How Small And Midsize Pharma Companies Can Fight Drug Diversion

By Joseph Tartakovsky

Lessons from a Former Federal Prosecutor

I spent years prosecuting traffickers of street drugs like meth and fentanyl, but the drug crisis that should most concern life sciences companies is a less visible illicit drug market: one that quietly undermines legitimate sales, exposes patients to serious harm, and places manufacturers and distributors at catastrophic legal and reputational risk.

Welcome to the world of illegal online “pharmacies.” These deceptive websites sell diverted or counterfeited drugs directly to U.S. customers, often exploiting price sensitivity, insurance gaps, or supply shortages. Fly‑by‑night entities mimic real mail‑order pharmacies, with names like bigpharmausa.com or yourtramadol.com, reaching customers through relentless phone and text solicitations routed through overseas operations. In some cases, diverted or counterfeit products make their way into the legitimate drug supply chain through U.S.‑based intermediaries.

The Sophistication Of The Illicit Market

From an enforcement perspective, what makes this market particularly dangerous is its scale and sophistication. The staggering profits dwarf those of street-level dealing. Equally surprising is the customer base. During my time as a prosecutor, I saw professionals — schoolteachers, nurses, flight attendants, filmmakers, even a patent‑holding drug researcher — ordering thousands of pills online to be delivered discreetly to their doorsteps. I also met families who buried loved ones — including a famed university professor — who were mailed a bad pill. I’ve held in my hand genuine and counterfeit blister packs of pills. There is often no detectable difference.

The Impact On Businesses And The Need To Respond

I also saw the downstream consequences for companies: lost revenue, regulatory exposure, and, in the worst cases, tragedy tied to a product bearing a legitimate brand name.

The illicit online drug market costs companies billions of dollars in lost sales. For small and midsize companies, these losses are particularly damaging because they often go undetected. One fraud ring I prosecuted diverted $30 million in sales of a single drug. Another investigation uncovered an Indian network that sold, in two months, 215,000 pills to 700 customers in 48 states. Those sales displaced legitimate ones.

But companies can fight back — and save lives — through robust legal and investigatory strategies to counter diversion and enforce the safe supply chain. These measures should be layered on top of standard supply‑chain operations measures (machine learning, RFID in packaging, track‑and‑trace protocols, etc.). This is especially so for smaller pharma distributors or single‑product biotech companies, for whom a counterfeit incident can be an existential crisis, whether because of patient harm, FDA scrutiny, loss of investor confidence, or brand destruction.

Below are three legal and investigatory strategies that are often overlooked by pharmaceutical companies, particularly those without large in‑house enforcement teams:

1.Early Engagement With Law Enforcement

Investigators (at FDA, Homeland Security, the FBI, or state pharmacy boards) rely on tips from drugmakers or distributors, who are often the first to detect something amiss. The FDA’s Office of Criminal Investigations has some 300 special agents nationwide — the size of the Boise, Idaho police force. Collaboration between industry players and regulators is essential: officials might intercept diverted products, but only a company can identify where the product was diverted from (say, a Turkish product transshipped through the U.K.). Meanwhile, even a well‑resourced pharma maker with supply‑chain integrity specialists will still need officials to seize evidence or arrest and interview targets.

This means working with counsel to educate prosecutors, especially federal ones, who are tasked with but often unfamiliar with pharmaceutical diversion. Many companies already have the materials needed to kick off a strong investigation; they just need to assemble a prosecution‑ready package. A key piece that companies and prosecutors should know: drugmakers often have statutory rights to millions of dollars in restitution. Counterfeit sellers owe the legitimate makers for lost profits on sales that would have taken place if not for the infringing conduct. This is a massive deterrent. Some criminals will absorb a few years in prison in exchange for treasure awaiting them on the other end. But restitution can take that away — and can follow defendants through wage garnishment for decades, while offsetting losses for manufacturers.

2.Implement Company-Wide Strategies To Detect Illegal Operations

Even large manufacturers often lack systems to cross-check product identifiers, such as the lot numbers submitted through a rebate program with those lots’ intended destinations. For example, why is a patient or doctor in Arizona using a product that was shipped to Albania six months ago? Machine learning tools can help spot unusual buying patterns. Companies should also empower sales reps — front‑line eyes and ears, who enter doctors’ offices — to report odd activity.

3.Investigate Adverse Events As Potential Crimes

Companies may hesitate to investigate aggressively due to cost, litigation risk, or fear of drawing regulatory scrutiny. That instinct is backward. Many significant diversion schemes are uncovered only through on‑the‑ground interviews with victims and purchasers. These investigations often reveal unexpected risks and the latest criminal tactics, allowing companies to adapt their defenses and prevent far greater future harm.

Thankfully, the phrase “FDA‑approved” still means something to Americans. The U.S. life sciences industry leads the world in innovation — and it must also lead in protecting the gold‑standard supply chain that began with FDA approval. The growing criminal audacity means that, for manufacturers, safeguarding patients and product integrity has never been more urgent.

About The Author:

Joseph Tartakovsky is an attorney at Eimer Stahl LLP based in the firm’s San Francisco office. He represents clients in white collar defense, government investigations, enforcement actions, and complex commercial litigation. Previously, Joseph served as an Assistant U.S. Attorney in the Northern District of California, where he was a member of the Transnational Organized Crime Unit and led investigations involving money laundering, fraud, and pharmaceutical offenses. In that role, he worked closely with federal agencies on diversion-related enforcement matters. He can be reached at jtartakovsky@eimerstahl.com.