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known, and without even suggesting it to him I feel quite certain that he transmitted that information very adequately.
Mr. WILLIAMS. You don't know whether he did! Mr. KURYLOSKI. I just feel certain that he did. I don't know whether he did.
Mr. WILLIAMS. That is all.
Mr. BROWNSON. There being no further questions we thank the witness very much for his cooperation.
TESTIMONY OF MURRAY MILLER, VICE PRESIDENT AND
TREASURER OF THE RETORT PHARMACEUTICAL CO.
Mr. BROWNSON. I will swear Mr. Murray Miller. It will not be necessary to swear his counsel.
Murray Miller, being first duly sworn, was examined and testified as follows:
Mr. BROWNSON. I would like to call your attention to Rule No. 16 of the House Committee on Government Operations which statesAny witness summoned at a public hearing, unless the committee or subcommittee by a majority vote determines otherwise, may be accompanied by counsel wbo shall be permitted to advise the witness as to his rights. Counsel shall not testify or make any statement without consent of a majority of the committee or subcommittee present.
Will you give your name and official title to the reporter?
Mr. MILLER. Murray Miller. I am vice president and treasurer of the Retort Pharmaceutical Co., Inc., and also vice president and treasurer of Cole Laboratories, Inc.
Mr, BROWNSON. Will you supply the name of your counsel ?
Mr. GLADSTONE. T. E. Gladstone, Corcoran & Kostelanetz, 52 Wall Street, New York City.
Mr. BROWNSON. Mr. Miller, will you please give the subcommittee a brief summary of the history of the Retort Pharmaceutical Co. and the Cole Laboratories, indicating whether they are incorporated, and the relationship between the two organizations, the number of employees in each organization, and the type of business conducted by each organization?
Mr. MILLER. Cole Laboratories was organized in 1935, and Retort Pharmaceutical Co. was registered in about 1941 and incorporated in either 1945 or 1946. It has been in the business of producing pharmaceuticals since 1941.
The Cole Laboratories supplies the Government and public institutions as does Retort Pharmaceutical Co.
During World War II, Cole Laboratories earned the Army-Navy E and a star with it, and was recommended for a third award when the war was ended.
We are one of the small firms who earned more than 1 flag or 1 citation. We employed up to 250 people at one time. Our average has been about 100 and at the present time it is somewhere between 60 and 75.
Mr. BROWNSON. Is that 60 or 75 in one company or both?
Mr. MILLER. Both. There is no distinction or separation between the two, except the Retort Pharmaceutical Co. does the pharmaceutical end of the business and Cole the chemical end of it, chemical compounding.
Mr. BROWNSON. The corporate structure is identical? Mr. MILLER. The same. As a matter of fact, Cole controls and owns 100 percent of the stock of Retort.
Mr. BROWNSON. Where are the two companies incorporated ?
Mr. MILLER. 4225 Ninth Street, Long Island City, N. Y. We occupy a building of about thirty or thirty-five thousand square feet, and some ten or fifteen thousand feet of yard space.
Mr. BROWNSON. What percentage of your two businesses taken together volumewise is constituted by Government contracts?
Mr. MILLER. About 50 percent. Our business has been supplying the Government of the United States since the inception of our company in 1935.
Mr. BROWNSON. Before November of 1951, had your firm ever manufactured or sold hexylresorcinol pills?
Mr. MILLER. No, sir.
Mr. BROWNSON. It has been testified that your firm bid successfully on six hexylresorcinol contracts between November of 1951 and July of 1952. Can you testify from the records and documents that you were requested to bring with you how you arrived at the price of $0.142, 14.2 cents, under the first contract for the million and a half vials of hexylresorcinol pills?
Mr. MILLER. Yes, sir; I can.
Mr. BROWNSON. I understand that these documents which the witness has with him are the sole copies of the documents which he has, and he has requested that he be allowed to take them back intact and has offered to supply the subcommittee with photostatic copies of such portions as they may require.
Mr. GLADSTONE. That is correct, sir.
Mr. BROWNSON. All right. Can you trace for us, from the time you received this invitation to bid, the processes you went through to arrive at your total bid which was then entered on the bid form and sent into Washington ?
Mr. MILLER. We checked the cost of the raw material, hexylresorcinol, and also the component materials which go into the manufacture of the tablet.
We then obtained the cost of the vials. We estimated the manufacturing costs of manufacturing and coating. We estimated the cost of filling the bottle, packing into the cartons, the cost of labels, cost of labeling, the cost of the cartons, the cost of the wooden cases, and we arrived at a figure which enabled us to bid $0.142, that is, 14.2 cents,
Mr. Brownson. Do you happen to have an example of your packaging and bottling with you, by any chance? Mr. MILLER. No, sir; I do not.
Mr. BROWNSON. I know you were not requested to bring it. I thought you might possibly have one.
Mr. MILLER. As a matter of fact, I thought of that on the train. It was too late then.
Mr. Brownson. On what date did you finally arrive at that cost? Is your cost sheet dated ?
Mr. MILLER. Dated November 5, sir.
Mr. BROWNSON. What process did you go through to arrive at your cost for your second shipment, your second contract ?
Mr. MILLER. We went through the same process, sir, except that we were able to effect economies in the price of the raw material. We were able to effect economies in the cost of the vials. We found that we could fill a bottle and package the stuff at a lower cost.
Mr. BROWNSON. Sharp & Dohme has just testified, for instance, that to arrive at their figure of 12 cents in the second contract they eliminated part of the packaging. What economies did you effect which enabled your price to be lowered?
Mr. MILLER. Our economy was simply that we could buy the raw material, the hexylresorcinol, at a better price, and we could manufacture and do the labor at a better price, and we were able to buy the cartons at a better price, the labels, and all the material all along the line.
We still maintained the same percentage of profit, and we arrived at a figure of $0.1175.
Mr. BROWNSON. In other words, on the basis of your first experience you found out there were certain savings in your manufacture and you considered that in your second bid !
Mr. MILLER. Yes.
Mr. Judd. Do you have invoices showing purchases of your raw material, hexylresorcinol?
Mr. MILLER. I don't have them with me.
Mr. Judd. You do have them, to show the committee how much you paid for your first shipments, how much less you paid for second purchases?
Mr. MILLER. Well, on the first estimate, on the first bid, we hadn't made any purchases. We only obtained our quotation. It was after that time we effected savings over the original prices.
Mr. Judd. You have records to show that you paid a lower price Mr. MILLER. Oh, than we figure? Indeed we have, sir. Mr. JUDD. Those ought to be submitted. Mr. BROWNSON. You don't have those records with you? Mr. MILLER. No, sir. Mr. Judd. For their own protection they ought to have the records of what they actually paid for their raw materials to lower their estimates so they can justify some of the reported savings.
Mr. BROWNSON. We would appreciate your providing us with photostats of those invoices.
Mr. MILLER. Yes, sir.
Mr. JUDD. Do you recall from what major manufacturers you bought the hexylresorcinol?
Mr. MILLER. "From two firms-Hexagon Laboratories, and Arenol. They are two companies who have been manufacturing hexylresorcino1 over a period of years. It was not a new material to them.
Mr. BROWNSON. This is the first time, though, that you had ever manufactured the hexylresorcinol pills ?
Mr. MILLER. That is right, sir.
Mr. Brownson. Sharp & Dohme have testified that it took them in the neighborhood of a year to arrive at a satisfactory coating which would keep the hexylresorcinol in the pill under control. What
Mr. MILLER. That seal is made in the application of the gelatin. As I understand the procedure and the process, there are coatings upon coatings put on to these tablets until the outer coating becomes strong enough to resist pressure.
Mr. JUDD. That still doesn't answer the question. Formaldehyde makes an outer seal. It hardens the outside layer of gelatin. That is why you contend it is not dangerous because it is used only to corrode to harden—the outside layer. Then after it is hardened the formaldehyde is rubbed off, or it evaporates. That doesn't deal with the inner seal.
Mr. MILLER. I will have to defer to our Dr. Mellen on that, sir.
Mr. BROWNSON. Would you be kind enough to supply that information from your technical department?
Mr. MILLER. Indeed.
Mr. BROWNSON. Is there an inner seal immediately surrounding the hexylresorcinol material! The Sharp & Dohme people testified that in their process they took the hexylresorcinol material and then put on a subcoating which had a tendency to protect the gelatin from the hexylresorcinol.
Mr. MILLER. All right, sir.
Mr. JUDD. Someone has said these were examined and didn't contain gelatin. Was that the Food and Drug Administration?
Mr. BROWNSON. That was Sharp & Dohme's laboratory analysis.
Mr. JUDD. I see where Food and Drug reported they were not satisfactory, Somebody testified that they were not satisfactory, but I wondered if it was on the basis of the drug inside or the coating.
Mr. WILLIAMS. The coating was described as brittle.
Mr. BROWNSON. One of the Food and Drug examinations, which I have before me, failed to reveal gelatin.
Mr. Judd. That is what I saw somewhere.
Mr. BROWNSON. This is the examination of March 27, 1953. It states:
Analysis has been completed on a sample identified as followsthen it lists the sample in the contractthe product fails to comply with USP requirements for assay. USP requires that hexylrescorcinol pills contain not less than 91 percent and not more than
Mr. MILLER. 109, sir.
Mr. BROWNSON (continues reading): 109 percent of the labeled amount of the hexylresorcinol. Our examination shows not more than 85.6 percent of the labeled amount. The USP further requires that hexylresorcinol pills be covered with a tough gelatin coating. The pills apparently do not conform in this respect. Our Washington laboratories also failed to get a positive test for gelatin in the coated pill. Incidental to the above examination our Washington laboratories noted that the pills were quite resistant to synthetic gastric juice as well as to saturated sodium carbonate solutions. They consequently wondered if the pills could be absorbed after ingestion. Some of the pills were given orally to dogs, and it was found that they were apparently disintegrated and absorbed.
Mr. MILLER. Might I reply to that, sir?
Mr. MILLER. Our reply is dated April 3, and it is written to the United States Food and Drug Administration, 201 Varick Street, New York,