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Internet prescription sales fly not quite under the radar

Drug costs A Portland man whose Web pharmacy ships from India operates in a legal gray zone
Sunday, October 16, 2005
TED SICKINGER
The Oregonian

To customers who frequent ProgressiveRx.com, Hayden Hamilton is a hero. He's their Robin Hood of health
care, a man who brings a healthy dose of altruism to an industry where it is sorely lacking.

To the pharmaceutical industry and federal regulators, he's something else entirely. In their eyes, the 28-
year-old Portland entrepreneur and his ilk are scofflaws who put the public at risk and steal others' property.

Welcome to the morally and legally ambiguous world of online drug sales, where, for now at least,
customers make the call.

Hamilton, who studied business at Oxford University then chucked his fast-track job with Ford Europe
because he wanted to do something more entrepreneurial, founded ProgressiveRx in early 2004. While
spending time with a sick friend in Thailand, he discovered he could purchase the same prescription drugs
there that his uninsured brother and other family members with chronic health conditions were buying in the
United States -- but at a fraction of the cost.

This year, he estimates he'll ring up several hundred thousand dollars in sales at his Web site, filling
thousands of prescriptions for U.S. customers with cheap versions of both patented and generic drugs from
India.

In recent years, imports of prescription and over-the-counter drugs have spread rapidly as Internet
drugstores have been joined by states, counties and local governments looking for ways to meet residents'
drug needs -- with or without the endorsement of state and federal regulators.

Ostensibly, the Federal Food, Drug and Cosmetic Act strictly limits both the types of drugs that can be
imported and who can import them. But the Food and Drug Administration doesn't have the resources to
stamp out the practice, and would be swimming against a strong tide of public and congressional opinion if it
tried.

The agency has tried to suppress consumer demand by using scare tactics while focusing enforcement
resources on businesses that most egregiously flout state and federal laws. The FDA's warning to
consumers is the same as Big Pharma's: Drugs bought online may be outdated, contaminated, too potent or
not potent enough, improperly handled or counterfeit. Buyer beware.

Those safety concerns are real, Hamilton said. But he insists the drugs he delivers are as safe as those from
your neighborhood pharmacy.

Hamilton takes pains to differentiate ProgressiveRx from Internet "pill mills" that hawk Vicodin and Oxycontin
by relentlessly spamming any e-mail address they can find. For one, Hamilton's company doesn't sell
narcotics or other "scheduled drugs" the FDA considers likely to be misused. For another, ProgressiveRx
requires a prescription from a doctor to buy a prescription drug.

Moreover, Hamilton said he's not out to make a bundle -- just to provide a much-needed service. When he's
not on the road promoting his company, Hamilton lives with his parents in their Southwest Portland home.
For now, he said he's drawing only enough money from the business to cover basic living expenses.

Customers, many of whom find their way to Hamilton's site via auctions he holds on eBay for over-the-
counter drugs, tend to rave about the prices, the service and the quality. Some say it's the only way they can
afford life-sustaining drugs, even if they're insured or qualify for one of the charity programs offered by
pharmaceutical companies.

"They actually saved my life," Lisa Anne Nilsson, a 37-year-old resident of San Jose, Calif., said of
ProgressiveRx.com. At her local pharmacy, Nilsson said her medications would eat up more than two-thirds
of the $1,300 disability check she receives every month. They cost a fraction of that at ProgressiveRx.

Sounds laudable. But Hamilton's business isn't licensed by the Oregon Board of Pharmacy. Many of the
drugs he imports aren't approved by the Food and Drug Administration. And the company doesn't have a
pharmacist on board to record prescriptions and check for drug interactions.

All of which could put him in the cross hairs of state and federal authorities.

Soaring demand

Hamilton said he's operating in "a legal gray area," specifically the shadow cast by an FDA rule that allows
U.S. consumers to import up to a 90-day supply of prescription drugs for personal use. The policy was
adopted to give HIV-infected and other seriously ill patients access to drugs that weren't approved for sale in
the United States.

With the explosion of the Internet, however, entrepreneurs of all stripes started using the same legal
umbrella to import cheap prescription drugs, and the "under the counter" drug industry took root.

The FDA says its 90-day supply policy simply describes its enforcement priorities and does not give people
a license to import drugs, particularly when such activity is being commercialized.

In 2003, however, Americans imported nearly 5 million shipments of prescription drugs, worth about $700
million, from Canada alone, according to a study by the U.S. Department of Health and Human Services.

Soaring demand is little surprise. About 45 million Americans are uninsured, including some 613,000
Oregonians, according to recent figures from the Census Bureau and Robert Wood Johnson Foundation.

Many drugs sell for anywhere from 25 percent to 90 percent less abroad because pharmaceutical
companies need to comply with price controls in other countries. Consumers in the United States,
meanwhile, pay what the market will bear.

Patient advocates and members of Congress say Americans are fed up with shouldering the rising cost of
drugs -- many of which are developed at U.S. taxpayer expense -- while consumers abroad get a free ride.

Hamilton, whose business doesn't accept insurance, said the new Medicare prescription drug benefit is
simply a Band-Aid solution to a much-larger problem. Many seniors, he said, will still need to import drugs to
keep their costs manageable.

Internet suppliers such as ProgressiveRx are one part of the so-called gray market for drugs. Hamilton is a
one-man show at his downtown Portland office, operating a Web site run on a server in Houston using
shopping-cart software developed in Russia.

His operations office in Bangalore, India, has four employees taking and packing orders, shipping and
handling customer relations.

While considered illegal by the FDA, drug importation is being legitimized by an increasing number of state
and local governments. At last count, more than 20 states had started or were considering programs to
import low-cost drugs from Canada, Europe or elsewhere. Last year, Oregon Gov. Ted Kulongoski sent a
letter to the U.S. Department of Health and Human Services requesting a waiver to import FDA-approved
medications from Canada. He hasn't received a response.
Drug importation is "not going away," said Abby Ottenhof, a spokesman for Illinois Gov. Rod Blagojevich,
whose I-SaveRx program has filled 14,000 prescriptions through pharmacies in Canada and Ireland since it
was launched a year ago.

"If anything," Ottenhof said, "demand continues to build."

Controlling supplies

To limit the amount of drugs being imported to the United States, drug companies have tried limiting sales to
pharmacy chains and wholesalers in Canada. In response, Internet operators have turned to countries such
as Australia, New Zealand, Ireland, India and China for supplies.

The FDA has sent warning letters to a variety of unlicensed Internet suppliers that it says are circumventing
its safety guidelines and putting consumers at risk. It has also warned various states that federal laws pre-
empt any state efforts to legalize drug importation.

When it comes to enforcement, however, it is performing triage. In 2003, a federal judge issued an
injunction, based on FDA regulations, that shut down RxDepot. The Oklahoma business was setting up
storefronts in the United States that took prescriptions locally and faxed them to a Canadian pharmacy to be
filled.

But for every site the FDA shuts down, a new one -- or several -- pops up.

The FDA has yet to move against state programs such as the one set up by Illinois. And from an operational
perspective, Hamilton said I-SaveRx is doing the same thing as ProgressiveRx, running a Web site that
allows Americans to buy prescription drugs abroad.

Hamilton said safety and quality control are his first concerns. ProgressiveRx fill prescriptions through Apollo
Hospital Group and Pill and Powder, two Indian pharmacy chains that source their drugs directly through the
same FDA-approved factories that the big drug companies use, or through Indian pharmaceutical
companies that produce generic versions.

Hamilton said his employees check every order three times for accuracy before shipping. All medications
are shipped in original manufacturers' packaging with instructions on use.

Thus far, he said, among thousands of orders, the only mistake encountered was the substitution of a nasal
inhaler for an oral inhaler of the same product.

Richard Palais, a former dentist and pharmaceutical representative for a drug company who is now on
Social Security disability in Hernando Beach, Fla., said he found ProgressiveRx about a year ago and has
never looked back. A 14-day supply of the antibiotic he uses regularly, Levaquin, goes for $300 at his
neighborhood pharmacy and $20 at ProgressiveRx, he said. The prescription for Prevacid that he takes for
acid reflux would cost $130 or $140 locally, but he gets it for $40 on ProgressiveRx.

"My transactions have always gone smoothly," he said. "You place the order, you e-mail or fax a copy of
your prescription, and eight days later, you get your medicine with an explanation sheet -- everything you
would get from a pharmacy in the U.S. It's all here, and you save a pile of money."

State sees a violation

But Gary Schnabel, executive director of the Oregon Board of Pharmacy, said ProgressiveRx isn't a licensed
pharmacy and appears to be in violation of Oregon pharmaceutical laws. The Web site, he said, looks
similar to those of prescription brokers who argue that they're exempt from regulation because they send
prescriptions to Canada and never handle the drugs themselves.
Hamilton makes much the same argument as the prescription brokers, noting that ProgressiveRx doesn't
import drugs in bulk. It ships directly to its customers from India and has no contact with the drugs in the
United States.

"We would have an issue with that, and we will follow up," Schnabel said. But he acknowledges that the
state board has little regulatory power over businesses it doesn't license. If anything, it would alert the state
attorney general to take action, he said.

Hamilton acknowledges the risk of getting shut down. But he downplays his concern.

"I know it's kind of counterintuitive for a business owner to say, but I would be thrilled if a cheaper option for
those without prescription drug benefits became available," he said. "If that happened, I would be more than
happy to move on to trying to solve a new problem."

Ted Sickinger: 503-221-8505, tedsickinger@news.oregonian.com