Now You See It, Now You Don't

The pharmaceutical industry operates one of the world's most complex and opaque supply chains. The industry is heavily regulated, but the rules vary from country to country, as do the prices, generating a web of legitimate, quasi-legitimate and illegitimate trade. Although there are three main drug wholesalers in the United States — Cardinal Health, McKesson and AmerisourceBergen, which collectively control 90 percent of the prescription drug business — hundreds of smaller, secondary wholesalers also buy and sell excess inventory from the large wholesalers. A prescription drug commonly moves from manufacturer to several distributors and even "repackagers" before it lands at a pharmacy. Many of these small wholesalers are legitimate businesses that can help the supply chain run smoothly by efficiently finding buyers for prescription drugs. But they also add an extra layer that reduces visibility and creates opportunities for counterfeit drugs (including products with the wrong active ingredient or fake packaging) to enter the distribution network.

Each year, thousands of people around the world die from taking counterfeit medication, much of which has been produced in squalid conditions. And developed countries are not immune. In 2003, 18 million tablets of the cholesterol-lowering drug Lipitor, the world's best-selling prescription drug in 2004, were recalled by Pfizer in the United States after fake pills were found in pharmacies. In 2004, fake Cialis, an erectile dysfunction drug, was found in the United Kingdom supply chain; and in 2006 120,000 packets of Lipitor were recalled in the United Kingdom after 73 counterfeit packets were found.

To prevent such abuses, US federal and state law enforcement are devoting more resources to investigating criminal networks and enforcing anticounterfeit laws. At the same time, the states of Florida and California have taken the lead in passing legislation that will push the industry to come up with a way to authenticate their products. Florida's law, effective in July 2006 (although notably revised), requires drug wholesalers to provide a paper "pedigree", or record of where drugs originated from. California's law, which was set to take effect in January this year and then delayed until 2009, will require an electronic pedigree or serial number for all prescription drugs sold in the state. Initially, drug wholesalers will be responsible for creating the pedigree, whether it is paper or electronic, although manufacturers will need to comply in the future as well. Some are sceptical that the industry will be able to meet these mandates, given the current state of technology adoption. "We move so many products that it is a challenge to do what Florida is requiring," says Ron Bone, senior vice president for distribution support at McKesson. Bone, however, says his company already won't buy drugs without a pedigree when purchasing them from an "alternate source" or secondary wholesaler.

Different Ways to Track and Trace

Drug companies are working on an array of techniques to prevent counterfeit and mispriced drugs from slipping into the supply chain. Many are experimenting with holograms, colour-shifting inks and watermarks that can help them authenticate the package and actual pills. Genzyme, which does the bulk of its business making specialty drugs to treat genetic diseases, is looking at using inks or dyes and is already using tamper-resistant packaging tape on some of its products. Genzyme is beginning to see some counterfeiting and price manipulation of its drugs to treat kidney disease and arthritis, says Jim Shuman, Genzyme's VP for materials management. For instance, wholesalers will sometimes buy drugs in one country where the government has negotiated a certain rate from pharmaceutical companies and then export the drugs to another country, where they can sell them at a higher price. "We now have products showing up in countries where they have never been sold," Shuman adds.

To better track its drugs around the world, Genzyme is testing a Web-based system, working with United Parcel Service (UPS) in Europe, to follow products distributed from its facilities in the United Kingdom and Ireland. Those at Genzyme who order the drug can visit the website to track a product delivery and follow the process using a traffic light system. If they see a green code, they know the delivery is on schedule, while yellow indicates a delay and red signals a problem. Shuman says that Genzyme is considering expanding the Web-based system with UPS to include more geographic areas.

Other pharmaceutical companies are working to create electronic pedigrees for their drugs through track and trace technologies such as bar coding or RFID. Bar-coding technology, which has matured over the past 20 years, is cheaper to implement than RFID, but it can be more expensive to maintain because it requires someone to read the package at each stage of the supply chain. Passive RFID tags, on the other hand, can be read automatically as unopened boxes pass by electronic readers in a warehouse. Paul Chang, associate partner at IBM Business Consulting Services, says that companies will be able to comply with the new state pedigree legislation using bar codes as well as RFID to authenticate their products. He predicts that these two technologies will coexist for years to come.

Pfizer and Purdue are ahead of the pack with RFID tagging pilots, if only because these companies produce Viagra and Oxycontin respectively — two drugs that have been more vulnerable to theft and counterfeit because of their popularity. These companies are trying out RFID because paper pedigrees are expensive to produce and can be forged and lost. "RFID is interesting because it's not just a bar code replacement", says MIT's Engels. "You can put sensors on it or log the product's temperature history and create a database on the products." Knowing the temperature is important because some drugs need a certain amount of refrigeration in order to remain active.