Outsourcing Practices Scrutinized by Congress

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PTSM: Pharmaceutical Technology Sourcing and Management

PTSM: Pharmaceutical Technology Sourcing and Management-08-06-2008, Volume 4, Issue 8

The pharmaceutical industry?s outsourcing practices receive increased attention as Congress evaluates the role of outsourcing in drug-safety issues.

In late July 2008, Sen. Sherrod Brown (D-OH) issued a letter to Merck & Co. (Whitehouse Station, NJ) to request additional information on the company’s outsourcing practices. Brown is a member of the Senate Committee on Health, Education, Labor and Pensions. The committee held hearings in April 2008 on FDA's inspection process as part of investigation of contaminated heparin supplies from China. The hearings included testimony from Janet Woodcock, director of FDA’s Center for Drug Evaluation and Research and from Pfizer ( New York).

In his letter dated June 24, 2008 to Merck, Brown requested the following information:

• Specific mechanisms that the company uses to track the chain of custody for each ingredient in its drugs and biologics

• Procedures the company uses to ensure that every facility in the chain operates in a manner consistent with Merck’s quality and safety standards

• The percentage of external sourcing that the company contracts out to US-based companies

• The top 10 countries to which Merck outsources by the percentage of business outsourced

• A rough percentage breakout of the types of outsourcing for which Merck has contracted in each country

• The estimated average and median wages paid at companies producing active pharmaceutical ingredients for Merck in each country, compared with the average and median wages that would be paid had Merck manufactured these functions internally.

Brown also requested an analysis of the top three reasons that typically prompts the company’s decision to outsource to China, India, and other developing nations. He also requested that the company assess the impact of its outsourcing activities on the price of drugs it sells in the United States.

This is the second time Brown has requested information on the outsourcing activities of large pharmaceutical companies. Brown also directed a letter to Gerald Migliaccio, vice-president of quality at Pfizer, who testified at the April Senate HELP Committee hearing that Pfizer outsources 17% of its active ingredients and drug-product manufacturing. Brown requested additional information on the following:

• The amount of annual cost-savings by Pfizer for outsourcing

• A list of instances in which Pfizer has outsourced to a “firm in a country without drug-safety standards comparable to those of the US in whole or part because that firm has the technical capacity nowhere available in the US.”

In his letter to Pfizer, Brown said that pharmaceutical outsourcing raises several important issues. He cited “the increased risk associated with drug components manufactured in countries with notoriously weak and unenforced drug-safety standards…; the negative impact of pharmaceutical outsourcing on US jobs and US communities…; [and] the fact that despite paying a steep price for pharmaceutical outsourcing, our nation still pays the highest prices in the world for prescription drugs.”

Also in June, Brown requested additional information from FDA on on the volume of outsourced drug ingredients, the added cost of regulating outsourced ingredients, and the bearer of these costs. Specifically, Brown asked FDA to supply estimates of the volume of pharmaceutical ingredients outsourced by US drug manufacturers to China and other countries “with weaker drug-safety regimens than those of the US.” He also requested estimates for “the incremental annual cost of protecting the public from tainted pharmaceutical ingredients produced in countries without drug-safety regimes comparable to those in the US.” Brown further asked that Woodcock offer her opinion on the best means of holding drug companies accountable when they outsource.


Foreign inspection scrutiny

In addition to seeking more information on outsourcing, Congress is evaluating FDA’s system of inspecting foreign drug-manufacturing facilities. In April 2008, the US House of Representatives Energy and Commerce Committee issued a discussion draft on the Food and Drug Administration Globalization Act of 2008 to address the funding and authority of FDA in regulating the safety of the country’s drug supply. The discussion draft was designed to stimulate discussion in Congressional hearings and serve as basis for drafting legislation. The discussion draft builds on four other bills (H.R. 3610, H.R. 3624, H.R. 3115, and H.R. 3484) and investigations conducted by the House Committee on Energy and Commerce’s Subcommittee on Oversight and Investigations, a report from FDA Science Board’s Subcommittee on Science and Technology, the Administration’s Food Protection Plan and Import Plan, and input from other stakeholders. The proposed measures include the following:

• Creating an up-to-date registry of all drug and device facilities operating within the US or exporting products to the US. These facilities would be required to register annually with FDA. Registration would require payment of an annual fee to cover the cost of FDA inspections.

• Requiring FDA to inspect foreign and domestic drug and device facilities every two years. Manufacturers would be prohibited from introducing a drug, drug ingredient, or device into interstate commerce until an initial facility inspection has occurred. Registration would be suspended for refusing, impeding, or delaying an inspection.

• Restricting entry of imports lacking certain compliance documentation. After a phase-in period, importers of drugs for commercial use who lack compliance documentation relating to identity, safety, and purity would be required to ship products only through ports of entry with federal testing laboratories.

• Requiring manufacturers of drugs and drug ingredients to test for contaminants

• Allowing FDA to issue fines for violations of drug-safety requirements, extending FDA’s authority to recall drugs and detain unsafe drugs discovered during inspections, and allowing FDA to destroy counterfeit or adulterated commercial imports

• Requiring drug labels to identify the source of the API and its place of manufacture and to require device labels to indicate the country of manufacture

• Creating a dedicated foreign inspectorate within FDA

• Prohibiting FDA from closing or consolidating any of the 13 field laboratories or 20 district offices that were operational as of Jan. 1, 2007 (1).


1. US House of Representatives Energy and Commerce Committee,Discussion Draft of the Food and Drug Administration Globalization Act of 2008 (Washington, DC, Apr. 2008), accessed July 14, 2008.