[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
 DISCUSSION DRAFT OF THE FOOD AND DRUG ADMINISTRATION GLOBALIZATION ACT
                        LEGISLATION: DRUG SAFETY

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 1, 2008

                               __________

                           Serial No. 110-111


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov



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                    COMMITTEE ON ENERGY AND COMMERCE

    JOHN D. DINGELL, Michigan,       JOE BARTON, Texas
             Chairman                    Ranking Member
HENRY A. WAXMAN, California          RALPH M. HALL, Texas
EDWARD J. MARKEY, Massachusetts      FRED UPTON, Michigan
RICK BOUCHER, Virginia               CLIFF STEARNS, Florida
EDOLPHUS TOWNS, New York             NATHAN DEAL, Georgia
FRANK PALLONE, Jr., New Jersey       ED WHITFIELD, Kentucky
BART GORDON, Tennessee               BARBARA CUBIN, Wyoming
BOBBY L. RUSH, Illinois              JOHN SHIMKUS, Illinois
ANNA G. ESHOO, California            HEATHER WILSON, New Mexico
BART STUPAK, Michigan                JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York             CHARLES W. ``CHIP'' PICKERING, 
GENE GREEN, Texas                        Mississippi
DIANA DeGETTE, Colorado              VITO FOSSELLA, New York
    Vice Chair                       ROY BLUNT, Missouri
LOIS CAPPS, California               STEVE BUYER, Indiana
MIKE DOYLE, Pennsylvania             GEORGE RADANOVICH, California
JANE HARMAN, California              JOSEPH R. PITTS, Pennsylvania
TOM ALLEN, Maine                     MARY BONO, California
JAN SCHAKOWSKY, Illinois             GREG WALDEN, Oregon
HILDA L. SOLIS, California           LEE TERRY, Nebraska
CHARLES A. GONZALEZ, Texas           MIKE FERGUSON, New Jersey
JAY INSLEE, Washington               MIKE ROGERS, Michigan
TAMMY BALDWIN, Wisconsin             SUE WILKINS MYRICK, North Carolina
MIKE ROSS, Arkansas                  JOHN SULLIVAN, Oklahoma
DARLENE HOOLEY, Oregon               TIM MURPHY, Pennsylvania
ANTHONY D. WEINER, New York          MICHAEL C. BURGESS, Texas
JIM MATHESON, Utah                   MARSHA BLACKBURN, Tennessee        
G.K. BUTTERFIELD, North Carolina     
CHARLIE MELANCON, Louisiana          
JOHN BARROW, Georgia                 
BARON P. HILL, Indiana               
                                     
_________________________________________________________________

                           Professional Staff

 Dennis B. Fitzgibbons, Chief of 
               Staff
Gregg A. Rothschild, Chief Counsel
   Sharon E. Davis, Chief Clerk
  David Cavicke, Minority Staff 
             Director

                                  (ii)
                         Subcommittee on Health

                FRANK PALLONE, Jr., New Jersey, Chairman
HENRY A. WAXMAN, California          NATHAN DEAL, Georgia,
EDOLPHUS TOWNS, New York                 Ranking Member
BART GORDON, Tennessee               RALPH M. HALL, Texas
ANNA G. ESHOO, California            BARBARA CUBIN, Wyoming
GENE GREEN, Texas                    HEATHER WILSON, New Mexico
DIANA DeGETTE, Colorado              JOHN B. SHADEGG, Arizona
LOIS CAPPS, California               STEVE BUYER, Indiana
    Vice Chair                       JOSEPH R. PITTS, Pennsylvania
TOM ALLEN, Maine                     MIKE FERGUSON, New Jersey
TAMMY BALDWIN, Wisconsin             MIKE ROGERS, Michigan
ELIOT L. ENGEL, New York             SUE WILKINS MYRICK, North Carolina
JAN SCHAKOWSKY, Illinois             JOHN SULLIVAN, Oklahoma
HILDA L. SOLIS, California           TIM MURPHY, Pennsylvania
MIKE ROSS, Arkansas                  MICHAEL C. BURGESS, Texas
DARLENE HOOLEY, Oregon               MARSHA BLACKBURN, Tennessee
ANTHONY D. WEINER, New York          JOE BARTON, Texas (ex officio)
JIM MATHESON, Utah
JOHN D. DINGELL, Michigan (ex 
    officio)
  
                             C O N T E N T S

                              ----------                              
                                                                   Page
 Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     1
Hon. Steve Buyer, a Representative in Congress from the State of 
  Indiana, opening statement.....................................     3
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................     5
Hon. Tim Murphy, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     6
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     7
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................     8
Hon. Darlene Hooley, a Representative in Congress from the State 
  of Oregon, opening statement...................................     9
Hon. Jim Matheson, a Representative in Congress from the State of 
  Utah, opening statement........................................    10
Hon. Edolphus Towns, a Representative in Congress from the State 
  of New York, opening statement.................................    11
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, opening statement.......................................    12
Hon. Diana D. DeGette, a Representative in Congress from the 
  State of Colorado, prepared statement \1\......................    13
Hon. Hilda L. Solis a Representative in Congress from the State 
  of California, prepared statement \2\..........................    13

                               Witnesses

Janet Woodcock, M.D., Director, Center for Drug Evaluation and 
  Research, Food and Drug Administration.........................    14
    Prepared statement...........................................    16
    Submitted questions \3\......................................
William K. Hubbard, senior advisor, Coalition for a Stronger FDA.    44
    Prepared statement...........................................    46
    Answers to submitted questions...............................   200
Lori Reilly, vice president of policy, The Pharmaceutical 
  Research and Manufacturers of America..........................    50
    Prepared statement...........................................    53
    Answers to submitted questions...............................   201
James C. Greenwood, president and chief executive officer, 
  Biotechnology Industry Organization............................    75
    Prepared statement...........................................    77
    Answers to submitted questions...............................   209
Christine Mundkur, chief executive officer, Barr Laboratories, 
  Inc............................................................    84
    Prepared statement...........................................    86
    Answers to submitted questions...............................   215
Ron Bone, senior vice president, Distribution Support, McKesson 
  Corporation....................................................    89
    Prepared statement...........................................    90
    Answers to submitted questions...............................   216
Kevin Nicholson, R.Ph., J.D., vice president, Pharmacy Regulatory 
  Affairs, National Association of Chain Drug Stores.............    92
    Prepared statement...........................................    95
    Answers to submitted questions...............................   230
Ami Gadhia, policy counsel, Consumers Union......................   113
    Prepared statement...........................................   115

                           Submitted Material

Discussion Draft.................................................   131

----------
\1\ Ms. DeGette did not submit a prepared statement for the 
  record in time for printing.
\2\ Ms. Solis did not submit a prepared statement for the record 
  in time for printing.
\3\ Dr. Woodcock did not answer submitted questions for the 
  record.
.................................................................


DISCUSSION DRAFT OF THE FOOD AND DRUG ADMINISTRATION GLOBALIZATION ACT 
                        LEGISLATION: DRUG SAFETY

                              ----------                              


                         THURSDAY, MAY 1, 2008

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:11 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Frank 
Pallone, Jr. (chairman) presiding.
    Members present: Representatives Pallone, Waxman, Towns, 
Green, DeGette, Schakowsky, Solis, Hooley, Matheson, Dingell 
(ex officio), Buyer, Pitts, Murphy, Burgess, and Barton (ex 
officio).
    Staff present: Jeanne Ireland, Jack Maniho, Virgil Miller, 
Melissa Sidman, Ryan Long, and Chad Grant.
    Mr. Pallone. The hearing of the subcommittee is called to 
order, and today we are having a second hearing on the Food and 
Drug Administration Globalization Act today, specifically with 
regard to the drug provisions. As I think you know, last week 
we discussed the food-related provisions and today we will be 
focusing on the drug-related provisions only. I recognize 
myself for an opening statement.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    In recent years, there have been a number of revelations 
about drug safety that have shaken public confidence in the 
FDA's ability to ensure that consumers are using safe and 
effective drugs. Tens of thousands of patients have been placed 
in harm's way due to the failings of our current drug safety 
system, and while we boast that America has the safest drug 
supply in the world, clearly more needs to be done. The 
American people must be able to trust that the drugs they take 
to save their lives will not cause additional harm.
    Earlier this week, the Subcommittee on Oversight and 
Investigations held a hearing to examine the events of the 
recent tainted heparin tragedy. The heparin case resulted in 
the deaths of at least 81 Americans, caused 785 severe allergic 
reactions in the United States, and affected patients in 10 
other countries as well. The O&I findings revealed that not 
only are FDA's inspection policies inadequate, but worse, they 
actually could have contributed to the heparin-related deaths. 
This is simply unacceptable, and I have to say that I am 
outraged by the fact that this type of situation could have 
occurred and I would like to express my sympathy to the 
individuals and families affected by the incidents. But what 
worries me is that without congressional intervention, this 
could happen again. We have an obligation to the American 
people to ensure that the FDA has the resources it needs to 
protect them from these types of situations.
    We have heard from a number of sources including the GAO, 
the FDA's Science Board, and other stakeholders that the FDA is 
woefully underfunded and that this underfunding is the driving 
force behind the Agency's inadequacies, and finally the Agency 
itself during the hearing on Tuesday confirmed this fact. They 
cited that they need $100 million more for domestic inspection 
and regulation activities and $225 million additional to 
adequately inspect and regulate foreign manufacturers. Clearly, 
the paltry $11 million budget for foreign inspections in 2008 
doesn't even come close to being enough to enable the FDA to 
ensure a safe drug supply. At present, 80 percent of all active 
ingredients in drugs sold in the United States are made in 
other countries and yet the FDA only inspects foreign 
facilities in countries such as China and India once every 30 
years.
    The draft we are discussing today would change that. As 
with the food companies, it would require all facilities, 
foreign and domestic, to register annually with the FDA, 
providing the Agency with an up-to-date list of all drug 
manufacturing facilities and active ingredient manufacturing 
facilities as well. It will generate the revenue needed to 
allow the FDA to conduct frequent inspections of all facilities 
by charging an annual fee that we are fully intending to 
specify in the final bill. It establishes new and stronger 
enforcement tools that the FDA can use against bad actors and 
requires manufacturers of drugs and biologics to test their 
products carefully for contaminants. And I do also want to 
point out that the funding proposed in this discussion draft is 
intended to supplement, not supplant, current FDA 
appropriations.
    I feel confident that we will be able to put together a 
strong bill and I am pleased that the industry, pharmaceutical 
companies, biologic companies, and generic companies have been 
so far willing to cooperate and assist in our endeavors. We 
have even received letters of support for this bill from 
leading drug manufacturing companies. I know there are still 
areas that we need to work on and details we need to iron out, 
and I look forward to hearing your testimony today highlighting 
those areas from the witnesses.
    I also wanted to mention that my colleagues, Mr. Buyer and 
Mr. Matheson, are particularly concerned about the surge in 
counterfeit drugs in the marketplace and I welcome a discussion 
of their proposed legislation, H.R. 5839, Safeguarding 
America's Pharmaceutical Act, during today's hearing. 
Particularly I am looking forward to a discussion around the 
issue of leveraging information technology to protect our 
Nation's drug supply. It has been identified in multiple GAO 
reports that the FDA is currently operating with a severely 
under-equipped information technology system which actually 
also may have played a role in the heparin case. While I 
applaud the initial progress that has been made on FDA's part 
by hiring a new chief information officer and centralizing the 
existing systems, more can be done to support the Agency in 
their IT investments, which I believe will not only benefit the 
patients but will also enable the Agency to be more efficient 
and effective in carrying out the required tasks.
    Finally, patients and their health providers have to have 
confidence that the medicines they take to treat diagnosed 
illnesses meet the highest standards of safety and efficacy, 
and again, I look forward to hearing from today's witnesses and 
the discussion around some of these issues.
    Mr. Pallone. I understand Mr. Deal is not here today so Mr. 
Buyer is going to act as the ranking member, and I yield to the 
gentleman 5 minutes for his opening statement.

  OPENING STATEMENT OF HON. STEVE BUYER, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF INDIANA

    Mr. Buyer. I thank Chairman Pallone for holding the hearing 
today and I appreciate Chairman Dingell's willingness to 
include H.R. 5839, a bill I introduced along with Jim Matheson, 
Mike Rogers, and Gene Green 2 weeks ago, in this hearing. I 
appreciate the chairman's comments in reference to this bill.
    Our committee has been committed to addressing the dangers 
of counterfeit, adulterated, and misbranded pharmaceuticals 
affecting our Nation. When I use the word pharmaceuticals I 
also include biologics in that, and with that comment, I 
welcome our colleague, Jim Greenwood, to take special attention 
to that.
    I believe H.R. 5839, Safeguarding America's Pharmaceuticals 
Act, aligns well with our commitments to not only providing for 
improved safety within our regulated drug supply chain but also 
protecting our drug supply chain from outside threats. I think 
we all understand the cost to America's health from accepting 
the norm and disregarding and failing to protect our Nation 
from a new public health threat. Our Nation has set the gold 
standard for safety and efficacy of pharmaceuticals. However, 
even with the many steps that we have taken to protect this 
gold standard, our pharmaceutical market is attractive to 
criminal interests seeking to make tremendous profits by 
praying on America's most vulnerable populations: the sick, the 
disabled, and the elderly.
    America is not insulated from the exploding counterfeit 
drug market, which is expected to earn an annual global profit 
in excess of $75 billion by year 2010. In fact, due to our weak 
adverse event reporting system, we cannot even grasp the 
effects of counterfeit and adulterated and misbranded 
medications upon people in our society. We do have some idea 
about the quality of prescription drug packages entering our 
Nation through testing that FDA has conducted in our 
international mail facilities. FDA periodically conducts blitz 
exams to test samples of pharmaceuticals entering our ports of 
entry. After a 2003 blitz exam of 4 of our international mail 
facilities, the FDA found that 88 percent of the drug products 
the Agency examined during this blitz contained unapproved 
drugs.
    Furthermore, within our own regulated pharmaceutical supply 
chain, we know counterfeiting and diversion occurs. In 2003, 
the FDA announced a recall of some 200,000 bottles of Lipitor 
that were believed to be fake, and in previous years 110,000 
bottles of other counterfeit drugs were used to boost red blood 
cell production in people with cancer and kidney disease that 
made their way into the marketplace.
    The main reason for the rash of counterfeit drugs is not 
surprising: it is money. Pharmaceutical counterfeiters are what 
I refer to as the new drug lords of the world. In fact, experts 
have claimed that it is more lucrative to sell counterfeit 
drugs than narcotics, and the criminal penalties for engaging 
in counterfeiting drugs are far less than those selling 
narcotics. I think when you use the term ``drug lord,'' Mr. 
Chairman, people think of Colombians. I would say the analogy 
here is that Colombians are rather foolish. A drug lord who is 
a Colombian selling cocaine or marijuana is the equivalent of 
someone taking a gun down to the 7-11 and doing a robbery. 
Those criminal penalties are pretty stiff. But these new drug 
lords are highly sophisticated criminal syndicates that move 
their counterfeits through many different nations to insulate 
themselves from criminal prosecution and they do that because 
it is a highly leveraged, lucrative market, not only in the 
United States but around the world. Americans, I believe, must 
have the assurances that the medications they take are those 
manufactured and FDA-related pharmaceutical entities.
    H.R. 5839 is about patient safety. The bill ensures the 
destruction of unapproved and potentially dangerous drugs 
coming through our ports of entry and allows for the creation 
of a uniform Federal drug pedigree system. It raises the 
licensure standards for pharmaceutical wholesalers and calls 
for a study on how we can better protect Americans from 
counterfeit drugs. With our legislation, patients will benefit 
greatly in knowing that the medications they consume, in fact, 
the medication their doctor prescribed, is not a medication 
which has been counterfeited, adulterated, or diluted. I 
recognized earlier we had had a conversation on whether we 
should actually require our doctors to ask of their patients 
when you prescribe a drug, where are you buying your 
pharmaceuticals. The AMA did not want us to do further mandates 
upon docs, and I understand that, but docs today when they come 
up with their diagnosis and have a prognosis, they write their 
scrip, they believe their patient is going down to a local 
pharmacy, not realizing that many of their patients are buying 
them over these Internet Web sites, thousands of them, of which 
only 15 are even FIP-certified. So we have a real problem here 
that we are going to need to face.
    Congressman Matheson and I have carefully constructed H.R. 
5839. We have learned from experiences in States like Indiana, 
California, and Florida, which have taken a strong lead in 
strengthening their pharmaceutical distribution systems. We 
have engaged in extensive discussions with stakeholders across 
the supply chain, and I wanted Chairman Dingell to know that, 
that over this last 6 months Congressman Matheson and I, 
Chairman Dingell, have done everything we possibly can in 
discussions with everyone in the industry, and it is very 
difficult to come up with a consensus. You know that. You 
created the paper pedigree system. So we are just trying to 
modernize that into electronic form, and it is very 
challenging. I believe our approach provides for a great 
flexibility and a tremendous input from the stakeholders and I 
appreciate the support from some of the companies throughout 
the supply chain including the manufacturers, big and small 
drug wholesalers, and pharmacists.
    I look forward to working with Chairman Pallone and 
Chairman Dingell and other members of the subcommittee as we 
move forward the Buyer-Matheson legislation, and with that I 
yield back.
    Mr. Pallone. Thank you.
    I yield to Chairman Dingell for an opening statement.

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

    Mr. Dingell. Mr. Chairman, I thank you for your courtesy. I 
commend you for the hearing and I look forward to good things 
coming from this effort today.
    The hearing is an important one and it relates to how the 
Food and Drug Administration is going to better carry out its 
functions, and we are dealing specifically with our Food and 
Drug Administration Globalization Act discussion draft. Since 
last fall, under your leadership and that of Mr. Stupak, Mr. 
Shimkus, and others, and the Subcommittee on Oversight and 
Investigations, we have found many dangerous gaps in the 
foreign inspection system of Food and Drug Administration. What 
was found and what was confirmed by the Government 
Accountability Office and FDA's own Science Board was a system 
which is grossly and grotesquely underfunded, with authorities 
largely outdated, based on a lot of trust but very little 
verification and quite small success. We cannot any longer 
follow this important regulatory function on blind faith. What 
was shown clearly at the hearing on the heparin disaster 
earlier this week by the Oversight Subcommittee confirms that. 
The consequences of this system led to the deaths of 81 people 
of whom we know, injuries and sickness of serious character for 
hundreds or perhaps thousands more.
    An important step toward addressing this occurred at the 
hearing on Tuesday. During this hearing, Dr. Janet Woodcock, 
director of the Center for Drug Evaluation and Research at FDA, 
candidly acknowledged the need for substantial new funding for 
inspections and stated that at least $225 million would be 
needed to put foreign facilities inspections on par with 
inspection of our domestic firms. Dr. Woodcock also indicated 
her agreement with the need for key authorities proposed in a 
discussion draft circulated 2 weeks ago by Congressman Stupak, 
Congressman Pallone, and I. She is to be commended for her 
leadership, frankness, and courage in this matter.
    The discussion draft would require FDA to conduct more 
inspections of foreign drug firms and to give the Agency 
authority to deny entry to those imports produced in facilities 
that refuse to be inspected or impede an inspection. We would 
also require drug manufacturing facilities to register with FDA 
annually, pay a registration fee and be assigned a unique 
identifier to provide a more accurate accounting of facilities 
and allow FDA to move quickly in the event of safety incidents.
    Finally, we would enable FDA to explicitly require 
manufacturers to know and verify the safety of their suppliers. 
This is the first time we have heard from a high-ranking 
Administration official in ways which would enable that agency 
or this committee to see to it that FDA does and has the 
resources it needs to do the job.
    And again, I want it known that I appreciate Dr. Woodcock's 
candor. To her credit, she has stepped forward in the midst of 
a public health crisis to deal honestly with the Congress and 
tell the Congress what her agency needs to better protect the 
American people from unsafe drugs. How I wish that others in 
the Administration would show the same vigor, responsibility 
and leadership. I hope that we can continue our dialog today 
with the same degree of candor on the part of all of the 
persons involved, including members of the Committee.
    I am pleased to note that the drug industry's willingness 
to work with us in addressing these problems is rather better 
than that of the Administration or of some other industries. 
While we may differ on details, in marked contrast to food 
manufacturers, the drug industry appears to recognize that a 
safer drug supply is not only in the interests of the public 
health but is also a matter of interest in their bottom line. I 
appreciate the letters of support we have received from two 
generic manufacturers, Ranbaxy and Teva, as well as consumer 
groups, such as Consumers Union and Center for Science and the 
Public Interest.
    Mr. Chairman, food, drug, device, and cosmetic safety are 
important to American consumers. The discussion draft is a good 
and meaningful step forward in providing what FDA needs to 
serve as a premier public health agency of the United States 
government. I remember when this was so. Regrettably, it needs 
some rather serious effort to get us back to where Food and 
Drug will again serve in that capacity.
    I look forward to working with all my colleagues on the 
Committee and with FDA and interested stakeholders to craft 
good, responsible and bipartisan legislation so that the Food 
and Drug Administration is able to competently fulfill its 
critical mission.
    Mr. Chairman, I commend you for the hearing and I thank you 
for your courtesy.
    Mr. Pallone. Thank you, Chairman Dingell.
    Next I would recognize the gentleman from Pennsylvania, Mr. 
Murphy.

   OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Murphy. Thank you, Mr. Chairman.
    In this Congress, we have had numerous Oversight and 
Investigation hearings regarding drug safety. During one such 
hearing last November, I asked the witnesses if they would 
allow their children to take prescription drugs, knowing they 
contained active ingredients all imported from China. All the 
witnesses somewhat reluctantly answered ``yes,'' but given that 
the GAO estimates the FDA only has about 7 percent of foreign 
establishments inspected per year, I understand the witnesses' 
reluctance. Unfortunately, we don't even know if the FDA really 
inspects 7 percent of foreign establishments, as the GAO 
reports that one FDA database indicated there were 3,000 
establishments. Another one indicated there were 6,800 
establishments. Clearly, we need to manage our information 
technology infrastructure better.
    Regardless of the number of actual inspections, we know the 
number is low and that importing active pharmaceutical 
ingredients from countries like China can be dangerous. Sixty-
two deaths have been linked to the nationwide recall of 
heparin. Every death was linked to an active pharmaceutical 
ingredient produced in China. The FDA admitted it did not 
perform a pre-approval for the facility and obviously domestic 
quality control measures in place were not adequate. We must 
raise the bar, and I hope we hear from the witnesses today how 
we can improve drug safety without crippling the supply chain.
    After speaking with drug manufacturers in my district like 
Mylan and GlaxoSmithKline, I believe we have universal 
agreement that we must improve drug safety. The question is how 
we improve drug safety in a way that best maximizes the limited 
resources of the FDA and the robust quality control measures 
already in place at most of our domestic facilities. This bill 
provides additional authorities to conduct inspections, destroy 
counterfeit imported products, and mandate recalls, all worthy 
improvements. However, if we are to institute a registration 
fee on manufacturers, I am concerned that the fee be targeted 
to increasing oversight of foreign drug manufacturing 
facilities rather than just placing additional burdens on 
domestic manufacturer facilities.
    I also want to applaud the good bipartisan work of 
Congressmen Buyer and Matheson for introducing legislation to 
improve our drug pedigree system. States like California are 
undertaking individual efforts to establish track-and-trace 
policies that could lead to a patchwork of State laws. The 
Buyer-Matheson bill would produce an updated Federal standard 
to our drug pedigree system. From my work developing 
legislation to harmonize the reporting of hospital-associated 
infections where you now have over 26 different State laws, 
there is real value in introducing a Federal standard.
    I look forward to witnesses' testimony today, and with 
that, I yield back, Mr. Chairman.
    Mr. Pallone. Thank you.
    I recognize Mr. Waxman for an opening statement.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you, Mr. Chairman, and I want to commend 
you for holding this hearing and also to commend you, Chairman 
Dingell and Chairman Stupak, for their efforts in pulling 
together the strong legislation to address the dangerous gap in 
FDA's authority and the critical lack of resources.
    As Americans are all too aware, the demands being placed on 
the FDA have essentially overwhelmed the Agency's ability to 
effectively respond and FDA is now indeed in a crisis. That 
strain is in large part due to an increasingly globalized drug 
development and manufacturing model. Twenty years ago, 90 
percent of U.S. drugs came from the United States or the 
European Union. Today that number has dropped to 20 percent. 
This clearly means that FDA must amplify its international 
presence if it is to have the hope of keeping up. FDA will need 
a serious infusion of resources and multiple new authorities to 
do the job we all expect it to do. In a moment of much 
appreciated candor, FDA told us on Tuesday it would take an 
additional $225 million for the Agency to inspect the 3,300 
drug manufacturing facilities abroad, but according to GAO, 
FDA's information technology systems are so out-of-date that 
the Agency cannot even be sure that there are actually only 
3,300 facilities abroad in need of inspection. In 2001, one of 
FDA's databases said there were 3,000 foreign establishments 
while another said there were 6,800. FDA's inability to even 
assess basic information, like how many facilities abroad it 
should be inspecting, is simply unacceptable. By creating a 
mandatory registration fee for drug and device manufacturers, 
both in the United States and abroad, the bill will generate 
critical dollars that will enable FDA to conduct more 
inspections, and I hope the industry will get behind those 
fees. We must also ensure FDA gets the necessary funding to 
revamp its IT systems. Otherwise it won't be able to 
effectively use the information gleaned from an increased 
inspection force.
    The bill fills some critical gaps in FDA's authority by 
granting FDA recall and administrative detention authority and 
enhanced enforcement tools like civil monetary penalties for 
improper import filings. At the heparin hearing, FDA 
highlighted the fact that they currently lack subpoena 
authority and indicated that authority would be helpful. The 
bill doesn't have that in its present form but I think we 
should look at adding it and other authorities as well.
    On the drug pedigree issue, I commend Mr. Matheson and Mr. 
Buyer for their work on this legislation. I hope we will 
proceed with great caution when talking about a bill that might 
preempt the efforts of States. As many of you know, California 
has enacted a strong bill, so any Federal legislation that 
seeks to nullify California's law must provide the same or 
greater degree of protection or else preserve California's 
ability to proceed with its legislation.
    Let me finally stress the importance of moving this 
legislation now. Without the authorities and resources provided 
in the bill, we leave ourselves vulnerable to another heparin 
debacle. I want to congratulate the people who have authored 
the strong legislation before us and look forward to working 
with them and others to pass it into law.
    Mr. Pallone. Thank you, Mr. Waxman.
    I next recognize our vice chair, Mr. Green, for an opening 
statement.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman, for holding the hearing 
today on the discussion draft of the Food and Drug 
Administration Globalization Act.
    Today we are focusing specifically on drug safety. I have 
had the opportunity to participate in several hearings led by 
Chairman Stupak in the Oversight and Investigation Subcommittee 
on drug safety. Last week we had a hearing on the foreign drug 
inspection program and this week we had a hearing on the 
heparin incident. All these hearings have clearly shown that 
the FDA does not have the resources, funding, or technology it 
needs to protect the American public from counterfeit or 
tainted drugs entering this country.
    In light of these hearings and the recent heparin incident, 
I signed on as an original cosponsor of Mr. Buyer, Mr. 
Matheson, and Mr. Rogers' legislation, H.R. 5839, the 
Safeguarding America's Pharmaceuticals Act. I believe the 
Safeguarding America's Pharmaceuticals Act and Chairman 
Dingell's discussion draft can help us address many of the 
concerns we have with regard to drug safety. This discussion 
draft calls for increased resources for overseas facility 
inspections by FDA, an up-to-date registry of all foreign drug 
manufacturing facilities, country-of-origin labeling, 
verification of drug purity and safety, and gives the FDA the 
ability to issue fines and mandatory recalls.
    H.R. 5839, the Safeguarding America's Pharmaceuticals Act, 
is an especially well thought through approach. It makes 
changes to help protect our Nation's pharmaceutical supply as 
well. Currently, FDA does not have the authority to destroy 
adulterated, misbranded, or inadmissible drugs at the Nation's 
international mail facilities. The FDA must waste time and 
money returning the packages to the sender. Often the FDA sees 
the same rejected packages with their own return-to-sender 
stamps at the mail facilities that have been sent in a second 
attempt to pass through the FDA system. H.R. 5839 gives the FDA 
the ability to destroy these packages when they are first 
rejected. Safeguarding America's Pharmaceuticals Act gives us 
one national pedigree system to allow for consistency and 
efficiency when pharmaceuticals are moving about the country. 
The bill also creates a track-and-trace system that would 
establish a drug identification and tracking system through 
which drug manufacturers, repackagers, wholesale distributors, 
and dispensers can authenticate the wholesale distribution 
history of any prescription drug that has a standardized 
numerical identifier. I know the National Association of Chain 
Drug Stores that are testifying before us today have some 
concerns regarding the track-and-trace system. I am hopeful we 
can work out their concerns because they are definitely part of 
our healthcare delivery system. The discussion draft of the 
Safeguarding America's Pharmaceuticals Act makes great strides 
toward assuring drug safety at home and abroad.
    Again, I want to thank you for your leadership, for holding 
the hearing. I want to thank our witnesses for appearing today, 
and I yield back my time.
    Mr. Pallone. Thank you.
    Next, the gentlewoman from Oregon, Ms. Hooley, for an 
opening statement.

 OPENING STATEMENT OF HON. DARLENE HOOLEY, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Ms. Hooley. Mr. Chairman, thank you and your staff for this 
extraordinary effort in putting this discussion draft together. 
The American people want to know that their pharmaceuticals are 
safe and this bill goes a long way toward achieving that 
assurance.
    This bill creates a registration process and fee for 
domestic and foreign drug and device establishments. I have 
said for years that the FDA is underfunded. This bill begins to 
address the much-needed resources for drug safety in a fair 
manner. I especially appreciate the fee amount will be 
determined by the Secretary based on a case-by-case basis per 
facility.
    This bill also improves the inspection of facilities that 
produce drugs, active pharmaceutical ingredients, devices and 
device parts. This bill requires inspection before a product is 
put into the stream of commerce as well as a portion that 
inspects facilities already producing products that are in 
commerce. One of the most innovative aspects of the bill is 
that it requires for the first time the inspection of foreign 
as well as domestic drug and device establishments every 2 
years.
    This bill also has a section on country-of-origin labeling, 
or what we call COOL. Being a longtime proponent of COOL, I am 
pleased that this portion of the bill takes COOL one step 
further to make the well-documented origin of drug ingredients 
the norm for the industry. Under Section 204, this bill allows 
the Secretary to deem a drug adulterated if upon request the 
manufacturer of the ingredient and each drug that contains that 
ingredient does not have adequate documentation to establish 
where the ingredient was made. Country-of-origin labeling 
allows the Secretary to deem misbranded a drug or device if its 
labeling fails to identify the country which is the source of 
the active pharmaceutical ingredient in whole or in part and of 
its place of manufacturing in the case of a drug, or the 
country of manufacturing in the case of a device.
    Our citizens want to know that their medications and their 
medical devices are safe. This discussion draft provides 
additional authority for the FDA's efforts to assure the safety 
of imported foreign-manufactured drugs and devices. I am 
looking forward to working with you as this bill moves forward 
so that we can assure the public that their drugs and devices 
are safe.
    Thank you.
    Mr. Pallone. Thank you.
    I recognize the gentleman from Utah, Mr. Matheson.

  OPENING STATEMENT OF HON. JIM MATHESON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF UTAH

    Mr. Matheson. Well, thank you, Mr. Chairman. As my 
colleagues before stated, I do want to thank you for allowing 
consideration of the legislation that Representative Buyer and 
I have been working on. I want to thank Representative Buyer 
for all of his efforts on this issue. He has been a real leader 
and it has been a very good experience to work with him in 
forming this legislation. And in the tradition of this 
committee working in a bipartisan way, when this bill was 
originally introduced, in addition to Representative Buyer and 
myself, we also had Representative Green and Representative 
Rogers from the Committee as original cosponsors, and I think 
that speaks well to the broad-based support for this 
legislation.
    I just want to highlight three key points that bear noting 
with regard to this legislation. I want to be clear with my 
colleagues regarding the intent of this legislation is to 
protect our Nation's pharmaceutical supplies from domestic and 
international counterfeiting threats. I think this is a 
carefully thought-out approach to achieving this goal.
    So specifically this legislation does the following. It 
creates a system by which we will be able to track drugs from 
the time they leave the manufacturing facility until the time 
they reach patients in the pharmacy, hospital, nursing home, or 
doctor's office. Counterfeiting of drugs is a public health 
concern. People need to know that when they take a prescribed 
pill, it is real, undiluted and not laced with phony 
ingredients. By implementing these steps now, we can go a long 
way toward safeguarding the medicine people need to get well 
and stay healthy.
    Second, the legislation provides for one uniform national 
pedigree system. By having one Federal standard, we can ensure 
our Nation's drug market is efficient and can ensure products 
flow safety and freely throughout the country. This is a 
guiding principle that seems to unite a majority of the members 
of the supply chain.
    And third, this legislation raises the standards for drug 
wholesalers while maintaining States' rights to regulate drug 
wholesalers. I believe this is a necessary step to ridding the 
market of bad actors and ensuring that anyone handling 
American's pharmaceuticals should be held to high standards.
    Counterfeit drugs harm people. Our families, our friends, 
and our constituents need to know that they have secure sources 
of medication. The victims are often people who need real 
quality drugs the most: cancer patients, AIDS patients, and 
people being treated for heart disease. And the main reason, as 
Mr. Buyer indicated in his testimony, the main reason for why 
we are so concerned about the counterfeit drug issue, not 
surprisingly, is money. The Centers for Medicine and the Public 
Interest predicts that the worldwide market for counterfeit 
drugs will go to $75 billion annually by 2010, and some experts 
say it is more lucrative to sell a counterfeit drug than a 
narcotic. Counterfeiters are alarmingly good at their jobs. 
They can create pills and drug packages that are so close to 
the real products that they are indistinguishable to consumers. 
By strengthening current laws and regulations and by creating a 
uniform national standard, our legislation further secures the 
healthcare supply chain. This enhances our country's current 
high standard of patient safety.
    I look forward to the witnesses' testimony regarding this 
important issue and, Mr. Chairman, I will yield back.
    Mr. Pallone. Thank you.
    The gentleman from Pennsylvania, Mr. Pitts, recognized for 
an----
    Mr. Pitts. I will waive.
    Mr. Pallone. Thank you.
    The gentleman from New York, Mr. Towns.

 OPENING STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. Towns. Thank you very much, Mr. Chairman. Let me thank 
you also, Mr. Buyer, and of course, Mr. Matheson and Chairmen 
Dingell and Stupak and other members who took the leadership on 
the discussion draft and topic. I support the intent of these 
efforts to eliminate threats to our Nation's safety from drug 
and medical device products regardless of where they actually 
emanate. I pledge to work with my colleagues to achieve the 
overall safety goal as we better understand the challenges. I 
look forward to hearing from the FDA and other witnesses this 
morning.
    I am particularly interested in the FDA's plan to establish 
a foreign office in China and the agencies beyond our borders 
initiative, which seeks to provide for certification by third 
parties and the FDA plans to upgrade its system to gain the 
necessary information about the entire life cycle of imported 
products. In our current modern day America, I cannot imagine 
that a record 81 deaths could occur from an unsafe prescription 
drug produced outside of the United States. That to me is 
something that I have difficulty understanding in this day and 
age. I believe the overarching problem of a resource challenged 
FDA can be solved and foreign country regulatory gaps can be 
closed in order to keep the door on trade open to allow for all 
to have a win-win outcome.
    In 2007, America's biopharmaceutical research companies may 
have spent an estimated $59 billion in domestic drug research 
and development, yet it may take a mere $71 million for the FDA 
to be able to biannually inspect drug manufacturers. For the 
United States to effectively meet this critical aspect of our 
challenge, the bottom line is, the FDA must be able to take a 
science- and risk-based approach and perform surveillance 
inspections of foreign drug manufacturing places and implement 
other methods to ensure compliance with U.S. requirements for 
drug products which come into the U.S. market.
    Mr. Chairman, I would like to thank you and the staff and 
everyone who is really working on this. I think this is a very 
serious and very important issue, and I hope we stay with it 
until we come up with some kind of resolution. Thank you so 
much for your involvement. I yield back.
    Mr. Pallone. Thank you, Mr. Towns.
    Ranking Member, Mr. Barton, for an opening statement.

   OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Barton. Thank you, Mr. Chairman. I appreciate the 
regular order that is being used on this issue.
    As we learned during Tuesday's hearing, drug imports are 
not very well supervised currently, but it is an issue that I 
think can be addressed in a successful fashion if we work 
together across the aisle and also work with the stakeholders 
and the FDA to solve this problem.
    I think everyone understands that the Food and Drug 
Administration lacks sufficient resources to conduct its core 
mission. Both the Agency and industry recognized that fact last 
year, and we were able to work together to negotiate the fourth 
installment of the Prescription Drug User Fee Act, or PDUFA. 
PDUFA 4 did have significant increases in user fees that were 
paid by the industry, and as we said, that has now become law. 
We did find out though, during the debate on PDUFA, that many 
witnesses and members of this committee began to express the 
fear that the Agency might become too dependent on industry 
user fees. The draft that is currently before this 
subcommittee, which, I might add, the Minority had no input 
into, would exacerbate this problem by becoming even more user 
fee oriented. I think that, as I said a minute ago, we 
obviously need more assets and more resources for the FDA. We 
should really pay attention to how we give them those 
resources, and it might better to just authorize out of the 
general revenue as opposed to becoming more and more dependent 
on user fees.
    There are some ideas in the draft before us that are worth 
exploring. One is the idea to give the FDA mandatory recall 
authority. I support that, and I think most members of the 
Minority would support that. I also believe that the premise 
that the FDA should be conducting more frequent inspections 
overseas is valid. We need to work to find a way to make that 
happen. I do believe, however, that instead of setting a 
specific amount, we should work with the FDA and develop an 
inspection priority system based on real risk. We also need to 
ensure that the quality systems are in place to conduct those 
inspections and to protect the integrity of the products that 
are being inspected. We do not need, in my opinion, to just 
waste more resources by scheduling mandatory inspections at 
specific times. I am not sure that that would be a worthwhile 
use of our resources.
    The draft offers other concepts that are important. I think 
that nobody should mistake country-of-origin labeling and 
restrictions on ports of entry as safety provisions, however. 
That is something that may come up in the discussion and the 
questions of the witnesses.
    Chairman Dingell has told me and he has stated publicly 
that he is willing to work with the Minority to develop a 
bipartisan product. I am going to take him at his word. We are 
going to work in a positive way. Hopefully we can come to a 
consensus to develop a product that is worthy of support not 
only in the subcommittee but in full committee and on the 
Floor. But it is going to take work and we on the Republican 
Minority side are not going to be a rubber stamp for the draft 
that is currently before the subcommittee.
    With that, Mr. Chairman, I appreciate your regular order 
process and I yield back.
    Mr. Pallone. Thank you, Mr. Barton.
    Ms. DeGette passes.
    Ms. DeGette. I will put my opening statement into the 
record.
    Mr. Pallone. She will insert her statement into the record.
    The gentlewoman from California, Ms. Solis.
    Ms. Solis. I will also insert my statement in the record.
    Mr. Pallone. Thank you. I think that concludes our opening 
statements so we will now turn to our witness. Dr. Woodcock, 
come up and take a seat at the panel. I want to welcome Janet 
Woodcock. Dr. Woodcock is director for the Center for Drug 
Evaluation and Research at the FDA, and I understand you are 
accompanied by Doctor--is it Elisa Bernstein--who is director 
of pharmacy affairs of the Office of Policy at FDA, but you are 
going to speak and she is going to be available to answer 
questions, correct?
    Dr. Woodcock. Yes, that is correct.
    Mr. Pallone. You know we have 5-minute opening statements. 
The statement becomes part of the hearing record and each 
witness may in the discretion of the Committee submit 
additional brief and pertinent statements in writing for 
inclusion in the record.
    I now recognize you, Dr. Woodcock. Thank you for being 
here.

 STATEMENT OF JANET WOODCOCK, M.D., DIRECTOR, CENTER FOR DRUG 
     EVALUATION AND RESEARCH, FOOD AND DRUG ADMINISTRATION

    Dr. Woodcock. Thank you, Mr. Chairman, and members of the 
subcommittee. I am Janet Woodcock. I am director of the Center 
for Drug Evaluation and Research at FDA. I am accompanied by 
Elisa Bernstein, who is director of pharmacy affairs at FDA. 
Dr. Bernstein is an expert in the pharmaceutical distribution 
chain and track-and-trace technologies.
    Thank you for the opportunity to testify on the important 
issue of globalization of our pharmaceutical supply. The rapid 
and now rapidly accelerating shift in drug manufacturing from 
the United States to other countries has caused a great deal of 
concern over the past decade. Currently, as the members have 
already alluded to, a substantial majority of active 
pharmaceutical ingredients used in the United States are made 
outside its borders, and many of these are being increasingly 
made in developing countries. Questions have been raised about 
FDA's ability to oversee the quality of this large and very 
rapidly growing inventory of foreign manufacturing 
establishments.
    The Subcommittee on Oversight and Investigations of the 
Committee on Energy and Commerce has actually held a number of 
hearings on many aspects of this issue over the years. In 1998, 
the GAO issued a report entitled ``Improvements Needed in the 
Foreign Drug Inspection Program'' that detailed many of the 
challenges that FDA faces.
    Over the last decade, FDA has made extensive efforts to 
improve its ability to oversee the quality of imported drugs, 
including negotiating data-sharing agreements with other 
countries, devising risk-based approaches to selecting foreign 
sites that we go inspect, developing international guidance on 
good manufacturing practices for active pharmaceutical 
ingredients--that guidance has been adopted around the world--
publishing a regulation requiring foreign establishments to 
register, and many other efforts.
    Last year, President Bush issued an Executive Order 
creating a cabinet-level working group on import safety to 
promote the safety of imported products and asked the HHS 
Secretary to lead the group. This group included 
representatives from 12 Federal departments and agencies 
including FDA. It reviewed the procedures, regulations and 
practices for ensuring that imported food, drugs, and other 
consumer products are safe.
    On November 6, Secretary Leavitt presented the Import 
Safety Action Plan to the President. Several new authorities 
pertinent to drug importation were recommended, including 
authorizing FDA to refuse admission of imported products if 
access to the foreign establishment was unduly delayed, 
limited, or denied, providing authority to expedite destruction 
of drugs of low value and high risk that were inappropriate, 
providing FDA with the authority to require under certain 
circumstances a certificate or other assurance that an imported 
product complies with FDA requirements, and providing the FDA 
with the authority to accredit independent third parties to 
evaluate compliance with FDA requirements. In addition, the 
Administration has announced plans to establish FDA offices in 
several countries, including India and China.
    In January of this year, FDA and then the world became 
aware of deaths and adverse reactions that ultimately were 
traced to contaminated heparin sourced from China. This problem 
of contaminated heparin is continuing to unfold in countries 
worldwide. So the introduction of this discussion draft is 
certainly timely. We are the process of reviewing the 
discussion draft in detail and look forward to working with you 
on this legislation. At this time I can make some general 
comments using the framework that guided the Action Plan for 
Import Safety, which could guide the development of drug safety 
legislation.
    Any legislation should allow flexibility for FDA to set 
requirements and priorities based on scientific risk 
assessments. Any legislation should not rely on inspection as 
the sole or primary means of assuring quality. Quality must be 
built in. That is a premise of the quality movement. It cannot 
be tested or inspected into a product. FDA in 2003, I believe, 
introduced the concept of quality by design, which puts the 
responsibility on the manufacturer to ensure that the quality 
of their products is high by managing the quality of the 
components, the manufacturing process, and the systems 
surrounding the manufacturing process. Quality is a system 
property and cannot be assured by a single component of a 
quality system. It must be maintained by multiple surrounding 
components of the quality system.
    While the Administration is supportive of user fee programs 
in which regulated industry provides funding for additional 
performance designed to recoup costs, the Administration will 
carefully review any proposed user fee program to ensure it is 
being assessed against identifiable recipients for special 
benefits derived from Federal activities beyond those received 
by the general public, and any legislation should be carefully 
designed to avoid creating real or perceived trade barriers. 
The legislation should explicitly incorporate the 
Administration's strategy of levering efforts by certification 
bodies and foreign nations that is already underway. And 
finally, several provisions of this bill may need to be 
reviewed in light of U.S. trade agreement obligations and we 
are reaching out to the United States Trade Representative for 
further insight.
    As you can see, efforts are underway at FDA to further 
ensure the safety of human drugs regardless of where they are 
manufactured. We share your interest in enhancing the safety of 
imported products and look forward to working with members and 
staff on the Committee and Subcommittee. The Administration is 
carefully evaluating the provisions in the discussion draft.
    Thank you for the opportunity to testify today, and I am 
happy to respond to any questions.
    [The prepared statement of Dr. Woodcock follows:]

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    Mr. Pallone. Thank you, Dr. Woodcock.
    I am going to recognize myself for 5 minutes to begin the 
questioning, and I want to thank you, not only for being here 
today but also for being at the O&I hearing on Tuesday. 
Everyone was talking about your candor there, and we certainly 
appreciate that with regard to this discussion draft that we 
are circulating.
    I wanted to ask some questions that I think probably were 
asked Tuesday as well but I want this subcommittee to have the 
benefit of hearing your response.
    As you stated in Tuesday's testimony before O&I, well, you 
said then that the FDA needs $225 million annually to inspect 
foreign drug facilities at the same rate that is required 
currently for domestic facilities. Is that correct?
    Dr. Woodcock. That is what I stated. I wasn't given the 
chance to explain the assumptions behind that.
    Mr. Pallone. Well, I will probably get into some of those 
with these additional questions, if that is OK.
    Dr. Woodcock. OK.
    Mr. Pallone. According to the FDA budget documents reviewed 
by GAO for its testimony last week, FDA estimates that it will 
dedicate a total of $13 million in fiscal year 2009 to conduct 
foreign inspections. But you stated that an additional $100 
million would be needed to meet the current statutory 
requirement to inspect domestic facilities every 2 years. So is 
that correct, this additional money for domestic?
    Dr. Woodcock. Yes. If I can explain how we arrived at those 
figures?
    Mr. Pallone. You can explain it to me by probably answering 
this, whether that estimate includes the cost of compliance, 
the staff needed to review the reports, the inspectors. Does it 
include costs for information technology infrastructure to 
ensure that the FDA can access these reports? I wanted to know 
if those things are part of that.
    Dr. Woodcock. The estimates that I gave were based on a 
2011 projection of the inventory based on the current rate of 
change of the domestic and foreign inventory and they were 
based on the current productivity rate of inspectors both 
domestic and foreign and was based on what we call fully loaded 
cost of inspector per annum, which would include overhead 
costs, processing, enforcement, and so on but would not include 
information technology improvements. So that estimate did not 
include any estimates for improving the drug registration and 
listing or OASIS and so forth. And obviously we can't send our 
inspectors over there unless they know where to go.
    Mr. Pallone. OK. Now, is it your view that FDA should have 
the ability to deny entry to imports if the facilities in which 
they were produced refuse, delay, or impede in inspection?
    Dr. Woodcock. Yes, and I believe that is reflected in the 
Import Safety Action Plan that I referred to as well.
    Mr. Pallone. And now, what about drug facilities? Should 
they be subject to an initial inspection before they can begin 
shipping products or ingredients?
    Dr. Woodcock. We try now to make sure that inspection is 
accomplished for any new facility that we haven't seen. 
However, some facilities make multiple products. They may add 
another product in a line of products, and we would like to 
preserve the ability to have flexibility to send our inspectors 
to what we deem to be the highest risk plants.
    Mr. Pallone. So does that mean you don't think that every 
facility should be subject to an initial inspection?
    Dr. Woodcock. Yes, we believe--let me explain again. Every 
facility should be subject to an initial inspection. However, a 
facility that is making multiple products and adds a product 
that is very similar to its product line, it might be lower 
risk than another facility that perhaps added an injectable 
product to its existing line. So we believe it would be best 
for FDA to have its flexibility preserved to put our resources, 
whatever they are, against the highest risks.
    Mr. Pallone. All right. Now, what about----
    Dr. Woodcock. That said----
    Mr. Pallone. OK. What about requiring the drug facilities 
to register and pay a fee on an annual basis to help clean up 
FDA's databases and provide a more accurate accounting of firms 
providing drugs to American consumers?
    Dr. Woodcock. Well, this puts the finger on one of our 
major problems, which has already been alluded to by the 
members. Right now we don't have a means of assuring an 
accurate inventory of what firms are producing drugs that are 
imported into the United States around the world. We believe we 
need a unique identifier in addition to having an annual 
registration and listing of all products that are produced. The 
mechanism, by ensuring that firms do this, there are probably 
several options for that.
    Mr. Pallone. That was my next question. You already 
answered it. Now, in your view, would it be helpful to have 
additional enforcement tools to use against bad actors, for 
example, strong civil money penalties, mandatory recall, the 
ability to destroy contaminated imports when they are 
discovered so they can't just be shopped to a new point of 
entry?
    Dr. Woodcock. As I said, the Administration is evaluating 
the provisions in the bill, but in my testimony on Tuesday, I 
stated that I believe that it would be helpful for FDA to have 
additional authorities to go after those who are performing 
improper acts, misrepresenting imports, and so forth.
    Mr. Pallone. Well, would you include those additional 
enforcement tools, the civil money penalties, mandatory recall, 
ability to destroy contaminated imports? Would you suggest that 
those be included?
    Dr. Woodcock. My personal opinion is that those would 
improve our efficiency of being able to accomplish our 
operations. For example, if the products that we are not 
letting in have to sit at the port and we have to deal with 
them, that creates great efficiency problems for us and 
actually for Customs as well. So we need mechanisms that enable 
us to efficiently deal with products that are violative or 
should not get into this country.
    Mr. Pallone. OK. Thank you. My time is up.
    Mr. Buyer.
    Mr. Buyer. Thank you very much, Dr. Woodcock, for being 
here, and thank you for bringing Dr. Bernstein. The foundation 
of her expertise is well recognized and we appreciate your 
service to country.
    I have a series of questions I am going to ask, so please 
take some notes, and I would ask each of you the best field of 
your expertise on this to provide these answers.
    Can you explain the return-to-sender policy that FDA 
employs at the international mail facilities when it returns 
products which it deems inadmissible to our country? Next, can 
you explain why FDA does not destroy counterfeit, adulterated, 
or misbranded products that come into the international mail 
facilities and the express carrier hubs? Next, does FDA support 
section III of H.R. 5839, which gives the Agency the express 
authority to destroy pharmaceutical products which appear to be 
counterfeit, adulterated, or misbranded? Next, I have reviewed 
an alternate proposal circulated by the chain drug stores that 
wants to--their proposal is for a certification process which 
would do away with the Federal-State pedigree systems. Is that 
something which you would endorse or not? The next is, the FDA 
Commissioner was quoted as stating at the NACDS/HDMA RFID 
health industry adoption summit that it is vital to get this 
technology implemented now, stressing that a wait-and-see 
attitude is not good enough. The industry needs action and it 
needs it now. The question is, do you agree with the 
Commissioner's assessment that we need action on a track-and-
trace now, and if so, can you update us on the FDA's work on 
developing the unique identifier standard and the standard for 
track-and-trace system, and does FDA support a phased-in 
approach to implementing such an identification and track-and-
trace system? With that, I will pause and allow you to munch on 
that.
    Dr. Woodcock. To begin with the return-to-sender policy, I 
will ask Dr. Bernstein to respond to that.
    Dr. Bernstein. There are current authorities in the law----
    Mr. Pallone. Is your mic on, Dr. Bernstein, or maybe put 
the mic closer to you.
    Dr. Bernstein. If it is OK with you, can I answer a couple 
of those together? OK. There are current authorities in the law 
that require us to go through certain steps when we look at a 
package and we detain a package, and we work with CBP at the 
international mail facilities, and the current law provides 
some challenges and some--in order to destroy products, and so 
what we do, the process of what we do is, when we get a product 
that CBP hands over to us, we will send a letter, a notice of 
detention, to the person who is supposed to get that package 
and give them 20 days to get back to us to whether that product 
should be admitted and is compliant with the Food, Drug and 
Cosmetic Act. Because of some of the measures in the current 
law, after 20 days we will often return it to sender, otherwise 
it has to sit on the shelves for at least 90 days before we can 
destroy it. Well, you yourself have been to these international 
mail facilities and seen the number of products that are piled 
because they are going through this detention process, and CBP 
and FDA have been working together to try to come up with ways 
to make this process easier, and in the Import Safety Action 
Plan that Dr. Woodcock mentioned, we did say that streamlining 
the destruction authority would be very beneficial, and I know 
there are provisions in your bill, and we are looking at those 
provisions now and we will be glad to work with you on how we 
can make sure that those streamlined authorities and 
destruction authorities----
    Mr. Buyer. To have that express authority to be able to 
destroy?
    Dr. Bernstein. To streamline the current process to destroy 
products, yes.
    Mr. Buyer. Thank you.
    Dr. Woodcock?
    Dr. Woodcock. I don't have----
    Mr. Buyer. You didn't take a list?
    Dr. Woodcock. I have the list. I don't have any further 
comments. I think Dr. Bernstein is our expert on this. Do you 
want to go down the list further? All right. Why don't we use, 
does FDA support authority to destroy, you have already covered 
adequately. What about the Federal-State pedigree?
    Dr. Bernstein. Should we do away with the pedigree, the 
Federal and State pedigree system? I believe we should not. The 
pedigree system, although we have had the Prescription Drug 
Marketing Act pedigree system in place, a pedigree provides 
accountability and transparency and a chain of custody for 
products as they move through the supply chain. We need that 
transparency, we need that accountability in the supply chain 
to know where the drugs--where they come from, where they are 
going, where they have been, where they are supposed to go, and 
who had them along the way. That helps not only to ensure that 
you have a safe and effective product that the patient gets but 
also allows for law enforcement and regulators to actually 
trace back the product through the supply chain if there was 
any suspicious activity with respect to that product along the 
way.
    Mr. Pallone. Mr. Buyer, you are a minute over. What I was 
going to suggest----
    Mr. Buyer. I will go to the second round on the follow-up.
    Mr. Pallone. Well, I don't know if we are going to have a 
second round, but what I would definitely ask is that you 
answer those questions in writing and get back to us as soon as 
possible because I don't know that we are going to have a 
second round because we have another panel.
    Dr. Woodcock. I would be happy to do that.
    Mr. Pallone. If you could do that, please.
    Next is the gentlewoman from Oregon if she has some 
questions. No?
    Mr. Matheson?
    Mr. Matheson. Thank you, Mr. Chairman. Thank you, Dr. 
Woodcock, for being here today.
    As you know, and Mr. Buyer just asked you questions related 
to the legislation that he has introduced and I have joined him 
in doing that, let me ask you--and there may be a little 
repetition but first of all, does the FDA support looking at 
track-and-trace technology and maintaining or improving from 
the 1988 pedigree law in doing that?
    Dr. Woodcock. Yes. Again, I will turn to Dr. Bernstein 
because she has been spearheading that effort.
    Dr. Bernstein. The FDA, we have in 2004, 2005, 2006, we 
have continuously put out reports on ways that the drug supply 
chain and measures that could be taken to further supply the 
drug supply chain. Tracking-and-tracing and electronic 
technology measures and solutions are one of the cornerstones 
of that approach. So yes, we do support it. The Food and Drug 
Administration Amendments Act of 2007 had provisions in it that 
requires FDA to develop standards for tracking-and-tracing, 
authentication and identification and we think these measures 
will further move the supply chain and provide incentives for 
them to implement track-and-trace.
    Mr. Matheson. You are probably also familiar that our 
legislation will create the one uniform national pedigree 
standard to prevent proliferation of 50 different State 
requirements in this area. In your opinion, does the FDA 
support a uniform national pedigree standard as opposed to 
having the 50 State standards?
    Dr. Bernstein. We have said that a single national uniform 
standard would be ideal to help the distribution of drugs in 
the United States.
    Mr. Matheson. This may sound like an obvious question but I 
think it is important to have it on the record. What is the 
importance of having chain of custody information for drugs as 
they flow through the supply chain?
    Dr. Bernstein. As I said, the measures for tracking, 
tracing and pedigree and chain of custody is to ensure 
accountability and transparency, and that chain of custody 
where you know where the drug has been, where it is going, who 
has had it, makes that--allows you to be accountable, allows 
everyone to be accountable to ensure that that patient gets a 
safe, effective drug and genuine drug.
    Mr. Matheson. Where do you think the technology is now? We 
are hearing different opinions from different witnesses about 
if we are ready to do this.
    Dr. Bernstein. There has been tremendous progress and 
movement in the technology and standards, though as part of the 
provisions in the Food and Drug Administration Amendments Act, 
FDAAA, we are in the process right now of a data call. We have 
put out a Federal Register notice and asked for comments on the 
state of technology and the technologies that are available 
and, in addition, where the standards are. So we should know 
very soon because by May 19, that docket is closing and we will 
have more information. But in my opinion, the technology has 
progressed significantly since we first called for the use of 
technology in 2004.
    Mr. Matheson. Excellent.
    Thank you, Mr. Chairman. I will yield back.
    Mr. Pallone. Thank you.
    The gentleman from Pennsylvania, Mr. Pitts.
    Mr. Pitts. Thank you, Mr. Chairman.
    You stated that FDA cannot rely on inspections as a primary 
means of ensuring product safety and that any legislation 
should allow FDA to set requirements and priorities based on a 
strong scientific FDA risk assessment. Can you explain that 
further?
    Dr. Woodcock. Certainly. We have--as I said, we have 
developed a modern program for pharmaceutical quality, which 
involves a quality systems approach, and quality systems is 
what is used to ensure quality in many industries, for example, 
semiconductors, aeronautics, what have you, cars, automobiles. 
That involves control of every part of the manufacturer 
process, from the components, the supply chain of each 
component, the understanding that manufacturing process, having 
a scientific understanding of the product, and then making sure 
all the systems around that are under a state of control.
    When we do an inspection, what we do nowadays, modern 
inspection, make sure that those systems are functioning. We 
don't serve as the quality control unit for the plant. We make 
sure they have one and that they have a quality assurance 
program that is functioning and that they are managing their 
supply chain. So we need to make sure that the scientific 
standards are in place, that the entire supply chain is under 
control and that includes, for example, the brokers, the 
customs agents at the borders, the distributors inside the 
United States, as Elisa was saying. Any place that chain is 
broken, then quality problems can be introduced into the 
product, or counterfeits, for that matter. So inspection is a 
form of verification that the systems that are in place are 
working, but those systems have to be run by the manufacturers, 
by the importers and so forth. They have to act properly for 
the quality of the product to be maintained.
    Mr. Pitts. Can you describe the type and scope of training 
that FDA inspectors receive? How long, on average, does it take 
for an FDA inspector to be fully trained to conduct facility 
inspections?
    Dr. Woodcock. It takes about 3 years, and there is a 
rigorous progression of training. Furthermore, a number of 
years ago, we established something known as the pharmaceutical 
inspectorate, which is even another level of training to allow 
our inspectors to be fully able to inspect modern, complicated 
pharmaceutical operations. So that takes about 3 years to be an 
investigator, and then if you are going to be a foreign 
investigator, investigate foreign facilities, we would like our 
inspectors have a number of domestic inspections under their 
belts and be well trained at that before they go and deal with 
the challenges of another country, additional languages, and so 
forth.
    Mr. Pitts. How long would you estimate it would take the 
Agency to recruit and train a sufficient number of new 
inspectors to conduct the requisite number of foreign 
inspections, and are there any difficulties or challenges that 
FDA faces in recruiting and training new inspectors?
    Dr. Woodcock. Our difficulties are mainly, I would say, 
resources. We brought on a very large number of investigators 
in 2001 after that crisis and we were able to get them on board 
and begin their training, but regardless of how many we would 
hire, it would take us 3 years to train them up, and even 4 
years if we are talking about a foreign inspectorate and fully 
trained investigators who can work on their own in foreign 
countries. So there is a significant training component, and we 
would have to keep working on that over a number of years, and 
that is why my estimate for the resources was that 2011 
estimate, the trajectory that we would get to by 2011.
    Mr. Pitts. And that would permit you to make how many 
foreign inspections?
    Dr. Woodcock. That was an estimate of what would be 
required to inspect 50 percent of the firms each year, of the 
inventory abroad.
    Mr. Pitts. OK. There has been a lot of discussion about 
manufacturers of active pharmaceutical ingredients. Does the 
FDA currently have the authority to inspect those facilities 
and do those inspections differ from inspections conducted on 
facilities making a finished product?
    Dr. Woodcock. Yes, we definitely have the authority and we 
do inspect manufacturers of active--the manufacturing plants 
for active pharmaceutical ingredients. They are different in 
the sense that they are making different kinds of products. 
They are making what we call bulk ingredients rather than 
finished pharmaceuticals. They are not making pills or vials of 
product, they are making an ingredient that goes into, then, a 
finished product. So in that respect it is different, but the 
basic fundamentals of inspecting quality systems are very much 
the same.
    Mr. Pitts. Thank you, Mr. Chairman.
    Mr. Pallone. Thank you, Mr. Pitts.
    Ms. DeGette is recognized for questions for 5 minutes.
    Ms. DeGette. Thank you very much, Mr. Chairman.
    Mr. Pallone. I am sorry. You have 8 minutes.
    Ms. DeGette. That is what I thought. Thank you very much, 
Mr. Chairman.
    I would like to ask you a little bit about this heparin 
situation because, Dr. Woodcock, you had testified earlier, in 
response I think to Mr. Pallone's questioning, that--to 
paraphrase what you said--while it was important for the FDA to 
have the authority to inspect all of these foreign factories, 
you also felt like it shouldn't be a mandate that you inspect 
all of those facilities because it would probably be better if 
you could put your resources on the most high-risk areas. Would 
that be a fair summary of your testimony?
    Dr. Woodcock. Yes, that the FDA should be given 
flexibility.
    Ms. DeGette. So my question is, then, at least according to 
the media accounts, the FDA did not inspect the Chinese 
manufacturer of the active ingredient in heparin because of a 
clerical error. I know there is some dispute about this, but 
there is some view that if it had been inspected, then we may 
have found the problems on an initial inspection. What is your 
view on that?
    Dr. Woodcock. Well, we may have found problems on initial 
inspection but we don't think we would have found contamination 
because we don't have any evidence from testing that there was 
contamination in the heparin supply in 2004.
    Ms. DeGette. Now, aside from the clerical error, would the 
heparin ingredient manufacturer have been one of those high-
risk facilities that you would have inspected as a matter of 
routine?
    Dr. Woodcock. Yes, we would have gone to that pre-approval 
inspection. It was simply flagged wrong.
    Ms. DeGette. OK. So you wouldn't think that that would be a 
lower-priority inspection? Aside from the clerical error, you 
would have inspected that facility?
    Dr. Woodcock. Well, let me clarify this so you completely 
understand the situation.
    Ms. DeGette. OK.
    Dr. Woodcock. The firm came online in 2004 and we didn't--
it would have been a pre-approval inspection at that point, and 
we didn't inspect because of a clerical error but we would have 
inspected.
    Ms. DeGette. Great. Thanks.
    Dr. Woodcock. But we would not have inspected probably 
subsequently to that. The contaminant, as far as we can tell, 
was introduced into the bulk heparin supply in China, at least 
headed to the United States, in many different plants in 2006.
    Ms. DeGette. Let me just stop you right there. I am sorry. 
I just don't have a lot of time. But that goes to some of the 
other questions that I want to ask, and that is, how do we 
catch some of this contamination that comes in along the line? 
In your testimony, you said that the FDA conducted 332 
inspections of foreign drug manufacturers last year, which was 
the most ever in the Agency's history. That still, however, is 
staggeringly low in proportion to the number of U.S. 
inspections that same year. So I guess the question is, what 
else can we do? I mean, we can increase resources, but as you 
say, it will take several years to bring those inspections 
online. I want to explore some other areas. For example, do you 
think that we can develop a pathway so that FDA inspectors can 
inspect foreign facilities without advance notice or invitation 
from the foreign government? This is one of the issues that we 
have been exploring for several years in the Oversight and 
Investigation Subcommittee.
    Dr. Woodcock. Yes. I am not a lawyer but I understand we 
could do that now. It is simply there are practical barriers. 
We have to get visas from the country. We have to state our 
purpose of coming in. Perhaps we could make international 
agreements with countries, but----
    Ms. DeGette. And do you think that would help the FDA in 
its mission of finding these problems?
    Dr. Woodcock. We would like to do unannounced inspections.
    Ms. DeGette. So if there are things we can do to help you 
get that authority, that would be useful?
    Dr. Woodcock. Although I do believe we have the authority, 
there is just a host of practical problems. For example, we 
can't go find the plant has shut down for a month-long national 
holiday and have our inspectors wait around a month until they 
get online again because we need to inspect them when they are 
producing product. So those are some of the practical----
    Ms. DeGette. All right. Well, perhaps you can have your 
staff get back to us and tell us if there are some barriers 
that we could help you break as we propose legislation.
    Here are a couple of other questions. Unfortunately, I 
couldn't be at Tuesday's hearing because I was busy flying in, 
but you said that the FDA currently lacks subpoena authority 
and it would be helpful if you had it. Is that correct?
    Dr. Woodcock. That is what I stated.
    Ms. DeGette. And can you briefly describe how subpoena 
authority would benefit the Agency?
    Dr. Woodcock. I would like to, but it would be better to 
get back to you since I am not a lawyer, I am a doctor, and 
what would help is for us obviously to be able to subpoena 
witnesses and documents and things like that to aid in our 
investigations but it is hard for me----
    Ms. DeGette. But you have been advised by your legal 
counsel----
    Dr. Woodcock. Correct.
    Ms. DeGette [continuing]. That it would be helpful to have 
subpoena authority?
    Dr. Woodcock. I have been advised by our compliance 
experts.
    Ms. DeGette. OK. I understand that historically your 
inability to copy and retain a firm's records during an 
inspection has been a problem. Would it be helpful if you had 
clear authority to copy and retain records?
    Dr. Woodcock. I don't know the answer to that question.
    Ms. DeGette. I would appreciate it if you could get back to 
me as we develop the legislation. Some of us think the bill 
probably needs to be clarified on that point, and I will tell 
you, I am a lawyer, and although I am on inactive status, I can 
tell you that it is helpful if you can get documentation as you 
go forward and be able to retain it.
    One last question. You mentioned some of this, but I want 
to talk about the new FDA office in China for a second. I am 
assuming that having foreign-based staff would help improve 
some of the current issues with foreign inspections, like the 
language barriers, cultural barriers, and insufficient time for 
thorough inspections, but I am wondering if the new FDA office 
in China will facilitate sufficient changes within the 
inspection process to ensure that the inspections are adequate 
in nature and on par with domestic inspections. Is that the 
goal of the FDA?
    Dr. Woodcock. Certainly we want to attain that. However, 
having an office in China, although it will help with the 
issues you raised, will not put the resources against doing the 
every-2-year inspection, which is the goal domestically is to 
not just do pre-approval inspection of a plant but be in that 
plant every 2 years.
    Ms. DeGette. And so what would help us meet that goal?
    Dr. Woodcock. That requires, as I said on Tuesday, 
additional resources to have more inspectors.
    Ms. DeGette. And will the FDA officials in China with this 
office now be able to perform unannounced inspections?
    Dr. Woodcock. Well, potentially they could. As I said, my 
understanding is that FDA has the authority to do that. 
However, China is a very big country and we are talking about a 
small office of FDA officials, and it isn't to address the 
entire problem of----
    Ms. DeGette. So I am confused, because you say that you 
think unannounced inspections are important. You say that you 
think you have the authority, but you are saying that you are 
not so sure you are going to do it because the office is small?
    Dr. Woodcock. I just believe there is a resource issue in 
covering all the facilities in China.
    Ms. DeGette. Right. So you are saying you don't think you 
are going to do unannounced inspections or you are going to try 
to do them, or what?
    Dr. Woodcock. It would increase the probability of us being 
able to do any given inspection on an unannounced basis.
    Ms. DeGette. OK. Thank you very much, Mr. Chairman.
    Mr. Pallone. Thank you, Ms. DeGette.
    Next for questions, I recognize the gentleman from Texas, 
Mr. Burgess.
    Mr. Burgess. Thank you, Mr. Chairman.
    Dr. Woodcock, good to see you again. I am not a lawyer. I 
am a doctor too. Let us go through this together. Now, 
Representative DeGette was talking a little bit about the 
cultural and language barriers that exist. When we were working 
through our problems on the consumer product side of this in 
November and December of last year, I went out to the Consumer 
Product Safety Commission testing facility out at Bethesda, and 
one of the things they mentioned was just exactly that, the 
language and cultural barriers that exist, and when we talk 
about voluntary inspections or voluntary recalls here in this 
country, it has a different meaning than it does in China. Here 
a voluntary recall is one which the manufacturer will enter 
into an agreement with the Agency in order to expedite things, 
get the product off the shelves faster, rather than going 
through a prolonged court proceeding with all due process and 
defendants' rights. In China parlance, apparently voluntary 
means you do it if you feel like it and no penalty for not 
complying, and they had to get past that on the voluntary 
compliance aspect at CPSC in order to get some of the 
withdrawals of lead-based paint in toys. Has that problem, has 
that presented itself in what we are dealing with with the 
importation of active ingredients, pharmaceutical ingredients 
from China? When we talk about things as being on a voluntary 
basis, does that not get interpreted properly on the other side 
of the ocean?
    Dr. Woodcock. We generally are dealing with global 
manufacturers, large manufacturers who are sourcing the active 
ingredient from a Chinese source and so the entity that would 
be responsible for recall of finished product would ordinarily 
be the large manufacturer who would have been responsible and 
then the voluntary operation of a recall, as you alluded to, 
would come into play. However, heparin in the United States in 
the sourced for many different purposes including for 
compounding, it is imported to be placed into medical devices 
and so forth, and so with the smaller manufacturers, it has 
been difficult for us actually to identify all sources of 
heparin that might be entering the country.
    Mr. Burgess. And I appreciate that. It just underscores 
the--when something is lost in translation, you have got so 
many people involved, I think Congresswoman DeGette is onto 
something and it does behoove us to pay attention to that. On 
Tuesday when we were talking about the heparin issue, I brought 
up some of the aspects of the funding, and we have heard a lot 
of different numbers and I know no one could answer some of the 
budgetary questions I had on Tuesday. I suspect the answer 
today would be the same, we don't know, and I have spent some 
time with the budget resolution that we just passed in March 
and the appropriations bill of the USDA agriculture 
appropriations bill from last summer and I am having a very, 
very difficult time finding out the number of dollars that this 
Congress has said, at least last year, was appropriate for 
doing these foreign inspections. Since we talked on Tuesday, do 
you have any better sense of what we appropriated last July in 
our bill and what we have asked for in the budget this year?
    Dr. Woodcock. Well, I can tell you it isn't appropriated 
that way. There is appropriation to the drugs program, if you 
have looked at the appropriations, and part of it is to the 
field operation and part of it is to the center for drugs and 
then it isn't line-directed further down than that. I can tell 
you, more or less, what we spent, if you would like to, or I 
can get back to you with that information. That might be more 
productive.
    Mr. Burgess. I think that would be productive, and I think 
the subcommittee would be interested in that. We are hearing a 
lot of talk about user fees in the legislation that is before 
us. Are any of the user fees that are in the recently passed 
Prescription Drug User Fee Act of last June, does any of that 
apply to the--are any user fees applied currently to the active 
pharmaceutical ingredients that are imported from other 
countries?
    Dr. Woodcock. Yes, and this is confusing so let me walk 
through it a little bit.
    Mr. Burgess. I don't have much time.
    Dr. Woodcock. The Prescription Drug User Fee Act is for new 
drugs, not generics. Now, as we have heard, about 60 percent of 
the medicines that Americans actually consume are generics. 
They don't have a user fee program. So the Prescription Drug 
User Fee program that applies to new drugs does allow and pay 
for pre-approval inspection of any given plant, including the 
API plant, as part of the program, but that, as you can see, is 
a small amount of inventory compared to the entire inventory. 
It doesn't pay for surveillance inspections, which are the 
every-2-year inspections, after approval for a new drug.
    Mr. Burgess. I don't have much time left. From a 
philosophical standpoint, I mean, Congress, we don't have many 
things that we are really required to do under the Constitution 
but defending the borders, delivering the mail are some of the 
things that we should do. To me, this is a defending-the-
borders issue so this to me is one of those things for which we 
should appropriate money, and I don't know how deeply we have 
gotten into the discussion of user fees for this activity but 
when we looked at user fees last June, it almost seemed to be 
that user fees became a way of supplanting us having to 
appropriate dollars, and for me, this is such a fundamental 
issue of protecting the borders, defending our country, 
protecting our borders, that this should be one of the 
activities for which direct appropriation of funds occurs. If 
we need to make it up somewhere else with other fees or 
reducing spending, God forbid, in some other area--goodness 
knows, every dollar in that $3 trillion budget that is spent is 
worthwhile, but it seems to me that this is an area where we 
should appropriate the money and not leave it to user fees. The 
other thing that concerns me is that there seems to be a lot of 
reprogramming going on in last year's appropriations bill so 
that if we come up with a number, and I have heard various 
figures mentioned from $11 million up to $600 million, if we 
oversubscribe user fees, we are merely going to reprogram that 
money into other activities that has nothing to do with 
defending our borders or import drug safety, and I know I have 
gone over, Mr. Chairman. I will yield back my time.
    Mr. Pallone. Thank you.
    The gentlewoman from California, Ms. Solis.
    Ms. Solis. Thank you, Mr. Chairman.
    I wanted to ask you, Dr. Woodcock, if you could explain for 
us, you gave an amount at a previous hearing what you might 
need for foreign inspections. We talked about that already. But 
you could give me a more descriptive amount that would be 
needed so that you could upgrade your systems, which would 
include technology, and go a little bit further in detail and 
if you could do that quickly?
    Dr. Woodcock. Yes, I think I can answer factual questions 
on that. The FDA's Science Board report, the subcommittee 
report, which I don't know whether all of you have seen, went 
over the state of FDA's information technology and our systems, 
and they could best be described as in a crisis, they are 
obsolete. So we need--FDA will need to invest at least $20 
million this year and for many upcoming years to put our basic 
infrastructure, IT infrastructure in place. There is no use us 
building new systems for imports if we can't run them on our 
infrastructure. So that will cost probably about a $20 million 
investment each year for a number of years. And then I think 
for imports, what we need to do is do electronic drug 
registration and listing, OK, so it is totally electronic. That 
would be a very modest amount of money, perhaps $10 million to 
build a quick fix type of system. We have done a business plan 
for this. I was requested by Mrs. Emerson to develop a business 
plan and we have developed that. So that would be a modest 
amount of money. Then fixing the interface, the processing at 
the border, the interface with Customs would probably require 
again tens of millions of dollars for a number of years to get 
that repaired, but none of those I think are extreme 
expenditures that would be required.
    Ms. Solis. So could you provide our committee with more 
detailed figures about how--I mean, this is probably not the 
time for you to give us all that but if could come back and 
give us something in writing as an approximation. I mean, when 
you are saying years, 5 years, 10 years or----
    Dr. Woodcock. Three years. I don't think we can wait.
    Ms. Solis. That is what we need to know.
    Dr. Woodcock. I would be happy to do that.
    Ms. Solis. And one concern I have, I mean, given that we 
got this information, I mean, our consumers that were affected 
by the importation of heparin from China and the detection was 
so late and unfortunately we had numerous deaths as a result of 
that. I am very concerned about what we are doing to reach 
communities, particularly communities of color that speak 
different languages that may not understand information that is 
provided by your office. I know that you have a website so 
people who have Internet access can get that information but 
for the most part, we have a lot of people including those in 
my community who don't have access to the Internet and they may 
not even be able to read at the 12th-grade level the 
information that you post, and you have been told that you need 
to lower that level of literacy to the 4th- and--well, the 8th 
and even 4th-grade level. So I want you to touch on that, and I 
want to know what you are doing to help provide more 
information to people of different--that speak different 
languages, and I am talking right now especially the Hispanic 
population, which is the largest ethnic minority and has a 
tendency to--the first language they speak is Spanish in some 
cases.
    Dr. Woodcock. Certainly, I can't agree with you more. This 
is on the other end of our efforts, which is not--that is sort 
of prevention, but if something has happened, how do we respond 
and how do we actually reach out and make sure people are kept 
safe by using the knowledge, getting the knowledge that we 
actually have and being able to utilize it. We are working on 
our early alert system, evaluating translating that into 
different languages. We write patient-level information that we 
put on the Internet. But as part of our Safety First and Safe 
Use Initiative, as we move into our Safe Use Initiative in the 
Center for Drugs, it is going to involve partnering with 
healthcare organizations and professional and patient advocacy 
information to make sure that that handoff works so that what 
we know, they know, and that they can help provide that 
information to their group, whatever it might be.
    Ms. Solis. Would that be an additional cost, then, that you 
would--I mean, you are going to need funding, I would imagine, 
some resource to be able to do that, but again, many in our 
community don't have access--even if you are in rural American, 
may not have Internet access. So, what kind of plan--is that in 
your business plan, I would ask?
    Dr. Woodcock. Well, our business plan is on the other end, 
which is finding these events and picking that up. This is on 
our other initiative that has to do with patient safety and 
drug safety, adverse events and so forth. Certainly we could do 
more if we had more resources but we do plan to do this. We 
received additional resources for patient drug safety under the 
Amendments Act and this is part of our implementation of that.
    Ms. Solis. What is that budget, by the way?
    Dr. Woodcock. Well, we received $25 million additional, but 
to do a very large number of things.
    Ms. Solis. Can you get back to me with that information?
    Dr. Woodcock. I would be happy to do that.
    Ms. Solis. Because I think it is really important to be 
able to have a rapid response.
    Dr. Woodcock. I agree with you.
    Ms. Solis. And you mentioned--well, we talked about 
inspections and the lack of inspections abroad, and could you 
tell me if there is any data on how many inspections are 
conducted for facilities that manufacture brand-name drugs 
versus generic?
    Dr. Woodcock. Yes, I have that information and can get it 
back to you. We have it cut that way.
    Ms. Solis. Can you just briefly give me an idea of what 
that is?
    Dr. Woodcock. I can't right now. There is a higher 
proportion of the generics have their API sourced in foreign 
countries and so--and also the pre-approval inspections are 
supported by user fees for the new drugs. So naturally we are 
able to get to more of the new drug facilities that are 
producing those drugs than to the generic drug facilities 
because we don't have support, as much support for that 
activity, and a higher number of them are in foreign countries. 
But it is----
    Ms. Solis. Doesn't that raise--I mean, for me, that raises 
a red flag.
    Dr. Woodcock. Absolutely.
    Ms. Solis. OK. I will yield back the balance of my time, 
Mr. Chairman.
    Mr. Pallone. Thank you.
    The gentleman, our chairman, Mr. Dingell, is recognized for 
5 minutes.
    Mr. Dingell. Mr. Chairman, I thank you for your courtesy.
    Dr. Woodcock, I want to thank you again for your testimony 
today and for your testimony the other day. Your candor does 
you great credit as a public servant, and I must say, it 
comforts me to know that somebody down at Food and Drug is not 
intimidated and not inhibited in coming up here and telling us 
the situation as they see it, and I want to commend you for 
that and thank you.
    You and others have mentioned to the Committee a desire to 
move towards a more risk-based inspection system. We all 
appreciate the need to focus on areas of greatest concern and 
risk. However, I am concerned about the ability of FDA to 
identify facilities that present the highest risk when its 
information systems are in shambles. So I am concerned about 
that. I am further concerned that risk-based has become a code 
for, we don't have adequate resources for proper oversight so 
we are going to try and only reach the facilities that appear 
to be most dangerous and not to address all of the areas of 
concern and not to proceed with the business of FDA in a way 
which assures that we do not allow things like heparin or other 
things to take place because they don't fit properly into this, 
quote, risk-based, close quote, approach. What comments do you 
have on that?
    Dr. Woodcock. I agree with you that our current 
inspectional coverage is inadequate and that the first priority 
ought to be to improve that coverage. We agree, there is no use 
doing a risk-based approach if you are only inspecting such a 
small percentage of the high-risk firms that you are sort of 
rearranging the deck chairs.
    Mr. Dingell. One of the problems we have had is, that on 
the basis of pressure from the Office of Management and Budget, 
the White House, Department of Health and Human Services, FDA 
has constantly been compelled to come forward to the Congress 
and say, ``oh, we want to go with a risk-based approach,'' and 
to say, ``oh, we have a new stronger and better way of 
addressing this for less money, and this goes back, as I have 
told the Commissioner in this set of hearings, better than 40 
years. I have been listening to commissioners of Food and Drug 
come up here and tell us how we are going to do better with 
less, and I have found in each instance that that has been a 
lot of hooey, and my concern is that I don't want to hear 
people coming in here and telling us the urgent need for risk-
based approach, which appears to be just an excuse for doing 
less with less money, and for allowing matters to fall between 
the cracks and the public to be put at risk on food, on 
pharmaceuticals, on devices, and on cosmetics. So how are we to 
establish a good risk-based mechanism for dealing with these 
problems, which first of all, doesn't permit the matters to 
fall between the cracks, which does have proper inspections and 
other safety mechanisms utilized, but which also doesn't allow 
important matters and important investigations or inspections 
to fall between the cracks? How is that to be done?
    Dr. Woodcock. Well, that is a very challenging question. 
Obviously doing routine inspections provides a deterrent 
function. Otherwise people will get----
    Mr. Dingell. And we do need routine inspections, do we not?
    Dr. Woodcock. Right. Otherwise there is sloppiness that 
leads to harm and death, and we see that all the time where 
people just make mistakes and then they manufacture products 
improperly and then there are the criminal elements that were 
talked about earlier, and we need to have a strong deterrent 
function by having a presence. If we are not there, if we are 
not expected to be there, then of course people will feel free 
to relax their standards or there would be an opportunity for 
other types of elements to intrude.
    Mr. Dingell. What I am hearing you say is, you have to 
continue with the routine inspection system.
    Dr. Woodcock. We have to.
    Mr. Dingell. You have to continue with other things which 
are important in terms of dealing with the routine events and 
that risk-based, if it is to be properly used, has to mean that 
we are talking about assuring that we put the greatest emphasis 
on the areas of highest risk but that we do not disregard other 
areas of concern or the general responsibilities of FDA under 
the law. Is that correct?
    Dr. Woodcock. That is correct, and we believe that even the 
low-risk facilities should believe they are at risk for having 
an FDA inspection.
    Mr. Dingell. And of course, that cannot be done without 
adequate resources to the Agency. Now, Doctor, again I want to 
thank you for your response to Mr. Pallone's questions about 
the bill. I view those questions as being extremely important 
to the Committee in terms of addressing the business before 
you. Can you tell us whether--and I am going to ask you to 
submit this for the record rather than to say so in our hearing 
today. Are there additional authorities not in the draft that 
is before the Committee at this time which in your professional 
opinion you believe we should consider adding, and would you 
please submit that to the Committee at your convenience?
    Dr. Woodcock. I would be delighted to.
    Mr. Dingell. Now, let us look back. We have had bad fish 
and seafood coming in. We had the heparin disaster. We had the 
mushroom disaster of time back. We have had problems with 
people getting sick from leafy green vegetables and 
strawberries and all kinds of things, and we had the animal 
food supplement scandal of not long back. We seem to have a 
succession of scandals, misbehavior, unsafe commodities 
marketed to the communities and to the people of the United 
States. How am I not to be concerned and how are you not to be 
concerned that a similar case or similar cases of contamination 
of food or pharmaceuticals will not occur in the immediate 
future?
    Dr. Woodcock. I am extremely concerned about 
pharmaceuticals. The world is changing and our ability to 
assure the quality of the drug supply has become diminished, 
and we all need to recognize that, and I think heparin is a 
wake-up call that we are not as able as we were to assure that 
quality.
    Mr. Dingell. It tells us that that could happen again at 
any time unless some rather startling changes are made. Isn't 
that so?
    Dr. Woodcock. I believe we must act swiftly and decisively.
    Mr. Dingell. Doctor, I thank you.
    Mr. Chairman, I thank you for your courtesy.
    Mr. Pallone. Thank you, Mr. Chairman, and that concludes 
our questions. But I want to thank both of you for being here 
today. It was very helpful, as was your testimony the other day 
before the O&I Subcommittee. We appreciate it.
    Mr. Buyer. Mr. Chairman?
    Mr. Pallone. Yes?
    Mr. Buyer. I will have additional questions to submit for 
the record for the FDA.
    Mr. Pallone. Absolutely. Any member that would like to 
submit additional questions to Dr. Woodcock or Dr. Bernstein, 
feel free to do so.Thank you very much, and we are going to 
move to the second panel. Now, let me explain that we expect 
votes about 12:15 so I would like the second panel to come 
forward. If the votes are called, then we won't complete your 
opening statements and we will just complete them when we come 
back and then do the questions as well, but we are going to try 
to move forward with the second panel and hopefully complete at 
least the opening statements before we have the votes. So if 
you could all come forward, please.
    As you can see, we have a large number. It is hard to 
squeeze in but we will do the best we can. Let me welcome all 
of you and go from my left to right to introduce each of you. 
First on my left is Dr. William K. Hubbard, senior advisor for 
the Coalition for a Stronger FDA. And then next to him is Ms. 
Lori Reilly, who is vice president of policy for PhRMA, the 
Pharmaceutical Research and Manufacturers of America. And then 
next to her we have one of our colleagues, Congressman 
Greenwood, who is now president and CEO of the Biotechnology 
Industry Organization. Thanks for being here today. And next to 
Jim Greenwood is Ms. Christine Mundkur, who is chief executive 
officer of Barr Laboratories. And then we have Mr. Ron Bone, 
who is senior vice president, distribution support for McKesson 
Corporation out of San Francisco, California. And then Mr. 
Kevin Nicholson, who is both a Ph.D. and a lawyer--that is an 
interesting combination--vice president for pharmacy regulatory 
affairs for the National Association of Chain Drug Stores. And 
then the last is Ms. Ami Gadhia, who is policy counsel for the 
Consumers Union.
    Now, as I said before, we have 5-minute opening statements. 
Those statements become part of the hearing record. Each 
witness may in the discretion of the Committee submit 
additional brief and pertinent statements in writing for 
inclusion in the record, and we will start with Mr. Hubbard.

STATEMENT OF WILLIAM K. HUBBARD, SENIOR ADVISOR, COALITION FOR 
                         A STRONGER FDA

    Mr. Hubbard. Thank you, Mr. Chairman. I have a written 
statement but I will just make a few opening remarks.
    I want to both thank you and commend you for your work on 
this bill and moving quickly. The committee has well documented 
the problem so obviously you are moving now into the phase of 
fixing it. I think your bill has tremendous potential for 
addressing these problems.
    The way I look at the bill, there are three principles we 
need to follow in trying to fix this problem. First, we need to 
strengthen the FDA. The FDA has a very old paradigm for 
imported drugs with all the responsibilities on the Agency to 
find the problem at the border, and that needs to be shifted, 
and I think your bill does that by saying we need to shift more 
of that to the source of these drugs' origin. We need to give 
FDA the authority to register these folks and know who is 
making our drugs, where they are, what they are making, and FDA 
needs the inspectors, as your bill would provide, to go to 
these foreign countries. And then of course, FDA needs 
authority here at the port to be looking at more of these 
drugs, destroying them if necessary, turning them back or 
whatever.
    But also, I think we need to take into account the fact 
that pharmaceutical leaders already do a good job in many cases 
of securing their supply chain, and I think your bill suggests 
that everyone needs to come up to that there are companies that 
in the case of heparin, for instance, traced the drug all the 
way back to the pig, and that is the kind of concept that I 
think you are looking for with registration and universal 
identifiers to know where all of these products are coming 
from. So trying to get the entire industry to follow these 
leaders, I think, is a worthy goal.
    And then lastly, we have got to send a signal to these 
foreign countries. It is well documented, as Mr. Dingell said, 
that some of these countries have demonstrated they simply 
cannot uniformly produce safe products and there is a long 
stream of examples that I won't go through today. But they need 
to understand there is a cop on the beat and that FDA will be 
looking at them, and I think the registration provisions will 
do that, and letting them know that when you do find a bad 
drug, it is going to get turned back or destroyed, and having 
that presence by FDA in these countries I think will be 
tremendous, which, as you know, does not exist now.
    So I think, Mr. Chairman, your bill is a historic 
opportunity to fix these problems and I wish you well in the 
endeavor. There is one point I would raise some concerns about 
though and that is these user fees. The reliance on user fees I 
believe is a problem. There has been a disconcerting trend that 
the existing user fees have shifted appropriate dollars out of 
FDA and there have been programs that have been simply lost I 
believe because of the user fee program. So I am concerned 
about that continuing if the Agency is funded more and more by 
user fees. While some of the fees like requiring a foreign firm 
to pay a fee to register, I think that is good because, first 
of all, you are going to be assured of where they are, and 
second, you may actually give some disincentives to some people 
that don't know what they are doing to get out of the business, 
which would be a good thing.
    But all in all, we as taxpayers pay about a penny and a 
half a year for the FDA, and I think if you polled people, they 
would say they would be more than willing to pay 2 or 3 cents a 
day for safe and effective food and drug supply. So I certainly 
would encourage you to also find ways to increase FDA's 
appropriations rather than keep moving more and more toward 
user fees.
    With that, I thank you.
    [The prepared statement of Mr. Hubbard follows:]

                    Statement of William K. Hubbard

                              INTRODUCTION

    Mr. Chairman and members of the Committee, I am William K. 
Hubbard. Before my retirement after 33 years of Federal 
service, I served for many years with the U.S. Food and Drug 
Administration, and for my last 14 years was an FDA Associate 
Commissioner responsible for, among other things, FDA's 
regulations and policy development. Today, I serve as an 
advisor to The Alliance for a Stronger FDA, a consortium of 
patient, public interest, and industry organizations whose 
mission is to urge that FDA's appropriations be increased. The 
Alliance and its constituent members are greatly concerned that 
FDA's resource limitations have hampered the Agency's ability 
to ensure the safety of our food and drug supply. Today's 
hearing is focused on proposed solutions to the ever increasing 
numbers of drugs and medical devices being imported into the 
United States. I will focus my comments on pharmaceuticals, but 
many of those comments would apply as well to medical devices.

                               BACKGROUND

    As you know, Congress created the current regulatory 
structure for assuring the safety of human drugs in 1938, 
through its enactment of the Food, Drug and Cosmetic Act. That 
statute recognized that drugs could be a key component of our 
health care system, but that drugs were also powerful chemicals 
with the capability to produce great harm if not carefully 
regulated. Thus, Congress determined it necessary to create a 
relatively pervasive regulatory system, which has served us 
well. Under that construct, American patients have access to 
safe and effective new drugs as fast or faster than anywhere 
else in the world, and FDA is widely recognized internationally 
as the ``gold standard'' for pharmaceutical regulation. FDA is 
also tasked with assuring that a drug, once approved for 
marketing, is actually the same compound that is manufactured 
and is of consistently high quality. To do that, FDA requires 
that a drug be manufactured under specific controls mandated by 
the Agency--known as Good Manufacturing Practices (GMPs). These 
include requirements that active ingredients of the drug be of 
a prescribed purity, strength and quality; that the drug be 
made in well-controlled, sanitary conditions; that its labeling 
and packaging be equally well controlled; and that laboratory 
tests of the drug be performed routinely using well established 
scientific methods and properly calibrated equipment to confirm 
that the drug is always produced in the form approved by the 
FDA.
    Those controls have resulted in a remarkable record of 
success for American pharmaceuticals. The U.S. manufacturers of 
our drugs agree with the need for such strict controls and take 
great care to implement them faithfully. Accordingly, FDA 
inspectors generally find adherence to GMPs when they examine a 
U.S. drug manufacturing facility, and the occurrence of 
injuries and deaths from improper drug manufacturing in this 
country is rare.

                          THE GLOBAL SITUATION

    The portrait of pharmaceuticals elsewhere around the world 
is not so positive. Drugs developed and produced in other 
countries do not always have the same record of therapeutic 
success as American pharmaceuticals. But perhaps more 
importantly, drugs made in other countries--particularly less 
developed nations--are often purchased from suppliers who have 
little or no oversight by regulatory bodies; where key elements 
of safe drug production are ignored--such as quality testing, 
expiration dating, and labeling controls; and where producers 
of substandard and counterfeit drugs have a relatively easy 
access to the marketplace.
    In recent years, this Committee has documented numerous 
reasons for concern about drugs made offshore:
     80% of our domestic drug supply is now comprised 
of ingredients produced in other countries, and increasingly 
those are less developed nations such as China and India.
     FDA has the capability to inspect only a small 
percentage of foreign drug manufacturing facilities, and 
inspection rates of drugs arriving at U.S. ports are equally 
dismal.
     Deaths and injuries from compounds made overseas 
are seemingly more and more common--from antifreeze substituted 
for glycerin, melamine in pet food, antibiotics that don't 
effectively treat bacterial infections, and, of course, most 
recently, heparin contaminated with chondroitin.
     Counterfeiting of drugs is increasingly common in 
many countries, and has been steadily growing in the United 
States. The World Health Organization has reported that in some 
areas of the world, particularly parts of Africa and Asia, more 
than one-half of the pharmaceutical supply is counterfeit. 
Indeed, drug counterfeiting is considered to be endemic around 
the world, with China alleged to be a principle world supplier 
of such products.

            FDA AND IMPORTED DRUGS--NEED FOR A NEW PARADIGM

    At a time in which drug safety problems overseas have 
become more and more prevalent, the FDA has simply not been 
able to keep up. While it can continue to ensure that drugs 
made in United States meet our high safety standards, the 
Agency is not positioned and funded to assure the safety of 
imported drugs. FDA is asked to regulate these products with a 
law that was enacted 70 years ago--at a time in which there 
were few drugs being made anywhere in the world, and none being 
imported into the United States. The system created in 1938, 
with origins dating all the way to the turn of the last 
century, authorized FDA to examine imported drugs at the border 
and refuse entry to any drug that ``appeared'' to be 
unsatisfactory. Thus, the law placed the responsibility on the 
FDA to catch a problem and stop the drug's entry into our 
country, as opposed to asking the foreign manufacturer to 
demonstrate that they were taking care to follow established 
standards for drug production. So, while domestic drug 
manufacturers are held to a high standard of drug safety, with 
regular GMP inspections, foreign producers often need worry 
only about the remote possibility that an FDA inspector at a 
border crossing will find a problem and stop the drug's entry. 
Moreover, a domestic drug manufacturer using foreign 
ingredients can adhere to strict quality control procedures, 
yet be victimized by a contaminated ingredient that was 
unsuspected.
    More specifically, we have failed to provide FDA with the 
appropriations and other tools it needs to carry out the 
mission we have assigned to them, such as:
     Staff to conduct regular inspections in foreign 
facilities as are now done for domestic manufacturing plants. 
The Food, Drug and Cosmetic Act dictates that each U.S. drug 
manufacturer be inspected at least every 2 years, but the 
current rate of foreign inspections is infrequent at best. 
Thus, we are buying ever larger percentages of our drug 
ingredients from producers in developing countries who receive 
virtually no FDA inspection, despite a congressional 
determination that domestic manufacturers be inspected 
regularly.
     Modern IT systems that would allow FDA to 
effectively track and monitor the production and movement of 
imports. The import data system is so old and communicates so 
poorly with other FDA information systems that it is difficult 
for FDA officials to use risk as a predominant driver of their 
compliance;
     Registration procedures for foreign drug 
manufacturing that would allow us to know who is making drugs 
for our market, where they are located, and what they are 
manufacturing; and
     Port inspectors to examine the almost 20 million 
annual shipments of foods, drugs, and other products that FDA 
is expected to regulation. For over 400 ports of entry, FDA has 
only 450 inspectors, meaning that most ports aren't staffed at 
all and many can be staffed only part time.

                          THE HEPARIN EXAMPLE

    We are, of course, especially mindful today of the recent 
deaths from contaminated heparin. It is, sadly, a realistic 
example of the problem FDA faces in assuring the safety of 
imported drugs. Indeed, I believe one could use the well worn 
cliche of a ``perfect storm'' in describing the conditions upon 
which the heparin incident unfolded --initial extraction of 
heparin on pig farms that have been described as ``primitive,'' 
no regulation by authorities in the producing country, no FDA 
inspection of the heparin exporter's manufacturing facility, 
and violative conditions found by FDA in the manufacturing 
facility when subsequently inspected. When you add to that the 
technical capability of chemists to modify and substitute 
chondroitin for heparin, the resulting profit margin by using 
cheaper ingredients, the low risk of being caught substituting 
another ingredient, and the even more remote likelihood of 
being punished by U.S. authorities, one could accurately 
conclude that there was highly fertile ground upon which this 
could occur.
    But the heparin case also demonstrates FDA's inherent 
weaknesses in its ability to adequately oversee foreign drug 
production. The facility in China had not been inspected by 
FDA, the suppliers of raw material to that facility were not 
registered with the FDA, and the Agency's IT systems were not 
up to the task of identifying and tracking the facilities in 
China and the movements of their products. In sum, the FDA's 
poor capabilities, in my view, contributed to the likelihood 
that a counterfeiter could feel emboldened to substitute the 
chondroitin with relatively little fear of regulatory action by 
the United States.

                           WHAT MUST BE FIXED

    We must find a way forward to ensure that drugs made with 
foreign ingredients meet the same high standards as those of 
fully domestic origin, by assuring the enforcement of the rules 
that govern drug production and the promulgation of needed new 
rules. It does no good to have rules if they are not obeyed, no 
good to set high standards if they are not used, and no good to 
develop advanced scientific skills if they are not employed. 
That some less developed countries have a record of serious 
problems in drug manufacturing is indisputable. And the 
disparity in drug inspections--in which FDA inspects U.S. 
facilities regularly and those in China and India almost 
never--is indefensible.
    Some would say that we should not be buying products such 
as drugs from developing nations, but that flies in the face of 
the reality of global free trade. Others would rely upon 
agreements negotiated with foreign countries, under which those 
nations would assure the safety of drugs exported to the United 
States. I believe that a developing country without a strong 
counterpart to the FDA is incapable of effectively implementing 
such an agreement, and that such a course of action is a 
prescription for frustration. In the end, I believe we must 
rely upon what we know has worked in the past to protect our 
drug supply--rigorous control of pharmaceuticals within a 
system closed to unregulated and unscrupulous suppliers and 
overseen by a strong FDA.
    I believe that there are three main principles to be 
considered in correcting the imbalance between the strong 
safety oversight of US-produced pharmaceuticals and medical 
devices and those made overseas:
    1) FDA's statutory construct must be changed to take into 
account the globalization of drug and devices. As you know, the 
current version of the Food, Drug and Cosmetic Act places much 
of the burden for assuring the safety of imported drugs onto 
the FDA and at the point of entry--the border ports. That 
paradigm is outdated in a world that is far more globalized 
today, and more of the responsibility needs to be shifted to 
the source of production--to preventing problems from occurring 
rather than relying on FDA to find them at the border. FDA also 
needs to know that imports are equally important in the 
development of policy and the allocation of resources as 
domestic programs. Your proposal, if enacted, would make that 
point in several ways--by requiring the same frequency of 
inspection for foreign and domestic manufacturing facilities; 
allocating new resources for foreign inspections; creating a 
foreign inspectorate dedicated to overseeing manufacturing in 
exporting countries; giving FDA the information it needs about 
who is making these products and where they are located; and 
strengthening inspection of these products when the arrive at 
our borders with new powers to detain, destroy or recall drugs 
and devices that are deemed to be dangerous.
    While inspections are not the only solution to these 
problems, they are an absolutely necessary piece. It is 
particularly important that we place a focus on drugs and 
devices made in countries without a history of safe 
manufacturing and internal regulation. Without GMP inspections 
in less developed nations, we essentially have no oversight of 
those manufacturers. A GMP inspection is far more than just a 
snapshot of that facility the day the inspector arrives. It is 
a detailed survey of how that plant has been operating for 
months, which allows a realistic conclusion about whether that 
facility can and does follow accepted drug production 
procedures. Relying on testing by the FDA or the U.S. drug 
company that receives the foreign ingredients is not a 
substitute for examining the source of production.
    Your proposed creation of a dedicated foreign inspectorate 
will go far in ensuring that the inspection requirement can be 
successful. Currently, FDA must utilize its domestic inspection 
force to travel overseas to conduct inspections. That practice 
is expensive and often a hardship on inspectors. The agency 
needs to recruit an inspection force that is hired and trained 
to do foreign inspections, and many will need to be housed in 
the countries with the greatest number of manufacturing 
facilities.
    2) Build upon the best practices many U.S. firms already 
use in securing their supply chain. Supply chain integrity is 
increasingly a watch word among leading pharmaceutical 
manufacturers. The most advanced firms today have contractual 
arrangements with suppliers that require strict conformance to 
quality control procedures, and insistence that every party to 
their supply chain be known to them and of sufficient technical 
competence. And those firms regularly inspect and monitor the 
performance of their suppliers, as well as test ingredients for 
purity, stability and other necessary qualities. I believe that 
your bill will reinforce the commitment of those firms already 
utilizing such practices and should encourage others to join in 
them. For example, the bill would ease entry into the United 
States of drugs and drug ingredients that can document 
compliance with applicable FDA drug safety requirements. 
Further, it will provide for additional contaminant testing 
which, in the light of the heparin injuries, will be a 
necessary part of a strengthened system of import controls.
    3) Send a message to foreign manufacturers and their 
nations' governments that the focus of regulation will shift 
from FDA's border inspection of drugs to the conditions in the 
overseas manufacturing facilities. In the past, there have been 
relatively few incentives for foreign manufacturers to be 
assertive in protecting exported drugs and devices from 
contamination or other violations of FDA drug safety standards. 
Indeed, some contend that the current system--of placing most 
of the burden for catching unsafe drugs onto the FDA--has 
comprised a disincentive, thus indirectly encouraging 
ingredient substitution and other cost saving ``short cuts.'' 
Your bill will start an important shift toward expecting 
exporters to take greater care in manufacturing drugs for our 
market--by requiring all foreign producers to declare their 
identity and location, by permitting FDA to suspend a 
facility's registration if it impedes an FDA inspector's 
ability to carry out his duties, by ensuring parity among U.S. 
and foreign drug inspections, by encouraging certification and 
other evidence of quality controls on the part of foreign drug 
facilities, by requiring foreign drug manufacturers to pay 
facility registration fees that mostly been limited in the past 
to American facilities, by ensuring that violative drug imports 
are more likely in the future to be either detained or 
destroyed if found at U.S. ports, and by requiring contaminant 
testing of drug ingredients before they leave the exporting 
country.

                       ADDITIONAL CONSIDERATIONS

    While I believe that your bill contains most of the 
elements that FDA's scientists would like to have instituted 
for a safer drug import system, there are two additional 
considerations that I would urge you to include:
    - Appropriated funds to strengthen the FDA. Your bill 
includes user fees to pay for more FDA oversight. Such fees are 
reasonable for facility registration, as domestic manufacturers 
must now pay such a fee, and bringing foreign facilities on par 
would be a logical addition. Plus, fees could have the 
complementary effect of driving from pharmaceutical 
manufacturing business some inadequate foreign facilities for 
which registration would trigger an eventual inspection. 
However, I am skeptical that user fees are the solution to 
FDA's funding problems, as budget officials have tended in 
recent years to shift agency funding from appropriated dollars 
to user fees, leaving the Agency with little or no net gain. 
Indeed, some programs, such as food safety and FDA's inspection 
corps, have absorbed large staff cuts over the past decade, and 
I believe those cuts are largely attributable to the fact that 
other parts of FDA were receiving new funding from user fees 
(for drug and device application review). We, as American 
taxpayers, today spend only 1-and-a-half cents per day on the 
FDA. I believe the vast majority of our citizens would gladly 
pay 2 or 3 cents a day for an effective FDA that can vigorously 
protect our food and drug supply.
    - A commitment to information technology improvements. As 
your Oversight and Investigations Subcommittee, the GAO, and 
FDA's Science Board have all documented, FDA's inadequate IT 
systems are a fundamental lag on the Agency's ability to 
improve its import program. I urge you to make IT enhancements 
a key goal of your legislation, even if that is achieved merely 
by a sense of the Congress statement about your expectations 
for IT begin the process of improving our coverage of imports. 
The IT systems should be configured in a way that allows the 
Agency to use a myriad of risk factors, including potential 
impact on the public health, to direct its inspectional and 
import efforts. The Science Board recommends increased 
appropriations of $800 million for FDA's overall IT needs, so 
there is a long way to go if FDA is to have state-of-the-art 
information systems, but we could at least start with funding 
an effective import information system.
    In conclusion, I believe FDA's scientists and regulatory 
officials are nothing short of terrific. They are well trained, 
intensely dedicated to the public health, and a true bargain 
for the American taxpayer. But they have been handed a task--an 
expectation--that they realistically cannot fulfill with their 
current resources. History has shown that when FDA is given the 
resources and tools it needs to be effective, it will perform 
well and in doing so protect the health of those who depend 
every day on this critical agency.
    Thank you for inviting me to give my views on this subject.
                              ----------                              

    Mr. Pallone. Thank you, and thank you for keeping well 
within the 5 minutes.
    Ms. Reilly.

    STATEMENT OF LORI REILLY, VICE PRESIDENT OF POLICY, THE 
      PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA

    Ms. Reilly. Thank you for the opportunity to be here today 
and testify. I am Lori Reilly, vice president for policy and 
research at PhRMA. I am here today on behalf of Billy Tauzin, 
our chairman and president, who apologizes for not being able 
to be here himself. This is an issue that he is extremely 
passionate about and wanted to offer his thoughts in terms of 
commending the Committee in looking at this important issue. I 
think we share your goals in ensuring a safe and effective 
pharmaceutical drug supply.
    The work of this committee over many years has helped to 
ensure the safety of the prescription drug supply, going back 
to the 1980s and the extensive investigative work this 
committee did that led up to the Prescription Drug Marketing 
Act, which closed the current drug supply system to drugs that 
had circulated outside the jurisdiction of the FDA, outside the 
control of the manufacturer, and this was as a result of 
counterfeit drugs that had proliferated inside the United 
States, and we applaud the Committee for that work and its 
interest in taking additional steps to secure the supply chain.
    As Dr. Woodcock testified earlier, the current regulatory 
system in this country is built on good manufacturing practices 
and the notion that you need to build quality into every 
element of the product, and our companies do that. They abide 
by GMP requirements. They often go way above and beyond those 
requirements by having their own systems, vendor qualification 
programs, vendor audit programs. In fact, one of our companies 
testified just last week before the Senate about the extensive 
amount of additional resources they spend to ensure the 
suppliers they use meet these very stringent requirements.
    As stated previously though, this comprehensive system, 
while excellent and arguably the safest in the world, there is 
always room for improvement, even with the very best systems, 
and once again, we commend the Committee for looking at 
opportunities to further strengthen the system.
    In response to concerns regarding the rate and extent to 
which FDA is currently conducting inspections, I am pleased to 
offer several ideas for consideration as you continue to work 
on the discussion draft as well as our own comments on the 
draft that has been put forward to date.
    Previous congressional testimony has revealed a great 
disparity in the number of foreign facilities that exist and 
thus are subject to FDA inspections. In addition, concerns have 
been raised about the interoperability of the Agency's 
databases for tracking and monitoring foreign establishments. 
We agree with the Committee that foreign establishments should 
and need to be registered with FDA to the extent they are 
already not required to do so by law, and we also agree we need 
a better accounting of what those facilities are and where they 
are located. Having a more accurate picture of the number of 
facilities that exist abroad in a single database will allow 
the Agency to ensure that inspections are occurring on a more 
timely basis.
    With respect to funding, the committee draft, specifically 
section 201 of the draft bill, sets up a new annual 
registration fee for the purpose of defraying costs of 
inspecting establishments registered with the FDA. We believe a 
strong, well-funded FDA is critical to the health and safety of 
American patients and we, along with other stakeholders, have 
been supportive of increased funding for the FDA. We have 
lobbied Congress as a part of a coalition to argue for 
increased appropriations so that FDA has the needed resources 
to meet its many mandates.
    We have also supported user fees for other purposes. For 
example, PhRMA endorsed user fees as part of the PDUFA program, 
and in general we believe they have worked well. With regard to 
whether user fees are appropriate in this instance, we still 
have some outstanding questions that we would like to work with 
the Committee on in the future, for example, what the amount of 
any user fee may be, whether there will be a cap on such user 
fees, what FDA can specifically use these resources for, what 
performance measures will exist for the FDA, whether the fees 
will have a sunset date and whether there is any link to 
appropriated funds. Moreover, we believe, as others have stated 
previously today, that any new user fees should not supplant 
appropriations and should support specific identified FDA 
activities. And as stated previously, we believe that the 
Agency is currently underfunded and we would love to work with 
the Committee and Congress to address this issue as well.
    With regards to enhancements to FDA's current inspection 
regime, sections 202, 403 and 404 of the discussion draft set 
out targeted reforms to the FDA's current inspection regime, 
including a 2-year interval for foreign inspections as well as 
a requirement for initial facility inspection before a product 
can be offered in the United States. We agree with the 
Committee that FDA should increase its inspections of foreign 
facilities. The FDA currently has broad authority to conduct 
inspections of domestic and foreign establishments and we 
recommend that FDA increase its GMP inspections of foreign 
facilities, including API facilities.
    In addition, we support the Committee's recommendation that 
would require FDA to establish and maintain a core of 
inspectors dedicated to inspections of foreign facilities. The 
current discussion draft, as I said, requires those inspections 
to occur at least once every 2 years, which would be consistent 
with FDA's current mandate for domestic establishments. While 
we believe it is a laudable goal, it is important to recognize 
that it will take time. As we heard from Dr. Woodcock this 
morning, training of inspectors alone could take anywhere from 
3 to 4 years. So it will take time to get individuals up to 
speed and allocated to do this. Therefore, we believe Congress 
should give FDA flexibility to develop a risk-based approach to 
efficiently use its resources to prioritize foreign 
establishments for inspections, particularly in light of the 
practical realities regarding the time it will take to 
establish an enhanced FDA program. In our view, categorizing 
and prioritizing FDA inspections of foreign establishments 
based on the risk they present, looking at such criteria as 
time since last inspection, their compliance history and type 
of product produced, geographic location and volume of product 
import will enhance their ability to target their inspection 
resources more efficiently.
    Given the reality that the Agency----
    Mr. Pallone. Ms. Reilly, I hate to interrupt because I like 
that you are being very specific about the bill, but you are 
over a minute, so you have to wrap up.
    Ms. Reilly. I will wrap up, and let me do that by briefly 
mentioning the legislation offered by Congressmen Buyer and 
Matheson, and again, we applaud the leadership that they have 
taken on the issue and the tireless efforts they have gone to 
in trying to work with all stakeholders on the bill. We 
appreciate their thoughtful approach, and we look forward to 
working with them further on this bill.
    Again, I thank you for the opportunity to be here today and 
look forward to your questions.
    [The prepared statement of Ms. Reilly follows:]

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    Mr. Pallone. Thank you. I appreciate the fact that you were 
very specific about the bill but we only have 5 minutes.
    Jim, thank you for being here.
    Mr. Greenwood. My pleasure.
    Mr. Pallone. You are recognized for 5 minutes.

      STATEMENT OF JAMES C. GREENWOOD, PRESIDENT AND CEO, 
              BIOTECHNOLOGY INDUSTRY ORGANIZATION

    Mr. Greenwood. Thank you, Mr. Chairman, Mr. Acting Ranking 
Member Buyer, Mr. Matheson. It is my privilege to provide 
testimony before this subcommittee today on behalf of the 
Biotechnology Industry Organization, BIO, on the efforts of BIO 
member companies to ensure the safety of the ingredients that 
they use to manufacture their pharmaceutical and biological 
products for the American public. We applaud the subcommittee 
for convening this hearing and we are committed to 
collaborating closely with you and the FDA to better ensure the 
safety, purity and potency of imported drugs and biologics. We 
welcome this opportunity to inform you of the steps that our 
members have been taking to ensure the quality of their 
products as part of the successful closed regulatory system for 
imported drugs and drug products.
    I want to reiterate that the commitment of BIO and its 
member companies to work with you and this subcommittee in this 
endeavor. We do so because the continuing safety of our 
products is our responsibility to the patients we serve and it 
is number one priority.
    Regarding the draft FDA Globalization Act, BIO has 
previously publicly acknowledged that the FDA is woefully 
underfunded, particularly given the enormous and rightful 
demands that this Congress and the American public have placed 
upon it. In fact, BIO led the formation of the Alliance for a 
Stronger FDA, which successfully advocated for $40 million in 
additional appropriated funds for FDA's Human Drug Review 
Program last year, and we are advocating for more this year. 
While we respect the fact that user fees are and will continue 
to be a part of the solution to the Agency's funding crisis, 
BIO strongly believes that the imbalance between user fees and 
appropriated fees within the Agency's budget has become too 
great, hence the need for a much larger appropriation. BIO 
would urge the subcommittee to ensure that if new user fees are 
created, that the amount and the use, and I believe Mr. Pallone 
has already acknowledged that you will have a specific amount 
in the bill, but also that the use of any new user fees are set 
forth clearly in any new legislation, to ensure both 
transparency and accountability. It is also essential that 
inspection user fees for drug and biologic manufacturers are 
not duplicative of existing registration and establishment fees 
and are not used to subsidize unrelated activities or other 
agency functions.
    Second, any new legislation in this area should recognize 
the significant differences between biologics and small 
molecule drugs, as well as between and among different types of 
biologics. This is particularly relevant with respect to the 
type of testing that may be required to ensure safety and 
purity. Biologics are complex products that are derived from 
living organisms. In some instances, the active substance may 
not be well characterized. In other cases, it may be known but 
not easily separable from other components of the product using 
current scientific methods. Of course, all biologics like all 
other drugs are regularly tested for purity and to ensure that 
they continue to meet their approved regulatory standards but 
it is important that Congress not seek to create a one-size-
fits-all testing requirement to ensure purity and identity 
because a one-size-fits-all approach will not work for all 
safe, pure, and potent biologics. Rather, FDA must have the 
responsibility and the discretion to ensure appropriate testing 
based on each particular product.
    Third, there currently exists a highly detailed regulatory 
framework governing approval and post-approval manufacturing of 
drugs and biologics including requirements for ensuring the 
consistent manufacture of a safe and effective product in 
accord with its FDA-approved package. If the Congress is to 
enact new requirements or programs in this area, it is critical 
that they build upon and strengthen FDA's GMP requirements to 
ensure that the manufacture of drugs and biologics can be 
reproduced consistently in accordance with agency standards and 
avoid imposing confusing or vague new mandates.
    Fourth, any new legislation should ensure that the FDA has 
the time, resources and direction to successfully implement the 
new requirements and programs in a way that will not result in 
shortages or disruptions to the supply chain of life-saving and 
life-enhancing medicines because of FDA's failure to conduct 
timely inspections in accordance with the time frames in the 
legislation. It is important to recognize that the current 
closed regulatory system has been successful overall and 
improvements to this system should not result in the unintended 
consequences of limiting patient access to needed therapies.
    Finally, it bears emphasis that the closed regulatory 
system for imported drugs and biologics is an essential element 
in ensuring drug safety here in the United States. As we seek 
to strengthen the closed system together, we must keep in mind 
that any efforts to broaden permissible importation of drugs 
that are currently illegal to import in the United States will 
only undermine such efforts and add to the FDA's already heavy 
burden.
    I want to thank the subcommittee in advance for the 
consideration of these views.
    [The prepared statement of Mr. Greenwood follows:]

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    Mr. Pallone. Thank you, Congressman.
    Next is Ms. Mundkur recognized for 5 minutes.

 STATEMENT OF CHRISTINE MUNDKUR, CHIEF EXECUTIVE OFFICER, BARR 
                       LABORATORIES, INC.

    Ms. Mundkur. Thank you for the opportunity to present 
today. I am Christine Mundkur, the CEO of Barr Laboratories, a 
global generic pharmaceutical company.
    Prior to being CEO, I spent about 15 years at Barr 
Laboratories in the areas of quality, regulatory, and safety, 
and most recently I have served as the executive vice president 
of Global Quality, overseeing our manufacturing facilities 
located in the Czech Republic, Poland, Croatia, as well as the 
United States, and as well as ensuring the distribution of 
high-quality generic pharmaceuticals in over 30 markets.
    I am proud to be here today on behalf of GPHA, which 
represents both domestic as well as multinational companies 
that manufacture 90 percent of the FDA-approved generic 
pharmaceuticals dispensed in the United States. We are 
committed to work with Congress, the Committee and FDA to 
ensure that adequate oversight of the Nation's drug supply is 
in place to ensure the availability of safe and high-quality 
products. We are pleased today to support the overall goals and 
the fundamental provisions of the draft FDA Globalization Act 
of 2008, and we continue to support HHS's Import Safety Action 
Plan.
    While we have stringent regulations on all drugs approved 
by FDA, as you are aware, we have drugs today in the United 
States that do not have FDA approval and are not regulated. We 
know these to be counterfeit drugs. The safety of our supply 
chain is only as strong as the weakest link. We continue to 
encourage this committee to place a high priority on the 
prevention of these counterfeit drugs.
    Also, while we support your efforts to enhance the foreign 
inspections, we encourage this committee to recognize the need 
to carefully balance the competing demands of FDA resources to 
prevent the increased emphasis on foreign inspections from 
unintentionally or negatively impacting the timely availability 
of U.S. generic pharmaceuticals, which already have a 
significant backlog in the review and approval times.
    As Dr. Woodcock stated, quality cannot be tested in nor can 
we inspect our way to safety. FDA has acknowledged as well as 
the industry has acknowledged these statements through the 
implementation of risk-based approaches. Risk-based approaches 
don't take away from the necessary need of human resources as 
well as additional capital, but allows us to prioritize the 
needs of what we need for GMPs. In addition, FDA and the 
industry continues to work in the area of improving our quality 
systems. As Dr. Woodcock stated, GMPs and the quality of our 
product are really based on the quality systems that we 
manufacture, produce, and distribute our products by, and these 
have also taken on a global nature through our ICH initiatives 
and the quality area, including quality risk management, 
quality systems, and GMP for API suppliers.
    The pharmaceutical industry has continuously improved its 
quality systems, both the branded side as well as the generic 
side. I think it is important to understand that we all operate 
under the same laws whether you a branded company or a generic 
company, and many of our quality systems actually go beyond 
what is written in the law. As similar to what Lori stated, our 
quality starts from the design and development of our products 
and it continues through very robust quality organizations 
utilizing robust and complicated quality systems. For example, 
in the area of third parties, we have very defined systems for 
our vendor qualification programs, how we source APIs, making 
sure that we have long-term relationships with our API 
suppliers through quality agreements and our vendor audit 
programs.
    One of the challenges that we have had, as you heard, is 
that as the pharmaceutical industry has become more global, 
many additional challenges have hit both the industry as well 
as FDA's responsibilities for ensuring that there is quality 
and safe supply of pharmaceutical products coming to the United 
States. As we have heard, one of the areas that has probably 
been most challenging is in the area of foreign inspections, 
and we support the establishment of one uniform high-quality 
inspection program for all facilities. Today what we have is, 
we have a domestic inspection program and a foreign inspection 
program and they are not necessarily linked as one. We support 
the idea of having one inspection program that will serve as 
both the domestic as well as the foreign manufacturers. We also 
believe that all foreign inspections should be comparable in 
frequency and duration to those of their domestic counterparts. 
We do understand that FDA must have the resources, both human 
and capital, necessary to conduct both domestic and foreign 
inspections equally across all manufacturers for both APIs as 
well as for finished products. These resources need to be 
supported by additional agency appropriations and also by the 
establishment or the registration fees by manufacturers.
    It is our position that the current agency appropriations 
should be adequate to support the domestic facility 
inspections. However, we believe that the registration and 
establishment fees should be allocated solely to the support of 
the foreign inspection program for both GMP as well as pre-
approval. We support a fee structure tied to facility 
inspections, that is, what do I mean by that? That the fee is 
actually due upon the completion of the inspection, which has a 
very similar model in the EU system.
    We further support and continue to encourage FDA's use of a 
risk-based approach for the inspection program that would 
prioritize the need of inspections based on the compliance 
history of the company, the compliance history of the facility, 
as well as the products that that facility manufactures, such 
as OTCs versus sterile products.
    In addition, we believe that it is necessary to establish a 
foreign inspection cadre that may also include the 
establishment of FDA inspection offices in various regions 
worldwide and we commend the FDA in looking at the idea of 
putting FDA offices in China and India and other regions where 
it may be necessary.
    With regard to third-party inspections, we understand that 
additional work is necessary in crafting the final language, 
and we are committed to working with you on that language. 
However, we believe that there are opportunities for FDA to 
collaborate with third parties, and most specifically with 
other international regulatory authorities through such 
programs as----
    Mr. Pallone. I am going to mention again you are a minute 
over so if you could wrap up.
    Ms. Mundkur. So in closing, I do believe that we strongly 
have the--the United States enjoys the world's safest supply of 
pharmaceutical products, and as an industry we are committed to 
supporting both Congress and FDA in strengthening the foreign 
inspection program.
    [The prepared statement of Ms. Mundkur follows:]

                     Statement of Christine Mundkur

    Good morning Chairman Pallone, Ranking Member Deal, and 
Members of the House Energy and Commerce Committee Subcommittee 
on Health. Thank you for asking me to participate in this very 
timely and important hearing.
    I am Christine Mundkur, Chief Executive Officer of Barr 
Laboratories, Inc., the global generic pharmaceuticals business 
unit of Barr Pharmaceuticals, a leading global manufacturer of 
generic and brand name prescription drugs, and over-the-counter 
medicines. Barr currently operates in more than 30 countries, 
with manufacturing and packaging operations of finished dosage 
form products in multiple sites in the United States, and 
manufacturing of active pharmaceutical ingredients and finished 
dosage form products in Croatia, Poland, and the Czech 
Republic.
    Prior to being named CEO of Barr Laboratories in March of 
this year, I held a variety of legal, regulatory, quality, and 
safety management positions since joining the company in 1993. 
I am also a regulatory attorney. Most recently, I served as 
Executive Vice President, Global Quality, Safety and Regulatory 
Affairs, and had responsibility for leading the Company's 
global quality, safety, regulatory affairs and 
pharmacokinetics/bioequivalence (PK/BE) operations. Following 
Barr's acquisition in 2006 of PLIVA, a leading European 
pharmaceutical company based in Croatia, I had the opportunity 
to relocate to our European headquarters in Zagreb, Croatia. In 
this position, I worked to harmonize the quality, safety, 
regulatory, and manufacturing processes across the global 
operation and gained valuable experience and knowledge working 
with the European drug regulatory system.
    I have worked extensively over the past 15 years with FDA 
in all aspects of product review, approval, and the regulation 
of manufacturing and quality standards, and actively managed 
our relationships with suppliers of active and inactive 
pharmaceutical ingredients in our products.
    In addition, I am proud to speak on behalf of the Generic 
Pharmaceutical Association, which represents domestic and 
multinational companies that manufacture 90% of the FDA-
approved generic pharmaceuticals dispensed in the United 
States, as well as active ingredient suppliers for this market.

                         Overview of Testimony

    I would like to make two brief points in my testimony 
today, before commenting in some detail on the proposed Food 
and Drug Administration Globalization Act, and in particular 
Title II of the Act, which addresses drug and device safety.
    First, we applaud the work of this subcommittee, and the 
commitment of Congress to ensure the safety of America's drug 
supply--brand and generic. For nearly a quarter of a century 
America's generic drug industry has been developing, 
manufacturing, and marketing generic versions of brand-name 
prescription drugs. Last year, approximately 65% of the 3.6 
billion new and renewal prescriptions dispensed in the U.S. 
were filled with generics, saving patients and consumers 
literally billions of dollars. We are committed to doing 
everything possible to work with Congress and the FDA to ensure 
that adequate oversight of the Nation's drug supply is in place 
to ensure our safety.
    Second, I want to make clear that the generic 
pharmaceutical industry is among the most highly regulated in 
the world. FDA promulgates strict rules governing the 
development, manufacture, approval, packaging, marketing, and 
post-marketing surveillance of prescription drugs. And to 
ensure the highest purity and quality, FDA has in place 
rigorous inspection standards for facilities that manufacture 
and supply prescription drugs.
    These stringent regulations apply equally to all brand, 
generic, and biological prescription drugs approved by the FDA. 
However, as you are aware, there are drugs being sold in the 
U.S. today that do not have FDA's approval. I am speaking 
primarily of counterfeit drugs, which are sold over the 
Internet and on the black market. We do not want to lose sight 
of this untenable situation and the grave risk these unapproved 
and unregulated products carry for U.S. consumers. Our drug 
safety system is only as strong as its weakest link, and we 
encourage this committee to continue to place high priority on 
preventing counterfeit medicines from reaching consumers.
    While we support your efforts to enhance foreign 
inspections, we encourage the subcommittee to recognize the 
need to carefully balance competing demands for FDA resources 
to prevent the increased emphasis on foreign inspections from 
unintentionally and negatively impacting the timely 
availability of U.S. generic pharmaceuticals. Generic 
applications already are backlogged at the FDA, with the 
average review and approval time for Abbreviated New Drug 
Applications (ANDAs) now approaching 20 months, according to 
the Office of Generic Drugs. This is a delay of more than a 
year longer than the 6-month statutory approval period 
specified by the Hatch-Waxman Act. Action related to enhancing 
foreign inspections cannot be permitted to further delay FDA's 
timely approval of generic drug applications.
    Now, I would like to spend my remaining time outlining the 
generic industry's position regarding modifications to the 
Foreign Inspection process.

                      Consumer Safety is Paramount

    The Government Accountability Office (GAO) reported to 
Congress in November that FDA's effectiveness in managing its 
foreign drug inspection program continues to be hindered by 
weaknesses, and that fundamental flaws in the program 
identified a decade ago continue to persist. The GAO report, 
coupled with the recent recall of heparin containing foreign-
made active ingredients, has served to amplify the call for 
revamping the FDA's foreign drug inspection program to ensure 
the safety and quality of imported pharmaceutical products.
    The generic industry applauds the diligent efforts of 
Chairman Dingell and Members of the Energy and Commerce 
Committee who, for more than a year, have been working on 
initiatives aimed at protecting American consumers from 
substandard and unsafe medicines. Product safety and efficacy 
must always be paramount, and our industry has long supported 
measures to strengthen regulations that assure that all 
medicines--whether manufactured here or overseas--meet the 
highest standards for quality and safety.
    We agree with Chairman Dingell that we cannot ``inspect our 
way to safety.'' FDA must have the resources to enforce 
programs designed to prevent drug safety problems before they 
occur. And when prevention fails, the Agency must have the 
authority to impose appropriate penalties. That is why we are 
pleased to support the overall goals and fundamental provisions 
of the FDA Globalization Act.
    Our industry has long supported measures to strengthen 
safety standards across the board and to deal with the problems 
posed by insufficient current Good Manufacturing Practices 
(cGMP) inspections. The key to addressing these issues is to 
provide FDA the resources it needs to do the job.
    First, the generic industry realizes that FDA needs 
additional funding to defray the costs of sustaining an 
adequate inspection. Therefore, we support, in principle, 
Section 201 and the need for annual registration fees 
applicable to producers of drugs. However, the draft 
legislation proposes that these fees be allocated to support 
inspections of both domestic and foreign facilities. It is the 
position of the generic industry that current agency 
appropriations already are adequate to support domestic 
facility inspections. Thus, our position is that annual 
registration fees proposed in Section 201 be allocated solely 
to support the inspection of foreign facilities, where there is 
an immediate and significant need for resources to address the 
larger issues that are providing the momentum for this 
legislation.
    The generic industry advocates a ``flat fee'' structure 
that would cover both cGMP and pre-approval inspections, and 
would also have provisions to incorporate re-inspections. We 
support a fee structure that is tied to facility inspections, 
very similar to the system currently in place in the European 
Union. Under this fee model, payment of the inspection fee is 
due upon completion of the inspection. However, regardless of 
whether fees are registration-based or inspection-based, the 
fee structure should be tiered, with one rate for API 
manufacturers and another rate for finished dosage suppliers.
    In conjunction with generating the funds needed to achieve 
a successful inspection program, the fee system should require 
that the FDA adhere to certain performance metrics and adequate 
reporting to Congress to monitor program effectiveness and help 
ensure inspection goals are being met. Such performance-based 
metrics should help maintain a system under which manufacturers 
have product entry assurances that are tied to timely pre-
approval inspection. In this way, the program would to a 
certain degree parallel the goals and assurances that are 
fundamental to the PDUFA user fee program for new drug 
applications.
    It also is critical that fees collected are ``locked in'' 
for their intended purpose, namely defraying the costs of 
foreign inspections. We would not be inclined to support a 
program that permitted fees to be comingled into other accounts 
that do not support foreign inspections.
    The inspection program must ensure a fair and level playing 
field between foreign and domestic manufacturers. The generic 
industry urges the establishment of one uniform, high quality 
inspection standard for all facilities, with foreign inspection 
as inclusive and robust as the strictly controlled processes 
that FDA requires of domestic manufacturers. This would include 
assurances that products are made in facilities that have the 
proper core competencies, laboratories, and operational 
infrastructures, and that inspections are conducted with the 
same frequency, whether the facility is domestic or based 
overseas.
    We further support a ``risk-based'' model for the 
inspection program that would prioritize the allocation of 
inspection resources according to a company's safety and 
compliance track record. This system would ensure that 
questionable or problematic facilities receive a comprehensive 
review and evaluation. At the same time, companies with strong 
records of compliance and positive inspections could be 
permitted to proceed to market with their products based upon 
this track record, without delays resulting from waiting for 
FDA pre-approval or surveillance inspections on every product. 
By no means would a risk-based approach exempt companies with 
solid compliance from FDA inspections, but rather it would put 
them further down on the inspection schedule, allowing the 
Agency to focus its immediate attention on companies that have 
compliance needs.
    We also support Section 202, which would require an initial 
inspection before the introduction or delivery for introduction 
into interstate commerce of any drug or active pharmaceutical 
ingredient. We particularly endorse the provision in this 
Section that would require both domestic and foreign drug 
facilities to be inspected at the same frequency. Again, we 
urge the drafters of this legislation to ensure that 
implementation of this biennial inspection does not 
unnecessarily inhibit the introduction of new products from 
company's that have and continue to meet the highest standards 
of FDA cGMPs.
    In talking with committee staff, we understand that there 
is more work needed in crafting final language relative to 
third-party inspections, which is covered in more depth in the 
Food section of the Act, but also comes into play in the Drug 
and Device section. We agree that additional language needs to 
be incorporated that ensures that third-party inspections, 
including other foreign regulatory authorities, are performed 
using consistent standards and that third parties involved in 
inspections meet the highest levels of conflict of interest 
standards.
    In the matter of testing for drug purity and identity, 
addressed in Section 205, generic manufacturers currently test 
their finished products and the active ingredients they contain 
for purity. However, prior to providing full support for this 
section, we would like to work with the Committee to ensure the 
appropriate testing practices are in place.
    Section 206 of the Act addresses country of origin 
labeling. While our product labels currently specify the 
country in which the finish dose is made, there would be 
significant practical problems associated with indicating 
countries of origin for every component of a finished product. 
Therefore, we request clarification of the Committee's intent 
in this Section--whether the country of origin labeling applies 
only to finish dose, the active ingredient, or all components 
of a product.
    It should be noted that country of origin information for 
the components of the finished dosage are already contained 
within ANDAs, and such information is updated annually and 
submitted to FDA. Because of the complexity of this issue and 
the myriad of technicalities involved in adding to labels the 
country of origin information for every component of a finished 
dose product--which could include all inactive ingredients, 
color agents, capsules or tablet coating materials, etc.--we 
believe that this section of the Act needs to be further 
examined in light of the practical issues related to its 
implementation if all inclusive.
    There has been some talk about drug tracking, so-called 
pedigree, as part of the drug safety initiative. The generic 
industry believes this bill could be an appropriate vehicle to 
implement a federal pedigree program that would ensure a 
uniform and strong national safety regime. We advocate adoption 
of a federal pedigree system, with uniform standards across all 
states, as opposed to a patchwork of more state-enforced 
regulations. The challenge will be to ensure that the 
technology is reasonable and feasible in light of numerous 
economic, technical and logistical factors.
    To address potential quality concerns with inactive 
ingredients, we recommend that the GMP requirements as 
currently provided in the pharmacopeias, USP, EP, and JP, be 
further clarified and revised as deemed appropriate.
    Lastly, we support those sections of the discussion draft 
dealing with the destruction of adulterated, misbranded or 
counterfeit drugs offered for import; providing civil money 
penalties for violations; and granting the Secretary the same 
authority for detention of drugs as is currently available for 
devices.

                                Summary

    Our Foreign Inspection Process is only as strong as its 
weakest link. Failure to infuse adequate resources and 
implement reform measures will perpetuate a system where there 
is one standard for domestic FDA-approved prescription drug 
manufacturers and a lesser standard for foreign manufacturers.
    In conclusion, Mr. Chairman, while we strongly believe the 
U.S. enjoys the world's safest pharmaceutical supply chain, we 
know from recent and unfortunate events that there still is 
room for improvement through enforcement of more rigorous 
standards. As an industry, we stand ready to support Congress 
and the FDA in strengthening the foreign inspection program to 
ensure we continue to lead the world in safety.
    Thank you. I would be happy to address any questions of the 
Committee.
                              ----------                              

    Mr. Pallone. Thank you.
    Mr. Bone.

  STATEMENT OF RON BONE, SENIOR VICE PRESIDENT, DISTRIBUTION 
                 SUPPORT, MCKESSON CORPORATION

    Mr. Bone. Mr. Chairman and members of the Committee, I 
thank you for the opportunity to testify today. I am Ron Bone, 
senior vice president of distribution support for McKesson 
Corporation, the largest pharmaceutical distributor in North 
America. I have worked for McKesson for 36 years with senior-
level management positions in distribution, sales, finance, and 
independent pharmacy management. I am responsible for 
overseeing McKesson's electronic tracking systems for 
pharmaceuticals and I am a member of the leadership team of GS1 
Healthcare on track-and-trace standards internationally and in 
the United States.
    I am testifying today on behalf of Healthcare Distribution 
Management Association (HDMA), a national association 
representing primary pharmaceutical distributors. HDMA members 
are responsible for storing, managing, and delivering 80 
percent of the prescription medicines sold in the United 
States. I am here today to express HDMA's support for H.R. 
5839, the Safeguarding America's Pharmaceuticals Act, 
introduced by Representatives Buyer and Matheson.
    Pharmaceutical distributors play a critical role in the 
delivery of medicines in the United States. HDMA members 
purchase medicines from more than 700 manufacturers. Each day 
we deliver 13 million prescription drugs to more than 144,000 
pharmacies, hospitals and other healthcare settings in the 
United States. Our customers order electronically every 
evening. We pick the order that night and it is delivered the 
next morning.
    Critical public health functions are performed with 
tremendous efficiency and save the Nation's healthcare system 
$34 billion each year. The U.S. pharmaceutical supply chain is 
extremely secure, providing an effective system for safe and 
efficient delivery of medicines to patients nationwide. 
Recognizing emerging threats from sophisticated criminal 
elements, the distribution industry is consistently developing 
innovative ways to preserve the integrity and the security of 
the network. The industry has promoted legislation in multiple 
States to tighten licensure requirements and to increase the 
criminal penalties for those who counterfeit and divert 
medicines. HDMA members also have a record of supporting 
current and emerging track-and-trace technologies such as those 
required in California.
    In 2006, HDMA established Rx Safe Track, an industry task 
force of manufacturers, distributors, and pharmacies dedicated 
to identifying the operational and technical requirements for 
track-and-trace implementation.
    There are three critical reasons our industry supports this 
bill.
    First, the bill provides for a uniform electronic pedigree 
standard that the national supply chain can implement. The 
current patchwork of State pedigree laws causes confusion, 
erodes efficiency, and disrupts the availability of medicines. 
These conflicting requirements slow the development and 
adoption of uniform approaches to pedigree implementation.
    Second, the bill allows the industry to focus on and invest 
in uniform technology to track-and-trace pharmaceuticals across 
the supply chain. One standard for the country, rather than 50 
potential State requirements, will be more efficient and less 
costly.
    Third, the world is moving towards a unique identifier for 
each prescription drug. This bill builds upon the standard 
numerical identifier provisions of the FDA Amendments Act. 
These standards, mandated by Congress, are under development by 
the FDA.
    As pharmaceutical distributors, our greatest priority is 
the security of the supply chain. Uniform pedigree requirements 
will support the existing national pharmaceutical inventory and 
enables the safe, reliable, and efficient distribution of 
critical medicines and facilitates our rapid response in times 
of emergency. This legislation strikes the right balance by 
providing the FDA with the authority to establish federal 
standards while preserving the critically important roles of 
States to license, regulate and enforce.
    With a net industry profit margin of approximately 1 
percent, HDMA members have every incentive to ensure the 
technology is right the first time. Pharmacies and hospitals 
will look to their distributors for assistance in implementing 
track-and-trace technologies. The distribution industry has 
pioneered innovative electronic ordering and other inventory 
management systems in the past and we will continue to support 
and ensure our customers' success.
    We urge the Committee to consider this important 
legislation, which we believe will successfully reduce the 
threat of counterfeit and diverted medicines in the legitimate 
pharmaceutical supply chain.
    Thank you for your consideration, and I would be pleased to 
answer any questions.
    [The prepared statement of Mr. Bone follows:]

                         Statement of Ron Bone

    Mr. Chairman, thank you for the opportunity to testify 
before the House Energy and Commerce Subcommittee on Health 
about the safety and security of the U.S. pharmaceutical supply 
chain. My name is Ron Bone and I am Senior Vice President of 
Distribution Support for McKesson Corporation, the largest 
pharmaceutical distributor in North America. I have worked for 
McKesson for 36 years with senior management positions in 
distribution, sales, finance, and independent pharmacy 
management. Currently, I am responsible for overseeing 
McKesson's electronic tracking systems for pharmaceuticals and 
serve as a member of the leadership team of GS1 Healthcare, 
which is developing track-and-trace standards internationally 
and here in the U.S.
    I am testifying on behalf of the Healthcare Distribution 
Management Association (HDMA), the national trade association 
representing primary pharmaceutical distributors. HDMA's member 
companies are responsible for storing, managing, and delivering 
80 percent of prescription medicines sold in the U.S.
    Today, I am here to express HDMA's support for HR 5839, the 
``Safeguarding America's Pharmaceuticals Act,'' as introduced 
by Representatives Buyer and Matheson.
    This comprehensive bipartisan legislation would establish a 
uniform, national requirement for the tracking-and-tracing of 
prescription medicines from the manufacturer, through the 
distributor, to the pharmacy.

        Role of Distributors in U.S. Pharmaceutical Supply Chain

    HDMA's pharmaceutical distributor members typically 
purchase prescription medicines from more than 700 different 
manufacturers. We safely store these medicines in state-of-the-
art distribution centers across the country and make daily 
deliveries to the Nation's 144,000 pharmacies, hospitals, 
nursing homes, physician offices, and other healthcare 
providers. Each day, HDMA member companies deliver 13 million 
prescription medicines and other healthcare products. This 
critical public health function is performed with tremendous 
efficiency, saving the Nation's healthcare system nearly $34 
billion each year.

Industry Efforts to Further Secure the U.S. Pharmaceutical Supply Chain

    The U.S. pharmaceutical supply chain is extremely secure, 
providing an effective system for the safe and efficient 
delivery of medicines to patients nationwide. Manufacturers, 
distributors, and pharmacies together share a responsibility to 
continuously monitor, protect, and enhance this secure system 
against increasingly sophisticated criminals who may try to 
introduce counterfeit or diverted drugs into the legitimate 
supply chain.
    HDMA members have a long history of working with Congress, 
the FDA, state legislatures and regulators, law enforcement, 
and supply chain partners to identify business, policy, and 
technology improvements that can be made to enhance patient 
safety.
    The industry has promoted legislation in multiple states to 
tighten licensure requirements and to increase the criminal 
penalties for those who counterfeit or divert medicine. HDMA 
members also have a record of supporting current and emerging 
track-and-trace technologies such as those required in 
California.
    In 2006, HDMA established Rx SafeTrack, an industry task 
force of manufacturers, distributors, and pharmacies dedicated 
to identifying the operational and technical requirements for 
track-and-trace implementation. In addition, HDMA has led the 
development of track-and-trace research and education, as well 
as technical guidelines.
    We are pleased the ``Safeguarding America's Pharmaceuticals 
Act'' includes provisions that build upon these innovations, as 
well as the work already underway in many states.

Industry Support for the ``Safeguarding America's Pharmaceuticals Act''

    HDMA members support this bill for three primary reasons.
    First, the bill provides for a uniform, federal electronic 
pedigree standard that the national supply chain can implement. 
Today's pharmaceutical supply chain is regulated at both the 
Federal and State levels of government. Federal law establishes 
minimum licensing and pedigree requirements as a baseline, 
while each State can enact additional requirements. The 
variability of these state requirements creates a patchwork of 
regulations that causes confusion, erodes efficiencies, and 
disrupts the just-in-time availability of prescription 
medicines. These conflicting requirements slow the development 
and adoption of uniform approaches to pedigree implementation.
    Second, this bill will allow the industry to focus on and 
invest in interoperable technologies to track-and-trace 
pharmaceuticals across the supply chain. One standard for the 
country, rather than 50 potentially conflicting State 
requirements, will be more efficient and less costly. The 
development of end-to-end systems based on the unique 
identification and tracking of individual prescription drugs 
will achieve true, long-term safety benefits for all Americans.
    Third, the world is moving toward a unique identifier for 
each prescription drug. This legislation builds upon the 
standardized numerical identifier provisions of last year's 
Food and Drug Administration Amendments Act (FDAAA). These 
standards, mandated by Congress, are under development by the 
FDA.

                               Conclusion

    As pharmaceutical distributors, our greatest priority is 
the security of the supply chain.
    National, uniform pedigree requirements will support the 
existing national pharmaceutical inventory that enables the 
safe, reliable and efficient distribution of critical medicines 
and facilitates our rapid response in times of emergency.
    This legislation strikes the right balance by providing the 
FDA with the authority to establish Federal standards, while 
preserving a critically important role for states to license, 
regulate, and enforce.
    With a net industry profit margin of approximately one 
percent, HDMA member companies have every incentive to ensure 
the technology is right the first time. Pharmacies and 
hospitals will look to their distributors for assistance in 
implementing track-and-trace requirements. The distribution 
industry has pioneered innovative electronic ordering and other 
inventory management systems in the past, and we will continue 
to help ensure the success of our supply chain partners.
    We urge the Committee to consider this important 
legislation, which we believe will successfully reduce the 
threat of counterfeit and diverted medicines in the legitimate 
pharmaceutical supply chain.
                              ----------                              

    Mr. Pallone. Thank you, Mr. Bone.
    We have four votes on the Floor, one 15-minute followed by 
three 5-minute votes. I am going to try to get through the last 
two panelists before we break, and we will be breaking for 
about a half an hour and then we will come back with the 
questions.
    Mr. Nicholson, you are recognized.

 STATEMENT OF KEVIN NICHOLSON, R.PH.D., J.D., VICE PRESIDENT, 
PHARMACY REGULATORY AFFAIRS, NATIONAL ASSOCIATION OF CHAIN DRUG 
                             STORES

    Mr. Nicholson. Thank you. Mr. Chairman and members of the 
Health Subcommittee, thank you for the opportunity to testify. 
I am Kevin Nicholson, a pharmacist and an attorney, and vice 
president of pharmacy regulatory affairs for the National 
Association of Chain Drug Stores.
    Chairman Pallone, NACDS first reiterates our thanks for 
your leadership in sponsoring H.R. 3700, the Fair Medicaid Drug 
Payment Act. This bill would mitigate reimbursement cuts that 
could force 20 percent of all U.S. pharmacies to close, 
including those serving our most vulnerable low-income patients
    Now onto drug safety. Our industry is committed to assuring 
that we purchase and dispense only safe and high-quality 
pharmaceuticals. We take a back seat to no one in our 
commitment to the health and well-being of our patients. The 
U.S. drug supply chain is among the safest in the world, if not 
the safest. Both the FDA and the World Health Organization 
agree that prescription drug counterfeiting is rare in the 
United States. Still, we are committed to working with you to 
maintain and strengthen this highly reliable system.
    We commend the work of Members of Congress to assure the 
quality and safety of drugs provided to patients. We especially 
commend the leadership of this committee, Chairmen Dingell, 
Pallone, and Stupak, for developing a strong and thoughtful 
food and drug safety discussion draft. It contains several 
important measures that would bolster existing safeguards and 
provide new programs to further protect the drug distribution 
system.
    However, we do have concerns regarding the bill's 
provisions on country-of-origin labeling. These concerns are 
detailed in my written statement.
    Now onto track-and-trace legislation. As the Committee is 
aware, Representatives Buyer and Matheson have introduced H.R. 
5839, mentioned by my colleagues, which contains a specific 
requirement for the tracking-and-tracing of prescription drugs. 
This is a mandate we do not support. We appreciate that the 
Committee draft does not contain this provision. We want to 
state our strong concerns with this approach and urge the 
Committee to resist any attempt to add a track-and-trace 
mandate.
    The sponsors of H.R. 5839 share our goal of enhancing the 
security of the drug supply chain. In fact, the bill does 
contain certain promising concepts. For example, the bill would 
allow the destruction of adulterated and misbranded drugs. This 
is an idea we support. It would also strengthen the 
requirements for licensure of wholesale drug distributors, 
another idea we support. And the bill creates a study to 
determine the threats to the domestic prescription drug supply 
chain, which could yield very important information. However, 
we cannot support this or any legislation that would mandate a 
track-and-trace system. Such a proposal is fraught with 
technical difficulties and formidable costs and would not live 
up to safety expectations at this time.
    First, track-and-trace systems are many years away from 
full development. They have not been fully tested and lack 
uniform standards and patient privacy safeguards. This was 
recently acknowledged by the State of California, which has 
delayed its mandate twice, recognizing that the distribution 
chain is not ready. Second, track-and-trace systems could be 
hugely disruptive to the efficient delivery of prescription 
drugs and patient care. Pharmacies face special challenges 
implementing such technologies since we are the only members of 
the pharmaceutical supply chain that have direct patient care 
responsibilities. Requiring pharmacies to adopt nascent 
technologies will take away resources from providing care to 
our patients. And finally, track-and-trace could cost as much 
as $30,000 per individual pharmacy location. With 55,000 
pharmacies nationwide, this could cost the industry $1.65 
billion, a devastating blow when also facing billions in 
reimbursement cuts under Medicaid.
    Some proponents of track-and-trace reference this year's 
recall of contaminated heparin. The related deaths are tragic 
and heart-wrenching. Our condolences go out to anyone injured 
or harmed by this incident. But track-and-trace would not have 
prevented this situation. Four key points are crucial to 
understanding this. The heparin incident was caused by 
contamination in China of the active ingredient used to 
manufacture the product. Tracking-and-tracing the finished 
product would not have prevented the contamination of the 
active ingredient. The FDA recall process was immediate, 
robust, and effective. Track-and-trace would not replace the 
need for the FDA recall process and a thorough and effective 
FDA investigation. Bottom line, drug tracking addresses drug 
distribution, not production, and would not have prevented the 
events resulting in this incident.
    Although we strongly believe the domestic supply chain is 
safe, we have developed a set of principles that we believe 
will lead to a stronger and more secure system. One: Create 
strong uniform federal requirements for state licensure of 
wholesale drug distributors. Two: Create an FDA-administered 
certification program for manufacturers, distributors, and 
pharmacies assuring adherence to secure drug distribution 
supply chain practices. Three: Require chain of custody 
pedigrees for distribution by uncertified supply chain 
entities. We believe this approach is more feasible than 
disruptive and costly changes contemplated under track-and-
trace proposals.
    Mr. Chairman, Chain Pharmacy has taken a leadership role to 
ensure the integrity of the products we dispense. We pledge to 
work with Congress to help further strengthen drug chain 
security. I will be happy to answer any questions.
    [The prepared statement of Mr. Nicholson follows:]

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    Mr. Pallone. Thank you, Mr. Nicholson.
    Ms. Gadhia, I think I am going to wait until we come back 
for you because there is only about 6 or 7 minutes left. So we 
will take a break, I am not going to say exactly but 
approximately half-an-hour for all the votes, and then we will 
come back, finish with Ms. Gadhia, and take questions. So the 
subcommittee stands in recess.
    [Recess.]
    Mr. Pallone. The subcommittee hearing will reconvene, and 
we left off with Ms. Gadhia, who is recognized for 5 minutes.

    STATEMENT OF AMI GADHIA, POLICY COUNSEL, CONSUMERS UNION

    Ms. Gadhia. Good morning, Subcommittee Chairman, 
Subcommittee Ranking Member, my name is Ami Gadhia and I am 
policy counsel with Consumers Union, the nonprofit publisher of 
Consumer Reports magazine. I am here today to testify about the 
drug, device, and cosmetic safety provisions of the discussion 
draft of the FDA Globalization Act. Consumers Union commends 
Chairman Dingell, the subcommittee chairman, the ranking 
members of the Committee and subcommittee and the members of 
the Committee for Chairman Dingell's leadership on the proposed 
legislation and the members of the Energy and Commerce 
Committee for holding today's hearing on this critical consumer 
safety issue.
    The call for a major overhaul of the FDA has now become a 
roar. A November 2007 GAO report put the problem in stark 
relief. Of all foreign plants, at most only 7 percent of them 
are inspected in a year. Some of the more high-profile failures 
of our regulatory system are well known at this point. The 
import of contaminated heparin, which is suspected to have been 
involved in the deaths of over 80 people, the 2006 recall of 
183,000 packages of contact lens solution manufactured in China 
because of bacterial contamination, and a June 2007 import 
alert about toothpaste made in China that contained the very 
dangerous chemical diethylene glycol, which is used in 
antifreeze and as a solvent.
    There have been lots of mentions today about counterfeit 
drugs, but we would just like to mention that largely what has 
brought us here today has been not counterfeit drugs but unsafe 
drugs, devices and cosmetics that are properly sold under their 
brand names.
    Consumers Union believes that the discussion draft of the 
FDA globalization bill contains a number of strong provisions 
that will help make consumers safer. First, the bill would 
require mandatory inspection of both domestic and foreign drug 
and device facilities every 2 years. Consumers Union would 
respectfully recommend that this inspection occur annually, and 
more frequently if there are problems, given the host of 
serious public health risks that have emerged.
    Second, the discussion draft would require destruction of 
adulterated, misbranded, or counterfeit drugs that accompany 
attempts to import into the United States. This provision is 
necessary to prevent importers from shopping until they find a 
U.S. port that will admit entry for their products. We would 
also recommend that the bill provide for a similar destruction 
of unsafe medical devices.
    Third, the discussion draft would give the FDA the 
authority to recall seriously unsafe drugs, an authority that 
the Agency currently has for dangerous devices but which has 
been lacking for drugs.
    We also applaud members of the Committee for including in 
this draft a provision requiring a label with the country of 
origin of APIs and biologics and a label with the country of 
manufacture for devices. We believe that consumers and their 
healthcare professionals are better served by more information 
rather than less.
    We are also glad that the bill includes provisions 
addressing the safety of cosmetics. It is not sufficient for 
FDA's inspection resources to stay at their current, extremely 
inadequate level with regard to imported cosmetics. Creating a 
fee requirement for importers of cosmetics is one step towards 
addressing this problem.
    There are, however, some implementation time frames in the 
discussion draft that Consumers Union would urge the Committee 
to consider shortening. It appears that the effective dates of 
a number of the bill's provisions are too far out in the 
future, sometimes 2 or 3 years out. These should be shortened.
    We support the discussion draft's provision creating a user 
fees regime for various new FDA functions. However, we urge the 
Committee to ensure that the user fees do not turn into a pay-
for-play scenario. We would not want to see regulated entities 
have the ability through the user fee program to exert undue 
influence over the FDA in its decisionmaking or other 
functions. In addition, like the user fees for food safety 
importation, the drug and device importer fees should be 
indexed for inflation.
    Consumers Union also believes the civil money penalties for 
violations are set too low. For a large manufacturer, producer 
or other multinational, a penalty of $100,000 could simply be a 
cost of doing business or perhaps a few hours worth of profit. 
For the penalties to serve as a true deterrent against unsafe 
or illegal actions, they should be set higher.
    FDA must also have the ability to perform unannounced 
inspections of foreign facilities. Because of advanced warning, 
foreign manufacturers, unlike domestic companies, are able to 
clean up to ensure that they past inspection, even if they are 
not in compliance every other day of the year.
    We wholeheartedly support providing FDA with new 
authorities and resources. We are pleased that this discussion 
draft gives FDA a number of new and very necessary additional 
powers to better ensure the safety of our drugs, devices, and 
cosmetics. We also urge that manufacturers and others who 
profit from the sale of such products to American consumers 
fairly shoulder their full responsibility for improving the 
safety and quality of the products they sell.
    I thank the Committee for the opportunity to testify today, 
and we at Consumers Union look forward to working with the 
Committee to help move forward on the strongest FDA reform bill 
possible. Thank you.
    [The prepared statement of Ms. Gadhia follows:]

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    Mr. Pallone. Thank you, Ms. Gadhia, and thank you all the 
panel. We will start taking questions and I will recognize 
myself for 5 minutes for questions.
    I wanted to start with Mr. Hubbard. In your testimony, you 
mentioned the heparin incident. Obviously that is of grave 
concern to us and should never--obviously we don't want it to 
happen again. In some of the meetings we have had with 
pharmaceutical manufacturers, they have pointed out that 
regardless of increased inspection, we currently do not have 
the technological capabilities to actually prevent similar 
incidents as the heparin case, and actually in her testimony on 
Tuesday, Dr. Woodcock pointed out that, and I quote, 
``Conventional laboratory testing did not identify the 
contaminant'' and that the Agency had to develop a new test but 
they had to know that they were looking for something that 
shouldn't have been there.
    So basically the way I understand it, Mr. Hubbard, the 
industry is saying that they can't test for unknowns that are 
unknown. They have got to have some idea what they are looking 
for. So it possible to screen drugs and biologics for unknown 
contaminants, and if not, what else can be done to ensure that 
the drugs sold to the American people are truly pure and safe?
    Mr. Hubbard. Well, it is certainly difficult to look for 
something that shouldn't be there and we saw that with melamine 
last year, but I think this case points up the fact that we 
have got to find a way because if people can do this kind of 
contamination so easily, save so much money and get it into our 
system without being caught, there has to be a way. If 
widespread use of capillary electrophoresis or these other 
sophisticated technologies are going to be difficult, it may 
have to be so be it, but I would hope that you would have a 
magnitude of scale that if you had more testing along these 
lines, that you would be able to have some cost savings, plus 
if FDA is regulating more and enforcing its GMPs, you are going 
to presumably raise the standards generally and deter these 
folks anyway and so you are going to have a secure supply chain 
where whoever put that chondroitin in at some point will know 
that there are more people looking, there is more testing, 
there is more overall quality assurance. So I think you have 
got the two pieces. You have a stronger system and perhaps some 
testing. And maybe you don't need to test everything but I 
think that some testing is probably going to have to be 
necessary.
    Mr. Pallone. No, I understand what you're saying, which is 
that, you know, we have to try to check things through the 
chain and set up standards. It is not just a question of a test 
at the end, but at the same time, we have to try to maybe 
invest in new testing methods too, just can't give up.
    Let me ask Ms. Gadhia, I wanted to ask you a question about 
the country-of-origin labeling. You mentioned it, and of course 
a number of the other panelists voiced their concerns about 
country-of-origin labeling. The most common argument we have 
heard is that knowing what country the drug was made in or 
where the ingredients came from would only make consumers more 
worried and confused about the products they are purchasing. Is 
this country-of-origin labeling important, and why, and what 
would you say about the industry's concerns?
    Ms. Gadhia. Well, I understand, and I have heard those 
concerns and generally speaking, the approach that we take is 
that consumers are better served by more information rather 
than less, and in fact, we think that the internal customers 
within the supply chain system would also be served by the 
internal information on a packaging or on what have you, 
letting them know where the product is from. The way that 
things like heparin, for example, work, it is not something 
that the consumer takes off the shelf themselves. It is 
something that a purchasing manager within a hospital would 
buy, or something like that, and we would like to see the 
awareness of potential red flags for danger or safety issues to 
go to those consumers, so to speak, as well. So we think that 
everyone across the board would be better served by that kind 
of information.
    Mr. Pallone. I wanted to ask Mr. Bone one more question 
here. You said that McKesson, I guess, has the electronic 
tracking system, right? You mentioned that. And you mentioned 
in your testimony the need for interoperable technologies to 
track-and-trace pharmaceuticals across the supply chain. We 
have heard today about concerns with respect to technology, at 
least in its current state, to be able to actually accomplish 
what is set forth in the bill that we have, and I know that the 
term ``interoperability'' is used often with respect to health 
information technology and EHRs, yet really doesn't mean that 
the systems truly are interoperable. So I guess what I wanted 
to ask you, I know that even like in hospitals, because I visit 
them all the time, they struggle to connect with other 
providers in the region or the Nation and a lot of times the 
technologies don't work the way they are supposed to. There are 
significant concerns about radio frequency identification, and 
in your opinion, is the technology there yet and are you 
confident that if each pharmacy purchased a different system, 
your suppliers will be able to integrate seamlessly with each 
other? Just basically tell me what McKesson is doing to ensure 
that their systems are truly able to connect seamlessly with 
all other technology manufacturers out there. You should know, 
we are probably going to deal with a larger HIT bill in the 
subcommittee too in the next few weeks so obviously this is of 
concern. If you want to just comment, if you will?
    Mr. Bone. So what is happening in the industry, and I do 
serve on two leadership groups that are working on the standard 
for track-and-trace, both domestically and internationally. We 
are building the backbone for those standards. They are not 
specific in saying that you have to do it precisely this way, 
meaning you have to use RFID. There are other ways that you can 
communicate that information, and one of those is using a 
barcode. We have a barcode that is more robust. It is a 2-D 
barcode that a number of manufacturers are looking at. In the 
work that we have done so far in the standard setting, we 
recommend unit level packages that have RFID chips backed up 
with a 2-D barcode. That means that you would have an 
alternative method, for those who say I am not technologically 
sophisticated enough to read RFID chips. And quite frankly, I 
think reader costs are going to come down in price dramatically 
in the coming years. Those people could say that at this 
juncture reader costs are too high; however, they would have 
something more akin to what they are using today, which is a 
linear barcode. Now, a 2-D barcode is a barcode kind of on 
steroids. A 2-D barcode is a more sophisticated barcode because 
it can store more information on it. There are manufacturers 
that are experimenting with this system. We have actually been 
moving RFID product for over 2 years now, almost 3 years, where 
we have been testing with some manufacturers on that piece. So 
there is more work to be done. That is why I like the timing of 
this bill because it does give us the time to complete the 
standards work that we are doing, which we intend to get done 
later on in this year, first part of next year, which fits in 
the timing that you have here. And we are also trying to do it 
on an international basis, because many of the manufacturers 
are international based. We feel that it is important to expand 
that scope. But for us, what is most important is one standard 
for the Nation.
    Mr. Pallone. Do you think you can--I mean, I just want to 
restate the question. You think that with respect to the 
technology you will be able to actually accomplish what is set 
forth in the bill? I am talking about the Buyer-Matheson bill 
obviously.
    Mr. Bone. That is correct. Yes, we do.
    Mr. Pallone. OK. Thank you.
    Mr. Buyer.
    Mr. Buyer. Thank you.
    This will be a yes or no question and I am going to go 
right down the line. Do you see a value and a necessity and 
therefore support a one uniform national pedigree standard as 
opposed to 50 separate State pedigree standards? Mr. Hubbard?
    Mr. Hubbard. Absolutely.
    Mr. Buyer. Ms. Reilly?
    Ms. Reilly. Yes.
    Mr. Buyer. Congressman Greenwood?
    Mr. Greenwood. I certainly do.
    Mr. Buyer. Ms. Mundkur?
    Ms. Mundkur. Yes.
    Mr. Buyer. Mr. Bone?
    Mr. Bone. Yes.
    Mr. Buyer. Mr. Nicholson?
    Mr. Nicholson. Well, it is difficult----
    Mr. Buyer. ``Well'' is not a yes or no response.
    Mr. Nicholson. I do have difficulty answering that as a yes 
or no response.
    Mr. Buyer. All right. Thank you.
    Ms. Gadhia?
    Ms. Gadhia. No.
    Mr. Buyer. The next question I have, Mr. Greenwood, in H.R. 
5839, there is a provision on page 23 which would exempt drugs 
from being required to have an identifier such as 2-D barcode, 
RFID chip or other technology. So if a manufacturer can 
demonstrate that the identifier would adversely affect the 
safety, effectiveness, purity or potency of the drug or would 
not be technically feasible, do you believe that this provision 
that we have in the Buyer-Matheson bill would be important for 
you to ensure that any new technologies do not affect 
biologics, which are known to be highly sensitive drugs?
    Mr. Greenwood. I believe the answer to that is yes. I would 
like to reserve the opportunity to give you an answer in 
writing after I check with some of our technical staff.
    Mr. Buyer. All right. Thank you.
    Mr. Bone, first, on a personal note, let me thank you for 
your service as a Vietnam veteran. You state in your testimony 
that a track-and-trace system will create efficiencies and 
decreased costs. Can you explain just a little further?
    Mr. Bone. Yes, and this is particularly relative to the 
uniform pedigree standard that is in your bill. We are focused 
on making sure the same serialized pedigree system is used, 
which means serialization when we start that product, and the 
receipt of that item in any one of our facilities throughout 
the distribution network, and as we pass that on to our 
customers, is the same system. What we have demonstrated over 
time, once we have that in place, and there are provisions in 
this bill to incrementally bring people on, so at the early 
stages I would say that is not going to happen but as we have 
the entire network in place, what we will do is, we will 
determine those places that we can improve inventory, recalls, 
returns processing, and the knowledge that we are going to have 
of those products and the quickness with which we will be able 
to handle those products will give us those savings.
    Mr. Buyer. Thank you, Mr. Bone.
    Now, Mr. Nicholson, I have got a series of inconsistencies 
that I want to give you the opportunity to clarify. One would 
be, you in your testimony, you use a $30,000 figure as a cost 
per pharmacy, and yet one of your own board members, the former 
CEO and chairman of Walgreen's, used a $20,000 figure. I would 
like to know if you are familiar with his May 2007 comment. The 
chairman and CEO of Walgreen's was quoted as stating, ``Working 
together through our recently formed coalition within 
independent pharmacies, I am convinced that we can take 
hundreds of millions of dollars out of the pipeline by fully 
exploiting potential RFID in pharmacy. Even more promising is 
the vast improvements in data management networks over the last 
decade are justification for tremendous optimism.'' When he 
broke down the cost savings of an RFID technology for pharmacy, 
$7,250 per store for improved productivity, $2,000 per store 
per year in reduced labor costs on cycle counts, $2,500 per 
store in reduced returns and recalls, $4,000 per store per year 
in improved shrinkage, $24,000 per store per year in better 
inventory forecasting, improved out of stock positions and 
improved pharmacy workflow. Have you seen this analysis?
    Mr. Nicholson. Yes, I have.
    Mr. Buyer. Can you reconcile?
    Mr. Nicholson. Well, Mr. Buyer, yes, I have. What I can 
tell you is that our members have--as Mr. Bone has indicated, 
our members have participated in track-and-trace pilot programs 
and the numbers that I spoke of today are the numbers that they 
have developed as part of the participation in the pilot 
programs. The costs that I spoke of today are--we do have a 
very diverse membership and for some members the costs may be 
greater than for others but these are the costs, this is the 
average cost that our members have indicated they would have to 
put out, that they would have to spend in order to adopt a 
track-and-trace system at this point in time.
    Mr. Buyer. Do you recognize that there have been decreased 
costs in track-and-trace technology in recent years? Do you 
acknowledge that?
    Mr. Nicholson. I don't have that personal knowledge, and 
I----
    Mr. Buyer. Would it surprise you if I were to tell you that 
industry analysis has found that for one identification system, 
which is the RFID, prices have fallen by 70 percent by year 
2005? Would that surprise you?
    Mr. Nicholson. No, that would not surprise me.
    Mr. Buyer. OK. With regard to your ambivalence to a yes or 
no question, would you acknowledge that your organization, that 
there would be considerable costs to pharmacies for you to 
comply with 50 State separate pedigree requirements as opposed 
to one uniform standard?
    Mr. Nicholson. We do prefer, as an association that 
represents large companies that operate in many States, we 
generally do support the harmonization of State requirements 
and we actually have been working in the States to harmonize 
the pedigree requirements among the States. More than half the 
States have passed legislation requiring pedigrees for 
distributions outside the normal distribution channel, so we 
feel that this has been an adequate way of addressing that 
situation.
    Mr. Buyer. Mr. Chairman, I appreciate your indulgence. I 
have one last question.
    Mr. Nicholson, you state that you cannot support 
legislation which would mandate a track-and-trace system.
    Mr. Nicholson. At this point in time.
    Mr. Buyer. However, your own lobbyist testified in 
California on April 7 that your organization supports the 
California legislation currently in the California Senate, 
which is a track-and-trace system. So I note their system, we 
have worked with them, mirrors a lot of our own provisions. How 
do you reconcile your testimony of April 7 supporting the 
California position, yet stand here and say emphatically that 
you do not now support a track-and-trace system?
    Mr. Nicholson. Mr. Buyer, let me address that also. Our 
position in California is that pharmacies would need 2 years 
after the supply chain changes required to implement that 
changes are required for us to proceed. We have not endorsed 
track-and-trace in California. The legislation currently moving 
in the California legislature would amend current statutory 
requirements for track-and-trace. We are working with the Board 
of Pharmacy. We are working with stakeholders in California and 
so we are not supporting track-and-trace in California.
    Mr. Buyer. You are not supporting? So you disavow the 
testimony that occurred in California on April 7?
    Mr. Nicholson. Our testimony in California was not a 
support of track-and-trace.
    Mr. Pallone. We have to move on here. Let us go to Mr. 
Matheson. Maybe he can follow up on this. You don't have to. I 
recognize the gentleman from Utah.
    Mr. Matheson. Thank you, Mr. Chairman.
    Mr. Pallone. You are welcome.
    Mr. Matheson. I have a whole bunch of questions. Mr. 
Nicholson, in your testimony you mentioned that advocates of 
the Buyer-Matheson legislation are somehow implying that it 
would have stopped the heparin issue that took place. I just 
want to make a statement. We are not naive. We don't think our 
legislation deals with tainted drug supply and I don't think we 
have ever said it deals with stopping tainted drug supply and 
to set up an argument in your testimony to criticize 
legislation, it is a false argument. It is a straw man that you 
were able to knock back down but we have never said that and 
that hasn't been part of why we have justified this 
legislation. So just for the record, I don't think that part of 
your testimony really is germane to our bill. We would 
stipulate that our bill would not have prevented the heparin 
situation.
    I have a whole bunch of questions and again, I know you 
didn't like the yes or no before, but in terms of on page 7 of 
your testimony where you mentioned the organization's concern 
with mandating use of any technology that is under development 
and premature. Let us try some yes-no questions on that. Are 
you aware of the provisions in H.R. 5839 which require the 
development of identifier and track-and-trace standards before 
anyone in the industry would be required to buy technology with 
such standards?
    Mr. Nicholson. Yes, sir.
    Mr. Matheson. Are you also aware that the bill provides 18 
months for identifiers to be placed on pharmaceuticals and at 
least 18 months for the supply chain to adopt track-and-trace 
after the standards are announced by the FDA?
    Mr. Nicholson. Yes.
    Mr. Matheson. Additionally, are you aware of the comment 
period currently underway at the FDA as FDA develops standards 
for a unique identifier to be applied on all drug units?
    Mr. Nicholson. Yes, we are providing comments to FDA.
    Mr. Matheson. Are you aware of the rulemaking process 
written into the bill for stakeholders to provide input to the 
FDA as it forms standards for the track-and-trace system?
    Mr. Nicholson. We do support FDA's initiative.
    Mr. Matheson. It seems to me that the bill allows for 
pretty sufficient time for the supply chain as the FDA creates 
its standards for the track-and-trace system.
    Mr. Nicholson. Well----
    Mr. Matheson. I understand----
    Mr. Nicholson. My response to that would be is that we have 
been talking about track-and-trace for many years now and, you 
know, various stakeholders had promised the State of Florida 
track-and-trace. Back in 2003 they promised we would have 
track-and-trace in 2006. We didn't. California was promised 
track-and-trace in 2007.
    Mr. Matheson. What I am going to tell you, Mr. Nicholson, 
is our legislation puts in a buffer and it gives the FDA the 
time to develop these standards. We are not mandating specific 
dates in this legislation, and you imply that we are trying to 
push premature technology, and what I am telling you is, our 
legislation sets up a process by which the FDA through a 
rulemaking process with input from stakeholders is going to 
come up with those standards. So you can talk about Florida in 
2003 all you want. That is not what our legislation does. We 
are not setting a date certain where it has to happen.
    Let me move on. I understand that actually NACDS has been 
at the forefront of promoting use of track-and-trace 
technology. You sponsored annual summits right here in 
Washington for several years to promote the use of track-and-
trace technology. According to Drug Store News, on December 10, 
2007, your summit in 2007 drew nearly 500 attendees that came 
together to learn on how RFID and track-and-trace can be 
tightened for pharmaceutical supply chain security and enhance 
business processes. I also read an article in the 2007 RFID 
track-and-trace healthcare industry adoption summit, which was 
hosted by your organization, that Walgreen's CEO, David 
Bernauer, and I think Mr. Buyer mentioned this, he called on 
supply chain executives to adopt a comprehensive uniform system 
of RFID and track-and-trace technology and he further stated 
that RFID or other track-and-trace technologies could usher in 
a far more efficient supply chain, reducing shrink, out-of-
stocks and returns of outdated product and would improve order 
accuracy and reduce costly inventory levels. Does your 
organization recognize those comments by one of your member 
companies at the summit that happened just last fall?
    Mr. Nicholson. Yes, sir. Yes, Mr. Matheson, we do recognize 
that. We do support the--as you will notice in our testimony, 
we do not say that RFID or track-and-trace technology is bad. 
We say that it has much promise, that it should continue to be 
reviewed and to be researched, that it does have much promise 
for creating efficiencies in the supply chain. However, we are 
not comfortable with any legislation that mandates track-and-
trace technology.
    Mr. Matheson. Did you know he noted in your 2005 summit you 
hosted that while it may mean supply chain improvements and 
heightened patient safety, the related benefits associated with 
the implementation of the new technology also includes 
increased customer retention? He thinks it is going to increase 
sales. That is what the chairman of Walgreens said. Did you 
note these benefits in your testimony? I don't think you did 
actually. You talked about the costs with the $30,000 amount, 
which Mr. Buyer has already brought into question, but one of 
your own member companies, one of your significant ones, has 
acknowledged that track-and-trace technology actually creates a 
lot of business opportunity and benefits for your industry as 
well.
    Mr. Nicholson. We don't dispute that.
    Mr. Matheson. Thank you, Mr. Chairman. I yield back.
    Mr. Pallone. I am going to start dreaming track-and-trace 
here tonight with all the track-and-trace back and forth.
    Thank you all. We certainly appreciate your testimony and 
obviously this is the second--we are actually going to have 
another hearing on this bill, I think, next week dealing with 
the cosmetics and the medical devices, but all of your 
testimony has been very helpful.
    Let me mention that the members can submit additional 
questions for the record to be answered by you, and basically 
we get those questions submitted to the clerk within the next 
10 days, so within 10 days or so, the clerk will notify your 
offices that you may have written questions and we would 
certainly ask you to respond to those.
    Mr. Buyer. Mr. Chairman, I would like to thank you for your 
courtesy today, not only to do your draft bill but to take into 
consideration Mr. Matheson's and my bill. I appreciate it.
    Mr. Pallone. You are welcome. It is very important and I am 
glad that we have a good discussion about it.
    So thank you again, and without objection, the meeting of 
the subcommittee is adjourned.
    [Whereupon, at 1:45 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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           William K. Hubbard, Answers to Submitted Questions

              Question submitted by Hon. John D. Dingell:

    1. Mr. Hubbard, the discussion draft would require a unique 
identification number for registered facilities and importers 
so FDA can more effectively track facilities in case of 
emergencies. There has been talk from various groups of using a 
Dunn and Bradstreet Number as a unique identifier. What would 
be the advantage of using that number specifically? Are there 
any disadvantages to using that number?
    A: It is clear from the findings by the Committee and the 
GAO that the current registration system for foreign facilities 
has not been successful, as demonstrated by the inaccurate and 
changing information about which foreign drug manufacturers are 
registered and sending drugs to the United States. Therefore, 
unique identification # is needed, and FDA officials now 
recognize that need. The advantage of using the Dunn and 
Bradstreet (DUNS) system is that it is a well established one 
that has worked well in the past, and does not require FDA to 
create a new system from ``scratch.'' I do not know of any 
disadvantages to using the DUNS system.

                Questions submitted by Hon. Steve Buyer:

    1. During your time at the FDA, why was FDA unable to 
destroy counterfeit, adulterated, and misbranded 
pharmaceuticals coming through our international mail system? 
Do you think FDA should have the ability to destroy these 
unregulated drugs?
    A: Under current law, FDA is required to go through certain 
legal processes, such as notifying the intended recipient of 
the drug that it may be in violation of law, hold the drug 
while the recipient considers that notification, and permit the 
recipient to have a hearing on the drug's detention. FDA has 
little storage capacity at border points, and does not have the 
staff to detain and notify the thousands of such drug shipments 
that arrive via the mail each week. The agency has requested 
the authority to destroy such shipments, much as the Drug 
Enforcement Administration can for controlled substances under 
its purview, but Congress has not acted on that request. If FDA 
did have such authority, it could deter the purchases over the 
internet of drugs from unknown and unsafe sources, and thus 
provide a significant deterrent to the sale in the US of 
counterfeit and otherwise dangerous drug imports.
    2. Do you support a uniform national pedigree system and do 
you think a track-and-trace system will help to secure our 
Nation's pharmaceutical supply chain from counterfeiting and 
diversion?
    A: Yes, a uniform national pedigree system, allied with an 
effective trace and trace system for monitoring the movement of 
drugs, is, in my opinion, the single most effective strategy 
that the United States can adopt to deter the counterfeiting 
and diversion of pharmaceuticals. The technology exists for 
doing so, and should be mandated as soon as possible, with a 
reasonable period of time for manufacturers, wholesalers and 
others in the supply chain to implement.
    3. Do you believe drug counterfeiting and drug diversion 
are problems in the United States?
    A: Yes. Not only are drug counterfeiting and diversion a 
problem today in this country, it is a growing problem that 
increasingly threatens the safety of our citizens. The 
counterfeiters are seeking more and more each year to sell 
their dangerous products in the United States, as they 
currently do commonly in many countries around the world. FDA 
is unable, with current resources and authority, to effectively 
stop this trend, and I urge Congress to strengthen the Agency's 
capability to do so.

                Question submitted by Hon. Diana DeGette

    1. Counterfeiting is becoming increasingly more common 
worldwide, and I believe that it is vital for FDA and border 
control agents to have tools at their disposal that will enable 
them to appropriately deal with adulterated or counterfeit 
drugs at the point of entry.
    I want to make sure that there will be sufficient 
technology, resources, and authority available to border 
control agents to ensure the continued safety of our Nation's 
drug supply. Could you please comment on what you believe is 
necessary at the border in order to safeguard our 
pharmaceutical supply? 
    A: FDA needs a range of new tools to effectively deter 
counterfeit drugs that are imported from other countries. 
First, the Agency needs sufficient resources. The agency has 
only 450 import inspectors to cover more than 400 ports of 
entry, so that effort is clearly massively underfunded. And the 
Agency has inspectors to conduct only a handful of surveillance 
inspections in foreign countries each year (where most of our 
drug ingredients are now produced).
    Second, FDA needs to be able to require state-of-the-art 
technology for tracking-and-tracing pharmaceuticals, using a 
universal pedigree for each drug. Such technologies are 
available today and have been demonstrated to be an effective 
deterrence against counterfeiters, who are essentially 
prevented from introducing their dangerous products into the US 
market.
    Third, border inspectors need changes in their current 
authority over drugs that are found at the border. Currently, 
inspectors must go through such complicated procedures to 
detain suspect imported drugs that they must let most go 
through unimpeded. Those procedures were created in an earlier 
day in which few drug imports arrived at border points, and the 
border inspectors are now overwhelmed by the volume of drug 
imports. Specifically, border inspectors need the authority to 
either immediately refuse entry or destroy imported drugs that 
violate US law, without going through the cumbersome notice 
procedures required by current law.
                              ----------                              


             Lori M. Reilly, Answers to Submitted Questions

    Dear Chairman Dingell and Rep. Buyer:
    Thank you for your letter dated June 9, 2008, which sets 
out additional questions from Rep. Steve Buyer. For your 
convenience, I have reproduced your questions below, followed 
by answers on behalf of the Pharmaceutical Research and 
Manufacturers of America (PhRMA). PhRMA represents the 
country's leading pharmaceutical research and biotechnology 
companies, which are devoted to inventing medicines that allow 
patients to live longer, healthier, and more productive lives. 
PhRMA companies are leading the way in the search for new 
cures. PhRMA members alone invested an estimated $44.5 billion 
in 2007 in discovering and developing new medicines. Industry-
wide research and investment reached an estimated record $58.8 
billion in 2007.

                Questions submitted by Hon. Steve Buyer

    1. Do you see value in one, uniform national pedigree 
standard as opposed to 50 separate state pedigree standards?
    PhRMA sees great value in the establishment of a single, 
national pedigree standard. In fact, several states have 
adopted pedigree and electronic track-and-trace requirements. 
In addition, many other states are considering pedigree and 
electronic track-and-trace legislation. Because of the 
complexity of these systems and the need for coordination among 
many different trading partners, there should be one uniform 
national pedigree and/or electronic track-and-trace system, not 
multiple and potentially inconsistent state requirements. This 
would provide national uniformity of all pedigree and track-
and-trace laws, and will help encourage the adoption and use of 
anti-counterfeiting technologies rather than promoting multiple 
and potentially inconsistent state requirements.
    2. What have your member companies done in terms of moving 
toward track-and-trace systems?
    Based on discussions intended to inform PhRMA's advocacy 
with Congress, the Food and Drug Administration (FDA), and 
state legislators and regulators, we can confirm that numerous 
manufacturers are working towards implementing electronic 
pedigrees. The increase in activity compared to just a few 
years ago demonstrates manufacturers' ongoing commitment to 
assuring a safe supply chain that will enhance patient safety. 
We view electronic pedigree as a key approach to meeting the 
mandate of the Food and Drug Administration Amendments Act of 
2007 (FDAAA). Section 913 of FDAAA directs the FDA to, among 
other things: ``develop a standardized numerical identifier 
(which, to the extent practicable, shall be harmonized with 
international consensus standards for such an identifier) to be 
applied to a prescription drug at the point of manufacturing 
and repackaging . . . . at the package or pallet level, 
sufficient to facilitate the identification, validation, 
authentication, and tracking-and-tracing of the prescription 
drug.'' \1\ Neither Section 913 of the FDAAA nor FDA's Federal 
Register notice defines the term ``standardized numerical 
identifier.'' The FDA has begun the process to collect 
information as directed under FDAAA, and PhRMA will continue to 
work closely with the Agency and relevant stakeholders as the 
FDA progresses.
---------------------------------------------------------------------------
    \1\ Public Law No. 110-85 (Sept. 27, 2007).
---------------------------------------------------------------------------
    Additionally, in October 2007, as requested by the 
California Board of Pharmacy Enforcement Committee, and to help 
inform our advocacy, PhRMA conducted a confidential survey of 
its member companies on their activities and mechanisms to 
track the distribution of pharmaceutical products in the supply 
chain. Twenty-one members of PhRMA responded to the survey. 
U.S. antitrust laws prevent disclosure of the identity of 
companies responding to the survey; that information has not 
been shared with PhRMA staff or member companies. Company-
specific information has been aggregated to protect its 
confidential nature.

                    E-Pedigree Without Serialization

    PhRMA's survey results revealed that more than 2/3 of our 
member companies were in the planning phase for non-serialized 
electronic pedigree, or e-pedigree, as of last fall. Of the 
remaining respondents, the majority are currently conducting e-
pedigree pilots. A small number of companies, less than 10% of 
the respondents, have implemented non-serialized e-pedigree for 
all of their products in commercial distribution.
    PhRMA's members report that, based on their pilot studies, 
pharmacy involvement in non-serialized e-pedigree pilots is 
extremely limited; wholesaler participation is greater but 
still limited.

                             Serialization

    The PhRMA survey results reveal that the research-based 
pharmaceutical manufacturers' experiences with serialization 
pilots are in the preliminary stages. Multiple companies are 
conducing serialization pilots at the case, pallet and item 
level, and the majority of these pilots involve limited product 
tagging. The majority of respondents conducting serialization 
pilots at the item level are using 2-D barcode technology. The 
majority of serialization pilots involving tagging at the case 
or pallet level are using UHF/RFID technology. Eighty-two 
percent of the serialization pilots involving wholesalers and/
or pharmacies affect no more than 25% of the volume of that 
product in the commercial marketplace.
    The PhRMA survey results reveal that planning and 
conducting serialization pilots is a time and resource-
intensive process. The majority of the pilots our member 
companies are involved in are taking 12-18 months to plan and 
implement, and the majority have an expected duration of 12-18 
months. Thus, a serialization pilot at the case, pallet or item 
level takes approximately 3 years from planning to completion. 
The cost to conduct these pilots ranges from approximately 
$200,000 for a limited scope serialization pilot to anywhere 
from $1 million to $15 million for one pilot.
    PhRMA's survey indicates that the impact of item-level 
serialization for manufacturers would be significant. Based on 
our survey, more than 2000 medicines of the research-based 
prescription drug industry are affected, with each manufacturer 
having an average of 113 affected products. A total of 431 
packaging lines in 162 plants are impacted, with an average of 
25 packaging lines in 8.5 different plants impacted. Our 
manufacturers estimate that nearly 900 internal company 
personnel would be involved in any commercial serialization, 
with an average of 53 people per company.
    PhRMA's survey results also reveal that each implementation 
is unique. Taking into account the significant time and 
resources necessary to plan and conduct pilots, it is clear 
that each implementation of item-level serialization will be 
time-consuming and resource-intensive, and could face 
unexpected challenges and delays at any time. Survey estimates 
of the time to serialize all products range from approximately 
1 year per product to 5-7 years to serialize all products. 
Moreover, PhRMA's survey results suggest that the costs to 
serialize all medicines of the research-based pharmaceutical 
companies in commercial distribution range between, at the low 
end, $5-$10 million for a company all the way up to $200 
million for a single company. PhRMA's best estimate of the 
initial investment to implement serialization at the smallest 
unit shipped by the manufacturer, for all innovator human 
prescription drugs sold in the United States, is $4.5 billion, 
based on our survey results.
    3. What other steps have manufacturers taken to help secure 
the prescription drug supply chain?
    PhRMA believes there is no technological ``silver bullet'' 
to protect against counterfeits. PhRMA member companies 
currently employ and routinely enhance a variety of anti-
counterfeiting technologies, including covert and overt 
features on the packaging of high-risk prescription drugs. They 
have also adopted a range of business processes to better 
secure the supply chain and help facilitate the early detection 
of criminal counterfeiting activity. These are additional tools 
to help strengthen the security of the pharmaceutical supply 
chain.
    PhRMA member companies have a strong interest in ensuring 
that the supply chain that moves drugs from the manufacturer to 
the patient is safe and secure. Our companies manufacture these 
products following exacting standards and use extensive quality 
systems to assure that innovative medicines provide consistent 
positive health outcomes. However, even the most effective 
medicines cannot help patients if those medicines are 
compromised by breakdowns in the distribution system, such as 
diversion and counterfeiting. America's pharmaceutical research 
companies are committed to embracing new technologies as a 
means of protecting the integrity of the American drug supply. 
PhRMA has also collaborated with other members of the supply 
chain to explore a variety of approaches to help assure 
American patients that the drugs they get are not counterfeit.
    Manufacturers of pharmaceuticals sold legally in the U.S. 
must comply with the ``gold standard'' of quality 
manufacturing--FDA's GMP regulations. The GMP regulations are 
applicable to all pharmaceuticals sold in the U.S., wherever 
they are made, and extend to all components of a finished drug 
product, including active pharmaceutical ingredients (APIs), 
without regard to where those ingredients are sourced. These 
regulations are extensive and thorough and require 
manufacturers to build quality into the design and production 
of pharmaceuticals, thereby helping to assure the safety, 
integrity and quality of every product approved and sold in the 
U.S. from the outset. FDA's GMP regulations are based on the 
fundamental quality assurance principle that quality, safety 
and effectiveness ``cannot be inspected or tested into a 
finished product,'' but instead must be designed and built into 
a product. GMPs represent a comprehensive, systems-based 
approach that requires a company to build quality directly into 
the entire manufacturing operation, in order to ensure that the 
process itself is under control and therefore will consistently 
produce a drug product that meets designated specifications. 
Pharmaceutical manufacturers employ extensive quality systems 
and take extraordinary measures to secure the supply chain 
throughout the life cycle of the product since any loophole or 
breakdown in the pharmaceutical distribution system may provide 
an opportunity for diversion or counterfeiting to occur. Thus, 
in our view, the most effective way to combat counterfeiting is 
to adopt a multi-pronged strategy that addresses weaknesses 
throughout the distribution system.
    4. Does PhRMA see a problem with thousands of unregulated 
pharmaceutical packages coming through our Nation's 
international mail system every day?
    While the current system has been effective in the U.S. for 
protecting public health, it faces increased threats with the 
proliferation of Internet drug sellers outside the U.S. and 
outside the jurisdiction of the FDA. The safety concerns that 
exist today are many and include concerns over the introduction 
of unsafe or counterfeit drugs into the U.S. stream of commerce 
as well as concerns about individuals using the Internet as a 
means to avoid getting a prescription for their medicine. Both 
pose considerable safety concerns.
    Experts agree that buying prescription medicine from 
unknown Internet drug sellers poses inherent risks to patients. 
FDA estimates that counterfeits make up 10 percent of the 
global medicines market. \2\ The World Health Organization 
(WHO) has found that 50% of prescription medicines from rogue 
Internet sites are counterfeit. According to the WHO, ``.the 
message for now is: do not take the risk of buying your 
medicines from unknown sources, such as the Internet. If you 
must buy from the Internet, ensure that the Web site is that of 
a pharmacy you know and trust.'' \3\ According to counterfeit 
expert Tom Kubic, Executive Director of the Pharmaceutical 
Security Institute (PSI), ``Counterfeit drugs are posing 
increasing risk to U.S. consumers, especially when shopping 
online.Except [for] a few legitimate U.S. Internet pharmacies, 
there is little or no effective control over drugs purchased 
over the Internet.'' \4\
---------------------------------------------------------------------------
    \2\ FDA, ``Counterfeit Drugs Questions and Answers,'' available at: 
http://www.fda.gov/oc/initiatives/counterfeit/qa.
    \3\ World Health Organization, ``WHO and partners accelerate fight 
against counterfeit medicines; Up to 50% of medicines sold through 
rogue web sites are fake,'' November 15, 2006.
    \4\ ABC News, ``Dateline's Bitter Pill Investigation Highlights 
Need for Consumer Awareness of Counterfeit Drugs,'' June 6, 2006.
---------------------------------------------------------------------------
    According to a recent National Public Radio report, the 
Internet and the growth in international commerce, as well as 
easy access to sophisticated technology has facilitated the 
rise of counterfeit medicines in the marketplace. Recently, the 
FDA's Director of Pharmacy Affairs Ilisa Bernstein noted that 
there are ``counterfeiters circulating all over the world'' and 
it is difficult to ``tell how many there are because the 
counterfeiters are just so good at what they do.'' According to 
Bernstein, the FDA is unable to inspect ``millions and millions 
and millions'' of packages coming in making it ``very difficult 
to find and catch all of these drugs that are coming in.'' \5\ 
And, according to Dr. Valerio Reggi, head of the WHO's Anti-
Counterfeiting Task Force, inspections may not be successful in 
finding all counterfeit drugs. According to Reggi, ``no 
counterfeiter would manufacture one pill or even container of 
pills.for every drug that you find, it means at least one 
batch. And one batch usually is between 30,000 and 60,000 
tablets.'' \6\
---------------------------------------------------------------------------
    \5\ Allan Dodds Frank, ``Illegal Viagra Leads 24% Jump in 
Counterfeit Medicine Seizures,'' Bloomberg News, June 10, 2008.
    \6\ National Public Radio, ``Counterfeit Drug Cases on the Rise,'' 
May 22, 2008.
---------------------------------------------------------------------------
    A recent example illustrates the real safety concerns that 
exist. In February 2007, the FDA alerted consumers to ``unsafe, 
misrepresented drugs purchased over the Internet.'' According 
to FDA, patients recently ordering drugs online for depression 
and insomnia instead received schizophrenia medication that 
caused them to seek emergency medical treatment for breathing 
problems. Side effects ranged from muscle spasms to difficulty 
breathing. \7\
---------------------------------------------------------------------------
    \7\ Gregory Lopes, ``Patients Get Wrong Drugs Online; Anti-
Psychotics Substituted for Depression, Insomnia Medicine,'' The 
Washington Times, February 17, 2007.
---------------------------------------------------------------------------
    The FDA has conducted a number of investigations and 
analyses that illustrate that consumers may be misled into 
believing that the drugs they have ordered online came from 
locations such as Canada, when in fact, they may have come from 
anywhere in the world. In late 2005, an FDA investigation 
revealed that many drugs being promoted as ``Canadian'' 
products really originated from other countries and a number of 
the products were counterfeit. FDA's operation confiscated 
parcels containing pharmaceuticals from India, Israel, Costa 
Rica and Vanuatu--43 percent of which had been ordered from 
Canadian Internet pharmacies. Of the drugs being promoted as 
``Canadian'', 85 percent actually came from 27 countries around 
the globe. According to the FDA commissioner, ``These results 
make clear there are Internet sites that claim to be Canadian 
that in fact are peddling drugs of dubious origin, safety and 
efficacy.'' \8\
---------------------------------------------------------------------------
    \8\ FDA News, ``FDA Operation Reveals Many Drugs Promoted as 
`Canadian' Products Really Originate From Other Countries,'' December 
16, 2005.
---------------------------------------------------------------------------
    According to FDA, ``In our experience, many drugs obtained 
from foreign sources that purport and appear to be the same as 
U.S.-approved prescription drugs have been of unknown quality. 
We cannot provide adequate assurance to the American public 
that the drug products delivered to consumers in the United 
States from foreign countries are the same products approved by 
FDA.'' \9\ An FDA analysis of three commonly prescribed drugs 
purchased from a Web site advertised as Canadian showed that 
so-called ``Canadian Generics'' bought from the Web site were 
fake, substandard and potentially dangerous. One was a 
controlled substance. According to FDA, ``This firm shipped 
drugs that were the wrong strength, including some that were 
substantially super-potent and that pose real health risks as a 
result, drugs that didn't dissolve properly, drugs that 
contained contaminants, and drugs that should not have been 
given because of potentially dangerous drug interactions.'' 
\10\
---------------------------------------------------------------------------
    \9\ Letter from FDA to Robert P. Lombardi, Esq. of The Kullman 
Firm: February 12, 2003, available at: .
    \10\ FDA Test Results of Prescription Drugs from Bogus Canadian 
Website Shows All Products are Fake and Substandard, FDA Press Release, 
P04-65, July 13, 2004.
---------------------------------------------------------------------------
    Even many pharmacies based in Canada are admittedly 
purchasing drugs from all over the world to fill their Internet 
orders. According to Dean Jorgensen, founder of Winnipeg-based 
Canadameds.com, ``We're filling 50 percent of our prescriptions 
[from international pharmacies.]'' Jorgensen's website boasts, 
``Not just from Canada anymore! Choose your country and your 
savings.'' \11\ The president and owner of CanadaRx.net, Harvey 
Organ, also confirmed that the medicines his web site sells are 
not coming only from Canada. According to Organ, ``I can get 
drugs from all over the world.'' \12\ A Bloomberg news article 
reported that CanaRx Services Inc. ``has joined other Canadian 
Internet pharmacies in finding sources of drugs from partners 
in the U.K., Continental Europe, Israel, Australia and India.'' 
\13\ This is particularly troubling since according to a study 
by the Temple University for Pharmaceutical Health Services 
Research, India is a worldwide leader in the production of 
counterfeit drugs with as much as 35 percent of the world's 
drug counterfeiting originating in that country. \14\
---------------------------------------------------------------------------
    \11\ Leonard Zehr, ``Internet Pharmacies Aim Overseas,'' Globe and 
Mail, February 6, 2005.
    \12\ Christopher Rowland, ``Drugs from Anywhere; As Importation 
Networks Spread, Concerns for Consumer Safety Grow,'' The Boston Globe, 
December 16, 2004.
    \13\ ``FDA Seizes Drugs Imported Under States' Program, Supplier 
Says,'' Bloomberg, March 9, 2005.
    \14\ ``Pharmacists React to CanaRx Exploring Importation of Drugs 
from India, Bloomberg Article Reveals Canadian Internet Pharmacy is 
Considering Use of Drugs From Country Associated with Counterfeits,'' 
Yahoo, March 16, 2005.
---------------------------------------------------------------------------
    Of added concern is recent news from the FDA that many 
Americans are buying drugs over the Internet from foreign 
countries in an apparent effort to avoid the need for a 
prescription. The Agency conducted a yearlong investigation of 
imported drugs and according to Randall Lutter, the FDA's 
deputy commissioner for policy, ``The data leads us to believe 
that many people are buying drugs online not to save money but 
to bypass the need for a prescription from their doctor, since 
these Web sites typically do not require the purchaser to have 
a prescription.'' The FDA's investigation confirms the finding 
of a survey conducted by PhRMA last year. The PhRMA survey 
found that a significant number of American adults have 
recently purchased medicines from a foreign country. Half of 
those surveyed said they are buying drugs in another country 
because they lack a doctor's prescription. The survey found 
that antibiotics and pain relief medicines are, in most cases, 
the typical medications consumers seek from other countries. 
Other key findings include: one in five Americans purchasing 
drugs online earn more than $100,000 annually; they are more 
likely to be under the age of 35; and 85 percent have insurance 
with prescription drug coverage.
    5. In your testimony, you state that any legislative or 
regulatory requirements to authenticate products and pass 
pedigree information should be uniform, should apply to all 
parties in the pharmaceutical supply chain, and should 
recognize the recent Federal requirement for a standardized 
numerical identifier. You state that H.R. 5839 meets these 
criteria. Does this mean that PhRMA believes that everyone in 
the supply chain should pass pedigrees--manufacturers, 
wholesalers, and pharmacies?
    Commercial technologies, such as electronic pedigree, 
Advance Ship Notices (ASNs), and emerging product serialization 
technologies, offer new tools to help combat counterfeiting of 
drugs. The use of an electronic pedigree with an e-signature or 
an ASN without an e-signature are currently viable measures to 
help further secure the supply chain. PhRMA has supported the 
mandatory use of non-serialized electronic pedigree by all 
parties in the pharmaceutical supply chain as a viable near-
term solution to help enhance patient safety and to provide 
additional supply chain security.
    Use of lot-level numbers is required of manufacturers by 
FDA's GMPs, and has been used for years to support business 
processes such as product recalls and lot reconciliation. A 
manufacturer-initiated e-pedigree or similar requirement would 
provide a formal means to associate this lot information with 
customer shipments and pass this information forward in the 
supply chain. Requiring the extended supply chain to account 
for product movement at the lot level would provide additional 
security, with added benefits to patient safety and resulting 
public health impact. For example, implementation of an 
electronic pedigree that contains lot number information would 
establish the documented change of ownership for products based 
on specific customer shipments and would help facilitate recall 
of products. Additionally, implementation of an electronic 
pedigree or similar mechanism will continue to help facilitate 
investigation and prosecution of potential counterfeit cases, 
and thus could have a deterrent effect.
    6. Do you agree that H.R. 5839 is technology neutral and 
allows FDA the flexibility to work with the supply chain to 
determine the proper technologies for an identification and 
track-and-trace system?
    Section 5 of H.R. 5839 directs FDA to develop, no later 
than 18 months after enactment, a report ``evaluating the 
feasibility and operational efficiencies of adopting . . . 
security technologies including barcodes, Radio-Frequency 
Identification Tags, nanotechnology, or other promising track-
and-trace technology throughout the prescription drug supply 
chain.'' FDA is directed to consider these report findings when 
it develops a standard numerical identifier under FDAAA. 
Section 5 does not mandate a particular type of technology, but 
rather directs FDA to consider the report findings on 
efficiencies of adopting a variety of technologies.
    Further, section 6 of the bill sets out a process for FDA 
to issue regulations to establish a drug identification and 
tracking system. In developing such regulations, FDA shall 
``consider the technical feasibility of compliance'' by 
manufacturers, repackagers, wholesale distributors, and 
dispensers, and for different types of drugs. These provisions 
direct FDA to consider technical issues related to a drug 
identification and tracking system, but are silent with respect 
to the particular technical aspects of such a system.
    7. You reference contaminated Heparin that recently entered 
the U.S. While the Heparin incident dealt with our Nation's 
legitimate supply chain, do you recognize the overall 
increasing problem of counterfeit pharmaceuticals entering our 
Nation through regulated and unregulated means?
    America's patients trust that the drugs they and their 
loved ones take meet the high standards set by the FDA for 
safety and efficacy and are not substandard or counterfeit, and 
they rely on our complex and comprehensive regulatory system to 
ensure that is the case. Patients also depend on a secure 
pharmaceutical supply chain, and this is a responsibility our 
companies share with the FDA. The lifeblood of America's 
research-based pharmaceutical companies is dependent on a safe, 
secure prescription drug supply chain.
    The regulatory system that governs the development, 
approval, marketing, and surveillance of new drugs in the 
United States is the most complex and comprehensive in the 
world. To ensure that Americans have the safest drug supply in 
the world, it has become increasingly comprehensive and robust 
over time. For example, the Prescription Drug Marketing Act of 
1987 (PDMA), authored principally by Chairman Dingell and Rep. 
Waxman, was passed following an investigation of incidents of 
counterfeit drugs reaching American consumers. This landmark 
legislation closed the U.S. prescription drug supply to 
products that have circulated overseas, beyond the jurisdiction 
of FDA and outside the control of the manufacturer. The PDMA, 
coupled with exacting FDA regulatory requirements such as GMPs, 
has helped significantly minimize the possibility that a U.S. 
consumer receives a counterfeit drug.
    However, the growth in a global marketplace, rise of the 
Internet and easy access to sophisticated technology has helped 
facilitate the rise of counterfeit medicines around the world. 
According to recent data from PSI, counterfeit medicine 
seizures rose 24% in 2007. Among the $3 billion worth of 
counterfeit medicine seized in 99 countries were versions of 
403 different prescription medicines, including copies of 19 of 
the world's 25-best selling drugs. \17\ A 2006 counterfeiting 
report by the Royal Canadian Mounted Policy (RCMP) found a 
``dramatic increase in the amount, sophistication and type of 
counterfeit products which are being sold across the country.'' 
The report found that counterfeit pharmaceuticals are being 
sold to consumers in Canada in ``alarming amounts.'' The report 
continued to state that, ``The goods are no longer only being 
offered for sale by `mom and pop' operators but are being 
controlled by large sophisticated organizations including 
traditional and non-traditional organized crime groups.'' 
According to RCMP Commissioner Zaccardelli, ``The face of crime 
is being facilitated by the Internet and counterfeit goods are 
threatening the health and safety of Canadians.'' \18\
---------------------------------------------------------------------------
    \17\ Allan Dodds Frank, ``Illegal Viagra Leads 24% Jump in 
Counterfeit Medicine Seizures,'' Bloomberg News, June 10, 2008.
    \18\ Royal Canadian Mounted Police, ``The Counterfeit Report,'' 
2006.
---------------------------------------------------------------------------
    The WHO has estimated that tens of thousands may be dying 
due to counterfeit malaria, HIV/AIDs, diabetes, and tropical 
disease medicines. And, the problem is expected to continue to 
grow in the future. According to a report by the Center for 
Medicines in the Public Interest, counterfeit drug sales are 
expected to reach $75 billion in 2010, a shocking 92% increase 
from 2005. \19\
---------------------------------------------------------------------------
    \19\ PR Newswire, ``New Report Says Counterfeit Drug Sales to Reach 
$75 Billion in 2010, up 92% From 2005,'' September 13, 2005.
---------------------------------------------------------------------------
    According to the European Commission, counterfeit medicine 
seizures rose 51% in 2007 in the European Union (EU). Last 
year, 4.1 million counterfeit pharmaceuticals were seized by EU 
customs officials. \20\ The Financial Times reported that 
medicines to treat hypertension, osteoporosis, and high 
cholesterol were among the counterfeits seized. Laszlo Kovacs, 
the EU's taxation and customs commissioner noted that the 2007 
figures showed ``some new and alarming tendencies'' given the 
increase in counterfeit seizures in medicine and personal care 
products that could pose dangers to consumers. \21\ A January 
2007 report in the The Independent found, ``Counterfeit drugs 
are flooding into Europe from across the world. Customs 
seizures published in November listed them as a separate 
category for the first time, in an indication of the growing 
trade.'' \22\ According to a report by the School of Pharmacy 
at the University of London, ``the UK is the most vulnerable 
country in Europe to counterfeiting owing to the high level of 
`parallel importing' drugs sold to a foreign country and then 
imported into Britain and the fact that English is an 
international language.'' \23\
---------------------------------------------------------------------------
    \20\ European Commission, Report on Community Customs Activities on 
Counterfeit and Piracy: Results of the European Border--2007.
    \21\ Nikki Tait, ``Surge in European Seizures of Fake Drugs,'' 
Financial Times, May 20, 2008.
    \22\ Jeremy Laurance, ``Why Britain is a Good Target for the 
Counterfeiters,'' The Independent, January 2, 2007.
    \23\ Id.
---------------------------------------------------------------------------
    Of notable concern is the evidence that counterfeiters are 
increasingly targeting chronic care and life-saving medicines. 
According to a report by the European Commission, the trend in 
counterfeiting medicines is increasingly moving towards 
counterfeit life-saving medicines, rather than ``lifestyle'' 
medicines, including ``medicines to treat cancer and heart 
disease, psychiatric disorders, and infections.'' In the past 
four years, the UK's Medicines and Health Regulatory Agency 
(MHRA) has issued nine recalls of medicines including heart and 
cancer treatments that reached pharmacists and patients. \24\ 
On five other occasions, the MHRA discovered counterfeit drugs 
at the wholesale level before they reached patients. A recent 
paper from the EU notes the ``criminals increasingly target 
life-saving medicines, including medicines to treat cancer and 
heart disease, psychiatric disorders, and infections.'' The EU 
believes that this ``trend may increase as the main driving 
factor is high value, high turnover and total disrespect for 
patient health.'' \25\
---------------------------------------------------------------------------
    \24\ MHRA,  (Accessed on April 23, 2008).
    \25\ European Commission. `Public Consultation in preparation of a 
legal proposal to combat counterfeit medicines for human use'' < http:/
/ec.europa.eu/taxation--customs/resources/documents/customs/customs--
controls/counterfeit--piracy/statistics/counterf--comm--2006--en.pdf> 
(Accessed 29 May 2008)
---------------------------------------------------------------------------
    The European Commission has identified other factors that 
are driving the increased presence of counterfeit drugs. 
According to the report by the Commission, ``the licensed 
distribution chain, including authorized wholesalers, parallel 
traders and pharmacies are being increasingly targeted by 
counterfeiters.'' \26\ Similarly, a Council of Europe report 
found, ``The existence of a significant level of parallel trade 
in the EU, and the absence of adequate controls on repackaging 
and relabeling, provides an opportunity for the inadvertent 
entry of counterfeit medicines into the market.Furthermore, 
parallel trade means that any counterfeit product within the 
legitimate distribution chain in one MS [Member State] can 
easily contaminate other MSs.'' \27\
---------------------------------------------------------------------------
    \26\ European Commission, ``Public Consultation in Preparation of a 
Legal Proposal to Combat Coutnerfeit Medicines for Human Use,'' March 
11, 2008.
    \27\ Jonathan Harper, MB, ChB, BSc (honors), MBA, ``Harmonised 
provisions for legislative and administrative procedures applicable to 
counterfeit medicines in the Council of Europe Member States,'' January 
2005.
---------------------------------------------------------------------------
    While the U.S. has arguably the safest system in the world 
with one of the lowest percentages of counterfeit drugs in the 
market, no system is perfect and the proliferation of Internet 
drug sellers and the ease of ordering medicine online, without 
even a prescription in many cases, have introduced new threats 
that cause concern. At a time when we, and others around the 
globe, are struggling to combat counterfeit drugs and tighten 
security at our borders, we should be searching for ways to 
close existing loopholes in the drug distribution chain, not 
creating new ones. Maintaining a closed system is one way to 
ensure that U.S. consumers are protected against counterfeit 
medicines.
    8. In your testimony, you note that domestic challenges to 
our Nation's closed distribution system remain great and that 
counterfeit and tainted products do surface even with all of 
our regulatory controls. Can you explain where the weaknesses 
exist in our regulated supply chain?
    While the current supply chain in the U.S. for prescription 
medicines is arguably the best in the world, it is not perfect 
and weaknesses exist. As mentioned above, the proliferation of 
Internet drug sellers has created a weakness in our current 
supply chain since they have been responsible for introducing 
unsafe and counterfeit medicines into the supply chain and into 
the hands of consumers.
    In our opinion other weak spots in the supply chain exist 
but could be addressed in future legislation. For example:
    1. Increase Requirements for Repackagers. Repackaging has 
been an identified weak spot in the drug distribution system 
that can be used as an entry point and distribution center for 
diverted and counterfeit drug products. Repackagers remove drug 
products from their original packaging and labeling, thereby 
destroying any counterfeit resistant technologies employed by 
the original manufacturer. Consequently, additional oversight 
is necessary to ensure that repackaged drug products are 
authentic and are not compromised by repackaging operations. 
PhRMA believes FDA could better regulate the authenticity and 
quality of repackaged drug products if it had authority to 
require prior approval of repackaging operations. At a minimum, 
FDA should increase its inspections of repackagers and, where 
appropriate, initiate enforcement action. In addition, 
repackagers should be subject to the same requirements 
regarding overt and covert counterfeit resistant technologies 
as original manufacturers.
    2. Strengthen Federal Requirements for Wholesalers/
Distributors. PhRMA is supportive of efforts to strengthen the 
licensure requirements for wholesalers and distributors. Recent 
investigations, such as the Florida Grand Jury and the 
Washington Post, have identified systemic weaknesses in the 
oversight of the wholesale drug industry in many states. These 
weaknesses permit individuals, even those with prior felony 
convictions, to obtain wholesaler licenses for operations that 
deal in diverted and counterfeit drug products. PhRMA supports 
efforts by Florida and Nevada to strengthen requirements for 
the licensure of wholesalers by, for example, requiring the 
posting of a substantial performance bond (e.g., $100,000) and 
conducting detailed pre-licensure background checks and 
facility inspections. PhRMA believes, however, that licensure 
requirements should be strengthened consistently across states 
to prevent diverters and counterfeiters from re-locating to 
states without strong licensure requirements. This can be 
accomplished through revisions to 21 U.S.C. 503(e)(2) 
specifying higher minimum standards for state licensing of drug 
wholesalers and distributors similar to those currently in 
place in Florida and Nevada. FDA also should review state 
requirements for the licensure of wholesalers to ensure that 
they meet any enhanced minimum federal regulatory requirements.
    3. Increase Criminal Penalties for Counterfeiting 
Activities. PhRMA believes that the criminal penalties for 
counterfeiting prescription drug products must be significantly 
increased. The current penalty under the Federal Food, Drug, 
and Cosmetic Act (FFDCA)--a maximum of 3 years imprisonment--
does not reflect the serious public health risks associated 
with counterfeit drugs or serve as an adequate deterrent to 
prospective counterfeiters. PhRMA thus supports increasing the 
maximum criminal penalty for counterfeiting drug products from 
three to twenty years imprisonment. PhRMA also believes that 
criminal penalties should be imposed against entities that 
create a market for diverted and counterfeit drug products by 
purchasing drug products without adequate due diligence into 
the source and authenticity of such drugs. PhRMA therefore 
supports making it a prohibited act under the FFDCA to purchase 
prescription drugs from a wholesale distributor without first 
obtaining and verifying the information provided on a drug 
pedigree.
    Thank you very much for the opportunity to further 
elaborate on my testimony of May 1, 2008. Should you have 
additional questions, please feel free to contact me.

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[GRAPHIC] [TIFF OMITTED] T3513.143

           Christine Mundkur, Answers to Submitted Questions

    Dear Congressman Buyer:
    I am writing to answer the questions submitted to me after 
my May 1, 2008 testimony before the Committee on Energy and 
Commerce on behalf of Barr Pharmaceuticals and the Generic 
Pharmaceutical Association, GPhA. I have set forth the answers 
to the best of my ability to each of the questions, which are 
repeated below for ease of reference.

                Questions submitted by Hon. Steve Buyer

    What is the value of preemption and one Federal pedigree 
standard?
    A Federal Pedigree, preempting state initiatives, would 
provide a single standard and directive aligning the entire 
pharmaceutical supply chain into a single focused initiative. 
The risk of different standards, arising from multiple states 
and segments within the industry, carries a significant cost to 
the entire pharmaceutical supply chain. Multiple disjointed 
initiatives would potentially involve multiple system driven 
implementations and multiple serialization solutions, 
ultimately costing the entire industry unnecessary and 
additional time and resources to implement. Simplifying the 
process to a single Federal initiative would provide focus and 
provide the momentum necessary to drive a single solution 
throughout the industry. We also recommend that strong 
enforcement of the normal chain of distribution be the 
foundation for a Federal resolution, and requirements for 
pedigree requirements be limited to product supply that has 
been outside the normal supply chain.
    What is Barr's position on the California identification 
and track-and-trace system currently on the books?
    While Barr fully appreciates the CA legislature's efforts 
to combat counterfeiting within the Pharmaceutical industry, 
the legislation in CA requiring electronic pedigree and unit 
level serialization for all pharmaceutical products by January 
of 2011 represents an approach, which may negatively impact the 
ability for Californians to have access to affordable medicines 
and inherently raise healthcare costs with little commensurate 
benefit to the general public. Many manufacturers simply won't 
be able to meet the requirements by the given deadline, 
resulting in fewer manufacturers operating within this market 
segment potentially causing opportunities for less competition 
(and therefore higher costs) and product availability concerns. 
The most reasonable approach to improving the security of the 
drug supply chain is to focus on areas of vulnerability, such 
as the internet and secondary wholesaler markets, and products 
which are most likely to be targeted by counterfeiters. The 
Generic industry provides significant savings in healthcare 
costs by providing affordable medicines, and the resources 
required to implement serialized electronic pedigrees will 
significantly affect the affordability of generic medicines, 
when in reality, generic medicines are the least likely 
candidates for counterfeiting due to their inherent lower 
profitability. Enforcement of the normal chain of distribution 
combined with a risk based pedigree approach, focusing on high 
risk product supply outside the normal chain of distribution 
would provide a more commensurate benefit to the public without 
negatively impacting supplies or increasing healthcare costs.
    Does Barr support Senate Bill 1307 in the California 
Senate?
    Barr does not support SB1307. This bill requires specific 
percentages of products to be serialized/pedigreed within a 
fixed time schedule without consideration to alternative 
solutions such as strong enforcement of the normal chain of 
distribution, and if required, a risk based approach to drugs 
that are being introduced by parties outside the normal chain 
of distribution or deemed to be at high risk of counterfeiting. 
However, Barr does support the current proposal from the 
California Governor's office and CA State and Consumer Services 
Agency that establishes an ``accredited distribution chain'' 
model to meet the common goals of ensuring the safety and 
efficacy of drugs provided to consumers.
    Please do not hesitate if I can provide any further 
assistance.

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