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1 The Threat of Counterfeit Pharmaceuticals; The Need for an International Initiative Gene R. Haislip, B.A., LL.B., LL.M. The unprecedented growth of global commerce, communications, and banking during the later part of the 20th century, has created new optimism for economic and social progress. The end of the Cold War, with its polarization and partial division of the world into closed societies, has resulted in a rapid increase in these developments. Just now, one of the areas receiving increased attention because of its special complexity is that of medical care and especially pharmaceuticals. The emphasis on pharmaceuticals is entirely natural since they are (1) commodities which can be easily traded, (2) increasing in both variety and effectiveness, (3) account for an increasingly large share of medical costs and (4) critical for the treatment of such high-profile maladies as AIDS, malaria and tuberculosis. Unfortunately, these same advances in commerce and technology also create new and highly lucrative opportunities for organized criminal activity that causes massive death, suffering and social corruption. The most widely publicized example of this is the manufacture and traffic in illicit drugs of abuse that has swept the globe in the last three decades. This is an area to which the author has devoted many years of government service. But the purpose of this article is to call attention to the less well known, rapidly 2 increasing problem of counterfeit pharmaceuticals which are not drugs of abuse. Recent reports from Africa, Asia, Brazil, Russia and The United States have described these increases. Whether desired for abuse or for legitimate medical need, certain dosage forms and preparations acquire ‘brand name’ recognition on the part of their respective consumers. This recognition is often the way that prospective distributors and consumers identify the desired product and, like widely recognized currencies, these too may be counterfeited and bogus products thus passed into circulation. The World Health Organization (WHO) defines a ‘counterfeit medicine’ as “one which is deliberately and fraudulently mislabeled with respect to identity and source.”1 The definition is a useful one as it relates to all kinds of fraudulent and dangerous products, including not only products that look like legitimate drugs, but also those which may be out-of-date, or of compromised quality. In as much as the unifying principle is the element of criminal fraud and the uncertain quality and identity of the ‘medicine’, it will be useful to include within the scope of concern those pharmaceuticals that may have been criminally diverted from a legitimate source. This is desirable because (1) there is reason to believe that such activities will increase, (2) criminal diverters are unlikely to maintain their stocks under required conditions and (3) they will necessarily have to falsify the last point of origin. 3 Historical Experience and Current State of Data The origin of the current problem is largely unknown but was dramatically portrayed in the famous post-war motion picture of 1949 entitled “The Third Man” in which Orson Wells starred as an unscrupulous master criminal who diverted, diluted and sold lethal doses of penicillin in occupied Vienna. By the early 1970s, the counterfeiting of amphetamine and secobarbital capsules became a familiar part of the illicit drug traffic along the US – Mexican border. This was soon followed by the massive counterfeiting of Quaalude tablets (methaqualone) in Colombia for illicit distribution in the US. Subsequently, similar developments involving stimulants and depressants were documented in eastern and Western Europe, Africa, the Middle East and Asia. In the case of controlled substances, it is important to note that, unlike general pharmaceuticals, both national and international police and drug control authorities actively seek such evidence and regularly analyzing suspicious seizures. For many years, this writer traveled extensively in connection with these problems and often encountered anecdotal reports from public health and medical authorities concerning the large-scale counterfeiting of other pharmaceuticals. But there were no police agencies specifically tasked to pursue such reports and they were seldom collected. However, as at present, some large pharmaceutical companies did undertake their own investigations and were sometimes successful in obtaining the cooperation of foreign authorities. Their activities 4 have no doubt been responsible for much of the attention that the issue has thus far received. At present, authorities of the World Health Organization (WHO), major pharmaceutical companies and knowledgeable experts all agree that the problem is large and growing. WHO has devised a system for the collection of case reports from national authorities on a voluntary basis. In response to WHO’s request, 137 countries have identified liaison officers. As in many other circumstances, WHO relies upon a private collaborating center to actually collect and analyze the reports. In its most recent newsletter, the center provided some detail of 46 different cases that had been reported in the period of Jan. 1999 to Oct. 2000.2 Inquires with responsible officers of ICPO Interpol indicate that it does not have a specific database dealing with this issue. In addition to the above, various articles frequently appear in journals and the news media describing specific incidents or special studies. For example, a recent issue of Lancet described studies in Nigeria and the countries of South East Asia showing that a very large percentage of the medicines available in pharmacies and hospitals lacked all or a sufficient amount of the drug indicated.3 But, at the present time, one may say that there is no comprehensive international database concerning itself with such criminal activities. 5 Nature of the Problem and Availability of Means A great accumulated history of cases in the files of DEA, FDA, the United Nations Drug Control Program and other national drug enforcement agencies have clearly documented the ability of criminal groups to manufacture, counterfeit and divert drugs. There are cases in which laboratories and counterfeiting operations have been established in bathrooms, garages, school buses buried underground, factories rented by the week or weekend, secret facilities established within factories, secret factories with expensive new equipment hidden in warehouses or suburban homes and so much more. The evidence is overwhelming and may be summarized as follows: Criminal groups both large and small, wealthy and modest, and based in both industrial and developing countries are well aware of the great profits which can be made from counterfeiting and diverting pharmaceuticals. These groups almost universally have no regard for the health and safety of consumers of their products. All of the necessary technological means and skills are readily available for the establishment of small or extremely sophisticated and large operations. Both the means and customs of global commerce are such as to inadvertently facilitate this type of criminal activity. 6 Status of national and International Countermeasures In 1988, the World Health Assembly adopted a resolution (WHA 41.16) calling upon “governments and pharmaceutical manufacturers to cooperate in the detection and prevention” of the increased smuggling of counterfeit pharmaceuticals. Thereafter, the WHO and the International Federation of Pharmaceutical Manufacturers Associations (IFPMA) organized a workshop in April of 1992,4 which defined many of the difficulties of dealing with the issue. In 1999, the Department of Essential Drugs and Other Medicines of the WHO published Guidelines for the development of measures to combat counterfeit drugs.5 The guidelines provide an excellent compendium of the massive deficiencies of both national and international institutions for dealing with the problem. These include: Inadequate legislation and regulatory control at the national level Inadequate designation of authority and lack of enforcement resources Lack of consistent collection of data and analysis of suspect pharmaceuticals Inadequate controls over international commerce, especially in free trade zones Reluctance of companies to report diversion and counterfeiting of their products Lack of mechanisms for the sharing of information internationally and between national agencies To this list one must also add the total lack of treaty requirements and obligations and staff to monitor compliance. Those concerned with the problems of controlled 7 pharmaceuticals, such as the writer, have the great advantage of three almost universal treaties imposing an array of controls on international commerce as well as obligations of national reciprocity and law enforcement cooperation. In addition, there are international institutions staffed with professionals who work to facilitate observance of these requirements. Moreover, experience has shown that these treaties have been extremely valuable in dealing with actual problems of diversion and illicit activities. In the problem of diversion and counterfeiting of general pharmaceuticals, one can only conclude that the basic institutional foundation for successful countermeasures is almost totally lacking. Increasing Opportunities for Counterfeiting The counterfeiting of pharmaceutical products, like the illicit traffic in drugs of abuse, is a criminal activity undertaken for profit. The extent to which it is likely to occur is governed by three factors; (1) the availability of the means of producing or acquiring the commodity, (2) the risk of detection, loss, apprehension and penalty, and (3) the prospect of the profit to be realized. The ready availability of the means of production and inadequacy of controls have been described but the remaining factor is worthy of some further comment. The profitability of counterfeiting or diverting drugs of abuse for the illicit traffic is well known and need not be discussed here. The situation with regard to general pharmaceuticals is much more complex. As a generality, it may be observed that the 8 profitability of counterfeiting a pharmaceutical product will be determined by the difference between the cost of producing and marketing the counterfeit product as compared to the customary sales price of the legitimate product under a similar circumstance. It will be obvious that in some circumstances, even the counterfeiting of common aspirin can be profitable and such cases have occurred. However, opportunities for maximum profit will generally prevail in those circumstances involving products under patent protection that are more costly and in popular demand. In the first place, the price of these products always exceeds the customary costs of production, marketing and normal profit because the manufacturer includes an additional charge for the expenses of developing the product and increasingly, the advertising campaigns to sell it. In fact, the manufacturer may charge even more since it has a temporary monopoly on the product. In these circumstances, even a quality product produced in disregard of the patent would sell at a handsome profit. An entirely bogus product might be sold at profits that would rival the illicit drug traffic. World Trade and Pharmaceutical Production and Pricing It is important to emphasis that the counterfeiting of pharmaceuticals has primarily occurred within developing countries, due to their relative lack of law enforcement resources, regulatory infrastructure and sometimes frequent problems of corruption. In fact, there have been cases in which foreign criminal organizations have located their 9 operations within such countries in order to avoid detection. Certain problems of global trade and pharmaceutical production may be expected to increase both the circumstances and demand that will encourage global pharmaceutical diversion and counterfeiting within this context. The principal factor driving the increase in pharmaceutical diversion and counterfeiting is the escalating cost of medicines that, in developing countries is sometimes prohibitive. The consequences of this can be seen in the political and public policy tensions that have arisen between developing countries seeking low cost generic substitutes and those who seek to uphold pharmaceutical patent rights. But it can be seen that similar consumer concerns are also effecting policies within the United States and perhaps other developed countries. Developing Countries The manufacture and trade in patented pharmaceuticals is an activity specifically included within the World Trade Agreement under the annex relating to intellectual property rights, the so-called ‘TRIPS’ (Trade Related Aspects of Intellectual Property Rights) agreement. Under this annex, member states must enact laws that will insure that patents are granted and respected, protecting the commercial interests of the creators of such pharmaceuticals. At present, 142 countries have joined the World Trade Organization (WTO) and it may be expected that others will do so. The WTO is not part of the United Nations, but is nevertheless expected to achieve similar universality. 10 A careful reading of the TRIPS Agreement seems to make it clear that a central purpose with regard to pharmaceutical and other patents is to protect innovators from generic competition during the life of the patent protection of 20 years. Developing countries and the 40 least developed countries are given until 2005 and 2006 respectively to put these legal protections in place. This would mean however, that access to these drugs would be subject to the prices established by the patent holder. In many cases, this effectively eliminates availability for most of the population of developing countries. The case of drugs for the treatment of AIDS has become the most politically visible example of this dilemma. The patented pharmaceuticals recently developed for this decease may cost patients as much as $18,000 a year, a sum far beyond the means of the millions of sufferers of this affliction in various developing countries. But of course, generic copies of the drugs can be produced for a fraction of this cost. A firm in India presently claims to be able to offer certain of these for as little as $350 a year. In view of this dilemma, the government of South Africa enacted a law to permit the importation or licensing of generic forms of patented AIDS drugs in disregard of the patent holders rights and arguably, the TRIPS Agreement. This resulted in 39 foreign manufacturers filing suit to protect their patent rights. This in turn, lead to a great deal of unfavorable publicity accusing the manufacturers of greedy indifference to the plight of those who were suffering. In the end, the companies capitulated in this political drama of logic and law versus life, and withdrew their suits in April 2001. 11 It was an outcome that many may applaud, but which established a precedent that was immediately recognized. In June of 2001, a large group of developing nations submitted a position paper to the WTO, stating that they did not regard the TRIPS Agreement as an impediment to licensing their own generic producers of patented pharmaceuticals or of importing them from others who had done so.6 The paper also cited the precedent in South Africa as well as the recent Resolution 2001/33 of the UN Commission of Human Rights recognizing “access to medicines in the context of pandemics as an essential human right.” The paper concludes by observing that when confronted with specific situations where patent rights over medicines are not conducive to social and economic welfare, “Members may take measures to insure that they will be achieved.- such as the granting of compulsory licensing.” Several countries, including Brazil, recently announced their intention to revoke or ignore existing patents in order to produce their own low cost, generic AIDS drugs. In some cases, it appears that this is effectively used as a threat in negotiating lower prices from manufacturers. There is nevertheless strong reason to believe that local manufacture of expensive drugs is likely to increase, especially in developing countries. Although an understandable trend, unfortunately this will unquestionably provide many new and fertile opportunities for the traffic in counterfeit drugs. 12 Pressures Within the United States From the foregoing, we see that the driving force behind the desire of developing countries to license generic manufacturers in disregard of existing patents is based on the obvious need for lower cost pharmaceuticals. But an examination of recent Congressional actions in the US shows that the very same concerns are beginning to drive national policy toward permitting the importation of lower cost pharmaceuticals, notwithstanding the difficulty of insuring their quality. In the fall of 2000, aware that many drugs manufactured in the US could be purchased at substantially lower prices in other countries, Congress passed the Medical Equity and Drug Safety Act permitting the reimportation of US manufactured pharmaceuticals, provided that the Secretary HHS made certain findings regarding safety. Many consumers have also discovered that a range of pharmaceuticals can be purchased at bargain prices across the Canadian and Mexican borders. Among other measures, this lead Congress to amend the Controlled Substances Act in November of 1998, to permit persons to bring across US land borders up to 50 dosage units of any controlled substance (other than Schedule I) without a valid US prescription. Some of these drugs can be sold in the illicit traffic for as much as $60 to $100 per dosage unit. To many experienced law enforcement officers, this must have represented an incredibly naive view of the nature of the drug traffic on the Mexican border. 13 In addition to the above, the advent of the Internet has opened new avenues for ordering pharmaceuticals from abroad. FDA policy permits receipt of such drugs through the international mail subject to certain conditions. However, this activity has now increased to an estimated two million parcels annually and FDA admits that its current policy can not be applied in practice.7 A recent news article [Springfield, Mass. (AP), 7/31/2001] described how a group of senior citizens received instruction at a Community Center on how to break federal laws and save money by ordering pharmaceuticals online from overseas suppliers. In July of this year, the House passed an FDA appropriations bill with an amendment that prohibited the use of funds for preventing individuals (not in the business of importing drugs) from importing drugs that appear to be FDA approved. Finally, there have also been significant cases of large-scale illegal importation of controlled substances is this manner. Conclusions From the forgoing it may be seen that in many developing countries and also the US, there is a great public and political concern over the high cost of, and access to many important pharmaceuticals. Obviously, this raises many important issues, most of which are beyond the scope of this article. But it is clear that one consequence is to increase the profitability of counterfeiting and diversion while at the same time, diluting the already tenuous controls to combat them. 14 Another factor that will facilitate the counterfeiting of pharmaceuticals, is the growing emphasis on the globalization of trade and the operational and political pressures that may further reduce the effectiveness of world Customs services in detecting such commerce upon either entering or leaving national territory. The advent of the Internet and the reduction of political barriers to international mail and delivery are additional factors that facilitate such activities. Further, we conclude that the nature of the political dialogue is such as to suggest that many authorities are unaware of the threat to public health and safety that such criminal activities represent, or find them to be an acceptable consequence. Some observers, such as the author, have found that this is a frequent conceit among some authorities that often requires an accumulation of death and injury statistics to overcome. Finally, it is clear that existing laws, treaties, national and international institutions, expertise and enforcement and control resources are all inadequate to meet the challenge of a major increase in the counterfeiting and diversion of pharmaceuticals. Recommendations At present, the principal need for initiating a more effective response to the threat of counterfeit pharmaceuticals is the establishment of an increased level of priority and an 15 organizational locus for generating action. This needs to be achieved within some minimum number of important national governments and at an international level. This could best be accomplished by providing a clear national legislative mandate while also recognizing the need for international action. Although it is necessary to improve and enhance the law enforcement apparatus, it is even more important to establish a policy initiative at a high level of government. Once this is achieved, efforts should be made to bring together a selection of concerned governments within the framework of an appropriate international conference using any one of several possible fora such as the Organization for Economic CO-operation and Development (OECD), WHO, or simply a judicious selection of invited states. An adequate, interested and representative group of countries can be identified for this purpose minimizing the risk of politizacion for other purposes. Representatives of the pharmaceutical industry should be invited to participate in certain ‘bridge’ sessions. In this case, their interests are in harmony with many of the public policy objectives and their participation is needed both for expertise and support. The objectives for an improved effort might include the following: Designation of a responsible agency and establishment of program responsibility at a politically visible level 16 Promotion of an international agreement for the purpose of the prevention, detection and suppression of the counterfeiting and diversion of general (uncontrolled) pharmaceuticals Improvement of existing criminal and civil legislation in order to prevent and detect counterfeiting efforts establishment of a center of analytical expertise for all issues and activities relating to the problem Establishment of a specific law enforcement office with adequate criminal investigative personnel to pursue and coordinate investigations including operational liaison with appropriate foreign law enforcement agencies ________________________________________________________________________ References 1 World Health Organization, Division of Drug Management Policies. Counterfeit Drugs: report of the WHO/IFPMA Workshop 1992; April 1-3, (p.1) 2 World Health Organization. Pharmaceutical Newsletter No. 3, 2000 (p.14 – 20). 3 Taylor RB, Shakoor O, et al. 17 Pharmacopocial quality of drugs supplied by Nigerian pharmacies Newton P, Proux S, et al. Fake artesunate in southwest Asia Lancet 2001; 357: 9272 4 World Health Organization Counterfeit Drugs (see note 1, above 5 World Health Organization , Department of Essential Drugs and Other Medicines. Guidelines for the development of measurers to combat counterfeit drugs WHO/EDM/Qsm/99.1 1999 6 World Trade Organization. Developing Country group’s paper; 20 June 2001 IP/C/W/296 7 Hearing before the Subcommittee On Investigations of the Committee On Energy and Commerce; House Of Representatives. Testimony of William K. Hubbard, Associate Commissioner for Policy, Planning and Legislation, Food and Drug Administration, (p ?). June 7, 20001 Serial No. 107-30