Drug Distributor Is Tied to Imports of Fake Avastin
By CHRISTOPHER WEAVER, JEANNE WHALEN and BENOÎT FAUCON
Authorities investigating the importation of low-cost foreign pharmaceuticals into the U.S. have identified a supply chain that may have allowed fake cancer drugs to reach U.S. clinics, according to investigators and documents reviewed by The Wall Street Journal.
Federal officials are examining the business dealings of two Canadian businessmen who have long histories in the Internet pharmacy trade that delivers discounted prescription drugs from overseas to U.S. citizens, the documents and interviews reveal.
One of the men acknowledges that his companies shipped fake vials of Roche Holding AG's cancer drug Avastin late last year, emphasizing that he had no knowledge the drugs were counterfeit.
"We're deeply horrified by this counterfeit [product] being sold by one of my companies," said Thomas Haughton, a Canadian citizen who runs a network of drug distributors that sell to U.S. doctors. At the same time he said that his business operated legally. "We're doing everything we can to be sure that this never happens again."
While experts say most U.S. drugs are safe, the probe may raise new concerns about the weakly regulated gray market in foreign drugs aimed at U.S. patients. The importation of foreign drugs by third parties, which takes advantage of the large price differential between the U.S. market and others abroad, is believed to represent a small but growing portion of the $300 billion U.S. prescription pharmaceutical business.
Discovery of the fake Avastin has lent new urgency to a broader U.S. probe of foreign-drug importation that was already under way when the counterfeit cancer drug appeared. Regulators have long struggled to curb the trade in foreign-sourced, discounted drugs over the Internet, which is popular with U.S. consumers and difficult to police.
It is a violation of U.S. drug safety laws to ship pharmaceuticals to the U.S. via international mail or courier, the U.S. Food and Drug Administration says. Only drugs approved by the FDA and manufactured at FDA-inspected facilities may be imported by their manufacturers. Third parties typically can't legally import drugs into the U.S.
Last year, officials from the FDA began scrutinizing a supply chain with hubs in Canada, the U.K. and Barbados that brings low-cost foreign drugs to the U.S., in some cases after they have been shipped through half a dozen jurisdictions.
In the case of the fake Avastin, its global route isn't yet clear, but what is known illustrates the circuitous path that pharmaceuticals can take before reaching consumers. Wherever the counterfeit Avastin was manufactured—possibly China—investigators are examining a zigzagging route that may have taken the product through Turkey and Egypt before it was sold to Swiss and Danish wholesalers and then to Mr. Haughton's U.K. wholesaler, River East Supplies Ltd., according to pharmaceutical-industry and law-enforcement officials. River East then shipped the product to U.S. doctors through a Tennessee distributor, according to Mr. Haughton.
The two Canadians operate parts of the supply chain now under scrutiny by U.S. authorities for importing and marketing foreign, non-FDA-approved drugs into the U.S.
In addition to Mr. Haughton, the probe is also examining the business dealings of Kris Thorkelson, a pharmacist and entrepreneur based in Winnipeg, Canada, whom Mr. Haughton identified as his brother-in-law. Mr. Thorkelson sells low-cost medicines over the Internet to consumers in the U.S. and elsewhere, according to the description on his website, CanadaDrugs.com. The site doesn't say whether the drugs are FDA approved.
Mr. Thorkelson didn't respond to requests for comment. Brock Gunter-Smith, chief business development officer for CanadaDrugs.com, said the company doesn't sell Avastin and is therefore not connected to that counterfeiting case.
Investigators don't believe Mr. Haughton knowingly traded counterfeits and he hasn't been accused of a crime. But because it is illegal to sell non-FDA approved drugs in the U.S., he and Mr. Thorkelson and their businesses are being examined as part of a criminal investigation.
Those strict rules are meant to protect patients from adulterated, counterfeited or improperly made products. However, foreign companies—outside of U.S. jurisdiction and protected by local law—have built a lucrative gray market for cheaper foreign products, opening the door for counterfeits to slip into the U.S.
In the last several days, the U.S. Attorney in Los Angeles has subpoenaed California physicians for documents about their dealings with and products purchased from Messrs. Haughton and Thorkelson, three people who have worked for them and 12 companies that are affiliated with one or the other man, according to a copy of a subpoena reviewed by The Wall Street Journal.
At least some of the doctors who received a subpoena were warned last month by the FDA that they may have purchased fake Avastin from three companies named in the subpoena and linked to Mr. Haughton. The FDA, which is leading the investigation, declined to comment on the subpoenas or the ongoing investigation.
The fake Avastin contained starch, salt, cleaning solvents and other chemicals and none of the drug's active ingredient, bevacizumab, according to Roche. The packaging didn't match U.S.-approved labels for the product, regulators said. As of Monday, the FDA hadn't received any reports of the fake Avastin being administered to patients.
Last month, after the counterfeit Avastin was discovered, British and U.S. regulators named several companies that had shipped and marketed the product including Montana Healthcare Solutions, with addresses in Canada and Montana; British drug wholesaler River East Supplies and Quality Specialty Products. All of the companies were named in the subpoenas sent to doctors and all are controlled by Mr. Haughton, he said in an interview Monday.
He said that River East Supplies shipped the fake Avastin to the U.S. through a Gainesboro, Tenn., distributor that it had contracted with called Volunteer Distribution. The FDA also named Volunteer in earlier warnings to doctors. Volunteer didn't return calls. Mr. Haughton said River East had no idea that the Avastin it was shipping was fake. He said River East sources product "through EU regulated channels."
"As soon as we were notified by our customer that there were concerns with the product we quarantined all of the product, recalled it from the U.S. and immediately notified" British regulators, Mr. Haughton said.
Mr. Haughton, who has lived in Barbados since 2006, said he wasn't aware of the subpoenas asking doctors for information about their dealings with his companies. He said his companies, which also include Barbados-based Rockley Ventures Ltd., do source drugs in countries outside the U.S. and sell them to U.S. doctors. But he said they purchase only through "regulated supply channels and through licensed wholesalers."
Asked whether he was aware that the FDA says this activity is illegal in the U.S., Mr. Haughton said his companies are safe, ethical and operate legally in the countries in which they are based.
Mr. Haughton said his products were approved by regulators in other countries, but not the FDA, and that they are equivalent to FDA-approved products.
Mr. Thorkelson, who founded and owns CanadaDrugs.com, a large Internet pharmacy based in Winnipeg, was also named in the subpoena to doctors. The subpoena asked for "all documents related to the purchase of foreign-market drugs" from CanadaDrugs.com as well as Mr. Haughton's companies. CanadaDrugs.com advertises foreign-sourced drugs on its website. Residents of other countries may be able to buy the drugs legally.
Another of Mr. Haughton's companies, Barbados-based Global Drug Supply Ltd., is a supplier of CanadaDrugs.com, Mr. Haughton and representatives for Mr. Thorkelson said.
Canada's Internet pharmacies started out selling drugs from Canadian pharmacies to U.S. consumers. Because drug prices are controlled by Canada's state-run health system, medicines there are generally a bargain for Americans.
Selling drugs that haven't been evaluated by the FDA for safety and efficacy has always been illegal in the U.S., said Shelly Burgess, a spokeswoman for the agency. However, the agency doesn't "have any jurisdiction" over foreign firms that don't officially sell in the U.S., she added, allowing the companies to continue operating despite overt violations of U.S. law.
It is also illegal for consumers to buy non-FDA approved drugs over the Internet or otherwise but regulators generally haven't cracked down on individual use because of the logistical difficulties as well as the popularity of the purchases. "Our enforcement priorities for our limited resources are focused on the sources of the illegal products," Ms. Burgess said.
The FDA said it is difficult to enforce laws related to illegally importing pharmaceuticals when distributors are located abroad. FDA officials couldn't immediately say whether the agency had ever sought to extradite a suspect in a case related to importation. U.S. associates and customers have been prosecuted in past cases when the FDA targeted foreign companies for importation violations.
Still, "this problem is getting worse, not better," said Bryan Liang, the vice president of the Partnership for Safe Medicines and a law professor at California Western School of Law. Stopping operations that sell to one country, but are covered by the laws of another, has proved difficult, he said. "How can you touch them? They're offshore. Sometimes you don't even know who they are," Dr. Liang said.
Over the past several years, drug companies began pressuring Canadian wholesalers to stop supplying products to Internet pharmacies. The strengthening of the Canadian dollar against the U.S. dollar also undermined the trade's profitability in recent years. That prompted many Canadian Internet pharmacies to begin buying drugs farther afield and shipping them via circuitous routes to the U.S., Internet pharmacy officials say.
"They started sourcing product from cheaper locations, but those locations didn't have the same safety standards," says Daren Jorgenson, a Canadian pharmacist and Internet pharmacy entrepreneur who says he helped create the Canadian International Pharmacy Association, the main lobbying body for Internet pharmacies.
Some Internet pharmacy entrepreneurs also diversified into wholesaling over the years, experts say, shipping drugs from low-cost locations to medical clinics in the U.S.
Some of this pharmaceutical trade passes through places such as Barbados, Dubai and Vanuatu, where light regulatory oversight allows for the easy movement of goods, Mr. Jorgenson said.
American doctors, especially oncologists who administer high-price cancer drugs like Avastin at their offices, may see an opportunity to save money by buying discounted products from such wholesalers. For instance, the Avastin supplied by Mr. Haughton's network cost $1,995 for a 400-milligram vial, according to marketing materials provided by one customer. That is about half the dose many cancer patients would receive every two to three weeks. Roche sells the same product for $2,400.
Buying foreign-sourced drugs that don't meet FDA approval can carry criminal penalties for doctors who purchase them and then bill Medicare. Penalties can apply even to doctors who weren't aware the drugs were foreign.
Eighteen doctors and one clinic in California, Texas and Illinois were notified by the FDA last month that they may have bought fake Avastin.
Authorities are investigating the possibility that the fake cancer drug came through Egyptian and Turkish companies before reaching Europe, according to the U.K.'s medical regulator, law-enforcement officials and pharmaceutical-industry executives. Turkey's Health Ministry on Thursday issued a statement saying it was investigating the matter. One European regulatory agency is investigating whether two Syrians helped transport the fake Avastin from Turkey, according to a person familiar with the matter.
Andrew Jackson, head of security at Swiss drug giant Novartis AG, which doesn't produce Avastin, says that while he doesn't know the specifics of the counterfeit cancer drug, fake drugs manufactured in China often travel through Dubai and other points in the Middle East before moving on to lucrative Western markets.
On Dec. 15, acting on a report from the Danish medical regulator that the Avastin might be fake, the U.K.'s Medicines and Healthcare products Regulatory Agency, or MHRA, says it contacted River East and discovered "that 167 packs were involved in the transaction of which 41 packs had already been sold to the U.S.A." The MHRA seized the packs that remained in the U.K.
In a telephone interview, Casper Tingkaer, managing director of CareMed ApS, the Danish drug wholesaler that shipped the product to River East, said CareMed didn't know the product was counterfeit.
In an email, Klaus-Rainer Toedter, managing director of Hadicon AG, a Swiss wholesaler that sold the product to CareMed, said the company is investigating the matter, and is questioning an Egyptian company called Sawa that supplies Hadicon with pharmaceuticals. Milad Kamal Ayad, who said he acted for Sawa as an intermediary between Hadicon and a Syrian businessman, said he didn't know the Avastin was fake.
—Jonathan D. Rockoff contributed to this article.
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and Benoît Faucon at Benoit.Faucon@dowjones.com