New York A.G. Spitzer Subpoenas Three Largest Prescription Drug Wholesalers

New York State Attorney General Eliot Spitzer (D) has issued subpoenas to the three largest prescription drug wholesalers in the United States -- McKesson, Cardinal Health and AmerisourceBergen -- requesting information on how the companies purchase products from each other, the Wall Street Journal reports (Won Tesoriero, Wall Street Journal, 4/11). The three companies reported the subpoenas at the end of last week in Securities and Exchange Commission filings, according to the New York Times (Saul, New York Times, 4/9).

In its filing, McKesson said that the subpoena seeks "documents and other information relating to the secondary wholesale market for pharmaceutical products" (Bloomberg/Los Angeles Times, 4/9). According to the Times, the secondary pharmaceutical market is a "behind-the-scenes" venue in which wholesalers purchase and sell medications to each other "outside the normal drug manufacturing channel." Medications on the market come from a number of sources, including manufacturer overstocks and wholesalers who have purchased too much product and want to resell it. The drugs also come from pharmacy benefit managers, hospitals and mail-order pharmacies that receive preferential pricing on products and then want to resell excess supplies, according to Sandy Greco, vice president of pharmaceutical distributor Kinray.

While many such sources are legitimate, foreign markets -- from which the drugs are stolen and then resold in the United States -- and counterfeiters, who make fraudulent medications to sell to wholesalers, also provide drugs to the secondary market, the Times reports.

McKesson, Cardinal Health and AmerisourceBergen all have secondary trading operations that they use to distribute excess inventory, "make up shortfalls or find discounts," the Times reports. AmerisourceBergen in its SEC filing said it currently purchases only about 0.5% of its pharmaceutical products from sources other than pharmaceutical companies (New York Times, 4/9). The company also said it has not been advised of any misconduct (Bloomberg/Los Angeles Times, 4/9).

McKesson spokesperson James Larkin said his company purchases less than 0.5% of its medications from sources other than the manufacturer, adding that McKesson never purchases injectable, biotechnology, oncology or HIV/AIDS drugs from the secondary market. Larkin also said that the company purchases medications from fewer than 12 U.S. wholesalers and that the wholesalers undergo "really strong background checks and scrutiny to make sure they are operating the way we want them to operate."

In its filing, McKesson said it will respond fully to the subpoena, the San Francisco Chronicle reports (Colliver, San Francisco Chronicle, 4/9).

Spitzer's office did not comment on the investigation, and it is unclear how many of the industry's other wholesalers had received subpoenas, the Times reports. However, the subpoenas "appear to signal a broad inquiry" into the secondary wholesale market, according to the Times. In its filing on Thursday, Amerisource said it had been advised by Spitzer that "other industry participants" had received similar requests."

In its finding, Cardinal said, "The company believes that the New York attorney general is conducting a broad industry inquiry that appears to focus on the secondary market within the wholesale pharmaceutical industry" (New York Times, 4/9). "It is our belief the information request is related to a wider-ranging investigation into the safety of the pharmaceutical supply channel and source of counterfeit drugs in the market," Lisa Gill, an analyst with J.P. Morgan Securities, said in a note to clients (Bloomberg/Los Angeles Times, 4/9).

According to the Times, several "widely publicized cases of patients' receiving fake or diluted drugs" -- including the cholesterol drug Lipitor and the cancer drug Procrit -- have focused attention on the wholesale market, resulting in a decrease in the volume of drugs sold on the secondary market over the past two years (New York Times, 4/9).

Patricia Harris, executive officer of the California Board of Pharmacy, praised Spitzer's efforts, adding, "We've had problems in California with regard to the secondary market. It's an issue and a concern because that's how counterfeits are introduced into the system."

Louis Ling, general counsel for the Nevada Board of Pharmacy, said, "In every single case in the public record, counterfeits get into the U.S. drug supply through alternative wholesalers. Manufacturers don't counterfeit their own drugs" (San Francisco Chronicle, 4/9).