Fake-Drug Raids Are Uphill Battle
Busts in Manila Yield $200 Worth of Counterfeit Viagra; Agents Join One Warehouse Owner for Lunch
By KATHY CHU
MANILA—Armed with a tip from pharmaceutical company Pfizer Inc., PFE +0.66% several dozen government investigators carried out a series of rapid fire raids one day last month on what were supposed to be the key suppliers of counterfeit drugs in the city.
Counterfeit medicines were seized during a raid in downtown Manila last month. Sometimes fake pills can appear identical to brand-name drugs.
The net result of the raids, touted beforehand as likely to be one of the largest counterfeit drug busts in the city this year, was $200 worth of fake Viagra, Pfizer's erectile-dysfunction drug.
At two of the four warehouses targeted in the action, the owner, Elson Sy, bragged of his close ties to the Philippines' National Bureau of Investigation, which carried out the raids, according to people close to the investigation. No Viagra was found in his warehouses and soon after, he joined four of the agents on the raid for lunch at a nearby Chinese restaurant known for its sweet and sour pork and fried fish balls. Mr. Sy didn't respond to a request for comment.
The failed raids provide a stark picture of the uphill battle pharmaceutical companies face in fighting the growth of counterfeit drugs in developing countries. With sales slowing amid a wave of patent expirations, major drug companies are struggling to boost profits in developing markets, where enforcement of patents may be weak and penalties for those caught are minor.
"I think we are making a dent in the problem, but it's a slow process," said Scott Davis, senior director for global security in the Asia Pacific for Pfizer and a former special agent for U.S. Customs. "Counterfeiting is a high-reward, low-risk crime."
Counterfeit drugs account for about 30% of brand-name pharmaceutical sales in developing countries and about 1% in developed markets, according to the Center for Medicine in the Public Interest, a Washington, D.C., research organization funded partly by the pharmaceutical industry. The counterfeiting has expanded from lifestyle drugs such as erectile-dysfunction pills to treatment medications such as antimalarial drugs and cancer drugs like Avastin, which made its way into the U.S. this year.
The pills can look identical and have the same packaging as brand-name drugs or can look completely different.
Counterfeit drugs have caused injury and even death. Some pills have no medicinal properties or a fraction of the active ingredient found in the real product. Others contain brick dust, arsenic, road paint or chalk dust.
The Philippines is a small but growing piece of a counterfeit drug epidemic that experts believe has its roots in countries like China and India.
The most proactive companies, such as Pfizer and Eli Lilly LLY +1.12% & Co., are often the sources of the tips that lead to the raids on drugstores and warehouses, as governments focus on higher-profile problems such as murders and robberies, according to Loy Ocampo, general manager of Didymus, a Manila firm that works with pharmaceutical and apparel companies to investigate counterfeit products.
Pfizer provided the tip for the raid in Manila, but one problem with relying on the drug makers for information is that search warrants may be limited to drugs from that company. Investigators on the recent raid saw what appeared to be fake Cialis, made by Lilly, but left it behind because the search warrant only covered Viagra.
A growing number of developing countries have passed laws making it a crime to manufacture or supply counterfeit drugs. Even so, cases are often prosecuted as trademark violations rather than more serious crimes, leading to small fines and short jail sentences for offenders.
"If you're running raids and there aren't deterrent jail sentences, then it's a waste of time," said Steve Hawgood, Lilly's regional compliance manager for North Asia.
Globally, 1,311 people were arrested last year for counterfeiting, theft and diversion of drugs, a 14% increase from the previous year, according to the Pharmaceutical Security Institute, which represents the security directors of 14 major pharmaceutical companies.
In the Manila raid, reporters and TV crews were invited to come along as nearly two dozen members of the National Bureau of Investigation descended on the city's "mall of fakes" in Chinatown. The agents, armed with Glock .40- caliber handguns and carrying bolt cutters, pushed aside a female guard and walked past stores selling fake handbags and athletic gear and circled a drugstore.
After about 30 minutes of digging through shelves filled with skin-whitening cream and a lotion labeled Oily Honey that was packaged similar to Oil of Olay, the investigators found 12 boxes containing a total of 48 bottles of what they believed to be fake Viagra. They didn't arrest the shopkeeper.
The investigators then split into four groups and drove to nearby warehouses. In a 1,000-square-foot warehouse, they found a drug-packaging machine, boxes of weight-loss pills and what appeared to be fake Cialis. But the owner wasn't brought in for questioning and nothing could be seized because the search warrant only covered counterfeit Viagra.
At two other warehouses in Manila's Chinatown district, Mr. Sy, the owner, bragged that he knew the NBI's lead investigator on the counterfeit drug case and the deputy director who authorized the raid, according to a source close to the matter and confirmed by investigators. When the raid turned up boxes of "Happy King" sexual enhancement pills but no counterfeit Viagra, the owner and the government agents walked a block away to lunch at Maxim's Tea House, a Chinese restaurant, according to people close to the investigation.
Edmundo Arugay, the National Bureau of Investigation deputy director who authorized the raid, said he doesn't know the warehouse owner. If his agents had lunch with the warehouse owner, it's a "violation of the rules because we don't allow our agents to be close to the subject or the complainant," Mr. Arugay said.
Pfizer isn't giving up. The pharmaceutical company recently tipped government agents off to a call center in Cebu, in central Philippines, that it believed was taking orders from all over the world for counterfeit medicine, including Viagra. But when investigators raided the facility in mid-July, they found little evidence of illegal activity.
Write to Kathy Chu at email@example.com