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Fake Pharmaceuticals: How They and Relevant Legislation or Lack Thereof Contribute to Consistently High and Increasing Drug Prices

Published online by Cambridge University Press:  06 January 2021

Merri C. Moken
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Extract

The use of pharmaceutical products in the United States has increased more than the use of any other health resource from 1960 to 1990. In excess of 9,600 drugs were on the market in 1984, and the Food and Drug Administration (“FDA”) approves approximately 30 new drugs and countless new applications for alterations of already existing drugs each year. In 2001, the $300 billion pharmaceutical industry sold $154 billion worth of prescription drugs in the United States alone, nearly doubling its $78.9 billion in sales in 1997. With such a rapid increase in market domination and expenditures, the U.S. government and many hospitals have focused their attention on the sales and pricing practices of pharmaceutical companies, as well as other potential factors contributing to these escalating prices. One such cause of the steadily increasing prices of brand name pharmaceuticals is the sale of fake or counterfeit pharmaceuticals (also called “look-alike” drugs).

Type
Research Article
Information
American Journal of Law & Medicine , Volume 29 , Issue 4 , December 2003 , pp. 525 - 542
Copyright
Copyright © American Society of Law, Medicine and Ethics and Boston University 2003

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References

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18 A chemist from the Swedish manufacturer, Astra, noted odd-looking imprints on Astra's drug, Selokeen, a cardiac beta-blocker, when surveying the product in the Dutch market. Masland & Marshall, supra note 7, at 37.

19 Corbett, supra note 15, at 1085; EAST ASIAN EXEC. REPORTS, supra note 6. A California pharmacist noticed that the perfect-looking Naprosyn smelled wrong, discovering that it was a counterfeit filled with aspirin. The pills could have killed patients who unwittingly took them. Masland et al., supra note 7, at 37.

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23 Swain, supra note 22, at http://devicelink.com/pmpn/archive/03/01/004.html. See Goodman, supra note 20 (describing the widespread practice of counterfeiting, and its costs and consequences).

24 Corbett, supra note 15, at 1084-89; Kontnik, supra note 9, at 25.

25 This counterfeit Andriamicin was imported by the United States from French manufacturers. Masland & Marshall, supra note 7, at 37. See, e.g., Goodman, supra note 20 (describing the counterfeit drug trade in China and dangers it poses).

26 Masland et al., supra note 7, at 37. Many other fake pharmaceuticals have plagued and continue to plague the American market. See, e.g., United States v. Kelly, 993 F.2d 702 (9th Cir. 1993) (explaining that defendant packaged vials of cottonseed oil and marketed them as anabolic steroids, which, in one year, would produce a revenue of $2 million per 100,000 vials). Bottles of counterfeit HIV drug, Combivir, were found in California, Connecticut, Florida, and Maryland. Naomi Aoki, Real Fears Over Phony Drugs: US Health Officials View Spate of Recent Cases as Evidence of Rising Trend, BOSTON GLOBE, May 29, 2002, at C1. In 2002, pharmacists found that generic aspirin had been substituted for Zyprexa, a drug for schizophrenia. Ridgely Ochs, Sounding Alarm on Counterfeit Drugs: FDA Investigating Recent Spate of Fake Drug Cases, NEWSDAY, June 12, 2002, at A6. Serostim, a drug used in preventing deterioration of the bodies of AIDS patients, has been found in counterfeit forms in California, Florida, Kentucky, Michigan, Missouri, New Jersey, and Ohio. Faking It: Counterfeit Drugs on the Rise, at http://www.cbsnews.com/stories/2002/01/31/health/main327669.shtml (Aug. 1, 2001).

27 Masland & Marshall, supra note 7, at 37, 43.

28 Goodman, supra note 20, at A1.

29 E.g., id. One Chinese hospital gave a patient a bottle supposedly containing the blood protein, albumin, but which instead contained toxins, causing the patient's death. Id.

30 The counterfeit, Lincocin, was a drug diluted with contaminated water. Masland & Marshall, supra note 7, at 37.

31 Goodman, supra note 20. See also FORUM EUROPE, GLOBAL HEALTHCARE AND DEVELOPMENT: THE EU POLICY DIMENSION, BACKGROUND REPORT 17 (2002) [hereinafter FORUM EUROPE], available at http://www.efpia.org/5_conf/Globalhealthcare040602.doc (stating that 38% of anti-malarial pills in Vietnam and other South-East Asian countries did not contain any active ingredient and caused multiple deaths).

32 FORUM EUROPE, supra note 31, at 17.

33 Corbett, supra note 15, at 1085.

34 Sarah Lueck, FDA Is Faulted on Fake Drugs, WALL ST. J., May 10, 2000, at B4.

35 Id.

36 Id.

37 Corbett, supra note 15, at n.12; Goodman, supra note 20.

38 Masland & Marshall, supra note 7, at 36.

39 Goodman, supra note 20.

40 Corbett, supra note 15, at 1086, 1096.

41 Id. at 1085.

42 Masland & Marshall, supra note 7, at 36.

43 Id. at 36.

44 See id.

45 See id.

46 Masland et al., supra note 7, at 37.

47 Id. Counterfeiter, Javid Naghdi, was responsible for 1,200 bottles of fake Naprosyn sold from Texas to Seattle, and was apprehended in a sting operation when he offered 9 million bottles of Tagamet, Naprosyn, and Anspor to brokers. Id. Naghdi asserts that pharmacists commonly trade illegally in manufacturers’ samples and that many wholesalers know that what they are purchasing is not from the manufacturer. Naghdi was convicted of nine counts of fraud and received a fourteenyear sentence. See United States v. Naghdi, 953 F.2d 1389 (9th Cir. 1992).

48 Goodman, supra note 20.

49 Id.

50 Mary Pat Flaherty & Gilbert M. Gaul, Millions of Americans Look Outside U.S. for Drugs: Desire for Low Prices Often Outweighs Obeying the Law, WASH. POST, Oct. 23, 2003, at A1.

51 Id.; William H. Rastetter, Pharmaceuticals from Abroad: A Looming Threat to U.S. Consumers, SAN DIEGO UNION-TRIB., Jan. 2, 2002, at B7.

52 Between 1981 and 1984, more than one million counterfeit birth control pills were smuggled into the United States through Panama. Masland et al., supra note 7, at 37.

53 Susan J. Landers, Pharmaceutical Fakes, Knockoffs a Growing Problem: The Prevalence of Counterfeit Drugs in Other Nations Is Sparking Concern About the Reimportation of Pharmaceuticals, AMEDNEWS.COM, at http://www.amednews.com/2001/hlsb1126 (Nov. 26, 2001).

54 United States v. Acosta, 17 F.3d 538, 540 (2nd Cir. 1994). The FBI found hundreds of counterfeit labels, sealing materials, and pamplets during a search. Id. at 541.

55 Adam Scheer, Pharmaceutical Counterfeiting, Tampering and Diversion: The Threat to World Health and the Quest for Solutions, Part One (2002) (on file with author).

56 EUROPEAN FEDERATION OF PHARMACEUTICAL INDUSTRIES & ASSOCIATIONS, Position Paper, Response to Commission's Green Paper on Combating Counterfeiting and Piracy in the Single Market, § B-2(2) (Jan. 1999), available at http://www.efpia.org/4_pos/legal/counterfeitingA.pdf [herinafter EFPIA, RESPONSE].

57 Ochs, supra note 26.

58 This would be enhanced by the Medical Extension of Drugs to Seniors Act of 2000. Deregulation used to counter rising drug prices would actually lead to an increase in fake pharmaceutical imports. That the United States would be allowed to re-import FDA-approved drugs manufactured in U.S. facilities does not eradicate the number of unknowns with respect to what befalls the drugs after they are exported. Scheer, supra note 55.

59 Goodman, supra note 20.

60 Mills, David, Cybermedicine: The Benefits and Risks of Purchasing Drugs Over the Internet, 5 J. TECH. L. & POL’Y 1, 7, 17 (2000)Google Scholar.

61 Id. at 2.

62 Scheer, supra note 55.

63 James V. Green & Brian H. Murray, Online Distribution of Counterfeit Pharmaceuticals, A Cyveillance White Paper, at 1 (Oct. 2001) (on file with author).

64 Id. at 2.

65 Scheer, supra note 55.

66 Rastetter, supra note 51.

67 The United States was the setting for a $100 million market of counterfeit anabolic steroids in the late 1980s to early 1990s. Masland & Marshall, supra note 7, at 36.

68 See Goodman, supra note 20.

69 Masland & Marshall, supra note 7, at 36. Nagdhi's 1,201 bottles of fake, aspirin-filled Naprosyn were manufactured for $21,185 and sold for $192,680, realizing an 809% profit. Masland et al., supra note 7, at 37.

70 Goodman, supra note 20. The World Health Organization estimates that the fake pharmaceutical trade is worth at least as much as $32 billion per year, up from $10 billion per year in 1997. Kontnik, supra note 9, at 25.

71 Masland & Marshall, supra note 7, at 36.

72 See Chaudhry, Peggy E. & Walsh, Michael G., Intellectual Property Rights: Changing Levels of Protection Under GATT, NAFTA, and the EU, 30 COLUM. J. WORLD BUS. 80, 81 (1995)CrossRefGoogle Scholar.

73 Scheer, supra note 55; Green & Murray, supra note 63.

74 EAST ASIAN EXEC. REPORTS, supra note 6.

75 See id. U.S. exportation of pharmaceuticals to Indonesia dropped 75% from 1997 to 1998. During this time, costs of the drugs increased 4 to 5 times in rupiah terms. Id. Although the rupiah strengthened and Indonesia increased importation of U.S. pharmaceuticals in 1999, the increase of imports only amounted to 50% of what it had been in 1997. Id.

76 Kontnik, supra note 9, at 25.

77 See id. at 24 n.4 (describing the consequences a manufacturer may suffer as a result of counterfeit drugs).

78 Scheer, supra note 55; Green & Murray, supra note 63; Alok Agarwal, Pharma Companies Combine Forces to Battle Spurious Drugs, at http://www.domain-b.com/industry/pharma/20001030pharma_drugs.html (Oct. 30, 2000).

79 See Ochs, supra note 26.

80 See, e.g., Bale, Harvey E. Jr., Patent Protection and Pharmaceutical Innovation, 29 N.Y.U. J. INT’L L. & POL. 95 (1997)Google Scholar; Scheer, supra note 55; FORUM EUROPE, supra note 31, at 6.

81 Fisher, supra note 1, at 222.

82 See, e.g., Nisid Hajari, Swallowing Bitter Pills: Fake and Adulterated Medicines Are Posing Health Risks Greater Than Diseases They’re Meant to Cure, TIME INT’L, Jan. 26, 1998, at 44; FORUM EUROPE, supra note 31, at 17. One example of such resistance is evident in the high rate of antibiotic-resistant tuberculosis along the Mexican border. This resistance seems to be a result of the large percentage of fake drugs trafficked and used in that vicinity. Pecoul, Bernard et al., Access to Essential Drugs in Poor Countries – A Lost Battle?, 281 JAMA 361, 363 (1999)CrossRefGoogle ScholarPubMed.

83 Bale, supra note 80, at 98; Landers, supra note 53, at http://www.amednews.com/2001/hlsb1126.

84 Bale, supra note 81, at 95.

85 Landers, supra note 53, at http://www.amednews.com/2001/hlsb1126.

86 FORUM EUROPE, supra note 31, at 6.

87 Fisher, supra note 1, at 222; FORUM EUROPE, supra note 31, at 6.

88 Scheer, supra note 55.

89 Masland & Marshall, supra note 7, at 43.

90 See, e.g., EAST ASIAN EXEC. REPORTS, supra note 6. Counterfeits in Indonesia were sold at cut-rate prices to move them quickly and make their origins more difficult to trace.

91 Goodman, supra note 20 (discussing China).

92 See, e.g., Carter, supra note 5, at § 8. Convicted counterfeiters may be punished under 21 U.S.C. § 333 with penalties of up to three years of imprisonment and up to $10,000 in fines. For application of these statutes, see, e.g., United States v. Acosta, 17 F.3d 538, 541, 543 (2d Cir. 1994) (resulting in a sentence of two years of probation and 300 hours of community service).

93 Masland & Marshall, supra note 7, at 43.

94 See supra Part II.B.

95 Corbett, supra note 15, at 1086. See also Chaudhry & Walsh, supra note 72, at 84 (discussing the abysmally low fines and sentences ordered after pharmaceutical companies proceeded against counterfeiters via the court). The head of the International Federation of Pharmaceutical Manufacturers Associations, Harvey Bale, insists that many countries fail to “have strong inspectorates within their medicines regulatory bodies” and asserts that the governments of India and Eastern Europe only exacerbate the problem of fake drug proliferation by colluding with organized crime to distribute and market these fakes. Tamar Kahn, Health Talks Should Look at Fake Drugs, BUSINESS DAY, at http://www.bday.co.za/bday/content/direct/1,3523,1162950-6078-0,00.html (Aug. 28, 2002).

96 Corbett, supra note 15, at 1086. In Asia, many regulators of the pharmaceutical industry are corruptible and easily bribed. The laws are so lax that as long as the counterfeit drug contains any active ingredient, its sale no longer constitutes a criminal offense, but is now a trademark violation, punishable to a much lesser degree. In another instance in India, a counterfeit drug supplier bribed laboratories and hospital officials to falsify safety reports of counterfeited eye drops, yet ten years later, the only person punished for the scheme was the official who aided in exposing it. Hajari, supra note 82.

97 Corbett, supra note 15, at n.22.

98 Rastetter, supra note 51.

99 Id.

100 Chaudhry & Walsh, supra note 72, at 101.

101 See Masland & Marshall, supra note 7, at 43.

102 Id.

103 Goodman, supra note 20. In 2000, China created a State Drug Administration which closed 1,300 factories in 2001 and investigated 480,000 cases involving counterfeit drugs worth $57 million. Investigators in one instance found $60,000 worth of fake drugs during one of their raids, yet arrested no one and hypothesized that local police had tipped off the counterfeiters. Id.

104 Id.

105 Bayer Pharmaceuticals is one company redesigning its tamper-proof packaging for many of its product lines, after discovering in early 2002 that vials of Gamimune N, used to treat individuals with weakened immune systems, had been tampered with and diluted in many instances. Seventy-five percent of Americans suffering from a primary immune deficiency would use a drug like Gamimune N. See, e.g., Ochs, supra note 26.

106 Masland & Marshall, supra note 7, at 43.

107 Id.

108 Goodman, supra note 20.

109 Id.

110 Kontnik, supra note 9, at 25.

111 Id. Glaxo has also employed such packaging changes successfully in the United States, Latin America, and China. Id.

112 Id.

113 See id.

114 Swain, supra note 22, at http://devicelink.com/pmpn/archive/03/01/004.html.

115 Landers, supra note 53, at http://www.amednews.com/2001/hlsb1126.

116 Swain, supra note 22, at http://devicelink.com/pmpn/archive/03/01/004.html.

117 Scheer, supra note 55.

118 Swain, supra note 22, at http://devicelink.com/pmpn/archive/03/01/004.html.

119 Id.

120 Scheer, supra note 55.

121 See id.

122 See id.

123 American Banknote Holographics manufactures these seals, which can be made transparent so as not to interfere with product appearance or obscure marketing labels. The seal has a tamperapparent break pattern, black light verification system, and machine-readable embedded code, the first of which is useful to consumer inspection and the latter two are highly useful in preventing importation of counterfeits at the border. Id.

124 FORUM EUROPE, supra note 31, at 22.

125 The World Intellectual Property Organization asserts that through employment of the patent system, developing countries should experience an increase in research activities and drug production. No one would invest in research and development in the absence of the patent system. Id.

126 Id. at 23. The FDA witnessed first-hand the status of bulk drug plants in China and India during their inspection and determined that these plants would be unable to compete in the United States. HOUSE COMMITTEE ON COMMERCE, News Release, Bliley Issues Statement on Counterfeit Bulk Drugs (Oct. 3, 2000) (on file with author).

127 FORUM EUROPE, supra note 31, at 26.

128 Id. at 15, 26. The European Union advocates implementing a tiered pricing system to supply genuine and essential medicines to developing countries at the lowest possible prices. Id.

129 See, e.g., Hajari, supra note 82 (remarking that even while sharply lowering the price of fake drugs, counterfeiters can still realize profits of 300% of production costs).

130 See sources cited supra note 96.

131 See Chaudhry & Walsh, supra note 72, at 88, 89.

132 The British government is looking to lower ceilings on drug company profits, and the French governments has proposed a 10% cut in drug advertising. Id. at 89.

133 See, e.g., Melissa Schorr, Prescription to Purpose, ABCNEWS (Sept. 20, 2000) (on file with author); Ceci Connolly, Pharmaceutical Spending Continues Steady Increase: A Few Heavily Advertised and High-Priced ‘Blockbuster’ Medications Drive 17 Percent Increase, WASH. POST, Mar. 29, 2002, at A9, available at http://www.washingtonpost.com/ac2/wp-dyn/A33611-2002Mar28.

134 EUROPEAN FEDERATION OF PHARMACEUTICAL INDUSTRIES & ASSOCIATIONS, Position Paper, International Exhaustion of Trade Mark Rights: Protecting Patients–The Importance of Trade Mark Rights for Medicines (Apr. 2001), available at http://www.efpia.org/4_pos/legal/protecpatients.pdf.

135 Id.

136 Rastetter, supra note 51. See RECONNAISSANCE INTERNATIONAL, Pharmaceutical Global Forum: Pharma AntiCounterfeiting Forum Calls For Concerted Action (stating that “lack of communication is hampering action”) (on file with author).

137 Hajari, supra note 82.

138 EFPIA, RESPONSE, supra note 56, at § B-4-8(3).

139 Ochs, supra note 26. The section of the Prescription Drug Marketing Act of 1987, referred to as the Pedigree Rule, reads as:

Each drug manufacturer or distributor which makes distributions by mail or common carrier under this paragraph shall maintain, for a period of 3 years, the request forms submitted for such distributions and the receipts submitted for such distributions and shall maintain a record of distributions of drug samples which identifies the drugs distributed and the recipients of the distributions. Forms, receipts, and records required to be maintained under this subparagraph shall be made available by the drug manufacturer or distributor to Federal and State officials engaged in the regulation of drugs and in the enforcement of laws applicable to drugs.

Prescription Drug Marketing Act of 1987, Pub. L. No. 100-293, 102 Stat. 95 (1988).

140 Ochs, supra note 26.

141 See id.

142 RECONNAISSANCE INT’L, supra note 136.

143 New Service Will Help Firms Fight Fake Drugs, at http://www.iccwbo.org/home/news_archives/2002/stories/drugs.asp (Nov. 8, 2002).

144 See Landers, supra note 53, at http://www.amednews.com/2001/hlsb1126 (suggesting that reimportation should be, at the very least, limited).

145 See Green & Murray, supra note 63, at 2 (citing difficulty of detecting counterfeiters despite the number of man-hours devoted to the task).

146 Id.

147 Of the 190 Internet sites investigated in late 2001, most did not disclose information for the legality of their pharmaceuticals to be properly determined. John A. MacDonald, Fake Drugs Color Debate on Imports: Congress Ponders Risks of Bringing Medicines Across the Border, HARTFORD COURANT, Aug. 21, 2002, at A1.

148 In one Internet fake-drug scheme, beginning in 1998, although the virtual pharmacy site owners failed to obtain required licenses and fraudulently issued prescriptions using the names of doctors who were not affiliated with the virtual pharmacy in any way, they advertised themselves as running a legitimate business. Linda Bren, Investigators’ Reports: Love and Illegal Drugs on the Internet, 36 FDA CONSUMER 38 (Sept.-Oct. 2002), available at http://www.fda.gov/fdac/departs/2002/502_irs.html (stating that the defendants were charged with misbranding drugs); Nora Macaluso, Feds Bust Web Drug Fraud Ring, E-COMMERCE TIMES, at http://www.ecommercetimes.com/perl/story/3973.html (Aug. 8, 2000) (describing fraud of using names of foreign doctors to obtain prescriptions).

149 Michelle Meadows, Imported Drugs Raise Safety Concerns, 36 FDA CONSUMER 18, 23 (Sept.-Oct. 2002), available at http://www.fda.gov.fdac/features/2002/502_toc.html. The FDA notified Internet vendors of foreign made ciprofloxacin, an antibiotic used to treat anthrax, that the it would take action against them if sales of counterfeits did not cease. Updates: Internet Vendors Warned About Unapproved Cipro, 36 FDA CONSUMER 4 (Jan.-Feb. 2002), available at http://www.fda.gov/fdac/departs/2002/102_upd.html; Prescription for Trouble: Some Web Sites Make it All Too Easy to Get Medicine Without Getting Appropriate Medical Advice, CONSUMER REP., Feb. 2001, at 19, 22 (2001) [hereinafter Prescription for Trouble].

150 Meadows, supra note 149, at 23.

151 Prescription for Trouble, supra note 149, at 19; MacDonald, supra note 148.

152 Saving Money on Prescription Medicines, CONSUMER REP. ON HEALTH, at http://www.consumerreports.org/main/detailv2.jsp?CONTENT%3C%3Ecnt_id=21751&FOLDER%3C%3Efolder_id=21135&bmUID=1031336750624 (last visited Nov. 12, 2003) [hereinafter Prescription Medicines]; Meadows, supra note 149.

153 Prescription Medicines, supra note 152, at http://www.consumerreports.org/main/detailv2.jsp?CONTENT%3C%3Ecnt_id=21751&FOLDER%3C%3Efolder_id=21135&bmUID=1031336750624.

154 MacDonald, supra note 147.

155 In 1996, the importation of nine different counterfeit drugs, including the antibiotic gentamicin, into the United States from Flavine International resulted in many deaths, at least 66 of which are attributed to fake gentamicin alone. The FDA's memoranda demonstrate that it was aware of the counterfeits and of the deaths. However, the FDA did not take any action until three years later when it put an end to the gentamicin imports. This only occurred after hospitals in California and Colorado began associating negative reactions in patients after administration of such drugs. Despite the continued adverse effects witnessed after use of Flavine International products, the FDA allowed the company to continue exporting to the United States pharmaceuticals that were manufactured by the same counterfeiters in China. CBS Evening News with Dan Rather: Counterfeit Prescription Drugs Pose Danger to All Americans, (CBS television broadcast, June 8, 2000) (on file with author). Additionally, it is of note that in 1999, about 242 foreign firms exported counterfeits to the United States, yet were never investigated or inspected by the FDA. HOUSE COMMITTEE ON COMMERCE, News Release, supra note 126.

156 W.J. “Billy” Tauzin, Chairman, Tauzin Delivers Statement on Imported Pharmaceuticals (June 7, 2001), at http://energycommerce.house.gov/107/news/06072001_270print.htm.

157 House Commerce Committee chairman, Tom Bliley, made this remark to FDA Commissioner Jane Henney. U.S. Slammed Over Counterfeit Bulk Drugs, MARKETLETTER (May 15, 2000) (on file with author). The House Commerce Committee has undertaken investigations of reports that counterfeit drugs have killed American consumers, and is looking into the measures officials have taken to stop it. U.S. to Seek Tougher Law on Fake Drug Ingredients (Oct. 3, 2002) (on file with author).

158 See supra Part V.B.