RFID Electronic Pedigree: The Likely Antidote for Counterfeit Drugs

RFG believes the potential for the widespread distribution of counterfeit drugs in the United States poses both a safety issue for patients as well as a serious business problem for the pharmaceutical industry. This "double jeopardy" situation makes the pharmaceutical industry a prime vertical market for the development of tracking and tracing technology solutions based on radio frequency identification (RFID). IT executives in the pharmaceutical industry, as well as those in other high-risk industries, should look to RFID as a viable solution for legal documentation and authentication and begin planning for the infrastructure to initiate an RFID-based anti-counterfeiting program.

• There is a consensus among pharmaceutical industry participants that requiring a confirmed and guaranteed record of every transaction involving drug shipments would help prevent counterfeit drugs from infiltrating the U.S. pharmaceutical marketplace. However, the implementation of a paper-based pedigree system on a large scale appears to be too burdensome to be practical. IT executives should embrace mass drug serialization and electronic RFID tracking technology as the leading drug pedigree solution as the price of readers and tags drop and the technology is being proven across the supply channels of many other industries.
• Late last year, the U.S. Food and Drug Administration (FDA), in conjunction with several large pharmaceutical firms, announced an anti-counterfeiting initiative and timeline to provide prescription drugs with an electronic tracking security method based on RFID technology. IT Executives should recognize and support this movement to maximize brand security within the proposed FDA guidelines, which is likely to allow the pharmaceutical industry to achieve significant savings through supply chain efficiency improvements.
• The gradual phase-in of RFID as the solution at the individual package-level will vary by stakeholder and by the position of the variety of involved parties in the pharmaceutical supply chain. Paralleling the implementation of RFID in other industries, it is likely that RFID will be phased-in beginning at the pallet and case level and, in some cases, with individual high-priced and/or high-risk items. Acceptance will gradually move to the individual product or package level as the costs of RFID tags and readers decrease. IT executives operating in the pharmaceutical industry should plan to initiate their RFID-based pedigree drug documentation roll-outs accordingly, as direct benefits of the implementations can be identified and realized by their enterprises.

Introduction – The Scope of the Problem

In a few countries around the world, the counterfeiting of drugs is widespread. In others, it is a relatively new phenomenon, but becoming more commonplace. To date, the United States has been spared the widespread problem of drug counterfeiting due to a strong system of laws and regulations and strict enforcement by Federal and state authorities. In the near future, without the implementation of further controls based on leading-edge technologies, the situation in the United States is likely to take a turn for the worse. The high value and strong demand for many popular restricted drugs will likely drive the United States to a level of drug counterfeiting that mimics the rest of the world.

In order to divert the future of drug distribution in the U.S. from a course of rampant counterfeiting to legal and controlled distribution, many organizations and associations are advocating the use of an electronically recorded "track and trace" document. The proposal is to trace and record the path of pharmaceuticals electronically as they travel through the increasingly complex web of drug distribution channels. The resulting electronic documentation would vouch for the authenticity or "pedigree" of the tracked and delivered drug and be defined as follows:

Electronic Drug Pedigree Document – An electronic document containing information recording each chain-of-custody change of any prescription drug, from sale by a pharmaceutical manufacturer, the acquisition and sale by any wholesaler or re-packager, through the final sale to a pharmacy or other person administering or dispensing the drug.

Although some advocate the effective tracking of drugs could be accomplished via a paper-based documentation system, RFG believes this to be an unlikely resolution given the complexity of the pharmaceutical supply channel, the volume of drugs in the channels, and the number and diversity of participants. As predicted in related research completed in mid-2004, RFG believes the pharmaceutical industry to be among a handful of select industries that will soon benefit from the recent advancements of RFID technology and the continuing predicted price reduction of RFID readers and tags.

The following is an excerpt summarizing one of the findings of that research report ---"Pharmaceutical companies can rely on RFID tagging technology to track drugs through the manufacturing and packing process to ensure correct labeling and product authenticity. In an industry that estimates between 2% and 7% of pharmaceuticals sold to customers are counterfeit, such a process can create a paperless audit trail in order to guarantee a high-integrity and accountable distribution channel. Ultimately, the companies want safe and secure supply lines, and RFID has shown it can help achieve that goal by authenticating products at all steps of the supply channel from product development to the hospital operating room." (See the RFG Research Note "RFID Update: The Promise of Improved Performance and Functionality.")

In order for the electronic pedigree documentation process to succeed, mass serialization, or the assignment of unique numbers or electronic product codes (EPCs) to each pallet, case, and packet of drugs, must be adopted and implemented. Information would then be recorded about transactions involving the specific product code. This would enable the creation of an electronic record from the drug's point of manufacture to its point of use. The unique serial number would allow the purchaser of each drug to determine readily the drug's authenticity, its place of manufacture, intended place of sale, and whether or not it had been previously dispensed or recalled.

Anti-counterfeiting efforts in the pharmaceutical industry have been bolstered by "The Prescription Drug Marketing Act" (PDMA) and a report by the FDA in February 2004 touting the use of the electronic fingerprinting of controlled pharmaceuticals through the use of RFID technology. The FDA report and its follow-up initiative announced in November were coordinated with the moves of several pharmaceutical companies to place RFID tags on certain high-profile drugs susceptible to counterfeiting, including the popular Viagra and OxyContin products. RFG believes these recent events do a great deal to set the stage for RFID technology to supplant bar coding as the counterfeit curtailment technology of the future in the global drug industry.

Figure 1 depicts the four major segments of a proposed electronic drug track and trace document.

Source: Robert Frances Group

A growing number of government agencies and industry participants are already advocating the use of RFID tags on drugs. The vision is to create an electronic track and trace system, supported by verifiable databases, to ensure that the public receives bona fide and authenticated drugs. This would be implemented through an electronic recording of the chain of custody from manufacturer, through the supply channel, to the final customer destination. As of today, the FDA's plan stops short of requiring any action, but the agency's efforts have resulted in the publication of a guide intended to encourage companies to conduct feasibility studies and pilot programs that implement RFID as a technology to combat counterfeiting in the drug industry. Generally, the FDA's report advocates the widespread use of RFID throughout the pharmaceutical industry by 2007.

The recent confirmation and acceptance of RFID as the leading technology in the war against drug counterfeiting has promoted a growing level of activity across the U.S. Figure 2 summarizes current activities and initiatives by federal and local governments in the area of pedigree drug adoption, including the status of regulations by locale and estimated timelines.

Although the efforts of the various agencies and state governments cited above are encouraging, it is clear that a timely and successful resolution to U.S. drug counterfeiting efforts will depend on the expedient development of a federal solution. RFG believes a state-by-state solution will simply prove too complex, expensive, and time consuming for industry participants to accept, adopt, and implement. Such a piecemeal approach may even prove counterproductive in the long term.

RFG believes a solution defined by the federal government and/or one of its agencies, such as the FDA, is the preferred approach. The FDA should actively solicit the participation of industry groups and standards organizations in order to drive the development of appropriate reporting and auditing requirements. This approach is the most likely to result in the development of uniform federal guidelines to frame and steer the drug trace and track solution. It will also ensure acceptable, mutually agreed upon guidelines to be followed by all industry participants.

Such a federal solution will certainly prove more effective in unifying the efforts of industry participants, including distributors, drug retailers, and manufacturers, thereby accelerating a final resolution and minimizing drug counterfeiting in the years ahead. Therefore, it is critical to the success of the anti-counterfeiting effort for the federal government to spearhead these efforts and to set a reasonable date for compliance by all participants within the next two to three calendar years. The industry clearly seeks, and is counting on, such a leadership position by the federal government in order to ensure an acceptable and rapid solution.

The Benefits of RFID-Based Electronic Track and Trace Documentation to Channel Participants

The clear benefits of a well-planned and quickly implemented RFID-based drug-tracking program can be numerous. In addition to resulting in the early detection of counterfeit drugs flowing through the system, targeted drug recalls can be handled much more effectively than they are today. As a byproduct of the electronic drug tracking system, inventories will be better managed and theft within the supply channels will be more rapidly identified and deterred. In addition, patient safety levels will be improved, and the cost of distributing drugs should be curtailed in the long run as tighter controls limit theft and other sources of drug loss.

Of course, initial implementation costs will be borne by all industry participants. These will include the purchase of hardware, including RFID tags and readers, as well as related software required to run and manage the systems. There will also be a cost involved to integrate the newly developed and captured information into legacy information systems. New databases must be developed and maintained, and added security will be required to guard the critical information. RFID technology will have to be integrated into existing manufacturing and distribution processes, and compliance with regulatory requirements must be maintained.

Adoption and Transition Planning – The Likely Roadmap to Success

RFG expects the rollout of RFID-based electronic drug tracking will, at best, be gradual and very methodical. Stakeholders should prioritize points of initial implementations and allocate financial resources to protect the products most likely to be affected by counterfeiting. Drugs with a high potential impact on public health should they be counterfeited would, of course, get a higher level of consideration early in the process. Priority should also be given to drugs with a history of counterfeiting, followed by high-priced drugs and those with higher sales volumes, since these are likely to get the initial attention of counterfeiters.

The rapid and successful implementation of a standard electronic pedigree drug tracking system is needed to guarantee a strong and secure drug supply chain. This requires the adoption of a national system based on widely accepted standards. RFG advocates the collaboration of federal and state agencies and supply chain partners to define these industry standards. This is the most foolproof way of ensuring a system based on RFID technology that captures EPC data and stores it for monitoring and tracing purposes. The FDA, working with drug manufacturers, hospitals, retailers, wholesalers, and other institutional users, must have a mandate to develop these uniform standards as quickly as possible.

If multiple, non-uniform standards are developed and tolerated, the industry will lose valuable time, as well as the confidence of consumers and other supply chain participants. As has been shown in other industries, standards ultimately result in optimum intra-industry operability, lower costs, quickest implementations, and the highest possible level of operational efficiencies.

Although the FDA is encouraged to act quickly and boldly, it must also proceed cautiously and be careful to support the smaller and less techno-savvy segments of the industry, such as the local community pharmacy, remote clinics, and smaller hospitals. This is critical because other technologies, such as bar codes, may not yet have paved the way for more sophisticated and modern tracking methods in these less-sophisticated market segments. A major concern of many industry participants is that RFID technology, while being positioned to benefit all, will ultimately define the "requirement for doing business" and potentially shut out these smaller and less sophisticated entities. This is certainly not the intent of industry participants wishing to see RFID succeed as a nationally accepted anti-counterfeiting measure. IT executives at companies with interests in this area should participate in all appropriate industry work groups and associations to verify their voice is heard to help avoid this situation?

The migration to RFID technology within pharmaceutical distribution channels must be pragmatic in nature. As in the retail environment, initial phase-in at the case and pallet level is a likely scenario. This will most likely be initiated with high-value, high-risk drugs and be followed with the tracking of all products at the case and pallet level. Then electronic tracking at the package level will become feasible and likely only after bugs are worked out in processes and costs of implementation are realized. In total, RFG expects the RFID rollout to be completed in the next three to four years, assuming stakeholders are able to initialize RFID tracking efforts in 2005 and coordinated state and federal regulatory efforts consolidate and continue uninterrupted.

RFG agrees with FDA estimates for RFID drug counterfeiting efforts achieving acceptance and use by "Some participants" in 2005, "Most participants, except small retailers" in 2006, and "All participants, and most small retailers in 2007." Although this is an aggressive schedule, it is achievable given the costs and risks of non-compliance, and the business case timing and feasibility of RFID technology and price/cost advancements. (See the RFG Research Notes "RFID in 2004: The Year of Conflict, Delays, and Standards" and "Is There a Business Case for RFID?")

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