Gray Clouds Imperil Drug Firms

"Cardinal said, rather loudly, that they were going to close the trading division that buys drugs from the secondary market," Eban told TheStreet.com. "What that means is that they've closed one of their back doors -- the back door that's marked 'back door.' But there are other, unmarked back doors that are still open."

Still, the industry could feel itself come under increasing pressure to close those doors in the future. Already, pharmacy giant CVS (CVS Quote) has publicly announced that it will no longer do business with drug distributors that trade in the secondary market. And companies like FFF Enterprises, which pledges to buy drugs only from manufacturers and sell them only to end suppliers, are more than happy to step in and take over.

FFF Enterprises CEO Patrick M. Schmidt estimates that his company's business has grown by 50% over the past two years -- as awareness of counterfeit drugs has increased -- and continues to expand at a rapid clip. He portrays his company as unusual, for now, but expects others to follow its lead.

"If things stay the same and we continue to see counterfeit drugs -- and there's no reason to believe we will not -- then I think there will be a forced migration to this business model," Schmidt says. "I think that changes are absolutely coming" in the future.

Indeed, several outside forces are pushing the sector already. For one thing, Fagan's case could -- for the first time ever -- leave a drug wholesaler liable for counterfeit products. For another, Spitzer's investigation could uncover more counterfeit scandals that lead to mandated industry reforms. And for yet another, "Tim Fagan's Law" could overcome long odds, fueled by powerful industry lobbyists, to gain bipartisan support and actually pass in Congress.

In the meantime, the state of Florida -- once an outright haven for crooked drug wholesalers -- has already taken action by passing a tough counterfeit law of its own. Moreover, it has offered some harsh words of criticism for even legitimate wholesalers in the process.

"The fact that ... criminals act with such callous disregard for human suffering is immoral and despicable, but we find that others involved in the industry bear responsibility by turning a blind eye to this activity for the sake of profit," the Florida grand jury has stated. "Counterfeiters and re-labelers simply wouldn't be in business if they did not have a steady supply of willing buyers in the marketplace."