When Kristjan Thorkelson was studying pharmacy at the University of Manitoba, he was so short of cash he had to borrow $250 from the dean to pay the fee to write his provincial board exam.
After graduating in 1991, Mr. Thorkelson and some fellow graduates opened a couple of pharmacies around Winnipeg but he eventually found a far more lucrative line of work – selling prescription drugs online. Today Mr. Thorkelson's CanadaDrugs.com is the largest online pharmacy in Canada, with 500 employees filling more than 3,000 prescriptions every day for customers in the United States and roughly 100 other countries. The business has done so well for Mr. Thorkelson he donated $500,000 to the U of M's pharmacy program, which named a laboratory in his honour.
But now CanadaDrugs has been caught up in an international investigation into allegations that counterfeit versions of the cancer drug Avastin recently made their way to the United States. The company denies any involvement in the allegations but the probe has shed new light on an industry created largely in Canada that has grown exponentially in recent years and become a global giant with distribution networks stretching from the Middle East to China to North America.
Experts say the network has become so vast and complex, with some drugs moving through several countries, it has become an easy target for counterfeiters to exploit. The U.S. National Association of Boards of Pharmacy has estimated that up to 5 per cent of all prescription drugs sold in the United States are fake and it said the figure is rising rapidly annually.
The probe, which includes regulators in Britain, the United States, Turkey and elsewhere, surfaced last month after drug maker Swiss-based Roche Holdings A.G. confirmed that some shipments of fake Avastin had been sold to 19 American medical practices. The Food and Drug Administration has subpoenaed several doctors for information about CanadaDrugs and one of its suppliers, Global Drug Supply Ltd., one of many Barbados-based companies controlled by Mr. Thorkelson's brother-in-law, Tom Haughton.
Mr. Thorkelson was not available for comment Wednesday. Brock Gunter-Smith, CanadaDrugs's chief business development officer, said the company has never sold Avastin. "To the best of our knowledge, the FDA is not investigating Canada Drugs," Mr. Gunter-Smith said in an e-mail. "Canada Drugs is in no way involved in the Avastin issue."
Mr. Haughton confirmed the probe to the Wall Street Journal but said his company had no idea the drugs were counterfeit. "We're deeply horrified by this counterfeit [product]being sold by one of my companies," Mr. Haughton told the newspaper.
The legality of selling medicine over the Internet, particularly in the United States, has always been murky. Technically it's illegal to import drugs into the United States that have not been manufactured at an FDA-approved facility. But enforcing the law has been difficult and politically unpopular. That's because these drugs are often far less expensive than similar products sold in the United States, thanks largely to Canada's drug pricing regulations.
Mr. Thorkelson took his cue years ago from Andrew Strempler, a fellow Manitoba pharmacist who launched an online drug business in 2000 after buying a box of Nicorettes and selling it online through eBay at roughly half the price the smoking-cessation gum sold for in the United States. Mr. Thorkelson started CanadaDrugs shortly afterward and by 2003 there were about 150 online pharmacies in Canada, roughly half based in Manitoba.
"I think [Mr. Thorkelson]had pretty good business sense and he made the right decisions at the right time," said Steven Sawchuk, a Winnipeg pharmacist and one of Mr. Thorkelson's former partners.
Discount prices and the low Canadian dollar translated into big profits for these companies at the time. While Mr. Strempler and some others flashed their new-found wealth with multimillion-dollar homes and expensive cars, Mr. Thorkelson kept a low profile, doggedly building his business.
The others "were guys that went out and purchased Lamborghinis and got their faces on the cover of Fortune magazine," said David Zimmer, who runs a rival business called thecanadianpharmacy.com. "I'd say it was far away from Kris's character. He's very quiet, he's very intelligent, he's very unassuming."
But the growth of the industry also raised the ire of the FDA and drug manufacturers who balked at seeing their products sold at cut-rate prices in the United States. A battle ensued with many Americans, particularly seniors, siding with the Canadian companies and pushing their legislatures to open the doors to the online pharmacies. By the time a truce came in 2006 and the drug companies backed off, the battle had taken its toll and most of the Canadian players either went under or sold their business to Mr. Thorkelson, including Mr. Strempler.
Today there are less than two dozen Canadian online drug sellers and CanadaDrugs dominates the field, boasting of having more than one million customers.
Also fuelling CanadaDrugs's expansion has been the company's foray into what is known as the "parallel trade" of drugs, experts say. Parallel trading developed in Europe years ago when drug wholesalers and pharmacies started buying low-cost drugs in one European Union country and re-selling them at a higher price in another EU country. That practice has since expanded worldwide and many drugs now follow a convoluted network of dealers around the world.
Mr. Haughton, a Canadian citizen married to Mr. Thorkelson's sister Maryanne, has set up dozens of online drug companies and distributors in Barbados and Britain and some supply CanadaDrugs. Mr. Haughton was unavailable Wednesday but he acknowledged to the Wall Street Journal that one of his companies, Montana Healthcare Solutions, inadvertently distributed counterfeit Avastin in the U.S. None of the drugs came to Canada, according to the drug's manufacturer, Switzerland-based Roche Holding AG.
Officials at Health Canada said they are not part of the investigation that includes regulators in Britain and Turkey.
Mr. Gunter-Smith said Montana Healthcare is a separate business that serves different groups. "There is no evidence that any tainted product has ever come through CanadaDrugs, but we are doing everything possible to mitigate any future concern," he added.
For now Mr. Zimmer and others still standing in the business are watching the saga closely. "At the end of the day I feel kind of bad for Kris Thorkelson. He's always been a model for our industry about how you want to build your business and your approach to business and his ethics," Mr. Zimmer said. "These things he's been involved in recently, I think they could happen to anyone. Whether you're a Canadian community pharmacy, a mail-order pharmacy, an international wholesaler, you have to depend on the entire integrity of the entire chain."
When it comes to selling pharmaceuticals in the U.S., the rules are simple: If the drugs weren't approved by the Food and Drug Administration or produced in a facility the regulatory body monitors, it's illegal to import them. In short, according to the FDA, "nearly all" drugs that are shipped to the U.S. are illegal.
But every day, with little difficulty, U.S. residents order millions of dollars worth of prescription drugs online and have them shipped across borders to their homes. While it's easy enough for consumers and investigators to trace where the online storefront is based, tracking the origin of drugs up the supply chain is no small feat.
Last year, a group of academics including Amir Attaran, Canada Research Chair in law, population health and global development policy, published a study in the Journal of International Criminal Justice arguing for the establishment of medicine counterfeiting as an international crime.
In their paper, the team explains one of the reasons there is little enforcement in the counterfeit drug trade (or, in the U.S., even the illegal import of drugs that are from the real manufacturer) is because of the complex supply chain. Drugs made in China could be shipped to several countries on several continents before finally reaching the consumer: most often a patient or a doctor. In the end, so many jurisdictions are involved that the original source is obscured. Free trade zones make the movement of these prescription drugs hassle-free for those involved in the trade.
According to a report in the New York Times, in 2007, authorities seized a large supply of counterfeit drugs in the United Arab Emirates that was halfway through a multi-stop global journey to the U.S. It was made in China, and moved on to Hong Kong, the U.A.E., the Bahamas and then Britain before reaching its final destination. It turned out U.S. residents were ordering the drug from Canadian online pharmacies (though the site's servers were set up in the Bahamas), believing it came from their neighbour to the north. In the end, authorities from all jurisdictions were involved in the investigation and the FDA zeroed-in on Andrew Strempler, the online pharmacy pioneer from Minnedosa, Man. behind the site RxNorth.com. While Manitoba's pharmacy regulator stripped him of his licence and registration for a different matter (filling orders without having prescriptions signed by a Canadian pharmacist), he was not criminally charged.