BILL ANALYSIS Ó ----------------------------------------------------------------------- |Hearing Date:August 28, 2014 |Bill No:SB | | |600 | ----------------------------------------------------------------------- SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Ted W. Lieu, Chair Bill No: SB 600Author:Lieu As Amended:August 22, 2014 Fiscal: Yes SUBJECT: Drugs. SUMMARY: Repeals California's electronic pedigree law to conform to the federal Drug Quality and Security Act and declares that any foreign dangerous drug that is not approved by the United States Food and Drug Administration, or that is obtained outside the licensed supply chain, to be misbranded and that anyone who purchases or sells that drug is guilty of a misdemeanor and subject to a fine of not more than $10,000. NOTE : The Assembly amendments create a new bill and this measure has been referred to the Committee pursuant to Senate Rule 29.10 (d) for consideration. The Committee may, by a vote of the majority, either: (1) hold the bill, or (2) return the bill to the Senate floor for consideration of the bill as amended in the Assembly. Existing federal law: 1)Establishes the United States Food and Drug Administration (FDA) to protect the public health by assuring the safety, effectiveness, quality, and security of human and veterinary drugs, vaccines and other biological products, and medical devices through the Food, Drug, and Cosmetic Act (FDCA). (21 United States Code (USC) 301 et seq.) 2)Establishes the Drug Supply Chain Security Act (Act), as part of the Drug Quality and Security Act (DQSA), which outlines steps to build an electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in the United States. (21 USC 351 et seq.) SB 600 Page 2 3)Defines "illegitimate product" as a product for which credible evidence shows that the product: (21 USC 360eee) a) Is counterfeit, diverted, or stolen; b) Is intentionally adulterated such that the product would result in serious adverse health consequences or death to humans; c) Is the subject of a fraudulent transaction; or, d) Appears otherwise unfit for distribution such that the product would be reasonably likely to result in serious adverse health consequences or death to humans. 1)Defines "suspect product" to mean a product for which there is reason to believe that such product: (21 USC 360eee) a) Is potentially counterfeit, diverted, or stolen; b) Is potentially intentionally adulterated such that the product would result in serious adverse health consequences or death to humans; c) Is potentially the subject of a fraudulent transaction; or, d) Appears otherwise unfit for distribution such that the product would result in serious adverse health consequences or death to humans. Existing California law: 1)Establishes the practice of pharmacy and provides for the licensing and regulation of pharmacies and pharmacists by the Board of Pharmacy (Board). (Business and Professions Code (BPC) §§ 4000 et seq.) 2)Defines "dangerous drug" or "dangerous device" to mean any drug or device unsafe for self-use in humans or animals, and includes the following: a) Any drug that bears the legend: "Caution: federal law prohibits dispensing without prescription," "Rx only," or words of similar import; b) Any device that bears the statement: "Caution: federal law restricts this device to sale by or on the order of a ____," "Rx SB 600 Page 3 only," or words of similar import, the blank to be filled in with the designation of the practitioner licensed to use or order use of the device; or, c) Any other drug or device that by federal or state law can be lawfully dispensed only on prescription, as specified. 1)Establishes California's electronic pedigree (e-pedigree) law which creates a record in electronic form containing information regarding each transaction resulting in a change of ownership of the given prescription drug, including returns. (BPC § 4034 et seq.) 2)Establishes the Sherman Food, Drug, and Cosmetic Law, administered by the State Department of Public Health (DPH), which regulates the packaging, labeling, and advertising of drugs and devices. (Health and Safety Code (HSC) §§ 109875 et seq.) 3)Declares it unlawful for any person to manufacture, sell, deliver, hold, or offer for sale any drug or device that is misbranded. (HSC § 111440) 4)Declares any drug or device to be misbranded if its labeling is false or misleading in any particular. (HSC § 111330) 5)Declares any drug or device to be misbranded unless it bears a label containing all of the following information: a) The name and place of business of the manufacturer, packer, or distributor; and, b) An accurate statement of the quantity of the contents in terms of weight, measure, or numerical count. (HSC § 111340) 8)Declares any drug to be misbranded unless its label bears, to the exclusion of any other nonproprietary name except the applicable, systematic chemical name or the chemical formula, all of the following information: a) The established name of the drug, if any; b) If it is fabricated from two or more ingredients, the established name and quantity of each active ingredient, including the kind and quantity or proportion of any alcohol, and also including, whether active or not, the established name and quantity or proportion of any bromides, ether, chloroform, acetanilide, acetophenetidin, antipyrine, atropine, hyoscine, SB 600 Page 4 hyoscyamine, codeine, arsenic, digitalis, digitalis glycosides, mercury, ouabain, strophanthin, strychnine, barbituric acid, or any derivative or preparation of any substances contained therein; c) For nonprescription drugs, the quantity or proportion of each active ingredient and the established name of each inactive ingredient, as specified; and, d) The requirement for stating the quantity of the active ingredients of any drug, including the quantity or proportion of any alcohol, and also including, whether active or not, the quantity or proportion of any bromides, ether, chloroform, acetanilide, acetophenetidin, antipyrine, atropine, hyoscine, hyoscyamine, codeine, arsenic, digitalis, digitalis glycosides, mercury, ouabain, strophanthin, strychnine, barbituric acid, or any derivative or preparation of any substances contained therein, shall apply to all drugs, including prescription drugs and nonprescription drugs. For any prescription drug the established name of the drug or ingredient, as the case may be, on the label and on any labeling on which a name for the drug or ingredient is used shall be printed prominently and in type at least half as large as that used thereon for any proprietary name or designation for the drug or ingredient. (HSC § 111355) 9)States that any person who violates any provision of the Sherman Food, Drug, and Cosmetic Law, if convicted, is subject to imprisonment for not more than one year in the county jail or a fine of not more than $1,000, or both the imprisonment and fine. (HSC §111825) This bill: 1)Repeals provisions of current pharmacy law to conform to the federal DQSA. 2)Declares any foreign dangerous drug that is not approved by the FDA or that is obtained outside of the licensed supply chain regulated by the FDA, Board, or DPH to be misbranded. 3)Declares it a misdemeanor for any person to purchase a foreign dangerous drug or medical device, illegitimate product, or suspect product, as specified, that is not approved by the FDA or that is obtained outside of the licensed supply chain regulated by the FDA, Board, or DPH. States that a person who makes such a purchase is SB 600 Page 5 subject to imprisonment for not more than one year in county jail, a fine of not more than $10,000 per occurrence, or both the imprisonment and fine. 4)States that drugs imported lawfully under the federal FDCA or pursuant to an official announcement by the FDA for certain purposes, including clinical research, drug shortages and pandemic influenza response, are not misbranded, as specified. 5)States that certain penalty provisions are not applicable to individuals who the FDA has determined as having acted in compliance with the Act regarding illegitimate or suspect products. 6)Clarifies that this bill does not preclude punishment under any other law that provides for a greater punishment. 7)Makes other technical or clarifying changes. 8)States that no reimbursement is required by this act because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, as specified. FISCAL EFFECT: This bill is keyed "fiscal" by Legislative Counsel. According to the Assembly Committee on Appropriations analysis dated August 6, 2014, this bill will result in negligible costs to Board and unknown, potentially higher penalty revenue for misbranded drugs, depending on enforcement. COMMENTS: 1. Purpose. This bill is sponsored by the Author . According to the Author , patients may be treated with drugs and devices that are represented as FDA-approved but are often of unknown origin and quality which can result in significant harm to these patients. The Author notes that when a drug is illegally imported, there is no guarantee as to the active ingredients in the drug or the potency of the drug. Imported drugs may contain too little active ingredient, in which case therapeutic effects will be minimized. Alternatively, these products may contain too much active ingredient, which can result in harm to consumers and negative interactions with other medications. Manufacturing, storage, packaging and transportation of imported drugs are not regulated by the FDA. This can lead to degradation of the product and harm to SB 600 Page 6 consumers. Some imported medicines - even those that bear the name of a U.S.-approved product - may, in fact, be counterfeit versions that are unsafe or even completely ineffective. Some imported medicines and their ingredients, although legal in foreign countries, may not have been evaluated for safety and effectiveness in the United States. These products may be addictive or may contain other dangerous substances. Imported drugs may be labeled in languages that American consumers do not understand and may make medical claims or suggest specific uses that have not been adequately evaluated for safety and effectiveness. Additionally, imported drugs may lack information about side effects caused by the medicine. 2. Drug Supply Regulation. The Food, Drug and Cosmetic Act (FDCA) was passed by Congress to ensure public confidence in our drug distribution system and to require that drugs are both safe and effective. The FDCA requires FDA to regulate drug manufacturers and to approve drugs for sale but also requires state governments to regulate the drug distribution system by licensing and regulating drug wholesalers. In the simplest situation, a manufacturer sells drugs directly to one of the major wholesalers who then sell the drugs to a hospital or pharmacy. However, this simple distribution pattern is not the only distribution route taken through the supply chain. Typically, there is more than one wholesaler who receives the drugs before they reach the pharmacy. These transactions include transfers between separate facilities owned by major wholesalers and transfers between the major wholesalers and the large drug store chains that have their own wholesale facilities in the company distribution system. Common carriers may transport the drugs between licensed entities and in some cases will store, select and then ship products to pharmacies at the direction of manufacturers. The distribution system is further complicated by the practice of "repackaging." Unlike European countries and Canada, most drugs in the United States are not packaged in a "unit of use" size by the drug manufacturers. Instead, many drugs are sold by the manufacturers in large bulk containers and then are repackaged by additional companies into smaller containers for resale to the pharmacy. And the distribution system is complicated yet again by the existence of a "secondary" wholesale market. "Secondary" wholesalers are smaller companies (often regional down to small family owned companies) that focus their business on selling drugs to other wholesalers and serving smaller niche clients that are not routinely served by the major wholesalers (individual SB 600 Page 7 practitioners, small clinics, rural locations, etc.). Drugs routinely move between both primary and secondary wholesalers and from pharmacies to secondary wholesalers as well. These intermediate steps pose the greatest opportunities for compromising the integrity of the drug distribution system. The primary threat to system integrity is the introduction of counterfeit products. Counterfeit drugs are most likely to be introduced into a distribution system that involves multiple wholesalers because drugs are largely untraceable unless they are only handled by a major wholesaler who purchases directly from the manufacturer. Without being able to trace a drug back, there is no assurance to the consumer that the drug has been stored and handled appropriately to preserve its potency and safety. In response to a growing threat to the pharmaceutical supply chain from counterfeit, misbranded, adulterated or diverted drugs, California enacted SB 1307 (Figueroa, Chapter 857, Statutes of 2004) which made comprehensive changes to the drug distribution system to protect the integrity of the pharmaceutical supply chain. That legislation enacted the nation's strongest pharmaceutical consumer protection measure and included provisions pertaining to the licensure and qualifications of wholesalers, restrictions on furnishing and the requirement, beginning January 1, 2007, of an electronic pedigree (e-pedigree) to accompany and validate drug distributions for the purpose of tracking each prescription drug at the saleable unit (item) level through the distribution system. Subsequent Board sponsored legislation, SB1476 (Figueroa, Chapter 658, Statutes of 2006) delayed the implementation date for the e-pedigree component to January 1, 2009 and granted the Board the authority to extend the deadline an additional two years to allow the industry additional time to implement technologies necessary for electronic pedigrees. In 2008, the Board sponsored SB 1307 (Ridley-Thomas, Chapter 713, Statutes of 2008), which amended the law to resolve implementation issues, specifically staggering and extending the implementation dates for e-pedigree compliance, establishing grandfathering of existing stock in the supply chain, allowing the Board to establish criteria for inference, and preempting California's requirements in the event federal legislation is enacted in this area. Per SB 1307, California's e-pedigree requirements for prescription drugs would have taken effect on a staggered basis from January 1, 2015 through July 1, 2017: 50 percent of a manufacturer's products by 2015 would have had to have an e-pedigree; the remaining 50 percent of the manufacturer's products would have had to have an e-pedigree by 2016; wholesalers and repackagers would have had to accept and forward products with the e-pedigree by July 1, 2016 and; pharmacy SB 600 Page 8 and pharmacy warehouses would have had to accept and pass e-pedigrees by July 1, 2017. In 2013, Congress passed and President Obama signed H.R. 3034, the DQSA. Among other provisions, the bill created a national set of standards to track pharmaceuticals through the distribution chain, aimed at curbing illegal importation and patient harm caused by counterfeit drugs and devices. The new law contained two parts - the Compounding Quality Act and the Drug Supply Chain Security Act. The Compounding Quality Act created a voluntary compliance regime where compounding pharmacies that voluntarily register as "outsourcing facilities" will be subject to oversight by the FDA in much of the same way that traditional pharmaceutical manufacturers are monitored. The Drug Supply Chain Security Act built upon California's e-pedigree efforts to create a national electronic track and trace system for prescription drugs. The Act will replace the patchwork system adopted by individual states and create a unified national program. In doing this, the Act explicitly preempted any state's requirements for tracing products through the distribution system that are inconsistent with, more stringent than, or in addition to any of the requirements under the Act, effectively preempting California's e-pedigree law. This bill repeals those invalid sections of the Pharmacy Law. 3. Counterfeit drugs. Counterfeit and unapproved drugs pose a serious threat to consumers. Efforts to combat the use of counterfeit and unapproved drugs have become increasingly challenging, as supply chains have become more complex and global. According to the FDA, nearly 40% of the drugs Americans take are made elsewhere, and about 80% of manufacturing sites of active pharmaceutical ingredients used in drugs manufactured inside the United States are located in more than 150 countries. Counterfeit drugs falsely represent a product's identity through unauthorized representation of a legitimate trademark, trade name, or other likenesses. Counterfeiting can apply to both branded and generic products, and counterfeit drugs may fail to meet the quality and safety standards established by national and state regulatory authorities, and may contain dangerous substances, incorrect dosages, or no active ingredient. According to a 2013 report from the Brookings Institution, although SB 600 Page 9 data associated with counterfeit and unapproved drugs are limited due to the clandestine nature of counterfeiting, certain trends have emerged which may indicate that a wide spectrum of counterfeit drugs are being manufactured and distributed. While reports of counterfeit and unapproved drugs were initially associated with "lifestyle drugs" (e.g., those for erectile dysfunction, weight loss), counterfeiters have expanded into more profitable and specialty markets, including drugs for chronic and life threatening diseases. Investigations and seizures have revealed counterfeit and unapproved versions of HIV/AIDS drugs, pain drugs, antibiotics, insulin, cholesterol drugs, hormone replacement therapy, flu drugs, cancer drugs, anti-arthritic drugs, cardiac drugs, anti-parasitic drugs, and antihistamines. Research has indicated that in 2011, cancer drugs represented the eighth most commonly counterfeited medical product worldwide. The report found that in recent years, unscrupulous distributors have expanded their tactics to target clinical settings for the sale of counterfeit and unapproved drugs. Medical offices are often contacted through mass advertising campaigns via "blast faxes," phone calls, direct email, and online marketing. These distributors often target clinics and hospitals for sale of physician-administered drugs, including a variety of injectable drugs. The report notes that most of the nationwide efforts to combat counterfeit and unapproved products have focused on the major players in the drug supply chain, such as drug manufacturers and distributors. However, there have been fewer inroads in targeting the purchasing of drugs by patients and health care professionals, who may be lured by significantly lower prices from drugs available outside the nationwide supply. This bill targets this practice by clarifying in state law that a drug that is not approved by the FDA or obtained outside of the federal and state licensed supply chain is a "misbranded drug," and that purchasing a misbranded drug is a misdemeanor. This bill also increases the fine for violations from $1,000 to $10,000. 4. Related Legislation This Year. AB 2605 (Bonilla) of 2014 requires third party logistic providers who provide storage, handling, or distribution services, to be licensed by the California Board of Pharmacy. ( Status : This measure is pending in the Senate.) 5. Prior Related Legislation. SB 294 (Emmerson, Chapter 565, Statutes of 2013), expanded the types of sterile compounded drugs for which SB 600 Page 10 a license is required and requires inspection of nonresident sterile compounding pharmacies by the Board. SB 1307 (Ridley-Thomas, Chapter 713, Statutes of 2008) extended the implementation dates for e-pedigree compliance, establishing grandfathering of existing stock in the supply chain, allowing the Board to establish criteria for inference, and preempted California's requirements in the event federal legislation is enacted in this area. SB 1476 (Figueroa, Chapter 658, Statutes of 2006) delayed the implementation date for the e-pedigree component to January 1, 2009 and granted the Board the authority to extend the deadline an additional two years to allow the industry additional time to implement technologies necessary for electronic pedigrees. SB 1307 (Figueroa, Chapter 857, Statutes of 2004) required, beginning January 1, 2007, an electronic pedigree to accompany and validate drug distributions for the purpose of tracking each prescription drug at the saleable unit level through the distribution system. 6.Arguments in Support. The Healthcare Distribution Management Association writes in support of this bill, noting that it will help California achieve goals of ensuring that prescription medicine is safe, secure and accessible to patients in need. According to the Los Angeles County District Attorney's Office , "the black market importation and distribution of pharmaceuticals and medical devices is not only illegal but it also poses health risks to consumers." The Office also notes that because of the significant danger posed to consumers, especially those consumers who are in need of life saving pharmaceuticals and medical devices, it is important to update California law and increase the penalties associated with this unscrupulous practice. SUPPORT AND OPPOSITION: Support: Healthcare Distribution Management Association Los Angeles County District Attorney's Office Neutral: SB 600 Page 11 California Retailers Association Generic Pharmaceuticals Association National Association of Chain Drug Retailers Pharmaceutical Research and Manufacturers of America (PhRMA) Opposition: None on file as of August 26, 2014. Consultant:Sarah Mason