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38 Th Sci TiST February 2010



February 2010 T h Sci T

From an oce suite on the 28th foor o

the Plaza Royale in Beijing, the baby-acedbusinessman had gone rom selling shark

cartilage and penicillin to Chinese hospi-

tals and clinics to cashing in on the high-

prot margins o the European and—he

hoped—US pharmaceutical markets. Xu

kept a list o 29 brand-name drugs he

could deliver at cut-rate prices, rom the

baldness remedy Propecia to liesavers like

the antileukemia drug Gleevec. I it wasn’t

on the list, Xu boasted that he could nd

a way to get it.

Now, he thought he nally had an

entrée to the US market. His contact,going under the name “Mr. Ed,” was a bald,

middle-aged man with a sketchy back-

ground in the clothing business. Ed ran a

company based in Houston, Texas called

Tri State Distributors. Back in March, Xu

and his wie, Jennier, met Ed at the Star-

bucks in the Bangkok airport. Xu prom-

ised he could deliver orders o 100,000

pills i Ed gave him time to prepare. One

month ater that meeting, Xu shipped$5720 worth o drug samples, including

130 boxes o Zyprexa, the Eli Lilly drug

or bipolar disorder, to Tri State’s head-

quarters in a bleak oce park a short

drive rom George Bush Intercontinen-

tal Airport. I all went according to plan,

these drugs would end up on pharmacy

shelves where the biggest prots await.

The email on May 25th was prob-

ably the rst signicant stumbling block

in what was so ar Xu’s fawless career.

“One o my customers called,” Ed wrote

in a message to [email protected],“and said there is a recall o Zyprexa in

Europe with the same lot number. I am

trying to nd out more on the Internet.

Have you heard anything? We will cancel

the Zyprexa order until we nd out the

problem lot number.”

That day, the United Kingdom’s drug

agency had pulled the drug rom phar-

macy shelves ater a tip rom a wholesa

Analysis revealed that the pills contai

just 75% o the active ingredient. T

agency later recalled two other drugs:

Sano-Aventis anticlotting medicatiPlavix, and the AstraZeneca prost

cancer medication Casodex. Xu had gi

Ed both medicines, which would turn

to be subpotent and contain high level

impurities. They were countereits.

I Xu was worried about the law,

didn’t show it. He told Ed he’d look i

the problem, and the duo agreed to st

clear o Zyprexa or the time being. “D

sell to EU market now or Zyprexa,”

wrote. The 36-year-old businessman

already made millions o dollars che

ing the pharmaceutical world selling Tamifu during the avian fu scare, a

like many crooks, he would have mad

lot more i he hadn’t been so cocky. T

months ater that email, Kevin and J

nier climbed aboard a plane to the Un

States to meet Ed in person.

“I have taken care o your hotel acco

modations and will pick you up at stone / getty images

The CounterfeiterThe story of how one of pharma’s biggest enemies was nabbed in Houston, Texas By Bd B

On May 2, 2007, Kevin Xu logged into his Gmail account and found a startling

message from a man who could have been his biggest client.




cf

airport,” Ed wrote on July 12th, “My busi-

ness partner has been very busy on our

venture when I was out o the country and

has made some very large deals starting in

August, especially or [Pzer’s Alzheimer

drug] Aricept. I think you will be pleased

with the result.”

But Xu would not be pleased withthe accommodations Ed had in mind. Ed

was an undercover agent named Robert

Sherman with the United States Immi-

gration and Customs Enorcement unit;

on that very same day o his July email,

Sherman stood beore a judge in down-

town Houston and signed the criminal

complaint that would lead to Xu’s arrest.

Drugs can pass through a dozen

more hands on the way to the pharmacy

and a consumer’s medicine cabinet.

The patchiness o the drug distribution

network and the absence o a proper paper

trail, as investigative journalist Katherine

Eban revealed in her 2005 book Dan-

gerous Doses, has allowed unscrupulous

middlemen to launder countereit medi-

cations within the legitimate supply chain

that leads to a local pharmacy. Foreign-

produced drugs are also illegally “diverted”

into the domestic supply chain.

In the last 10 years, countereit phar-

maceuticals have become big business.According to the World Health Organiza-

tion, countereit drugs are any medication

that is deliberately and raudulently mis-

labeled with respect to its true identity or

source. For instance, countereits may have

packaging that matches a brand-name

drug but were produced under appalling

sanitary conditions, and may contain no

active ingredient or a completely dierent

ingredient. By some estimates, 15–25%

o malaria drugs in sub-Saharan Arica

are countereit or substandard. The best

countereits may be made in the very samedeveloping-world actories that produce

legitimate drugs by day (but get taken over

by countereiters at night), while the worst

may come rom no more than a dingy back

room in Egypt.

The Washington-based Pharmaceuti-

cal Security Institute, a nonprot orga-

nization supported by 27 drugmakers,

reports that the number o incidents o

countereiting, thet, and diversion rom

oreign to domestic supply chains has

risen by a actor o ten in the last 5 years.

In 2002, they recorded 196 incidents. In

2008, that number rose to 1834, with

917 arrests around the world resulting

in the seizure o more than 11 milliontablets. The rise has been partly ueled

by the increased sophistication o oreign

manuacturing capabilities, but much o it

comes rom simply catching more crimi-

nals in the act, a result o better interna-

tional coordination among drug compa-

nies and law enorcement, along with an

increased recognition by state and ederal

regulators o the scale o the problem.

Pizer, or instance, has long had

workers in the eld o product security,

integrity, and quality control, but it was

only in 1998 that they ocially launched

their Global Security Division, which

handles countereits, drug thets, and

other legal issues. “That was the year

launched Viagra,” says Rubie Mage

ormer New York City assistant dist

attorney now with the company, “T

was the rst time we became awar

countereiting on any large scale.” To

the little blue pill is still the most wi

countereited drug in the world.In 2006, 58-year-old Marcia Berge

a US citizen living in Canada, develo

fulike symptoms ater taking a ver

o the sleeping pill Zolpidem, which

bought online. It was manuacture

Southeast Asia and sold over the Inte

via Eastern Europe. She continued tak

the pills or several months, compl

ing to riends that her hair was al

out, and that she was wracked by nau

aching joints, diarrhea, and blurry vis

Ater a riend her dead on December

2006, authorities ruled that the caus

death was cardiac arrhythmia caused

metal toxicity. The countereit Zolpi

The best counterfeitsmay be made in the verysame developing-worldfactories that producelegitimate drugs by day(but get taken over bycounterfeiters at night),

while the worst may comfrom no more than adingy back room in Egypt




contained dangerous levels o aluminum,

uranium, and other heavy metals.

Although state and ederal agents

around the country have launched numer-

ous investigations into countereit medi-

cines, ew groups have made as large o

an impact as the team down in Houston,

Texas. With the help o evidence mar-

shalled by Sherman and his coworkers,

assistant US Attorney Sam Louis has led

an international crackdown on counter-

eits. In 2006, James George o Texas-

based Lieway Pharmacy was locked up or

2 years ater purchasing 1,000 countereitCialis tablets and 4,500 Viagra tablets.

In 2007, Mohammad Gawasmmah and

Fayez Aledous o the Houston based store,

“RU Sophisticated,” pled guilty to dealing

in countereit drugs and were locked up

or 20 months. Earlier this year, Richard

Fletcher, Dallas owner o an Internet site

selling the drugs, was also convicted and

aces up to 10 years in prison.

But none o these criminals com-

pared to Kevin Xu. While many counter-

eit pharmaceutical trackers sell small

volumes o ake Viagra on the Internet,the number one concern o law enorce-

ment is to protect that legitimate supply

chain o liesaving medications going to

major pharmacies online and o. It’s that

legitimate supply chain that Xu sought to

crack. “Mr. Xu,” attorney Sam Louis would

later tell the court, “is probably to this date

the most signicant countereiter or indi-

vidual who is involved in pharmaceutical

countereiting that has been the subject

o any investigation by Immigration and

Customs Enorcement and [Food and

Drug Administration].”

In 1971, Lu “Kevin” Xu was born in

Nanjing, the sprawling port city on the

delta o the Yangtze River. Xu reputedly got his start working or China’s largest

manuacturers, Sinochem, beore joining

a branch o a conglomerate called Ever-

lasting Business & Industry Corporation,

Ltd. around 2002. EBIC consisted o a

handul o businesses that manuactured

and exported projects ranging rom steel

pipes or drilling and mining operations

to knock-o Louis Vuitton handbags and

tennis shoes. According to Edward Mallet,

a deense lawyer who rst handled the

case, purses and clothing were Jennier

Xu’s specialty.

Xu took charge o a division that dealt

in botanical extracts and raw pharma-

ceutical ingredients and would later be

named Orient Pacic International, Ltd.

In early 2003, he was oering a 12-page

list o generic antibiotics, cancer drugs,

and biologics on the company’s website,Achpharm.com, along with standard

medical supplies like bandages, orceps,

and scissors. “We are [sic] leading Chem-

ical and Pharmaceutical company,” Xu

wrote on one website, “and we import and

export over 3,000 kinds o Chemicals and

Pharmaceuticals each year.”

Xu had connections to the biggest

names in China’s industries. According

to the testimony o Stephen McCane, vice

president o T2 Laboratories in Jackson-

ville, Florida, Xu was also helping the

company sell a gasoline additive on theChinese market. It took him just 3 days

to score a meeting with the vice president

o Petro China, a company larger than

Exxon. “Kevin is a person who never went

to sleep without sending you a memoran-

dum o that business day,” McCane said.

Xu was ecient and responsive. “He was

a hard-working businessman.”

In 2005, the avian fu H5N1 hit A

and demand or Tamifu soared. Later t

year, Roche, the drug’s maker, bowed

international pressure to allow drugm

ers in China and Vietnam to produce th

own Tamifu. It didn’t take long be

unauthorized batches o Tamifu star

trickling back into the European and markets via the Internet. But it wasn’t u

May 2006 that regulators caught drug

the legitimate supply chain. The Sw

regulatory agency, Swissmedic, issue

warning about countereit Tamifu,

Roche soon responded by posting gui

lines to help consumers spot the real d

But no one knew where the bogus pr

ucts were coming rom.

In August 2006, a Turkish undcover agent named only “Sandra” in co

documents, who was working or

Lilly & Co., had bought samples o a d

directly rom Xu that matched some o

ake Tamifu. She had other drugs ship

to her rom Xu including Cialis, Aric

Zyprexa, and Plavix, which she passed

to law enorcement agents and pharmceutical companies or testing. At comp

labs, technicians took digital photogra

o the pills and precisely measured th

dimensions with handheld calipers. P

chemist Amy Callanan noticed that X

Aricept was slightly wider than the

thing, darker yellow in color, and lac

the authentic pill’s glossy coat. Calla

scraped o the surace coat o the pill

analyzed it separately rom the core us

inrared spectroscopy. The active ingre

ent, donepezil hydrochloride, was pres

but mixed with cellulose rather thlactose. Eli Lilly, Pzer, and the other co

panies began working with Robert Sh

man’s oce in Houston. (Eli Lilly decli

to respond to questions regarding

Kevin Xu case or their countereit-gh

strategies, citing “ongoing investigation

At the time, Sherman was busy clos

in on a crooked Filipino distributor nam

caption here please: Xu’s ake vs. real riept rom Pzer ab




cf

Randy Gonzales ater two o his buyers

were busted and cooperated with the

Feds through a plea bargain agreement.

A 10-year veteran o the Houston Police

Department who had also spent 15 years

with the Customs service, Sherman was

a natural t or cracking down on coun-

tereit medicines. “Bobby is terric,” saysDoug Mason, a requent collaborator

at the Food and Drug Administration’s

Oce o Criminal Investigations, who is

based in Houston. “He’s probably the best

undercover [agent] I’ve ever seen work.”

(Sherman was not permitted to comment

or this article.)

With the help o Sandra, Sherman

immediately went to work winning Xu’s

condence and ordering his own drugs

in December or testing at the FDA’s

Forensic Chemistry Center in Cincinnati

and, again, at drug company labs. Ideally,

Sherman would have set up the meeting

in China, but Chinese authorities had

ailed to respond to requests or coopera-

tion through the US embassy attaché. So

in early March 2007, as Sherman and his

team were heading to Bangkok to nab

Gonzales with the help o the Royal Thai

Police, they gured they would kill two

birds with one stone beore heading home

to the United States. According to court

records, Sherman and Sandra set up a

meeting with Xu and his wie in Bangkokas another special agent stood by with a

video camera.

At the start o the meeting, Sherman’s

cell phone buzzed and he took a call pur-

porting to discuss the importation o a

shipping container. Then, Sandra admon-

ished Xu, telling him she was “not happy”

about the act that his shipments to Tri

State had been several weeks late. It was

a ploy, o course, and it allowed Sherman

to conrm that Xu was the actual source

o those shipments. As the discussion

shited to uture business plans, Xu let itbe known that he would have no problem

delivering up to 10,000 boxes, which

Sherman calls “a signicant order.”

Xu explained to Sherman that the way

to get the drugs through US customs was

send the package through South Arica

and Brazil, which would arouse less suspi-

cion rom ocers than a shipment directly

rom China. Then, he should also pack

them in cardboard barrels sealed in alu-

minum packs that customs could not open

without permission. Those packs would be

declared as powdered chemicals. And what

i customs intercepted the shipment and

started asking questions? Xu told Sherman

just to repeat this mantra: “I don’t know,

I don’t know.” By the close o the meeting,

Xu and Sherman had ironed out the details

ensuring, or instance, that Xu would be

able to precisely match the coloring o thepills Sherman wanted. Sherman returned

to Texas and Xu to China.

Just as Sherman and his colleagues

were pondering how to nab Xu, the inves-

tigation took on a new urgency. The UK

recalled tainted batches o those three

medications—Zyprexa, Casodex, and

Plavix—and ater consulting with Sher-

man’s oce they linked the recalls to

Some Plavix pills contained just 10% o

active ingredient. All told, some 40 tributors had handled Xu’s products,

70,000 packages were recalled, altho

at least 30,000 made it into the hand

patients. The pills had made it into

country’s supply chain rom France v

process called parallel importation, wh

allows distributors to purchase drugs

other countries in the European Un

and then repackage and relabel them

a loophole that drugmakers and pat

advocates despise, but that distribu

champion as a way to give customers lo

prices. Patrick Ford o Pzer Global Srity calls it “an invitation to counterei

Thankully, no one appears to h

been injured by the products. Elizab

Bolton, spokesperson or the UK d

regulator, declined to answer questi

citing the open investigation, but Cl

Blackburn o the Prostate Cancer Cha

says they have not had any men co

Workers destroy fake and outdated drugs January 18,

2007 n Bejng, cna. Tousands of pounds fake and

outdated drugs were destroyed n te operaton.




orward with problems caused by the

bogus Casodex. “Due to the short time

scale o the incident and the act that the

men aected received a weakened version

o the drug, it is unlikely that we will have

any men coming orward,” she says.

After the recall in the UnitedKingdom, Kevin Xu could have walked

away with a cool $1.5 million in revenue

rom that year alone, but he wanted more.

As Sherman and the ICE team were pon-

dering a way to lure Xu to US soil or his

arrest, they learned that he was coming

anyway—to unload some o that hard-

earned cash on a $26,000 diamond or

his wie. “The price o diamond in USA is

cheap,” he wrote Sherman, “but we don’t

know exactly so we want to see in NYC,

heard a big diamond market there.”

On July 22, Sherman and Xu drove

up to the Tri State warehouse so he could

meet his business partner, “Dr. Doug”—

aka Doug Mason o the FDA. It was a

simple “countereit” oce connected to a

warehouse, urnished solely with a coee

machine, computer, and a cheap desk

set up or such meetings. Mason sported

a business suit, but had laid a white lab

coat in the room to complete his persona.“[Xu] was interested in making as much

money as he could possibly make,” Mason

says. “I told him I can push as much as

you can give me, and his eyes lit up.” That

year, Xu had already sold $232,568 worth

o drugs to Americans over the Internet,

according to ICE, but this was his chance

or real distribution.

The trio discussed the intricacies o

the business, as it would be the last chance

Sherman had to milk Xu or all the inor-

mation he had. They ound out that Xu had

the ability to change lot numbers printed

on drugs, which meant he had access to

state-o-the-art packaging acilities. Sud-

denly, a hal dozen ocers rom Immigra-tion and Customs Enorcement entered

the room. “Police! Hands up, stand up. Put

your hands up,” they shouted, handcung

Xu and taking him to the ederal deten-

tion center in downtown Houston. There,

he was charged with conspiracy to trac

in countereit goods, three counts o tra-

cking in misbranded pharmaceuticals,

and ve counts o tracking in countereit

pharmaceuticals.

Xu’s attorney, Colin Amann, calls his

client an “Internet geek” with no crimi-

nal history who knew how to nd the

best deals in one market and sell them in

another. But Xu couldn’t necessarily vouch

or the drugs’ authenticity. “China is very

much a buyer beware culture,” Amann

says. “They don’t have copyright laws

like we have here.” Indeed, without the

cooperation o the Chinese government,

Sherman and his team were never able to

identiy Xu’s alleged actory in China, and

Amann says that Xu had exaggerated hisabilities by “pung himsel up” during his

interactions with the agents.

In the end, Xu was convicted, and

given the maximum sentence o 6 years in

prison. In January, he was shipped out to

Big Spring, Texas where he is waiting or

an appeal and serving out his sentence. He

was also ordered to pay $1.3 million res-

titution to Pzer and Eli Lilly. As a te

ment to the diculty o prosecuting th

cases, Xu’s six-gure deense team got h

acquitted on our counts o tracking

countereit pharmaceuticals because

government ailed to explicitly dem

strate that the drugmakers still held ac

patents. “You can call that a technicaliAmann says, “but the government ne

called an Eli Lilly rep in to say ‘This is

le.’” Xu did not testiy during the trial

ailed to respond to questions mailed

him in prison.

Ater serving his sentence, Xu co

still be extradited to the UK, where

could ace additional charges. “He

pretty stoic ellow,” Amann says, “T

entire time I’ve seen him shed a t

once or twice when he was talking ab

missing his wie, his son, and ather

China.” Although the Orient Pac

website is deunct, its parent compa

Everlasting Business and Industry C

poration, Ltd, still seems to be oerin

variety o products online. In intervie

investigators have suggested that t

are still ollowing leads produced r

the Xu case.

This time, Pharma and the Feds h

managed to strike back against a ma

countereiter, but the war is ar rom oIn late October 2009, as ocials gea

up or the next round o H1N1 swine f

the United States, FDA ocials purcha

Tamifu online. One envelope arrived w

a postmark rom India with white tab

taped between two pieces o paper. T

pills contained just talc and Tylenol. n

ave a comment? mail us at [email protected]

All told, some 40 distributors had handledXu’s products, and 70,000 packages wererecalled, although at least 30,000 made i

into the hands of patients.

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