BILL ANALYSIS                                                                                                                                                                                                    Ó







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        |Hearing Date:August 28, 2014       |Bill No:SB                         |
        |                                   |600                                |
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                      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.)





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        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  





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             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,  





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             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  





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          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  





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           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  





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           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  





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           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  





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           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  





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           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:
         





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        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