Pharma Express

Connecting global unregulated drug supplies with American consumers

by Emily Witt and Malia Politzer

Type Georgios Xydeas’ name in an Internet search engine and the first items that come up are press releases announcing his federal indictment, conviction and sentencing for trafficking in counterfeit pharmaceuticals. But scroll to the bottom of the page and advertisements still remain for Xydeas’ erstwhile company, Evgen International.

On business-to-business Web sites like AliBaba.com, Bizearch.com and GlobalBusinessResource.com — the virtual bazaars of the global market — the ads promote Xydeas's inventory in cosmetics, perfume and medicine and list his former address and phone numbers in Panama. The phone numbers are no longer active, and Xydeas is now in jail, but the ads are reminders of a once-robust business in trafficking prescription drugs online.

Xydeas is Greek, his customers were American and his business partner Egyptian. His headquarters were in the free trade zone of Colon, Panama. He is an example of a new kind of global middleman: a conduit to transport drugs made in Europe and Asia to customers in the U.S. who want prescription drugs without the prescription. He and dozens of others like him can be found through the simplest Internet searches.

According to law enforcement officials, court documents and Internet research, these middlemen offer a full-service fulfillment service for online pharmacy startups. Contracted by Web site administrators operating online pharmacies to fill their customers’ orders, these providers ensure a steady supply of pharmaceuticals — often diverted from legitimate channels or counterfeited in potentially unsafe conditions — and deliver them securely to the American consumer.

In February 2009, Xydeas pleaded guilty to distributing counterfeit Cialis, an erectile dysfunction drug, to the U.S. market. He received a reduced sentence in exchange for providing information to the Feds, presumably about his suppliers in China and Europe. In addition to Cialis, Xydeas regularly filled orders from online pharmacies for Ambien, Ativan, Valium, Xanax and Phentermine, no prescription required.

Express mail pharmacies

Xydeas may now be in jail, but Internet searches reveal many others in the same business, operating in plain sight. Often referred to as drop shippers, they purchase drugs in wholesale quantities from manufacturers and collect retail orders from online pharmacies. Then they repackage the drugs and ship them directly to customers. The drugs are most often unregulated and sent in discreet packaging directly to the customers through FedEx or other direct mail. Most drop shippers will guarantee that a package intercepted by customs will be resent at no charge.

“These people will ship products from one market to another,” said Dr. Bryan Liang, executive director of the Institute of Health Law Studies at California Western School of Law. “They collect the stuff and they resell it to someone else.”

The business is all but uncontrollable from a customs standpoint. “You would have to work faster than the speed of light to check all these packages,” Liang said.

Court records reveal that at least one major drop shipper was supplied directly by drug manufacturers in China, but one pharmaceutical investigator said that most have diverse sources of drugs, including hospitals and pharmacies in any number of countries, particularly those with weak intellectual property laws.

It is illegal to import pharmaceutical drugs into the U.S. without going through the proper channels, but because most drop shippers are overseas, they operate beyond FDA and DEA jurisdiction. They are very difficult to prosecute because of the shifting nature of the trade. Drop shipper distribution chains are constantly evolving, exploiting poorly regulated areas like free trade zones in Panama or Dubai.

“This is an international problem,” said Mike Russo, a spokesperson from the pharmaceutical company Eli Lilly. “People that engage in these criminal enterprises move to where there’s least resistance to their products.”

While the drugs may be approved for sale in their countries of origin, their passage through illegitimate channels makes their quality difficult to verify.

Type "drop ship pharmaceutical" in an Internet search engine and it will bring up dozens of companies that openly sell prescription drugs ranging from Viagra and Cialis to Lipitor and Prozac.

A scattershot path around the globe

In mid-January 2007, a student in Philadelphia took what he thought were a couple of Xanax, purchased from an online pharmacy supplied by Georgios Xydeas. Instead of the anticipated sedation, however, the pills provoked a disconcerting twitchiness.

According to court documents, the student was disturbed by what he later described to emergency room personnel as his “jerky” involuntary motions and decided to go to the University of Pennsylvania hospital.

After he outlined the sequence of events — and admitted that he had purchased the Xanax online with no prescription — hospital personnel suspected that he had been given not Xanax but Haldol, a powerful antipsychotic used to treat schizophrenia.

The student handed over the drugs, which the FDA then tested. The laboratory found Holperidol, the active pharmaceutical ingredient in Haldol. An investigation began. By February, the FDA had located other online pharmacy shoppers who had purchased Xanax but received Haldol. At least one also turned over an envelope with a postmark from Greece.

The FDA issued a public alert online to warn consumers, with photos of the envelope and its return address in Greece. One cheated customer forwarded the alert to the online pharmacy where he had bought his supposed Xanax. The site operator, who would later serve as a federally protected witness, went to his supplier, Georgios Xydeas.

Xydeas moved much of his operation to a free trade zone in Panama, where bulk drug purchases are often whitewashed from their origins and repackaged to make them appear more legitimate. The government sought the help of Eli Lilly, the manufacturer of Cialis, and began a concerted effort to catch him. An undercover agent from Eli Lilly contacted Xydeas through a business-to-business Web site and arranged a wholesale purchase of counterfeit Cialis.

When Xydeas landed in Panama for a meeting to finalize the deal, he was turned away at Customs and put on a plane back to Greece that was routed through New York.

In New York, Xydeas was arrested.

The U.S. Attorney's Office in Denver, which prosecuted the case against Xydeas, touted their success in breaking up an international drug ring that stretched all the way to China, according to U.S. District Attorney Troy Eid.

But only a glancing search online shows that there are many businesses like his, operating in the open with relative impunity. Type "drop ship pharmaceutical" in an Internet search engine and it will bring up dozens of companies that openly sell prescription drugs ranging from Viagra and Cialis to Lipitor and Prozac. While advertised as brand name, pharmaceutical company representatives said they are far more likely to be counterfeits or illegal generics — if they contain any active pharmaceutical ingredients at all.

Do-it-yourself

Customer service representatives — easily reachable via Skype and email — offer advice to anyone on how to start online pharmaceutical companies, and do not require their clients to have prescriptions, pharmaceutical licenses or other credentials.

One customer service representative at the company — PharmaDropShip.com — even provided a list of “best selling drugs” and instructions on how to start an online pharmacy to undercover reporters, even when we made clear we had no experience, expertise, or certification in pharmaceuticals.

When we asked in an Internet chat whether we needed to provide prescriptions in order to buy controlled substances, PharmaDropShip.com customer sales representative Simon Owen wrote, “No you don’t,” adding, “my advise [sic] is to sell everything.”

The business model used by PharmaDropShip.com nearly duplicates Xydeas’ business model as it was described in court records. According to the Skype conversation with Owen, PharmaDropShip.com has been doing business for more than eight years, filling as many as 1,500 orders a day.

The site essentially offers a complete fulfillment service to online pharmacies serving American users. Website administrators send spreadsheets of their orders to an online database, where they are then retrieved and filled by the drop shipper. According to Owens, the drugs are mailed from countries ranging from India, to Germany, Seychelles, the U.S., U.K., France and Holland — reflecting, perhaps, the wide network of suppliers. The drugs are packaged discreetly and sent directly to customers.

Pharmadropship.com does not check the licenses or certifications to verify that pharmacies they ship to are legitimate, nor do they require buyers to provide prescriptions before shipping drugs directly to customers within the United States, or verify that drugs go through proper FDA channels.

Owens maintains that all this is perfectly legitimate.

“I’m not an importer, so I don’t need to answer import laws,” he said in an Internet chat, adding that they are not responsible for the actions of their customers.

A new paradigm of global trade

Patrick Ford, a senior director for global security at Pfizer, described the role of drop shippers as something like launderers of pharmaceutical drugs. (Pfizer manufactures Viagra and Lipitor, two of the most counterfeited drugs in the world.) In a hypothetical situation he outlined, the origins of a drug manufactured in China or India could be completely hidden by the time the product arrives in the hands of a consumer.

According to Ford and Liang, a drop shipper might receive a quantity of drugs from China or India and ship them on a pallet to Free Trade Zones in the Caribbean or the Middle East. There, the drugs might be repackaged into consumer-ready envelopes, boxed, and trans-shipped to somewhere with a postmark more credible to the Internet consumer —London or another European city. The origins of the drug are obscured, and a consumer who reacts poorly has little recourse.

“It’s not like Pfizer, which only deals with licensed wholesalers in a closed supply chain,” said Ford. “There is no product complaint department.”

As the easy availability and openness of the drop shipping trade reveals, law enforcement is now caught in a game of catch-up.

Online pharmacy watchers say that even generics can be counterfeited, contain no active pharmaceutical ingredients, or be otherwise compromised when they are shipped through illegitimate supply chains.

In the early 2000s, most of the online pharmacies were still U.S. based, drawing on a small pool of corrupt pharmacists. According to John Praed, of the Internet Law Group, those pharmacists were relatively easy to catch. After aggressive enforcement, the pool was soon diminished.

“The market for ethically challenged pharmacists dried up,” Praed said.

But demand remained higher than ever, and the rise of viable pharmaceutical manufacturing in India and China made offshore suppliers more plentiful. The drop shippers filled a market niche, aided by the business-to-business websites that emerged with the rapid globalization of the economy in the 1990s. The problem, of course, was that the drugs looked different.

Ford said that the most savvy counterfeiters could be determined by the quality of the packaging they used for the drugs.

But even that might change. When we expressed worry that pharmaceutical consumers might be put off by receiving drugs that were obviously from India, one drop shipper assured us that wasn't true. People that buy on the Net, he wrote in an Internet chat, are very familiar with Indian drug companies.

While it’s true that there are legitimate drug manufacturers in India — some licensed by the FDA to supply generics to the legitimate U.S. supply chain — online pharmacy watchers say that even generics can be counterfeited, contain no active pharmaceutical ingredients, or be otherwise compromised when they are shipped through illegitimate supply chains.

Court records indicate that online pharmacy suppliers can be less than scrupulous when it comes to filling their customers’ orders.

Liang emphasized that because online pharmacies offer lower prices, it is often uninsured Americans who face the greatest risks: “I really could care less if trademarks are violated by the existence of these drugs,” Liang said.

“I care if people get killed.”

PharmaDropship.com: One of many sites that can help you set up your online pharmacy shipping warehouse.

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PDF Download: Click here to read more about how dropshippers operate, through the case of Eli Lilly Vs. 8PM Pharmacy in the UK.