Monday, October 21, 2013

Pharmaceutical Compliance Monitor

Ron Guido | LaserLock Technologies

I don’t envy the FDA’s role in driving compliance for thousands of regulations and standards, from approvals to post-market surveillance, additives and import and export issues. Based on three decades of personal experience working alongside the agency, I’m impressed with their understanding of the issues and commitment to public safety. However, as pharmaceutical demand continues to rise, the reliance on foreign manufacturers and third-party contractors to manage quality and distribution increases accordingly. Given the FDA’s exhaustive efforts to regulate the U.S. supply chain quality and safety, it may be surprising that its reign is not limitless, as it can only control the supply chain so far without having the benefit of international governance.

Perhaps the biggest disadvantage of the booming pharma market is that the FDA’s quality and safety control system hasn’t stayed parallel to the scientific and technological advances of the market, leaving gaps and weakening the capabilities of regulatory authorities. As the FDA works to tighten product, contractor and supply chain quality, however, a bigger beast has emerged, making all existing efforts look inconsequential – the counterfeiter.


Counterfeiting is described as the ‘crime of the 21st century,’ affecting goods in virtually every industry and global market, from pharmaceuticals to retail, electronics, food and beverage and government. It is impossible to determine the exact amount of counterfeit pharmaceuticals that reach consumers, given that the primary objective of the counterfeiter is to remain undetected and covertly penetrate an unsuspecting supply chain. However, does it matter whether it’s one or 10 percent, as a dated World Health Organization study suggests? There must be a ZERO tolerance commitment by our collective industry. Nothing greater than zero is acceptable.

Interestingly enough, in both cases of implementing anti-counterfeit supply chain protection and ensuring contractor quality, manufacturers initiate the same regulatory compliance checks using Good Manufacturing Practices and Standard Operating Procedures.

Let’s examine the efforts of the FDA, manufacturers, authorized distributors of record and pharmacists – the “good guys” aligned in purpose to fight counterfeiting and contractor quality. The public safety risks associated with consuming counterfeit medicines are obvious and therefore support the general consensus that additional regulations and legislation will help fortify the legitimate supply chain – but what’s wrong with that approach? Each case is treated uniquely, ignites increased surveillance and even a product recall.

However, we must take an individualistic approach to every counterfeit case. The circumstances of dealing with counterfeit drugs are far more complicated than a random occurrence, and should be viewed as a strategically planned operation. If, in fact, the counterfeit rate of prescription drugs were eight to 10 percent globally, maintaining that rate year-to-year would ignite uproar in other industries – even those without fatal consequences. So why do we blindly increase audits, surveillance activities, customs inspections and other superficial methods when we really have no clue as to the extent of the operation that we uncovered?

We must recognize that one of the most vulnerable areas in the supply chain is at the nexus of the counterfeiter suppliers and the contracted operations of the legitimate manufacturers. Does this suggest counterfeiters may operate in the shadows of the legitimate manufacturer it’s counterfeiting? Perhaps. Contractors know how to manage supply chain specifications, critical quality checks and operating procedures, allowing them to be more independent from the internal operations of the intellectual property (IP) rights holder. Given this increasingly common scenario, the FDA’s choice to extend focus onto the suppliers and contracted partners of the IP rights holders was warranted – maybe even a small, strategic win for the good guys.

Counterfeiters are shrewd, tech-savvy, and connected by sophisticated global trade networks, allowing them to utilize the same equipment, especially packaging machines, as the legitimate manufacturers. They’re always well funded, often by organized criminal enterprises, and driven by financial profit so they’re unlikely to use any ingredients or trading practices that would risk exposure. Unfortunately, the absence of active ingredients (underpowered drugs) can be as devastating as replacing with harmful ingredients or a placebo.

In order to address counterfeiting and contractor quality holistically, we must assume the problem extends infinitely further than what’s seized from border and transit searches or extracted from the supply chain. So what’s the remedy to a problem that is, by design, clandestine in practice, yet pervasive throughout the supply chain and often indistinguishable without forensic equipment?

It’s clear that our solutions now are not the answer. When faced with evidence of counterfeit or poor-quality products, we knee-jerk into the following frenzy:

  • Issue a product recall – leaving fakes to enjoy the pent up demand.
  • Increase raw material supplier inspections– they’re the only entities with records on file.
  • Inspect packaging – it’s easier to interrogate and not destructive to the pills.
  • Prosecute the distributors, importers/exporters – since you can’t find the big fish.
  • Conduct market surveys by buying from wholesalers and retail pharmacies – we already know they’re cooperative and visible. It’s the secondary distributors, Internet and local open market retailers you need to worry about.

All of the above methods are orchestrated to engage the legitimate supply network in resolving unintentional contractor quality problems. The contractor quality issues are usually unintentional and can be diagnosed and traced back to a certain batch, machine, operator or administrative error. So why is the FDA continuing to tighten focus on contractor quality? Simply, put, it’s not working well enough to eliminate the issue altogether, and now it has compounded to strengthen the effect of the counterfeit market as well, producing a different breed of quality issues. The counterfeiters’ goods are designed to remain undiagnosed, produced outside any regulatory purview and few, if any, are traceable. Though rare, if we have the chance to trace products back to the manufacturing site, the principals are rarely found

What should manufacturers, their authorized distributors of record and regulators/inspectors do individually and collectively to mitigate the risks of counterfeit drugs?

For starters, the best solutions are not framed from the mindset of addressing quality defects, but in the mindset of the counterfeiter. Here are some suggestions:


  1. 1.       Live by the ‘trust, but verify’ mantra. You can trust them after they’ve proven they deserve it. Perform your due diligence through the form of contractor Quality Agreements (QAs) and anti-counterfeiting practices, including facility security, strict inventory and records accounting, supervised destruction of non-salable components and employee background checks.
  2. Take advantage of track and trace. Integrate secure track & trace technology to enhance visibility in your product lifecycle, from manufacturer to wholesalers and beyond. Closely monitor long-term supply and demand patterns and observe deviations.
  3. Demand exclusive, non-competitive rights. Contractors, suppliers and third parties should be contractually prohibited from conducting business with manufacturers of similar goods, as well as using proprietary equipment for shadow operations.
  4. Build sustainable, trusting partnerships. Focus on establishing long-lasting relationships with your contractors, suppliers, raw materials vendors, printers and everyone else in the supply chain.
  5. Manage your own product distribution and lifecycle. Require retailers to sign authorized distributor agreements that forbid purchasing your company’s products from any distributor unless pre-approved. Likewise, to ensure your goods aren’t repackaged and sent back into circulation, require the return of excess and obsolete inventory.

Authorized Distributors & Retailers

  1. Abandon opportunistic buying practices. Per each contract terms, purchase only the required quantity from approved sources.
  2. Balance real-time supply and demand. It’s achievable by establishing two-way inventory management processes between buyers and sellers.
  3. Track & trace (again). Partner with manufacturers using secure forms of track and trace technologies and invest in authentication technologies.
  4. Leverage sales-in, sales-out. Implementing a SISO strategy can impact business by reducing inventory levels and improving demand forecasting, but it’s important to respect requests to conceal end user information.
  5. Link financial and physical inventory movements. Contractors will always ensure safe quality and delivery if financial gain was at stake, so implement a new business model wherein financial transactions are recorded in parallel with inventory movement.

Regulators & Inspectors

  1. Update security protocols. Make sure you have procedures and processes in place to address poor quality as well as suspected counterfeits, such as the use of Raman Spectroscopy to classify pharmaceutical ingredients, and enforce stricter consequences for violators.[1]
  2. Observe all sides of the supply chain. Work with manufacturers to obtain limited access of proprietary data to study distribution patterns of high-risk brands and covert authentication techniques on package and labeling.
  3. Hold contractors accountable for operations integrity. Perform audits and hold contractors accountable for the integrity of their end-to-end operations, such that off-quality production and shadow operations are similarly treated as compliance violations.

The net effect of the above recommendations will add transparency and control to a supply chain design that did not have security and supply integrity built into its original conception. Most importantly, however, is for every single government organization, manufacturer, distributor, retailer, law enforcement authority and technology provider to understand how important it is toleverage knowledge sharing and promote global collaboration to share incident details, emerging trends or technologies; hold contractors and other third parties accountable for their operations; enforce penalties for counterfeiters; and work with legislators to better regulate the international supply chains for prescription medicines, including the Internet.


Distinguishing Between Contractor Quality and Supply Integrity