    [Senate Hearing 118-709]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 118-709

    THE DEPARTMENT OF DEFENSE'S EFFORTS TO ENSURE SERVICEMEMBERS' ACCESS TO
                       SAFE, HIGH-QUALITY PHARMACEUTICALS

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

                                    HEARING

                                   before the

                           SUBCOMMITTEE ON PERSONNEL

                                     of the

                          COMMITTEE ON ARMED SERVICES
                              UNITED STATES SENATE

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 APRIL 30, 2024

                                   __________

             Printed for the use of the Committee on Armed Services

            [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                     Available via: http: //www.govinfo.gov

                    U.S. GOVERNMENT PUBLISHING OFFICE
    61-558 PDF              WASHINGTON : 2025

                          COMMITTEE ON ARMED SERVICES

     JACK REED, Rhode Island, Chairman      ROGER F. WICKER, Mississippi
    JEANNE SHAHEEN, New Hampshire           DEB FISCHER, Nebraska
    KIRSTEN E. GILLIBRAND, New York         TOM COTTON, Arkansas
    RICHARD BLUMENTHAL, Connecticut         MIKE ROUNDS, South Dakota
    MAZIE K. HIRONO, Hawaii                 JONI ERNST, Iowa
    TIM KAINE, Virginia                     DAN SULLIVAN, Alaska
    ANGUS S. KING, Jr., Maine               KEVIN CRAMER, North Dakota
                                            RICK SCOTT, Florida
    ELIZABETH WARREN, Massachusetts         TOMMY TUBERVILLE, Alabama
    GARY C. PETERS, Michigan                MARKWAYNE MULLIN, Oklahoma
                                            JOE MANCHIN III, West Virginia
    TAMMY DUCKWORTH, Illinois               TED BUDD, North Carolina
    JACKY ROSEN, Nevada                     ERIC SCHMITT, Missouri

    MARK KELLY, Arizona

     Elizabeth L. King, Staff Director
      John P. Keast, Minority Staff
                 Director

                           Subcommittee on Personnel

     ELIZABETH WARREN, Massachusetts, RICK SCOTT, Florida
                 Chairman            MIKE ROUNDS, South Dakota
    RICHARD BLUMENTHAL, Connecticut  DAN SULLIVAN, Alaska
    MAZIE K. HIRONO, Hawaii          TED BUDD, North Carolina
    TIM KAINE, Virginia
    TAMMY DUCKWORTH, Illinois

                                      (ii)

                             C O N T E N T S

                                 april 30, 2024

                                                                       Page

    The Department of Defense's Efforts to Ensure Servicemembers'         1
      Access to Safe, High-Quality Pharmaceuticals.

                               Members Statements

    Statement of Senator Elizabeth Warren............................     1

    Statement of Senator Rick Scott..................................     3

                               Witness Statements

    Joint statement of:
      Martinez-Lopez, Hon. Lester, Assistant Secretary of Defense for
      Health
        Affairs, Department of Defense...............................     5
      Smith, David J., M.D., Deputy Assistant Secretary of Defense
      for Health
        Readiness Policy and Oversight, Department of Defense........     5
      Dertzbaugh, Mark, M.D., Principal Assistant for Research and
      Technology,
        United States Army Medical Research and Development Command..     5

    Beebe, Matthew R., Director of Acquisition (J7), Defense              8
      Logistics Agency.

    Barber, Melissa, Ph.D., Postdoctoral Fellow......................    20

    Mendez, Bryce H.P. Specialist in Defense Health Care Policy,         53
      Congressional Research Service.

    Suarez, Colonel Victor A., USA (Ret.), Founder and Principal         66
      Growth Partner, Blu Zone Bioscience & Supply Chain Solutions,
      LLC.

    Questions for the Record.........................................    86

    APPENDIX A

      References of Dr. Dr. Melissa Barber...........................   102

      Supportive articles submitted by Mr. Victor A. Suarez
        White House Plan to Curb Drug Shortages Doesn't Address
      Generics'
          Quality....................................................   103

        The National Security Rationale for Stockpiling Key
      Pharmaceutical
          Ingredients................................................   110

        The Pentagon Wants to Root Out Shoddy Drugs..................   121

                                     (iii)

    THE DEPARTMENT OF DEFENSE'S EFFORTS TO ENSURE SERVICEMEMBERS' ACCESS TO
                       SAFE, HIGH-QUALITY PHARMACEUTICALS

                                  ----------

                            TUESDAY, APRIL 30, 2024

                          United States Senate,
                             Subcommittee on Personnel,
                                   Committee on Armed Services,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 2:30 p.m. in
    room SR-232A, Russell Senate Office Building, Senator Elizabeth
    Warren (Chairman of the Subcommittee) presiding.
        Committee Members present: Warren, Kaine, and Scott.

             OPENING STATEMENT OF SENATOR ELIZABETH WARREN

        Senator Warren. This hearing will come to order.
        We welcome everyone to today's hearing to receive testimony
    on the efforts of the Department of Defense to ensure
    servicemembers' access to prescription drugs that are safe,
    high quality, and effective.
        We owe our servicemembers and their families the best
    possible health care. This is a morale issue, it is a
    recruiting issue, and ultimately, it is a national security
    issue.
        DOD spends about $5 billion every year on pharmaceuticals.
    That is about 2 percent of the entire U.S. commercial
    pharmaceutical market. Now to make these purchases, DOD must
    navigate many of the same challenges as civilian health
    systems.
        For example, according to the FDA, almost half of the drugs
    on DOD's operational medicines list--a list that contains drugs
    necessary for warfighting that are essential for meeting the
    medical needs of servicemembers--about half those drugs are in
    shortage. This includes the blood thinner heparin, a common
    anesthesia drug called midazolam, and morphine for pain
    management. The impact of these drug shortages can be
    devastating. A shortage could mean using a drug with worse side
    effects, or it could mean having to use the second-or third-
    line treatment for an illness, rather than the treatment that
    is most effective.
        While there are many factors that can cause shortages from
    spikes in demand to natural disasters to inspection failures--
    most drugs in shortage share a common feature: they are
    generics. That means they are no longer protected by patents,
    and they can be made by any manufacturer with approval from the
    FDA. Despite this, most generic drugs have very little
    competition. In fact, 40 percent of the generic drugs sold in
    the United States have just one manufacturer.
        Why? Because the profit margin for some generic drugs is so
    low that American manufacturers just are not interested in
    making them. As a result, more of DOD's generic drug supply is
    coming from foreign manufacturers who can produce the drugs at
    even lower costs.
        DOD's reliance on overseas manufacturers is not limited to
    finished drug products. The ingredients used to make the
    medicines, called active pharmaceutical ingredients, or APIs,
    and the ingredients used to make APIs, known as key starting
    materials, or KSMs, are also increasingly sourced from abroad.
        The COVID-19 pandemic exposed the risks we face by
    importing more and more of our commercial drug supply overall.
    DOD relies on those imported drugs and that gives potential
    adversaries the power to restrict DOD's access, which can
    result in harm to our servicemembers, to their families, and to
    our national security. In addition, the U.S. has less and less
    visibility into and oversight of foreign manufacturers and
    their manufacturing practices, and that is particularly true
    with China.
        These problems have concerned me for a long time, and that
    is why I partnered with Senator Rubio to secure language in the
    fiscal year 2023 NDAA requiring DOD to develop guidance for
    risk management of the Department's pharmaceutical supply
    chain, to report on supply chain vulnerabilities, and to
    establish a working group to develop policies for allocating
    scarce pharmaceutical resources.
        When a drug does not work properly it can have serious
    consequences for servicemembers. Bloomberg reported last year
    that an outside lab tested tacrolimus, an immunosuppressant
    used to treat soldiers who have lost limbs in combat. The
    results revealed that some generic versions of the drug might
    not work. Worse yet, they could cause kidney failure or
    seizures.
        So last summer, in accordance with Senator Rubio's and my
    provision, DOD entered into a cooperative agreement with an
    independent lab to conduct a pilot study to test the quality of
    12 finished drugs in the military drug supply. In November, DOD
    revealed that 27 percent of the drugs on the FDA's Essential
    Medicines List are at, quote, ``Very High Risk'' because they
    are either dependent on Chinese manufacturers using Chinese
    ingredients or were derived from unknown sources.
        So we are holding this hearing today to learn more about
    these challenges and to discuss DOD's capacity to address them.
        I want to thank Ranking Member Scott for his commitment to
    improve the quality of life for our servicemembers and for
    their families, and to our witnesses, I say welcome and thank
    you for appearing today.
        We will have two panels. The first panel consists of
    officials from the Department of Defense who will explain how
    DOD is currently addressing drug shortages and DOD's existing
    capabilities for biomedical research and development. I am
    pleased to have the opportunity to introduce them, which I will
    do in just a minute, but I want to see if Senator Scott has any
    remarks he would like to make first.

                    STATEMENT OF SENATOR RICK SCOTT

        Senator Scott. Sure. First I want to thank Chair Warren for
    doing this. I think this is a very important issue. I think any
    of us that would have a health issue, we would want to make
    that our kids and our grandkids, that they had the best
    medicine out there, and it sure does not seem like we are doing
    that.
        For several years I have raised concerns over the
    pharmaceutical supply chain in this country. The COVID pandemic
    exposed the vulnerabilities in our supply chains and the
    dangers of continuing to be reliant on Communist China for
    medicines and other critical products. I do not know if
    anybody, logically, would ever want to be dependent on
    Communist China for anything.
        While the pandemic is over, these problems continue.
    America is far too dependent on Communist China and other
    foreign producers, and our supply chains will be massively
    disrupted when Xi decides to invade Taiwan. I do not think it
    is a question of if. I think it is a question of when.
        If we do not take action to fix this now, the supply chain
    disruption that will occur when Communist China strikes Taiwan
    will be extreme and cause unbearable pain for the United States
    and every American family. No one will be safe from the impact
    of supply chain disruption if we continue down our current
    path. Prices will skyrocket even higher; product shortages will
    be widespread and severe. I mean, I just cannot imagine that we
    are buying essential items like medicines, technology,
    household goods, you name it. Everything is going to be
    affected, and I do not know why we buy anything from Communist
    China.
        But today we want to focus on medicine and the
    pharmaceutical supply chains that our military depends on. I am
    glad we have this opportunity to discuss how pharmaceutical
    safety, quality, and supply chain issues affect our
    warfighters. I think we all agree that America's dependence on
    Communist China and other foreign producers for medicines is a
    significant problem, and it does not appear to being addressed.
        I have been fighting for legislation to get this fixed. My
    American Drugs Act will create a strong incentive for companies
    to invest in domestic pharmaceutical production, address the
    ongoing drug shortages, and work to prevent future ones, and
    shift away from reliance on Communist China. The American Drugs
    Act seeks to fix this problem by leveraging the buying power of
    the Federal Government and requiring Federal health programs to
    purchase American-manufactured generic drugs if there are two
    or more manufacturers of a generic drug. I think this bill is
    needed, given the issues we face today, and as the Chair said,
    it is not a little bit of money that our defense industry is
    buying. It is billions of dollars every year.
        The Department of Defense recently conducted a
    pharmaceutical supply chain study, as required by 860 of the
    fiscal year 2020 National Defense Authorization Act, and I want
    to thank Chair Warren for leading that effort. This study
    revealed the Department has a high dependence on foreign
    material and foreign trade agreements to maintain current
    pharmaceutical capabilities. I do not know anybody in their
    right mind who trusts anything made in China. The report shows
    that 54 percent of the pharmaceutical ingredients that
    encompassed the products on the FDA's Essential Medicines List,
    being the critical pharmaceuticals that the Department should
    have access to, are from sources that are at a high risk of
    disruption. Who would do that? Only a quarter of the drugs on
    the list have domestic manufacturers.
        As I mentioned earlier, during COVID we learned the hard
    way that relying on non-allied countries for our medical supply
    chain poses a real danger. For that reason it is imperative
    that we work to ensure DOD's supply chains are independent from
    non-allied nations for necessary pharmaceutical treatments. In
    the future these supply chains could easily cease to exist, and
    I assume they will when China invades Taiwan.
        I am also working on legislation that would have the DOD
    work with manufacturers to buildup our domestic pharmaceutical
    manufacturing base. If we have a drug shortage of antibiotics,
    where about 90 percent of the key inputs to make those drugs
    come from China, it becomes a readiness issue because our
    strength comes from a ready and health warfighter.
        About 90 percent of the drugs dispensed at the pharmacy are
    generic drugs, but a country like China-controlled generic drug
    manufacturing makes us more dependent as we ramp up for
    possible conflict.
        Today I look forward to hearing from both the Defense
    Logistics Agency and the Department of Defense Health Agency to
    discuss the findings of the Department's pharmaceutical supply
    chain study and their ongoing work to study and secure these
    supply chains.
        In addition to focusing on pharmaceutical supply chains'
    security we must address the specific medical countermeasure
    needs of the warfighter. The Walter Reed Army Institute of
    Research has a Pilot Bioproduction Facility that can aid the
    transition phase from research and development to early stage
    clinical trials for warfighter-specific vaccines and biologics.
    While this effort is small in scale, it is important that we
    discuss the success that General Bailey and his team have found
    in keeping our warfighter healthy and combat ready.
        History shows us that infectious diseases have a high
    morbidity rate in theaters of war. As we look toward the pacing
    threat in the Pacific I would like to understand the medical
    challenges that our troops will face, what innovative tools and
    improve medical countermeasures in advance of a contingency.
        Last, we will discuss the ongoing pilot program on quality
    and safety of pharmaceuticals. The Department of Defense
    Uniformed Services University of the Health Sciences is leading
    a pilot program to assess pharmaceutical product quality in the
    military health system pharmaceutical supply chain. While this
    pilot program is in the early stages, we utilize the military
    health system as a representative example to conduct a thorough
    review of the pharmaceutical supply chain to include a risk
    assessment analysis of our domestic manufacturing capacity and
    analytical testing of drug products from various suppliers.
        I am deeply concerned by our lack of resiliency and
    transparency in this area. I look forward to hearing the
    results of this study over the coming years. I want to thank
    all of you for being here, and I simply do not understand how
    we ever got ourselves dependent on China and why we are not
    doing more to get it done.
        Senator Warren. Thank you very much. Thank you, Senator
    Scott.
        As I said, our first panel is going to be about drug
    shortages and R&D for the Department of Defense. From my left
    to my right we have Dr. Mark Dertzbaugh, Principal Assistant
    for Research and Technology for the U.S. Army Medical Research
    and Development Command; we have with us Dr. Martinez-Lopez--it
    is good to see you--Hon. Dr. Lester Martinez-Lopez, Assistant
    Secretary of Defense for Health Affairs at the Department of
    Defense--welcome; Dr. David Smith, Deputy Assistant Secretary
    of Defense for Health Readiness, Policy and Oversight at the
    Department of Defense; and Mr. Matthew R. Beebe, who is
    Legislative Affairs Director at the Defense Logistics Agency.
        I understand, Dr. Lester Martinez-Lopez, that you are going
    to give a joint statement to get us started?
        Dr. Martinez-Lopez and Mr. Beebe, as well.
        Senator Warren. All right, and then Mr. Beebe will speak.
    Thank you. You are recognized, Dr. Lester Martinez-Lopez.

       JOINT STATEMENT OF HON. LESTER MARTINEZ-LOPEZ, ASSISTANT
    SECRETARY OF DEFENSE FOR HEALTH AFFAIRS, DEPARTMENT OF DEFENSE;
    DAVID J. SMITH, M.D., DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR
     HEALTH READINESS POLICY AND OVERSIGHT, DEPARTMENT OF DEFENSE;
    AND MARK DERTZBAUGH, M.D., PRINCIPAL ASSISTANT FOR RESEARCH AND
    TECHNOLOGY, UNITED STATES ARMY MEDICAL RESEARCH AND DEVELOPMENT
                                COMMAND

        Dr. Martinez-Lopez. Chairwoman Warren, Ranking Member
    Scott, and distinguished Members of the Senate Armed Services
    Committee, I am pleased to represent the Office of the
    Secretary of Defense to discuss the Department of Defense's
    commitment to ensure access to safe and effective
    pharmaceutical products we procure and use in the Military
    Health System.
        In this testimony we will inform the Committee about the
    Department's initiative to maintain a secure pharmaceutical
    supply chain, assuring our MHS beneficiaries receive the
    highest quality pharmaceutical products available.
        Over the past few decades, production of most American
    generic drugs, and particularly the ingredients needed to make
    them, has moved overseas. With this movement, national security
    supply chain concerns arise. Similar to civilian health care
    groups and other parts of the U.S. Government, the Department's
    core areas of concern are unstable sourcing of pharmaceutical
    and/or active pharmaceutical ingredients and the availability
    of domestic manufacturing for contingency scenarios.
        Consistent with the National Biodefense Strategy, Section
    3.5, ``Guidance on Agile Therapeutic Development and
    production,'' and Executive Order 14017, ``America's Supply
    Chains,'' the Department is taking a range of actions to
    address these vulnerabilities. Specifically reference to the
    MHS policy efforts, the Department's pharmacy and medical
    logistics teams established a Pharmacy Supply Chain Risk
    Management Working Group. This group leverage existing and new
    assessments of all aspects of the supply chain, with focal
    areas on the critical pharmaceuticals for beneficiary care that
    are on the Joint Deployment Formulary. We have begun the
    development of policies and procedures based on this effort to
    enable allocation of resources in the case of supply chain
    disruption.
        Another effort to generate insights, led by the Uniformed
    Services University of the Health Sciences, we are evaluating
    aspects of the MHS pharmaceutical supply chain, to include
    domestic manufacturing capability, documentation of the supply
    chain, and supply chain security and resilience. Our objective,
    through our research initiative, is to generate meaningful and
    actionable information on drug and active pharmaceutical
    ingredient supply chain resiliency. Using the MHS as a
    representative example, this study will conduct a thorough
    environmental scan of the pharmaceutical supply landscape,
    including a risk assessment, analysis of the domestic
    manufacturing capacity, and examination of the pharmaceutical
    supply chain, analytical testing of drug products from various
    suppliers, and study of proposed scoring systems and the
    associated policy considerations. Through this study the MHS
    will gain insights into which manufacturers, and associated
    supply chains meet reliability essential to the Department's
    Joint Deployment Formulary.
        In addition to the USU-led work, the Defense Health Agency
    Research and Development focuses on developing novel solutions
    at Walter Reed Institute of Research. At WRAIR, structural and
    computational biologists harness the latest generation in
    electron microscopy, the next generation in sequencing,
    monoclonal antibody generation, machine learning technologies
    and novel adjuvants in design of the next-generation vaccine
    candies, which are then tested in preclinical models.
        Through a range of efforts evaluating the supply chain
    vulnerability and resiliency we hope to drive more effective
    care while preparing for any potential shortfalls in supply
    chain.
        In conclusion, I would like to sincerely thank you for your
    continued support of military medicine and for inviting me here
    to discuss the important issues surrounding the health of our
    warfighters and our DOD beneficiaries. I look forward to your
    questions.
        [The prepared statement of Dr. Martinez-Lopez follows:]

    Prepared Statement by Dr. Lester Martinez-Lopez, Assistant Secretary of
                            Defense (Health Affairs)
        Chairwoman Warren, Ranking Member Scott, distinguished Members of
    the Senate Armed Services Committee, I am pleased to represent the
    Office of the Secretary of Defense to discuss the Department of
    Defense's (DOD's) commitment to ensure access to safe and effective
    pharmaceutical products we procure and use in the Military Health
    System (MHS). We are honored to represent the dedicated military and
    civilian medical professionals in the MHS, providing direct support to
    our combatant commanders and delivering or arranging health care for
    our 9.6 million beneficiaries.
        The Department's primary mission is to defend the Nation. As
    codified in DOD policy on supply chain management,\1\ we focus on
    identifying, monitoring, and assessing the security risks and potential
    disruptions within and outside of the DOD supply chain to mitigate the
    risk to supply chain operations that may impact availability or quality
    of material solutions. As it relates to the pharmaceutical supply
    chain, fulfilling this mission means our MHS beneficiaries, including
    our warfighters, have ready access to quality pharmaceutical products
    to ensure their best health outcomes and to optimize the health
    readiness of the Force. Considering pharmaceutical supply chain
    vulnerabilities, and in line with our mission of maintaining a ready
    medical force, we have a responsibility to identify and evaluate these
    emerging threats and develop data informed solutions to mitigate them.
    ---------------------------------------------------------------------------
        \1\ DODI 4140.01, March 6, 2019 (whs.mil)
    ---------------------------------------------------------------------------
        In this testimony, we will inform the Committee about the
    Department's initiatives to maintain a secure pharmaceutical supply
    chain assuring our MHS beneficiaries receive the highest quality
    pharmaceutical products available. We will specifically focus on
    opportunities to enhance security of the supply chain, generate
    information necessary for contingency planning and response, and the
    potential for financial savings to the MHS.
        Over the past few decades, production of most of America's generic
    drugs and particularly, the ingredients needed to make them, has moved
    overseas. With this movement, National Security supply chain concerns
    arise. Similar to civilian healthcare groups and other parts of the
    U.S. Government, the Department's core areas of concern are unstable
    sourcing of pharmaceuticals or active pharmaceutical ingredients and
    availability of domestic manufacturing for contingency scenarios.
        Consistent with the National Biodefense Strategy section 3.5,
    ``Guidance on Agile Therapeutic Development and Production,'' and
    Executive Order 14017, ``America's Supply Chains,'' the Department is
    taking a range of actions to address vulnerabilities. Specifically to
    the MHS efforts, my office has several efforts. The Department's
    pharmacy and medical logistics teams established a Pharmacy Supply
    Chain Risk Management Working Group. This group leverages existing and
    new assessments of all aspects of the supply chain, with focal areas on
    the critical pharmaceuticals for beneficiary care that are on the on
    the Joint Deployment Formulary. We have begun the development policies
    and procedures based on this effort to enable allocation of resources
    in the case of supply chain disruption.
        Another effort to generate insights, led by the Uniformed Services
    University of the Health Sciences (USU), is evaluating six aspects of
    the MHS pharmaceutical supply chain, to include: domestic manufacturing
    capability, documentation of the supply chain, and supply chain
    security and resilience. Our objective, through our research
    initiative, is to generate meaningful and actionable information on
    drug and active pharmaceutical ingredient (API) supply chain
    resiliency. Using the MHS as a representative example, this study will
    conduct a thorough environmental scan of the pharmaceutical supply
    landscape, including a risk assessment, analysis of the domestic
    manufacturing capacity, and examination of the pharmaceutical supply
    chain, analytical testing of drug products from various suppliers, and
    study of scoring systems and the associated policy considerations. This
    pilot study will generate data pertaining to essential drugs for
    military operations. Through this study the MHS will gain insights into
    which manufacturers, and associated supply chains meet reliability
    essential to the Department's Joint Deployment Formulary. By creating
    more transparent information concerning supply chains that are able to
    consistently deliver quality medications, this study may enable
    manufacturers to be able to better compete and allow major purchasers
    of drugs, like the DOD, to direct our purchasing to best value
    manufacturers.
        USU has begun work on the first part of the study, ``A Comparison
    of Essential Medicines Lists from Three Agencies,'' that will compare
    the publicly available essential medicines lists of the DOD, the FDA,
    and the World Health Organization. Future studies will include
    evaluation and risk assessment of the DOD drug supply chain, an
    analysis of domestic drug manufacturing capability, and study of a
    proposed scoring tools for drug quality.
        In addition to the USU led work evaluating existing products, the
    Defense Health Agency Research and Development (DHA R&D) focuses on
    developing novel solutions. DHA R&D has a long history of researching
    and developing new medical technologies in support of readiness and
    health care for servicemembers from accession, through training,
    deployment, and medical treatment on the battlefield. This research and
    development also led to new technologies and vaccines that have saved
    countless lives across the world. The committee has asked for more
    information on the capabilities at the DHA's Walter Reed Army Institute
    of Research (WRAIR).
        WRAIR is one of our premier laboratories at the center of
    researching and developing such new technologies and vaccines.
        The WRAIR conducts vaccine research in partnership with industry,
    other US government partners academic, and international research
    partners. At WRAIR, structural and computational biologists harness the
    latest generation in electron microscopy, the next generation in
    sequencing, monoclonal antibody generation, machine learning
    technologies and novel adjuvants to design innovative next-generation
    vaccine candidates, which are then tested in preclinical models.
        WRAIR's Pilot Bioproduction Facility, or PBF, manufactures test
    batches of vaccines of military relevance for use in human clinical
    phase 1 and early phase 2 trials. Vaccine candidates manufactured at
    the PBF can then transition to the WRAIR Clinical Trials Center, and
    subsequent expanded field testing. Through WRAIR's forward deployed
    directorates centered in Thailand, Kenya, and the Republic of Georgia,
    WRAIR maintains enduring relationships with clinical research centers
    in over 10 countries around the globe. WRAIR has led pivotal trials for
    dengue, malaria, chikungunya, Lassa, Ebola, and HIV vaccine products.
    Additionally, WRAIR has developed intellectual property behind two
    Shigella vaccine candidates currently in phase 2 clinical trials.
        Through a range of efforts evaluating the supply chain
    vulnerability and resiliency we hope to drive more effective care while
    preparing for any potential shortfalls in supply chain. In parallel, we
    seek to contribute along with our USG, academic, and industry partners
    to develop novel solutions to future health threats from capability to
    delivery.
        In conclusion, I would like to sincerely thank you for your
    continued support of military medicine and for inviting me to be here
    with you today to discuss the important issues surrounding the health
    of our warfighters and our DOD beneficiaries. I look forward to your
    questions.

        Senator Warren. Thank you, Mr. Secretary. Mr. Beebe?

     STATEMENT OF MATTHEW R. BEEBE, DIRECTOR OF ACQUISITION (J7),
                        DEFENSE LOGISTICS AGENCY

        Mr. Beebe. Good afternoon, Madam Chair, Ranking Member
    Scott, and distinguished Members of the Senate Armed Services
    Personnel Subcommittee. Thank you for the opportunity to
    testify today. My name is Matt Beebe. I am the Senior
    Procurement Executive for the Defense Logistics Agency, or DLA,
    a Department of Defense combat support agency. I am grateful to
    have the chance to speak to you today about some of the work
    DLA is doing to improve visibility and transparency within the
    DOD pharmaceutical supply chain and ensure that our military
    servicemembers have access to safe, high quality
    pharmaceuticals.
        DLA's mission is to deliver readiness and lethality to the
    warfighter always, and support or nation through quality,
    proactive, global logistics. In support of that mission, DLA
    manages the full spectrum of pharmaceuticals for the military
    and their dependents all over the world, to include supply to
    military hospitals.
        Although our military customers set pharmaceutical
    requirements based upon the needs of today's warfighters, it is
    DLA who purchases those products and manages critical end-to-
    end supply chain logistics to ensure that military
    servicemembers get the pharmaceuticals they need, when they
    need them. We accomplish this by leveraging commercial
    capabilities and contracting with commercial distribution
    companies who use their global networks of sources to deliver
    FDA-approved medicines to servicemembers at military treatment
    centers or wherever they are located throughout the world.
        In line with our logistics mission and to better serve our
    customers and the warfighter, DLA is always seeking to improve
    our ability to identify, manage, and mitigate logistical and
    supply chain risks, including those impacting pharmaceutical
    supply chains.
        One area of focus in this issue is foreign dependency of
    pharmaceuticals. A 2021 report by the DOD inspector general
    identified that due to the dependency of the U.S. commercial
    pharmaceutical market on ingredients from foreign suppliers, a
    disruption of the supply chain of those ingredients to domestic
    manufacturers had the potential to cause drug shortages, which
    could ultimately compromise the standards of care for military
    servicemembers.
        Similarly, in November 2023, DOD submitted a report in
    response to Section 860 of the National Defense Authorization
    Act for fiscal year 2023, regarding risks in DOD pharmaceutical
    supply chains. In that report, DOD identified the defense
    supply chain for pharmaceuticals is highly dependent upon
    foreign or unknown sources, in large part due to the global
    nature of the pharmaceutical supply chain for both finished
    products and active pharmaceutical ingredients, or APIs.
        DOD identified several pervasive information gaps that
    hinder its ability to obtain visibility and transparency in
    these supply chains, particularly the lack of readily available
    and authoritative data on the sources of finished generic
    drugs, their APIs, and other key ingredients. Having this
    information would significantly improve our ability to
    illuminate the complex pharmaceutical supply chain and help DOD
    ensure that our military servicemembers continue to have access
    to safe, high-quality pharmaceuticals.
        As the provider of critical pharmaceutical products to our
    Nation's warfighters, we are steadfastly committed to working
    with the Department, other Federal agencies, and Congress to
    strengthen our collective ability to identify, mitigate, and
    prevent risks in the pharmaceutical supply chain.
        DOD and the Department sincerely appreciate your interest
    in these issues. I look forward to addressing your questions.
        [The prepared statement of Mr. Beebe follows:]

                     Prepared Statement by Matthew R. Beebe
        Thank you for the opportunity to testify before the Senate Armed
    Services Personnel Subcommittee. As the Senior Procurement Executive
    for the Defense Logistics Agency (DLA), I am here to discuss the report
    submitted by the Department of Defense in November 2023 pursuant to
    Section 860 National Defense Authorization Act (NDAA) for fiscal year
    2023 regarding risks in DOD pharmaceutical supply chains.
        DLA is a combat support agency. We manage end-to-end, global supply
    chain logistics in support of the services and Combatant Commands.
    DLA's mission is to deliver readiness and lethality to the Warfighter
    Always and support our Nation though quality, proactive global
    logistics. As part of that mission, DLA procures and manages the full
    spectrum of pharmaceuticals for the military and their dependents all
    over the world, to include supply to military hospitals. DLA is DOD's
    largest purchaser of these products, acquiring $5.3 billion of
    pharmaceutical products in Fiscal Year 2023. In addition, DLA comprises
    approximately 23 percent of the total Federal demand. Other major
    Federal Government purchasers include the U.S. Departments of Veterans
    Affairs and Health and Human Services, for a total of $22.9 billion in
    fiscal year 2023 for the entire Federal Government. Although the total
    Federal Government spend is considerable, it represents a very small
    percentage of global demand.
        DLA's pharmaceutical purchases are driven by the needs of its
    defense customers, primarily the Defense Health Agency (DHA). DLA
    executes its defense supply mission through the pharmaceutical prime
    vendor program, which leverages commercial capabilities and
    efficiencies to meet DOD needs. DLA contracts with commercial
    manufacturers and distributors to satisfy customer requirements for
    pharmaceutical products through integration with commercial supply
    chains.
        The Food and Drug Administration (FDA) within the U.S. Department
    of Health and Human Services (HHS) regulates the U.S. commercial
    medical products, including pharmaceuticals. DOD leverages commercial
    pharmaceutical supply chain capabilities. DOD is supported by the
    commercial medical industrial base and provides medical treatment and
    care for the U.S. Military. Within DOD, DHA manages the personnel,
    facilities, treatment protocols, and requirements of the military
    healthcare system. In turn, DLA supports DHA and other defense
    customers by procuring the pharmaceutical supplies and services needed
    by the Department, based upon the requirements and specifications
    defined by its customers.
        The issue of foreign dependency in pharmaceuticals has been a
    recognized risk for some years. A 2021 DOD Inspector General report,
    ``Evaluation of the Department of Defense's Mitigation of Foreign
    Suppliers in the Pharmaceutical Supply Chain,'' found that ``[a]
    disruption of the supply of foreign-made APIs to domestic manufacturers
    could cause a drug shortage that affects every level of the U.S. health
    care system. Since the DOD is a consumer of the U.S. commercial
    pharmaceutical market, which is dependent on ingredients from foreign
    suppliers, these potential drug shortages could ultimately compromise
    the standard of care for military servicemembers and DOD beneficiaries.
    Implementing measures to mitigate the risks of a pharmaceutical supply
    disruption would provide a defensive capability and mitigate public
    health and national security risks.''
        In recognition of these risks, DLA began developing the
    Pharmaceutical Provenance Solution (PPS) in 2021, a cloud-based
    software solution that uses various data bases, including the publicly
    available, Food and Drug Administration Drug Shortage Data base, to
    help provide visibility and analytics of the country of origin and
    sources of supply of finished drugs, active pharmaceutical ingredients
    (APIs), and excipients. PPS provides insight into a variety of factors
    related to pharmaceutical supply chain risks.
        The Section 860 report primarily focused on foreign dependence on
    active pharmaceutical ingredients (API), which is one of a variety of
    potential risks and vulnerabilities within pharmaceutical supply
    chains. As referenced in the report, DOD is in process of developing
    the Supply Chain Risk Management (SCRM) Framework and Taxonomy with
    implementation guidance, as well as the SCRM governance process. The
    Department utilized the PPS when creating the Section 860 report to
    help identify sources of supply risks. The report findings are based
    upon the results of an initial DOD pharmaceutical supply chain analysis
    examining 1,744 drug families, which equates to 12,917 specific drugs,
    identified by national drug codes, or about 10 percent of the total
    drugs available in the U.S. marketplace.
        As referenced in the report, based upon this initial supply chain
    analysis, DOD identified a high dependence on foreign material and
    trade agreements to maintain current pharmaceutical capabilities.
    Although 28 percent of the APIs are sourced from North America and are
    considered at least moderately secure, 5 percent are sourced from
    China, and 22 percent are unknown. In total, DOD identified that 54
    percent of the DOD pharmaceutical supply chain is considered either
    high or very high risk, with dependency on non-Trade Agreements Act
    (TAA) compliant suppliers, as defined in the Section 860 report,
    sourcing from China and India, or unknown.
        In addition to identifying the degree of overall foreign dependency
    for DOD procured products, the section 860 report identifies the
    following mitigations and recommendations in consideration of
    mitigating risk on foreign dependance:

          Work with the Military Services and other DOD Components
    regarding transition to TAA-compliant viable therapeutic API
    alternatives.

          Pursue efforts to validate sources of supplies/production
    capacity from industry.

          Enhance PPS capabilities.

          Engage suppliers of pharmaceuticals with Unknown country
    of origin to determine source of API and update in PPS data base.

          Work with relevant Federal stakeholders to support
    domestic production of finished generic drugs, APIs, and key
    ingredients.

          Focus on utilization of secure ingredient sources
    following DLA's sourcing hierarchy.

          Partner with the FDA and other Federal stakeholders to
    facilitate provision of the necessary business intelligence to
    determine the source for the finished drug, API and key ingredients
    acquired by the Federal Government.

        The information provided by PPS has enhanced DLA's ability to share
    information with customers and other stakeholders to develop risk
    mitigations and actions to address potential shortages and issues of
    availability. Additionally, DOD participates in the HHS Joint Supply
    Chain Resilience Working Group. The formal Working Group operates under
    the authority of the Critical Infrastructure Partnership Advisory
    Council and facilitates engagements between government representatives
    at the Federal, State, local, tribal, and territorial levels and
    representatives from critical infrastructure owners and operators to
    conduct deliberations and form consensus positions to assist the
    Federal Government in developing resiliency.
        Going forward, DOD anticipates that insight into pharmaceutical
    supply chain risks will improve as additional information is gathered
    and risk assessment capabilities are further refined; however,
    pervasive information gaps remain. The Department identified the lack
    of authoritative data on the sources of finished generic drugs, their
    APIs, and other key ingredients as a critical DOD information gap. In
    the report, DOD recommended that manufacturers of pharmaceuticals sold
    in the U.S. provide definitive information on the production location
    of all their finished drugs and the source of all APIs and key
    ingredients, and the percentages of APIs and key ingredients coming
    from each source, for each lot produced. The current lack of
    manufacturer production and sourcing data for generic drugs hinders
    DOD's ability to obtain visibility and transparency within the supply
    chain. That in turn makes it more difficult for DOD to identify areas
    of risk. Obtaining this information and having it available to Federal
    stakeholders responsible for assessing and mitigating vulnerabilities
    to our Nation's pharmaceutical supply chain would increase our
    collective readiness and facilitate development of solutions to address
    foreign dependencies.
        I want to thank you for your interest in this important topic and
    the important work the DLA is doing to bring greater visibility and
    transparency to the DOD pharmaceutical supply chain. As the provider of
    critical pharmaceutical products to our Nation's warfighters, we are
    steadfastly committed to working with the Department, other Federal
    Departments and agencies, and Congress to strengthen our collective
    ability to identify, mitigate and prevent risks in the pharmaceutical
    supply chain.

        Senator Warren. Thank you, Mr. Beebe.
        I am going to start with the first round of questions. The
    Defense Health Agency provides care for about 9 million people
    in the military health system, and that includes by dispensing
    prescription drugs to servicemembers and to their families.
        Earlier this month, the American Society of Health System
    Pharmacists announced that there were a record 323 active drug
    shortages during the first quarter of 2024. That is an all-time
    high in the United States.
        Dr. Martinez, you are in charge of ensuring the health and
    safety of our servicemembers. When DHA cannot get a critical
    drug because it is in shortage, can you just explain to
    everyone what options you have to ensure that servicemembers
    and their families are receiving the care they need?
        Dr. Martinez-Lopez. Chairwoman, thank you for the question.
    You know, the health of our beneficiaries is of most importance
    to all of us, and when you face the issue of not having the
    drug, the right drug for that patient then your choices are to
    go and look at alternate drugs that may not be exactly the same
    one for that condition or for that patient. It may have a
    different side effect profile.
        So let me give you an example. Amoxicillin may be a drug.
    It is an antibiotic, made overseas, and used everywhere for
    basic infections. But let's say I do not have it. Now I have to
    take other antibiotic, and at the same time I am trying to
    combat resistance of antibiotic. I am using an antibiotic that
    is not indicated for that condition. So there I lose twice,
    once because I am not giving the right antibiotic to my
    patients but on top of that I am losing ground on my fight
    against antibiotic resistance.
        In other events, like in an epinephrine injection, that can
    be life or death. We do not have hours to decide what the
    alternate is. So that may translate into a life, right on the
    spot.
        So this creates a conundrum for all health care
    professionals, and it is not just us. It is across the Nation
    we are facing this.
        Senator Warren. Okay. So worse health outcomes for the
    patient and worse health outcomes for the system overall, is
    what I am hearing you say.
        According to the FDA, one of the leading factors
    contributing to drug shortages is quality issues. For example,
    an FDA inspection of a manufacturing plant in India revealed a,
    quote, ``cascade of failure'' at the plant's quality control
    unit. Investigators found problems with systems to prevent
    microbial contamination, to keep processing areas sterile, and
    to protect critical production documents, including they found
    a trash bag full of records that had been torn and doused in
    acid. The plant temporarily closed, resulting in widespread
    shortages of common chemotherapy drugs across the United
    States, affecting both civilian and servicemembers.
        As more of our drug supply chain moves overseas, these
    kinds of quality concerns are going to become even more common.
    So last summer, DOD launched a pilot with an independent lab to
    test drug products for safety and effectiveness. For example,
    it will test whether the drug contains any contaminants,
    whether it contains the correct dosage, and whether it has the
    expected potency.
        The pilot study is going to look at 12 drugs on DOD
    Operational Medicines List, which includes drugs that are
    necessary for warfighting, and its Predeployment Medicines
    List, which includes drugs that help servicemembers control
    chronic conditions to meet standards for deployment. Together
    the pilot will test medicines needed to stabilize wounds,
    alleviate pain, and treat infections.
        Dr. Smith, can you share why DOD thought it was necessary
    to conduct this pilot study?
        Dr. Smith. Thank you for the question, Senator Warren. As
    we have noted, we are most concerned about ensuring the access
    to safe and effective drugs, and as you noted we are doing a
    number of studies. The 860 study that we have referred to and
    then also the study for the Uniformed Services University, that
    is evaluating, in particular, a quality scoring tool by
    DeBastiani, that was published in the Journal of the American
    Pharmacy Association just last year as an additional factor for
    us to consider as we purchase medications on the market, and
    you pointed out the various FDA recalls and the issues that
    have been coming up.
        Additionally, we have heard that within the generics, where
    there are multiple manufacturers using the same API, that there
    may be a variance in those generics. So we thought with all of
    those factors it would be useful to conduct this pilot study
    that you referred to, that ultimately will look at 42 drugs
    from our Joint Deployment Formulary, to see if we can
    differentiate between the generics and make us actually a
    better buyer and actually reward manufacturers that produce the
    product that is spot on. Over.
        Senator Warren. Good. So you are talking about a study that
    you are doing because you hear a lot of problems out there, and
    also this may help you figure out how to respond to those going
    forward. Is that a fair summary?
        Dr. Smith. I think that is fair.
        Senator Warren. Good. Good. So when DOD is making decisions
    about purchasing drugs, price is often the most important
    consideration, but it should not be the only consideration.
    Whether a drug is made by a reliable manufacturer or whether
    its active ingredients are made, and where they are made should
    also inform purchasing decisions.
        The Defense Logistics Agency is responsible for procuring
    pharmaceuticals on behalf of the Military Health System, but
    DHA can put requirements on the purchases. Dr. Martinez, if DOD
    identifies significant risks to the safety of its drug supply
    chain will DHA add requirements on drug quality to ensure that
    we are buying effective, safe, the best drugs for our
    servicemembers?
        Dr. Martinez-Lopez. Senator, based on the information the
    pilots give us, I think we will be in a position to, if that is
    indicated, to make it so.
        Senator Warren. Okay. So you can put that into your
    requirements, and you are telling me that if you are concerned
    about quality you will put it into your requirements.
        Dr. Martinez-Lopez. Yes.
        Senator Warren. For the drug. Good. That is what I want to
    hear. You know, I am glad that DOD has taken steps to evaluate
    drug quality, and the Department should be prepared to use this
    information to improve quality and accessibility of the
    prescription drugs that our servicemembers need. Thank you.
        Senator Scott?
        Senator Scott. Thank you. Mr. Beebe, how many different
    drugs do you buy in a year? How many different ones?
        Mr. Mr. Beebe. Well, our catalog probably is in the tens of
    thousands of items. Of course, that is not all different drugs.
    In some cases it is dosage differences, application
    differences.
        Senator Scott. Okay. Tens of thousands. All right. Do you
    personally believe that we should not buy things from Communist
    China?
        Mr. Mr. Beebe. I agree basically, or in reality we follow
    existing regulation on how and where to buy materials, whether
    it be pharmaceuticals or other items.
        Senator Scott. Sure. But do you believe that we should not
    buy from Communist China?
        Mr. Mr. Beebe. I agree, sir.
        Senator Scott. Okay. So in the last 12 months, how many
    drugs have we stopped buying from Communist China?
        Mr. Mr. Beebe. When we buy pharmaceuticals we buy with a
    preference toward domestic or safe, assured sources, although
    in many cases we do not know where the sources are. Normally we
    buy from domestic or our trading partners, but we do not always
    have visibility of where the ingredients of those
    pharmaceuticals come from, which is why it was so important for
    us initiate the study and identify where we believe the sources
    of the ingredients are.
        Senator Scott. But today you could just say, ``I am not
    going to buy anything that has an ingredient that comes from
    Communist China. You could say, ``I am not going to buy
    anything that has an ingredient from Communist China. I am not
    going to buy anything that is packaged in Communist China. I am
    not going to buy anything that is in any way in the supply
    chain impacted in Communist China.'' You could do that today,
    right?
        Mr. Mr. Beebe. Actually, I do not believe the regulation
    actually supports that, in that very often the final product is
    manufactured domestically or from an ally, and if it is
    substantially transformed in those countries it is in
    accordance with trade agreements in the Buy American Act.
        Senator Scott. So what is the limitation? Why can you not
    make that decision today?
        Mr. Mr. Beebe. Because often the final product is
    manufactured either domestically or with an ally----
        Senator Scott. But you could set that as a standard and
    then it is a requirement--you could set the standard that
    whatever you buy can have nothing, anywhere in the supply
    chain, comes from Communist China. You could decide that today.
        Mr. Mr. Beebe. If that standard exists, yes, but that is
    not for DLA to decide. We have to follow existing regulations
    and policy and----
        Senator Scott. Who set regulations that said you could
    not--the Secretary of Defense testified the other day that we
    should not buy anything from Communist China. So what
    regulation would it be?
        Mr. Mr. Beebe. That would establish that?
        Senator Scott. Yes. What regulation would stop you from
    being able to do it today?
        Mr. Mr. Beebe. I cannot say what that regulation would be,
    but I certainly support being part of the discussion with the
    Department of Defense.
        Senator Scott. Why don't you just do it. Just do it and see
    what happens. Why don't you just say tomorrow, you just do it.
    Like I am a business guy. I negotiated contracts with people. I
    ran the largest hospital company in the country. I was the
    biggest buyer of pretty much everything in health care on the
    provider side, and once I signed a contract I said our
    hospitals could not buy anything that day. They said, like
    that, and we are not going to buy those gloves, that drug, that
    device. Why don't you just do it?
        Mr. Mr. Beebe. We do not buy end products from China unless
    it is the only source available and we can justify the waiver.
        Senator Scott. So you believe that if there is a product
    that there is a supplier in the United States today, you do not
    buy anything made in China if there is supplier of that product
    today?
        Mr. Mr. Beebe. If the end product is available
    domestically, that is where we will buy it, yes.
        Senator Scott. Do all of you believe that? So if come back
    and tell you that there are suppliers here that compete with
    China, that cannot get contracts with you, you will be shocked.
        Mr. Mr. Beebe. If we are talking about the end product,
    yes.
        Senator Scott. What is the difference?
        Mr. Mr. Beebe. Well, much of what we are talking about is
    the active pharmaceutical ingredients that originate from China
    that get molded into a final product. When we buy the final
    product we are buying it from the United States or a domestic
    trading partner, and we cannot, until recently, see whether or
    not there were some ingredients from China or other country of
    concern. It was not visible, and we are working to make it
    visible.
        Senator Scott. But why don't you just say, starting today
    you will not contract, just put it out there, you are not going
    to contract with anybody if anything--not just the active
    ingredients--there is no part of the process where Communist
    China is involved in it. There is none. Or Russia, Iran, but
    primarily Communist China. Why don't you just do it right now?
        Mr. Mr. Beebe. If we made that absolute then we would be
    creating a sufficient amount of non-availability for our health
    professionals.
        Senator Scott. But if you do not do it today, when are you
    going to do it? I mean, if you do not start today, I mean, when
    are you going to do it? If you do 10,000, why don't you start
    off with 1,000 and see how bad it is? I mean, I am just a
    business guy, and I did not buy from my competition. This is
    not competition. These people are trying to kill us. Oh, they
    are killing us. I mean, Chinese precursors are killing 70,000
    people with fentanyl a year. So why don't you just do it?
        What I am trying to understand is, I think all of you agree
    Communist China wants to destroy our way of life. I think we
    all would, right? Does anybody disagree?
        [No response.]
        Senator Scott. Nobody disagrees. So let's do it today. What
    I do not understand is why don't we do it today? I just do not
    get it. Can somebody explain to me why we do not?
        Dr. Smith. Sir, there are some of the APIs that only
    originate from China, that are critical to medications that we
    use on a daily basis, and so that would be one of the
    impediments that needs to be resolved to be able to go that
    direction, sir.
        Senator Scott. So, Dr. Smith, how many is that?
        Dr. Smith. I am aware on the Joint Deployment Formulary,
    and this is specifically China, and as Mr. Beebe pointed out we
    have an issue with provenance on a fair percentage of our Joint
    Deployment, but I am aware, I believe--and I can take it for
    the record--27 drugs that the APIs are specifically only
    sourced from China.
        Senator Scott. Have we put out a bid for Americans to say,
    will somebody do it, on those, those 27?
        Dr. Smith. As part of our work on 860, it is part of what
    we are going through to confirm and work solutions to this
    issue. But we are well aware that there is a substantial amount
    of the APIs, the active pharmaceutical ingredients, that are
    coming from Mainland China. Over.
        Senator Scott. So that is not 27 out of 10,000, right?
        Dr. Smith. I should probably take it for the record, sir,
    and we can give you the information. But I think it is 27 out
    of 920, or so.
        Senator Scott. Okay. I am sorry.
        Senator Warren. No, no. That is fine.
        Senator Scott. I just want to understand why we do not do
    it today. I mean, in business we would just say, guys, we had a
    nice meeting. We found out that these people are trying to
    destroy it, and we just say, okay, guys. We all decide, as of
    today, we will not do business with them. We do that in
    business all the time. I do not know why we just do not do
    that. I do not know what the limitation is. If there is a
    limitation, I want to all--the Secretary of Defense has told me
    he does not want to buy anything from China.
        Dr. Martinez-Lopez. Sir, if I may, the main limitation we
    have right now, like Dr. Smith said, is that some of these
    drugs, the API is only made in China, and that is in the global
    market. So if we decide not to buy Chinese, I man, I think the
    number is around 5 percent of it, that we know of, of all the
    drugs in the formulary, that the API comes from China, and we
    do not know about 20-something percent of them where the API
    comes from. So that creates a conundrum. So if we could source
    it some other place, that would be great.
        Senator Scott. Okay. So why would we not do this. There are
    all these different options. Number one, what I would do is
    just say I am not going to do it, and everybody has to sign a
    contract that they will not do it, and let's see what happens.
    I guess they will come back and tell us, right. Or we could say
    you have got 90 days to tell us where all your ingredients come
    from, and then we could make a decision. But, I mean, in my
    business life I would not say, ``Let's do a study.'' I would
    say, ``No, I am not going to do it.''
        I am just trying to figure out, if there is an impediment,
    just tell me what it is. Are you in the same position I am?
        Senator Warren. Yes, and I want to followup on your point.
    Okay, I just want to followup on this about the risks we run
    from having overseas manufacturing that is either in China or
    some other nation that is not an allied nation, because they
    all pose this risk and we need to worry about it.
        I mentioned in my opening remarks that Senator Rubio and I
    got a provision in the fiscal year 2023 NDAA for DOD to put
    together a report, and it came out last November, about drug
    supply chain risks in military, and evaluated 211 drugs. It
    found that half of those were either at high or very high risk
    because the active pharmaceutical ingredients, the APIs, for
    those drugs are sourced from China or non-Trade Agreement Act
    countries, or are just simply unknown, nobody knows where they
    are coming from.
        So you identified, Mr. Beebe, that 27 APIs are sourced
    exclusively from China, but I would just point out that is only
    a little over 10 percent of the drugs. It is not half the drug
    we are talking about here. We have got a lot more drugs that if
    you right that it is only 27, then we have got a lot of other
    drugs that are being sourced overseas, that we think there is a
    substantial risk.
        So the question becomes whether or not we should bring that
    manufacturing back to the United States. Is that in our
    national defense?
        So let me put that question to you, Mr. Beebe. Should we be
    manufacturing these drugs domestically, and what is the risk if
    we keep running these manufacturing facilities overseas for
    China or non-Trade Agreement Act countries?
        Mr. Mr. Beebe. So yes, ma'am. First of all, Dr. Smith is
    the one that made reference to the 27----
        Senator Warren. Sorry. Sorry.
        Mr. Mr. Beebe.--but I will go ahead and address the
    question first. So yes, we studied the FDA Essential Medicine
    List, and that is what was the basis for the report that
    identified a high amount of APIs sourced in China or other non-
    TA countries. Since then we have doubled that population,
    adding some of the highest volume pharmaceuticals that are
    purchased by our medical treatment facilities, as well as the
    overlap with the Joint Deployment Formulary, to expand the
    amount that we have reviewed, and the results are essentially
    the same, by percentage, as in same percentage of those coming
    from countries of high risk as well as the same percentage of
    unknown, which is, to me, equally troubling that I do not even
    know how to characterize the risk.
        Do I support bringing more domestic capacity? Absolutely. I
    mean, not only does domestic capacity mean that we have better
    access, but it also means that the government can better
    influence prioritization when there needs to be decisions of
    priority.
        Senator Warren. Okay.
        Mr. Mr. Beebe. That is very important too. Yes, ma'am.
        Senator Warren. So let's talk a little bit about what is
    involved in increasing domestic manufacturing of these
    pharmaceuticals. Last summer, DOD released its inaugural DOD
    Biodefense Posture Review. This outlined the Department's
    capabilities to counter biothreats and identify domestic
    manufacturing as a priority reform initiative. According to the
    Posture Review, we have reduced drug manufacturing here in the
    United States so much that we simply do not have the commercial
    capacity to manufacture what our troops need, and because the
    Department's, quote, ``unique biodefense demands'' are small
    and not commercial competitive, reliable domestic manufacturing
    partners are actually hard to find.
        But that is not the end of the story. DOD has its own
    manufacturing capabilities, capabilities with a proven track
    record of success. In 2017, DOD's Advanced Development and
    Manufacturing Biopharmaceutical Facility to help manufacture
    medical countermeasures became fully operational. DOD has a
    second biomanufacturing facility at the Walter Reed Army
    Institute for Research, WRAIR. The Walter Reed facility has
    developed many vaccines that DOD relies on today to protect our
    troops from a number of diseases, including Zika, Ebola, and
    adenoviruses.
        Dr. Dertzbaugh, you help oversee WRAIR, and WRAIR has
    developed many essential products that both servicemembers and
    civilian populations use today. Can you explain why WRAIR was
    the best place to develop these discoveries rather than just
    leaving it to private industry?
        Mr. Dertzbaugh. Thank you, Chairwoman, for the question. I
    appreciate the opportunity to talk about DHA R&D's infectious
    disease research capabilities. Our two laboratories, the Walter
    Reed Army Institute of Research and then the U.S. Army Medical
    Research Institute of Infectious Diseases, have the
    capabilities and the subject matter experts to get after these
    infectious disease threats that our servicemembers might
    encounter when they are deployed overseas or fighting an
    adversary or even in training. So those capabilities help us
    find countermeasures for solutions to medical infectious
    disease threats that are not commercially viable in the U.S.
    because there is no market for this. There is no threat to the
    U.S. population, in general.
        Senator Warren. All right. That is very helpful. Thank you.
    Because WRAIR's Pilot Biopharmaceutical Facility has been
    crucial in addressing these potential threats and keeping our
    servicemembers safe, especially when private sector is not in a
    position to fulfill that role.
        As DOD considers how to implement the recommendations it
    has identified on domestic manufacturing, the Department should
    also think about how to replicate the capabilities at
    facilities like WRAIR to strengthen supply chain resilience and
    to keep our members safe and bring that manufacturing home.
    Thank you.
        Senator Kaine?
        Senator Kaine. Thank you, Madam Chair and Ranking Member
    Scott, and I appreciate the witnesses being here. I have two
    questions that I would like to ask. While reliance on APIs from
    foreign countries that are adversaries presents significant
    threats, the good news in this challenge is that we are not
    alone. Not every other country is an adversary. We have
    networks of alliances, unlike any of our adversaries.
        I wonder whether, and maybe I will start with you Mr.
    Secretary, have we discussed this challenge with nations with
    whom we have close economic, military, diplomatic ties, and
    explored ways we can deal with those challenges in a joint way?
        Dr. Martinez-Lopez. Thank you for the question, Senator.
    The answer is yes. Actually, we talked with a couple of allies,
    trying to figure out their ability to produce all the drugs
    that could use, and to their amazement and my amazement----
        [Audio interruption.]
        Dr. Martinez-Lopez.--we have to have a secure chain of
    supply. I owe it to my servicemembers----
        [Audio interruption.]
        Senator Kaine.--within the DOD, from antidepressants to----
        Dr. Smith. It is a wide range. Yes, sir.
        Senator Kaine. What are we expecting to learn from this,
    and I suspect that if we do learn something from this data, the
    application is not just the military application. This would be
    good information in the civilian space, whether it is Medicare
    or civilian. It would be really good to have that.
        Dr. Smith. Yes sir, and I think as I had mentioned, we are
    looking at this quality tool that was actually proffered by a
    group of academic pharmacists last year to see whether or not,
    indeed, we can differentiate by manufacturer. So we are looking
    at all the in a particular drug and then doing this
    additional--I mean, clearly looking at all of the good work
    that FDA and the regulatory piece does, but then adding onto it
    testing, looking at potency, looking at the dose, and also
    looking at contaminants that may be used as fillers, et cetera,
    in the product.
        Then if we find anything we have also contracted with three
    other academic institutions to do validation of that work. If
    it pans out, we think it will help us direct our buying toward
    those manufacturers that produce what we would define as the
    highest quality products. But it is a pilot, and that is why we
    have characterized it that way, because we do not know, and I
    do not think this has ever been tested, if you will.
        Senator Kaine. I am talking about the timing of the pilot
    and when do you expect it to start, you know, getting good
    information back?
        Dr. Smith. It is to run 2 years. We started the actual work
    in November. They have just finished contracting with the--or I
    believe it is finished, but they are in the process with these
    third-party or additional partners. So we should start seeing
    beginning information. As Senator Warren said and you have, we
    are doing the first 12 right now. But our intention is to do
    about 42 different drugs. So I would anticipate that clearly by
    early next year we will start flowing in, but the whole project
    is scheduled over a 2-year period.
        Senator Warren. Thank you. Senator Scott?
        Senator Scott. Secretary, let's think about--because I
    think you are right, what you were talking about how we can use
    this whole buying power idea. So let's think about it. I have
    checked with the Chair to see if she would be okay with this.
    But could you prepare a letter that we would send out to
    basically all of the health care community--you know, we could
    do it through like the hospital association, pharmaceutical,
    everybody--and say this is the problem, you guys have the
    buying power, we believe we ought to create a domestic market,
    and so everybody starts doing their part.
        So, the way I would think about doing it is, number one, if
    the Chair is okay with this, we would do it with you, and send
    a letter out to the entire health care community. I think they
    would probably read it if it came from you and from us, and
    talk about what you are doing, the concern that you have
    addressed today. Then maybe wait 30 or 60 days, and then invite
    all the associations together on a conference call to answer
    their questions, and get ideas from them about what we could do
    to help build a domestic market.
        Dr. Martinez-Lopez. Senator, that is a very intriguing
    proposition. I have not thought about it. But really I would
    like to be part of it, but it has to be really the whole
    government. So ask for help from HHS and other agencies. HHS
    has the lead for the country in this particular issue, and
    obviously I would have to clear it with the Secretary to make
    sure that it is appropriate, and if it is, we will pursue it.
        Senator Scott. So let's do this. If it is okay with the
    Chair, let's start with us. If we can get other people to sign
    on, HHS, all these people, that is great. If they do not, let's
    go forward if we can. If not, we can do it, if the Chair is
    okay with it, and then after that let's do a call and tell them
    why this does not work.
        Dr. Martinez-Lopez. Senator, you may well know, we need to
    ask, but if I get that from my Secretary then I will be more
    than glad to lead the effort.
        Senator Scott. Let me know, because he said in testimony
    that he did not want to buy anything from Communist China.
        Then, Mr. Beebe, I think we all would like to have
    something happen. So could you come back, maybe--I do not know
    what is appropriate, whatever you think is appropriate--and
    maybe meet with the Chair and me and our staff and just say,
    okay, what is the limitation and what can we do today. If you
    tell us there is a limitation, then I think at least the three
    of us that are here, I think we are all on the same page--and
    it is just crazy that we are doing this to ourselves, and being
    dependent on China--we are all on Armed Services, and we will
    work hard to get it affixed to the NDAA. I do not know if that
    makes sense to you. Is that doable? Thirty or 60 days, is that
    realistic?
        Mr. Mr. Beebe. Yes, sir. I mean, absolutely, we want to be
    part of the solution. The illumination we are doing to try to
    identify the sources is the beginning of having some
    information to use toward that dialog, to figure out how we can
    move the market or adjust the market. I will be glad to
    respond.
        Senator Scott. Let's try to do it in 30 days. The NDAA is
    coming up this year pretty quick now, because it is May 1
    tomorrow, right. But the faster you can do it, the three of us
    will work with you.
        Mr. Mr. Beebe. I would offer that because that is very much
    a policy discussion that we would want to include the other
    stakeholders from the Department.
        Senator Scott. Sure. But, I mean, we have Paul on our team,
    and I know you have great people on your team. We will work
    with you. But the faster we do it, there is a greater chance
    the three of us can get it in the NDAA this year.
        Senator Warren. Let's make sure we have got Mr. Dertzbaugh
    on this, as well, since I see WRAIR is the model for when the
    market has a complete breakdown and cannot produce what it is
    that our military needs.
        Mr. Dertzbaugh. Ma'am, if I may speak, that is true to a
    point, I would say. We certainly have the ability in our
    production facility to make small quantities of vaccines. It
    does not have the ability to make any drug products, though. We
    are still reliant on commercial manufacturers to produce large
    quantities of those materials if we are going to use them.
        Senator Warren. I understand that you are small, but
    successful. But I also understand, and I hope you are hearing
    here, all of you are hearing, how committed we are to
    redomesticating our pharmaceutical supply chain and production.
    I think you are going to be part of that, as well. Good. We
    good? Senator Kaine, you good?
        Senator Kaine. I am good.
        Senator Warren. All right. Thank you all. I appreciate you
    being here today, and I ask for Panel 2 to come in. Thank you.
        [Pause.]
        Senator Warren. Thank you. Thank you for being with us. The
    second panel will feature testimony that clarifies DHA's
    existing authorities to insulate servicemembers from drug
    shortages and offers additional solutions.
        We have with us today, again from my left, Dr. Melissa
    Barber, a postdoctoral fellow at the Yale Collaboration for
    Regulatory Rigor, Integrity, and Transparency; Dr. Bryce H.P.
    Mendez, a Specialist in Defense Health Care Policy at the
    congressional Research Service; and Mr. Victor A. Suarez, a
    retired U.S. Army colonel, and Founder and Principal Growth
    Partner of Blu Zone Bioscience & Supply Chain Solutions, LLC.
        So I will start the first round of questioning here.
        Most of the time, DOD will continue to purchase drugs from
    the commercial drug market.
        Oh, I am so sorry. I am so eager to get to them. I
    apologize. If we could we still start with our testimony. Dr.
    Barber, would you like to start us, please?

        STATEMENT OF MELISSA BARBER, Ph.D., POSTDOCTORAL FELLOW

        Dr. Barber. Chair Warren, Ranking Member Scott, and Members
    of the Subcommittee, thank you for the invitation to testify
    today. I am a postdoctoral fellow at Yale University,
    researching pharmaceutical markets.
        Both here and in my written testimony I will endeavor to
    report, as precisely and honestly as I can, evidence from the
    academic and policy literature on drug market failures and
    other remedies. My remarks today reflect my own views, not the
    view of my employer or any other organization.
        No one here today disputes that the military faces
    challenges in ensuring a reliable supply of safe, high-quality
    pharmaceuticals. No one here today disputes the unacceptable
    risks this creates for the health and well-being of
    servicemembers and their families, as well as operational
    readiness. So the task before us then is to unravel the root
    causes of challenges in the supply chain and to develop
    solutions.
        First, military procurement of medicines is exposed to many
    of the problems seen in broader commercial markets for
    medicines, including increasing costs and supply and stability.
    Supply chains for many drugs are vulnerable to interruption. We
    do not even know the scale of the problem. A recent report by
    DOD noted that they could not determine the API source of 22
    percent of drugs. But within the academic literature we find
    that approximately one-third of generic active pharmaceutical
    ingredients produced for use in U.S. markets were manufactured
    by a single facility, and an additional third were manufactured
    by only two or three facilities.
        This Committee may not have jurisdiction over industrial
    policy, but it still must reckon with the downstream results of
    decades of policy decisions that have resulted in the
    concentration and offshoring of most pharmaceutical production.
        Second, economists widely agree that markets for medicines
    do not always behave like typical markets and are far from
    being few or competitive. We should leave our idealized,
    orderly supply and demand curves in the cloakroom. They will
    not be of much use to us this afternoon as theoretical lenses.
    We have to instead understand these markets on their own terms
    and through rigorous analysis of empirical data.
        Markets for medicines for military use are even more
    unusual. One factor is many are national monopolies and
    monopsonies because they involve hyper-specialized goods, often
    produced in quantities too small to be manufactured cost-
    effectively by more than one company. A review of DOD contracts
    shows many such hyper-specialized products, all the way from
    anthrax vaccines, battlefield-suitable analgesic auto-injector
    kits and nerve agent antidotes, to the specialized medicines
    used by California sea lions that the U.S. Navy trains for
    defense purposes. When there is only one buyer and seller, the
    DOD is not bidding in a competitive market. The DOD is the
    market, and that demands that we think about market problems
    and market solutions in a nuanced, context-specific way.
        Third, for some drugs there is an irreconcilable mismatch
    between commercial incentives and defense needs, which cannot
    be solved with purely market-based solutions. Pharmaceutical
    companies are incentivized to manufacture a drug if it gives
    them a good return on investment. A supply line that
    manufactures an expensive cancer drug that serves a wide market
    is just more profitable than manufacturing drugs with small
    markets, like anthrax vaccines or drugs with low margins, like
    off-patent antibiotics.
        In contrast, the military is conscious of costs but is
    ultimately incentivized to purchase drugs that meet operational
    needs and protect the health of servicemembers. Sometimes, but
    not always, these incentives overlap, and when they do not, one
    often-tried solution to bridge that gap is to pay
    pharmaceutical companies enough that it becomes worth their
    while to manufacture the drugs the military needs. For products
    used mostly or only by the military, we have seen time and time
    again that the expected demand has not been sufficient to
    generate a healthy number of bidders.
        We therefore have to be realistic about when the DOD will
    be able to buy itself out of market failures. The DOD just does
    not have the spending power to fundamentally change the
    incentives that govern the commercial market to serve defense
    needs. DOD spending, as many have spoken today, accounts for
    less than 2 percent of overall spend in the United States.
        These limitations of using commercial markets to ensure a
    resilient supply chain for military needs bring me to my final
    point. When it comes to medicines for military use, we live,
    and have always lived, in a mixed economy. By this I mean that
    the public and private sectors have both played an important
    role in developing, manufacturing, and supplying medicines in
    the United States for over 160 years. The private sector has
    efficiently supplied DOD with many needed medicines.
        However, for many other medicines where the military is the
    sole market, or the commercial market has struggled to meet
    military needs, the military has brought manufacturing in
    house. The history of the military producing medicine stretches
    back to at least the Civil War, when pharmaceutical
    manufacturing facilities were established in Philadelphia and
    Astoria to stabilize supply chains for the Union army, with
    many other examples outlined in my written testimony.
        The public sector, more generally, has solved puzzles that
    the private sector was not incentivized to explore, like how to
    manufacture penicillin, and the public sector in the United
    States continues to successfully manage products as complex as
    vaccines and monoclonal antibodies today.
        We cannot afford to hold onto the hope that markets will
    always sort themselves out. At present, government creation of
    manufacturing capacity is usually done reactively, with
    initiatives created in response to particular crises. As one
    example, it took over 10 years and $100 million for DOD to
    bring adenovirus vaccine manufacturing back online after Wyeth,
    the sole supplier, held DOD to ransom, to renovate the facility
    at excessive cost.
        I bring up this history to dispel any misconceptions about
    military drug production as a new idea, rather than as an idea
    older than the Department of Defense itself. In my written
    testimony I detail independent review after independent review,
    recommending that the military build on past successes and
    existing capacity and bring the manufacturing of priority
    products back in house. I also detail decades of bipartisan
    support for this from the congressional Record.
        Today I echo their conclusions in recommending that
    Congress introduce legislation establishing clear options for
    creating a government-owned facility to manufacture priority
    health products to meet unmet DOD needs. Thank you.
        [The prepared statement of Dr. Barber follows:]

        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Senator Warren. Thank you, Dr. Barber. Mr. Mendez.

     STATEMENT OF BRYCE H.P. MENDEZ, SPECIALIST IN DEFENSE HEALTH
              CARE POLICY, CONGRESSIONAL RESEARCH SERVICE

        Mr. Mendez. Good afternoon, Chairwoman Warren, Ranking
    Member Scott, and Members of the Subcommittee. Thank you for
    inviting the congressional Research Service to testify today.
        This afternoon I will summarize my written statement by
    starting with a brief overview of the medical research and
    development capabilities of the Department of Defense, or DOD,
    followed by a summary of why and how the Department aims to use
    those capabilities to develop drugs. I will conclude by
    identifying considerations that Congress may face with regard
    to DOD medical research, development, and manufacturing of
    these products.
        The U.S. military has a long history of contributing to the
    discovery of novel drugs and other medical countermeasures.
    Early and well-known contributions took place during and
    shortly after the Spanish American War when Army medical
    research efforts supported the discoveries of typhoid, yellow
    fever, and malaria vaccines. The lessons learned from the
    Spanish American War, and other conflicts throughout our
    Nation's history, have laid the groundwork for Congress and DOD
    to invest in, build, and sustain military medical research and
    development capabilities. Today, DOD uses these capabilities to
    protect servicemembers from health threats, respond to medical
    capability requirements of the joint force, meet the needs of
    the National Defense Strategy, and to also respond to
    congressionally directed research topics.
        DOD medical research and development enterprise includes a
    number of entities like the Defense Health Agency, the military
    departments, Defense Advanced Research Projects Agency, and the
    Chemical and Biological Defense Program, among others. Congress
    appropriates research funding to these entities, who are then
    responsible for resourcing, performing, or sponsoring medical
    research projects.
        Two of these entities, in particular, provide DOD with
    capabilities to develop drugs using different approaches. One
    capability is the Pilot Bioproduction Facility at the Walter
    Reed Army Institute of Research in Maryland. This government-
    owned facility provides a test ground for Federal agencies,
    academia, and private companies to pursue early development and
    small-scale production of drugs so that they can be
    transitioned into advanced clinical trials.
        Another capability is the Advanced Development and
    Manufacturing Biopharmaceutical Facility in Florida,
    administered by the Chemical and Biological Defense Program.
    The contractor-owned, contractor-operated facility, which
    became operational in 2017, provides DOD with priority access
    and surge capacity to produce medical countermeasures.
        When DOD discovers a potential drug candidate, the
    Department is generally subject to Food and Drug
    Administration, or FDA, requirements and procedures for review,
    approval, and clearance. Since at least 1997, Congress has
    provided DOD with an ability to request a Presidential waiver
    of certain FDA requirements, including those for administering
    investigational new drugs, or off-label uses of a drug, and
    informed consent for certain products authorized for emergency
    use.
        In 2017, Congress provided the Secretary of Defense with
    the ability to make requests to the FDA Commissioner for
    expedited review, approval, and clearance of certain medical
    products when there is an existing or potential military
    emergency. These authorities provide frameworks for DOD and FDA
    to share information and to collaborate and coordinate on the
    development of safe and effective medical products that serve
    the military's needs.
        Turning now to the role of Congress, I wanted to highlight
    two issues that this Subcommittee may face. First, Congress
    could consider defining or clarifying the role that DOD should
    have in conducting in-house drug manufacturing. A question that
    Congress could consider is whether or not DOD should be in the
    business of manufacturing drugs or other medical products, and
    if so, for what purpose and to what extent?
        Second, Congress could consider assessing DOD's medical
    research development and manufacturing approach to better
    understand its effect on industry participation or engagement
    with the Department. Congress has given DOD certain authorities
    and tools that it may use to generate interest and incentivize
    industry to work with the military. These authorities and tools
    include unique contracting mechanisms, technology transfer
    opportunities, and a process for expedited FDA reviews and
    approvals. Congress could evaluate whether DOD has used these
    authorities and tools as Congress intended and explore how they
    might attract, influence, or deter companies from doing
    business with the military.
        This concludes my remarks. Thank you for the opportunity to
    testify, and I look forward to your questions.
        [The prepared statement of Mr. Mendez follows:]
        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Senator Warren. Thank you, Mr. Mendez. Colonel Suarez.

    STATEMENT OF COLONEL VICTOR A. SUAREZ, USA (RET.), FOUNDER AND
     PRINCIPAL GROWTH PARTNER, BLU ZONE BIOSCIENCE & SUPPLY CHAIN
                             SOLUTIONS, LLC

        Colonel Suarez. Good afternoon, Chairwoman Warren, Ranking
    Member Scott, and distinguished Members of this Committee.
    Thank you for the opportunity to speak with you today.
        My name is Vic Suarez, and I have recently retired from the
    U.S. Army after 27\1/2\ years of Active Service, as a medical
    service and acquisition corps officer, specializing in the
    advanced development of biologics, managing the medical supply
    chain, and meeting America's finest sons and daughters as a
    commander four times, twice in the combat zone.
        During the past 10 years I have been heavily involved in
    advanced development of biodefense medical countermeasures,
    served as the Chief of Staff at the Walter Reed Army Institute
    of Research, and was selected by General Gus Perna to serve at
    Operation Warp Speed, from 2020 to 2021 as the Lead Vaccine
    Program Manager. I am speaking today primarily in my role as a
    Founder of Blu Zone Bioscience, a life science consulting firm.
        When I left Active Duty 6 months ago, my principal goal was
    to affiliate with organizations that were mission-aligned with
    my responsibilities in the DOD, including enhancing national
    security and protecting human health, and to that end
    supporting domestic companies that could support those two
    missions. To this end, I partnered with two organizations, the
    Council on Strategic Risks and the Securing America's Medicines
    and Supply coalition. Both organizations are focused on
    ensuring access to essential medicines for patients and the
    warfighter.
        On November 27, 2023, the Department of Defense, in
    response to the fiscal year 2023 National Defense Authorization
    Act, Section 860, provided the Senate and House Armed Services
    Committee an interim risk report on the Department's reliance
    on overseas-derived pharmaceuticals. A significant finding was
    that 54 percent of the national drug codes sourced from the DOD
    had active pharmaceutical ingredients, or APIs, and excipients
    non-API, that came from non-Trade Agreement Act compliant
    countries, including China.
        This recent finding presents a clear and present danger to
    national security. It should compel us to explore better
    legislative and trade policies that strengthen our Federal
    acquisitions, economic, and health security to reduce our
    reliance on overseas essential medicines, their key starting
    materials, and API. We must manufacture more of these materials
    domestically to ensure high-quality manufacturing processes and
    products, including a reliable and resilient material medical
    supply chain supporting this essential industry.
        A major contributing factor to this national security and
    health security risk is a little-known but controversial court
    case titled Acetris Health, LLC v. United States. In this case,
    the United States Court of Appeals for the Federal Circuit
    overruled a long-standing precedent regarding the origin of a
    drug by ruling that a drug could be considered to be
    manufactured or substantially transformed in the U.S. and sold
    to the Federal Government, even if its API and all of its
    components, to include excipients, were manufactured in TAA-
    banned countries.
        Today, a Chinese firm could make all the API and precursor
    materials for a medicine, ship it to a United States subsidiary
    that does packaging and final labeling, and still be able to
    label it as American made. This would be considered an
    American-made drug and principally illustrates this loophole.
        In my testimony today I wish to highlight a dysfunctional
    market where generic drug companies compete in a race to the
    bottom in generic drug pricing and manufacturing, a principal
    driver of drug shortages, which just 2 weeks ago, as you
    mentioned earlier, Senator, was reported by the American
    Society of Health System Pharmacists, that our Nation is at an
    all-time high, since 2001, of 323 known drug shortages.
        Overwhelming downward pressure in generic drug costs with
    no consideration for supply reliability or quality leads
    domestic manufacturers to operate at approximately 50 percent
    utilization capacity. Many of these domestic companies are
    closing plants and essential medicine production lines, or
    being acquired by foreign entities, which will only downgrade
    our Nation's ability to independently provide health care for
    its citizens during a global pandemic or during a national
    security event.
        Finally, I want to applaud the Department of Defense
    efforts to assess these strategic risks through both the
    assessment of the origin supply chain at the Defense Logistics
    Agency as well as the Uniformed Services University
    Pharmaceutical Assessment of Quality Pilot Study, or PhaQS, as
    both these efforts will provide more transparency and
    potentially enable millions of our service men and women, their
    families, and other TRICARE retiree, like me, confidence that
    when they go to a military treatment facility in the U.S. or
    serve in combat that they will always have access to the
    highest quality medicines, at the most affordable prices,
    something that is possible if we are willing to disrupt the
    status quo.
        Thank you for your attention as I raise these significant
    considerations concerning our Nation's overreliance on non-
    Trade Agreement Act nations for our pharmaceuticals, and I
    encourage Congress, and this Committee, in particular, to
    closely monitor and support the DOD's efforts to care for our
    warfighters, their families, and retired military.
        I look forward to your questions.
        [The prepared statement of Colonel Suarez follows:]
        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Mr. Suarez has submitted supportive articles found in
    Appendix A.
        Senator Warren. Thank you, Colonel Suarez. I appreciate it.
        I am going to start the questions here. Most of the time
    DOD will continue to purchase drugs from the commercial drug
    market, but there are some instances when it makes sense for
    DOD to produce the medication itself, for example, when DOD is
    the only customer. An example is the adenovirus vaccine. While
    adenovirus typically causes mild cold or flu-like symptoms, it
    is a major cause of serious respiratory illness among
    servicemembers, particularly during basic training. That is why
    WRAIR developed an adenovirus vaccine which it then licensed to
    private industry.
        But because there is not a broad market for the adenovirus
    vaccine, it has sometimes been difficult to find a manufacturer
    that was willing to produce it. In fact, for over a decade, DOD
    was unable to vaccinate new recruits for adenovirus because the
    manufacturer decided to stop producing the vaccine, and there
    was no other manufacturer who was interested in doing this.
        Mr. Mendez, you have studied the defense health care system
    closely. First, let's start with, how did this disruption
    affect the health of servicemembers?
        Mr. Mendez. Thank you for the question, Senator, and that
    is correct. DOD exhausted their last supply of the adenovirus
    vaccine in about 1998, 1999. At that time, DOD estimated that
    the absence of that supply of vaccine would lead to about over
    10,000 preventable infections from the adenovirus, over 4,200
    medical visits of recruits in the recruit training pipeline,
    who are at risk for adenovirus, and over 850 hospitalizations,
    within a year, to an extent DOD did observe that in the absence
    of the vaccine.
        Senator Warren. Okay. So in other words people got sick,
    they had to go to the doctor. There were deaths associated with
    this adenovirus. All of that potentially affects warfighter
    readiness. You have got all these young people who are
    together, and the disease is moving among them, right? The
    virus is moving among them.
        Dr. Barber, you are an expert on pharmaceutical
    manufacturing. What did it take to finally get a new
    manufacturer to produce the adenovirus vaccine for DOD?
        Dr. Barber. After stocks were depleted in 1999, DOD does
    what it usually does. It put out a tender, and the previous
    manufacturer that had pulled out of the market, Wyeth, they
    agreed to do a tech transfer, but only if DOD would reimburse
    them for it, which is quite the demand given, as we heard
    today, DOD developed that vaccine and had done tech transfer to
    them free of charge in the first place.
        Only one manufacturer even considered bidding at the time,
    Greer, but they withdraw because they asked DOD for $10 million
    up front, and DOD could not agree to it at the time.
        All in all, it is estimated that it took about $100 million
    and 10 years for new vaccines to become available again.
        Senator Warren. You know, this is just stunning. DOD, as
    you say, does the research, develops the vaccine, gives it away
    to try to be able to get a manufacturer going, and they end up
    paying a private manufacturer, I think you said $100 million.
    Is that about right?
        Dr. Barber. In the end, yes.
        Senator Warren. In the end, in order to build a facility to
    manufacturer this vaccine that we need, on top of the money
    they paid to purchase the vaccine from the manufacturer, all
    because DOD is at the mercy of private actors who just are not
    interested in marketing these products for a relatively small
    market.
        Mr. Mendez, is the adenovirus vaccine the only example of a
    product that the private market has been unwilling to
    manufacture for DOD/
        Mr. Mendez. No. The adenovirus is not a unique case. DOD
    has many challenges in finding a lot of medical
    countermeasures, over many decades. Current challenges that
    they experience and are working through include products to
    address anthrax, botulism, cholera, hemorrhagic fevers,
    tularemia, and other health threats.
        Senator Warren. All right. You know, this is a real
    problem, when the market just does not meet what it is that DOD
    needs, and this is going to continue. We are going to continue
    to have medications that DOD requires in order to keep
    servicemembers healthy, and that simply are not profitable for
    private industry to come in and produce.
        Dr. Barber, what would be the advantages if DOD decided to
    manufacture these drugs itself?
        Dr. Barber. A public manufacturer is likely, depending on
    the drug, to be enormously cost saving. To bring back the
    adenovirus example, the current contract with Teva is worth
    about $38 million per year. That is actually a lot of money to
    pay for a single vaccine. As a point of comparison, it is about
    80 percent annually of how much California has budgeted to
    build an entire insulin factory.
        A report by the Army estimated adenovirus factory startup
    cost at $100 million, with annual costs to $10 million per
    year. So that works out to DOD breaking even from building and
    running a manufacturing facility in just 3 years.
        Besides costs, by manufacturing their own drugs, DOD could
    ensure reliable supply and support wider strategic aims and
    restoring domestic production capacity.
        Senator Warren. Okay. So you pencil this out and discover
    at least for some of these drugs it would be cheaper for DOD to
    manufacture it themselves, and it would have the added benefit
    of you know what your supply chain is, there would not be any
    secrets in the supply chain, and we would have a reliable
    source for these drugs.
        This is why I am introducing a new bill, the Keep DOD's
    Drug Supply Secure Act, to direct DOD to manufacture the drugs,
    devices, vaccines, and other medical products when there is a
    risk of shortage or quality concerns. This bill gives us an
    opportunity to resolve drug shortages, to secure the
    pharmaceutical supply chain, and to ensure safe and effective
    drugs for our servicemembers. Thank you.
        Senator Scott.
        Senator Scott. Thank you, Chair. Colonel Suarez, So you
    heard the testimony before, and Mr. Beebe said there are about
    10,000 drugs that they buy. Does that sound about right?
        Colonel Suarez. When we are talking about national drug
    codes, we are talking in the thousands. So between 5,000 to
    10,000 that they can source from within the industry for
    pharmaceuticals.
        Senator Scott. All right. So today, is there just even one
    of those that they could just say, ``Today I'm not going to buy
    anything else from China?'' Do you know of any one of them that
    they could do that?
        Colonel Suarez. No, but I think the fundamental issue that
    they could probably do that is with help from the Congress to
    address the loophole I mentioned in my opening statement. The
    Department tried to do this--and I am talking the VA--back in
    2019, and they were challenged in court when they wanted to
    execute an executive order to buy American products. They were
    challenged by this company, Acetris Health, to say, well, we
    make this product overseas, and then we do the final packaging
    and labeling in the United States, and we are going to call it
    United States. Well, that is not how precedent was defined for
    a Made in America drug. That was always defined by where the
    API was made.
        Senator Scott. So you think we have to have a law that says
    that Made in America means something different than what that
    court case said?
        Colonel Suarez. Yes. I think this is an opportunity----
        Senator Scott. Can you get that to us?
        Colonel Suarez. Yes.
        Senator Scott. I will work on that. Okay. So let's say we
    get that fixed. Is there anything else that would prevent us
    from somebody in Mr. Beebe's position from just saying, ``Today
    we are not buying any more''? What else would there be? Any
    other limitation?
        Colonel Suarez. I think some of the challenges that could
    be there is especially in those areas where we are solely
    reliant on a supply chain that is only made in China, for
    example. So right now if you look at the API Innovation Center,
    they have really done some studies where they have looked at
    the supply chain. They call out 60 vital medicines in the
    United States. They estimate of the 60 vital medicines in the
    United States, about 20 percent of them are solely sourced with
    APIs from China, and then for key starting materials, it is
    about 45 percent of those vital medicines are solely sourced--
    that means there is no other supplier.
        Senator Scott. Just go back, on solving the problem. Is the
    only limitation is if we get a law passed that says that Made
    in America means X, that it is all produced here, we do not use
    any of their ingredients, blah-blah-blah, and no packaging,
    nothing, so is that going to give the Department of Defense the
    ability to fix it today?
        Colonel Suarez. I think when that loophole is closed I
    think it gives a clear pathway to do what you are suggesting.
        Senator Scott. Okay. That is the only limitation.
        Colonel Suarez. I do not think that is the only limitation.
        Senator Scott. What else would it be?
        Colonel Suarez. I think an understanding that having
    quality differentiation in the marketplace other than cost is
    another big hurdle for us to try to grapple with, and this is
    dealing with the status quo----
        Senator Scott. Oh, are you saying that they decide based on
    price and nothing else?
        Colonel Suarez. What I am suggesting is that the
    marketplace for generic small-molecule pharmaceuticals is
    primarily based on a cost basis, and no real measure of quality
    in that decision matrix.
        Senator Scott. So I am a business guy. In business, I would
    not buy just based on price.
        Colonel Suarez. Correct.
        Senator Scott. Do you think we do that?
        Colonel Suarez. Unfortunately, that is where the market is
    going for that commodity.
        Senator Scott. Why?
        Colonel Suarez. Because what has happened over the last
    couple of decades--and this really happened around late 2021,
    when we voted for China to be a Most Favored Nation, and they
    all of a sudden grew their economy and we started to transition
    our manufacturing overseas--what they found was they used their
    most competitive advantages, and that is access to cheap labor
    and their inability to really focus on environmental concerns
    in manufacturing.
        So they could lower the price of goods very low, to the
    point where they could target specific industries, like the
    pharmaceutical industry, and even specific drugs, and actually
    push some of our companies either out of business or from
    stopping making critical medicines.
        Senator Scott. So is there anything else we need to do to
    stop it?
        Colonel Suarez. I think part of it also is you could
    leverage Defense Production Act to incentivize and pass
    legislation for funding to actually bolster our domestic supply
    chains and manufacturing in the United States. You created
    incentives for the marketplace to say, hey, there is an initial
    incentive, just like the CHIPS and Science Act, to manufacture
    in the United States.
        Senator Scott. So why do they not do it now. We have got
    the Defense Production Act right now. Why don't they just do
    it?
        What I do not get is everybody--I think we have all come to
    the conclusion China is bad. They want to destroy our way of
    life. Why are we buying their crap?
        Colonel Suarez. Part of it is because in the past 20-plus
    years they have done a very masterful job of integrating into
    our biotech and biopharma and many pharmaceutical manufacturing
    industries. They started with early innovative companies, when
    they are small biotechs and they are desperate because they are
    cash strapped. So they basically hire them as contract research
    organizations. They develop those drugs and products throughout
    the life of that drug application. So as that company matures
    and it gets licensure, their entire supply chain might be
    dependent on materials from China.
        Senator Scott. So do we need to prevent China from being
    able to invest in our pharmaceutical industry?
        Colonel Suarez. What I would suggest to the Congress is
    that they place limits on those known companies that have
    either stolen intellectual property or have a bad intent to
    take American technology----
        Senator Scott. Do we need legislation, or can they do that
    on their own right now?
        Colonel Suarez. Well, so companies can make those
    decisions----
        Senator Scott. No. Can the Department of Defense prevent a
    Chinese company from investing?
        Colonel Suarez. I do not know if the Department could do
    that directly without getting challenged in court.
        Senator Scott. I do not get this. I mean, we do not buy
    stealth bombers from China, so why do we buy drugs from China?
        Colonel Suarez. So what I would offer is that when you look
    at things like the Berry Amendment, those were originally
    designed, like in 1941, and they focused on important things
    like textiles and food and all those to support defense
    purchasing of those critical commodities.
        What I would suggest is either you amend that to include
    pharmaceuticals and medicines, or you address the loophole that
    I mentioned, and once you can do that--and this is not an
    original idea from me. The API Innovation Center pointed this
    out about 18 months ago. So what I would say is once we fix
    that through legislation, a lot of the other things that you
    are suggesting can more easily occur without challenges in
    court.
        Senator Scott. Okay. So if we want to solve this, name the
    list. We have got to change that court case, and that is one.
        Colonel Suarez. Yes, so that is one. The second one is I
    would encourage the DOD to continue monitoring this quality
    assessment pilot so that we can better understand that health
    care systems actually can buy low-cost drugs that are of high
    quality, because some initial data shows that that is very
    possible, and then the third thing----
        Senator Scott. We do it in the private sector every day, so
    it is all possible.
        Colonel Suarez. Yes. Yes, sir.
        Senator Scott. We would not have to have a study. I mean,
    that is pretty basic stuff.
        Colonel Suarez. The study actually generates the data that
    is irrefutable that you could use to justify the decisions. So
    yes, sir.
        Senator Scott. We do it every day, because we like our
    products to work. Every manufacturing company buys based on
    quality, because it likes their end product to work.
        Colonel Suarez. Yes, in normal markets you are absolutely
    correct, sir. That is how normal markets work. Unfortunately,
    in the pharmaceutical industry that has not been the standard.
        Senator Scott. Because we did not do any testing.
        Colonel Suarez. No. It is not that we did not do any
    testing. It is that the regulatory agency had a very difficult
    time, as we transitioned our manufacturing over to Asia, mostly
    India and China, we lost an ability to actually regulate and
    inspect those manufacturing plants.
        Senator Scott. Yes, but we can inspect it afterwards.
        Colonel Suarez. Right. But the problem is we have such a
    big backlog right now, and now when they are checking these
    facilities they are finding egregious problems. That is why
    some of those plants are shutting down as they remediate those
    problems, and thus that increases more drug shortages, and that
    is part of what we are seeing right now.
        Senator Scott. Okay. So we have got the court case, assess,
    what else?
        Colonel Suarez. Then I think really provide incentives to
    industry to domestically manufacture more essential medicines
    here, not only the finished product, the API, and the key
    starting materials.
        Senator Scott. Well, I think it will happen, except for
    what Dr. Barber is talking about. I mean, some things are going
    to be so small you cannot do it. But there is enough money, if
    it is big enough, right.
        Colonel Suarez. Correct.
        Senator Scott. If we say we are going to have a domestic
    product, we can do it. I do not disagree with what you are
    saying. There are going to be some markets that are not going
    to be big enough, and this is going to be cheaper. There are
    two options. One, pay somebody to do it, like what you said, or
    do it ourselves.
        Colonel Suarez. May I add one other thing, too? There are
    some really good initiatives that are happening in the United
    States right now, for example, in Senator Kaine's State, for
    example, with Civica RX, a public benefit corporation, working
    with Phlow and AMPAC, where they are actually going after these
    most essential medicines. That is a model that actually could
    be expanded across the country to address those critical,
    essential, low-cost generic medicines.
        So I think we are starting to see more and more examples
    like what we see in the commonwealth of Virginia that could
    actually help correct the market over time, so that we can
    actually address these critical risks.
        Senator Scott. Thank you.
        Senator Warren. Good. Thank you. Dr. Barber?
        Dr. Barber. It was just to say that in terms of market
    share, DOD's fund really is quite, quite low. I mean, $7
    billion is not very much in multinational corporation terms, in
    terms of global markets. So it really is a drop in the bucket,
    and the market power just is not there for most products.
        Senator Scott. I mean, I agree. That makes sense. But you
    would think if everybody worked together, like if all of our
    allies were part of this, which we should be able to do, there
    are still going to be things that make sense, that you cannot
    get. Somebody is not going to have an incentive because there
    is not enough profit margin. But if we could get everybody to
    buy together, we could, in theory.
        Dr. Barber. A major limitation is the data still is not
    there in terms of where provenance is, and thank you for
    bringing up the Acetris case. It is incredibly important, and I
    would encourage the Committee to reach out to the DLA for legal
    counsel in terms of kind of what their powers are.
        I have been doing API research for a long time in terms of
    capacity building and distribution, and I am heartened that in
    the last 3 years people have started to take it really
    seriously in terms of initiatives to not supply. But they are
    still very ad hoc. There is no systematic mapping. FDA is not
    doing it. EMA is not doing it. The WHO is not doing it. We have
    to show data with everyone, with our allies, with all
    countries. So it has to be an international effort to map how
    many factors are making a given drug, where are they, what is
    the capacity. We need to do this systematically. We cannot rely
    on ad hoc measures.
        Senator Warren. You know, I very much appreciate that. What
    I think we are hearing over and over is we need to bring
    pharmaceutical manufacturing back to the United States, and
    that it is a critical national defense issue. It is also
    critically important for the health of our people.
        I hear this breaks into two parts. One is commercial
    manufacturing, which as you rightly point out, we do not have
    the right incentives in place. We do not even have the right
    information in place to require meaningful domestic
    manufacturing and meaningful insight into the supply chain, to
    know that we are safe in the drugs that we are getting and into
    the APIs that we are getting. That is one part of the problem.
        Then the other part of the problem is the manufacturing
    challenges for what are much more modestly scaled projects that
    we are going to have to move to military manufacturing.
    Otherwise, we are just not going to get this stuff, or we will
    pay prices that are so outrageous that we would have been a lot
    better off--it would have been cheaper to have built it
    internally.
        So I think those are the two challenges we face, and I know
    that we both want to work on here.
        I want to thank all of our witnesses for their testimony
    today. I also want to thank Jon Clark, Gary Leeling, Noah Sisk,
    and Katie Magnus, for their work in helping put today's hearing
    together.
        We have a letter from the National Association of
    Manufacturers. They have asked that it be included in the
    record. Any objection?
        Without objection on that.
        [The information referred to follows:]
        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Senator Warren. With that, do we have a period of time for
    questions? Nope. Alright. We have got 7 days for questions for
    anybody who wants them. You will have 30 days to reply to those
    if there are answers that are needed.
        With that, this hearing is adjourned. Thank you all.
        [Whereupon, at 4:10 p.m., the Committee adjourned.]

        [Questions for the record with answers supplied follow:]

                 Questions Submitted by Senator Mazie K. Hirono
                          production location of drugs
        1. Senator Hirono. Dr. Martinez-Lopez, Dr. Smith, Dr. Dertzbaugh,
    and Mr. Beebe, in the Report on the DOD Pharmaceutical Supply Chain
    Risks from November 2023, I am concerned that DLA could not identify 22
    percent of the sources of ingredients for 211 drugs on the Essential
    Medicines List. DOD recommended that manufacturers of pharmaceuticals
    sold in the U.S. be required to provide the Food and Drug
    Administration with definitive information on the production location
    of finished drugs and the source of key ingredients because this
    information gap is a substantial vulnerability to the supply chain. For
    the Panel, do you have an update on what has been done to make this
    change?
        Dr. Martinez-Lopez, Dr. Smith and Dr. Dertzbaugh. Thank you for
    this important question. The Defense Logistics Agency is in the best
    position to provide the answer to this question consistent with their
    functions and responsibilities.
        Mr. Beebe. To DLA's knowledge, no changes have been made that would
    require manufacturers of pharmaceuticals sold in the U.S. to provide
    definitive information on the production location of finished drugs and
    the source of key ingredients. DLA continues to work with the FDA and
    other Federal stakeholders through participation in various working
    groups focused on addressing the broad national challenges posed by the
    prominence of foreign sources for APIs and pharmaceuticals.
                             national preparedness
        2. Senator Hirono. Dr. Martinez-Lopez, Dr. Smith, Dr. Dertzbaugh,
    and Mr. Beebe, how does the Department plan to work with the rest of
    the interagency to address our national preparedness to ensure access
    to high quality pharmaceuticals, even during times of national
    emergency like a war or global pandemic?
        Dr. Martinez-Lopez, Dr. Smith and Dr. Dertzbaugh. The Department is
    working within the interagency in alignment with Executive Order (EO)
    14017, ``America's Supply Chains'' and EO 13953, ``Addressing the
    Threat to Domestic Supply Chain from Reliance on Critical Minerals From
    Foreign Adversaries and Supporting the Domestic Mining and Processing
    Industries'' to address an all of government approach and solution to
    pharmaceutical supply chain vulnerabilities. The Department is
    committed to a supply chain risk management framework that promotes
    coordination and communication within the Department as well as with
    the interagency. As part of this effort, and to address DOD
    pharmaceutical supply chain management requirements more effectively,
    the Department developed the Pharmaceutical Provenance Solution (PPS)
    which provides a means and method to identify active pharmaceutical
    ingredients (API) with associated risks and dependencies. This program
    requires continuous monitoring and information updates to sustain as a
    relevant source of risk and dependencies. PPS enables the Department to
    consider specific pharmaceutical sourcing risk considerations as part
    of the supply chain risk analysis, e.g., to avoid pharmaceutical
    sources considered very high or high risk.
        Mr. Beebe. In December 2023, DOD chartered the Pharmacy Supply
    Chain Risk Management Working Group (``Pharm SCRM WG'' or ``WG'') as a
    standing work group under the Defense Medical Logistics Proponent
    Committee (DMLPC). The WG has established three sub-working groups,
    each of which is responsible for one of the deliverables identified
    within Section 860(b) of the fiscal year 2023 NDAA.
        The WG has three Co-Chairs consisting of a Defense Health Agency
    (DHA) Medical Logistics Pharmacist, a DHA Pharmacy Operations Division
    (POD) Pharmacist, and a Defense Logistics Agency (DLA) Pharmacist. The
    WG Voting Members include pharmacist representatives from the Army,
    Navy, Air Force, Marines, DHA Medical Logistics, DHA POD, and DLA. The
    WG has advisors who participate in the working group but are non-voting
    members. These advisors are representatives from the Food and Drug
    Administration (FDA), the Administration for Strategic Preparedness and
    Response (under the Department of Health and Human Services), the DHA
    Medical Logistics Chief Medical Officer, Military Service Logistics
    Subject Matter Experts, Defense Advanced Research Projects Agency, the
    Department of Homeland Security, the Office of the Joint Chiefs of
    Staff, the Office of Naval Research, Office of the Assistant Secretary
    of Defense (Health Affairs), and the DHA Medical Logistics Supply Chain
    Management Office.
        The Pharm SCRM WG's deliverables are to develop and publish
    implementing guidance for risk management for the DOD's supply chain
    for pharmaceuticals. Additionally, the WG will:

          Assess risks to the Department's pharmaceutical supply
    chain.

          Identify the pharmaceuticals most critical to beneficiary
    care at military treatment facilities.

          Develop and recommend establishment of DOD-level policies
    for allocating scarce pharmaceutical resources of the DOD in case of a
    supply chain disruption.

        3. Senator Hirono. Dr. Martinez-Lopez, Dr. Smith, Dr. Dertzbaugh,
    and Mr. Beebe, how does the Department use its purchasing power to
    address drug shortages?
        Dr. Martinez-Lopez, Dr. Smith and Dr. Dertzbaugh. Thank you for
    this important question. The Defense Logistics Agency is in the best
    position to provide the answer to this question consistent with their
    functions and responsibilities.
        Mr. Beebe. DOD's pharmaceutical purchasing power does not impact or
    address drug shortages in the commercial market. The DOD pharmaceutical
    supply chain is fully dependent on the U.S. commercial pharmaceutical
    sector which is facing an ongoing nation-wide drug shortage crisis. As
    a result, DOD experiences the same drug shortages and risks as the rest
    of the Nation. In addition, the DOD pharmaceutical supply chain
    represents less than 2 percent of the U.S. commercial purchases and a
    much smaller percentage of the global commercial market. As such, DOD
    does not have enough pharmaceutical purchasing power to leverage
    significant change on either the U.S. or global commercial
    pharmaceutical market.
        U.S. chronic drug shortages are a national security risk that
    requires a whole of government response. The Department of Health and
    Human Services is the Federal agency responsible for decisions on
    priorities and allocation under the Defense Production Act for
    pharmaceuticals and is the ultimate Federal arbiter of resource
    allocation. Pharmaceutical purchasing power, which in the case of DOD
    is less than 2 percent of U.S. purchases, is not relevant to resource
    allocation authorities.
        The Department relies on the actions of its logistics and medical
    professionals to mitigate the impacts of shortages. In the past when
    DOD has experienced shortages, DOD has taken the following actions to
    resolve/mitigate:

          Explored the shortage circumstances and engaged the
    commercial partners (pharmaceutical manufacturers, Prime Vendors, etc.)
    to determine the root cause of the shortage and developed a joint
    strategy with the commercial partners and DLA customers to mitigate or
    resolve the shortage.

          Identified clinically appropriate pharmaceutical
    alternatives, if they exist, and communicated this information to
    Military Treatment Facilities and other DOD medical organizations.

          Leveraged pharmaceutical experts to develop formulary
    alternatives, limit fill quantities, etc.

        4. Senator Hirono. Dr. Martinez-Lopez, Dr. Smith, Dr. Dertzbaugh,
    and Mr. Beebe, how is the Department working with its Pharmacy Benefits
    Manager (PBM) to support a more diverse supply chain?
        Dr. Martinez-Lopez, Dr. Smith and Dr. Dertzbaugh. In accordance
    with TRICARE Pharmacy contract requirements, if there is a supply
    disruption and the National Prime Vendor (NPV) cannot support, Express
    Scripts (ES) can access their commercial supply, if they can support,
    without negatively impacting their commercial book of business.
    However, that is typically only for a very short period while they try
    to work with the NPV to find an alternate source. Once the supply for a
    drug is re-established, the government will replenish ES for the
    commercial supply used during the disruption.
        Mr. Beebe. DLA does not engage with Pharmacy Benefits Managers.
                  protecting dod healthcare from cyberattacks
        5. Senator Hirono. Dr. Martinez-Lopez, Dr. Smith, Dr. Dertzbaugh,
    and Mr. Beebe, Change Healthcare, one of the largest drug prescription
    processors in the U.S., including for the Department of Defense, was
    the victim of a cyberattack in February of this year that disrupted
    service. Is the Defense Health Agency working with U.S. CYBERCOM and
    our interagency partners to help protect critical commercial companies
    that support DOD's health mission like Change Healthcare from cyber
    intrusions?
        Dr. Martinez-Lopez, Dr. Smith and Dr. Dertzbaugh. The DHA, in
    conjunction with Joint Force Headquarters--DOD Information Network
    (DODIN), a component of U.S. Cyber Command, protects and defends its
    own networks and systems. As a member of the Defense Industrial Base
    (DIB), Change Healthcare and its parent company Optum participate with
    other DIB partners in collaboration with the DOD's Cyber Crime Center
    (DC3) which provides cyber security support to the DIB and works across
    industry to address risks and threats to all of DOD's commercial
    partners.
        The DHA is a member of the Department of Health and Human Services
    (HHS) sponsored Health Threat Operations Center (HTOC), with which it
    receives and shares cyber threat intelligence information affecting
    Federal healthcare delivery partners. Collaboration among HHS' Federal
    healthcare delivery partners including the Department of Veterans
    Affairs (VA) and the DHA through HHS' HTOC enables advancement of
    Federal cyber threat predictive analytics, information sharing and
    engagement.
        Cyber security incidents in the commercial sector are a law
    enforcement matter, with the FBI typically leading the investigation.
    With respect to the cyberattack in February 2024, the DHA remained in
    close contact with Optum security officials during the investigation
    and through restoration of services, and used all available threat
    intelligence information, with the approval of law enforcement, to
    fortify DHA's defenses against the same or similar attacks and threat
    actors.
        Mr. Beebe. While DLA cannot respond for DHA, DLA recognizes the
    importance of implementing cybersecurity safeguards across all
    Department of Defense contracts, including those within the defense
    pharmaceutical supply chain. DLA contracts appropriately include
    cybersecurity clauses as prescribed by the Federal Acquisition
    Regulation (FAR) and Defense Federal Acquisition Regulation Supplement
    (DFARS).

        6. Senator Hirono. Dr. Martinez-Lopez, Dr. Smith, Dr. Dertzbaugh,
    and Mr. Beebe, does the DOD have a mitigation plan in the event a
    future catastrophic cyberattack cripples the pharmaceutical supply
    chain for an extended period of time?
        Dr. Martinez-Lopez, Dr. Smith and Dr. Dertzbaugh. Thank you for
    this important question. The Defense Logistics Agency is in the best
    position to provide the answer to this question consistent with their
    functions and responsibilities.
        Mr. Beebe. DLA maintains close operating relationships between the
    DHA and the pharmaceutical industrial base. For a crippling cyber-
    attack on the commercial supply chain, DLA would work with the
    industrial base to process manual orders, may conduct distribution
    support actions, and work with DHA to both prioritize and allocate
    supplies, as well as potentially redistribute supplies within the DOD
    Medical Network.
                                   __________
                  Questions Submitted by Senator Dan Sullivan
                          pharmaceutical supply chain
        7. Senator Sullivan. Dr. Martinez-Lopez and Mr. Beebe, AstraZeneca,
    announced last month their plans to manufacture drugs for the U.S. and
    China independently as the potential for conflict would disrupt getting
    drugs to market. Other pharmaceutical manufacturers are following suit.
    Do you assess that the independent supply chains that many in the
    pharmaceutical industry are already doing mitigate risk of Chinese or
    other high-risk sources for both pharmaceuticals and their raw
    components from being used for servicemembers?
        Dr. Martinez-Lopez. Thank you for this important question. The
    Defense Logistics Agency is in the best position to provide the answer
    to this question consistent with their functions and responsibilities.
        Mr. Beebe. DLA supports efforts to increase the number of
    manufacturers of APIs and other pharmaceutical components from domestic
    or Trade Agreements Act countries to the extent that those products are
    available for servicemembers. DLA would require additional information
    to assess the potential and mitigation effectiveness of removing high-
    risk sources from the supply chain.

        8. Senator Sullivan. Dr. Martinez-Lopez and Mr. Beebe,
    servicemembers will still require pharmaceuticals while deployed or
    forward stationed. Logistics and supply chains in a contested
    environment are likely to be disrupted during large scale conflict,
    particularly in the Indo-Pacific. What options are you exploring to
    ensure continuity of access for servicemembers far from the United
    States during time of conflict?
        Dr. Martinez-Lopez. To facilitate continuity of access to
    pharmaceuticals for servicemembers, the DHA manages the Joint
    Deployment Formulary (JDF). The JDF consists of 917 medication line
    items needed for contingency operations. The JDF is not just a list of
    medications but also a logistical readiness tool that aligns procurable
    National Stock Numbers (NSNs) to each of the 917 medication line items.
    These procurable NSNs are monitored daily to maximize readiness and
    ensure any supply chain disruptions are adjudicated as quickly as
    possible. The JDF team works with each of the Services to maximize use
    of JDF medications in their assemblages to help ensure supply chain
    resilience. Additionally, the Services/Theater Lead Agent(s) for
    Medical Materiel (TLAMMs) need to be better postured and positioned to
    ensure access to (catalogued) and availability of (stocked) these
    critical medications when they are needed most. That may also entail
    developing and/or increasing pre-positioned stocks of select
    pharmaceuticals that would be most critical during the early stages
    (i.e., the first 60 days) of large-scale combat operations), especially
    if we face a near-peer competitor and must deal with a contested
    logistics environment.
        Mr. Beebe. In general, DLA supports its OCONUS customers using the
    same processes and networks it uses for its CONUS customers. We use
    premium air transportation to move medical materiel from the U.S. to
    our OCONUS customers worldwide. We are currently working with our
    USTRANSCOM counterparts to open new transportation lanes to support
    customers in the CENTCOM, AFRICOM, and INDOPACOM.
              prolonging storage of materials and pharmaceuticals
        9. Senator Sullivan. Dr. Barber and Mr. Mendez, in the transition
    to lower-risk and domestic supply chains, what in your opinion can DOD
    and the FDA do to ensure continuity of available drugs?
        Dr. Barber. The two most effective reforms that the FDA and DOD
    could undertake to ensure sustainable and reliable drug supply are 1)
    increasing transparency across the public and private sector supply
    chains and 2) increasing public sector manufacturing capacity.
        Transparency: In the last 2 years, legislation has been proposed
    that would require companies to disclose their API sources and some
    information about production volumes (see for example the Drug Shortage
    Prevention Act of 2023 (H.R. 3008); the Drug Shortages Prevention and
    Quality Improvement Act (S. 2586); the Senate Finance Committee
    Addressing Drug Shortages discussion draft; and the Energy and Commerce
    Stop Drug Shortages Act discussion draft). None of these bills have
    passed. However, DOD and FDA have other tools that can improve
    transparency. DOD can use its purchasing power to compel disclosure of
    this information and FDA could issue administrative guidance to these
    ends. The following information should be requested and made publicly
    available so actors across the supply chain can accurately forecast
    demand and the effects of markets shocks: approximate production
    volumes of API and finished product by company and facility, source of
    API, and anticipated demand increases.
        Transparency through company reporting alone is inadequate,
    however. Despite their importance to global drug supply, there is no
    systematically collected data, monitoring, or international
    coordination to map global API production. As a result, the central
    questions for supply chain resilience for medicines--how many API
    manufacturers are there globally, and what capacity exists or could be
    mobilized in an emergency?--cannot be answered with currently collected
    data. Existing analyses only account for API for products marketed in
    the USA, rather than a more comprehensive scope of global API
    productionsites. Global data are important because the loss of a
    manufacturer (for example, due to a natural disaster or factory fire)
    that does not supply the United States will nevertheless affect US
    supply and markets, as global demand competes for a reduced supply.
    Another limitation of existing data is that there is little accounting
    for the common situation where two facilities are documented as unique
    API suppliers, despite buying either finished or nearly finished API
    from a single facility (in effect, allowing a drug to appear to have
    more stable multiple producers when it in fact is monosource).
    Fundamental limitations in existing data highlight the importance of
    FDA and DOD conducting proactive risk assessments and supply mappings
    rather than relying on existing administrative data.
        Public sector manufacturing capacity: As I outlined in my written
    testimony, both government-owned, government operated (GOGO) and
    government-owned, contractor operated GOCO models have been successful
    in ensuring reliable access to drugs on a cost-effective basis. Public
    capacity is especially vital for drugs with limited commercial markets.
    A range of government reviews in recent decades have recommended GOGO
    and GOCO models to address military drug production needs.

          The DOD commissioned a special task force (``Project
    Badger'') in the 1990's to assess whether or not commercial markets
    could serve defense needs.\1\* After making inquiries to all commercial
    manufacturers as to their interest and ability to manufacture needed
    vaccines, the task force concluded that ``the best option appeared to
    be a facility that was government owned (and funded).'' \1\* The
    proposed model was a GOCO model, where the government would own and
    construct a facility as a ``national asset'', but a contractor would
    staff production.\1\* In the mid-1990's, a GOCO vaccine facility was
    included within a DOD budget request but ``was subsequently withdrawn
    in favor of an approach that relies upon private industry to meet the
    vaccine needs of the DOD.'' \1\*
          * Please see References on page 103.

          Separately, a GAO report recommended in 1991 that ``the
    Army could improve and expand its in-house vaccine production
    facilities to meet its needs.'' \2\* Walter Reed Army Institute of
    Research (WRAIR), laboratory suites at the Medical Research Institute
    of Infectious Diseases at Fort Detrick, and an NIH-owned GOCO facility
    were proposed as possible sites. \2\* A pilot program was proposed, but
    by 1994 an amendment was introduced to specifically prohibit DOD from
    further pursuing this initiative. \3\*
          * Please see References on page 103.

          In 2000, the Institute of Medicine (IOM) of the National
    Academies convened an expert committee to advise the U.S. Army Medical
    Research and Materiel Command on production, with a focus on the
    ``naturally occurring disease threats'' that are a priority of DHA.\4\*
    The resulting 2002 Expert Committee report recommended that DOD pursue
    GOCO production facilities.
          * Please see References on page 103.

          GOCO initiatives have attracted bipartisan legislative
    support. Former Republican Governor Jim Gilmore, head of the 2001
    Advisory Panel to Assess Domestic Response Capabilities for Terrorism
    argued that ``The establishment of a government-owned, contractor-
    operated national facility for the research, development and production
    of vaccines and therapeutics for specified infectious, especially
    contagious diseases, is needed.'' \5\*
          * Please see References on page 103.

          The New York Times reported plans by the Pentagon to
    ``[build] its own vaccine plant to produce eight vaccines for military
    use--the existing anthrax vaccine and a new one, plus vaccines for
    smallpox, plague, tularemia, botulinum, ricin and equine encephalitis.
    It would cost $1.56 billion to build and run over 25 years, including
    $386 million in construction costs, the Department estimated.'' \6\*
    Further details of the proposed program are either not in the public
    domain or I was unable to locate them.
          * Please see References on page 103.

          As part of the 2003 National Defense Authorization Act, a
    bipartisan amendment was introduced by Senator Hutchinson of Texas (R),
    Senator Mikulski of Maryland (D), Senator Lincoln of Arkansas (D),
    Senator Sarbanes of Maryland (D), and Senator Roberts of Kansas (R)
    authorizing the construction of a ``Government-owned, contractor
    operated facility'' for the ``production of vaccines for agents known
    or anticipated to be used in biological weapons'', for which ``The
    Secretary shall provide for the operation of the facility constructed .
    . . as a Government-owned, contractor-operated facility.'' \7\* In
    introducing the amendment, the sponsor Senator Hutchinson (R-AR)
    defended the importance of the public sector in provision of some
    essential medical goods:
          * Please see References on page 103.

              ``This problem has been examined many times over the past
            decade. In fact, it has been studied twice by the Department of
            Defense. Both times, the conclusion was that our Nation needed
            a Government-owned, contractor-operated vaccine production
            facility . . . The private sector, for all of the good that it
            does, cannot, against some of the boutique biological pathogens
            and threats that may exist now and in the future against our
            troops and against our civilian population, and will not in the
            future see this as a profitable commercial venture. The
            insurance for the American people, and the insurance for our
            men and women in uniform, is to have a Government-owned
            production facility, contractor-operated, to ensure that
            vaccine will always be available if and when it is needed.''
            \5\*
          * Please see References on page 103.

          In a 2004 hearing of the Select Committee on Homeland
    Security, committee members and expert witnesses discussed the (by that
    time de-classified) Project Badger findings in the context of revived
    proposal to establish a GOCO to serve defense medical needs.1 Major
    General Lester Martinez-Lopez (Commanding General, U.S. Army Medical
    Research and Materiel Command, Fort Detrick, Maryland) described the
    benefits of Government owned facilities as ``government control of
    production, availability, and distribution flexibility for emergency
    production technologies meets national security priorities for bio-
    defense vaccines overcomes limited industry interest in bio-defense
    products.''\1\* Another expert witness--an experienced researcher and
    administrator of biological defense programs--acknowledged the
    political challenge of introducing the GOCO model. Reflecting on the
    urgent need and failure of the contractor-owned, contractor operated
    (COCO) model to deliver reliable access to needed drugs, she strongly
    encouraged the Select Committee to support the GOCO proposal:
          * Please see References on page 103.

              ``Although the pharmaceutical firms seem opposed to the GOCO
            approach, citing the availability of capacity already existing,
            this belies that fact that each year industry has difficulty
            meeting existing market demands. Recent shortages in tetanus,
            pertussis, and flu vaccines support the perception that there
            is no excess capacity available for biodefense vaccine work . .
            . As time passes, the costs [of building government-owned
            facilities] will only increase, and the Nation will be at the
            mercy of the fragile, profit-motivated pharmaceutical industry
            to make the bio-defense vaccines that are needed. In my
            opinion, Congress should strongly consider appropriating funds
            for a GOCO facility for bio-defense medical
            countermeasures.\1\*
          * Please see References on page 103.

           The hearing also highlighted operational and strategic
    advantages of GOGO and GOCO models over COCO models, including:\1\*
          * Please see References on page 103.

              RFPs are not required for each product.

              Long-term contracts a) provide needed stability in
    small markets; b) encourage increased capacity by operating contractors
    for specialized production needs and regulatory requirements; c) signal
    sustained government support for medical countermeasures.

              Increased efficiencies and flexibility as production
    needs can be decided by the government on an as-needed basis.

              Bidirectional efficiencies and opportunities for
    innovation through collaborations with government R&D labs.

          A key theme in the 2023 DOD Biodefense Posture Review was
    the need for an integrated approach by the Chemical and Biological
    Defense Program (CBDP) and Defense Health Program (DHP).\8\* The Review
    recommended that DOD ``review DHP and DHA efforts to enable far-forward
    care, speed clinical trials and research within the Military Health
    System, inform optimal clinical care strategies, and support
    development of MCM specific to the military population.'' The BPR
    ultimately concluded that the ``CBDP and DHP have sufficiently unique
    missions, partners, and processes that drive a ``spirit of
    competition'' and innovation that argue against consolidating
    authorities and responsibilities into a single program.''
          * Please see References on page 103.

          A second key theme in the Biodefense Posture Review was
    the importance of ensuring supply chain reliability for key medical
    products.\8\* The Review recommended that the Chemical and Biological
    Defense Program (CBDP) and Defense Health Program (DHP) should partner
    with the Office of the Assistant Secretary of Defense for Industrial
    Base Policy ``to prioritize on-shoring of production and distribution
    of key chemicals critical to produce DOD-unique biodefense MCMs.'' The
    Review recommended use of the Defense Production Act (DPA) and
    Manufacturing Innovation Institutes to expand domestic API production.
          * Please see References on page 103.

           I agree with these recommendations, and urge this Committee to
    consider ways to adequately resource and direct DOD to invest in public
    capacity for priority products.

        Mr. Mendez. CRS can provide options as a basis for discussion, but
    does not provide policy recommendations, opinions, or endorse specific
    options. The following selected options, offered in no priority, may
    address potential effects of a transition to ``lower-risk and domestic
    supply chains'' on the availability of certain drugs \1\ to meet DOD
    supply requirements. These options may produce effects that could
    impact existing programs, costs, resources, beneficiary care, military
    readiness, defense industrial base, drug manufacturing industry, or
    other stakeholders.
    ---------------------------------------------------------------------------
        \1\ For the purposes of this memorandum, CRS utilizes the U.S. Food
    and Drug Administration (FDA) definition for ``drugs,'' which refers to
    substances recognized by an official pharmacopoeia or formulary;
    intended for use in the diagnosis, cure, mitigation, treatment, or
    prevention of disease; intended to affect the structure or any function
    of the body; or intended for use as a component of a medicine but not a
    device or a component, part, or accessory of a device. CRS also
    utilizes the FDA definition for ``biologics,'' which refer to a ``wide
    range of products such as vaccines, blood and blood components,
    allergenics, somatic cells, gene therapy, tissues, and recombinant
    therapeutic proteins.'' For more on these definitions, see https://
    www.fda.gov/drugs/ drug-approvals-and-data bases/drugsfda-glossary-
    terms.

          DOD could reinvigorate efforts to standardize drug supply
    requirements as a means to improve medical interoperability across the
    joint force and reduce the demand for an expansive drug inventory or
    formulary. \2\
    ---------------------------------------------------------------------------
        \2\ Standardization efforts include those pursued by the Defense
    Medical Materiel Standardization Program, available at https://
    www.health.mil/ Military-Health-Topics/Health-Readiness/ Medical-
    Logistics/Defense-Medical-Materiel-Standardization-Program; and other
    activities aligned under the 2015 Joint Concept for Health Services,
    available at https://www.jcs.mil/ Portals/36/Documents/Doctrine/
    concepts/joint_concept_health_services.pdf.

          DOD could expand existing capabilities and capacity to
    conduct research, initial development, safety and effectiveness
    ---------------------------------------------------------------------------
    testing, advanced development, or manufacturing of drugs.

          DOD could stimulate commercial interest by addressing
    perceptions of risk and barriers to entry in drug research,
    development, and manufacturing for the military. \3\
    ---------------------------------------------------------------------------
        \3\ For an overview of perceptions of risk, see CRS Testimony
    TE10099, Department of Defense's efforts to ensure servicemembers'
    access to safe, high-quality pharmaceuticals, by Bryce H. P. Mendez.

          DOD could evaluate the cost and benefits of scaling-up
    its existing drug product lines and/or building capacity for new
    product lines at the DOD advanced development and manufacturing
    biopharmaceutical facility. \4\
    ---------------------------------------------------------------------------
        \4\ For more on the DOD advanced development and manufacturing
    biopharmaceutical facility, see Kelly Burkhalter and Chris Southworth,
    ``Enduring Capability: JPEO-CBRND evolves public/private partnership
    with National Resilience,'' DOD News, December 5, 2023, at https://
    www.jpeocbrnd.osd.mil/Media/News/Article/3607443/enduring-capability-
    jpeo-cbrnd-evolves-publicprivate-partnership-with-national/
    #:?:text=Locatedpercent20inpercent20Alachua; and Joint Program
    Executive Office for Chemical, Biological, Radiological, Nuclear
    Defense, ``DOD ADM: Advanced Development and Manufacturing Facility,''
    YouTube video, January 6, 2021, at https://www.youtube.com/
    watch'v=247I4DROHfE.

          DOD, in coordination with other Federal agencies, could
    explore the use of global health engagement activities \5\ to develop
    or expand the drug manufacturing capacity of partner nations or
    countries designated as compliant under the Trade Agreements Act. \6\
    ---------------------------------------------------------------------------
        \5\ For more on global health engagement, see CRS Report R47326,
    Global Health Engagement in the Department of Defense, by Bryce H. P.
    Mendez.
        \6\ For more on the Trade Agreements Act, see CRS Report R46748,
    The Buy American Act and Other Federal Procurement Domestic Content
    Restrictions, by David H. Carpenter and Brandon J. Murrill. For a list
    of Trade Agreements Act-designated countries, see https://www.gsa.gov/
    buy-through-us/purchasing-programs/multiple-award-schedule/help-with-
    mas-contracts-to-sell-to-government/roadmap-to-get-a-mas-contract/
    readiness-assessment-for-mas-offerors/look-up-trade-agreements-
    actdesignated-countries.

          DOD could continue or enhance its partnership with the
    Department of Health and Human Services to provide inputs to, ensure
    military equities are represented in, and generally support whole-of-
    government solutions to address nationwide drug shortages and to
    ---------------------------------------------------------------------------
    enhance supply chain resilience for medical products.

          DOD could continue executive order-directed \7\ or
    congressionally directed efforts to identify risks, develop mitigation
    strategies, and support whole-of-government initiatives to address the
    security and resilience of the U.S. drug supply chain.\8\ These efforts
    include ongoing coordination with the U.S. Food and Drug Administration
    (FDA) for medical product development and assessment,\9\ implementation
    of DOD risk management guidance for the drug supply chain.\10\
    development of plans to mitigate drug shortages and reducing dependence
    of active pharmaceutical ingredients from foreign sources.\11\
    ---------------------------------------------------------------------------
        \7\ For example, see Executive Order 14017, ``America's Supply
    Chains,'' 86 Federal Register 38, March 1, 2021; Executive Order 13953,
    ``Addressing the Threat to the Domestic Supply Chain From Reliance on
    Critical Minerals from Foreign Adversaries and Support the Domestic
    Mining and Processing Industries,'' 85 Federal Register 193, October 5,
    2020; and Executive Order 13944, ``Combating Public Health Emergencies
    and Strengthening National Security by Ensuring Essential Medicines,
    Medical Countermeasures, and Critical Inputs are made in the United
    States,'' 85 Federal Register 158, August 6, 2020.
        \8\ For more on whole-of-government initiatives to address U.S.
    drug supply chain resilience, see Department of Health and Human
    Services (HHS) , Public Health Supply Chain and Industrial Base, One-
    year Report in Response to Executive Order 14017, February 2022,
    https:// aspr.hhs.gov/MCM/IBx/2022Report/Documents/Public-Health-Supply
    Chain-and-Industrial-Base percent20 One-Year-Report-Feb2022.pdf; HHS,
    ``Public Health Emergency Medical Countermeasure Enterprise Strategy
    and Implementation Plan,'' 2022, at https://aspr.hhs.gov/PHEMCE/2022-
    SIP/Documents/PHEMCE-SIP-2022-508.pdf; and Cybersecurity and
    Infrastructure Security Agency, ``Healthcare and Public Health Sector
    Government Coordinating Council Charter,'' updated March 10, 2016, at
    https://www.cisa.gov/sites/default/files/ publications/hph-gcc-charter-
    2016-508.pdf.
        \9\ P.L. 115-92.
        \10\ P.L. 117-263 Sec. 860.
        \11\ P.L. 118-31 Sec. 716.

        10. Senator Sullivan. Dr. Barber and Mr. Mendez, does DOD need to
    anticipate disruption while transitioning supply chains by stockpiling
    now?
        Dr. Barber. The question of stockpiles is nuanced and context-
    specific. Maintaining `buffer stocks' is common practice in supply
    chain management and should be increased in correlation with the degree
    of risk for a given product (i.e., monosource or other high-risk
    products and components should have more months of stockpiled product
    than products with more stable and low-risk supply chains). However,
    there can be negative repercussions to health systems if stockpiling is
    not conducted responsibly. Responsible stockpiling requires: a)
    providing ample notice to relevant stakeholders, b) encouraging
    manufacturers to increase production to meet expanded demand in
    advance, and c) responsibly and transparently sharing stock.
        Federal contracts should require that manufacturers develop regular
    production risk evaluation and management plans and keep buffer stocks
    corresponding to expected risk. Stockpile volumes should correspond to
    the anticipated time needed to remedy production shocks. These vary by
    product, but as a rough rule of thumb, small-molecule drug production
    takes between 6 months and a year to bring new suppliers online, and
    biologics and complex injectable drugs take two to 3 years. Thus, for a
    small-molecule drug with only one supplier, in the short term the
    government should ensure 1 year of stockpiled supply, and in the long
    term should work to diversify suppliers, including by establishing
    public production.
        Mr. Mendez. DOD maintains several stockpiles to support wartime
    requirements and to mitigate potential supply chain challenges in times
    of national emergency.\12\ These stockpiles include the National
    Defense Stockpile, war reserve materiel stocks, Army prepositioned
    stocks, and the Defense Health Agency pandemic stockpile program. DOD
    components (i.e., military departments and DOD agencies) generally
    develop stockpile requirements (e.g., types of materials or products,
    quantities, prepositioning, and distribution) based on combatant
    commander requirements for campaign and contingency plans.\13\ Each DOD
    component managing a stockpile is also responsible for accounting,
    storing, maintaining, and distributing stocks to support military
    operations.\14\ For example, the Department of the Army manages the
    Army prepositioned stocks, which include medical products (e.g., drugs)
    to support instances where a temporary surge in medical supplies is
    required to provide immediate support for military operations.\15\
    ---------------------------------------------------------------------------
        \12\ For more on DOD stockpiles, see CRS Report R47833, Emergency
    Access to Strategic and Critical Materials: The National Defense
    Stockpile, by Cameron M. Keys; CRS In Focus IF11574, National
    Stockpiles: Background and Issues for Congress, by G. James Herrera and
    Frank Gottron; and CRS In Focus IF11699, Defense Primer: Department of
    Defense Pre-Positioned Materiel, by Cameron M. Keys.
        \13\ Ibid; and DOD Instruction 3110.06, War Reserve Materiel (WRM),
    January 7, 2019, at https://www.esd.whs.mil/Portals/54/Documents/DD/
    issuances/dodi/311006p.pdf. For more on campaign and contingency
    planning, see Joint Publication 5-0, Joint Planning, updated December
    1, 2020 at https://irp.fas.org/doddir/dod/jp5_0.pdf.
        \14\ CRS analysis of DOD Instruction 3110.06, War Reserve Materiel
    (WRM), January 7, 2019; and DHA Administrative Instruction 7040.03,
    Defense Health Program Stockpile Materials, October 3, 2023, at https:/
    /www.health.mil/Reference-Center/DHA-Publications/2023/10/03/ AI-7040-
    03; and Joint Service Regulation 4145.04, Department of Defense (DOD)
    Stock Readiness Program, updated March 13, 2023, at https://
    www.marines.mil/Portals/1/Publications/
    MCOpercent204450.15Bpercent20wpercent20CH-1.pdf.
        \15\ Crystal Maynard, ``Army Medical Prepositioned Stockpiles:
    Ready for Action,'' U.S. Army Medical Research and Development Command,
    May 22, 2023, at https://mrdc.health.mil/ index.cfm/media/articles/
    2016/army_medical_prepositioned_stockpiles_ready_for_action.
    ---------------------------------------------------------------------------
        Since DOD components manage these stockpiles based on combatant
    commander requirements, medical products in these stocks do not account
    for supply requirements generally needed to support day-to-day health
    care operations in military treatment facilities (MTFs). In a 2021
    report, the DOD Inspector General (DODIG) stated that DOD ``continues
    to evaluate the pre-positioned capabilities and stocks to maximize its
    effectiveness in an increasingly constrained resource environment.''
    \16\ The DODIG also asserted that ``to mitigate the risks of
    disruptions to the pharmaceutical supply chain due to the DOD's
    reliance on foreign suppliers, the DOD should identify the quantity of
    critical finished drug products needed for routine MTF operations and
    develop policy for allocating scarce pharmaceutical resources in case
    of a supply disruption.'' \17\
    ---------------------------------------------------------------------------
        \16\ DOD, Evaluation of the Department of Defense's Mitigation of
    Foreign Suppliers in the Pharmaceutical Supply Chain, September 20,
    2021, p. 27, at https://media.defense.gov/2021/ Sep/22/2002859154/-1/-
    1/1/DODIG-2021-126--RRDACTRD.PDF.
        \17\ 17 Ibid.
    ---------------------------------------------------------------------------
        Within the context of broader U.S. national drug supply shortages
    over the past decade, some experts have advocated for health systems
    and medical product suppliers to create ``stockpiles set aside for
    times of emergency'' and ``buffer inventories'' to mitigate acute
    changes to the drug supply chain. \18\ Other experts have cautioned
    that drug stockpiling could have unintended consequences like increased
    costs and ``excessive hoarding'' behaviors that exacerbate current
    shortages. \19\
    ---------------------------------------------------------------------------
        \18\ Marta E. Wosinska, Drug Shortages: A Guide to Policy
    Solutions, The Brookings Institution, March 2024, at https://
    www.brookings.edu/wp-content/uploads/2024/03/20240318CHP_
    Wosinska_DrugShortagesFULL.pdf.
        \19\ FDA, Drug Shortages: Root Causes and Potential Solutions,
    updated February 21, 2020, at https://www.fda.gov/ media/ 131130/
    download'attachment; and American Society of Health-System Pharmacists,
    Drug Distribution and Control: Procurement-Guidelines, ASHP Guidelines
    on Managing Drug Product Shortages, 2024, pp. 100-108, at https://
    www.ashp.org/-/media/ assets/policy-guidelines/docs/guidelines/
    managing-drug-product-shortages.pdf.
    ---------------------------------------------------------------------------
        In December 2023, Congress directed DOD to establish a military
    pharmaceutical and medical device vulnerability working group, which is
    tasked to, among other items, develop a plan for ``stockpiling
    essential medications to ensure availability of a 180-day supply during
    an armed conflict or other supply chain disruption.'' \20\
    ---------------------------------------------------------------------------
        \20\ P.L. 118-31 Sec. 716.

        11. Senator Sullivan. Dr. Barber and Mr. Mendez, does DOD need to
    anticipate disruption by exploring potentially prolonging the storage
    life of already available drugs?
        Dr. Barber. This is a critical and relatively low-cost, high-
    benefit intervention by DOD. DOD and FDA already jointly administer the
    Federal Shelf Life Extension Program (SLEP), but this is restricted
    only to federally maintained stockpiles. A 2006 review of SLEP testing
    reported that products had an average extension of 66 months, and 88
    percent of 3,005 tested lots had expiration dates extended by at least
    1 year.\9\*
          * Please see References on page 103.
        DOD and FDA should conduct shelf-life studies for a wider range of
    products. Better understanding of longer-term effectiveness of products
    across the wider supply chain benefits both the health system at large
    and DOD's specific needs. Studies should also evaluate storage
    conditions. As one example, recent heat stability testing of insulin
    found that while pharmacopoeias recommend that unopened insulin vials
    be refrigerated and insulin be stored at ambient temperatures of up to
    25 to 30 degrees Celsius during a 4-week period of treatment, insulin
    was heat stable in temperatures 25 to 37 degrees Celsius.\10\* Rising
    temperatures and more frequent extreme weather events add further
    urgency to heat stability research.
          * Please see References on page 103.
        Mr. Mendez. The Defense Health Agency (DHA) manages the drug
    products included in the DOD shelf-life extension program (SLEP). \21\
    The program establishes procedures to consider and extend the shelf
    life of certain stockpiled products that are near or at the date of
    expiration. For certain medical products (e.g., FDA-regulated
    pharmaceutical drugs), DOD may request product testing and shelf-life
    extension from the FDA in order to maintain stockage requirements or
    continue use of the product beyond the labeled expiration date. \22\
    Current DOD policy stipulates that a product may be considered for
    shelf-life extension if the following criteria are met:
    ---------------------------------------------------------------------------
        \21\ DOD Manual 4140.27 (Volume 1), DOD Shelf-Life Management
    Program: Program Administration, updated December 11, 2019, p. 17, at
    https://www.esd.whs.mil/Portals/54/Documents/ DD/issuances/dodm/
    414027--vol1.PDF. DOD also manages the SLEP for other Federal
    stockpiles (e.g., Strategic National Stockpile) in collaboration with
    the administering Federal agency.
        \22\ For more on SLEP, see Ibid.; DHA Procedural Manual 6430.05,
    Shelf-Life Extension Program, updated March 10, 2023, at https://
    www.health.mil/Reference-Center/DHA-Publications/ 2023/03/10/DHA-PM-
    6430-05; FDA, ``Expiration Dating Extension,'' accessed June 18, 2024,
    at https://www.fda.gov/emergency-preparedness-and-response/mcm-legal-
    regulatory-and-policy-framework/expiration-dating-
    extension#:?:text=Shelfpercent2DLife percent20
    Extensionpercent20Program,-
    Stockpilingpercent20drugspercent2Cpercent20vaccines&
    text=SLEPpercent20ispercent20thepercent20Federalpercent2Cpercent20
    fee,stability percent20 testing percent20 conducted percent20 by
    percent20FDA; and FDA briefing slides, ``Shelf-Life Extension Program
    (SLEP), December 15, 2010, at https:// web.archive.org/ web/2017
    0722095243/https:/ www.fda.gov/ downloads/EmergencyPreparedness/
    Counterterrorism/UCM 253309.pdf.

          the shelf-life extension is directed by a military
    ---------------------------------------------------------------------------
    service or agency,

          the product is part of a pre-positioned and/or
    contingency stock,

          the total inventory value per lot is at least $10,000,
    and

          the product was not requested and denied for shelf-life
    extension within the last 12 months. \23\

        \23\ DHA Procedural Manual 6430.05, Shelf-Life Extension Program,
    updated March 10, 2023, p. 13.
    ---------------------------------------------------------------------------
        DOD components may also submit a request for an exemption to the
    criteria based on other reasons (e.g., national security, market
    availability, or service-specific priorities). \24\
    ---------------------------------------------------------------------------
        \24\ Ibid.
    ---------------------------------------------------------------------------
        DOD's original intent for SLEP was to ``limit expenditures and
    defer drug replacement costs'' for stockpiled products. \25\ CRS is not
    aware of whether or not DOD has or is considering use of SLEP as a
    potential mitigation strategy to curb drug supply chain disruptions, or
    to address other potential concerns with DOD's supply and demand for
    drugs. Congress could consider whether or not the use of shelf-life
    extensions for drugs can viably mitigate short-or long-term
    ``disruption'' to the supply chain. Congress could also consider
    whether or not DOD and the FDA have the appropriate capacity and
    capability to accommodate a potential increase in shelf-life extension
    requests for drug products.
    ---------------------------------------------------------------------------
        \25\ Ibid., p. 11.
    ---------------------------------------------------------------------------
                            emerging & novel threats
        12. Senator Sullivan. Dr. Dertzbaugh, how can DOD best leverage
    Walter Reed's Army Institute of Research to make vaccines to new or
    novel infectious diseases that servicemembers might be more susceptible
    to than the greater population?
        Dr. Dertzbaugh The DOD can best leverage its organic vaccine
    manufacturing capacity to make small batches of experimental vaccine
    candidates to use in early stage preclinical and clinical testing of
    their safety and immunogenicity under the standards defined by the FDA.
    These vaccine candidates should address DOD-validated infectious
    disease threats that servicemembers may encounter when deployed
    overseas, and for which there are no current medical countermeasures
    available from other sources.

        13. Senator Sullivan. Dr. Dertzbaugh and Dr. Smith, there are
    foreseeable threats, particularly biological and chemical threats,
    which might only be used to target servicemembers. Since servicemembers
    are a relatively small group compared to the greater population,
    civilian pharmaceutical suppliers and manufactures are less likely to
    work on those problem sets. Does DOD have the organic capacity to
    address the likely biological and chemical threats that servicemembers
    might face that aren't being addressed by industry?
        Dr. Dertzbaugh The DOD has the organic research capacity to develop
    medical countermeasures to address infectious disease threats that
    servicemembers may encounter, and for which pharmaceutical companies
    may not view as commercially viable to pursue. However, the DOD does
    not have the organic expertise or capacity to perform large-scale
    manufacturing of these countermeasures to protect servicemembers. The
    DOD would be dependent on a commercial entity, such as a Contract
    Development & Manufacturing Organization (CDMO) for scale-up,
    manufacturing, and fill/finish of the final product under FDA Good
    Manufacturing Processes (GMP).
        Dr. Smith. The DOD has the organic research capacity to develop
    medical countermeasures to address infectious disease threats that
    servicemembers may encounter, and for which pharmaceutical companies
    may not view as commercially viable to pursue. However, the DOD does
    not have the organic expertise or capacity to perform large-scale
    manufacturing of these countermeasures to protect servicemembers. The
    DOD would be dependent on a commercial entity, such as a Contract
    Development & Manufacturing Organization (CDMO) for scale-up,
    manufacturing, and fill/finish of the final product under FDA Good
    Manufacturing Processes (GMP).

        14. Senator Sullivan. Mr. Suarez, having worked in both the Army
    and industry, you are well-suited to answer if you think DOD has
    partnered appropriately with industry to advance pharmaceuticals
    designed to protect servicemembers in austere environments?
        Mr. Suarez. Thank you for this question. I think the DOD has
    struggled to appropriately partner with industry to advance
    pharmaceuticals designed to protect servicemembers due to its lack of
    visibility in the upstream supply chain, the ``Acetris Loophole''
    enabling non-TAA generic medicines to dominate the market and a lack of
    federally driven legislation that incentivize more domestic, high
    quality and reliable drug suppliers to sell to the DOD and Federal
    customers. During my service in the U.S. Army, I had the opportunity to
    help lead, plan, and manage the end-to-end global defense supply chain
    for pharmaceuticals, other medical supplies, and devices. As I
    testified, the medical supply chain offers unique challenges, many of
    which are addressed in the procurement of other key materials. During
    my time on Active Duty, I observed three distinct challenges unique to
    the medical supply chain: (1) lack of upstream supply chain visibility;
    (2) perverse disincentives related to the `Acetris' loophole; and (3) a
    lack of `pull' incentives to sufficiently allow for a domestic
    manufacturing preference in DOD and other Federal procurement
    activities.
        By addressing these challenges, I believe that the DOD will be
    better positioned to lead and advance the resiliency of the medical
    supply chain and ensure availability of medicines to our
    servicemembers; and can set the example for the rest of the Federal
    Government and industry to follow.
        1. Upstream Supply Chain Visibility
        Sec. 860(a) of the Fiscal Year 2023 National Defense Authorization
    Act (NDAA) required the Under Secretary of Defense for Acquisition and
    Sustainment (USD(A&D)) to issue a report on the DOD's Pharmaceutical
    Supply Chain Risks. As a part of that report, the DOD analyzed 1,744
    (drug families), equating to approximately 12,917 national drug codes
    (specific drugs), or about 10 percent of the total U.S. marketplace.
    The DOD found that for the GSNs (generic sequence numbers) analyzed, at
    least 22 percent had an unknown source of active pharmaceutical
    ingredient (API). More troublesome, 54 percent of the total DOD
    pharmaceutical supply chain is considered ``high or very high risk''
    with dependency on non-Trade Agreement Act (TAA) compliant suppliers,
    sourcing from China or other nations often dependent upon China for raw
    materials and precursor chemicals.
        The lack of upstream supply chain visibility and the inability of
    regulatory agencies to effectively oversee production have contributed
    to ongoing drug shortages. A case study example is a generic
    antimicrobial product that addresses warfighter wound injury. While
    such antimicrobials may be characterized as multi-source drugs (MSDs),
    it is very possible that, with the trends toward manufacturing
    consolidation, all manufacturers will utilize API from the same
    upstream facility. In the event of a drug shortage--whether prompted by
    a natural disaster, economic crisis, manufacturing delays due to
    quality deficiencies, or geopolitical conflict--all downstream
    suppliers would subsequently lose access to the drug, leading to major
    adverse healthcare impacts domestically and globally.
        To this end, I have been supportive of a procurement requirement
    within the DOD that would require contracting officers to procure from
    manufacturers that meet the following criteria: (1) source the finished
    drug product (FDP) from a U.S.-based manufacturer and (2) source API
    for the drug from a domestic source or a TAA-compliant nation, and
    preference suppliers who can validate that key starting and precursor
    materials for API are primarily coming from domestic or TAA compliant
    sources. To mitigate exacerbating shortages or other capability gaps, I
    also support the utilization of waiver authority to ensure continued
    access to these drugs. Such a program would simultaneously reduce
    supply chain risks while providing critical visibility as to the drug's
    country of origin.
        2. `Acetris' Loophole
        In February 2020, the U.S. Court of Appeals for the Federal Circuit
    in Acetris Health LLC v United States overturned a long-standing
    precedent regarding a drug's origin, holding that a drug could be
    ``manufactured'' in the U.S. even if its API and all its components
    were derived from non-TAA compliant countries. This loophole
    exacerbates national security and known drug quality risks.
        The DOD health system and the Veteran Health Administration (VHA)
    should be required to adhere to the intent of the Berry Amendment,
    which could be done by overturning what has been colloquially known as
    the ``Acetris Loophole'' and clearly defined in Federal law that a
    drug's country of origin should be defined by where the API is
    physically synthesized and manufactured.
        The Berry Amendment was enacted in 1941 to promote purchasing
    certain U.S. goods (primarily food and textiles) for national security
    and domestic trade. I recommend that Congress update this language to
    include the purchase of essential medicines explicitly to include the
    purchase of essential drugs and medical supplies. The idea to drive
    necessary change in an otherwise broken market using U.S. Federal
    procurement is supported by a 2022 Department of Health and Human
    Services (HHS) report entitled ``Essential Medicines and Manufacturing
    Resilience Assessment.'' The Administration for Strategic Preparedness
    and Response (ASPR) proposed two primary supply chain recommendations:
    ``Leverage the Federal Government's collective buying power to reform
    procurement protocols'' and ``revise purchasing models to increase
    emphasis on product quality and supply chain resilience, not simply
    lowest cost.''
        3. Properly Incentivizing Domestic Manufacturing
        Procurement policy is just one policy lever that the U.S.
    Government and the DOD should employ to create a resilient global
    supply chain with U.S.-domiciled facilities. To this end, I am
    encouraged by exploring partnerships between the Department of Defense
    (DOD) and the Administration for Strategic Preparedness and Response
    (ASPR) to promote industrial base expansion efforts for manufacturing
    generic and essential medicines. To this end, I have supported a
    `CHIPS-style' program for the U.S. pharmaceutical supply chain. Such a
    program would lean on DOD expertise to make targeted investments in
    U.S. manufacturers to increase line capacity and utilization for
    essential drugs. Those in shortage employ the use of advanced and
    continuous manufacturing technologies, employ the use of advanced and
    continuous manufacturing technologies, and work with the Centers for
    Medicare and Medicaid Services (CMS) to provide proper payment reform
    to incentivize hospital and retail uptake of high-quality generic drugs
    manufactured.
        In conclusion, I believe a combination of policy and legislative
    reforms will better position the DOD to partner with industry to
    address drug shortages, meet warfighter needs, and mitigate ongoing
    national security risks to the Department its servicemembers and
    beneficiaries.
                            covid-19 lessons learned
        15. Senator Sullivan. Dr. Barber, has U.S. industry at-large
    implemented lessons learned from the COVID-19 pandemic related to
    vaccine production?
        Dr. Barber. Thank you for this query. This is a challenging
    question to answer given the broad scope of issues at play. Broadly, my
    assessment is that while there were some important developments--for
    example, Operation Warp Speed was a testament to the power of the
    public sector to lead accelerated vaccine development and rollout
    timelines--broadly the wider industry at large has returned to business
    as usual. The private sector has not significantly increased spending
    into pandemic preparedness. To prepare for the next pandemic, long-
    term, predictable investment is needed to develop vaccines and
    therapeutics for priority pathogens with pandemic potential.
    Collaborations with the private sector must include strong
    conditionalities that lock in fair prices and give the Federal
    Government the power to scale up and transfer technology as needed.

        16. Senator Sullivan. Dr. Barber, has U.S. industry at-large
    implemented lessons learned from the COVID-19 pandemic related to
    vaccine distribution?
        Dr. Barber. Questions of production and distribution are closely
    linked. Difficult distributional and prioritization questions were
    exacerbated by artificial scarcity in supply that could have been
    addressed through public leadership to exercise existing legal powers
    to facilitate technology transfer and collaboration with global
    partners.

        17. Senator Sullivan. Dr. Barber, has U.S. industry at-large
    implemented lessons learned from the COVID-19 pandemic related to
    vaccine storage?
        Dr. Barber. I was not involved in vaccine storage during the COVID-
    19 pandemic, and defer to other experts with more first-hand experience
    to answer this question. Briefly, I would encourage this Committee and
    Congress more broadly to support programs that integrate product use
    considerations into product design and support wider public
    infrastructure for the manufacture, storage, and distribution of
    critical health products.
                                   __________
                    Questions Submitted by Senator Ted Budd
                          pharmaceutical supply chain
        18. Senator Budd. Mr. Beebe, the Department of Defense has
    identified that 54 percent of its pharmaceutical supply chain is
    considered either high or very high risk, with dependency on non-Trade
    Agreements Act compliant suppliers. Can you describe ongoing efforts to
    address our dependency on foreign and sometimes adversarial nations for
    our pharmaceutical supplies? What does success look like for decreasing
    reliance on foreign supply chains?
        Mr. Beebe. DLA continues to use the Pharmaceutical Provenance
    Solution (PPS) tool to illuminate the supply chain for pharmaceuticals
    DOD considers key to its mission. DLA has expanded its analysis to
    include the drugs in the DLA Warstopper Program, the DOD Joint
    Deployment Formulary, and the top 1,000 drugs, by volume, purchased by
    DOD customers. This progress has expanded analytics to cover all drugs
    included in DOD's go-to-war contingency programs and those necessary to
    support DOD's nine million beneficiaries. DLA continues to conduct
    these analyses, which are ongoing; however, initial results mirror the
    findings in the NDAA Section 860 report, which is that the sourcing for
    more than half of this pharmaceutical group is identified as high or
    very high-risk locations (in accordance with the definitions used in
    the report, which included from unknown sources). In view of these
    findings, the Supply Chain Risk Integration Framework (SCRIF),
    previously known as the SCRM Working Group, has taken the following
    actions to ensure coordination and communications across the enterprise
    to identify, assess, and mitigate or resolve the risks associated with
    the sourcing of its mission essential pharmaceuticals.
        DLA uses a four-step process to reduce its pharmaceutical supply
    chain risk. First, DLA is advising all stakeholders of the risk and
    garnering their support in mitigating the risks. Second, the DLA
    Customer Pharmaceutical Operations Center is identifying viable
    alternatives to products from high-risk sources and providing them to
    DLA customers. Third, DLA is working with the interagency to increase
    on-shore or near-shore FDA-approved, TAA-compliant sources for finished
    drugs and APIs. DLA's long-term target is to eliminate dependence on
    high-risk sources. However, progress will come slowly. DLA depends on
    the U.S. commercial sector for the pharmaceuticals it acquires and
    reversing 20 years of drug and API globalization will take time,
    investment, and a national commitment to change.
        A major risk to DLA's ability to mitigate foreign dependency is not
    being able to identify the sources for APIs. Having access to the right
    level of data is the first step in being able to identify and mitigate
    risk.

        19. Senator Budd. Mr. Beebe, do you see opportunities to shift some
    of our supply chains to domestic sources or to diversify the supply
    chain, perhaps to Allied and Partner countries?
        Mr. Beebe. In any supply chain, diversity and redundancy of
    reliable sources is beneficial to those who rely upon that supply chain
    for products. To that end, DLA supports efforts to increase the number
    of domestic and TAA manufacturers and producers for pharmaceuticals.
    However, DOD is fully dependent on the global commercial supply chain,
    where manufacturing is driven largely by low labor and production
    costs. Without a business incentive to increase domestic and/or near-
    shore manufacturing, a change to the current geographic structure of
    the market is unlikely.

        20. Senator Budd. Mr. Beebe, how is the DOD coordinating or sharing
    information with the Department of Health and Human Services related to
    pharmaceutical supply chains?
        Mr. Beebe. DOD and the Department of Health and Human Services (FDA
    and ASPR) are both members of the Pharmacy SCRM Working Group. DLA has
    also engaged the FDA to increase and enhance data sharing capabilities.
                         academic research institutions
        21. Senator Budd. Dr. Martinez-Lopez, how is the DOD leveraging
    academic research and science out of our universities to address
    current health threats?
        Dr. Martinez-Lopez. The Department continues to utilize academic
    research and science to address various health threats facing our
    servicemembers through health-related research, development, testing,
    and evaluation activities. The DHA research program partners with
    universities to focus on advancing the state of medical science in
    those areas of most pressing need and relevance to today's emerging
    threats and future threat scenarios. Health threat areas include
    traumatic brain injury (TBI), psychological health (including Post
    Traumatic Stress Disorder (PTSD)), combat casualty care, military
    operational medicine, military infectious diseases, radiation health
    effects, and clinical and rehabilitative medicine. The Military Health
    System utilizes collaborative partnership agreements such as
    Educational Partnership Agreements, Cooperative Research and
    Development Agreements, and Military Training Agreements to enter into
    strategic health research, education, and training collaborations with
    universities.
                             fda-dod collaboration
        22. Senator Budd. Mr. Mendez, the Fiscal Year 2018 NDAA contained a
    provision that authorized the Secretary of Defense to work with the
    Food and Drug Administration on additional emergency uses for medical
    products to reduce deaths and severity of injuries caused by agents of
    war. How has DOD-FDA collaboration been so far?
        Mr. Mendez. On December 12, 2017, Congress enacted Section 716 of
    the National Defense Authorization Act for fiscal year 2018 (Fiscal
    Year 2018 NDAA; P.L. 115-91), which amended 10 U.S.C. Sec. 1107a, to
    allow the Secretary of Defense to authorize emergency use of a non-Food
    and Drug Administration (FDA) approved medical product outside of the
    United States to ``reduce the number of deaths or the severity of
    harm'' to servicemembers and others deployed in support of the Armed
    Forces caused by a risk or agent of war.\26\ The enacted provision
    allowed the Secretary of Defense to utilize this authority only when
    the emergency use of the medical product does not meet Federal Food,
    Drug, and Cosmetic Act requirements for involving an ``actual or
    threatened attack with a biological, chemical, radiological, or nuclear
    agent or agents.'' \27\ In the report accompanying the Fiscal Year 2018
    NDAA, the conferees stated that the traditional pathways to the Food
    and Drug Administration's approval and licensure of critical medical
    products for combat casualty care are too slow to allow for rapid
    insertion and use of these products on the battlefield. The conferees
    believe this provision could lead to even higher survival rates from
    severe combat wounds and injuries suffered by servicemembers. The
    conferees expect the Department of Defense] to consult with the
    Commissioner of the Food and Drug Administration when evaluating
    medical products for combat casualty care and to use this new authority
    strictly for approval of medical products for battlefield wounds and
    injuries. \28\
    ---------------------------------------------------------------------------
        \26\ P.L. 115-91 Sec. 716.
        \27\ Ibid; and 21 U.S.C. Sec. 360bbb-3 (prior to December 12,
    2017).
        \28\ H.Rept. 115-404, p. 851.
    ---------------------------------------------------------------------------
        After enacting P.L. 115-91, on that same day, Congress also enacted
    P.L. 115-92 to repeal Section 716 of the Fiscal Year 2018 NDAA and to
    amend the Federal Food, Drug, and Cosmetic Act (FFDCA; 21 U.S.C.
    Sec. 360bbb-3) to provide for a process in which the Secretary of
    Defense may request that the Secretary of Health and Human Services,
    acting through the Commissioner of Food and Drugs, take actions to
    ``expedite the development and review'' of an application or
    notification for emergency use of a medical product ``if there is a
    military emergency, or significant potential for a military emergency,
    involving a specific and imminently life-threatening risk to United
    States military forces of attack with an agent or agents, and the
    medical product that is the subject of such application, submission, or
    notification would be reasonably likely to diagnose, prevent, treat, or
    mitigate such life-threatening risk.'' \29\ The law (P.L. 115-92) also
    established requirements for DOD, FDA, and other Federal entities to
    meet periodically in order to ``facilitate enhanced collaboration and
    communication.'' \30\
    ---------------------------------------------------------------------------
        \29\ P.L. 115-92.
        \30\ Ibid.
    ---------------------------------------------------------------------------
        After Congress enacted P.L. 115-92, DOD and FDA published an
    ``Initial Work Plan for Products Relevant to the Department of
    Defense'' in January 2018.\31\ The plan's aim is to ``create a robust
    and enduring pathway that will efficiently address the needs of the DOD
    and meet the [FDA's] obligations'' to servicemembers.\32\ DOD and FDA
    also signed a memorandum of understanding (MOU) in 2018 to formalize
    collaboration and communication between the two entities.\33\
    ---------------------------------------------------------------------------
        \31\ FDA, ``Initial Work Plan for Products Relevant to the
    Department of Defense (DOD),'' January 2018, at https://www.fda.gov/
    media/110237/download.
        \32\ Ibid., p. 1.
        \33\ FDA, ``Memorandum of Understanding Concerning Coordination
    With The Food and Drug Administration Regarding Department of Defense
    Medical Product Development and Assessment'' (MOU 225-19-001), November
    2, 2018, at https://www.fda.gov/about-fda/domestic-mous/mou-225-19-001.
    ---------------------------------------------------------------------------
        With regard to the status of DOD and FDA collaboration, CRS is
    unable to assess the collaboration in the absence of objective
    performance metrics. It remains to be seen how well DOD and FDA work
    together and whether or not they have adhered to the collaboration
    requirements directed by Congress in P.L. 115-92.\34\ What can be
    observed is that after the enactment of P.L. 115-92, both entities have
    announced a number of DOD medical products that may have received FDA
    approval utilizing the processes established in the initial work plan,
    the 2018 MOU, and other existing interagency agreements.\35\ These
    products include laboratory-based and field deployable traumatic brain
    injury (TBI) blood tests; medical countermeasures for nerve agents and
    chemical weapons; vaccines to protect against tick-borne encephalitis
    and Ebola; and freeze-dried plasma.\36\
    ---------------------------------------------------------------------------
        \34\ Ibid.
        \35\ Other interagency agreements include MOUs between FDA and Army
    Medical Research and Materiel Command (MOU 225-20-010), and FDA and the
    Uniformed Services University of the Health Sciences (MOU 225-22-016),
    available at https:// www.fda.gov/ about-fda/ fda-memoranda-
    understanding/ domestic-mous.
        \36\ For more on these products, see FDA, ``FDA/DOD
    Collaborations,'' updated March 29, 2023, at https:// www.fda.gov/
    emergency-preparedness-and-response/ mcm-issues/ fdadod-collaborations.

        23. Senator Budd. Mr. Mendez, given the FDA already has oversight
    over the pharmaceutical industry and the DOD and the FDA are able to
    work in collaboration with each other as pharmaceutical supply chains
    relate to national security, is there an imminent need for the DOD to
    manufacture drugs?
        Mr. Mendez. CRS cannot make a determination as to whether or not
    DOD or other Federal agencies have a ``need'' to perform or not perform
    certain actions. CRS can inform the congressional debate about whether
    there may be a need for DOD to manufacture drugs, the timeliness of
    addressing a need (if it exists), and potential effects of certain
    actions or inaction.
        In several instances described below, DOD and Congress have
    considered this question of whether or not a need exists for DOD to
    manufacture drugs and explored options to address drug supply
    challenges.

          In 1990, the Secretary of Defense directed the Assistant
    Secretary of Defense for Health Affairs to create a task force to
    investigate the industrial base capability for producing medical
    countermeasures against anthrax and botulinum toxin and to develop
    short-and long-term options and recommendations for increasing vaccine
    production. \37\
    ---------------------------------------------------------------------------
        \37\ Assistant Secretary of Defense for Health Affairs Memorandum,
    ``Expansion of Industrial Base for Biological Vaccine Production,''
    October 5, 1990, at https://gulflink.health.mil/va/va_refs/n46en061/
    970107_sep96_decls48_0001.htm. For more on these efforts, see Anna
    Johnson-Winegar, Department of Defense Biological Defense Program Needs
    for Strategic Biotechnology Development, DOD, Presentation to the BIO-
    Defense and Homeland Security Procurement Conference and Expo, April
    30, 2002, at https:// web.archive.org/ web/ 20030624231021/ http://
    www.acq.osd.mil/cp/winegar30 apr02_bio.pdf.

          In 1993, Congress prohibited DOD from using fiscal year
    1994 appropriated funds for ``architectural and engineering services or
    for construction design in connect with the Department of Defense
    vaccine production facility.'' \38\
    ---------------------------------------------------------------------------
        \38\ Section 2852 of the National Defense Authorization Act for
    Fiscal Year 1994 (P.L. 103-160).
    ---------------------------------------------------------------------------
          In 1994, DOD considered a proposal to create a vaccine
    production facility ``that can produce vaccines to counter the use of
    biological warfare.'' \39\
    ---------------------------------------------------------------------------
        \39\ DODIG, ``Expanded Uses of the Major Range and Test Facility
    Bases,'' Audit Report 95-061, December 30, 1994, p. 6, at https://
    media.defense.gov/1994/Dec/30/2001714848/-1/-1/1/95-061.pdf.

          In 1994, the House Armed Services Committee questioned
    the Secretary of Defense and other DOD witnesses about DOD plans to
    establish a vaccine production facility during authorization and
    oversight hearings on an Fiscal Year 1995 NDAA. \40\
    ---------------------------------------------------------------------------
        \40\ U.S. Congress, House Armed Services Committee, Authorization
    and Oversight, hearing on National Defense Authorization Act for Fiscal
    Year 1995 and Oversight of Previously Authorized Programs, 103d Cong.,
    2d sess., 1994, HASC No. 103-32, pp. 266-268.

          In 2000, Congress directed DOD to provide a report on the
    ``implications of reliance on the commercial sector to meet the
    requirements of the Department of Defense for biological warfare
    defense vaccines.'' \41\
    ---------------------------------------------------------------------------
        \41\ Section 218 of the Floyd D. Spence National Defense
    Authorization Act for Fiscal Year 2001 (P.L. 106-398).

          In 2000, the Deputy Secretary of Defense tasked an
    independent panel of experts to provide recommendations on how DOD
    should ``best develop and oversee a vaccine acquisition production
    program.'' \42\
    ---------------------------------------------------------------------------
        \42\ DOD, DOD Acquisition of Vaccine Production, Report to the
    Deputy Secretary of Defense by the Independent Panel of Experts,
    November 29, 2000, at https:// apps.dtic.mil/ sti/tr/pdf/
    ADA422848.pdf.
    ---------------------------------------------------------------------------
          In 2015, Congress limited the availability of
    appropriated funds that DOD may obligate for a medical countermeasures
    advanced development and manufacturing (ADM) facility and required a
    report to Congress describing the ADM facility. \43\
    ---------------------------------------------------------------------------
        \43\ Section 221 of the National Defense Authorization Act for
    Fiscal Year 2016 (P.L. 114-92). The law also required a Comptroller
    General review of DOD's report to Congress. For more, see U.S.
    Government Accountability Office, Biological Defense: Additional
    Information that Congress May Find Useful as It Considers DOD's
    Advanced Development and Manufacturing Capability, July 2017, at
    https:// www.gao.gov/ products/ gao-17-701.
    ---------------------------------------------------------------------------
        Congress could assess whether or not a need exists for DOD to
    manufacture drugs to mitigate broader supply chain resiliency
    challenges. Congress may also consider requirements, if any, of such an
    initiative to avoid unintended effects on the commercial market, to
    meet military requirements for medical countermeasures, to support the
    availability of medical countermeasures for public health emergencies,
    or to address existing drug shortages in the United States.

                                   APPENDIX A

                             References of
                           Dr. Melissa Barber

         1.  Toward a national biodefense strategy [Internet].
    2004; Available from: https://www.Congress.gov/event/108th-
    congress/house-event/LC13942/text's =1&r=61

         2.  General Accounting Office. Biological Warfare: Role of
    Salk Institute in Army's Research Program [Internet]. 1991;
    Available from: Washington, DC, USA

         3.  Prohibition on use of funds for planning and design of
    Department of Defense vaccine production facility [Internet].
    1993. Available from: https://www.Congress.gov/103/statute/
    STATUTE-107/STATUTE-107-Pg1547.pdf

         4.  Protecting Our Forces: Improving Vaccine Acquisition
    and Availability in the U.S. Military [Internet]. Washington,
    DC.: National Academies Press; 2002 [cited 2024 Apr 6].
    Available from: http://www.nap.edu/catalog/10483

         5.  Proceedings and Debates of the 107th Congress, Second
    Session. Congressional Record [Internet] 148(88). Available
    from: https://www.Congress.gov/107/crec/2002/06/27/CREC-2002-
    06-27.pdf

         6.  Melody Petersen, Andrew Pollack. A NATION CHALLENGED:
    THE DEFENSES; Big Push to Accelerate Vaccine Effort [Internet].
    The New York Times. 2001;Available from: https://
    www.nytimes.com/2001/09/28/business/a-nation-challenged-the-
    defenses-big-push-to-accelerate-vaccine-effort.html

         7.  Tim Hutchinson. S.Amdt.4069 to S. 2514 [Internet].
    Available from: https://www.Congress.gov/amendment/107th-
    congress/senate-amendment/4069/text?s
    =1&r=77&q=%7B%22search%22%3A%22%26%231606%22%7D

         8.  Biodefense Posture Review. Washington, DC, USA:
    Department of Defense; 2023.

         9.   Lyon RC, Taylor JS, Porter DA, Prasanna HR, Hussain
    AS. Stability profiles of drug products extended beyond labeled
    expiration dates. Journal of Pharmaceutical Sciences [Internet]
    2006 [cited 2025 Jan 24];95(7):1549-60. Available from: https:/
    /linkinghub.elsevier.com/retrieve/pii/S0022354916320457

        10.  Kaufmann B, Boulle P, Berthou F, et al. Heat-stability
    study of various insulin types in tropical temperature
    conditions: new insights toward improving diabetes care. PLoS
    One [Internet] 2021 [cited 2025 Jan 24];16(2):e0245372.
    Available from: https://journals.plos.org/plosone/
    article?id=10.1371/journal.pone.0245372
        Supportive articles submitted by Mr. Victor A. Suarez to
    follow:
    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

             The Pentagon Wants to Root Out Shoddyy Drugs.
                         The FDA Is In Its Way.

    The U.S. drug-safety regulator has resisted independent testing that's
                             widely used in Europe.

    Bloomberg

    By Anna Edney and Riley Griffin

    December 4, 2023 at 7 PM EST

        One morning in October, U.S. Army Colonel Victor Suarez
    finished his usual morning workout--a 32-mile bike ride--and
    then sat down in his home office in Frederick, Maryland. When
    he opened his email, his stomach dropped.
        Suarez spent his career getting medicines to military
    hospitals and combat troops, including those in Iraq and
    Afghanistan. He had recently sought out an independent lab to
    assess the quality of those drugs, in large part because he
    doubted the US Food and Drug Administration's ability to police
    a supply chain now dominated by low-cost manufacturers in India
    and China. His inbox offered a glimpse of the first batch of
    test results.
        They revealed that some generic versions of one important
    drug, given to soldiers who've lost limbs in combat, might not
    work. They could even cause kidney failure and seizures. The
    idea that already-wounded personnel might be facing an even
    more difficult recovery--all to save a dollar or two a pill--
    gutted Suarez. ``Oh my God, what are we doing here?'' he
    recalled thinking.
        Still more infuriating was that doctors had long warned the
    FDA that some versions of the drug performed poorly. Known by
    the chemical name tacrolimus, it's typically prescribed to
    organ-transplant patients. The lab Suarez engaged had started
    testing samples in early September. One of the generics
    assessed as problematic is manufactured in India by Intas
    Pharmaceuticals Ltd. It was only a couple of weeks later that
    the FDA announced, after more than a decade of study, that the
    Intas version wasn't equivalent to the brand-name drug it
    sought to mimic. The outside lab had taken a month to flag
    similar problems.
        As Suarez well knew, this isn't just a problem for the
    military. Tacrolimus is just one example of the painful
    compromises at the heart of an American health-care system in
    love with--and increasingly suffering from--cheap generic
    drugs.
        They've saved taxpayers and consumers hundreds of billions
    of dollars a year. But recalls related to drug manufacturing
    quality doubled in the U.S. from 2018 to 2022. With almost 80
    percent of FDA-registered generic production facilities located
    overseas, years can pass between inspections. Profit margins on
    generics are so thin that there are often only one or two
    suppliers of vital medications. As a result, quality issues are
    fueling shocking shortfalls in supply, which a U.S. Senate
    committee will examine on Tuesday. Shortages in the U.S.
    reached near-record highs this year and left cancer patients,
    among others, waiting for life-saving treatments. Generics are
    supposed to be affordable and safe. Instead, they're cheap--but
    sometimes dangerous.
        In February, U.S. health authorities linked eye drops made
    in India to a rare bacterial strain that led to four deaths,
    blinded others and caused dozens of infections. Sold over the
    counter at major U.S. drugstores, the drops came from a factory
    that had never been inspected by the FDA. Indian-made cough
    syrups laced with toxic industrial solvents have turned up over
    the past year and a half in 10 countries. They've been linked
    to the deaths of at least 140 children. The discovery of a
    probable carcinogen in blood pressure pills made in India and
    China five years ago is still driving recalls, with the same
    chemical appearing more recently in diabetes treatments.
        The US reliance on India's manufacturers is only growing as
    it turns away from China, a geopolitical rival. But in the
    effort to woo a strategic partner and ensure needed supplies,
    the FDA has been slow to address mounting evidence of flawed
    drugs. The regulator shut down a program of unannounced
    inspections in India almost a decade ago. When FDA inspectors
    do make it inside factories there, they've documented
    disturbing conditions, from barefoot workers in areas supposed
    to be sterile to widespread corner-cutting on tests.

        Amid the scrutiny, Intas is becoming a familiar name. Maker
    of the tacrolimus that jumped out in the tests Suarez saw, it's
    also an essential supplier of generics used to treat cancer.
    The company suspended production of them after FDA inspectors
    found that workers at one plant in India stashed shredded test
    results in garbage bags to hide evidence of shoddy
    manufacturing practices. (Intas said in a statement that it is
    ``in the process of remediating the findings'' and that it is
    ``committed to providing safe and effective medicines.'') The
    subsequent shortages impacted care for one in 10 patients this
    year, the American Cancer Society says.
        Concern about the Nation's drug supply has reached the
    point that big hospitals, the Defense Department and Congress
    are raising questions about the FDA's ability to monitor it.
    The Pentagon in August chose an independent lab with which the
    FDA has publicly feuded, Valisure LLC, to test some of the
    generics available to millions of military personnel and their
    families, 2 years after Kaiser Permanente, a health system
    serving 12.7 million in the US, started a similar program with
    the lab.
        The efforts have run headlong into a major roadblock: the
    FDA itself. One might assume the US drug regulator, which dates
    to the 19th century Division of Chemistry, leads the mission of
    testing drugs. In fact, the FDA resists the idea of grading
    drugs by quality and rarely conducts tests of its own. Agency
    officials sought to block the Pentagon's nascent study, cast
    doubt on Valisure's methods and, according to multiple
    government officials, soured a Biden administration effort this
    year to introduce third-party testing more widely.
        FDA spokesperson Jeremy Kahn said the agency ``is
    continuously working to ensure that all drugs meet the highest
    quality standards with the health and well-being of Americans
    top of mind.'' Agency officials have said many of the problems
    are a hangover from a decline in inspections during the
    pandemic and that a system based on spot checks and occasional
    reprimands is working.
        The drawbacks of that approach were apparent in May, when
    an inspection of a second Intas facility in Ahmedabad, India,
    turned up more quality issues, including workers who made up
    favorable test results and ignored evidence of contamination.
    Inspectors had identified similar problems in 2019. Company
    officials suggested pausing production for the US to address
    the issues, according to a person familiar with the matter who
    declined to be identified discussing sensitive matters. The
    FDA, this person said, feared the fallout of even more
    shortages and advised against it.
        In November, after Bloomberg News asked an agency
    spokesperson about the decision, the FDA banned some exports
    from the plant to the US. But the ban didn't apply to more than
    two dozen generics, including tacrolimus and 16 cancer drugs.
        Robert Califf, The FDA Commissioner, donned a garland of
    pink flowers on the steps of the US Embassy in New Delhi in
    September, smiling broadly for a photo with the American
    ambassador as he embarked on a trip to meet with government
    officials, drug company executives and academics. His
    subsequent blog post walked a line between pep talk and tough
    talk for India's embattled generic drug industry. While noting
    the ``global attention focused on serious instances of quality
    failures,'' he said he'd also visited firms that are doing ``a
    tremendous and reliable job'' in a country that remains a
    critical partner.
        Califf, who also led the FDA during the last year of the
    Obama administration, has returned to an agency in crisis. He
    and other officials were called before Congress last year to
    explain the FDA's slow response to evidence of contamination in
    baby formula made in Michigan that was linked to infant deaths.
    Before that came its approval, in 2021, of a potentially
    lucrative drug for Alzheimer's disease over the objections of a
    scientific advisory panel that questioned the drug's
    effectiveness. The agency didn't make him available to comment
    for this story.
        The revolving door at the FDA, as at many other branches of
    government, is well-worn. At least four former chiefs of its
    office of compliance later became consultants to generic
    drugmakers. The head of its Center for Drug Evaluation and
    Research, Patrizia Cavazzoni, previously held senior positions
    at the drug giants Pfizer Inc. and Eli Lilly & Co. Like nine of
    ten of his predecessors, Califf, a cardiologist, went on to
    work for drug companies or serve on their boards. Between his
    stints as FDA chief, Califf worked for Google parent Alphabet
    Inc.'s Verily Life Sciences unit and had advisory or board
    roles for at least seven other companies, including one
    developing Alzheimer's treatments. (He has quit all of them
    since returning to the regulator.)
        But the person who most shaped the modern FDA is
    Cavazzoni's mentor, Janet Woodcock, 75, who said last month
    that she's retiring after a 37-year career that included
    running the drug evaluation center and serving as acting
    commissioner, for a year until Califf's appointment. Now
    principal deputy, she's known to people in the industry as
    ``shadow commissioner.'' As the regulator has lurched from
    controversy to controversy in recent years, it is Woodcock's
    mindset that has been preeminent. It boils down to encouraging
    manufacturers to fix problems themselves. ``You cannot test
    products into compliance,'' she said in an email. ``The best
    quality is assured when manufacturers are dedicated to high
    quality.''
        Some former agency officials say this approach leaves the
    FDA reacting to problems instead of anticipating them. It also
    allows officials to shift blame, said Frank Yiannas, the former
    deputy commissioner for food policy and response, who described
    the baby formula crisis as a preventable tragedy exacerbated by
    the agency's own mistakes. ``There's a fear at the FDA where
    nobody wants to be responsible for the supply chain,'' he said.
    ``The American public expects the government to do all that
    they can.''
        Woodcock laid out the agency's ``risk-based approach'' two
    decades ago in a regulatory framework called ``Pharmaceutical
    Quality for the 21st Century.'' Ideally, the FDA would do as
    little as possible. She envisioned ``a maximally efficient,
    agile, flexible manufacturing sector that reliably produces
    high-quality drug products without extensive regulatory
    oversight.''
        The offshoring of US pharmaceutical manufacturing to India
    and China was then just getting started, but some had already
    warned about losing control. A 1998 report by what's now called
    the Government Accountability Office cited concern about the
    FDA's ``ability to ensure the safety and quality of the
    increasing volume of foreign-produced drugs imported daily into
    the United States.''
        Those worries materialized a decade later, when a
    contaminated blood thinner made in China led to hundreds of
    deaths in the US. That same year, the FDA opened its first
    offices in Beijing and New Delhi. The agency opened a second
    India office in Mumbai the following year, and had plans to
    hire 19 staffers in the country.
        In a case that again jolted the generics market, the US
    unit of India's Ranbaxy Laboratories Ltd. in 2013 pleaded
    guilty to felony charges of selling adulterated drugs and lying
    about it to the FDA. Ranbaxy paid $500 million to settle the
    case, which further exposed the flaws of an FDA inspection
    regime organized to monitor a domestic manufacturing base that
    was rapidly disappearing. While surprise inspections were easy
    to do in the US, the overseas inspectors had to announce their
    arrival weeks or months in advance.
        The next year, following the Ranbaxy scandal, the FDA
    started a pilot program for unannounced inspections in India.
    It uncovered more troubling signs that factories there weren't
    just dirty and under-equipped; workers were routinely hiding
    sensitive documents.
        But the program lasted only about a year, until a July 2015
    email from Alonza Cruse, then acting director of the FDA's
    Office of Pharmaceutical Quality Operations. ``The pilot will
    end immediately,'' Cruse wrote in the email, obtained by
    Bloomberg. No explanation. The agency later told the GAO, the
    investigative arm of Congress, that its staff hadn't developed
    any metrics on which to evaluate the pilot's success.
        Two former employees, who didn't want to be identified
    discussing internal matters, said FDA leaders were also
    concerned that unannounced inspections could undermine efforts
    to deepen relations with India, a year after the nationalist
    government of Prime Minister Narendra Modi came to power. Asked
    about those claims, FDA spokesperson Kahn said the agency's
    ``collaboration with India highlights continued advancement of
    the production and availability of medical products that both
    countries and the entire world rely upon.''
        By 2019, India's manufacturing clout had grown to the point
    that the country had more FDA-registered generic drug
    facilities than the US, according to a Bloomberg analysis of
    agency data. (India had 30 percent as of Oct. 1, compared with
    22 percent for the US and 13 percent for China.) Yet the FDA's
    footprint in the country has shrunk. After closing the Mumbai
    office in 2016, it had a drug inspection staff that recently
    numbered four in New Delhi. The office primarily focuses on
    building relationships in government and industry rather than
    compliance.

        Just before the pandemic, Valisure, a tiny lab in New
    Haven, Connecticut, started gaining customers--and embarrassing
    the FDA--by doing something people expect the regulator already
    does: test drugs.
        The lab's co-founder, Adam Clark-Joseph, had suffered
    complications from an anticonvulsant drug he was taking. He'd
    connected with a friend from Yale University, a molecular
    biologist named David Light, and they'd become convinced there
    was a business in screening medications. (Bloomberg
    commissioned Valisure this year to test Indian-made cough
    syrups obtained from six countries; one test found unsafe
    levels of toxic chemicals in a cold medication sold in Iraq and
    prompted a recall.)
        The FDA doesn't regularly test either ingredients or the
    finished products. During inspections, it primarily checks to
    see how well companies follow manufacturing procedures rather
    than conduct its own sampling. When the regulator does find
    problems, it typically relies on the company to voluntarily
    take action to address the root cause.
        At first, Valisure operated as a pharmacy and tested the
    medications it dispensed. Light said about 10 percent had
    problems, such as contamination or the lack of an active
    ingredient. Then came a bombshell finding in 2019 that Zantac,
    the widely used heartburn drug, was contaminated with a
    chemical that likely causes cancer. A massive recall followed.
    Valisure also found leukemia-causing benzene in hand
    sanitizers, sunscreens and antiperspirants. Again, companies
    withdrew the products--and the FDA had to answer questions from
    Congress about how an obscure lab had sounded the alarm first.
        Months after the Zantac revelation, the pandemic forced a
    near-halt in the FDA's inspections. Agency officials still
    found time, in May 2021, to send a team into Valisure's
    offices. In public statements about the lab, the regulator had
    grown increasingly critical, telling reporters its own testing
    revealed discrepancies from Valisure's. Though the agency also
    found unsafe levels of the probable carcinogen NDMA in Zantac,
    it said the lab's tests had inflated them.
        The inspection had been ordered by ``HQ,'' agency
    headquarters in Silver Spring, Maryland, a high-ranking FDA
    investigator wrote in an email obtained through a public
    records request.
        Staffers on the ground appeared mystified by the
    assignment. Over the following weeks, according to the emails,
    the FDA team repeatedly conveyed to top officials that nothing
    at the lab indicated the testing it did was subject to agency
    oversight. Valisure doesn't make drugs, and its contracts with
    clients say none of its testing should be used for any
    regulatory purpose. Twice, the team tried to close the
    inspection. They suggested that a discussion about some
    technical violations they'd spotted, not an official
    admonition, would suffice. But Francis Godwin, head of the
    Office of Manufacturing Quality, insisted on a tougher report,
    the emails show. (Godwin didn't respond to a request for
    comment.)
        Nineteen months after the initial inspection, the FDA
    published an eight-page letter enumerating flaws in data
    collection and equipment that applied if Valisure were to do
    regulatory work--which, the letter acknowledged, it didn't. The
    letter said Valisure hadn't documented the ``accuracy'' and
    ``repeatability'' of its results, among other concerns. The
    FDA's Kahn said the agency isn't opposed to additional
    screening of drugs but added that such measures must be
    ``backed by validated testing methods, scientific research and
    expertise.''
        In the view of some current and former staffers, who
    requested anonymity to protect their careers, the episode
    amounted to a hit job meant to clip the momentum of a company
    whose tests had called into question the regulator's
    effectiveness. Others who have raised concerns about drugs say
    they've often been met with silence. ``The FDA has a story and
    the story is: `We're the FDA, we know what we're doing. Trust
    us,' '' said Joe Graedon, co-founder of the People's Pharmacy,
    a consumer health organization that publishes complaints about
    generics. ``Anything that interferes with that story or
    criticizes that story is generally not welcome.''
        All of this helps to explain why independent testing, and
    Victor Suarez's collaboration with Valisure at the Department
    of Defense in particular, touched off such an intense
    bureaucratic struggle this year.
        As tension with China has increased, India, which accounts
    for one-fifth of the world's generic drug exports, is seen by
    US officials as a more secure source of supply. ``We've done a
    big push with India,'' said Neera Tanden, President Joe Biden's
    domestic policy adviser. After Modi met with Biden at the White
    House in June, they issued a joint statement welcoming ``deeper
    collaboration'' in pharmaceuticals and calling their two
    countries ``among the closest partners in the world.''
        The relationship has survived some recent stress. A year
    ago, FDA inspectors issued a 36-page report describing the
    efforts of employees at the first Intas factory they visited to
    hide test results from them. One employee ``rushed and tore
    apart'' printouts and threw them into a trash bag, then poured
    acid onto them.
        The company makes about 50 percent of the US supply of
    cisplatin, a widely used chemotherapy drug. After Intas ceased
    production at that factory to address issues raised by the
    inspectors, it led to a shortage of both cisplatin and another
    chemotherapy drug called carboplatin. That left cancer patients
    across the country scrambling to find hospitals able to secure
    the drugs, or even delaying treatment.
        The shortages have embarrassed an administration that
    promised an ambitious ``cancer moonshot'' to cut death rates in
    half and now finds itself simply trying to ensure access to
    existing drugs. Early this year, Biden officials led by Susan
    Rice, then his domestic policy adviser, began crafting a $25
    billion package to restore US drug manufacturing and improve
    visibility into supplies, modeled on the CHIPS Act for
    semiconductors, according to people familiar with the matter
    who asked for anonymity to share plans that were not public.
    Among the steps to improve quality, they consulted with the FDA
    about implementing third-party testing of the type Valisure
    does.
        After Bloomberg later reported the Pentagon's plans to test
    drugs with Valisure, FDA officials told the White House they
    felt betrayed, according to these people. The agency's
    leadership suggested that the testing, though still only a
    pilot, was a direct assault on its reputation and performance,
    sowing distrust in the products it clears, the people said. It
    was an awkward moment because Rice, the official who'd been
    most focused on policing supplies from India and China, had
    just left her post. Momentum for sweeping action stalled. Rice
    didn't respond to requests for comment.
        Tanden, who replaced Rice in the role, said the
    administration continues working with the FDA to ensure the
    availability and quality of medicines and is open to various
    ideas, including different measures of quality. She added that
    the White House tried to interest lawmakers in investing
    billions to shore up the pharmaceutical supply chain, but
    congressional interest waned. The FDA's Kahn said it's open to
    ``meaningful solutions'' in ``collaboration with our cross-
    government partners.''
        In August, Suarez, 50, went on stage with Valisure's Light
    at a conference of medical supply experts in Orlando. Congress
    had told the Pentagon a year ago to identify threats to its
    pharmaceutical supplies. Suarez got involved in the project as
    something of a swan song to a career of supporting vaccine
    development and managing medical acquisition and logistics for
    25 military facilities. He retired last week and is now a
    consultant who advises health-care clients on product and
    supply chain issues. As Suarez announced the pact with Light
    that day in Orlando, he said it would help end what's in effect
    an ``honor system'' that leaves consumers in the dark.
        That same month, Suarez said, he heard of blowback through
    his command chain. Califf met with one of his superiors,
    Assistant Secretary of Defense for Health Affairs Lester
    Martinez-Lopez, and raised concerns about the Pentagon study
    and Valisure's testing methods. Martinez-Lopez informed Califf
    the Pentagon would move forward, according to Suarez. Nicole
    Schwegman, a Defense Department spokesperson, said it
    ``appreciates the FDA's insight'' and noted that Martinez-Lopez
    is required to report on risks to the pharmaceutical supply
    chain. The FDA's Kahn didn't respond to questions about the
    meeting.
        To sustain support, Suarez also briefed Pentagon leaders
    about Valisure's preliminary results for a few medications,
    including the flawed tacrolimus. A chart that compared prices
    alongside quality scores showed how cheap isn't always best.
    ``It was just a jaw-dropping moment,'' he said. The Valisure
    pilot is testing a dozen drugs, each with multiple
    manufacturers, among them blood pressure medicines and
    antidepressants. The lab uses commercial samples obtained from
    distributors, not manufacturers. The tests measure dosages, as
    well as potential contaminants. Results are graded by an
    outside panel of experts, who assign quality scores.
        Doctors had expressed doubts about some generic versions of
    tacrolimus soon after they were introduced in 2009. The FDA
    responded 2 years later by designating it a ``narrow
    therapeutic index drug,'' signaling that small differences in
    dosages can have a big impact on patients. Over the next
    several years, the agency has said, it funded ``a number of
    studies'' to continue investigating. Finally, in September, the
    agency said the Intas version isn't equivalent--but let it stay
    on the market.
        Last month, the Pentagon gave the Valisure project another
    vote of confidence by transferring it to the Uniformed Services
    University of the Health Sciences, which conducts research for
    the military. The institution will add dozens of additional
    medicines to the study and analyze the results over the next 2
    years. Suarez said he hopes big drug buyers like Medicare and
    the Veterans Administration adopt the same approach--which
    might finally change the economics of the generic drug market
    to reward quality. ``Hopefully the FDA will become part of
    that,'' Valisure's Light said, ``but it's happening without
    them anyway.''
        In the European Union, independent testing has long been
    standard, with a network of 70 labs that sample medications
    both before they're released and after they're in use. The
    FDA's Woodcock said European authorities also rely on
    inspections and work closely with the FDA. Tests might motivate
    ``certain manufacturers to make sure their products at least
    pass,'' she wrote in an email. ``But people who know a lot
    about this will tell you that testing per se is not a magic
    bullet.''
        After abandoning pursuit of the $25 billion legislative
    package, the Biden administration last week tapped the Defense
    Production Act to enable some domestic investment in essential
    medicines, starting with $35 million for sterile injectable
    drugs. It also added a new post outside the FDA for a ``supply
    chain resilience and shortage coordinator.'' Biden adviser
    Tanden said the administration is exploring other ways of using
    the clout of the US Government ``as a giant purchaser of
    drugs'' to encourage manufacturers to prioritize quality and
    availability. Prompted by Congress, the FDA resumed unannounced
    inspections in India last year and China more recently.
        What's missing is a shift in the mindset of the regulator.
    Not long after FDA commissioner Califf returned from India, he
    spoke at an October conference for the generic drug industry in
    North Bethesda, Maryland. Asked about the idea of health
    systems doing independent tests, he responded: ``I might say
    there are better ways to spend your money.''
        -With assistance from Laura Bejder Jensen, Ike Swetlitz,
    and Swati Gupta