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The Problem of Counterfeit and Black Market Drugs


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: July 25, 2012 @ 7:30 am
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On Friday, July 20, 2012, the National Association of Boards of Pharmacy® issued a report about the continued escalation of online counterfeit drug supply and the urgent need for international collaboration among regulators and private sector entities. As described in the Internet Drug Outlet Identification Program Progress Report for State and Federal Regulators: July 2012counterfeit drugs sold online often make their way to unwary consumers through a complex chain of international transactions by multiple parties, and international, public-private collaborative efforts are needed to combat this illegal activity.

According to NABP, of more than 10,000 Web sites analyzed, 97% operate out of compliance with pharmacy laws and practice standards established in the United States. Such sites provide an outlet for counterfeit medicines to enter the US drug supply, endangering the health and safety of Americans. It is about time for the U.S. government to get serious and produce a comprehensive approach to protecting Americans preyed upon because they desperately need to find cheaper alternatives to the prescription drugs sold in the United States.

The Economic Reality of Prescription Drugs in America

Cheap drugs entering the U.S. is not a new phenomenon.  Even major magazines contain advertisements to pharmacies located outside the United States. It is understandable that Americans would look for lower cost prescription drugs rather than pay the exorbitant prices for some pharmaceuticals, particularly when the exact same drugs are available overseas for a fraction of the price.  Many times it is literally the exact same drug, not a counterfeit, that can be obtained for one-third (or less) of the price a pharmacy in the U.S. would charge.

Drugs in the U.S. are expensive in part because of the mind-boggling cost to take a drug to market.  According to a recent study conducted by the Tufts Center for the Study of Drug Development,  the average cost of developing a new prescription drug is now $1.3 billion.  While this seems high, and will undoubtedly be challenged by various activists lobbying for cheaper drugs, no one can doubt that the investment necessary to bring a drug to market in the United States is astonishingly high.

Not only must a drug company fund research and development and acquire patent rights, before a drug can be marketed a rigorous FDA drug approval process must also be navigated.  This FDA process can take between 10 – 15 years, and includes various trials aimed at confirming the efficacy of the drug.  In short, whether or not the cost of bringing a drug to market is $1.3 billion or not, a significant investment of time, energy and capital must be expended before a drug can ever reach the US marketplace.  That being the case, and the reality that corporate America is capitalist to its core, the carrot that must be present for drug companies to engage in the effort to create new drugs must be enormous.  Without the possibility of enormous return on investment it would simply be bad business to invest hundreds of millions of dollars to take a drug to market.



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America Subsidizes the World

But how is it possible for brand name drugs to be cheaper overseas than in the United States?  Simple.  There are price restrictions in many parts of the world that set a maximum that can be charged by a pharmaceutical manufacturer.  If that maximum is higher than the price of producing the next unit of the drug then the drug is made and sold, albeit for substantially less profit than it can be sold for in the United States.  Thus, Americans subsidize cheap drugs for the rest of the world, which is one of the reasons that health care costs are out of control.  Of course, you didn’t hear anything about this in the debate over Health Care Reform, did you?  Why would we want to actually address one of the key driving costs when the government could simply swoop in and take over one-sixth of the American economy?

Yes, I am a proponent of the patent system and the exclusive rights provided.  It is these exclusive rights that provide the aforementioned carrot, which attracts investors and pharmaceutical companies to the market to engage in research and development of what will hopefully become blockbuster drugs (i.e., drugs having $1 billion or more in annual sales).  Blockbuster drugs are few and far between though, perhaps 10% of all drugs.  So blockbuster drugs need to make a lot of money to support the other 90% of drugs, most of which lose money.

I am not advocating price controls in the United States, at least not at the moment.  Having said that, something needs to change.  Americans cannot be expect to either personally or through their health insurance bear the burden associated with solely providing the return on investment required by investors to prompt pharmaceutical companies into the marketplace.  Whether Americans pay through exorbitant prices out of pocket, or they pay through high priced health insurance premiums, there is no doubt that Americans subsidize individuals all around the world who pay far less than we pay in the United States.  This is not a patent problem, but rather it is a government problem.  Rather than seize control of the U.S. health care industry government should have tackled the underlying drivers of the cost, and a great place to start would have been in the staggeringly disparate cost of drugs between the U.S. and virtually every other country around the world.

Personally, I am sick and tired of subsidizing drugs for the rest of the world.  Something needs to be done.  Until something is done about the significant disparity between the price of prescription drugs from overseas, such as drugs sold in Canada, there is going to be little or nothing that can be done about counterfeit drugs.  Americans on fixed incomes, the elderly or those who were sent for a loop thanks to the Great Recession have difficulty paying for the drugs they need and turn to alternative sources.  Some of those sources offer legitimate drugs that are simply imported in violation of U.S. patent laws, but others come from nefarious operators who provide watered-down drugs or “medicines” that approximate a sugar pill.  Still others actually put harmful ingredients into what they sell.  The industry is a mess and it exists because Americans are searching for lower cost alternatives to keep themselves out of pain or alive longer.

Rogue Actors

How do these nefarious actors work?  The NABP report explains that public and private sector experts on international health law and global pharmaceutical security say that rogue online drug sellers work with a network of private sector entities – some legitimate and some rogue – to obtain, market, collect payment for, and distribute drug products that are often counterfeit or substandard. Experts call for public-private partnerships to promote the adoption of effective laws, regulations, and policies addressing all levels of this complex chain, along with effective enforcement efforts. Additionally, consumer education about rogue online drug sites and counterfeit drug dangers is necessary.

As earlier indicated, NABP says that 97% of the online pharmacies they surveyed were found to be operating out of compliance with US pharmacy laws and are listed as Not Recommended on NABP’s consumer protection Web site, www.AWARErx.org. The 9,734 Internet drug outlets currently listed as Not Recommended are characterized as follows:

  • 9,261 appear to be affiliated with a network that obtains drugs from questionable sources
  • 4,828 offer foreign or non-Food and Drug Administration-approved drugs
  • 8,497 do not require a valid prescription
  • 2,271 have a physical address located outside of the US (most rogue sites post no address whatsoever)
  • 3,614 have server locations in foreign countries

To help consumers find the safest sources for purchasing medicine online, NABP developed the VIPPS® (Verified Internet Pharmacy Practice Sites) accreditation program. Consumers should look for the VIPPS Seal on an accredited site, or check NABP’s database on its consumer protection Web site, www.AWARErx.org. As part of its continued efforts to combat these rogue sites, NABP and the state boards of pharmacy are stepping up their efforts to educate the public.

Conclusion

The next time you pay more than you want for a prescription pharmaceutical remember that at some point the drug will come off patent and be extremely cheap even in the United States.  But also remember that the price you are paying out-of-pocket could be cheaper if government leaders engaged in responsible and reasonable trade negotiations around the world rather than allowing Americans to subsidize the selling of cheap drugs everywhere else.

If you or a loved one cannot afford to purchase prescription drugs at the U.S. price please, please, please do everything you can to make sure that what you are obtaining from overseas is of sufficient quality and won’t do any harm.  It is a real jungle out there and based on the sloth of the government it doesn’t seem likely that it will get better any time soon.  BE CAREFUL!

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Posted in: Gene Quinn, IP News, IPWatchdog.com Articles, Pharmaceutical

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

2 comments
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  1. “[R]emember that the price you are paying out-of-pocket could be cheaper if government leaders engaged in responsible and reasonable trade negotiations around the world rather than allowing Americans to subsidize the selling of cheap drugs everywhere else.”

    Gene,

    Glad you pointed out the “dirty secret” as to why drug prices are higher here in the US. US consumers are, in essence, subsidizing the costs of the rest of the world for the R&D for developing drugs because of the price controls instituted around the rest of the world. You would like for the development costs of drugs to be lower than the $1.3 billion you mentioned, but drug development, like money, doesn’t grow on trees. Many, many prospective drugs fail before they reach approval which means all those development costs for the failed drug are lost. Add to that the many lawsuits that are filed against drug companies here in the US for drugs that have harmed (or are alleged to have harm) consumers, and you will understand why drug prices here in the US are higher. (The TV ads by law firms for prospective clients that have been harmed by certain drugs is increasing, one of which even uses BAD DRUGS as their phone number). In fact, the reason most drug companies shy away from providing certain vaccines is because of the potentially huge product liability which won’t compensate for what can be earned for providing that vaccine.

    I’m not saying that drug companies don’t at least share some of the problems with higher drug costs in the US; greed in corporate America is everywhere (and without it, capitalism wouldn’t work and innovation won’t happen), just a matter of how greed. But those who believe the US should institute drug price controls in America like the rest of the world are living in a “fantasyland.” The problem is that the rest of the world needs to pay their fair share for drug development costs. Not a “politically correct” view but I was never one for “political correctness.”

  2. Because of the glaring problem that you describe — the often-exorbitant cost of some life-saving treatments — some form of compulsory licensing is a contemporary necessity; and I’m glad to see countries from Australian to China implementing this model. I, for one, am heartened not only by the Indian Patent Office’s recent decision to grant a compulsory license, but also by the further news that India now has plans to distribute some life-saving drugs for free. That — and not gouging suffering patients at every possible opportunity — seems to me to be the epitome of corporate responsibility.
    http://www.aminn.org/patent-legislation