Profiting from Fake Pharma

Online sellers of counterfeit versions of several name-brand drugs generate more than $4 billion a year, according to a new study

by Arik Hesseldahl

If it seems like the number of e-mails clogging your in-box from "the pharmacy America trusts," promising "genuine Viagra and Cialis" is on the rise, don't be surprised. Online sales of less than bona fide drugs are booming.

Using spam to sell what are usually fake pills on the Internet has grown into a business worth billions of dollars a year, with costs and barriers to entry that are so low that a vendor need only make a few successful transactions to turn a profit. A new study from MarkMonitor, a San Francisco-based company that monitors online brand abuse, sheds new light on a growing problem for legitimate pharmacies that sell their products online, the pharmaceutical companies spending billions of dollars to develop drugs, and the consumers whose health can be at risk from using tainted pills.

The study, MarkMonitor's second quarterly survey of what it calls "brandjacking" (see BusinessWeek.com, 5/1/07, "'Brandjacking' on the Web"), made some startling discoveries: Most of the sites advertised are unlikely to be the real thing, and Web sites used to sell the pills rarely take any precautions to protect customer data. In many cases, operators say the sites are run in the U.S. or Canada, but in fact the businesses are traced to countries like China, Russia, or India.

Unsettling Numbers

MarkMonitor, which releases the results Aug. 20, examined the contents of some 60 million spam e-mails advertising six popular drugs. The company didn't name the drugs, but said they included well-known brands of widely sold drugs for erectile dysfunction—possibly Pfizer (PFE)'s Viagra and Eli Lilly's (LLY) Cialis. The list includes antidepressant and antianxiety drugs. All are commonly advertised in e-mail messages sent in bulk and used to attract consumers to online pharmacy sites.

The messages led to some 110,000 advertisement pages hosted on as many as 11,000 Web domains on any given day, operated by 3,160 online pharmacy businesses. Of that number of pharmacies, only four turned out to be legitimate, properly certified online pharmacies.

And traffic to these sites is substantial, according to the study. Nearly one-third had sufficient traffic to show up on the Web traffic measurement services offered by Alexa.com (AMZN), and the average daily number of page views recorded on those sites averaged 32,000. "There were a lot of people going to those sites who were curious to know if they really could get their drugs cheaper than at their neighborhood pharmacy," says MarkMonitor Chief Marketing Officer Fred Felman.

While it's impossible to say precisely how much money the sites generate, MarkMonitor estimates that if only one-half of 1% of visitors spent an average of $70, the annual combined revenue of the sites surveyed could be in excess of $4 billion.

That number may be too low, says Jon Praed, an attorney with the Internet Law Group in Arlington, Va., who tracks the sale of illegal drugs for the pharmaceutical industry. "I think billions of dollars in sales of counterfeit drugs online is a conservative guess," he says. One estimate by Pfizer says that global sales of counterfeit drugs could be as high as $35 billion a year.

Unprotected Data and Artificial Drugs

And very often online pharmacies make no effort to protect the personal data of the customers. MarkMonitor's Felman says that half of the sites examined for the study did nothing to secure customer data, and the majority didn't even bother to use Secure Socket Layer encryption, a common method used to secure online credit-card transactions.