's been enacted in Florida, 
California and most notably Indiana, we ask you not to support 
that legislation but support what the States are doing one by 
one to try to create uniform legislation across the country.
    In regard to pedigrees, the issue of counterfeit drugs can 
be resolved quickly by tracing that product from the 
manufacturer, through the wholesaler, through the pharmacy. 
Again, the industry has fought the pedigree requirements tooth 
and nail. In the States, where we've enacted requirements to 
say, ``Let us use pedigree requirements,'' the industry has 
said, ``It's too costly.'' When the States have said, ``We'll 
rely on RFID policy and trace and track technology and 
implement that as technologies develop,'' industry has said, 
``Technology will be available until 2011 and we can't wait 
that long.'' When we've said, ``Let's implement this process 
through a paper and electronic transition,'' the industry 
fought that also. We've tried to work with the industry in 
implementing what is normal distribution, what restricts the 
product from secondary markets, what tracks that product from 
the wholesalers, manufacturers to the pharmacy, and we have not 
received the cooperation that we think is needed from the 
industry. So the chip which Representative Gutknecht says is 
available, we know it's available, all you have to do is talk 
to people in Florida and California about the resistance the 
industry is giving them to implementing these programs, and 
you'll see that unless the industry is forthright in Federal 
legislation, all we're going to do is stop the momentum that 
the States have created and put another staying process in 
place that could last another 17 years.
    At MEP, the association that represents State agencies has 
revised final rules for the licensure of wholesale distributors 
to assist States in State licensure and regulation of wholesale 
distributors. We've created and maintained a national specified 
list of susceptible drug products to identify products that 
have been counterfeited or are likely to be counterfeited. 
We've made operational the Verified Accredited Wholesale 
Distributor Program, which is now required by Indiana and by 
default has set a national standard for the licensure and 
accreditation of wholesale distributors because very few 
wholesalers operate only in Indiana. Wholesalers that are 
licensed in Indiana, which number 600, are doing business 
interstate, and those wholesalers that have applied for our 
accreditation to date have been very happy with the process and 
very complimentary of the State of Indiana and the process put 
in place.
    In fact, we will probably conclude some investigations and 
inspections this week of wholesalers who applied for 
accreditation, and that accreditation includes criminal 
background checks, authentication, due process, pedigree 
requirements, everything that people this afternoon discussed 
that's being necessary to protect the Nation's drug supply. We 
consider the problem of counterfeit drugs a significant concern 
that must be addressed.
    The present regulatory safeguards which have been changed 
in response to FDA's report on counterfeit drugs require 
additional resources and support from State and Federal 
legislatures to ensure that the U.S. medication distribution 
system is not compromised. The cooperation among the States and 
the FDA is critical for the success of any effort to maintain 
the integrity and security of the U.S. medication distribution 
system. The collaboration between the FDA and ABP and the State 
boards of pharmacy to combat the threat of counterfeit drugs 
has been growing and increasing and needs to continue to grow 
and increase as new challenges are faced and new strategies are 
developed. If we do not have that support and that cooperation 
and the U.S. medication distribution system is compromised by 
counterfeit drugs, then Federal and State agencies will be 
powerless to create a situation where citizens will be 
protected. If that situation occurs, no one will be protected 
and no one will be safe. Thank you.
    [The prepared statement of Mr. Catizone follows:]

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    Mr. Souder. Thank you.
    Mr. Dahl.

                   STATEMENT OF JAMES A. DAHL

    Mr. Dahl. Mr. Chairman and members of the committee, thank 
you for the opportunity to testify today on this important 
issue.
    I appear before you as a private citizen but one with 
considerable knowledge on this topic. I retired from the FDA 
Office of Criminal Investigations just 1 month ago today. In my 
brief remarks today and in my more thorough submission for the 
record, I hope to represent the interests and opinions of the 
185 special agents of FDA's Office of Criminal Investigations 
who are the true experts on counterfeit drugs and related 
pharmaceutical crimes.
    The wholesale drug distribution system in this country is 
easily corrupted through the introduction of diverted, stolen, 
misbranded, illegally repackaged, expired, previously 
dispensed, counterfeit or otherwise suspect drugs. Substandard, 
dangerous or unapproved and sometimes counterfeit drugs are 
frequently sold via largely anonymous and unregulated Web 
sites. Small parcels containing unknown, misbranded, unapproved 
and counterfeit drugs are flooding our borders. Couple all that 
with the possibility for terrorist exploitation of our 
vulnerabilities, and one can easily see we have an enormous 
problem on our hands.
    So what should we do? First, fully implement the PDMA 
regulations requiring a pedigree on wholesale distribution of 
prescription drugs. Although the underlying law has some 
loopholes, the pedigree regulations as currently written would 
help control unscrupulous wholesalers and provide evidence and 
information useful to OCI in its criminal investigations. OCI 
has recommended to the greater FDA the full implementation of 
the pedigree rules since it was originally proposed in 1999, 
and it is now time for Congress and the American public to 
demand that the stay on those regulations be lifted.
    Second, call for new legislation that would help OCI and 
others in their criminal investigations. I'd like to highlight 
just a few needs. Administrative subpoena authority for use by 
OCI agents in their felony investigations should be authorized. 
This is a very effective tool commonly used by a number of 
other agencies, including the IRS and the Bureau of Immigration 
and Customs Enforcement and every inspector general in the 
Government. If a HUD agent can use an administrative subpoena 
to collect documentary evidence concerning false statements on 
a mortgage application, I'm sure the American public would 
agree that an OCI special agent should be able to use a similar 
tool to gather evidence concerning criminal organizations that 
would deliver substandard or counterfeit drugs to an 
unsuspecting patient in a hospital.
    Title 18 of the United States Code needs to be amended to 
make the Food, Drug and Cosmetic Act felonies predicate 
offenses under the racketeering statutes and specified unlawful 
activities for money laundering. Most offenses are committed 
for economic gain. OCI needs these tools to effectively attack 
the criminal enterprises that put public health at risk. In 
addition, Title 18 needs to be amended to allow upon conviction 
the direct forfeiture of the gross proceeds from felony 
violations of the Food, Drug and Cosmetic Act. This not only 
helps punish the defendant for his illegal actions but is 
effective in dismantling the criminal enterprise that could 
otherwise continue to prey upon the public.
    Title 21 of the U.S. Code needs to be amended to provide 
for higher maximum penalties for felony violations of the act. 
I would suggest that the penalties be linked to the actual or 
potential harm caused by the illegal conduct in a manner 
similar to that provided under the Federal Anti-Tampering Act. 
It does not make sense that a person risks up to a 10-year 
maximum sentence for counterfeiting a registered trademark but 
only up to 3 years for counterfeiting a drug.
    Title 21 of the U.S. Code also needs to be amended to 
modernize and improve enforcement generally. For instance, the 
definition of what constitutes a counterfeit drug should be 
broadened. A provision making the attempted commission of a 
FD&C Act felony needs to be enacted. A sting provision needs to 
be included to improve on the effectiveness of undercover 
operations, and seizure laws at ports of entry need to be 
streamlined to allow efficient and effective seizures and 
disposition of violative products.
    My third suggestion for dealing with counterfeit drugs and 
related pharmaceutical crime is one of resources. OCI's 
operational budget for fiscal year 2005 was only $3.96 million, 
yet at any given time during that year, OCI had an inventory of 
800 to 900 open and active investigations, many addressing the 
priority issue spoken of today along with others involving such 
diverse and important matters as consumer product tampering, 
medical device crimes, false statements to the agencies, 
illegal trade in human tissue for transplant, adulterated 
biologics, etc. Yet it appears to me that OCI has become a 
victim of its own success. I believe OCI provides the agency 
with its biggest bang for buck yet it is being asked again to 
do more with less. OCI simply needs more operational funding 
and more people to adequately address the increasingly complex 
criminal cases that appear on the horizon each day.
    Resources are always a sensitive issue, but the time has 
come that we must confront this crime problem with real 
solutions. As a start, a mere million dollars in operational 
funding, along with a couple dozen of fully funded FTE's would 
go a long way to addressing these issues. In conclusion, I 
would like to compliment the men and women of OCI and the U.S. 
attorneys offices around the country for their continued 
dedication and resourcefulness in investigating and prosecuting 
pharma crime. Every day, they are out there doing interviews, 
conducting surveillance, testifying in courts and making 
arrests and much, much more. Without their continued good work, 
this country would be facing even greater problems.
    I also believe that we need to remember that FDA's overall 
mission is extremely important and complex, but the problem of 
criminal attacks against the pharmaceuticals we all rely on 
cannot be solved with a status quo Office of Criminal 
Investigations. The FDA must confront drug counterfeiting as a 
law enforcement problem. It must continue to seek and seriously 
consider advice from the true experts within and outside the 
agency and adopt a political will to provide law enforcement 
with the tools and resources it needs.
    [The prepared statement of Mr. Dahl follows:]

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    Mr. Souder. Thank you.
    Mr. DeKieffer.

                 STATEMENT OF DONALD DEKIEFFER

    Mr. DeKieffer. Mr. Chairman, I'm going to depart from my 
prepared testimony to address some of the issues that have been 
raised in the hearing today.
    As we've all heard, the counterfeit drug problem in the 
United States is very severe, and it's getting worse, but it's 
not as severe as it is in many other countries, including 
countries all over Europe. The European market right now has 
approximately five times the number of counterfeits that we do, 
so the mere fact that a country has lower drug prices does not 
mean it will have axiomatically lower counterfeits.
    There are three major sources of counterfeit drug supplies 
in the United States though: cross border imports, the Internet 
and diversion. I really don't want to spend too much time on 
talking about the import question today. As you mentioned, Mr. 
Chairman, that's maybe a topic for another day. The Internet 
itself could take up hearings all by itself. The fact is, 
though, the diversion has been the source of all of the 
counterfeit drugs that have entered the legitimate drug supply 
chain in this country in the last 5 years. I'm not talking 
about drugs that are purchased over the Internet. I'm not 
talking about drugs that are purchased by people that are going 
to Mexico and bringing back drugs across the border, people 
that are buying in back alleys. I'm talking about people going 
to legitimate pharmacies expecting to get legitimate drugs. In 
every case that we've seen in the last 5 years that we've seen 
counterfeits, it's because of diversion.
    Now in the case of the sources of diverted drugs and where 
do these come from, well, there are about seven major sources: 
samples, stolen products, re-imports, own-use pharmacy fraud, 
Medicare and Medicaid fraud, complicity and conspiracy with 
pharmaceutical representatives, and so-called surplus 
medications. Now the problem is the supply chain is not 
controlled by the manufacturers, and it's not supervised by any 
regulator nationally.
    Now when we talked today, we used the words ``the 
industry'' in kind of an umbrella here. The drug supply going 
from the manufacturer to the retailer is not one industry; it's 
three and arguably up to five different industries. So each of 
these industries, if you will, has slightly different 
interests. So when we heard today that the industry opposes 
this particular proposal or the industry supports this 
particular approach, we have to be very careful in what 
industry specifically we're talking about.
    The diversion pipeline itself, once you open that diversion 
pipeline, from one of the sources I mentioned, stolen products, 
re-imports, own-use pharmacy fraud, whatever, once the pipeline 
is opened to get into the legitimate supply chain, that is 
where all of the counterfeits that have entered that chain have 
gotten in. That's the way they get into the stores, the shelves 
of CVS and Rite Aid and that sort of thing. So if you attack 
diversion and cut that out, you reduce the likelihood to near 
zero of counterfeit drugs getting on legitimate pharmacy 
shelves.
    Consumers themselves really are defenseless. They can't 
tell what legitimate packaging is or what it isn't because, as 
we know in this country anyway, we don't get drugs in packages; 
we get them in little amber bottles. Maybe there's an amber 
bottle producers association out there making sure they don't 
have packaging in anything else aside from an amber bottle. In 
Europe, as you pointed out, unit dose is ubiquitous and has 
been for the past 10 years. That creates some of its own 
problems, but by and large, they have had far fewer instances 
because of that packaging than we have. And that certainly is 
one of the things that can be done. Because the kinds of 
marketing that you're talking about, Congressman, RFID among 
others, as RFID is only one of the solutions, is much easier to 
do if you have packaging that actually reaches the pharmacist 
and ultimately the consumer. Right now, that entire process is 
in the middle of the supply chain.
    Evidence is destroyed during the process of consumption, 
too, so there's no way that a consumer or even OCI can tell 
whether the incident of counterfeiting is increasing or not.
    There are a number of solutions that I have recommended in 
my written statement. Let me just mention a couple more. One, I 
would like to underscore what Mr. Dahl said: We have fewer than 
200 agents in FDA OCI as our defense against counterfeit drugs 
in the entire United States, with an operating budget of less 
than $3 million. Some gas stations have bigger operating 
budgets than that. It's a scandal and a disgrace. It is 
something not brought before this committee or I dare say any 
other committee before because the FDA budgetary process 
doesn't permit it.
    The other recommendations that I have, though, are in my 
written testimony. I'd be more than happy to answer questions 
about them in the question and answer session, and I thank you 
again for the opportunity to testify.
    [The prepared statement of Mr. DeKieffer follows:]

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    Mr. Souder. Thank you all for your testimony.
    One thing I have been confused about today is the 
multiplicity of possible conspiracies here. It's unclear to me 
who favors what. On the one hand, a couple of my colleagues are 
suggesting that this whole idea of counterfeit drugs is 
something that the pharmaceutical companies are proposing.
    What I thought I heard Mr. Catizone imply was that there's 
a danger that--I thought you were saying that the 
pharmaceutical companies or others were opposing regulation. Is 
that what you were in effect saying?
    Mr. Catizone. I need to clarify that. There's been 
opposition to different aspects of regulation. In regard to 
title control over the wholesale distributors, the 
pharmaceutical industry and particularly Pfizer has taken a 
lead role in this regard. But in regard to the chips and the 
RFID technology, there's some confusion as to which, in 
industry, support that and which don't. I think overall, in 
this instance, the manufacturers are very supportive because 
they want to protect their products and make sure the right 
products are reaching consumers. The wholesale industry is the 
one opposing the regulation that we've been pushing at the 
State level.
    Mr. Souder. You're concerned that if Congress passes a 
bill, that the wholesale industry would weaken it so that it 
wouldn't be implemented and undermine strict State laws?
    Mr. Catizone. That's one of our concerns. We've had recent 
discussion with the industry that's assured us this won't 
occur. But if you look at some of the facts and some of those 
that were in Katherine's books, the wholesale industry says 
this represents less than 1 percent of their business. They're 
going to stop doing business with the secondary markets. If 
that's the case, why is there so much resistance to any 
regulation?
    Second, now that the States have gained momentum and are 
passing regulations and creating uniformity, why aren't they 
coming forth for Federal legislation? We've also not heard the 
wholesalers support Representative Israel's bill at the Federal 
level but want to introduce their own bill.
    We have over 100 field investigators that are ready to 
inspect and soon will have over 200 ready to move in to any 
State at a moment's notice. We think that the industry realizes 
that the States have taken this seriously, and the States are 
not going to back down, and so now there's an attempt to say, 
let's try something federally to weaken what the States have 
done.
    Mr. Souder. Mr. Dahl, how would you characterize the types 
of investigations you are doing? Would you say CSI? That's a TV 
show.
    Mr. Dahl. OCI. We don't have a TV show yet.
    Mr. Souder. If we give you that much money, you'll maybe 
have a TV show.
    At OCI, were these--let me ask you two questions. Do you 
believe that the investigations were driven by the 
pharmaceutical companies' desire on the import question or do 
you believe that they're driven more by how we've had a rise in 
counterfeiting and the types of threats of counterfeiting? In 
other words, did you chase down people buying pills on the 
Internet because of the cost, or were you focusing on broader 
investigations that might have been more threats to safety or a 
little bit of both, protecting international patents and so on 
and some of its safety questions? And then the second question 
I wanted you to take that one; it's a pretty big question.
    Mr. Dahl. It's a little bit of both. Certainly, we had 
criminal investigations involving illegal Internet sales. There 
is no crime of selling drugs by the Internet, but if you sell a 
defective product, illegal product, you commit certain crimes. 
So certainly we have had criminal investigations there. We 
certainly have had some criminal investigations with small 
parcels and large parcels being smuggled in from foreign 
countries, and we certainly have had criminal investigations 
involving wholesale distribution of counterfeit or misbranded 
or stolen or illegally repackaged drugs. We have not had any 
criminal investigations on little old ladies crossing into 
Canada buying drugs. We are not focusing on that. We are not 
bringing cases like that.
    Mr. Souder. Do you sense, and is there any peremptory type 
of looking at or should this be part of the variable of--I 
don't know how to say this. In other words, how would you 
prioritize investigations? One would suggest, if there's a big 
price gap, smuggling operations are going to occur, as well as 
high-risk terrorist type actions. Are we doing sampling on 
vaccinations or things that are vulnerable, a little bit more 
proactive rather than reactive? Are there some drugs where they 
become essential to life where an adulterated drug has a 
different threat than an aspirin, although any drug totally 
tampered with can be a threat? How would you address that, Mr. 
Dahl, and then Mr. DeKieffer?
    Mr. Dahl. OCI prioritizes its investigations based on harm 
to individuals. The economic fraud that may be present is 
always secondary. We will always compromise a criminal 
investigation in favor of public health, and we certainly have 
announced recalls and recoveries of products and given public 
warnings that would have in another agency not been done 
because the investigation was still underway. But we can't 
afford to risk the public health. So whether it's a counterfeit 
drug, a medical device that could have a serious impact on an 
individual, tissue for transplant, whatever it might be, the 
blood supply, we're always going to prioritize the public 
health, and I don't think that will ever change.
    Mr. Catizone. Mr. Chairman, if I can respond. The risk of 
drug products we've prepared is based on criteria that address 
the high price pharmaceuticals, so they will counterfeit Epogen 
and Procrit versus an Amoxicillin. They're also based on 
limited distribution, specialized patient care like HIV/AIDS 
patients. That list has been compiled based on the facts and 
based upon some of the concerns which other Representatives 
have raised today.
    Mr. DeKieffer. One of the major issues is, I think, a 
misunderstanding about what is likely to be counterfeited. The 
higher-priced item will be counterfeited first; that's almost 
never the case. The product will be counterfeited first whether 
it's drugs or almost anything else where the margin is the 
greatest. In other words, the opportunity to make the greatest 
markup, No. 1, and No. 2, the likelihood of being caught is the 
lowest. In other words, the ease with which you can pass the 
product off and the margin you can make will be the magnets for 
counterfeiting in almost any circumstance, and it's 
particularly true with drugs. When certain States, for example, 
Florida made up lists of drugs a few years ago with a little 
bit more than 30 drugs they wanted to look at most carefully. 
They really didn't pick drugs that were most likely to be 
counterfeited. They picked drugs that were the most likely to 
have some effect on people. I think a combination of those two 
approaches, one, the most likely to be counterfeited, and 
second, the drugs most likely to cause harm if they are, is the 
correct way to go about it.
    Mr. Pitts. Mr. Chairman, to that point as well, the drugs 
that are most likely not to be counterfeited are drugs that are 
going to do extreme damage to the consumer because that's 
basically killing off the business. When you see drugs such as 
Viagra or antidepressants pills, they're the least likely to be 
reported, for obvious reasons. So I think you're looking for 
counterfeiters who are looking to make as big a margin as 
possible for as long as possible. This is not a one-shot 
operation; it's big business, and they want to be in business 
for a long time.
    Mr. Souder. Mr. Burton.
    Mr. Burton. Do any of you represent the pharmaceutical 
industry?
    Mr. DeKieffer. My law firm provides data to about 50 
different companies, and among them some are in the 
pharmaceutical industry. We provide data on diverters and 
counterfeiters internationally, and among some of our clients 
are pharmaceutical companies. About a third of our clients are 
pharmaceutical companies.
    Mr. Pitts. Pacific Research accepts funding from 
pharmaceutical companies, but I'm funded from general funding.
    Mr. Dahl. I'm unemployed.
    Mr. Burton. You know, let's say we pass the legislation to 
which you referred, and it sounds like to me that there is some 
real merit in a number of the things that you brought up today. 
I think I've already asked for a copy of the Indiana statute, 
so we may look at that as a model for Federal legislation if 
necessary. But what I wanted to find out is let's say we pass 
everything that you say we ought to pass and it becomes law. 
How do you deal with the people that buy pharmaceutical 
products from Canada or Mexico or France or Germany and buy 
them through the Internet?
    Mr. Dahl. If I could speak to maybe the 185 OCI agents, 
we're not dealing with them at all. We're not worried about 
somebody buying a small parcel from a brick and mortar 
pharmacy, Winnepeg, we're worried about the 10,000 pills that 
come in a 75-pound package from Thailand with no labels on it 
at all that get put in other boxes and resold.
    Mr. Burton. OK. That's good. So then you really don't have 
opposition to individuals getting pharmaceutical products from 
Canada or----
    Mr. Dahl. Let's face it, we have importation. There is 
probably 10,000 parcels that came in while we've been sitting 
in this room this afternoon, so we have it. If you want to pass 
a law to better regulate it, I think you should. If you don't, 
it doesn't matter, we're still going to have it. And the FDA 
knows that, and so does everyone else.
    Mr. Pitts. Although, Mr. Burton, to your point, I think 
it's important not to send the wrong signals. Clearly when you 
tell people that drugs from other countries are safe, and it's 
OK to get them from the Internet, with all the best intentions, 
some people aren't necessarily listening quite as carefully, 
and what they hear is it's OK to get drugs from nonregulated 
entities.
    Mr. Burton. We've had legislation in both the House and the 
Senate that got a lot of support, although we've never gotten 
them both together, and we continue to work on that. dThe 
legislation deals primarily with Canada, because they have 
pretty strict regulations on pharmaceutical products up there. 
And we keep getting opposition. Yet when Mr. Hubbard appeared 
before our committee, we asked him to give us a case where 
someone was damaged by pharmaceuticals imported from Canada, 
for instance, and he couldn't give us any.
    Mr. Pitts. Well, there are five deceased Canadians in 
Hamilton, Ontario, from counterfeit drugs, so----
    Mr. Burton. There are five deceased Canadians?
    Mr. Pitts. Yes, sir.
    Mr. Burton. From counterfeit drugs.
    Mr. Pitts. Yes, sir. Norvasc.
    Mr. Burton. Well, what does it have to do with the 
importation into the United States from pharmacists up there?
    Mr. Pitts. Well, you said that, you know, bringing in drugs 
from Canada, which is a safe and secure drug supply system, 
which they do----
    Mr. Burton. No, I understand. If there is counterfeit, 
regardless of where they come from, they can be contaminated 
and can kill people. But the problem is that the people that 
were importing, little old ladies and people like that, 
pharmaceutical products from Canada, they couldn't find any 
cases where there was any harm that had happened. We asked 
about that.
    Mr. Pitts. A lot of times when you're taking medicine like 
for cholesterol or high blood pressure medication, as the 
earlier panel has mentioned, it isn't a question of taking the 
drug and keeling over, it's a question of not getting the 
therapeutic benefit from the drugs that you're taking.
    Mr. Burton. I understand.
    How many people died from aspirin last year, or from 
Tylenol?
    Mr. Pitts. How many?
    Mr. Burton. Do you know how many?
    Mr. Pitts. No, sir.
    Mr. Burton. Well, it was in the thousands, from what I've 
been told, and other medications like that. But anyhow, that's 
another issue.
    I guess the main question I had was how do you police 
importation of pharmaceutical products? And I don't know--no 
matter how many laws we pass that deal with the problem here in 
the United States, as long as people can buy those products 
over the Internet from outside the country, you still have a 
real policing problem.
    Mr. Pitts. Oh, absolutely, no question about it. But I 
guess the point is not to exacerbate the problem by telling 
people that they should do it, because it allows people that 
are trying to take advantage of these people to sell more bad 
product.
    Mr. Burton. OK. I guess my last question would be, then, do 
you think that one of the inducements for people to go outside 
the country to buy these products is because things like 
tamoxifen cost four or five times as much as it does here than 
it does in Canada, and people who are dying from cancer want to 
be able to buy their product, and they can't afford it, and so 
they say, in desperation, ``If I'm going to survive, I've got 
to get the product, I've got to split my pill?'' Sometimes you 
have people that go to the pharmacy here in the United States 
that say, ``I have to split my pill,'' and so the reason they 
do it is because of economics.
    Mr. Pitts. Sure, people in this country do that; people in 
Europe do it as well. It is common practice that people want to 
get something less expensive, and especially something they 
need for their life. It simply becomes a question of what are 
the tradeoffs. If you want to have drugs, you need to have them 
available, and if you want to get a drug cheaper and you want 
to go outside the regulatory system that your government 
provides, then you take risks.
    Mr. Chairman, to your point, it goes back to the whole 
issue of what is the job of the FDA, and to my former colleague 
at OCI, how can they be better funded to make sure that people 
can get the drugs that they need and that they're safe.
    Mr. Burton. Thank you, Mr. Chairman.
    Mr. Souder. Thanks.
    Mr. Gutknecht.
    Mr. Gutknecht. Thank you. And just for the record, then, 
Mr. DeKieffer, your company does do work with the 
pharmaceutical industry, and, Mr. Pitts, your organization does 
receive significant funds from the pharmaceutical industry?
    Mr. Pitts. I don't know what significant means, but they 
definitely do receive funding, yes. I wish it was significant.
    Mr. Gutknecht. Would you submit for us a record of how much 
money you got from pharmaceuticals last year?
    Mr. Pitts. It's a 501(c)(3), so those records are publicly 
available.
    Mr. Gutknecht. All right, thank you.
    Mr. Catizone, I just want to say that I agree with 
everything that you've said. I've been studying this issue now 
for 5 years. I often tell people I feel like the little boy who 
comes in and asks his mother a question. His mother is busy, 
and she says go ask your dad, and the little boy said, well, I 
didn't want to know that much about it. I sometimes feel that 
way. I think you've really hit the nail on the head. And my 
concern about whether it's this bill or this whole issue of 
counterfeiting, there are different motives by different 
groups. My real concern--and I do agree with you, that the 
pharmaceutical industry really doesn't want to solve this 
problem because the technology exists, too--in terms of 
solving, that's not really the right word, we can never solve 
any problem completely. We live in an imperfect world, and 
there are always going to be people who will take advantage of 
it.
    But the truth of the matter is neither FDA nor the 
pharmaceutical industry has taken a particularly keen interest 
in solving this problem, and I believe--and I will just say 
this for the record--I believe the real reason is they know if 
they really solve this problem, all of a sudden, and somebody 
said the Internet has changed everything, and it is true, 
because until the Internet we didn't know how much more we paid 
for prescription drugs than people in Germany or Italy or 
France or Canada. In the information age you can't keep those 
things secret anymore, and it has changed everything. Yet in 
the information age we still want to pretend that we can hire 
enough policemen, and with all due respect, I'm not sure you 
can hire enough enforcement people to ultimately change 
consumer behavior on this. You are correct, probably 10,000 
packages arrived in Minnesota today, and some of them through 
the State-sponsored Web site so that people can buy their 
prescription drugs from Canada.
    But I would love to work with people who are really sincere 
about resolving this, because I think if you go to the RFID 
tags, like these, or, as I say, the latest technology, which 
are microscopic taggants, all of a sudden, you know, then it 
becomes a world market. And we can track this product wherever 
it is, wherever it comes from, where it was produced, when it 
was produced.
    But, Mr. Catizone, I think you're exactly right. I'm not 
sure the FDA or the pharmaceutical industry really wants to 
solve the problem because then it becomes a world market, and 
then they can't play the game where they sell some of these 
drugs for literally thousands of dollars more. You mentioned--I 
don't know who mentioned the AIDS drugs. It's almost shameless 
what they sell some of those drugs for, especially when you 
consider that most of the research was paid for by the American 
taxpayers. But those are all policy questions that we have to 
resolve, and I want to thank you all for coming because I think 
this has been a very interesting hearing.
    And, Mr. Catizone, I really do want to thank you because I 
think you nailed exactly what the problem is.
    I yield back.
    Mr. Souder. I thank the gentleman.
    And the other question I meant to ask that I didn't get 
done because it's something that's kind of confused me all day 
long here, and that is, if we get the pedigree, we solve the 
question of the grayness, the gray market and all that. But if 
we get a pedigree, does, in fact--if the pedigree includes 
black marketers, that just enables us, from law enforcement 
purposes, to go back and figure out how it got bad, right? Does 
it put--is another advantage to this that it puts pressure on 
individuals to have a shorter pedigree, that announcements like 
CVS did, or we heard Wal-Mart, bigger companies can figure out 
how to do this, they can buy directly from the manufacturer? In 
fact, they can probably hammer the price down at the 
manufacturing level.
    What is a practical impact of a pedigree to an independent 
pharmacist in a small town who's buying wholesale?
    Mr. Catizone. With a pedigree you track that product from a 
manufacturer throughout the distribution chain, and if you 
alert people to not accept any products where that pedigree 
doesn't exist, where the pedigree has been altered, where the 
pedigree has gone outside of that normal distribution, you have 
placed a major dent in the counterfeit drug market.
    Mr. Souder. So first off, one would be the mere existence 
of a pedigree.
    Mr. Catizone. Exactly.
    Mr. Souder. The second thing is how would you know if 
you're a small pharmacist what is outside the chain?
    Mr. Catizone. That's what the normal distribution has been 
from the manufacturer directly to the pharmacy, or from the 
manufacturer through one wholesaler that's been authorized or 
that's been accredited to the pharmacy. Anything outside of 
that is outside of normal distribution.
    Mr. Souder. So what we're really looking for are very short 
pedigrees.
    Mr. Catizone. Exactly.
    Mr. Souder. And very tight. Otherwise this looks like an 
analysis of figuring out; after somebody's dead, you can go 
back and figure out how it got there, as opposed to how I was 
trying to sort through the prevention side.
    Mr. DeKieffer, in fairness, you said you provided data to 
other companies as well. What other companies besides 
pharmaceutical companies do you provide----
    Mr. DeKieffer. Yes. We provide data to footwear industries, 
to apparel, to food industries, to high-tech electronics, 
because the same kinds of people who are diverting drugs are 
also involved in all kinds of other illicit black market and 
gray market activities. So we work with a number of clients in 
a number of different industries to try to identify leaks in 
the supply chain. And very often we find that the bad guys 
don't divide their industry the same way that legitimate 
companies do, and they will steal anything.
    So, yes, we do have pharmaceutical clients. We also have 
clients that sell sunglasses.
    Mr. Souder. I thank you all for your testimony today. Thank 
you for your patience. It was a long hearing. With that, the 
subcommittee stands adjourned.
    [Whereupon, at 5:08 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

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