Issue Brief

Testimony of Allan Coukell Before the Committee on Commerce, Science and Transportation

Testimony before the Committee on Commerce, Science and Transportation
United States Senate

July 25, 2012
Allan Coukell, Director, Medical Programs
Pew Health Group, The Pew Charitable Trusts

Chairman Rockefeller, Ranking Member Hutchison, and members of the Commerce Committee, thank you for the opportunity to present testimony.  I thank you for holding this hearing and for your efforts to reveal and address risks to our pharmaceutical supply.

Through research and analysis, the Pew Health Group seeks to improve the health and well-being of all Americans by reducing unnecessary risks to the safety of medical and other consumer products and supporting medical innovation.

The focus of my testimony today is the drug distribution system – the weaknesses in the system and the risks of counterfeit and stolen drugs.

In July of 2011, Pew released a report entitled “After Heparin: Protecting Consumers from the Risks of Substandard and Counterfeit Drugs.”[i] The report, which underwent extensive external review, was based upon information from regulatory and public documents, peer-reviewed journal articles and interviews with dozens of supply chain experts from numerous perspectives. It was informed by a two-day conference we hosted in March 2011 that included representatives of brand and generic pharmaceutical manufacturers, active drug ingredient makers, major and secondary pharmaceutical wholesalers, chain and independent pharmacies, consumer and health professional organizations, the U.S. Food and Drug Administration (FDA), state regulators and independent supply chain experts.

In our report we explain that numerous entities are involved in drug distribution, and the routes to market are not always simple. Drugs can be bought and sold by one wholesaler or by many before reaching a pharmacy. Drugs may be traded between distributors, and may travel back from distributors and pharmacies in local markets to major wholesalers through sales or returns before ultimately reaching patients. Some drugs travel through repackagers; some are transported by third-party logistics providers who do not actually purchase the drug; that is, the physical movement of drugs does not always conform to transfers of ownership, further complicating drug tracking. This potential for complexity is not inherently problematic, but absent sufficient safeguards bad actors are able to take advantage of weak links in the chain. 

Risks to the drug distribution system

One of our key findings is that incidents of counterfeiting and drug diversion in this country – while thankfully far less common here than in other parts of the world – are a matter of serious concern.

Just last week, on July 17th, the US Attorney for the Southern District of New York charged 48 individuals in a large-scale criminal scheme to buy prescription drugs “on the street” from patients, re-package them and re-sell them back into distribution through licensed pharmaceutical wholesalers, who in turn sold the drugs to pharmacies.[ii]

The scheme included medicines for HIV, schizophrenia, and asthma. If the patient labeling was apparent, the criminals would use solvents to remove it. If the medicine’s label was damaged or said the drugs were expired, a new, fake label would be printed and applied.[iii]

This scheme cost the Medicaid program an estimated half-billion dollars. But this crime is also a serious patient safety issue. Drugs were allegedly stored in inappropriate, sometimes egregious conditions. In some cases pills were removed from the bottles and handled loose[iv] – creating a risk for contamination. Disturbingly, we do not know the frequency and extent of crimes like this, but numerous, similar examples have been brought to light over the past decade.

The United States currently has no national system to detect or prevent such incidents. The U.S. pharmaceutical distribution system is sometimes described as a “closed” system, meaning that it is not legal to import drugs that were not manufactured for the U.S. market. However, the system is not closed in the sense that we have over a thousand individual licensed wholesalers, large and small, providing multiple points of entry to the legitimate distribution system.  Sometimes medicines are bought and sold numerous times before reaching a pharmacy. Today we have learned about cases where pharmacies are not the last stop in the supply chain, selling drugs to wholesalers for further distribution.

Legitimate companies – manufacturers, wholesalers, and pharmacies – work together to keep drug distribution safe, secure and efficient. But bad actors exist that are willing to take advantage of supply chain weaknesses for profit.

A few additional examples will help to illustrate the nature of the risks.

In another series of arrests this spring, the New York Attorney General announced that a pharmacy in New York had allegedly accepted bribes to purchase drugs sourced from the black market worth over $247 million dollars from shell companies.[v]

Another threat is drug theft. In 2009, thieves stole a tractor-trailer containing 129,000 vials of insulin. This drug, which needs to be refrigerated, disappeared for a number of months before being sold back into distribution.[vi] While most of the stolen drug was never recovered, the FDA has said that some of it was found at retail chain pharmacies in Texas, Georgia and Kentucky, having passed through the hands of licensed wholesalers in at least two other states.[vii] 

In another case, thieves stole $75 million worth of pharmaceuticals from an Eli Lilly warehouse in Connecticut. It was a sophisticated operation, the largest dollar-value loss from a warehouse in U.S. history.[viii] The theft was in 2010. Just this spring, those stolen drugs were discovered stored in South Florida.[ix] One investigator who spoke at the Pew conference and who is an expert in pharmaceutical distribution crime believes that a scheme of drug thieves is to steal the product then hold it, hidden, for a year or two, letting the alarm die down before selling it back in to the system.

Finally, we have incidents of outright counterfeits reaching unsuspecting American patients.  This spring cancer patients in the U.S. were exposed to counterfeit Avastin® – a critical chemotherapy agent used to treat numerous types of the disease. In 2001, counterfeit Serostim®, a human growth hormone used to treat AIDS-related wasting, was found in at least seven states and passed through multiple wholesalers.[x],[xi],[xii] EMD Serono, the manufacturer of Serostim,® has since put in place a secured distribution program, with a unique serial number assigned to each vial that must be verified by the dispensing pharmacy.[xiii] It is an example of how drug distribution security can, and should, be improved.

Finally, your own investigation highlights the potential of the drug shortage crisis to exacerbate existing supply chain weaknesses. When a pharmacy or hospital can’t obtain an essential drug from usual channels, they may purchase from unfamiliar sources. This supply chain flexibility is a good thing, and secondary wholesalers play an important role in optimizing distribution. But it also creates an opportunity for bad actors to introduce illegitimate product. We currently lack national standards for wholesaler licensure. Any such standards should address pharmacies that function as de facto wholesalers.

A national serialization and traceability system to secure distribution

The United States lacks strong uniform national standards for licensure of pharmaceutical wholesalers, and we lack a standard system for companies to keep track of our pharmaceuticals during distribution. There is currently no way to check whether an individual vial or bottle is authentic or counterfeit.

Some state laws exist. California has put in statute a comprehensive system that would require manufacturers to put a serial number on each bottle or vial, and would require wholesalers and pharmacies to check the drugs they buy and sell to ensure they are authentic. California’s law is scheduled to come into effect three years from now. Despite the strength of the law, a patchwork of state requirements is not ideal either for companies or for consumers.

Congress is now considering federal requirements for drug distribution security. However a national standard that preempts state laws like California’s must not replace them with a weaker standard, especially one that would not prevent patients from receiving the kind of stolen and counterfeit drugs I have just described.

To protect patients, a system must include the following two components:

1. Unit-level traceability

The key to improved security of drug distribution is knowing who handles the drugs as they move from manufacturer, through a succession of wholesalers, to the pharmacy or hospital and, ultimately, the patient.

Some have proposed a system to track drugs by the lot number, but a lot can contain numerous cases of many thousands of individual bottles or packs of vials. Each case or vial may be sold separately, and tracking by lot does not allow industry or regulators to ever know who bought and sold a given drug through distribution. 

Maintaining data about lots may provide an incremental benefit over the status quo, but it would fail to catch unsafe drugs in many scenarios.

For example, if a bad-acting pharmacy agrees to sell expensive injectables out the back door to drug diverters, regulators that discover those drugs will not be able to tell where the vials left the legitimate system. They will only know the lot number – and this lot of drugs could have traveled through multiple distributors and reached multiple pharmacies.

Also, if part of a lot is stolen and illicitly reintroduced into commerce, a pharmacist or patient will have no way to tell if the product on their shelf is compromised. However if unit-level data is kept, specific stolen unit serials could be identified. Even if manufacturers are willing to recall an entire lot when only part is stolen, shortage situations create a compelling public health argument that recalls be as targeted as possible.

Today, some companies are required to track a drug’s transaction history through paper “pedigrees”. An electronic system would be a welcome replacement to this paper-based paradigm – Congress should certainly not replace pedigrees with a structure that does less to capture chain of custody than today’s imperfect system.

2. Routine checking to identify diverted and counterfeit drugs

Most stakeholders agree that drug packages should bear unique serial numbers. A key reason to do this is so that pharmacies and others who handle the drugs use the numbers to verify the authenticity of the drugs. However, Congress is considering a proposal that would not require these serials to be checked before a drug reaches a patient. This act of checking alone could have prevented the massive criminal recycling of government subsidized drugs – a serial number that has been retired because it has already reached a pharmacy would be caught on its second trip around. Without required checking, a criminal could sell a recycled drug or a counterfeit drug with a fake serial number, and no one would detect it. They could also sell thousands of fake vials with the exact same serial number – real or phony.

Pew supports required authentication of drug products by companies involved in distribution. Required checking would help ensure fake or otherwise flagged serials are caught, and not allowed to make it to patients. In addition to preventing crime, such a requirement would support enforcement of responsible purchasing by wholesalers and pharmacies


The risk of stolen or counterfeit products reaching and harming patients through the drug distribution system is small, but real. Recently, both the U.S. Counterfeit Pharmaceutical Inter-agency Working Group and the office of the U.S. Intellectual Property Enforcement Coordinator have recommended implementation of a track-and-trace system to secure drug distribution against counterfeits in separate March 2011 reports.[xiv],[xv] The impending implementation of California’s law creates momentum for a single national standard.  We urge Congress to create a robust national system – one that protects patients today and provides the flexibility to ensure we can build upon it in the future.

Thank you, and I welcome your questions.

Date added:
Jul 25, 2012
Drug Safety Project
Drug Safety
Related Expert:
Allan Coukell
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 [i] Pew Health Group. “After Heparin: Protecting Consumers from the Risks of Substandard and Counterfeit Drugs.” (2011)
[ii] United States Attorney’s Office, Southern District of New York. Manhattan U.S. Attorney Announces Charges Against 48 Individuals in Massive Medicaid Fraud Scheme Involving the Diversion and Trafficking of Prescription Drugs. July 17, 2012. Accessed July 20, 2012.
[iii] United States Attorney’s Office, Southern District of New York. Manhattan U.S. Attorney Announces Charges Against 48 Individuals in Massive Medicaid Fraud Scheme Involving the Diversion and Trafficking of Prescription Drugs. July 17, 2012. Accessed July 20, 2012.
[iv] United States Attorney’s Office, Southern District of New York. Manhattan U.S. Attorney Announces Charges Against 48 Individuals in Massive Medicaid Fraud Scheme Involving the Diversion and Trafficking of Prescription Drugs. July 17, 2012. Accessed July 20, 2012.
[v] New York State Office of the Attorney General. A.G. Schneiderman Announces Arrests In $274 Million Black Market Prescription Drug Operation. April 4th, 2012. Accessed July 20, 2012.
[vi] U.S. Food and Drug Administration. Update to FDA Alert About Stolen Insulin. August 26, 2009. Accessed November 12, 2010.
[vii] Ciolek, Michelle M., Special Agent, Office of Criminal Investigations, U.S. Food and Drug Administration. Affidavit in support of search warrant. July 21, 2009. USA v. Altec Medical Inc and RX healthcare Inc. Document number: 8:09-cr-00814-WMC
[viii] Forsaith, Chuck. Corporate Director, Supply Chain Security, Purdue Pharma L.P. “Cargo Theft.” Presentation, 2010 PDA/FDA Pharmaceutical Supply Chain Workshop. Bethesda, MD. April 26-28, 2010.
[ix] United States Attorney’s Office, Southern District of Florida. Eleven Indicted in Pharmaceutical Thefts. May 3, 2012. Accessed July 20, 2012.
[x] Serono, Inc. Serostim [somatropin (rDNA origin) for injection]. Press Release, January 2001. Accessed February 17, 2011.
[xi] Otto, Alex. Counterfeit Serostim Found Nationwide. Pharmacy Today. American Pharmacists Association. March 1, 2001. Accessed October 13, 2010.
[xii] Dutchess Business Services Inc. v. Nevada State Board of Pharmacy. No. 46345. September 11, 2008. Accessed February 17, 2011.
[xiii] Williamson, Joyce P. Statement of Serono before the task force on drug importation. , Accessed February 17, 2011.
[xiv] Counterfeit Pharmaceutical Inter-Agency Working Group Report to the Vice President of the United States and to Congress. March 2011. Accessed April 22, 2011.
[xv] Administration’s White Paper on Intellectual Property Enforcement Legislative Recommendations. March 2011. Accessed April 22, 2011.

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