Watch CBSN Live

Targeting Phony Pharmaceuticals

Tim Fagan was just 16 when he underwent a life-saving liver transplant. But something was wrong. Fagan was having severe spasms, and nobody knew why.

"I would wake up in the middle of the night screaming, crying in pain," Fagan recalls.

"It was extremely upsetting to see Tim in such pain," his father, Kevin Fagan, told The Early Show correspondent Melinda Murphy. "And we were totally helpless. …I didn't know where to turn. I didn't know who to go to."

Tim suffered for weeks in 2002, but only on the nights he was injected with a drug called Epogen, designed to increase his depleted red blood cells.

"It was traumatic enough to be giving these shots," says Tim's mother, Jeanne Fagan. "But now, to be giving him these shots and knowing that he would have a reaction was…just horrible."

Then Jeanne got a call from their pharmacy, CVS, that the Epogen could be counterfeit.

"This is the United States of America," Kevin says. "And I thought that our drug system was safe and secure. Lo and behold, Tim's exposed to counterfeits."

The only way to tell was by scrutinizing the label.

The sole distinction between phony and real was a degree symbol missing from the fake label.

Kevin called the pharmacy, the distributor, even the manufacturer. No one would explain what happened, Murphy says.

"I was absolutely frantic as to what this counterfeit medication might have done to my son in the short-term and in the long-term," Kevin remembers.

As the Fagans searched for answers, medical journalist Katherine Eban began investigating counterfeit drugs. Her book due out Monday, Dangerous Doses, is the culmination of that three-year investigation. It examines the very real problem of counterfeit, diluted, recycled and mishandled prescription medications.

The book hits shelves as a bill is being proposed by Rep. Steve Israel (D, NY) to combat counterfeit drugs. The measure is dubbed "Tim Fagan's law," in honor of the Long Island victim of fake pharmaceuticals that Murphy met.

"Counterfeit medicine means that what is in the bottle, or in the pills, is not what it says on the label," Eban explains to Murphy in an exclusive interview. "Our medicine moves through a complex distribution system where it is handled by many middlemen…and during that journey that our drugs take, often they are mishandled. They are stolen from warehouses. They are recycled and bought for cash from Medicaid patients. And they can also be counterfeit and deadly."

Why is it, Murphy wondered, that our drugs go straight from the manufacturer to the pharmacy?

"What they would rather do," Eban responded, "is unload all their drugs to a big distributor and have them deal with the logistics of reselling it."

Eban learned there are three large wholesale companies in the U.S. that handle 90 percent of Americans' drugs. They purchase primarily from manufacturers, but they also buy from smaller wholesalers.

"Then," Eban continues, "it is moved like a chess piece through a maze of distributors and wholesalers. And that maze is very poorly regulated. It's simply watched over by a patchwork of state laws with minimal federal regulation."

Eban's investigation led her to Florida, and she discovered there were nearly 500 licensed wholesalers in the state. Just about anybody could get a license. This opens the door for counterfeiters.

"A number of former narcotics traffickers got state licenses to distribute pharmaceuticals," Eban says. "All they needed was $900, a small refrigerator and some air conditioning, and a lock on their door, and they were in business."

Counterfeiting, Murphy points out, is more widespread than you might think. In 2003, for instance, counterfeit Lipitor, the popular cholesterol drug, was estimated to have reached 600,000 patients worldwide.

Typically, the more expensive the drug, the more likely it is to be counterfeited. High-priced cancer and AIDS drugs are vulnerable.

In Florida, a team of investigators in Florida was pulled together from three different agencies by former prosecutor Stephanie Feldman: "I called them Operation Stone Cold, because the people we were after were stone-cold killers. If you give a cancer patient hemophiliac-strength drugs, you're a killer. …(and) that happens. It happens all the time."

Operation Stone Cold uncovered a trail of counterfeit drugs, including Fagan's Epogen, Murphy points out.

According to investigators, it began as a much lower dose, which typically costs wholesalers about $260 a box. The original labels were washed off vials of medicine and replaced with new labels, made to look nearly identical to the label of a much higher dosage, which would cost $4700 a box. The process is called "up-labeling."

Cesar Arias, a pharmacist and inspector for the state's department of health, was one of the investigators who tracked the Epogen: "They traveled through strip clubs. They traveled through homes. They traveled in the trunks of cars without proper cooling."

And eventually, according to Eban's investigation, the Epogen was sold back to one of the original distributors, AmerisourceBergen, who sold it to CVS.

In the end, 110,000 vials of Epogen and Procrit were relabeled, with a net profit to the counterfeiter of $46 million, Murphy reports.

"Why is our medicine not better looked after?" Murphy put the question to Eban.

"In 1988," came the answer, "a federal law was passed that would have solved that problem, and required an audit trail for every drug that moved through the system. Lobbyists for the wholesalers came in and gutted that legislation. …As a result, the federal government cannot tell you where your medicine has been, who has handled it, or what is in it.

The Fagans are suing both CVS and AmerisourceBergen.

CVS declined Murphy's request for an interview, but issued a statement: "After receiving an alert from the manufacturer, our pharmacist quickly alerted the Fagan family about the counterfeit medication."

CVS has filed legal action against AmerisourceBergen and says it has taken steps to ensure its suppliers get medication only from reputable sources.

AmerisourceBergen also sent a statement to CBS News: "AmerisourceBergen is deeply concerned about the reckless activities of drug counterfeiters. …As a result of greatly enhanced tracking, monitoring and security controls since the period covered in Ms. Eban's book, we have had no incidents of counterfeit drugs in our distribution centers."

It's not enough for the Fagans. They hope new legislation will fill the gaps that exist in the system.

Says Kevin Fagan: "You can't do this to people and get away with it. Someone has to be held accountable."

For Tim, the experience has been devastating: "I'm frightened every morning and every night that I take a pill, or a shot, or whatever it is, because I'm not sure whether it's counterfeit or not."

Fifty people have been arrested so far as a result of the Florida investigation. Florida is one of three states to have tightened pharmaceutical laws. Manufacturers and many wholesalers have increased security measures.

In spite of this, the U.S. had 32 incidents of counterfeit medicine just last year, according to the Pharmaceutical Security Institute.

View CBS News In