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How Would You Know? House Holds Hearings on Drug Safety

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Today, the House Subcommittee on Oversight and Investigations held hearings entitled FDA Foreign Drug Inspection Program: A System at Risk. These hearings should serve as a warning to the world that the dangers of drug safety are widespread, systemic, and uncontrollable by any government agency, especially the Food and Drug Administration (FDA). The result of a largely unregulated pharmaceutical industry can be devastating if steps are not taken now.

Since the food and toy recalls in 2007, the federal government has been under the microscope to explain how tainted products are making their way into the US retail supply chain.

The lack of oversight of pharmaceuticals is a little more insidious. When someone takes medication because they are sick, and they do not get well, there are many factors that could contribute to this, not the least of which is the fact that patients respond differently to treatment.

The fear is that there is no accountability for prescription pharmaceuticals from approval to dispensing, and although it doesn’t seem possible, accountability is even less for drugs manufactured in other countries. Countries such as China and India, who do not have much regulatory structure in place, also do not have the infrastructure to control the chain of custody of the raw materials prior to manufacture and the finished formulary after manufacture.

For example, a drug is manufactured in India and it meets all the specifications needed to ensure the quality of the pharmaceutical. The pharmaceutical is shipped, and the shipment sits in an unventilated warehouse for four days before being sent to the US. The heat from the unventilated warehouse causes the chemical compound in the drug to break down.

The parcel is shipped to the US, distributed to pharmacies and dispensed to you, and you have an adverse reaction. Is it because of your personal chemical makeup or because the drug is adulterated?

How would you know? Why would you question it? These are controlled substances, aren’t they?

In my series <i>How Good Are Your Drugs</i> (Part I, II, III, IV), I have explored these issues, and at the urging of groups such as the Government Accountability Project (GAP), Prevent Medical Error (PME) and Community Catalyst, the federal government is beginning to address this very important issue.


The general public assumes that the term “FDA Approved” means that the highest standards have been applied to the authenticity and safety of the approved pharmaceutical. It is further believed that prescription pharmaceuticals are tightly controlled from user approval until they are dispensed at the local pharmacy.

This is just not true. Pharmaceuticals are bought and sold in arbitrage on the world market. The proliferation of internet pharmacies, both regulated and illegitimate, has put the United States public increasingly at risk for adulterated and fraudulent drug dispenses.

The Pharmaceutical Supply Chain Lacks FDA Chain of Custody Oversight

And the FDA does not have the resources or the systems in place to stop it. The complacency of the FDA to control the process and the supply chain of generic drugs from overseas manufacturers in China and India has placed the entire U.S. population at risk.

There are an estimated 400 – 6,000 wholesalers who act as the middlemen, buying and selling medications as arbitrage. Stockpiling of drugs to reduce supply may occur and it can drive up prices. These medications may be released when prices escalate with little or no regard for safe storage or expiration dates to protect the consumer.

In some cases, fraudulent medications are repackaged and resold as manufacturer items. Some expire and are repackaged with new expiration dates. There have been reported instances where medications whose potency and effectiveness are affected by the elements have not been properly stored. When this adulteration occurs, the chemical components can break down render the drugs ineffective at best, and potentially harmful in a worst case scenario.

The proliferation of this secondary market that buys and sells for profit with little regard to the integrity of the medications has given rise to what is called the ‘diversion market”, and, as was concluded in the First Interim Report of the Seventeenth Statewide Grand Jury (Florida Case SC02-2645) in February, 2003, the movement of drugs "up, down and sideways through the distribution system… creates opportunities for adulterated drugs that have been diverted from other sources to enter the system".

On December 26, 2006, the Attorney General of the State of New York's Medicare Fraud Control Unit and Health Care Bureau entered an agreement, in the matter of Cardinal Health Inc., an Assurance of Discontinuance to Executive Law § 63(15). Cardinal Health paid $11 million dollars, but it is the results of the findings contained in this agreement that are alarming.

In this agreement, the attorney general’s office found a pattern in which Cardinal knew or should have known that adulterated drugs had entered the system, and it did not take the steps to ensure the pharmaceuticals in the distribution chain were safe. The use of Alternative Source Vendors (ASV’s) for increased profit was cited by the attorney general’s office as well.

In the agreement, it states:

‘…In March 2004, Cardinal realized it possessed an anabolic steroid product that customers might perceive as high risk… It sought to avoid such customer concerns by transferring this product from its trading company, which was known for buying from ASV’s to its ‘divisions’ which customers perceived as selling pharmaceuticals purchased from manufacturers. A Cardinal employee sent an e-mail to the head of the Trading Company, noting a substantial inventory in ‘an anabolic steroid that is on the restricted list due to potential counterfeit. There is plenty of room to pass this product to the divisions. What are your thoughts on moving this product to the divisions? The reply e-mail instructed simply: ‘Go ahead and move it.’

• From May 2001 through May 2002 ‘Cardinal purchased drugs on the Secondary Market that later turned out to be counterfeit… over 10,000 units of counterfeit Procrit… Cardinal, still unaware that the product was counterfeit, sold some of the counterfeit Procrit to its customers…’

• ‘…Cardinal repeatedly sold pharmaceuticals to customers that it knew or should have known were diverting pharmaceuticals… Cardinal made numerous sales of pharmaceuticals to a Nevada company which purported to be a ‘closed door’ pharmacy that served only nursing homes. In a routine pattern, the Nevada company placed two orders at the same time. One was for products likely to be needed by the stated… nursing home residents… The other was for much higher quantities and included products unlikely to be needed by nursing home residents… Investigation has shown the company dispensed the products on the small-quantity orders to nursing home residents and it transferred the products on the large –quantity orders to an affiliated wholesaler for resale on the Secondary Market.’

• ‘Cardinal made ‘third party’ returns to manufacturers on behalf of other wholesalers regardless of where the wholesaler had purchased the product… Such practices support the Diversion Market by giving unscrupulous customers an incentive to divert drugs and then ‘return’ them for full credit…’

In his December 26, 2006 press release, then Attorney General and now Governor Eliot Spitzer stated:

‘…Secondary market trading is not illegal on its face, but can create opportunities for the introduction of unreliable drugs, including counterfeits, into the marketplace. In recent years, there has been an increase in the number of cases of counterfeit drugs in the American supply chain. Secondary market trading also can create an opportunity for companies to divert drugs from their intended distribution channels. Diversion into the secondary market, often to take improper advantage of manufacturer discounts, can begin a series of trades from wholesaler to wholesaler that makes it difficult to trace the origin of a drug and impossible to ascertain its authenticity.

The investigation determined that Cardinal purchased drugs from certain alternate source vendors, despite risks associated with buying from those vendors, to take advantage of higher available profit margins. Cardinal also sold pharmaceuticals to certain customers even in the face of evidence that those customers may have been illegally diverting the drugs outside their intended channels of distribution…’

In June 2006, the House Committee on Oversight and Government Reform issued a report entitled Prescription for Harm – The Decline in FDA Enforcement Activities. The report was requested by and prepared for Congressman Henry Waxman.

In it are some disturbing results, including these three from the Committee’s web site:

1. FDA enforcement actions have declined under the Bush Administration. The number of warning letters issued by the agency for violations of federal requirements has fallen by over 50%, from 1,154 in 2000 to 535 in 2005, a 15-year low. During the same period, the number of seizures of mislabeled, defective, and dangerous products has declined by 44%.

2. FDA headquarters officials have routinely rejected the enforcement recommendations of career field staff. Internal agency documents show that in at least 138 cases over the last five years involving drugs and biological products, FDA failed to take enforcement actions despite receiving recommendations from agency field inspectors describing violations of FDA requirements.

3. FDA’s record keeping and case tracking practices are inadequate. Although the Federal Records Act and internal agency procedures require FDA to keep records that document agency enforcement decisions, FDA does not appear to comply with these requirements. FDA’s response to Committee requests for relevant enforcement documents was haphazard, incomplete, and untimely. FDA officials explained that FDA could not provide prompt and complete responses because the agency lacks a system that enables it to track enforcement recommendations from field offices.

FDA Funding

The FDA has two major functions in the pharmaceutical area:

1. Licensing and approval of new medications and devices. Since 1993, the average time for approval has decreased from 13.2 months to a little over six months;

2. Violations and warnings, which have decreased by over 50% since 2002.
One theory is that it is estimated that approximately 40% of the FDA’s budget for new drug study is financed with the user fees the FDA charges. This makes the agency fiscally dependent on the industry it is charged with regulating. Due to these financial restrictions, it could also explain the agency’s decreased enforcement oversight. Here is just one example.

Asparaginase (Elspar)

Asparaginase, which treats acute lymphocytic leukemia and other forms of the cancerous disease, is a protein that resembles nutrients cancer cells need to grow. It thwarts cancer growth because cells absorb the drug instead of nutrients.

In February 2005, the FDA conducted an inspection of Merck’s Cherokee plant in Riverside, PA and had serious concerns about the manufacturing process for this biotech drug. In their subsequent findings, the FDA cited the lack of approval for changes in the production process that could have a substantially adverse effect on the product.

Merck responded on March 15, 2000. The FDA found Merck's answers deficient and issued a warning letter on July 22, 2005. It is unclear as to the resolution of this issue since July 2005. Elspar, the trade name for asparaginase, is now marketed by Ovation Pharmaceuticals, Inc. It is also unclear how long prior to the February 2005 inspection that these deficiencies existed.

What is clear is that the manufacture of Elspar continued for at least seven months, even though the FDA questioned both the procedures and protocols.

As stated in the July 22, 2005 warning letter:

“…. Failure to submit a supplement for a change in the production process and quality controls that has a substantial potential to have an adverse effect on the identity, strength, quality, purity or potency of the product [21 CFR 601 .12]. Specifically, you failed to notify FDA upon establishing a new working cell culture from a pro-existing working cell culture. Your records referenced that each new lyophilization series is sequentially prepared from the previous lyophilization series. There has been no evaluation or comparability study to support this practice.”

Clearly, the FDA’s oversight may not be what it should be, and these deficiencies can lead to products harmful to patients. It’s very possible that the changing of the process improved the product. It’s also very possible that these changes had multiple motivations, not the least of which could have been economic.

Patients, prescribers, and pharmacists are rarely alerted to FDA warning letters.

Pharmaceutical companies are not required to alert prescribers, pharmacists, or patients to FDA inquiries or warning letters; however, pharmaceutical companies do have to alert their stockholders to any compliance issues. In some cases, the fastest way to tell whether or not the pharmaceutical company is having manufacturing or other compliance issues is to check their Securities and Exchange Commission (SEC) filings.

The GAO Findings

Marcia Crosse – Director, Health Care, United States Government Accountability Office; GAO Testimony Before the Subcommittee on Oversight and Investigations, Committee on Energy and Commerce, House of Representatives on March 22, 2007 states as follows:

“… we found that the FDA lacked a clear and effective process for making decisions about, and providing management oversight of, post market drug safety issues. There was a lack of clarity about how decisions were made and about organizational roles, insufficient oversight by management, and data constraints. We observed that there was a lack of criteria for determining what safety actions to take and when to take them, which likely contributed to disagreements over decisions about
post market safety…"

"…While decisions about post market drug safety were often based on adverse event reports, FDA could not establish the true frequency of adverse events in the population with data from adverse event reports. The inability to calculate the true frequency made it hard to establish the magnitude of a safety problem, and comparisons of risks across similar drugs were difficult…"

"…In addition, it would have been difficult to attribute adverse events to particular drugs when there was a relatively high incidence rate in the population for the medical condition. It was also difficult to attribute adverse events to the use of particular drugs because data from adverse event reports may have been confounded by other factors, such as other drug exposures…"

"…Lacking specific authority to require drug sponsors to conduct post market studies, FDA has often relied on drug sponsors voluntarily agreeing to conduct these studies. But the post market studies that drug sponsors agreed to conduct have not consistently been completed. One study estimated that the completion rate of post market studies, including those that sponsors had voluntarily agreed to conduct, rose from 17 percent in the mid-1980s to 24 percent between 1991 and 2003.”

Lack of Oversight for Overseas Pharmaceutical Manufacture

Ranbaxy Industries

Ranbaxy has a plant in Paonta Sahib, India that produces drug components as well as finished drugs. Ranbaxy has been in the center of a few issues:

• In fall 2004, the World Health Organization (WHO) cited Ranbaxy’s failure to prove bioequivalence. This apparently triggered Ranbaxy to remove their remaining AIDS drugs from the WHO approval list.

• It appears to have taken the Food and Drug Administration (FDA) until February of 2006 to inspect the Ranbaxy plant, and an additional three months or more to warn the company.

• Similar to the WHO, in an FDA warning letter dated June 15, 2006, the agency cited the Ranbaxy manufacturing plant at the Paonta Sahib facility for stability issues:
Those deviations observed by the investigators were presented to you on an Inspectional Observations (FDA 483) form at the close of the inspection. These CGMP (Current Good Manufacturing Practice) deviations cause your drug products to be adulterated within the meaning of Section 501(a)(2)(B) of the Federal Food, Drug, and Cosmetic Act (the Act) [21 U.S.C. 351(a)(2)(B)].

It is currently unknown when and if the FDA has inspected and/or cited additional Ranbaxy plants, and at this time, there have been no reported product seizures of drug components and/or finished product associated with Ranbaxy’s Paonta Sahib plant.

Although one branch of the FDA has put Ranbaxy under both civil and criminal investigation, another department within the FDA continues to approve Ranbaxy’s Abbreviated New Drug Applications (ANDA) for new generic drugs.

The FDA also continues to allow Ranbaxy to manufacture and sell new generic drugs such as zolpidem, the generic form of Ambien.

In some cases, Ranbaxy holds the exclusive rights to a generic drug for the first six months after the brand name drug goes off patent.

Because they are often less expensive than competing generic versions, the big three drug wholesalers and many pharmacies and mail order pharmacy benefits managers (PBMs) continue to distribute, purchase, authorize, bill, and sometimes dispense Ranbaxy generic drugs.

Despite reports of generic drug discrepancies, other Indian generic drug companies such as Indian subcontractor Lupin appear to remain largely under the radar screens of state and federal entities.


In the case of Indian generic drug manufacturer Wockhardt, review of the FDA’s February 2006 warning letter to the company indicate that Wockhardt has a history of record keeping and documentation issues:

"…Complete, true and accurate records are the foundation for good manufacturing practices (GMP). Reliable documentation is a control which raises assurance of the quality of the product manufactured. Violations concerning inadequate documentation are serious and should be handled as such. We are also concerned that the two previous inspections also noted failure to maintain complete and accurate records, and that your firm may not have taken this type of discrepancy seriously and thus has not corrected the documentation practices of your employees. In addition, during a regulatory meeting with your firm on May 7, 2004, management indicated to us that inappropriate documentation practices have occurred at your facility. Practices such as back dating and signing for actions not performed are serious violations.”

Traditionally, the burden of proof that a prescription drug is FDA approved and legal at time of dispense and administration has been on those who profit from the manufacture, distribution, authorization and dispense of prescription drugs. Increasingly, the burden of proof appears to be shifting from those who profit to those who pay the bills.

A 2001 Lancet article reveals that, according to the WHO, India produces as much as 35% of the counterfeit and substandard drugs in the world. In addition, a recent series of Business Week articles exposes systemic infrastructure gaps in India’s water and distribution systems that likely increase prescription drug adulteration and tampering.

FDA Oversight

The FDA has many issues concerning oversight of the manufacture of pharmaceuticals within the borders of the United States:

1. Manpower – As with many governmental agencies, there are not enough inspectors to oversee the process and identify issues.

2. The Regulatory Process – When a pharmaceutical manufacturer is warned, there is an appeals process that gives the manufacturer an opportunity to respond. A company can also file for injunctive relief. During this process, the manufacture of the compounds continues.

3. FDA Funding – It is estimated that 40% of the FDA’s operating budget comes from the sale and licensing of rights to pharmaceuticals, so the agency’s funding is largely dependent on the industry it is charged with regulating, leading to complex and shifting priorities within the FDA.
4. State Pharmacy Boards – Most state pharmacy boards are under-funded and lack resources and jurisdiction to adequately oversee the three big drug wholesalers, large chain pharmacies and PBMs. Oftentimes, state pharmacy boards include representatives from these companies.

It appears that oversight is even more of a problem overseas. According to a recent Washington Post article, pharmaceuticals and pharmaceutical components manufactured in China, India, Japan and Europe are not inspected as often by the FDA. In 2006, according to FDA records, 32 inspections were conducted in India and 15 in China. Some of these inspections were done as part of the approval process and not for quality control oversight, although the FDA would not comment on the nature of these 47 inspections.

This is in contrast with the 1,222 quality control inspections conducted in the United States in 2006. It is estimated that 20% of finished pharmaceutical products and 40% of active ingredients come from China and India.

It is predicted that within 15 years, 80% of the components of pharmaceuticals will come from these two countries.

Setting the Standard

With the revelations that there are glaring irregularities in the manufacture of pharmaceuticals and the oversight by US federal and state regulatory agencies, you would think that Congress would move to strengthen the rules governing all of these industries. Instead, Congress is seeking to relax the rules, ostensibly to lower cost to the consumer to justify the increased lack of oversight.

In 1984, Congress passed the Hatch-Waxman bill, expanding the distribution of generics to reduce cost to the patient. The strength of this bill was FDA enforcement. Today, with the proliferation of adulterated and fraudulent pharmaceuticals through the Internet, the FDA has proven that it can’t or worse, won’t keep up.  Powerful forces are now lobbying Congress to provide an FDA framework for the production of biogeneric drugs – generics in the area of biologics. Biotech or biologics are not chemically manufactured but produced from live cells, and are used to treat a variety of chronic and terminal patient populations, including AIDS, diabetes and cancer.

American biotech companies are increasingly outsourcing drug research and purchasing outsourced raw ingredients, creating a framework that allows for the approval and production of Indian and Croatian biogeneric drugs. This may serve as a catalyst for American biotech companies to hasten the outsourcing of biologic production, and along with it, high paying biotech jobs.

It has been shown that in the past, the pharmaceutical, distribution, dispense and insurance industries all appear to have allowed for the introduction of adulterated compounds into the mainstream manufacturing, distribution and dispense systems in violation of standards. The sale of adulterated pharmaceuticals to unwitting patients can be debilitating.

Biologics require increased scrutiny. Since these are live cultures, they are often infused so they have a direct route to vital organs and the central nervous system. Given the compromised condition of the patient population, any change or alteration of the manufacturing process can render the drug toxic, and the negative effects are immediate, and in many case life-threatening or even fatal. Biologics are much more sensitive to process changes than chemically manufactured drugs, although both scenarios can be dangerous. Most also have short shelf-life and require highly specialized (and expensive) handling in order to maintain product integrity and FDA approval. Lengthening the amount of time that biologic drugs spend in Indian or Croatian distribution and shipping channels doesn’t intuitively make a whole lot of sense.


It is clear that the FDA does not have the resources or the mandate to control the chain of custody of prescription pharmaceuticals. Because of this, there is a growing body of evidence to suggest that pharmaceuticals run the risk of adulteration anywhere in the supply chain, from manufacture to dispense. The FDA relies on fees from the industry it is charged with regulating for its very existence.

The risk management process always begins with identifying the potential loss exposure to determine the possible steps to mitigate the risk. If the FDA truly believes that a risk management approach is essential in reducing the risk in post market distribution of pharmaceuticals, the process is doomed to fail if the potential risk components are not identified and addressed.

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About The Insurance Guy

  • REMF

    “My wife, who takes far more Oxy per day than Rush ever even dreamed of, is in excruciating pain without it.”

    The difference being, of course, that your wife has not made millions of dollars as a self-righteous, sanctimonious be-gooder, who condemned drug users/dealers, while at the same time breaking the law to satisfy his drug addiction.


    “If her docs were ever to cut her off, I would buy it wherever I could, legal or illegal.”

    The difference being, of course, that your wife is handicapped, while Limbaugh’s worst medical problem was a cyst on his ass, earning him a deferment to dodge the draft during Vietnam.

  • Clavos

    My wife, who takes far more Oxy per day than Rush ever even dreamed of, is in excruciating pain without it.

    If her docs were ever to cut her off, I would buy it wherever I could, legal or illegal.

    That’s one of the reasons I advocate legalizing all drugs that are presently illegal, and making most of the rest available without a prescription.

    The whole prescription system is deliberately designed to make money for the docs and the pharmas; in most other countries, far fewer drugs require a script than here.

  • REMF

    ^ Or we could be like Rush Limbaugh and purchase black market narcotics from our housekeeper and/or illegally doctor-shop for Oxycontin…

  • Clavos

    And we ALL should be complaining about the fact that hundreds of drugs which require a prescription (and thus a costly doctor visit) in this country are available OTC in many other countries, including many commonly (and arrogantly) labeled “third world” by gringos.

    Perhaps the entire system should be overhauled, and the FDA’s focus shifted to emphasize enforcement of quality control, as the author suggests, while simultaneously de-listing drugs from the “prescription only” category.

  • Bliffle, fees are NOT the same thing as bribes, and the fees the FDA charges are specific to the service they provide, and if they reject a drug then they get to charge another fee. There’s not incentive in the system to approve drugs. No profit for the individuals in it.

    If there’s a problem it’s the history of appointing former pharma employees to work at the FDA in management positions. That’s where you should be looking for something to complain about.


  • bliffle

    So, China, land of lead-bearing toys for USA children, is now producing drugs with FDA pre-approval for USA citizens. Oh joy.

    It’s absurd to tie FDA testing and certification to fees from pharmas. It’s a service performed on behalf of drug patients, NOT a PR cover for companies. Whoever thought up this scheme should be tarred and feathered.

  • Zedd

    Did you say overview?

    Sounds interesting. I’ll take time to read it later.