| In February 2005, a 23-year-old Burmese man checked into a rural hospital in East Burma with a fairly ordinary case of malaria. The hospital gave him the usual treatment -- artesunate pills, a medicine heralded as a miracle cure for its speed in treating the disease. Three days later, he slipped into a coma. Within 12 hours, the man was dead. The miracle drug had failed -- or so it seemed. The hospital's entire stock of artesunate was counterfeit, investigation later showed. The pills, which looked like legitimate artesunate made by Chinese company Guilin Pharmaceutical Co. contained only 20 percent of the necessary active ingredient. Death brought the Burmese man a kind of fame -- his was the first confirmed death directly linked to counterfeit antimalarials.
Researchers suspect that counterfeit medicines like the fake artesunate kill hundreds of thousands of people annually, but precisely quantifying the size of the counterfeiting problem is difficult: Few counterfeiters get caught, and even fewer deaths from fake drugs are detected. But as technology makes copying chemicals easier and the Internet speeds the pace of commerce, most government officials, pharmaceutical executives and health care workers fear an epidemic of counterfeit medicines spreading around the globe. The health care nonprofit Center for Medicines in the Public Interest predicts that counterfeit drug sales will reach $75 billion globally in 2010, an increase of more than 90 percent from 2005.
The vast majority of these fake drugs come from China. "China is the point of origin for a large number of counterfeits found and seized around the world," says Thomas Kubic, executive director of the Pharmaceutical Security Institute, a nonprofit anticounterfeiting organization made up of pharmaceutical companies. Alongside its economic boom, China has grown a deadly industry, one that threatens public health worldwide. And it's the world's poorest nations that are bearing the brunt of the problem.
Almost half of medicines in developing countries are counterfeit, according to the World Health Organization (WHO). While in the United States the most commonly counterfeited drugs are "lifestyle" medicines like Viagra, in poor countries it's the life-saving drugs -- AIDS cocktails and antimalarials -- that are ripped off. These fake drugs either do nothing to treat the deadly illnesses that kill the patient or worse, the pills actually contain harmful and dangerous chemicals.
Besides the immediate deadly effects, counterfeit medicines accelerate the growth of drug-resistant strains of viruses, says Dora Akunyili, head of Nigeria's National Agency for Food and Drug Administration and Control. If drugs contain too little active ingredient, not all the disease agents are killed, and resistant strains can spread. Scientists are already observing this phenomenon in Southeast Asia, where more than 50 percent of artesunate-based antimalarials are counterfeit. "Drug counterfeiting is one of the greatest atrocities of our time. It is mass murder, it is a form of terrorism against public health, as well as an act of economic sabotage," says Akunyili. In Nigeria, Akunyili estimates, 68 percent of medicines are counterfeit. Dr. Dora, as she's known, experienced the problem firsthand: Her sister died from counterfeit insulin in 1988.
During the past decade, drug counterfeiters found a natural home in China, thriving alongside the country's growing economy and increased manufacturing capabilities. As the Chinese pharmaceutical industry has grown technologically more advanced, so have the counterfeiters. Today's fakes are often impossible to distinguish without chemical testing. The packaging, labels and appearance of the bogus pills are identical to the real ones. "It used to be amateurs. Now we're dealing with scientists that can replicate product very quickly and packaging exactly," says Eli Lilly and Company's Michael Muller, director of global anticounterfeiting strategy. "I'm always amazed by what we're seeing." Exact copies of the erectile dysfunction drug Cialis, complete with perfectly copied packaging, can be found throughout China. Of course, looks are deceiving. In 2002 Colombian authorities busted counterfeiters who were manufacturing pills with packaging that was nearly identical to that of Warner-Lambert Co.'s menstrual pain reliever, Ponstan. The pills themselves were made out of boric acid, floor wax and yellow highway paint.
China isn't just manufacturing bogus pills, injections and syrups. The country has become a channel for payment processing, a home to the producers of active pharmaceutical ingredients and a source for gray market distribution, according to Kevin Delli-Colli, deputy assistant director at the financial and trade investigations division of the U.S. Immigration and Customs Enforcement (ICE) bureau. As the biggest investigative arm of the U.S. Department of Homeland Security, ICE plays a leading role in tracking counterfeit pharmaceuticals. The agency is involved because counterfeiting is a criminal -- and highly organized-business. Reports have linked fake medicines to the Chinese criminal triads, the Russian mafia and Mexican drug cartels. China may house the perpetrators, but it's also a victim: According to government estimates, fake medicines kill 100,000 Chinese annually.
Sitting in his office overlooking central Hong Kong, investigator David Fernyhough, executive vice president at risk management firm Hill & Associates, explains how organized crime rings run their counterfeiting businesses. "It's a loose network with many suppliers, multiple buyers," says Fernyhough, whose company tracks and raids counterfeiting operations as part of its business intelligence practice. "There are lots of links in the chain." A map of a current counterfeit pharmaceutical case the firm is working on illustrates his point. It's covered in lines, connections linking several Thai pharmaceutical distributors to Chinese manufacturers, Hong Kong financiers and American markets. "The distribution network mirrors the old heroin networks," says Fernyhough, who has tracked counterfeit medicines for several big pharmaceutical companies. Organized crime groups already have established money laundering and transportation networks from their other illegal activities, like prostitution or heroin trafficking. Drug counterfeiters can use the same infrastructure, and reap higher profits. Best of all, if they get caught, the criminal penalties are less severe.
The crime syndicates run counterfeiting operations like legitimate corporations. "There are people who do traditional business functions, CEO, CFO," says Fernyhough. "It's a business. They have marketing, production, distribution, financing, follow-up." Headquarters tend to be in financial centers like Hong Kong or Dubai, where counterfeiters have access to shipping companies, money and distributors. The manufacturing, mostly done around Northern Chinese cities like Harbin, is a multistep process. One factory makes the labels, another the active ingredient, a third the holograph (legitimate pharmaceuticals are marked with holographs as an anti-counterfeiting strategy).
From the factories, the pills move to wholesale markets across China. They then circle the globe through a variety of channels and distributors -- overland to Russia and East Asia, by ship to Dubai, South America, and South Africa. The shipments tend to go through megaports -- in places like Hong Kong, Shanghai, Rotterdam and Tokyo -- which are the most susceptible to illegal shipments, according to U.S. customs. "The reality is that with the number of containers going through in one day and the ability of customs, only a fraction will be looked at," says Jack Clode, a managing director of Kroll Inc., a risk management company that has a large anticounterfeiting unit in Asia.
A recent change in Chinese shipping rules made exporting all goods, including counterfeits, easier. Before 2004, only state-owned operators could ship exports. The restriction meant that counterfeiters had to find a compliant state shipping company to ship their goods. There were companies willing to take the work, but the requirement created additional obstacles and costs. In 2004, as part of its World Trade Organization commitments, China largely eliminated the state monopoly. Now, says Ohio State law professor Daniel Chow, a counterfeiting specialist, there are reports of Middle Eastern and African export companies setting up shop in large Chinese counterfeiting markets specifically to ship counterfeits. Counterfeiters are running a business, and so they know their markets -- different populations are sold different drugs (lifestyle versus lifesaving). There's also a price point differential: More expensive (fake) brandname drugs go to the richer countries, while fake versions of generic drugs and over-the-counter medicines go to poorer places.
Wealthier countries are also better protected against counterfeiting. Pharmaceutical companies are much more vigilant about fakes in the United States and Europe, wanting to protect their customers and their brand. Developing markets are less profitable, brand loyalty is less of a concern and the societies are less litigious, says Drexel University economics professor Kristina Lybecker. "Less emphasis is placed in developing countries," she says.
Big Pharma is sometimes even hesitant to talk about the problem. "[There's] a reluctance to share the information publicly and openly and timely," says Henk Bekedam, the WHO representative in China. When the chief executive of the Ghana food and drug authority, E. Kyeremateng Agyarko, discovered counterfeit halofantrine, an antimalarial syrup made by GlaxoSmithKline in August 2002, he prepared a public health warning and alerted the company. Officials from Glaxo's London headquarters took away five bottles of the bogus syrup and asked Agyarko to hold the warning "because it would 'damage' their product," wrote Agyarko in an April 2005 paper published in PLoS Medicine , an online, peer-reviewed medical journal. If he did so, says Agyarko, GSK told him, it would send a sales team to remove the fake drugs. Agyarko issued no warning but later feared that GSK wouldn't hold up their end of the deal, so he went public, writing his paper. According to Agyarko, GSK denied pressuring the Ghanaian authorities, never issued a warning and refused to release information.
Even if drug companies devoted major resources to the developing world, the problem would persist. Government authorities in poor countries don't have the resources to combat counterfeits, lacking the money and lawyers to properly conduct raids, regulate manufacturing and punish offenders. According to a recent paper by Dr. Paul Newton, a researcher at Oxford University who studies counterfeit medicines in Laos, only 20 percent of WHO member states have well-developed drug regulation. Thirty percent have no or barely functioning drug regulation. "It's hard to know there's a problem if there's not an authority in those countries to whom these problems can be reported," says John Theriault, vice president of global security for Pfizer Inc. "You can't do much, because there are no regulations, and you don't know what's going on, for the same reason." Public education is also poor; a study in Laos showed that 63 percent of drug sellers and 80 to 96 percent of consumers knew nothing about counterfeits or poor-quality drugs. But better education might not make that great a difference. People in poor regions often do not have adequate access to health care -- half of China does not have access to hospital services, says Bekedam. Sick, desperate people take what they can get, even if it's of lower quality.
Some efforts are being made to cut the problem off at the source -- in China. The country's central governmental authorities are slowly becoming more effective in combating fakes. In February 2005, Operation Ocean Crossing, a joint raid conducted by U.S. and Chinese customs, busted a large counterfeit pharmaceutical ring. U.S. customs discovered that Richard Cowley, a U.S. citizen based in Washington State, was selling counterfeit Viagra and Cialis across the U.S., the United Kingdom and Europe with help from Chinese criminal organizations. About six months later, on the basis of the tip from U.S. customs, Chinese authorities arrested 11 Chinese nationals, seized about 350,000 pills, over 550 pounds of raw materials and 580,000 counterfeit Viagra labels, and closed multiple manufacturing facilities in Tianjin and Henan.
When the WHO's Bekedam moved to China in 2002, Chinese officials didn't really talk about counterfeits. Today, he says, central government administrators are reconsidering joining the WHO's Rapid Alert System, a Web-based program that tracks counterfeit reports. Most significantly, Chinese counterfeit problems are reported in the local press. Estimates say that fake medicines kill 200,000 to 300,000 Chinese each year. "If China did not want to start working on the fake drugs, it would not be in the newspaper," says Bekedam, "but it is in the newspaper every day."
Local authorities are less enthused about fighting the problem. Rules passed by the central government are often not enforced locally. Some smaller cities are essentially counterfeit towns, economically supported by the salaries and taxes the counterfeiters pay. Chow, the Ohio State law professor, points to the market in Yiwu, a city of 650,000 six hours south of Shanghai. More than 30,000 wholesale distributors sell more than 40,000 different kinds of products in the Yiwu market, 80 to 90 percent of which are counterfeit. In the 1990s, the market was the largest taxpayer in Yiwu, accounting for nearly 26 percent of the city's tax revenues. A whole host of local businesses -- hotels, nightclubs, transportation companies and storage facilities -- support the market, its buyers and employees. Shutting down the counterfeit market would slow the local economy, bankrupt many businesses and lead to high levels of unemployment, as Chow recently told the U.S.-China Economic and Security Review Commission. "A shutdown may also lead to social chaos and unrest, which the [Chinese] government fears more than anything else," he says. Chow estimates there are hundreds of towns like Yiwu and millions, if not tens of millions, of Chinese who depend on counterfeit goods for their economic livelihood.
But cracking down on counterfeit cities may be too little, too late. Fernyhough is starting to see factories moving to less regulated and cheaper places, like North Korea and countries in central Asia. "There will always be places for these guys to go," says Fernyhough. "We can mitigate the risk, but we'll never stop it." |
