Tuesday, August 30, 2005

Internet Drug Schemes -

An article in today’s Wall Street Journal explores the illegal practice of retailing prescription drugs via the Internet without a prescription. This practice raises problems that should concern all of us.

Heather Won Tesoriero’s story on page A1 (I am reading the online version for August 30) chronicles the conception and growth of a criminal enterprise involving online sale of certain prescription pharmaceuticals, including Viagra. Although it would seem that Viagra is everywhere (or at least its ads are – I even noticed the blood pressure cuff in my doctor’s office today had Viagra on the label!), it turns out that Pfizer’s wonderdrug was apparently hard to get in the UK. An entrepreneur just wanted to help out the Brits by crossing the border to buy the drug from Mexican pharmacies (without a prescription) and reselling them via the Internet (likewise without a prescription). Of course, he apparently sold them to whomever would buy them, though he disguised the telephone number to make it appear that it was in the UK.

Later, he found a manufacturer in India who could manufacture something similar, and he imported those pills into Mexico (packed in two suitcases), smuggled them into the United States, and then resold them for an even greater profit. The Viagra purchased in Mexico cost around $7 per pill, and he resold them for a premium price of $13 (less than the $10 price typically charged in the U.S.) The drug made in India cost only 48 cents, and he would resell these for $7. This presumably reflects the fact that the Indian manufacturer would also use a similar drug formula, but the pills lacked the distinctive trade dress of the Pfizer product.

This all went on for several years below the radar screen of U.S. authorities, while the entrepreneur racked up multi-million dollar profits. These profits also went untaxed in the U.S.

Several issues come to mind. First, Pfizer is getting shafted bigtime on the Indian pills, which probably violate its patent. (It may have benefited from the Mexican pill sales, though it is not entirely clear whether they were really Viagra or not. Note to consumers: if you buy blue pills from a pharmacy in Tijuana, you are on your own.) It owns the patent on Viagra’s formula until 2012, and until that time it has been granted an effective monopoly to exploit it for profit. And I applaud that. It costs billions to develop effective medicines, and once you discover one you deserve the right to collect something for your efforts. Without effective enforcement of intellectual property rights in other countries, U.S. companies who innovate risk substantial erosion of the value of their investments.

As it turns out, Pfizer was rather lucky with Viagra, as the story goes that its impotence-curing features were but a side effect of clinical trials on heart patients. However, a related story in yesterday’s WSJ indicates that it may also be effective in treatments for circulatory diseases impacting children, which could help up to 2 million young patients. That is a good thing, and we should recognize that profit-motivation spawns innovation that can benefit all of us.

Second, this story illustrates how vulnerable we are from our southern border. Even though an individual in the U.S. could probably never dream of entering this country with two suitcases full of pills from India (at least I hope not), he was able to do that in Mexico. He was also later able to get them into the United States, as understandably not everything coming across our border is searched. Not only did a regulated and potentially harmful drug (in the wrong hands) enter into the marketplace here and abroad, but it also did so as part of an underground economy that did not contribute to U.S. tax coffers, and undermines an industry that contributes a lot.

Third, this story raises the issues of controlling internet-based criminal operations. The use of financial institutions, ISPs, and other intermediaries leaves a trail that can ultimately help you get caught, but we apparently need to shift some resources that direction if we are going to make that happen more often. Or we need more thoughtful and conscientious people like the computer technician to give our existing resources some assistance.


No comments: