UK Life Sciences and Healthcare Newsletter: Counterfeit Medicines: A Growing Threat to Consumers and Pharmaceutical Companies

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The European Union Intellectual Property Office (“EUIPO”) and Organisation for Economic Co-Operation and Development (“OECD”) recently published a Report1 on counterfeit pharmaceuticals based on global customs seizure data from 2014 to 2016. Counterfeit pharmaceuticals are traded medicinal products that infringe trade marks and include fake antibiotics, lifestyle treatments and pain killers. The Report outlines the significant implications of this ever-growing illegal industry on governments, companies and citizens and provides policy makers with evidence of the threat that this illicit activity poses to the value of pharmaceutical companies’ intellectual property rights (“IPR”) and to the health of its citizens. The hope is that officials across the globe will use the empirical evidence within the Report to formulate a new and improved strategy to combat this hazardous trade.

Overview

Alarmingly, trade in counterfeit and pirated goods amounted to 3.3 percent of global custom in 2016 (up from 2.5 percent in 2013) and such imports into the EU alone accounted for 6.8 percent of trade (up from 5 percent in 2013). The evidence shows that counterfeit pharmaceuticals are predominantly manufactured in China and India and transported through the UAE, Singapore and Hong Kong, reaching their target markets of the USA, Europe and Africa. Internationally, the trade of counterfeit pharmaceuticals totalled US$4.4 billion in 2016 (excluding domestic counterfeit medication that does not cross borders).

Impacts

Counterfeit pharmaceuticals pose a particular risk, both in economic and social terms. Poorly formulated drugs are an axiomatic danger to public health as the counterfeit drugs often fail to contain the necessary active ingredients to treat the targeted condition and also often contain other undeclared and potentially dangerous substances increasing the likelihood of dangerous side effects on individuals already otherwise unwell. The Report estimates that 72,000 to 169,000 children may die from pneumonia every year after receiving counterfeit drugs. Similarly, fake anti-malaria medication may have been responsible for an additional 116,000 annual deaths.

There are also costs to the employment sector, with the Report stating that more than 80,000 jobs are thought to have been lost in the EU pharmaceuticals sector as a result of the trade in counterfeit pharmaceuticals. Pharmaceutical companies in the USA and throughout Europe (France, Germany and Switzerland in particular), have also seen their IPR infringed with ostensible impunity leading to lost sales, loss of reputation and increased expenditure on brand protection and enforcement. Although such commercial concerns may initially seem superficial in comparison to the public health impact, when considering the raison d’être of trade marks to serve as a guarantee of the origin of the products, there is a clear and material nexus between the infringement of those IPR and the detriment of public health.

Intellectual Property and the Pharmaceutical Sector

The Report states that the global pharmaceutical sector saw estimated sales of US$1.2 trillion in 2018, with a growth of 6.3 percent during the period of 2014 to 2018. The Report attributed this growth, and an expected increase of 3 percent to 6 percent by 2023, to demand driven by the USA and emerging markets in countries such as China. As such, the potential value of transformative pharmaceutical products and the substantial investment that is required in terms of research, development and clinical trials means that the IPR of pharmaceutical products are fiercely protected. In this light, the Report notes that the number of registered trade mark applications covering pharmaceutical products continues to rise, with 390,888 registered in 2016 compared to 282,311 registrations in 2013. In 2016, this accounted for 4.3 percent of the world registered trade mark applications making pharmaceuticals the 4th most intense industry in terms of trade mark applications (the highest number of applications in 2016 were in China followed by India, the USA and the EU). The number of patent applications for products related to the pharmaceutical industry also continues to grow year on year, with the industry now ranking 7th out of the 35 fields of technology found by the World Intellectual Property Office.

Given the value of trade mark and patent rights to the pharmaceutical industry these statistics are not surprising. Equally unsurprising is the fact that intellectual property infringement in the pharmaceutical sector directly correlates with the locations of the world’s largest pharmaceutical firms, with companies in the USA, Switzerland, the United Kingdom, France, Austria and Germany heavily impacted by the trade in counterfeit pharmaceuticals. As alluded to above, not only does this have a direct impact on consumers by eroding trust in trade marks as badges of origin, the detrimental financial consequences of the counterfeit trade on a company’s balance sheet have a material impact on budgets for R&D, which in turn indirectly impacts us all through the slowing of innovation.

The Significance of the Challenge

A myriad of counterfeit pharmaceutical products are discovered at borders, including many which are purported to treat serious life threatening conditions such as, HIV/AIDS, cancer, epilepsy, heart disease and blood pressure issues. Consequently, the hope remains that the severity of the issue will lead to improved solutions.

However, the problem appears set to worsen for customs authorities given the significant challenges in detecting counterfeit pharmaceuticals at international borders. Primarily, this is because counterfeit medicines mimic the packaging of the authentic products and the counterfeiters are becoming ever more adept at copying the packaging perfectly to cloak their illegitimacy. Depending on the nature of the product, identifying counterfeit medicines can require an expert examination of the product itself to verify its authenticity, or further scientific testing which is both time-consuming and costly2. In addition, the modernisation of transport, such as small postal shipments, the rise of e-commerce and the growth of free trade zones have compounded the global pharmaceutical supply chain’s vulnerabilities in favour of unscrupulous traders. Time constraints mean that smaller packages in particular are more difficult to detect at international borders and have the added cost-benefit to the counterfeiter namely that, if detected, only a small volume of counterfeit drug is impounded.

The lifecycle of counterfeit medicinal products also makes them difficult to track. The packaging is often made in a different location to the product, with assembly taking place in a further jurisdiction. In 2016, India was the main provenance economy of counterfeit pharmaceuticals, (accounting for 53 percent) followed by China (accounting for 30 percent between 2014 and 2016), the UAE (4 percent) and Hong Kong (4 percent). During the same period, the main transitional hubs for counterfeit medicines were the UAE, Hong Kong, Egypt, Cameroon, Turkey, Singapore and Iran (with Switzerland and the USA serving as specific transitional jurisdictions for counterfeit medication destined for Europe).

Counterfeiters also readily exploit the nature of the medicinal supply chain. Doctors that prescribe medication do not administer it directly to patients and the intermediary pharmacists obtain the drugs from wholesalers creating a complex network. Clearly, when multiple suppliers are used, it becomes easier to mask the origin of goods and facilitates a less onerous route into the supply chain. This problem is exacerbated in developing countries where secure, regulated distribution is less common.

The scale of the problem has also risen in all territories especially with the proliferation of rogue on-line pharmacies which provide counterfeit products at a discounted price. Consumers have shown a propensity to purchase such products online despite the potential risks of doing so and, critically, this problem has also spread significantly to social media (according to Pfizer, between 2015 and 2018, more than 10,000 Facebook and 1,000 Instagram accounts were identified and reported for selling counterfeit Pfizer products).

Preventative Measures

The trade in counterfeit pharmaceuticals is attractive as it combines high profitability with a low risk of prosecution and weak penalties. As explained above, it is also an incredible challenge to combat. Nevertheless, governments and industry have been working in unison to try to fight the problem through actions including legislation, enforcement and awareness raising campaigns. International initiatives have also been launched including programmes run by Interpol and the World Health Organisation. For example, in 2008 INTERPOL initiated ‘Operation Pangea’ targeting the online sale of counterfeit and illicit medicines and medical devices. Each year participating agencies (the number of countries participating in the operation increased from 8 to 123 between 2008 and 2017) undertake co-ordinated activities in the same week against illegal websites to identify the criminal networks behind the trafficking. In the 2018 operation, authorities from 116 countries made 859 arrests worldwide and seized US$14 million worth of potentially dangerous pharmaceuticals and 500 tonnes of illicit pharmaceuticals.

From a legislative perspective, the Falsified Medicines Directive (the “Directive”) implemented a number of new steps to tackle the growing counterfeit pharmaceuticals market in the EU, including the requirement of printing a unique identifier encoded in a two-dimensional barcode on each unit of product, together with an anti-tampering device on the outer packaging and obligating those who are authorised to dispense medicines to the public to authenticate the products (requiring them to visually check the anti-tamper device and perform a verification scan of the barcode at the point of supplying the product to the public). To seek to address the panoply of problems posed by online sales, the Directive requires online retailers to display an encrypted logo which enables visitors to check the validity of the website under the Directive (an equivalent encrypted logo operating on similar lines has also been introduced in the UK by the Royal Pharmaceutical Society of Great Britain).

Pharmaceutical companies have also sought to address some of the problems themselves. For example, to seek to combat the social media problems referred to above, Pfizer introduced steps such as blocking and filtering terms associated with their business and developing new technology to identify when a person is trying to sell drugs online.

Conclusion and moving forward

Despite the various measures adopted to date, the continuing threat posed by counterfeit pharmaceuticals to public and social health is staggering. Criminals are continually exploiting weaknesses found both at international borders and in the pharmaceutical supply chain. The accessibility of online pharmacies and the willingness of consumers to purchase pharmaceutical goods from those online outlets without knowing their provenance (or having to attend a pharmacy or obtain a Doctor’s prescription) means that the market for counterfeit pharmaceuticals continues to proliferate. A growing consumer base and unregulated market place online mean that illegal medicinal products will continue to penetrate even the most well-regulated jurisdictions.

Advances in technology are ostensibly the obvious way to combat the problem, but a lack of financial resources at government level (or a willingness to deploy those resources to confront this issue) may continue to limit their success (and on the flip side, the counterfeiters can also use advances in technology to their own benefit). To this author, educational campaigns at a national and international level targeting users of online pharmacies and highlighting the inherent risks of doing seem worthy of further significant investment (especially in view of their relative simplicity and cost effectiveness, compared to international operations targeting criminal networks) and such schemes can involve joint efforts between governments and pharmaceutical companies. At a time where various vaccinations are being launched globally to fight COVID-19, never before has the need for such a campaign been more pressing. Indeed, given the decimation of the health and economy of almost every nation on the planet from the impact of COVID-19, the risk of counterfeit COVID-19 vaccines entering the market is a very clear and present danger. This might provide the global community with a renewed impetus to reinforce their efforts to combat the scourge of counterfeit pharmaceuticals.

 

Footnotes

1) OECD/EUIPO (2020), Trade in Counterfeit Pharmaceutical Products, Illicit Trade, OECD Publishing, Paris

2) For example, on average a single forensic chemistry assay costs between US$5,000 and US$15,000.

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