Pharmaceutical
counterfeiting

AGGREGATION

Aggregation adds codes to the outside of cases and pallets to identify the individual pack–level medications inside. In other words, aggregation builds parent-child relationships from pallet to case to individual pack­–level medications.

Goods serialization makes it possible to follow a product’s journey through the logistics network, enabling tracking and tracing and producing a record of its end-to-end lifecycle (and, indirectly, all its components, raw materials, etc.).

Serialization was introduced by governments (as described below in “Legislative Requirements”) to combat fakes and secure the logistical network, but for disparate reasons it has proved insufficient:

• Consumers deliberately sidestep the legitimate logistical network as reflected in the substantial growth of online pharmacies.
• Serialized barcodes are easy to copy.
• Many countries are not subject to serialization requirements. In fact, the highly regulated countries see only a minor impact of fakes.
• A welter of markets, formats, regulations, and guidelines has made serialization more an exercise in compliance than a real, efficient anti-counterfeiting strategy.
• Serialization systems are not integrated.

The risks of globalization and digitalization

Explosive growth in pharma spending has paralleled the globalization of the drug logistical network, which has introduced new players in diverse international markets, including contract-based suppliers, manufacturers, suppliers of raw materials, and trading partners, resulting in a “diversification” of logistics. Medicines change hands repeatedly and are subject to multiple transactions between production and the patient, with each transaction increasing the risk of sham, substandard goods infiltrating the supply chain. Some medicines enter the largely unregulated “gray market,” populated by secondary wholesalers, traders, and resellers, where the possibility greatly increases of sourcing improperly stored, diverted, contaminated, counterfeit, or falsified medicines.
The globalization of consumer markets, coupled with the rise of e-commerce platforms, has also opened new channels for fake medicines, including purchase and delivery via online “pharmacies” that sell prescription drugs directly to the consumer. The globalization of e-commerce has given rise to a digital gray market completely separate from the legitimate pharma logistical network.

Key players

Supply chains are more and more globally integrated and complex, involving (even if we exclude the early phases of Discovery, Research and Development) a huge number of players:

• suppliers
• manufacturers and contract manufacturers
• regulators (FDA, MHRA, etc.)
• pharmacy benefit managers (PBMs)
• healthcare group purchasing organization (GPOs)
• health insurers
• wholesaler distributors
• integrated Delivery Networks
• hospitals
• retailers/pharmacies
• patients

As a side note, the COVID-19 pandemic represents a black swan event that may force some of the above actors to rethink and transform their logistical network model. The world was taken completely by surprise, and, while the situation is still unfolding, a number of takeaways have already emerged.

Post–Covid 19 lessons learned

• Logistics networks rely excessively on a few sources of distribution, leading to drug shortages; Western countries still lead drug discovery and development but are no longer dominant in drug manufacturing, especially for active pharmaceutical ingredients (APIs).
• The security of logistics has become a matter of national concern; it is crucial to obtain more data on offshore API manufacturers (including volumes and quantities) (FDA, 2019).
• The diversion, theft, and counterfeiting of critical items, such as test kits, vaccines, and antivirals, have greatly increased and will continue to do so. (IDC, 2020).
• A resilient supply chain involves increased complexity, with regulations such as the Drug Supply Chain Security Act (DSCSA) adding red tape to how pharmas work with partners, distributors, and logistics providers. Resilience is required to meet track-and-trace, monitoring, and licensing requirements. Thus, big pharmas must fully digitize every part of their logistical network operations.
• End-to-end visibility across production and logistics is essential. This includes real-time production monitoring systems and advanced planning and scheduling tools in manufacturing as well as the ability to track and trace drugs—from materials to final item—as they pass through the business logistics pipeline.
• In terms of business agility, the goal is to evolve from reactive distribution to patient-centric demand. A logistical network that is purely reactive and reliant on inventory buffers performs poorly overall while visibility and agility allow pharmas to be proactively driven by demand and centered on patients. Wholesalers and third parties are the most concerned about the lack of business logistics management and drug provenance certainty, leading to counterfeit, diversion, and theft. (IDC, 2020).

The solutions to the above-listed supply chain challenges can be found among the new trends in how supply chains are orchestrated.

New trends

(Deloitte LLP, 2017, David Alvaro, 2020)

Most pharmas currently manufacture and distribute their own goods, but this reduces asset utilization rates and drives up logistics costs. Conversely, sharing manufacturing and logistics resources would be much more economical. One of the latest evolutions in business logistics management is the transformation of logistics from third-party logistics (3PL) to fourth-party logistics (4PL). The latter are strategic service providers (a.k.a. lead logistics partners, or LLPs) that manage warehousing, inventory, fulfillment, transportation, and logistics on behalf of their clients, often managing the entire logistical network from the production line to the point of final distribution.

Other recent initiatives include the sharing of supplier data among big players, such as GSK, Takeda, Teva, Boehringer Ingelheim, and Amgen, for sustainability purposes (although such information was once considered strategic and proprietary) (cf. the Responsible Health Initiative EcoVadis Team, 2020).

The optimization of logistics was one of the main drivers of last year’s megamergers and acquisitions, and blockchain technology offers promise for securing and increasing the overall visibility of the whole logistical network. There are many ongoing initiatives, including:

• the PharmaLedger project
• the MediLedger Network

For biopharma, the importance of logistics integrity goes beyond addressing counterfeit items, as key drug types need a chain of identity and a chain of custody, particularly in personalized medicines and gene therapies. To tackle this challenge, biopharma companies are investing in a combination of advanced innovations, such as blockchain and AI, to ensure the integrity of end-to-end business logistics management (Deloitte LLC, 2020; IDC, 2020).

THE SCOURGE OF COUNTERFEITS

Counterfeit pharmaceuticals are increasingly prevalent and profitable. Counterfeiters can produce spurious versions of all types of medicines, and these drugs may contain no active ingredient, harmful ingredients, the wrong drug, the wrong concentration, the wrong dose, or drugs past their expiry dates. All of these put patients at risk for treatment failure, harmful side effects, and dangerous drug interactions.

If the counterfeit pharma industry is worth as much as $200 billion annually, the illicit drug trade far exceeds that value. The successful marketing of counterfeits requires counterfeiters to penetrate logistics chains that, for the most part, are closely monitored by producers and regulators. While the wholesalers that are responsible for distributing most pharma medications are secure, thousands of second-tier distributors are more vulnerable to penetration by counterfeiters. Counterfeiters’ ability to package fake drugs in a way that mirrors genuine medications is crucial to their success as is their ability to make the items resemble the originals. Free trade zones have facilitated trade in counterfeit pharmaceuticals.

The challenges are particularly great in developing countries, where informal distribution is more widespread and less secure, but they have grown in almost all countries with the emergence of rogue online pharmacies. Unfortunately, despite the potential negative consequences, consumers have demonstrated a willingness to take risks by buying drugs online.

SHORT- AND LONG-TERM NEGATIVE CONSEQUENCES OF COUNTERFEITING

Counterfeiting is sufficiently prevalent throughout history that it has been called “the world’s second-oldest profession.”

Counterfeit production has significant social and economic consequences. Most importantly, patients may not get safe or effective products and, consequently, may face significant risk. On the economic side, legitimate manufacturers of pharma goods suffer from patent and copyright infringement when counterfeiters, in reality, “hijack” the brand. Governments are affected through loss of tax revenue and the undermining of national healthcare systems. Considerable resources are required to combat the production of bogus medications. In addition, health insurers are defrauded and compromised.

Counterfeit medicines are unlicensed and thus, unlike genuine medicines, are not regulated or inspected. These drugs are often made in unhygienic conditions and without the rigorous testing and standards to which regulated medicines must adhere.

The World Health Organization has analyzed the socioeconomic, economic, and health impacts of substandard and falsified medical goods (WHO, 2018) as described below.

Socioeconomic impact

• costs in lost productivity to patients and households when they seek additional medical care
• lost income due to prolonged illness or death
• lack of social mobility and increased poverty

Economic impact

• economic losses for patients, families, health systems, and pharma companies
• waste of human effort and financial outlay across the health system
• increased out-of-pocket spending

Public health impact

• increased mortality and morbidity (adverse effects)
• progression of antimicrobial resistance
• higher disease prevalence
• loss of public confidence in medication and health systems