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Intellectual Property Rights

Counterfeit pharmaceutical drugs distributor sentenced to 6 1/2 years in prison

Kevin Xu
Kevin Xu

HOUSTON - A citizen of the People's Republic of China was sentenced Thursday to 6½ years in prison for distributing counterfeit and misbranded pharmaceuticals in the United States. Acting U.S. Attorney Tim Johnson, Southern District of Texas, announced the sentence; U.S. Immigration and Customs Enforcement (ICE) and U.S. Food and Drug Administration's Office of Criminal Investigations (FDA) jointly conducted the investigation.

At a hearing this afternoon, U.S. District Judge Sim Lake sentenced Kevin Xu, 36, to 78 months in federal prison without parole. This is the maximum sentence under the applicable U.S. Sentencing Commission guideline range for conspiring with others in the People's Republic of China to traffic in counterfeit pharmaceutical drugs and introducing counterfeit and misbranded drugs into interstate commerce. Indicted in August 2007, Xu was convicted by a jury following a trial in August 2008. At the Jan. 15 sentencing hearing, Xu argued that there was insufficient evidence to prove he knowingly traded in counterfeit drugs. The court disagreed. Xu, who has been in federal custody since his August 2007 arrest, will remain in federal custody while awaiting transfer to a Bureau of Prisons facility to serve his sentence. In addition to his 6½-year prison term, the court ordered Xu to pay $1,286,060 in restitution with $128,363 to Pfizer Pharmaceuticals, and $1,157,697 to Eli Lily Pharmaceutical Company.

Xu owned Pacific Orient International Ltd., a foreign company based in the People's Republic of China. He used his company to export and distribute counterfeit pharmaceutical drugs into the United States and the United Kingdom. ICE and the FDA conducted an undercover investigation of Xu beginning in November 2006. Xu discussed with undercover agents his ability to manufacture branded pharmaceutical drugs and packaging for the drugs. He also provided an undercover agent with a list of 25 pharmaceutical drugs he could manufacture that included trademarked drugs manufactured and marketed exclusively by Pfizer Pharmaceuticals Inc., Eli Lilly Corp., Hoffman La Roche, AstraZeneca and Sanofi-Aventis. Xu later shipped Tamiflu, Plavix, Zyprexa, Aricept and Casodex to agents in Houston that appeared identical to the drugs manufactured by the legitimate trademark holder.

Xu later traveled to Houston from China to meet with undercover agents to further discuss a venture to supply counterfeit pharmaceutical drugs that would ultimately be dispensed to the public. Xu was considered a significant supplier of counterfeit pharmaceutical due to his ability to manufacture large quantities of various counterfeit pharmaceuticals, and packaging that was identical to authentic pharmaceuticals. Chemists employed by the pharmaceutical companies and the Forensic Chemistry Center of the FDA determined that the counterfeit drugs manufactured by Xu contained less than the active ingredient listed on the label, and contained unknown impurities. Through their investigation, agents obtained sales records and discovered that Xu had actually sold counterfeit drugs to U.S. citizens via the Internet. The income from the sales in the U.S. in 2007 totaled $232,568. Because these counterfeit pharmaceuticals posed significant health risks, agents contacted several of the purchasers and seized the drugs. A chemical analysis of the seized drugs determined the drugs did not have the appropriate active ingredient as reflected on the label.

"Every effort will be made to assure that pharmaceutical drugs that enter into commerce in this country are safe for consumers," said Johnson. "Those who deal in counterfeit or dangerous drugs will be prosecuted to the full extent of the law."

"The public should be careful when purchasing any prescription drug sold on the Internet," said Robert Rutt, special agent in charge of the ICE Office of Investigation in Houston. "Importing substandard, tainted or counterfeit products violates U.S. laws and regulations; and it threatens public health and safety, and the U.S. economy. ICE and the FDA's Office of Criminal Investigations continue to work aggressively to provide a strong and appropriate response to this growing international threat."

Investigating agents also learned that Xu distributed counterfeit pharmaceuticals in the United Kingdom which had penetrated the legitimate supply chain in London, and prompted a massive recall for Zyprexa, Plavix and Casodex by the Medicines Health and Regulatory Agency in London, England. These pharmaceuticals bore the same lot number as the counterfeit pharmaceuticals sent by Xu to agents in Houston.

Xu received more than $1.5 million from selling counterfeit pharmaceuticals globally during 2007.

Plavix is a drug used to treat blood clots. Zyprexa is a drug used to treat schizophrenia. Casodex is used to treat prostate cancer. Tamiflu is used to treat influenza, commonly referred to as the flu; and Aricept is used to treat Alzheimers.

Assistant U.S. Attorneys Samuel Louis and Vernon Lewis, Southern District of Texas, prosecuted this case.