The globalization of supply chains might make manufacturing easier, but it also leaves room for deadly counterfeits to slip through the cracks. Here's what you need to know to avoid them in your own supply chain.

How does e-commerce change the supply chain of pharmaceuticals?

Online pharmacies allow doctors to find cheaper versions of brand-name drugs and devices. They also present a big risk: a market for counterfeit pharmaceuticals in the United States.

Prior to the rise of e-commerce, the FDA was successful in preventing counterfeit drugs and medical devices from reaching the country’s shores. Drugs were sourced from thoroughly inspected suppliers, and always subject to tight inspection. In recent years, offshored manufacturing and online sales have loosened the regulatory grip on pharmaceutical trade, allowing some counterfeits to slip through the cracks. Now, pharmaceutical companies are seeking new ways to avoid counterfeit production of their own products. Due to lack of visibility and too few methods to tackle counterfeit goods online, catching counterfeits is a difficult task.

Among other issues, counterfeit pharmaceuticals carry health risks, and can lead to long-lasting brand mistrust. Pharmaceutical suppliers need to boost their supply chain transparency and rely less on regulatory bodies to filter through their products.

What does the supply chain of counterfeit pharmaceuticals look like?

The World Health Organization estimates that the counterfeit pharmaceutical industry is worth $431bn, but most of that money doesn’t reach the U.S. Counterfeits are usually produced in countries with lax regulations, especially within Africa and the Middle East. Recently, the counterfeit market in Pakistan was revealed to utilize pesticides and brick dust in the production of fake medicines. In an interview with CNN, one producer told reporters that he puts the same ingredients in every capsule, and then labels them differently. In the street markets of Pakistan’s big cities, it’s hard to tell which drugs are real and which are potentially harmful fakes—an issue the U.S. never had to deal with, as the drugs rarely make it far from their country of production.

Until recently.

With online sales so easy to initiate, counterfeit drug manufacturers have been able to sell to Europe and the U.S. In June 2015, as part of a month devoted to tackling counterfeit pharmaceuticals, the FDA took legal action against 1,050 websites selling counterfeit drugs and medical devices. They also managed to detain 800 packages from those sites, on their way to unsuspecting consumers.

Generally, counterfeit pharmaceuticals end up in the hands of doctors rather than individual patients. And they’re not always manufactured outside the U.S. In fact, several key cases of counterfeits have involved North American manufacturers. In 2014, over 20 medical centers in the U.S. were sued for knowingly purchasing counterfeit spinal screws, some of which dislodged after being implanted into patients. The screws caused pain and further complications due to their poor manufacturing. Doctors purchased the screws because of their low cost and ease of procurement.

But like medication, medical devices require intricate manufacturing standards. As a result, they are expensive. Something as small as a spinal screw might seem easy to reproduce, but results can be seriously detrimental. Knockoff devices involve IP theft, which hurts a manufacturer’s sales and invites distrust.

What steps are being taken to mitigate the risk of counterfeits?

The situation is not entirely hopeless. The FDA has recently responded to the rise in counterfeits by focusing on the pharmaceutical supply chain. Their website states that they are working on improving the “transparency, accountability, and integrity of the supply chain.” This means that the organization must buckle down on its examination of producers and suppliers of pharmaceuticals—but that’s not a simple undertaking. Regulators, due to the sheer size of global trade, can examine just two percent of incoming freight from overseas.

Domestic counterfeits are a newer problem exacerbated by the rise of e-commerce. A 2012 case of counterfeit steroids causing fungal meningitis was linked to a U.S. supplier. Thirty patients died and 419 were infected. The producer was not certified, and manufactured the steroid under improper conditions, allowing a fungus to grow in what should have been sterilized containers. But doctors, who purchased the drug, were not aware that the supplier was counterfeit. Because of the very few cases of domestic counterfeit production, the FDA did not discover the fraud until it was too late. That’s why pharmaceutical companies must also take steps to mitigate the risk of their own drugs being produced illegally.

What can my company do to protect our supply chain?

Research regulations. Understand exactly where your product is being built, including small parts and components. Tier-1 suppliers are easy to track, but consider non-tier products, which are sometimes difficult to locate or verify. Work with your Tier-1 suppliers to ensure you’re getting accurate information. Educate yourself about counterfeit regulations in that region: are the rules lax enough to allow for IP theft and counterfeits on the market? If so, consider resourcing your device or drug.

Aim for transparency. When you know where you’re sourcing your drugs or devices from, there’s a better chance that you can avoid IP theft. It will also allow regulatory bodies like the FDA to work with you to ensure that your product is not being produced elsewhere. If you know your device is sourced in Turkey, for example, you can ensure that the FDA catches any similar products from other countries—on their way to doctors or patients in the U.S.

Utilize technology. Some products are notoriously hard to track. However, certain companies are making use of RFID tags to track ingredients and small parts, in order to better understand their product’s supply chain. Keeping up with real-time information about products will give companies a clearer picture, and may turn up some surprises. Most importantly, you’ll be able to locate any suspicious activity within your supply chain. Knowledge is power, and that knowledge should continuously be refreshed.

Offshore production and e-commerce create a space for counterfeit pharmaceuticals to seep into U.S. markets. And while the FDA is working to mitigate the problem, companies can also act to ensure that their products are protected, and consumers are receiving the real thing.

The global supply chain is only getting more complex—but by embracing technology and transparency, you can stay a step ahead of counterfeits.

Source: Elementum