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Date Posted: 22:25:50 12/23/03 Tue
Author: Scammer
Subject: Scams: Lax Rules, Cunning Scheme Put Fake Lipitor Onto Market

Lax Rules, Cunning Scheme Put Fake Lipitor Onto Market

BY SUSAN TODD
c.2003 Newhouse News Service


Florida police rapped on Julio Cesar Cruz's door just before sunrise July 21. He answered wearing his underwear.

As Cruz dressed, five police officers and a state pharmaceutical regulator listened while he tried to soothe his wife, according to a person who was there. At one point, he asked the police, "Are they state or federal charges?"

"State," an officer replied.

"Don't worry," Cruz told his wife. "This will be nothing."

Then police told him the charges: multiple counts of racketeering, part of a roundup of illicit prescription drug wholesalers.

Cruz's face dropped. "Call the attorney," he said to his wife.

As it turned out, Cruz was involved in something even bigger. A criminal complaint filed by federal prosecutors earlier this month accuses Cruz of masterminding a scheme to counterfeit Lipitor, which led to a nationwide recall of the cholesterol drug prescribed to 18 million Americans.

Federal prosecutors say Cruz, a 41-year-old, twice-convicted cocaine dealer, manufactured, imported and distributed a convincing copy of the world's best-selling medicine.

By the time the U.S. Food and Drug Administration caught on, 200,000 bottles had to be recalled, a historic amount that exposed the vulnerabilities of a distribution system considered the safest in the world.

"This isn't the quiet industry it used to be," said John Theriault, vice president of global security at Pfizer, the company that makes Lipitor. "Really clever criminals have seen that they're going to make a lot more money with a lot less risk knocking off Lipitor and other prescription drugs.

"The smart guys aren't doing crack cocaine anymore."

Information from investigators and hundreds of pages of court documents reveal how the counterfeit Lipitor made its way from a factory in Costa Rica into medicine cabinets across the United States.

A federal criminal investigation continues, but details are emerging of how a small group of sophisticated criminals allegedly profited from a scheme that treated medicine no differently than if it were $20 bills or designer handbags.

No one has been convicted of any crime associated with the case. Lawyers for the four people charged refused to comment in detail.

BLOCKBUSTER DRUG

Lipitor, a tiny, oval-shaped white tablet, is a blockbuster of the drug industry. Sales of the drug reached $8 billion last year.

The tablet is a saving grace for a nation obsessed with unhealthy cholesterol levels. Rich people take Lipitor. Poor people take Lipitor. Members of Congress take Lipitor.

"It really hit home," said Donald deKieffer, an international trade lawyer in Washington who advises companies on anti-counterfeiting measures. "A lot of the drugs that have been counterfeited in the past have been the high-end drugs, but very few people have Serostim or Epogen in their medicine cabinets."

The Lipitor case made one thing clear: The way medicine is moved from manufacturing plants to pharmacies has little oversight. While federal authorities police manufacturing, regulating distributors and repackagers is left to the states. State officials say they lack money and manpower to do the job.

THE PRODUCT

Few people consider the sometimes tortuous route prescription medicines take to get to them. Because it is usually cheaper, big pharmaceutical companies hire wholesalers to ship their drugs to retailers.

Three companies command roughly 90 percent of the $1.2 billion distribution market. The other 10 percent is handled by regional or specialty wholesalers.

Operating outside the system are thousands of companies _ secondary wholesalers _ known as the "gray market." The secondary wholesalers are often staffed by a couple of people and operated from strip malls or small suites.

Some secondary wholesalers serve a legitimate purpose. For example, if a hospital has too much of one medicine, it can sell its supply before it expires.

But the gray market is also vulnerable to criminals.

It is this combination of lax regulation, loopholes and criminal ingenuity that investigators believe set the stage for one of the largest drug counterfeit cases in U.S. history.

THE JAIL-YARD CLASSROOM

Julio Cesar Cruz likely learned about prescription drug counterfeiting in prison, according to state and federal investigators. He certainly spent enough time there.

Born in Cuba and raised in Miami, Cruz went to state prison in Florida at 22 on a four-year sentence for cocaine trafficking. After serving one year, he was released in late 1985.

In May 1995, he was sentenced to 136 months in federal prison. Again, it was cocaine trafficking. Much of the sentence was spent in Georgia.

By early 2001, Cruz was transferred home to Florida where he was released a few months later. He was still serving part of his sentence _ five years of supervised release _ when police came knocking during July.

By then, cocaine was no longer his main line of business.

At least two other members of the group suspected of making the fake Lipitor served in prison with Cruz, according to investigators.

Shortly after Cruz's release in April 2001, he used an old alias to obtain a driver's license and a passport. Both were violations of his probation. A driver's license and less than $1,000 were all he needed in Florida to become a licensed drug wholesaler, according to state regulations at the time. He entered the gray market.

Just five months after leaving prison, he incorporated Medical Dynamics in Miami, according to papers filed with the state. Next, he used his alias to establish Pharma Medical in Gatlinburg, Tenn. Still another company was established in Miami earlier this year.

Millions of dollars passed through Cruz's companies, according to reports compiled by Florida investigators.

With Florida a hotbed for the gray market, it was no surprise that Cruz's operation bumped into Michael Carlow, the accused ringleader of another drug-diversion ring in South Florida.

On the same July day police showed up at Cruz's door, Carlow and his wife were arrested at their estate outside Fort Lauderdale. The arrests _ 17 people in all _ culminated an investigation that began when a legitimate drug wholesaler was burglarized and the stolen drugs showed up for sale on the Internet.

Cruz used Carlow's far-flung operation to move Lipitor into the mainstream, according to federal and state investigators. And he began quietly socking away money, according to investigators. Pharma Medical, one of the companies he controlled, wired at least $9.4 million to Lighthouse Capital Investments in Coral Gables. Cruz told investigators $500,000 is stashed in a bank account in Switzerland, according to a report by officials who questioned him last month.

THE SCHEME

Cruz worked directly with at least four other men, according to investigators. Two helped to make the counterfeit tablets in Costa Rica and divert Lipitor from Brazil for repackaging together in a Costa Rican warehouse. One got the Lipitor into the United States and another produced the finishing touch: sophisticated-looking labels to package the tablets.

Cruz handled some of the arrangements himself, traveling to Costa Rica several times to meet associates _ violations of his release from prison.

Costa Rica's pharmaceutical industry is minuscule. But Costa Rica does have one advantage for counterfeiters _ patent laws that are full of holes.

Medicine is considered counterfeit if it is sold under a name brand without authorization, if it doesn't have the right main ingredient or if it is wrapped in fake packaging. The phony Lipitor tablets contained enough of the medicine's main ingredient to make them passable, but not enough to necessarily reduce cholesterol levels. They also contained chemicals not found in the authentic medicine.

Getting the counterfeit drug to people willing to pay for it was a little trickier.

Under questioning by investigators last month, Cruz said the tablets arrived at Miami International Airport in containers labeled to be held "in transit," a Customs term that signifies a product from overseas is to be held in a warehouse until it continues on its way.

In this case, the Lipitor was heisted from a warehouse at the airport and moved to another run by Cruz in Miami, according to the internal report containing information he told investigators. Cruz described removing the fake Lipitor, filling the containers with a substitute and returning them to the warehouse.

THE CUSTOMER

Fifteen hundred miles away from Miami, Cruz found the opening he needed to sell the Lipitor in Doug Albers.

In July 2002, Cruz contacted Paul Kriger, a pharmaceutical broker from California, who worked closely with Albers, according to investigators and court documents. Kriger, who also had a connection to Carlow in Florida, offered Albers a chance to buy the Lipitor.

In a lawsuit filed last month, Albers said Kriger told him everything was on the up and up with the Lipitor: A distributor in Puerto Rico who worked with Pfizer was selling it. There was only one hitch _ Albers had to buy the tablets from a wholesaler licensed to do business in Missouri. Cruz's companies didn't fit the bill.

So, starting in November 2002, Albers bought the Lipitor from a Maryland company controlled by Carlow and licensed to do business in Missouri, court documents said. The purchases continued for eight months. During that time, Albers Medical Distributors sold at least $7 million of the medicine to 13 customers, authorities said. Only one customer, H.D. Smith Wholesale Drug, has been identified.

Albers, who is being sued by Pfizer and patients based on his sale of the counterfeit medicine, claims he was deceived by Kriger and others. Kriger's attorney, Matt Geiger, said his client is cooperating with investigators.

"Neither OTS Sales nor Paul Kriger were aware or had any knowledge of any counterfeit Lipitor being brought in or out of Albers," Geiger said.

Albers has refused to speak to reporters. His attorney, Cathy Dean, and a spokeswoman, Laurie Roberts, maintain he was duped by his longtime broker.

"Albers has conducted its business with the highest ethical standards for 27 years and will continue to do so," Roberts said last month.

Albers' wholesale business started as an offshoot of his Kansas City pharmacy. The wholesale business is located in the same downtown building, a 1,000-square-foot office. The modest office belied his success.

Last year, the wholesale business generated at least $45.7 million in sales, according to data from DB, formerly Dun & Bradstreet.

By the time the counterfeit Lipitor appeared, investigators already suspected Albers Medical Distributors as being a huge opening for stolen and illegally imported medicines.

Missouri regulators cited him a dozen times from May 2000 through June 2002 for buying medicines from companies that were not licensed to do business in the state. In September, without acknowledging guilt, he agreed to a 30-day license suspension and a five-year probation in Missouri.

Florida was tougher. In July, regulators there barred him from selling drugs in the state, citing a pattern of violations last year and in early 2003, including forged paperwork.

Albers was considered one of Carlow's best customers _ worthy of a 25 percent discount _ according to the documents released by Florida prosecutors.

Experts say the availability of Lipitor, a drug still under patent, at such a steep discount should have been an immediate warning. Typically, the medicine has a wholesale price of $262.34 per 100-tablet bottle, according to Mick Kolassa of Medical Marketing Economics, a research firm in Oxford, Miss.

Under normal circumstances, a wholesaler can expect to receive a 2 percent discount.

"Lipitor at that discounted price should be a massive red flag," Kolassa said. "I don't know if there's that kind of discount available to anyone outside the federal government."

In the gray market, drugs can be bought and sold by people who never actually handle them. In this case, Albers bought the Lipitor and sent it to Med-Pro, a family-owned drug repackager in Nebraska. Med-Pro put 90 tablets at a time into bottles made to look like they had come directly from Pfizer.

Albers, meanwhile, wasn't the only one who jumped at the chance to buy the Lipitor. An Illinois company, Alliance Wholesale Distributors, also acquired some. Alliance sold it to Precision Rx, an Internet pharmacy. That batch was repackaged and sold to hundreds of customers.

Ernest Koehler, an attorney for Alliance's parent company, Phil & Kathy's, said the Lipitor was purchased from "a new distributor in Florida." He said he didn't know the name.

THE CRACKDOWN

It was around the same time, in early April, that a suspicious shipment of the cholesterol medicine turned up in Florida.

On April 9, officials with the state's Department of Health found cartons of Lipitor and Celebrex, another Pfizer drug, during a routine inspection of a wholesaler named MedCom. The labels were in Portuguese, an indication the medicine had been smuggled into the country, according to court documents.

Two days later, inspectors visited the three-room business again and found 19 more boxes containing 180 foil packages of the drugs. Inspectors seized $445,477 worth of drugs. MedCom wasn't charged.

Florida investigators first thought the tablets were made by Pfizer. And some were. The counterfeiters, investigators said later, mixed phony tablets with ones made by Pfizer for overseas markets to help disguise the fakes.

The disguise might have kept the profits rolling in for the counterfeiters, except for one flaw. In May, Pfizer began receiving complaints from patients that their Lipitor had an unfamiliar bitter taste.

Tests of some of the Lipitor confirmed the suspicions. The tablets were imitations.

It turns out when the pills were made in Costa Rica, too much of the chemical was packed into the mold, investigators said. That caused the coating to crack slightly. What patients tasted was the bitter medicine seeping through the coating.

Albers and Med-Pro announced a recall of 100,000 tablets during late May. Within days, it doubled as the fake tablets showed up in places such as Rite-Aid and independent pharmacies.

The counterfeits reached hundreds of consumers.

Seven months after the Lipitor first surfaced, federal prosecutors in Kansas City identified one of the suspected culprits in the case.

The U.S. Attorney's Office charged Cruz with selling more than $1 million of counterfeit Lipitor. In the coming weeks, he is expected to arrive from the Broward County Jail in Florida, where he is being held on $4 million bail.

Roy Kahn, Cruz's attorney, dismisses the counterfeiting charges. "There is no evidence that makes him a mastermind," Kahn said. Attempts to contact Cruz in prison were unsuccessful.

Three other people, including the former chief executive at a California repackaging company, have been charged by federal prosecutors in Kansas City with wire fraud and mail fraud for allegedly taking secret kickbacks from Albers for agreeing to buy the Lipitor.

Their attorneys declined comment. The spokeswoman for Albers said the company "took no part in any deception."

An investigation into Albers' role is continuing, according to state and federal investigators.

It is too early to say if Cruz's arrest will be a turning point in the battle against counterfeit prescription drugs.

"We will continue to step up enforcement," FDA Commissioner Mark McClellan said this month. "We've seen counterfeit operations grow more sophisticated and use new technologies. We have new technologies on our side as well."

Dec. 23, 2003

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