UN

INTE

ROPE

RABI

LITY Counterfeiting and Piracy

of Pharmaceuticals

Estimates on counterfeit trade exceed US$200 billion,and inspections across the world cost billions, yet onlya very few shipments are actually inspected. This issuehas particularly impacted the vital life sciences supply

chain. This article discusses what solutions are at hand toreduce illicit trade and ensure a safe and secure supply ofpharmaceuticals.

The past decade has seen an increase in the level of global tradeand, along with it, the unintended consequences of seeking cheaplabor sources and new emerging markets. Even with heightenedpublic awareness, illicit trade has actually been increasing, result-ing in grave consequences to the society and business from bothphysical and cybercrime. In 2006, according to the EuropeanUnion (EU), more than 1.6 million counterfeit cosmetics andpersonal care products and 1.2 million foodstuff and beverageproducts were seized at the EU external border, out of a total130 million fake objects. In addition, 2.7 million counterfeit medi-cal products were stopped at the border. Fake medicines are reck-oned to account for almost 10% of world trade in medicines.

The problem of counterfeit goods is pervasive as demon-strated by more recent headlines such as the following:� Recall of defibrillators with 24,000 heart patients

affected� Toy recalls with over 4,000,000 units sold by various

firms having lead contaminants and a price per unit ofUS$5–40

� Heparin contamination reportedly led to 81 deaths, 400injured

� Food recalls and disease from seafood, eggs, chicken,and spinach, to cosmetics with contamination from ani-mal by-products numbered in the millions

� Customs activity has never been as high as in 2006 withmore than 36,000 seizure actions, an increase of around40% compared with 2005. The number of objects seizedalso increased from 75 million to 130 million [1]

� National figures on fake drugs in China are unavailable,but according to a 2006 report released by London-basedInternational Policy Network, between 200,000 to300,000 people in China die from counterfeit or substan-dard medicine in China each year [2]

� And of course the recent headline on CNN ‘‘My hus-band died from on-line drug.’’

What Are the Dangers, Impacts, Costs,and Solutions to These Issues?Estimates on counterfeit trade (excluding the domestic counter-feiting) exceed US$200 billion. In a recent testimony in front ofthe U.S. Congress, the Food and Drug Administration (FDA)estimated that it would cost the U.S. taxpayer an additionalUS$225 billion to inspect all pharmaceutical plants worldwide.The supply chains of the 21st century represent both the source(and potential solution) for many of the risks and concerns thataccompany the global economy. Extended networks of interre-lated trading partners contribute, inadvertently or sometimesdeliberately, to the increasing elements of risk: to our society,the products we use, and the infrastructures we rely on, affect-ing our safety and security that cost untold billions to our econ-omy each year. Our so-called global trading partners, in manycases, are introducing bio and cyber germs, if you will, into ourproducts and systems. It is not just the product, but, accordingto the Philippine Legal, Information, and Compliance Division,there is also deliberate and fraudulent mislabeling of the prod-ucts with respect to identity and/or source or with fake packag-ing, which is applied to both branded and generic products [3].

This article explores some of the issues associated withend-to-end supply chains today, inherent risks, as well as somenew approaches and solutions to address these problems.

What Has Changed the Status Quo?In the past decade, there has been an increase in the level ofcrimes, counterfeits, and piracy, leading to product integrityissues and faulty and risky products delivered from low-costcountry sources and trading partners. The critical necessity ofunderstanding each of the processes and players and ensuringuniversal compliance with quality, security, and product pro-tection standards is daunting and not likely to be embraced byour newer trading partners for decades. The Pandora’s Box ofopen trade in many cases encourages predatory behavior, withillicit trade networks acting as a conduit for diverted andcounterfeit products as well as trafficking in human beings.Sadly, both criminals and terrorists have become global mas-ters of supply chain management and have leveraged both

BY ANN GRACKIN

© DIGITAL STOCK

Digital Object Identifier 10.1109/MEMB.2008.929891

Reducing Risk in Global Supply Chains

66 IEEE ENGINEERING IN MEDICINE AND BIOLOGY MAGAZINE 0739-5175/08/$25.00©2008IEEE NOVEMBER/DECEMBER 2008

information technology and logistics networks to manageglobal crime networks.

This affects most industries. The U.S. government is more con-cerned about the infrastructure, but citizens are most concernedabout the human impacts: disease and death due to the importa-tion of a virus, counterfeits, ortainted foods and pharmaceuti-cals and containment of theresulting human health crises.

Hence, let us look at the lifesciences industry, a critical in-dustry that consumers careabout, which is also fundamentalto our safe and secure society.

Although the global phe-nomenon of outsourcing hasopened new markets as wellas reduced the cost of manu-facturing, it can have less thanbeneficial consequences forthe life sciences industry.Products that were once theend product of a single-loca-tion manufacturing facilityare now processed, packaged,and distributed in a series ofdisparate and geographicallydispersed locations. In particular, the manufacture of end-of-patent or generic substitutes is increasingly taking place in far-flung locations such as South East Asia, India, China, EasternEurope, and Latin America.

In India alone, a variety of drug categories has increased thegrowth of the pharmaceutical industry between 11% and 30%,with many products exported (Figure 1). Not that any nationshould be denied the right to manufacture, but outsourcingdoes open the possibility for alien ingredients, with no realoversight, to enter our markets.

Almost daily, headlines reflect the contamination threat we facefrom the substitution of alternative ingredients. The final productis sold on the Internet or through legitimate channels, making itsway to the supply chain’s last inch, the patient’s bedside.

A parallel threat, and one that is not universally recognizedas such, is the potential contamination of the data being cap-tured to protect this critical supply chain. Like the threat of aglobal pandemic, the introduction of digital germ fare into thestream of commerce is one that should not be ignored. Datacorruption, data deletion, and other acts of digital sabotageshould be seriously considered as an equal threat because sto-len formulas, customer lists, logistics strategies, etc. enablethese criminal networks to succeed at counterfeiting andpiracy. In a recent Interpol investigation, fake holograms,

batch numbers, etc. were found to be used to attempt to intro-duce counterfeits into the global market (Figure 2).

In this short article, although we do not diagnose all the factorsor recommend all the solutions, we discuss some economicallyand technically feasible approaches to solving these problems.

Indian Pharmaceutical Industry: Production

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Fig. 1. Increase in sales and production in the Indian pharmaceutical industry.

Valid Batch

Numbers, Stickers,

Multiple Wrong

APIs, Calcite

Invalid batch numbers, holograms, subtherapeuticartesunate

Invalid Batch Numbers, Holograms, SubtherapeuticArtesunate

Fig. 2. Map showing drug counterfeiting in South East Asia.(Source: Operation Jupiter—Interpol Presentation at theIMPACT, Jakarta, November 2007.)

Consumers need to get in control and push

their legislators for a change in attitude.

IEEE ENGINEERING IN MEDICINE AND BIOLOGY MAGAZINE NOVEMBER/DECEMBER 2008 67

Solutions at HandSolutions are at multiple levels of the life sciences value chain:government, industry, supply chain network partners, andenterprise. Each has a role to play. And solutions come frompolicy, process, and technology levels.

Information TechnologyThe good news is that information technology has kept pacewith the changing face of global supply chains and beyond. Acombination of wired and wireless technologies providesinformation about locations, state, condition, or quality, andcustodianship as products move through the processes relatedto production, storage, and distribution. As these processes areenhanced by smart devices such as sensors, mass serializationdevices, and radio frequency identification (RFID), it is nowpossible to create a digital audit trail via sensory networks thatrecords the digital DNA throughout the product life cycles.

For example, in response to the increasing challenge ofensuring the safety and security of the pharmaceutical chain ofcustody, the FDA and state-level authorities are introducingmeasures and controls to track, trace, and monitor the move-ment of a product through its life cycle, from manufacturingthrough dispensing. Recent legislation in California requiresthat pharmaceuticals sold there include an electronic pedigreeand incorporate a combination of digital signatures, mass seri-alization, and shared networks for authentication and control.In the EU, food traceability regulations have enabled the crea-tion of commercial off-the-shelf software backbones for track-ing and tracing the products from farm to fork.

Business Process and Sourcing StrategiesWhen designing supply chains, care should be taken to designtransparent and controllable processes, contracts, etc. Mostfirms design these chains based on a cost model, the price ofthe commodity, or a total landed cost, rather than looking at arisk-adjusted cost. This can include quality issues, price varia-bility, as well as the cost of increased risk management, whichshows up in the overall cost of a firm but is not allocated to thespecific causes such as reputation, brand, disruption, andproduct liabilities, which we call a total sourcing model.

Detection and Business ResponseAvoidance is the first order of planning. Risk assessment, as anongoing part of the business, should be in place with a relevantand business value-oriented compliance program. Many compli-ance programs become mired in bureaucracy with little relevancyto the changing business needs. These should be tested with suppli-ers to ensure that they genuinely address these issues and that theyare usable. Many firms have manuals for testing compliance butnot for testing value. Detection techniques need to be put in placeacross the whole supply chain from the source of raw materials, to

manufacturing, logistics and border crossing, laboratories, and theprovider network: doctors, clinics, pharmacies, and hospitals.

Legislation and Trade AgreementsIn the United States, we seem to have a notion that legislatingbusiness activity leads to a decline in our economy. However,the life sciences industry seems to be more prosperous thanothers during the current economic downturn and seems tohave no connection. Yet, the cost of remediation when our pub-lic safety is affected, a burden taken by our whole society, ishuge. (At the time this article was written, the FDA wasrequesting more funding for food inspections activities, andthe U.S. Congress was contemplating the FDA Food and DrugGlobalization Act of 2008, which would require registration,inspection, and certification of food facilities.)

The EU can serve as a model for the United States. Its approachto food and pharmaceutical safety is extensive and global, not justthe infrastructure and customs at the end of the problem but end-to-end from farm to fork. For example, the EU’s food safety pro-gram, the General Food Law, is an umbrella program of inter-locking regulation and funding. The EU got rid of a U.S.-likefarm-subsidy-type model (their Common Agriculture Policy) andis using these same funds to encourage better and safer farmingtechniques; they have food traceability laws and created a Euro-wide administration (European Food Safety Authority), fundingfor better detection of tainted food and pharmaceutical prod-ucts as well as rapidly alerting the public of problems.

In addition to the legislative policy and technology, there is aneed to create both industry- and enterprise-wide cross-functionalteams of stakeholders across their extended supply environment,while ensuring methods and processes that work for the industry,which also add economic value to the participant enterprises.Several activities contemplated are as follows:� Anti-Counterfeiting Trade Agreement (ACTA), an interna-

tional agreement being contemplated on intellectual prop-erty, would cover information technology and patented-type products

� World Health Organization (WHO) International MedicalProducts AntiCounterfeiting Task Force (IMPACT) providesrecommendations on internal cooperation and education

� key nations have passed more stringent legislation suchas China’s State Council special regulation, whichstrengthens food and drug security surveillance, passedin July 2007.

Although the source nations where the highest sourcing ofcounterfeits comes from have created their own version of theFDA, we have to realize that these are new and are obviouslyunderfunded (as also the United States).

Any solution, however, will require a worldwide fundingand cooperation to create legislation and information technol-ogy techniques.

In the EU, food traceability regulations have

enabled the creation of commercial

off-the-shelf software backbones for tracking

and tracing the products from farm to fork.

IEEE ENGINEERING IN MEDICINE AND BIOLOGY MAGAZINE NOVEMBER/DECEMBER 200868

Obstacles RemainAll this said, there are some major obstacles to business andgovernment addressing these needs. First, the economicinvestments in the process (inspection process and implemen-tation of the process and systems) and personnel seem signifi-cant. Our findings are that many of these solutions have otherbusiness values that can be gained, but sincere efforts must bemade to learn and delve deep enough to use these to addressimproved business performance and not just compliance.And, that is the rub—the commitment to learn is limited—especially as attention units are focused on the bottom-linechallenges facing business.

U.S. government policies play an important role. Althoughthere have been some efforts and some research has been doneon addressing traceability, tracking, and other types of solu-tions to these problems, not enough has been done for legisla-tors and administrators to understand what solutions can do,what the limitations are, and how government can be aninvestment partner in taking solutions to the next level. Gener-ally, the problem is looked at nationally or in isolation, such asfood safety by one department, port safety by another. In aglobal-supply-chain-driven world, we have virtually no bor-ders when it comes to traded goods (imports). Hence, we haveto reach out for international solutions and cooperation withother governments.

International trade agreements are very nuanced. Deals areoften struck at G8 or WTO-type meetings among the wealthiernations without dealing with the causes from the sources,despite the rising net worth of the middle class around theworld, and in a world where we still have more than 1 billionpeople in the world living on about US$1 a day. This exploit-able element of society is being preyed upon by more criminalelements who can manage the illicit global supply chain.

A gnawing question also looms: who is watching the watch-ers? At a recent WHO IMPACT meeting in Jakarta in 2007,several international speakers as well as Interpol revealed thatinspectors and lab testers falsify information, allowing seizedor inspected tainted drugs to continue on their journey into theworld’s drug supply. There are laws and retribution for gov-ernment inspectors who take bribes, but in the case of heparin,there were FDA inspections but not through the multitier sup-ply chain. What legislation addresses laxness?

In Washington, the competing agendas from various powergroups, some well-intended, some uninformed, stymie thekind of dialog on policy versus limits of the governments’ rolein solving these problems.

ConclusionsTogether with the harmonization of products and services tocater to a heterogeneous economy, it is now necessary toembrace the principles of global social responsibility.

Responsibility means to create a unified approach to protec-tion. Clearly, consumers need to get in control and push theirlegislators for a change in attitude. To consider the protectionof the environment, societies, nations, and individual consum-ers, we need a deeper focus, beyond internal processes andoperational activities, taking into account a global cooperationand supply chain perspective.

Ann Grackin is the founder and CEO ofChainLink Research and editor-in-chief ofParallax View, an online magazine forglobal business professionals. She is arespected speaker and writer in supplychain management. Previously, she ledMarsh’s Supply Chain Risk IntelligenceService, where her team focused on globalsupply chain risks.

Address for Correspondence: Ann Grackin, ChainLinkResearch, 99 Park Street, Newton, MA 02458 USA. E-mail:agrackin@clresearch.com.

References[1] European Commission.[2] Chemistry World, June 2007.[3] Special Law on Counterfeit Drugs, Republic of the Philippines Bureau ofFood and Drugs, R.A. No. 8203.[4] A. Grackin. (2007, Oct.). Managing risk is not just childs play, Parallax View[Online]. Available: http://www.chainlinkresearch.com/research/detail.cfm?guid=BB3354F3-3048-785E-316D-E38B93A5ECDE[5] U.S. Consume Safety Commission [Online]. Available: http://www.cpsc.gov[6] ROI Thoughts on Product Integrity [Online]. Available: http://208.106.220.229/research/detail.cfm?guid=BB469B4A-3048-785E-3124-29149E061D62[7] C. Reed. (2006, Dec.). The changing face of the holiday season, ParallaxView [Online]. Available: http://www.chainlinkresearch.com/parallaxview/v2_08/policy1.htm[8] European Union. Information About European Union Trade Policy and Activ-ities [Online]. Available: http://ec.europa.eu/index_en.htm[9] K. Cahill and A. Schoem, New European Union Product Recall Rules,Product Safety and Liability Reporter, BNA, Inc. [Online]. Available: http://www.marshriskconsulting.com/Load/article_726955.pdf[10] B. McBeath, Resilient supply chains, the next frontier, Parallax View[Online]. Available: http://www.chainlinkresearch.com/research/detail.cfm?guid=D4076382-8004-6D99-1CA1-58A4B20F5926[11] Maritime Security—The SAFE Port Act and Efforts to Secure Our NationsSeaports—Report by the GAO/Testimony before the Committee on Commerce Sci-ence and Transportation of the US Senate [Online]. Available: http://208.106.220.229/parallax/issues/documents/MARITIMETheSAFEPortActandEffortstoSecureOurNationsSeaports.pdf[12] Class Action Attorneys Are Always a Good Sourcing on Food and ProductSafety [Online]. Available: http://www.audetlaw.com/heparin/indexc.html#a[13] The World Health Organization—IMPACT [Online]. Available: http://www.who.int/impact/resources/en[14] Bad Medicine Blog [Online]. Available: http://www.audetlaw.com/bad-medicine[15] CNN. (2008, Apr. 21). FDA Thinks It Has Trigger in Heparin Deaths[Online]. Available: http://www.cnn.com/2008/HEALTH/04/21/fda.heparin[16] FDA. And Of Course [Online]. Available: http://www.cfsan.fda.gov/�lrd/imports.html[17] CNN. (2008, May 21). Widow: My Husband Died from Online Drug[Online]. Available: http://www.cnn.com/2008/HEALTH/05/21/online.drugs/index.html

Many compliance programs become mired in

bureaucracy with little relevancy to the

changing business needs.

IEEE ENGINEERING IN MEDICINE AND BIOLOGY MAGAZINE NOVEMBER/DECEMBER 2008 69