Pharma Finds Rising RFID Incentives

By Claire Swedberg

A research report shows that governmental pressure and economic losses are driving the pharmaceutical supply chain toward RFID.

State mandates, FDA recommendations and growing losses due to counterfeiting and expired drugs are driving the pharmaceutical supply chain toward radio frequency identification, according to a new study. Published by Oyster Bay, N.Y., based ABI Research, the study examines the negative and positive forces driving pharmaceutical companies to implement RFID systems.

Pharmaceutical companies and their distributors and wholesalers have multiple incentives for using RFID tags. The Federal Drug Administration (FDA) recommends that prescription drugs be tracked with a pedigree—a record of where the drugs are and in what condition throughout the supply chain. That record could be on paper, or electronic, according to Sara Shah, the ABI analyst wrote the study, The RFID Life Sciences Market. However, the FDA advocates RFID technology as the fastest, most accurate way to monitor prescription drugs as they are shipped (see FDA Endorses RFID Technology).

In addition to the federal government's approval of RFID, a growing number of states are enacting mandates to require their pharmaceutical wholesalers and distributors to maintain pedigrees for each drug shipped. Each company must maintain its own pedigree in which it tracks, that describes when it was shipped and who was responsible for the shipments, each instance where the drug changed hands, including signatures of those shipping and receiving the products—either digital or on paper. Florida was the first state to mandate tracking of drugs for all of its approximately 1,000 pharmaceutical wholesalers and distributors. All such pharmaceutical wholesalers and distributors that have headquarters in Florida must have a pedigree system in place by July 2006. California has a similar mandate with a January 2007 deadline; Nevada, New Mexico and Colorado are looking at similar regulations.

Both state mandates and FDA recommendations are efforts to eliminate drug counterfeiting in which counterfeiters buy containers of drugs from the manufacturer, remove the medication from the containers and replace it with a counterfeit version that they then pass on through the supply chain eventually to drug retailers. According to Shah, drug counterfeiting may cost the worldwide pharmaceutical industry more than $30 billion each year.

These counterfeit transactions are possible, in part, because, "the pharmaceutical supply chain is very disjointed," Shah says. Drugs do not always pass directly from manufacturer to distributor to a drugstore. Instead, they may be sold from one distributor to another when a distributor or wholesaler finds itself overstocked.

"It could go through as many as 10 distributors or wholesalers," Shah says, before it reaches the retailer. Without the pedigree, tracing a drug's movement backward through this route—as law enforcement officials might have to do if they discover counterfeit medication—can be impossible, she says.

The current distribution process can also lead to excessive delays in storage for some medicines, which cause them to pass their expiration date before reaching their destination. The industry loses $2 billion a year because of overstock and expiry, according to Shah.

RFID tagging would save money for pharmaceutical companies, Shah says, because it would reduce the expense related to counterfeiting and would increase supply chain visibility. That improved visibility would allow pharmaceutical companies to determine where drugs are in storage and which ones are due to expire and to track where in the supply chain product inventories need to be replenished and where product inventories are in excess.

Two pharmaceutical companies have already implemented RFID tracking systems for their more expensive high-demand medications. Pfizer began tagging cases of Viagra shipments in November and plans to have all bottles of Viagra tagged by the end of 2006. Viagra is one of the most commonly counterfeited medicines in the United States. Also in November, Purdue Pharma began putting RFID tags on 100-pill bottles of OxyContin, a prescription painkiller (see Purdue Pharma Tags OxyContin). At the same time, GlaxoSmithKline said it would also start using RFID tags in the next 12 to 18 months on cases of at least one pharmaceutical product and possibly on individual bottles.