The New Drug WarThe New Drug War

The pharmaceutical industry lives with a recurring nightmare: Counterfeit, diluted, or falsely labeled drugs make their way through the United States health-care system, posing a health threat to patients and a financial threat to drugmakers and distributors. That's why the industry and federal regulators have begun looking to emerging business technologies, including radio-frequency identification tags and electronic product codes, known as EPCs, to help stem the wave of counterfeit drugs and better track legitimate drugs from manufacturing through the supply chain.

"The industry itself is driving the move toward the new technology, not just for security reasons but also for good business practices," says John Taylor, the Food and Drug Administration's associate commissioner for regulatory affairs and co-chair of the FDA Counterfeit Drug Task Force.

The drive to adopt new technologies got a boost last week when the FDA's task force issued a preliminary report that outlined ways business technology, regulatory requirements, security, and industry collaboration can be used to make sure consumers get the medicines they need, rather than watered-down or repackaged rip-offs. The task force, which will hold its first meeting later this month, devoted a substantial portion of the report to the benefits of attaching EPC messages--96-bit product "license plates" that would identify a manufacturer, describe the type of product, and include a unique serial number--and RFID transmission microchips to pallets, cartons, and products. Standards for RFID, including the EPC messaging standard, are being developed by the Auto-ID Center, a partnership of business and research universities, including the Massachusetts Institute of Technology.

It's a life-and-death issue, both for patients and pharmaceutical companies. A person stricken with cancer or AIDS who's prescribed Johnson & Johnson Corp.'s Procrit can develop an infection of the bloodstream if the potency of the drug is diluted. Patients who are supposed to take Eli Lilly & Co.'s Zyprexa to treat schizophrenia or acute bipolar disorder can experience a serious allergic reaction if they're given aspirin in a falsely labeled bottle instead. The FDA has documented attempts by counterfeiters to introduce bogus versions of these drugs into the distribution network.

The threat is growing. Agents from the FDA and U.S. Customs Service intercepted international shipments of medicine this summer and found that 88% of those drugs weren't approved for use in this country. The FDA doesn't have specific figures on the amount of counterfeit drugs on the market, but its drug investigations have increased to more than 20 per year, having averaged only five per year through the late 1990s. The agency doesn't believe that widespread domestic counterfeiting is taking place but says that up to 40% of pharmaceuticals shipped from countries such as Argentina, Colombia, and Mexico may be counterfeit.

Johnson & Johnson takes the issue so seriously that it's committed to using some form of anti-counterfeiting technology on all its pharmaceutical products by early next year. Earlier this year, its Ortho Biotech Products LP subsidiary, working with the FDA, found that counterfeiters had replaced the $240 high-dose version of Procrit with a low-dose version of the drug that sells for $30. Fortunately, the weaker drug never made it into the hands of patients. The serious medical consequences they might have faced could have led to a loss of public confidence in the drug and in the company. Johnson & Johnson has confronted that scenario before. In the early 1980s, seven people in Chicago died after taking the company's Tylenol pain reliever, which had been laced with cyanide by an unknown person. The company responded quickly to the nationwide panic, recalling 31 million bottles of the drug, conducting a massive public awareness campaign, and introducing tamper-resistant packaging. As a result, Tylenol today is still a top-selling pain reliever.

"If the consumer isn't protected, you're out of business," says Dillard Howell, director of global product protection for Eli Lilly, which also is battling to suppress counterfeiters. The drugmaker joined the FDA's Counterfeit Drug Task Force after years of trying to crack down on counterfeit shipments of its popular Prozac and, more recently, Zyprexa medications. Prozac is a big target because it's one of the most popular antidepressant drugs, Howell says. Recently, counterfeiters also have targeted Pfizer Inc.'s hugely popular anti-impotence drug Viagra.

Eli Lilly already uses some anti-counterfeiting technology, which it won't describe, to protect its products. But it wants to do an even better job. "We're trying to see how new technologies can be used," says Howell, a 21-year veteran of Eli Lilly who also spent 12 years as an FBI agent. "RFID is probably the hottest area of discussion for tracking distribution and preventing counterfeiting," he says. Eli Lilly is working with its distributors, wholesalers, and retailers to ensure they're part of the company's security effort.

Other companies, most notably Wal-Mart Stores Inc., also are exploring the use of RFID (see story, p. 28). The technology includes readers that, at a distance, can activate radio-frequency tags or chips to transmit standardized product numbers and data, which could improve the tracking of products throughout the supply chain. "The largest retailer in the world takes an interest in a technology, and everyone else gets interested, too," says Stephen Zujkowski, Americas leader for Cap Gemini Ernst & Young's Auto-ID practice.

RFID is one of the front-runners in fighting drug counterfeiting for several reasons. Although it has been available for years, the cost of a tag has dropped dramatically, from about a dollar a year ago to about five cents when purchased in very large quantities, Zujkowski says. Anyone along the supply chain--the manufacturer, distributor, wholesaler, or retailer--can use the technology to read EPC data to find out if more than one case has the same code, indicating that one of the cases is a fake. "With the volume of drugs that come through [these channels], they become a logical checkpoint in the supply chain," says Zujkowski. The same tracking technology also can be used to monitor operational efficiency.

The Healthcare Distribution Management Association, an industry organization that represents pharmaceutical and medical-supply distributors, says the same technologies that can be used to fight counterfeiting also can help handle inventory management, regulatory compliance, and product returns. Distributors also could use RFID technology to more easily locate expired products in warehouses that shouldn't be sold to customers, says John Howells, associate director of E-business processes development at the Healthcare Distribution Management Association. It plans to begin a feasibility study next year on the use of RFID technology to track product from manufacturing to the sale to patients.

There aren't any estimates on how much the industry will have to spend to implement these new technologies. "In the 21st century, this is the cost of doing business," the FDA's Taylor says. Drugmakers and distributors would likely need to share the costs of deploying these technologies, Howells says.

Even if the Food and Drug Administration adopts RFID and EPC technologies and mandates that drugmakers implement them on all packaging, Eli Lilly's Howell realizes security is a moving target. "The question is, will this technology be effective for a period of time?" he says. "You're trying to buy yourself a window, until you can evaluate the next generation of technology." --with Marianne Kolbasuk McGee