Vulture
August 31st, 2005, 04:04 PM
For one man, online drug sales meant fast profits
Tuesday, August 30, 2005
By Heather Won Tesoriero, The Wall Street Journal
Browsing the Internet on Halloween night in 1998, Mark Kolowich read that Viagra was difficult to get in Great Britain while the government decided whether to pay for it. The owner of a struggling San Diego picture-frame business smelled a new commercial opportunity.
In a couple of weeks, Mr. Kolowich says, he had procured the anti-impotence pills from Tijuana, Mexico, where they could easily be obtained without a prescription. He started selling the pills to United Kingdom buyers on a rudimentary Web site, which later became known as WorldExpressRx .com. Within five years, Mr. Kolowich was selling a wide array of prescription drugs to thousands of customers around the world. By one U.S. government estimate, he made as much as $7 million, but he says he made much more.
Eventually, Mr. Kolowich was arrested for importing and selling counterfeit drugs, mail fraud and money laundering. In April 2004, he pleaded guilty to all four counts and is now serving a 51-month prison term at the low-security Federal Correctional Institution in Lompoc, Calif., near Santa Barbara.
But for years, he was able to evade investigators from the Food and Drug Administration, border officials from U.S. Immigration and Customs Enforcement and the Federal Bureau of Investigation. The 45-year-old Mr. Kolowich agreed recently to discuss in detail his commercial operations, and how he was able to stay one step ahead of the law for so long. In a four-hour interview -- clad in prison khakis, 40 pounds lighter than when he was living the high life, sitting in plastic chairs in the prison's visitors lounge -- he offered a rare look into the rapidly expanding, often shady, sector of online pharmaceutical sales.
Though Viagra and other anti-impotence remedies are available with a prescription at legitimate pharmacies, there's a thriving online market for these drugs, where customers can obtain the pills anonymously and with ease. But online pharmacies are largely unregulated and unmonitored by health authorities. In many cases, site operators such as Mr. Kolowich are unlicensed to sell or prescribe prescription medications. Since October 1999, the FDA's Office of Criminal Investigations has made about 180 Internet drug arrests, most of which have resulted in convictions.
New sites are constantly sprouting up. Like Mr. Kolowich, criminals set up online drug sites because they're inexpensive to create and hard to shut down. Counterfeit supplies are widely available and easy to smuggle. Drug makers consider other versions of their patent-protected drugs to be counterfeit. Pfizer Inc.'s Viagra patent is valid in the U.S. until March 2012.
There are "tens of thousands of URLs, which lead back to thousands of online pharmacies," according to Michael Allison, chairman and chief executive officer of ICG Inc., a Princeton, N.J., firm that investigates fraudulent Internet activity for companies. ICG estimates that 80 percent of drugs sold online are considered counterfeit by drug manufacturers, although others in the industry caution that such figures are hard to prove.
Mr. Kolowich remembers a life as the youngest of eight children in a rich, roving family. He says he spent some of his childhood aboard an 82-foot yacht in the Caribbean and attended a British boarding school. One of his sisters confirms this account. Mr. Kolowich's father was an entrepreneur who made a fortune selling a trucking business. He says his father, now deceased, also served 30 days in prison for tax evasion.
Mr. Kolowich never went to college. He never graduated from high school. He says he passed a high-school equivalency exam back in the U.S. and then hopscotched from job to job, including as an overnight federal-funds trader and as an airline ticketing agent. He never held a position for long.
Then came the Halloween inspiration. Mr. Kolowich taught himself how to build a Web site from a few books on e-commerce. Recalling his days at the British boarding school, he sprinkled the site with words such as "chemist" and "fortnight." He figured out how to use aboveboard businesses to his advantage.
He opened a bank account with the First Bank of Beverly Hills, listing his business as selling "health supplements." The bank sold its merchant-accounts unit in June 2001. First Bank of Beverly Hills Chief Executive and President Joseph W. Kiley, who wasn't with the bank when Mr. Kolowich said he did business with it, said he wasn't aware of this particular case.
Since he initially targeted British customers, Mr. Kolowich procured London-based telephone numbers from j2 Global Communications Inc., a company that sells phone numbers for more than 1,300 cities around the world. Customers would think they were calling England, while Mr. Kolowich and his employees would take the calls in California, according to the criminal complaint filed by the government.
Christine Brodeur, a spokeswoman for j2 Global, confirmed that Mr. Kolowich had an account, and said the company reserves the right to terminate service if it determines a customer is acting illegally. She says the company wasn't contacted by law enforcement regarding Mr. Kolowich.
In the first week his Web site was live, Mr. Kolowich says, he got 40 orders. He drove to Tijuana to buy what he says were Pfizer-made Viagra pills from a pharmacy, smuggling them back to San Diego in his Lexus. Mr. Kolowich says he was able to make bulk purchases without a prescription from a local Tijuana pharmacy. He had no license to prescribe or sell prescription drugs.
As business picked up in the first few months of 1999, Mr. Kolowich grew savvy about getting past border-patrol protocol. He says he stuffed the pills under the seat and floor mats -- every place but the trunk. A spokesman for U.S. Customs and Border Protection says that "every car, every person does undergo some level of inspection." But he adds that the high volume means "the officer has precious few seconds" sometimes for the inspection.
In his first year, Mr. Kolowich says, he had revenue of $985,000 from his Viagra sales. He then diversified, selling what he says were also real versions of weight-loss drug Xenical, painkiller Celebrex and hair-loss drug Propecia, bought in Mexico at pharmacies. Law-enforcement agents say that the drugs Mr. Kolowich sold were tested and though they contained some active ingredient, they weren't manufactured by pharmaceutical companies that had patented them.
Mr. Kolowich hired three employees for customer service and filling orders, and merged several sites he had built into one: WorldExpressRx.com. A growing number of U.S. customers, particularly those with college-campus mailing addresses, bought from the site. In his second year, he says, he brought in revenue of $3 million.
In early 2001, Mr. Kolowich got a big break when he read an article online about "generic Viagra" made by the Indian drug company Ranbaxy Laboratories Ltd., under the name Caverta. In the past, India hasn't recognized U.S. pharmaceutical patents, spawning a thriving industry in knockoff drugs.
Mr. Kolowich says he and a friend flew first class to Mumbai. Carrying $40,000 in cash, he says, he met with people at Ranbaxy who politely told him that the drug wasn't for export. But he says someone at the company gave him the name of a local wholesaler whom he met six hours later. He won't identify his tipster. A spokesman for Ranbaxy, informed of Mr. Kolowich's account, declined to comment on it and would only say, "Ranbaxy abides by all local laws, rules and regulations in all countries where it has operations."
Mr. Kolowich says he paid cash to the local wholesaler at 48 cents a pill -- well below the $7 a pill he was paying in Mexico. Online, he charged $13 a pill for his Mexican supply. Viagra sells for about $10 a pill when purchased through legitimate outlets. Back in the U.S., he planned to sell Ranbaxy's Caverta pills for $6.50 each, a 1,200 percent markup. He bought 80,000. The pills were red triangles, as opposed to Viagra's blue diamonds. He jammed them into two large suitcases.
Mr. Kolowich encountered some unexpected resistance on his India trip. It took him several weeks to negotiate the supply deal. The cash payment, he says, "was a red flag" to the wholesaler, who photocopied every U.S. bill he had brought and asked for a "one-page due diligence" document about his creditors. He passed himself off as a doctor, saying he had an online pharmacy on the side.
Then in Mexico City, on the way back to San Diego from India, customs officials opened his bag. When they discovered his Caverta pills, Mr. Kolowich says, he was swarmed by security. He showed them a business card from a Tijuana pharmacy. Because he couldn't communicate well in Spanish, Mr. Kolowich says, he engaged in charades to explain that the drugs were for impotence. He says some men took a small sample of the pills, disappeared for a while, and let him proceed after they returned. He then drove the drugs over the border to San Diego.
rest of the article:
http://www.post-gazette.com/pg/05242/562571.stm
Tuesday, August 30, 2005
By Heather Won Tesoriero, The Wall Street Journal
Browsing the Internet on Halloween night in 1998, Mark Kolowich read that Viagra was difficult to get in Great Britain while the government decided whether to pay for it. The owner of a struggling San Diego picture-frame business smelled a new commercial opportunity.
In a couple of weeks, Mr. Kolowich says, he had procured the anti-impotence pills from Tijuana, Mexico, where they could easily be obtained without a prescription. He started selling the pills to United Kingdom buyers on a rudimentary Web site, which later became known as WorldExpressRx .com. Within five years, Mr. Kolowich was selling a wide array of prescription drugs to thousands of customers around the world. By one U.S. government estimate, he made as much as $7 million, but he says he made much more.
Eventually, Mr. Kolowich was arrested for importing and selling counterfeit drugs, mail fraud and money laundering. In April 2004, he pleaded guilty to all four counts and is now serving a 51-month prison term at the low-security Federal Correctional Institution in Lompoc, Calif., near Santa Barbara.
But for years, he was able to evade investigators from the Food and Drug Administration, border officials from U.S. Immigration and Customs Enforcement and the Federal Bureau of Investigation. The 45-year-old Mr. Kolowich agreed recently to discuss in detail his commercial operations, and how he was able to stay one step ahead of the law for so long. In a four-hour interview -- clad in prison khakis, 40 pounds lighter than when he was living the high life, sitting in plastic chairs in the prison's visitors lounge -- he offered a rare look into the rapidly expanding, often shady, sector of online pharmaceutical sales.
Though Viagra and other anti-impotence remedies are available with a prescription at legitimate pharmacies, there's a thriving online market for these drugs, where customers can obtain the pills anonymously and with ease. But online pharmacies are largely unregulated and unmonitored by health authorities. In many cases, site operators such as Mr. Kolowich are unlicensed to sell or prescribe prescription medications. Since October 1999, the FDA's Office of Criminal Investigations has made about 180 Internet drug arrests, most of which have resulted in convictions.
New sites are constantly sprouting up. Like Mr. Kolowich, criminals set up online drug sites because they're inexpensive to create and hard to shut down. Counterfeit supplies are widely available and easy to smuggle. Drug makers consider other versions of their patent-protected drugs to be counterfeit. Pfizer Inc.'s Viagra patent is valid in the U.S. until March 2012.
There are "tens of thousands of URLs, which lead back to thousands of online pharmacies," according to Michael Allison, chairman and chief executive officer of ICG Inc., a Princeton, N.J., firm that investigates fraudulent Internet activity for companies. ICG estimates that 80 percent of drugs sold online are considered counterfeit by drug manufacturers, although others in the industry caution that such figures are hard to prove.
Mr. Kolowich remembers a life as the youngest of eight children in a rich, roving family. He says he spent some of his childhood aboard an 82-foot yacht in the Caribbean and attended a British boarding school. One of his sisters confirms this account. Mr. Kolowich's father was an entrepreneur who made a fortune selling a trucking business. He says his father, now deceased, also served 30 days in prison for tax evasion.
Mr. Kolowich never went to college. He never graduated from high school. He says he passed a high-school equivalency exam back in the U.S. and then hopscotched from job to job, including as an overnight federal-funds trader and as an airline ticketing agent. He never held a position for long.
Then came the Halloween inspiration. Mr. Kolowich taught himself how to build a Web site from a few books on e-commerce. Recalling his days at the British boarding school, he sprinkled the site with words such as "chemist" and "fortnight." He figured out how to use aboveboard businesses to his advantage.
He opened a bank account with the First Bank of Beverly Hills, listing his business as selling "health supplements." The bank sold its merchant-accounts unit in June 2001. First Bank of Beverly Hills Chief Executive and President Joseph W. Kiley, who wasn't with the bank when Mr. Kolowich said he did business with it, said he wasn't aware of this particular case.
Since he initially targeted British customers, Mr. Kolowich procured London-based telephone numbers from j2 Global Communications Inc., a company that sells phone numbers for more than 1,300 cities around the world. Customers would think they were calling England, while Mr. Kolowich and his employees would take the calls in California, according to the criminal complaint filed by the government.
Christine Brodeur, a spokeswoman for j2 Global, confirmed that Mr. Kolowich had an account, and said the company reserves the right to terminate service if it determines a customer is acting illegally. She says the company wasn't contacted by law enforcement regarding Mr. Kolowich.
In the first week his Web site was live, Mr. Kolowich says, he got 40 orders. He drove to Tijuana to buy what he says were Pfizer-made Viagra pills from a pharmacy, smuggling them back to San Diego in his Lexus. Mr. Kolowich says he was able to make bulk purchases without a prescription from a local Tijuana pharmacy. He had no license to prescribe or sell prescription drugs.
As business picked up in the first few months of 1999, Mr. Kolowich grew savvy about getting past border-patrol protocol. He says he stuffed the pills under the seat and floor mats -- every place but the trunk. A spokesman for U.S. Customs and Border Protection says that "every car, every person does undergo some level of inspection." But he adds that the high volume means "the officer has precious few seconds" sometimes for the inspection.
In his first year, Mr. Kolowich says, he had revenue of $985,000 from his Viagra sales. He then diversified, selling what he says were also real versions of weight-loss drug Xenical, painkiller Celebrex and hair-loss drug Propecia, bought in Mexico at pharmacies. Law-enforcement agents say that the drugs Mr. Kolowich sold were tested and though they contained some active ingredient, they weren't manufactured by pharmaceutical companies that had patented them.
Mr. Kolowich hired three employees for customer service and filling orders, and merged several sites he had built into one: WorldExpressRx.com. A growing number of U.S. customers, particularly those with college-campus mailing addresses, bought from the site. In his second year, he says, he brought in revenue of $3 million.
In early 2001, Mr. Kolowich got a big break when he read an article online about "generic Viagra" made by the Indian drug company Ranbaxy Laboratories Ltd., under the name Caverta. In the past, India hasn't recognized U.S. pharmaceutical patents, spawning a thriving industry in knockoff drugs.
Mr. Kolowich says he and a friend flew first class to Mumbai. Carrying $40,000 in cash, he says, he met with people at Ranbaxy who politely told him that the drug wasn't for export. But he says someone at the company gave him the name of a local wholesaler whom he met six hours later. He won't identify his tipster. A spokesman for Ranbaxy, informed of Mr. Kolowich's account, declined to comment on it and would only say, "Ranbaxy abides by all local laws, rules and regulations in all countries where it has operations."
Mr. Kolowich says he paid cash to the local wholesaler at 48 cents a pill -- well below the $7 a pill he was paying in Mexico. Online, he charged $13 a pill for his Mexican supply. Viagra sells for about $10 a pill when purchased through legitimate outlets. Back in the U.S., he planned to sell Ranbaxy's Caverta pills for $6.50 each, a 1,200 percent markup. He bought 80,000. The pills were red triangles, as opposed to Viagra's blue diamonds. He jammed them into two large suitcases.
Mr. Kolowich encountered some unexpected resistance on his India trip. It took him several weeks to negotiate the supply deal. The cash payment, he says, "was a red flag" to the wholesaler, who photocopied every U.S. bill he had brought and asked for a "one-page due diligence" document about his creditors. He passed himself off as a doctor, saying he had an online pharmacy on the side.
Then in Mexico City, on the way back to San Diego from India, customs officials opened his bag. When they discovered his Caverta pills, Mr. Kolowich says, he was swarmed by security. He showed them a business card from a Tijuana pharmacy. Because he couldn't communicate well in Spanish, Mr. Kolowich says, he engaged in charades to explain that the drugs were for impotence. He says some men took a small sample of the pills, disappeared for a while, and let him proceed after they returned. He then drove the drugs over the border to San Diego.
rest of the article:
http://www.post-gazette.com/pg/05242/562571.stm