Pfizer Spies Find Spanish Villa, Gold Rolex in Fake Viagra Bust

With the millions he made peddling fake Viagra, Martin Hickman bought a beachside villa on Spain’s Costa del Sol, a diamond-studded Rolex and a flat in London. Pfizer Inc. aims to make sure he never gets to enjoy them.

The spoils of Hickman’s crimes helped settle a trademark infringement lawsuit brought by the world’s largest drugmaker three years ago. It’s the biggest example of a new approach Pfizer is taking to fight counterfeiting of prescription drugs, an industry that’s almost doubled to $75 billion in five years, according to the New York-based Center for Medicine in the Public Interest.

Pfizer, whose erectile dysfunction pill Viagra is one of the most copied medicines, once relied on local authorities and criminal courts to hunt down offenders. Now it’s hired former U.S. customs officials, FBI agents, Turkish narcotics experts and Hong Kong police to find counterfeiters. In China, they’re tracking fakes to the source, raiding derelict warehouses for evidence of illegal drug-making. In the U.K., they’re using civil courts to hit fake pill peddlers where it hurts most.

“The point is to make them realize that there’s no sense from a business perspective in counterfeiting our products, because if we find you, we’re taking your money away,” says John P. Clark, a 55-year-old U.S. law enforcement veteran who now serves as New York-based Pfizer’s chief security officer.

Photographer: Nelson Ching/Bloomberg

Counterfeit Viagra pills. Close

Counterfeit Viagra pills.

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Photographer: Nelson Ching/Bloomberg

Counterfeit Viagra pills.

Pfizer estimates it has prevented about 58 million counterfeit pills from reaching patients since 2004, worth more than $860 million, according to Bloomberg calculations.

Tougher Stance

Clark spent 28 years in law enforcement, starting with border patrols where he “learned Spanish and rode a horse,” and ending as the top civil servant for U.S. Immigration and Customs Enforcement, the agency responsible for stemming the flow of narcotics into the U.S. and the flow of drug money out.

He joined Pfizer in 2008 to help the fight against fake medicines by deploying the same tactic he used with cocaine traffickers, gun runners and money launderers: pursuing civil lawsuits and asset seizures. The company still works with police and the criminal system to catch counterfeiters.

Hickman was one of the first test cases of Pfizer’s tougher stance. Between 2003 and 2007 he sold more than 6 million pounds ($8.9 million) of bogus Viagra and another impotence drug on about 150 websites, according to Britain’s Medicines and Healthcare products Regulatory Agency, or MHRA.

Photographer: Peter Parks/AFP/Getty Images

A police officer shows fake Viagra that was seized in raids. Close

A police officer shows fake Viagra that was seized in raids.

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Photographer: Peter Parks/AFP/Getty Images

A police officer shows fake Viagra that was seized in raids.

‘Tidy Nest-Egg’

Hickman used the money to buy a four-bedroom farmhouse near Manchester, a 2.5 million-pound flat in Chelsea, a villa near Marbella, Spain, a Bentley Arnage and two Range Rovers. He also had an insurance valuation for jewelry totaling 267,000 pounds, including a diamond-studded gold Rolex watch and a Piaget watch worth about 100,000 pounds each, and a Louis Vuitton bracelet valued at 25,000 pounds, according to Pfizer.

In 2007 Hickman was sentenced to three months in jail for contempt of court, less than a year after he was ordered to stop advertising Viagra and another impotence pill on the Internet, according to the MHRA. His websites kept operating, Pfizer said.

“A three-month penalty is not going to discourage you from going back and doing it again,” Clark said in an interview in Singapore. “You put your money offshore, it’s there in a little tidy nest-egg, you come back out, you help fund your start-up operation again, and you’re back in business.”

Money Laundering

Pfizer won permission from the High Court in London to raid Hickman’s home and office and freeze his assets. The day he was released, the company sued him for infringing its trademarks. Within weeks, Hickman agreed to a 1 million-pound out-of-court settlement, giving Pfizer a $769,600 net gain on the money it spent investigating and suing him.

“Hopefully we made an impression on Mr. Hickman as to the consequences of counterfeiting our product,” Clark said. “It was a new way of doing business for Pfizer.”

Previously, the company would refer counterfeiting cases to regulators and police for criminal prosecution. It still does, though the addition of civil suits gives Pfizer an extra weapon, and allows it to conduct investigations and raids itself with a judge’s authorization, according to Clark.

In a second criminal prosecution in June last year, Hickman pleaded guilty to six counts of selling and supplying fake and unlicensed medicines and money laundering, and was sentenced to two years’ jail, according to the MHRA. The regulator is now taking legal action to seize his assets, William Mach, a spokesman for the MHRA, said in an e-mail.

Making Pills

John Gollaglee, a lawyer for Hickman at Pannone LLP in Manchester who represents Hickman in the criminal cases, declined to comment. Alex Megaw, Hickman’s lawyer in the civil suit brought by Pfizer, said he no longer acts for Hickman and had no way of contacting him. He referred enquiries to Pannone.

Pfizer isn’t alone in taking civil action. Eli Lilly & Co., the maker of the impotence drug Cialis, investigates phony pill makers with Pfizer because their products are often copied together, said Bruce Longbottom, legal counsel for Indianapolis- based Lilly.

“The civil action gives the financial deterrent where they’re actually hit in the pocket book,” Longbottom said in a telephone interview. “We do think that sends a message that’s a little bit different from what a criminal action might give us.”

International criminal syndicates are increasingly turning to prescription drugs because they offer higher returns and lower risks than narcotics, according to Aline Plancon, an Interpol officer who works with police worldwide to investigate counterfeiters.

“These people mastered the technology of making pills, because they are doing narcotics,” she said. “They know that the risks of being punished are low compared to the benefit.”

Growing Business

Plancon estimates that $1,000 spent making heroin can earn a return of $20,000. The same investment in copied medicines can earn as much as $450,000.

The global trade in counterfeit drugs will rise to $90 billion by 2015, according to the Center for Medicine in the Public Interest. The Organization for Economic Cooperation and Development says it’s hard to put a value on the problem because of “a paucity of reliable data.” Trade in all counterfeit and pirated goods rose to about $250 billion in 2007 from about $200 billion in 2005, the OECD estimated in November.

There were 2,003 discoveries of counterfeit, illegally diverted or stolen medicines worldwide last year, compared with 195 reported in 2002, according to the Pharmaceutical Security Institute, a Vienna, Virginia-based nonprofit organization that monitors fake medicines.

Human Toll

“I’m not so sure that law enforcement officers around the world know very much about the dangers of counterfeit medicines,” said Tom Kubic, the institute’s president, in a telephone interview. “In some countries where they do, they’re grossly understaffed and frankly unable to effectively address it.”

Counterfeits take a toll on human life. Fake medicines against malaria and tuberculosis alone are responsible for about 700,000 deaths a year, the London-based International Policy Network estimated in a report last year.

“A mother who buys fake medicine to treat malaria does not know that she is paying for her own death or that of her sick child,” Jacques Chirac, a former president of France, said in a speech to the World Customs Organization’s council on June 24. Chirac’s charitable foundation is working to combat fake drugs.

Fake Pills

Viagra copies were found to have entered Australia’s pharmaceutical supply chain for the first time last month. At least 776 packs of phony erection medicine were found in the states of New South Wales and Victoria after customers complained the blue diamond-shaped pills they had bought didn’t work, according to Maida Talhami, a Sydney-based spokeswoman for Pfizer. Tests showed they contained the wrong amount of sildenafil, Viagra’s active ingredient.

Counterfeits with the same batch number seized in other countries have been traced to China, Talhami said. China and India are the source for most fake drugs, according to the Pharmaceutical Security Institute’s Kubic. Tracking them to the source has proved difficult.

“You’re dealing with finding a fairly small operation,” Kubic says. “We’ve seen recent inquiries in China where there are cancer medications being counterfeited with no active ingredient that are being made in a small one-bedroom apartment in major cities, with literally hundreds of well-copied packages and capping equipment which sits on the top of a table.”

Dusty Vats, Derelict Warehouse

Pfizer says it’s making progress in China. In December 2008 a Chinese court sentenced Zhou Ju, the head of a manufacturing and distribution network for fake pills, to 17 years in prison, the nation’s longest term for the crime, and fined him 5 million yuan ($732,000), Pfizer said.

Zhou was arrested in June 2007 in a raid on his factory in Jining, Shandong province, after an investigation led by Pfizer and the Shandong Public Security Bureau. Police seized 892,000 fake pills worth 13 million yuan, including illegal copies of Viagra, Lilly’s Cialis, and Sanofi-Aventis SA’s diabetes pill Amaryl, as well as 280 kilograms of bulk pharmaceutical ingredients, according to Pfizer.

Yang Jie, a defense lawyer for Zhou, said his client was convicted of making fake Viagra and given a sentence in keeping with local laws. The case also implicated retailers who were ordered to pay fines, Yang said in a telephone interview.

Pictures of Zhou’s factory show dirty, dust-covered mixing vats, sacks of ingredients piled in a bare concrete warehouse, tubs of blue dye used to color Viagra pills, and rolls of foil used to seal blister packs, printed with the logos of Zithromax, a Pfizer antibiotic, and Lipitor, its best-selling cholesterol drug. That’s evidence of an ancillary industry supplying fake packaging, said Paul Newton, a University of Oxford researcher who studies counterfeits from an office in Vientiane, Laos.

“There are people making packets and holograms especially for the counterfeiters,” Newton said. “It’s not just a one-man show, it’s all inter-linked with different nefarious business activities.”

For Pfizer, the strategy shift is yielding results. Since 2007, the company has spent $3.3 million on investigations and legal fees and recovered about $5.1 million. The company expects to collect an additional $5.3 million from ongoing cases.

In the U.K., Pfizer says its civil suits have reduced the availability of fake drugs over the Internet. The drugmaker says it has sued at least seven other counterfeiters, and last month settled its first civil suit in the U.S.

“As long as there are people in the world who think they can make money by putting other people’s lives at risk, this is a clear and present danger,” Jeff Kindler, Pfizer’s chief executive officer, said at a briefing in Singapore today.

To contact the reporter on this story: Simeon Bennett in Singapore at sbennett9@bloomberg.net

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