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Counterfeit Drugs Lawsuit Points Finger at Wholesaler, Pharmacy

Donna Young

Until the government takes action to restrict the number of times a prescription drug product is bought and sold among wholesalers, the nation will continue to be susceptible to counterfeit drug problems, said Eric Turkewitz, a New York City lawyer.

A drug distribution system that includes thousands of wholesalersreportedly there are 60007000 wholesale distributors of prescription drugs in the United Statesis like having "thousands of windows and doors for the criminals to get in," he said.

"Especially when there are people inside the house who will be conveniently leaving the windows and doors open," he added. "But if you have a house that's only got three windows and doorsthe drug manufacturer, the distributor, and the pharmacyit's much easier to protect."

Turkewitz is representing a New York resident, Timothy Fagan, in a lawsuit against AmerisourceBergen Corporation (ABC)one of the largest distributors of prescription drugs in the United Statesand CVS Corporation and its specialty pharmacy division, PharmaCare, alleging that the companies should be held accountable for a counterfeit injectable that reached Fagan.

The product, which was labeled as Amgen's epoetin alfa product Epogen 40,000 units/mL, actually contained 2,000 units/mL of the active ingredient.

A July 29 ruling by a judge in the United States District Court Eastern District of New York, permitted the case to go forward against ABC, CVS, and PharmaCare, which changed its name in April from CVS ProCare.

A legal point of view

A New York lawsuit involving a victim who alleges he was exposed to counterfeit drugs could have implications for pharmacies and wholesale distributors who might face similar lawsuits, said Joseph L. Fink III, a lawyer and professor of pharmacy at the University of Kentucky in Lexington.

And if counterfeit drugs continue to be a problem in the United States, he added, pharmacies and wholesalers could be named as defendants in these types of cases more often.

AmerisourceBergen Corporation (ABC) and CVS Corporation and its subsidiary PharmaCare have been named as defendants in the lawsuit, which was filed in the United States District Court Eastern District of New York.

No pharmacists were named as defendants in the lawsuit.

"Probably 15 or 20 years ago, lawyers would never have even thought of filing a suit like this," Fink said. "But now there's a lot of visibility, a lot of concern about the quality of drugs coming in from other countries. The issue is on the front burner. It's a highly visible one, and people are thinking of maybe pursuing lawsuits that they wouldn't have before."

Although "authorized distributors," such as ABC, are not required by FDA to forward a pedigree to pharmacies, the lawsuit shows the importance of being able to track where a medication has been, said Fink, who encouraged pharmacists to only do business with "reputable" wholesalers or buy directly from manufacturers and demand a complete sales history of a drug product.

He noted that the plaintiff in the case included in his complaint an allegation that the pharmacy breached the implied warranty of merchantability.

Under an implied warranty of merchantability, he explained, the seller of a product "guarantees, warrants, represents, promises . . . that the product being sold is fit to be sold. It is not degraded, it is not adulterated, and it is not contaminated in any way. And that's what they are alleging in this case. That this product was not fit to be sold because it was labeled as [Epogen 40,000 units/mL] and it didn't contain" Epogen 40,000 units/mL.

Implied warranties are "inserted in the transaction by the law," he noted.

Often, Fink said, if a plaintiff cannot prove negligence in a lawsuit, the person may still win a judgment based on the seller's breach of implied warranty of merchantability.

But, Fink noted, over 90% of cases are settled outside the courtroom, and most lawsuits never make it to the discovery process to uncover evidence that may show who is at fault in a case.

Samuel A. Hoagland, a Boise, Idaho, lawyer and adjunct associate professor of pharmacy law at Idaho State University School of Pharmacy in Pocatello, said he expects the "hammer" in the New York lawsuit against ABC and CVS to come down "hardest" on the wholesaler.

He noted that the federal judge in a July 29 ruling that permitted the case to go forward said that distributors of prescription drugs "could best control from whom it purchased prescription drugs, and to whom it delivered the drugs it purchased, and thus may have been in the best position to protect against the trade of counterfeit or diverted prescription drugs."

Wholesalers, pharmacies, and the pharmaceutical industry can "largely avoid" lawsuits by taking proactive measures to ensure that transactions involving drug products are based on legitimate business practices, he said.

However, the court dismissed Fagan's complaint that Epogen's maker, Amgen, should also be held liable in the case.

Turkewitz said Fagan has asked the court to reconsider its dismissal against Amgen or, as an alternative, for permission to appeal that portion of the decision.

Fagan, who claims he was exposed to the counterfeit Epogen in spring of 2002 when he was 16 years old, alleges that ABC bought the vials of drugs from a "gray market" wholesaler and sold the product to PharmaCare.

PharmaCare, the suit alleges, "failed to make reasonable inquiry to determine that ABC purchased Epogen on the gray market."

Fagan began taking Epogen in March 2002 after receiving a liver transplant. He had received two shipments of the drug before Amgen announced on May 8, 2002, that counterfeit Epogen had made its way into the marketplace.

PharmaCare warned Fagan on May 14, 2002, about Amgen's alert.

However, the vials that Pharma-Care delivered to Fagan the next day, which was the third shipment of the product he had received since starting the drug, bore the lot number and expiration date cited in Amgen's alert.

After examining a nearly empty vial from a shipment of Epogen Fagan had received in April, Turkewitz said, Fagan's parents notified FDA that the product's label was missing a degree symbol on the storage temperaturea feature that Amgen had warned could signify that the product was counterfeit.

The drug maker confirmed that Fagan's product was a fake and issued a second alert on May 24, 2002.

It is unclear whether the first shipment of Epogen Fagan received in March 2002 was counterfeit because he had disposed of the empty vials before receiving Amgen's alert, Turkewitz said.

"The problem with counterfeit drugs is the evidence is destroyed when it is ingested or injected, and when patients fail to get better, the physicians assume that it's the underlying disease," he said. "So the vast majority of people who have been victimized don't even know it and they're unlikely to discover it."

The drug's path. CVS admitted in court documents that its pharmacy sold the vials of counterfeit products to Fagan. But the company claims it was unaware that the drugs were phony.

CVS alleged that PharmaCare purchased the bogus drugs from ABC.

ABC admitted "only that it sold limited quantities of Epogen of the dosage strength at issue" to PharmaCare.

"It is without knowledge and information sufficient to form a belief as to whether it was the source of any Epogen supplied by CVS [PharmaCare] to the plaintiff," the company stated in its response to Fagan's complaint.

But information in court papers filed in August 2003 by ABC in the United States District Court District of Arizona seems to conflict with the wholesale giant's stated knowledge about who sold the counterfeit drugs to CVS that Fagan had received.

In a lawsuit ABC brought against Arizona wholesaler Dialysist West, the company contended that as a result of its $9 million purchase of 2200 boxes of products purporting to be Epogen 40,000 units/mL, which later were discovered to contain 2,000 units/mL, ABC "has been named as a defendant in a personal injury lawsuit arising out of the sale of counterfeit Epogen."

ABC identified Fagan as the plaintiff in that suit.

The wholesaler also asserted that as a result of its purchase of the fake drugs from Dialysist, ABC was, at the time of Amgen's announcement, "in possession of in excess of 1800 boxes" of counterfeit Epogen, at a cost of roughly $7.4 million of "product that cannot be sold."

ABC said it also had to "credit a customer based on the sale" of the phony Epogen.

The company also argued before the Arizona court that it had purchased "thousands of boxes" of epoetin alfa products from Dialysist purporting to be Ortho Biotech's Procrit 40,000 units/mL, which ABC claimed contained only 2,000 units/mL of the active ingredient.

"Most or all of the purported Procrit that the ABC entities purchased from Dialysist was either counterfeit, misbranded, adulterated, or otherwise prohibited from being resold," the court papers state.

ABC also alleged that Dialysist's pedigrees for the Epogen and Procrit products contained "false statements about the true nature and origin" of the products.

New business practices. Mike Kilpatric, ABC's vice president of corporate and investor relations, said that his company, in an effort to "protect the pharmaceutical supply channel," now purchases "99.5% of its products directly from manufacturers."

"We have 4000 products that are only allowed to be purchased from a manufacturer," he said, adding that the list includes Epogen.

The company's other 0.5% of prescription drugs are bought from about 20 "lawful" wholesalers, Kilpatric asserted.

Wholesalers doing business with ABC must meet "rigorous standards" that are "tougher" than those set by state agencies that license wholesale distributors, he declared.

Kilpatric said that over the past two years his company has tightened its controls, implemented new policies, and installed tracking systems to ensure that the drug products it buys and sells are legitimate.

ABC does not purchase products that have changed hands more than twice among wholesalers, he said.

He contended that his company closely scrutinizes every pedigreea complete sales history of the product.

However, he added, because FDA does not require "authorized distributors" to pass on a pedigree to the next buyer, ABC does not forward the sales record to its customers.

If authorized distributorsthose who purchase most of their products directly from the manufacturerpass on pedigrees to clients, he charged, prices of drug products would increase for purchasers because of the added costs associated with processing paperwork.

FDA only requires "unauthorized" distributorsthose who do not buy directly from the manufacturerto forward pedigrees to the next buyer.

Perplexities. However, there has been some confusion surrounding the definition of who qualifies as an "authorized distributor."

A 1988 FDA guidance document states that an authorized distributor "must have an ongoing relationship with a manufacturer, that is, show evidence of two sales in a two-year period and have evidence of a written franchise, license, or other distribution agreement."

Also adding to the confusion is FDA's decision to postpone implementation of its pedigree regulation (see sidebar).

Wholesaler pleads guilty for pedigree failures

A recall of 67 bottles of Eli Lilly's olanzapine product Zyprexa this past February initiated an investigation that ultimately led to "one of the first convictions of its kind" of a wholesale distribution company for failing to forward a pedigreea complete sales history of a drug productto community pharmacies, according to FDA.

The agency announced on August 27 that RxBazaar Inc., an Ohio-based wholesaler, and its wholly owned subsidiary, FPP Distribution Inc., each pled guilty to one misdemeanor charge under the Federal Food, Drug and Cosmetic Act.

FDA spokesperson Brad Stone said that even though FDA has postponed until December 2006 implementation of the pedigree requirement, which was established under the Prescription Drug Marketing Act of 1987 (PDMA), "the fact [that] regulations have not been implemented does not nullify the law."

RxBazaar had operated an online marketplace since 2000 on which prospective sellers of prescription medications could offer to sell their products to wholesalers and pharmacies.

During an investigation of "possible criminal conduct by someone not part of RxBazaar," an FDA special agent learned that the company had not been providing "statutorily required pedigrees when they distributed brand prescription drugs to all retail pharmacies and to some wholesale distributors," according to the government's "Statement of Facts" of the case.

The government noted that RxBazaar "cooperated with FDA throughout the investigation."

According to the government's statement, RxBazaar officials were confused about PDMA's pedigree requirement because the company believed that the "pedigree requirement was not in effect."

"The statute requires the pedigree to be provided even though FDA regulations have not become effective," the government stated.

C. Robert Cusick, chairman and chief executive officer of RxBazaar, admitted that his company made a mistake in not forwarding the pedigrees, but said that FDA is making his company a "poster child" in its efforts to rein in the secondary wholesaler market.

Cusick noted that the number of bottles of Zyprexa that were recalled by his companyhe claims less than 35, but a March 24, 2004, FDA Enforcement Report states 67was low compared with the more than 31,000 bottles recalled by D&K Health Resources Inc., which was announced in an October 2003 FDA Enforcement Report.

As part of the guilty plea agreement, RxBazaar and FPP Distribution Inc. each must pay a $100,000 fine.

According to the government, RxBazaar has been providing pedigrees to all wholesaler distributors since June 1 and to all community pharmacies since July 19.

But, Cusick said, the government's investigation caused RxBazaar to lose its financing, and it plans to soon stop operation.

The pedigree is required under the Prescription Drug Marketing Act (PDMA) of 1987, but FDA did not publish its final regulations until December 1999.

The pedigree regulation was originally scheduled to take effect the next year, but the agency has postponed it five timesmost recently this past February.

The agency stated in a February 23, 2004, Federal Register notice that it was delaying the pedigree requirement until December 1, 2006, to give drug makers and distributors time to implement track-and-trace technology that would move the industry toward using an electronic pedigree.

"FDA has concluded that an electronic pedigree should accomplish and surpass the goals of PDMA and is potentially a more effective solution to tracing the movement of pharmaceuticals than a paper pedigree," the notice states.

Regulators estimated that track-and-trace technologies will be widely used by the drug industry by 2007.

However, FDA does not mandate use of the technology but instead relies on pharmaceutical makers and distributors to voluntarily adopt it.

But Turkewitz argued that "any gizmo or gadget that they invent to stop counterfeiters will be beaten by counterfeiters."

"Everybody always wants to think they are smarter than the criminals," he said. "But when there's a dollar to be made, people will act aggressively to beat those devices. That's why you still see counterfeit $100 bills. And so it's a pipe dream that technology is going to stop the counterfeiting."

Plus, he added, he doubts the drug industry will voluntarily adopt better business practices.

"There's nothing that would have stopped the pharmaceutical industry from adopting such practices over the last 15 years," he said. "So I don't know why they believe they would voluntarily adopt them now. Nor do I believe any company is going to voluntarily adopt better business practices if it is going to cost them money. There are some people in the industry who will, in the pursuit of the all-important margin, take risks. They will gamble. But they are gambling with the lives of other people. They are playing Russian roulette."

Turkewitz contended that counterfeit drugs will continue to enter the drug supply chain unless the government limits the number of times a drug is allowed to move from one wholesaler to the next.

But until then, he said, the answer to counterfeiting is to "make sure your wholesaler is getting the drug directly from the manufacturer, and if the wholesaler is buying stuff from secondary sources, change wholesalers."