Product security is a vital consideration for any pharmaceutical company due to the life-critical nature of drug products. There is much attention in the news media about the problem of fake medicine with alarming statistics about the estimated size of the counterfeit drug trade. However, the cost to pharmaceutical drugmakers of unauthorized and illegal drug diversion in both financial and human terms is potentially an even larger problem.
After the issuance of the U.S. Food and Drug Administration’s PCID Guidance for “in-dose or on-dose” markers or tracers for use as authentication measures, the door has been opened for the industry to implement “on-board” physical or chemical identifiers that can help address the challenges of drug product counterfeiting and diversion. More specifically, brand owners can now use inert microtags or markers at the drug dosage level during the manufacturing process. These solutions can sometimes provide both security and business intelligence to allow drug companies to protect lives, enhance their bottom line, and maintain a “final audit” marker in the product, separate from packaging or labels.
HOW DOES PRODUCT DIVERSION OCCUR?
There are many ways that drug product is diverted illegally or without authorization. Product diversion is also commonly known as “pricing arbitrage,” where operators will acquire legitimate product in a lower priced channel and resell it into a higher priced one, sometimes repackaged, sometimes not. The cost to brand owners of unauthorized diversion is massive, particularly since revenue lost to resellers drops right out of the bottom line. The manufacturer — in most cases, the innovator company that developed the drug — has already incurred the full cost of goods sold but does not bank the highest possible price for the product when the product has been arbitraged. There are two major types of pricing arbitrage diversion:
a) Channel diversion, where product is improperly taken from a lower price-point channel and sold into a higher-priced channel, with these diverters arbitraging the difference.
b) Country diversion occurs when a product is diverted from a lower price-point territory or country for re-sale in a higher price-point territory or country.
Both kinds of this pricing arbitrage diversion adversely impact the bottom line of pharma companies. But to go further, pricing arbitrage practices may even create other liabilities and patient risks if the diverted product is relabeled incorrectly, possibly misrepresenting instructions for use, or is subjected to improper handling and storage conditions.
This may occur when an intermediary sub-distributor simply acquires the product intended for sale (and often subject to strict contract terms that limit such sales) in the lower priced or discounted channel, then resells it for a higher price in a non-discounted channel. High-priced, patented drugs are often sold in countries with less developed health care systems at significantly lower prices. While the reasons for these pricing differences are complex and depend in part on global differences in intellectual property protections, healthcare reimbursement systems, political considerations and liability laws, huge opportunities exist to arbitrage this pricing gap. In Europe, repackaging and parallel importing is a legal practice, and allows for companies to take financial advantage of the pricing difference found between a market like Turkey versus the United Kingdom. However, this pricing arbitrage is not only a financial risk, it can compromise patient safety as well. “Even authentic drugs that have been improperly diverted due to price arbitrage can create health concerns if the diverted product is not properly stored or handled, or if the packaging is not in the correct language, which can lead to over-dosing,” said Ron Guido, formerly the vice president of Global Brand Protection and Supply Chain Integrity for Johnson & Johnson.
Another form of product diversion is the unauthorized, out-of-scope and sometimes fraudulent return of product during the euphemistically named “reverse distribution” or product returns stage. This activity is a major source of what is known as “revenue leakage” and has a substantial financial impact on pharma companies. Most drug manufacturers have quite liberal returns practices, but they lack the tools necessary to confirm whether returned material is actually authorized and within scope of the returns policy.
Product received by a drugmaker’s returns processing company is often in damaged or obliterated packaging, or even not in original packaging at all. This makes it extremely difficult for the returns processor to determine whether such product is out of scope and therefore not eligible for refunds. It is certainly possible to issue credit for product that is fake, stolen, diverted or improperly relabeled. Now a brand protection consultant to health care companies, Guido has seen these challenges arise across the industry.
“We saw situations where authentic pill bottles with genuine labeling were filled with fake material and then re-sealed and returned for credit,” said Guido. Currently, returns monitoring practices often do not involve the checking of the contents of containers but instead simply authenticate by weight and a cursory check of outer markings.