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Fraud & Counterfeiting: Some Advice

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Preventative advice from Kroll against fraud and counterfeiting in the pharmaceutical industry in Latin America.

BY VANDER GIORDANO


Latin America remains a promising region for the international pharmaceutical industry, with major companies like Pfizer and Johnson & Johnson well represented in the region for over 50 years.  Pharmaceutical companies have weathered the region’s economic crises but frequently point to the issue of intellectual property protection as a hindrance to further investment.  Pharmaceutical fraud – mainly counterfeiting – has had a deep economic impact on the industry.  According to the Federal Drug Association, 40 percent of all drugs sold in Argentina, Colombia and Mexico were counterfeit.

Intellectual property fraud in the pharmaceutical industry results not only in lost market share, but strongly impacts the brand strengths of companies exposed to fraud. It also has a negative impact on public health.  In Brazil, cases exist where anti-epileptic medication was sold containing only 25 percent of the labeled amount, prostate cancer drugs were distributed without active ingredients and birth control pills made with wheat resulted in over 200 reported pregnancies.

MORE ATTRACTIVE

The production and sale of counterfeit drugs is much more attractive than that of many other products for a variety of reasons: costs can be considerably reduced if cheaper substances (often not even pharmacologically active) are used; large facilities or sophisticated plants are not required as drug manufacturing can take place in a back yard; cheap labor can be employed; and producers do not have to engage in R&D.  What makes counterfeit drugs most attractive and keeps gross margins up is the ample and elastic market for these products.

Pharmaceuticals are particularly susceptible to counterfeiting because they are a high profit and low bulk product that can be easily shipped.  There are strong indications that many of the drugs sold online are not genuine.  Only a tiny faction of online drug distributors has the proper certifications. More worrying still, average prices for medications are about a fifth of those charged by the certified sites.

According to Interfarma, the Brazilian association for research-based pharmaceutical companies, Brazil is the tenth largest market in the world for pharmaceutical products, with revenues of over US$ 5 billion in 2001.  Despite the high percentage of counterfeiting, Brazil is a referral country in the region for preventing and combating this type of fraud.  In a recent case, Kroll identified an employee that was stealing components for pharmaceutical drugs to be mixed with illegal drugs and sold.

PREVENTATIVE ADVICE

The following "Preventative Advice" is the result of Kroll’s efforts to help clients in the pharmaceutical industry minimize the risk of losses due to theft and intellectual property fraud in Latin America.

1. Employ and monitor strict GMP (good manufacturing practice) criteria:  Security standards along each step of the manufacturing chain, including research and development, product handling, distribution, storage and transportation must be strictly enforced. Periodic reviews, sample testing, familiarity with business partners, strict inventory controls and formal logistics processes all help reduce potential losses.

2. Control invoices: There are cases where manufacturer invoices are forged, adding credibility to the counterfeit drugs and complicating the job for law enforcement agents even harder. Controlling the invoice printing process, using specific forms that include security items or electronic invoicing help inhibit such practices.

3. Product and scrap disposal: Drugs are perishable and, as such, controlling the recovery and handling of expired products should be an intense, constantly audited effort. The same is true for products returned for different reasons, even quality reasons. Production leftovers and obsolete equipment should be destroyed under the supervision of the management and control group.

4. Offer hotline systems as part of consumer services:  Putting these two systems together creates a lot of information that investigators can use. Mapping the areas most affected by counterfeiters will only be effective if the information collected is amply disseminated using these channels.

5. Study the enemy:  The Internet is an increasingly important mechanism to reach consumers in Latin America.  Monitoring the actions of sales persons using a reverse chain can help establish the distribution logistics. Search filters, search engines, specific search clippings, statistical survey modeling and data mining are effective Internet monitoring tools.

6. Periodically review the processes involved in product creation and development:  Project drafts, notes on pieces of paper, formula matrices, photoliths that are printed without the proper control can all be of great value to counterfeiters.

7. Train and retrain:  Programs developed by security auditors and managers should be broadly disseminated within the organization, and periodically reviewed to encourage a culture of security.

This article is republished with permission from Tendencias, the magazine of Kroll InfoAmericas.

 

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