FEBRUARY 01, 2006
Barbara Sax

Globalization and Internet-based communication are making it more difficult for the pharmaceutical industry to safeguard the supply chain. A recent survey by Ernst & Young and the Economist Intelligence Unit of over 200 key pharmaceutical executives worldwide revealed that industry executives believe that supply chain risks are on the rise for companies and patients alike.

At a briefing on the survey results, Jeff Steinberg, partner in Ernst & Young's Business Risk Services practice, called supply chain integrity a "difficult and challenging issue" with "a lot of moving parts."

Steinberg said that, while figures on drug counterfeiting are difficult to estimate, industry experts suggest that counterfeit drugs comprise as much as 10% of the worldwide market and generate revenue of $32 billon. In 2004, the number of cases of pharmaceutical theft, diversion, and counterfeiting increased by 16%, he said. According to a report written for Ernst & Young's Progressions 2005 Annual Global Pharmaceutical Report, trade and criminal activity in this area appear to be growing significantly.

While no single source of counterfeits exists, executives throughout the global supply chain felt that the key areas of weakness (in order of importance) were secondary wholesaler-distributors, Internet and mail-order pharmacies, and the primary wholesaler-distributor market.

Steinberg said that, while over 40% of executives surveyed currently considered the secondary wholesaler-distributor market to be the weakest link in the chain, 60% of manufacturers believe that, in 5 years, Internet and mail order pharmacies will become the number-1 threat to supply chain integrity.

Companies have been stepping up their efforts to deter supply chain weak points over the past 3 years. Among North American companies, 66% of the executives surveyed said that, during that time, their companies reviewed and modified internal processes and controls, 37% said they audited a third-party vendor or customer, and 38% said they revised contract requirements with a third-party vendor or customer. Only 24% installed new tracking technology, such as radio-frequency identification (RFID) or electronic product codes.

Industry executives find RFID promising but challenging. In a report for Ernst & Young's Progressions, Mark Parrish, president and chief operating officer of Cardinal Health's Pharmaceutical Supply Chain Services, wrote that the next 18 months will be critical for the future of RFID. Durability problems and a 95% accuracy range continue to plague users.

"RFID may be replaced by some other technology if it fails to demonstrate that its cost will decrease over the next 18 months,"Parrish wrote. "Demand for enhanced security and safety is too high from a political and regulatory standpoint to wait any longer than that."

Parrish also urged stakeholders in the industry to participate in RFID initiatives and to work through the maturation of the technology and the development of data rules and guidelines.

Cooperation across the industry was also a theme stressed by Steinberg. Ernst & Young's report urges manufacturers, wholesalers, distributors, and pharmacies to work with policy makers and regulators in order to make significant progress in this key area of concern. "There's an opportunity for greater coordination between stakeholders,"said Steinberg.

"They all have a part to play, and not one alone will make the process foolproof."

Importation from Mexico Poses Problems

Purchasing pharmaceutical products at pharmacies on the US-Mexican border can be a safety risk for American patients. In Ernst & Young's Progressions 2005 Annual Global Pharmaceutical Report, Marv Shepherd, director of pharmacoeconomic studies at the College of Pharmacy of the University of Texas, Austin, estimates that US residents purchase an estimated $800 million in pharmaceutical products annually from Mexican pharmacies. Prices for these drugs can run 20% to 80% lower in Mexico than in the United States.

What these patients may not know is that regulatory safeguards that help ensure product safety in the United States are weak or nonexistent in Mexico. Over 95% of pharmaceuticals sold in Mexico are produced in the country. "The vast majority of products sold in Mexico are not approved by the US FDA,"writes Shepherd in his report. "The manufacturer's label may have minimal directions on how to use the product, and most do not include extensive instructions."

Shepherd is also concerned that, in many cases, people working in Mexican pharmacies are clerks and merchants with little or no training in drug therapy.

Ms. Sax is a freelance writer based in Chevy Chase, Md.

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