"They prayed for Gammy to survive but were told by doctors that he was too sick, not because of the Down syndrome but because of his heart and lung conditions and infection," said the family friend. "This has been absolutely devastating for them, they are on the edge."
The couple said the babies were born two months premature and that the surrogate mother, Pattharamon Janbua, moved to a smaller hospital, which rendered the surrogacy agreement void. They said the military unrest in Thailand had complicated the situation.
"The biological parents were heartbroken that they couldn't take their boy with them and never wanted to give him up, but to stay would risk them losing their daughter also ... All this happened when Thailand was in a military lockdown and very difficult to get around."
Ms Pattharamon, 21, who has two children, has provided a different account, saying the couple wanted her to have an abortion and then refused to look at or touch Gammy. She has since insisted on keeping the boy and dismissed offers from around the world to adopt him.
Speaking from a hospital near Bangkok, Ms Pattharamon said she hoped to take Gammy home within days. "He had a scan today and the results were good," she said. "His heart seems to be OK which is a great relief."
She expressed gratitude for the offers of help and donations to a Hope for Gammy campaign, which has raised about pounds 130,000. Doctors say the boy is recovering and that his condition is no longer life-threatening.
The Australian couple's suitability as parents has been called into question following reports that Mr Farnell, an electrician in his mid-50s, has convictions in Australia for sexual offences against children from the mid-1990s. He reportedly pleaded guilty to molesting two girls under the age of 13 and later admitted separate assaults of another girl. His wife, Wendy Li, apparently knew about the convictions.
The reports prompted Ms Pattharamon, who has two children, to demand the return of Gammy's twin sister.
"I do not know if these allegations are true," she said at a hospital outside Bangkok. "They seem like they could be rumours. However, if they are proved to be true, I would like to bring my daughter back to Thailand."
The reports about Mr Farnell's past convictions prompted police in Western Australia to ask the state's department for child protection to assess the "safety and well-being" of the couple's baby daughter. A department official attended their home in Bunbury yesterday but the couple did not appear to be in.
They have not appeared publicly since Gammy's case emerged last week.
They married about a decade ago and Mr Farnell is believed to have three children from a previous marriage.
A neighbour, Bevan Garstone, 85, said they were "a nice couple" and appeared to be proud and happy parents.
"I find them to be very nice," he told The Daily Telegraph. "I congratulated them about the baby and they were very happy. They were very pleased."
The saga has raised questions about the law surrounding international surrogacy and "reproductive tourism".
Thai authorities recently said they would allow paid surrogacy only if the prospective parents were medically infertile and if a blood relation was asked to carry the child. In Australia, paid surrogacy is banned, but some states allow parents to go abroad to pay a surrogate.