[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]


 
                   COUNTERFEIT DRUGS: FIGHTING ILLEGAL SUPPLY 
                                  CHAINS

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

                                HEARING

                               BEFORE THE

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 27, 2014

                               __________

                           Serial No. 113-120
                           
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                           


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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman
RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
JOE BARTON, Texas                      Ranking Member
  Chairman Emeritus                  JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               FRANK PALLONE, Jr., New Jersey
JOSEPH R. PITTS, Pennsylvania        BOBBY L. RUSH, Illinois
GREG WALDEN, Oregon                  ANNA G. ESHOO, California
LEE TERRY, Nebraska                  ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan                GENE GREEN, Texas
TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
  Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
PHIL GINGREY, Georgia                JIM MATHESON, Utah
STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio                JOHN BARROW, Georgia
CATHY McMORRIS RODGERS, Washington   DORIS O. MATSUI, California
GREGG HARPER, Mississippi            DONNA M. CHRISTENSEN, Virgin 
LEONARD LANCE, New Jersey                Islands
BILL CASSIDY, Louisiana              KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky              JOHN P. SARBANES, Maryland
PETE OLSON, Texas                    JERRY McNERNEY, California
DAVID B. McKINLEY, West Virginia     BRUCE L. BRALEY, Iowa
CORY GARDNER, Colorado               PETER WELCH, Vermont
MIKE POMPEO, Kansas                  BEN RAY LUJAN, New Mexico
ADAM KINZINGER, Illinois             PAUL TONKO, New York
H. MORGAN GRIFFITH, Virginia         JOHN A. YARMUTH, Kentucky
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina

              Subcommittee on Oversight and Investigations

                        TIM MURPHY, Pennsylvania
                                 Chairman
MICHAEL C. BURGESS, Texas            DIANA DeGETTE, Colorado
  Vice Chairman                        Ranking Member
MARSHA BLACKBURN, Tennessee          BRUCE L. BRALEY, Iowa
PHIL GINGREY, Georgia                BEN RAY LUJAN, New Mexico
STEVE SCALISE, Louisiana             JANICE D. SCHAKOWSKY, Illinois
GREGG HARPER, Mississippi            G.K. BUTTERFIELD, North Carolina
PETE OLSON, Texas                    KATHY CASTOR, Florida
CORY GARDNER, Colorado               PETER WELCH, Vermont
H. MORGAN GRIFFITH, Virginia         PAUL TONKO, New York
BILL JOHNSON, Ohio                   JOHN A. YARMUTH, Kentucky
BILLY LONG, Missouri                 GENE GREEN, Texas
RENEE L. ELLMERS, North Carolina     HENRY A. WAXMAN, California (ex 
JOE BARTON, Texas                        officio)
FRED UPTON, Michigan (ex officio)
  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Tim Murphy, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     3
Hon. Diana DeGette, a Representative in Congress from the state 
  of Colorado, opening statement.................................     4
    Prepared statement...........................................
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     6
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     7

                               Witnesses

Howard Sklamberg, J.D., Deputy Commissioner for Global Regulatory 
  Operations and Policy, Food and Drug Administration (FDA)......     9
    Prepared statement...........................................    13
    Answers to submitted questions...............................   162
Lev Kubiak, Director, National Intellectual Property Rights 
  Coordination Center, Department of Homeland Security, 
  Immigration and Customs Enforcement (ICE)......................    30
    Prepared statement...........................................    32
Marcia Crosse, Ph.D., Director of Health Care, U.S. Government 
  Accountability Office..........................................    65
    Prepared statement...........................................    67
Prashant Yadav, Ph.D., M.B.A., Director of Health Care Research 
  Initiative, Director of the William Davidson Institute, 
  University of Michigan.........................................    84
    Prepared statement...........................................    87
    Answers to submitted questions \1\...........................   178
John P. Clark, Vice President and Chief Security Officer, Global 
  Security, Compliance Division, Pfizer, Inc.....................    97
    Prepared statement...........................................   100
    Answers to submitted questions...............................   182
Jean-Luc Moreau, Global Head of Product Security, Novartis 
  Corporation....................................................   108
    Prepared statement...........................................   110
Bruce Longbottom, Ph.D., Assistant General Counsel, Eli Lilly and 
  Company........................................................   123
    Prepared statement...........................................   125
Elizabeth Jungman, J.D., M.P.H., Director of Drug Safety And 
  Innovation, Pew Charitable Trusts..............................   137
    Prepared statement...........................................   139

                           Submitted Material

Subcommittee memorandum..........................................   156
Report entitled,``Countering the Problem of Falsified and 
  Substandard Drugs,'' The Institute of Medicine \2\
Executive summary of report entitled,``Countering the Problem of 
  Falsified and Substandard Drugs,'' The Institute of Medicine...   186
1Report entitled,``Ensuring Safe Foods and Medical Products 
  Through Stronger Regulatory Systems Abroad,'' The Institute of 
  Medicine \3\
Executive summary of report entitled,``Ensuring Safe Foods and 
  Medical Products Through Stronger Regulatory Systems Abroad,'' 
  The Institute of Medicine......................................   200
Article entitled,``What to do about unsafe medicines,'' The BMJ..   212
Report entitled, ``Internet Drug Outlet Identification Program,'' 
  National Association of Boards of Pharmacy.....................   214
Key Data About Online Sales of Prescription Medicines, Alliance 
  for Safe Online Pharmacies.....................................   229

----------
\1\ The attachment to Mr. Yadav's response is available at: 
  http://docs.house.gov/meetings/if/if17/20140228/101812/hhrg-
  113-if17-wstate-manneg-20140228-sd002.pdf.
\2\ The information is available at: http://docs.house.gov/
  meetings/IF/IF02/20140227/101804/HHRG-113-IF02-20140227-
  SD005.pdf.
\3\ The information is available at: http://docs.house.gov/
  meetings/IF/IF02/20140227/101804/HHRG-113-IF02-20140227-
  SD007.pdf.


           COUNTERFEIT DRUGS: FIGHTING ILLEGAL SUPPLY CHAINS

                              ----------                              


                      THURSDAY, FEBRUARY 27, 2014

                  House of Representatives,
      Subcommittee on Oversight and Investigations,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:02 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Tim Murphy 
(chairman of the subcommittee) presiding.
    Members present: Representatives Murphy, Burgess, 
Blackburn, Griffith, Johnson, Long, Ellmers, DeGette, Braley, 
Tonko, Dingell, and Waxman (ex officio).
    Staff present: Karen Christian, Chief Counsel, Oversight; 
Noelle Clemente, Press Secretary; Brad Grantz, Policy 
Coordinator, Oversight and Investigations; Brittany Havens, 
Legislative Clerk; Sean Hayes, Counsel, Oversight and 
Investigations; Alan Slobodin, Deputy Chief Counsel, Oversight; 
Tom Wilbur, Digital Media Advisor; Jessica Wilkerson, 
Legislative Clerk; Brian Cohen, Democratic Staff Director, 
Oversight and Investigations, and Senior Policy Advisor; Eric 
Flamm, Democratic FDA Detailee; Kiren Gopal, Democratic 
Counsel; Hannah Green, Democratic Staff Assistant; and Stephen 
Salsbury, Democratic Investigator.

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

    Mr. Murphy. Good morning, and welcome to the Oversight and 
Investigations Subcommittee hearing of Energy and Commerce 
titled ``Counterfeit Drugs: Fighting Illegal Supply Chains.''
    This hearing could also be titled ``Poison Pills in Your 
Medicine Cabinet, or Counterfeiters Deliver Deadly Drugs,'' and 
it is due to the fact that we need to examine the growing 
problem of counterfeit drugs in our country.
    Last year Congress took an important first step against 
this threat by enacting the new track-and-trace law known as 
the Drug Quality and Security Act of 2013. This new law will 
secure the legitimate distribution channels, and when 
implemented will solve the legal supply chain part of the 
counterfeit drug problem.
    However, many Americans purchase medicines through illegal 
supply chains, such as rogue Internet pharmacies and other 
black markets. It is that part of the counterfeit drug threat 
that we address today. This hearing focuses on the illegal 
supply chains of counterfeit drugs, and on efforts to deter and 
disrupt these illegal supply chains.
    The legitimate U.S. drug supply is safe. But counterfeit 
drugs from illegal sources are a significant and growing global 
public health threat, potentially causing treatment failure or 
death and contributing to increased antimicrobial resistance. 
The policy of the U.S. government is not to wait for a full-
blown crisis before taking appropriate action.
    Drug counterfeiters do not just steal intellectual 
property. They recklessly and intentionally endanger human 
lives. They sell counterfeits that do not contain active 
ingredients and provide no treatment benefit to the patient. 
Thus, a child suffering from malaria who takes a fake anti-
malaria drug might die within 48 hours because the malaria 
remains untreated. The counterfeiters sell fakes that may 
contain incorrect ingredients, improper dosages, hazardous or 
poisonous ingredients. For example, an emergency room doctor 
from Texas in 2011 took a counterfeit weight loss drug he 
bought from an online pharmacy. The drug was contaminated with 
a controlled substance and he suffered a stroke.
    The counterfeiters sell drugs with risks for harmful side 
effects or allergic reactions. For example, in 2007 and 2008, 
dozens of heart surgery and kidney dialysis patients in the 
United States suffered unexpected allergic-like reactions and 
several lost their lives due to intentionally contaminated 
heparin imported from China that had entered the Chinese 
heparin supply purporting to be pure heparin.
    The counterfeiters do not care about the patients who are 
hurt. One counterfeiter, Richard Taylor, was notified in May 
2011 that two patients who had been on a counterfeit cancer 
drug he had distributed had started to shake in the middle of 
being transfused and had to be disconnected from treatment.
    However, the penalties for drug counterfeiters under the 
Federal Food Drug and Cosmetic Act have not been updated since 
1938. As the FDA Commissioner has said, there is a steeper 
penalty for counterfeiting a designer purse under the Federal 
Criminal Code than a drug product under current FDA law.
    Drug counterfeiting is highly profitable, and the criminals 
only face the maximum penalties under the FDA law of $10,000 or 
3 years in prison. In contrast, penalties for trafficking 
narcotics can have prison sentences up to life and fines in the 
millions of dollars. There is one estimate that the return on 
counterfeit drugs may be 10 times greater than that of the sale 
of illegal narcotics.
    Now, experts tell us the counterfeit drug problem has 
worsened over the last decade, and the reasons for this 
disturbing trend include increasing opportunities created by 
larger, more complex supply chains; more customers reachable 
through the Internet; more cases where the counterfeiting 
crimes occur in several countries making enforcement more 
difficult; and the expansion of counterfeiting from so-called 
lifestyle drugs into therapeutic medicines used to treat 
cancer, heart disease or other illnesses.
    The illegal supply chains are numerous and global. Rogue 
Internet pharmacies are now proliferating. There are believed 
to be about 35,000 to 50,000 active online sellers, 97 percent 
of which do not comply with U.S. laws, according to one review 
of over 10,000 Internet sites. One report estimated that one in 
six Americans--36 million people--have bought medicines online 
without a valid prescription. These illegal pharmacy operations 
are big business, with the largest ones reportedly making $1 to 
2.5 million of sales each month.
    The sheer volume of imported drugs into the United States 
is overwhelming and opportunities have never been greater for 
foreign, unapproved drugs to get into the United States. Nearly 
40 percent of drugs taken by Americans are made overseas, and 
80 percent of the active ingredients are imported from about 
3,800 foreign manufacturers, in more than 150 countries. 
According to a 2011 FDA report, the number of foreign drug 
suppliers has doubled in the last 7 years. The Government 
Accountability Office has found FDA is only able to inspect 
foreign drug plants every 9 years while FDA inspects domestic 
drug manufacturers every 2 years.
    The subcommittee will also examine other illegal supply 
chains such as medical clinics and doctors who purchase drugs 
from illegal sources, business-to-business networks, and 
smugglers bringing unapproved or counterfeit drugs from Mexico 
into the United States.
    I welcome all of today's outstanding witnesses and I look 
forward to your testimony.
    [The prepared statement of Mr. Murphy follows:]

                 Prepared statement of Hon. Tim Murphy

    The subcommittee meets to examine the growing problem of 
counterfeit drugs. Another fitting title for our hearing today: 
``Poison Pills in Your Medicine Cabinet: Counterfeiters Deliver 
Deadly Drugs.''
    Last year Congress took an important first step against 
this threat by enacting the new track-and-trace law known as 
the Drug Quality and Security Act of 2013. This new law will 
secure the legitimate distribution channels, and when 
implemented will solve the legal supply chain part of the 
counterfeit drug problem.
    However, many Americans purchase medicines through illegal 
supply chains, such as rogue Internet pharmacies and other 
black markets. It is that part of the counterfeit drug threat 
we address today. This hearing focuses on the illegal supply 
chains of counterfeit drugs, and on efforts to deter and 
disrupt these illegal supply chains.
    The legitimate U.S. drug supply is safe. But counterfeit 
drugs from illegal sources are a significant and growing global 
public-health threat, potentially causing treatment failure or 
death and contributing to increased anti-microbial resistance. 
The policy of the U.S. government is not to wait for a full-
blown crisis before taking appropriate action.
    Drug counterfeiters do not just steal intellectual 
property. They recklessly and intentionally endanger human 
lives.
    They sell counterfeits that do not contain active 
ingredients and provide no treatment benefit to the patient. 
Thus, a child suffering from malaria who takes a fake anti-
malaria drug might die within 48 hours because the malaria 
remains untreated.
    The counterfeiters sell fakes that may contain incorrect 
ingredients, improper dosages, hazardous, or poisonous 
ingredients. For example, an emergency room doctor from Texas 
in 2011 took a counterfeit weight loss drug he bought from an 
online pharmacy. The drug was contaminated with a controlled 
substance and he suffered a stroke.
    The counterfeiters sell drugs with risks for harmful side 
effects or allergic reactions. For example, in 2007 and 2008, 
dozens of heart-surgery and kidney-dialysis patients in the 
U.S. suffered unexpected allergictype reactions and several 
lost their lives due to intentionally contaminated heparin 
imported from China that had entered the Chinese heparin supply 
purporting to be pure heparin.
    The counterfeiters do not care about the patients who are 
hurt. One counterfeiter, Richard Taylor, was notified in May 
2011 that two patients who had been on a counterfeit cancer 
drug he had distributed had started to shake in the middle of 
being transfused and had to be disconnected from treatment.
    However, the penalties for drug-counterfeiting under the 
Federal Food Drug and Cosmetic Act have not been updated since 
1938. As the FDA Commissioner has said, there is a steeper 
penalty for counterfeiting a designer purse under the Federal 
Criminal Code than a drug product under current FDA law.
    Drug counterfeiting is highly profitable, and the criminals 
only face the maximum penalties under the FDA law of $10,000 or 
three years in prison. In contrast, penalties for trafficking 
narcotics can have prison sentences up to life and fines in the 
millions of dollars. There is one estimate that the return on 
counterfeit drugs may be 10 times greater than that of the sale 
of illegal narcotics.
    Experts tell us the counterfeit drug problem has worsened 
over the last decade. The reasons for this disturbing trend 
include: increasing opportunities created by larger, more 
complex supply chains; more customers reachable through the 
Internet; more cases where the counterfeiting crimes occur in 
several countries making enforcement more difficult; and the 
expansion of counterfeiting from so-called lifestyle drugs into 
therapeutic medicines used to treat cancer, heart disease, or 
other illnesses.
    The illegal supply chains are numerous and global. Rogue 
Internet pharmacies are proliferating. There are believed to be 
about 35,000-50,000 active online sellers, 97 percent of which 
do not comply with U.S. laws, according to one review of over 
10,000 Internet sites. One report estimated that one in six 
Americans--36 million people--have bought medicines online 
without a valid prescription. These illegal pharmacy operations 
are big business, with the largest ones reportedly making $1 to 
2.5 million dollars of sales a month.
    The sheer volume of imported drugs into the U.S. is 
overwhelming and opportunities have never been greater for 
foreign unapproved drugs to get into the U.S. Nearly 40 percent 
of drugs taken by Americans are made overseas and 80 percent of 
the active ingredients are imported from about 3,800 foreign 
manufacturers, in more than 150 countries. According to a 2011 
FDA report, the number of foreign drug suppliers has doubled in 
the last seven years. The Government Accountability Office 
(GAO) has found FDA is only able to inspect foreign drug plants 
every nine years while FDA inspects domestic drug manufacturers 
about every 2 years.
    The subcommittee will also examine other illegal supply 
chains such as medical clinics and doctors who purchase drugs 
from illegal sources, business-to-business (B2B) networks, and 
smugglers bringing unapproved or counterfeit drugs from Mexico 
into the U.S.
    I welcome all of today's outstanding witnesses and look 
forward to their testimony.

    Mr. Murphy. And now I turn to recognize my friend, and the 
Ranking Member, Ms. DeGette of Colorado.

 OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF COLORADO

    Ms. DeGette. Thank you very much, Mr. Chairman. I really 
appreciate you having this hearing.
    We had a number of hearings some years ago in this 
committee on drug counterfeiting, and it was shocking and 
appalling to see how serious this problem is. While we did pass 
that great bill last year, still I think that drug 
counterfeiting is a terrible problem that we need to address in 
a bipartisan fashion.
    As you said, counterfeit drugs can contain dangerous 
impurities, incorrect ingredients, improper dosages, and also 
have improper handling, and legitimate drugs have been diverted 
or stolen from the supply chain and they have been handled 
improperly or stored at the wrong temperature, and then of 
course, these fraudsters spend a lot of time recreating labels 
and packaging for the dangerous drug so that they look exactly 
like the real thing.
    I got some samples today. These are Lipitor samples, and 
they look exactly the same. The blister packs are the same, the 
pills are exactly the same, the alleged dosages are exactly the 
same, and if you ordered these online, you would think that you 
were getting Lipitor. However, which one is the real and which 
one is the fake? You couldn't possibly tell except where there 
is a label on the package. Here is the fake and here is the 
real. And this is what these counterfeiters do. They spend more 
time worrying about what the packaging is going to like look so 
it will fool the consumer and a lot less time worrying about 
whether there's actual medication inside that's going to help 
people.
    We have seen a number of troubling cases recently. 
Criminals have tampered with pharmaceuticals used to treat 
illnesses like cancer and HIV/AIDS. Drugs used to treat 
schizophrenia were replaced with aspirin. Counterfeit cancer 
drugs were tainted with non-sterile tap water, and counterfeit 
AIDS drugs have been found to lack any ingredient, and as you 
said, the Internet is really especially problematic for these 
unsafe drugs, and according to a recent FDA survey, 
approximately one in four Americans has purchased prescription 
drugs online. Most consumers purchase drugs from reputable 
businesses but there are thousands of rogue Internet 
pharmacies, some of which you couldn't tell from just looking 
onsite that sell drugs of dubious quality without a 
prescription. I couldn't believe it that you said that there 
was a doctor who bought these drugs online. I mean, surely if 
anybody should know, it should be a doctor.
    Now, Congress passed the Ryan Haight Act in 2008 and then 
last year, as you said, the Drug Quality and Security Act, 
which provide additional enforcement tools, and so I am eager 
to hear from the GAO whether these laws have had an impact in 
combating this problem and what more can be done. I am also 
interested to learn from the stakeholders and agencies how we 
can increase awareness and education in the medical community 
and the public more broadly about the prevalence of and risks 
associated with counterfeit drugs.
    I must say, I talk to my constituents, and people assume if 
they are buying drugs from a pharmacy online that it would be 
safe, and that is an incorrect assumption to make. I think we 
need to have partnerships between the pharmaceutical companies, 
between government agencies, between nonprofit agencies and a 
variety of sources to let people know how dangerous it can be 
to buy drugs from an Internet source.
    And I want to commend the FDA, ICE, and the other federal 
agencies for their work in protecting consumers from unsafe 
drugs, but I also want to learn more about what we can do about 
counterfeiting drug activity and whether we need more 
authorities or stricter penalties to effectively carry out this 
work.
    Globally, the FDA works with World Health Organization and 
Interpol to build global capacity to monitor counterfeit drugs 
and to coordinate international law enforcement action, and so 
I know that our witness from the University of Michigan, Dr. 
Yadav, will talk about the global health implications of 
counterfeit drug activity and how existing international 
efforts can be strengthened. Prosecuting these wrongdoers is 
difficult because they are shady and they are international, 
but I think if we have domestic and international partnerships, 
we can do it.
    Consumers should never have to fear the prescription drug 
they need may actually make them sick or endanger the lives of 
their loved ones, and so that is why these partnerships are 
critical. I look forward to hearing from our witnesses and 
continuing to work together to make sure that when a consumer 
buys a drug, they know that it is going to be safe.
    Thank you, Mr. Chairman, and I yield back.
    Mr. Murphy. The gentlelady yields back and I now recognize 
the vice chairman of the subcommittee, Dr. Burgess, for 5 
minutes.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. I thank the chairman for the recognition. I 
thank our witnesses for being here, a terribly important 
hearing that we are having this morning.
    Let me begin my statement with a quote: ``The market for 
prescription drugs has been the catalyst for a continuing 
series of frauds against American manufacturers and has 
provided cover for counterfeit drugs. The effect of these 
practices and conditions is to create an unacceptable risk that 
counterfeit, adulterated, misbranded, subpotent or expired 
drugs will be sold to American consumers.''
    Now, you might think I am reading from today's hearing memo 
but in fact they were from the findings of the Prescription 
Drug Marketing Act of 1987. That bipartisan law was the result 
of a series of hearings conducted with Chairman Dingell in this 
very subcommittee. In the report accompanying the bill from 
1987, this subcommittee found, again quoting, ``American 
consumers cannot purchase prescription drugs with the certainty 
that the products are safe and effective. This is not to say 
that the shelves of the Nation's pharmacies are lined with 
substandard products or that there are inadequate controls in 
the manufacturing process. Rather, the integrity of the 
distribution system is insufficient to prevent the introduction 
and the eventual retail sale of substandard, ineffective or 
even counterfeit pharmaceuticals,'' again, quoting from the 
findings in 1987.
    The United States has the best drug supply chain in the 
world, and this committee's work has been long and notable and 
medications have become more advanced. Our supply chain has 
become more global in its reach. The equally consistent and 
sophisticated attacks each and every day by counterfeiters, 
rogue distributors and those willing to adulterate products and 
put patients at risk are no less today than they were in 1987.
    According to the World Health Organization, in 2010 
worldwide counterfeit medicine sales topped $75 billion. That 
was almost doubling in 5 years, and some speculate the number 
will continue to grow by 20 percent each year.
    At its most extreme, these criminals are willing to 
literally risk patients' lives to sell counterfeits. As a 
doctor, such immorality of knowingly sentencing a patient to 
death by either denying them treatment or selling them an 
adulterated product, that is an absolutely chilling 
proposition. In my opinion, punishment for counterfeiting 
prescription medications is so far from adequate as to be 
laughable.
    From fake flu vaccines to oncology drugs, counterfeit 
medications have been able to enter the supply chain and in 
fact administered to patients. Detecting counterfeit drugs is 
difficult, if not impossible. There is no field test that we 
can send people out to perform to indicate whether a drug is 
fake or real, and even the trained experts are often unable to 
detect whether a drug is what it purports to be. Counterfeit 
and other adulterated drugs present an unreasonable risk to 
Americans.
    Thankfully, this committee, this subcommittee has remained 
vigilant, and I believe the passage of the Drug Quality and 
Security Act last year will provide a valuable tool. Some will 
argue it took too long but nevertheless, it does tighten our 
distribution system. While our system may be the best in the 
world, our health care workforce does not have the confidence 
that they should have that the drugs they are dispensing or 
administering are the ones that came from the manufacturer.
    I will also note that a December 2005 report found that 
nearly half of the imported drugs the Food and Drug 
Administration intercepted from four selected countries to fill 
orders placed with firms that consumers thought were Canadian, 
in fact, 85 percent came from 27 other countries around the 
globe. A number of these products were also found to be 
counterfeit.
    Just as a practical matter, I will never forget the day in 
my practice back in north Texas when the story broke that fake 
oral contraceptives had been introduced into the market. Our 
phones melted down that morning, and many anxious patients 
spent many anxious hours trying to determine if they had the 
pill or the lot number from the inappropriate counterfeit pills 
and whether or not they would have the potency to provide the 
protection they were purported to provide.
    Maintaining the integrity of the United States prescription 
drug supply is a compelling national priority and requires 
national solutions involving business, health care providers 
and governments coming together and being vigilant in the face 
of threats. The vigilance of this committee, this subcommittee, 
has been established in the past and continues today.
    I thank the chairman for the recognition. I will yield back 
the balance of my time.
    Mr. Murphy. The gentleman yields back. I now recognize the 
ranking member of the full committee, Mr. Waxman, for 5 
minutes.

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

    Mr. Waxman. Thank you very much, Mr. Chairman. I am pleased 
that we are having an important oversight hearing where 20 
minutes so far into the opening statements, no one has blamed 
the problem on President Obama. This is rare for this 
committee.
    But we are doing the job that we should be doing because 
the entry of counterfeit drugs into our drug supply chain poses 
a great public health threat. Time and again, we have read 
stories about patients getting drugs from Internet pharmacies 
or even their doctors or local pharmacies that were unsafe or 
ineffective counterfeits, or that were stolen, or not stored 
properly so they no longer worked.
    We have taken legislative steps on a bipartisan basis to 
address this problem. In 2012, we passed the bipartisan Food 
and Drug Administration Drug Safety and Innovation Act. The law 
requires companies to notify FDA of drug thefts and counterfeit 
or adulterated drugs that could cause serious harm. It requires 
manufacturers and importers to register annually with the FDA 
and provide unique facility identifiers so that FDA knows who 
and where they are. It bans imports of drugs from foreign 
facilities that delay, deny or limit FDA inspection, and it 
enhances criminal penalties for intentionally counterfeiting or 
adulterating a drug in a way that could cause serious adverse 
health consequences.
    Last year, we passed the bipartisan Drug Quality and 
Security Act. This law gives the FDA and industry new tools to 
deter, discover and remedy the entry of illegal drugs into the 
supply chain. However, the legislation was not designed for 
sophisticated criminal enterprises intent on evading the law 
and the most useful of the new tools, an electronic unit-level 
tracking and tracing system is not required to be in place 
until 2023. So it is hard to reach a conclusion other than more 
needs to be done.
    Today the government has to prove an intent to violate the 
law before it can even win a criminal case, and even then, the 
maximum penalty for some violations with potentially life-
threatening consequences is only 3 years. We need a stronger 
deterrent.
    We also need to consider what to do about the fact that so 
many of our drugs are sourced from abroad. This can create 
serious drug safety and security issues. In India, where FDA 
inspections have tripled since FDASIA, FDA is finding serious 
lapses in quality. And as the New York Times reported recently, 
even India's top drug regulator concedes that most of the drug 
facilities supplying the domestic Indian market do not meet FDA 
standards. This is a serious problem because India is the 
second largest exporter of drugs to the U.S., supplying 40 
percent of our generic and over-the-counter drugs.
    In China, the U.S. government had to negotiate for almost a 
full year just to get visas for the additional inspectors that 
FDA needs to conduct more frequent and timely inspections. It 
could put much of our drug supply at risk because the crucial 
ingredients for nearly all antibiotics, steroids and many other 
lifesaving drugs are now made exclusively in China.
    Well, Mr. Chairman, I look forward to hearing from our 
witnesses today, and I thank you for holding this important 
hearing. It is appropriate, it is legitimate, it is what 
oversight committees should be doing, and I hope it is the 
first step towards passing legislation that will effectively 
deter and punish those who put Americans' health at risk with 
counterfeit pharmaceuticals.
    And I want to say in my closing minute, Mr. Chairman, 
unfortunately, there is another subcommittee meeting at the 
same time so I will be in and out of this hearing. I will 
review the testimony of the witnesses that will be making a 
presentation. Thank you.
    Mr. Murphy. Thank you. Mr. Waxman yields back.
    I would now like to introduce our witnesses on the first 
panel for today's hearing. We do have two panels of 
distinguished people. First, Mr. Howard Sklamberg is the Deputy 
Commissioner for Global Regulatory Operations and Policy for 
the Food and Drug Administration. I would like to note that due 
to the amount of exhibits the FDA would like to show in support 
of the testimony, both sides agree to allow Mr. Sklamberg 10 
minutes for his oral testimony instead of the usual 5.
    And Mr. Lev Kubiak, welcome, the Director of the National 
Intellectual Property Rights Coordination Center for the 
Department of Homeland Security's Immigration and Customs 
Enforcement.
    I will now swear in the witnesses. You are aware that the 
committee is holding an investigative hearing, and when doing 
so has the practice of taking testimony under oath. Do either 
of you object to testifying under oath? The Chair then advises 
you that under the rules of the House and the rules of the 
committee, you are entitled to be advised by counsel. Do either 
of you desire to be advised by counsel during the testimony 
today? In that case, would you please rise and raise your right 
hand, and I will swear you in.
    [Witnesses sworn.]
    Mr. Murphy. You are now under oath and subject to the 
penalties set forth in Title XVIII, section 1001 of the United 
States Code.
    Mr. Sklamberg, you may now give your opening statement and 
video.

 TESTIMONY OF HOWARD SKLAMBERG, J.D., DEPUTY COMMISSIONER FOR 
    GLOBAL REGULATORY OPERATIONS AND POLICY, FOOD AND DRUG 
   ADMINISTRATION (FDA); AND LEV KUBIAK, DIRECTOR, NATIONAL 
INTELLECTUAL PROPERTY RIGHTS COORDINATION CENTER, DEPARTMENT OF 
  HOMELAND SECURITY, IMMIGRATION AND CUSTOMS ENFORCEMENT (ICE)

                 TESTIMONY OF HOWARD SKLAMBERG

    Mr. Sklamberg. Thank you very much, Mr. Chairman, Ranking 
Member DeGette, and members of the subcommittee. I am Howard 
Sklamberg, Deputy Commissioner for Global Regulatory Operations 
and Policy at the Food and Drug Administration, and thank you 
for this opportunity to be here today to discuss the important 
issue of counterfeit drugs.
    Counterfeit drugs raise significant public health concerns. 
A counterfeit drug could be made using ingredients that are 
toxic to patients and processed under poorly controlled and 
unsanitary conditions. In the United States, a relatively 
comprehensive system of laws, regulations and enforcement by 
federal and State authorities has kept drug counterfeiting 
incidents in the United States relatively rare. FDA continues 
to believe and works to ensure that Americans can have a high 
degree of confidence in the drugs they obtain through legal 
channels. Nonetheless, with the dramatic increase in the 
complexity of the global supply chain, we face enormous 
challenges regarding supply chain security.
    FDA is not alone in its effort to address the problem of 
counterfeit drugs, and I want to note the efforts of my 
colleagues on this panel and on the other panels in their work 
on this problem as well.
    Growth in counterfeiting may be spurred by several things 
including the increasing volume of drugs, longer supply chains, 
the development of technologies that make it easier to 
counterfeit drugs, and the involvement of international 
organized crime. This growth also is exacerbated by the 
relatively low criminal penalties for distribution of 
adulterated, unapproved or misbranded drugs under the Federal 
Food, Drug and Cosmetic Act compared to other types of crime.
    In addition, the Internet presents another layer of 
complexity by introducing more players and more opportunities 
for criminals to reach consumers. The global anonymity of the 
Internet can provide a safe haven for illicit prescription drug 
sales. Many Web sites leave unsuspecting customers in the 
United States to believe the dispensing pharmacy is in the 
United States or Canada.
    FDA has made it a priority to investigate reports of 
counterfeit products. As part of these efforts, FDA's Office of 
Criminal Investigations, or OCI, aggressively investigates 
reports of counterfeit products in order to protect U.S. 
citizens. OCI's investigations have led to some notable 
successes. I would like to provide some examples from our 
investigations.
    The first is from an investigation into counterfeit Alli, 
and would the clerk please pull up the Alli video?
    [Video shown.]
    Thank you. And would the clerk please load picture one?
    [Slide shown.]
    And as it is being loaded, the picture shows a refrigerator 
used to store illegally imported, adulterated and misbranded 
prescription drugs that were smuggled into the United States. 
These drugs were discovered in the home of a repacker who had 
subsequently shipped the drugs to doctors throughout the United 
States.
    Would the clerk please load picture two?
    [Slide shown.]
    One of the ways some traffickers obtain prescription drugs 
is to buy them from customers at various pharmacies whose 
medications were paid for by Medicaid. In order to be able to 
reuse the bottle with the original label, they would have to 
clean the pharmacy label and the Medicaid sticker off of the 
label using things such as lighter fluid. Where we have 
observed bottle washing with a solvent, we generally observe 
chemicals in the solvent that have migrated through the bottle 
onto the drug.
    Would the clerk please load picture three?
    [Slide shown.]
    Well, through the particular bottle, I am not sure in the 
instances what type of bottle it is but we can get back to you 
on that, but it is common for things to migrate through 
plastic.
    Would the clerk please load picture three?
    [Slide shown.]
    The following photos were taken from a Belize-based 
manufacturing facility involved in selling unapproved 
prescription drugs and controlled substances. The pills from 
the trashcans in this picture were transferred into plastic 
bags to be counted and bagged by using a scoop. The same scoop 
was used for many different drugs including controlled drugs. 
This led to cross-contamination.
    Would the clerk please load picture four?
    [Slide shown.]
    This picture shows some of the conditions at the 
manufacturing facility.
    Would the clerk please load picture five?
    [Slide shown.]
    This picture shows the condition of a tablet room at the 
facility. I want to show a comparison of what a legitimate 
tablet press should look like. Would the clerk please load 
picture six?
    [Slide shown.]
    So you can see the difference.
    FDA has been working with industry and international 
partners to develop new methods to address the problem of 
counterfeit drugs. FDA scientists have developed and have been 
testing a counterfeit detection device, CD-3, at U.S. ports of 
entry and elsewhere for use by FDA investigators to check for 
suspect counterfeit products. CD-3, which I am now holding, is 
a battery-operated, handheld and inexpensive tool that costs a 
fraction of the price of existing laboratory-based and field-
deployed technologies. Would the clerk please play the CD-3 
video?
    [Video shown.]
    It is important to note that while this technology is 
helpful it won't solve the problem, particularly given the 
volume of products that come through ports of entry.
    FDA also participates in Operation Pangaea, which is a 
global cooperative effort in partnership with international 
regulatory and law enforcement agencies to combat the online 
sale and distribution of potentially dangerous counterfeit and 
illegal medical products. As part of the 2013 annual effort, 
the partnership took action against more than 13,700 Web sites 
illegally selling potentially dangerous unapproved prescription 
medicines to customers. These actions included the issuance of 
regulatory warnings and the seizure of offending Web sites and 
over $36 million worth of illegal medicines worldwide. FDA in 
coordination with the U.S. Attorney's Office for the District 
of Colorado seized and shut down 1,677 illegal pharmacy Web 
sites.
    The case of Manuel Calvelo illustrates the inherently 
international and thus difficult-to-prosecute nature of the 
Internet pharmacy investigations. Calvelo is a Belgian citizen 
operating a global Internet pharmacy with a call center in the 
Philippines and a credit processor in the Netherlands. 
Calvelo's Web sites offered for sale more than 40 prescription 
drugs such as Viagra, Glucophage, Zoloft, Lipitor, Cialis, 
Xanax, Ativan and Klonopin. Note that Xanax, Ativan and 
Klonopin are controlled substances. OCI was able to arrest 
Calvelo in Costa Rico and extradite him to the United States 
after an extended undercover operation in which OCI agents 
posed as pharmaceutical wholesalers seeking to do business with 
them/him.
    Public education is very important as a first line of 
defense against counterfeit drugs. The agency is conducting 
proactive educational outreach to the medical community and 
other stakeholders. In September 2012, FDA launched a national 
campaign called Be Safe RX: Know Your Online Pharmacy. Be Safe 
RX provides resources for patients and caregivers who might 
purchase prescription drugs online to enable them to better 
understand who they are buying from and to help ensure the 
drugs they buy match the product the doctor prescribed.
    The Food and Drug Administration Safety and Innovation Act, 
or FDASIA, enacted in July 2012, provided the agency with new 
authorities that help to secure the safety and integrity of 
drugs imported into and sold in the United States. For example, 
the law provides the FDA with the authority to administratively 
detain drugs believed to be adulterated or misbranded and the 
authority to destroy certain adulterated, misbranded or 
counterfeit drugs offered for import. The law also requires 
foreign and domestic companies to provide complete information 
on threats to the security of the drug supply chain and to 
improve current registration and listing information. The 
recently enacted Drug Quality and Security Act outlines 
critical steps to build an electronic and operable system to 
identify and trace certain prescription drugs. Within 10 years 
after enactment, the system will facilitate the exchange of 
information at the individual package level about where a drug 
has been in the supply chain.
    While the new authorities under FDASIA and the DQSA help 
address some of the risks posed by counterfeit drugs, they will 
not prevent all types of illegal diversion or distribution 
schemes. These laws would not prevent the numerous instances 
FDA has uncovered of medical practitioners deliberately 
obtaining unapproved drugs, some of which have been 
counterfeits directly from foreign sources for administering to 
patients. The reality is that the criminal penalty under the 
Food, Drug and Cosmetic Act for the risky and inherently 
dangerous practice of importing unapproved foreign drugs is 
simply not sufficient to deter the criminal element. The 
penalty for such conduct, which generally falls under the 
misbranding and unapproved new drugs provisions of the FD&C Act 
is 3 years imprisonment and then only if the government can 
show there is a specific intent to defraud or mislead. 
Otherwise it is a misdemeanor punishable only by a maximum of 
one year of imprisonment.
    The Ryan Haight Act also sets forth for the first time 
under federal law the definition of a valid prescription with 
regard to controlled substances. Many online pharmacies, 
however, sell prescription drugs that are not controlled 
substances. These drug sales are regulated under the FD&C Act 
and require a valid prescription, but the FD&C Act does not 
define what constituents a valid prescription. In the online 
pharmacy context where numerous doctors and their respective 
customers are often located in different States, this can 
complicate criminal prosecution under the FD&C Act.
    Given the challenges and threats posed by an increasingly 
globalized marketplace, it is important that FDA regulatory and 
law enforcement partners and industry continue to work together 
to address the problem and threat of counterfeit drugs and that 
we continue to ensure authorities keep pace with the complex 
system that counterfeiters and traffickers take advantage of. 
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. Thank you.
    [The prepared statement of Mr. Sklamberg follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Mr. Murphy. Thank you, Mr. Sklamberg.
    Mr. Kubiak, you are now recognized for 5 minutes.

                    TESTIMONY OF LEV KUBIAK

    Mr. Kubiak. Good morning, Chairman Murphy, Ranking Member 
DeGette and distinguished subcommittee members, thank you very 
much for this opportunity to speak today about the efforts of 
ICE--Immigration and Customs Enforcement--and the Center that I 
run, the National Intellectual Property Rights Center.
    I currently serve as the Director of that Center. It is led 
by ICE, and the Center operates as a task force model comprised 
of 21 federal and international partners including FDA, which I 
am pleased to join today here on this panel. It is this 
collection of agencies partnered together pooling resources, 
expertise and authorities that makes the IPR Center truly 
unique and effectively. No subset of agencies has the 
individual capacity or capability to address the significant 
and growing threat of IP crime alone. The Center optimizes the 
effectiveness of each agency and provides a single location for 
industry collaboration and reporting.
    Can you put the second slide up, please?
    [Slide shown.]
    As the picture that you are about to see illustrates, our 
biggest challenge right now is that criminals now counterfeit 
and effectively market virtually any product with no regard to 
public health and safety, be it exploding airbags, as it 
represented in the right hand of the screen, to counterfeit 
industrial bearings used in mineshafts and mining equipment, to 
drugs without active ingredient, the callous nature of 
counterfeiting results in dangerous, even deadly outcomes.
    Another significant challenge we face is while ocean-
crossing shipping containers are necessary for the bulk 
movement of quantities of counterfeit items like handbags, 
batteries or razor blades, other high-value items including 
counterfeit pharmaceuticals and semiconductors used by our 
United States military are being smuggled in thousands of 
smaller packages through mail and express courier packages. 
Next slide, please.
    [Slide shown.]
    As this slide shows, the Internet poses yet another 
significant challenge. Criminals operating unregulated Web 
sites, providing counterfeit pharmaceuticals continue to be a 
growing global phenomenon. In April 2013, Legit Script, an 
online pharmaceutical verification service, stated there were 
over 34,000 active rogue Internet pharmacies selling 
substandard, counterfeit or harmful prescription drugs. The 
screenshot you see here is from an actual criminal Web site 
that we seized as one of the 686 Web sites seized as a result 
of Operation Better Pill, a worldwide operation run by ICE 
through the IPR Center targeting the online sale of counterfeit 
illegal medicine. This Web site was run by a criminal 
organization based overseas and purported, as you can see, to 
be a legitimate Canadian health care facility.
    With this type of ambiguity, consumer fraud can run 
rampant. Next slide, please.
    [Slide shown.]
    In early 2010, law enforcement authorities from the United 
Kingdom provided FDA information on an intercepted shipment of 
unapproved oncology drugs. The package, derived from Pakistan, 
was destined for California. Together, ICE, FDA, FBI, the U.S. 
Postal Service, and Customs and Border Protection collaborated 
on the investigation discovering that Martin Paul Bean of 
Florida ordered the unapproved drugs from foreign sources in 
Turkey, India and Pakistan and then sold those drugs to doctors 
in the United States at substantially reduced prices. In 
September, Bean was sentenced to 2 years' incarceration for 
distributing more than $7 million worth of unapproved and 
misbranded oncology drugs through his illicit pharmaceutical 
scheme, significant harm caused by just one criminal.
    This case example on the screen illustrates our strategy, 
which is to attack the criminal network throughout the entire 
global supply chain from the point of manufacturer through 
shippers of illegal commodities to those that distribute the 
illegal drugs to unsuspecting people in need of effective 
medicine. This strategy requires a robust collaboration through 
our attach AE1e network with foreign counterparts where the 
majority of counterfeit items are made and through which they 
are transhipped en route to the United States and our trading 
partners worldwide.
    I know we are not going to be able to arrest and seize our 
way out of this growing problem, and that is why the IPR Center 
has committed significant effort to close collaboration with 
industry and education to the public. I do believe that we can 
reduce demand through education and I also believe that this is 
the most critical component of any long-term viable solution. 
Next slide, please.
    [Slide shown.]
    As part of our robust public education efforts, we have 
developed the IPR Center Web site, which includes information 
on efforts of all of our partner agencies and where they can 
report IP crime through our ``report IP theft'' button. 
Industry and other U.S. government agencies have joined the 
fight by placing the ``report IP theft'' button on their Web 
sites as well, now totaling more than 100 industry and embassy 
Web sites worldwide, including this one from the Pharmaceutical 
Security Institute pictured on the screen. New leads to the 
Center have increased nearly 500 percent since fiscal year 2012 
as a result of this. I encourage the members of this committee 
to visit our Web site, and I invite you to place our ``report 
IP theft'' button on your page as well. Recently we had 
Congressman Green visit the Center himself and we are working 
with his staff to do just that for his constituents. And I also 
welcome other members of this committee to visit the Center. It 
is one thing to hear about it; it is another to see it, and we 
are just across the river in Crystal City.
    Once again, thank you very much for the opportunity to 
appear before you today, and I am pleased to answer any 
questions you may have at this time.
    [The prepared statement of Mr. Kubiak follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    
    Mr. Murphy. I thank you both our witnesses today for giving 
us some honest, solid and somewhat chilling testimony of this 
huge public health risk.
    Mr. Sklamberg, in your video you showed Alli, that drug 
there. I had referenced something in my opening statement about 
an emergency room doctor in Texas ordering this drug from a 
rogue Internet pharmacy. Was that the same pharmacy, do you 
know?
    Mr. Sklamberg. I don't believe it was the same one.
    Mr. Murphy. But he suffered a stroke. Is that correct?
    Mr. Sklamberg. Yes, the one you are referring to, Mr. 
Chairman.
    Mr. Murphy. And unfortunately, he wasn't alone. I mean, 
many, many Americans, there are dozens of cases of death or 
serious injury suffered from these counterfeit, unapproved 
drugs from these rogue Internet pharmacy sites. Is that 
correct?
    Mr. Sklamberg. That is correct, and in fact, the illnesses 
that we know about would severely understate what is actually 
happening because, as you pointed out, Mr. Chairman, and some 
of your colleagues have, a lot of times the patients who are 
receiving these drugs are already quite sick, so if you are 
taking Avastin and you have cancer, the Avastin, let's say it 
is counterfeit and let's say completely doesn't work, it has no 
active ingredients, you may well end up dying from your cancer. 
The doctor who is giving you the Avastin might not know that, 
in fact, the Avastin was counterfeit and might think that you 
had died from your cancer despite getting real Avastin, and so 
it is very hard to establish the cause and effect. So what 
instances we have we think severely and absolutely understate 
the effect and the problem.
    Mr. Murphy. Thank you. Are you aware that the National 
Association of Boards of Pharmacy and Legit Script indicate 
that 97 percent of online pharmacies are actually rogue Web 
sites that operate in violation of federal law?
    Mr. Sklamberg. Yes, I have seen that statistic. The number 
of them is astonishing. I believe the GAO report as well has a 
rather astonishing number.
    Mr. Murphy. And my understanding is, when they don't 
recover any prescription, that number may go closer to 100 
percent.
    Mr. Sklamberg. It would go up.
    Mr. Murphy. Are you aware that according to a report from 
the PartnershipforDrug-Free.org, one in six Americans, or 36 
million people, have bought medication online without a valid 
prescription?
    Mr. Sklamberg. Yes.
    Mr. Murphy. And given all this, would it be fair to 
conclude there are probably millions and millions of Americans 
right now who have in their purse, their medicine cabinet, 
their pocket some significant safety risk of some medication 
that they may be taking today?
    Mr. Sklamberg. There are millions of Americans now who may 
very well have what they think is medication but that in 
reality could make them very sick.
    Mr. Murphy. While I am asking these questions, I went into 
an online pharmacy, and there's cancer drugs here and 
hypertension and psychiatric drugs, et cetera. I could just tap 
a button here, buy these. No one is asking me any questions, 
and I would assume that none of that is helpful. So this is 
really a major public health nightmare.
    Mr. Sklamberg. It is a major and growing problem.
    Mr. Murphy. Could the CD-3 device that the FDA is 
developing be made available to pharmacies or clinical settings 
or others to help spot counterfeit drugs?
    Mr. Sklamberg. Right now it is still in the early stages. 
We developed it a short time ago. We have something like about 
25 of them now. There are, to put the number in perspective, 
1.2 million international mail entries in the United States 
every day, so we have about 25 of these. We are testing them. 
We are working on agreements with private industry to scale it 
up.
    Mr. Murphy. Just make sure that those aren't counterfeit?
    Mr. Sklamberg. Yes. No, this one is real. But they are an 
important tool because they can do kind of a quick test, but 
they are not a panacea for two reasons. First of all, in terms 
of building a criminal law enforcement case, it catches what 
you think is counterfeit. If you are actually going to build a 
criminal case, then you have to test it and send it to a lab 
and do that right because the criminal law has standards for 
evidence that are, you know, awfuly stringent.
    Mr. Murphy. There are also spectrometers that test the 
chemical content, and we will probably hear about that from the 
second panel.
    Mr. Sklamberg. Yes.
    Mr. Murphy. Let me ask this. Heather Bresch, who is the CEO 
of Mylan Laboratories, which is headquartered in my district, 
has plants in the United States and India, and the New York 
Times recently stated that the increased regulatory scrutiny in 
India was long overdue. Do you agree that we need to have 
greater scrutiny in places like India and China, and what are 
the concerns about counterfeit drugs specifically related to 
India?
    Mr. Sklamberg. I would say that as the supply chain of both 
legitimate and counterfeit drugs grows and becomes more 
international, FDA has to step up its international presence, 
which is what we have been doing. So for the legitimate supply 
chain, we have been using the tools that you gave us in FDASIA, 
for example, with ways of defining risk more clearly, ways of 
keeping drugs out, to keep drugs that are suspected of being 
adulterated out. We have increased foreign presence and 
increased the number of foreign inspections, of the legitimate 
supply chain.
    We have to act aggressively in the legitimate supply chain 
when we encounter fraud that calls into question the integrity 
of the products, the integrity of the applications, and of 
course, as the legitimate industry grows, there is also the 
illegitimate industry around the world that is growing and what 
is happening that makes it particularly challenging for us from 
a law enforcement perspective is, it is no accident that in the 
counterfeit industry, it is developing in places where we do 
not have mutual legal assistance treaties, in places where we 
don't have extradition agreements, and it makes it harder for 
us to investigate those folks if they are in a country where we 
don't have the normal--we don't have the avenues of federal 
criminal law enforcement cooperation that we do in some other 
countries. So they are smart, they are careful, and what they 
are doing is evil, and so we have to, when we do catch them, be 
very aggressive and try to get penalties that will not only put 
the person in prison but send a very, very strong message.
    Mr. Murphy. Thank you. I hope some other members will 
follow up and get some more details and recommendations for 
Congress.
    I am out of time now, and turn to Ms. DeGette for 5 
minutes.
    Ms. DeGette. Thank you very much, Mr. Chairman.
    Mr. Sklamberg, I just want to ask you quickly, it sounds 
like the penalties are too low for these counterfeiters, but on 
the other hand, if we increase the penalties, I want to make 
sure that that is going to have a deterrent effect. And I have 
a background before I came to Congress in criminal law, and one 
thing is that penalties don't deter people unless they think 
there is a likelihood that they might get caught. So I want to 
ask you, under the current system, if Congress just increased 
penalties and did nothing else, would that solve the problem?
    Mr. Sklamberg. I think obviously penalties are an important 
step in the process, and let me agree with you, Ranking Member 
DeGette, and particularly single out one penalty that is 
particularly low. Foreign unapproved drugs which pose the same 
public health risk as a counterfeit drug, they could be----
    Ms. DeGette. I understand. I am sorry, I don't have very 
much time. So if we increase those penalties, do you think that 
would defer people from counterfeiting those drugs?
    Mr. Sklamberg. I think it would increase the frequency at 
which those cases are investigated. I think it would increase 
the frequency which----
    Ms. DeGette. Because prosecutors would take it more 
seriously?
    Mr. Sklamberg. Yes, and it would increase the penalties.
    Ms. DeGette. Thanks. Now, do you think the problem of 
counterfeit drugs has gotten worse in recent years?
    Mr. Sklamberg. Yes, and more sophisticated?
    Ms. DeGette. And what new methods are the counterfeiters 
using to evade detection?
    Mr. Sklamberg. They are more effectively hiding their money 
around the world and they are more effectively using Web sites 
around the world, hundreds and hundreds of rogue Web sites 
linked together. They resemble international organized crime 
and they are using the tools of it.
    Ms. DeGette. OK. And that is why you think we need more 
serious investigation and prosecution?
    Mr. Sklamberg. Yes. It is hard to prosecute international 
organized crime.
    Ms. DeGette. They are going to be more sophisticated on 
that end, and we have got to be more sophisticated.
    Can you talk to us for a minute about the Office of Drug 
Security, Integrity and Recalls, about when the office was 
created, what its mission is, and has it been successful in 
addressing the supply chain threat?
    Mr. Sklamberg. Yes, the Office of Drug Supply, Integrity, 
and Recalls is part of the Center for Drugs' Office of 
Compliance, which I used to be director of. That office, ODSIR, 
as it is called, was created in 2011, I believe, and the part 
it plays in this is, it is the office charged with implementing 
the track-and-trace aspect of the DQSA, and number two, when we 
have a counterfeit incident, part of it is law enforcement, 
part of it is public health notification.
    Ms. DeGette. Right.
    Mr. Sklamberg. So when we have an incident like with 
Avastin a couple of years ago, ODSIR sent out 1,500 letters to 
the medical community that note, here is a drug that you have 
that you think is Avastin that is actually a counterfeit. This 
protects patients, and also works to educate the medical 
community.
    Ms. DeGette. So do you think it is working, or could it be 
working better?
    Mr. Sklamberg. I think it is working quite well, and of 
course, we always want it to work better.
    Ms. DeGette. And what could you do to make it work better?
    Mr. Sklamberg. We would, and are, putting more resources 
into the problem, and we think working on implementing track 
and trace and further educating the medical community----
    Ms. DeGette. Will help? OK.
    Mr. Dingell. Would the gentlewoman yield?
    Ms. DeGette. I would love to yield to my friend, Mr. 
Dingell.
    Mr. Murphy. Just so people could hear, his microphone 
wasn't on, he is asking if you could submit to the committee 
what changes you would suggest that we make.
    Mr. Sklamberg. We would be glad to.
    Ms. DeGette. Thank you.
    Now, I want to talk about resources for a minute because 
this FDA report that the chairman referenced in his opening 
statement says that the FDA is inspecting the foreign sites 
once every 9 years compared with the domestic sites every 2 
years. Is that because of a lack of resources, Mr. Sklamberg?
    Mr. Sklamberg. That was a relic of the way the drug 
industry looked years ago. FDASIA has----
    Ms. DeGette. No, no, I mean why only once every 9 years? Is 
that because of a lack of resources to do it?
    Mr. Sklamberg. That was the difficulty and expense of 
foreign inspections and the logistics.
    Ms. DeGette. So your answer is yes?
    Mr. Sklamberg. It is more challenging to do foreign 
inspections than domestic ones.
    Ms. DeGette. OK. So what would the FDA need to do more 
frequent inspections? Would you need more resources to do that?
    Mr. Sklamberg. As we have gotten more resources, we are 
able to increase the foreign inspections.
    Ms. DeGette. So do you have enough resources to do these 
foreign inspections at the regularity you think you need to do 
them?
    Mr. Sklamberg. We found that as the resources have 
increased with user fees, generic drug user fees, we have been 
able to increase it, so there is a direct relationship.
    Ms. DeGette. So answer my question, please. Do you have 
enough resources to be able to do these inspections with the 
regularity you think you need to do them?
    Mr. Sklamberg. We have the resources to do that now. The 
thing is, the situation is going to grow and grow and grow in 
the future as the percentage----
    Ms. DeGette. You may not have the resources in the future?
    Mr. Sklamberg. We would have to evaluate that in the 
future, but the situation is growing.
    Ms. DeGette. OK. Thank you.
    I yield back.
    Mr. Murphy. The gentlelady yields back. I now recognize the 
vice chair of the full committee.
    Mrs. Blackburn. Thank you, Mr. Chairman. I want to thank 
you all for being with us today, and as you can see, it is an 
issue that we are all quite concerned about.
    Mr. Sklamberg, CSIP, are you familiar with the Center for 
Safe Internet Pharmacies?
    Mr. Sklamberg. I am.
    Mrs. Blackburn. OK. Talk a little bit about who they are 
and how you are working with them, and just for the audience so 
that they will know, this is a group that is working Google, Go 
Daddy, IPEC, and trying to root out and keep some of these 
rogue Web sites out, and I would love to hear how you are 
interfacing with them because it seems as if they as an 
industry voluntarily are seeing some results.
    Mr. Sklamberg. Yes. What we do with CSIP and with other 
folks in industry, be they credit card companies and others, is 
when we obtain information about a counterfeit or when industry 
does, they report it. Now, it is important that, for example, 
if it is a Web site, that the Web site be taken down; if it is 
a credit card company, that the credit account be disabled.
    Mrs. Blackburn. Right.
    Mr. Sklamberg. That is challenging.
    Ms. Blackburn. Right, and payment processors.
    Mr. Sklamberg. And payment processors as well.
    Mrs. Blackburn. They have to participate with it. Has 
Google using the AdWords program to permit only U.S.-based 
online pharmacies, has that been helpful?
    Mr. Sklamberg. Well, Google, as you know, entered into an 
agreement a couple of years ago where they forfeited $500 
million because of the AdWord program had let in Canadian 
unapproved drugs. As a result of that, Google has been 
cooperating with us in our efforts.
    Mrs. Blackburn. I think all of us have a tremendous amount 
of concern about the rogue Web sites and the rogue pharmacies 
and the damage that it does, and also the phishing and the data 
security issues, you know, it is just a really sticky ball of 
wax. So I am pleased to know that you are working with them and 
that you all are information sharing. Do you have the right 
authority to share information back and forth, or is there some 
changes that we should make to allow that?
    Mr. Sklamberg. We have authority but one of the things that 
is difficult is, just as an example, Internet service providers 
want to be cooperative with us, so we have all these Web sites. 
Right now we have to get grand jury subpoenas to obtain 
information that they want to give to us about Internet service 
providers. We don't have an administrative subpoena authority 
targeted even to just Internet service providers. That is 
incredibly time-consuming and cumbersome for the Assistant 
United States Attorney who would get the case and then for us, 
and it slows us down. We have to get court orders for some of 
our actions and subpoenas from others, and there would be a 
series of tools that we could get that would make these 
investigations move more quickly, and since we are dealing 
basically with organized crime, and that is what it is, 
organized crime using medicine, fake medicine, we have to have 
tools that are as fast as the criminals are.
    Mrs. Blackburn. So as we look at data security and privacy 
issues, we need to review the elements that would allow you 
greater access and speed, a little bit of clarity?
    Mr. Sklamberg. I think that would help.
    Mrs. Blackburn. OK. Just as I have a little bit of time 
left, the botulinum issues, and I know everybody thinks in 
terms of just Botox but of course some of my researchers at our 
facilities in Tennessee, migraines, Parkinson's, cerebral palsy 
for children and they are using the drug there, and I know you 
all have had some processes in place dealing with the 
unlicensed suppliers of the botulinum and also your security 
supply chain pilot project. I am hopeful that you are seeing 
companies that are applying for this pilot. How many----
    Mr. Sklamberg. Twelve so far, and the program basically 
just started, so----
    Mrs. Blackburn. And you can take up to 100?
    Mr. Sklamberg. That is correct.
    Mrs. Blackburn. OK. And in what countries are the companies 
located?
    Mr. Sklamberg. A variety of countries. I don't have the 
information. I can get that to you.
    Mrs. Blackburn. I would like you to submit for the record 
just for our understanding as we go through and monitor it.
    Mr. Sklamberg. We would be glad to.
    Mrs. Blackburn. And I think also we are going to want to 
look at the successes that you have in analyzing the project, 
how you are equating the variables, and then what you see as 
your deliverables from that project as we move forward. But 
thank you for the update.
    Mr. Sklamberg. Thank you.
    Mrs. Blackburn. And I will yield back, Mr. Chairman.
    Mr. Sklamberg. We would be glad to get that to you.
    Mr. Murphy. The gentleman yields back, and I now recognize 
Mr. Waxman.
    Mr. Dingell. Will the gentlewoman yield?
    Ms. Blackburn. I yield.
    Mr. Dingell. Will you submit for the record the suggestions 
that you essentially were about to make to my colleague about 
what it is you need in the way of authority to address the 
questions that you were just describing?
    Mr. Sklamberg. We would be glad to, sir.
    Mr. Dingell. I thank the gentlewoman for yielding.
    Mr. Murphy. Thank you. Now Mr. Waxman is recognized for 5 
minutes.
    Mr. Waxman. Thank you very much, Mr. Chairman.
    Mr. Sklamberg, Congress has made a number of changes to FDA 
law in the last year and a half that should help fight 
counterfeit drugs. For example, the FDA Safety and Innovation 
Act increased the maximum prison time to 20 years for knowingly 
and intentionally selling a counterfeit drug or knowingly and 
intentionally adulterating a drug such that it has a reasonable 
probability of causing serious harm or death, and the Drug 
Quality and Security Act sets up a track-and-trace system that 
over the next 10 years should make it increasingly difficult 
for criminals to introduce counterfeit drugs into the drug 
supply. Can you tell us how useful these new laws have been?
    Mr. Sklamberg. They have been quite useful, but of course, 
they don't solve the entire problem. I will take track-and-
trace as an example, which I want to thank this committee for 
its work on. Track-and-trace works when you have folks in the 
supply chain who want it to work, who want to look and see, is 
this a legitimate product that I'm dispensing or that I'm 
getting? What it doesn't do is stop a couple of unscrupulous 
people or criminals who want to have a transaction together 
where they are selling a crooked product. So if you have a 
person outside the legitimate supply chain selling to another 
person outside the legitimate supply chain administering it to 
somebody, that is not what track-and-trace is intended for, and 
track-and-trace wouldn't stop that. The increased penalties in 
FDASIA, Congressman Waxman, that you mentioned, are useful but 
there is still a major gap, and this is foreign, unapproved 
drugs, and they are as dangerous as counterfeits but you can 
use--in a criminal case--and I used to be a prosecutor, and one 
of the hard parts of it is, you have to prove what the person 
did and the mental state. So to get the counterfeit penalties, 
you have to prove that the person knew it was a counterfeit 
that they were selling and you have a conspiracy involving 
maybe dozens of people, hundreds of people, conceivably. We are 
not going to be able to arrest all of them.
    So you may be able to show that, for example, it is a 
foreign, unapproved drug and not a counterfeit. If you sell a 
foreign, unapproved drug and the government can't prove fraud, 
which would often be the case because it is not purporting to 
be the U.S. drug, it is a foreign, unapproved drug, and a 
person gets sick and dies, that is a misdemeanor, even with the 
changes that were made over the last couple of years. If you 
are selling a dangerous product that causes a death, then the 
criminal penalty under federal law in that situation would be a 
misdemeanor.
    Now, if there is fraud, the penalties go up under the Food, 
Drug, and Cosmetic Act. There is also mail fraud, wire fraud, 
other statutes, but we have that gap.
    Mr. Waxman. I also mentioned in my opening statement that 
if you prove an intent to violate the law, which is necessary 
before you can win a criminal case for drug counterfeiting, 
then even if we win, the maximum penalty for some violations 
with potentially life-threatening consequences is only 3 years. 
Isn't that correct?
    Mr. Sklamberg. Under the Food, Drug, and Cosmetic Act, for 
fraud, it would be 3. Specifically for counterfeit, it is 
higher. But again, counterfeit versus foreign unapproved from a 
public health consequence, there is really often not much of a 
difference.
    Mr. Waxman. So what impact do these weak penalties have on 
our ability to deter drug counterfeiting?
    Mr. Sklamberg. They do significantly. I mean, even at the 
front end. When a case is presented to a federal prosecutor who 
has 200 other investigations and they have narcotics 
conspiracies, public corruption, fraud, they are also looking 
at this. It is not an area of law they have seen before, and if 
an agent comes to them and says here is a case and they are 
looking and they will say, well the penalty is 1 year or 3 
years, so I can do an investigation, take 2 years, put the 
other cases in the back of my file cabinet, and as I look at 
the federal code is, and the federal is Congress's priority for 
the crime, it is 3 years, the penalty that was in place since 
1938. Rationally, that prosecutor is going to look at this and 
say should I prioritize this, and I am not faulting that 
prosecutor. That would have been my calculus. And it affects 
the whole system and kind of what drives the priorities in the 
whole system.
    Mr. Waxman. Well, as my colleagues have mentioned, we need 
your recommendations for what additional tools you need to help 
prevent these kinds of actions and to discover such actions and 
to punish these actions, so we will look forward to getting 
further recommendations from you.
    Thank you, Mr. Chairman.
    Mr. Murphy. In anticipating Mr. Dingell's question, details 
of that to this committee would be most welcome of all those 
processes Mr. Waxman asked for.
    Mr. Sklamberg. And my answer is the same: we would be glad 
to.
    Mr. Murphy. Thank you. I am learning from the master. We 
only have a few months left of him, so we are all trying to 
learn from him.
    I now recognize the vice chair of the subcommittee, Dr. 
Burgess, for 5 minutes.
    Mr. Burgess. Thank you, Mr. Chairman.
    Mr. Sklamberg, I just really want to underline the point 
you just made, because on the penalty aspect, there is the 
deterrent, and then from a prosecutor's perspective, there is 
the priority, and we are damaging ourselves on both sides. We 
are not really providing a deterrent to the criminal, and then 
on the other side, we are not really prioritizing it or getting 
that impetus to the prosecutor. Did I understand you correctly?
    Mr. Sklamberg. That is correct, Dr. Burgess.
    Mr. Burgess. And you think that changing that certainly 
would alter the priority from a priority standpoint at the 
prosecutorial level?
    Mr. Sklamberg. It would make it easier for FDA to present 
those cases to prosecutors, yes.
    Mr. Burgess. Now, I do want to also go back to something 
that Ms. DeGette was saying on whether or not you have the 
funding that you need to inspect foreign sites. My 
understanding with the user fee agreement that was reauthorized 
in 2012 that we gave you, the FDA, the authority, you go where 
you need to go, you stay as long as you need to stay. Is my 
understanding correct?
    Mr. Sklamberg. That is correct. One thing that we did in 
the last round of the user fee negotiations is went to a goal 
of parity of foreign and domestic inspections. So our foreign 
inspection numbers go up every year, and they are going to move 
up to get into line with what the reality is. And of course, in 
the next round of user fee negotiations, I am sure we will look 
at what funding would be appropriate at that time.
    Mr. Burgess. And I also presume that during that time you 
will provide the committee with feedback as to the utility of 
that flexibility which the law, the committee enabled you to 
have the last time this was reauthorized.
    Mr. Sklamberg. Yes, we would do that.
    Mr. Burgess. I will also point out, it was probably prior 
to your time with the agency, but Mr. Sharfstein came to this 
committee in 2007 or 2008, and in response to that same 
question, perhaps asked by another member, his answer was, we 
have everything we need.
    So look, I have been on this committee for 10 years. I 
understand how this threat has changed, how the globalization 
of our economy has in fact affected your ability to do your 
work within our shores. So I appreciate the fact that it is an 
evolving process, but as Mr. Dingell has pointed out, we need 
your feedback so that we can help you keep up with the threat 
as it emerges. No one knew back in 1998 when some of these 
stories were first being written the degree to which it would 
evolve today.
    Mr. Sklamberg. Yes, and that is why when we have the 
reauthorization of the user fees, I am sure, FDA and the 
committee will be engaged.
    Mr. Burgess. But don't wait. Let us know along the way.
    Now, Ms. Blackburn was talking, and I didn't realize this, 
you have an agreement with Google about online pharmacies?
    Mr. Sklamberg. There was, I believe it was in 2011, Google 
entered into a non-prosecution agreement where they forfeited 
$500 million, and as part of that, they established a 
compliance program.
    Mr. Burgess. Well, I don't want to speak out of school, but 
I just typed in ``cheap Viagra'' to Google, and you get a lot 
of sites. Now, the House server won't let me go to any of them, 
but just so you know, I am not sure that is working all that 
well. You might want to check it out when you get to a non-
House server location.
    I do need to ask you this. In 2008, this subcommittee had a 
big investigation on, it was an active pharmaceutical 
ingredient in the drug thinner heparin imported from China, and 
it had been contaminated with a product called hypersulfated 
chondroitin sulfate, if I recall correctly, and this product 
that was adulterating the heparin not only didn't thin the 
blood, it killed the patients. So it was a real troublesome 
aspect of that contamination. I don't feel like we have ever 
received the resolution of that that we should have, so can I 
just ask you today from the FDA's perspective, is this still an 
open and ongoing investigation or have we just simply said we 
are never going to get to the bottom of this?
    Mr. Sklamberg. I would have to get back to you, Dr. 
Burgess, if I may, on that.
    Mr. Burgess. I wish you would.
    Mr. Sklamberg. I mean, there is an aspect of it that is 
open but I want to make sure about that. I know committee 
counsel has been engaged with FDA on this issue.
    Mr. Burgess. And I would just make the point again that 
this molecule, hypersulfated chondroitin sulfate, was actually 
patented in China. I believe this was criminal attempt before 
the act occurred, and as a consequence, American patients were 
killed, and from the perspective of a physician, you think of 
somebody in a dialysis center flushing a line with heparin in a 
dialysis patient and they died right after that, I mean, that 
is something they are going to have to live with for the rest 
of their lives, so this is not a small and inconsequential 
thing. We make jokes about Viagra. But this was a terribly 
significant event in the lives of patients and physicians and 
nurses across this country. I really don't want to see us not 
resolve this problem.
    So Mr. Chairman, I thank you for the time and I will yield 
back.
    Mr. Murphy. The gentleman yields back. I now recognize Mr. 
Dingell for 5 minutes.
    Mr. Dingell. Mr. Chairman, I thank you for your courtesy, 
and I commend you for this hearing. This is a very important 
hearing, and I think you have conducted it with extraordinary 
skill. I want to welcome a little later Dr. Prashant Yadav, 
which is a constituent of mine from the University of Michigan, 
who will be testifying on another panel. I am sorry I may not 
be able to be here to hear him.
    Now, the Congress has taken some remarkable steps under the 
leadership of this subcommittee and this committee, giving FDA 
the authority they need by passing the FDA Safety and 
Innovation Act, which contained a number of provisions from my 
Drug Safety Enhancement Act, and most recently the Drug Quality 
and Security Act, and I think that we can all be proud of what 
we have done, but as indicated this morning, you pointed out 
that more can be done.
    So answer if you please yes or no. One of the oldest 
challenges facing this Nation is the globalized nature of our 
drug supply chain. Commissioner, is it correct that 40 percent 
of the pharmaceuticals and 80 percent of the active 
pharmaceutical ingredients are made in foreign countries, yes 
or no?
    Mr. Sklamberg. Yes.
    Mr. Dingell. You also have a big problem with some of the 
raw materials that later go into some of these pharmaceuticals 
in their finished form, do you not?
    Mr. Sklamberg. Yes, that is correct.
    Mr. Dingell. You won't have time to answer this, but would 
you submit to us a brief comment as to whether you have 
authority to get at those people who manufacture and ship these 
into the United States and what additional authorities you 
need. The FDA Safety and Innovation Act gave your agency new 
authorities such as registration of foreign drug facilities and 
mandatory detention to help the agency deal with globalized 
drug supply chain. Is your authority there sufficient and what 
more is required, if you please, and answer that for the 
record.
    Now, Commissioner, does FDA need additional authorities to 
keep Americans safe from counterfeit and substandard drugs that 
are coming in from abroad? Yes or no.
    Mr. Sklamberg. Additional authorities would help us do the 
job.
    Mr. Dingell. Would you please define in a written response 
for inclusion in the record what is required there?
    Now, Commissioner, does FDA have the resources it needs to 
carry out the new authorities granted to the agency in the FDA 
Safety and Innovation Act? Yes or no.
    Mr. Sklamberg. We found that additional funding has helped 
us implement statutes like FDASIA.
    Mr. Dingell. Would you please submit to us what is needed 
there?
    I happen to believe one key reason that counterfeit and 
substandard drugs are still a public health problem in the 
United States is the penalties are not sufficient to deter 
criminals from engaging in this activity. We seem to have an 
agreement on this. I am wondering if we should make the 
penalties which we collect be turned over to Food and Drug for 
additional enforcement. We do that on narcotics. Would this be 
helpful, and would you submit additional comments on how that 
would work to assist you with your business?
    Mr. Sklamberg. We would be glad to.
    Mr. Dingell. Now, Commissioner, the maximum penalty you 
mentioned for these activities is only $10,000 or 3 years in 
prison. What should it be, and please define that by relating 
it to other questions involving narcotics and other events 
which are essentially similar? Would you submit that for the 
record?
    Mr. Sklamberg. We would be glad to.
    Mr. Dingell. Now, Commissioner, is it correct that a Utah 
man was recently convicted of shipping over $5 million in 
unapproved drugs but received only a 1-year prison sentence?
    Mr. Sklamberg. That is correct.
    Mr. Dingell. It seems rather contemptible.
    Now, Commissioner, does FDA support strong civil monetary 
penalties against those charged with misbranding or 
counterfeiting drugs? Yes or no.
    Mr. Sklamberg. We have in the past, I believe, but we can 
get back to you on that.
    Mr. Dingell. I would like to have something on the record. 
This reminds me of some great lines from Gilbert and Sullivan 
where the emperor indicated that it was his purpose so sublime 
to make the punishment fit the crime, and it would seem that 
this committee might want to do something of that sort today, 
and with your guidance, I think we can do it.
    Mr. Chairman and my colleagues, I thank you. You have been 
very gracious to me this morning.
    Mr. Murphy. Thank you for also not singing those lines. We 
appreciate that.
    I now recognize Mr. Griffith from Virginia for 5 minutes.
    Mr. Griffith. Thank you, Mr. Chairman, and I appreciate a 
lot of the questions that have been asked today. Let me ask 
some questions. I agree that we ought to figure out how we need 
to do this.
    In regard to the situation that Mr. Dingell just mentioned 
in Utah, was the gentleman charged with any other crimes as a 
part of his scheme?
    Mr. Sklamberg. I don't recall right now. Maybe I can get 
back to you if we can go ahead with another question.
    Mr. Griffith. That will be fine, because previously you 
correctly stated that a lot of times there are other charges 
that can be brought and that those may carry additional time, 
and so I guess what I would ask you is, is that since law 
enforcement can bring other wire fraud, mail fraud, whatever 
other charges, are you seeing that prosecutors are looking at 
that and raising up the priority on these crimes, and do we 
need to look at raising the penalties or do we just need to 
encourage prosecutors to go forward on all fronts as opposed to 
just one?
    Mr. Sklamberg. I think what is happening, Congressman 
Griffith, is that when the case is initially presented to the 
prosecutor, they are not going to know whether they are going 
to be able to prove the fraud. So if they prove fraud, mail 
fraud's maximum penalty is 20 years, wire fraud is 20 years. If 
I sell you a fake Rolex and mail it to you, I am getting 
hammered. But they don't know if they're going to be able to 
prove that, and that is going to require a lengthy, years' long 
grand jury investigation.
    Mr. Griffith. So that is what discourages the prosecutions?
    Mr. Sklamberg. Up front. Now, they are going to stack the 
charges the best they can if they prove it.
    Mr. Griffith. Sure. Now, obviously you have got a better 
shot with somebody in Utah of apprehending the individual than 
you do if they are from some foreign nation. Do you think that 
there is a better chance of collecting if we raise the 
penalties or the civil penalties and criminal penalties on the 
financial side more than the prison time, would that have a 
greater impact on the foreign imports?
    Mr. Sklamberg. I think enhancing, for example, asset 
forfeiture and seizure would make a big effect because we can 
then take the money, which would have a big effect, deterrence, 
and also just reducing the upside of engaging in the criminal 
activity in the first place.
    Mr. Griffith. And I would agree that a lot of times that 
helps law enforcement in other fields and maybe this is one of 
those areas where we need to agree with Mr. Dingell when he 
said that perhaps we need to see that the enforcement agency 
gets at least a portion of those funds back to help them go 
after other bad actors in this area. I do appreciate that.
    Let me ask you this, because you talked earlier about the 
prioritization of the various crimes by a prosecutor. If we 
raise these penalties up, at what point do we then deprioritize 
something else that we may consider important?
    Mr. Sklamberg. I refer you to the Department of Justice. 
No, obviously that always is a problem, and to a prosecutor, 
every case is like their baby. But these are ones, I think 
because they are not common. Prosecutors or white-collar 
prosecutors will see mail fraud cases a lot, typical ones. They 
will see an odometer rollback case much more than they would 
see a counterfeit drug case. We will present the public health 
risk and we will convince them, and we are not saying 
Department of Justice is not cooperative; they are. It is just 
that the maximum punishments reflect Congress's sense of the 
priority, and you go into court, you have a trial. We have a 
case of an unapproved oncology drug. It was a trial, I believe, 
late last year. The person was convicted of over 20 
misdemeanors, and they were just misdemeanors. And to a 
rational prosecutor, do you want to spend a couple of years 
investigating what turned out to be a misdemeanor?
    Mr. Griffith. Sure. Let me switch gears, and I know it is 
not your area of jurisdiction but I would ask you to take the 
message back. We have been talking about FDA's authority over 
the drug supply chain, the Drug Quality and Security Act. That 
also had in it an issue of compounded drugs. Again, I know it 
is not your jurisdiction but I am continuing to follow the 
FDA's regulation activities in that area, and I would remind 
the agency that the DQSA was supposed to preserve the status 
quo when it comes to compounding drugs for office use and the 
repackaging of sterile drugs. Unfortunately, we are starting to 
see some reports that indicate that warning letters are being 
sent to prohibit these activities by traditional pharmacies, 
which were going on before we passed the bill and there was 
kind of an agreement between the House and the Senate that we 
would leave that as the status quo. So if you could just take 
it back and just tell them we will keep monitoring this, but I 
am concerned about that.
    Mr. Sklamberg. OK.
    Mr. Griffith. I appreciate the work you are doing, and this 
hearing has been great. Thank you for your testimony, and I 
yield back, Mr. Chairman.
    Mr. Sklamberg. Thank you, sir.
    Mr. Murphy. I now recognize Mr. Johnson for 5 minutes.
    Mr. Johnson. Thank you, Mr. Chairman, and gentlemen, thank 
you for your testimony here today.
    A large percentage of the people that I represent in 
eastern and southeastern Ohio are seniors, and often with 
limited and fixed incomes. There are many seniors who struggle 
with the cost of prescription drugs, and I have heard from some 
individuals who look to purchase drugs from Canada as a way to 
achieve drastic savings on their prescriptions. But I also have 
concerns about these practices and how to protect seniors from 
illegal pharmacies that may be distributing dangerous drugs and 
playing on their need to save.
    So can you clarify the legality of seniors purchasing drugs 
either in person or online form Canada in order to achieve 
savings? Is this a legal practice?
    Mr. Sklamberg. It is not a legal practice.
    Mr. Johnson. It is not a legal practice?
    Mr. Sklamberg. It is not legal.
    Mr. Johnson. It is not legal? OK. Thank you.
    Are most Internet pharmacies that purport to be in Canada 
actually not in Canada or certainly not providing drugs that 
originated in Canada?
    Mr. Sklamberg. We found many, many online pharmacies that 
purport to be Canadian that are not Canadian, and it is a ruse 
that is used because a lot of vulnerable Americans and people 
who are very sick, seniors, they will think well, Canada, that 
is safe, and it turns out it is not Canada, it is someplace 
like we saw in the videos.
    Mr. Johnson. Right. OK. Didn't FDA's Operation Bait and 
Switch survey show that about 85 percent of the online 
pharmacies were not from Canada? Is that true?
    Mr. Sklamberg. I don't remember the exact statistic but the 
number is very high.
    Mr. Johnson. Can you verify that back to me, please?
    Mr. Sklamberg. It is correct, 85 percent.
    Mr. Johnson. OK. Great. I am not a lawyer, but I don't 
typically ask questions I don't already know the answer to.
    Mr. Sklamberg. Well, happily I had someone with me who 
could answer that.
    Mr. Johnson. Thank you. Last year, the FDA worked with 
international regulatory and law enforcement agencies to shut 
down more than 1,600 illegal pharmacy Web sites. Is it true 
that most of the Web sites represented themselves as Canadian 
pharmacies claiming that the medicines that they sold were FDA 
approved or brand-name drugs, which they were not? Is that also 
true?
    Mr. Sklamberg. I believe that many of them were. I am not 
sure if it is the majority. Yes.
    Mr. Johnson. OK. Thank you.
    Mr. Murphy. Mr. Johnson?
    Mr. Dingell. Will the gentleman yield quickly? And I 
apologize to him.
    This is a very excellent point. Would you submit something 
for the record so that we have something that would tell us 
what would assist the gentleman in understanding and help me to 
understand what is going on? And I will ask unanimous consent 
that the gentleman get the time back that I have taken from 
him.
    Mr. Johnson. My pleasure, Mr. Chairman.
    Even in the instance of an online pharmacy actually being 
in Canada, haven't some of these Internet pharmacies come under 
criminal investigation?
    Mr. Sklamberg. Correct.
    Mr. Johnson. All right. Well, shifting gears here just for 
a second, let me see if I can get through this next one.
    In 2005, five teenage boys from three different States died 
after ingesting raw DXM powder that they bought in bulk from an 
online source. All of these tragic deaths were linked to the 
same Internet supplier operating out of Indianapolis where two 
men bought the drug in bulk from India, repacked it and sold it 
over the Internet. Investigators estimated they made $70,000 on 
sales of the misbranded drug into interstate commerce. This is 
every parent's worst nightmare. These three incidences have 
been the subject of scrutiny by this committee in the past when 
Chairman Upton introduced legislation on the matter in 2009, 
and I am proud to continue his work on the matter along with my 
colleague, Mr. Braley, through the introduction of the PACT 
Act, which would ensure that only legitimate entities 
registered with the FDA or comparable State agencies can 
purchase raw, bulk DXM. But there are still questions to be 
answered.
    How did these young men obtain this drug online? How easy 
is it still for teens to purchase bulk drugs online in order to 
abuse the substances they get?
    Mr. Sklamberg. It is very easy to purchase drugs online, 
whether it be teens or adults, and teens are better at using 
the Internet than adults.
    Mr. Johnson. That is true. How prevalent are similar 
circumstances to the one I just described? How prevalent are 
they today in your experience and what you guys are seeing?
    Mr. Sklamberg. We don't have a number specifically on teens 
versus adults but I would say it would stand to reason that 
that problem is prevalent.
    Mr. Johnson. And it is growing.
    Mr. Sklamberg. As the whole problem is, I would think so.
    Mr. Johnson. What is being done to protect our Nation's 
young people and crack down on the illegal online drug sales 
targeting those who aim to abuse the substances?
    Mr. Sklamberg. This would be part of our larger effort 
regarding rogue Internet pharmacies and foreign, unapproved 
drugs and counterfeit drugs, and obviously we prioritize more 
vulnerable victims in how we look at cases. So it would be part 
of that effort and obviously a very important part of it.
    Mr. Johnson. OK. Thank you, Mr. Chairman, and I yield back.
    Mr. Murphy. Thank you. I now recognize Mr. Long for 5 
minutes.
    Mr. Long. Thank you, Mr. Chairman, and thank you all for 
being here today and for your testimony.
    Mr. Sklamberg, we asked you for a lot of things here today, 
a lot of questions we have of you, but a question I have for 
you is, if you were going to say the top three things that you 
need from us, that you need from Congress--now, you rolled your 
eyes, so I don't know what that means. But what can we do to 
help this dire situation?
    Mr. Sklamberg. I wasn't rolling my eyes. I was thinking 
of----
    Mr. Long. When I first ran for office, my political people 
said that I did that and they told me not to do that.
    Mr. Sklamberg. Oh, OK.
    Mr. Long. I still do it.
    Mr. Sklamberg. I have never won an election nor run for 
office.
    There are a series of things that I think would help us. 
One is, we talked about increased penalties, we talked about 
increased authorities.
    Mr. Long. Let me step you on that one. I had to step out of 
the room for a moment, and I don't know if I missed it or not, 
but what was the upshot of the video we saw, the gentleman on 
there that had this huge operation and apparently was induced 
to come to the United States after 7 months of communication? 
What was the final upshot of that?
    Mr. Sklamberg. I don't remember what the ultimate 
disposition of the case was. He was arrested and sentenced but 
I don't know what the sentence was exactly. Oh, 87 months' 
imprisonment.
    Mr. Long. OK. I interrupted you. Number one is larger 
sentences. Number two?
    Mr. Sklamberg. Yes. Now, that is one where we were able to 
prove the crime set at the higher penalties so ones I had 
mentioned before where we were unable to prove counterfeit 
drugs or fraud, then you end up with misdemeanors. So I think 
some of the increased enforcement tools we talked about, asset 
forfeiture, we talked about seizure, we talked about authority 
for us to obtain records that would be useful in these cases. I 
think that for us, we are working with our foreign regulatory 
partners to enhance international cooperation, so that is more 
that FDA is doing, because as this international organized 
crime activity grows, that is something we have to do.
    Mr. Long. Are we getting more cooperation?
    Mr. Sklamberg. From certain locations. It is sporadic, and 
as I had mentioned, I think, to one of your colleagues, 
international organized crime is clever and so they are going 
to situate themselves in places that have minimal cooperation 
with the United States, which makes detection harder and then 
makes investigation and apprehension and punishment harder on 
the back end.
    Now, there are lots of countries we have very cooperative 
relationships with and their law enforcement.
    Mr. Long. Let us know what we can do to help you in those 
instances, if you will.
    Mr. Sklamberg. Yes, sir.
    Mr. Long. And I would like to yield the balance of my time 
to my friend, Dr. Burgess, from Texas.
    Mr. Burgess. I thank the gentleman for the time.
    Mr. Sklamberg and Mr. Kubiak, a question to both of you, 
but really an observation. What is the main driver here? It is 
the ability to make money, and of course, we know people make 
money in illicit drug trade all the time, but in this instance, 
you can do a counterfeit drug and no one is shooting at you on 
the border so in some ways it is a safer occupation for someone 
who wants to work on the wrong side of the law, and then as you 
pointed out, the penalties are not all that great.
    Prior to the passage of the Medicare Modernization Act in 
2003, you did see the news stories of large amounts of seniors 
getting on buses and going to Canada to shop for their 
medications. I don't know if you are aware of it, but the 
Affordable Care Act, which began working one way or another on 
January 1st, individuals now buying the individual market, a 
bronze plan, back in my home State of Texas, a deductible is 
$6,000. So people who have been used to receiving their 
medications where something is paid for by the insurance 
company now find themselves on the hook for a big part of that 
out-of-pocket expense. Some might even argue they are 
functionally uninsured when it comes to their prescription drug 
benefit. Are you prepared--what is going to be the natural 
tendency of someone who needs whatever, Crestor, Lipitor, and 
now they are having to pay the full out-of-pocket freight or 
the full freight for the cost of that medication, are they now 
likely to seek a lower cost on a ready device like their iPad 
or their laptop?
    Mr. Kubiak. Sir, yes, I think they are likely to seek that. 
I think the challenge, though, is they need to understand who 
they are buying it from and----
    Mr. Burgess. I have no quarrel with that, and I don't mean 
to interrupt you but the time is about to expire. Are you 
preparing yourself for the fact that there is the possibility 
that this type of activity may increase and may increase 
significantly for a population where historically it hasn't 
been happening?
    Mr. Kubiak. Congressman, I think across the board we have 
been preparing ourselves for an increase in continued growth 
unfortunately in this program and this problem over time, and 
as we deal with that and deal with these illegal Internet 
pharmacy sites, we are trying robustly through education and 
also through enforcement to shut down and close out those 
opportunities to purchase those that are not secure sites.
    Mr. Burgess. I am just not sure you recognize what is 
coming your way, and I wanted to warn you what is right over 
the horizon because people are going to act in their own self-
interest when they are faced with those questions.
    Thank you, Mr. Chairman. I will yield back.
    Mr. Murphy. The gentleman yields. Yes, Mr. Dingell?
    Mr. Dingell. I ask unanimous consent that the gentleman's 
time be extended for 1 minute, and I would ask that the 
gentleman yield to me.
    Mr. Burgess. I knew there was a catch.
    Mr. Murphy. I will tell you what, Mr. Chairman, I have one 
follow-up question so I will give you a minute and I will give 
myself a minute.
    Mr. Dingell. I will yield to you, Mr. Chairman. You are 
more important than I am in this place.
    Mr. Murphy. Well, thank you. Let me start with mine and 
then I will yield the rest to you.
    I want to ask Mr. Kubiak just as a follow-up, are there any 
legal barriers that constrain you in sharing information with 
foreign government partners and cooperating with efforts 
against counterfeit drugs?
    Mr. Kubiak. Sir, collectively, with all the agencies that 
are represented at the Center, we have quite a broad 
capability. Individually, each of the agencies has different 
capabilities to share. So for instance, within Homeland 
Security investigation, ICE, my parent organizations, we have 
the broad ability to share information with our customs 
counterparts around the world through customs mutual assistance 
agreements, which are outside of the normal mutual legal 
assistance treaties that normally are required and that Mr. 
Sklamberg talked about earlier in the day. We do have very 
broad authority to share, and combined, I think we have those 
authorities and those capabilities that we need to do that.
    I would also suggest just if I may that an increase in the 
minimum mandatory sentence, an enhancement, if you will, for 
pharmaceuticals, for those engaged in the sale of illegal or 
unapproved drugs would be a significant improvement as well. We 
see kind of across the board that absent that increase in 
minimum mandatory sentence, an ability to hold those people 
more accountable that are engaged in the life-threatening 
activity would greatly enhance our capability to hold people 
accountable and also be a major deterrent.
    Mr. Murphy. Two things we will have to be addressing. One 
is the severity of punishment and second is the certainty of 
punishment.
    I will yield a minute to Mr. Dingell
    Mr. Dingell. I thank my friend.
    Has there ever been an international conference on this 
kind of thing so that we could get everybody together so we 
could all pull in the same direction?
    Mr. Sklamberg. There have been through a variety of 
vehicles. The World Health Organization, for example, has been 
involved in this.
    Mr. Dingell. Would something of this kind be useful again, 
given the way things are changing?
    Mr. Sklamberg. There is an established mechanism in the 
World Health Organization to deal with this issue and some 
other foreign ones. FDA is pursuing that aggressively.
    Mr. Dingell. All right. My next concern here is the hard 
fact, and that is, you have difficulty with the funding of your 
agency. If you could get the funding of your agency to do as it 
has done by the drug enforcement people where the proceeds of 
the stuff that is used in this could be seized and utilized for 
either sale so that you could get revenue or so that you could 
get other help, would that be of assistance to you in terms of 
increasing your levels of funding to deal with these kinds of 
questions?
    Mr. Sklamberg. I think if I could get back to you on the 
record for that.
    Mr. Dingell. I would rather have you do that after you have 
had a chance to think about it.
    Mr. Chairman, you have again been most courteous. Thank 
you.
    Mr. Murphy. The gentleman yields back, and with that, I 
really want to thank our two distinguished panelists. Mr. 
Sklamberg and Mr. Kubiak, you have been most helpful in giving 
us information. We will look forward to getting your follow-up 
information as soon as you can to this committee so we can take 
action from there. Thank you.
    With that, those two witnesses are dismissed and I would 
like to ask the next set of witnesses on the second panel to 
come forward, and while you are coming forward and taking your 
seat, I will introduce the panelists. Dr. Marcia Crosse is the 
Director of Health Care at the United States Government 
Accountability Office. We are also joined by Dr. Prashant 
Yadav, who is here on behalf of the Institute of Medicine. He 
is the Director of their Health Care Research Initiative. He is 
also the director of the William Davidson Institute at the 
University of Michigan. We would also like to welcome Mr. John 
Clark, who is the Vice President and the Chief Security Officer 
of Global Security in the Compliance Division at Pfizer 
Incorporated, and our other panelist is Mr. Jean-Luc Moreau, 
the Head of Product Security at Novartis Corporation. Mr. Bruce 
Longbottom is the Assistant General Counsel at Eli Lilly and 
Company, and Ms. Elizabeth Jungman is the Director of Drug 
Safety and Innovation at Pew Charitable Trusts.
    So if the witnesses are ready, I will prepare to swear all 
of you in. You are aware that the committee is holding an 
investigative hearing, and when doing so has the practice of 
taking testimony under oath. Do any of you have any objections 
to testifying under oath? All the witnesses say they do not. 
The Chair then advises you that under the rules of the House 
and the rules of the committee, you are entitled to be advised 
by counsel. Do any of the panelists today desire to be advised 
by counsel during testimony? And all of the panelists say no. 
In that case, if you would all please rise and raise your right 
hand, and I will swear you in.
    [Witnesses sworn.]
    Mr. Murphy. So now you are all under oath and subject to 
the penalties set forth in Title XVIII, section 1001 of the 
United States Code. You may now each give a 5-minute summary of 
your written statement.
    We will begin with Dr. Crosse for 5 minutes.

  TESTIMONY OF MARCIA CROSSE, PH.D., DIRECTOR OF HEALTH CARE, 
 U.S. GOVERNMENT ACCOUNTABILITY OFFICE; PRASHANT YADAV, PH.D., 
 M.B.A., DIRECTOR OF HEALTH CARE RESEARCH INITIATIVE, DIRECTOR 
OF THE WILLIAM DAVIDSON INSTITUTE, UNIVERSITY OF MICHIGAN; JOHN 
  P. CLARK, VICE PRESIDENT AND CHIEF SECURITY OFFICER, GLOBAL 
 SECURITY, COMPLIANCE DIVISION, PFIZER, INC.; JEAN-LUC MOREAU, 
 GLOBAL HEAD OF PRODUCT SECURITY, NOVARTIS CORPORATION; BRUCE 
  LONGBOTTOM, PH.D., ASSISTANT GENERAL COUNSEL, ELI LILLY AND 
COMPANY; AND ELIZABETH JUNGMAN, J.D., M.P.H., DIRECTOR OF DRUG 
          SAFETY AND INNOVATION, PEW CHARITABLE TRUSTS

                   TESTIMONY OF MARCIA CROSSE

    Ms. Crosse. Thank you.
    Chairman Murphy, Ranking Member DeGette and members of the 
subcommittee, I am pleased to be here today as you discuss the 
danger posed by counterfeit drugs.
    As we have just heard, one source of counterfeit drugs is 
Internet pharmacies. While some Internet pharmacies are 
legitimate businesses that offer consumers a safe, convenient 
and cost-effective way to obtain their medications, many are 
criminal enterprises that defraud consumers and deny patients 
effective treatments. So-called rogue Internet pharmacies often 
sell counterfeit prescription drugs, sell drugs that have not 
been approved for sale in the United States, sell drugs that 
are substandard and have no therapeutic value, and sell drugs 
that are harmful to consumers. Drugs sold by rogue Internet 
pharmacies have been found to contain too much, too little, or 
no active pharmaceutical ingredient, or the wrong active 
pharmaceutical ingredient. Even worse, these drugs may contain 
dangerous contaminants such as paint, heavy metals, or poison. 
Despite the risks, FDA reports that nearly one in four U.S. 
adults who shop online have purchased prescription drugs from 
Internet pharmacies.
    Although the exact number of rogue Internet pharmacies is 
unknown and can change daily, one estimate suggests that there 
are over 36,000 in operation, up from an estimated 34,000 less 
than a year ago. Most operate from abroad. They illegally ship 
prescription drugs into the United States, sell drugs without a 
prescription and make efforts to evade scrutiny by Customs 
officials. A recent analysis by NABP, the professional 
organization for the State Boards of Pharmacy, shows that 97 
percent of the Internet pharmacies it reviewed were out of 
compliance with laws or industry standards.
    Rogue Internet pharmacies are often complex operations, and 
federal agencies face substantial challenges investigating and 
prosecuting those involved. Piecing together these operations 
can be difficult because they may be composed of thousands of 
related Web sites and operators take steps to disguise their 
identities. The ease with which operators can set up and take 
down rogue Web sites also makes it difficult for agencies to 
identify, track, and monitor them because Web sites can be 
created, modified, or deleted in a matter of minutes.
    The global nature of rogue Internet pharmacy operations 
complicates federal investigations. These Web sites and their 
operators are often located in countries that are unable or 
unwilling to aid U.S. agencies, with components of the 
operations scattered in several countries. If the clerk would 
show our first figure?
    [Slide shown.]
    This shows one rogue Internet pharmacy that registered its 
domain name in Russia, used Web site servers located in China 
and Brazil, processed payments through a bank in Azerbaijan, 
and shipped its prescription drugs from India.
    Rogue Internet pharmacies use sophisticated marketing 
methods to appear legitimate. This makes it hard for consumers 
to differentiate between legitimate and rogue sites. Some rogue 
sites seek to assure consumers of the safety of their drugs by 
purporting to be Canadian despite being located elsewhere or 
selling drugs sourced from other countries. They may also 
fraudulently display an NABP logo on their Web site despite not 
having earned the accreditation.
    Our second figure, if the clerk would post it, shows a Web 
site that may appear to consumers to be legitimate but the 
operators of this site pled guilty to multiple federal offenses 
including smuggling counterfeit drugs into the United States.
    Even when such operations are uncovered, the Department of 
Justice may not prosecute because of competing priorities and 
the complexity of these operations. Rogue Internet pharmacy 
activity clearly violates the Federal Food, Drug and Cosmetic 
Act, but as we have heard, proving violations can be difficult 
and violations are subject to relatively light criminal 
penalties, a maximum of 3 years in jail or a fine of $10,000, 
or both.
    When federal prosecutors do pursue such cases, they often 
charge operators with violations of other laws such as 
smuggling, mail fraud, wire fraud, or money laundering since 
these violations can be less onerous to prove and carry 
stronger penalties, up to 20 to 30 years in jail and fines up 
to a million dollars.
    In summary, while federal agencies have conducted 
investigations that have led to convictions, fines and asset 
seizures, rogue Internet pharmacies continue to provide a 
convenient mechanism for criminals to sell counterfeit drugs or 
substandard prescription drugs to U.S. consumers with a low 
probability of being prosecuted.
    Mr. Chairman, this completes my prepared statement. I would 
be happy to respond to any questions that you or other members 
of the subcommittee may have.
    [The prepared statement of Ms. Crosse follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
        
    Mr. Murphy. Thank you, Doctor.
    I now recognize Dr. Yadav. Am I pronouncing that correctly, 
sir?
    Mr. Yadav. Yes.
    Mr. Murphy. Thank you. You are recognized for 5 minutes.

                  TESTIMONY OF PRASHANT YADAV

    Mr. Yadav. Good morning, Mr. Chairman, Ranking Member 
DeGette and members of the committee, my name is Prashant 
Yadav. I am the Director of the Health Care Research Initiative 
at the William Davidson Institute of the University of 
Michigan, and I served as a member of the Institute of Medicine 
Committee on understanding the global public health problem of 
counterfeit, falsified and substandard medicines.
    The Food and Drug Administration had commissioned this 
study in 2011 to advance what at that time was a stymied public 
discourse on the topic of pharmaceutical crime. After 
deliberating and hearing public testimony for most of 2012, our 
committee released our findings and recommendations last year. 
I was also a member of another committee of the Institute of 
Medicine, which was on regulatory capacity building in 
developing countries. This study was also commissioned by the 
FDA Office of International Programs, and it dealt with 
questions more broadly of food and drug safety regulations and 
globalization. I would like to submit for your records copies 
the two mentioned IOM reports as well as the executive 
summaries of the two reports and an editorial on this topic. 
These documents discuss how improving the quality of medicines 
in this country depends to some extent on better medicine 
regulation abroad. These reports offer several suggestions as 
to how different federal agencies and international 
organizations can work together to improve global drug safety.
    In my testimony, I will be using language which is 
consistent with the IOM report. The members of our committee 
chose to be clear that we saw two rough categories of dangerous 
medicines. First, we have falsified drugs, those that carry a 
false representation of identity or source or both. The other 
main category is substandard, meaning the medicines that fail 
to meet our national quality standards. We recognized that 
often these two categories overlap. But we felt that thinking 
about these two categories separately helps us characterize the 
causes of the problems and the solutions for them in a precise 
manner. We also agreed not to describe the drugs as 
counterfeit, because we felt this term tends to hold back 
discussion. Many speakers who use the term ``counterfeit'' use 
it to imply something more broad than the narrow legal word 
``counterfeit.'' The difference in these two meanings can cause 
confusion and can alienate generic drug companies, who 
sometimes view this as hostility to their products hidden in a 
discussion of counterfeit medicines. So our committee agreed 
that the problem of trademark infringement was not within our 
mandate. We attempted to understand the public health problem 
of poor-quality drugs and we limited our discussions to 
substandard and falsified, or fake, medicines.
    The problem of falsified and fake medicines is undoubtedly 
the worst in the world's poorest countries, but poses a risk 
for American patients as well. We are living in what the 
Economist magazine recently described as a golden age for bad 
drugs. Different drugs and drug ingredients are made in 
different parts of the world. Final drug formulations may be 
packaged and repackaged in different countries many times 
before reaching the final patient, and supervising these supply 
chains is a monumental task. The committee recommendations were 
for the U.S. FDA to share foreign inspections and work towards 
mutual recognition of inspections done by other stringent 
regulatory agencies. We reasoned that it is simply not good 
management to have, for example, Japanese, European, and U.S. 
inspectors repeating each other's work when so many factories 
in places like China and India go uninspected.
    The key challenge is to identify gaps before product safety 
emergencies occur. Until recently, the inability to track a 
package of medicines from the factory to the patient was one 
such gap. Our committee had asked the Congress to authorize the 
FDA to establish a mandatory track-and-trace system in the 
United States. We were concerned that the FDA had received many 
unfunded mandates over the years, so we would also ask the 
Congress to allocate the appropriate funds to the agency to 
ensure the staffing and the technology that is needed does 
exist. This is consistent with the recommendations of the 
committee and the new Act, the Drug Quality and Security Act in 
November is very much in tune with what the committee had 
recommended. I would like to thank the Representatives here 
today for your work on that law.
    Track-and-trace legislation is going to help but there are 
still many gaps in the supply chain. One of them is the 
question of Internet pharmacies. The IOM committee discussed 
this problem at great length. We reviewed research that states 
people buy drugs online for different reasons. Some can be 
described as lifestyle libertarians who believe they should be 
allowed to self-prescribe, others are bargain hunters who are 
looking on the Internet to get deals, and the third category 
are people who are genuinely trying to buy drugs for making 
sure they can get them with convenience. These customers do not 
understand the risk of their choices and do not see any better 
options.
    So the committee recommended that the National Association 
of the Boards of Pharmacy has a program called the Verified 
Internet Pharmacy Practice Sites, or VIPPS. That program should 
be strengthened and encouraged. That was one of the strong 
recommendations from the committee.
    One of the key things the committee recommended was to 
strengthen the wholesale market in the United States. We felt 
that there are three kinds of wholesalers. There are primary 
wholesalers, secondary wholesalers and wholesalers who are 
regional drug wholesalers, and it is easy for wholesalers to 
obtain licenses in one State and engage in commerce without 
federal or other States knowing about that.
    Mr. Murphy. I will need you to summarize because you have 
gone a minute over.
    Mr. Yadav. So the committee recommended that FDA should 
work with State licensing boards and establish a public 
database to share information on wholesale licenses. This will 
prevent criminals from licensing in multiple States. On behalf 
of my colleagues of the committee, I would like to once again 
thank the Representatives for including this provision in the 
DQSA law. We also believe that strengthening the drug wholesale 
supply chain will set a good example for other countries in the 
world.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Yadav follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]    
       
    Mr. Murphy. Thank you.
    Mr. Clark, you are recognized for 5 minutes.

                   TESTIMONY OF JOHN P. CLARK

    Mr. Clark. Chairman Murphy, Ranking Member DeGette, members 
of the subcommittee, it is a pleasure to appear before you 
today to discuss an issue of great importance, the threat that 
counterfeit medicines pose to the health and safety of patients 
in the United States and around the world.
    My name is John Clark, and I am the Chief Security Officer 
for Pfizer, Inc., and Vice President of its Global Security 
Team. Pfizer is a diversified global health care company and 
one of the world's largest biopharmaceutical companies. Our 
core business is the discovery, development and marketing of 
innovative pharmaceuticals for human health, and we are 
committed to ensuring the integrity of those products when they 
reach the market.
    I am responsible for ensuring that programs are in place to 
protect Pfizer's personnel, real and intellectual property, 
reputation and, most importantly, the integrity of its 
medicines. Prior to joining Pfizer in 2008, I served as Deputy 
Assistant Secretary at Immigration and Customs Enforcement, 
responsible for the overall management and coordination of the 
agency's operations. During my more than 25 years at ICE and 
its predecessor agency, U.S. Customs, I held a variety of 
investigative, management and executive positions.
    A significant aspect of my job at Pfizer is to mitigate the 
threat that counterfeit medicines pose to the health and safety 
of patients who rely upon Pfizer medicines to live healthier 
and happier lives. Counterfeit medicines pose that threat 
because of the conditions under which they are manufactured in 
unlicensed and unregulated sites, frequently under unsanitary 
conditions, and the lack of regulation of their contents. In 
many instances, they contain none of the active pharmaceutical 
ingredient found in the authentic medicine, or an incorrect 
dosage, depriving the patient of the therapeutic benefit of the 
medicines prescribed by their physicians. In others, they may 
contain toxic ingredients such as heavy metals, arsenic, 
pesticides, rat poison, brick dust, floor wax, leaded highway 
paint, and even sheetrock or wallboard, all of which we found 
in counterfeits.
    Counterfeit medicines are a global problem, one from which 
no region, country, therapeutic area or pharma company is 
immune.
    While the true scope of the counterfeit problem is hard to 
estimate, we can provide some metrics based on the seizures 
reported to us by enforcement authorities and confirmed by our 
labs. In reviewing those internal metrics to prepare for 
today's hearing, I was struck by how significantly the 
landscape had changed since November 2011 when I appeared 
before the House Judiciary Committee just about 2 years ago 
now.
    Since November 2011, authorities have reported to us the 
seizure of more than 55 million doses of suspicious Pfizer 
medicines. Twenty-eight percent of those seizures--15.5 million 
dosages--were confirmed as counterfeit medicines, and we 
differentiate--we are very, very conservative in our 
statistics, and if we haven't confirmed, it is just reported, 
we don't count it as a statistic. So we are usually 
underreporting so we don't get accused of exaggerating.
    The number of Pfizer medicines targeted by counterfeiters 
has increased by 36 percent, from 50 to 68 different Pfizer 
medicines now. Counterfeit Pfizer medicines have been confirmed 
in six new countries--Armenia, Cameroon, Jamaica, Kosovo, 
Maldives, and Saint Lucia--bringing the total to 107 countries 
in which counterfeit Pfizer medicines have been seized by 
authorities. Counterfeit versions of 26 Pfizer medicines have 
been confirmed in the legitimate supply chains of 60 countries, 
an increase from 22 medicines in 53 countries in November of 
2011.
    Seizures recorded during 2013 reveal that while Viagra, a 
treatment for erectile dysfunction, remains our most targeted 
medicine for counterfeiters, other medicines have attracted 
increasing attention with seizures of each of the top five 
exceeding 1 million doses. The seizure of almost 3.6 million 
counterfeit doses of Viagra represented just 34 percent of the 
overall confirmed seizures of Pfizer medicines in 2013, down 
from 89 percent in 2012.
    For the first time, Lipitor, a treatment for cholesterol, 
came a close second, with the seizure of almost 3.1 million 
tablets, representing 29 percent of all confirmed dosages 
seized.
    Closing out the top 5 most counterfeited Pfizer medicines 
last year were Xanax, 1.3 million, Ponstan, 1.1 million, and 
Centrum, just over 1 million, and again, these are relatively 
low probably compared to what was out there but just the ones 
we could confirm.
    The increased counterfeiting of Xanax is likely linked to 
its popularity, particularly on college campuses, as a party 
drug often used to decrease anxiety and insomnia. Additionally, 
Xanax appears to be preferred by individuals taking crystal 
meth. Counterfeit Xanax seizures in 2013 included those seized 
from a factory in Texas where 1,000 counterfeit Xanax tablets 
and tooling were seized by the Drug Enforcement Administration.
    Despite increased breaches in the legitimate supply chain, 
the major threat to U.S. patients is the Internet and the many 
professional-looking Web sites that promise safe, FDA-approved 
branded medicines from countries such as Canada and the U.K. In 
2006, Pfizer Global Security launched a robust Internet program 
to identify and disrupt rogue online pharmacies dispensing 
Pfizer medicines to unsuspecting patients. Although that 
program resulted in a takedown of several rogue OLPs and 
arrests, it was in essence a whack-a-mole approach. Recognizing 
the limitations of that strategy, we sought a broader and more 
permanent remedy.
    Along these lines, in 2013 we partnered with Microsoft in 
an innovative OLP disruption program that attacked the 
affiliate networks where they were most vulnerable by 
simultaneously disabling domains to disrupt traffic to the 
sites and eliminating their ability to process credit card 
payments for orders placed. This new approach has proven much 
more effective, evidenced by the disruption of two affiliate 
networks and the removal of more than 3,300 rogue OLPs from the 
Internet just last year.
    To protect unsuspecting patients from the risk of obtaining 
counterfeit medicines online, we have extended our Internet 
monitoring program to Craigslist and Facebook along with other 
classified-advertising Web sites and social media outlets. As a 
result of those efforts, we have identified several individuals 
offering Viagra on Craigslist. Our test purchases confirmed 
that these individuals are selling counterfeits. Subsequent 
referral of these incidents to local law enforcement resulted 
in the arrest of several sellers including a Maryland 
housewife. The social-network monitoring also identified 
several drop shippers of rogue OLPs who use their access of 
counterfeit medicines to advertise independently in Craigslist. 
One such referral to police in Toronto resulted in the arrest 
of six Craigslist sellers.
    Mr. Murphy. Mr. Clark, I have to ask you to wind up.
    Mr. Clark. That is it. I will be glad to take questions.
    [The prepared statement of Mr. Clark follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]    
    
    Mr. Murphy. Thank you. I have to step out for a while, and 
Dr. Burgess will take over, but I just want to ask one 
clarifying question, Mr. Clark, before I go. If you compare 
money counterfeiting to electronic counterfeiting to drug 
counterfeiting, tell me about the different ratios and 
profitability.
    Mr. Clark. We had 3 years ago seen German customs refer to 
a study from the University of Bonn that did just that. For a 
$1,000 base investment by a counterfeiter, they compared what 
they estimated would be the return on investment. They went 
through several levels of different commodities. I think cash 
was the lowest. For $1,000 invested, they estimated that there 
would be a $5,000 return on investment for counterfeiting cash. 
I think credit cards were second with $10,000 return. The 
second highest level commodity counterfeited for return on 
investment was electronics. They estimated for $1,000 
investment, the return would be $100,000. The highest on that 
list by the University of Bonn was pharmaceutical products. For 
$1,000 invested, they estimated that the return on investment 
would be $500,000.
    Mr. Murphy. Thank you, incredible. I appreciate that.
    Mr. Moreau, you are recognized for 5 minutes.

                  TESTIMONY OF JEAN-LUC MOREAU

    Mr. Moreau. Mr. Chairman and members of the subcommittee, 
my name is Jean-Luc Moreau and I am the global head of product 
security at Novartis International. My primary responsibility 
is to protect the company, its products, and most importantly, 
the people who rely on Novartis medicines from counterfeits.
    Modern counterfeiting is an industrial global business 
which in 2010 generated an estimated $75 billion for organized 
crime. In 2002, the Pharmaceutical Security Institute recorded 
196 product incidents worldwide. In 2012, the same 
Pharmaceutical Security Institute recorded 2,018 cases 
representing a 10-fold increase in only one decade.
    Counterfeit drugs are most of the time extremely dangerous. 
For example, the World Trade Organization has estimated that 
counterfeit antimalarial drugs kill 100,000 Africans annually. 
My own experience tells me that this number is basically 
underestimated.
    Counterfeit drugs are generally indistinguishable from the 
genuine drugs. Some examples are displayed on the monitors. 
Russian counterfeiters have gone so far as to add holograms to 
the packaging of their fake drugs which say ``protected against 
counterfeit.''
    Counterfeit drugs are made in clandestine facilities which 
are downright filthy. As the pictures on the monitor show, 
Novartis products are made in state-of-the-art facilities. By 
contrast, as the pictures on the screen demonstrate, 
counterfeiters manufacture their illicit products in decrepit 
conditions. Counterfeiting operations generally ship and/or 
store their fake products in unsanitary and improper 
conditions, more examples on the screen.
    Counterfeiting today is frequently highly organized, 
transnational, and businesslike. Counterfeiters operate 
industrial production facilities with the capacity to saturate 
markets with fake products. They target low-volume, high-
specialty medicines, as well as high-volume, low-margin 
products as over-the-counter drugs or generics. They reach 
people directly through the Internet or illicit retailers or 
they infiltrate legitimate supply chains, as in many countries.
    The scope of sophistication of this modern counterfeiting 
is clearly illustrated by the two following examples. The first 
example, in May 2006, customs officers at London Heathrow 
seized a shipment from Dubai en route to the Bahamas which 
contained thousands of packs of eight confirmed counterfeit 
drugs from seven pharmaceutical companies, including more than 
3,000 packs of a counterfeit Novartis medicine for 
hypertension. The counterfeit product had been manufactured in 
China, transported by road to Hong Kong, flown to Dubai while 
they were stored in a duty-free warehouse before being shipped 
to the Bahamas via the U.K. In the Bahamas, an illicit 
fulfillment center established by Rx North, an Internet drug 
Web site, process orders placed on the Internet by American and 
Canadian patients. The fake products were shipped directly to 
the Bahamas to customers in the U.S. and Canada.
    The second example, Novartis manufactures Coartem, which is 
a breakthrough drug for malaria. Novartis has made over 500 
million Coartem treatments available without profit in malaria-
endemic countries through programs such as the U.S. President's 
Malaria Initiative and the Global Fund to Fight AIDS, 
Tuberculosis, and Malaria.
    In March 2010, I organized a market survey in three Nigeria 
basin countries, Cameroon, Nigeria, and Benin, which concluded 
that around 25 percent of our Coartem donated to Eastern 
African countries was being stolen and shipped 5,000 miles away 
to Western Africa where it was sold on the street not for free 
but for an average of $5 per treatment.
    This large-scale diversion scheme created a mass-market for 
Coartem which attracted an extensive counterfeiting operation. 
In July 2012, a container ship from Guangzhou, China, to Luanda 
in Angola was seized by customs officers. It contained Hi-fi 
speakers hiding 1.5 million treatments of fake Coartem. 
Subsequent investigations in Western Africa confirmed that this 
counterfeit version of Coartem contained nothing but flour, 
cornstarch, dextrose, and an industrial colorant. There is no 
question in my mind that the Coartem diversion and 
counterfeiting schemes are grievously undercut efforts to 
eradicate malaria and have led directly to the deaths of 
hundreds of thousands of Africans.
    The United States and other countries should develop 
comprehensibility of criminal laws to confront counterfeiting, 
impose stiffer sanctions for pharmaceutical crimes, and make 
the commitment to vigorously enforce those laws.
    Thank you.
    [The prepared statement of Mr. Moreau follows:]
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    Mr. Burgess [presiding]. Mr. Longbottom, you are recognized 
for 5 minutes.

                 STATEMENT OF BRUCE LONGBOTTOM

    Mr. Longbottom. Good morning, Mr. Chairman, Madam Ranking 
Chairman, and members of the subcommittee. My name is Bruce 
Longbottom. I am assistant general counsel for trademarks at 
Eli Lilly and Company. We are a global pharmaceutical 
manufacturing company based in Indianapolis. And like my 
colleagues here, our company also invests heavily to research, 
develop, and produce safe and effective medicines which treat 
many diseases and save lives.
    First, let me thank the chairman, ranking member, and 
members of the subcommittee for your focus on this important 
issue and for inviting Eli Lilly to testify today about 
fighting counterfeit drugs and illegal supply chains. We do 
appreciate the attention you are devoting to investigate the 
problem of counterfeit medicines, which pose an ongoing risk to 
patient safety. And this threat of counterfeit medicines is an 
issue that is near and dear to Lilly and to also the heart of 
our CEO Dr. John Lechleiter, who has spoken on this on several 
occasions.
    At Lilly, like the other companies here, we have seen 
counterfeit copies of our own branded medicines around the 
world and we have seen counterfeiters target a range of 
medicines from our medicines for mental illness to our 
medicines for cancer as well. Some of the medicines that are 
fake may contain over amounts and excess amounts of the API, 
the active pharmaceutical ingredients, or perhaps contain the 
wrong APIs or none at all. Some counterfeit drugs contain toxic 
dangerous ingredients, and we are not alone in this experience, 
again, as heard already today. We view this as a global health 
threat that we must work diligently to solve with others in 
partnership.
    We would like to congratulate this committee for its hard 
work in passing the Drug Quality Security Act of 2013, or DQSA. 
That new law's establishment of a track-and-trace system for 
pharmaceuticals will serve greatly to close gaps in the supply 
chain for prescription drugs in the traditional supply chain, 
which is from the legitimate manufacturer to the wholesaler to 
the pharmacies and then to patients.
    But while DQSA establishes important requirements for good 
guys, I believe today's hearing is to look at the bad guys. And 
as such, I will focus my remarks today on the most common way 
that counterfeit drugs reach U.S. patient, and that is of 
course through the Internet, a topic already mentioned several 
times today and rightfully so I would add.
    Obviously, more and more of us are becoming more 
comfortable with purchasing products online. We are very easily 
doing that, and e-commerce is projected to grow at over 10 
percent every year. And as more and more Americans do look 
online for their medicines, and there have been some examples 
even in this hearing this morning of looking online for 
medicines, what are we finding? Forty to fifty thousand active 
illegal online drug sellers, and 97 percent, according to the 
National Association of Boards of Pharmacy do not meet pharmacy 
and drug safety standards. So tens of thousands of fake online 
pharmacies put patients at risk. Now, is that OK? Of course 
not. I think no one here is satisfied with that. We don't want 
to stay at that position.
    When we interact with a pharmacy, what should we be 
expecting as we go to a pharmacy whether in the real world or 
online? I think there are two basic things. One is a drug 
approved by the FDA and the second is a pharmacist who has been 
licensed by their state pharmacy board. So that prescription 
medicine has been blessed by the FDA and that pharmacist has 
been blessed by the state licensing authority. And I would like 
to coin the term if I could the sanctity of the pharmacy. I 
think that is the standard that we should work towards whether 
in the real world or online.
    With regard to the online world, there is no one easy 
bullet to take care of the problem. There is no one easy 
solution. There are several elements that are critical to 
adding towards that solution and there are more details in my 
submitted written materials, but just at the very high level, 
some of those themes are patient education, stronger laws, more 
aggressive enforcement of existing laws, and also voluntary 
cooperation by Internet-based companies.
    Now, just as the DQSA used one tool primarily to tighten 
defenses in the brick-and-mortar supply chain, and that tool 
was of course serialization, I believe there are one or more 
tools that could also be used to tighten the illegitimate 
supply chain, the online supply chain. And one of those tools I 
would like to mention is delisting. That is a tool that could 
be used to exclude these bad illegal rogue online pharmacies 
from natural search results found using search engines. In 
other words, if a Web site selling medicines did not sell only 
FDA-approved drugs or did not provide those services using a 
state licensed pharmacist, you would not find that Web site in 
the search results after it was delisted. The online pharmacy 
would still be on the Internet, probably hosted in a foreign 
country, but would not be found by the patient in the U.S. 
doing an Internet search.
    If natural search results were cleaned up in this way, that 
would be the Internet equivalent, I believe, of what the DQSA 
has done to tighten the traditional supply chain.
    And there are other tools that could be discussed as well. 
Search optimization for the NABP-approved pharmacies may be 
another helpful tool to boost those in the search rankings.
    The Internet is here to stay. The number of fake online 
pharmacies is growing, and Eli Lilly and Company stands 
committed to patient safety in both the brick-and-mortar 
pharmacies and the Internet-based pharmacies, and I very much 
appreciate the opportunity to speak with you today and I am 
happy to answer any questions.
    Thank you.
    [The prepared statement of Mr. Longbottom follows:]
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    Mr. Burgess. Ms. Jungman, you are recognized for 5 minutes.


                 STATEMENT OF ELIZABETH JUNGMAN

    Ms. Jungman. Thank you. Chairman Murphy, Ranking Member 
DeGette, and members of the subcommittee, thank you for the 
opportunity to present testimony. My name is Elizabeth Jungman. 
I direct drug safety and innovation work at The Pew Charitable 
Trusts.
    Mr. Burgess. May I ask, is your mike on?
    Ms. Jungman. Pardon me. My name is Elizabeth Jungman. I 
direct drug safety and innovation work at The Pew Charitable 
Trust, which is an independent, nonpartisan research and policy 
organization dedicated to serving the public.
    Counterfeit drugs are far more than an intellectual 
property problem; they are a public health problem with real 
human costs. Counterfeit and other unsafe drugs have entered 
our drug supply numerous times over the past few decades. Three 
recent incidents of fake cancer drugs are one example. My 
testimony for the record and our Web site have others.
    I am grateful to Congress for recently enacted two import 
laws that have been discussed by other panelists, Title VII of 
the FDA Safety and Innovation Act, which focused on upstream 
supply chain security; and Title II of the Drug Quality and 
Security Act, which laid the groundwork for tightening the 
downstream drug distribution system.
    My testimony today will focus on next steps, how 
policymakers and stakeholders can make full use of these new 
tools.
    Meaningful penalties for drug counterfeiting and diversion 
are important, but the best way to prevent unsafe products from 
reaching patients is a tightly closed distribution system. So 
that is my focus today.By passing the Drug Quality and Security 
Act last year, Congress created a national serialization and 
traceability system that will fundamentally change drug 
distribution in this country.
    Beginning in late 2017, each package of prescription drugs 
will bear a unique serial number enabling it to be verified and 
eventually allowing for its distribution history to be traced. 
The DQSA contains some requirements for companies in the supply 
chain to check serial numbers but in most cases only when there 
is an existing belief that the product is suspect.
    A more powerful use of serial numbers would be as a routine 
proactive check. Counterfeiters can be sophisticated but 
falsifying a serial number is much harder if that number is 
routinely checked against a manufacturer's database. 
Pharmacists, physicians, payers, and border agents could use 
this important new tool to help stop fake products from 
reaching patients.
    It is important to underscore that the risks go beyond 
counterfeit drugs. In 2009, thieves stole a tractor-trailer 
containing at least 120,000 vials of insulin, an injectable 
drug that must be refrigerated. After several months, the 
stolen drugs were sold to chain drugstores. We don't know how 
many patients received compromised medicines, but only a small 
percent of the drugs were ever recovered. Regular checking 
could have identified them immediately.
    Verification should become routine in pharmacies. To 
achieve that, the system must be designed to ensure that 
verification is practical and efficient. Waivers of the DQSA's 
requirements should be rare lest we exempt businesses like the 
pharmacist in Chicago indicted last year for substituting 
Chinese counterfeits for legitimate products.
    Patients can also make use of this new tool. Doctors who 
purchased a counterfeit cancer drug last year may not have 
known that it was fake. While the DQSA does not require 
physicians to check serials, patients deserve this safety 
check. Physician societies and payers should consider the 
potential for authentication to protect patients.
    Proactive verification of serial numbers is not without 
precedent. Other countries like Turkey and Italy already use it 
to protect their citizens and to prevent fraud. The U.S. is 
behind the curve in this case, but our law creates the tools 
necessary for similarly robust protections if Congress, 
regulators, and payers take action to encourage them.
    Payers can also explore the use of serial numbers as a 
condition of reimbursement both to ensure product legitimacy 
and to reduce fraud. Large-scale fraud against government 
programs is well-documented yet preventable through serial 
checks. To be fully effective, such an approach would require 
another system element not explicitly contemplated by the DQSA: 
decommissioning serial numbers so that they cannot be reused.
    Serial numbers could also be used by agents at the border. 
Spot-checks of incoming products could help determine 
legitimacy, and this will complement the progress in regulating 
drug imports that was made in the 2012 FDA Safety and 
Innovation Act.
    The DQSA requires in 10 years an electric interoperable 
system for tracing each unit of medicine. There is an 
opportunity now to build in strong features that will allow for 
more comprehensive automated use in the future. But 
stakeholders do not have to wait 10 years to begin using the 
DQSA. Starting next year, FDA will stand up a public database 
of licensed wholesalers, and all stakeholders will pass 
pedigree information. So long before the law is fully 
implemented, dispensers can check to ensure that their sources 
are legitimate.
    The DQSA and the FDA Safety and Innovation Act are 
important steps in securing our pharmaceutical supply chain, 
but alone they will not solve the problem. Congress, 
regulators, border agents, and supply chain stakeholders can 
help create a safer drug supply by supporting robust and 
implementation of these laws and full use of the tools that 
they provide.
    Thank you.
    [The prepared statement of Ms. Jungman follows:]
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    Mr. Burgess. Thank you. And I thank the witnesses, each and 
every one of you, for your testimony. And we will now move to 
questions. Each Member will be recognized for 5 minutes. I will 
begin.
    Dr. Crosse and Dr. Yadav, I appreciated your testimony. You 
heard my questions to the FDA and to ICE. I mean cost is a big 
driver here and people are looking at pharmacy bills that they 
may never have seen before. I feel that right over the horizon 
this problem is going to crescendo in size.
    One of you referenced people who go online because they are 
bargain hunters or they are self-prescribing. Self-prescribing 
means they are avoiding a doctor visit to get a prescription. 
So basically cost is the driver there. Has there been any study 
on, say, one of the popular proton pump inhibitors for acid 
reflux disease went over-the-counter. Did you see a drop-off in 
Internet activity with the purchase of other brands that 
remained on patent and were therefore more expensive? Was cost 
reflective in the Internet activity?
    Ms. Crosse. I am not aware of any studies that have 
directly addressed that. We certainly do know that activity has 
increased across time in general and the number of sites I 
think reflects that. Internet purchases originally were focused 
more in the so-called lifestyle drugs. That has moved 
increasingly into individuals seeking to save money on their 
blood pressure medicine or whatever other medications they may 
regularly be on. But I don't know of studies that specifically 
looked at that change when something goes from prescription to 
over-the-counter.
    Mr. Burgess. And, Dr. Yadav, did the Institute of Medicine 
do any of that sort of investigative work?
    Mr. Yadav. So the short answer is no. I think we looked at 
various studies and I think we will submit to the committee 
some of the findings which show which type of categories were 
being purchased more, what kinds of factors and root causes 
were leading to that. But there was no study which showed how 
does this change when the product goes from being prescription 
to over-the-counter.
    Mr. Burgess. Do any of our representatives from the 
industry have any experience with that?
    Well, Mr. Clark, I just noticed on your Web site some of 
the things you have in the pipeline, the Phase III and Phase II 
drugs, I mean some pretty exciting stuff already on the 
horizon, PCSK9 for lipid control. Is the development of those 
products in any way going to be impacted by the fact that the 
diversionary activities that you described are going on? Is 
that going to have a direct effect on your research and 
development side?
    Mr. Clark. It could and it is one of the worries we have 
had in rolling out just last year some of the newer medicines. 
They need a track record to build up success and to prove to 
the world how good they are. We went out ahead of several them 
to start checking the Internet and the B2B sites to see if in 
terms of Eloquest, Xeljanz, a few others that were coming out, 
worried that if competed with by counterfeits and there are 
reports of they don't work because of the counterfeit effect, 
it could indeed actually the reputation of the medicine 
themselves and stuff. Fortunately, the ones we have been 
looking at so far haven't had that much competition on the 
Internet.
    Mr. Burgess. How about for any of you does it affect your 
R&D budget, the fact that you are obviously losing sales?
    Mr. Clark. I can speak for my shop. We have never been held 
to task by the company for return on investment for sales. It 
is a reputational thing, which obviously has a collateral sales 
impact, but it is really a patient health and safety issue for 
us.
    Mr. Moreau. The very same at Novartis.
    Mr. Burgess. And, Mr. Moreau, your description of the 
antimalarial drug, I mean the United States taxpayers spent a 
lot of money in the PEPFAR program to buy the drug to prevent 
the disease to save the children in other countries and human 
tragedy because of the counterfeit drugs making it into the 
pipeline and the American taxpayers being ripped off. This is 
something that just absolutely has to be stopped and we 
certainly appreciate your vigilance to that and we will welcome 
your input back to the committee.
    Mr. Moreau. Yes, Congressman. On a more positive note, I 
just want to inform the committee that we have been working, we 
are still working very closely with federal agents attached to 
USAID on this case, and there are reasons to believe that the 
criminal gang responsible for this counterfeiting operation 
will one day or another be arrested in China.
    Mr. Burgess. All right. Very well. And, Mr. Longbottom, you 
heard my description of the little research project I did here 
on the committee dais where I put into a search engine a name 
of a cheap pharmaceutical project. I got a lot of results, a 
lot of hits. And then you talked about delisting and in fact 
are those types of activities actually in process where you are 
working with the search engines to try to minimize this?
    Mr. Moreau. We are currently developing a web monitoring 
program, especially here in the states and with the plan to 
liaise directly with authorities and exchange information and 
intelligence.
    Mr. Burgess. All right. Thank you.
    Mr. Longbottom. Mr. Chairman, may I answer your question?
    Mr. Burgess. Sure.
    Mr. Longbottom. Thank you. Yes, we are not currently 
working on those tools but I do know that the Center for Safe 
Internet Pharmacies, or CSIP, referred to earlier by another 
committee member, is at work to develop proposals to work 
together, and those are the e-commerce companies, the search 
engines, the payment card companies, the domain name 
registrars. So it might come out of that group. But wouldn't it 
have been nice if had you done the search, the first 35 results 
would have been the NABP-certified----
    Mr. Burgess. Yes, sir.
    Mr. Longbottom [continuing]. Online pharmacies? I think 
that is where we really want to move to. I would love to see 
that for my family members going online, constituents as well. 
I think that is where we are headed.
    Mr. Burgess. Absolutely. My time is expired. I recognize 
the ranking member for 5 minutes.
    Ms. DeGette. Thank you very much, Mr. Chairman.
    And I want to thank all of you for coming here today and 
working collaboratively with us to try to resolve this very 
difficult and international problem.
    I am concerned because we recognize this issue of 
counterfeit drugs. We have been trying to work on it 
assiduously with the track-and-trace legislation, with the FDA, 
giving more resources with all of the private companies giving 
more resources.
    But yet, according to the testimony that I am hearing from 
all the witnesses today, the prevalence of these counterfeit 
drugs, particularly on the Internet, just continues to grow and 
to get more sophisticated. And so what I would like to examine 
in just this short period of time I have is what we can really 
do to try to bend this curve and to solve the situation.
    So I would like to start with you, Dr. Crosse. You 
testified, as did the others on the last panel, that the 
sentences are really ridiculously low for these federal 
offenses, and I agree with that. I think the sentences need to 
be increased, but I am trying to figure out, and this is what I 
was talking to the chairman about, is how much is increasing 
sentences really going to prevent this kind of conduct, 
especially as Mr. Moreau and Mr. Longbottom and others have 
testified. Some of these people are renegade gangs in foreign 
countries.
    And so one thing I want to ask you, did the GAO find that 
these prosecutors who were able to prosecute people under other 
statutes, money laundering, wiretap, et cetera, would there 
have been more prosecutions and more convictions if they had 
been able to get felony convictions and higher sentences?
    Ms. Crosse. We did hear from prosecutors that increasing 
the penalties or clarifying what was required to be the 
threshold for criminal activity might make this a higher 
priority among all of the competing cases----
    Ms. DeGette. OK.
    Ms. Crosse [continuing]. That they have. If they are having 
to pick something that is really difficult and that carries low 
penalties, it has a lower priority.
    Ms. DeGette. And so even though they have these other 
statutes they could charge them, this would help?
    Ms. Crosse. Right. They indicated that it would be helpful.
    Ms. DeGette. OK. But it alone would not help? We are going 
to need to do other things, right?
    Ms. Crosse. That is correct.
    Ms. DeGette. OK. And what would some of those other things 
be?
    Ms. Crosse. Well, there have been a number of settlements 
that have been undertaken to get at some of the service 
providers to these Internet sites. The Google settlement was 
mentioned earlier. All that did though was remove the sponsored 
links at the top----
    Ms. DeGette. Right.
    Ms. Crosse [continuing]. Of the page. That doesn't 
eliminate those.
    Ms. DeGette. So Internet vigilance like Mr. Longbottom and 
others have been talking about would be helpful?
    Ms. Crosse. That can be helpful. Also the NABP is engaged--
--
    Ms. DeGette. Yes.
    Ms. Crosse [continuing]. In getting a top-level domain 
name, a .pharmacy, where there would be controls in place on 
which Web sites could have a .pharmacy extension as opposed to 
a .com. That would require educating consumers to go to those 
links and not others.
    Ms. DeGette. And let's follow up on that, educating 
consumers. Mr. Clark, I was actually talking to you yesterday 
about this. It seems to me one of the real keys is educating 
consumers that they shouldn't be going on these Web sites. Can 
you describe for me what kinds of efforts the industry is 
taking to do that consumer education?
    Mr. Clark. Sure. I know from our experience and my 
colleagues have done similarly, we are always working with 
media to try and highlight issues, whether it is a case or just 
background information, speaking at conferences. We do a lot of 
training of law enforcement along the same lines to educate 
them because I think it is not only just the consumers. First 
and foremost it is the medical community. I mean it is 
astounding how doctors and nurses aren't so familiar with this 
and law enforcement as well. So there is a huge outreach by 
most of the companies to try and get to all of the constituents 
within those sectors and stuff to try and raise awareness 
because----
    Ms. DeGette. And, I am sorry, are you also working with the 
various federal agencies to increase this education?
    Mr. Clark. Absolutely.
    Ms. DeGette. The FDA and the--OK.
    Now, I wanted to ask you, Ms. Jungman. By the way, I am the 
co-chair of the Diabetes Caucus, so I was horrified to hear 
your insulin example. And what you really focused on is what 
more can we do? Does Congress need to do anything to help 
improve this serial number issue? Because that sounded like a 
very intriguing and relatively successful way to help to 
identify these counterfeit drugs.
    Ms. Jungman. I think that Congress definitely could have a 
role here. I think oversight as the system is implemented both 
to ensure that all stakeholders are fully participating but 
also to be sure that as a system, architecture is built up. 
There are ways that the system could be built that are more 
robust or just barebones, and I think congressional oversight 
could play a real role in ensuring that it is built to have the 
functionality that would allow for serial checking in a way 
that is automatic and simple for people to use.
    Ms. DeGette. Thank you.
    Thank you very much, Mr. Chairman. And if you can help 
convey with me to Mr. Murphy that we should continue this 
oversight, I think that would be great.
    Mr. Burgess. I thank the gentlelady.
    I would be willing to go for one supplemental question if 
you were.
    Ms. DeGette. OK. One.
    Mr. Burgess. Well, it just so happens I have one. Has the 
Ryan Haight Act been effective in reducing the number of 
Internet pharmacies selling controlled substances, Dr. Crosse?
    Ms. Crosse. DEA tells us that it has been effective in 
reducing the number of domestically located Web sites selling 
controlled substances. However, they haven't been doing a lot 
of looking overseas. They have had a small sample of Web sites 
that they looked at and ordered controlled substances, and 40 
percent of the Web sites where they placed those orders 
actually provided them with controlled substances. They tell 
us, though, that they are more likely to be schedule III or 
schedule IV, drugs like Vicodin or Xanax, rather than 
oxycodone, which is a schedule II substance. So they do believe 
it has been effective in pushing the activity offshore.
    Mr. Burgess. I recognize the ranking member for an 
additional question.
    Ms. DeGette. I am fine. I just want to thank the panel.
    Mr. Burgess. And to be bipartisan I would join in that 
thanks for all the witnesses, all the members who participated 
in today's hearing. I remind Members they have 10 business days 
to submit questions for the record and I ask all the witnesses 
to agree to respond promptly to written questions.
    With that, the subcommittee shall stand adjourned. Thank 
you.
    [Whereupon, at 12:30 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
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    [The attachment to Mr. Yadav's response has been retained 
in committee files and can be found at: http://docs.house.gov/
meetings/if/if02/20140227/101804/hhrg-113-if02-wstate-yadavp-
20140227-sd003.pdf.
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