The Best Medicine: Protecting Pharmaceuticals From Counterfeiting With Radio Frequency Identification

How the rise in counterfeit pharmaceuticals is signaling the need for RFID in the prescription drug market.

Introduction

All across the landscape, both the mostly real one of trade show floors and in the virtual world of newswires and blogs, there are mixed signals regarding the status of RFID (Radio Frequency Identification) in the American pharmaceutical market. There is pressure from the federal Food and Drug Administration (FDA) to implement the Prescription Drug Marketing Act, and yet, an injunction from a federal court that has stymied FDA efforts to require the use of track-and-trace systems – and legal analysts forecast this stay may remain in place for several years. There are proposals in Congress, including the Reducing Fraudulent and Imitation Drugs (RFID) Act, which will require the integration of counterfeit-resisting technologies into the packaging of all pharmaceuticals. Yet, states such as California and Florida have not waited on a federal solution, opting to take matters into their own hands and have state-level e-pedigree mandates for pharmaceutical tracking.

Successful Pilots

We’ve seen successful RFID pilots from drug manufacturers on highly susceptible target brands, including AstraZeneca (Diprivan), GlaxoSmithKline (Trizivir), Pfizer (Viagra), and Purdue Pharma (Oxycontin). Likewise, we’ve seen major pharmaceutical distributors, including AmerisourceBergen and Cardinal Health, have successful RFID track and trace pilots in their operations, which are central to the prescription drug supply chain in the US.

At the same time, there’s a battle emerging over which frequency level to use for tracking pharmaceuticals, with major forces lined-up supporting both UHF and HF systems, producing a real fear that there may not be one communications protocol for use in the pharmaceutical sector. There’s division between the pharmaceutical companies, the large and small pharmaceutical distributors, and retailers over not just the size of the investment needed to smarten the drug supply chain, but the very real question of which parties gain the benefits and which level will incur what costs as RFID tracking of pharmaceuticals rolls out.

Then, there’s the very real discussion of ROI, and how gains can be accurately measured and just how long the time horizons might be for RFID to pay-off.

The “Perfect Incubator” for RFID applications

The pharmaceutical market has been characterized by analysts as the “perfect incubator for item-level RFID applications,” due to high-value, high-volume products it deals with and its absolute need for safety and compliance, making it easier for pharma supply chain actors to justify their auto ID technology investments. Yet, for all the touted benefits of integrating RFID into the pharmaceutical supply chain – for control, for management, for integration, for recall, for patient compliance – none exceeds the simple fact that RFID can help save lives by reducing the threat of counterfeit drugs around the world. As Robert Kashmer, vice president of Information Technology for the major drug wholesaler, H. D. Smith, recently observed: “To be honest, I get discouraged when I hear people in our industry talking constantly about “finding the ROI”. This is about patient safety! Increasing efficiency is a goal, but secondary.”

Still, there are important and often long-lasting impacts on pharmaceutical companies and brands from counterfeit cases that must be acknowledged as a significant motivating factor to better protect the legitimate drug supply through the use of RFID. These track and trace capabilities do first protect patient safety, but they protect corporate images, marketing efforts, and profit streams as well.

Counterfeit pharmaceuticals

The World Health Organization (WHO) defines a counterfeit pharmaceutical product as one: “which is deliberately and fraudulently mislabeled with respect to identity and/or source. Counterfeiting can apply to both branded and generic products, and counterfeit products may include products with the correct ingredients or with the wrong ingredients, without active ingredients, with insufficient active ingredient, or with fake packaging.”

According to a recent analysis of the counterfeit pharmaceutical marketplace published in the Journal of the American Pharmaceutical Association, “counterfeit drugs” include:

• Look-alike products that contain little or no active ingredient and possibly contain harmful ingredients

• Rejects that have been kept off the market by the manufacturer or regulatory authorities for quality reasons

• Relabeled medications that have expired but have been repackaged and remarketed with a much later expiration date

• Identical copies, or counterfeit products manufactured with the same ingredients, formulation, and packaging.

The last category is by far the least common form of counterfeit pharmaceutical, although authorities are increasingly discovering drugs made in legitimate plants using genuine ingredients, but when the facility was supposed to be closed.

Technology has empowered pharmaceutical counterfeiting. The ready availability of high-powered copiers, printers, and scanners, combined with sophisticated computer design software, means that any packaging can be copied with a great degree of accuracy today.

The Health Risk from Counterfeit Drugs

The global toll of counterfeit pharmaceuticals is devastating and long-standing. Consider for instance that:

• In Panama, a Chinese company supplied a chemical ingredient which it purported to be 99.5 percent pure glycerin, a sweetener commonly used in drugs, when, in fact, it was diethylene glycol, which is commonly found in antifreeze and brake fluid. The Chinese supplier’s counterfeit product was supplied to a government laboratory through Medicom, a local Panamanian firm. The chemicals found their way into a variety of consumer products produced in this lab, including cough syrup, antihistamines, calamine lotion and a rash ointment. Even though the products were removed from store shelves in October 2006, the official death toll from this single case of counterfeiting has reached almost a hundred since July 2006, with the Panamanian government investigating 293 more deaths that may be related

• Over a six-month period in 2006, a Siberian hospital dispensed approximately three thousand doses of counterfeit Cavinton (Vinpocetine). The drug, sold in prescription form in Europe and Asia, but treated as a herbal supplement in the United States, is used to improve blood flow in the brain and eyes. Dr. Boris Merkeshkin, the chief physician at the Russian facility, recently commented that he was thankful that the fake drug had no harmful ingredients, “If that were not the case we would have a tragedy.”

• In 2001, a Wellcome Trust sampling of pharmacies in Southeast Asia found that over a third of the 104 anti-malarial drugs available to patients did not contain any active ingredients.

• In 1998 in Brazil, over 200 unplanned pregnancies came as the result of women taking counterfeit birth control pills.

• In 1996 in Haiti, seventy-five children died after ingesting counterfeit anti-fever medications that contained the industrial solvent ethylene glycol.

• In 1995 in Niger, an estimated 60,000 patients received counterfeit vaccine during a meningitis epidemic.

WHO: Making an Impact

The WHO has established the International Medical Products Anti-Counterfeiting Taskforce (Impact) to combat the problem of fake pharmaceuticals. Impact’s analysis shows that the commonly accepted figure of 10% of all pharmaceuticals globally being counterfeit is inaccurate, as there are wide disparities not only between countries and regions, but even within nations between rural and urban centers. There are also differing prevalences of counterfeit pharmaceuticals at different times, given the fake drugs that are popular at the time. Impact’s most recent figures estimate counterfeits ranging from around 1% of sales in developed countries to more than 10% in developing countries.

However, in parts of Africa, Asia and Latin America, more that 30% of the medicines on sale can be counterfeit, while in some former Soviet republics, counterfeits make up more than 20% of the market. According to Impact, more than half of all drugs purchased over the Internet from sites that conceal their actual physical address are counterfeit.

The Profitability of Counterfeit Drug Tracking

Compared to dealing in illegal street drugs, the profitability of trafficking in counterfeit pharmaceuticals is higher, the risk of detection is lower, and the penalties associated with conviction are far less. This has led more organized criminal elements worldwide, particularly in Eastern Europe and Asia, but in the US as well, to turn their focus from narcotics to counterfeit prescription medications. And today, even terrorist groups are beginning to branch out into counterfeiting drugs as a way of funding their operations. In fact, it has been estimated that Al Qaeda has drawn as much as a billion dollars annually from counterfeit drug production and smuggling operations.

While counterfeit pharmaceuticals are becoming more of a problem in the Western world, the scope of the problem in Europe and the United States is not anywhere near that found in less developed countries. As can be seen here below, according to the American Pharmaceutical Association, the sourcing of counterfeit drugs is today a truly global marketplace.

Life-threatening Conditions

Any kind of pharmaceutical product can be – and thus likely has been – counterfeited. This includes expensive lifestyle and anti-cancer medicines, antibiotics, cholesterol lowering drugs and medicines for controlling hypertension, hormonal treatments, steroids and even inexpensive generic versions of simple painkillers and antihistamines. In developing countries, the most disturbing issue is the common availability of counterfeited medicines for the treatment of life-threatening conditions, such as tuberculosis.

With the need for anti-infectives in poorer, developing regions of Africa and Asia to treat malaria, anti-malarials are fast becoming the most widely taken – and most widely illegally trafficked and counterfeited – drugs in these regions. There have also been rampant cases of counterfeit drugs being introduced for the treatment of HIV/AIDS across the globe.

Each year, the National Association of Boards of Pharmacy, representing all 50 states and US territories, publishes a list of the prescription medications most susceptible to counterfeiting in its “National Specified List of Susceptible Products.” Worldwide, some of the most commonly counterfeited prescription drugs currently include: Viagra (erectile dysfunction); Aricept (Alzheimer’s disease); Norvasc (blood pressure); Lipitor (cholesterol) and Tamiflu (influenza).

The true picture of counterfeit pharmaceuticals is hard to detect. One thing that must be taken into account is that companies are often very hesitant to disclose discoveries of counterfeits, due to the impact that such disclosures in the media might have on their intermediate (prescribing doctors) and their end customers (the patients). Commenting on the matter, Cinthya K. Ramirez, a policy analyst at the Geneva-based International Federation of Pharmaceutical Manufacturers & Associations, observed that “the question of information is very sensitive” in the industry due to the possible reaction – and overreaction – of the medical community and the public to such news.

Also, many patients who experience adverse effects from ingesting fake pharmaceuticals either do not seek proper medical treatment or suffer from symptoms that can be otherwise explained away as migraine headaches, a 24-hour virus, a mysterious rash, etc. Experts have said that many hospitalizations and even deaths caused by the use of counterfeit pharmaceuticals are wrongly attributed to other known and unknown causes, making the true toll of human suffering.

A “Victimless Crime”?

Counterfeiting of consumer products is sometimes thought of as a “victimless crime.” However, as John Allan of Carratu International, recently commented: “All counterfeits have a knock-on effect…the reputation of a good company and the trust placed in that company by consumers can be irreparably damaged by the proliferation of counterfeit goods. Furthermore, if these counterfeits happen to be pharmaceutical products then the possibility of fatality has to be considered. It is not a victimless crime, it is a crime which can kill people.” The human toll of counterfeit pharmaceuticals is significant, but the economic toll is reaching staggering proportions as well.

A Billion Global Market

The New York City-based Center for Medicines in the Public Interest recently predicted that by 2010, counterfeit drug sales will reach billion worldwide, almost doubling from the estimated counterfeit sales in 2005. In the US alone, the FBI estimates that the financial impact on US companies caused by counterfeit drugs is billion a year in lost sales, and globally, the costs are projected to be at least billion annually. Considering the fact that pharmaceutical companies expend sometimes hundreds of millions of dollars to develop new drugs, this is a hit directly on their profits.

According to the analysis of Professor David Taylor of the University of London School of Pharmacy: “The average selling price of a patented medicine is many times the cost of its basic ingredients. This is because ‘sunk’ costs associated with research, manufacturing and marketing must be recouped within a narrow window of time” (n.p.).

In fact, the marginal production cost of a new medicine will by definition be much closer to its ingredient cost, and its eventual generic price. Just making one additional batch of a product will typically require very little extra spending. Thus, counterfeit drugs take away incremental revenue from the pharmaceutical companies – the vast majority of which would have gone straight to their bottom-line.

Counterfeit drugs can have an even more dramatic impact on brands over the long-term. Bret Kinsella of Odin Technologies stated “in their most benign manifestation, counterfeit drugs are akin to placebos.” Yet, their very presence in the market weakens legitimate brands, as when patients and doctors fail to see results from the use of what are unknowingly counterfeit products, they will be less likely to use or prescribe that brand of drug in the future. Thus, counterfeit drugs do not simply take away from a fixed pie of sales for a particular brand or even an entire product line, as over the long-term, counterfeits can weaken or even kill a brand’s – and even a company’s – long-term image and prospects. Without adequate legal and supply chain protection, companies will be less willing to expend the billions in R&D costs that it takes to bring a major new drug to the marketplace.

Analysis

For all the discussions as to the ROI of RFID in the pharmaceutical market, decision makers must be cognizant of the real and rising threat to both human and corporate health that counterfeit pharmaceuticals represent. RFID is thus the best answer to ensuring product authenticity in the global pharmaceutical supply chain, and it is simply a matter of time before the new level of product security will be mandated in the marketplace – whether the “tipping point” comes from pressure from government mandates, from consumer demands for product safety assurance, or from rising industry trade partner requirements for standards and safeguards.    

In this case, this is a matter of life and death, both for all of us who take prescriptions and the giant firms that sell them, that RFID be used to its fullest capabilities in this vital application.

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

David C. Wyld(dwyld@selu.edu) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/.