The majority of counterfeit drugs are being manufactured in China and India with China serving as the epicenter. Where once counterfeiters could operate there with impunity, drug companies like Pfizer ($PFE) and Eli Lilly ($LLY), makers of often faked erectile dysfunction drugs, now find Chinese authorities willing to put a stop to the operations.
"China is still the main manufacturing center," Pfizer security chief John Clark tells Bloomberg Businessweek. "On the other hand, we get good law enforcement cooperation."
According to a detailed story in Bloomberg Businessweek, networks of suppliers set up shop near legitimate API makers of key drugs. One business will specialize in manufacturing the API for fakes, others finish drugs and others even specialize in packaging. Last May, Pfizer passed information to Chinese authorities who raided one of these complexes in Guangzhou, arresting suspects and seizing thousands of counterfeit Viagra tablets.
Counterfeits cost the industry about $75 billion a year and result in an estimated 100,000 deaths annually. Anti-counterfeiting is an area in which companies are working together, with security teams exchanging information with each other about similarities among the counterfeits they discover to help track them back to the original source. They have found that counterfeiters don't want to ship directly to customers, leaving a traceable paper trail with a suspicious Chinese address, so they often use intermediaries. These "drop shippers" receive the drugs, repackage them and then ship them to individual customers.
Cooperation among teams helped the FDA and law enforcement track down and arrest in 2009 a significant drop shipper in Puerto Rico. Francis Ortiz Gonzalez last year was sentenced to 10 years in jail after his conviction on charges that he distributed more than 160,000 counterfeit tablets in the U.S., mostly to California. He also led them to the person they allege was his source, a Chinese man, Bo Jiang, who was operating out of New Zealand. Jiang was arrested but fled before his court appearance and is still being sought by authorities. They believe he returned to China.
While much of the counterfeit trade continues to be in "lifestyle drugs," counterfeits of Roche's ($RHHBY) Avastin and other cancer drugs were found in the U.S. last year, indicating to authorities that a new level of danger has surfaced. While the counterfeit Avastin contained salt and starch but no API, Bloomberg Businessweek reports that fake erectile dysfunction drugs often contain at least some active ingredient. "That's because the person buying Viagra is looking for an endpoint," Brian Donnelly, director of Pfizer's global security team in the Americas tells Bloomberg Businessweek. "No endpoint, no resale."
- read the Bloomberg Businessweek story