80% an drug ingredients and 40% of finished drugs are made abroad. this hearing is two hours. >> senate committee on health education labor and peng pensions will come to order we have convened this hearing to examine the safety and integrity of our pharmaceutical supply chain. few issues are more important to the health and safety of americans than the integrity of our drug supply. in today's increasingly global economy most of the key ingredients used in the the drugs prescribed by american doctors and consumed by american families are produced overseas. according to a gao study about 80% of the active ingredients found in u.s. pharmaceutical products come from abroad and about 40% of the finished drugs come from abroad. this trend is projected to

continue and increase with more and more of our medicine cabinets stocked from products from india and china who have less robust regulatory systems than our own. our challenge is to embrace the changing global economy while making sure we protect the american patients. the profound interest at stake are highlighted for us by tragic examples of american patients who have taken adult rated drug product such as 150 u.s. patients who died in 2007 after taking the contaminated heparin. weaknesses in our pharmaceutical supply chain not only affect the health ever american patients but also the health of american businesses. by holding foreign actors to the same standards as those in the u.s. we gafrn tee a level playing field. u.s. companies that source and manufacture drug in this country should not be placed in a competitive disadvantage by foreign firms that operate with less oversight and sell

substandard ingredients into this country at reduced prices. when fda's authorities are first designed and enacted, our production methods were based here at home. fda's primary authorities to ensure the quality of our drug chess was strict oversight of domestic manufacturers coupled with the ability to have illegal drugs at the border were well-suited to the manufacturing practices of that time in the late 1930s. but again, that was nearly a hundred years ago. we don't live in the same world as we did then, and our drug safety controls have failed to keep up with the changes in our economy and our society. . dfda and customs tried to keep pace with the increasingly global nature of our supply chain. but fda does not have the authority and flexibility it needs to make sure that foreign facilities adhere to the same quality standards as u.s. facilities. some domestic companies tried to

fill that gap by adopting robust quality control practices that include inspecting overseas suppliers. some have done it. others have done. so the result is a supply chain ripe with gaps. last year, this committee took an important bipartisan step to modernize our food safety system. giving fda the tools necessary to hold foreign food importers and producers to the same safety standards as those in the u.s. now we have to bring our drug supply system also into the 21st century. this morning we will explore systemic concerns with the drugs and drug ingredients from the united states and abroad. we will learn about the new challenges at both the fda and american pharmaceutical companies face in navigating the globe at economy. as we begin the critical discussion on how to modernize our drug supply system, we will hear from several expert witnesses who approach this important issue from a variety of perspectives.

i thank all of you for being here. look forward to your testimonies. look forward to continues bipartisan cooperation with my colleague who worked closely with me on scheduling in hearing and who, himself, devoted considerable energy to this issue. i recognize senator. >> thank you mr. chairman. in 2007 and 2008, dozens of patients died after receiving heparin, a widely used blood thinner that had been contaminated during manufacture in china. the number of products made outside of the united states doubled from 2001 to 2008. this trend will accelerate creating potential risks to patients for substandard and otherwised adult rated drugs. today we will look at the increasingly global supply chains and how places like the fda have been monitoring for

consumers. the recommendation is that agency make speck policy changes to address these problems. unfortunately fda has failed to adequately respond to these recommendations. some of these gao recommendations have been outstanding since the late 1990s. fda has still not implemented them. in part, due to these failures own the corresponding risk, goa is placed on the watch list of programs. goa has not called for sweeping legislation it solve these problems. instead, gao calls for fda to administer its programs and manage its responsibilities more effectively. following the health committee's july hearing with commissioner hemburg i asked fda a question for the record considering the progress is t made on the gao's recommendations. i still have not received a reply. we want to make sure the fda has what it neds to make sure drugs

are safe and eeffective. to do that we need the facts. having said that, i understand that legislation to improve supply chain integrity is a top priority for chairman harkin and commissioner hemburg. i look forward to working with them. let me suggest four principles it guide our work together. our first principle should be that we are a specific as possible in identifying the problem we are trying to sox. one good example of the specific problem is undercurrent law, fda must inspect domestic drug establishments every two years. but the law is silent about how off then fda must inspect foreign drug establishments. this means risky foreign establishments can avoid fda inspections and american companies bear more regulatory burden. the ceo of mylan championed a change in law it level the playing field. i agree fda should not able to target inspections globery based

on risk. second principle, before making new law we should ask if da is using its existing authority effectively. for instance, fda promulgates good manufacturing, to tell companies how to manufacture drugs. despite the obvious risks of globalization, they have not updated gmp's on point. the ingredient guide was last published in 1998 and the quality systems approach guidance was last published in 2006. fda published a gmp question answers answer guidance earlier this year but it does not address the globalization challenges we are discussing today. we need to know why they haven't updated the know your suppliers gmp. we need solutions to actually solve the problem. some ideas that sound good in speeches are politically dramatic and make us feel like we were, quote, doing something.

but they won't necessarily make a dent in the real world problem. some advocate recall for drugs. we can discuss that but i'm skeptical it will make a real difference. fda has mandatory recall authority for medical device answers several other types of product. accord to gao and institute of medicine, fda only used mandatory recall authority for devices three times. examining the data, geao found found the average time it took the fda to effectuate a class 1 medical delaware recall was 516 days. also these recalls were not always effective. there were situations where devices that should have been recalled were implanted in patients, causing several deaths and serious injuries and remember this is when the fda already had mandatory recall authority. fourth principle, as we legislate, we should not

overreach. for example, some stake holders advocate for complete pedigree or system for the distru bugs of drugs. a 2008 study pegd the cost after full track and trade system at up to $110,000 for an individual pharmacy. small independent pharmacists in wyoming are already under intense pressure from cuts in medicare part d and medicaid reimbursement. they can't afford the additional cost. more counterfeit and substandard drugs reach consumers through interneat sales, not retail pharmacies. track and trace could impose tremendous cost on pharmacies but produce only marginal effect. again i look forward to working with chairman harkin on all these issues. i have been a strong support ef of giving fda the tools it needs. for example accept tore kennedy and i sponsored a bill in 2007. the "new england journal of medicine" said it was the most significant bill in a half

century. i also helped with the fda food safety and tobacco authorities. right now my concern is fda overregulating, not underregulating. in closing i want to acknowledge that fda's witness today, loin recently assuming her new position as deputy commissioner. she inherited many challenges. deputy commissioner you deskrerve credit for taking on a tough job and i look forward to your testimony. >> thank you very much, senator enzi. we have basically two panels. our first panel will be deborah otter. ms. ought sert deputy commissioner for global regulatory operations and policy at the fda. in this capacity she leaves the fda in ensuring our pharmaceutical supply chain and is in charge of inspection and enforcement policy for all fda products p.m. also working to supplier the supply chain and for the officer of compliance at fda center for drugs.

so welcome to the committee. thank you for joining us ms. autor. your statement will be made a part of the record in its entirety. if could you sum it up in five to seven minutes it would be appreciated so we can proceed. >> thank you. good afternoon members of committee. i'm deborah autor, global operations of policy. thank you for the opportunity to testify before you today for drug safety and globalization. globalization has fundamentally altered drug manufacturing and supply. greatly increasing risk to american consumers and demands a major change in the way fda fulfills its mission to promote and protect the health of the american people. based on almost 20 years of professional experience, i have witnessed the expanding gap between the globalization of pharmaceutical manufacturing and fda antiquated domestic focused statute.

this gap presents and immediate and ever growing risk to the safety of the american drug supply. it provides an opportunity for criminals to introduce dangerous adult rated and stolen product into the supply chain. a great risk to patients and great cost to pharmaceutical companies. the facts show that the threats to our supply chain are real. recent incidents of counterfeiting and theft have posed serious threats to public health. consequences throughout the world have been tragic. in recent years, glycerine and fever medicine, coughing and teething product have a highly toxic in adults and charn in haiti, panama, and nigeria. we are well aware of the 2008 heparin crisis.

heparin is used in every hospital in the country. but a cheap imposter was replaced by with the real drug. similar it contaminated drugs, counterfeit drugs present real risks. a counterfeit drug could be made up of a substance toxic to patients or have little or no active ingredient. harming patient who take it thinking they are taking a live saving or life sustaining medication. in 2003, over $20 million in counterfeit and illegally imported libber to, popular cholesterol lowering drug was dispensed to patients at pharmacies throughout the u.s. even more frightening the criminals mixed criminal lipitor with real lipitor, presumely to stop detection. we believe patient harm was minimal. eventually, we will not be so lucky. just last year a counterfeit

version of the overthe counter drug alli was sold to consumers. it contained high levels after dangerous controlled substance placing customers at injury. in 2009 alone, at least 46 drug cargo thefts occurred. valued a at a total of $184 million. a great expense to pharmaceutical companies 37 in march of 2010, thieves broke into a warehouse and stole $75 million worth of prescription drug products including cheek no therapy drugs, anti-depressents and blood thinners. these products have not yet been recovered. we fear they could be distributed to u.s. consumers in spite of public warnings. in 2009 within stolen insulin viles were reintroduced into the drug supply and caused adverse effect into patients. they required refrigeration. lost its potency and did not

provide for diabetics. these are just some examples that illustrate the enormous challenge that globalization presents to fda pharmaceutical manufacturers and the american public. the drug supply chain is a complex path that medical products travel from raw resource materials for consumers at every stage of this process, opportunities arise for the product to be contaminated bb diversed, counterfeited or otherwise adult rated. the internet present an additional lair of complexity by introducing more players into the system and for criminals to harm patients. the role in addressing these is critical. fda has has taken a wide range of activities. they are providing training around the world and crucial regulatory discipline answers to design innovative risk solutions. the fda took aggressive action

in the wake of the heparin crisis to address the vulnerabilities including inspecting damage for drugs. we acknowledge there is room for improvement and we are doing all we can to address gao's recommendations. in june, fda published a special report, pathway to global product saefrty and quality, which lace out our action plan. the agency is developing a new model. it has improved information sharing an gathering. data griffen and small allocation of resources leveraging combined efforts of government industry and public and private sector third parties. toward this goal there was a director at focusing on the challenges and pointed me to head that directory. congress can help pl congress has the ability to align the statutory framework with a shift of the global paradigm.

when president roosevelt established a modern fda in 1938 the products import need the united states was minimal. today the landscape is reversed. nearly 40% drugs american take are imported. for more than 150 countries, many with less sophisticated manufacturing systems than our own. only about one-third of the drug manufacturing facilities that fda wants to inspect are in this country. the rest are spread around the globe. pch new statutory authorities which i detail more fully in my written testimony can help level the playing field between domestic manufacturers and foreign counter parts, increased drug safety and provide the fda with the information it needs to most effectively and officially oversee the global supply chain. i appreciate your interest in this critical issue. i apologize for running over. i look forward to working with you to address challenges we face and protecting our nation's health in this globalized world.

>> thank you very much, ms. autor. we will start rounds of five minute questions. for testimony, ms. autor, it sounds like the one significant gap is the fda's limited ability to inspect foreign producers. can what can be done to inspect these facilities more frequently given wur limited resources? now one of the things you mention in your written testimony, that i think you are asking congress for, is the authority for the refusal of product admission into the united states if inspection of the manufacturing facility is delayed, limited or denied. is that one of the critical aspects of this? let's be honest about this. i believe fda needs more personnel. i fda needs more money. but in the climate around here i

doubt that will happen. on the one hand we want more safety. we want to level the playing field. so you have offices right now, fda has offices in china and india and places like that. i don't know how well they are staffed. i know the offices are there. but speak to this, about inspections being delayed, about inspections, what good is it it if you have to announce it two, three weeks in advance. and the ability of your office is overseas to conduct on-site inspection unannounced. is that the kind of authority you need from congress? >> senator harkin, you mention one authority in particular which would be very useful which ch is the ability of the fda to refuse import of product of foreign facilities that refuse to let fda in to inspect.

it seems common sensical that if a company is not a good enough players to actually let the age sin in to see how it is operating, those are not the products we want to come to the american consumers. but at the moment the law is not clear on our authority to do that. that very important. with the respect to reach facilities over seas more, that is obviously very important and we recognize you know, in this economy, our resources are going to continue to be an issue. our office overseas are helpful. we have at this point 13 posts around the world and they do some inspections. they do also a lot of work to collaborate and work with our foreign counter parts. that is part of the answer. and they are, more likely than our u.s. inspectors to make an unannounced inspection. in foreign countries, in particular in china, there is a rule we need to have a letter of invitation from the company before we can come in and inspect. before we can enter the country to inspect. it is very difficult to do an

unannounced inspection. what that means is that playing field is not level between the foreign manufacturers and domestic manufacturers. with domestic manufacturers we can show up at their door any day. they will usually let us in. if we don't, we can get a warrant and get under. on the foreign side, it is very hard it get there. when we get there, they may or may not let us in. if they do not let us in, we do not have authority to prevent their drugs from coming to u.s. consumers. >> taking china's example then, you have to have a letter of ip i have tags from company in order to inspect, is that right? >> in order to get the visa to come to china, i expect. >> have you an office in china? >> we do and they do some inspection. they do some. >> do they have to have a letter of invitation. >> they do not. but it is not realistic to think that they will not have enough spread around the globe to see the facility when we went to. we need to think creatively about how to assess the foreign --

>> so it is very clear that in china be we have to to do the finished drugs. it can thwart inspections. deny inspections and shift their product to united states. >> they can and the interesting thing about our law is that it puts the burden on fda to keep product out of the country. so if manufacture offers something for import, we have to show that something appears to be wrong with it in order to keep it out of this country. now every other grown up country that we know of, the regulator has the authority to say, if you want your product to come in, you must show us your prod subject good. for us, we must show it is bad. when you think about that in the context after gleeb allized world, when there are so many manufacturers we do not see, it is an reasonable burden. we think manufacturers should be required to show minimal stands are a, that their prod subject approved, in order to be able to access u.s. markets. that will also level the playing field between the manufacturers who want to do it right and manufacturers who don't.

>> i have one follow-up question. my time is expired. so i will recognize senator enzi. >> thank you, mr. claireman. the fda hasn't responded to my sole question for the record with our hearing with the commissioner. i asked for the status on the implementation that the goa supplied reng men dagss. i'll have several questions today that i'm sure i won't have time to ask. will you commit to work with a committee in ra more timely and responsive manner? >> absolutely and tore enzi. i understand you have questions for the record, pending the goa recommendations. they came in in august and we are working hard to respond to them. wasn't it make sure we get the technical fact right before we send them to you. we believe when we respond you will see we have continued to

make serious challenge with congress and what gao pointed out. >> fda promulgates current good manufacturing practices or gmps to tell them how to manufacture drugs. given the risk of globalization, why hasn't the fda updated your know your suppliers nnps? >> there are some updates undercurrent law. we will try to do so if congress does not update the law. but updating the requirements through regulation is a lengthy uncertain expensive process for the taxpayers. potentially litigious with an unclear outcome. so the gao i think said that it is urgent for these issues to be resolved. i this i if congress believes the issues are also urgent then congress can help to resolve them quickly through legislation.

>> even if we do legislation, won't you have to go through the regulatory pros swes it? >> depends on what legislation says. there are some things you might be able to do immediately through legislation, which would change the paradigm to bring manufacturers up to a higher level and level the playing field between the good and bad players between the domestic and international ones. there is some that you have to do regulations afterwards but to get it up to a modern globalized world, i think that is something congress can do quickly. >> since we should be working on that quickly, i hope you get the specific things to us so that we can do that and you know, perhaps avoid the regulation route thp although i think there is a big hesitancy to do anything too specific by a group of people that don't washing on it on a daily basis. gao found that 83 poers of the time. fda doesn't target on the basis of risk. fda's pathway to product safety

and quality reporter earlier this year said the agency is building intelligent surveillance and risk assessment to grooms to fix this problem. to what extent have you implited these programs. >> the pathway to global product safety and quality report was issued in june and part of implementing that report is my new position, new director. i assume my job july 31. i haven't had a tremendous amount of time tos staeb lish systems yet but we are thinking hard about how to do that. the pathway talks about advanced risk analytics as well as global coalitions of regulators an reliance on public and private third parties. we believe this is the way for fda to do best it can. we have history in collaborating with foreign regulators. for example on drug inspections with europe and active pharmaceutical ingredients. so they are steps we have taken in the past which lead us to this path and we are serious about implementing it right now

and i'm doing my best to get it started. and i have done so the past six weeks. >> i appreciate your efforts on that. gao says the fda doesn't have adequate systems to protect the risk. they started migrating out after paper based system into an electronics system. according to the gao, fda says it can't tell whether the system change helped solve the problem or played it worse. what is the status of that system, migration? >> we have implemented an electronic registration enlisting system. i think it is very helpful. eliminated possibility of human error when we literally had people typing in what they received on forms in the mail. so that's a major improvement, bringing news the century i believe. and it helped with consistency in our records because we don't have that error. we have things which i think would help. for example, work on a unique

facility identifier. one thing that you know, could you think about, legislatively, is requiring facilities to have a unique eye identifier such as the dunns number. having a unique facility identifier for drug manufacturers, is greatly helps fda's ability 20 have a clear inventory. we don't have the possibility of typographical errors. we have the data base of millions of corporate enits to verify information. we can use the same consistent numbering system and compare reports. there is a great deal with we have done in implementing. we can improve that especially with help for congress. >> raisees a few more questions but my time has expired. thank you mr. claireman. >> thank you. >> we are trying to get the heat down in this room. we have made two or three calls. can we get some doors open back

there? we've got to get some air. see if they stay open. if not, maybe can i get staff it open the doors. get some air moving in here. it's very hot in here. okay, thank you very much. now senator bennett and ens tone are roberts and he is not for franken. >> thank you. i want to thank you first for taking your jacket off and allowing us to do the same. i also want to thank you and the ranking member. as i travel around the state, i hear a lot about regular lugs. people are asking all the time about regular lugs. sometime people say, we should get rid of all of it. and other times people have a different view. if there was ever a case that screamed out to get a buy part partisan race, it is this case.

because there are twin objectives i think we need to aaccomplish as we go forward here. one is to recognize that 80% as you said of our active ingredients are now produced overseas. and are largely unregulated. we don't know what is going on there. which is a shock to coloradoans when they hear that. just like it is a shock when they hear the gps in their car is more advanced than the airplanes because of our i inability deal with the beale. there is a creative science ind us it try here in the united states. one we can rely on to create jobs in places like colorado, and i freesh very much that the commissioner came out it colorado so t.o. have a conversation with our bioscience community and to work clab rattly with them. i'm interesting to hear a little bit generally about how you see the globalization of our drug

supply fitting into the overall effort to remove regulatory barriers and inspire innovation right here in the united states. >> sure. thank you senator bennett. i would say that right now the incentives are not there for innovation quality. and what we hope the congress will look at is quality management systems which will improve innovation quality, foster innovation quality and right now, because the playing field is level it does not reward companies who want it do it right. who want it find innovative ways to do it right. i should point out that doing it right does not cost more. we have one company for example who committed to their quality size of house it make sure the manufacturer is right and they spend a hundred million dollars less than they inspended to spend on quality. conversely, companies that don't it right can lose a lot of

money. baxtr lost $4 million in sales an millions in market capitalization. we had recalled of ejectable products because there was glass sheering off inside the viles. there were glass in the viles, which can't be injected into the patients. industry spent probably $250 knoll wro million. that is money sme are spending on cleaning up the product. so we think putting in a modern system can help in modernization and competitiveness. >> one of the things i hear all the time from folks in our state in this field is that, is that other countries also are having to grapple with this kwith this as well as are trying to be more responsive than they have historically been. i wonder if you can talk about

something else in your testimony which is the horm niezing of the national regime. are there ways to rely on others o to help us do on this work. how do we make sure we've got a global regulatory system that can actually manage this problem? >> yes. by all means. the pathway to global safety and quality report makes crystal clear fda recommendation we can't do it alone and we need to work together with counter parts. we need to form global coalitions and regulators. that means harmon ooirzing standards and to rely on each other. this has great industry with fewer inspections, streamline roirms and if we are able to reach more companies around the world, if affectively minimizes what we have which is noncompliance. companies who choose to skirt the law can do some beyond regulators reach and thereby

make more money by doing it poorly. working together with counter parts. harm onizing and collaborating is a way we can level that playing field and improve quality over all. >> i think that is one of the reasons why the good actors in this world, want this statute updated and want there regime updated because if there is a bad actor it hurts everybody in the entire industry and our patients as well pz sni. >> thank you for your testimony. thank you mr. bennett. >> i want to recognize that mr. bennett introduced legislation on this last year. ways reading it over in preparing no their hearing today. and i think you made one remark on making the bill, we have plor information on a bar code from ra gallon of milk than anything from the drugs we get. that really capsulized it. senator rob sflerts roberts?

>> thank you, mr. chairman. i have comments of my colleague and friend, of colorado. i'm still some what confused, which is a state that i walk around in a lot. and i don't know exactly what you want in terms of of new authority. could you clarify that for me? does the fda need new authority to inspect foreign facilities or are you asking for more funds or both? i mean there is a difference between a need and a want and in the climate we're in, it's extremely difficult in regards to funding. but authority may be the answer and senator enzi really posed that question. so my question is just to repeat

of his. >> sure. just to clarify, we are not talking about new authority to allow us to inspect foreign facility per se. we are talking about new authorities in light of the fact that our pharmaceutical supply chain has globalized. so for example, as i said, right now, if a foreign facility refuses to let us inspect then we need to let their product in. globalization has grately increased -- or may need to. the law is unclear whether we can keep their product out simply because they refuse inspection. it greatly increases clainincres the challenge. >> yes ma'am, i understand that. but do you want authority or not? >> yes. >> you do want authority? >> yes, sir. >> you will respond to senator enzi and the chairman's specific questions. okay we got that down. thank you. i didn't mean it interrupt you. i apologize.

can you provide the committee with a complete list of all of the foreign drug establishments involved in the u.s. drug supply chain? is that possible? >> if you want the long list, we could try to do that. i think that we do have list of the facilities who offer products for import into the u.s. >> yes. >> and registered with us, which is requirement. >> i that i would help, if understanding the breath of the current problem. there is a serious situation. last year's stolen insulin managed it make its way on the pharmacy shelves. and reach patients. as you know, this is a heat censored product that will not work in improperly stored. i don't know how this deception was possible. there is no comprehensive national system apparently to track and authenticate packages of drugs as they travel from the manufacturer to the wholesaler to the pharmacy. what steps account fda take to help the transparency of the

drug distribution, and do you need any authority or additional mandate to do that? >> yes, sir. as you pointed out, products are able to infiltrate the legitimate supply chain including the stolen insulin. what we could wo immediate to rectify that is a requirement for track and trace system. a system which allowed us to know or allowed manufacturers and pharmacies to know who had touched a drug between the time it was manufactured and the time it reached the pharmacy. rit now, under the law, we are required to come up with a national standard but the law does not say that standard is enforceable or a violation of the law not to comply with the standard or that law will preempt requirements of the states. the risk is right now, in fact, what what will happen is 50 states will put in separate requirements for patch work that is for industry.

>> that would be a hodgepodge for sure. in fact, if you had the authority and you had the funds to do it. where are you with that? >> we are working on a track and trade standard. we don't have the ability it make it enforceable. >> okay. i will touch on what the senator from colorado said. like the chairman and like senator enzi. everywhere i go, people say, what on earth are you doing passing regulations that are crazy and are about to put me out of business. what are you guys doing? i always reply, saying, i'm an us guy be not a you guy. i try to trace the regulation back, it doesn't make sense, when it finally reaches down stream. we are talking about up stream, now this is down stream. it is in every con conceivable

busy he is not shl to the committee. let's talk about the pharmacist. the pharmacist today, in my state, do not serve medicare patients. because of all of the regulations with ppec and new healthcare law and also competitive bidding. and they can't sell medical equipment and can't do this or that. and some of them are going out of business. because of the regulatory overkill. i want to know about the potential cost to the individual pharmacist especially in rural and small town america, if we implement a full track and trades program. somebody's got it pay for this. and the consumer usually does. until it gets to the consumer it goes to the pharmacist. so i'm worried about small town pharmacy. >> you won't have a problem withfully kind of drug if you don't have a pharmacist to distribute it in a local town because they won't get any. >> yes. sir, we fully understand that

and we understand the pharmacies with the impact of the track and trace system. we are trying to come up with the best system we can and balance economic needs and maintain economically viable. we are collecting comments and trying to come up with the best model that allows us to have the maximum impact with minimum burden. i would point out in 2009 we had drug cargo theft. that is an economic left to the pharmaceutical community which gets passed ton consumers and pharmacies. we need to come up with a system that works best in balancing all of the systems. >> you have a yardstick in your closet? >> i appreciate it. >> thank you. i'm overtime as chairman. thank you. >> thank you. >> senator franken? >> thank you mr. chairman and thank you and ranking member for

this very important hearing. let me ask about the heparin. that came from china and baxtr was the distributed it here in this country? is that right? >> virtually all heparin in this country comes from china. it takes one pig to make one vile of heparin. there are a lot of pigs in china. so most of the heparin comes interest china. in that case we traced the contaminated heparin back it china. then it was distributed through baxtr and other countries in the u.s. >> can you comment on whether fda has cred requiring manufactures, as the fda, to hold sub is suppliers and other further down the chain accountable -- chain accountable. i think that would put the cost,

instead of on the fda, it would at least put the responsibility on the baxtrs of this world to say, look, i got to check the drugs i'm distributing. >> yes. by all means. in fact we when we have talked about quality systems, as something congress might want to look at, one of the things we talked about is that manufacturers should have adequate control over suppliers and supply chain. right now, a lot of good companies do that. but the problem is that there are companies that do not. and what we need to do is raise the floor so we have consistent quality throughout. by all means, the idea is that manufacturers are best placed to ensure the quality of their products. they know the risk associated with their product. they can make sure they audited their suppliers. i don't think it is something the agency could realistically do. it is something for manufacturers to do. but it needs to be clear in the law they need to do that.

>> okay. can the fda inform the public of which companies are doing it and which ones aren't? >> one thing that the fda does now that we didn't use to is post outcomes for manufacturers. we think that is one thing that helps to bring a little bit of transparency to who is doing it right and who isn't. we, i think that's the most helpful kind of thing we can do. but again, to have a system which in light of globalization requires all manufacturers to do right in the first place is helpful. consumers off then don't get a choice about what drug they take. they go to the pharmacy and they are given what they get. the importance is to make sure when the drugs get there they are of adequate quality for consumers. >> but the pharmacist could -- would be the one i i would think would be looking at what manufacturers are doing, inspection of the subcontractors, then the pharmacist would be more inclined to take the product of

the companies that are acting in good faith. >> perhaps if they had that flexibility they would do that. but more importantly is to make sure the manufacturers do it right in the first place. >> how do you do that? >> i think to make sure to put in place a statutory scheme which levels the playing field between good guys an bad guys. puts requirements in place to do that. also, other things to think about are things to enhance product safety 37. like a mandatory recall system. like increased criminal pen al lits relating to adultrating drugs and increasing information. so the fda's role is to look across the industry to eemerging risks. right now if a company has a counterfeit incident or cargo theft or contamination, in most cases they are not required to tell us. we may not be able to immediately jump in on that issue to protect the public health and investigate but if is t something other parts of industry don't know about, he

can cannot tell them if they are not alert. we have said to other companies to be have told our companies y need to be on the lookout. but we can't consistently play that role. >> let me ask about your ability to inspect foreign subcontractors. is there anything in our trade laws or our trade policies where we can enforce that? in other words, if you're going to be selling -- if you're going to be telling your drugs and your ingredients of drugs here in the united states. we insist that we be able to inspect your factories, can that be part of our trade policy and

the world trade organization's policies? >> as far as i know, that's not something that's likely to happen. i'm not a trade expert, but the challenge i think is imposing barriers -- imposing barriers to trade is very difficult through those kinds of organizations. but what we're talking about differently is the ability to under the federal food drug and cosmetic act say if you have refused, delayed or denied inspection, then your product won't come in. that is an authority that congress put in place recently for food safety. so it's something that can easily been done through us. you need to show something is good about your product if you want to come into the u.s., rather than making fda show there's something bad about it, is a way to change the par dime to keep up with globalization in a way that's imperative. >> thank you. thank you mr. chairman. >> thanks, senator.

senator mikulski. >> i have several hats at this hearing, one, of course, is the senator from maryland, in which fda is head quartered. we're so proud of the work you do under the difficult circumstances, funding and contradictory requirements that you're given. but i'm also here as a member of the intelligence committee. and i'm also here as the appropriator for the commerce justice department. i believe that aduller ated drugs coming into this country is criminal. i think it's a form of murder. you cannot rely on blood thinners the way members of my own family have, be a diabetic and rely on prescription drugs and not know that which you are ingesting in your body could be the very thing that killed you rather than the very then that

saves you from a stroke, a heart attack or a diabetic coma. we've got to get real, we've got to get serious, and we have to have a sense of urgency. we throw zillions on dod, protect the homeland. we have to have that same altitude toward those that are aduller ating drugs over there so they don't kill us here. now, your background is terrific. you're a trial lawyer, you work at the justice department. you have incredible background in wagging with federal law enforcement. and my question to you is, where are we going to do the create the sense of alarm, alarm, red ale alert, going to the edge of our chair, because this is a growing problem. this is not exaggerated

hyperbole for cnn for me. this is a compelling need when we look at the number of people who teak prescription drugs and which we are now so vulnerable. which are usual and customary drugs, particularly the issue of blood thinner. i don't know about those chinese pigs, okay? i don't know if they're communist pigs, capitalist pigs? and i don't know if they're clean pigs in order to do this. what i do now, is that right now all over the united states of america, there are over a million people taking some form of blood thinner that depends on heparin and warfaren. are we moving with that sense of urgency, has this been escalated to a homeland security issue? is this the top of anyone's agenda, because this is as important as protecting our

borders as we do from anything else illegal or threatening coming into our country. >> thank you for that question, i share your sense of urgency. i worry about products like this which frankly cross our border every day. this is counterfeit tamiflu and lipitor. they look very, very similar, they come into the country. the risk is not simply ofrom th people who want to make a quick buck. it's for people who are much more ma lev nant. i do what i can to be more creative, to collaborate, there are things which are not currently in the law, requiring manufacturer's to update their test standards to look for vulnerability. >> it's supposed to be criminal

charges. >> exactly. >> we have to do out of the box thinking here. are you for regs or against regs? we're for smart regulation. >> i completely agree. and with respect to another crisis like heparin or something worse, it's not a matter of if, it's a matter of when. >> but is this? let's talk about fda justice and the department of homeland security. do they feel that this has this heightened urgency? and has this been moved up the chain of command while we're looking at the supply chain of drugs and counterfeit drugs? >> that's a very interesting question. i can't speak for them. i'm not sure i could answer that question sitting here today. >> i just wanted our committee to know this. senator white house was on the intel committee, so was senator roberts. we see the growing nexus between organized crime, international

organized crime, and the corruption of public officials overlooking any other kinds of collaborative enforcement. i don't want to do complicated foreign policy here, but i think we need to look at it. i know my time is up, i had a chance to talk with interpol this summer and do extensive investigations into what they see as a growing problem. this is an international problem. whatever we feel about eu, for any of us that value safety and efficacy, this has to be elevated to a national security, homeland security and criminal level. and i look forward to talking with my colleagues so that we approach it that way, so that the american people know that if they take it, it will be okay. >> thank you.

>> senator mikulsky thank you very much. our chairman will be testifying later, and his testimony i read last night said that this he heparin incident, to this day, no one in any country has yet been held accountable. is that a fact? can you verify that or not? i'm just reading from what someone's going to testify here shortly, said that no one has yet been held accountable in any country. >> with respect to heparin we did conduct a criminal investigation in china, but were not able to bring that to fruition at this point with a culpable individual. one thing i will say about represent run, it's a crime of opportunity. we need to work to minimize the opportunities for something like that to happen again. >> thank you very much, senator

white house? >> thank you, chairman. >> you stead about inspecting overseas facilities that manufacture product for american consumers that you -- i think you used the phrase may not be able to prevent the importation of a drug manufactured in a facility that refused inspection. what are the dimensions of that question that you may not be able to? why is that an uncertain proposition? and what are the sort of from a lawyer's point of view, what are the weasel words around that proposition that define a little bit more clearly? >> sure. the way the law works right now, we have to show that the product appears to be aduller ated, misbranded or un approved in order to keep it out of the country. the burden is on us, that is our

standard. the argument we have to make, because they refused inspection or delayed or limited our inspection. that means that their products appear to be aduller ated or unapproved. that's an argument we can make, it's not as clear in the laws, it could be, especially if congress wants to clearly say we recognize that there are a lot of global facilities out there, and we want to level the playing field and make sure we assure the quality of the products being imported. >> it's largely a fact based determination evaluating whether you'll be able to succeed? >> exactly. in every situation, we have to say here are the facts this is is the facility, here's when we tried to contact them, here's what we did, as opposed to saying they didn't let us in. clearly if they didn't let us in, we shouldn't let them in. >> you indicated you thought the smartest and simplest way to go about this would be to allow the american companies to police this themselves with adequate

supply chain assurance policies. you said that most of the bigger companies had adequate good supply chain assurance policies, but there were some players that did not. what is your authority to regulate the supply chain assurance policies as a target that is an effective proxy for the ultimate determination, which is whether or not the drug is safe? can you actually say to american industries, we want to review your supply chain assurance policy, if you don't have one we think is up to snuff, then you're in violation and force behavior that way? do you have that regulatory authority? >> that authority is not as clear as it could be under the law. that is something congress could clarify. at this point we can look to putting out regulations on that, but that's a lengthy uncertain

potential lilily litigous proce. >> can you think of any regulations you have done to oversee an internal process question in the company, would this be venturing into completely new territory? >> we have good manufacturing practice regulations in place which do some of that. those were written in 1978 before the real explosion of global manufacturing. so they don't get to that as clearly as they could. so it's not new territory, but it's something congress could deal with much more seriously. >> senator blumenthal. >> thank you, mr. chairman. and thank you for holding this hearing on this very important

topic. you referred just a few minutes ago to a crime of opportunity with heparin. and i want to talk about what creates opportunities for crime. in fact, exponentially increasing crime in theft or illegal importation. and in my view, one of the main contributors. one of the main circumstances that creates that opportunity is the acute shortages of certain drugs in this country arising from a variety of circumstances and problems, one of them being termination of the legitimate supply. but also others being the gray market. the gray markets that have been documented in this country for certain drugs literally are

threatening our health. gray markets are playing russian roulette with patient lives. and shortages of drugs around the country mean that hospitals are unable to meet the demand for workhorse medicines. and i'm using that phrase because it's been used by hospital administrators, emergency room physicians. workhorse medicines that provide cancer treatment. they're not generics, where the profit motive has dissipated or disappeared. shortages occur or the result of hoarding, and as you aware i'm sure in april 2011. premiere health care alliance asked its pharmacy support team to review the incidents of gray market offers, and they found overall 1,745 examples of gray

market offers recorded in 42 acute care hospitals with an average market of 650%. the impacts are not only on health, they are on safety and on costs. health care delivery is increasingly costly because of the gray markets and shortages that are the result of defects in the current supply chain. so all of that said, i wonder if you could address what steps can be taken and there is a group of senators, myself included, working to combat the acute shortages of certain drugs. what can fda do under its existing authority? >> sure. thank you for the question. that's a lot of different issues in there. let me speak to one thing first, which is what creates the opportunities for things like the heparin crisis. that's really more players

involved in the drug supply chain. greater volume of products imported, greater number of firms involved. greater complexity of the products, further and further. with respect to shortages, that is really a complex economic problem, i believe, primarily. there are fewer manufacturers who have consolidated their drug manufacturing, to fewer facilities, fewer lines, for products for which the economics are not great because they're not very highly priced products any more. they have not fully invested in the quality of those products. the agency takes the problem seriously. we're doing what we can to prevent it. last year, for example, when we were notified of shortages early, we were able to prevent 38 different shortages, we were told earlier we could work with the manufacturer's to see if the products were good enough to go to patients, to work with

creative solutions, for example, if a product had metal shavings in an injectable product. we worked with the company to send a filter. we are working toward having a public meeting with stakeholders to talk about this, but it really is a multifaceted problem that requires a multifaceted solution. and all the stakeholders to step up to the plate. shortages create an incentive and opportunity for people to at best charge an awful lot for these products. at worst, produce counterfeit or contaminated products. one thing that would work is track and trace systems. pharmacies and hospitals would be able to know if this product being offered to them at high prices is a legitimate product because they would know everyone who touched it throughout the supply chain. >> my time has skpeered, i wo .

i would welcome the opportunity to speak with you on this in the future. does the fda need additional authority for track and trace? >> yes, we would need additional authority to make it clear that we can promulgate forceful standards for track and trace. to require manufacturer's to notify us of shortages right now, the authority is limited. if we know about shortages, we can try to prevent them. we can't always do it, but at least knowing about it in the past helps the problem. >> track and trace would not be a solution to shortages? >> it would not. but it would be something to address the public health risks with the shortages. >> thank you. >> thank you very much. we have to move on to our second pan il. panel. i wanted to ask one question. most of the testimony has to do

with prescription drugs. could you speak to the over the counter drug supply, the same problem problems occur there. and speak to the inactive ingredients, going clear back to the 1930s, ethanol glycol was one of those. and the problems that you may see in both areas. >> one way i tend to look at pharmaceuticals is to think about the innovator products, the generic products, the over the counter products and components. all of them present similar but different challenges. the agagenerics industry recogns the challenges with generic drugs. over the counter drugs present a

challenge because most of them are done through a mono graph system. a cookbook system for prices -- they don't require affirmative fda approval. they can come on the market. that means that there's a greater opportunity for firms to introduce products without us knowing. those products could go straight from a facility in china we've never seen to a pharmacy in any state. that is a real challenge. that's why we talk about really needing to understand the global supply chain and really needing to put in particular authorities at the border to say, show us something is right about your products before they come in. as you point out die ethylene glycol has led to many deaths in the recent years. there's a huge number of

occipians out there, used in drugs and foods. that's why we talk about the need for manufacturer's to be responsible for policing their supply chain. it will never be the case that fda can go to all those facilities and assure they're doing everything right. it has to be incumbent on the manufacturer who's suing pharmaceuticals that people rely on to save their lives to go and make sure their components are safetiry. satisfactory. >> thank you very much. we may want to submit some questions in writing to you. thank you very much for your testimony. we'll call our second panel. i'll introduce them as they take

their place at the table. we have dr. marcia cross, director of health care for the gao, government accountability office. she's been at gao since 1983. she comes to us today with significant experience in evaluating public health issues. her work focuses in particular on evaluating product safety, pharmaceutical regulations. next we have mr. ken martello, the assistant general counsel for pharma. and we appreciate you being here. next is mr. gordon johnston, senior adviser for regulatory sciences at the pharmaceutical association. has worked in the pharmaceutical industry for the last 25 years. we thank you for being here. mr. martin van triust.

senior vice president of amgen. is the past chair of rx-360 regarding counterfeits, thefts and aduller ated materials in the pharmaceutical supply chain. we thank you for being here. last is allen kukel. did i pronounce that right? >> alan kockel. he overseas the initiative of the pharmaceutical supply chain safety. in july the pugh released an interesting report that shed light on the weaknesses and gaps in our pharmaceutical supply chain. we thank you for being here. all of your testimony will be made a part of the record in their entirety and i'll go from left to right and ask if you could sum up in 5 to 7 minutes.

appreciate it. we'll start with you, dr. cross. >> thank you, mr. chairman. ranking member enzy and members of the committee. i'm pleased to be here today to discuss oversight of the drug supply chain. gao has issued a number of reports on the challenges we identified in fda's oversite of drugs that are manufactured in other countries for the u.s. market. while fda is making progress, we have concerns about the agency's use of information and the pace at which it is implementing changes. globalization has placed new demands on fda as the pharmaceutical industry has increasingly relied on global supply chains in which each manufacturing step may be outsourced to foreign establishments. in examining these issues, we have particularly focused on the challenges for fda in inspecting these facilities, the limitations on fda's knowledge and information about these facilities and the steps fda is

taking to improve the oversight of the supply chain. inspections of foreign drug manufacturer's are an important element of oversight. as we've heard, fda is far from achieving foreign inspection rates comparable to domestic inspection rates where the agency's required to examine this every few years. in 2008 we recorded it would take fda about 13 years to inspect the foreign establishment that is were then on its inventory. since that time, fda has been increasing the number of foreign inspections it performs reducing the estimated time to about nine years. however, while the agency is trying to catch up, it's facing a continually growing number of foreign facilities. in addition, although fda has been working to develop risk information to help it prioritize its foreign inspections, the risks of the products being manufactured have not been the real drivers of

which facilities are inspected. rather, foreign establishments have generally only been inspected when they have been named on an application for a new drug. conducting inspections abroad also continues to pose unique challenges for the agency. for example, fda cannot require foreign manufacturer's to allow it to affect its facilities. in addition to the challenges of conducting inspections we previously reported that fda lacked complete and accurate information about these facilities. information critical to understanding the supply chain. fda databases contain incorrect information. and the agency still does not have an accurate list of the foreign establishments manufacturing drugs for the u.s. market. this hampers fda's ability to make inspection decisions and adequately oversee shipments

arriving at our ports. the contaminated heparin crisis provides a useful case study of some of the problems the fda is facing. including facilities that had never been inspected, mixups in fda's databases. outdated testing standards. questions about manufacturer's validation of their supply chains. delays in gaining entry because of visa requirements. fda's inability to require cooperation by foreign facilities. difficulties tracing contaminated supplies to end products including medical devices and difficulties recalling products thought to be contaminated. given the difficulties that fda has faced in overseaing the supply chain and recognizing that oversight is lone is not sufficient. fda established new offices overseas and has taken other

positive steps such as sclab rating with and exchanging information with foreign governments. fda should be credited for its recent actions, which represent important initial steps toward addressing these challenges. however, as the agency has acknowledged, there are additional steps that it still needs to take. we have previously made recommendations to address some challenges such as poor information and planning. and the agency has identified additional authorities that could provide it with necessary enforcement tools. in light of the growing dependence upon drugs, manufactured abroad and the potential for harm, fda needs to act quickly to implement changes across a range of activities in order to better assure the safety and availability for drugs for the u.s. market. mr. chairman, ranking member enzy, this concludes my prepared remarks, i'd be happy to answer any questions you or other members of the committee may

have. >> thank you very much dr. crosse. >> thank you very much, mr. chair, ranking members of the committee. my name is kendra martello. our members represent america's leading biopharmaceutical research companies. last year, research investment was greater than $67 billion, a record. our companies invest on average more than a billion dollars over ten to 15 years to research and develop a new medicine. additionally, our companies provide directly and indirectly millions of stable and high paying jobs for american workers, jobs that can help fuel our nation's economic recovery. i'm pleased to offer this testimony today on securing the pharmaceutical supply chain. we appreciate the committee's long standing interest in this issue and want to acknowledge in equipment the knowledge of the chairman and senator bennett to

seeking solutions to these important issues. patient safety is of primary importance. patients trust that the medicines they take meet high standards met from the fda no matter where they're made. and pharma member companies are committed to improving the lives of patients and approving high quality safe effective drug products. second, the u.s. drug approval and overview system is the world standard worldwide. it's this comprehensive system coupled with our distribution system closed by congress in the mid 1980s that helps provide the high level of product quality, safety and integrity that we enjoy today. no one aspect of the system in isolation is responsible for protecting our secure supply chain. in addition to the requirement to obtain approval of a new drug application before a new drug can be sold, manufacturer's must also follow current good

manufacturing practices. these regulations recognize that testing and inspections alone cannot ensure the quality of a product. these nda and gnp requirements apply to all products sold in the u.s. third, supply chain security is a shared responsibility. even with our comprehensive regulatory system, the globalization of pharmaceutical supply chains presents new challenges that require us to be adaptive and flexible. everybody has a role to play. ever manufacturer, whether brand or generic recognizing that 80% of the drugs dispensed in thes are for generic medicines. and every distributor has a role to play in the safety and security of the supply chain. pharma and its member companies are committed to doing our part.

to the extent that an entity that a product or bulk manufacturer circumvents the established requirements, they place patients at risk and disadvantage those who strive to comply. fourth, as we consider challenges presented by globalization, we believe any new authorities must be grounded in sound science and driven by risk. risk based approaches are not new, and widely accepted by both industry and fda. for example, we support giving fda the flexibility to prioritize inspections based on risk. reliance on certain risk factors such as compliance history and time since last inspection will enable the agency to efficiently and effectively target the resources to the benefit of patients. we also encourage giving fda the discretion to rely on satisfactory inspection results from foreign countries with comparable drug regulatory

inspections. this would in no way take the place of fda inspections, rather it would allow the agency the flexibility to leverage the work of other competent authorities and maximize its own resources, all without limiting in anyway its ability to inspect the particular facility. we also believe that those who produce components and products destined for sale in the u.s. should register with the fda. this will help provide transparency to those who supply products sold here and will help fda develop a risk based inspection approach. in conclusion, our comprehensive regulatory and closed distribution system helps provide assurances in the safety, quality, and integrity of the new drug products sold here in the u.s. patients rely on the system to safeguard the medicines they need to improve their health and sustain their lives. the challenges of globalization present new opportunities to discuss how best to strengthen

our existing supply chain. but they also remind us how critically important it is to maintain this existing closed distribution system. pharma member companies are committed to doing our part and to working with the committee, members of congress and other stakeholders on this important issue. thank you. >> thank you very much dr. martello. we'll turn to mr. gordon johnson with the generic pharmaceutical association. welcome. please proceed. >> good morning chairman harkin, ranking member enzy and members of the committee. thank you for asking me to participate in this timely and important hearing. i am gordon johnston senior adviser for regulatory sciences. gpha represents the manufacturer's and distributors of generic pharmaceuticals and active ingredients. generic pharmaceuticals now fill 78% of all prescriptions in the

united states. i served in the u.s. public health service, and in 1987 was assigned to the fda. securing the nation's pharmaceutical supply chain is of vital importance to gpha and our member companies. we have a key interest in a level, competitive and accountable playing field in the supply chain. we commend the committee for your focus on ensuring the safety of america's pharmaceutical supply, brand and generic. gpha is committed to doing everything possible to promote a vigorous and rigorous oversight of the nation's drug supply. as the committee begins to take a closer look at this important issue, it's critical to understand the fundamental underpinnings of the current system and acknowledge the global dynamics of our supply

here in the u.s. first as my colleague -- as pharma mentioned, i certainly want to make it clear that the u.s. drug supply is the safest in the world. however, we recognize that globalization has added new and complex challenges to continue to assure this safety. the pharmaceutical marketplace that the fda overseas in today's global age looks drastically different than it did in 1938 when congress passed the stat e statute, as mentioned previously today, nearly 40% of all prescription drugs are manufactured outside of the country and nearly 80% of the ingredients used in these drugs are manufactured abroad. according to fda estimates, the number of drug products made outside of the u.s. doubled between 2001 and 2008. unfortunately this growth has outpaced the law's reach, as well as the funds needed for fda

to hold all participants to the same high quality standards. the act of 138 requires american drug manufacturer's to undergo surveillance inspections at least every two years to confirm that these facilities are complying with good manufacturing standards, however, the act is not imposed the same by annual inspection requirement on foreign facilities. further, this disparity and degree of oversight experienced by domestic versus foreign facilities, reduces american competitiveness by creating an uneven playing field while creating opportunity for threats to the u.s. drug supply. also delays in foreign inspections slow the approval of products that serve unmet medical needs such as those faces drug shortages. to paraphrase recent statements by hhs secretary kathleen sebelius and fda, that hhs and fda are looking to congress to

modernize its antiquated authority so fda's legal tools can keep pace with globalization. gpha is in agreement with the secretary and fda that it's cen will to modernize the laws governing the u.s. supply chain. the responsibility of ensuring safety is a shared one that rests with all of us in industry and not just fda. as my colleagues noted in their recent report, it's critical manufacturer's continue to go beyond gmp's and assure that the supplier qualification tools are used and using risk based assessment to assure the quality and integrity of suppliers abroad. such practices of which ashould also be supplemented by federal pedigree tracking system with uniform standard as cross all states as opposed to a patchwork

of random state enforced regulations. even with these significant efforts in place, however, the generic industry has realized that more needs to be done, that's why the industry stepped up to the plate and is now finalizing the generic drug user fee program with fda. one of the main goals of this user fee program is to hold all generic players to the same gmp inspection standards and enhancing fda's ability to identify, track and register all contributors involved in the generic drugs in the united states. in conclusion, mr. chairman, gpha stands ready to support congress and fda in strengthening its oversight, updating the law eninvesting resources to ensure the u.s. continues to be a leader in the world when it comes to safety and also maintaining the american industry's competitiveness. i thank you for this time, and would be happy to address any

questions from the committee as we move forward. >> thank you very much, mr. johnst johnston. >> members of the committee, thank you for the opportunity to testify today. my name is martin van tries. i'm the senior vice president at amgen. i'm the founder of rx-360, it's on behalf of rx-360 i testify here today. rx-360 was founded in 2009 in direct response to the adulter ated heparin. our membership has quickly grown to over 65 member companies, including most of the large pharmaceuticals, biotechnology and generic drug manufacturers. this industry is extensively regulated by the fda in a variety of ways, including

through compliance with good manufacturing practices or gmp's, however, economically motivated adulteration do little to prevent unethical players to exploit the supply chain. let me give you a lack of transparency that was able to be exploited outlined in the chart i've submitted to the committee. glycerin, an inactive ingredient used in many pharmaceuticals, panama purchased unadulter ated glycerin used in cough syrup, which led to 67 deaths. as illustrated in box one, the problem began in china at the

glycerin factory which produced a substitute for glycerin, it contained anti-freeze, which is three times cheaper than glycerin. this factory was never inspected by the chinese fbi. and as boxes two, three and five described, the brokers changed the name of the material, the manufacturing site and never performed any tests. this adulter ated glycerin was used to manufacture cough syrup. if the purchaser knew they were really purchasing anti-freeze these fatalities would have been prevented. this is why transparency of the supply chain is so important. rx-360 members recognize we're responsible for our suppliers and must address the challenges associated with the global supply chain. in our short period of existence

we have implemented many solutions, including auditing our suppliers. developing technologies to prevent adulterations. implementing best practices for industry and issuing supply chain security to our members. all of these methods are intended to eliminate security gaps in the supply chain. we intend these activities to be complimentary of the extensive work in this area. as policy makers look at ways to improve the integrity of the supply chain. it's important that any legislative or regulatory proposals are carefully considered, such as adding to the complexity of the supply chaen. creating unintended drug shortages and adding costs to the health care system. as you examine these issues, i

have a few points for consideration. first some issues are related to the fact that suppliers don't disclose the manufacturing site of those ingredients. this was the issue in the glycerin i discussed earlier. we can assure enhanced oversight of our suppliers. there are many foreign suppliers who register with the fda but have no intention of distributing product within the united states. they use this registration to convey some sense of fda approval. and undermining the integrity of the registration system. other points that are worth considering include increased fda inspections, using inve investigators who are specifically trained in fraud detection, allowing use of qualified third party inspectors, and increased criminal penalties for knowingly

engaging in counterfeiting. in conclusion, on behalf of rx-360, i thank the committee for its examination of this issue. i appreciate senator bennett's work in this area and the interest of chairman harkin in finding solutions to these complex issues. rx-360 stands ready to assist the committee on this important wo work. >> thank you. >> thank you, mr. chairman. thank you for the opportunity to testify. my name is allen coukell. we recently released a report called after heparin. our findings are consistent with what you've heard from previous speakers. to ensure safety both the fda

and manufacturers must adjust. the pugh report is based on published studies and documents and dozens of documents with experts including a two-day conference. we outline a series of case studies and illustrate the kind of rare, but potentially very serious risks we face. we identify systemic problems and practical solutions 37 we called the report after heparin because it was a wakeup call for industry and regulators and it show clearly shows many of the failings of our current system. for example, the u.s. manufacturer in that case failed to perform a timely audit of its chinese supplier. the standard test for heparin then in use was outdated and not designed to detect a contaminant. there were significant manufacturing quality issues and even after the fact neither the fda nor the manufacturer was

ever able to gain complete access to that upstream supply chain. unless you think this is ancient history, i'll point out that just last month. the fda issued a warning letter to yet another heparin facility in china for failing to adequately evaluate suppliers or perform testing. others have stressed the need for increased foreign concession. speakers have also mentioned the need for manufacturer's themselves to ensure quality. and that's crucial. one speaker at our conference last year was a china based pharmaceutical auditor whose business involves manufacturing facilities in asia on behalf of u.s. and european companies. i'd like to share a photo he shared with us. this is a facility in china, just from the rusted pipes and broken windows, you know this is

not using good manufacturing practices. of course, there are very good facilities in china, this just wasn't one of them. it is is the start of a supply chain for a western company. sometimes substandard facilities sell to show factories, high quality facilities that sell to products they didn't actually make. american and european companies are misinformed about the identity of all or part of their supply chain more than a third of the time. our report examines a number of other case studies including where manufacturers falsified or concealed records. we note the risks of patients receiving counterfeit or stolen products that penetrate our distribution system. let me reiterate the diethylene glycol poisoning. the substance moved from a broker in china to another broker in china, to a broker in europe. each time the label was replaced

and the history of the product destroyed. indeed it was poisoning with this exact same substance that led the congress to pass the act in 1938. we must make sure the fdca reflects today's reality. the necessary steps are practical, feasible and crucial. many have been included in previous bipartisan legislation before this committee. i mentioned inspections and the need that manufacturer's better assess their suppliers and are accountable for doing so. we also need to ensure that testing standards are updated. and that the fda has the tools it needs. for example, many people are surprised to learn that the fda can't order the recall of a drug product if it's aduller ated. they can do it for medical devices and food, they should have that authority for drugs. if they have it, it's less

likely they'll need to use it. a regulatory scheme will reward the good players and assure the bad actors don't create a race to the bottom. let me say that american supports these changes. pew commissioned a poll last year that found voters are concerned with drugs from developing countries and across the political spectrum they overwhelmingly favor the provisions i outlined. as congress did 70 years ago, we urge you to act to ensure safety. we shouldn't wait for another tragedy. thank you. >> thank you very much mr. coukell. we'll begin a round of five minute questions. dr. crosse. in the past you reported that fda data bases contained incorrect information about foreign drug establishments. what's the reason for this? and is this still the case that they contain incorrect information? >> it is still the case. there are several reasons.

you heard paper based registration system that previously existed. now fda has gone to an electronic system which has reduced certain errors of data entry, they still don't have in place a requirement for any sort of unique identifier for a facility. they asked companies now with this electronic registration that they submit a unique identifier, dunn & brad street number they can enter into the system. they cannot require companies to submit that. while many are complying, perhaps some of the ones you most want to have information about may not be complying with that. nevertheless you continue to have other systems that are populating fda databases with incorrect information. when shipments arrive at the border, the customs and border protection has a data system that does not use a unique identifier, and that sends

incorrect information to fda. >> this is a question for all of you. could -- should we have a requirement that any finished drug, any ingredient that is manufactured in a foreign country that comes to this country have attached to it at all levels -- we know that very seldomly they don't go from a small plant like that to a pharmacy in the united states. they go through a number of broke hes, in spain and canada and other places like that. should we require that every one of those three have a bar code attached to it so that it can be immediately traceable back to its origin. back to the very plant where it started? is that possible to do, and should we do it? >> i'm not sure about the feasibility of that. i think until you get data systems aligned between customs

and border protection, and fda, you may still have problems with inaccurate information showing up from one agency to another. >> i'm just asking if that one plant has to put on, no mat he what it is, they have to put on a bar code and that has to follow all the way through to the final purchaser? is that possible? >> i can't speak to the feasibility of that. my sense is, it would be a significant cost and complexity added to the distribution system that may be challenging for folks to comply with. i think we do have a strong -- very strong system today and we should look for opportunities to make that stronger. i worry about the cost and complexity of the system with so many independent actors in the supply chain. >> okay, i'm just asking for a simple bar code at every step of the way. is that possible? >> well, gpha's members have looked at bar codes for track and trace purposes in the united states. >> exactly.

>> and it's -- doing it domestically, we've seen the feasibility as being probable because you can utilize integrated technologies and we can have manufacturer's, pharmacists, wholesalers on the same page. some of the challenges are, when you get into international regions, finding this harmonization so that the same bar code, same readers, same technologies all apply. when it comes to the international scope, there's issues that would have to be looked at to make sure that the viability of a bar code applied in china would be read all the way through the system and that data would be available to the end users. so there's challenges there. >> mr. vantrieste. >> i think it is definitely possible. how long would it take to be implemented. i think you can get the end

result you need by requiring everybody in that supply chain to tell the final person who's going to use that raw material, the pharmaceutical manufacturer, who that original manufacturer was, and then the pharmaceutical manufacturer can provide the oversight of the supply chain once they know it. if we don't know, we know we have a problem. i think just requiring that transparency and disclosure will get to where you want to go much faster. >> i agree, i think the underlying principle here is manufactur manufacturer's need to know the complete supply chain. and the fda has to be able to get access to the data if they need it. and we need a way for everybody to be on the same pageant. whether it's a bar code or some other means i think matters less. >> thank you all very much. >> your testimony suggests that poorly supply chain reforms could exacerbate drug shortage

problems. could you elaborate a little bit? >> as we talked earlier about if we increase regulation, certain players who are in the business today may decide to get out of the business. they may be the only supplier of a key ingredient for a critical medicine to treat patients. any legislation that we do, i think we have to give the secretary some latitude to prevent those suppliers from giving them enforcement discretion on where to apply the regulations. we don't want to see people exit the market. >> thank you, dr. crosse, what's wrong with the fda's drug supply chain information systems and what does the fda need to do to fix them? >> well, there are several problems. they had a long history of poor information technology systems and they're in a process now of trying to upgrade those systems across the board, across the entire agency.

that's taking several years, and it's encountered many difficulties in trying to integrate what had been a number of different freestanding systems that were compatible. i mentioned just a moment ago one of the problems is that some of the key information they get comes from another agency, from customs and border protection which is not providing accurate information in many instances, because of the way certain identifiers are generated in that system. fda has been taking some steps to try to verify information that they have, they've actually hired contractors to go now and look at certain suspect facilities to see if they're actually located where they've told the fda that they are. and they've found a number of facilities that are are not at the locations they've reported. it's taking fda a very long time to try to go through and make up time on these systems. and they still don't all talk to one another. >> thank you.

dr. martello. can you give us an overview of your member company's quality control systems? do they customarily audit or inspect their suppliers? >> thank you for that question. the quality systems approach is really embodied in the current good manufacturing practice regulations. and our companies take great steps to comply with those. the gnp's regulations require that each facility have in place a quality control unit that's responsible for all aspects of the manufacture of a drug product for all controllable incoming ingredients. and periodic testing throughout the process. taken with the new drug approval requirements in our closed distribution system help provide assurances that the medicines that patients take are safe and have the identity and the quality that they are reported to represent. >> thank you. mr. coukell. pew supports mandatory recall authority for drugs. how many times has a drug

manufacturer refused fda's request to conduct a voluntary recall? >> thank you for the question, senator. i can give you an example in 2008 when the fda had to go to court to get some contaminated heparin off the market. i think the bigger concern is not the refusal, but if public health is at risk, the time it would take if the fda does have to go to court, it's the kind of authority that if they have it, i think it will bring everyone to a consensus much more quickly about whether a voluntary recall is necessary. >> if a manufacturer refuse to conduct a voluntary recall, how does making it mandatory help? >> presumably there would be some sanction involved for refusing to do a mandatory recall. >> mr. johnson, the law requires fda to inspect domestic drug establishments every two years. the law is silent about how fda

must inspect foreign establishments. can you elaborate on the need to level the playing field? >> thank you, senator enzi. yeah, currently there's two components to i think to answering that question. the first being the parity that foreign establishments should be inspected at the same level intensity and frequency as domestic facilities. there's a substantial cost for inspections to drug companies. and i might use the example of companies setting in philadelphia or new jersey, may have fda visiting each month or the other month. and it takes resources, time, personnel to accommodate these inspections. the contrast is foreign inspections when companies, facilities are visited on a three, four, five-year basis. there's additional costs to the american industry and, more

importantly, to the public health by having equivalence in terms of inspections, the fda has the opportunity to evaluate these foreign facilities, determine if there are any gmp or quality problems, supply chain issues and have those addressed in a timely basis. so bringing comperterability and inspection requirements, we believe, is very important component of supply chain security. >> thank you. my timez pexpired. i'll have questions i'll subnight thank you, enzi. and senator frankin. >> thank you. i'll try to be fast because i know senator bennet has to get out of here and i have to presnide a few minutes. dr. martello, as we heard from mr. johnston, the generic companies are working with fda do their fair share and provide the fda with additional resources to increase foreign inspection capacity. while i realize that the brand companies don't occupy as much

as the market as the generics do, would your member companies be willing to contribute to securing the supply chain through increased user fees? >> thanks very much for that question. i think it's important to recognize that since 1992 the peduva user frees, prescription drug user fees that we're looking to reauthorize next year have supported preapproval inspections since their inception in 1992, and as the gao has reported the majority of facility inspections that are conducted are both preapproval and gmp's inspections combined so our industry is really committed to this issue and has supported inspections in the form of the user fees as a portion of that since 1992. we also think, and we recognize, that frankly, there is -- there will never be enough resources for the agency to get to all of the places that they need to get and so that's why we believe that using a risk-based approach for fda to target facilities for inspection and really focus on the areas of highest risk will

help do a great deal. you could couple that with reliance on third parents, again whether it be a credited third parents. with competent regulatory systems using those things together, we can expand the reach of the fda and help them do their job by focusing on the areas of highest risk and really increasing the number of facilities that the fda is visiting on a routine basis. >> okay i guess i didn't totally understand your answer. mr. johnston, does generics put more resources into the supply chain, helping the fda through the supply chain. >> thank you. the user fee proposal that the fda is considering and i think that we've reached agreement on, doesn't specify how much resources, how many of the resources go into inspections. however, are there performance

goals that will certainly drive the utilization of the resources towards inspections. and as we heard 80% of the incoming materials are foreign and foreign% of the products, fda will dedicate probably 40% or 50% of the user fee resources from the generic industry towards inspections and support for those >> and guess, i was asking a are you willing to put in more toward that? >> user fees have gone to support pre approval since 1992. >> pre approval inspections? >> pre approval when a company files a new drug approval application, the fda has discretion. >> i am talking about supply chains. >> many times the gao has found pre approval inspection coupled with good manufacturing

practices in facilities that are filing new drug approval applications with the agencies are getting those inspections on a regular basis and are supported through the user fees and prescription drug user fee provisions. >> would phrma be willing to put more in to do that for and supply chain? that is what i have been asking and i don't quite feel i am getting a real answer. i feel like i am getting a circular kind of answer. >> across the board the prescription drug user fee agreement increases resources for fda to conduct necessary reviews of the new drug approval application. with that a portion of that is targeted for inspection. >> what about existing drugs? >> our companies to our fair share. >> would you do more? >> we would be happy to engage in conversations around that. giving the fda the opportunity to use risc to inspect facilities will help expand their reach and help maximize and use their resources

efficiently because we know resources are not unlimited. >> thank you. thank you, mr. chairman. >> senator bennet. >> i really want to thank you for holding this hearing. this is an issue i have been working on ever since i got here and now i know why. the testimony has been excellent today. i am familiar with the work everybody here has done. i find remarkable degree of consensus around a lot of the issues we face and that reflects how big the gap is between the statute that was written in 1938 and world we're living in today. changes that are accelerated because of the shrinking global economy we face and this lack of an update for our lack of regulatory regime that reflects reality is bad for our consumers and it is bad for business.

that is why we need to be urgent in fixing it and it has been remarkable to read some of the polling data around this, the mandatory recall suggestion for example. everybody thinks the fda already has that. 94% of the american people support it. they believe that when they walk into their grocery store or their pharmacy that the drug is produced in the united states. that is not true. they believe somebody has looked at it to make sure it is safe. that is not true either. what we learned from the testimony today is even if we discover there's a problem it is hard to track down to the source so there's a lot of work to do here and whatever i can do to help i want to do. i would like to ask mr. coukell and let anybody else on the panel answer just one question.

bcu has done some great work on this after the report you talk about. it was very important and in that report made the observation that compliance with internal quality systems at regulations can represent 25% of a finished drug manufacturer's operating cost. at the same time as we heard from this marcia crosse it would take the fda nine years to inspect the foreign facilities. you begin to read this stuff together and ask yourself about american manufacture here, following good manufacturing practices and still can't expect a surprise inspection every two years and the fda more frequently than that versus a foreign firm that will never be inspected or may never be inspected. doesn't have to follow any of these practices. on top of everything else when they are expected potentially in the first panel they are given

warning that the inspectors are coming. mr. coukell, what do you think the three four most important things are to level playing field? and make sure we are protecting both the safety of our citizens which is the most important thing and also the playing field for american business which is vitally important part of our economy? >> thank you for the question and your continued commitment to this issue in this area. you make a very important point. the good actors whether they are in the u.s. or outside the u.s. are spending time and resources to make sure their manufacturing is consistent and predictable and high quality. and so if you have somebody out there who is tempted to cut corners and not do things to a

high standard and there is no chance that anyone will show up with a high standard than they can do that. so that does create an uneven playing field. so we absolutely need a system where we take the existing resources and deploy them in a way that the highest risk facilities wherever they are getting inspected and that we are taking steps to make sure finite resources are stretched so that we aren't inspecting the same facilities the europeans are inspecting twice in a year where someone else is not getting inspected whether we are relying on additional sources of information and where manufacturers themselves are providing better documentation when they are taking all the right steps. if you are an importer and you have something coming into the country it costs money and the fda is dealing with how to screen all the stuff coming in. if we have a system where the

fda can say this has shown us good quality stuff let's get it in the country. meanwhile they can focus on data that benefits everybody. >> does anybody feel compelled? >> one other thing we talk about leveling the playing field. when i am inspected by a foreign entity even the europeans are have to pay for that inspections so why aren't ingredient manufacturers in foreign countries to get fda inspections required to pay for those inspections to help justify the resources needed to do that? >> thank you. thanks, mr. chairman. in the spirit of what senator mikulski said i couldn't agree with her more and it would be surprising. several of you talked about enforcement too which i would add to the list. the idea that the penalty for

counterfeiting drugs is lower than the penalty for counterfeiting a dvd, for example, mr. chairman. doesn't make sense to anyone living in colorado and it shouldn't. those are the kind of common sense things we could fix if we get the chance to do it. thank you for your leadership. >> thank you for your leadership. thank you for being here. i will close by saying this committee is committed on a bipartisan basis to moved ahead in this area. i don't know that we have crystallized exactly what is that we want to do or seeking information from all of the players in the field out there, companies, phrma, generics, fda and others to come up with the best formula that we want to put in the reauthorization next

year. i simply need to know why it is that we can't have a system that doesn't cost a lot. it costs something. i understand that. but indication that other consumers are willing to pay a little bit more for heightened security of the products they are buying. in this case drugs. to ensure that inspections are held and companies are held to the highest standards of the manufacturing practices and there's a transparency to the system. mr can trieste, if your research goes back to find out where that came from, what you have done. yet i hear from mr. coukell that no one has ever been held accountable so obviously there is a way. we need to know -- everybody

along that line needs to be held accountable. everybody along the line needs to be held accountable and the only way to be held accountable is to know who you are at every step of the way. my question on the bar code is some other similar situation like that that we can do that. interesting point was raised. i forget who raised it. about coordination with other countries. europe and others so that we can assure that manufacturing facilities and other countries are inspected. we want to ensure they are suspected -- inspected but don't want to be duplicative. one country is inspected and another and another and we want to make sure we have some coordination with other countries in that process and we also -- while i support mandatory recall, that is sort

of after the fact. it is fine to have that but it seems to me we want to get in front of that so that if there is any indication at all that we can go right back to the source and correct match at the source as soon as possible and to have penalties, it boggles my mind that we have some data and information that companies that have supplied dangerous products in this country, they leave that building and they move across the street or they move to another community and open the facility but no trace ability whatsoever. as to they are. and yet they can continue to sell their products. so traceability, the enforcement of good manufacturing practices, more of a general agreement

among countries on inspections, and making sure that as you said, you have to pay for it if you're inspecting it because you're shipping to other countries. it seems to me again if they want to ship to this country they should never -- number one, allow inspections and as you pointed out and as miss autor pointed out there are delays and they're put off year after year. the other thing is i am very much leaning toward this idea of more of a risk assessment. in other words there are companies that have good manufacturing practices. they have been in business for some time yet we say they have to be inspected every two years but they don't need to be. maybe we need to use the personnel to go after the plants that haven't been good actors or new plants that haven't been

inspected at all. these are all the things that this committee will be looking at. we appreciate your testimony and we appreciate any further input or advice and consultation you have with us as we proceed on this. i am committed to doing this some time next year. we didn't get into medical devices. the medical device user fee act. and keep in mind, is there a fee? is there something that should be attached to a product? and ingredient? a finished product, that would go to fda for inspections and enforcement? if you have thoughts on that please submit them to the committee. thanks again. i appreciate your being here.

i thought it was a great hearing and believe me we will be having more. so i request the record be kept open for ten days to allow senators statements and the committee will stand adjourned. thank you very much. [inaudible conversations] >> the head of the secret service said yesterday that next year will be busy for the agency because of the 2012 presidential election and the number of high-profile events. that is next on c-span2. and the senate is back this morning to continue work on a measure that would reduce sanctions against me and are for one year. they will also debate disaster assistance funding. live coverage at 9:30 eastern. >> in an election marred by a

moral scandal and political corruption james g. blaine lost in 1884 but he changed political history. he is one of the 14 men featured in c-span's new weekly series the contenders, live from the blaine house and augusto, main at 5:00 eastern. learn more about the series and our upcoming programs at c-span.org/butcontenders. >> now head of the secret service talk about security concerns in the upcoming year including the 2012 presidential campaign, the un general assembly and a number of international events. brian sullivan testifies before the house homeland security subcommittee on counter-terrorism and intelligence.

>> the subcommittee and counterintelligence will come to order. this is meeting to hear the testimony of director mark sullivan of the secret service regarding the missions and challenges he will face in 2012 and i want to note for the record we anticipate briefly being called and very much appreciate your presence today. we will look for a way to try to accommodate both of these in a way that will flow. hopefully what we may be able to do is have an opening statement from myself and the ranking member with respect to time it may make more sense to come back, allow you to have your testimony and we can go on to questions. before we begin today's hearing i want to thank budget committee chairman paul ryan and his staff for allowing us to use this hearing room. there was an overflow today to

conflict with another subcommittee markup. i invited chairman ryan to today's hearing that he made it clear when he decided not to run for president that he prefers to keep his distance from the secret service. today's hearing is an examination of the duties, responsibilities and performance of the united states secret service and review the challenges we will face in the coming year particularly the protection challenges in the upcoming 2012 presidential election cycle. in light of all of the issues that we see on a global scale. the hearing follows our past examination, department of homeland security intelligence enterprise. it will help us continue in our efforts to ensure effective congressional oversight of counter-terrorism and intelligence related functions of the department of homeland security. the secret service is a highly regarded institution best known for protecting the president of

the united states. however what is often overlooked is that its work goes far beyond protecting the president. in addition to its protective mission the secret service ensures the integrity of the united states currency which is vital in a functioning country in a world economy. accordingly the mission includes everything from running beside the president's caravan to running counterfeit money stings in colombia and penetrating the net works of russian hackers. it is a global and multifaceted law enforcement organization. yesterday a number of directors, clapper, olson, janet napolitano they testified about the terrorist threat by lone wolf terrorists and radicalized extremists. this is an issue we need to be anticipating in 2012. i like to point out the secret

service also deals with terrorist threats against the president and protect these regularly and they experienced a expertise with the concept of lone wolf's. there's an enormous challenge related to this terrorist threat. the 2012 presidential election cycle is fast approaching. some may say it is already here. the service includes candidate protection and security at both democratic and republican conventions so i look forward to hearing from director sullivan how the service is adjusting with your tight budget environment to meet this critical mission particularly in light of the threat environment and many demonstrations that can be anticipated from events like that. in addition to protection of the service investigated responsibilities have expanded to include financial crimes like identity theft, counterfeiting and computer fraud and computer-based attacks on the nation's financial, banking and telecommunications

infrastructure. ten years ago in the wake of 9/11 the secret service took on expanded mission with the investigation of cybercrimes. recently opened an office to combat russian cybercrimes and the patriot act calls for the establishment of a nationwide electronic crimes task force to bring together multiple components to help investigate, detect and mitigate or prevent attacks on the nation's financial and critical infrastructure. omb attorney i appreciate remarkably expanding role and work closely with the secret service on all these capacities particularly the emerging roles of the electronic crimes task force fighting cybercrime. as part of the mission the secret service plays the lead role in planning, coordination and implementation of security operations and special events of national significance. secret service will be leading security efforts in asia pacific

economic cooperation summit in hawaii, presidential state of the union address and significantly to me both the nato and group of 20 meetings which will be held in chicago during the time when you already do substantial presidential protection. in addition next week the secret service will be heavily involved in protecting heads of state at the annual united nations general assembly in new york city during a period of time we may be looking at a relatively significant international event if in fact there's a movement forward by the palestinian organization to seek international recognition. the success of the secret service depends upon the constant and unrelenting support of the entire intelligence community with positive relationships in state and local agencies. i believe it is a model for the entire department developing relationships with state and local agencies in leveraging the rest of the intelligence community. i am going to ask adams's

consent for a letter from the federal law enforcement office association that i would like to insert into the record in support of that effort. without objection so ordered. so before i begin i would like to note as well this past weekend was the anniversary as we all know, many of us attended numerous events of the tragic events of 9/11 including the attacks on the world trade center where the new york field office of the secret service was located. sadly the service lost -- special officer greg miller, one of those heroes who ran into the building helping to save others. we honor his memory today and the other secret service employees who are among the first responders of nine 11. i would like to welcome mark sullivan, director of the secret service to testified. you are a busy man and i want to thank you for taking time to be with us in preparation for our

discussions about the great challenges you face in anticipation of 2012. now i would like to recognize the ranking minority member of the subcommittee, gentlewoman from california, miss me your for her statements. this is the budget committee. they have already cut everything down. >> mr. chairman, thank you for holding this hearing today. i apologize for my tardy arrival. due to sullivan and all of the members of the public. let me say at the outset, we thank you for participating in this hearing today and for and lightning not just us but the public in general about the important work of the secret service and to review some of the challenges that you have had in the past. this is a critical time for the

secret service as the campaign season for 2012 for the presidency begins to heat up. in the last presidential election candidate barack obama reportedly received a record number of threats requiring him to get secret service protection earlier in the campaign cycle than any candidate in the history of the country. we now face a diverse array of threats from terrorist groups, low wolves, deranged individuals and others we may not even know about. we have learned that dramatically last january when our friend and colleague gabriel difference was shot and six people killed in tucson, arizona. it was sure to be an eventual election year. all the resources and support it needs to protect candidates and constrained by budget environments. question for you, directors sullivan but the secret service has done an excellent job keeping our candidate save in

past elections it has had trouble managing its budget. the dhs inspector general released a report finding the secret service violated the anti deficiency act when the cfo failed to notify them that the congress had overspend its appropriate funds during the hectic 2008 campaign. in the run up to the 2012 campaign i am interested to hear what changes were made and controls put in place to prevent this from happening again. secret service mandate goes beyond protecting the president and candidate. they also protect other government officials, 4 in dignitaries and security for designated and s e. as the chairman noted providing protection for the u.s. assembly which has just begun its work and sit in the heart of man hadn't also falls to the secret service. we are reminded by events over the last week with the sobering news of a credible threat

surrounding the 9/11, tenth anniversary that the events have special significance also face threats from actors and actions. there are many events over the next year the secret service must prepare for including the g 20 summit and democratic and republican national conventions. it is critical that all of the secret service's protective activities are conducted with the appropriate planning, resources and oversight. secret service has a vital mission. it has significant criticism in the past. the secret service has come under fire from many including ranking member of the full committee who supports the history of promoting a diverse work force and for several discriminatory practices it has been accused of in the past several years. and of course the last time director sullivan testified before the committee before my time on the panel it was answered to the much-publicized white house security brief. i am looking forward to finding

out if these issues have been addressed once and for all. i am also eager to learn more about the secret service's other important mission, investigate crimes against our financial institutions that maintain the security of our economy. at first this meant the secret service had to protect our currency from counterfeiters but the way we conduct business from personal payment to transactions between large institutions has drastically changed in the internet era. our economic security is threatened by a diverse array of criminal activities from counterfeiting to credit card fraud to hacking. let me underscore the last question. those the secret service have the expertise and the resources it needs to keep up with the times that the effect of a crime fighter in this dynamic environment? secret service is absolutely vital to our nation's security and prosperity and i commend the men and women of the secret service for carrying out their

work with diligence on 9/11 and every day of the year. once again i want to welcome you, director sullivan and look forward to working with the secret service to ensure they have the necessary resources required to carry on this very important mission. i yield back. >> i want to thank the ranking member for her opening comment. i am going to make a judgment at 2:27 by the record. they expect to call us for vote between 2:20 and 2:30. how long do you think your opening statement will be? we should try to get this in and also when you hear the bells go you know that is when the moment is for us to begin but we will have a minute or two. take your time and do your opening statement and at the conclusion of your opening

statement we will recess because i am confident we will be called to vote and we will return and begin the opportunity to ask you a few questions. let me tell the rest of the committee is reminded that opening statements may be submitted for record. we are pleased to have a distinguished witness before us on this important topic, director mark sullivan, they twenty-second director of the secret service on may 31st, 2006. director sullivan has led a distinguished career in the secret service. he began as a special agent assigned to the detroit field office in 1983. he has held many positions within the united states secret service including deputy special agent in charge of the counterfeit division. special agent in charge of vice-presidential protective division and also in charge of human-resources and training and

assistant director of protective operations and deputy director of the secret service. during his work with the office of protective operations director sullivan manage all protective activities for the agency encompassing 12 divisions and 2300 employees. he has been a recipient of numerous awards for superior performance throughout his 25 year tenure and 30 year career in law enforcement. most recently he was awarded a distinguished presidential rank award. director sullivan, your entire reinstatement will appear in the record and i look forward to your comments. >> good afternoon and thank you, chairman me hand and ranking member spier and distinguished members of the committee. i am pleased to hear before you to discuss the protective mission and challenges in 2012. i would like to thank all the members for the work you have done over the years to ensure

that our front-line employees have the resources that we need to be effective in today's threat environment. this has been especially critical given the challenges we have been confronted with in recent years. emerging threats, historic campaign, increases in the number of designated national special security events and the proliferation of cybercrimes directed our banking and financial payment systems has required our front-line employees to remain vigilant and adaptable all-time. despite these challengess the men and women of the u.s. secret service continue to perform their duties in an outstanding manner. in fiscal year 2010 protective detail the field agents safe arrival and departure for 15900 domestic travel stops in 515 international travel stops. foreign dignitary protection

reached a record of 2500 travel stops including visits by 236 heads of state and government. dignitary protection included security operations for the nuclear security summit and the sixty-fifth anniversary of the united nations general assembly where we staff protective details for 1254 in heads of state and government and 51 spouses. in the area of criminal investigations hour-long standing priority of investigating financial crimes prevented roughly $13.5 billion of potential losses. building on that success in a number of financial crime cases we closed in fiscal year 2010 increased just over 7% from fiscal year 2009 levels. reflection of our ability to adapt to emerging trends in financial crimes. we expect f y 2012r 2008 prison

we began trading on details and to file a level which recently completed training and will be assigned to provide protection to the presidential candidates. details are comprised of special agents from domestic offices who operate on 21 day assignments. upon completing the rotation assignments each special agent returns to their respective field office to continue their criminal investigations for participating in protection assignments outside their district. these rotational duties continue through the end of the campaign or until the candidate they are

assigned to protect withdraws from the campaign. we are also coordinating with other federal law enforcement agencies that may assist us during the upcoming campaign. during the 2008 campaign we anticipate the transportation security administration officers will from time to time assist their uniform division officers with security screening at various protective venues. protective advanced team training at numerous field offices throughout the country has also been completed. this refresher training provided to special agents to conduct protective security advances for our campaign visit throughout the country. the democratic national convention in charlotte and republican national convention in tampa have also been designated. under the nsse, this includes

protection sites and venues and candidate nominees and delegates and general public participating in the event. in addition to ndnc and rnc , of the economic cooperation summit in honolulu in november of 2011, state of the union address and the g 20 and nato summits both of which is scheduled to take place next spring in chicago, illinois. has the lead federal agency law enforcement agency responsible for the operational security plan at kings we establish multi agency communication centers for each events. each federal state and local agency with an operational role in the events will have command level staff assigned to multi agency coordinating sanders. this award nation in shores all

agencies have full situational awareness and can immediately provide assets or assistance to one another if needed. in closing, fyi 2012 promises to be a challenging year, i am confident the determination and strong work ethic of our special agents and uniformed division officers and our administrative professional and technical staff, we will successfully meet those investigative challenges. mr. chairman, ranking member spear and distinguished members of the committee, this concludes my opening statement and i am happy to answer any questions you have at this time and i will wait to come back. [inaudible]

[inaudible] >> that will be great. thank you, chairman. [silence] >> subcommittee on counter-terrorism and intelligence, looking at the

united states secret service examining protective specification missions and challenges in 2012 is called back to order. secretary sullivan, thank you for your opening statement and i recognize myself for five minute questioning. secretary sullivan, we are in the beginning of something that interests so many americans which is what they generally associate the united states secret service with which is the protection of the president in the campaign cycle but in addition you have responsibilities to protect any number of candidates who would like to be the president. as a result, great challenges. can you tell me how it is you begin the process of distinguishing among the many who are out there to identify and determine who you will provide services for when you

make those calculations and how you distinguish what kinds of resources need to be put together for any one particular among them as they begin the process once they qualify? >> yes, thank you. first of all the department of homeland security secretary is the person who decides who does receive protection from us for a campaign and sheet makes that decision in consultation with an advisory committee and they will determine who the major candidates and protection is needed. that advisory committee is made up of the majority leader in the senate, minority leader in the senate, speaker of the house, minority leader of the house who is the fifth member and for the last several campaigns on a

rotating basis this sergeant at arms senate for sergeant at arms for protection. the candidate needs to come forward and make that request for protection in order to be considered and there are certain criteria the committee will look at and the secretary has sent letters to all these members outlining what that criteria is but they will take a look at that criteria if need be and request a to do a threat assessment and based on all this information they get from these guidelines make a determination if in fact protections should be initiated. >> when you say threat assessment you will do a threat assessment about what? >> general threat assessment for a particular individual. we will do a general threat assessments what is going on at this -- >> one person may actually include a different level of

threats or nature of threats against one person at least as you anticipate them may be different from another candidate? >> correct. >> how do you respond to those determinations and when will they make those determinations so you are able to calculate where and how you move your resources this coming year? >> what we will do is take a hard look at who that particular individual is we are going to be protecting. we tried to take into account where they are going or when they will be doing. we assume these people are actively campaigning so what we begin to do quite frankly, we started this the day after the inauguration. we put a plan in place for the next campaign. we do and after action report on the previous campaign and look at lessons learned and begin to put our plan together. what we have been doing over the last year now, we have purchased

equipment. we have identified the staff requirements for each detail. >> the same they have been in years past in light of -- >> pretty much. there are different modifications we make and different countermeasures' as we have gone along. as the threat has involved our reaction. >> the threat in some ways is more sophisticated each cycle. >> that is correct. but right now we have trained up words of 1400 people to go out and staff these. the people we use to staff these details are people who worked out in the field. that is why our field office infrastructure is so important. they are the backbone of the campaign. >> a number of questions i would like to fall upon those points but i have always been curious about the nature of these political campaigns mean that they can be very precarious. an issue when they can change a

candidate's travel from one purported location to another and where you have a specially when you get to the point that there is narrow to 2 -- critical candidates, use then sometimes days ahead of the arrival of a particular candidate and location assuring the safety of that. how does the changing nature of candidates routines affect your work? is there any consideration given when somebody decides they want to go to a different location on a moment's notice? how do you deal with that? is that taking consideration by candidates? >> that is a great point. i come back to our field office and how important it is for people on the field to have really good strong relationships and communication with our state and local law enforcement partners. they really do make this work for us and to your point we are

-- a candidate -- we will be told maybe one or two days prior that we will be going to a certain city. when i was in charge on the field there were many nights i would call a local law enforcement counterpart to let them know we would be having a visit in two days and we would put together a police meeting. one of the things we do for every visit we have regardless whether it was a week or two days, we will get all of our state and local partners together and have a police meeting with them and our law enforcement partners if they are involved and outline for them the itinerary of a particular protect the or candidate. we will give them any threat assessment or issue is going on. we will ask them if there are any issues on their end but we will pretty much put a plan together and i will tell you

every visit we have goes up without a hitch and it is because of that great relationship and the hard work by our state and local law enforcement partners. >> thank you, director. my time has expired and i turn to the ranking member. miss spier. >> thank you for being with us. i would like to start my questioning on the issue of online content. do you have the kind of resources you need to do your job in a platform that is dramatically changing as we speak? this last summer the twitter account of fox news was hacked into an someone pleaded a number of times president obama had been assassinated. how do you access that? how are you able to determine it is a hoax? how do you monitor threats? do you have the resources you

need to comb the internet for potential terrorist acts like the one i just mentioned? >> when i was a new agent it would come in the mail and the person making the threat was very courteous they would put the return address and you know who to go out and talk to but regardless whether it is by mail or the internet people are extremely aggressive with that. i go back to how much of the duality of our mission helps with our protection. what we learn as investigators and what we have learned working our financial crimes through electronic crimes task force and electronic crime special agent program really has helped us with these internet frets. we have an internet front desk. we do work with all of our state and local and federal partners. we do comb the internet. we have a system right now that people are working 24 hours a day going through the internet

looking for any type of buzz words or any type of threatening or inappropriate activity out there that we may see that involves any of our protectees but we have a robust system and some very qualified and good people working these types of threats and i will also tell you when we do identify an individual who has made that threat or inappropriate interest they are supplying whether it is 2:00 in the morning or 2:00 in the afternoon people looking for the individual to interview them. >> you have enough working for you? enough nerd's working for you? >> we have some really qualified people who have some great cyberskills. >> very good. the hearing two years ago you said, quote, and i tell all of our people we can't just depend on human resources people to do a recruitment. everyone in this organization has to be a recruiter.

this was in response to the issue of diversity. can you speak to how that has improved and what steps you have taken since making that statement to make short the recruitment is robust in terms of making sure you have a diverse group of people serving? >> yes. i continue to do that every office meeting have. every town hall meeting on have i bring that up. we talk about recruitment and i say that with due respect to h.r. but any organization depending on h.r. to do your recruitment you're going to fail. it has to be the job of every employee in your organization to be out there recruiting. >> you have some numbers to share with us about how it has improved? >> i can get you those numbers. i would be more than happy to. i will tell you that i meet with every new agent class and every new uniform class before they graduate and the numbers are 22, 23, 24 officers and agents in every class. i will meet with them for an

hour-and-a-half or so along with our deputy director and the first thing each of us look at is the makeup of that class. i can tell you the classes i have been meeting with over the past few years have been one third -- we had a couple recently that one half women and minorities. i will tell you that i do not feel we are where we need to be but i continue to see it improving. i believe it role models. >> i think you have answered the question. i want to get one more question. that is on financial crimes. many of your counterfeit investigations and operations are located in south america. we have been focused on this committee on the role of hezbollah in south america and central america and to what extent they are coming into the united states. can you enlighten us on any information you have about your efforts in your focus on south

america? >> we started several years ago in colombia with counterfeit currency. a lot of the offset of traditional counterfeit we saw was coming out of south america. we brought it up with the that'd forces and make significant dent in the amount -- in securing counterfeit currency before it was put into the market before it came into our country. being very aggressive with counterfeit currency. what we have seen as a result is a lot of the counterfeiting in bogota has gone into peru. we are about to open up an office in peru but most of our efforts are focused on counterfeit currency in south america. >> at this point i will turn questions to the gentleman from

minnesota. >> thank you, mr. chair. i want to thank you for your service to this country and all for people of the secret service and all the fine service they have been in keeping us say that night so we can lay down our heads. thank you to you and your people. specifically in your testimony you highlighted the work of the secret service investigating cyber-related crimes and suppressing counterfeiting. in previous years we read about states like north korea that has been heavily involved in counterfeiting u.s. currency. in your testimony you note a dramatic increase in worldwide counterfeiting fraud u.s. currency. i am interested to know over the past three is the secret service has observed a rise in the percentage of state-sponsored counterfeiting and cyberrelated criminal activity and if so what is the most prevalent kind of state sponsored crime?

>> as far as state-sponsored crimes go anything we believe to be state-sponsored or terrorism we turned that over to the fbi. our focus is mainly on criminal violations. what we are seeing quite frankly is coming out of eastern europe in regards to an increase in network intrusions' where these individuals are intruding into financial systems, banking systems and there is a loosely organized group for one group will do the intrusion and another group may traffic those numbers but our focus is on the criminal financial aspect of these particular individuals. >> thank you. in the interest of expanding your investigative arm and the

brief history the chairman has given us and you gave us a little bit earlier, what is your perfect secret service in the next five years? what would it look like? >> i have to tell you we are recruiting an incredible work force. the people we are recruiting coming into it with a very good cyberbackground. second major to them. i believe we need to continue to maintain and involve the threat as we see it and stay ahead of the threat. looking for organization to be diverse reflective of our society and be proactive to those threats we are seeing every day. i am looking for us to make sure that as we see the change that we change with it as far as shift in population and put our resources where they need to be and i want our people to look. we give our agents in charge on the field, we want them to have

the freedom to take a hard look at what is it that will have a high impact in that location? what will be a priority in new york? will be a priority and los angeles? we have a really good work force out there looking toward extremely involved with the threat. >> there has been some debate whether the department of homeland security is the most important place for the secret service. can you expand on that and what your thoughts are? >> we came to the department of homeland security in march of 2003. we came from the treasury department. we had been there for 138 years and i think as with any agency entering an organization with 200,000 people there is going to be some growing pains. i believe when you look at the results og qshr you see a place

for the department of homeland security and the purpose of the department of homeland security is to keep the homelands safe and to keep our american way of life saving. i believe that is what we do by protecting those people we are entrusted to protect and protecting our financial infrastructure. >> as the secret service expand its investigative arm will that inhibit your mission on the protective side? how do you think he will balance all that? >> i think it enhances it. when you look at all the people we have on protection detail, all of us start the same way. we began our careers in a field office. we begin learning about the organization. we learn how to be criminal investigators. everyone is making 11 criminal investigator -- we are interviewing people and learning to evaluate people and how to evaluate situations. it makes us better at

protection. you look at the way we have evolve with some of the things we do. we go out and do a protective advance. a lot of we do is go out and protect critical infrastructure. the elevator systems and transportation systems, the air infiltration systems and water purification. years ago those would be attacked manually. today they are attacked remotely. ranking member speier asked me about that and it helps with our protection. i believe the duality of our mission really does go hand in hand and what makes us better in protection is what we learned as investigators and what makes us better in investigation i believe is what we learned in protection. >> appreciate your time and i