Described by experts as one of the most insidious organized crimes as well as one of the most difficult to track, pharmaceutical counterfeiting is a $75 billion industry that is notoriously low-risk and high-reward. Counterfeit medications make up an estimated 10 percent of pharmaceuticals globally, and as much as 25 percent in developing countries.
The World Health Organization (WHO) defines a counterfeit pharmaceutical as a drug that is deliberately and fraudulently mislabeled with respect to identity or source. This means that counterfeits can range from changing the expiration date on a drug’s packaging to altering the raw materials to removing the active ingredients in a medication. The WHO says the extent of the problem is hard to determine since there are no global studies on counterfeit medications, and tracking the drugs from creation to distribution and beyond can be unreliable.
In November 2013, the U.S. Drug Supply Chain Security Act was signed into law. In an effort to better track pharmaceuticals and share counterfeit information between organizations, the law requires the Food and Drug Administration (FDA) to issue guidance for how pharmaceutical companies should report suspected counterfeits to the government. The law was implemented at the beginning of this year, but Thomas Kubic, president and CEO of the Pharmaceutical Security Institute (PSI), says the reporting requirements are still hazy, and pharmaceutical manufacturing companies are unsure how to comply with the law. He calls the act “a work in progress.”
But a work in progress is better than nothing, he notes. Although pharmaceutical counterfeiting is becoming more sophisticated and more prevalent, according to the PSI’s numbers, there is a more widespread awareness of the problem, and both developing and Western countries are passing legislation addressing the issue as well as implementing harsher penalties for criminals.
Tackling pharmaceutical counterfeiting will take a combination of legislation, federal and state enforcement action, industry and association collaboration, and tracking technology, Kubic explains. “From manufacturer to distribution to the pharmacy there’s a need for folks to be tuned in to what’s going on,” he tells Security Management.
Following is a discussion of how pharmaceutical counterfeiting has evolved over the past few years and what lawmakers and security experts are doing to combat the threat.
A Global Problem
The counterfeit pharmaceutical industry is attractive to criminals, especially organized crime groups. Criminals can charge near-market prices for big-ticket medicines they’ve counterfeited, which makes it easy to mass produce knockoffs for big profits. India is home to 15,000 known illicit drug factories, which supply approximately 75 percent of the world’s counterfeit drugs, according to the National Crime Prevention Council.
Medical information services manager and researcher Doug Taylor tells Security Management that the return on counterfeit drugs is 20 times better than heroin.
“If you’re going to be in the drug industry, you should probably be in the counterfeit drug business if you want to make some real money,” he says.
Taylor, whose report RFID in the Pharmaceutical Industry: Addressing Counterfeits with Technology was published in November 2014, notes that many countries have weak regulations and oversight when it comes to pharmaceuticals, which makes it easy for criminals to take advantage of the system.
Vulnerabilities. Following is a look at how counterfeit drug schemes are carried out, why counterfeiting is on the rise, and which victims are hardest hit. Here’s how a drug is created, packaged, and distributed: The chemical compounds that make up the active ingredients of a drug are generally made in India or China due to the low price of raw materials in those regions. The raw materials are made into their formulations—capsules, injectables, creams—either in the country of origin or in the United States or Europe. The drugs are shipped in large quantities to packaging facilities, where they are prepared for distribution. Some pharmaceutical companies handle their own distribution, Taylor explains, while many drugs are distributed to stores and pharmacies via third party organizations. This process can take up to 300 days and involves many countries.
Taylor says that the pharmaceutical supply chain allows plenty of opportunities for counterfeit materials to enter the main distribution network.
“Contaminated raw materials can be making their way back into the American supply chain, and there’s very little oversight,” Taylor explains. “So it’s easy for adulterated materials to slip in the supply chain of American or European drugs.”
Another vulnerable area in the supply chain is the distribution process. Taylor says connected criminals can deposit convincing dupes to be combined with a supply of legitimate drugs.
“It’s really difficult to tell them apart once they move through the distribution chain because the lots will be so mixed that on the shelf one can be completely legitimate and one can be completely fake,” he says.
Kubic notes that pharmaceutical theft often precedes counterfeits, as criminals can relabel stolen medications or create dupes to mix in with the stolen drugs and sell them together.
Knockoff drugs don’t have to enter the legitimate supply chain to be disseminated. Internet and mail-order markets, street vendors, and other backdoor methods allow criminals to distribute dupes straight to the consumers. This is especially rampant in developing regions where medication is typically expensive or hard to acquire.
Steve Chupa, CPP, a global security director for a major manufacturer, says that consumer goods, such as lotions, creams, and oils, are popular counterfeit items because they’re easy to make and are often sold by street vendors or other illegitimate suppliers. These products are also less regulated because knockoffs are less damaging than pills or injectables.
“The outcome, if it’s detrimental, is getting red skin,” Chupa says. “They’re not going to kill you.”
Trends. The PSI is a nonprofit organization made up of 28 research-based pharmaceutical manufacturing companies from around the world. The organization conducts research and works with law enforcement agencies, drug regulatory authorities, and customs officers to try to better understand counterfeiting trends.
In 2013, there were more than 11,000 reported incidents of counterfeit pharmaceutical activity globally, according to PSI. That’s an 8 percent jump from 2012, and PSI’s Kubic explains that may be due to increased reporting and enforcement efforts.
There were 317 different types of counterfeit medications discovered in 2013, down from 523 the year prior. “That tells us that to a certain extent the traffickers have shifted their product mix and are looking at more specific medicines in particular categories than they had before,” Kubic explains.
PSI looks at two sources where counterfeit drugs are prevalent: in stores and pharmacies, and through internet orders or other informal markets. Kubic says he’s seen an increase in the number of counterfeits found on the shelves of pharmacies, which means criminals are targeting clinics and medical offices with higher-priced medications. That’s supported by the fact that more than a quarter of all counterfeit drugs found in the legitimate supply chain were injectables, which tend to cost more.
Specifically, criminals have increasingly focused on distributing metabolic medication, such as insulin and other anti-diabetic medications, as well as cancer treatment drugs and anti-infectives, like malarial pills, according to the PSI.
“We saw a shift in trafficker patterns from Internet sales to you and me through spam and e-mails—a shift where the individual counterfeiters and operators were moving toward direct efforts to sell to clinics, doctors, and independent oncology practices here in the U.S.,” Kubic explains.
Impact. In 2013, Asia and Europe were the top two regions most frequently linked to pharmaceutical crime. However, the PSI, the WHO, and other organizations agree that the percentage of fake drugs is probably much higher in developing countries due to a lack of oversight and reporting.
“It’s a big problem in the developing world,” Taylor says. “If antimalarials are fake and being distributed to children in West Africa that really need them, that’s a public health crisis.” A report by Malaria Journal states that fake antimalarials contribute to nearly 450,000 preventable deaths every year in Africa alone.
Chupa says that Africa is the largest consumer of counterfeit goods, and China has been considered the counterfeiting capital of the world. That’s changing, though, as Chinese citizens become more financially successful and demand the real product.
In places like India, where consumers often have to purchase their own medical supplies before having an operation, counterfeit products are prevalent. Chupa explains that if a person in India is going to have surgery, they receive a list of products to bring with them. They go to a medical supply stores, “which look like hot dog stands in some instances,” he notes, and buy whatever is available.
“The vendors will say, ‘well, I have this suture, it’ll cost you this much, or this one, which is a lot cheaper.’ And that cheaper one may be a counterfeit. It’s totally up to the consumer,” Chupa explains.
The developed world isn’t immune to counterfeits, either. Kubic says that when it comes to chronic conditions, it’s hard to tell if a counterfeit medication is in play.
“If the doctor sees your cholesterol levels are elevated and the medicines don’t seem to be working, they can switch medications and if you’re smart enough, you go to the corner drug store rather than the Internet, and all of a sudden you’re better,” he explains. However, for diseases such as cancer, counterfeit medications can not only prohibit recovery but even worsen the condition.
“You rarely see criminals who have less of an interest in the impact of their illegal operations and illegal activity,” Kubic says. “Most of the counterfeit medicines don’t kill you right away. It’s much more insidious. You basically don’t get better.”
Despite the prevalence of counterfeit medications in some parts of the world, Kubic has a positive outlook on the steps being taken globally to combat the problem. The U.S. Drug Supply Chain Security Act, for example, requires pharmaceutical firms to add serial numbers to all packages over the next few years, which should aid in tracking drugs through the supply chain.
Similar legislation and regulation is being applied globally, especially in the countries that need it most: Brazil and Peru have passed track-and-trace legislation; Kenya and Russia have approved harsher penalties for counterfeiters; and countries like Ecuador are giving more funding to anticounterfeiting programs.
Nonprofits are also taking a more active role. PSI reported that the number of pharmaceutical crime incidents in Africa has jumped by 260 percent thanks to significant reporting efforts by NGOs in the region. Kubic explains that more accurate numbers and increased awareness have spurred many pharmaceutical manufacturers to join international associations and federations, which support educational anticounterfeiting campaigns.
Taylor advocates for a technological solution. His report goes a step further and recommends that pharmaceuticals be tracked with RFID technology, intelligent barcodes that are tracked by a network system. Currently, most medications are scanned via line-of-sight barcodes, which are relatively easy to alter, Taylor says.
RFID technology, on the other hand, uses radio waves to transmit information between a tag affixed to the medication packaging, a reader, and a computer. The data shared between tag and reader is comprehensive, allowing the computer to identify which lots are present and where they have been scanned previously, according to the report.
Taylor acknowledges that the solution isn’t cheap, but he recommends pharmaceutical companies implement RFID technology as early in the supply chain as possible—ideally, by using providers in China or India that have invested in the products. “This will streamline the manufacturing process, enhance transparency in the supply chain, and collect auditable data before the medicines are created,” the report states.
Product branding can also alert investigators to potential counterfeits. Chupa says that brand protection teams work with engineers to create covert markers on the packaging—either electronic or visible identifiers that will help manufacturers determine whether the packaging is authentic.
Kubic acknowledges technological and legislative advances in the field are important, but stopping the illegitimate medication before it enters the supply chain is paramount.
“All of those are pieces of the solution to the extent that you can track-and-trace medicines through the supply chain, and that’s good, but if some doctor orders from an advertisement and he has not vetted who the supplier is, all of those numbers don’t mean much. My view is that while those are elements of the solution, you really need a good enforcement effort.”
Here’s an example: A small oncology practice with one or two doctors buys $5 to $10 million in medicines over the course of a year. The doctor gets a fax offering those same medications for a discount of 40 percent—that’s a savings of $2 million. The doctor contacts the company, which ostensibly looks like a legitimate supplier, and orders the drugs. But when the medications arrive, the packaging is in Turkish. Most doctors will just assume it’s the same medication with international packaging, and distribute it to their patients.
“My remedy includes a good enforcement effort at the city, county, state, and federal level,” Kubic says. “We think that’s going to be propagated in other countries where they’re source countries for some of the counterfeit medicines.”
This has already begun to play out in countries like China, India, and Pakistan. Kubic says he knows the prevalence of major operators from those countries because the governments have been aggressively addressing the issue and working with PSI to conduct seizures and make arrests. Last year, 1,460 people were arrested worldwide for their involvement with counterfeit pharmaceuticals, an 18 percent increase from the previous year, according to PSI.