[Senate Hearing 112-866]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 112-866
 
                SECURING THE PHARMACEUTICAL SUPPLY CHAIN 

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

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                                   ON

EXAMINING SECURING THE PHARMACEUTICAL SUPPLY CHAIN, FOCUSING ON HOW THE 
 FOOD AND DRUG ADMINISTRATION FACES CHALLENGES OVERSEEING THE FOREIGN 
                    DRUG MANUFACTURING SUPPLY CHAIN

                               __________

                           SEPTEMBER 14, 2011

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions


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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                       TOM HARKIN, Iowa, Chairman

BARBARA A. MIKULSKI, Maryland              MICHAEL B. ENZI, Wyoming
JEFF BINGAMAN, New Mexico                  LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington                   RICHARD BURR, North Carolina
BERNARD SANDERS (I), Vermont               JOHNNY ISAKSON, Georgia
ROBERT P. CASEY, JR., Pennsylvania         RAND PAUL, Kentucky
KAY R. HAGAN, North Carolina               ORRIN G. HATCH, Utah
JEFF MERKLEY, Oregon                       JOHN McCAIN, Arizona
AL FRANKEN, Minnesota                      PAT ROBERTS, Kansas
MICHAEL F. BENNET, Colorado                LISA MURKOWSKI, Alaska
SHELDON WHITEHOUSE, Rhode Island           MARK KIRK, Illinois
RICHARD BLUMENTHAL, Connecticut
                                       

                    Daniel E. Smith, Staff Director

                  Pamela Smith, Deputy Staff Director

     Frank Macchiarola, Republican Staff Director and Chief Counsel

                                  (ii)



                            C O N T E N T S

                               __________

                               STATEMENTS

                     WEDNESDAY, SEPTEMBER 14, 2011

                                                                   Page

                           Committee Members

Harkin, Hon. Tom, Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming..     2
Bennet, Hon. Michael F., a U.S. Senator from the State of 
  Colorado.......................................................    14
    Prepared statement...........................................    16
Roberts, Hon. Pat, a U.S. Senator from the State of Kansas.......    18
Franken, Hon. Al, a U.S. Senator from the State of Minnesota.....    20
Mikulski, Hon. Barbara A., a U.S. Senator from the State of 
  Maryland.......................................................    22
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode 
  Island.........................................................    24
Blumenthal, Hon. Richard, a U.S. Senator from the State of 
  Connecticut....................................................    25

                            Witness--Panel I

Autor, Deborah M., J.D., Esq., Deputy Commissioner for Global 
  Regulatory Operations and Policy, FDA, Silver Spring, MD.......     4
    Prepared statement...........................................     7

                          Witnesses--Panel II

Crosse, Marcia, Ph.D., Director, Health Care, Government 
  Accountability Office, Washington, DC..........................    29
    Prepared statement...........................................    30
Martello, Kendra A., J.D., Assistant General Counsel, PhRMA, 
  Washington, DC.................................................    38
    Prepared statement...........................................    40
Johnston, Gordon, Senior Advisor for Regulatory Sciences, GPhA, 
  Washington, DC.................................................    43
    Prepared statement...........................................    45
VanTrieste, Martin, R.Ph., Past Chair, Rx-360, Thousand Oaks, CA.    50
    Prepared statement...........................................    52
Coukell, Allan, BScPharm, Director of Medical Programs, Pew 
  Health Group, Washington, DC...................................    57
    Prepared statement...........................................    59

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Heather Bresch, President, Mylan Inc.........................    74
    Dale Carter, Chair, International Pharmaceutical Excipients 
      Council--Americas (IPEC--Americas).........................    76
    Keith Nalepka, Vice President, Business Development, Hi-G-
      Tek, Inc...................................................    77
    American Society of Health-System Pharmacists................    78
    National Community Pharmacists Association (NCPA)............    82
    Response of the Food and Drug Administration to questions of:
        Senator Bennet...........................................    84
        Senator Roberts..........................................    87
        Senator Kirk.............................................    89

                                 (iii)

  


                SECURING THE PHARMACEUTICAL SUPPLY CHAIN

                              ----------                              


                     WEDNESDAY, SEPTEMBER 14, 2011

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:02 a.m., in 
Room SD-430, Dirksen Senate Office Building, Hon. Tom Harkin, 
chairman of the committee, presiding.
    Present: Senators Harkin, Mikulski, Franken, Bennet, 
Whitehouse, Blumenthal, Enzi, and Roberts.

                  Opening Statement of Senator Harkin

    The Chairman. Good morning. The Senate Committee on Health, 
Education, Labor, and Pensions will come to order.
    As part of our ongoing process to reauthorize the FDA user 
fee legislation in this Congress, we've convened this hearing 
to examine the safety and integrity of our pharmaceutical 
supply chain. Few issues are more important to the health and 
safety of Americans than the integrity of our drug supply.
    In today's increasingly global economy, most of the key 
ingredients used in the drugs prescribed by American doctors 
and consumed by American families are produced overseas. 
According to a GAO study, about 80 percent of the active 
ingredients found in U.S. pharmaceutical products come from 
abroad, and about 40 percent of the finished drugs come from 
abroad.
    This trend is projected to continue to increase with more 
and more of our medicine cabinets being stocked with products 
from countries like India and China who have less robust 
regulatory systems than our own. Our challenge is to embrace 
the promise of this increasingly global economy while still 
making sure we protect American patients.
    The profound interests at stake are highlighted for us by 
tragic examples of American patients who have taken adulterated 
drug products, such as the 150 U.S. patients who died in 2007 
after taking the contaminated Heparin. Weaknesses in our 
pharmaceutical supply chain not only affect the health of 
American patients but also the health of American businesses. 
By holding foreign actors to the same standards as those in the 
United States we guarantee a level playing field. U.S. 
companies that source and manufacture drugs in this country 
should not be placed at a competitive disadvantage by foreign 
firms that operate with less oversight and sell substandard 
ingredients into this country at reduced prices.
    When FDA's authorities were first designed and enacted, our 
production methods were based here at home. FDA's primary 
authorities to ensure the quality of our drugs--which was 
strict oversight of domestic manufacturers coupled with the 
ability to interdict illegal drugs at the border--were well-
suited to the manufacturing practices of that time in the late 
1930s. But, again, that was nearly 100 years ago. We don't live 
in the same world as we did then, and our drug safety controls 
have failed to keep up with the changes in our economy and our 
society.
    FDA and Customs have tried to increase their vigilance to 
keep pace with the increasingly global nature of our supply 
chain. But FDA does not have the authority and flexibility it 
needs to make sure that foreign facilities adhere to the same 
quality standards as U.S. facilities. Some domestic companies 
have tried to fill that gap by adopting robust quality control 
practices that include inspecting their overseas suppliers. 
Some have done it. Others have not. So the result is a supply 
chain rife with gaps.
    Last year, this committee took an important bipartisan step 
to modernize our food safety system, giving FDA the tools 
necessary to hold foreign food importers and producers to the 
same safety standards as those in the United States. Now we 
have to bring our drug supply system also into the 21st 
Century.
    This morning, we'll explore systemic concerns associated 
with the drugs and drug ingredients imported into the United 
States from abroad. We'll learn about the new challenges that 
both the FDA and the American pharmaceutical companies face in 
navigating the global economy. As we begin the critical 
discussion on how to modernize our drug supply system, we'll 
hear from several expert witnesses who approach this important 
issue through a variety of perspectives.
    I thank all of you for being here and look forward to your 
testimonies. I look forward to continued bipartisan cooperation 
with my colleague, Ranking Member Enzi, who has worked closely 
with me on scheduling this hearing and who, himself, has 
devoted considerable energy to examining this issue.
    And now I would recognize Senator Enzi.

                       Statement of Senator Enzi

    Senator Enzi. Thank you, Mr. Chairman.
    In 2007 and 2008, dozens of patients died after receiving 
Heparin, a widely-used blood thinner that had been contaminated 
during manufacture in China. The number of drug products made 
outside of the United States doubled from 2001 to 2008. This 
trend will accelerate, creating potential risks to patients 
from substandard and otherwise adulterated drugs.
    Today's hearing will examine our increasingly global supply 
chain and assess how effective agencies like the FDA have been 
in protecting American consumers. The Government Accountability 
Office has found that the FDA does not police the drug supply 
chain effectively and recommended that the agency make several 
specific policy changes to address these problems. 
Unfortunately, FDA has failed to adequately respond to these 
recommendations.
    Some of these GAO recommendations have been outstanding 
since the late 1990s. FDA has still not implemented them. In 
part due to these failures and the corresponding risk to public 
health, GAO has placed FDA on its high-risk watch list of 
government programs. GAO has not called for sweeping 
legislation to solve these problems. Instead, GAO calls for FDA 
to administer its programs and manage its responsibilities more 
effectively.
    Following the HELP Committee's July hearing with 
Commissioner Hamburg, I asked FDA a question for the record 
concerning the progress it has made on the GAO's 
recommendations. I still have not received a reply.
    We all want to make sure FDA has the tools it needs to make 
sure drugs are safe and effective. To do that, we need to 
obtain the facts. It'll be hard for us to devise solutions if 
FDA is not more forthcoming about the facts and more responsive 
to Congress.
    Having said that, I understand that legislation to improve 
supply chain integrity is a top priority for Chairman Harkin 
and Commissioner Hamburg. I look forward to working with them. 
And let me suggest four principles to guide our work together.
    Our first principle should be that we are as specific as 
possible in identifying the problem we're trying to solve. One 
good example of a specific problem is, under current law, FDA 
must inspect domestic drug establishments every 2 years. But 
the law is silent about how often FDA must inspect foreign drug 
establishments. This means risky foreign establishments can 
avoid FDA inspections, and American companies bear more 
regulatory burden.
    Heather Bresch, the CEO of Mylan, has championed a change 
in law to level the playing field. I agree. FDA should be able 
to target inspections globally based on risk.
    Second principle--before making a new law, we should ask if 
FDA is using its existing authorities effectively. For 
instance, FDA promulgates current good manufacturing practices, 
or GMPs, to tell companies how to manufacture drugs. Despite 
all the obvious risks of globalization, FDA has not updated its 
GMPs on point.
    The Active Pharmaceutical Ingredient Guide was last 
published in 1998, and the Quality Systems Approach Guidance 
was last published in 2006. FDA published a GMP Questions and 
Answers Guidance earlier this year, but it does not address the 
globalization challenges we're discussing today. We need to 
know why FDA hasn't updated its know-your-suppliers GMPs.
    Third principle--we should develop solutions that actually 
solve the problem. Some ideas sound good in speeches, are 
politically dramatic, and make us feel like we're, ``doing 
something.'' But they won't necessarily make a dent in the 
real-world problem.
    For instance, some stakeholders advocate giving FDA 
mandatory recall authority for drugs. We can discuss that, but 
I'm skeptical it will make a real difference. FDA already has 
mandatory recall authority for medical devices and several 
other types of products. But according to GAO and the Institute 
of Medicine, FDA has only used its mandatory recall authority 
for devices three times.
    Examining the data, GAO found the average time it took FDA 
to effectuate a Class I medical device recall--those posing the 
greatest risk to consumers--was 516 days. Also, these recalls 
were not always effective. There were situations where devices 
that should have been recalled were implanted in patients, 
causing several deaths and serious injuries. And, remember, 
this is when the FDA already had mandatory recall authority.
    Fourth principle--as we legislate, we should not over-
reach. For example, some stakeholders advocate for a complete 
pedigree or track-and-trace system for the distribution of 
drugs. A 2008 Accenture study pegged the cost of a full track-
and-trace system at up to $110,000 for an individual pharmacy.
    Small, independent pharmacists in Wyoming are already under 
intense pressure from cuts in Medicare Part D and Medicaid 
reimbursement. They are small businesses and can't afford this 
additional cost. Moreover, most counterfeit and substandard 
drugs reach consumers through Internet sales, not retail 
pharmacies. Track-and-trace could impose tremendous costs on 
pharmacies but produce only a marginal effect.
    Again, I look forward to working with Chairman Harkin on 
all these issues. I have been a strong supporter of giving FDA 
the tools it needs. For example, Senator Kennedy and I co-
sponsored a drug safety bill in 2007. The New England Journal 
of Medicine said it was the most significant drug safety bill 
in a half century.
    I also helped with the FDA new food safety and tobacco 
authorities. But right now, my concern is FDA over-regulating, 
not under-regulating.
    In closing, I want to acknowledge that FDA's witness today, 
Deb Autor, only recently assumed her new position as deputy 
commissioner. She inherited many challenges.
    Deputy Commissioner, you deserve credit for taking on a 
tough job, and I look forward to your testimony.
    The Chairman. Thank you very much, Senator Enzi.
    We have, basically, two panels. Our first panel will be 
Deborah Autor. Ms. Autor is the Deputy Commissioner for Global 
Regulatory Operations and Policy at the FDA. In this capacity, 
she leads the FDA in ensuring the integrity of our 
pharmaceutical supply chain and is responsible for imports, 
inspections, and enforcement policy for all FDA-regulated 
products. Ms. Autor also worked to secure our supply chain in 
her previous position as the Director of the Office of 
Compliance at FDA's Center for Drugs.
    So welcome to the committee. Thank you for joining us 
today, Ms. Autor. Your statement will be made a part of the 
record in its entirety. If you could sum it up in 5 or 7 
minutes, we'd certainly appreciate it so we can get into a 
discussion. So please proceed.

STATEMENT OF DEBORAH M. AUTOR, J.D., ESQ., DEPUTY COMMISSIONER 
   FOR GLOBAL REGULATORY OPERATIONS AND POLICY, FDA, SILVER 
                           SPRING, MD

    Ms. Autor. Thank you. Good morning, Chairman Harkin and 
members of the committee. I'm Deborah Autor, FDA's Deputy 
Commissioner for Global Regulatory Operations and Policy. Thank 
you for the opportunity to testify before you today about drug 
safety and globalization.
    Globalization has fundamentally altered drug manufacturing 
and supply, greatly increasing the risks to American consumers. 
And it demands a major change in the way FDA fulfills its 
mission to promote and protect the health of the American 
people.
    Based on almost 20 years of professional experience, I have 
witnessed the expanding gap between the globalization of 
pharmaceutical manufacturing and FDA's antiquated domestically 
focused statute. This gap presents an immediate and ever-
growing risk to the safety of the American drug supply. It 
provides an opportunity for criminals to introduce dangerous, 
adulterated, counterfeit, and stolen product into the supply 
chain, at great risk to patients and at great cost to 
pharmaceutical companies.
    The facts show that threats to our supply chain are real. 
Recent incidents of adulteration, counterfeiting, and cargo 
theft could pose serious threats to public health. The 
consequences throughout the world have been tragic.
    In recent years, glycerin in fever medicine, cough syrup, 
and teething products was adulterated with a highly toxic 
solvent, diethylene glycol, resulting in the death of hundreds 
of adults and children in Haiti, Panama, and Nigeria. And 
members of this committee are well aware of the 2008 Heparin 
contamination crisis. Heparin is a blood thinner used in every 
hospital in this country. But a cheap Heparin imposter was 
substituted for the real drug, leading to tragic deaths and 
illnesses in the United States.
    Similar to contaminated drugs, counterfeit drugs present 
real risks. A counterfeit drug could be made up of a substance 
that is toxic to patients or have little or no active 
ingredient, harming patients who take it, thinking that they 
are taking a life-saving or life-sustaining medication.
    In 2003, over $20 million in counterfeit and illegally 
imported Lipitor, a popular cholesterol lowering drug, was 
dispensed to patients at pharmacies throughout the United 
States. Even more frightening, the criminals mixed illegal 
Lipitor with real Lipitor, presumably to avoid detection. 
Although the counterfeit reached all parts of the country, 
fortunately, we believe patient harm was minimal. Eventually, 
we will not be so lucky.
    Just last year, a counterfeit version of the approved OTC 
weight loss drug, Alli, was sold over the Internet to U.S. 
consumers. Instead of the approved active ingredient, it 
contained high levels of a dangerous controlled substance, 
placing consumers at great jeopardy.
    Cargo thefts of prescription drugs also pose a significant 
public health risk. In 2009 alone, at least 46 drug cargo 
thefts occurred valued at a total of $184 million, a great 
expense to pharmaceutical companies.
    In March 2010, thieves broke into a warehouse and stole $75 
million worth of prescription drug products, including 
chemotherapy drugs, anti-depressants, and blood thinners. These 
products have not yet been recovered, and we fear that they 
could be distributed to U.S. consumers in spite of public 
warnings.
    In 2009, stolen insulin vials were reintroduced into the 
drug supply and caused adverse events in patients. The stolen 
insulin, which required refrigeration, lost its potency and did 
not provide the needed glucose control for diabetics.
    These are just some examples that illustrate the enormous 
challenges that globalization presents to FDA, pharmaceutical 
manufacturers, and the American public.
    The drug supply chain is a complex path that medical 
products travel from raw source materials to finished products 
for consumers. At every stage in this process, opportunities 
arise for the product to be contaminated, diverted, 
counterfeited, or otherwise adulterated. The Internet presents 
an additional layer of complexity by introducing more players 
into the system and more opportunities for criminals to harm 
patients.
    FDA's role in addressing these threats is critical. FDA has 
undertaken a wide range of activities to harmonize 
international standards, to share scientific and technical 
expertise with our fellow regulators, to provide training 
around the world in crucial regulatory disciplines, and to 
design innovative risk modeling systems. The agency took 
aggressive action in the wake of the Heparin crisis to address 
the vulnerabilities that the incident exposed, including 
inspecting Heparin facilities and updating testing standards 
for the drugs.
    We acknowledge that there is room for improvement, and we 
are doing all we can to address GAO's recommendations by 
stepping up our efforts to address globalization. In June, FDA 
published a special report, ``Pathway to Global Product Safety 
and Quality,'' which lays out our global strategy and action 
plan.
    The agency is developing a new operating model that relies 
on strengthened collaboration, improved information sharing and 
gathering, data-driven risk analytics, and the smart allocation 
of resources, leveraging the combined efforts of government, 
industry, and public and private sector third parties. Toward 
this goal, Commissioner Hamburg created a directorate focused 
on grappling with these challenges and appointed me to head 
that directorate.
    Congress can help. Congress has the ability to align FDA 
statutory framework with the shift in the global paradigm. When 
President Franklin Delano Roosevelt established the modern FDA 
in 1938, the percentage of medical products imported into the 
United States was minimal.
    Today the landscape is reversed. Nearly 40 percent of the 
drugs Americans take are imported and nearly 80 percent of the 
active pharmaceutical ingredients in those drugs are imported 
from more than 150 countries, many with less sophisticated 
manufacturing regulatory systems than our own. Only about one-
third of the drug manufacturing facilities that FDA wants to 
inspect are in this country. The rest are spread around the 
globe.
    New statutory authorities, which I detail more fully in my 
written testimony, can help to level the playing field between 
domestic manufacturers and their foreign counterparts, increase 
drug safety, and provide FDA with the information it needs to 
most effectively and efficiently oversee the global supply 
chain.
    I appreciate your interest in this critical issue. I 
apologize for running over. But I look forward to working with 
you to address the challenges we face in protecting our 
Nation's health in this globalized world.
    [The prepared statement of Ms. Autor follows:]
           Prepared Statement of Deborah M. Autor, J.D., Esq.
                              introduction
    Good morning, Chairman Harkin and members of the committee. I am 
Deborah Autor, Deputy Commissioner for Global Regulatory Operations and 
Policy at the Food and Drug Administration (FDA or the Agency) in the 
Department of Health and Human Services (HHS). Thank you for the 
opportunity to discuss the safety of the American drug supply.
    When President Franklin Delano Roosevelt established the modern FDA 
in 1938, the percentage of medical products imported into the United 
States was minimal. Today the landscape is reversed. Nearly 40 percent 
of the drugs Americans take are made elsewhere, and about 80 percent of 
active pharmaceutical ingredients (APIs) used in drugs manufactured in 
the United States come from outside our borders--from more than 150 
countries, many with less sophisticated manufacturing and regulatory 
systems than our own. In addition to the sheer volume of imports and 
foreign facilities, there has been an increase in the variety of 
sources, shippers, methods of transportation and supply chain 
complexity of imported products, and our current authorities have not 
kept pace with the challenges of the current global marketplace. 
Combined, these factors create great challenges to FDA and industry in 
ensuring that all drugs are high quality and travel safely throughout 
their complex supply chains. These factors also provide opportunities 
for criminals to adulterate drugs for economic or other malevolent 
reasons.
    When we refer to the drug supply chain, we are talking about the 
increasingly complex path that medical products travel, from raw source 
materials to finished products for consumers. At every stage in this 
process, opportunities arise for the product to be contaminated, 
diverted, counterfeited, or otherwise adulterated. The Internet 
presents an additional layer of complexity by introducing more players 
into the system and more opportunities for criminals to reach 
consumers. Our efforts to secure the supply chain both in the United 
States and abroad include minimizing risks that arise anywhere along 
the supply chain continuum, from sourcing a product's raw material, 
ingredients, and components through the product's manufacture, storage, 
transit, sale and distribution. A breach at any point in this continuum 
could lead to dangerous and even deadly outcomes for consumers. Supply 
chain safety threats also impact manufacturers' bottom lines due to 
costs associated with both recalls and decreased public confidence.
    As members of this committee well know, this threat is not purely 
hypothetical. Recent incidents of adulteration, counterfeiting, and 
cargo theft have posed serious threats to public health. The 
consequences, throughout the world, have been tragic. In recent years, 
glycerin in fever medicine, cough syrup, and teething products was 
adulterated with the highly toxic solvent, diethylene glycol (DEG), 
resulting in the deaths of adults and children in Panama, and children 
in Haiti and Nigeria. Over the last 20 years, drug products containing 
glycerin contaminated with DEG have caused an estimated 570 deaths 
worldwide. Also in 2007, pet food adulterated with the industrial 
chemical melamine and cyanuric acid sickened several thousand pets in 
our country. The same contaminant was added to infant formula in China, 
fatally poisoning six babies and making 300,000 others gravely ill. 
Members of this committee are well aware of the 2008 heparin 
contamination crisis that resulted in several deaths and cases of 
serious illness.
    Counterfeit drugs raise significant public health concerns, because 
their safety and effectiveness is unknown. A counterfeited drug could 
be made up of a substance that is toxic to patients. But even a non-
toxic counterfeit drug with a substitute or no active ingredient could 
prove harmful to patients who take it, thinking that they are taking a 
lifesaving or life-sustaining medication. In 2003, over $20 million in 
illegally imported and counterfeit Lipitor, a popular cholesterol-
lowering drug, was distributed throughout the United States. The source 
and manufacturing methods of the product were unknown and had the 
potential to endanger patients.
    Cargo thefts of prescription drugs also pose a significant public 
health risk. In 2009 alone, an estimated 46 drug cargo thefts occurred, 
valued at a total of $184 million. These incidents are concerning to 
companies and consumers alike. Cargo thefts can cost drug manufacturers 
millions of dollars. They can also put consumers at risk because the 
stolen drugs may not have been stored or handled properly or may have 
been tampered with while outside of the legitimate supply chain. In 
March 2010, thieves broke into a warehouse and stole $75 million worth 
of prescription drug products, including chemotherapy, antidepressants, 
and blood-thinners. These products have not yet been recovered, and we 
fear they could be distributed, in spite of public warning. In 2009, 
stolen insulin was reintroduced into the drug supply and caused adverse 
events in patients. The stolen insulin, which requires refrigeration, 
lost its potency and did not provide the needed glucose control.
    In our increasingly complex and globalized world, additional 
authorities could be important tools to help support FDA's efforts to 
protect the safety of imports and the health of our citizens. New 
regulatory authorities may also help ensure that industry takes 
principal responsibility for the security and integrity of their supply 
chains and the quality control systems they use to produce medical 
products for the American people. FDA's efforts are also critical to 
ensuring product integrity. As such, we intend to further transform FDA 
over the next decade from a predominantly domestically focused Agency, 
operating in a globalized world, to an Agency fully prepared for a 
regulatory environment in which product safety and quality know no 
borders.
    In June, FDA published a special report, ``Pathway to Global 
Product Safety and Quality,'' our global strategy and action plan that 
will allow us to more effectively oversee the quality, safety, and 
efficacy of all products that reach U.S. consumers in the future. The 
Agency is developing a new, more global operating model that relies on 
strengthened collaboration, improved information sharing and gathering, 
data-driven risk analytics, and the smart allocation of resources, 
leveraging the combined efforts of government, industry, and public- 
and private-sector third parties. Toward this goal, FDA Commissioner 
Margaret Hamburg created a directorate focused on grappling with the 
truly global nature of today's world--food and medical product 
production and supply, as well as the science that undergirds the 
products we regulate--so that FDA can move from being a regulator of 
domestic products to one overseeing worldwide enterprises. She 
appointed me as Deputy Commissioner for Global Regulatory Operations 
and Policy to provide broad direction and support to FDA's Office of 
Regulatory Affairs and Office of International Programs, with a 
responsibility to address the challenges of globalization and import 
safety a top priority in the years to come and to ensure that we fully 
integrate our domestic and international programs to best promote and 
protect the health of the public. I appreciate the opportunity to 
testify before you in my new role and look forward to working together 
to address the challenges we face in protecting our Nation's health in 
this increasingly globalized world.
             steps to secure our nation's drug supply chain
    FDA has undertaken a wide range of activities aimed at addressing 
the challenges and opportunities of globalization, including efforts to 
harmonize scientifically rigorous standards internationally, to share 
scientific and technical expertise with our fellow regulators, to 
provide training around the world in crucial regulatory disciplines, to 
strengthen detection, surveillance and assessment systems, and to 
design innovative risk-modeling systems.
    We now have permanent FDA overseas posts in Beijing, Shanghai, and 
Guangzhou, China; New Delhi and Mumbai, India; San Jose, Costa Rica; 
Mexico City, Mexico; Santiago, Chile; Brussels, Belgium; London, 
England; and Parma, Italy. This year, we have opened posts in Amman, 
Jordan and Pretoria, South Africa. These offices enable us to have a 
regional presence around the world and serve as important hubs for 
improved coordination with regulatory authorities and industry in other 
nations. They also conduct and facilitate inspections and other on-the-
ground activities in foreign sites. We have more than 30 agreements 
with foreign counterpart agencies to share inspection reports and other 
non-public information that can help us make better decisions about the 
quality and safety of foreign products.
    When governments collaborate to strengthen safety standards, the 
results are safer, higher-quality products and enhanced economic 
development through a productive industry and a strong, reliable export 
market. The arrangement is mutually beneficial. To a large extent, our 
success or failure in this effort will be contingent on the 
relationships we establish with our foreign partners. That is why we 
are working closely with our sister regulatory authorities, 
international and national organizations, and industry to leverage 
resources to accomplish FDA's mission. Especially in the area of good 
manufacturing practices for drugs, we already have agreed with major 
foreign counterparts on some harmonized international standards. By 
using the results of their inspections to assure us that their 
manufacturing plants are adhering to our agreed standard, we free up 
our inspectional resources to help ensure that such manufacturing 
practices are being followed in other, higher risk parts of the world. 
This also lessens the regulatory burden on industry, by allowing 
companies to manufacture to a common standard and to undergo fewer 
inspections by multiple authorities.
                             after heparin
    The 2008 heparin contamination crisis is a case study in the 
vulnerabilities of the global supply chain. Heparin is a widely used 
injectable anticoagulant, derived from the mucosal tissue of pigs. In 
early 2008, contaminated heparin from China was associated with an 
increase in deaths in the United States. Whatever was contaminating 
this imported heparin could not be identified by the tests used at the 
time. After launching a far-ranging investigation, FDA scientists, 
working closely with academia and industry, developed a test 
methodology that identified a previously unknown contaminant in 
Chinese-manufactured heparin. The contaminated heparin contained over-
sulfated chondroitin sulfate (OSCS), an intentionally added adulterant. 
An outbreak of blue ear pig disease had killed off a large portion of 
China's pig population, creating an incentive for criminals to seek an 
alternative that mimicked the chemical makeup of heparin but, 
tragically, proved dangerous to consumers.
    FDA publicly referred to the heparin contamination crisis as a 
``wake-up call.'' It was an alert not only for FDA, but also for U.S. 
citizens, industry, and lawmakers about our dependence on a globalized 
drug supply and the key vulnerabilities in our drug supply chain. FDA 
has taken a number of significant steps to safeguard the U.S. supply of 
this medically necessary drug. The Agency invested considerable 
resources to inspect heparin manufacturing and testing facilities 
related to the supply of heparin in the United States. Additionally, 
the United States Pharmacopoeia, a standards-setting organization upon 
which FDA relies, now calls for the testing of heparin to detect the 
presence of OSCS, the contaminant that sickened patients in 2008. FDA 
has also implemented heparin-specific import surveillance including an 
import alert and multiple warning letters to ensure that adulterated 
heparin does not enter our borders.
    But our efforts have not stopped there. The heparin crisis was a 
crime of opportunity, and we need to minimize these opportunities. We 
are committed to putting preventive measures in place that will protect 
American consumers from adulteration of all imported drugs. We combine 
risk-based approaches with sound scientific evidence to protect the 
public from adulterated and unsafe drugs. The Agency takes several 
factors into account in determining whether a particular drug 
ingredient may be at risk for adulteration. For example, when a drug 
ingredient depends on raw materials that are particularly expensive, 
criminals may have extra incentive to find a cheaper alternative to the 
expensive ingredient. If the cheaper alternative can mimic the chemical 
activity of the product and thereby go undetected by standard testing, 
as was the case in the heparin and melamine incidents, the risk of 
adulteration is higher. To date, FDA has systematically ranked more 
than 1,000 APIs in order of their respective risk of adulteration, 
based on a multi-factorial, risk-based model we developed. A subset of 
these higher-risk ingredients is targeted for additional sampling and 
special testing at the border. In addition, FDA is working to reduce 
the risk that counterfeit or adulterated drug products reach consumers 
in the U.S. market by developing standards for a track-and-trace system 
that would enable the identification of these products and facilitate 
efforts to recall them.
    Through the creation of my position and other activities at the 
Agency, we have made addressing the challenges of globalization a top 
priority. To support this effort, FDA can benefit from new legislative 
authorities that are, at a minimum, commensurate with those of its 
major global counterparts.
                        drug safety authorities
    In general, new regulatory authorities may help ensure that 
industry takes principal responsibility for the security and integrity 
of its supply chains and the quality control systems it uses to produce 
drugs for the American people. In an era of globalization, new 
authorities can help to level the playing field between domestic and 
foreign manufacturers, ensure product safety and provide FDA with the 
information it needs to protect consumers. Those authorities may 
include:
Leveling the Playing Field
     Refusal of product admission to the United States if 
inspection of the manufacturing facility is delayed, limited, or 
denied--this authority is critical to providing a strong incentive for 
foreign facilities to allow FDA to perform inspections and to permit 
FDA to exclude from domestic commerce products whose foreign 
manufacturers or facilities try to avoid subjecting themselves to the 
same requirements as domestic manufacturers and facilities. This 
authority is not currently explicit in FDA's law for any product other 
than foods.
     Require information upon importation--the Agency can 
refuse entry of an import that appears from examination of samples or 
otherwise to be adulterated or misbranded, but FDA lacks authority to 
require certification or other assurance of compliance with applicable 
standards or requirements as a condition of importation, consistent 
with FDA's standards and requirements for the domestic drug supply. 
This is the opposite of the approach taken by many other countries, 
which place the burden on the importer or product owner to prove that 
its drug is compliant with country requirements.
     Quality management systems--FDA currently works with 
industry to ensure that individual companies have effective quality 
management systems in place; however, additional statutory authority 
could place greater responsibility on manufacturers to account for the 
quality and provenance of the materials that go into their products. 
This would level the playing field between the companies that work 
diligently on their quality management systems to provide high quality 
products, and those that do not.
     While FDA does not seek to interfere with regulatory 
authorities outside the United States, having express authority to 
address threats to U.S. consumers, whenever and wherever they may 
arise, is critical.
Increasing Drug Safety
     Mandatory recall authority--while in most instances firms 
eventually agree to voluntarily recall drugs that FDA believes pose a 
risk, FDA lacks the authority to compel such recalls and critical time 
can be lost in negotiations between FDA and a firm, leaving the public 
exposed to potentially serious health risks. The Agency currently has 
mandatory recall authority for medical devices, infant formula, and now 
many other foods, but not for drugs.
     Administrative destruction at the border--absent this 
streamlined authority, FDA is often forced to return violative products 
to their senders because the current process for destruction requires a 
hearing, which is time-consuming and costly. Foreign drugs can then 
find their way back to U.S. ports of entry several times, posing a 
potential threat to consumers and wasting critical resources that could 
be better spent identifying new threats. This authority would level the 
playing field for those who produce compliant products, whether located 
in the United States or abroad.
     Administrative detention--while FDA has the authority to 
administratively detain illegal foods and medical devices in U.S. 
commerce, it does not have a similar authority for drugs. Currently, we 
cannot immediately detain dangerous drug products when we find them. 
Absent this immediate tool, consumers can be exposed to unnecessary 
risks.
     Enhanced criminal and civil penalties for foreign and 
domestic suppliers--statutory changes could help to deter would-be 
criminals from targeting drug products, and bring FDA's penalties in 
line with those for other serious Federal health and safety violations.
Increasing Information
     Modernization of drug registration and listing--revising 
these statutory provisions may improve the timeliness, completeness, 
and accuracy of FDA's current registration and listing information, 
making sure FDA has accurate and up-to-date information about foreign 
and domestic parties involved in medical product manufacture.
     Notification to FDA--this authority would permit FDA to 
require foreign and domestic companies to provide complete information 
on threats such as counterfeiting, theft, non-compliance with 
regulatory standards, mislabeling or misbranding, or other threats to 
the security of the drug supply chain. Among other things, this would 
allow FDA to better spot emerging risks and trends across companies and 
then inform industry or take other proactive, preventive steps.
     Unique facility identifier--the absence of a system of 
unique drug facility identifiers, such as a D-U-N-S number, submitted 
to FDA both as a condition of registration and import, makes it 
difficult for FDA to properly follow threats up the supply chain and 
makes it more difficult to get different systems, including at 
different agencies, to properly cross-reference.
     Authority to share certain non-public information with 
other regulatory agencies and foreign governments--this authority would 
allow FDA to share certain information that could lead to timely 
identification, prevention, and resolution of emerging threats. Our 
ability to form global coalitions of regulators will be hampered if we 
cannot share critical information with our trusted partners.
     Track and trace--requiring a cost-effective track-and-
trace system for all drug products throughout the supply chain would 
improve the security and integrity of the drug supply and ensure 
transparency and accountability of product manufacturing and 
distribution, whether the product is manufactured domestically or 
internationally.

    In our increasingly complex and globalized world, these additional 
authorities represent important tools to help support efforts to 
protect the safety of imports and the health of our citizens.
                               conclusion
    Given the challenges and threats posed by an increasingly 
globalized marketplace, we must modernize our approach to drug safety. 
We appreciate the comments of Chairman Harkin and Ranking Member Enzi 
in July in support of including legislation in the reauthorization of 
the Prescription Drug User Fee Act (PDUFA) to address the challenges of 
globalization. We look forward to continuing to work together to 
achieve our shared goal of protecting American consumers. I would be 
happy to answer any questions.

    The Chairman. Thank you very much, Ms. Autor. We'll start 
with rounds of 5-minute questions.
    From your testimony, Ms. Autor, it sounds like one 
significant gap in our supply chain is FDA's limited ability to 
inspect foreign producers. What can be done to inspect these 
foreign facilities more frequently, given your limited 
resources?
    Now, one of the things you mentioned in your written 
testimony--that I think you're asking Congress for--is the 
authority for the refusal of product admission to the United 
States if inspection of the manufacturing facility is delayed, 
limited, or denied. Is that one of the critical aspects of 
this?
    Let's be honest about things. I believe FDA needs more 
personnel. I think FDA needs more money. But in the climate 
around here, I doubt that that's going to happen.
    So on the one hand, we want more safety. We want to level 
the playing field. So you have offices right now--FDA has 
offices in China and India and places like that. I don't know 
how well they're staffed. I know the offices are there.
    But speak to this--about inspections being delayed, about 
pre-announcement of inspections--what good is it to do an 
inspection if you have to announce it 2 or 3 weeks in advance--
and the ability of your offices overseas to conduct onsite 
inspections unannounced. Is that the kind of authority that you 
need from Congress?
    Ms. Autor. Senator Harkin, you mentioned one authority in 
particular that would be very useful, which is the ability of 
FDA to refuse for import products from foreign facilities that 
have refused to let FDA in to inspect or delayed or denied an 
FDA inspection. It seems common sensical that if a company is 
not a good enough player to actually let the agency in to see 
how it's operating, those are not the products we want to come 
to the American consumers.
    But at the moment, the law is not clear on our authority to 
do that. So that is very important.
    With respect to being able to reach facilities overseas 
more, that's obviously very important. And we recognize, in 
this economy, our resources are going to continue to be an 
issue.
    Our offices overseas are helpful. We have at this point 13 
posts around the world, and they do some inspections. They do 
also a lot of work to collaborate and to work with our foreign 
counterparts, so that is part of the answer. And they are more 
likely than our U.S. inspectors to be able to make an 
unannounced inspection.
    But in foreign countries, in particular, in China, there's 
a rule that we need to have a letter of invitation from the 
company before we can enter the country to inspect. So it's 
very difficult to do an unannounced inspection. And what that 
means is that the playing field really is not level between the 
foreign manufacturers and the domestic manufacturers.
    With the domestic manufacturers, we can show up at their 
door any day. They will usually let us in. If they don't, we 
can go and get a warrant and get in. On the foreign side, it's 
very hard to get there. When we get there, they may or may not 
let us in. If they do not let us in, we do not have the 
explicit authority to prevent the drugs from coming to U.S. 
consumers.
    The Chairman. So taking China as an example, then, you have 
to have a letter of invitation from the company in order to be 
able to inspect. Is that right?
    Ms. Autor. In order to get the visa to come to China to 
inspect. That's as I understand it.
    The Chairman. I thought you have an office in China.
    Ms. Autor. We do, and they do some inspections. They do 
some.
    The Chairman. But do they have to have a letter of 
invitation?
    Ms. Autor. I believe they do not. But I think it's not 
realistic to think that FDA will ultimately have enough 
personnel spread around the globe that we can see their 
facilities at all times when we want to. What it means is that 
we need to think creatively about how to assess the foreign----
    The Chairman. So it's very clear that companies in China 
that manufacture ingredients or the finished drugs can thwart 
inspections, actually deny inspections, and still ship their 
product to the United States.
    Ms. Autor. They can. And another interesting thing about 
our law is that it puts the burden on FDA to keep products out 
of the country. So if a manufacturer offers something for 
import, we have to show that something appears to be wrong with 
it in order to keep it out of this country.
    Now, in every other grown-up country that we know of, the 
regulator has the authority to say, ``If you want your product 
to come in, you must show us that your product is good.'' For 
us, we must show that it's bad. And when you think about that 
in the context of a globalized world where there are so many 
manufacturers we do not see, it's simply not a reasonable 
burden.
    We simply think that manufacturers should be required to 
show some minimal standards that their product is approved, 
that it complies with good manufacturing practices in order to 
be able to access U.S. markets. And that will also level the 
playing field between the manufacturers who want to do it right 
and the manufacturers who don't.
    The Chairman. I have one followup question. My time has 
expired. So I'll recognize Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman.
    The FDA still hasn't responded to my sole question for the 
record from our July hearing with the commissioner. I asked for 
a status report on the implementation of the GAO supply chain 
recommendations. I'll have several questions today that I'm 
sure I won't have time to ask.
    Will you commit today to work with the committee in a more 
timely and responsive manner?
    Ms. Autor. Absolutely, Senator Enzi. I do understand that 
you have questions for the record pending related to our GAO 
recommendations, that those questions came in in August, and we 
are working very hard to respond to them. We want to make sure 
we get the technical facts right before we send them to you. 
And when we respond, you will see that we have continued to 
make serious progress against the challenges and the issues 
that GAO has pointed out.
    Senator Enzi. Good. FDA promulgates current and good 
manufacturing practices, or GMPs, to tell companies how to 
manufacture drugs. Given the risks of globalization, why hasn't 
the FDA updated its know-your-suppliers GMPs?
    Ms. Autor. There are some opportunities we have to update 
our standards under current law. And we will try to do so if 
Congress does not update the law. But updating the requirements 
through regulation is a lengthy, uncertain, expensive process 
for the taxpayers, essentially litigious, with an unclear 
outcome.
    So the GAO, I think, has said that it's urgent for these 
issues to be resolved. I think if Congress believes these 
issues are also urgent, then Congress can help to resolve them 
quickly through legislation.
    Senator Enzi. Even if we do legislation, won't you still 
have to go through the regulatory process with it?
    Ms. Autor. I think that depends on what the legislation 
says. I think there are some things which you may be able to do 
immediately through legislation, which would change the 
paradigm, which would bring manufacturers up to a higher level 
or level the playing field between the good players and the bad 
players, between the domestic ones and the international ones. 
There's some things where we would have to do regulations 
afterwards.
    But to get our statute up to a modern, globalized world--I 
think that's something that Congress could be able to do 
quickly.
    Senator Enzi. Since we should be working on that quickly, I 
hope you would get the specific things to us so that we can do 
that and perhaps avoid the regulation route, although I think 
there's a big hesitancy to do anything too specific by a group 
of people that don't work on it on a daily basis.
    So GAO found that 83 percent of the time, FDA does not 
target foreign drug inspections on the basis of risk. FDA's 
``Pathway to Global Product Safety and Quality'' reported 
earlier this year said the agency is building intelligence, 
surveillance, and risk assessment programs to fix this problem. 
To what extent have you implemented these programs?
    Ms. Autor. Well, the ``Pathway to Global Product Safety and 
Quality'' report was issued in June, and part of implementing 
that report is my new position in the new directorate, and I 
assumed my job on July 31. So I haven't had a tremendous amount 
of time to establish global coalitions and global data systems 
yet, but we are thinking very hard about how we can do that.
    As you pointed out, the ``Pathway'' report talks about 
global data systems, advanced risk analytics, as well as global 
coalitions of regulators and reliance on public and private 
third parties. And we believe that this is the way for FDA to 
do the best it can within today's current challenges.
    We have some history in collaborating with our foreign 
regulators, for example, on drug inspections with Europe and on 
active pharmaceutical ingredients with Australia and Europe. So 
there are steps we've taken in the past which lead us to this 
path, and we are serious about implementing it right now. And 
I'm doing my best to get it started, and I haven't done so over 
the past 6 weeks.
    Senator Enzi. I appreciate your efforts on that. The GAO 
says that FDA does not have adequate information systems to 
detect overseas supply chain risks. In 2009, FDA started 
migrating out of a paper-based system called DRLS into an 
electronic system called E-LIST.
    According to GAO, FDA says it can't tell whether the system 
change has helped solve the problem or made it worse. What is 
the status of that system migration?
    Ms. Autor. We have implemented an electronic registration 
and listing system, and I think it's been very helpful. It has 
eliminated some of the possibility for human error when we 
literally had people typing in what they received on forms in 
the mail. So that's a major improvement bringing us into this 
century, I believe. And it has helped us to establish 
consistency in our records, because we don't have that error.
    We are also doing other things which we think can help with 
our data systems. For example, we are working with Dun and 
Bradstreet on a unique facility identifier. And one thing that 
you could think about legislatively is requiring facilities to 
have a unique identifier, such as the D-U-N-S number, because 
having a unique facility identifier for drug manufacturers 
greatly helps FDA's ability to have a clear inventory. We don't 
have the possibility of typographical errors in addresses.
    We have Dun and Bradstreet's database of millions of 
corporate entities to verify our information. We can work 
together with our foreign counterparts, because we can use the 
same consistent numbering system and compare our records. 
There's a great deal we have done in implementing the 
electronic system, and there's a great deal we can do to 
improve that, especially with some help from Congress.
    Senator Enzi. I'd raise a few more questions, but my time 
has expired.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Enzi.
    Now, in order of arrival, Senator Bennet, then Senator 
Roberts, then Senator Franken.
    Senator Bennet.

                      Statement of Senator Bennet

    Senator Bennet. Thank you, Mr. Chairman, and the Ranking 
Member for holding this very important hearing.
    As I travel around the State, I hear a lot about 
regulation. People are asking all the time about regulation. 
Sometimes people say, ``We should get rid of all that,'' and 
sometimes people have a different point of view.
    If there was ever a case that screamed out for a bipartisan 
approach to get us into, as Ms. Autor was just talking about, 
the 21st Century, it is this case, because there are twin 
objectives, I think, that we need to accomplish somehow as we 
go forward here. One is to recognize that 80 percent, as you 
said, of our active ingredients are now produced overseas and 
are largely unregulated, and we don't know what's going on 
there, which is a shock to Coloradans when they hear that, just 
as it's a shock when they hear that the GPS in their car is 
more advanced than the ones in our airplanes because of our 
inability to deal with the FAA bill.
    The other piece is that we have got to figure out, as we're 
doing this, how to create a competitive biosciences industry 
here in the United States, one that we can rely on in the 21st 
Century to create jobs in places like Colorado. And I 
appreciate very much that Commissioner Hamburg came out to 
Colorado to have a conversation with our bioscience community 
and to work collaboratively with them.
    I'm interested to hear a little bit, generally, about how 
you see the globalization of our drug supply fitting into the 
overall effort to remove regulatory barriers and to inspire 
innovation right here in the United States.
    Ms. Autor. Sure. Thank you, Senator Bennet. I would say 
right now that the incentives are not really there for 
innovation in quality. And what we hope that Congress will look 
at is quality management systems which will improve innovation 
and quality, foster innovation and quality. Right now, because 
the playing field is unlevel, it does not reward companies who 
want to do it right, who want to find innovative ways to do it 
right.
    And I should point out, by the way, that doing it right 
does not necessarily cost more. We have one company, for 
example, who committed to their quality side of the house, to 
making sure their manufacturing was right. And so they spent 
$100 million less than they had intended to spend on quality.
    Conversely, companies who don't do it right or companies 
that run into problems can lose an awful lot of money. In the 
Heparin crisis, Baxter lost $30 million in sales and $4.7 
billion in market capitalization. Recently, we had recalls of 
injectable products because there was glass shearing off inside 
the vials. So there were glass lamellae in the vials, which 
obviously can't be injected into patients. Industry spent 
probably $250 million recalling those products.
    So that's money that they're spending on cleaning up 
quality issues rather than investing in new products and being 
innovative. So we think actually that leveling the playing 
field and putting in place a modern system can help a great 
deal in innovation and competitiveness.
    Senator Bennet. And one of the things I hear all the time 
from the folks in our State that are in this field is that 
other countries also are having to grapple with this question 
as well and are modernizing their regulatory agencies to deal 
with it, being more responsive than they've historically been. 
And I wonder if you could talk in that context a little bit 
about something else you mentioned in your testimony, which was 
the harmonization of the international regime.
    Are there ways that we can rely on others to help us do 
this work, and others rely on us to help us do this work? How 
do we make sure that we've got a global regulatory system that 
can actually manage this problem?
    Ms. Autor. By all means. And the ``Pathway to Global 
Product Safety and Quality'' report, I think, makes crystal 
clear FDA's recognition that we simply can't do it alone and 
that we need to work together with our counterparts, that we 
need to form global coalitions of regulators. To some extent, 
that means harmonizing standards. To some extent, it means 
simply being able to rely on each other.
    And this has great benefits for industry as well. It leads 
to fewer inspections, streamlined requirements, and if we're 
able to reach more companies around the world, it effectively 
minimizes what we have now, which is a competitive advantage of 
noncompliance.
    Companies who choose to skirt the law can do so beyond 
regulators' reach and thereby make more money by doing it 
poorly. Working together with our counterparts, harmonizing and 
collaborating, is a way that we can level that playing field 
and we can improve quality overall.
    Senator Bennet. And that, I think, is one of the reasons 
why the good actors in this world want these statutes updated 
and want this regulatory regime updated, because if there's a 
bad actor, it hurts everybody in the entire industry and our 
patients as well.
    Thank you for your testimony.
    [The prepared statement of Senator Bennet follows.]

                  Prepared Statement of Senator Bennet

    Mr. Chairman, it's been more than 70 years since the laws 
governing the Nation's pharmaceutical industry were updated. 
The year was 1938. Franklin D. Roosevelt was president, gas 
cost 10 cents a gallon, and the average price for a new home 
was $3,900.
    A lot has changed. Unfortunately, the country's drug safety 
laws haven't. Many regulations are woefully, and dangerously, 
outmoded, in the face of an increasingly globalized and opaque 
supply chain that is vulnerable to theft and criminal activity.
    So buyer beware.
    The blood thinner heparin, for example, used in your local 
hospital, may originate from pig intestines stored on the floor 
of a grimy factory in a remote region of China. Diabetes 
patients may be oblivious to the fact that their insulin--which 
requires refrigeration--may have been stolen by a street gang, 
left out in the heat, then sold back into the market.
    In 1938, drug manufacturers were easily checked for quality 
and safety. The lines of commerce consisted mostly of the 48 
contiguous States. Regulators were able to inspect drug 
manufacturers every 2 years or show up unannounced to verify 
ingredients with relative ease.
    Today, up to 80 percent of all drug ingredients are 
manufactured in countries like China or India. In some cases, 
drug makers buy ingredients from foreign suppliers without 
actually knowing who those suppliers are. As a result, products 
show up on our shelves that do not meet basic U.S. safety 
standards--and put American families at risk.
    Three years ago, for example, contaminated heparin led to 
hundreds of illnesses and several deaths. The contaminant was 
traced to a filthy, uninspected and infested factory in China.
    We should consider as an issue of national security the 
path pharmaceuticals take before and once they enter our 
country. Hundreds of different hands distribute and repackage 
drugs before they appear on our pharmacy shelves and in our 
hospitals. Our system's lack of transparency makes it almost 
impossible to know who is actually handling our medicine.
    You can get more data from a barcode on a gallon of milk 
than you can from a bottle of aspirin two aisles over. We need 
a system to ensure that drugs can be tracked like a FedEx 
package--to help us more easily spot counterfeits or detect 
stolen or recalled products.
    Accountability must stretch across the entire supply 
chain--all the way to distribution.
    Right now, each State has different laws for tracking 
drugs. Compare that to airport security. If every major U.S. 
airport had different airport security processes, with some 
easier to flout, imagine which one a terrorist would prefer.
    A comprehensive, practical approach will increase safety, 
help efficient interstate commerce and minimize inconsistencies 
among the current patchwork of State requirements.
    I introduced the Drug Safety and Accountability Act last 
year, to increase both industry and regulatory controls to 
ensure drug safety and protect patients. It would require more 
accountability of drug company ingredients across the entire 
supply chain. It also requires that the Food and Drug 
Administration fix its inadequate monitoring systems on 
manufacturing sites here and abroad, while giving the agency 
authority to order a drug recall--a power that 94 percent of 
Americans want the agency to have.
    The FDA needs resources to improve accountability and 
quality. To its credit, industry has been willing to consider 
user fees--whether domestic or international--so that the 
agency can do the number and scope of inspections that we need.
    Equally important, we need to increase penalties for those 
who game the system. Right now, you get higher penalties for 
illegally copying a DVD than for counterfeiting drugs. 
Criminals who once specialized in dealing illegal narcotics are 
now gravitating toward counterfeiting pharmaceutical drugs--
because penalties are so much weaker.
    As Congress begins to consider FDA reauthorization, it must 
work across party lines to address these supply-chain 
shortcomings.
    A strong drug supply and distribution chain that protects 
U.S. consumers should not be a partisan issue. It is a matter 
of competitiveness, national security and consumer safety.
    Thank you.

    Thank you, Mr. Chairman.
    The Chairman. Thank you very much, Senator Bennet.
    And I want to note again for the record that Senator Bennet 
has introduced legislation on this last year.
    I was reading it over in preparing for this hearing today, 
and I thought you made one point in your remarks on introducing 
the bill that we get more information from the barcode on a 
gallon of milk than we do on----
    Senator Bennet. Right.
    The Chairman [continuing]. Anything we get from the drugs 
that we get. I thought that really kind of capsulized it.
    Senator Roberts.

                      Statement of Senator Roberts

    Senator Roberts. Well, thank you, Mr. Chairman. And I echo 
the comments of my colleague and friend from Colorado.
    I'm still somewhat confused, which is a state that I walk 
around in a lot, and I don't know exactly what you want in 
terms of new authority. Could you clarify that for me? Does the 
FDA really need new authorities to inspect the foreign 
facilities, or are you simply asking for more funds, or both? I 
mean, there's a difference between a need and a want, and in 
the climate we're in, it's extremely difficult in regards to 
funding. But authority may be the answer. And Senator Enzi 
really posed that question, so my question is just a repeat of 
his.
    Ms. Autor. Sure. Well, just to clarify, we're not talking 
about new authorities to allow us to inspect foreign 
facilities, per se. What we're talking about is new authorities 
in light of the fact that our pharmaceutical supply chain has 
globalized. So, for example, as I said, right now, if a foreign 
facility refuses to let us inspect--and we need to let their 
products in. Globalization has greatly increased--or it may 
need to--the law is unclear as to whether we can keep their 
products out simply because they refused inspection.
    Globalization has greatly increased the challenges for the 
agency, greatly increased the opportunities for counterfeiting, 
contamination, drug diversion----
    Senator Roberts. Yes, ma'am. I understand that. But do you 
want new authority or not?
    Ms. Autor. Yes, sir.
    Senator Roberts. You do want authority?
    Ms. Autor. Yes, sir, and I'm talking about----
    Senator Roberts. And you will respond to Senator Enzi and 
the Chairman's specific questions. OK. We got that down. Thank 
you. I didn't mean to interrupt you, and I apologize.
    Can you really provide the committee with a full and 
complete list of all the foreign drug establishments that are 
involved in the U.S. drug supply chain? Is that possible?
    Ms. Autor. If you want the long list, we could try to do 
that. I think that we do have lists of the facilities who offer 
products for import to the United States.
    Senator Roberts. Right.
    Ms. Autor. And lists of the foreign facilities that 
register with us, which is a requirement.
    Senator Roberts. Well, that would really help, I think, in 
understanding the breadth of the current problem. You've 
outlined a serious situation.
    Last year, stolen insulin managed to make its way back onto 
the pharmacy shelves and reached patients. As you know, this is 
a heat sensitive product that will not work if improperly 
stored. I don't know how this deception was possible. There is 
no comprehensive national system, apparently, to track and 
authenticate packages of drugs as they travel from the 
manufacturer to the wholesaler to the pharmacy.
    What steps can the FDA take to help the transparency of the 
drug distribution? And do you need any authority or an 
additional mandate to do that?
    Ms. Autor. Yes, sir. As you pointed out, products are able 
to infiltrate the legitimate supply chain at this time, 
including products like the stolen Levemir insulin.
    Senator Roberts. Right.
    Ms. Autor. What we would need to rectify that would be a 
requirement for a track-and-trace system, a system which 
allowed manufacturers and pharmacies to know who had touched 
the drug between the time it was manufactured and the time it 
reached the pharmacy. Right now, under the law, we are required 
to come up with a national standard, but the law does not say 
that that standard is enforceable, or that it's a violation of 
the law not to comply with the standard, or that that law will 
pre-empt the requirements of the States.
    And the risk is right now, in fact, that what will happen 
is the 50 States will each put in separate requirements leading 
to a patchwork which will be very difficult for industry----
    Senator Roberts. Yes, that would be a hodge-podge for sure. 
But you do have a plan for the transparency, in fact, if you 
had the authority and you had the funds to do it. Where are you 
with that?
    Ms. Autor. We are working on a track-and-trace standard. We 
don't have the authority to make it enforceable. We do have the 
standard to put it out there and to hope that people follow it.
    Senator Roberts. I see. OK. I'm going to touch on what the 
Senator from Colorado said. Like the Senator from Colorado and 
like the Chairman and like Senator Enzi, everywhere I go, 
people say, ``What on earth are you doing passing regulations 
that are crazy and are about to put me out of business? What 
are you guys doing? '' I always reply and say, ``I'm an us guy, 
not a you guy.'' And then I try to trace the regulation back 
that doesn't make much sense.
    When it finally reaches downstream--we were talking about 
upstream, but now this is downstream--and it's in every 
conceivable business that is essential to the committee. Let's 
talk about the pharmacists.
    The pharmacists today in my State do not serve Medicare 
patients because of all of the regulations with PPACA and the 
new healthcare law, and also competitive bidding, and they 
can't sell durable medical equipment, and they can't do this or 
that. And some of them are going out of business because of the 
regulatory overkill.
    I want to know about the potential cost to the individual 
pharmacist, especially in rural and small town America, if we 
implement a full track-and-trace program. Somebody's got to pay 
for this, and the consumer usually does, and then it--well, 
until it gets to the consumer--it goes to the pharmacist. So 
I'm worried about the small town pharmacy. You won't have a 
problem with any kind of drug if you don't have a pharmacist to 
distribute it in a local town, because they won't get any.
    Ms. Autor. Yes. Sir, we fully understand that, and we 
understand the concerns about pharmacies, about the economic 
impact of a track-and-trace system. And we are committed to 
trying to come up with the best system we can, balancing the 
need to protect public health with the need to be able to allow 
businesses to remain economically viable. We are trying to do 
that.
    We held a public meeting. We had the docket open so we 
could collect comments. We are considering those comments and 
trying to come up with the best model that allows us to have 
the maximum impact with a minimum burden.
    I would point out in 2009, we had $184 million in drug 
cargo thefts. So that is an economic loss to the industry and 
to the pharmaceutical community, which ultimately gets passed 
on to consumers and probably the pharmacies as well as a cost. 
So we need to come up with a system that works best, balancing 
all of those interests.
    Senator Roberts. So you do have a cost-benefit yardstick in 
your closet. I appreciate it. Thank you.
    I'm over time, Mr. Chairman. Pardon me.
    The Chairman. Thank you, Senator.
    Senator Franken.

                      Statement of Senator Franken

    Senator Franken. Thank you, Mr. Chairman, and thank you and 
the Ranking Member for this very important hearing.
    Let me ask about the Heparin. That came from China and 
Baxter was the--distributed it here in this country? Is that 
right?
    Ms. Autor. Virtually all Heparin in this country comes from 
China because it takes one pig to make one vial of Heparin. 
And, frankly, there are a lot of pigs in China to be able to 
make the Heparin, so most of the Heparin in this country comes 
from China. In that case, we traced the contaminated Heparin 
back to China, and then it was distributed through Baxter and 
other companies in the United States.
    Senator Franken. Can you comment on whether FDA has 
considered requiring manufacturers, as opposed to the FDA, to 
hold sub-suppliers and others further down the chain 
accountable? That would, I think, put the responsibility on the 
Baxters of this world to say, ``Look, you know, I've got to 
check the drugs I'm distributing.''
    Ms. Autor. Yes, by all means. And, in fact, when we've 
talked about quality systems and something that Congress might 
want to look at, one of the things we talked about is the 
manufacturer should have adequate control over their suppliers 
and over their supply chain. And right now, a lot of good 
companies do that. But the problem is that there are companies 
that do not, and what we need to do is raise the floor so that 
we have consistent quality throughout.
    But, by all means, the idea is that manufacturers are best 
placed to be able to ensure the quality of their products. They 
know what the risks are associated with those products. They 
can make sure that they've thought about the vulnerabilities. 
They can make sure that they have audited the suppliers. By all 
means, I think it's not something that the agency could even 
realistically do. It's for manufacturers to do. But it's 
something that needs to be clear in the law that they need to 
do that.
    Senator Franken. Can the FDA inform the public of which 
companies are doing it and which ones aren't?
    Ms. Autor. One thing that the FDA does now, which we 
started doing recently, is we post our inspectional outcomes 
for manufacturers. So we think that's one thing that helps to 
bring a little bit of transparency to who's doing it right and 
who isn't. I think that's the most helpful kind of thing we can 
do.
    But, again, to have a system which, in light of 
globalization, requires all manufacturers to do it right in the 
first place is very helpful, because consumers often don't get 
a choice about which drug they take. They go to the pharmacy 
and they give them what they get. So the importance is to make 
sure that when the drugs get there, they are the adequate 
quality for consumers.
    Senator Franken. Yes, but, I mean, the pharmacist would be 
the one, I would think, that would be looking at what 
manufacturers are doing, the inspection of the subcontractors, 
and then the pharmacist would be more inclined to take the 
product of the companies that are acting in good faith.
    Ms. Autor. Perhaps, if they have that flexibility, they 
would do that. But more important, I think, is to make sure 
that the manufacturers do it right in the first place.
    Senator Franken. How do you do that?
    Ms. Autor. I think you make sure to put in place a 
statutory scheme which levels the playing field between the 
good guys and the bad guys, puts enough requirements in place 
to do that. Also, the other things that Congress could think 
about are things that would enhance product safety, like a 
mandatory recall system, like increased criminal penalties 
relating to adulterating drugs, and also things that increase 
information.
    So FDA's best role in the circumstance, I think, is to be 
able to look across industry to see emerging risks. But right 
now, for example, if a company has a counterfeiting incident or 
a cargo theft or contamination, in most cases they're not 
required to tell us. So we may not only be able to immediately 
jump in on that issue to protect the public health and 
investigate, but if it's something which other parts of the 
industry know about, we cannot tell them if we're not alerted.
    There are situations where companies have voluntarily told 
us, ``We have a problem. There's a contamination of our 
inactive ingredients,'' and we've said to other companies, 
``You need to be on the lookout with respect to this inactive 
ingredient so that you can protect yourselves.'' But absent a 
statutory scheme, we can't consistently play that role, which I 
think is the best role for us.
    Senator Franken. Let me ask about your ability to inspect 
foreign subcontractors. Is there anything in our trade laws, in 
our trade policies, where we can enforce that? In other words, 
if you're going to be selling your drugs and your ingredients 
of drugs here in the United States, we insist that we be able 
to inspect your factories. Can that be in part of our trade 
policy and the World Trade Organization's policies?
    Ms. Autor. As far as I know, that's not something that's 
likely to happen. I'm not a trade expert, but the challenge, I 
think, is that imposing barriers to trade is very difficult 
through those kinds of organizations.
    But what we're talking about differently is the ability to, 
under the Federal Food, Drug, and Cosmetic Act, under FDA's 
act, say, ``If you have refused, delayed, or denied inspection, 
then your product won't come in.'' And that, by the way, is an 
authority the Congress put in place recently for food safety. 
So it's something that can be easily done through our act. The 
same thing, saying to companies, ``You need to show something 
that's good about your product if you want to come into the 
United States'' rather than making FDA show there's something 
bad about it, is a way to very quickly change the paradigm to 
keep up with globalization in a way that is really imperative.
    Senator Franken. OK. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thanks, Senator.
    Senator Mikulski.

                     Statement of Senator Mikulski

    Senator Mikulski. Thank you, Mr. Chairman.
    Ms. Autor, I'm so glad to see you. Know that being here at 
this hearing, I've got several hats, one of which, of course, 
is a Senator from Maryland in which FDA is headquartered. And 
we're so proud of the work you do under the difficult 
circumstances, funding, and contradictory requirements that 
you're given.
    But I'm also here as a member of the Intelligence 
Committee, and I'm also here as the appropriator for the 
Commerce Justice Department, meaning Justice work, because I 
believe that adulterated drugs coming into this country is 
criminal. I think it's a form of murder. You cannot rely on 
blood thinners the way members of my own family have, be a 
diabetic and rely on prescription drugs, and not know that 
which you are ingesting in your body could be the very thing 
that kills you rather than the very thing that saves you from a 
stroke, a heart attack, or a diabetic coma.
    So we've got to get real. We've got to get serious, and we 
have to have a sense of urgency. That's not laying it on FDA. 
That's laying it on us. We throw zillions at DOD to protect the 
homeland, to fight them over there so they don't kill us here. 
We've got to have that same attitude toward those that are 
adulterating drugs over there, quite frankly, so they don't 
kill us here.
    Now, your background is terrific. You're a trial lawyer. 
You worked at the Justice Department. You have an incredible 
background in working with Federal law enforcement.
    My question to you is, what are we going to do to create 
this sense of alarm, alarm, a red alert, going to the edge of 
our chair, DEFCON 3, because this is a growing problem. This is 
not exaggerated hyperbole for CNN for me. This is a compelling 
need when we look at the number of people who take prescription 
drugs, in which we are now so vulnerable and which are usual 
and customary drugs, particularly the issue of blood thinner.
    Now, I don't know about those Chinese pigs. OK? I don't 
know if they're communist pigs. I don't know if they're 
capitalist pigs, and I don't know if they're clean pigs in 
order to do this. But what I do know is that right now, all 
over the United States of America, there are a million--over a 
million people taking some form of blood thinner, that depends 
on Heparin and then to Warfarin.
    So my question to you is are we moving with that sense of 
urgency? Has this been escalated to a homeland security issue? 
Is this the top of anyone's agenda? Because this is as 
important as protecting our borders as we do from anything else 
illegal or threatening coming into our country.
    Ms. Autor. Thank you for that question. I really appreciate 
it. And I really do share your sense of urgency. I worry about 
products like this, which, frankly, cross our border every day. 
This is counterfeit Tamiflu and counterfeit Lipitor, and you're 
welcome to look at it if you'd like. They look very, very 
similar, and they come into this country.
    And one important thing that your question gets to, Senator 
Mikulski, is the fact that the risk to the pharmaceutical 
supply chain is not simply from people who are out to make a 
buck. There is a risk from people who have much more malevolent 
motivations, and I think we need to be aware of that.
    And so I do everything I can to reach global facilities, to 
change what we're doing at the agency, to be more proactive, to 
be more creative, to collaborate. But there are things which 
are not currently in the law, like requiring manufacturers--
clearly requiring manufacturers to update their test standards 
to look for vulnerabilities.
    Senator Mikulski. Especially making criminal charges, 
exactly.
    Ms. Autor. Yes.
    Senator Mikulski. I mean, really, we've got to do some out-
of-the-box thinking here. It's not are you for regs or against 
regs, you know. We are for smart regulation.
    Ms. Autor. I completely agree. And with respect to another 
crisis like Heparin or something worse, it's not a matter of 
if. It's a matter of when.
    Senator Mikulski. Now, let's talk about FDA, Justice, and 
the Department of Homeland Security. Do they feel that this has 
this heightened urgency? And has this been moved up the chain 
of command while we're looking at the supply chain of drugs and 
counterfeit drugs?
    Ms. Autor. That's a very interesting question. I can't 
speak for them. I'm not sure I could answer that question 
sitting here today. But I'd be happy to answer that for you.
    Senator Mikulski. Well, you know what? I just wanted our 
committee to know this. Senator Whitehouse is on the Intel 
Committee. So is Senator Roberts. We see the growing nexus 
between organized crime, international organized crime, and the 
corruption of public officials, overlooking any other kinds of 
collaborative enforcement. So I don't want to do complicated 
foreign policy here, but I think we need to look at it.
    I know my time is up. I had a chance to talk with Interpol 
this summer and do extensive conversations about their digital 
databases and what they see as a growing problem. This is an 
international problem, so it is not only for us. Whatever we 
feel about harmonization or not and the EU and all of that, the 
fact is that for any of us who value safety and efficacy, this 
is, I think--has to be elevated to a national security, 
homeland security, and criminal level. I look forward to 
talking with my colleagues so that we approach it that way, so 
that the American people know that if they take it, it will be 
OK.
    Thank you.
    The Chairman. Senator Mikulski, thank you very much. I just 
want to follow up. Our witness from the Pew Charitable Trust 
will be testifying later--Mr. Coukell. And his testimony I read 
last night said that this incident--he's talking about the 
Heparin incident, Senator Mikulski--said that the Heparin 
incident resulted in 150 deaths. But to this day, no one in any 
country has yet been held accountable.
    Is that a fact, Ms. Autor? Can you verify that or not? I'm 
just reading from what someone's going to testify here shortly 
that said that no one has yet been held accountable in any 
country.
    Ms. Autor. With respect to Heparin, we did conduct a 
criminal investigation in China but, ultimately, were not able 
to bring that to fruition at this point with a--finding a 
culpable individual. One thing I would say about Heparin, 
though, is it's a crime of opportunity. It was a crime of 
opportunity. So even catching the person who did that wouldn't 
solve the problem. What we need to do is work to minimize the 
opportunities for something like that to happen again.
    The Chairman. Thank you very much.
    Senator Whitehouse.

                    Statement of Senator Whitehouse

    Senator Whitehouse. Thank you, Chairman.
    Ms. Autor, you said about inspecting overseas facilities 
that manufacture product for American consumers that you--I 
think you used the phrase, may not be able to prevent the 
importation of a drug manufactured in a facility that refused 
inspection. What are the dimensions of that question, that you 
may not be able to? Why is that an uncertain proposition, and 
what are the--sort of, from a lawyer's point of view--what are 
the weasel words around that proposition that define it a 
little bit more clearly?
    Ms. Autor. Sure. The way the law works right now is we have 
to show that the product appears to be adulterated, misbranded, 
or unapproved in order to keep it out of the country. Again, 
the burden is on us, and that is our standard.
    So the argument we have to make is that because they 
refused inspection or delayed or limited our inspection, that 
means that their products appear to be adulterated or 
misbranded or unapproved. That's an argument we can make. It's 
not as clear in the law as it could be, especially if Congress 
wants to clearly say, ``We recognize that there are a lot of 
global facilities out there, and we want to level the playing 
field and make sure that we assure the quality of the products 
being imported.''
    Senator Whitehouse. So it's a largely fact-based 
determination, case by case----
    Ms. Autor. Right.
    Senator Whitehouse [continuing]. With you evaluating 
whether you'll be able to succeed and----
    Ms. Autor. Exactly. We have to--in every situation, at a 
minimum, we would have to say, ``Here are the facts. This is 
the facility. Here's where we tried to contact them. Here's 
what we did''--as opposed to simply saying, ``They didn't let 
us in.'' Clearly, if they didn't let us in, we shouldn't let 
them in.
    Senator Whitehouse. You indicated that you thought that the 
smartest and simplest way to go about this would be to allow 
the American companies to police this themselves with adequate 
supply chain assurance policies. You said that most of the 
bigger companies had adequate, good supply chain assurance 
policies, but there were some players that did not.
    What is your authority to regulate the supply chain 
assurance policies as a target that is, in effect, a proxy for 
your ultimate determination, which is whether or not the drug 
is safe? Can you actually say to American industries, ``We want 
to review your supply chain assurance policy. If you don't have 
one that we think is up to snuff, then you're in violation,'' 
and force behavior that way? Do you have that regulatory 
authority?
    Ms. Autor. That authority is not as clear as it could be 
under the law. That is something that Congress could clarify. 
At this point, we can look to putting out regulations on that, 
but that's a lengthy, uncertain, potentially litigious, and 
very costly process for the American people.
    Senator Whitehouse. How close have you come in the past? 
Can you think of any examples of regulations that you have done 
that oversee an internal process questioning the company as a 
means of determining whether the ultimate product is safe? Or 
would this be venturing into completely new territory?
    Ms. Autor. We have good manufacturing practice regulations 
in place which do some of that. But those were written in 1978 
before the real explosion of global manufacturing. So they 
don't get to that as clearly as they could. And so it's not new 
territory, but it's something that Congress, I think, could 
deal with much more quickly if you share our urgency about this 
problem.
    Senator Whitehouse. OK. Thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. Senator Blumenthal.

                    Statement of Senator Blumenthal

    Senator Blumenthal. Thank you, Mr. Chairman, and thank you 
for holding this hearing on this very important topic.
    Thank you for being here today and for your good work. You 
referred just a few minutes ago to a crime of opportunity in 
Heparin. And I want to talk about what creates opportunities 
for crime, in fact, exponentially increasing crime in theft or 
illegal importation. And in my view, one of the main 
contributors--one of the main circumstances that creates that 
opportunity is the acute shortages of certain drugs in this 
country arising from a variety of circumstances and problems, 
one of them being termination of the legitimate supply, but 
also others being the gray market.
    The gray markets that have been documented in this country 
for certain drugs literally are threatening our health. The 
gray markets are playing Russian roulette with patients lives, 
and shortages of drugs around the country mean that hospitals 
are unable to meet the demand for workhorse medicines.
    I'm using that phrase because it's been used to me by 
hospital administrators, doctors, emergency room physicians--
workhorse medicines that provide basic anesthesia, cancer 
treatment--these are not exotic or unusual drugs. Often they 
are generics where the profit motive has dissipated or 
disappeared, and so shortages occur, or the result of hoarding.
    And as you are aware, I'm sure, in April 2011 Premier 
Healthcare Alliance asked its pharmacy support team to review 
the incidence of gray market offers, and they found overall 
1,745 examples of gray market offers recorded in 42 acute care 
hospitals with an average markup of 650 percent. So the impacts 
are not only on health. They are on safety and on cost. 
Healthcare delivery is increasingly costly because of the gray 
markets and shortages that are the result of defects in the 
current supply chain.
    So all of that said, I wonder if you could address what 
steps can be taken. And there is a group of Senators, myself 
included, working to combat the acute shortages of certain 
drugs. What can FDA do under its existing authority?
    Ms. Autor. Sure. Thank you for the question. That's a lot 
of different issues. Let me speak to one thing first, which is 
what creates the opportunities for things like the Heparin 
crisis. And that's really more players involved in the drug 
supply chain, greater volume of products imported, greater 
number of firms involved, greater complexity of supply chain, 
greater complexity of the products, further and further foreign 
manufacturers. So that's with respect to Heparin.
    With respect to shortages, that is really a complex 
economic problem, I believe, primarily. There are fewer 
manufacturers who have consolidated their drug manufacturing to 
fewer facilities, fewer lines, for products for which the 
economics are not great because they're not very highly priced 
products anymore. They have not fully invested in the quality 
of those products.
    The agency takes the problem very seriously. We are doing 
what we can to prevent it. Last year, for example, when we were 
notified of shortages early, we were able to prevent 38 
different shortages because we were told early. We could work 
with the manufacturers to see if the products were good enough 
to go to patients, to work with creative solutions, like, for 
example, if a product had metal shavings in injectable 
products, at one point, we worked with the company to send a 
filter so that the product could still be used in patients.
    We are also working toward having a public meeting with 
stakeholders to talk about this. But it really is a 
multifaceted problem that requires a multifaceted solution and 
all of the stakeholders to step up to the plate.
    With respect to gray market, that's a real concern. 
Shortages create an incentive and an opportunity for people to, 
at best, charge an awful lot for these products, at worse, 
introduce counterfeit or contaminated products. One of the 
things that would really help with that, frankly, is a track-
and-trace system, because the pharmacies and hospitals would be 
able to know if this product being offered to them from these 
new sources at high prices was, in fact, legitimate product, 
because they would know everybody who had touched it throughout 
the supply chain.
    Senator Blumenthal. My time has expired. I would welcome an 
opportunity to follow up with you and your staff on this issue, 
particularly as to those 38 instances that you mentioned and 
what we can learn from them and maybe the others where there 
was no action and what we can learn from them as well.
    Does the FDA need additional authority for track-and-trace?
    Ms. Autor. Yes. We would need additional authority to make 
it clear that we can promulgate enforceable standards for 
track-and-trace, also to require manufacturers to notify us of 
shortages. Right now, the authority on that is limited. So if 
we know about shortages, we can try to prevent them. It's not--
we can't always do it, but at least knowing about them in 
advance helps us to deal with the problem.
    Senator Blumenthal. Track-and-trace wouldn't be a solution 
to shortages.
    Ms. Autor. It would not be a solution to shortages, but it 
would be something to address some of the public health risks 
associated with shortages.
    Senator Blumenthal. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    We have to get on to our second panel, but I just briefly 
wanted to ask one question, Ms. Autor, and that is, most of the 
testimony and most of the discussion today has to do with 
prescription drugs. Could you just briefly address yourself to 
the over-the-counter drug supply? Do the same problems accrue 
there? And also to the use of excipients--that's a word that I 
didn't know about until I got into this area--the inactive 
ingredients, which, going clear back to the 1930s, ethylene 
glycol, was one of those. Can you address the risks both to the 
over-the-counter drug supply and also to the inactive 
ingredients that go into drugs and the problem that you may see 
in both those areas?
    Ms. Autor. Yes, by all means. One of the ways I tend to 
look at the pharmaceutical supply--because I've been working in 
this area for so long--is to think about sort of the innovative 
products, the generic products, the over-the-counter products, 
and the components. All of them present similar but different 
challenges.
    For example, I would say the generics industry, by talking 
to us about a user fee package, I think, has recognized some of 
the challenges inherent with generic drugs and with respect to 
our ability to police the supply chain in general. Over-the-
counter drugs present a challenge because most of them are done 
through a monograph system, essentially a cook book system for 
a price, that don't require in those cases affirmative FDA 
approval.
    If they follow our rules for what has to be in there and 
how they're labeled, etc, then they can come on the market. 
That means that there's a greater opportunity for firms to 
introduce products without us knowing. And those products could 
go straight from, frankly, a facility in China we've never seen 
to a pharmacy in any State.
    So that is a real challenge, and that's why we talk about 
really needing to understand the global supply chain and really 
needing to put in, in particular, authorities at the border to 
stop those products and say, ``Show us there's something right 
about your products before they come in.''
    Excipients also present a real challenge. Those are 
inactive ingredients, essentially. And as you pointed out, 
diethylene glycol is one that's led to 570 deaths worldwide in 
the last 20 years and 100 deaths in this country in 1937, 
leading to passage of FDA's law. So there's a huge number of 
excipients out there, and they're used in a lot of different 
products. The same thing used in drugs might also be used in 
foods.
    So that's why we talk about the need for manufacturers to 
be responsible for policing their supply chain, because it will 
never be the case, frankly, that FDA can go to all those 
facilities and assure they're doing everything right. It has to 
be incumbent upon a manufacturer who's selling pharmaceuticals 
that people rely on to save their lives to go and make sure 
that their components are satisfactory.
    The Chairman. Thank you very much, Ms. Autor. We have 
Senators that want to submit some questions in writing to you.
    Thank you very much for being here and thanks for your 
testimony.
    Ms. Autor. Thank you.
    The Chairman. Now we'll call our second panel up. I'll 
introduce them as they take their places at the table. First, 
starting from my left, we have Dr. Marcia Crosse, Director of 
Health Care for the GAO, Government Accountability Office. 
She's been at GAO since 1983, so she comes to us today with 
significant experience in evaluating public health issues. Her 
work focuses, in particular, on evaluating areas such as 
biomedical research, product safety, and pharmaceutical 
regulations.
    Next we have Ms. Kendra Martello, the assistant general 
counsel for the Pharmaceutical Research and Manufacturers of 
America, otherwise we know as PhRMA.
    And we appreciate your being here.
    Next is Mr. Gordon Johnston, senior advisor for Regulatory 
Sciences at the Generic Pharmaceutical Association. He has 
worked in the pharmaceutical industry for the past 25 years, 
and was formerly the Deputy Director of the FDA's Office of 
Generic Drugs.
    We thank you for being here.
    Mr. Martin VanTrieste--I hope I pronounced that correctly--
senior vice president of Quality at Amgen and past chair of the 
Rx-360, a pharmaceutical supply chain consortium. As a past 
chair of Rx-360, Mr. VanTrieste led industry members in 
creating objectives to better share information regarding 
counterfeit and adulterated materials in the pharmaceutical 
supply chain.
    We thank you for being here.
    And last is Allan Coukell. Did I pronounce that right?
    Mr. Coukell. Coukell, sir. Thank you.
    The Chairman. Allan Coukell, the director of medical 
programs at the Pew Health Group. He oversees Pew's initiatives 
related to pharmaceutical supply chain safety. In July, the Pew 
released an interesting report that shed new light on the 
weaknesses and gaps in our pharmaceutical supply chain.
    And we thank you for being here.
    All of your testimonies will be made a part of the record 
in their entirety. And I'll go from left to right and ask if 
you can sum up in 5 to 7 minutes. I appreciate it.
    We'll start with you, Dr. Crosse.

   STATEMENT OF MARCIA CROSSE, Ph.D., DIRECTOR, HEALTH CARE, 
        GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC

    Ms. Crosse. Thank you, Mr. Chairman, Ranking Member Enzi, 
and members of the committee. I'm pleased to be here today to 
discuss FDA's oversight of the drug supply chain.
    Over the past several years, GAO has issued a number of 
reports on the challenges we identified in FDA's oversight of 
drugs that are manufactured in other countries for the U.S. 
market. While FDA is making progress, we have concerns about 
the agency's use of information and the pace at which it is 
implementing changes.
    Globalization has placed new demands on FDA as the 
pharmaceutical industry has increasingly relied on global 
supply chains in which each manufacturing step may be 
outsourced to foreign establishments. In examining these 
issues, we have particularly focused on the challenges for FDA 
in inspecting these facilities, the limitations on FDA's 
knowledge and information about these facilities, and the steps 
FDA is taking to improve its oversight of the supply chain.
    Inspections of foreign drug manufacturers are an important 
element of oversight. As we've heard, FDA is far from achieving 
foreign inspection rates comparable to domestic inspection 
rates where the agency is required to conduct inspections every 
2 years.
    To frame this with some numbers, in 2008, we reported that 
it would take FDA about 13 years to inspect the foreign 
establishments that were then on its inventory. Since that 
time, FDA has been increasing the number of foreign inspections 
it performs, reducing the estimated time to inspect all 
establishments to about 9 years. However, while the agency is 
trying to catch up, it's facing a continually growing number of 
foreign facilities.
    In addition, although FDA has been working to develop risk 
information to help it prioritize its foreign inspections, the 
risks of the products being manufactured have not been the real 
drivers of which facilities are inspected. Rather, foreign 
establishments have generally only been inspected when they 
have been named on an application for a new drug.
    Conducting inspections abroad also continues to pose unique 
challenges for the agency. For example, FDA cannot require 
foreign manufacturers to allow it to inspect their facilities, 
and logistical issues preclude FDA from conducting unannounced 
inspections as it does for domestic establishments.
    In addition to the challenges of conducting inspections, we 
previously reported that FDA lacked complete and accurate 
information about these facilities, information critical to 
understanding the supply chain. FDA databases contain incorrect 
information, and the agency still does not have an accurate 
list of the foreign establishments manufacturing drugs for the 
U.S. market. This hampers FDA's ability to make inspection 
decisions and adequately oversee shipments arriving at our 
ports.
    The contaminated Heparin crisis provides a useful case 
study of some of the problems FDA is facing, including 
facilities that had never been inspected, mix-ups in FDA's 
databases, outdated testing standards, questions about 
manufacturers' validation of their supply chains, delays in 
gaining entry because of visa requirements, FDA's inability to 
require cooperation by foreign facilities, difficulties tracing 
contaminated supplies to end products including medical 
devices, and difficulties in recalling products thought to be 
contaminated.
    Given the difficulties that FDA has faced in overseeing the 
supply chain and recognizing that more inspections alone are 
not sufficient to meet the challenges posed by globalization, 
the agency has begun to implement other initiatives to improve 
its oversight. As we've heard today, FDA established new 
offices overseas and has taken other positive steps, such as 
collaborating and exchanging information with foreign 
governments and developing systems that would assist its 
oversight of products at the border.
    FDA should be credited for its recent actions which 
represent important initial steps toward addressing these 
challenges. However, as the agency has acknowledged, there are 
additional steps that it still needs to take.
    We have previously made recommendations to address some 
challenges such as poor information and planning, and the 
agency has identified additional authorities that could provide 
it with necessary enforcement tools. In light of the growing 
dependence upon drugs manufactured abroad and the potential for 
harm, FDA needs to act quickly to implement changes across a 
range of activities in order to better assure the safety and 
availability of drugs for the U.S. market.
    Mr. Chairman, Ranking Member Enzi, this concludes my 
prepared remarks. I'd be happy to answer any questions that you 
or other members of the committee may have.
    [The prepared statement of Dr. Crosse follows:]
               Prepared Statement of Marcia Crosse, Ph.D.
                                summary
                   highlights--why gao did this study
    Globalization has placed increasing demands on the Food and Drug 
Administration (FDA) in ensuring the safety and effectiveness of drugs 
marketed in the United States. The pharmaceutical industry has 
increasingly relied on global supply chains in which each manufacturing 
step may be outsourced to foreign establishments. As part of its 
efforts, FDA may conduct inspections of foreign drug manufacturing 
establishments, but there are concerns that the complexity of the drug 
manufacturing supply chain and the volume of imported drugs has created 
regulatory challenges for FDA. FDA has begun taking steps to address 
some of these concerns, such as the establishment of overseas offices.
    This statement discusses (1) FDA's inspection of foreign drug 
manufacturing establishments, (2) the information FDA has on these 
establishments, and (3) recent FDA initiatives to improve its oversight 
of the supply chain. The statement presents findings based primarily on 
GAO reports since 2008 related to FDA's oversight of the supply chain. 
These reports include Food and Drug Administration: Overseas Offices 
Have Taken Steps to Help Ensure Import Safety, but More Long-Term 
Planning Is Needed (GAO-10-960, Sept. 30, 2010) and Drug Safety: FDA 
Has Conducted More Foreign Inspections and Begun to Improve Its 
Information on Foreign Establishments, but More Progress Is Needed 
(GAO-10-961, Sept. 30, 2010). GAO supplemented this prior work with 
updated information obtained from FDA in August and September 2011.
     Drug Safety--FDA Faces Challenges Overseeing the Foreign Drug 
                       Manufacturing Supply Chain
                             what gao found
    Inspections of foreign drug manufacturers are an important element 
of FDA's oversight of the supply chain, but GAO's prior work showed 
that FDA conducts relatively few such inspections. In 2008, GAO 
reported that in fiscal year 2007 FDA inspected 8 percent of foreign 
establishments subject to inspection and estimated that, at that rate, 
it would take FDA about 13 years to inspect all such establishments. 
GAO recommended that FDA increase the number of foreign inspections it 
conducts at a frequency comparable to domestic establishments with 
similar characteristics. FDA subsequently increased the number of 
foreign establishment inspections. FDA's inspection efforts in fiscal 
year 2009 represent a 27 percent increase in the number of inspections 
it conducted, when compared to fiscal year 2007--424 and 333 
inspections, respectively. However, FDA officials acknowledged that FDA 
is far from achieving foreign drug inspection rates comparable to 
domestic inspection rates--the agency inspected 1,015 domestic 
establishments in fiscal year 2009. Also, the types of inspections FDA 
conducts generally do not include all parts of the drug supply chain. 
Conducting inspections abroad also continues to pose unique challenges 
for the agency. For example, FDA faces limits on its ability to require 
foreign establishments to allow it to inspect their facilities. 
Furthermore, logistical issues preclude FDA from conducting unannounced 
inspections, as it does for domestic establishments.
    GAO previously reported that FDA lacked complete and accurate 
information on foreign drug manufacturing establishments--information 
critical to understanding the supply chain. In 2008, GAO reported that 
FDA databases contained incorrect information about foreign 
establishments and did not contain an accurate count of foreign 
establishments manufacturing drugs for the U.S. market. FDA's lack of 
information hampers its ability to inspect foreign establishments. GAO 
recommended that FDA address these deficiencies. FDA has taken steps to 
do so, but has not yet fully addressed GAO's concerns.
    Given the difficulties that FDA has faced in inspecting and 
obtaining information on foreign drug manufacturers, and recognizing 
that more inspections alone are not sufficient to meet the challenges 
posed by globalization, the agency has begun to implement other 
initiatives to improve its oversight of the drug supply chain. FDA's 
overseas offices have engaged in a variety of activities to help ensure 
the safety of imported products, such as training foreign stakeholders 
to help enhance their understanding of FDA regulations. GAO recommended 
that FDA enhance its strategic and workforce planning, which FDA agreed 
it would do. FDA has also taken other positive steps, such as 
developing initiatives that would assist its oversight of products at 
the border, although these are not yet fully implemented. Finally, FDA 
officials identified statutory changes that FDA believes it needs to 
help improve its oversight of drugs manufactured in foreign 
establishments. For example, in place of the current requirement that 
FDA inspect domestic establishments every 2 years, officials indicated 
the agency would benefit from a risk-based inspection process with 
flexibility to determine the frequency with which both foreign and 
domestic establishments are inspected. In light of the growing 
dependence upon drugs manufactured abroad and the potential for harm, 
FDA needs to act quickly to implement changes across a range of 
activities in order to better assure the safety and availability of 
drugs for the U.S. market.
                                 ______
                                 
    Chairman Harkin, Ranking Member Enzi, and members of the committee, 
I am pleased to be here today to discuss the Food and Drug 
Administration's (FDA) oversight of the Nation's drug supply chain.\1\ 
Globalization has placed increasing demands on FDA, which is 
responsible for the oversight of drugs marketed in the United States, 
regardless of whether they are manufactured in foreign or domestic 
establishments.\2\ While Americans once used drugs that were mostly 
manufactured domestically, this is no longer the case. According to 
FDA, the number of drug products manufactured at foreign establishments 
has more than doubled since 2002, with China and India accounting for 
the greatest shares of this growth. In addition, the pharmaceutical 
industry has increasingly relied on global supply chains in which each 
manufacturing step may be outsourced to foreign establishments. The 
complexity of the drug supply chain, the volume of imported drugs, and 
the number of foreign establishments producing these drugs have created 
regulatory challenges for FDA. The danger associated with an insecure 
supply chain was highlighted in January 2008, when FDA responded to a 
crisis involving the contamination of the active pharmaceutical 
ingredient (API) used to manufacture heparin,\3\ a medication used to 
prevent and treat blood clots. The contaminated heparin, which was 
associated with numerous adverse events--including deaths--came from a 
facility in China. During its investigation, FDA determined that some 
manufacturers were not adequately safeguarding their heparin supply 
chains.\4\
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    \1\ Drugs are defined to include, among other things, articles 
intended for use in the diagnosis, cure, mitigation, treatment, or 
prevention of disease, and include components of those articles. 21 
U.S.C. Sec. 321(g)(1)(B), (D).
    \2\ FDA regulations define manufacturing to include the 
manufacture, preparation, propagation, compounding, or processing of a 
drug. 21 CFR Sec. 207.3(a)(8) (2011). In addition, FDA regulations 
define an establishment as a place of business under one management at 
one general physical location. 21 CFR Sec. 207.3(a)(7) (2011). Drug 
manufacturers may have more than one establishment.
    \3\ An API includes any component of a drug that is intended to 
provide pharmacological activity or other direct effect in the 
diagnosis, cure, mitigation, treatment, or prevention of disease. See 
21 CFR Sec. 210.3(b)(7) (2011). In this statement, we refer both to 
drug products--drugs in their finished dosage form--and to APIs as 
``drugs.''
    \4\ The heparin supply chain starts with a raw source material, 
primarily derived from the intestines of pigs, that is processed into 
crude heparin. Thousands of small pig farms in Chinese villages extract 
and process pig intestines in small workshops called casing facilities. 
Consolidators collect different batches of heparin from various 
workshops and sell these batches to manufacturers, who further refine 
the crude heparin into heparin API, the active ingredient used in 
heparin drug products and heparin containing devices. More than half of 
the finished heparin products in the United States and globally are 
made from Chinese-sourced materials.
---------------------------------------------------------------------------
    In recent years we have reported on several aspects of FDA's 
ability to protect Americans from unsafe and ineffective drugs entering 
our supply chain.\5\ Amidst growing concerns with the increasing 
demands placed on the agency, including its ability to ensure the 
quality of drugs manufactured overseas, we added FDA's oversight of 
medical products to our High-Risk Series.\6\ FDA has acknowledged that 
globalization has fundamentally changed the environment for regulating 
pharmaceutical products and the agency has begun taking steps to 
address some of these concerns, such as the establishment of overseas 
offices.\7\
---------------------------------------------------------------------------
    \5\ See the Related GAO Products page at the end of this statement.
    \6\ GAO, High-Risk Series: An Update, GAO-11-278 (Washington, DC: 
February 2011). We first added FDA's oversight of medical products to 
our High-Risk Series in January 2009.
    \7\ In late 2008 and early 2009, FDA established overseas offices 
comprised of staff covering particular countries or regions. FDA has 
staff located overseas in Beijing, Shanghai, and Guangzhou, China; New 
Delhi and Mumbai, India; San Jose, Costa Rica; Mexico City, Mexico; and 
Santiago, Chile. In June 2011, FDA also located staff in Amman, Jordan 
and Pretoria, South Africa.
---------------------------------------------------------------------------
    My remarks today will focus primarily on information collected for 
several reports we issued since 2008 that specifically cite concerns we 
identified related to FDA's oversight of the manufacturing side of the 
supply chain for drugs produced by overseas establishments for 
marketing in the United States.\8\ Specifically, I will discuss (1) 
FDA's inspections of foreign drug manufacturing establishments, which 
are intended to assure that the safety and quality of drugs are not 
jeopardized by poor manufacturing practices; (2) the information FDA 
has on these establishments; and (3) recent FDA initiatives to improve 
its oversight of the supply chain.
---------------------------------------------------------------------------
    \8\ GAO, Drug Safety: Better Data Management and More Inspections 
Are Needed to Strengthen FDA's Foreign Drug Inspection Program, GAO-08-
970 (Washington, DC: Sept. 22, 2008); GAO, Food and Drug 
Administration: Overseas Offices Have Taken Steps to Help Ensure Import 
Safety, but More Long-Term Planning Is Needed, GAO-10-960 (Washington, 
DC: Sept. 30, 2010); GAO, Drug Safety: FDA Has Conducted More Foreign 
Inspections and Begun to Improve Its Information on Foreign 
Establishments, but More Progress Is Needed, GAO-10-961 (Washington, 
DC: Sept. 30, 2010); and GAO, Food and Drug Administration: Response to 
Heparin Contamination Helped Protect Public Health; Controls That Were 
Needed for Working With External Entities Were Recently Added, GAO-11-
95 (Washington, DC: Oct. 29, 2010).
---------------------------------------------------------------------------
    For our work reviewing FDA's inspections of foreign drug 
manufacturing establishments, we obtained and analyzed FDA data on 
foreign and domestic drug manufacturing establishment inspections 
conducted from fiscal years 2007 to 2009. We also examined methods used 
by FDA to select establishments for inspection. For our work examining 
how FDA responded to the heparin crisis, we reviewed actions FDA took 
during the crisis period, which FDA defined as January 2008 through May 
2008. We also interviewed FDA officials and drug manufacturers and 
reviewed FDA documents, such as inspection reports and internally 
produced summaries (e.g., a time line of events related to the crisis).
    For our work reviewing the information FDA has on foreign drug 
manufacturing establishments, we obtained data from FDA's registration 
database on the number of establishments registered to market their 
drugs in the United States.\9\ We also obtained data from FDA's import 
database on the number of establishments that have manufactured drugs 
that were shipped to the United States.\10\ We reviewed FDA's 
initiatives for improving the accuracy of the agency's data on foreign 
establishments contained in these databases, which are both used to 
manage the foreign drug inspection program.
---------------------------------------------------------------------------
    \9\ Domestic and foreign establishments that manufacture drugs for 
the U.S. market are required to register annually with FDA. 21 U.S.C. 
Sec. 360(b), (i)(1).
    \10\ FDA's import database contains information on drugs and other 
FDA-regulated products offered for entry into the United States, 
including information on the establishment that manufactured the drug.
---------------------------------------------------------------------------
    For our work reviewing recent FDA initiatives intended to improve 
the agency's oversight of foreign drug manufacturing establishments, we 
reviewed documentation and interviewed FDA officials from each of FDA's 
five overseas offices to learn about their activities, challenges, 
accomplishments, and strategic and workforce planning. For three of the 
overseas offices--China, India, and Latin America--we interviewed 
office staff and others, such as officials from FDA's foreign 
regulatory counterparts, during on-site visits in February and March 
2010. We also reviewed documents related to the agency's efforts to 
augment its existing information on foreign drug establishments, such 
as information obtained from foreign regulatory authorities. We 
supplemented that prior work with updated information that we received 
from FDA in August and September 2011.
    We conducted the work for the performance audits on which this 
statement is based from September 2007 to September 2008, June 2009 to 
September 2010, and from August to September 2011 for selected updates. 
Our work was conducted in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives.
                               background
    As part of its efforts to ensure the safety and quality of imported 
drugs, FDA may conduct inspections of foreign establishments 
manufacturing drugs, including APIs, that are imported into the United 
States. FDA relies on these establishment inspections to determine 
compliance with current good manufacturing practice regulations 
(GMP).\11\ The purpose of these inspections is to ensure that foreign 
establishments meet the same requirements as domestic establishments to 
ensure the quality, purity, potency, safety, and efficacy of drugs 
marketed in the United States.
---------------------------------------------------------------------------
    \11\ GMPs provide a framework for a manufacturer to follow to 
produce safe, pure, and high-quality drugs. See 21 CFR pts. 210, 211 
(2011). See also International Conference on Harmonisation of Technical 
Requirements for Registration of Pharmaceuticals for Human Use, ICH 
Harmonised Tripartite Guideline: Good Manufacturing Practice Guide for 
Active Pharmaceutical Ingredients Q7 (Geneva, Switzerland: Nov. 10, 
2000).
---------------------------------------------------------------------------
    Requirements governing FDA's inspection of foreign and domestic 
establishments differ. Specifically, FDA is required to inspect every 2 
years those domestic establishments that manufacture drugs in the 
United States, but there is no comparable requirement for inspecting 
foreign establishments that market their drugs in the United 
States.\12\ However, drugs manufactured by foreign establishments that 
are offered for import may be refused entry to the United States if FDA 
determines-- through the inspection of an establishment, a physical 
examination of drugs when they are offered for import at a point of 
entry, or otherwise--that there is sufficient evidence of a violation 
of applicable laws or regulations.\13\
---------------------------------------------------------------------------
    \12\ See 21 U.S.C. Sec. 360(h), (i)(3).
    \13\ See 21 U.S.C. Sec. 381(a).
---------------------------------------------------------------------------
    FDA conducts two primary types of drug manufacturing establishment 
inspections. Preapproval inspections of domestic and foreign 
establishments may be conducted before FDA will approve a new drug to 
be marketed in the United States. In addition, FDA conducts GMP 
inspections at establishments manufacturing drugs already marketed in 
the United States to determine ongoing compliance with laws and 
regulations.
 fda conducts relatively few inspections of foreign drug establishments
    Although inspections of foreign drug manufacturing establishments--
which are intended to assure that the safety and quality of drugs are 
not jeopardized by poor manufacturing practices--are an important 
element of FDA's oversight of the supply chain, our previous work has 
shown that FDA conducts relatively few inspections of the 
establishments that it considers subject to inspection. Specifically, 
in our 2008 report, we estimated that FDA inspected 8 percent of such 
foreign drug establishments in fiscal year 2007. At this rate, we 
estimated that it would take FDA about 13 years to inspect all foreign 
establishments the agency considers subject to inspection. In 2010, we 
reported that FDA had increased its inspection efforts in fiscal year 
2009. We estimated that FDA inspected 11 percent of foreign 
establishments subject to inspection and it would take FDA about 9 
years to inspect all such establishments at this rate. FDA's inspection 
efforts in fiscal year 2009 represent a 27 percent increase in the 
number of inspections the agency conducted when compared to fiscal year 
2007--424 and 333 inspections, respectively \14\ In contrast, FDA 
conducts more inspections of domestic establishments and the agency 
inspects these establishments more frequently. For example, in fiscal 
year 2009, FDA conducted 1,015 domestic inspections, inspecting 
approximately 40 percent of domestic establishments. We estimated that 
at this rate FDA inspects domestic establishments approximately once 
every 2.5 years. To address these discrepancies, we recommended that 
FDA conduct more inspections to ensure that foreign establishments 
manufacturing drugs currently marketed in the United States are 
inspected at a frequency comparable to domestic establishments with 
similar characteristics.\15\ FDA agreed that the agency should be 
conducting more foreign inspections, but FDA officials have since 
acknowledged that the agency is far from achieving foreign drug 
inspection rates comparable to domestic inspection rates and, without 
significant increases to its inspectional capacity, the agency's 
ability to close this gap is highly unlikely.\16\
---------------------------------------------------------------------------
    \14\ FDA attributes this increase in fiscal year 2009 foreign drug 
inspections to staffing changes--the creation of a drug inspection 
cadre and the placement of investigators overseas--and increased 
resources dedicated to these types of inspections.
    \15\ See GAO-08-970.
    \16\ We noted in our September 2010 report that, in response to our 
inquiries and those of congressional staff, FDA had undertaken a review 
to determine the appropriate inspection frequency for foreign and 
domestic drug establishments. However, as of September 2011, this 
review had not been completed.
---------------------------------------------------------------------------
    In addition to conducting few foreign drug manufacturing 
inspections, the types of inspections FDA conducts generally do not 
include all parts of the drug supply chain. For example, FDA officials 
told us during our review of the contaminated heparin crisis that the 
agency typically does not inspect manufacturers of source material 
\17\--which are not required to be listed on applications to market 
drugs in the United States--and generally limits its inspections to 
manufacturers of the finished product and APIs. Furthermore, once FDA 
conducts an inspection of a foreign drug manufacturer, it is unlikely 
that the agency will inspect it again, as the majority of the foreign 
inspections FDA conducts are to inform decisions about the approval of 
new drugs before they are marketed for sale in the United States.
---------------------------------------------------------------------------
    \17\ For example, in the case of the heparin supply chain, the 
source material is primarily derived from the intestines of pigs, which 
is processed into the crude heparin that is refined into heparin API.
---------------------------------------------------------------------------
    Despite increases in foreign drug establishment inspections in 
recent years, FDA continues to face unique challenges conducting 
inspections abroad. Specifically, as we identified in our 2008 report 
on FDA's foreign drug inspections, FDA continues to experience 
challenges related to limits on the agency's ability to require foreign 
establishments to allow the agency to inspect their facilities.\18\ For 
example, while inspecting establishments in China during the heparin 
crisis, Chinese crude heparin consolidators refused to provide FDA full 
access during inspections--in particular, one consolidator refused to 
let FDA inspectors walk through its laboratory and refused FDA access 
to its records. As a result, FDA officials said they focused on the 
manufacturers' responsibilities to ensure that these establishments 
could trace their crude heparin back to qualified suppliers that 
produce an uncontaminated product and requested that manufacturers 
conduct their own investigations of any heparin products for which they 
received complaints or that did not meet specifications. Furthermore, 
FDA faces other challenges conducting foreign inspections, such as 
logistical issues that necessitate the agency notifying the 
manufacturer of the agency's intention to inspect the establishment in 
advance. In contrast to domestic inspections which are conducted 
without prior notice, FDA contacts foreign manufacturers prior to 
inspection to ensure that the appropriate personnel are present and 
that the establishment is manufacturing its product during the time of 
the inspection. In some cases, FDA must obtain permission from the 
foreign government of the country in which an establishment is located 
in order to conduct an inspection. FDA officials report that 
inspections may be conducted several months after an establishment has 
been notified of FDA's intent to conduct an inspection due to the need 
to obtain visas and other delays. As a result of such advance notice, 
FDA staff conducting inspections may not observe an accurate picture of 
the manufacturer's day-to-day operations.
---------------------------------------------------------------------------
    \18\ See GAO-08-970.
---------------------------------------------------------------------------
     fda lacks complete information on foreign drug establishments
    Our previous reports indicated that FDA has experienced challenges 
maintaining complete information on foreign drug manufacturing 
establishments. This lack of information, which is critical to 
understanding the supply chain, hampers the agency's ability to inspect 
foreign establishments. In 2008, we reported that FDA did not maintain 
a list of foreign drug establishments subject to inspection, but rather 
the agency relied on information from their drug establishment 
registration and import databases to help select establishments for 
inspection.\19\ However, we found that these databases contained 
incorrect information about foreign establishments and did not contain 
an accurate count of foreign establishments manufacturing drugs for the 
U.S. market. For example, in our 2008 report, we identified that for 
fiscal year 2007, FDA's registration database contained information on 
approximately 3,000 foreign drug establishments that registered with 
FDA to market drugs in the United States, while the import database 
contained information on about 6,800 foreign establishments that 
offered drugs for import into the United States.\20\ Some of the 
inaccuracies in the registration database reflected the fact that, 
despite being registered, some foreign establishments did not actually 
manufacture drugs for the U.S. market.\21\ Additionally, the inaccurate 
count of establishments in the import database was the result of 
unreliable manufacturer identification numbers generated by customs 
brokers when a drug is offered for import.\22\ As a result of these 
inaccuracies, FDA did not know how many foreign establishments were 
subject to inspection. To address these inaccuracies, we recommended 
that FDA enforce the requirement that establishments manufacturing 
drugs for the U.S. market update their registration annually and 
establish mechanisms for verifying information provided by the 
establishment at the time of registration.
---------------------------------------------------------------------------
    \19\ See GAO-08-970.
    \20\ In our 2010 report, we indicated that, in fiscal year 2009, 
FDA's import database contained information for about 7,000 foreign 
establishments, compared with the approximately 3,200 foreign drug 
establishments that were registered with FDA in that year. See GAO-10-
961.
    \21\ Such establishments may have gone out of business, but not 
informed FDA, or the establishments may not actually ship drugs to the 
United States. Some foreign establishments may register with FDA, but 
never ship drugs to the United States. FDA officials told us that such 
foreign establishments may register because, in foreign markets, 
registration may erroneously convey an ``approval'' or endorsement by 
FDA.
    \22\ As we reported in 2010, the algorithm used by customs brokers 
to assign the manufacturer identification number does not provide for a 
number that is reliably reproduced or inherently unique. Consequently, 
according to FDA officials, multiple records may be created for a 
single establishment, resulting in an inflated count of the number of 
establishments. See GAO-10-961.
---------------------------------------------------------------------------
    Since then, FDA has taken steps to address these deficiencies and 
improve the information it receives from both the registration and 
import databases, though these efforts have not yet fully addressed the 
concerns we raised in 2008. For example, in June 2009, FDA began 
requiring all drug establishments marketing their products in the 
United States to submit their annual registration and listing 
information electronically, rather than submitting the information on 
paper forms to be entered into the registration database. FDA indicated 
that, as of September 2011, the implementation of this requirement has 
eliminated the human error that has been associated with the 
transcription of information from paper forms to electronic files. As 
part of electronic registration, FDA has also requested that each 
establishment provide a unique identification number--a Dun and 
Bradstreet Data Universal Numbering System (D-U-N-S) Number \23\--as a 
way to help avoid duplications and errors in FDA's data systems.\24\ In 
addition, in September 2011, FDA officials reported that the agency had 
begun to take steps to enforce its annual registration requirement. 
They indicated that FDA will now conduct outreach to establishments 
that have not submitted an annual registration to confirm that they are 
no longer producing drugs for the U.S. market or to ensure they 
register, as required, if they are continuing to manufacture drugs for 
the U.S. market. They said that if an establishment does not respond to 
FDA's outreach, it is to be removed from the registration database. To 
further address concerns with the import database, FDA has an 
initiative underway to eliminate duplicate information by taking steps 
to identify and remove all duplicate drug establishment records from 
existing import data over the next few years.
---------------------------------------------------------------------------
    \23\ The D-U-N-S Number is a unique nine-digit sequence recognized 
as the Federal Government's universal standard for identifying and 
keeping track of business entities. Submitting the site-specific number 
for an entity would provide, by reference to the number, certain 
business information for that entity that is otherwise required for 
drug establishment registration.
    \24\ Additionally, FDA, in conjunction with 20 of the nearly 50 
Federal agencies involved in the oversight of products imported into 
the United States, supports efforts for Customs and Border Protection--
which control the implementation of this proposal--to adopt unique 
establishment identifiers for all establishments whose products, 
including drugs, are imported into the United States.
---------------------------------------------------------------------------
    recent fda initiatives to improve oversight of the supply chain
    Given the difficulties that FDA has faced in inspecting and 
obtaining information on foreign drug manufacturers, and recognizing 
that more inspections alone are not sufficient to meet the challenges 
posed by globalization, the agency has begun to explore other 
initiatives to improve its oversight of the drug supply chain. We 
reported that FDA's overseas offices had engaged in a variety of 
activities to help ensure the safety of imported products. These 
included establishing relationships with foreign regulators, industry, 
and U.S. agencies overseas; gathering information about regulated 
products to assist with decisionmaking; and, in China and India, 
conducting inspections of foreign establishments.\25\ Although we noted 
that the impact of the offices on the safety of imported products was 
not yet clear, FDA staff, foreign regulators, and others pointed to 
several immediate benefits, such as building relationships. However, 
they also described challenges related to some of their collaborations 
with domestic FDA offices and the potential for increasing demands that 
could lead to an unmanageable workload. We reported that FDA was in the 
process of long-term strategic planning for the overseas offices, but 
had not developed a long-term workforce plan to help ensure that it is 
prepared to address potential overseas office staffing challenges, such 
as recruiting and retaining skilled staff. We recommended that FDA 
enhance its strategic planning and develop a workforce plan to help 
recruit and retain overseas staff and FDA concurred with our 
recommendations. In September 2011, FDA indicated that it had developed 
a 2011 to 2015 strategic plan and was in the process of updating it, 
and it had initiated a workforce planning process.
---------------------------------------------------------------------------
    \25\ We also reported that FDA overseas officials had started to 
provide training, responses to queries, and other assistance to foreign 
stakeholders to help them improve their regulatory systems and better 
understand FDA regulations.
---------------------------------------------------------------------------
    FDA has also implemented collaborative efforts with foreign 
regulatory authorities to exchange information about planned 
inspections as well as the results of completed inspections. In 
December 2008, FDA, along with its counterpart regulatory authorities 
of the European Union and Australia, initiated a pilot program under 
which the three regulators share their preliminary plans for and 
results of inspections of API manufacturing establishments in other 
countries. For example, FDA could receive the results of inspections 
conducted by these regulatory bodies and then determine if regulatory 
action or a followup inspection is necessary. FDA contends that 
prospectively sharing this information could allow these regulatory 
bodies to more efficiently use their resources by minimizing the 
overlap in their inspection plans. According to agency officials, the 
agency had used inspection reports from the other regulators to improve 
its knowledge of a small number of API manufacturing establishments, 
most of which had not been inspected in the last 3 years, but that it 
was interested in inspecting due to a pending drug application.
    FDA has also taken other steps to improve the information that the 
agency maintains on foreign establishments shipping drugs to the United 
States. In August 2008, FDA contracted with two external organizations 
to implement the Foreign Registration Verification Program. Through 
this program, contractors conduct site visits to verify the existence 
of foreign establishments that are registered with FDA and confirm that 
they manufacture the products that are recorded in U.S. import 
records.\26\ According to FDA officials, establishments that are new to 
the U.S. market or are importing products not typically manufactured at 
the same establishment are considered candidates for the verification 
program.\27\ For example, FDA officials told us about an establishment 
that was selected for the program because, according to agency records, 
it was offering for import into the United States pickles and an API--
two products not normally manufactured at the same establishment. As of 
September 2011, the contractors had visited 142 foreign drug 
establishments located in Asia, Australia, Africa, Canada, and Europe, 
27 of which did not appear to exist at the address provided by the 
establishments at the time of registration.\28\ According to FDA, the 
agency uses the information obtained from the contractors as screening 
criteria to target drug products from those establishments for review 
at the border.\29\
---------------------------------------------------------------------------
    \26\ According to FDA officials, the Foreign Registration 
Verification Program covers establishments manufacturing all FDA-
regulated products.
    \27\ To select establishments for the Foreign Registration 
Verification Program, FDA uses information from its import database to 
determine the products that establishments are shipping to the United 
States and to identify establishments that are importing a variety of 
products.
    \28\ According to FDA, the agency has engaged contractors to 
conduct at least 125 more such visits of foreign drug manufacturing 
establishments during the coming year.
    \29\ In our 2010 report, we noted that FDA had taken action against 
two of the establishments that appeared not to exist by deactivating 
their registration and alerting FDA import staff so that they could 
detain any products offered for import by these establishments, thus 
preventing these products from being imported into the United States.
---------------------------------------------------------------------------
    FDA is also developing initiatives that would assist its oversight 
of products at the border. For example, FDA is in the process of 
establishing its Predictive Risk-based Evaluation for Dynamic Import 
Compliance Targeting (PREDICT) import screening system. The system is 
intended to automatically score each entry based on a range of risk 
factors and identify high-risk items for review. FDA piloted this 
system on seafood products in the summer of 2007. FDA determined that 
the system expedited the entry of lower-risk products, while 
identifying a higher rate of violations among products that were tested 
when they were offered for import. The agency planned to have the 
system implemented in all locations and for all FDA-regulated products 
by June 2011, although its deployment has been delayed. According to 
FDA, full deployment of PREDICT is currently slated for December 2011.
    FDA also identified statutory changes that would help improve its 
oversight of drugs manufactured in foreign establishments. These 
include authority to (1) suspend or cancel drug establishment 
registrations to address concerns, including inaccurate or out-of-date 
information; (2) require drug establishments to use a unique 
establishment identifier; and (3) implement a risk-based inspection 
process, with flexibility to determine the frequency with which both 
foreign and domestic establishments are inspected, in place of the 
current requirement that FDA inspect domestic establishments every 2 
years.
                        concluding observations
    Globalization has fundamentally altered the drug supply chain and 
created regulatory challenges for FDA. In our prior reports we 
identified several concerns that demonstrate the regulatory 
difficulties that FDA faces conducting inspections of, and maintaining 
accurate information about, foreign drug establishments. While 
inspections provide FDA with critical information, we recognize that 
inspections alone are not sufficient to meet all the challenges of 
globalization. FDA should be credited for recent actions, such as 
collaborating with and exchanging information on drug establishments 
with foreign governments, that represent important initial steps toward 
addressing these challenges. However, as the agency has acknowledged, 
there are additional steps that it still needs to take. We have 
previously made recommendations to address some challenges, such as 
poor information and planning, and the agency has identified additional 
authorities that could provide it with necessary enforcement tools. In 
light of the growing dependence upon drugs manufactured abroad and the 
potential for harm, FDA needs to act quickly to implement changes 
across a range of activities in order to better assure the safety and 
availability of drugs for the U.S. market.
    Chairman Harkin, Ranking Member Enzi, and members of the committee, 
this concludes my prepared statement. I would be pleased to respond to 
any questions you may have at this time.
                          Related GAO Products
    High-Risk Series: An Update. GAO-11-278. Washington, DC: February 
2011.
    Food and Drug Administration: Response to Heparin Contamination 
Helped Protect Public Health; Controls That Were Needed for Working 
With External Entities Were Recently Added. GAO-11-95. Washington, DC: 
October 29, 2010.
    Drug Safety: FDA Has Conducted More Foreign Inspections and Begun 
to Improve Its Information on Foreign Establishments, but More Progress 
Is Needed. GAO-10-961. Washington, DC: September 30, 2010.
    Food and Drug Administration: Overseas Offices Have Taken Steps to 
Help Ensure Import Safety, but More Long-term Planning Is Needed. GAO-
10-960. Washington, DC: September 30, 2010.
    Food and Drug Administration: FDA Faces Challenges Meeting Its 
Growing Medical Product Responsibilities and Should Develop Complete 
Estimates of Its Resource Needs. GAO-09-581. Washington, DC: June 19, 
2009.
    High-Risk Series: An Update. GAO-09-271. Washington, DC: January 
2009.
    Drug Safety: Better Data Management and More Inspections Are Needed 
to Strengthen FDA's Foreign Drug Inspection Program. GAO-08-970. 
Washington, DC: September 22, 2008.
    Medical Devices: FDA Faces Challenges in Conducting Inspections of 
Foreign Manufacturing Establishments. GAO-08-780T. Washington, DC: May 
14, 2008.
    Drug Safety: Preliminary Findings Suggest Recent FDA Initiatives 
Have Potential, but Do Not Fully Address Weaknesses in Its Foreign Drug 
Inspection Program. GAO-08-701T. Washington, DC: April 22, 2008.
    Medical Devices: Challenges for FDA in Conducting Manufacturer 
Inspections. GAO-08-428T. Washington, DC: January 29, 2008.
    Drug Safety: Preliminary Findings Suggest Weaknesses in FDA's 
Program for Inspecting Foreign Drug Manufacturers. GAO-08-224T. 
Washington, DC: November 1, 2007.
    Food and Drug Administration: Improvements Needed in the Foreign 
Drug Inspection Program. GAO/HEHS-98-21. Washington, DC: March 17, 
1998.

    The Chairman. Thank you very much, Dr. Crosse.
    Dr. Martello, welcome and please proceed.

   STATEMENT OF KENDRA A. MARTELLO, J.D., ASSISTANT GENERAL 
                 COUNSEL, PhRMA, WASHINGTON, DC

    Ms. Martello. Thank you very much. Mr. Chair, Ranking 
Member, and members of the committee, my name is Kendra 
Martello, Assistant General Counsel at the Pharmaceutical 
Research and Manufacturers of America, or PhRMA. Our members 
represent America's leading biopharmaceutical research 
companies.
    Last year, industry-wide research investment was greater 
than $67 billion, a record. Our companies invest on average 
more than a billion dollars over 10 to 15 years to research and 
develop a new medicine. Additionally, our companies provide, 
directly and indirectly, millions of stable, high-paying jobs 
for American workers, jobs that can help fuel our Nation's 
economic recovery.
    I'm pleased to offer this testimony today on securing the 
pharmaceutical supply chain. We appreciate the committee's 
longstanding interest in this issue and want to acknowledge, in 
particular, the commitment of the Chairman, Ranking Member, and 
Senator Bennet to considering solutions to these important 
issues.
    My remarks today will focus on four key points. First, 
patient safety is of primary importance. Patients trust that 
the medicines they take meet high standards set by the Food and 
Drug Administration, no matter where they're made. And PhRMA 
member companies are committed to improving the lives of 
patients and to producing high-quality, safe, and effective 
drug products.
    Second, the U.S. drug review, approval, and oversight 
system is the gold standard worldwide. It's this comprehensive 
regulatory system coupled with our closed distribution system--
closed by Congress in the mid-1980s--that helps provide the 
high level of product quality, safety, and integrity that we 
enjoy today. No one aspect of the system in isolation is 
responsible for protecting our secure supply chain.
    In addition to the requirement to obtain approval of a new 
drug application before a new drug can be sold, manufacturers 
must also follow current good manufacturing practices. These 
regulations recognize that testing and inspections alone cannot 
ensure the quality of a product. These NDA and GMP requirements 
apply to all new drugs sold in the United States, no matter 
where they're made, and GMPs apply to all components of the 
finished drug, including active pharmaceutical ingredients, no 
matter where they're sourced.
    Third, supply chain security is a shared responsibility. 
Even with our comprehensive regulatory system, the 
globalization of pharmaceutical supply chains presents new 
challenges that require us to be adaptive and flexible. 
Everybody has a role to play. Every manufacturer, whether brand 
or generic, OTC, or component--recognizing that nearly 80 
percent of the drugs dispensed in the United States are for 
generic medicines--and every importer and distributor has a 
role to play in the safety and the security of the drug supply 
chain.
    We all must work together, and PhRMA and its member 
companies are committed to doing our part. To the extent that 
an entity, whether a finished product or a bulk ingredient 
manufacturer or another entity in the supply chain, circumvents 
established requirements, they place patients at risk and 
disadvantage those who strive to comply.
    Fourth, as we consider challenges presented by 
globalization, we believe any new authorities must be grounded 
in sound science and driven by risk. Risk-based approaches to 
regulation are not new and, in fact, are widely accepted by 
both industry and FDA. For example, we support giving FDA the 
flexibility to prioritize inspections based on risk. Reliance 
on certain risk factors such as compliance history and time 
since last inspection will enable the agency to efficiently and 
effectively target its resources to the benefit of patients.
    We also encourage giving FDA the discretion to rely on 
satisfactory inspection results from foreign countries with 
comparable drug regulatory systems or to use accredited third 
parties to conduct some inspections. This would in no way take 
the place of FDA inspections. Rather, it would allow the agency 
the flexibility to leverage the work of other competent 
authorities and maximize its own resources, all without 
limiting in any way its ability to inspect a particular 
facility.
    We also believe that those who produce components and 
products destined for sale in the United States should register 
with FDA. This will help provide transparency to those who 
supply products and components sold here and will help FDA 
develop a risk-based inspection approach.
    In conclusion, our comprehensive regulatory and closed 
distribution system helps provide assurances in the safety, 
quality, and integrity of the new drug products sold here in 
the United States. Patients rely on this system to safeguard 
the medicines they need to improve their health and sustain 
their lives.
    The challenges of globalization present new opportunities 
to discuss how best to strengthen our existing supply chain. 
But they also remind us how critically important it is to 
maintain this existing closed distribution system. PhRMA member 
companies are committed to doing our part and to working with 
the committee, Members of Congress, and other stakeholders on 
this important issue.
    Thank you.
    [The prepared statement of Dr. Martello follows:]
             Prepared Statement of Kendra A. Martello, J.D.
                                summary
    PhRMA represents the country's leading research-based 
pharmaceutical and biotechnology companies that are devoted to 
inventing new, life-saving medicines that help patients live longer, 
healthier, and more productive lives.
    The regulatory system that governs the development, approval, 
marketing, and surveillance of new drugs and biologics in the United 
States is the most complex and comprehensive in the world. In addition 
to the requirement to obtain FDA approval of a New Drug Application 
(NDA) before a new drug may be sold in the United States, manufacturers 
of pharmaceuticals sold legally in the United States must also comply 
with the ``gold standard'' of quality manufacturing--FDA's current Good 
Manufacturing Practice (cGMP) regulations. These regulations apply to 
all new prescription drugs approved for sale in the United States, 
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. In addition, America's 
prescription drug distribution system is a closed system. Coupled with 
the comprehensive regulatory requirements and oversight of the FDA, our 
closed distribution system provides assurance regarding the quality, 
safety and integrity of the products lawfully sold in the United 
States, and helps minimize the possibility of a consumer receiving a 
counterfeit drug.
    As the committee considers the issue of securing the pharmaceutical 
supply chain, we are pleased to provide the following preliminary 
comments, and look forward to an ongoing dialogue on these important 
issues.
    PhRMA believes that all foreign establishments manufacturing 
prescription drug products or components destined for import into the 
United States must register with FDA and list their products, to the 
extent they are not already required to do so under current law.
    PhRMA supports granting FDA discretion to set routine inspection 
intervals for foreign and domestic facilities according to risk. This 
will enhance the FDA's ability to target its inspection resources 
efficiently and effectively.
    Congress should consider allowing FDA to rely on the inspection 
results of other foreign regulatory bodies with similarly robust drug 
regulatory oversight systems or to use accredited third parties to 
conduct some foreign inspections (such as inspections of facilities 
considered moderate to low risk, based on appropriate criteria). This 
will provide FDA with the flexibility to leverage the work of foreign 
regulatory bodies and maximize its resources, all without foreclosing 
its ability to inspect any facility.
    As we consider whether new authorities are needed to help 
strengthen our existing prescription drug supply chain, we must also 
consider the appropriateness of including new burdens on the import of 
materials for use in preclinical and clinical investigations.
                                 ______
                                 
    Mr. Chairman, Ranking Member and distinguished members of the 
committee, I am pleased to testify today on the issue of ``Securing the 
Pharmaceutical Supply Chain.'' My name is Kendra Martello, Assistant 
General Counsel at the Pharmaceutical Research and Manufacturers of 
America (PhRMA). PhRMA represents the country's leading research-based 
pharmaceutical and biotechnology companies that are devoted to 
inventing new, life-saving medicines that help patients live longer, 
healthier, and more productive lives. In 2010, America's 
biopharmaceutical research companies invested more than $67 billion in 
the research and development of new medicines.
    Biopharmaceutical research and development is a complex, risky and 
uncertain undertaking. On average, the time to develop a new medicine 
is 10-15 years, at a cost of over $1.2 billion. Moreover, our companies 
provide--directly and indirectly--millions of stable, high-paying jobs 
for American workers. These jobs can help fuel our Nation's economic 
recovery. Accordingly, FDA's regulation of new medicines should not 
stifle innovation in the biopharmaceutical sector.
          i. fda oversight of prescription drug manufacturing
    America's patients trust that the medicines they take meet the high 
standards set by the Food and Drug Administration (FDA) for safety and 
efficacy and are not substandard or counterfeit, and they rely on our 
comprehensive drug regulatory system to help ensure that is the case. 
America's research-based biopharmaceutical companies also depend on a 
safe, secure prescription drug supply chain.
    The regulatory system that governs the development, approval, 
marketing, and surveillance of new drugs and biologics in the United 
States is the most complex and comprehensive in the world. FDA 
regulates virtually every stage in the life of a prescription medicine 
sold in the United States, from pre-clinical testing of investigational 
compounds in animals and human clinical trials before a medicine is 
sold, to manufacturing, labeling, packaging, and advertising, to 
monitoring actual experience with the drug after its approval. Further, 
FDA receives information about shipments of imported goods into the 
United States, and has developed a risk-based information system to 
help facilitate the targeting of certain shipments for further 
examination at U.S. ports of entry.\1\
---------------------------------------------------------------------------
    \1\ See Statement of Margaret A. Hamburg, M.D., Commissioner of 
Food and Drugs, Before the Subcommittee on Oversight & Investigations, 
Committee on Energy & Commerce, ``Import Safety: Status of FDA's 
Screening Efforts at the Border,'' April 13, 2011.
---------------------------------------------------------------------------
    In addition to the requirement to obtain FDA approval of a New Drug 
Application (NDA) or a Biologics License Application (BLA) before a new 
drug may be sold in the United States, manufacturers of pharmaceuticals 
sold legally in the United States must also comply with the ``gold 
standard'' of quality manufacturing--FDA's current Good Manufacturing 
Practice (cGMP) regulations.\2\ These regulations apply to all new 
prescription drugs approved for sale in the United States, 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. FDA's cGMP 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.\3\ It 
is well-established that inspections alone cannot be relied upon to 
ensure product quality and integrity, but that quality systems are also 
vital to ensuring the product meets established specifications and 
requirements.\4\ The quality systems approach to manufacturing drug 
products is embodied in the cGMP regulations.
---------------------------------------------------------------------------
    \2\ Under current law, a drug is adulterated if the methods used 
in, or the facilities or controls used for, manufacturing a drug 
product do not conform to cGMPs, and FDA regulations and guidance 
provide additional clarification regarding the expectations of cGMPs in 
drug product manufacturing. 21 U.S.C. Sec. 351(a)(2)(B).
    \3\ 61 Fed. Reg. 20104, 20105 (May 3, 1996).
    \4\ See generally 21 CFR Parts 210 and 211.
---------------------------------------------------------------------------
    Thus, while FDA inspections are an important part of FDA's 
regulatory authority and oversight, and PhRMA member companies are 
routinely inspected, the cGMPs represent a comprehensive, systems-based 
approach requiring 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. Further, the word ``current'' in 
front of the phrase ``good manufacturing practice'' in the FDCA 
recognizes and appreciates that these manufacturing standards are and 
must be flexible and adaptive to accommodate different types of 
products and advances in science and manufacturing technologies.
    Currently, in addition to the requirement that API must be 
manufactured in accordance with cGMPs, manufacturers are also required 
to ensure that representative samples of each shipment of each lot of a 
drug component are tested or examined ``for conformity with all 
appropriate written specifications for purity, strength, and quality.'' 
\5\ Any lot that does not meet such specifications must be rejected by 
the manufacturer and may not be used.\6\
---------------------------------------------------------------------------
    \5\ 21 CFR Sec. 211.84(d)(2).
    \6\ 21 CFR Sec. 211.84(e).
---------------------------------------------------------------------------
    Finally, the Prescription Drug Marketing Act of 1987 (PDMA) is a 
critical piece of consumer legislation passed as a result of 
congressional investigations into the integrity of the drug 
distribution system that existed at the time. The PDMA created the 
closed prescription drug distribution system in place today, meaning 
that products that have circulated overseas may not lawfully be sold in 
the United States, unless they have remained under the control of the 
original manufacturer. Coupled with the comprehensive regulatory 
requirements and oversight of the FDA, our closed distribution system 
provides assurance regarding the quality, safety and integrity of the 
products lawfully sold in the United States, and helps minimize the 
possibility of a consumer receiving a counterfeit drug.
       ii. preliminary ideas to strengthen supply chain integrity
    Even with FDA's comprehensive regulatory system, increasing 
globalization of pharmaceutical supply chains presents challenges that 
require biopharmaceutical companies and the FDA to be more adaptive and 
flexible in the review and oversight of entities located around the 
world.
    FDA should use its powerful existing enforcement authorities to 
take action against violative products and to promote accountability 
among regulated entities--enforcement authority that the FDA under the 
current Administration has made a priority to exercise when warranted. 
In short, supply chain security is the responsibility of all parties 
involved in the distribution of medicines to American patients. We 
appreciate the committee's long-standing commitment to these issues. As 
the committee considers the issue of securing the pharmaceutical supply 
chain, we are pleased to provide the following preliminary comments, 
and look forward to an ongoing dialogue on these important issues.
A. Registration of Foreign Facilities
    PhRMA believes that all foreign establishments manufacturing 
prescription drug products or components destined for import into the 
United States must register with FDA and list their products, to the 
extent they are not already required to do so under current law. By 
requiring such facilities to register, the FDA will be able to 
establish a single database that will contain information on all 
facilities that manufacture products or components of products that are 
sold in the U.S. Prior Congressional testimony and Government 
Accountability Office reports suggest that such information appears in 
several different formats and databases managed by FDA, and, therefore, 
it is not easily accessible or usable by Agency personnel. A single, 
standardized database would, among other things, allow the FDA to help 
ensure that all facilities subject to inspection are identified, that 
FDA inspections can be prioritized, and that routine inspections occur 
at appropriate intervals. FDA Commissioner Hamburg has also expressed 
support for modernizing the Agency's registration and listing 
function.\7\
---------------------------------------------------------------------------
    \7\ See Statement of Margaret A. Hamburg, M.D., Commissioner of 
Food and Drugs, Before the Subcommittee on Oversight & Investigations, 
Committee on Energy & Commerce, ``Import Safety: Status of FDA's 
Screening Efforts at the Border,'' April 13, 2011.
---------------------------------------------------------------------------
B. Enhancements to FDA's Inspection Regime
                   i. Risk-Based Inspection Intervals
    PhRMA supports granting FDA discretion to set routine inspection 
intervals for foreign and domestic facilities according to risk. The 
use of risk-based approaches to regulation, and in particular, to cGMP 
inspections is not a new concept.\8\ We support providing FDA with the 
flexibility to prioritize inspections of foreign establishments based 
on the risks they present, and believe relying on set criteria such as 
compliance history, time since last inspection, and volume and type of 
products produced, will enhance the FDA's ability to target its 
inspection resources efficiently and effectively.
---------------------------------------------------------------------------
    \8\ See e.g., ``FDA Guidance: Risk-Based Method for Prioritizing 
GMP Inspections of Pharmaceutical Manufacturing Sites--A Pilot Risk 
Ranking Model,'' (Sept. 2004).
---------------------------------------------------------------------------
                 ii. Increase Foreign cGMP Inspections
    We also recognize that while FDA has broad authority to conduct 
inspections of domestic and foreign facilities, it currently conducts 
limited numbers of cGMP inspections of foreign facilities, including 
API manufacturers. Therefore, we recommend that FDA generally increase 
its cGMP inspections of foreign facilities, including API 
manufacturers, to help ensure that cGMPs are being followed. The 
targeting of these increased foreign inspections should be accomplished 
by utilizing the risk-based approach described above.
        iii. Foreign Inspection Reports/Accredited Third Parties
    In recognition of the fact that the Agency does not have unlimited 
resources and in order to help ensure that foreign inspections occur on 
a more regular basis, Congress should consider allowing FDA to rely on 
the inspection results of other foreign regulatory bodies with 
similarly robust drug regulatory oversight systems or to use accredited 
third parties to conduct some foreign inspections (such as inspections 
of facilities considered moderate to low risk, based on appropriate 
criteria). These inspections would not take the place of FDA 
inspections, which are a necessary and important part of the Agency's 
mandate; however, they would provide FDA with the flexibility to 
leverage the work of foreign regulatory bodies and maximize its 
resources, all without foreclosing its ability to inspect any facility. 
FDA recently acknowledged and embraced the concept of relying on 
``public and private third parties to conduct audits and other 
oversight activities on behalf of FDA.'' \9\  FDA intends to quickly 
``establish the framework and approach for capturing this 
opportunity.'' \10\
---------------------------------------------------------------------------
    \9\ ``Pathway to Global Product Safety and Quality: Special 
Report,'' Food and Drug Administration, (July 7, 2011), at 31, 
available at: .
    \10\ Id.
---------------------------------------------------------------------------
         iv. Exemption for Materials Intended for Research Use
    As we consider whether new authorities are needed to help 
strengthen our existing prescription drug supply chain, we must also 
consider the appropriateness of including new burdens on the import of 
materials for use in preclinical and clinical investigations. The 
continued, uninterrupted access to clinical trial materials, including 
APIs, is essential to ensure that vital research into innovative, life-
saving and life-enhancing new treatments is not hindered in any way. 
Materials and articles used in pre-clinical research and development 
activities are never consumed by humans, but instead are used in 
laboratory testing as scientists try to understand how the test article 
works and its safety profile. The FDA requires reports of non-clinical 
laboratory testing and the submission of detailed information in a 
range of areas in order to justify the study of a candidate drug in 
humans, and materials used in the pre-clinical research and development 
process are not studied in humans. Further, investigational drugs and 
drug components imported for use under an Investigational New Drug 
(IND) application are subject to strict FDA regulation and oversight at 
all times and must be manufactured according to cGMPs, including 
appropriate standards for testing and quality control.
    Thus, we strongly encourage the inclusion of an exemption for 
drugs, API, and other materials intended for use in clinical trials 
that comply with other FDA requirements relating to the proper use of 
investigational material, including labeling and import of 
investigational products and materials for use in U.S.-based clinical 
trials under an IND application filed with the FDA into any new 
provisions related to securing our pharmaceutical supply chain. 
Including these investigational products and materials in any new 
provisions could potentially be duplicative of existing requirements. 
Additionally, exempting investigational materials, drugs, and drug 
components used for pre-clinical and clinical research from any new 
provision could help ensure that the development of new medicines is 
not delayed or hindered and that clinical trials and research and 
development continue to occur in the United States--thus helping ensure 
that related jobs stay in the United States as well.
                            iii. conclusion
    We commend the committee for its focus on and commitment to the 
issue of securing the pharmaceutical supply chain. We recognize the 
importance of ensuring that the regulatory system in place today for 
prescription drugs continues to remain the best and the safest in the 
world. We cannot underemphasize the potential that exists for unsafe 
and potentially dangerous counterfeit drugs to enter the United States 
should Congress act to open our borders to more expansive prescription 
drug importation proposals. These proposals would allow non-U.S.-
approved drug products to be sold on U.S. pharmacy shelves next to FDA-
approved drug products that have undergone our rigorous testing, review 
and approval process and put American patients at risk, and the FDA 
agrees.\11\
---------------------------------------------------------------------------
    \11\ See e.g. FDA Home Page: ``Importing Prescription Drugs,'' 
.
---------------------------------------------------------------------------
    Our system of prescription drug supply chain security today is 
very, very good, but even good systems can be improved upon. We look 
forward to continuing to work with the committee, FDA, and other 
stakeholders on these important issues. Thank you for the opportunity 
to testify today and I welcome any questions you may have.

    The Chairman. Thank you very much, Dr. Martello.
    And now we'll turn to Mr. Gordon Johnston with the Generic 
Pharmaceutical Association.
    Welcome and please proceed, Mr. Johnston.

  STATEMENT OF GORDON JOHNSTON, SENIOR ADVISOR FOR REGULATORY 
                 SCIENCES, GPhA, WASHINGTON, DC

    Mr. Johnston. Good morning, Chairman Harkin, Ranking Member 
Enzi, and members of the committee. Thank you for asking me to 
participate in this timely and important hearing. I am Gordon 
Johnston, senior advisor for regulatory sciences at the Generic 
Pharmaceutical Association, or GPhA.
    GPhA represents the manufacturers and distributors of 
generic pharmaceuticals and active ingredients. Generic 
pharmaceuticals now fill 78 percent of all prescriptions 
dispensed in the United States but consume just 25 percent of 
the Nation's total drug expenditure.
    Prior to joining GPhA, I served in the U.S. Public Health 
Service and in 1987 was assigned to the Food and Drug 
Administration and became the Deputy Director of the Office of 
Generic Drugs in 1994.
    Securing the Nation's pharmaceutical supply chain is of 
vital importance to GPhA and our member companies. We also have 
a keen interest in a level, competitive, and accountable 
playing field among all participants in the U.S. pharmaceutical 
supply chain. We commend the committee for your focus on 
ensuring the safety of America's pharmaceutical supply, brand 
and generic.
    GPhA is committed to doing everything possible to work with 
Congress and the FDA to promote a vigorous and rigorous 
oversight of the Nation's drug supply. As the committee begins 
to take a closer look at this important issue, it's critical to 
understand the fundamental underpinnings of the current system 
and acknowledge the global dynamics of our pharmaceutical 
supply here in the United States.
    First, as my colleague at PhRMA mentioned, I certainly want 
to make it clear that the U.S. drug supply is the safest in the 
world. However, we recognize that globalization has added new 
and complex challenges to continue to assure this safety.
    The pharmaceutical marketplace that FDA oversees in today's 
global age, however, looks drastically different than it did in 
1938 when Congress passed the statute, and that's the Federal 
Food, Drug, and Cosmetic Act. As mentioned previously, today, 
nearly 40 percent of all prescription drugs dispensed in the 
United States are manufactured outside of the country, and 
nearly 80 percent of the ingredients used in these drugs are 
manufactured abroad.
    According to FDA estimates, the number of drug products 
made outside of the United States doubled between 2001 and 
2008. Unfortunately, this growth has outpaced the law's reach 
as well as the funds needed to allow FDA to hold all 
participants to the same high-quality standards.
    The act of 1938 requires American drug manufacturers to 
undergo surveillance inspections at least every 2 years to 
confirm that these facilities are complying with good 
manufacturing standards. However, the act does not impose the 
same biennial GMP inspection requirement on foreign facilities.
    Further, this disparity in the degree of oversight 
experienced by domestic versus foreign facilities reduces 
American competitiveness by creating an uneven playing field 
while at the same time creates opportunity for threats to the 
U.S. drug supply. Also, delays in foreign inspections slow the 
approval of products that serve unmet medical needs such as 
those facing drug shortages.
    To paraphrase the recent statements by HHS Secretary 
Kathleen Sebelius and FDA, HHS and FDA are looking to Congress 
to modernize its antiquated authorities so that FDA's legal 
tools can keep pace with globalization. GPhA is in agreement 
with the Secretary and FDA that it's essential to modernize the 
laws governing the U.S. supply chain.
    As noted in my opening remarks, the responsibility of 
ensuring safety is a shared one that rests with all of us in 
industry and not just FDA. As my colleagues at Pew noted in 
their recent report, it's also critical that manufacturers 
continue to go beyond GMPs and assure that their supplier 
qualification tools are used, using risk- based assessment to 
assure the quality and integrity of suppliers abroad. Such 
practices which are intended to prevent potential contamination 
and adulteration should also be supplemented by a Federal 
pedigree tracking system with uniform standards across all 
States as opposed to a patchwork of random State-enforced 
regulations.
    Even with these significant efforts in place, however, the 
generic industry has realized that more needs to be done. 
That's why the industry stepped up to the plate and is now 
finalizing a generic drug user fee program with FDA. One of the 
main goals of this user fee program is to hold all generic 
players, foreign and domestic, to the same GMP inspection 
standards and enhance FDA's ability to identify, track, and 
register all contributors involved in the generic drugs in the 
United States.
    In conclusion, Mr. Chairman, GPhA stands ready to support 
Congress and FDA in strengthening its oversight, updating the 
law, and investing more resources to ensure that the United 
States continues to be a leader in the world when it comes to 
safety and also maintaining the American industry's 
competitiveness.
    I thank you for this time and would be happy to address any 
questions from the committee as we move forward.
    [The prepared statement of Mr. Johnston follows:]
                 Prepared Statement of Gordon Johnston
                                summary
    I am Gordon Johnston, Senior Advisor for Regulatory Sciences at the 
Generic Pharmaceutical Association, which represents the manufacturers 
and distributors of finished dose generic pharmaceuticals, 
manufacturers and distributors of bulk pharmaceutical chemicals and 
suppliers of other goods and services to the generic industry. Given 
that more than 78 percent of all prescription drugs dispensed in this 
country are generic drugs, GPhA has a keen interest in making sure the 
supply chain is safe for consumers. We also have a keen interest in a 
level, competitive and accountable playing field among all participants 
in the U.S. supply chain.
    Today, nearly 40 percent of all prescription drugs dispensed in the 
United States are manufactured outside of the country and nearly 80 
percent of the ingredients in our drugs are manufactured abroad. With a 
mission to protect and promote the public health, the Food and Drug 
Administration is charged with ensuring the safety of all medicine sold 
in the United States no matter where these products are made. According 
to FDA estimates, the number of drug products made outside of the 
United States doubled from 2001 to 2008.
    One of the most critical ways FDA ensures continued compliance with 
the high quality standards required of prescription drugs sold in the 
United States is by conducting on-site inspections of facilities where 
drugs are manufactured. FDA's guiding statute, the Federal Food, Drug 
and Cosmetic Act of 1938 (``FDCA''), requires American manufacturers to 
undergo a surveillance inspection every 2 years to ensure that these 
facilities are complying with these high quality standards known as 
good manufacturing practices (``GMP''). However, the FDCA does not 
impose the same surveillance inspection requirement on foreign 
facilities. According to FDA, foreign facilities have grown by 185 
percent, while at the same time FDA inspection rates have decreased by 
nearly 57 percent. Meanwhile, according to the Government 
Accountability Office, the FDA inspected just 11 percent of the 3,765 
foreign establishments in its database in 2009.
    Unfortunately, this global growth has outpaced the reach of the 
FDCA, which was written nearly seven decades ago when the U.S. drug 
supply was domestic and not the global one that it is today. In the 
recent words of the FDA, the agency is ``looking to Congress to 
modernize its antiquated authorities so that FDA's legal tools keep 
pace with globalization.''
    Even though these global challenges impact the entire 
pharmaceutical industry, brand or generic, the generic drug industry 
has stepped up to help provide FDA with additional resources to address 
the challenges caused by the global drug supply and the increase in FDA 
workload. The industry has been working closely with FDA to finalize 
negotiations on a generic drug user fee program to help the FDA obtain 
additional resources to ensure all participants in the U.S. generic 
drug system, whether U.S.-based or foreign, comply with U.S.-strict 
quality standards and make certain Americans get more timely access to 
low-cost, high-quality generic drugs. The generic drug user fee program 
being finalized now recognizes that while providing earlier access to 
effective medicines is critical (the key aim of all other existing user 
fee programs), an equally important pillar of FDA's mission is ensuring 
drug safety. In addition, it is also critical that we as manufacturers 
continue to go beyond current GMP standards in our own facilities to 
ensure appropriate supplier qualification, through risk-based 
assessments, quality agreements and physical audits, where appropriate. 
By working together as an industry to share the results of these 
audits, as well as new technologies, we can further develop harmonized 
standards and best practices to ensure that all stakeholders in the 
pharmaceutical supply chain are utilizing the most current and 
effective methods for providing patients with safe and effective 
medications.
    While these efforts provide an excellent framework for industry to 
help support the growing global needs of FDA and to level the playing 
field between foreign and domestic facilities through inspection 
parity, they do not completely solve the problem. To globalize FDA's 
authority, eliminate the inspection disparity and better ensure the 
safety of the global supply chain, it is paramount that a bill is 
introduced to expand FDA's authorities to achieve its mission in this 
global age.
    The safety of our Nation's pharmaceutical supply is only as good as 
our weakest link, and the responsibility rests on all of us. GPhA 
encourages Congress and our counterparts throughout the pharmaceutical 
industry to work together to ensure FDA is equipped to keep our 
consumers safe in a 21st century global drug supply environment.
                                 ______
                                 
    Good morning Chairman Harkin, Ranking Member Enzi and members of 
the Senate Committee on Health, Education, Labor, and Pensions. Thank 
you for asking me to participate in this very timely and important 
hearing.
    I am Gordon Johnston, Senior Advisor for Regulatory Sciences at the 
Generic Pharmaceutical Association. GPhA represents the manufacturers 
and distributors of finished dose generic pharmaceuticals, 
manufacturers and distributors of bulk pharmaceutical chemicals and 
suppliers of other goods and services to the generic industry. Generic 
pharmaceuticals now fill 78 percent of all prescriptions dispensed in 
the United States, but consume just 25 percent of the total drug 
spending.
    According to an analysis by IMS Health, the world's leading data 
source for pharmaceutical sales, the use of FDA-approved generic drugs 
in place of their brand counterparts saved U.S. consumers, patients and 
the health care system more than $824 billion over the past decade--
$137 billion in 2009 alone--which equates to $1 billion in savings 
every 3 days.
    Prior to joining GPhA, I was with the U.S. Public Health Service, 
where I served in a number of pharmacist and health care management 
positions. In 1987, I was assigned to the Food and Drug Administration 
and, in 1994, became the Deputy Director of the FDA's Office of Generic 
Drugs (OGD). While at the FDA, my duties required that I interfaced 
with a number of foreign governments on drug safety and regulatory 
standards.
                              introduction
    I would like to make two brief points in my testimony today, before 
providing comments on securing the pharmaceutical supply chain.
    First, we commend the committee for your focus on ensuring the 
safety of America's pharmaceutical 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 78 percent of the more 
than 3 billion new and renewal prescriptions dispensed in the United 
States were filled with generics, saving patients and consumers 
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 its safety.
    Second, the generic pharmaceutical industry is among the most 
highly regulated in the world, with strict rules governing the 
development, manufacture, approval, packaging, marketing and post-
marketing surveillance of prescription drugs by the FDA. These 
stringent regulations apply equally to all pharmaceutical products--
brand or generic, approved by the FDA.
    Securing the Nation's pharmaceutical supply chain is of vital 
importance to the Generic Pharmaceutical Association and to our member 
companies. Given that more than 78 percent of all prescription drugs 
dispensed in this country are generic drugs, we have a keen interest in 
making sure the supply chain is safe for American consumers who rely on 
our medicines. We also have a keen interest in a level, competitive and 
accountable playing field among all participants in the U.S. 
pharmaceutical supply chain.
                           current landscape
    As the committee begins to look closer at this important issue, it 
is critical to understand the fundamental underpinnings of the current 
system that ensures drug safety in our country and acknowledge the 
global dynamics of our current branded and generic pharmaceutical 
supply here in the United States.
    While much of the responsibility of ensuring safe drugs rests with 
industry, the FDA plays a critical role in making sure all players 
participating in the pharmaceutical supply chain meet FDA's rigorous 
standards, including compliance with current Good Manufacturing 
Practices (``GMP''). With a mission to protect and promote the public 
health, the FDA is charged by Congress to ensure the safety, efficacy 
and security of the U.S. drug supply and to address threats to public 
health.
                     background on fda's authority
    FDA's authority to carry out this responsibility originated some 
seven decades ago when President Franklin Roosevelt signed into law the 
Federal Food, Drug and Cosmetic Act of 1938 following the death of more 
than 100 people as a result of ingesting Elixir Sulfanilamide, which 
contained the deadly poison diethylene glycol. In an effort to avoid 
future tragedies, this landmark legislation of 1938 became the 
foundation on which the FDA oversees our Nation's pharmaceutical supply 
today. Among other authorities, this law authorized FDA to demand 
evidence of safety and conduct facility inspections, two critical 
authorities of the world's most robust drug authority.
                              the problem
    The pharmaceutical marketplace FDA oversees in today's global age, 
however, looks drastically different than it did in 1938 when FDA's 
guiding statute was enacted. And several unfortunate tragedies in the 
pharmaceutical world since 1938 have prompted further enhancements to 
FDA's authority under the FDCA to ensure the agency is equipped to 
carry out its mission of protecting the public health. A few pivotal 
events have led to an enhancement of FDA's original 1938 authority 
since the law's original passage. This included the thalidomide tragedy 
in Europe, which strengthened the rules for drug safety and required 
manufacturers to prove their drugs' effectiveness in the United States 
in 1962. In 1976, additional amendments were made to apply safety and 
effectiveness safeguards to new devices following a U.S. Senate finding 
that faulty medical devices had caused 10,000 injuries, including 731 
fatalities.
    Unfortunately, as this committee is aware, the United States 
experienced another tragedy recently when tainted brand Heparin was 
distributed in the United States, leading to 81 deaths and shedding 
additional light on some notable shortcomings of the 1938 law, which 
makes it more difficult for FDA to carry out its mission in the now 
very globalized U.S. pharmaceutical supply chain. FDA traced the 
adulteration of the Heparin product to a manufacturing facility in 
China, which the agency had never inspected. As globalization of drug 
supply increases, so do concerns about drug safety and demands to 
preserve the stringent quality standards Americans deserve, regardless 
of where their medicines are produced.
    Today, nearly 40 percent of all prescription drugs dispensed in the 
United States are manufactured outside of the country, and nearly 80 
percent of the ingredients in our drugs are manufactured abroad. The 
Food and Drug Administration is charged with ensuring the safety of all 
medicine sold in the United States no matter where these products are 
made. According to FDA estimates, the number of drug products made 
outside of the United States doubled from 2001 to 2008. The growth in 
the number of facilities requiring FDA oversight has grown 
substantially, particularly in foreign facilities that supply the U.S. 
marketplace. In 2010, nearly 20 million shipments of food, drugs and 
cosmetics arrived at U.S. ports of entry. A decade earlier, that number 
was closer to 6 million and, a decade before, just a fraction of that 
figure. Unfortunately, this growth has outpaced the law's reach as well 
as the funds needed to allow FDA to hold all participants in the 
pharmaceutical supply chain to the same high quality standards.
                    more foreign inspections needed
    One of the most critical ways FDA ensures continued compliance with 
the high quality standards required of prescription drugs sold in the 
United States is conducting on-site inspections of facilities where 
drugs are manufactured. These important surveillance inspections ensure 
that facilities are continuing to meet their obligation of producing 
safe products in accordance with a rigorous set of standards known as 
Good Manufacturing Practices, or GMP, and serve as a critical tool of 
ensuring continued safety and GMP compliance--separate and distinct 
from other supply chain controls.
    The FDCA of 1938 requires American manufacturers associated with 
pharmaceutical production to undergo a surveillance inspection every 2 
years to ensure that these facilities are complying with strict GMP 
standards. However, the FDCA does not impose the same biennial GMP 
inspection requirement on foreign facilities. According to FDA, foreign 
facilities have grown by 185 percent, while at the same time FDA 
inspection rates have decreased by nearly 57 percent. Meanwhile, the 
FDA inspected just 11 percent of the 3,765 foreign establishments in 
its database in 2009, according to the Government Accountability 
Office.
    This disparity in the degree of oversight experienced by domestic 
versus foreign facilities reduces American competitiveness by creating 
an uneven playing field, while at the same time threatening the safety 
of the U.S. drug supply.
    This disparity in inspections between foreign and domestic 
facilities is also causing notable delays in introducing new 
prescription drugs to consumers, including delays in approving products 
that serve an unmet medical need or offer a more affordable alternative 
in the case of generic drugs. This is because new product approvals, 
such as those facing drug shortages, require an inspection history of 
the relevant manufacturing facility and, given the number of facilities 
awaiting inspection, many of the facilities producing new drugs are 
waiting to be inspected.
                              the solution
    FDA does indeed need, in the words of Health and Human Services 
Secretary Kathleen Sebelius, ``additional tools from Congress to move 
its oversight capabilities into the 21st century.'' And more recently, 
the agency noted that it is ``looking to Congress to modernize its 
antiquated authorities so that FDA's legal tools keep pace with 
globalization.''
    GPhA is in agreement with FDA on this matter. Without modernization 
of the law governing the U.S. drug supply and increased authority and 
resources to carry out FDA's oversight of today's complex and global 
drug supply, the significant challenges facing the U.S. pharmaceutical 
marketplace will continue and likely compound. Earlier this year, the 
President signed into law legislation intended to globalize FDA to help 
protect the Nation's food supply and equip the agency to carry out its 
twin mission of ensuring food safety in an increasingly globalized food 
supply. When it comes to drugs, however, FDA still operates in 
accordance with the FDCA of 1938, the scope and provisions of which are 
largely domestic. This law needs to be globalized to ensure FDA is 
equipped for the global age and to ensure competitiveness.
    GPhA is pleased the committee is holding this hearing to begin 
efforts to equip FDA with the necessary legal authority and tools to 
carry out its critical public health mission in the globalized U.S. 
pharmaceutical marketplace.
    Ensuring that all contributors to the U.S. drug system, both 
foreign and domestic, are held to the same quality standard is a 
critical issue for the entire pharmaceutical industry--brand and 
generic alike. Amending the FDCA of 1938 and, in particular, ensuring 
foreign facilities are held to the same standards as U.S. facilities, 
will improve quality, consistency and availability within the drug 
supply chain and create a level playing field, allowing U.S. 
pharmaceutical manufacturers to be more competitive. These important 
updates to the law will not only result in a safer drug supply with 
consistent oversight for all players in the U.S. system, the changes 
will also help reduce approval times of new drugs undergoing FDA review 
and help expedite the availability of new medicine.
    GPhA further supports a ``risk-based'' model for inspections that 
prioritizes inspections 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 sooner, rather 
than later, or not at all as is the case under the current system. 
Facilities with strong records of compliance and positive inspections 
would be placed further down on the inspection schedule, allowing the 
agency to prioritize its immediate attention on companies that have 
never had an inspection or that have a history of compliance issues.
generic drug industry steps up to help address this industry-wide issue
    As I noted in my opening remarks, the responsibility of ensuring 
safety is a shared one that rests with all of us in industry, though, 
not just the FDA.
    I am proud to say that the generic drug industry has been a leader 
in this area, developing supply-chain security measures independently 
and with the FDA to provide the necessary oversight to maintain the 
Nation's drug supply.
    For example, one new initiative is the FDA's border control policy, 
which is being developed in an attempt to cut the number of poor 
standard medicines that enter the supply chain from outside the United 
States. The new initiative, which is called PREDICT--Predictive Risk-
based Evaluation for Dynamic Import Compliance Targeting--will be a 
border-based scheme that assesses drugs at the point of import. 
Barcodes on cases of medicines will be scanned at the U.S. borders and 
linked to a central database. The results will be able to tell the FDA 
agents at the border whether or not the producer has a license to ship 
and sell their drugs in the United States. If the products do not meet 
FDA compliance they will not be allowed into the country.
    The pharmaceutical industry also provides multiple layers of 
testing and oversight to build in quality and supply chain security 
from the ground up. Suppliers of inactive and active ingredients are 
carefully evaluated to assess their facilities, manufacturing 
capabilities and supply chain practices and controls. These initiatives 
provide the foundation of drug product quality, as well as taking all 
necessary steps to help eliminate potential contamination or 
adulteration in the shipment channels. Next, manufacturers test the 
incoming raw materials for quality, purity and potency in accordance 
with FDA-approved analytical methods. These testing methods are 
designed to assure that all raw materials meet their predetermined 
quality attributes. Finished dosage form manufacturers have 
sophisticated testing procedures during the manufacturing process and 
for the final product, which are all intended to assure that the 
product received by patients meets all standards for quality, purity 
and potency.
    As drug products are shipped to wholesalers, pharmacies or other 
intermediaries, the pharmaceutical industry utilizes multiple forms of 
controls within the supply chain to mitigate the potential risk of 
contamination or adulteration. Careful planning of drug shipments, 
along with strict supply chain custody and controls, are part of the 
advanced logistical operations that provide accountability and 
oversight of the products before they ever reach a patient's hands. By 
following these standards, manufacturers are able to determine any 
deviation from a product's predetermined shipment and custody program, 
and stop problems before they occur.
    As my colleagues at Pew noted in their recent report, it is also 
critical that we as manufacturers continue to go beyond current GMP 
standards in our own facilities to ensure appropriate supplier 
qualification, through risk-based assessments, quality agreements and 
physical audits, where appropriate. By working together as an industry 
to share the results of these audits, as well as new technologies, we 
can further develop harmonized standards and best practices to ensure 
that all stakeholders in the pharmaceutical supply chain are utilizing 
the most current and effective methods for providing patients with safe 
and effective medications.
      landmark user fee program will provide additional resources
    Even with these significant efforts in place, however, the generic 
pharmaceutical industry has realized that more needs to be done. That 
is why the industry, which accounts for 78 percent of all prescription 
drugs dispensed in the United States, has stepped up to the plate to 
help provide FDA with resources to address the challenges caused by the 
global drug supply and the increase in the FDA's workload. The industry 
has been working closely with FDA to negotiate a generic drug user fee 
program to help the agency obtain additional resources in this global 
age to ensure all participants in the U.S.-generic drug system, whether 
U.S.-based or foreign, comply with all U.S.-strict quality standards 
and to make certain Americans get timely access to low-cost, high-
quality generic drugs.
    The generic drug user fee program being finalized now with FDA 
recognizes that while providing earlier access to effective medicines 
is critical--and the key aim of all other existing user fee programs--
an equally important pillar of FDA's mission is ensuring drug safety. 
The overall goal is to hold all players, foreign or domestic, 
contributing to the U.S. generic drug system to the same GMP inspection 
standards, while expediting access to more affordable, high-quality 
generic drugs; and, enhancing FDA's ability to identify, track and 
require the registration of all contributors involved in each generic 
drug product sold in the United States. Final recommendations are 
expected to be submitted to Congress in January 2012.
    While the generic drug user fee program provides an excellent 
framework for industry to help support the growing global needs of FDA 
and to level the playing field between foreign and domestic facilities 
through inspection parity, it does not completely solve the problem, 
nor does it have the reach of the entire pharmaceutical industry. To 
globalize FDA's authority, eliminate the inspection disparity and 
better ensure the safety of the global supply chain, it is paramount 
that a bill is introduced to expand FDA's authorities to achieve its 
mission in this global age.
    The safety of our Nation's pharmaceutical supply is only as good as 
our weakest link, and the responsibility rests upon all of us. GPhA 
encourages Congress and our counterparts throughout the pharmaceutical 
industry to work together to ensure FDA is equipped to keep our 
consumers safe in a 21st century global drug supply environment.
   federal pedigree standard should replace state-by-state patchwork
    Finally, as we look at the broader issue, GPhA also recommends that 
Congress adopt a Federal pedigree system with uniform standards across 
all States, as opposed to a patchwork of more state-enforced 
regulations that are starting to arise in the absence of Federal 
leadership mandating one uniform standard. Given that products are 
distributed throughout interstate commerce and across all States lines, 
having what could potentially be a 50-state patchwork of different 
standards will be a mess without a Federal mandate setting a 
reasonable, uniform standard. The challenge to implementation will be 
to ensure that the technology is reasonable and feasible in light of 
numerous economic, technical and logistical factors so that the end 
product does not result in an increase to consumer and payer cost.
                               conclusion
    In conclusion, Mr. Chairman, the Generic Pharmaceutical Association 
stands ready to support Congress and the FDA in strengthening its 
oversight, updating the law and investing more resources to ensure we 
continue to lead the world in safety while maintaining competitiveness.
    Thank you. I would be happy to address any questions of the 
committee.

    The Chairman. Thank you very much, Mr. Johnston.
    Now we'll turn to Mr. VanTrieste.
    Welcome and please proceed, Mr. VanTrieste.

      STATEMENT OF MARTIN VAN TRIESTE, R.Ph., PAST CHAIR, 
                   RX-360, THOUSAND OAKS, CA

    Mr. VanTrieste. Chairman Harkin, Ranking Member Enzi, and 
members of the committee, thank you for the opportunity to 
testify today. My name is Martin VanTrieste, and I am the 
senior vice president of Quality at Amgen, a leading 
biotechnology company. In addition, I am the founder, past 
chair, and director of Rx-360, and it's on behalf of Rx-360 
that I testify here today.
    Rx-360 was founded in 2009 in direct response to the 
economically motivated adulteration of Heparin with the mission 
to enhance the security and quality of the pharmaceutical 
supply chain. Our membership has quickly grown to over 65 
member companies, including most of the large pharmaceuticals, 
biotechnology, and generic drug manufacturers, along with our 
key suppliers.
    This industry is extensively regulated by the FDA in a 
variety of ways, including through compliance with good 
manufacturing practices, or GMPs. However, economically 
motivated adulteration and counterfeiting are not GMP issues. 
GMPs keep honest people honest but do little to prevent 
unethical players or criminals to exploit the complexities of 
the supply chain.
    Let me give you an example where a lack of transparency in 
the supply chain was able to be exploited which is outlined in 
a chart I have submitted to the committee and is up here on the 
easel. Glycerin is an inactive ingredient used in many 
pharmaceuticals. In this case, the government of Panama 
unknowingly purchased adulterated glycerin to be used in cough 
syrup which resulted in at least 67 deaths.
    An investigation into this tragedy revealed several 
breakdowns in the supply chain which were hidden from the 
manufacturer purchasing the ingredient. As illustrated in Box 
1, the problem began in China at the Taixing Glycerin Factory 
which produced a technical substitute for glycerin which was 
not pure glycerin at all but actually contained antifreeze 
which is three times cheaper than glycerin.
    This factory was never inspected by the Chinese FDI, and as 
Boxes 2, 3, and 4 describe, a series of brokers and traders 
moved the material through the supply chain, changing the name 
of the material, the manufacturing site, the expiration date of 
the product, and never performed any tests. This adulterated 
glycerin was then used to manufacture cough medicine, leading 
to fatal consequences.
    Learning from this example, if the manufacturer of the 
cough syrup knew that they were really purchasing antifreeze, 
these fatalities would have been prevented. And this is why 
transparency of the supply chain is so important.
    Rx-360 members recognize that we are responsible for our 
suppliers and the supply chains and must address the challenges 
associated with the global supply chain. In our short period of 
existence, we have implemented many solutions in four key 
areas. These include conducting and sharing of detailed audits 
of our suppliers, developing technologies to prevent and detect 
adulterations, implementing best practices for industry, and 
conducting active surveillance and issuing supply chain 
securities for our members.
    All these efforts are intended to be key pieces of a 
proactive attempt to eliminate security gaps in the supply 
chain. The FDA is full of good people doing a tough job, and we 
intend these activities to be complementary of their extensive 
work in this area.
    As policymakers look at ways to improve the integrity of 
the supply chain, it is important that any legislative or 
regulatory proposals are carefully considered, such as adding 
to the complexity of the supply chain, creating unintended drug 
shortages, and adding significant costs to the healthcare 
system. As you examine these issues, I have a few points for 
consideration.
    First, some issues are related to the fact that ingredient 
suppliers don't always disclose the actual manufacturing site 
of those ingredients to drug manufacturers. This was the issue 
in the glycerin example I discussed earlier. By requiring a 
disclosure to the drug manufacturer, we can ensure enhanced 
oversight of our suppliers.
    Second, there are many foreign suppliers who register with 
the FDA but have no intention of distributing product within 
the United States. They use this registration to convey some 
sense of FDA approval and undermining the integrity of the 
registration system.
    Other points that are worth considering include increased 
FDA inspections of foreign manufacturers, using investigators 
who are specifically trained in fraud detection, allowing the 
use of qualified third-party inspectors, and increased criminal 
penalties for knowingly engaging in economic adulteration and 
counterfeiting.
    In conclusion, on behalf of Rx-360, I thank the committee 
for its examination of this issue. I appreciate Senator 
Bennet's work in this area and the interest of Chairman Harkin 
and Ranking Member Enzi in finding solutions to these complex 
issues. Rx-360 stands ready to assist the committee as they 
continue to work on this important issue.
    Thank you.
    [The prepared statement of Mr. VanTrieste follows:]
             Prepared Statement of Martin VanTrieste, R.Ph.
                                summary
    Management of the biopharmaceutical supply chain has become one of 
the top public health concerns with respect to consumer safety. The 
globalization of distribution for drug raw materials, components and 
finished products has introduced many complications. This has resulted 
in unethical players along the supply chain introducing counterfeited, 
adulterated and contaminated materials, often with tragic consequences.
    The biopharmaceutical industry is extensively regulated by the FDA 
in a variety of ways, including through compliance with Good 
Manufacturing Practices (cGMP). However, economically motivated 
adulteration and counterfeiting are not a GMP compliance issue. GMP's 
keep the honest people honest but do little to prevent unethical 
players or criminals from exploiting the supply chain.
    Given these challenges, leaders in quality from the 
biopharmaceutical industry came together to proactively find solutions. 
The result was the formation of a consortium called Rx-360 in June 
2009. The purpose of Rx-360 is to enhance the security of the 
pharmaceutical supply chain by (1) Adopting standards and best 
practices; (2) Developing and implementing technology (3) Conducting 
surveillance; and (4) Sharing supplier audit information.
    Rx-360 has accomplished much in its short period of existence. It 
recently announced positive results from an audit pilot program which 
allowed audits of a supplier to be shared with the Rx-360 membership. 
In effect, this method reduces the number of audits that a supplier 
must host and that a biopharmaceutical firm must conduct themselves, 
all while providing more information on a particular supplier than 
previous audits have been able to.
    Additionally, the consortium is undertaking the following 
activities: (1) Rx-360 has adopted, or is in the final stages of 
adopting, numerous standards and best practices to secure the supply 
chain which many firms have implemented; (2) Rx-360 has developed an 
analytical technique that is used by our members to detect potentially 
economically motivated adulteration in response to raw material 
shortage; and (3) Rx-360 conducts active surveillance to regularly 
alert its membership regarding potential supply chain issues so that 
companies and suppliers can implement preventative corrective measures.
    Rx-360 appreciates that policymakers are examining ways to improve 
supply chain security, to compliment these initiatives already 
underway, and would like to be a resource as you examine these issues 
going forward. However, it is important that any legislative or 
regulatory proposals are carefully considered so as to ensure that 
there are no unintended consequences, such as adding complexity to an 
already complex system, unintentionally creating drug shortages, and 
adding significant cost to the health care system.
    As you examine these issues some points for consideration which 
could improve supply chain security include: (1) Requiring ingredient 
suppliers to disclose their actual manufacturing site to manufacturers; 
(2) FDA registration of only those foreign ingredient manufacturing 
sites whose products are used in the United States and pay a nominal 
fee; (3) FDA inspection of foreign ingredient manufacturing sites using 
a risk-based approach where the cost of the inspection is paid for by 
the manufacturer; and (4) Increased criminal penalties for those 
involved in economically motivated adulteration or counterfeiting of 
pharmaceuticals.
    Rx-360 thanks the committee for examining these complex issues and 
we stand ready to assist you as we work towards our common goal of 
protecting patients.
                                 ______
                                 
                              introduction
    Chairman Harkin, Ranking Member Enzi and members of the committee, 
thank you for the opportunity to testify today. My name is Martin 
VanTrieste and I am the senior vice-president of Quality at Amgen, one 
of the world's leading health care biotechnology companies. We are 
headquartered in Thousand Oaks, CA and have a significant presence in 
Asia, Europe and North America, with research, manufacturing, 
distribution and sales facilities worldwide. Amgen has more than 17,000 
employees.
    While I bring with me today my experience at Amgen ensuring supply 
chain security and quality, my testimony today is on behalf of Rx-360, 
a consortium developed by volunteers from the Pharmaceutical and 
Biotech industries which includes their suppliers.
    Management of the biopharmaceutical supply chain has become one of 
the top public health concerns with respect to consumer safety. The 
globalization of distribution for drug raw materials, components, and 
finished products has introduced many complications that to date have 
yet to be fully resolved. Unethical players and noncompliant companies 
along the supply chain can intentionally introduce counterfeited, 
adulterated and contaminated materials, often with tragic consequences.
    Some of these recent tragic events have been well publicized and 
include:

    1. Adulterated glycerin with diethylene glycol (antifreeze) used to 
manufacture cough syrup has led to 67 deaths in Panama and 103 deaths 
in Haiti (mostly children).
    2. Adulterated Heparin with hypersulfated chondroitin sulfate led 
to 81 deaths in the United States and Europe.
    3. Adulterated milk with melamine has led to contaminated infant 
formula causing kidney stones and deaths of infants in China.
    4. Adulterated glycerin with diethylene glycol used to manufacture 
teething gel has led to over 40 infant deaths in Nigeria.

    The biopharmaceutical industry is extensively regulated by the FDA 
in a variety of ways, including through compliance with Good 
Manufacturing Practices (cGMP). However, economically motivated 
adulteration, like that listed above, is not a Good Manufacturing 
Practice compliance issue. Good Manufacturing Practices keep the honest 
people honest but does little to prevent unethical players or criminals 
from exploiting complexities in the supply chain.
    We must realize that it's not a matter of if economically motivated 
adulteration will happen again, but when and where it will happen.
    Given this challenge, leaders in quality from the biopharmaceutical 
industry came together to find solutions to this problem. We recognized 
that our standard Quality Systems and Good Manufacturing Practices 
would not be sufficient to detect such illicit activity. We also 
quickly recognized that no one company could adequately address this 
very complex global problem facing our industry, and therefore we 
needed to collaborate. It is a holistic approach coordinated between 
industry, regulators and policymakers that is the most effective and 
efficient manner to deal with this global complex problem. These 
discussions lead to the formation of a consortium called Rx-360.
                       rx-360 history and mission
    The formation of Rx-360 was a direct response to the heparin crisis 
and a call to action by Dr. Janet Woodcock, Director of the Food and 
Drug Administration's Center for Drug Evaluation and Research, during 
her keynote address at the first Parenteral Drug Association--FDA 
Supply Chain Conference. During the fall and winter of 2008, a few 
quality thought leaders in the biopharmaceutical industry took up this 
call to action and met to discuss the events around the economically 
motivated adulteration of heparin. We quickly realized as a group that 
unethical players and criminals had entered into the biopharmaceutical 
supply chain in an unprecedented manner that had not previously been 
seen in the United States and Western Europe.
    Our consortium was incorporated in June 2009 with six member 
biopharmaceutical companies as founding members. This membership has 
quickly grown to over 65 member organizations, including most of the 
large Pharmaceutical, Biotechnology and Generic drug manufacturers 
along with many key suppliers. Rx-360 membership is open to branded and 
generic biopharmaceutical companies, their suppliers, professional 
organizations and regulatory agencies.
    The purpose of Rx-360 is to enhance the security of the 
biopharmaceutical supply chain and to assure the quality and 
authenticity of the products moving through that supply chain. The 
individuals developing this concept are working in the best interest of 
patients. We are a non-profit organization with the mission to create 
and monitor a global quality system that meets the expectations of 
industry and regulators and that assures patient safety by guaranteeing 
product quality and authenticity throughout the supply chain.
    Broadly speaking, Rx-360 focuses on four areas to secure the supply 
chain and to assure the quality of materials throughout the supply 
chain. These four areas are:

    1. Adopting standards and best practices;
    2. Technology development and implementation;
    3. Surveillance around events that could lead to supply chain 
threats; and
    4. Sharing supplier audits.

    Rx-360 members recognize that we are responsible for our suppliers 
and supply chains and have a responsibility to tackle head-on the 
challenges associated with a global supply chain. With that in mind, 
Rx-360 member companies have implemented company-specific and 
collaborative-based initiatives to help further assure a secure supply 
chain in the interest of product quality and ultimately, patient 
safety.
             problems associated with a global supply chain
    Globalization is impacting most industries and the 
biopharmaceutical industry is no exception. On the positive side, it 
has enabled our industry to enter markets all over the world and 
provide life-saving medicines to millions of patients. With the 
benefits of globalization, however, come significant challenges and 
responsibilities. One of those challenges is ensuring the authenticity 
and quality of materials moving through the supply chain.
    Several highly publicized events have highlighted a weakness in the 
biopharmaceutical supply chain. Significant harm to patients, including 
death, has been associated with these events. These incidents have led 
to a loud and swift reaction from the public, biopharmaceutical 
companies, health authorities and policymakers. These events have shown 
us how unethical players and criminals have entered into the supply 
chain, introducing counterfeited, adulterated and contaminated 
materials, often with tragic consequences.
    I have had the opportunity to present on supply chain security at 
many global conferences with other experts in the field, including 
representatives from foreign and domestic regulatory agencies. As I 
conduct my research for these presentations, it can become increasingly 
unsettling and overwhelming how complex the issues are and the 
potential problems that exist.
    I quickly realized that the challenges presented by a very complex, 
global supply chain, which spans numerous regions of the world and many 
regulatory jurisdictions, are too vast to take on at one time or with 
one solution. It was clear to me that there is no magic solution for 
these issues, but that working together, the industry, its suppliers, 
regulators and policymakers can improve the safety of the supply chain.
                  what rx-360 has accomplished to date
    These issues and their resolution are of extreme importance to Rx-
360 and its members, and are the reason that the organization was 
founded by dedicated quality experts looking for solutions. Patient 
safety is not a competitive advantage, and the members of Rx-360 are 
looking at novel ways to improve the system and have already 
accomplished a great deal in our short time of existence. Examples of 
this include:

     Shared Audits: Rx-360 is working to implement two shared 
audit programs; a joint audit program and a shared audit program, which 
will allow the collection and sharing of audit information of suppliers 
so that this information can be leveraged across all members of the 
consortium.
    The Board of Rx-360 recently announced positive results from its 
shared audit pilot program. In the pilot, the biopharmaceutical company 
which sponsors the audit and the audited supplier agreed to share 
redacted audit reports which were uploaded into the Rx-360 database for 
all members to share. From this pilot program the following benefits 
were found:

          Shared audits provide a broader, more thorough 
        ``picture'' of quality culture and performance;
          Existing reports can be used to identify and pre-
        screen new suppliers; and
          Potential savings with evaluation of reports/
        responses to reduce supplier audit frequency/length, or audit 
        scope.

     Joint audits: Joint audits are designed to increase the 
effectiveness of each audit by collecting and analyzing more 
information while reducing the audit burden on suppliers and 
biopharmaceutical companies. Rx-360 uses qualified third-party auditors 
to conduct joint supplier audits on behalf of the consortium's members. 
All auditors are provided the same high-quality training by Rx-360, 
which ensures that each audit is effective, efficient, and consistent 
throughout the supplier base.
    Once complete, the audit report is placed into an electronic 
database where Rx-360 members are provided access to the report, in 
lieu of conducting an on-site audit themselves. This sharing reduces 
the number of audits that a supplier must host and that a 
biopharmaceutical firm must conduct itself. This will reduce the 
overall audit burden to suppliers and biopharmaceutical drug product 
manufacturers, and provides more information on a particular supplier 
than previous audits have been able to provide. One additional benefit 
is that any savings can be re-invested in process and quality system 
improvements.
    One of the Rx-360 supplier members estimates that it costs them 
$20,000 to host a customer audit, and they receive multiple customer 
audits a year to host. By having these joint audits, suppliers can save 
resources and money and apply these savings toward making improvements 
and not just hosting audits. Most suppliers would agree to allow Rx-360 
auditors to spend more time auditing for a shared audit than they would 
allow an individual biopharmaceutical company.
    The joint audit scheme is in the pilot phase, which is planned to 
be completed by the end of November 2011.
    Rx-360 is moving forward towards formally implementing these audit 
programs and we expect this to be a significant step in improving the 
ability to ensure supplier quality in a global environment.
     Adoption of Standards and Best Practices: Rx-360 has 
adopted, or is in the final stages of adopting, numerous standards and 
best practices designed to help secure the supply chain and the 
security of the materials throughout the supply chain. For example, Rx-
360 recently published a points-to-consider document on how to improve 
security of biopharmaceutical shipments and prevent cargo theft. This 
information was presented to FDA at a workshop and will allow industry 
to utilize these techniques to help prevent cargo theft. Many firms 
have implemented, or are in the process of implementing, these best 
practices.
     Development of Detection Techniques: Rx-360 has developed 
an analytical technique to detect potentially economically motivated 
adulteration in response to raw material shortage. We have learned that 
shortages provide an opportunity for criminals and unethical players in 
the supply chain to exploit. As an example, once Rx-360 became aware of 
an acetylnitrile shortage, a key raw material used in active ingredient 
manufacturing, we rapidly informed our members so they could secure 
inventory and then developed a method that was provided to everyone and 
anyone to detect if their raw materials were adulterated for economic 
gains.
     Membership Alerts: Rx-360 regularly alerts its membership 
regarding potential supply chain issues so that companies and suppliers 
can implement preventative and corrective measures to quickly avoid 
issues which have been discovered. These alerts help put members on 
notice regarding potential problems and also serve to rapidly gather 
the appropriate experts to respond to known supply chain threats in 
order to protect patients. For example, in the midst of the Japanese 
tsunami and nuclear accident, Rx-360 assembled a panel of experts to 
evaluate the impact on the supply chain and recommend best practices to 
the biopharmaceutical industry in order to assure the safe distribution 
of drug products in Japan and how to assure that raw materials and drug 
product produced in Japan would not have adverse patient consequences.
                     a statement of support for fda
    Rx-360 is supportive of the FDA's efforts to address economically 
motivated adulteration, counterfeits, substandard medicines and the 
Agency's efforts to help ensure the supply chain remains secure. We 
believe a strong, well-funded FDA is critical to the health and safety 
of the American public, both for the purposes of helping to assure the 
safety, effectiveness and availability of medicines and to help ensure 
continued access to innovative new therapies for American patients. As 
such, Rx-360 is supportive of efforts to provide adequate resources to 
the FDA so that the Agency can enhance its inspection efforts abroad 
and ensure a safe, secure supply chain.
  points to consider in any legislative/regulatory effort to improve 
                         supply chain security
    Rx-360 appreciates that policymakers are examining ways to improve 
supply chain security and would like to be a resource as you examine 
these issues going forward. As I mentioned earlier in my testimony, we 
think that we face a complex, global problem that needs a holistic 
solution requiring industry, regulatory authorities and policymakers 
working collaboratively to attack the problem. However, it is important 
that any legislative or regulatory proposals are carefully considered 
so as to ensure that there are no unintended consequences, such as 
adding complexity to an already complex system, unintentionally 
creating drug shortages, and adding significant cost to the health care 
system.
    The biopharmaceutical supply chain is a complex and global 
endeavor, and Rx-360 is an example of what can be done when 
stakeholders work together to address solutions. As you examine these 
issues some points for consideration which could improve supply chain 
security include:

     Ingredient suppliers should disclose the actual 
manufacturing site to the drug product manufacturer: There are many 
potential links in a global supply chain where a series of brokers and 
distributors could be involved. If we try to learn from the 
contaminated glycerin events in Panama we must recognize that one 
contributing factor is that the drug product manufacturer in Panama had 
no idea that the glycerin they were purchasing was sourced from China 
since at least three distributors or brokers did not disclose the 
location of the manufacturing site. As such the drug product 
manufacturer did not have the opportunity to audit the ingredient 
manufacturer and had to depend on the Quality Systems of several 
foreign intermediaries that did not act in an ethical manner. See 
attached chart of events leading up to contaminated glycerin.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

     Foreign ingredient manufacturing sites should be 
registered with the FDA and only those whose products are actually used 
in the United States and pay a nominal fee should be allowed to 
maintain registration: This will assure that the FDA has an accurate 
data set to be used for oversight. There are many suppliers who have no 
intention to distribute product within the United States but use an FDA 
registration to convey a sense of FDA approval to non-U.S.-based 
manufacturers. This behavior only adds misleading data to any FDA 
database and makes it harder for FDA to achieve their objectives.
     FDA should inspect foreign ingredient manufacturing sites 
using a risk-based approach and those foreign ingredient manufacturers 
should pay the cost of FDA inspections: The Food, Drug and Cosmetic Act 
requires the FDA to inspect domestic manufacturers every 2 years, but 
has no such mandate to inspect foreign manufacturers with such 
frequency. For over 40 years, overseas manufacturers have had 
unfettered access to the largest biopharmaceutical market in the world 
with very little regulatory oversight or inspections. This inspection 
gap between domestic and foreign inspections should be made up quickly, 
and funded by the sites external to the United States. According to the 
recent PEW report, at the current FDA inspection rate, it will take 
more than 13 years to inspect the sites outside the United States, and 
that more than 80 percent of the drugs consumed in the United States 
are now manufactured outside the United States.
    Today, U.S. manufacturers who are inspected by many foreign 
regulatory agencies pay for the cost of these inspections. By requiring 
foreign manufacturers to cover the cost of FDA inspections, this will 
assure that the FDA will have adequate funding for inspections and 
experienced investigators. It would also have adequate funding to 
assure that the appropriate numbers of investigators participate in a 
foreign inspection and that the length of the inspection is appropriate 
to provide adequate oversight. Inspection fees should also provide 
adequate funding so that FDA Investigators are not asked to bear 
unreasonable hardships when making travel and lodging arrangements. 
Also, given resource constraints, perhaps FDA and Congress could 
consider allowing qualified third-party inspectors to inspect these 
foreign facilities.
     Increased criminal penalties for economically motivated 
adulteration and counterfeiting: Today, a criminal can make 
astronomical profits by knowingly engaging in economically motivated 
adulterating or counterfeiting a biopharmaceutical ingredient or drug 
product, with little chance of getting arrested and even if they are 
arrested the criminal penalties are small compared to the crime. FDA 
and other enforcement authorities should make this a focus for 
enforcement and criminal penalties should be increased to reflect the 
gravity of the crime and the life-threatening risks to patients, like 
those that have been proposed in recent legislative proposals.

    We also believe that during FDA overseas GMP inspections, 
particularly of biopharmaceutical ingredient manufacturers, that these 
inspections should also focus on good distribution practices and the 
authenticity of data submitted to the FDA. For example, there are 
unintended threats, such as improper handling of drugs and raw 
materials, especially if temperature-sensitive, that can compromise the 
efficacy and safety of drugs and pose just as serious of an implication 
to patient safety.
    Based on results from risk assessments or suspicious reports from 
the field, the FDA should also consider deploying specially trained 
forensic and criminal investigators that can detect fraud, the use of 
``show'' and ``shadow'' factories, and the potential for economic 
adulteration, since these skills are vastly different from the skills 
needed for a routine cGMP inspection.
    FDA should also consider whether to monitor or provide special 
scrutiny to products or ingredients in short supply since these 
situations may provide additional incentives and opportunities for 
unethical players to engage in economically motivated adulteration of 
products.
                               conclusion
    On behalf of Rx-360, I thank the committee for taking on these 
complex issues in order to protect patients. I am encouraged by the 
collaboration of all stakeholders working together to address this 
complex issue. Rx-360 members are dedicated to protecting patients by 
securing the biopharmaceutical supply chain. This dedication is 
demonstrated everyday by their and their employee's contributions 
leading to the remarkable success of Rx-360 in a relatively short 
period of time. We stand ready to assist the committee as they continue 
their work on this important issue.

    The Chairman. Thank you very much, Mr. VanTrieste.
    And now, Mr. Coukell, if you'll summarize, we appreciate 
it.

   STATEMENT OF ALLAN COUKELL, BScPharm, DIRECTOR OF MEDICAL 
           PROGRAMS, PEW HEALTH GROUP, WASHINGTON, DC

    Mr. Coukell. Thank you, Mr. Chairman, Ranking Member Enzi, 
and members of the committee. Thank you for the opportunity to 
testify. My name is Allan Coukell. I'm a pharmacist and 
director of medical programs in the Pew Health Group.
    We recently released a report called ``After Heparin: 
Protecting Consumers from the Risks of Substandard and 
Counterfeit Drugs.'' * Our chief findings are consistent with 
what you've heard from previous speakers. Pharmaceutical 
manufacturing is now globalized and increasingly outsourced, 
and to ensure safety, both the FDA and manufacturers must 
adjust.
---------------------------------------------------------------------------
    * The ``After Heparin: Protecting Consumers from the Risks of 
Substandard and Counterfeit Drugs Report may be found at http://
www.pewtrusts.org/uploadedfiles/www.pewtrustsorg/Reports/Health/
Pew_Heparin_Final_HR.pdf.
---------------------------------------------------------------------------
    The Pew report is based on published studies and documents 
and dozens of interviews with experts as well as a 2-day 
conference that included regulators and a broad representation 
from industry. We outlined a series of case studies to 
illustrate the kind of rare but potentially very serious risks 
we face. We identified systemic problems and practical 
solutions.
    We called the report ``After Heparin'' both because Heparin 
was a wake-up call for industry and regulators and because it 
so clearly shows many of the failings of our current system. 
For example, the U.S. manufacturer in that case failed to 
perform a timely audit of its Chinese supplier. The FDA 
approved the supplier without an inspection, partly because an 
agency database confused two different facilities. The standard 
test for Heparin then in use was outdated and not designed to 
detect a contaminant. There were significant manufacturing 
quality issues.
    And even after the fact, neither the FDA nor the 
manufacturer was ever able to gain complete access to that 
upstream supply chain, hindered in part by lack of cooperation 
from Chinese authorities. Unless you think this is ancient 
history, I point out that just last month, the FDA issued a 
warning letter to yet another Heparin facility in China for 
failing to adequately evaluate suppliers or perform testing.
    Others today have stressed the need for increased foreign 
inspections. It's an area where there's a good deal of 
consensus, and I'd be happy to expand on what we see as key 
changes to ensure safety and a level playing field. Speakers 
have also mentioned the need for manufacturers themselves to 
ensure quality, and that's crucial.
    One speaker at our conference last year was Philippe Andre, 
a China-based pharmaceutical auditor whose business involves 
visiting manufacturing facilities in Asia on behalf of United 
States and European companies. I'd like to show a photo that he 
shared with us. You can see here--this is a facility in China. 
And just by the rusted pipes and the broken windows, you know 
this is not using good manufacturing practices.
    Of course, there are very good facilities in China. This 
just wasn't one of them. But it is the start of the supply 
chain for a western company.
    Sometimes substandard facilities sell to so-called show 
factories, high-quality facilities that sell products they 
didn't actually make. And in Mr. Andre's experience, American 
and European companies are misinformed about the identity of 
all or part of their supply chain more than a third of the 
time.
    Our report examines a number of other case studies 
including where manufacturers falsified or concealed records. 
And we note the risk of U.S. patients receiving counterfeit or 
stolen products that penetrate our domestic distribution 
system.
    Mr. VanTrieste has just reiterated--let me reiterate the 
diethylene glycol poisoning, where the toxic material moved 
from a manufacturer in China to another broker in China, to a 
broker in Europe, to a broker in another part of the world. 
Each time the label is changed and replaced with a new, 
inaccurate label, and each time the history of the product is 
destroyed.
    Indeed, it was poisoning with this exact same substance 
that led Congress to pass the Food, Drug, and Cosmetic Act in 
1938. The patients who died in the Panama example were largely 
children. And we must ensure that the FDCA reflects today's 
reality.
    The necessary steps are practical, feasible, and crucial. 
Many have been included in previous bipartisan legislation 
before this committee and in Senator Bennet's bill introduced 
last year. I've mentioned inspections and the need that 
manufacturers better assess their suppliers, and they're 
accountable for doing so.
    We also need to ensure that testing standards are updated 
and that the FDA has the tools it needs. For example, many 
people are surprised to learn that the FDA can't order the 
recall of a drug product if it's adulterated. They can do it 
for medical devices and for food, and they should have that 
authority for drugs. If they have it, it's less likely they'll 
need to use it. Done well, a regulatory scheme will reward the 
good players and ensure that the bad actors don't create a race 
to the bottom.
    In conclusion, let me say that Americans support these 
sorts of changes. Pew commissioned a poll last year which found 
that likely voters are concerned with drugs from developing 
countries. And across the political spectrum, they 
overwhelmingly favor many of the provisions I've outlined. As 
Congress did 70 years ago, we urge you today to act to ensure 
safety. We shouldn't wait for another tragedy.
    Thank you.
    [The prepared statement of Mr. Coukell follows:]
             Prepared Statement of Allan Coukell, BScPharm
                                summary
    A major focus of the Pew Health Group is identifying ways to 
address risks to the U.S. pharmaceutical supply chain. In March of this 
year, we hosted a 2-day conference that included representatives of 
brand and generic pharmaceutical manufacturers, active drug ingredient 
makers, major and secondary pharmaceutical wholesalers, chain and 
independent pharmacies, consumer and health professional organizations, 
the U.S. Food and Drug Administration (FDA) and State regulators, and 
independent supply chain experts. The convening was structured around a 
discussion draft of a white paper entitled ``After Heparin: Protecting 
Consumers from the Risks of Substandard and Counterfeit Drugs,'' which 
was shared with conference participants in advance. The final report 
was issued on July 12.
    The presenters at our meeting explained that while the vast 
majority of drugs in our pharmacies and medicine cabinets are not 
counterfeit or adulterated, pharmaceutical manufacturing has changed 
dramatically in recent years, becoming increasingly globalized and 
outsourced. This creates new risks which were dramatically illustrated 
not long ago with the intentional adulteration of the common blood-
thinning drug, heparin.
    Despite globalization of manufacturing, FDA oversight is largely 
domestically focused. The Food, Drug and Cosmetic Act (FDCA) requires 
inspections of U.S. plants every 2 years, but specifies no inspection 
frequency for foreign plants. The FDA lacks the resources to inspect 
foreign sites with any meaningful regularity. The Government 
Accountability Office (GAO) has also found that FDA foreign inspections 
are shorter than inspections of U.S. plants and, unlike inspections at 
U.S. facilities, are pre-announced, because of cost and resource 
considerations.
    Poor adherence to quality standards has been observed both in the 
United States and abroad, but the shift of manufacturing to low-cost 
environments with reduced oversight creates an increased risk. 
According to one estimate, ignoring Good Manufacturing Practices (GMPs) 
can save up to 25 percent of a factory's operating costs. The 
expectation of inspections is an incentive for compliance with quality 
standards. Compliance failures may be the result of poor performance, 
or they may be deliberate.
    Additional legislative changes are now needed to give the FDA the 
tools it needs and to ensure that every manufacturer is held to the 
highest standard. Pew prioritizes the following reforms:

    1. Pharmaceutical companies must have comprehensive systems in 
place to assess risk and ensure the quality and safety of their 
manufacturing supply chains.
    2. Overseas inspections by FDA must be significantly increased.
    3. FDA authority and enforcement gaps must be addressed.
    4. Improve the information flow to FDA.
                                 ______
                                 
    Chairman Harkin, Ranking Member Enzi and members of the HELP 
Committee, thank you for the opportunity to testify about the essential 
steps Congress must take to protect Americans and ensure the integrity 
of our drug supply.
    The Pew Charitable Trusts is driven by the power of knowledge to 
solve today's most challenging problems. Pew applies a rigorous, 
analytical approach to improve public policy, inform the public and 
stimulate civic life. Based on research and critical analysis, the Pew 
Health Group seeks to improve the health and well-being of all 
Americans.
    A major focus of the Pew Health Group is identifying ways to 
improve the safety of the U.S. pharmaceutical supply chain. In July of 
this year, we released a report entitled ``After Heparin: Protecting 
Consumers from the Risks of Substandard and Counterfeit Drugs.'' \1\ 
The report, which underwent extensive external review, was based upon 
information from regulatory and public documents, peer-reviewed journal 
articles and interviews with dozens of supply chain experts from 
numerous perspectives. It was informed by a 2-day conference we hosted 
earlier this year that included representatives of brand and generic 
pharmaceutical manufacturers, active drug ingredient makers, major and 
secondary pharmaceutical wholesalers, chain and independent pharmacies, 
consumer and health professional organizations, the U.S. Food and Drug 
Administration (FDA), State regulators and independent supply chain 
experts. I am including the report as part of my testimony.
    The key message is that pharmaceutical manufacturing has changed 
dramatically over the past decade. While the vast majority of drugs in 
American pharmacies and medicine cabinets are not counterfeit or 
adulterated, increasing globalization and reliance on outsourced 
manufacturing creates new risks, including the risk of deliberate 
tampering or counterfeiting of ingredients as well as the risk of 
inadequate safety or quality controls in a manufacturing environment 
that is largely outside the scrutiny of the FDA. Along with some 
serious recent safety problems, we have recently seen shortages of 
important medicines, in part due to manufacturing quality problems.
    We are encouraged by ongoing Generic Drug User Fee discussions and 
press reports that generic drug companies and active ingredient makers 
have agreed to pay fees that will enable the FDA to conduct more 
inspections of overseas manufacturing facilities. Indeed, at our recent 
public meeting, these sectors emphasized the importance of stepping up 
to ensure stronger oversight of their products. There is no doubt that 
this step, if taken, would move us closer to a system that better 
protects the health of American patients.
    However, the problem of pharmaceutical supply chain safety is not 
confined to generic drugs. As FDA officials and other experts have 
emphasized, this is an issue for all drugs, brand and generic alike. It 
is essential that Congress ensure that we have a system that enables 
FDA, in conjunction with other regulators and third parties, to inspect 
all high-risk overseas facilities. Further, increasing FDA's oversight 
capacity, while critical, is only one of several necessary steps that 
Congress must take to ensure safety. Our analysis of supply chain risks 
has identified the need to ensure stronger baseline quality management 
standards for industry, and the need to update FDA tools and 
authorities that will allow the Agency to operate effectively in the 
21st Century environment.
                                heparin
    The contamination of the blood thinner heparin dramatically 
illustrates the risks we face. In late 2007, health authorities at the 
U.S. Centers for Disease Control and Prevention (CDC) and the FDA began 
receiving reports of unexpected allergic-type reactions in patients 
undergoing dialysis.\2\ The events were subsequently linked to heparin, 
a widely used blood thinner.\3\ Additional analysis led to the 
identification of an adulterant that standard tests were unable to 
detect.\4\ Heparin was made by an American company, but the heparin 
active ingredient had been sourced from a Chinese factory, which in 
turn relied upon a network of small suppliers. The FDA and others 
believe that persons in China added the cheaper adulterant to crude 
heparin to cut costs.\5\ \6\ The toxic material eventually reached at 
least 11 countries. Based on an estimated three tons of product, this 
substitution has been estimated to have yielded $1 million to $3 
million in gains for the individual or company that sold it.\7\ The FDA 
received reports of deaths and serious injuries associated with use of 
heparin.\8\
    While failure to detect the contaminant during manufacture was a 
key factor, the case also illustrated other systemic problems, 
including \9\ \10\ \11\:

     An absence of timely supplier audits and FDA inspections,
     Limits and errors in the FDA database of manufacturing 
facilities,
     The discovery of manufacturing quality issues, including 
poor control of incoming raw materials, and
     The fact that--even in the period after the deaths--
neither the manufacturer nor the FDA was able to gain complete access 
to the upstream supply chain.

    This incident represents a clear breach of the security of the U.S. 
pharmaceutical supply. To this day, no one in any country has yet been 
held accountable. Nor has Congress acted to update the statutes that 
govern drug manufacturing. Numerous experts have asserted that, absent 
changes to the system, another such event is inevitable.
    Indeed, as recently as last month, the FDA issued a warning letter 
to a Chinese manufacturer of heparin for failure to conduct adequate 
quality control, failure to evaluate raw ingredients, test each batch 
of incoming material and failure to adequately assess suppliers. 
Although the firm in question was supplying the U.S. market, it was not 
registered with the FDA, as required under law.\12\
                       globalization/outsourcing
    Heparin is far from the only pharmaceutical that is produced 
outside the United States for American consumers. The number of U.S. 
drugs and ingredients made at non-U.S. sites has doubled since 
2001.\13\ An estimated 40 percent of all finished pharmaceuticals,\14\ 
and 80 percent of the active ingredients and bulk chemicals in U.S. 
drugs, are now sourced by industry from foreign countries,\15\ and up 
to half are purchased from plants in India and China.\16\ The United 
States is the No. 1 destination for Chinese pharmaceutical raw material 
exports.\17\
    A recent survey of pharmaceutical industry executives determined 
that 70 percent had key suppliers in China and close to 60 percent in 
India. About half of those surveyed were from companies with annual 
revenues of $1 billion or more. Ninety-four percent of those surveyed 
saw their greatest supply chain risk as raw materials sourced outside 
the United States.
    Despite globalization of manufacturing, FDA oversight is largely 
domestically focused. The Food, Drug and Cosmetic Act (FDCA) requires 
inspections of U.S. plants every 2 years, but specifies no inspection 
frequency for foreign plants.\18\ The FDA lacks the resources to 
inspect foreign sites with any meaningful regularity.\19\ The 
Government Accountability Office (GAO) has also found that FDA foreign 
inspections are shorter than inspections of U.S. plants and, unlike 
inspections at U.S. facilities, are pre-announced, because of cost and 
resource considerations.\20\
                           quality/compliance
    In the case of heparin, it appears that criminals deliberately 
introduced a substandard active ingredient into the supply chain. At 
other times, consumers may be at risk because of failures by 
manufacturers to comply with quality standards. Poor adherence to 
quality standards has been observed both in the United States and 
abroad, but the shift of manufacturing to low-cost environments with 
reduced oversight creates an increased risk. According to one estimate, 
ignoring Good Manufacturing Practices (GMPs) can save up to 25 percent 
of a factory's operating costs.\21\ The expectation of inspections is 
an incentive for compliance with quality standards.
    Compliance failures may be the result of poor performance, or they 
may be deliberate. One Chinese company was found to have exported 
heparin to the United States that they claimed to have made at their 
own factory, but was in fact made entirely at two external plants.\22\ 
The FDA has said that some of this heparin may have contained the same 
contaminant associated with the deaths in 2007 and 2008.\23\ 
Falsification of manufacturing location poses risks to patients, 
because regulators cannot ensure a product's quality without knowing 
the conditions of its manufacture.
    In 2008, an Indian manufacturer was cited by the FDA for alleged 
falsification of stability testing records and use of active 
ingredients made at unapproved sites, according to a Department of 
Justice subpoena motion.\24\ \25\ In 2010, another Indian manufacturer 
was found to have falsified batch manufacturing records for an anti-
platelet medicine. EU inspectors discovered at least 70 batch-
manufacturing records in the plant's waste yard. All of the records had 
been re-written, and in some cases original entries had been 
changed.\26\
    In Panama in 2006, dozens of people died after taking a cough 
medicine that had been made with diethylene glycol,\27\ \28\ a sweet-
tasting, but poisonous solvent.\29\ It had been wrongly labeled in 
China and passed through a series of Chinese and European brokers, who 
repeatedly re-labeled it, presumably without performing independent 
tests. The same problem has occurred with products in Africa, Haiti and 
India, and has been identified in consumer products in this country as 
recently as 2007.\30\ Students of FDA history will know that diethylene 
glycol poisoning in the United States in 1937 was the disaster that 
lead directly to the enactment of the FDCA.\31\ It is now time to 
update that statute for 21st century manufacturing.
                           gaps and solutions
    At the Pew convening in March, we heard clearly that real risks 
exist, and that the system can--and must--be improved. We heard that 
serious limitations to FDA's oversight of foreign plants making drugs 
and ingredients for the United States must be remedied. Representatives 
from several drug manufacturing groups agreed to back new industry fees 
to cover additional foreign inspections.
    Experts also called for industry audits of every supplier and sub-
supplier. Some companies already have best practices in place, but it 
is important that every company have robust systems to ensure the 
safety and quality of its upstream supply chain.
    Some steps can be taken now. The FDA has opened offices in India, 
China, and other countries, and is pursuing changes to standards to 
improve supply chain oversight. The agency is also implementing a new 
risk-based screening system for imports to speed the clearance of low-
risk shipments and increase the predictive efficacy for identifying and 
targeting high-risk imports. In addition, FDA has entered into more 
than 30 agreements with regulatory bodies in different countries to 
share some inspectional and other non-public information.\32\ Finally, 
this June, the FDA released an important strategy paper outlining its 
intent to form a global consortium of regulators and to increase the 
agency's reliance on third-party sources of information.
    Many individual companies have also taken steps, and as mentioned, 
the focus on increasing FDA oversight capacity in the current GDUFA 
negotiation process is an important move forward. Nevertheless, 
additional legislative changes are now needed to give the FDA the tools 
it needs and to ensure that every manufacturer, whether generic or 
brand, is held to the highest standard. Pew prioritizes the following 
reforms:

    1. Pharmaceutical companies must have comprehensive systems in 
place to assess risk and ensure the quality and safety of their 
manufacturing supply chains. Companies must audit suppliers on-site 
prior to engagement and institute supplier quality agreements. Company 
management must be held accountable for implementing these systems.
    While the FDA already has the authority to establish ``current good 
manufacturing practices,'' or cGMPs, these regulations do not extend to 
the assurance of quality at ingredient suppliers. The FDA has issued 
guidance explaining how a quality systems approach complements GMPs. 
Legislation should require companies to develop such quality systems, 
but must allow for companies and FDA to update standards and practices 
in keeping with advances over time.
    2. Overseas inspections by FDA must be significantly increased. 
Inspections do not guarantee quality, but the reasonable expectation of 
inspections is an incentive for compliance with quality standards. We 
can and should ensure that inspection frequencies domestically and 
internationally are meaningful for both generic and brand companies. 
The FDA has recently expressed its intention to increase its reliance 
on third-party sources of information, particularly inspections by 
other regulators, to supplement FDA's own ability to conduct 
inspections. This is a necessary step to preserve the integrity of the 
U.S. drug supply, but the agency also needs additional resources to 
conduct overseas inspections. As noted above, the proposed user fee 
agreement with the generic industry and active ingredient makers to 
help fund inspections will be extremely helpful. Congress should ensure 
that FDA is able to provide effective oversight on the basis of a risk-
assessment, regardless of whether the facility is covered by a user fee 
agreement.
    3. FDA authority and enforcement gaps must be addressed: FDA 
authorities and enforcement tools are often inadequate to properly 
regulate the pharmaceutical industry, particularly overseas. FDA does 
not currently have the authority to mandate a drug recall, nor may it 
halt product distribution (it can do both for medical devices) and must 
instead go through the courts to request a seizure.\33\ In addition to 
mandatory recall authority for drugs, the FDA needs the authority to 
subpoena documents and witnesses, and an improved set of enforcement 
tools such as civil penalties for violations of the FDCA. Granting 
subpoena power to Federal agencies is not uncommon--at least 355 such 
authorities have been granted to other executive branch entities.
    4. Improve the information flow to FDA: Drug companies are not 
currently required to inform FDA of many types of quality or safety 
issues that could present risks to U.S. patients, such as suspected 
counterfeiting or theft. Industry whistleblowers wishing to bring 
information to FDA are not currently covered by specific whistleblower 
protections. FDA is also limited in its ability to share information 
protected under the trade secrets provision of the Freedom of 
Information Act (FOIA) with other government agencies, which can hamper 
international investigations, and should be given clear authority to do 
so. This reform would also facilitate the sharing of inspectional 
information between FDA and its counterpart agencies.
                       protect american consumers
    The public expects that FDA will ensure that the drugs they take 
every day are safe from contamination and, at the same time, there is 
increasing concern about the safety of imported drugs. A poll 
commissioned by The Pew Charitable Trusts found that Americans are 
concerned about the safety of drugs from developing countries.\34\ And 
Americans across the political spectrum overwhelmingly support giving 
FDA increased authority in order to protect the domestic drug supply. 
For example, 86 percent of respondents supported inspecting foreign 
facilities every 2 years; 94 percent supported mandatory recall 
authority for the FDA. We can avoid future tragedies by adopting 
policies that are supported by drug manufacturers, health 
professionals, and the vast number of Americans who take medicines such 
as prescription and over the counter drugs at their peril. Congress 
should act now.
                               References
    1. Pew Health Group. ``After Heparin: Protecting Consumers from the 
Risks of Substandard and Counterfeit Drugs.'' (2011) http://
www.prescriptionproject.org/after_heparin_report.
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Hemodialysis--Multiple States, 2007-8. Morbidity and Mortality Weekly 
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Release);1-2. http://www.cdc.gov/mmwr/preview/mmwrhtml/mm57e201a1.htm. 
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Ph.D., General Manager, Changzhou SPL Company, Ltd (a/k/a ``Kaipu''). 
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018 (Issued August 11, 2011) http://www.fda.gov/ICECI/
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Research, Food and Drug Administration. ``The FDA's Response to 
Biogenerics, QA and Globalization.'' Unbranding Medicines: The 
Politics, Promise, and Challenge of Generic Drugs. Harvard Interfaculty 
Initiative on Medications and Society. December 12, 2008
    14. Hamburg, Margaret. Commissioner, U.S. Food and Drug 
Administration. Testimony before the House Committee on Energy and 
Commerce, Subcommittee on Oversight and Investigations. April 13, 2011. 
http://republicans.energycommerce
.house.gov/Media/file/Hearings/Oversight/041311/Hamburg.pdf. Accessed 
April 27, 2011.
    15. U.S. Government Accountability Office (March 1998). Food and 
Drug Administration: Improvements Needed in the Foreign Drug Inspection 
Program (Publication No. GAO/HEHS-98-21).
    16. NSD Bio Group. Potential Health & Safety Impacts from 
Pharmaceuticals and Supplements Containing Chinese-Sourced Raw 
Ingredients. Prepared for the United States China Economic and Security 
Review Commission. April 2010.
    17. Potential Health & Safety Impacts from Pharmaceuticals and 
Supplements Containing Chinese-Sourced Raw Ingredients. Prepared for 
the United States China Economic and Security Review Commission by NSD 
Bio Group. April 2010.http:
//www.uscc.gov/researchpapers/2010/NSD_BIO_Pharma_Report_Revised_
FINAL_for_PDF_14_%20April_2010.pdf. Accessed 4/14/2010.
    18. 21 U.S.C. Sec. 360 subsection (h).
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Safety: Preliminary Findings Suggest Weakness in FDA's Program for 
Inspecting Foreign Drug Manufacturers. (Publication No. GAO-08-224T)
    20. U.S. Government Accountability Office. (2007, November). Drug 
Safety: Preliminary Findings Suggest Weakness in FDA's Program for 
Inspecting Foreign Drug Manufacturers. (Publication No. GAO-08-224T)
    21. Bruttin, Francies, and Dean, Doug. ``Managing the Cost of 
Compliance in Pharmaceutical Operations'' IBM Business Consulting 
Services, April 2004.
    22. Warning Letter WL 320-09-01, April 14, 2009. To: Dr. Mao Jian 
Yi, General Manager, Shanghai No. 1 Biochemical & Pharmaceutical Co. 
Ltd. From: Inspections, Compliance, Enforcement, and Criminal 
Investigations, Food and Drug Administration, Division of Manufacturing 
and Product Quality, International Compliance Team.
    23. Warning Letter WL 320-09-01, April 14, 2009. To: Dr. Mao Jian 
Yi, General Manager, Shanghai No. 1 Biochemical & Pharmaceutical Co. 
Ltd. From: Inspections, Compliance, Enforcement, and Criminal 
Investigations, Food and Drug Administration, Division of Manufacturing 
and Product Quality, International Compliance Team.
    24. Memorandum to Mr. Malvinder Mohan Singh, CEO & Managing 
Director, Ranbaxy Laboratories Limited. Food and Drug Administration, 
Department of Health and Human Services. February 25, 2009.
    25. Motion to Enforce Subpoenas and Points and Authorities. United 
States of America, petitioner, v. Ranbaxy, INC., and Parexel 
Consulting, respondents. United States District Court for the District 
of Maryland (Southern Division). 7/3/2008.
    26. European Commission. Annex I: Scientific Conclusions and Ground 
for Amendments of the Marketing Authorisation and Recall of Batches 
Presented by the European Medicines Agency. Annex to multiple 
Commission Decisions of 29.3.2010: suspending the marketing and 
withdrawing, under Article 20 of Regulation (EC) No. 726/2004 of the 
European Parliament and of the Council, certain batches of [multiple 
Clopidogrel products], a medicinal product for human use. http://
ec.europa.eu/health/documents/community-register/2010/2010032978389/
anx_78389_en.pdf. Accessed August 25, 2010.
    27. Rentz ED, Lewis L, Mujica OJ, et al. Outbreak of acute renal 
failure in Panama in 2006: a case-control study. Bull World Health 
Organ 2008; 86:749-56.
    28. U.S. Food and Drug Administration News Release. ``FDA Advises 
Manufacturers to Test Glycerin for Possible Contamination: Glycerin 
Contaminated with Diethylene Glycol (DEG) Remains a Potential Health 
Hazard to Consumers.'' May 4, 2007. http://www.fda.gov/NewsEvents/
Newsroom/PressAnnouncements/2007/ucm108909.htm. Accessed September 27, 
2010.
    29. MEGlobal. Diethylene Glycol Product Guide. 2005.
    30. U.S. Food and Drug Administration. Toothpaste imported from 
China may contain diethylene glycol. http://www.fda.gov/Safety/
MedWatch/SafetyInformation
/SafetyAlertsforHumanMedicalProducts/ucm153155.htm. Accessed September 
1, 2010.
    31. U.S. Food and Drug Administration. Sulfanilamide Disaster. 
http://www.fda.gov/AboutFDA/WhatWeDo/History/ProductRegulation/
Sulfanilamide
Disaster/ucm2007257.htm. Accessed August 24, 2010.
    32. Hamburg, Margaret. Commissioner, U.S. Food and Drug 
Administration. Testimony before the House Committee on Energy and 
Commerce, Subcommittee on Oversight and Investigations. April 3, 2011. 
http://republicans.energycommerce
.house.gov/Media/file/Hearings/Oversight/041311/Hamburg.pdf. Accessed 
April 27, 2011.
    33. 21 CFR 7.40(c)30.
    34. Hart Research Associates and Public Opinion Strategies 
(commissioned by The Pew Charitable Trusts). National poll of 802 
likely voters conducted March 29-Apr 1, 2010. http://
www.prescriptionproject.org/tools/initiatives_resources/files/Drug-
Safety-Poll-Findings-2.pdf.

    The Chairman. Thank you very much, Mr. Coukell, and we'll 
begin a round of 5-minute questions.
    Starting with Dr. Crosse, in the past, you reported that 
FDA databases--and I heard this from others here too--had 
contained incorrect information about foreign drug 
establishments. What's the reason for this, and is this still 
the case, that they contain incorrect information?
    Ms. Crosse. It is still the case. There are several 
reasons. You heard Ms. Autor speak about a paper-based 
registration system that previously existed. Now, FDA has gone 
to an electronic system which has reduced certain errors of 
data entry, but they still don't have in place a requirement 
for any sort of unique identifier for a facility.
    They ask companies now with this electronic registration 
that they submit a unique identifier, a Dun and Bradstreet D-U-
N-S number, that they can enter into the system. They cannot 
require companies to submit that, and while many are complying, 
perhaps some of the ones you'd most want to have information 
about may not be complying with that.
    But, nevertheless, you continue to have other systems that 
are populating FDA databases with incorrect information. When 
shipments arrive at the border, the Customs and Border 
Protection has a data system that does not use a unique 
identifier, and that then sends incorrect information to FDA.
    The Chairman. So this is a question for all of you. Should 
we have a requirement that any finished drug, any ingredient or 
excipient that is manufactured in a foreign country that comes 
to this country have a bar code attached to it at all levels? 
Now, we know that they very seldom--they don't go directly from 
a small plant like that to some pharmacy in the United States. 
They go through different brokers here, in Spain, as you 
pointed out, and Canada and other places like that.
    Should we require that every one of those three that I 
mentioned--that they have a bar code attached to it so that it 
can be immediately traceable back to its origin, back to the 
very plant where it started? Is that possible to do, and should 
we do it?
    Dr. Crosse.
    Ms. Crosse. I'm not sure about the feasibility of that. I 
think until you get data systems aligned between Customs and 
Border Protection and FDA, you may still have problems with 
inaccurate information showing up from one agency to another.
    The Chairman. Well, I'm just asking if that one plant has 
to put on--no matter what it is, they have to put on a bar 
code, and that has to follow that all the way through to the 
final purchaser.
    Dr. Martello, is that possible?
    Ms. Martello. I can't speak to electronic--to the 
feasibility of that. My sense is that would be a significant 
cost and complexity added to the distribution system that may 
be challenging for folks to comply with. I think we do have a 
strong--very strong system today, and we should look for 
opportunities to make that stronger. But I worry about the cost 
and complexity of such a system with so many independent actors 
in the supply chain.
    The Chairman. OK. I'm just asking for a simple bar code at 
every step of the way.
    Mr. Johnston, what do you think? Is that possible?
    Mr. Johnston. Well, GPhA members looked at bar codes for 
track-and-trace purposes in the United States.
    The Chairman. Exactly.
    Mr. Johnston. And doing it domestically, we've seen the 
feasibility, I think, as being probable, because you can 
utilize integrated technologies, and we can have manufacturers, 
pharmacists, wholesalers on the same page. Some of the 
challenges are, when you get into international regions, 
finding this harmonization so that the same bar code, the same 
readers, the same technologies all apply.
    So when it comes to the international scope, I think 
there's issues there that would have to be looked at to make 
sure that the viability of a bar code applied in China would be 
read all the way through the system and that data would be 
available to the end user. So there's challenges there.
    The Chairman. Mr. VanTrieste.
    Mr. VanTrieste. Well, I think the use of bar codes is 
definitely possible. We see it in supermarkets. I think the 
complexity comes in with the integration of this data from a 
worldwide perspective and how long that would take to be 
actually implemented.
    I think you can get to the end result you need by requiring 
everybody in that supply chain to tell the final person who's 
going to use that raw material--the pharmaceutical 
manufacturer--who that original manufacturer was. The 
pharmaceutical manufacturer can then provide the oversight of 
the entire supply chain once they know it. If we don't know it, 
then we know we've got a problem. So I think just requiring 
that transparency and disclosure will get to where you want to 
go much faster.
    The Chairman. Mr. Coukell.
    Mr. Coukell. I agree. I think the underlying principle here 
is that manufacturers need to know their complete supply chain. 
They need to have confidence that the quality standards are in 
place and that the FDA has to be able to get access to that 
data if they need it. We need a way for everybody to be on the 
same page about which facilities we're talking about. Whether 
it's a bar code or some other means, I think, matters less.
    The Chairman. Thank you all very much.
    Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman.
    Mr. VanTrieste, your testimony suggests that poorly 
designed supply chain reforms could exacerbate drug shortage 
problems. Could you elaborate a little bit?
    Mr. VanTrieste. Yes, of course. As we all talked earlier 
about, if we increase regulation, certain players who are in 
the business today may decide to get out of the business. They 
might be the only supplier of a key ingredient for a critical 
medicine to treat patients.
    So any legislation that we do, I think we have to give the 
secretary some latitude to prevent those suppliers from exiting 
the market and give them enforcement discretion on where to 
apply the regulations, because we don't want to see people exit 
the market who are sole suppliers.
    Senator Enzi. Thank you.
    Dr. Crosse, what's wrong with the FDA's drug supply chain 
information systems, and what does the FDA need to do to fix 
them?
    Ms. Crosse. Well, there are several problems. They have a 
long history of poor information technology systems, and 
they're in a process now of trying to upgrade those systems 
across the board, across the entire agency. That's taking 
several years, and it's encountered many difficulties in trying 
to integrate what had been a number of different freestanding 
systems that weren't compatible.
    I mentioned just a moment ago one of the problems is that 
some of the key information they get comes from another agency, 
from Customs and Border Protection, which is not providing 
accurate information in many instances because of the way 
certain identifiers are generated in that system. FDA has been 
taking some steps to try to verify information that they have.
    They've actually hired contractors to go now and look at 
certain suspect facilities to see if they're actually located 
where they've told FDA that they are. And they've found a 
number of facilities that are not at the locations that they've 
reported. But it's taking FDA a very long time to try to go 
through and make up time on these systems, and they still don't 
all talk to one another.
    Senator Enzi. Thank you.
    Dr. Martello, can you give us an overview of your member 
companies' quality control systems? Do they customarily audit 
or inspect their suppliers?
    Ms. Martello. Thank you for that question. The quality 
systems approach is really embodied in the current good 
manufacturing practice regulations, and our companies take 
great steps to comply with those. The GMP regulations require 
that each facility have in place a quality control unit that's 
responsible for all aspects of the manufacture of a drug 
product, for all control of all incoming ingredients, and 
periodic testing throughout the process. And taken with the new 
drug approval requirements, the cGMP requirements in our closed 
distribution system help provide assurances that the medicines 
that patients take are safe and have the identity and the 
quality that they are purported to represent.
    Senator Enzi. Thank you.
    Mr. Coukell, Pew supports mandatory recall authority for 
drugs. How many times has a drug manufacturer refused FDA's 
request to conduct a voluntary recall?
    Mr. Coukell. Thank you for the question, Senator. I can 
give you an example, in 2008 when the FDA had to go to court to 
get some contaminated Heparin off the market. I think the 
bigger concern is not the refusal, but if public health is at 
risk, the time it would take if the FDA does have to go to 
court. It's the kind of authority that, if they have it, I 
think it will bring everybody to a consensus much more quickly 
about whether a voluntary recall is necessary.
    Senator Enzi. If a manufacturer refuses to conduct a 
voluntary recall, how does making it mandatory help?
    Mr. Coukell. I presume that there would be some sanction 
involved for refusing to do a mandatory recall.
    Senator Enzi. Mr. Johnston, the law requires FDA to inspect 
domestic drug establishments every 2 years. But the law is 
silent about how FDA must inspect foreign establishments. Can 
you elaborate on the need to level the playing field?
    Mr. Johnston. Thank you, Senator Enzi. There's two 
components, I think, to answering that question, the first 
being the parity, that foreign establishments should be 
inspected at the same level, intensity, and frequency as 
domestic facilities. There's a substantial cost for inspections 
to drug companies.
    And I might use the example of companies sitting in 
Philadelphia or New Jersey. They have FDA visiting each month 
or every other month. And it takes resources, time, personnel 
to accommodate these inspections.
    The contrast is foreign inspections, when companies or 
facilities are visited on a 3-, 4-, or 5-year basis. There's 
additional cost to the American industry and, more importantly, 
to the public health. By having equivalents in terms of 
inspections, FDA has the opportunity to evaluate these foreign 
facilities, determine if there are any GMP or quality problems, 
supply chain issues, and have those addressed in a timely 
basis. So bringing comparability into inspection requirements, 
we believe, is a very important component of supply chain 
security.
    Senator Enzi. Thank you, and my time has expired. I have 
questions I'll submit.
    The Chairman. Thank you, Senator Enzi.
    Senator Franken.
    Senator Franken. Thank you. I'll try to be fast because I 
know Senator Bennet has to get out of here and I have to 
preside in a few minutes.
    Dr. Martello, as we heard from Mr. Johnston, the generic 
pharmaceutical companies are working with the FDA to do their 
fair share and provide the FDA with additional resources to 
increase foreign inspection and capacity. While I realize that 
the brand name companies don't occupy as much of the market as 
the generics do, would your member companies be willing to 
contribute to securing the supply chain through increased user 
fees?
    Ms. Martello. Thanks very much for that question. I think 
it's important to recognize that since 1992, the PDUFA user 
fees--prescription drug user fees that we're looking to 
reauthorize next year actually have supported preapproval 
inspections since their inception in 1992. And as the GAO has 
reported, the majority of facility inspections that are 
conducted are both preapproval and GMP inspections combined. So 
our industry is really committed to this issue and has 
supported inspections in the form of the user fees as a portion 
of that since 1992.
    We also think and we recognize that, frankly, there will 
never be enough resources for the agency to get to all the 
places that they need to get. And so that's why we believe that 
using a risk-based approach for FDA to target facilities for 
inspection and really focus on the areas of highest risk will 
help do a great deal. You could couple that with reliance on 
third parties, again, whether it be accredited third parties or 
foreign regulatory authorities with competent regulatory 
systems.
    Using those things together, we can expand the reach of the 
FDA and help them do their job by focusing on the areas of 
highest risk and really increasing the number of facilities 
that the FDA is visiting on a routine basis.
    Senator Franken. I guess I didn't totally understand your 
answer.
    Mr. Johnston, do the generics put more resources into the 
supply chain, helping FDA with the supply chain?
    Mr. Johnston. Thank you. The user fee proposal that FDA is 
considering--and I think we've reached agreement on--doesn't 
specify how many of the resources go into inspections. However, 
there are performance goals that will certainly drive the 
utilization of the resources toward inspections. And, as we 
heard, 80 percent of the incoming materials are foreign and 40 
percent of the products. FDA will dedicate probably 40 or 50 
percent of the user fee resources from the generic industry 
toward inspections and support for those inspections.
    Senator Franken. And, I guess, Dr. Martello, I was asking 
are you willing to put in more toward that end?
    Ms. Martello. User fees have gone to support preapproval 
inspections since their inception in 1992. The PDUFA----
    Senator Franken. Preapproval inspections--what do you----
    Ms. Martello. Preapproval--when a company files a new drug 
approval application, the FDA has the discretion to go and 
inspect--the preapproval inspection----
    Senator Franken. OK. I'm not talking about preapproval. I'm 
talking about supply chain, foreign supply chain.
    Ms. Martello. Many times, as the GAO has found, a 
preapproval inspection is coupled with a good manufacturing 
practice inspection. So the facilities that are filing new drug 
approval applications with the agency are getting those 
inspections on a regular basis, and they are supported through 
the user fees in the Prescription Drug User Fee Act provision.
    Senator Franken. OK. Would PhRMA be willing to put more in 
to do that, to secure the foreign supply chain? I think that's 
what I've been asking you, and I don't quite feel like I'm 
getting a real answer. I feel like I'm getting a circular kind 
of answer.
    Ms. Martello. Across the board, the Prescription Drug User 
Fee Act and the agreement that was just released increases 
resources for FDA to conduct the necessary reviews of new drug 
approval applications.
    Senator Franken. Well, that's new drug approval.
    Ms. Martello. And with that, a portion of that is targeted 
for inspections.
    Senator Franken. What about existing drugs?
    Ms. Martello. Our companies do our fair share to try to----
    Senator Franken. Would you do more?
    Ms. Martello. I think we'd be happy to engage in 
conversations around that. We think giving the FDA the 
opportunity to use risk to drive the intervals at which they 
inspect facilities will help expand their reach and help them 
maximize and use their resources efficiently, because we know 
that resources are not unlimited.
    Senator Franken. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Franken.
    Senator Bennet.
    Senator Bennet. Thank you, Mr. Chairman. And, again, I 
really want to thank you for holding this hearing. This is an 
issue that I've been working on ever since I got here, and now 
I know why. The testimony, I think, has been excellent today, 
and I'm familiar with the work that everybody here has done.
    I find remarkable the degree of consensus around a lot of 
the issues that we face, and I think it reflects how big the 
gap is between a statute that was written in 1938 and the world 
as we're living in it today--the changes that are accelerating 
because of the strengthened global economy that we face. And 
this lack of an update--or our lack of a regulatory regime that 
reflects reality is bad for our consumers and it's bad for our 
business, and I think that's why we need to be urgent in fixing 
it.
    It's been remarkable to read some of the polling data 
around us, and then the mandatory recall suggestion, for 
example--first of all, everybody thinks the FDA already has 
that. They don't. Ninety-four percent of the American people 
support it, and they believe that when they walk into their 
grocery store or their pharmacy that their drug has been likely 
produced in the United States. That's not true.
    And they believe that somebody has looked at it to make 
sure that it's safe. That's not true, either. In fact, what 
we've learned from the testimony today is that even if we 
discover that there's a problem, it's hard to track it down to 
the source in China. So there's a lot of work to do here, and 
whatever I can do to help you with it, I want to do.
    I'd like to ask Mr. Coukell first and then let anybody else 
from the panel answer--I just have one question. Pew has done 
some great work on this ``After Heparin'' report that you 
talked about. I think it's very important. And in that report, 
it made the observation that compliance with internal quality 
systems and regulations can represent up to 25 percent of a 
finished drug manufacturer's operating costs.
    And at the same time, as we heard from Ms. Crosse at GAO, 
it would take FDA 9 years to inspect the foreign facilities. So 
you begin to add this stuff together and ask yourself about an 
American manufacturer here who's following good manufacturing 
practices and still can expect a surprise inspection every 2 
years from the FDA--maybe more frequently than that--versus a 
foreign firm that will never be inspected or may never be 
inspected, doesn't have to follow any of these practices, and 
on top of everything else, when they are inspected, as we heard 
in the testimony of the first panel, they're given warning that 
the inspectors are coming.
    Mr. Coukell, what do you think the three or four most 
important things are that we can do to level this playing field 
and make sure that we are protecting both the safety of our 
citizens, which is the most important thing, and also the 
playing field for American business which is a vitally 
important part of our economy?
    Mr. Coukell. Senator, thank you for the question and for 
your continued commitment to this issue and this area. I think 
you make a very important point. So the good actors, whether 
they be in the United States or outside the United States, are 
spending time and resources to make sure that their 
manufacturing is sterile, consistent, and predictable and high 
quality.
    And so if you have somebody out there who is tempted to cut 
corners and not do things to a high standard, and there's no 
chance that anyone is going to show up and hold them to the 
high standard, then they can do that. And so that does create 
an uneven playing field.
    So we absolutely need a system where we take the existing 
inspection or resources and deploy them in a way that the 
highest risk facilities, wherever they are, are getting 
inspected and that we're taking steps to make sure that finite 
resources are stretched so that we aren't inspecting the same 
facilities that the Europeans are inspecting twice in a year, 
when someone out there is not getting inspected, where we're 
relying on additional sources of information, and where the 
manufacturers themselves are providing better documentation 
when they're taking all the right steps.
    And, again, if you're an importer, and you have something 
coming into the country, it costs you money if it sits there in 
the Customs. Meanwhile, the FDA is dealing with--how do we 
screen all the stuff that's coming in? So if we have a system 
where the FDA can say, ``Yes, they're showing us that this is 
good quality stuff. Let's get it in the country''--meanwhile, 
they can focus on the bad actors--that benefits everybody.
    Senator Bennet. I just have one second left. Does anybody 
feel compelled?
    Mr. VanTrieste. I think, Senator, the one other thing--you 
talk about leveling the playing field. When I'm inspected by a 
foreign entity, even the Europeans, I have to pay for that 
inspection. So why aren't ingredient manufacturers in foreign 
countries who get FDA inspections required to pay for those 
inspections to help justify the resources needed to do that?
    Senator Bennet. Thank you.
    Thanks, Mr. Chairman. Well, I would say I'm sorry Senator 
Mikulski has left, because in the spirit of what she said, I 
couldn't agree with her more. And I think it would be 
surprising--several of you talked about enforcement too, which 
I would add to the list. I mean, the idea that the penalty for 
counterfeiting drugs is lower than the penalty for 
counterfeiting a DVD, for example, Mr. Chairman. It just 
doesn't make any sense to anybody that's living in Colorado and 
it shouldn't.
    Those are the kinds of common sense things that I think we 
could fix if we get the chance to do it. So thank you for your 
leadership.
    The Chairman. And thank you also for your leadership, 
Senator Bennet.
    Thank you all for being here. I'll just close by saying 
that this committee is committed, I think, on a bipartisan 
basis to move ahead in this area. I don't know that we have 
crystallized exactly what it is that we want to do. We are 
seeking information from all of the players in the field out 
there, from the companies, pharma, generics, FDA, others, to 
come up with the best formula that we want to put in the PDUFA 
reauthorization next year.
    Again, I just simply need to know why it is that we can't 
have a system that doesn't cost a lot. It'll cost something. I 
understand that. But I think indications are that consumers are 
willing to pay a little bit more for heightened security of the 
products they're buying--in this case, drugs--to ensure that 
inspections are held and that companies are held to the highest 
standards of good manufacturing practices, that there's a 
transparency to the system.
    Mr. VanTrieste, if your research staff could go back and 
find out where that Heparin came from, which you've done--and 
yet I hear from Mr. Coukell that no one has ever been held 
accountable. So, obviously, there's a way of traceability. We 
need to know--everybody along that line needs to be held 
accountable. Everybody along the line needs to be held 
accountable. And the only way you can be held accountable is to 
know who you are at every step of the way.
    That's my question on the bar codes or some other similar 
situation like that, that we can do that. An interesting point, 
I think, was raised--I forget who raised it--about coordination 
with other countries, Europe and others, so that, No. 1, we can 
assure that manufacturing facilities in supplier countries are 
inspected. We want to ensure that they're inspected, but we 
don't want to be duplicative. We don't want one country that 
inspects it, then another country, then another country. We 
want to make sure that we have some coordination with other 
countries in that process.
    While I support mandatory recall, that's sort of after the 
fact. It's fine to have that, but it seems to me that we want 
to get in front of that so that if there's any indication at 
all that we can go right back to the source and correct that at 
the source as soon as possible and to have penalties.
    It just boggles my mind that we have some data and 
information that companies that have supplied dangerous 
products in this country, they leave that building and they 
move across the street or they move to another community and 
they open up a facility, but we have no traceability whatsoever 
as to who they are. And yet they can continue to sell their 
products.
    So traceability, the enforcement of good manufacturing 
practices, more of a general agreement among countries on 
inspections, and making sure that--as you said, Mr. VanTrieste, 
if you're inspected, you've got to pay for it because you're 
shipping to other countries, European countries. Well, it seems 
to me this--again, if they want to ship to this country, they 
should, No. 1, allow inspections, and as you've pointed out and 
I think Ms. Autor pointed out and Dr. Crosse, a lot of times 
these are delayed. They're put off. They're put off. They're 
put off for year after year after year.
    And the third thing is that I'm very much leaning toward 
this idea of more of a risk assessment. In other words, there 
are companies that have good manufacturing practices. They've 
been in business for some time, and yet we, by law, say they've 
got to be inspected every 2 years. Maybe they don't need it. 
Maybe we need to use that personnel to go after the plants that 
haven't been good actors or new plants that haven't been 
inspected at all.
    So these are all the things that this committee is going to 
be looking at. We appreciate all your testimonies, and we would 
appreciate any further input, advice, or consultation you have 
with us as we proceed on this. I'm committed to doing this 
sometime next year, because we have to reauthorize PDUFA. And 
we didn't get into medical devices--but PDUFA, anyway--and the 
medical device user fee act.
    And keep in mind--is there a fee? Is there something that 
should be attached to a product, an ingredient, or a finished 
product, that would go for only one purpose and that is to FDA 
for inspections and enforcement? If you have thoughts on that, 
please submit them to the committee.
    Well, without further--thanks again. I appreciate you all 
being here. I thought it was a great hearing. And, believe me, 
we'll be having more. So I request that the record be kept open 
for 10 days to allow Senators to submit statements and 
questions for the record. And with that, the committee will 
stand adjourned.
    Thank you very much.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

      Prepared Statement of Heather Bresch, President, Mylan Inc.
    As the largest global generics company headquartered in the United 
States, Mylan Inc. (``Mylan'') appreciates the opportunity to submit 
comments to the Senate Health, Education, Labor, and Pensions Committee 
as part of the committee's hearing entitled, Securing the 
Pharmaceutical Supply Chain on September 14, 2011. Ensuring the safety 
of our Nation's pharmaceutical supply is of critical importance to all 
Americans and to Mylan, and we thank Chairman Harkin, Ranking Member 
Enzi and the committee for holding this hearing on such an important 
topic.
    Our company was founded 50 years ago in a small town in West 
Virginia, and since that time has established one of the industry's 
broadest and highest quality pharmaceutical product portfolios and now 
serves as the largest global generics company in the world 
headquartered in the United States. Today, 1 out of every 11 
prescriptions dispensed in the United States, brand or generic, is a 
Mylan product, and we are proud of the investments we make in all of 
our facilities around the world to deliver high quality products and 
more affordable access to patients.
    As president of the 3d largest global generics company in the 
world, I have a strong interest in making sure the competitive playing 
field in the United States is level and that all facilities supplying 
the U.S. pharmaceutical market are subject to the same high quality 
standards. As a mother of four, I want to know that no matter what 
medicine I give my children, each product, branded or generic, meets 
one high quality standard regardless of whether the medicine is made 
inside the United States or outside its borders.
    Over the last 4 years, Mylan has gone from a U.S.-based company to 
a global one, and we now deliver products to customers in more than 150 
countries and territories around the world. In operating multiple 
facilities around the globe, we've discovered that FDA is governed by 
an outdated law written in 1938 that has not been updated to equip the 
FDA with the authority it needs to oversee the now globalized U.S. 
pharmaceutical supply chain. We've also realized that FDA resources 
have not kept pace with the significant increase in workload and the 
increase in the number of foreign facilities supplying the U.S. 
marketplace. The end result is an unlevel playing field and 
inconsistent application of quality standards for pharmaceutical 
products sold in the United States. For these reasons, Mylan urges 
Congress to introduce a bill to update the Federal Food, Drug and 
Cosmetic Act of 1938 (the ``FDCA'') to equip the FDA in carrying out 
its mission in the globalized U.S. pharmaceutical marketplace. Further, 
we urge Congress to ensure a level playing field for all players 
participating in the U.S. pharmaceutical supply regardless of their 
location.
    As this committee heard from FDA and others during the September 
14, 2011 hearing, the FDCA, which is the key law that gives FDA 
authority to demand evidence of safety and conduct facility 
inspections, does not take into account the global nature of today's 
U.S. pharmaceutical marketplace. FDCA is written as if all participants 
in the drug supply are domestic based. As the committee also learned, 
FDA estimates that up to 40 percent of finished drugs consumed by U.S. 
patients are manufactured abroad and 80 percent of the active 
ingredients and bulk chemicals used in drugs come from foreign 
countries.
    With a mission to protect and promote public health, FDA has a 
critical responsibility to ensure the safety, efficacy and security of 
the U.S. drug supply. Fulfilling this responsibility today is much more 
challenging than it was in 1938 when the FDCA was enacted. Back then, 
most of the pharmaceutical products consumed in the United States were 
produced in the United States. Now, a substantial proportion of those 
products come from abroad, yet FDA's governing statute still presumes 
the domestic 1938 landscape.
    In particular, the FDCA requires American manufacturers associated 
with pharmaceutical production to undergo a surveillance inspection at 
least every 2 years to ensure that these facilities are complying with 
a rigorous set of standards known as Good Manufacturing Practices 
(GMP). These extensive on-site inspections conducted by FDA serve as an 
important mechanism for FDA to ensure facilities are continuing to meet 
GMP standards. However, the FDCA does not impose the same biennial GMP 
inspection requirement on foreign facilities. Instead, the law written 
in 1938 is silent when it comes to foreign manufacturers. Meantime, FDA 
estimates that foreign facilities supplying the U.S. pharmaceutical 
marketplace have grown by 185 percent from 2001-8, while at the same 
time FDA facility inspection rates have decreased nearly 57 percent.\1\ 
According to a 2010 Government Accountability Office (GAO) report, FDA 
inspected just 11 percent of the 3,765 foreign establishments in its 
database in 2009.\2\ As a result, the average FDA ex-U.S. facility 
inspection occurs every 9 years compared to every 2 years for U.S.-
based facilities, according to the 2010 report by GAO. According to 
GAO, some FDA-registered facilities whose drugs are imported into the 
United States may have never had a GMP inspection.
---------------------------------------------------------------------------
    \1\ Deborah M. Autor, Esq, Director, Office of Compliance, Center 
for Drug Evaluation and Research, FDA, Ensuring the Safety, Efficacy, 
and Quality of Drugs, Pew Roundtable on Ensuring the Safety of the U.S. 
Drug Supply, March 14-14, 2011.
    \2\ U.S. Government Accountability Office. Drug Safety: FDA Has 
Conducted More Foreign Inspections and Begun to Improve Its Information 
on Foreign Establishments, but More Progress Is Needed (Publication No. 
GAO-10-961). (September 2010)
---------------------------------------------------------------------------
       unlevel playing field impacts manufacturer competitiveness
    The disparity in the degree of oversight experienced by domestic 
versus foreign facilities reduces American competitiveness by creating 
an unlevel playing field as compliance with quality systems and 
regulations are estimated to make up approximately 25 percent of a drug 
manufacturer's operating costs.\3\ Mandating FDA risk-based biennial 
GMP inspections of all facilities, foreign and domestic, will improve 
quality and create a level playing field, allowing U.S. pharmaceutical 
manufacturers to be more competitive. Leveling the playing field 
through inspection parity will also benefit foreign facilities and 
first time entrants who are currently experiencing delays in gaining 
approval for new products due to a lack of inspection history and a 
significant gap in FDA resources to address the substantial growth in 
foreign facilities supporting the U.S. pharmaceutical supply.
---------------------------------------------------------------------------
    \3\ After Heparin: Protecting Consumers from the Risk of 
Substandard and Counterfeit Drugs at 27. Pew Health Group Report (July 
2011). According to the Pew Report, ``Adherence to GMPs is critical, 
yet also costly. Compliance with internal quality systems and 
regulations can represent up to 25 percent of a finished drug 
manufacturer's operating costs. To offer more competitive pricing and 
gain market share, some plants may be tempted to forgo expensive 
quality standards. Regulatory oversight provides an incentive to ensure 
rigorous adherence to standards.''
---------------------------------------------------------------------------
                         imperiled drug safety
    In addition to an unlevel playing field for manufacturers, the 
glaring disparity between FDA's oversight of foreign facilities versus 
U.S.-based facilities places the Nation's drug supply at risk. As the 
committee discussed during the September 14 hearing, a telling example 
involved tainted Heparin distributed in the United States a few years 
ago. FDA traced the adulteration of the brand product to a 
manufacturing facility in China, which the agency had never inspected.
    While FDA inspections alone are not the only way FDA ensures safe 
products, FDA has indicated that routine GMP surveillance inspections 
are one of the most effective ways to detect noncompliance with GMP 
standards on the front end to prevent recalls, market disruptions, as 
well as risks to patient safety.
                     supplemental resources for fda
    As the Generic Pharmaceutical Association noted in its remarks 
before this committee, the generic drug industry, which accounts for 75 
percent of all prescription drugs dispensed in the United States, has 
stepped up to help provide FDA with additional resources to address the 
challenges caused by the global drug supply and the increase in FDA 
workload. Even though the historical focus of user fees has primarily 
been on getting products approved in a timely fashion, given the global 
challenges of today, the generic industry took the opportunity during 
its generic user fees negotiations with FDA to incorporate the concepts 
necessary to help globalize the agency.\4\ Following the final review 
by the Department of Health and Human Services and the Office of 
Management and Budget, Congress should be receiving the detailed goals 
letter and legislative language (including fee structure) agreed upon 
by industry and FDA.
---------------------------------------------------------------------------
    \4\ These negotiations were scheduled by FDA to coincide with the 
upcoming 2012 congressional reauthorizations of the Prescription Drug 
User Fee Act and the Medical Device User Fee Act.
---------------------------------------------------------------------------
                               conclusion
    In summary, Mylan commends the Chairman, the Ranking Member and 
this committee for its commitment to addressing this important issue. 
We are encouraged by the committee's statements and urge you to move 
forward with introducing legislation to amend the FDCA in order to 
equip FDA with the authority and scope it needs to carry out its 
important public health mission of ensuring the safety of today's 
globalized U.S. drug supply. These important changes to the FDCA will 
not only result in a safer drug supply with consistent oversight for 
all players in the U.S. drug system, foreign and domestic, the changes 
will also help reduce approval times of new drugs undergoing FDA review 
and expedite the availability of new medicine into the marketplace. 
This is a particularly important result given that drug shortages are 
increasingly occurring in the United States due in part to weak links 
in the supply chain. Also of significance to this committee and many 
others, these changes will level the playing field for manufacturers, 
increase competitiveness, and reverse the current incentive in place to 
move manufacturing abroad.
Prepared Statement of Dale Carter, Chair, International Pharmaceutical 
             Excipients Council--Americas (IPEC--Americas)
    Chairman Tom Harkin, Ranking Member Michael Enzi, and members of 
the Senate Health, Education, Labor, and Pensions Committee, as the 
chair of the International Pharmaceutical Excipients Council--Americas 
(IPEC-Americas), I, on behalf of IPEC-Americas, appreciate this 
opportunity to submit written testimony and thank you for the 
leadership you have displayed in addressing the crucial need to secure 
the pharmaceutical supply chain.
    IPEC-Americas helped create a federation of four independent 
regional industry associations, with the others headquartered in Europe 
(IPEC Europe), Japan (JPEC) and China (IPEC China). Our goal is to 
ensure current Good Manufacturing Practices (cGMP) to meet high quality 
standards for excipients, more commonly known as the inactive 
pharmaceutical ingredients. IPEC Federation members include over 300 
national and multinational excipient makers and users, including 
chemical companies, pharmaceutical manufacturers, and food companies. 
These members include over 60 U.S. companies that belong to IPEC-
Americas and other members of the Global IPEC Federation.
    Each regional association focuses its attention on the applicable 
law, regulations, science, and business practices of its region of the 
globe. The four associations work together on excipient safety and 
public health issues, in connection with international trade matters, 
and to achieve harmonization of regulatory standards and pharmacopoeial 
monographs.
    We are also the premier source for regulatory and guidance 
documents critical to the excipient industry; offer training and 
consulting services to ensure regulatory compliance worldwide; and 
provide awards to encourage research and education in excipients. Our 
guidance documents have been adopted and relied upon by various 
regulatory bodies and standard setting organizations, including the 
Food and Drug Administration (FDA) and the United States Pharmacopeia.
    While attention to the pharmaceutical supply chain has generally 
been focused on active pharmaceutical ingredients (APIs), we were 
pleased to note an interest in the supply chain of pharmaceutical 
excipients in your September 14, 2011 hearing. As was noted by Chairman 
Harkin and Deborah Autor, Deputy Commissioner for Global Regulatory 
Operations and Policy at the FDA, it was the death of 100 people from 
an adulterating excipient, diethylene glycol, that led to the enactment 
of the Federal Food, Drug and Cosmetics Act (FFDCA) in 1938. Yet, as 
was also noted, 570 people have died from the same substance in the 
past 20 years worldwide. As recently as 2009, more than 80 infants died 
from adulterated teething syrup contaminated by diethylene glycol in 
Nigeria. These are no small threats to the United States as the 
pharmaceutical supply chain becomes more and more globalized.
    Commissioner Autor noted a number of safeguards with which IPEC 
agrees and which should apply to both APIs and excipients: enacting 
legislation that gives the FDA the authority to refuse the importation 
of drugs into the United States if a facility does not allow itself to 
be inspected; requiring proof that a product is ``good'' to enter the 
United States, rather than FDA having to find something wrong; leveling 
the playing field by providing requirements and incentives for all 
companies to follow the rules; and ensuring that manufacturers have 
adequate control over the supply chain.
    IPEC fully supports each and every one of these goals and has 
drafted legislation to do so. Our proposal would direct the FDA to 
recognize accredited third-party auditors to certify that 
manufacturers, distributors and importers of excipients meet safety 
standards that are in compliance with the FFDCA. The legislation would 
also call for the establishment of qualification standards for third-
party auditors and certifiers who have the necessary expertise and 
training in auditing techniques. IPEC has been working with FDA to 
develop appropriate third-party audit requirements for excipients. This 
effort is integral to IPEC's 20-year effort to develop and maintain 
high industry standards for excipient safety and quality.
    To give real teeth to the FDA, IPEC's proposal would mandate that 
individuals or companies not be allowed to import into the United 
States a drug or excipient used in the manufacture of a drug if the 
product or ingredient was manufactured or produced outside of the 
United States by an entity which has not been certified by the FDA or 
by an FDA-recognized third-party auditor.
    IPEC is a ``coalition of the willing''--member companies who want 
to ensure the safety and efficacy of excipients and have put mechanisms 
in place to do so. However, there are actors out there who are not as 
willing and present a serious threat to the security of the excipients 
supply chain. Our proposal would require that companies follow cGMP and 
therefore prove that the excipient products are ``good.'' This in turn 
would level the playing field, requiring that all companies be 
compliant, rewarding good products with entry into the United States 
and turning away those that are not.
    Third-party auditing and certification also addresses the need for 
manufacturers to have adequate control over their suppliers and the 
supply chain, which, as Commissioner Autor noted, is necessary because 
the FDA simply does not have the resources to monitor all 
manufacturers, users, and distributors of excipients. Third-party 
certification, which would be funded by companies wishing to import 
into the United States, would provide those resources in a mechanism 
that is revenue-
neutral to the Federal Government.
    In short, the proposal would provide the same powers to FDA that 
Congress recently provided the agency as it relates to contaminated 
food, but that it still lacks for drugs: the power to keep contaminated 
or adulterated products or ingredients from reaching the pharmaceutical 
production process.
    We ask that the committee and the full Congress adopt our proposal 
for a third-party auditing and certification process to ensure the 
safety of U.S. citizens.
         Prepared Statement of Keith Nalepka, Vice President, 
                  Business Development, Hi-G-Tek, Inc.
     the need for an actively monitored and secured pharmaceutical 
                              supply chain
    Chairman Harkin, Ranking Member Enzi, and members of the committee, 
with a growing interest among thieves to target high value 
pharmaceuticals and biologics there needs to be a change in the way 
industry approaches supply chain security and monitoring. There 
continues to be a direct correlation between these thefts and 
counterfeit production as well as an increase in stolen product being 
shipped and sold in developing countries and also re-entering the U.S. 
supply chain.
    The pharma supply chain is incredibly complex, with products being 
sent through multiple touch points. The adoption of passive RF1D, bar 
coding of all types, e-pedigree and others does nothing to actively 
secure or monitor the supply chain. Thieves are long gone with the 
stolen goods and are becoming increasingly adept at reproducing all of 
these passive tags for re-entry into the supply chain or producing 
incredible look-alike products used internationally. They provide no 
data that can be used to repair a defective supply chain or increase 
security.
    The FDA is in the process of making swift changes in the pharma 
supply chain. The recent problems with the heparin and acetaminophen 
supply chain catastrophes have drawn attention to areas in the supply 
chain that arc vulnerable. Slow recalls can no longer be tolerated, and 
chain of custody documentation will become an absolute necessity.
    The solution can be found by monitoring shipments actively, in real 
time. The successful documentation of temperature, light exposure, 
humidity, open/close, tilt, and package tampering with sensors needs to 
become a best practice. Being able to intervene midstream with a 
package in transit that is experiencing a temperature excursion could 
save efficacy and patients in the long run. Being able to see in real 
time a potential theft by the tripping of a sensor could provide added 
security and visibility into the supply chain. Lastly, being able to 
collect these biometric data points and put them in document form that 
can show chain of custody down to the package level would he invaluable 
when an FDA audit occurs. Being able to initiate a recall in real time 
also provides added patient safety. Having this biometric data would 
provide the ability to fix areas in the supply chain that may be common 
avenues for temperature excursions, theft, etc. Without active data 
it's much more difficult to take action.
Prepared Statement of the American Society of Health-System Pharmacists
    The American Society of Health-System Pharmacists (ASHP) 
respectfully submits the following statement for the record to the 
Senate Health, Education, Labor, and Pensions Committee hearing on 
Securing the Pharmaceutical Supply Chain.
    As the national professional association representing over 35,000 
pharmacists who practice in hospitals and health systems, ASHP can 
offer unique and vital feedback on this important health care issue. 
Pharmacists in hospitals and health systems are experts in medication 
use who serve on interdisciplinary patient-care teams. They work with 
physicians, nurses, and other health care professionals to ensure that 
medicines are used safely, effectively, and in a cost-conscious manner. 
For more than 60 years, ASHP has helped pharmacists who practice in 
hospitals and health systems improve medication use and enhance patient 
outcomes. This includes working with patients to help them access the 
medications they need and to use them safely and effectively.
    Pharmacists are the frontline caregivers in our medication use 
system. Given the number and complexity of medications administered to 
patients today, it is critical that our pharmaceutical supply chain be 
secure and consistent. As manufacturing of pharmaceuticals becomes more 
global in scope, we must ensure that products and raw materials are 
pure and unadulterated. ASHP has adopted policies (attached) dealing 
with supply chain integrity and FDA's authority on recalls. 
Furthermore, as demand increases for life saving medications and 
manufacturing processes become larger and more complex, we must ensure 
that capacity exists to provide adequate supplies of medications, 
especially those critical to patient care. For the last 10 years, ASHP 
has been tracking shortages of prescription medications and a 
disturbing trend has emerged. Since 2006, the number of drug shortages 
has nearly tripled, with no end in sight. In 2010 alone, there were 211 
drug shortages, and that trend is expected to continue in 2011 as the 
number has already reached 200 shortages and may well exceed the 2010 
number. While the causes of drug shortages are multifactorial, the 
quality and integrity of foreign ingredients and manufacturing have 
been a contributing factor. The attached policy on drug shortages was 
adopted in June by ASHP's House of Delegates. ASHP is committed to 
working with Congress, FDA and other supply chain members to address 
and hopefully reverse this alarming trend.
                             drug shortages
    Shortages of prescription drugs in the United States have gained 
increasing attention in recent years due to the scope and severity of 
the drugs in short supply. The majority of these shortages occur in 
drugs that are generic injectables, often administered in a hospital or 
clinic setting. The shortages have been occurring for anti-cancer 
drugs, anesthetics, pain, and nutritional drugs, all of which play 
crucial roles in the care of patients. The result of drug shortages is 
that caregivers must scramble to find the drug, or use an alternative 
if one is available. Many caregivers have expressed concern that even 
if a therapeutic alternative exists, it is likely an older drug which 
may have more severe side effects or negatively interact with other 
medications the patient is taking. Further, drug shortages have caused 
widespread fear among caregivers who are deeply concerned that care 
could be delayed, rationed, or is provided in a suboptimal manner to 
stretch doses and preserve scarce supplies.
    According to a study conducted in partnership between ASHP and the 
University of Michigan Health System, labor costs associated with 
managing drug shortages have an estimated annual impact of $216 million 
nationally, and more than 90 percent of respondents agreed that drug 
shortages were associated with an increased burden and increased costs 
today compared to 2 years ago.
    Causes of drug shortages are many and complex. Manufacturing issues 
that lead to drug shortages include product quality issues that result 
in production halts or recalls, product discontinuations, and 
unavailability of active pharmaceutical ingredients (APIs) or other raw 
materials. Secondary shortages--or shortages that occur based on shifts 
in market demand caused by an initial shortage of another drug--are 
also common. Other contributing causes to drug shortages include 
quality issues that arise from the ever-increasing reliance on foreign 
ingredient and manufacturing sources and a lack of FDA resources to 
expedite approval of supplemental new drug applications and conduct 
foreign inspections. While not a cause of drug shortages, just-in-time 
inventory practices by product distributors and practice sites have 
removed the buffer previously provided by larger inventories and 
resulted in an immediate impact of drug shortages on patient care.
    While information on the root cause of each drug shortage is not 
always publicly available, the cause of most shortages can be traced 
back to aspects of the manufacturing process. These manufacturing 
issues are compounded by substantial industry consolidation over the 
last few years that has resulted in fewer manufacturers producing 
critical drugs. When one manufacturer experiences a production 
interruption, other companies must ramp up production of their product 
to meet market needs. This increased production is sometimes, but not 
always, possible. In the case of sole-source drugs, this situation 
almost instantly results in a shortage situation.
    ASHP continues to work with FDA, other health care provider groups 
and members of the supply chain to address the issue. However, we also 
believe Congress can help us as well. ASHP supports bipartisan 
legislation (S. 296, H.R. 2245) that would require drug manufacturers 
to notify the Agency when they experience an interruption in the 
production of a drug product potentially resulting in a shortage 
situation. According to FDA, in 2010 the Agency was able to avoid 38 
drug shortages when they were made aware of production interruptions 
ahead of time. However, we believe other steps can be taken as well, 
for example, require confidential notification of the disruption in 
supply of single source active pharmaceutical ingredients (API), 
require manufacturers to develop continuity of supply plans, establish 
incentives for manufacturers to remain or re-enter the market, and urge 
FDA to develop expedited approval pathways for pre-1938 (unapproved) 
drugs. Finally, ASHP believes that FDA must have adequate resources 
devoted to alleviating and preventing drug shortages.
                          notification system
    Under current law, manufacturers are not required to report to FDA 
when they experience an interruption in the production of their 
products, unless that drug is deemed medically necessary by the agency. 
The same holds true for manufacturer plans to discontinue a product. 
Even in cases where the drug is deemed medically necessary and 
reporting is required, FDA has no enforcement mechanism to penalize a 
drug maker for failing to report these problems. This information could 
be extremely useful to FDA in the case of drugs with multiple suppliers 
where the agency could urge alternate suppliers to step up production 
of a product to offset the decrease in supply due to the interruption 
or discontinuation of the initial product. In some instances, FDA is 
not told there is a problem, or the nature of the problem. This 
information could be useful in determining the duration and severity of 
the interruption and may allow the agency to implement countermeasures 
to help ensure supply. By FDA's own account, in 2010 the agency was 
able to avoid 38 drug shortages when this type of notification was made 
available.
    The importance of notification is highlighted by quality concerns 
associated with the increased globalization of pharmaceutical 
manufacturing. A number of drug shortages can be traced back to quality 
concerns with foreign-produced APIs. An extreme example was the heparin 
contamination that occurred in 2007, which resulted in a recall, and 
subsequent product shortage that was immediate and continued for an 
extended duration of time. While FDA has increased foreign inspections, 
it still lacks the resources necessary to fully address this issue. 
Therefore, drug shortages precipitated by recalls caused by substandard 
APIs will continue and likely increase.
    Legislation (S. 296/H.R. 2245) in Congress would mandate that 
companies notify FDA of the interruption in production of any product 6 
months in advance, or as soon as possible in the event of an unplanned 
stoppage. Manufacturers that fail to report this information would be 
subject to civil monetary penalties. This early warning system would 
allow the agency to communicate more effectively with manufacturers and 
others in the supply chain to plan for pending supply interruption. The 
early warning system should be the cornerstone of congressional action 
to address drug shortages.
            confidential notification for single-source api
    In addition, information that can make drugs vulnerable to 
shortages, such as a single API source, is also frequently unknown 
beyond the manufacturer. This information is, and should be considered 
proprietary, but this lack of transparency hinders the development of 
contingency plans for vulnerable drugs. A requirement that 
manufacturers notify FDA when there is a single source of API may help 
the Agency work with manufacturers to identify backup sources should 
supply issues arise.
                       continuity of supply plans
    Related to the reporting or an early warning system, FDA could work 
with manufacturers to develop continuity of supply plans. The current 
lack of transparency acts as a significant barrier to this type of 
collaboration. With increased information exchange, contingency plans 
could be developed that include countermeasures such as manufacturing 
redundancies or backup supplies; more effective communication among 
FDA, manufacturers and others in the supply chain; and finally, 
development of plans that utilize production capabilities of other 
manufacturers either here in the United States or abroad to ensure 
availability of a drug in short supply.
    In 2010, FDA worked with APP Pharmaceuticals to help alleviate a 
shortage of propofol, a widely used anesthetic preferred by 
anesthesiologists because of its excellent safety profile compared to 
other available drugs. By enabling the company to work with its German 
counterpart to import the drug, FDA was able to substantially improve 
product availability after the shortage occurred. Using this example, 
if an acceptable foreign alternative could be identified before a 
shortage occurs through establishment of continuity of supply plans for 
vulnerable drugs, then importation could be expedited and the negative 
impact of a specific shortage on patient care could be minimized or 
averted. Importation represents an extreme example of contingency 
planning. In its simplest form, manufacturing strategies that include 
collaborating with other manufacturers, establishing back-up suppliers 
of raw materials and APIs, and creating alternative production 
capabilities that can be used as countermeasures would be a significant 
step forward to combating drug shortages. Contingency planning by 
companies producing drugs critical to patient care must be a standard 
of practice. S. 296/H.R. 2245 support the development of contingency 
plans for drugs that are vulnerable to shortages.
                               incentives
    Further, shortages are occurring overwhelmingly among generic 
injectable drugs, where production processes tend to be more complex 
than their solid dosage counterparts. Low margins for these expired 
patent products coupled with complex manufacturing processes may lead 
some manufacturers to abandon production of these drugs altogether in 
favor of products with higher profit margins, thus reducing the number 
of potential suppliers of products critical to patient care. A way to 
offset this problem may be to explore incentives to encourage 
manufacturers to either stay in the market or enter the market with a 
new product line. There are several ways this could potentially be 
accomplished: (1) explore tax incentives for manufacturers to produce a 
drug in short supply or one deemed ``vulnerable'' to a shortage; (2) 
grant temporary exclusivity for a new product line of a drug in 
shortage or deemed ``vulnerable'' to one; (3) if a generic user fee 
program is created within the next reauthorization of the Prescription 
Drug User Fee Act (PDUFA), FDA could explore reduced user fees for 
drugs in short supply or deemed ``vulnerable.''
require development of an expedited approval pathway for pre-1938 drugs
    FDA must find a way to abbreviate and prioritize approval processes 
for existing therapies that are unapproved, but widely used and 
essential for patient care. For these drugs, the agency should work 
with manufacturers to fast track their approval for the U.S. market, 
especially in cases where the potential exists for those drugs to fall 
in short supply. Barriers to manufacturing and marketing these drugs 
must be minimized in order to foster production and availability of 
these drugs.
                               conclusion
    Unfortunately, there is no single solution that can prevent the 
occurrence of all drug shortages. The complexity of manufacturing 
processes, the requirement for safe and high-quality products, and 
globalization of the pharmaceutical supply chain all contribute to 
fluctuating product supplies that may never be entirely eliminated. 
However, there are critical steps that Congress, FDA and other 
stakeholders can implement to ensure that patient care remains 
available and safe. While the adjustments and compromises required from 
all stakeholders are difficult, the need for change is critical. First 
and foremost is the need for increased communication and transparency.
    ASHP, along with several other stakeholder groups has been working 
collaboratively with Congress and supply chain stakeholders to develop 
solutions to the drug shortage problem. As indicated before, there is 
legislation in both houses of Congress as well as broad bipartisan 
support in the Senate for action. Passage of legislation that provides 
additional authority to FDA is a step in the right direction. In the 
long term, FDA will require additional resources to best address this 
and other issues that impact the quality and safety of drugs.
                                 ______
                                 
                               Attachment
  ASHP Policy Position 0907--Pharmaceutical Product and Supply Chain 
                               Integrity

Source: Council on Public Policy

    To encourage the Food and Drug Administration (FDA) and relevant 
State authorities to take the steps necessary to ensure that (1) all 
drug products entering the supply chain are thoroughly inspected and 
tested to establish that they have not been adulterated or misbranded 
and (2) patients will not receive improperly labeled and packaged, 
deteriorated, outdated, counterfeit, adulterated, or unapproved drug 
products; further,
    To encourage FDA and relevant State authorities to develop and 
implement regulations to (1) restrict or prohibit licensed drug 
distributors (drug wholesalers, repackagers, and manufacturers) from 
purchasing legend drugs from unlicensed entities and (2) ensure 
accurate documentation at any point in the distribution chain of the 
original source of drug products and chain of custody from the 
manufacturer to the pharmacy; further,
    To advocate the establishment of meaningful penalties for companies 
that violate current good manufacturing practices (cGMPs) intended to 
ensure the quality, identity, strength, and purity of their marketed 
drug product(s) and raw materials; further,
    To urge Congress and State legislatures to provide adequate 
funding, or authority to impose user fees, to accomplish these 
objectives.

    This policy supersedes ASHP policy 0722.
          ASHP Policy Position 1003--FDA Authority on Recalls

Source: Council on Public Policy

    To strongly encourage the Food and Drug Administration (FDA) to 
develop a standard recall notification process and format to be used by 
all manufacturers to facilitate the timely removal of recalled drugs; 
further,
    To advocate that such notification should (1) come from a single 
source, (2) clearly identify the recalled product, (3) explain why the 
product is being recalled, (4) provide a way to report having the 
recalled product, (5) give instructions on what to do with the recalled 
product, and (6) be provided concurrently to all entities in the supply 
chain; further,
    To advocate that the FDA be given the authority to order mandatory 
recalls of medications; further,
    To urge the FDA to require drug manufacturers and the computer 
software industry to provide bar codes and data fields for lot number, 
expiration date, and other necessary and appropriate information on all 
medication packaging, including unit dose, unit-of-use, and injectable 
drug packaging, in order to facilitate compliance with recalls or 
withdrawals and to prevent the administration of recalled products to 
patients; further,
    To urge the FDA to encourage postmarketing reporting of adverse 
events and product quality issues to enhance the recall system.
           ASHP Policy Position 1118--DRUG PRODUCT SHORTAGES

Source: Council on Public Policy
    To advocate that the Food and Drug Administration (FDA) have the 
authority to require manufacturers to report drug product shortages and 
the reason(s) for the shortage, and to make that information available 
to the public; further,
    To strongly encourage the FDA to consider, in its definition of 
``medically necessary'' drug products, the patient safety risks created 
by use of alternate drug products during a shortage; further,
    To support government-sponsored incentives for manufacturers to 
maintain an adequate supply of medically necessary drug products; 
further,
    To advocate laws and regulations that would (1) require 
pharmaceutical manufacturers to notify the appropriate government body 
at least 12 months in advance of voluntarily discontinuing a drug 
product, (2) provide effective sanctions for manufacturers that do not 
comply with this mandate, and (3) require prompt public disclosure of a 
notification to voluntarily discontinue a drug product; further,
    To encourage the appropriate government body to seek the 
cooperation of manufacturers in maintaining the supply of a drug 
product after being informed of a voluntary decision to discontinue 
that product.

    This policy supersedes ASHP policy 0319.
 Prepared Statement of the National Community Pharmacists Association 
                                 (NCPA)
    Dear Chairman Harkin, Ranking Member Enzi and members of the 
committee, NCPA welcomes this opportunity to provide input and 
suggestions to the committee regarding the pressing issue of securing 
the pharmaceutical supply chain. The National Community Pharmacists 
Association (NCPA) represents America's community pharmacists, 
including the owners of more than 23,000 community pharmacies, pharmacy 
franchises and chains. Together, these small business entities employ 
over 300,000 full-time employees and dispense nearly half of the 
Nation's retail prescription medicines.
    Although we believe that the pharmaceutical supply chain in the 
United States is largely safe and secure, there are a number of 
different approaches or tactics that could be employed to provide 
further confirmation of integrity. One approach would be increased 
oversight or security measures to deter pharmaceutical cargo theft. 
NCPA is encouraged to note that Federal legislation has been introduced 
by Senator Charles Schumer, S. 1002, the Safe Doses Act, that would 
expand the penalties for pharmaceutical cargo theft. Implementing a 
track-and-trace system for pharmaceuticals is also a concept that has 
been discussed. NCPA continues to feel that track-and-trace 
technologies still remain largely unproven and potentially economically 
infeasible for the independent community pharmacy industry at this 
time. Given our position in the pharmaceutical supply chain and as 
health care providers, we want to share with you our ideas to further 
secure the supply chain.
national, uniform federal license standards for wholesale distributors 
                        and logistics providers
    As part of any track-and-trace system or perhaps as a stand-alone 
program, NCPA recommends that the U.S. Government set national, uniform 
Federal license standards for wholesale distributors and logistics 
providers (3PLs). At the present time, wholesale distributors are 
licensed at the State level, which has resulted in a patchwork of 
conflicting requirements of varying rigor. By setting a high bar for 
wholesale distributors nationwide, the Federal Government could further 
safeguard the supply chain by making sure that only appropriately 
credentialed and legitimate entities are able to participate in the 
drug distribution aspect of the pharmaceutical supply chain. This new 
Federal standard would pre-empt the existing State requirements 
although the individual States could still certify compliance with the 
Federal standards and could register Federal licenses for an 
appropriate fee.
     possible risk-based approach/initial implementation only down 
                          to wholesaler level
    NCPA recommends that if a track-and-trace system were to be 
required for the U.S. pharmaceutical supply chain, Federal policymakers 
may wish to consider utilizing a risk-based approach to determine the 
scope of products to be included in any track-and-trace system, at 
least at the outset of any program. Possible approaches that could be 
utilized could focus efforts on certain controlled substances or 
pharmaceuticals that are high dollar/high volume products. Also in this 
way, the system could be tested and further refined prior to the 
possible expansion to other products as well. Another incremental 
approach that would ease the burden on the entire supply chain would be 
to have any track-and-trace system initially applicable only down to 
the wholesaler level. Wholesalers would have the necessary product 
information and would be able to track what products were delivered to 
each pharmacy. There are only a few thousand wholesalers compared to 
over 60,000 retail pharmacies.
                          incentivize adoption
    In order to incentivize the voluntary adoption of track-and-trace 
technology, and if such a system were to be mandated for all 
participants, NCPA contends that Federal grants must be made available 
to smaller supply chain participants--like independent pharmacies--so 
that these small businesses are able to implement and maintain track-
and-trace systems. In 2008, Accenture conducted a study that estimated 
the first year start up costs to implement a track-and-trace system 
would total approximately $110K per pharmacy.
    Some of the participants in the February 2011 FDA public workshop, 
Determining the System Attributes for the Tracking and Tracing of 
Prescription Drugs, cited the fact that a number of supply chain 
participants should be able to realize several value-added features of 
a track-and-trace system in terms of financial and brand protection 
benefit or in terms of potential theft reduction and inventory 
optimization. It should be noted that any operational benefits from 
track-and-trace systems may not be evenly distributed among larger 
multi-unit corporations and small businesses. Larger corporate entities 
involved in the supply chain--namely manufacturers, wholesalers and 
chain pharmacies--would likely realize value-added benefits that a 
track-and-trace system could bring to their overall business practices. 
However, for the majority of independent pharmacy owners, the cost of 
implementing a track-and-trace system would likely exceed any possible 
ancillary benefits like inventory management or theft reduction.
                            interoperability
    Ensuring interoperability between the systems used by all 
participants in the supply chain is essential to the success of any 
track-and-trace program. Use of the standardized numerical identifier 
should avert some of the problems or inevitable snags that may occur 
when attempting to connect or ensure communication between varying 
manufacturers and distributors. Although the creation of a standardized 
numerical identifier should assist in paving the way for 
interoperability, much work remains to be done.
    NCPA has concerns that at the beginning or advent of any track-and-
trace program, pharmacies may be forced to use more than one set of 
technologies (hardware/software) in order to comply. This would 
inevitably add to the financial burden with which many independent 
pharmacies will be dealing. Some FDA workshop participants pointed out 
that in other industries, interoperability has only been realized when 
dealt with through government regulation--and NCPA feels that there may 
be some validity to considering this option in this instance.
    It has been noted or suggested that some of the smaller supply 
chain participants may be able to rely on the systems or track-and-
trace solutions of the larger participants. The most-likely scenario 
may entail an independent pharmacy relying on the track-and-trace 
system and network capabilities of their wholesale distributor. It is 
important to note that the cost to the pharmacy could vary greatly 
based on such an arrangement. Questions related to ownership of a 
pharmacy's data generated by the operation of the track-and-trace 
system would invariably arise. Additionally, this situation could 
become complicated in situations in which a pharmacy may need to switch 
their wholesaler for any reason. In order for this type of arrangement 
to be mutually beneficial to both wholesaler and pharmacy, more 
detailed discussions as to the roles and responsibilities of both 
parties would need to be discussed in greater detail.
                             authentication
    NCPA would like to point out that there must be consensus around 
the definition of authentication--and at which point in the supply 
chain such authentication should occur. In the past, many participants 
in the supply chain have raised the issue of the inherent distinction 
between track and trace. In order to track, supply chain participant 
would only need verification that the serialized number is indeed 
valid. In order to trace, a supply chain participant would need to be 
able to actually access and verify all of the prior transactions.
    If it were determined that all supply chain participants must do 
both--track and trace--pharmacies, which serve as the last stop in the 
supply chain, would have a potentially greater burden than other supply 
chain participants if they were required to actually authenticate or 
trace the entire distribution history of each product. Several workshop 
participants raised the point that perhaps only certain products or 
classes of products with the greatest risk of being counterfeited 
should be subject to tracing requirements. Also, other participants 
suggested that FDA or regulators would be the only entities that would 
have an actual need for a full distribution history. If access to the 
entire distribution history were limited to FDA or other regulators, 
this may also alleviate some of the concern expressed by a number of 
entities who are understandably concerned about supply chain partners 
having access to their proprietary data.
    Another issue that would need to be determined with regard to 
authentication would be standard operating procedures that would be 
employed in the event that a product could not be authenticated. NCPA 
questions which participant (sender, recipient or system) would have to 
ultimately bear the cost of the product in the event a product could 
not be authenticated and then subsequently sold. Pharmacies would need 
to know whether they could return such products back to upstream 
trading partners or if they would be forced to assume the cost of such 
unsalable items. Also, there needs to be clear protocol surrounding the 
reporting of such an event.
                               inference
    Inference is one facet of the track-and-trace process that would 
greatly ease the time and labor costs for distributors and chain 
pharmacies but would not necessarily be available for independent 
pharmacies. Inference allows distributors to read a case or pallet of 
product and then infer that a certain set of serial numbers exists 
within that case or pallet. This same process could easily be employed 
by the chain pharmacy corporations that receive products from the 
manufacturer at a chain pharmacy warehouse. However, independent 
pharmacies typically do not receive products in case or pallet form 
from a dedicated warehouse and, therefore, could be forced to 
individually or manually scan each bottle or serial number as it 
arrives in the pharmacy. This would be extremely time consuming and 
would necessitate an increase in labor costs for independent pharmacy 
owners. NCPA recommends that as part of any discussions surrounding a 
proposed track-and-trace system, efforts to pilot inference at the tote 
level must be considered.
    NCPA strongly recommends pilot projects be pursued for any track-
and-trace system in order to adequately identify and work through the 
complexities and substantial costs surrounding such a system, and that 
all supply chain participants be involved in any proposed pilot 
program.
                               conclusion
    NCPA appreciates the opportunity to submit these comments as the 
committee discusses the issue of securing the pharmaceutical supply 
chain. The committee may wish to examine a variety of approaches to 
this multi-faceted issue including efforts to deter pharmaceutical 
cargo theft, implementing national uniform Federal licensure standards 
for wholesale distributors and potentially the use of some form of 
track and trace technology for pharmaceuticals. Thank you for your 
consideration.
                                 ______
                                 
             Department of Health & Human Services,
                      Food and Drug Administration,
                                   Silver Spring, MD 20993,
                                                  February 9, 2012.
Hon. Tom Harkin, Chairman,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20510.
    Dear Mr. Chairman: Thank you for providing the opportunity for the 
Food and Drug Administration (FDA or the Agency) to testify at the 
September 14, 2011, hearing before the Committee on Health, Education, 
Labor, and Pensions entitled ``Securing the Pharmaceutical Supply 
Chain.'' This letter provides responses for the record to questions 
posed by certain members of the committee.
    If you have further questions, please let us know.
            Sincerely.
                          Michele Mitul for Jeanne Ireland,
                            Assistant Commissioner for Legislation.
                                 ______
                                 
 Response of the Food and Drug Administration to Questions of Senator 
               Bennet, Senator Roberts, and Senator Kirk
                             senator bennet
    Question 1. The Institute for Safe Medication practices found in a 
survey of 1,800 health care practitioners that 52 percent of hospitals 
and pharmacists in the survey reported using ``gray market'' suppliers 
in order to secure medicines during a time of drug shortage. Do you 
think that a system that enables FDA to know where drugs are in the 
distribution chain could be helpful in addressing this challenge?
    Answer 1. The gray market that emerges when drug shortages occur 
takes advantage of the vulnerability of health care institutions and 
pharmacies that are desperately seeking to fill the voids left by drug 
shortages. A robust track-and-trace system will help protect consumers 
from threats posed by illegal or substandard products, which may result 
from a drug shortage situation, in addition to providing accountability 
and transparency within the supply chain. A track-and-trace or uniform 
pedigree system will not solve the shortage, but it can help provide 
assurances that a drug being offered for sale is from the legitimate 
supply chain and is authentic.
    Particularly helpful to ward against gray market products arising 
in drug shortage situations would be an expansion of existing law, 
which requires sole manufacturers to notify FDA of a discontinuance of 
certain drug products. The Administration has endorsed legislation that 
would require all manufacturers to provide notice to FDA of any issue 
that may lead to a disruption in supply of a drug product and that 
would provide explicit authority to enforce such reporting through 
civil money penalties. Expansion of the current notification provision 
would help FDA prevent drug shortages and be on the lookout for 
counterfeit products that arise in shortage situations. Moreover, the 
addition of enforcement authority and penalty provisions would enable 
FDA to ensure that it receives timely information related to potential 
drug shortages and would serve as a strong incentive for manufacturers 
to comply.

    Question 2. Does FDA receive information at the border when drugs 
come in through United States' land or sea ports about whether a drug 
is FDA compliant? And if the drug appears tainted or physically 
damaged, what options does FDA have to destroy the product? How does 
this compare to the system that other countries have in place?
    Answer 2. Currently, FDA is only authorized to refuse admission of 
drugs that appear to be adulterated, misbranded, or unapproved. Unlike 
with foods, FDA is not currently authorized to require the submission 
of drug information as a condition of entry or refuse admission based 
solely on the failure of an importer to provide the required 
information. Clear authority to require information, and to refuse 
admission if such information is not provided, would improve FDA's 
ability to monitor imported products for compliance with applicable 
laws. The success of FDA's electronic review system is linked to the 
quality of data that importers and entry filers submit for the entry of 
their products. This information would not only enable FDA to better 
target higher-risk products, it would also minimize delays by allowing 
for increased use of electronic screening.
    Currently FDA only has the authority to issue a ``notice of refusal 
of admission'' for noncompliant, drug-related imports. Upon issuance of 
the ``notice of refusal of admission,'' FDA must turn over authority to 
the U.S. Customs and Border Protection (CBP), which may require either 
exportation or destruction of the non-compliant import under the Tariff 
Act, 19 U.S.C. 1595. Currently, FDA needs to seek Department of Justice 
(DOJ) support for seeking a seizure of packages of low or no-declared 
value, and packages without return addresses, or packages that were 
returned and simply rerouted to the United States. FDA supports 
allowing CBP to destroy products in violation of FDA regulations that 
are valued at $2,000 or less or that pose a reasonable probability of 
causing a significant adverse health effect, with an opportunity for a 
hearing to be held after destruction in order to (1) avoid the re-
introduction of violative products; (2) lessen the Agency's burden and 
expenditure on low-value, highly unsafe products; (3) decrease the 
number of intentionally misdeclared low-value shipments avoiding 
commercial shipper oversight. Absent these authorities, FDA is often 
forced to store, or when there is a return address return, violative 
products to their senders because the current process for destruction 
requires a hearing, which is time-consuming and costly. Such violative 
drugs can find their way back to U.S. ports of entry several times, 
posing a potential threat to consumers and wasting critical resources 
that could be better spent identifying new threats. This ineffective 
process produces a revolving door for violative drugs.
    In January 2011, FDA collected information about various aspects of 
drug safety from regulatory authorities in Australia, Canada, India, 
Israel, Japan, New Zealand, the People's Republic of China, South 
Africa, Switzerland, and the European Medicines Agency. In response to 
questions about whether the regulatory authorities require 
documentation for the admissibility of imported pharmaceuticals, and 
whether they have the ability to prohibit the importation of 
pharmaceuticals, the Agency received a variety of answers. Generally, 
all had requirements for documentation as a condition of entry, with 
the exception of the European Medicines Agency, because it is a review 
authority and regulatory compliance is left to the European Member 
States. For example, Australia requires that imported drugs have to be 
on the Australian Register of Therapeutic Goods. By contrast, Health 
Canada inspectors and Canadian Border Services officers can require 
persons who import a pharmaceutical product to provide sufficient 
evidence to show that the drugs are being imported in compliance with 
the Food and Drugs Act and its Regulations, and other relevant 
legislation, such as the Controlled Drugs and Substances Act.

    Question 3. GAO has been critical of FDA having some inaccurate and 
duplicate information in its databases. FDA has proposed having a 
unique identifier for all establishments that are importing drugs into 
the United States. It is my understanding that Customs and Border 
Protection control the implementation of this unique identifier. Would 
giving FDA this authority to implement a unique identifier for 
establishments help FDA get rid of some of this inaccurate data? What 
will happen going forward if FDA continues not to have this authority?
    Answer 3. FDA strongly supports having a unique facility identifier 
(UFI), such as a Dun and Bradsheet D-U-N-S number, associated with each 
facility and supports a statutory requirement requiring submission of a 
UFI as a condition of registration and as a condition of import, for 
several reasons. First to be aware of entities in the global supply 
chain and to conduct appropriate inspections, FDA depends upon a number 
of electronic systems. Some of the databases upon which FDA relies 
include: Field Accomplishments and Compliance Tracking System or FACTS 
(inspection tracking database), Document Archiving, Reporting and 
Regulatory Tracking System or DARRTS (applications database), 
Establishment Evaluation System or EES (application inspection 
database), and Operational and Administrative System for Import Support 
or OASIS (imports database).\1\ Currently, establishments may be 
identified by different names and addresses in different systems. 
Requiring establishments to provide UFIs during the registration and 
importation processes will enable FDA to more easily cross-reference 
information about the establishments and their products in these 
various databases. In addition, if FDA is authorized to require 
submission of a UFI, and chooses to use an existing external identifier 
system such as D-U-N-S, it can leverage private data sources or data 
from other countries that already make use of these identifiers to help 
cross-check its data.
---------------------------------------------------------------------------
    \1\ These databases were not developed to be compatible with one 
another and, initially, had functions that were completely separate. 
After years in operation, it is now apparent that the ability of these 
databases to interface and share information with one another would be 
very useful. Unfortunately, it is nearly impossible to retrofit systems 
like these to make them compatible. The best way to make them interface 
is by establishing some shared data standards, like UFI.
---------------------------------------------------------------------------
    Second, to be aware of entities in the global supply chain and 
conduct appropriate inspections, FDA also has to be able to distinguish 
between different facilities that are often easily confused. UFIs play 
an important role in FDA being able to do so in a timely manner. One 
typical scenario in which UFIs are critical to FDA is when the Agency 
identifies a facility in China that it believes requires inspection. 
Many Chinese facilities have names that are difficult to differentiate 
in FDA databases, in part because it is common in China for the name of 
the facility to begin with the name of the city in which the facility 
is located. Having UFIs associated with such establishments enables FDA 
to more easily distinguish among them.
    Third, existing Facility Establishment Identifiers (FEIs) have not 
been effective. In addition to recommending the submission of D-U-N-S 
Numbers, for many years FDA also has been assigning FEI numbers. 
However, as with D-U-N-S Numbers, there is no requirement that these 
numbers be submitted to FDA, and the Agency has been generating them on 
its own. This has led to a situation where multiple FEI numbers may 
have been assigned to a single establishment. This situation has 
created confusion both within FDA and industry.
    Giving FDA the authority to require submission of true, 
independent, and interoperable UFIs at registration and importation 
would help ensure the accuracy of our databases and better enable FDA 
to ensure proper import targeting and enforcement of our import alerts. 
This authority also better enables FDA to prevent potentially unsafe 
products from entering U.S. commerce.
    Specifically regarding UFIs and importation, CPB collaborates and 
enforces laws associated with multiple U.S. government agencies and, 
therefore, would presumably want to seek uniform agreement among the 
stakeholder agencies regarding what the UFI should be. CBP currently 
requires a Manufacture Identification (MID) number, but that is not a 
true, independent, interoperative UFI. If the MID number is entered 
incorrectly, the system will create a new FEI number in FDA's database, 
thereby associating multiple FEB and MID numbers to, in actuality, one 
specific firm. This process has led to FDA's databases containing 
inaccurate information, as noted by the Government Accountability 
Office (GAO).
    Currently, FDA does not have explicit statutory authority to 
require the submission of UFIs. In May 2009, FDA issued guidance 
requesting that establishment owners and operators submit D-U-N-S 
Numbers. Some registrants are providing this information, but not all. 
For those who do not comply with FDA's request, the Agency seeks to 
obtain the number on its own. However, this process imposes a burden to 
FDA, and we are not always successful in obtaining the correct number. 
Absent explicit statutory authority to require UFIs, the Agency cannot 
obtain the information it needs to make its databases fully 
operational.

    Question 4. Ms. Autor explained in her testimony that in many other 
countries the burden of proof is on the companies to prove that their 
drug is compliant with the regulatory standard of the country they are 
trying to enter. She noted that in the United States the opposite is 
the case--the burden of proof is on the FDA to prove that a drug is not 
compliant. Can FDA point to other countries that they are aware of that 
place the burden of proof on the manufacturer?
    Ms. Autor's testimony was in the context of ``Securing the 
Pharmaceutical Supply Chain'' and, specifically, requesting a 
certification or other assurance of compliance with applicable 
standards or requirements as a condition of importation. Ms. Autor said 
in part that other countries place the burden on the importer or 
product owner to prove that its drug is compliant with country 
requirements. In the United States, FDA has the burden of showing an 
``appearance'' of a violation to detain and refuse an imported product.
    Most countries require drug manufacturing sites to be licensed 
before product can be distributed in their countries. Canadian and 
European Union (EU) regulators, for example, issue an establishment (or 
site) license only after a Current Good Manufacturing Practice (CGMP) 
inspection finds the establishment compliant. Under the Federal Food, 
Drug, and Cosmetic Act (FD&C Act or the Act), drugs that are subject to 
premarket approval must pass a CGMP inspection to be approved. However, 
many over-the-counter (OTC) drugs sold in the United States are 
marketed under the OTC monograph system, rather than under individual 
approved product applications, and therefore, are not subject to CGMP 
inspection prior to distribution under this authority. For these OTC 
monograph drugs, there is no other provision in the Act requiring a 
passing CGMP inspection prior to distribution. Unlike the Canadian and 
EU establishment or site licensure requirements described above, the 
establishment registration provisions of section 510 of the FD&C Act do 
not require that a firm pass inspection before it is duly registered. 
Further, because section 510 of the FD&C Act requires only that an 
establishment's owner/operator ``immediately register'' the 
establishment upon commencing manufacturing (see 510(c) and (i)), even 
upon receipt of a new registration, it will take FDA some time to 
conduct an inspection.
    As noted above, other countries can require persons who import a 
pharmaceutical product to provide sufficient evidence to show that the 
drugs are being imported in compliance with their drug laws. Because 
FDA may not have inspected a facility, or may not have inspected it 
recently, this kind of authority would be very useful.
    Additionally, some countries, like the EU Member States, also have 
a batch recontrol provision, requiring batch retesting before entry is 
permitted for certain countries of origin. FDA has no comparable 
requirement for most human drug products.
                            senator roberts
    Question 1. I have been on record raising concerns with additional 
government regulations in a time when companies and individuals are 
already overburdened with red tape. Some are suggesting that a sweeping 
statutory change is needed to promote safety and jobs. I am skeptical 
of this opinion. So instead I'll ask, what improvements to the upstream 
supply chain integrity, and addressing the problems therein, are 
currently within FDA authority and how are you utilizing these current 
authorities to better ensure safety and effectiveness of drugs for 
American consumers?
    Answer 1. FDA has undertaken a wide range of activities aimed at 
addressing the challenges of globalization. The rapidly changing global 
environment, and a desire to move from a posture of intercepting 
harmful products to anticipating and preventing the arrival of such 
goods, has prompted FDA leadership to develop a strategy for addressing 
the challenges of globalization entitled ``Pathway to Global Product 
Safety and Quality.'' To achieve this transformation, FDA is developing 
an international operating model that relies on enhanced intelligence, 
information sharing, data-driven risk analytics, and the smart 
allocation of resources through partnerships.
    The new approach rests on four core building blocks:

     FDA, in close partnership with its foreign counterparts, 
will assemble global coalitions of regulators dedicated to building and 
strengthening the product safety net around the world.
     With these coalitions, FDA intends to develop a global 
data information system and network in which regulators worldwide can 
regularly and proactively share real-time information and resources 
across markets.
     FDA will continue to expand its capabilities in 
intelligence gathering and use, with an increased focus on risk 
analytics and thoroughly modernized information technology (IT) 
capabilities.
     FDA will effectively allocate Agency resources based on 
risk, and leveraging the combined efforts of government, industry, and 
public- and private-sector third parties.

    The essence of this strategy marries creative international 
coalitions with cutting-edge investigative tools to continue to provide 
the consistently high level of safety and quality assurance the public 
expects--and deserves. FDA will continue to partner with other Federal 
agencies, the States, and nations across the world. It will also look 
to Congress to modernize its antiquated authorities so that FDA's legal 
tools keep pace with globalization.

    Question 2. I believe that the statute is silent on how often 
foreign drug establishments must be inspected, so I guess my question 
is, does FDA really need new authorities to inspect foreign facilities? 
Because there is a difference between a need and a want.
    Answer 2. You are correct that the statute is silent on how often 
foreign drug establishments must be inspected. The statute does require 
that domestic drug inspections be inspected every 2 years. FDA does not 
need new authority to conduct foreign inspections, however, new 
authority would be required to change the biennial inspection 
requirement for domestic drug manufacturers to an inspectional 
frequency based on risk, regardless of facility location. Such 
authority would ideally enable FDA to adjust inspection frequencies 
based on risk factors like the nature of the drug, the processing and 
control methods, and the availability of other credible information 
about the establishment from other reliable sources, including other 
governmental and non-governmental inspecting or auditing organizations, 
and to use its limited resources most effectively.

    Question 3. The FDA committed to providing the committee with a 
full and complete list of all foreign drug establishments that are 
involved in the U.S. drug supply chain. Please provide that list.
    Answer 3. FDA provided this information via e-mail to your staff on 
October 18, 2011.

    Question 4a. Drug counterfeiting, theft and diversion are a serious 
public health issue and a bottom line issue for industry as well. Just 
last year stolen insulin managed to make its way back onto legitimate 
pharmacy shelves and reached patients. This is a heat-sensitive product 
that will not work if improperly stored. How was this deception 
possible? Right now there is no comprehensive national system to track 
and authenticate packages of drugs as they travel from the manufacturer 
to wholesaler to pharmacy.
    Answer 4a. Stolen or diverted drugs are a public health concern for 
the very reason you have described, as we cannot be certain that these 
products have been stored or handled properly once they have left the 
legitimate supply chain. Loss of potency or integrity cannot 
necessarily be detected by physical examination with the naked eye, but 
may only be determined by laboratory analysis of potency and integrity. 
The lack of a comprehensive national system to track and authenticate 
packages of drugs as they travel from the manufacturer to wholesaler to 
pharmacy is the reason such diversion and reentry can occur.

    Question 4b. What steps can the FDA take to help increase security 
and transparency of drug distribution?
    Answer 4b. To further improve the security of the drug supply, FDA 
supports a comprehensive national track-and-trace system and continues 
its work to develop standards for identification, authentication, 
validation, and track and trace for prescription drugs, as directed by 
section 505D of the FD&C Act. A robust track-and-trace system will help 
protect consumers from threats posed by illegal or substandard 
products, in addition to providing accountability and transparency of 
the supply chain. An initial step of FDA's track-and-trace standards 
development included issuance of a final guidance to industry entitled 
Guidance for Industry: Standards for Securing the Drug Supply Chain--
Standardized Numerical Identification (SNI) for Prescription Drug 
Packages (See March 29, 2010, Federal Register (75 FR 15440)), 
describing the Agency's recommendation for unique identification of 
prescription drugs at the package level. In addition, in February 2011, 
FDA held a public workshop, which explored approaches for achieving an 
effective and feasible track-and-trace system for finished prescription 
drug products. Comments from supply chain stakeholders are being 
considered as we develop the standards for the validation, 
authentication, and tracking and tracing of prescription drugs to 
enhance the security of the drug supply chain against counterfeit, 
diverted, and other substandard drugs.

    Question 4c. Does the FDA need additional authorities or a 
statutory mandate to ensure drug traceability becomes a reality?
    Answer 4c. We are working on developing standards for a national, 
interoperable track-and-trace system in the United States. However, 
even with standards developed, additional authority would be helpful to 
require a cost-effective track-and-trace system for all products 
throughout supply chain.

    Question 5. What are the potential costs to individual pharmacies 
if we implement a full track-and-trace program?
    Answer 5. Because the design of a track-and-trace system has not 
been determined by Congress, it is challenging to estimate the costs to 
individual pharmacies to implement; the cost would depend on the 
characteristics of the particular track-and-trace system that is 
eventually required; for example, limiting track-and-trace requirements 
to receipt by the pharmacy, rather than to the point of sale to the 
patient, would lower costs. We are sensitive to the costs that 
pharmacies might have to incur to implement and maintain such a system 
and are mindful of that as we develop the standards. Because track and 
trace is being done for products in other industries, the equipment and 
technology appears to be readily available and, therefore, the costs 
may have decreased since these reports were issued and continue to 
decrease as the technology advances and becomes more widely used.
                              senator kirk
    Question 1a. Earlier this year, FDA asked for input from 
stakeholders on beneficial system attributes for the tracking and 
tracing of prescription drugs. But this is only a preliminary step. 
What is the current status of FDA's efforts to standardize tracking and 
tracing requirements for the pharmaceutical supply chain, and how will 
``promising technologies'' be incorporated into the new standards?
    Answer 1a. During FDA's February 2011 public workshop titled 
``Determination of System Attributes for the Tracking and Tracing of 
Prescription Drugs,'' approaches for achieving an effective and 
feasible track-and-trace system for finished prescription drugs were 
explored. Following the workshop, FDA published a Federal Register 
Notice and opened a public docket to solicit feedback from supply chain 
stakeholders. The comment period was extended to allow for stakeholders 
to consider the workshop summary. The comments have been reviewed and 
considered as we continue to develop the remaining standards for 
authentication, validation, and track and trace.
    The Agency has reviewed and considered current and promising 
technologies as it develops these standards. Some technologies can be 
considered as on-product or standalone technologies that provide a 
method to identify or authenticate a product through visual assessment 
or specific analytical methods. These technologies can be applied 
directly on the package (i.e., holograms, tamper-evident packaging) or 
directly on or in the dosage form (i.e., nanotechnological component or 
chemical taggant). Other technologies to consider include those that 
can be used to enable identification, validation, authentication, and 
track and trace of prescription drugs, such as data carriers, scanners, 
serialization software, traceability software, data management 
software, and analytical software. The level of availability, adoption, 
and interoperability of each of these technologies is being considered 
as we develop the standards. The standards will likely entail several 
of these technologies to achieve an effective and feasible track-and-
trace system for prescription drugs. However, as you note, industry 
will not be required to adopt FDA standards if the Agency is not given 
authority to do so.

    Question 1b. In addition, has FDA done any benchmarking with other 
Federal agencies to ascertain how those agencies are dealing with 
comparable policy objectives? For example, though different in nature, 
the Department of Defense is engaged in evaluating and/or deploying a 
variety of initiatives and technologies related to the tracking and 
tracing of high priority, high security items similar in importance and 
sensitivity to the protection of the pharmaceutical supply chain. What 
initiatives and technologies being considered or deployed by other 
Federal agencies such as DOD are you evaluating and benchmarking 
relative to securing the Nation's pharmaceutical supply chain?
    Answer 1b. Yes, FDA has done benchmarking with other Federal 
agencies, including the Department. of Defense, U.S. Postal Service, 
Federal Aviation Administration, and National Aeronautics and Space 
Administration, to learn about their systems and technologies used to 
conduct tracking and tracing of supplies, mail, airplane parts, or 
aerospace parts, respectively. While this benchmarking was useful, we 
learned that no single system, model, or technology currently employed 
could be applied directly to the track-and-trace system that the Agency 
envisions for prescription drugs, in part due to differing supply chain 
and distribution models, and the entities involved. This benchmarking 
was conducted as part of our research to gain insight on technologies 
used or under consideration and systems or processes used to manage the 
tracking and tracing capability.

    Question 2. For a prescription drug track-and-trace system to be 
efficient and effective, it should be electronic rather than paper-
based. An electronic system can incorporate human-readable elements on 
labels or tags. With today's technology, a barcode--in particular, a 2-
D bar code--can incorporate a great deal of information accurately and 
be read easily and inexpensively. RFID technology can capture even more 
information and be read even more easily, since the RFID tag does not 
need to be in the line of sight of the reader. Updated information can 
easily be added as prescription drugs move through the supply chain. 
Serialization software can uniquely identify individual packages or 
groups of packages (e.g., pallets).
    Furthermore, an electronic system may benefit from the existing, 
internationally-recognized technical standards, such as those issued by 
GS1, to facilitate interoperability along supply chains that may extend 
beyond our borders. GS1 standards can also address FDA's stated concern 
regarding the absence of a system of unique drug facility identifiers. 
To what extent has FDA considered the use of a partial or end-to-end 
electronic track-and-trace system for prescription drugs, and will that 
system be compatible with, or conform to recognized international 
standards?
    Answer 2. FDA agrees that a fully electronic track-and-trace system 
is desirable to allow for interoperability and efficiency in processing 
data exchange between all supply chain participants. FDA also 
encourages accountability and transparency of all supply chain 
participants to improve the security of the drug supply and level the 
responsibility across the supply chain. As noted above, various 
technologies are being considered as we develop the standards for 
validation, authentication, and tracking and tracing, and the standards 
will likely entail several technologies to achieve an effective and 
feasible track-and-trace system, for prescription drugs. At the 
February 2011 public workshop, FDA shared the following as potential 
attributes of a track-and-trace system also under consideration:

      Ability to capture the unique identification of a product 
and the status of the product.
     Ability to ensure interoperability to enable supply chain 
participants to securely capture, store, and exchange track-and-trace 
data accurately and efficiently.
     Ability to authenticate the unique identifier SNI and 
entire distribution history of each product.
     Ability to create an electronic pedigree at any point 
during the movement of the product through the supply chain.
     Ability to enable appropriate access to track-and-trace 
data necessary to achieve system goals.
     Ability to ensure security of data and systems from 
falsification, malicious attacks, and breaches.
     Ability to ensure confidential commercial information is 
protected.
     Ability to ensure that patient privacy is maintained.

    While we are aware of track-and-trace models that include some and 
not all members of the supply chain, FDA believes these partial models 
leave potential vulnerabilities in the supply chain and do not provide 
sufficiently enhanced security. In addition, counterfeit or other 
substandard drugs can enter anywhere in the supply chain. For these 
reasons, FDA believes that all members of the supply chain need to be 
participating in the track-and-trace system.
    FDA intends to harmonize its standards development with 
international consensus standards to the extent practicable, as we have 
done with our Guidance for Industry for the Standardized Numerical 
Identification (SNI) for Prescription Drug Packages (March 2010).

    [Whereupon, at 12:07 p.m., the hearing was adjourned.]

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