Penalties for counterfeit drugs

Section two amends subparagraph 2 of paragraph a of subdivision 4 of section 6808 of the education law, as amended by chapter 62 of the laws of 1989, by increasing the application fee that shall accompany the registration for a wholesaler or manufacturer to one thousand two hundred dollars from the current eight hundred twenty-five dollars.

Section three amends paragraphs band d of subdivision 4 of section 6808 of the education law, paragraph b as amended by chapter 538 of the laws of2001 and paragraph d as amended by chapter 62 of the laws of 1989. Paragraph b is amended by providing that the triennial registration fee that is paid by wholesalers and manufacturers shall be increased to eight hundred dollars, from five hundred dollars, or a pro rated portion as determined by the department. Paragraph d provides that in the event that the location of a business changes, the fee for inspection and endorsement shall be increased to three hundred dollars from the current one hundred seventy dollars.

Section four amends subdivision 4 of section 6808 of the education law by adding six new paragraphs e, f, g, h, i and j. Paragraph e provides that any applicant for registration as a wholesaler or manufacturer shall be of good moral character, as determined by the department of education. Such requirements shall extend to all persons responsible for the distribution of a prescription drug for the applicant as determined by the department. Paragraph f provides that upon receipt of a registration, the commissioner shall initiate a criminal history records search of any of the persons identified in paragraph e. Prior to conducting the criminal history records search and fingerprinting process, the commissioner shall obtain permission from the applicant. The commissioner shall obtain two sets of fingerprints from each applicant and any fees necessary to process such fingerprints. The commissioner shall promptly transmit the fingerprints to the division of criminal justice services who shall submit the fingerprints to the federal bureau of investigation for a national criminal history record check. Such criminal history record will be considered for the purpose of establishing good moral character. "Criminal history record" is defined. All such criminal history records shall be confidential. The commissioner is authorized to charge the applicant additional fees for the criminal history record search. Paragraph g provides additional duties of the commissioner and the department, such as promulgating a form to be provided to all applicants for registration purposes. The department shall obtain the signed, informed consent of each applicant with regard to obtaining and reviewing the applicant's criminal history record. Specifics of such consent form are outlined. Paragraph h provides that every wholesaler shall submit a performance or surety bond of not less than one hundred thousand dollars to the department to ensure compliance with the provisions of this article. The department may waive such bond for certain not-for-profit entities or other certain wholesalers. Paragraph I provides that the department may promulgate rules and regulations to exempt from the requirements of paragraphs e, f, g and h a wholesale r that has received accreditation body approved by the commissioner and that meets the licensing standards under this subdivision. Paragraph j provides that the commissioner shall exempt certain manufacturers from certain requirements in the event that such requirements are not required by federal law or regulation, unless the commissioner determines that such requirements are necessary to prevent a risk to prescription drug distribution in the state.

Section five amends the education law by adding a new section 681 O-a and provides certain acts which shall be considered unlawful if committed by a manufacturer, wholesaler or other person. Such acts include intentionally packaging, selling, transferring, distributing or delivering any prescription drug that he or she knows to be adulterated, misbranded, counterfeit or has been rendered unfit for distribution. It shall be a class D felony to violate this section. Additionally, any adulterated, misbranded, counterfeit, or unfit drugs may be subject to seizure.

Section six amends the education law by adding a new section 681 O-b which provides that every manufacturer shall establish and maintain a pedigree for each prescription drug, and every wholesaler, pharmacy or other person who furnishes or dispenses a prescription drug shall maintain a pedigree for each prescription drug. A pedigree shall be in a form and contain information as determined by the department of education (SED). Minimal information that shall be included is outlined.

Every pedigree shall be maintained for a period of three years, or a reasonable period of time as determined by the commissioner of education and shall be made available for inspection by SED. A pedigree shall be maintained in an electronic pedigree tracking system or other acceptable format beginning January 1, 2011. One year extensions may be issued by SED in order to comply. Feasibility of a format shall be determined by SED. Certain outlined criteria shall be considered in determining the feasibility of any format used. Any person who violates any provision of this Section shall be subject to a fine.

Section seven amends section 6824 of the education law, as added by chapter 987 of the laws of 1971, by adding a violation of any provision of section sixty-eight hundred ten-a of this article to the list of violations for which the secretary is authorized to apply to a court for injunction.

Section eight provides the effective date.

Justification

The marketing of counterfeit drugs has become prevalent throughout the United States as well as around the world. The World Health Organization (WHO) estimates that counterfeit drugs make up 10% of all drugs sold worldwide, with the percentage much higher in developing countries. January 2009 Report by the American Council on Science and Health, "Counterfeit Drugs: Coming to a Pharmacy Near You with an Update for 2009" (ACSH 2009 Report). The counterfeit drug industry's sales are estimated to be $39 billion or 11 % of global pharmaceutical commerce, and expected to climb to $75 billion by 201 O. Peter Pitts, "Counterfeit Drug Sales to Reach &75 Billion by 2010, Report Says," The Heartland Institute, November 1, 2005. Moreover, counterfeit drugs have contributed to the increasing drug resistance of the most deadly infectious diseases such as HIV/AIDS, tuberculosis and malaria.

Despite the view that the U.S. drug supply is among the most secure in the world, the growing size and sophistication of counterfeit drugs rings have allowed them to penetrate the legitimate drug supplies of the United States. In the last five years, counterfeit drug investigations by the Office of Criminal Investigations of the Food

and Drug Administration (FDA) have increased almost ten-fold, from 6 in 2000 to 59 in 2004.

There is, however, no way to know the true degree to which counterfeit drugs have contaminated our drug supply. Most of the incidents go undetected since the evidence is usually destroyed when the drug is consumed and the results of taking the counterfeit drug are blamed on other causes, such as incorrect diagnosis, or in the case of HIV / AIDS further complications and death are expected. Even if we accept the FDA's estimate that 1% or less of all drugs sold in the U.S. are counterfeit (compared to a WHO estimate of 5% to 7%), the odds are 1 in 100 that the drug a consumer receives at a pharmacy in the U.S. is counterfeit and that out of the 4 billion prescriptions filled in the U.S. last year, as many as 40 million may have been filled with counterfeit versions. We have recently experienced two highly publicized examples of counterfeit drugs: Lipitor tablets used to lower cholesterol, where in New York State alone, in 2005 New Yorkers received an estimated 100,000 dosage units of counterfeit Lipitor; and Procrit, an injectable drug used to stimulate red blood cell growth to treat sever anemia and anemia related to treatment for HIV/AIDS. Counterfeits of other well-known brands as well as drugs used to treat critically-ill patients were found distributed in U.S. in the last few years to hundreds of thousands of unwitting patients, including:

* Combivir, used to prolong the life of HIV/AIDS patients by preventing the virus from reproducing--replaced with another HIV medication that can cause fatal allergic reactions

* Serostim, a human growth hormone used to prevent HIV/AIDS patients from wasting-replaced with dangerous levels of a fertility drug * Celebrex, used to treat arthritis--replaced with vitamins

* Viagra, used to treat impotence--over 700,000 counterfeit pills were manufactured

* Zyprexa, used to help prevent hallucinations and delusions in schizophrenic and bipolar patients--replaced with aspirin

* Neupogen, an injectable used to boost the immune system of cancer patients-replaced with saline.

ACSH 2009 Report. In addition, there have been multiple incidents involving counterfeit versions of Tamiflu, used to treat seasonal or avian flu. Aside from the obvious direct result of receiving the counterfeit medicine, treatment from counterfeit versions may also increase the risk of causing the virus to develop a resistance to the Tamiflu drug.

The nature of the drug supply system in the U.S. makes our drugs ripe for diversion and counterfeiting. The path of a drug from manufacturer to distributor to pharmacy more often than not is not a single or linear one; in fact, a substantial portion of our drugs flow through a complex network of distributors, intermediaries and secondary wholesalers. When wholesale distributors buy drugs without knowing all the previous owners of the product, the integrity of the product cannot be assured. This was the case for Long Island youth Timothy Fagan, who was only 16 years old when he took a single vial of what he thought was Epogen, a medication to increase red blood cells, to help him recover from a liver transplant. However, at some point in the distribution of the drug from manufacturer to pharmacy the drug had been tampered with and the drug was a counterfeit. Timothy suffered through several months of excruciating pain before his physicians discovered that he had received a counterfeit medication and is now forced to take medication for the rest of his life.

Although a federal law, the Prescription Drug Manufacturing Act (PDMA) was enacted more than 20 years ago to assure the safe and effective distribution of prescription drugs and to minimize the risks to consumers from taking counterfeit or adulterated drugs by, among other things, imposing a requirement on wholesale distributors to maintain either a paper or electronic pedigree of prescription drugs, the FDA delayed the effective date for implementing the regulations relating to the pedigree requirements until December 1, 2006. At the request of a group of secondary wholesalers, the federal district court for the eastern district of New York in December stayed the effective date of certain of the pedigree requirements.

To better secure the drug supply system pending implementation of federal law, we must adopt at the state level a multi-layered strategy that combines establishing pedigree requirements in the context of the developing anti-counterfeit technology, strengthening the licensing requirements of wholesalers and increasing penalties for those who violate the law so that our regulatory and enforcement agencies have the authority to carry out the law.

Three states, Idaho, North Dakota and South Dakota, signed into law legislation that tightens licensure requirements of wholesalers and establish pedigree requirements for prescription drugs, requiring their respective boards of pharmacies to set a target date for implementation of electronic pedigree technology to track prescription drugs through the supply chain. In addition, nineteen states including California, have enacted laws or regulations establishing pedigree requirements. The Food and Drug Administration Amendments Act of 2007 includes a provision that requires the development of a standardized numerical identifier be applied to a prescription drug at the point of manufacturing and repacking at the package or pallet level, sufficient to facilitate the identification, validation, authentication and tracking and tracing of the prescription drug.

It is the intent that requiring electronic pedigree, with lot-level information as is available today, will provide a near-term solution to further secure the pharmaceutical supply chain and help enhance patient safety. It should be noted that to the extent that a wholesaler, retail pharmacy or other person furnishing, administering or dispensing a prescription drug does not currently have the capability to maintain lot level information, the legislature does not intend that such person be required to expend funds at this time to acquire technology specifically to maintain lot-level information.

It is the further intent that a standardized numerical identifier, when available, in combination with electronic pedigree, will allow us at that time to track and trace the movement of prescription drugs throughout the entire distribution system, from manufacturer, to wholesaler, to retail pharmacy or other person furnishing, administering or dispensing a prescription drug. In order to track prescription drugs all the way through the system to the retail pharmacy, it is important that the format use technology that includes each product's standardized numerical identifier' that allows the tracking to occur at the retail level. It is acknowledged that the technology that would allow us to track the movement of prescription drugs throughout the distribution system is currently being developed in the industry. To ensure that the technology format required by this bill accomplishes the intent of the legislation, it is important that the format be determined to be acceptable by SED. In order for the technology format to be determined "feasible," it is critical that the format use state of the art technology, readily available with respect to all prescription drugs, be compatible with, and provide information that can be read by, the format that is standardized, nonproprietary, and widely available and used by manufacturers, wholesalers and retailers, including chain and independent pharmacies and hospital pharmacies, and that it be interoperable among all members in the distribution system. While the format that is currently being developed is sometimes referred to as "track and trace," the legislature recognizes that the format that is ultimately determined to be "feasible" as provided in the bill may be referred to as something different than a "track and trace" system or may be a different format.

The legislature further acknowledges that the FDA is in the process of developing standards for identifying, validating, tracking and tracing, and authentication for prescription drugs, particularly a standardized numerical identifier to be applied to a prescription drug at the package level. The bill recognized that in determining the feasibility of the format, the format must at minimum be consistent with federal standards for a standardized numerical identifier. In its January 2009 Guidance for Industry, "Standards for Securing the Drug Supply Chain Standardized Numerical Identification for Prescription Drug Packages," the FDA provided guidance for standards for prescription drug standardized numerical identifiers at the package level. For that purpose, the FDA considers the package to be "the smallest saleable unit placed into interstate commerce by the manufacturer or the repackager for sale to the pharmacy or other dispenser of the drug product." The industry continues its efforts to develop a format that will meet the, needs of all members in the distribution system as well as the standards for the technology to identify, validate, track and trace, and authenticate prescription drugs through the entire distribution system.

Use of an electronic pedigree tracking system by all parties in the pharmaceutical supply chain, beginning with the manufacturer, would be required in 2011, provided that the SED has determined that the system then available is feasible at that time. Pending determination by SED that the electronic pedigree tracking system or other technology format is feasible, the bill does not require the acquisition or adoption by any member of the distribution system (namely, manufacturers, wholesalers and retailers, including chain and independent pharmacies and hospital pharmacies, and other persons furnishing, administering or dispensing a prescription drug) of any interim technology to comply with the electronic pedigree requirements of the bill. Rather, the intent of the bill is to require that members of the distribution system utilize the technologies they currently utilize (or intend to utilize regardless of the enactment of this legislation) in conducting their businesses in accordance with business practice and federal and state laws in effect in order to meet the electronic pedigree requirements set forth in this legislation.

This bill will establish a system to help ensure that drugs that enter the market and purchased by consumers will be unadulterated by counterfeiters. By strengthening the licensing requirements of manufacturers and wholesalers by, among other things, carrying out criminal background checks and requiring surety bonds, as well as by establishing a system for electronic pedigrees and establishing criminal penalties for violations of this article, we will better ensure that the drugs we purchase will be safe. Since the bill provides that all manufacturers establish and maintain an electronic pedigree for each prescription drug, and all wholesalers, pharmacies and other persons furnishing, administering or dispensing a prescription drug maintain an electronic pedigree for each prescription drug, the bill will avoid facing the same legal challenge by secondary wholesalers that the FDA faced in the federal district court.

Without enacting legislation at the state level to address the weaknesses inherent in our drug supply system, we will continue to leave the public vulnerable to individuals who are willing to harm, and even kill, people for profit. LEGISLATIVE HISTORY : 2008 and 2007, A.7810-C referred to higher education; same as S.5290-C referred to health. 2006 and 2005, A.2957-B referred to higher education; same as S.3278-A, referred to higher education (passed Senate in 2005).

Fiscal implications

None to the state.

Effective date

On the one hundred and eightieth day after it shall become law.