This article was taken from the December 2011 issue of Wired magazine. Be the first to read Wired's articles in print before they're posted online, and get your hands on loads of additional content by subscribing online.
Kevin Xu, 35, was waiting nervously at Starbucks in Bangkok's busy Suvarnabhumi Airport when the American arrived, fresh off his flight from Houston. Xu, a Chinese national from Shenzhen, began to get up from his chair but the American had already seen him, and the two men shook hands while Xu's wife, who had travelled to Thailand with him, ventured a small, tight smile.
"I'm happy we could meet with each other," Xu said, one hand rising to check the knot of his tie. Both men were smartly dressed as they sat among the transiting travellers. For Xu and his wife, the meeting in July 2007 had the potential to be life-changing -- though not, as it would turn out, in quite the way either of them had envisaged. After years of working to expand their pharmaceutical business, Pacific Orient International, in mainland China, they were finally poised to break into the world's biggest and most lucrative market for prescription medicines: the United States. But to crack that market they needed help -- help that this relaxed, suntanned man seemed willing to provide.
"It's a great opportunity for both of us," the American said, noting Xu's wife's Swiss watch. Unruffled by his 19-hour flight from Texas, the American's deep voice and firm handshake appeared to be designed to put an anxious business partner at ease.
"So what are your biggest products right now?" the American asked, coming straight to the point. Xu glanced at his wife before answering, his English heavily accented and slightly hesitant. "Casodex," he replied. "Uh... Casodex and Plavix. They in your market in the USA?"
Plavix and Casodex are prescription drugs used to treat heart disease and prostate cancer, respectively. Plavix is licensed by drugs giant Bristol-Myers Squibb and Casodex by AstraZeneca. Plavix retails for around £142 a pack of 30 tablets and Casodex for anything up to £240. But Xu wasn't sourcing his drugs from authorised wholesalers -- his iteration was being manufactured illegally in China.
"Right, yes, United States," replied the American. "And I have some customers that I think I can do volume sales on."
Xu could hardly believe his luck. In his relentless drive to expand his high-margin business -- counterfeiters' profits are often enormous because they haven't had to fund the R&D work undertaken by the pharma companies -- he had already found a way into the European market. But until now, the US had been hard to penetrate. Here, finally, was his chance.
After successfully counterfeiting "lifestyle" drugs such as Viagra and Cialis, Xu had branched out into even more profitable life-saving medications, such as Plavix and Casodex, as well as Tamiflu for avian flu, which brought in profits more than 500 per cent higher than Viagra. These were just three of 29 different fake drugs that Xu told the American he could supply for the US, with the American taking a cut.
Like many counterfeiters--- a 2005 report from the Organisation for Economic Cooperation and Development estimated that the fake-medicine trade is worth $200 billion (£130 billion), two cents in every dollar of global exports -- Xu had gone undetected for a long time. His counterfeit medication was shipped from China to Europe. By sending the patient-information leaflets separately from the drug packets and the tablets themselves, and from different destinations, he was making it nearly impossible for the authorities to track him down.
But not completely impossible. What Xu didn't know was that the US department of Immigration Customs Enforcement (ICE) had been tipped off by the pharmaceutical giant Eli Lilly. Xu's was the biggest and most sophisticated such crime that ICE had yet come across. Law-enforcement officials don't know exactly how much money the counterfeiter was making, but estimated it to be in the "millions of dollars". Nevertheless, the true extent of Xu's distribution network was still unknown.
The coffee shop was noisy, but Xu was intently focused on the American as he ordered eight shipments of Plavix, Casodex, Tamiflu and Aricept, a drug for Alzheimer's disease. Xu was excited; his deep-set features relaxed a little. This meeting was going better than he ever imagined. He could, potentially, be making millions of dollars within weeks. He did not know that the quiet American was actually a special agent from ICE, and that some of his colleagues were busy videoing the entire exchange.
In May 2007, two months earlier, a licensed pharmaceutical packager in Britain was repacking a wholesale consignment of Zyprexa, an anti-psychotic used in the treatment of schizophrenia, when he found something odd. The drug had just been purchased by his company, OTC Direct. While he was sorting the packets in a warehouse, he noticed a batch number had been inverted on one of the foil blisters. This was unusual.
The packager rang the manufacturer, Eli Lilly. "Can you have a look at some packaging?" he asked. "I don't like the look of this." Minutes later, Eli Lilly called the UK Medicines and Healthcare Products Regulatory Agency (MHRA) -- the government agency responsible for oversight of medicines and medical devices -- and warned it of some possible counterfeit medicines in the supply chain.
Mick Deats was the head of enforcement at the MHRA. A round-faced, sturdily built man who looks like the ex-police officer he was, he headed the department that investigated and prosecuted serious breaches of medicines legislation and regulations within the UK. Within minutes of receiving the call from Eli Lilly, Deats had the medicines impounded and taken to two labs for analysis. What happened over the following months was to prove the most significant investigation of his MHRA career.
Lab analysis of the Zyprexa tablets confirmed that they were fake, containing only 55 to 80 per cent of the active ingredient. The analysis showed that there were other unknown impurities. "There is no such thing as a 'good' counterfeit medicine," Deats explains. "The bottom line is that they don't work. A counterfeit medicine could contain 100 per cent of the correct active ingredient, but if it doesn't dissolve within the body at the right rate, it's not going to work."
As soon as the results came in, Deats put out the MRHA's first-ever "Class 1" recall for the fake batch of Zyprexa, ordering pharmacies and health-care staff across the UK to take them off the shelves. For some patients, it was already too late: a Class 1 recall meant that counterfeit medicines had already reached high-street pharmacies, hospitals and care homes across the country.
But mystery still surrounded how the fake drugs entered the country -- and if there were any more batches out there. Investigators thought it likely that the medicines had come from China, but someone much closer to home was, in fact, getting them into the UK supply chain. Over the following months, Deats and his colleagues painstakingly traced the origin of the initial boxes of Zyprexa, following a complex audit trail that led from Ireland via Belgium and Mauritius, all the way to a quiet village north of London.
The MHRA needed to discover quickly how the original packet of Zyprexa got to OTC Direct. The audit trail led to a company called Kemco Pharmaceuticals, which had supplied the antipsychotic. The MHRA arrested and questioned Kemco's owner, a licensed wholesaler named Richard Kemp, who was later charged, but was eventually found not guilty of any wrongdoing.
During the questioning, it became apparent that another company was supplying Kemco. "We got names fairly quickly," recalls Deats. One name in particular stood out: Peter Gillespie, a chartered accountant and pharmaceutical distributor. On May 23, 2007, officers from the MHRA drove to Bovingdon, Hertfordshire, in search of Gillespie. The address they were given led them to a gated property, where they met a security guard who turned them away.
Gillespie looked younger than his 64 years. It seemed he was used to exotic holidays, and he had properties across the globe. He could be anywhere -- but he wasn't in Hertfordshire. "He was lying low and he wasn't going to come in until he was ready," Deats says.
In the days following the initial discovery of the fake Zyprexa, the MHRA discovered that other counterfeit medications had entered the UK supply chain. Deats and his team started investigating what other products had been supplied by the people who provided the Zyprexa to OTC Direct. Further batches of fake Plavix and Casodex turned up, causing the MRHA to take the unprecedented step of issuing four Class 1 recalls within days during the end of May and June.
"Things were beginning to snowball," Deats says. "This was far and away the worst-known case we'd ever come across. The last thing that would be on people's minds is that this could be a counterfeit medicine," Deats says. "It's such a rare occurrence that for health-care professionals to even register that there might be an issue... is difficult."
So if patients were to die as a result of taking the fake medicines, the deaths were likely to be attributed to the disease rather than to the drugs. Two weeks after the MHRA's failed attempt to arrest him, Gillespie walked into Staines police station in Middlesex and was arrested on suspicion of importing counterfeit medicines. Investigators were relieved to have him in custody, but wanted to know what he'd been doing while on the run.
In January 2011, Croydon Crown Court would hear that Gillespie, who had 25 years' experience in the business, told the MHRA that he didn't know that the drugs were fake -- he claimed that he had been duped by a Swiss friend and supplier, Arnaud Bellavoine. Gillespie said that he and his colleagues had picked up boxes of medicine from a warehouse in Brussels in a hired van, then driven them back to the premises of a company called Consolidated Medical Supplies (CMS). According to Gillespie, he was working in a perfectly legitimate market known as the pharmaceutical parallel trade. This takes advantage of country-to-country variations in drug prices: licensed wholesalers within the European Union are able to buy medicines at a lower price from another country, relabel them to meet local requirements, and sell them in their country or another country at a higher price.
While Gillespie was being questioned, the recalls in the UK had caught the attention of the US agents who were investigating Xu. Investigators made an important discovery: the batch numbers of the fake UK medication were the same as those Xu offered their agent in Bangkok. The Americans called the MHRA. Xu's name meant nothing to Deats, who was making little headway with Gillespie. The Brussels warehouse where Gillespie collected his stock had yielded plenty of boxes of medicine with documentation suggesting they had originated in China. But when Deats talked to OTC and other UK wholesalers, they all said that Gillespie hadn't sold them Chinese materials: his stock had come from France. Something wasn't adding up.
For his part, throughout his trial Gillespie would claim that he was as shocked as the MHRA to discover that the drugs he was trading were fake. He said he was travelling on the M25 in March 2007 when he received a call from a lab technician. "I was being driven," Gillespie, who had lost his licence for drink driving, explained, "but I told them to pull over. I needed to hear what this was about. He [the technician] told me there was no active ingredient. I was terribly anxious... I can't tell you how horrified I was to be involved."
The trial heard that Gillespie claimed a friend, Bernaud Bellavoine, called him in 2006 and asked him to help his son sell pharmaceuticals in the UK. Gillespie agreed, claiming to the MHRA that his understanding with Bellavoine senior was that the medicines Arnaud would supply him with had come from France. "I'd done 15 years of business with Bernaud," Gillespie said at his trial. "I trusted him totally. So [when told the medication was fake] I felt betrayed. You don't normally pass a poisoned chalice to your friend, but that's what it turned out to be."
Deats wondered why, if Gillespie discovered he'd been the victim of fraud, he hadn't told the authorities. It wasn't until May -- two months after Gillespie claimed he learned the drugs from Bellavoine were counterfeit -- that the MHRA received its tip-off from Eli Lilly. By then Gillespie had disappeared.
During questioning, Gillespie stuck to his explanation that he was an innocent businessman importing French medicines from Brussels and relabelling them at the CMS warehouse in Basingstoke. Deats harboured considerable doubts about Gillespie's explanation, which was rooted in French pharmaceutical protocol. In France, each packet of medicine bears a special label called a vignette. When drugs are dispensed by French pharmacies, the patient peels off the vignette, places it on a form and sends it off for reimbursement from the government. When British wholesalers buy French medication on the parallel market, they remove the vignettes and replace the French-language patient information leaflets with English ones before selling them to UK outlets. So, if a British wholesaler such as Peter Gillespie was buying French medicines, he would expect them to have French labels and vignettes -- yet the boxes found in Brussels were labelled in Chinese.
Frustrated by Gillespie's obfuscation, Deats questioned his long-time colleague, Ashley Hunter. Hunter revealed that Gillespie had purchased a vignetting machine for the CMS warehouse, and had hired him to design the French vignettes. Hunter said that Gillespie had then ordered tens of thousands of the vignettes for Zyprexa, Casodex and Plavix from a print shop in northern England.
Hunter said that he had asked Gillespie why, if he was buying French medicines, he was putting vignettes on them if they were intended, as Gillespie claimed, for the UK market. "If I knew they [the medicines] were going to English wholesalers, I would have been concerned, as the French vignetting wouldn't have been needed," Hunter said in court. But Gillespie reassured Hunter that the relabelled packets were intended for the French market. Later, Gillespie claimed that the medicines had had French vignettes on them but, because he was unhappy with their quality, he had produced new versions. When asked later about the Air Singapore labels on the boxes, Gillespie admitted that he knew that the drugs had been imported from east Asia. "That didn't surprise me," he said. "I've been to Cambodia and I knew France had colonies in the East."
After the police and the MHRA's failed attempt to arrest him on May 23, the trial heard, Gillespie said he had tracked Bernaud Bellavoine to Tunisia and, in a call via Skype, asked what was going on.
According to Gillespie, Bellavoine's response was unexpected. "Go to the airport on Saturday. Air tickets will be waiting for you," he told Gillespie, apparently unfazed.
"I'm not fleeing the country!" Gillespie exclaimed.
But a couple of days later, he said, he flew to Geneva. "I arrived about 11.30am and Bernaud met me at the airport," he said. "Then we went in a taxi to visit his son."
According to Gillespie, Arnaud wanted to offer him not an explanation but more medicines. After Gillespie responded in the negative, Arnaud left the restaurant. Gillespie said that Bernaud seemed embarrassed, explaining that his son had an alcohol problem. Gillespie claimed he felt trapped and betrayed. "I came back to England that evening so tired and shocked that I fell asleep on the plane," he said.
At the ICE office in Houston, the investigation, headed by Special Agent Andre Watson, was progressing well. Since Xu's meeting with the undercover agent in Bangkok, the counterfeiter had sent more than eight shipments in return for a total of $167,000. All the samples ICE tested were fake. Now the agents had to lure Xu to the US in order to make an arrest. Xu was too sophisticated an operator to fall for a cheap trick, but the Americans had found a weakness. "During our agent's meeting in Bangkok with Xu, it became clear that Xu's wife was, well, quite materialistic, and she had an interest in luxury goods," Watson recalls with a laugh. "She enquired about the price of diamonds in the US, and our agent told her that if she was in the States she could obtain high-quality diamonds at wholesale prices." After that, it wasn't hard for the agent to persuade Xu and his wife to visit Houston.
When they arrived Xu looked relaxed and comfortable, happy at last to be in the US with an American he now considered to be a friend. During the meeting Xu revealed: "We have a partner in Europe. He's Swiss -- and very, very rich." Minutes later, US agents burst into the room. Xu was arrested and his laptop confiscated. "Computer forensics allowed us to reconstruct his browsing activity and we could see that he was monitoring the MHRA website," Deats says. He was surprised to note that Xu had attempted to avoid detection by carefully screening the MHRA's recall notices: when a specific batch number was recalled, he could order his factory in China to stop using that number for the products it was on.
Croydon Crown Court heard that the MHRA also found logs of chats Xu had had with Arnaud Bellavoine -- Gillespie's claimed supplier in Switzerland -- showing that they were discussing how to bring the fake drugs into the UK. Xu was air-freighting the medicines from China to Singapore, then to Brussels, where Gillespie would pick them up and take them back to the UK by ferry. There were also pictures on the laptop of boxes of Zyprexa ready for shipment, in drums labelled "caramel colouring".
Frustratingly, though, there was no evidence that Xu had had any direct contact with Gillespie, apart from one small clue: Xu had once conducted a Google search on one of Gillespie's companies. Had he been checking out a potential partner? Neither Xu nor Gillespie was telling, but the MHRA was gradually piecing together what Gillespie had been up to during his two-week disappearance. His computer had "gone missing", and when agents eventually forced the doors of the CMS warehouse in Basingstoke they found it empty, apart from a vignetting machine and a conveyor belt. Investigators scoured the place looking for evidence. Finally, they got lucky: "He'd cleaned out all the evidence," Deats says, "but he'd missed three or four vignettes." (See gallery.)
The discovery of the French labels was the breakthrough they needed. At last, a link had been made between Xu's counterfeit products and Gillespie -- and it confirmed that Gillespie was getting the products into the UK market by passing them off as French stock.
Deats was able to piece together which batch numbers Gillespie had been working on. In all, it appeared that he had brought nine shipments of fake drugs into the UK between December 2006 and May 2007, comprising thousands of packets of drugs with a retail value of £4.7 million. Gillespie's profit would have been around £3.3 million.
Around 72,000 packs of fake medicines had entered the UK supply chain, though something like 7,000 of the counterfeit packets were successfully recalled and a further 40,000 were seized by the MHRA.
"If this hadn't come to light, they were planning to bring another three [types of] drugs through," says Deats. Gillespie already had French vignettes printed for Aricept, Keppra and Risperdal. On April 8, 2011, Gillespie was found guilty of conspiring to defraud pharmaceutical wholesalers, pharmacists and the public. He was also convicted of selling or supplying drugs without authorisation and sentenced to eight years. Xu had been found guilty in a US federal court of importing chemically deficient medication, and received a six-and-a-half-year sentence in January 2009.
Gillespie continues to claim that he is a victim of a government conspiracy. "They knew about these counterfeiters all along," he says of the MHRA, "but they never did anything. They allowed the drugs to circulate just to get this one Chinese guy." In the end, though, they needed someone to blame, Gillespie says, "and it ended up being me."
Nayanah Siva is a freelance writer who has been published in The Lancet and Slate. Details of the Bangkok meeting are taken from surveillance videos shot by ICE.
