CHINA: Chinese Chemicals Flow Unchecked to Market

Publisher Name: 
NY Times

In January, Honor International Pharmtech was accused of
shipping counterfeit drugs into the United States. Even so, the
Chinese chemical company - whose motto is "Thinking Much of Honor"
- was openly marketing its products in October to thousands of
buyers here at the world's biggest trade show for pharmaceutical

Other Chinese chemical companies made the journey to the annual show
as well, including one manufacturer recently accused by American
authorities of supplying steroids to illegal underground labs and
another whose representative was arrested at the 2006 trade show for
patent violations. Also attending were two exporters owned by
China's government that had sold poison mislabeled as a drug
ingredient, which killed nearly 200 people and injured countless
others in Haiti and in Panama.

Yet another chemical company, Orient Pacific International, reserved
an exhibition booth in Milan, but its owner, Kevin Xu, could not
attend. He was in a Houston jail on charges of selling counterfeit
medicine for schizophrenia, prostate cancer, blood clots and
Alzheimer's disease, among other maladies.

While these companies hardly represent all of the nearly 500 Chinese
exhibitors, more than from any other country, they do point to a
deeper problem: Pharmaceutical ingredients exported from China are
often made by chemical companies that are neither certified nor
inspected by Chinese drug regulators, The New York Times has

Because the chemical companies are not required to meet even minimal
drug-manufacturing standards, there is little to stop them from
exporting unapproved, adulterated or counterfeit ingredients. The
substandard formulations made from those ingredients often end up in
pharmacies in developing countries and for sale on the Internet, where
more Americans are turning for cheap medicine.

In Milan, The Times identified at least 82 Chinese chemical companies
that said they made and exported pharmaceutical ingredients - yet
not one was certified by the State Food and Drug Administration in
China, records show. Nonetheless, the companies were negotiating deals
at the pharmaceutical show, where suppliers wooed customers with live
music, wine and vibrating chairs.

One of them was the Wuxi Hexia Chemical Company. When The Times showed
Yan Jiangying, a top Chinese drug regulator, a list of 186 products
being advertised by the company, including active pharmaceutical
ingredients and finished drugs, Ms. Yan said, "This is definitely
against the law."

Yet in China, chemical manufacturers that sell drug ingredients fall
into a regulatory hole. Pharmaceutical companies are regulated by the
food and drug agency. Chemical companies that make products as varied
as fertilizer and industrial solvents are overseen by other agencies.
The problem arises when chemical companies cross over into drug
ingredients. "We have never investigated a chemical company," said
Ms. Yan, deputy director of policy and regulation at the State Food
and Drug Administration. "We don't have jurisdiction."

China's health officials have known of this regulatory gap since at
least the mid-1990s, when a chemical company sold a tainted ingredient
that killed nearly 100 children in Haiti. But Chinese regulatory
agencies have failed to cooperate to stop chemical companies from
exporting drug products.

In 2006, at least 138 Panamanians died or were disabled after another
Chinese chemical company sold the same poisonous ingredient,
diethylene glycol, which was mixed into cold medicine.

China has an estimated 80,000 chemical companies, and the United
States Food and Drug Administration does not know how many sell
ingredients used in drugs consumed by Americans.

The Times examined thousands of companies selling products on major
business-to-business Internet trading sites and found more than 1,300
chemical companies offering pharmaceutical ingredients. How many
others sell drug ingredients but don't advertise this way on the Web
is not known.

If the Milan show is any guide, most, if not all, are not certified by
China's drug authorities.

China exports drug ingredients to customers in 150 countries, said Sun
Dongliang, a Chinese trade official who helped organize his
country's Milan exhibitors. Many suppliers have passed inspections by
drug authorities and sell active pharmaceutical ingredients, or
A.P.I.'s, of high quality, buyers say.

"Sometimes you can just have your lunch on the floor of the factory
because it's so clean and so perfect, sometimes much better than in
Europe," said Jean-François Quarre, a French drug company official
who had a booth in Milan. But Mr. Quarre cautioned that he has seen
the other side as well. "It's frightening."

At their worst, uncertified chemical companies contribute to China's
notoriety as the world's biggest supplier of counterfeit drugs,
which include unauthorized copies as well as substandard, even
harmful, formulations. "Underregulated manufacturers are
increasingly becoming the source of A.P.I.'s used in the production
of counterfeit medicine," R. John Theriault, until recently
Pfizer's head of global security, said in a statement to Congress.

Because United States drug regulators require pharmaceutical suppliers
to meet high standards, the American supply chain is among the
world's safest. But as China's chemical suppliers multiply,
Congressional investigators are questioning the F.D.A.'s ability to
protect consumers.

Even some Chinese chemical companies recognize their limitations in
making pharmaceuticals.

"We don't have the resources and means to produce medicine,"
said Gu Jinfeng, a salesman for Changzhou Watson Fine Chemical. "The
bar for producing chemicals is pretty low."

Even so, Watson Chemical advertises that it makes active
pharmaceutical ingredients. But Mr. Gu said he would export them only
to countries with lower standards than China, or if "we can earn
really good profits."

A Trail of Steroids

Just days before the Milan trade show, United States officials made an
announcement that brought home the global reach and attendant dangers
of China's expanding chemical industry. The officials disclosed that
they had dismantled a 27-state underground network for steroids and
human growth hormone, arresting 124 people in "Operation Raw

The supply trail almost always led to China. Thirty-seven companies
there supplied virtually all of the bulk chemicals, federal officials

Of the 37 suspect companies, all but one unnamed by the American
authorities, The Times identified eight. Records show that six are
uncertified chemical companies, including Hunan Steroid, which
marketed its products at the Milan convention.

"Just want to see the old customers and develop the new market,"
said Sun Xueqin, a deputy export manager for Hunan Steroid. Ms. Sun
said the company sold raw pharmaceutical ingredients in Europe and
America and more advanced pharmaceutical ingredients in India, among
other places.

Later, another Hunan official, Huang Zili, said the company did not
sell to the United States, and declined to comment on the
government's contention that Hunan was a supplier of bodybuilding
drugs. Hunan has not been charged with any crime.

As serious as the accusations are in Operation Raw Deal, health
experts say they believe that counterfeit drugs, particularly those
sold on the Internet, pose a greater threat to a broader segment of
the American public.

"The facts are irrefutable," Mr. Theriault, the former Pfizer
official, told Congress. "The importation of counterfeit,
infringing, misbranded and unapproved pharmaceutical products in the
United States is increasing exponentially." Pfizer makes Viagra, one
of the drugs most often counterfeited.

Finding uncertified companies feeding the market is not difficult.
Orient Pacific International, the Milan registrant whose owner did not
show up, advertised that it makes and exports pharmaceutical
ingredients to "worldwide famous medical companies." The owner,
Mr. Xu, is accused of selling counterfeit medicine to treat ailments
like cancer, mental illness and heart disease, according to United
States Immigration and Customs Enforcement, or I.C.E.

Mr. Xu shipped drugs to an Internet pharmacy, investigators say. But
he also penetrated the highly regulated supply chain of legitimate
distributors in Europe, said David A. Faulconer, a customs official.
Acting on tips from large drug companies, federal officials devised a
plan to stop him from doing the same in the United States.

Posing as a buyer, an investigator for the immigration and customs
agency met Mr. Xu in Bangkok on March 6. Mr. Xu gave him "detailed
suggestions for transshipment and smuggling techniques to evade United
States Customs detection," federal records show.

After investigators bought multiple shipments of counterfeit drugs,
Mr. Xu traveled to Houston "to consummate an agreement for
widespread distribution of his counterfeit products in the United
States," according to an affidavit filed in federal court. Federal
agents arrested Mr. Xu, who has pleaded not guilty.

Another company exhibiting in Milan, Honor International Pharmtech,
was also the subject of a customs investigation. In January, agents
seized 3,041 fake Viagra pills sent by the company to a DHL shipping
hub in Wilmington, Ohio, according to customs.

The shipment, disguised as grape seed extract, was destined for an
Internet pharmacy in Central America, said agents who requested
anonymity because the investigation continues.

"We do make grape seed extract," the company's managing
director, Nie An, said in a telephone interview. He denied shipping
counterfeit Viagra, but he acknowledged other indiscretions: making
false advertising claims, using another company's import-export
license and creating a fake corporate name.

"We don't really have a factory," Mr. Nie said, even though he
advertised that he did. Honor International is just a trading company,
he said, adding, "As a trading company, saying you can manufacture
attracts business. It was fake advertising."

The Times found several other companies posing as manufacturers,
thereby obscuring a drug's provenance. In a recent joint statement,
chemical associations in the United States and Europe cautioned that
globalization has led to a rise in complexity in supply chains,
"increasing the potential for contamination, mislabeling or

Pharmaceutical ingredients can pass through three or four trading
companies, none of which check their quality. The ultimate
manufacturer may not realize the ingredients came from an uncertified
chemical company.

Mr. Nie, for example, said he markets Viagra's main ingredient,
sildenafil, through a partnership with a chemical company in a distant
region that he has never visited. "We met them at a trade fair,"
he said. "This company didn't even have a booth at the fair. They
were standing outside the entrance to the exhibition center, and they
handed us a flier with a menu of their products."

He said he was trying to the reach the factory, which has no Web site,
to fill a Croatian company's order.

"Our main markets are in Latin America - Brazil, Argentina,
Uruguay," he said. "A little in Canada, a little in the United
States. In Europe, we export to Germany, Russia, Italy."

But Mr. Nie faces an uncertain future. He said that Chinese
investigators had recently visited his office, and that they knew
about the seizure in Ohio.

Viagra is hardly the only drug that companies try to copy. The French
drug maker Sanofi-Aventis grew weary of watching other companies sell
knockoffs of its new diet drug, Acomplia, and alerted French
authorities that three Chinese companies were marketing their own
version of the product at the 2006 pharmaceutical ingredient trade
show, held in Paris. Six Chinese company officials were arrested.

One of those arrested in Paris was Jin Lijie, managing director of the
Wuxi Hexia Chemical Company. Still, Wuxi Hexia showed up in Milan in
2007 selling a line of pharmaceutical ingredients.

Its representatives declined to be interviewed in Milan, or at its
offices in the boomtown of Wuxi. "We are all young college graduates
and we are still learning about the market," said an employee named
Du Yanqun.

Factories on the Yangtze

A good place to find companies selling uncertified drug ingredients is
Changzhou in the Yangtze delta, where the raw materials for chemical
production are readily available and easily transported by canals and

Several factories there sent representatives to Milan, including the
Changzhou Kangrui Chemical Company. It makes pharmaceutical
ingredients in an old converted steel plant. "I'm afraid it will
leave you with a bad impression," said Zhou Ladi, a sales
representative, as she gave a tour. She said Kangrui Chemical hopes to
move into a new plant by early 2009.

"As long as we don't export products that are under patent in
other countries, the government encourages us to export," she

To help find customers overseas, smaller factories enlist the services
of people like Bian Jingya, export manager for a trading company
called the Changzhou Wejia Chemical Company.

Ms. Bian said chemical companies are involved in all phases of drug
manufacturing, including making finished products. Some, she said,
"are under patent in other countries."

Ms. Bian, who was also in Milan, said the government should spell out
more clearly what companies may and may not do. "If you want to be
regulated, they will regulate you," she said. "If you don't want
to be regulated, they don't."

The Chinese drug agency does not oversee the making of pharmaceutical
raw materials, called intermediates, which are the building blocks for
active pharmaceutical ingredients. "It is unrealistic for us to
certify all factories that make intermediates and regulate them like
medicine products," said Ms. Yan, the agency official. But if
companies make active ingredients, a more refined product, then they
must be regulated by drug authorities, she said.

When The Times pointed out that many uncertified chemical companies
openly advertise active ingredients, Ms. Yan said that was illegal.
"If there are in fact chemical companies that are making drugs without
certification then this is very serious," she said. "These
companies are not qualified to make medicine. They make

Wang Siqing, managing director of the Changzhou Yabang Pharmaceutical
Company, estimated that uncertified chemical companies make half the
active pharmaceutical ingredients sold in China. "The stuff produced
by chemical plants is clearly counterfeit medicine, but they aren't
investigating," Mr. Wang said in an interview at his office. "This
has been happening in a regulatory void." He added that most
chemical company exports go to unregulated markets in Africa or South
America. "That's not to say these products don't enter the
United States through these other countries," he said.

To find out how well American consumers are being protected from
unsafe imported drugs, investigators from the House Energy and
Commerce Committee recently accompanied F.D.A. officials on
inspections of drug plants in China and India.

In a letter to the F.D.A. commissioner, the committee said that the
agency was unable to provide such basic information as the number of
firms exporting to the United States, and that overseas F.D.A.
inspectors lacked necessary logistical support. A House hearing on
F.D.A. oversight of foreign drug manufacturers is scheduled for

"China alone has more than 700 firms making drug products for the
U.S., yet the F.D.A. has resources to conduct only about 20
inspections a year in China," said Representative John D. Dingell,
the Michigan Democrat who is the chairman of the House Energy and
Commerce Committee. The F.D.A. said it would answer the committee's
questions at the hearing.

Poisonings in Haiti

United States officials learned of problems with China's chemical
companies in the mid-1990s while investigating the fatal poisonings in
Haiti. Chinese authorities took no action against the uncertified
chemical company that made the poison, diethylene glycol, or the giant
state-owned trader, Sinochem International Chemicals, that exported

A decade later another state-owned trading company, CNSC Fortune Way,
exported the diethylene glycol - also from an uncertified chemical
company - that ended up in the deadly Panamanian cold medicine in

Chinese officials have known for years that uncertified chemical
companies are producing active pharmaceutical ingredients. In 2004 the
Chinese drug authority's newspaper cited complaints that some
licensed companies "affiliate" with unlicensed ones to hide their
illegal purchases, while others buy only a token amount from certified
suppliers to pass inspection. "The impact of chemical products on
the bulk pharmaceutical market hints at a much larger problem: a huge
hole in drug safety," the drug agency publication stated.

Since the Panama poisonings, China is considering ways to corral the
chemical industry. At Panama's request, Michael O. Leavitt, the
secretary of health and human services, has pressed the Chinese
government to step up regulation of chemical companies selling
pharmaceutical ingredients.

American and Chinese health officials held their first high-level
meeting in May, and hope to sign a memorandum of agreement in
December. "The Chinese have finally come to the realization that
their regulatory system needs repair," said William Steiger,
director of international affairs for Mr. Leavitt's agency. But
meaningful change will be difficult. Chinese authorities may not have
enough investigators to weed out the many small chemical companies
that are making drug ingredients.

And efforts to close the regulatory gap must overcome one particularly
thorny issue: some uncertified companies accused of selling
counterfeit drugs are owned by the government itself.

AMP Section Name:Pharmaceuticals