Federal drug probe reaches Moorhead

An investigation into the illegal importation of low-cost foreign drugs, including counterfeit cancer medications, has led authorities to a nondescript office building in Moorhead, Minn.

Federal search warrants filed recently in St. Paul indicate that authorities suspect a Minnesota pharmaceutical wholesaler called U.S. Drugs of operating as a mail drop and shipping hub for CanadaDrugs.com, an online pharmacy based in Winnipeg with connections to entities in Barbados.

In February, the U.S. Food and Drug Administration (FDA) issued a warning about a counterfeit version of Avastin that had shown up in the United States. Avastin is an injectable medicine used to treat breast cancer. The counterfeit version lacked the medicine's active ingredient, bevacizumab, and contained only starch, salt, cleaning solvents and other chemicals, according to the drug's Swiss manufacturer.

The Wall Street Journal reported in March that authorities are investigating the activities of Kris Thorkelson, a Canadian pharmacist who owns CanadaDrugs.com, and his brother-in-law Thomas Haughton, who owns Global Drug Supply Ltd. and pharmaceutical-related entities in Barbados.

Thorkelson, a Canadian citizen, is listed in public records as an executive with U.S. Drugs in Moorhead, which has been a licensed wholesaler in Minnesota since at least 2006. CBC News said in a June report that CanadaDrugs.com is believed to be Canada's largest online pharmacy and that Thorkelson is estimated to be worth hundreds of millions of dollars.

Neither Thorkelson nor Haughton has been charged with a crime. Thorkelson did not respond this week to messages seeking comment. Haughton could not be reached. But in an interview with CBS News in March, he said he had nothing to hide.

"The businesses that I have are ethical, safe and legal," Haughton said.

Haughton acknowledged that one of his companies, a licensed wholesaler in Britain, had unintentionally shipped counterfeit Avastin to the United States. He blamed his suppliers in the European Union.

More than 9,000 'rogue sites'

More than 9,000 "rogue sites" on the Internet are out of compliance with U.S. pharmacy laws and standards, the National Association of Boards of Pharmacy says.

The association blames drug shortages and rising costs for creating "a market for swindlers" and gray market operations. The report says the number of drugs in short supply more than tripled from 61 in 2005 to more than 200 by the end of 2010, and reached a record high of 180 drug shortages in the first half of 2011.

Acting on search warrants obtained Aug. 1, federal agents seized computer equipment, empty parcels from foreign addresses and miscellaneous documents from U.S. Drug's office in Moorhead. A message on U.S. Drug's phone service and website says the company closed shop two days later.

Sarah Vukovich, an FDA investigator, said in a sworn statement to obtain the search warrants that the agency has reason to suspect that Canada Drugs, U.S. Drugs and a company called Cheapo Drugs were involved in the illegal sale of misbranded or adulterated drugs in the United States.

It's illegal to ship prescription drugs to the United States unless they were made in FDA-approved facilities and meet FDA standards.

Vukovich said the agency began investigating Cheapo Drugs in April 2011 after the North Dakota Board of Pharmacy found postcard advertisements for discounted prescription drugs and generic equivalents. The company wasn't licensed in North Dakota, though it listed a Fargo post office box.

Postal records showed that its post office box was registered to Canada Drugs at 3505 S. 8th St., #9, in Moorhead, the same office where U.S. Drugs did business. None of the three pharmacies is licensed in North Dakota.

The website cheapodrugs.com says its products are manufactured outside of the United States to keep down costs. An undercover agent bought some Viagra through the site in October 2011 and received a package postmarked in Germany. Tests showed that it contained only 92 percent of the active ingredient advertised on the label.

Another undercover buy took place in July. That product was purportedly "sold and dispensed from Barbados in Turkish packaging." The labeling was in a foreign language, a violation of U.S. law, Vukovich said.

On July 31, U.S. postal inspectors observed two of the Moorhead post office boxes stuffed with mail with return addresses from all over the United States. Agents could see prescriptions, personal checks and order numbers in the envelopes, Vukovich wrote.

Attorney reports no violations

The mail was picked up and taken to an office rented by "WR Returns" in the same building as U.S. Drugs. Vukovich said an employee told inspectors that she was advised to bring the mail to U.S. Drugs if no one was at WR Returns.

Employees of U.S. Drugs reportedly told postal officials that the company was closing in August "because their boss, a Canadian, decided that U.S. drug laws were too strict."

Lynn Grani, identified in the affidavit as a U.S. Drugs manager, referred a reporter to Michael Monico, a Chicago attorney specializing in white collar crime and health care fraud. Monico said he represents a few of the company's employees, but not the company itself. Nothing indicates that the employees did anything improper, he said.

After reading Vukovich's affidavit, Monico said, "From what we've seen, U.S. Drugs was a mail-order operation that was selling U.S. FDA-approved drugs to its customers. I don't think we were violating any state or federal laws."

Dan Browning • 612-673-4493