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In Las Vegas, Lazaro Hernandez was a flamboyant, jet-setting poker participant proven in televised tournaments with stacks of colourful chips. However the casually dressed gambler noticed on safety cameras with wads of money on the on line casino cage was hiding a secret life.
And federal investigators say he was playing with folks’s lives. Hernandez, they are saying, oversaw a nationwide $230 million scheme to counterfeit prescription drugs, significantly lifesaving HIV medicine, during which tablet bottles had been altered and bought again to pharmacies at an enormous low cost.
Hernandez’s operation altered bottles for Biktarvy, the No. 1 prescribed drug for HIV, in addition to Descovy, one other HIV remedy, and different prescribed drugs, based on court docket information. In some instances, the information present, the drugs within the bottles had been swapped for Seroquel, an antipsychotic drug.
Hernandez, based mostly in south Florida, gambled with proceeds from the counterfeiting operation, taking non-public jets to Las Vegas and showing in quite a few poker tournaments, authorities say.
The drug counterfeiting scheme was a part of what the World Well being Group estimates is as much as $431 billion in medicine counterfeited worldwide yearly. Within the U.S., there have been 2,121 incidents of counterfeiting in 2022, up 17% from the prior yr, based on the Pharmaceutical Safety Institute, which tracks trade tendencies.
It is an enormous concern for Gilead Sciences, which has made it a precedence to seek out and battle prescription drug diversion and counterfeiting extra broadly.
The corporate filed a lawsuit in July 2021 in opposition to 161 defendants, together with pharmacies and wholesale pharmaceutical distributors, accusing them of taking part within the scheme to change the corporate’s drugs Biktarvy and Descovy. Johnson & Johnson filed the same lawsuit in opposition to 27 defendants over its HIV remedy Symtuza in April 2022. Different lifesaving medicine have been counterfeited over the previous a number of years, together with most cancers drugs, based on trade specialists and regulation enforcement officers. The fits are pending.
“These criminals are preying on probably the most weak,” mentioned Lori Mayall, Gilead’s head of anti-counterfeiting and product safety.
What makes a counterfeit drugs?
Lori Mayall, Gilead Sciences’ head of anti-counterfeiting and product safety.
Supply: CNBC
In an interview at Gilead’s headquarters in Foster Metropolis, California, Mayall defined what constitutes a counterfeit: Altered packaging, a bottle with the unsuitable tablets, the unsuitable cap or label and even the leaflet connected which accommodates vital details about the remedy.
This is how drug diversion works: A affected person fills a prescription for a drugs that’s price a number of thousand {dollars} however is paid for by Medicare, Medicaid or insurance coverage. The affected person then sells it for a fraction of the record worth in money. The client, often called an aggregator, removes the affected person data, alters the bottle and sells it to the wholesale distributor, who sells it again to the pharmacy.
Biktarvy has a package deal record worth of $3,795, though most sufferers’ copays are usually far much less or they could acquire vital reductions by way of the corporate’s affected person help packages, based on Gilead.
Within the Gilead counterfeiting operation, which authorities say was overseen by Hernandez, the corporate found it had a possible downside in August 2020. That is when an impartial pharmacy reported {that a} affected person had acquired a sealed bottle of Biktarvy with Excedrin drugs inside, based on the lawsuit.
The bottle and label gave the impression to be genuine. Over the following a number of months, the corporate acquired extra complaints from sufferers and pharmacies that different sealed bottles of Biktarvy contained different drugs, primarily Seroquel, the antipsychotic. Mayall mentioned counterfeiters had obtained genuine empty bottles, crammed them with the unsuitable drugs and packaged them with a counterfeit seal. In a single case, she mentioned, a affected person briefly couldn’t stroll or discuss after taking the Seroquel, however quickly recovered.
“What we have seen is our bottles reused,” Mayall mentioned. “They’re cleaned and repackaged to appear like real Gilead merchandise.”
Each sale of a prescription remedy is meant to be tracked to supply a sequence of custody again to the producer underneath the federal Drug Provide Chain Safety Act. However that hasn’t stopped criminals comparable to Hernandez from circumventing the method by altering the labels and prescription paperwork and counterfeiting the provision chain documentation, based on regulation enforcement officers interviewed by CNBC.
Usually, the crime begins on the avenue degree, the place sufferers are approached outdoors a homeless shelter or clinic, Mayall mentioned. They’re induced to promote their month’s provide of Biktarvy, for instance, for a number of hundred {dollars} or much less.
“It is sort of the reverse of drug dealing on the streets,” Mayall mentioned. “They go to those places the place they know there are sufferers who obtain drugs that is been disbursed from a pharmacy, and oftentimes these drugs are given to the sufferers by way of authorities insurance coverage or by way of different free drug packages, and they’re going to pay the sufferers for his or her drugs and the bottles that include the medication.”
Gilead’s warfare room
A “warfare room” at Gilead Sciences accommodates 1000’s of confiscated tablet bottles.
Supply: CNBC
Behind a locked door marked “warfare room” at Gilead headquarters are tens of 1000’s of drugs and bottles. All had been confiscated as counterfeits, Mayall mentioned as she took CNBC on a current tour. A number of the fakes are apparent as a result of the paperwork accommodates quite a few misspellings.
Official Gilead medicines are manufactured on the firm after which bought to a licensed Gilead distributor, who then sells them to a pharmacy. The counterfeit drugs within the warfare room, most of which had been related to the Hernandez case, had been repackaged to appear like Gilead merchandise, Mayall mentioned.
The Gilead lawsuit contains 4 licensed distributors: Secure Chain Options, Scripts Wholesale, ProPharma Distribution and ProVen.
Of the 4, solely Secure Chain Options, by way of its attorneys, responded to CNBC’s request for remark.
Secure Chain Options denied claims by Gilead within the go well with that it bought or purchased counterfeit drugs.
“Secure Chain is a family-owned, full-service wholesale pharmaceutical firm that gives a variety of prescribed drugs and different well being care merchandise to retail pharmacies and different healthcare amenities nationwide,” the assertion mentioned. “Impartial wholesalers like Secure Chain play a significant position in supplying impartial pharmacies, surgical facilities, and different retailers with prescribed drugs at costs and in volumes they might not acquire from bigger wholesalers.”
The corporate mentioned it “has by no means knowingly bought inauthentic medicine or medicine with falsified pedigree documentation, whether or not manufactured by Gilead or in any other case. It has by no means altered or fabricated drug transaction histories. Secure Chain and its homeowners had been, at most, victims of this conspiracy.” It mentioned it has shipped greater than 100,000 orders with about 2 million models since its founding in 2011 and offers solely with licensed suppliers.
Authorities are investigating schemes during which tablet bottles containing prescribed drugs are altered after which resold to pharmacies.
Supply: HHS-OIG
“Secure Chain additionally communicated extensively with Gilead to analyze issues about HIV medicine. Certainly, Gilead itself discovered about a number of of those incidents immediately from Secure Chain. Secure Chain supplied documentation about a whole bunch of bottles that it bought and additional documentation displaying what transaction historical past it had acquired from its personal suppliers. Secure Chain even invited Gilead to examine its amenities to guarantee Gilead of its dedication to affected person security and to work collaboratively in investigating these critical points. These will not be the actions of realizing and willful counterfeiters,” the assertion mentioned.
ProPharma Distribution settled the Gilead go well with for $3.3 million and agreed to be completely prohibited from promoting Gilead drugs, court docket information present. Particulars of the complete settlement are confidential, based on Gilead attorneys.
Johnson & Johnson, in an announcement to CNBC, mentioned it discovered in November 2020 that counterfeit variations of its HIV remedy Symtuza had been being distributed to a few pharmacies within the U.S. The corporate mentioned it then reported that to the Meals and Drug Administration.
“Counterfeiting of life-saving drugs is a prison act that places affected person lives in danger,” Dr. Dave Anderson, an organization vice chairman, mentioned within the assertion. “Along with the anti-counterfeiting measures and authorized motion now we have taken, we wish to remind all stakeholders concerning the state of affairs and supply particular steerage on easy methods to establish HIV medicines.”
Legal schemes
Geoffrey Potter, a accomplice with the New York Metropolis-based regulation agency Patterson Belknap Webb & Tyler, represents each Gilead and Johnson & Johnson.
“We do not understand how a lot counterfeit remedy is within the system as a result of there is no such thing as a great way of measuring it. However after we do discover these schemes, they’re very massive,” he mentioned.
Within the Hernandez case, which concerned distributors all through the nation, Potter mentioned, there was no straightforward option to decide whether or not a tablet bottle was actual or faux simply by taking a look at it.
“Just about no person inspects their remedy earlier than taking it, so they would not be capable to inform,” he mentioned.
Potter mentioned counterfeiters comparable to Hernandez use subtle strategies much like these favored by drug traffickers. That is not stunning, since quite a few them have been convicted of narcotics-related crimes, he added.
Stephen Mahmood, assistant particular agent in cost on the U.S. Division of Well being and Human Companies’ Workplace of Inspector Normal, or HHS-OIG, mentioned the extent of drug diversion fraud is alarming.
Stephen Mahmood, assistant particular agent in cost on the U.S. Division of Well being and Human Companies’ Workplace of Inspector Normal.
Supply: CNBC
“I am saddened and disheartened that the schemes cross all the United States and territories, however I am not shocked. Fraud is at all times evolving,” Mahmood mentioned.
Relying on the scheme, he mentioned, a pharmacy could or could not know that it’s getting a counterfeit drug.
“A number of the pharmacies are concerned with the fraudulent wholesalers. They know precisely what they’re doing,” he mentioned. “Some are unwitting, and so they could get a fax from a wholesaler saying, ‘Hey, now we have a reduced drug.’ And on account of competitors and making an attempt to generate profits, they could purchase the drug.”
In a 2014 case dealt with by HHS-OIG in Miami, brokers used an informant sporting a hidden digicam to movie a lady, her husband and her grownup son in a South Florida residence altering remedy bottles. The video, obtained by CNBC, reveals how they used lighter fluid to take away the affected person data affixed to the bottle.
“As a result of clearly nobody goes to promote a drug with another person’s title on it. And so they’re cleansing it to make it look new once more,” mentioned Mahmood, describing the video as a “drug diversion in progress.”
The three had been convicted of costs associated to the unlicensed distribution of prescribed drugs in 2015 and served jail time. All have since been launched, and their attorneys didn’t reply to a request for remark.
A convicted felon who spoke to CNBC on the situation his id wouldn’t be disclosed and who requested to be known as “Julio” mentioned altering remedy bottles was his life for about 10 years in South Florida.
“Julio” says he made hundreds of thousands from the drug counterfeiting enterprise.
Supply: CNBC
“I used to be within the tablet enterprise. I used to have sellers within the highway. The pharmacies shopping for drugs from me, wholesale worth,” he mentioned.
He mentioned sufferers determined for money willingly forgo their important remedy.
“They may carry it to me. I am going to pay them. I am going to pack it up. I am going to clear it, make it look good. Then I had a wholesaler who will purchase it from me,” he mentioned. He mentioned the wholesaler would then promote the drugs again to pharmacies.
Describing how he cleaned the bottles, he mentioned, “After I get them from the vendor, they arrive with the label over, with the individual’s title. I’ve a factor that I put — it is like a liquid that we placed on it and we clear it, and we make it look model new once more. It is acquired to be model new so we will resell it.”
Finally, he was caught and went to jail. Â
The FDA instructed CNBC it had nobody accessible to debate counterfeit medicine, however despatched an announcement: “The FDA urges the general public to acquire prescribed drugs solely from state-licensed U.S. pharmacies or physicians which can be positioned in america, the place the FDA and state authorities can guarantee the standard of drug manufacturing, packaging, distribution and labeling. Non-FDA authorized medicine could include the unsuitable elements, include too little, an excessive amount of, or no lively ingredient in any respect, include different dangerous elements, or be shipped and/or saved outdoors of authorized circumstances.”
For Lazaro Hernandez, his high-flying days ended abruptly earlier this yr. He pleaded responsible in April to conspiracy costs associated to distributing adulterated and misbranded medicine and cash laundering in reference to a $230 million fraud ring. In June, he was sentenced to fifteen years in jail.
In court docket paperwork, one in every of his attorneys mentioned his “playing habit” was a “driving drive behind his participation within the prison conspiracy,” and mentioned Hernandez frequently took money from his gross sales of diverted medicine to casinos.
A special legal professional for Hernandez mentioned in an e-mail that she had no touch upon the case.
Not one of the distributors within the Gilead case have been criminally charged.
Nonetheless, Steven Diamanstein, the proprietor of Scripts Wholesale, based mostly within the Brooklyn borough of New York Metropolis, was indicted in June on costs of shopping for greater than $150 million price of illegally diverted prescription HIV remedy and reselling it to pharmacies, based on the indictment and a Justice Division information launch. He pleaded not responsible, and his legal professional had no remark.
Different investigations into extra counterfeit schemes are pending, regulation enforcement officers instructed CNBC, including that altering tablet bottles and the medicine themselves is just too profitable for criminals to decelerate.
“We have to put locks on all of the doorways and home windows to maintain the criminals out,” Mayall mentioned. “Proper now, it’s method too straightforward for these bottles which have been beforehand disbursed to sufferers to make their method again into the provision chain.”
