Executive Briefings

Counterfeiting in the Pharmaceutical Industry: Ten Pieces of Advice

The production and sale of counterfeit drugs is much more attractive than that of many other products for a variety of reasons: costs can be considerably reduced if cheaper substances, often not even pharmacologically active, are used; no large facilities or sophisticated plants are required as manufacturing can take place in a back yard; cheap or slave labor can be employed; and producers do not have to engage in complex R&D. What makes counterfeit drugs most attractive and keeps gross margins up is the ample and elastic market they enjoy.

This market takes different forms around the world, but is always there. According to the World Health Organization, "in wealthier countries, the most frequently counterfeited medicines recently have been cholesterol lowering medicines, drugs used for treatment of growth hormone deficiency and for cancer. In developing countries the most counterfeited medicines are those used to treat life-threatening conditions such as malaria, tuberculosis and HIV/AIDS... However, there are variations that encourage specific types of counterfeit medicine, depending on the geography, climate and seasonality inherent to each country." 

Intellectual property fraud against pharmaceutical companies not only results in lost market share, but strongly impacts public health and the brands of targeted firms. The following ten pieces of advice distill lessons Kroll has learned in helping clients minimize losses from this fraud.

1. Apply good manufacturing practices rigorously: Security standards along each step of the manufacturing chain must be strictly enforced. Periodic reviews, sample testing, simple policies such as "clean desks", familiarity with business partners, strict inventory controls, and formal logistics processes all help reduce potential losses.

2. Use distinctive packaging: Although counterfeiters will seek ways to copy drug packaging, mechanisms to differentiate products and security items - hologram seals, embossing, security codes, self-destructing seals, scrape-off inks, and different tagging and tracking systems - make it much more difficult for them.

3. Report instances of counterfeit drugs: A database created by the whole industry will enable mapping of the appearance of such drugs and help investigative agencies to identify counterfeiters. Because many of the substances used to manufacture these products are imported, the industry must extend its efforts globally, beyond the country where the drugs are made or sold.

4. Control invoices: There are cases where manufacturer invoices are also faked, adding credibility to the counterfeit drugs and making the job of law enforcement agents harder. Controlling the invoice printing process, using specific forms that include security items, and electronic invoicing help inhibit such practices.

5. Monitor product and scrap disposal: Drugs are perishable and, as such, the recovery and handling of expired products should be an intensely audited effort. The same is true for products returned for different reasons, even those of quality. Production leftovers and obsolete equipment should be destroyed under the supervision of the management and control group.

6. Make hotline systems a part of consumer services: Putting these two systems together creates a lot of information that investigators can use. Mapping the areas most affected by counterfeiters will only be effective if the information collected is amply disseminated using these channels.

7. Study the enemy: The Internet is an increasingly important mechanism to reach out to consumers. Counterfeiters have known this for a long time. Watching their sales activity through use of a reverse chain can help establish their distribution logistics. Search filters, search engines, specific search clippings, statistical survey modeling, and data mining are effective Internet monitoring tools.

8. Periodically review the processes involved in product creation and development: Project drafts, notes on pieces of paper, formula matrices, as well as photoliths printed without proper control can all be of great value to counterfeiters.

9. Train and retrain: Programs developed by security auditors and managers should be broadly disseminated within the organization and periodically reviewed to inculcate a culture of security.

10. Promote teamwork: When staff from marketing, information technology, sales, legal, finance, operations, and institutional relations get together and share information, coordinated by an integrated intelligence center, success against fraud improves dramatically.

By doing the above, pharmaceutical firms can go a long way to shielding themselves from the threat of counterfeiters, thereby protecting public health and their own intellectual property.

Vander Giordano is a Kroll managing director based in Miami and specializes in business development for Latin America. He is a member of the Brazilian and International Bar Associations. For more information on Kroll, visit http://www.kroll.com/http://www.kroll.com<//a>

The production and sale of counterfeit drugs is much more attractive than that of many other products for a variety of reasons: costs can be considerably reduced if cheaper substances, often not even pharmacologically active, are used; no large facilities or sophisticated plants are required as manufacturing can take place in a back yard; cheap or slave labor can be employed; and producers do not have to engage in complex R&D. What makes counterfeit drugs most attractive and keeps gross margins up is the ample and elastic market they enjoy.

This market takes different forms around the world, but is always there. According to the World Health Organization, "in wealthier countries, the most frequently counterfeited medicines recently have been cholesterol lowering medicines, drugs used for treatment of growth hormone deficiency and for cancer. In developing countries the most counterfeited medicines are those used to treat life-threatening conditions such as malaria, tuberculosis and HIV/AIDS... However, there are variations that encourage specific types of counterfeit medicine, depending on the geography, climate and seasonality inherent to each country." 

Intellectual property fraud against pharmaceutical companies not only results in lost market share, but strongly impacts public health and the brands of targeted firms. The following ten pieces of advice distill lessons Kroll has learned in helping clients minimize losses from this fraud.

1. Apply good manufacturing practices rigorously: Security standards along each step of the manufacturing chain must be strictly enforced. Periodic reviews, sample testing, simple policies such as "clean desks", familiarity with business partners, strict inventory controls, and formal logistics processes all help reduce potential losses.

2. Use distinctive packaging: Although counterfeiters will seek ways to copy drug packaging, mechanisms to differentiate products and security items - hologram seals, embossing, security codes, self-destructing seals, scrape-off inks, and different tagging and tracking systems - make it much more difficult for them.

3. Report instances of counterfeit drugs: A database created by the whole industry will enable mapping of the appearance of such drugs and help investigative agencies to identify counterfeiters. Because many of the substances used to manufacture these products are imported, the industry must extend its efforts globally, beyond the country where the drugs are made or sold.

4. Control invoices: There are cases where manufacturer invoices are also faked, adding credibility to the counterfeit drugs and making the job of law enforcement agents harder. Controlling the invoice printing process, using specific forms that include security items, and electronic invoicing help inhibit such practices.

5. Monitor product and scrap disposal: Drugs are perishable and, as such, the recovery and handling of expired products should be an intensely audited effort. The same is true for products returned for different reasons, even those of quality. Production leftovers and obsolete equipment should be destroyed under the supervision of the management and control group.

6. Make hotline systems a part of consumer services: Putting these two systems together creates a lot of information that investigators can use. Mapping the areas most affected by counterfeiters will only be effective if the information collected is amply disseminated using these channels.

7. Study the enemy: The Internet is an increasingly important mechanism to reach out to consumers. Counterfeiters have known this for a long time. Watching their sales activity through use of a reverse chain can help establish their distribution logistics. Search filters, search engines, specific search clippings, statistical survey modeling, and data mining are effective Internet monitoring tools.

8. Periodically review the processes involved in product creation and development: Project drafts, notes on pieces of paper, formula matrices, as well as photoliths printed without proper control can all be of great value to counterfeiters.

9. Train and retrain: Programs developed by security auditors and managers should be broadly disseminated within the organization and periodically reviewed to inculcate a culture of security.

10. Promote teamwork: When staff from marketing, information technology, sales, legal, finance, operations, and institutional relations get together and share information, coordinated by an integrated intelligence center, success against fraud improves dramatically.

By doing the above, pharmaceutical firms can go a long way to shielding themselves from the threat of counterfeiters, thereby protecting public health and their own intellectual property.

Vander Giordano is a Kroll managing director based in Miami and specializes in business development for Latin America. He is a member of the Brazilian and International Bar Associations. For more information on Kroll, visit http://www.kroll.com/http://www.kroll.com<//a>