[e-drug] China's Killer Headache: Fake Pharmaceuticals

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E-drug: China's Killer Headache: Fake Pharmaceuticals
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China's Killer Headache: Fake Pharmaceuticals
By Peter S. Goodman
Washington Post Foreign Service
Washington Post Friday, August 30, 2002

PUNING, China -- They knocked down the door. Inside, scattered across the
floors of four concrete rooms, investigators found evidence of China's
lucrative and deadly trade in counterfeit pharmaceuticals -- antibiotics
made
of talcum powder, birth control pills filled with rice flour. All useless
and
indistinguishable from the real thing.

China has become an increasingly powerful player in global trade. But this
household factory, one of dozens in this town in Guangdong province, is part
of an economic success that China's leaders would rather not spotlight --
that
the country has become the world's largest purveyor of counterfeit drugs,
according to private investigators, law enforcement officials and Western
diplomats.

An estimated 192,000 people died last year in China because of fake drugs,
according to the Shenzhen Evening News, a government-controlled newspaper.
Some die from toxins in counterfeit medicines, and others from infection
because they are swallowing bogus pills instead of antibiotics.

Sometimes the fakes merely amount to an intellectual property rip-off
because
they are -- chemically speaking -- identical to the real products. But most
of
the time counterfeits pose a health threat. According to the British
consulting firm Reconnaissance International, more than half of all
counterfeit drugs contain no active ingredients or contain the wrong ones.
Nearly 10 percent contain contaminants.

Though China is at the center of the trade, India also is a major producer,
experts say. Most of China's fakes are consumed in China, but some make
their
way around the globe.

A study published last year in the Lancet, a British medical journal, found
that a third of antimalarial drugs on sale in Cambodia, Laos, Burma,
Thailand
and Vietnam -- a region in which malaria is a voracious killer -- contained
no
active ingredient.

This year, New York authorities broke up a fake-Viagra distribution ring
that
they said linked factories in China with consumers in the United States via
Internet vendors in Nevada and Colorado.

China and India are also major sources of drums of active ingredients that
are
shipped to countries such as Mexico, said Samuel D. Porteous, China country
manager at the security firm Kroll Associates. In Mexico, the materials are
made into counterfeit drugs, some of which wind up in the United States when
Americans drive to Tijuana in search of lower prices.

Both the U.S. Customs Service and the Food and Drug Administration
acknowledge
that Americans are unwittingly bringing in counterfeit pharmaceuticals from
Mexico, though they cannot quantify the amount.

"We have found counterfeit pharmaceuticals sourced from China all over the
world," John D. Glover, vice president of corporate security at
Bristol-Myers
Squibb Co., said in congressional testimony last year.

The high-profit business is increasingly attracting organized crime,
according
to diplomats, law enforcement officials and private investigators. In China,
production is typically split among small household operations to keep
quantities in any one place below the threshold for criminal prosecution.
When
people get caught, they are mostly liable only for civil fines. And even in
criminal cases, the maximum sentence for counterfeiting is seven years.
Selling fake drugs can result in a death sentence if people are harmed, but
such cases are rarely brought.

"This is a golden business for criminal business elements," said Harvey E.
Bale Jr., director general of the International Federation of Pharmaceutical
Manufacturers Associations in Geneva. "If you're in the business of selling
heroin or cocaine, the police are on your tail. If you're making fake
meningitis vaccine, they don't even know you're there. We're sitting here on
an unrecognized plague that afflicts the world."

Overall, the federation estimates, 1 to 2 percent of the world's
pharmaceutical sales involve counterfeit products. The World Health
Organization says fakes account for as much as 8 percent of the global
supply.
That would mean trade in bogus drugs could be worth as much as $32 billion a
year.

About 85 percent of the world's prescription drugs are consumed in developed
countries, where controls are relatively tight and counterfeits rare. But in
developing countries, as much as 25 percent of pharmaceuticals are fake,
Bale
said. In some cities in China, as much as 40 percent of drugs are
counterfeit,
according to Porteous.

Puning, a bustling town of 200,000 on China's southeastern coast, has long
been a legitimate center for wholesale pharmaceuticals, a place where buyers
and sellers come together from around the country to gather in warehouses
and
storefronts near the center of the city. The counterfeit trade has developed
here to take advantage of the presence of so many buyers. It also meshes
with
the reputation of this part of Guangdong province as a hive of illegal
business, from smuggling to mass counterfeiting of many products.

The local government quietly tolerates unsavory industries that keep people
employed at a time when China's economic reforms are putting millions out of
work. As China has cut subsidies to agriculture, the former state-owned
factories that once produced farming tools here have shut down.

Now China's central government is seeking to shut down the bogus drug trade.
Two years ago it created a State Drug Administration and it has stiffened
penalties while increasing police authority to carry out raids and conduct
criminal prosecutions. Authorities closed 1,300 factories last year and
investigated 480,000 cases involving counterfeit drugs worth $57 million,
according to the state-run newspaper China Daily.

Much of the initial investigation is handled by private security companies
that are hired by pharmaceutical firms. In the raid last April -- one of 10
conducted here in the last two years by a Guangzhou-based company named
Smiling Wolf Consultative -- the investigators and local police found about
$60,000 worth of fake drugs. But they did not find anyone to arrest. Maybe
the
authorities were unlucky and came at the wrong time. More likely, the local
police tipped off the workers in advance.

"These are not companies," said Smiling Wolf's general manager, Liu Dianlin.
"They are not factories. They are just ordinary households. You close one,
they move to another. It's really basically impossible to eradicate this
problem. We're managing it more than solving it."

Jack Chang, a Shanghai-based attorney for Johnson & Johnson and a vice
chairman of the Quality Brands Protection Committee, which represents 83
companies hurt by counterfeiters, said the central government's efforts have
improved the situation. From June 2001 until now, Johnson & Johnson has
succeeded in establishing 38 criminal cases against factories counterfeiting
its products and their distributors, Chang said. Over the previous three
years, the total was two.

Still, the majority of cases remain within the purview of administrative
agencies, which lack powers to take strong action.

Another complication is that China's military is involved in the trade,
investigators say. Despite the formal removal of the People's Liberation
Army
from many businesses, old networks remain, with many operations controlled
by
retired military officers. Trucks with military license plates are seen
bringing goods in and out of Puning's pharmaceuticals market.

Shutting down counterfeit drug factories is difficult, sometimes dangerous
work. Liu and his investigators typically follow cars from print shops
suspected of making packaging to see where they are making deliveries. Then
they impersonate garbage men and sneak into the delivery spots to look for
samples that they can take to the police to justify raids.

In February, when a Smiling Wolf investigator tried to sneak into a
household
operation that was counterfeiting a German kidney-stone treatment, local
residents attacked him, sending him to the hospital for a month with broken
bones, Liu said.

Investigators typically withhold the locations of the places they plan to
hit
until minutes before they strike, lest police warn the workers, said
Alexander
A. Theil, managing director for south China at Pinkerton Consulting, a
global
security giant.

An executive at a major Western pharmaceutical manufacturer said his
Guangzhou
office recently received a phone call from a police bureau in a small city
that reported finding a factory that held $120,000 worth of fake copies of
their products. The police were happy to launch a raid -- provided his
company
first paid them a $40,000 "travel allowance." The company declined.

Even when companies take precautions to prevent their products from being
counterfeited, the tenacity and sophistication of those involved in the
trade
often wins out. Roche Group, the Swiss pharmaceutical giant, stamps its logo
inside the glass vials that hold Rocephin, an injectable antibiotic. Roche
distributes only through its own network, and only to major hospitals. Even
so, it recently discovered more Rocephin in circulation in China than it has
produced at its Shanghai factory, according to Leo Lee, deputy general
manager
of the company's Shanghai subsidiary.

"We figure people are fishing our bottles out of trash at hospitals and
refilling them," he said.

China is a center for all sorts of counterfeiting, from fake Rolex watches
to
bogus Gucci handbags. But those operations generally involve consumers and
distributors who are in on the scam.

In the bogus drug trade, the highest profit margin is enjoyed by the last
person in the chain who knows the goods are fake and sells them to the first
person who thinks they are real. In some cases, wholesalers in markets such
as
Puning buy fake drugs and mix them with real pharmaceuticals, passing them
off
to unwitting middlemen. Some legitimate factories churn out real products by
day and fakes by night. Whether their workers know they are stuffing
counterfeit pills into packages is often unclear.

A former executive with a major Western pharmaceutical company said hospital
buyers play a key role in the process. In China, 85 percent of all
pharmaceuticals are sold by hospitals, which use their pharmacies to
generate
cash at a time when state health care subsidies are being cut.

Last September in a hospital near Chongqing, 47-year-old Hu Zushuang was
given
a bottle of what was supposed to be albumin, a blood protein, for
intravenous
use. In fact, it contained toxic liquid, according to his family. It killed
him.

Police have failed to determine who was to blame, according to a lawyer
representing the family in a lawsuit against the hospital, Cai Yunming. "We
have no idea who is responsible for the hospital's drug purchasing," Cai
complained. The local police "won't investigate the responsibility on the
hospital side."

According to Hu's family, police caught the hospital director discarding the
albumin bottle in a public toilet shortly after Hu's death. The factory that
produced the bogus albumin is still operating, the family says.

"The hospital gave us [about $6,000] in compensation," said his daughter, Hu
Chunlan. "No one at the hospital has received any punishment."

Special correspondent Wang Ting contributed to this report.





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