Executive Briefings

Pharmaceutical Supply Chains: The Riskiest Business

All supply chains entail a certain degree of risk. But none faces a more daunting challenge than the business of pharmaceuticals.

Pharmaceutical Supply Chains: The Riskiest Business

Pharma supply-chain managers must cope with four distinct threats: Intentional adulteration of product, the theft of popular drugs for illicit or unintended use, counterfeiting of branded items, and diversion to unauthorized markets.

As if that weren’t enough, the industry is grappling with a pair of new regulations that intensify scrutiny of product moving throughout the chain.

By its very nature, pharma is a risky business, says Don Hsieh, director of commercial and industry marketing with Tyco Integrated Security. The sector’s global scope means that ingredients are sourced from locations all over the world. Unique challenges occur at each stage of the process, from sourcing of raw materials to the management of active product ingredients and the manufacture, distribution and sale of finished product.

Companies were forced to take a closer look at their upstream supply chains with the 2012 enactment of the Food and Drug Administration Safety and Innovation Act. FDASIA sought to shore up the safety of the drug supply chain by assessing higher penalties for adulterated or counterfeit drugs, increasing inspections of foreign suppliers, and providing guidance on the creation of a unique facility identifier (UFI) system for drug establishment registration. In addition, it extended the U.S. Food and Drug Administration’s detention authority, which was already in place for food and devices, to cover drugs.

FDASIA arose from a widespread desire among lawmakers to strengthen quality control. It gave regulators “more enforcement tools in terms of disallowing the entry of products that don’t pass certain requirements,” Hsieh says.

They’ve already made good use of that newly bestowed power. The number of foreign drug manufacturing inspections nearly doubled between 2009 and 2013, from 424 to 827, Hsieh says. By 2015, the total will likely approach 1,000 annually.

A second new law, controlling the downstream portion of the pharma supply chain, is being phased in over the coming decade. Dubbed the Drug Quality and Security Act, it includes a section specifically targeting supply-chain activities. 

Hsieh says the law will result in “a big change in traceability down to the packaging level. Right now it’s mostly at the lot level.” Manufacturers and repackagers will be required to place a unique product identifier on prescription drug packages, complete with barcode. In addition, each time a drug is sold in the U.S. market, the manufacturer, distributor and dispenser will have to provide detailed information about who handled it.

Lot-level traceability begins in January 2015. By 2017, drugs will have to be serialized, and by 2023 packages must be equipped with devices that allow for interoperable data exchange between disparate tracking and monitoring systems.

The law “needs a lot of investment,” Hsieh says. “It’s time for industry to get up to speed.”

Theft is always a big concern in pharma. And while the industry has been successful in reducing the number of incidents over the years, there has been a recent uptick in that area. Hsieh quotes statistics from FreightWatch International for the pharmaceutical sector between March and May 2014, reporting an average cargo loss per incident of $5.6m. By comparison, the number for the first quarter of 2013 was just under $235,000 – well below the $1m range that was typical in earlier years.

Hsieh says the recent figure was skewed by just one incident. But in its annual cargo assessment from last year, FreightWatch noted that pharmaceutical products in Europe were “actively being targeted in some countries on a large scale for the first time.” The report cited Italy as a particular hot spot, with thefts more than doubling between 2012 and 2013.

The question now is whether that single quarter of 2014 was an anomaly, or is indicative of a new trend in drug thefts. In any case, says Hsieh, pharma shippers “have to stay on top of new technology.”

Among the most common approaches to security today is the use of global positioning system (GPS) devices within pallets. Covert trackers keep tabs on shipments in transit, although Hsieh says the technology needs to be further enhanced. Additional remote locking and sensing devices can tell when a shipment has been disturbed, or when the doors of a container or trailer have been opened.

Pharma supply-chain managers must do more than address the problem from the physical movement side, says Hsieh. They should be taking an end-to-end approach, examining each link in the chain as product changes hands.

Event monitoring can be tied to physical locations with the help of cameras that identify trucks’ licenses plates. Such systems prevent fraudulent pickups, which have been on the increase over the past year.

“You’ve got to have a process to validate that the load that’s coming in is the right one,” Hsieh says. “Identity-management software can be put in place to identify whether an I.D. is counterfeit.”

No technology is infallible. Thieves might disable a GPS tracker, although they cab be defeated by the presence of multiple covert devices within a shipment. Possibly the most effective technology on the market today is a system that can remotely lock a truck’s brakes and make it impossible to drive. But that doesn’t prevent the removal of product to another vehicle.

“Thieves always evolve as they see new protections being put in place,” says Hsieh. “You have to keep on advancing with new technology, to get ahead of the criminals that are targeting your loads.”

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Pharma supply-chain managers must cope with four distinct threats: Intentional adulteration of product, the theft of popular drugs for illicit or unintended use, counterfeiting of branded items, and diversion to unauthorized markets.

As if that weren’t enough, the industry is grappling with a pair of new regulations that intensify scrutiny of product moving throughout the chain.

By its very nature, pharma is a risky business, says Don Hsieh, director of commercial and industry marketing with Tyco Integrated Security. The sector’s global scope means that ingredients are sourced from locations all over the world. Unique challenges occur at each stage of the process, from sourcing of raw materials to the management of active product ingredients and the manufacture, distribution and sale of finished product.

Companies were forced to take a closer look at their upstream supply chains with the 2012 enactment of the Food and Drug Administration Safety and Innovation Act. FDASIA sought to shore up the safety of the drug supply chain by assessing higher penalties for adulterated or counterfeit drugs, increasing inspections of foreign suppliers, and providing guidance on the creation of a unique facility identifier (UFI) system for drug establishment registration. In addition, it extended the U.S. Food and Drug Administration’s detention authority, which was already in place for food and devices, to cover drugs.

FDASIA arose from a widespread desire among lawmakers to strengthen quality control. It gave regulators “more enforcement tools in terms of disallowing the entry of products that don’t pass certain requirements,” Hsieh says.

They’ve already made good use of that newly bestowed power. The number of foreign drug manufacturing inspections nearly doubled between 2009 and 2013, from 424 to 827, Hsieh says. By 2015, the total will likely approach 1,000 annually.

A second new law, controlling the downstream portion of the pharma supply chain, is being phased in over the coming decade. Dubbed the Drug Quality and Security Act, it includes a section specifically targeting supply-chain activities. 

Hsieh says the law will result in “a big change in traceability down to the packaging level. Right now it’s mostly at the lot level.” Manufacturers and repackagers will be required to place a unique product identifier on prescription drug packages, complete with barcode. In addition, each time a drug is sold in the U.S. market, the manufacturer, distributor and dispenser will have to provide detailed information about who handled it.

Lot-level traceability begins in January 2015. By 2017, drugs will have to be serialized, and by 2023 packages must be equipped with devices that allow for interoperable data exchange between disparate tracking and monitoring systems.

The law “needs a lot of investment,” Hsieh says. “It’s time for industry to get up to speed.”

Theft is always a big concern in pharma. And while the industry has been successful in reducing the number of incidents over the years, there has been a recent uptick in that area. Hsieh quotes statistics from FreightWatch International for the pharmaceutical sector between March and May 2014, reporting an average cargo loss per incident of $5.6m. By comparison, the number for the first quarter of 2013 was just under $235,000 – well below the $1m range that was typical in earlier years.

Hsieh says the recent figure was skewed by just one incident. But in its annual cargo assessment from last year, FreightWatch noted that pharmaceutical products in Europe were “actively being targeted in some countries on a large scale for the first time.” The report cited Italy as a particular hot spot, with thefts more than doubling between 2012 and 2013.

The question now is whether that single quarter of 2014 was an anomaly, or is indicative of a new trend in drug thefts. In any case, says Hsieh, pharma shippers “have to stay on top of new technology.”

Among the most common approaches to security today is the use of global positioning system (GPS) devices within pallets. Covert trackers keep tabs on shipments in transit, although Hsieh says the technology needs to be further enhanced. Additional remote locking and sensing devices can tell when a shipment has been disturbed, or when the doors of a container or trailer have been opened.

Pharma supply-chain managers must do more than address the problem from the physical movement side, says Hsieh. They should be taking an end-to-end approach, examining each link in the chain as product changes hands.

Event monitoring can be tied to physical locations with the help of cameras that identify trucks’ licenses plates. Such systems prevent fraudulent pickups, which have been on the increase over the past year.

“You’ve got to have a process to validate that the load that’s coming in is the right one,” Hsieh says. “Identity-management software can be put in place to identify whether an I.D. is counterfeit.”

No technology is infallible. Thieves might disable a GPS tracker, although they cab be defeated by the presence of multiple covert devices within a shipment. Possibly the most effective technology on the market today is a system that can remotely lock a truck’s brakes and make it impossible to drive. But that doesn’t prevent the removal of product to another vehicle.

“Thieves always evolve as they see new protections being put in place,” says Hsieh. “You have to keep on advancing with new technology, to get ahead of the criminals that are targeting your loads.”

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Pharmaceutical Supply Chains: The Riskiest Business