Counterfeiting, says Johnson & Johnson’s Ron Guido, is a form of flattery. “If you don’t have counterfeits in your business, chances are you don’t have a good brand,” said Guido, J&J’s VP for global brand protection, speaking at the ISPE annual meeting in Dallas in November.
Guido wasn’t being flippant. Rather, he was demonstrating how the maturing field of Brand Protection looks at drug counterfeiting and diversion beyond the traditional “good guy vs. bad guy” paradigm. It uses a business lens: good brands make good targets for opportunistic criminals. Think of it as a kind of Freakonomics of the pharma supply chain.
In Freakonomics (the books, and now a website and blog by the same name), Steven Levitt and Stephen Dubner apply simple economic theories—supply and demand, risk-reward, the profit motive—to explore and explain what drives professionals in all walks of life, from sumo wrestlers to prostitutes to drug dealers. “If morality represents how people would like the world to work,” they write, “then economics shows how it actually does work.”
There’s a lesson here for those interested in protecting the (legitimate) drug supply chain. Except on rare occasions—1982’s Tylenol tampering crisis, for example—counterfeiters and other pharma supply chain criminals are motivated purely by profit, and as such are fixated on what products consumers crave and need.
And as much as we moralize on the evils of faking drugs, the bad guys aren’t going away. A few may get caught, a few may get converted, but plenty more will take their place.
From an economic standpoint, drug counterfeiting and diversion are an entrepreneur’s dream. As Guido made clear, demand is robust and the barriers for entry into the market are relatively low. “It’s growing much faster than your business is growing,” Guido told the audience in Dallas. Jobs in the field are plentiful—fueled by free trade agreements; the growth of China as the “world’s factory”; the fact that counterfeiters who are well funded and technologically advanced; and of course the Internet (according to Guido, “the frontier that needs the most attention”).
Guido also acknowledged the role that Big Pharma has played in helping counterfeiting to proliferate, especially in emerging markets. “As manufacturers, we’ve set up our shops there and have given [emerging markets] the knowhow and SOPs,” he said. “Then we’re shocked that some of these manufacturers are making counterfeits with our tools?” The shuttering of legitimate plants only exacerbates the problem, as usable equipment floods the market.
The bad guys are looking at risk-reward, Guido added. The reward to counterfeiters is tremendous—high-value and high-volume drugs mean high profit potential. And, though it’s not easy, drugs are easier to fake than, say, medical devices, Rolexes, or hundred-dollar bills. For diverted products, cost markups can be exponential.
Meanwhile, the risk is relatively low. Regulators and government agencies are not well funded and cannot adequately police the pharmaceutical supply chain, Guido said. And laws aren’t tough enough. “Let’s see, do I want to rob a bank or hijack a [pharmaceutical delivery] truck?” Guido asked rhetorically. “The truck has one driver, who is usually unarmed, and there’s little penalty if I get caught. . . . That’s got to change.”
There are two obvious solutions, both with economic roots. First, we need harsher penalties. Escalate the risk and it tips the scales away from reward. There is hope in this regard. In Congress, the Counterfeit Drug Penalty Enhancement Act of 2011 is brewing. It would significantly increase punishments for those convicted of drug supply crimes.
We also need greater barriers to entry for the black and gray markets. Comprehensive track-and-trace technologies are critical for this—requiring counterfeiters and diverters to expend significant time and cost up front to break down our defenses. Again, Congress is finally getting serious, pursuing legislation such as the Safeguarding America’s Pharmaceuticals Act of 2011 to spur manufacturers to better protect their supply networks.
Harsher penalties, higher barriers. The bad guys aren’t going away, but if we make the economics of drug counterfeiting and diversion less attractive, criminals will gravitate toward other industries in order to ply their trade—bad for Rolex, perhaps, but good for the rest of us.