With Drug Company Profits Soaring, Sen. Brown Renews Investigation of Drug Industry Outsourcing to China

With News of Pfizer's Second Quarter Profits More Than Doubling Due in Part to Cost-Cutting Measures, Senator Expands Investigation of Drug Industry Trend of Outsourcing to China and Other Developing Nations

WASHINGTON, July 24, 2008 – In the wake of news that Pfizer’s second quarter profits more than doubled due in part to cost-cutting measures, U.S. Senator Sherrod Brown (D-OH) today renewed his investigation of pharmaceutical outsourcing and its effect on drug safety. Brown, who has already called on Pfizer to explain the safety implications of its outsourcing practice, today sent a letter to Merck asking for further information on its heavy reliance on global outsourcing for the manufacture of pharmaceutical ingredients and finished products.

“This is about corporate responsibility and consumer safety,” said Brown. “Drug company profits cannot come at the expense of consumer safety. Pharmaceutical companies must be able to guarantee the safety of their products and trace the origin of their ingredients.”

Yesterday, Pfizer announced that its second quarter profits had more than doubled over last year, due in part to cost-cutting measures. At an April 24, 2008 Senate Health, Education, Labor and Pensions (HELP) Committee, an FDA official acknowledged that American drug companies outsource operations due to cost factors and the existence of weaker drug safety standards abroad. At the same hearing, a representative from Pfizer confirmed that 17 percent of the company’s active ingredients and drug manufacturing is outsourced.

In response to these concerns and reports on the rapid growth of Merck’s outsourcing practice, Brown today wrote to Merck for clarification on how the company guarantees the safety of pharmaceutical ingredients and final products.

In an interview conducted on January 9, 2008, Merck’s Senior Vice President of Global Procurement, Richard Spoor, noted that Merck is “moving in the direction of externally sourcing approximately 35% of the overall manufacture of active pharmaceutical ingredients, intermediates, formulated pharmaceuticals, sterile products, vaccines, and packaging by 2010.” He went on to say that “This would represent a two-fold increase over what we currently source from external manufacturers.”

Following up on those comments, Brown has requested the Merck report on the:
• specific mechanism it uses to track the chain of custody for each ingredient in its drugs and biologics;
• procedures used to ensure that every facility in the chain operates in a manner consistent with its quality and safety standards;
• percentage of its external sourcing that has been contracted out to U.S.-based companies;
• top ten countries to which it outsources by the percentage of business outsourced;
• estimated average and median wages paid at companies producing active pharmaceutical ingredients for Merck

Brown’s letter to Merck follows his call on the FDA to evaluate how it safeguards the American public from drug products containing contaminated, outsourced ingredients. Brown also wrote to Pfizer asking for further clarification on testimony that 17 percent of Pfizer’s active ingredients and drug product manufacturing is outsourced. Brown requested that Pfizer report to the Senate HELP Committee how much Pfizer saves each year from outsourcing as well as on the frequency and nature of its outsourcing to countries with less stringent drug oversight standards.

Earlier this month, Brown received a response letter from Pfizer on its practice of outsourcing drug manufacturing and ingredient collection to countries with less stringent drug safety standards. Pfizer claimed that outsourcing does not compromise the safety of American consumers and that looser safety standards and lower costs do not motivate company decisions.

A full copy of Brown’s letter to Merck is below:


Richard T. Clark
Chairman of the Board,
President and Chief Executive Officer
Merck & Co., Inc.
One Merck Drive
P.O. Box 100
Whitehouse Station, NJ 08889

Dear Mr. Clark:

I am writing in regard to Merck & Co.’s well-publicized reliance on global outsourcing for the manufacture of pharmaceutical ingredients and finished products.

As a leader in the pharmaceutical industry, Merck helps set the bar for cost, quality, safety, and access in the global pharmaceutical market. I believe the insights your organization can provide about outsourcing will be extremely valuable as Congress considers the impact of global pharmaceutical outsourcing on pharmaceutical safety and spending, as well as the future role of the pharmaceutical industry in the U.S. economy.

In an interview conducted on January 9, 2008, Merck’s Senior Vice President of Global Procurement, Richard Spoor, noted that Merck is “moving in the direction of externally sourcing approximately 35% of the overall manufacture of active pharmaceutical ingredients, intermediates, formulated pharmaceuticals, sterile products, vaccines, and packaging by 2010.” He went on to say that “This would represent a two-fold increase over what we currently source from external manufacturers.”

Following up on those comments, I would appreciate it if you would provide the following information:

1) the specific mechanism(s) you use to track the chain of custody for each ingredient in the drugs and biologics you sell.

2) The procedures you use to ensure that every facility in the chain operates in a manner consistent with Merck’s quality and safety standards.

FDA is not required to inspect foreign manufacturing plants. Does FDA periodically inspect every facility that produces an ingredient or finished product procured by Merck, including ingredients procured by contractors from a third party? If not, how does Merck assure that all the facilities in the chain of custody meet reasonable quality and safety standards?

3) the percentage of your external sourcing that has been contracted out to US-based companies;

4) The top ten countries to which Merck outsources, by the percentage of business outsourced;

5) A rough percentage break-out of the types of outsourcing for which Merck has contracted in each country, using the categories referenced in Mr. Spoor’s comments;

6) The estimated average and median wages paid at companies producing active pharmaceutical ingredients for Merck in each country, compared to the average and median wages that would be paid had Merck manufactured these functions internally. If this analysis would require an unrealistic amount of data gathering and analysis, representative comparisons using a few contractors in each country would suffice.

I would also appreciate your analysis of the three top reasons that typically prompt your decision to outsource to China, India, and other developing nations. If the reasons differ by nation, region, or product, it would be useful for those distinctions to be specified.

In addition, please assess the impact of your outsourcing activities on the price of the medicines you sell in the United States. It would be particularly useful if you could provide and document a few instances in which you modified the listed U.S. price of a drug or vaccine to reflect outsourcing activities.
Finally, I ask that you outline the strategies Merck uses to ensure that the products manufactured by contractors meet the same quality and safety profile as those applicable to Merck-manufactured products. As part of your response, I ask that you confirm that every pharmaceutical component and finished product you procure is manufactured in an FDA-approved facility. Further, I ask that you confirm that no company with which you contract procures ingredients for Merck products from a third party with facilities that are not FDA-approved.

Merck’s aggressive use of outsourcing is a pivotal development in the drug and biologic arena. I am confident that your answers to the questions above will help Congress evaluate the effects, positive and negative, of pharmaceutical outsourcing, and I thank you in advance for supplying those answers.

Sincerely,

Sherrod Brown
U.S. Senator

 

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Press Contacts:
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Posted: July 2008


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