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Vulnerability to counterfeit drugs

By Edward F. Shay, Esq.

Just as the recent “mad cow” scare eroded public confidence in the presumed integrity of the meat distribution industry, ongoing counterfeit drug incidents and associated recalls have called into question the reliability of the drug distribution systems. For physicians, this trend poses a particular problem because it coincides with the larger patient safety debate and competes for scarce resources to remedy a problem that many believe is a largely a consequence of the drug distribution industry’s unwillingness to comply with existing laws.

A counterfeit drug is one that may be misbranded, diluted, contaminated, adulterated or expired. Other counterfeit drugs may be generic copies of brand name drugs that the Food and Drug Administration (FDA) has not approved for use in the United States. Many observers believe that the counterfeit drug threat is most problematic simply because: (1) traditional drug distribution channels have no ability to identify counterfeits; and (2) non-traditional drug distribution systems (e.g., the Internet and the mails) are a growing presence of un-quantifiable dimensions. One recent estimate stated that the Miami Florida international post office receives about seven million packages a year that contain drugs from abroad, most of them illegal.

Within the past two years, the FDA has issued multiple recalls and safety alerts for such well known brand name drugs as Lipitor (cholesterol), Procrit (cancer anemia), Epogen (AIDS/cancer), and Serostim (growth hormone). In 1998, the FDA had four open criminal investigations. In 2003, that number increased five-fold to 22.

In 2003, a Florida Grand Jury that investigated counterfeit drugs stated that an alarming percentage of the drugs flowing through the wholesale market have been illegally acquired. Fifty-five drug wholesalers in Florida alone are under investigation for counterfeit drug activities. Nineteen have been indicted.

While some of the most troublesome cases involving counterfeit drugs have flowed through the traditional drug distribution channels, there can be no question that the Internet, globalization of drug manufacturing techniques and direct to consumer product delivery via the mails and similar carriers have converged to form an explosive new distribution channel for counterfeit drugs.

Ninety percent of all prescription drug wholesale distribution is conducted by three companies: AmeriSource-Bergen, McKesson, and Cardinal Health. These three companies make up what is often referred to as the “primary” drug distribution system. On a second tier below the big three, there are between 12 and 15 larger regional wholesale drug distributors and an estimated 6,500 smaller drug wholesalers. The secondary market maintains that its value lays in the niche market its serves consisting of smaller users such as dispensing physicians and small pharmacies, dispensers in rural areas, and buyers of specialty drugs that require special handling.

Taken as a whole, the prescription drug distribution system is vulnerable to counterfeit drugs because of easy money, weak regulation and the dynamic created by the Internet and globalization of drug manufacturing know-how.

Counterfeiting drugs can be incredibly profitable and the risk of detection can be minimal. The Florida Grand Jury Report stated that a box of 2000 unit strength Epogen that sold for $258 a box could be relabeled at 40,000 unit strength and sold for $4,570 a box. One sale of 11,000 boxes of counterfeit Epogen and Procrit is reported to have cleared a profit of $28,000,000.

Florida has at least 400 licensed drug distributors and nine part time inspectors to monitor them, among many other duties. Most states do not run criminal background checks on applicants that apply for a wholesale drug distribution license. In Pennsylvania, the distributor’s licensing law is administered by the Department of Health which has never even adopted regulations for licensing.

As drug manufacturers have moved their production plants worldwide, some countries like Pakistan, India, Thailand and Mexico have become havens for the production of un-approved, knock-off drugs. The Internet business model of distribution (i.e., web site ordering, credit card payment and mail delivery) brings many counterfeit drugs to the average American’s doorstep within days of the purchase transaction.

Distribution of prescription drugs is regulated by a body of inter-related federal and state laws establishing a regulatory patchwork for the drug distribution industry. The Prescription Drug Marketing Act of 1987 (PDMA) is the primary federal law intended to control counterfeit drugs.

The effectiveness of the PDMA turns on a few crucial provisions that provide the tools by which the federal government controls counterfeit drugs. The first is a general obligation for drug distributors to maintain and furnish what the drug distribution industry calls “pedigree papers,” and the second is a provision that creates an exception to the pedigree papers requirement for “authorized distributors of record.”

Simply put, under the PDMA, each person who is engaged in the wholesale distribution of drugs and who is not an authorized distributor of record of such drugs shall provide each wholesale distributor of such drugs with a “pedigree paper,” a statement identifying each sale of the drug (including the date of the sale), before the sale to such wholesale distributor.

The PDMA exempts from this tracking and record-keeping requirement any “authorized distributors of record,” a term that means those distributors with whom a manufacturer has established an “ongoing relationship” to distribute such manufacturer’s products.

From 1988 to the present, the FDA has been unable or unwilling to finalize regulations that clarify these critical elements underlying the security and integrity of the wholesale drug supply. The FDA issued proposed rules on wholesale drug distribution in 1994 and it adopted final regulations in December, 1999. However, the wholesale drug industry has objected vigorously to the final regulations and it has succeeded in obtaining a stay on those regulations that remains in effect through 2007.

The critical points of contention are as follows. The industry objects to the FDA regulatory requirement that an “on-going relationship” must be evidenced by a written agreement between a drug manufacturer and a wholesale distributor. The industry argues that this empowers drug manufacturers to determine who is, and who is not, an authorized representative – and therefore who must provide pedigree papers.

With respect to pedigree papers, the distribution industry has argued for years that pedigree papers are unduly burdensome and that unauthorized distributors should not be required to maintain pedigree papers, especially because many believe that the pedigree papers can be themselves counterfeited.

Prior to 2003, the drug distribution industry argued that the drug supply was very safe, that the PDMA’s requirement was overkill and that issue of fake drugs was largely a fake issue. During 2003, the paradigm of this debated shifted. The shift began with the Procrit and Lipitor recalls that showed both the vulnerability of the drug supply and the cloud that a counterfeit recall could cast upon a legitimate brand drug. The Florida Grand Jury Report suggested a level of complacency in a drug distribution industry that couldn’t bother to follow the law, stating that: “It appears that no one in the industry cares enough to call and verify (pedigree papers) for fear of losing a purchasing opportunity.”

In July 2003, the FDA hastily assembled a Task Force on Counterfeit Drugs that issued an Interim Report on October 2, 2003. On February 18, 2004, the FDA issued “Combating Counterfeit Drugs: A Report of the Food and Drug Administration.” Consistent with the FDA’s interim report, its final counterfeiting report describes a strategy to combat counterfeiting that relies upon public and private initiatives and new technology. The FDA concluded that a combination of innovative “track and trace” technologies and authentication technologies can vastly enhance the security of the drug supply. The target date for implementation of these technologies is 2007. To focus resources on these solutions, the FDA proposed to continue to stay its rules on what it describes as more costly and less effective paper based pedigree papers.

Whether the FDA’s proposals will stem the rising tide of drug counterfeiting remains to be seen. The FDA has not proposed anything that directly or immediately impacts upon root causes and methods of drug counterfeiting. Conversely, private sector stake-holders, including manufacturers, distributors and some state regulators, are moving ahead with anti-counterfeiting measures. By any measure, the perception of the nation’s drug supply as safe and reliable remains forever altered.

Edward F. Shay, Esq., is a partner in the national health law practice of Post & Schell, P.C. in Philadelphia, Pa.

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